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Private sector credit passes N$100 billion mark

CREDIT uptake by the private sector in Namibia hit N$118 billion in 2022, averaging 3,6% compared to predictions of 3,4%, financial analysts have said.

According to Simonis Storm Securities, this follows the latest data point of 4,2% year-on-year (y/y) credit growth in December 2022, compared to 3,7% y/y in November 2022.

“Credit growth in 2022 exceeded the annual average credit growth in the last two years and was mainly supported by credit uptake by corporates, which averaged 4,6% in 2022, compared to 2,9% for households,” said the analysts.

This in turn has led to an increase in debt stock, where household debt is recorded at N$64,7 billion in December 2022, corporate debt (N$45,8 billion) and non-resident debt (N$7,6 billion).

Corporate credit growth in December 2022 was mainly supported by higher demand for short-term credit facilities by firms in the energy and services sectors, according to the Bank of Namibia.

Debt by non-residents – both foreign individuals and foreign firms – increased from about N$377 million in December 2021 to N$7,6 billion in December 2022, rising 1,927% y/y.

“This coincides with a significant rise in foreign direct investment that has been recorded for the first half of 2022.

“Increased mining exploration activity, investments in expanding the life of mines and establishing new projects, investments in gas projects, investments in pilot green hydrogen projects and renewable energy projects are among the drivers of this significant increase in credit uptake by non-residents,” said Simonis.

During December 2022, other loans and advances were the biggest contributor to credit uptake by both corporates, going up 9,6% y/y, and households rising 15,7% y/y.

Overdrafts had a net repayment rate by households, decreasing by 0,4% y/y in December 2022, whereas overdrafts rose by a meagre 1,1% y/y for corporates.

Instalment and leasing credit increased by 13,8% y/y for corporates and 2,7% y/y for households. Mortgages decreased by 3,8% y/y for corporates and rose 2,8% y/y for households.

For 2022 as a whole, the main drivers of credit uptake by households were other loans and advances, and instalment and leasing credit, whereas instalment and leasing credit and mortgages were the main drivers of corporate credit uptake.

Simonis have predicted one last 25 basis points repo rate hike by the Bank of Namibia, taking it from 6,75% to 7,00%, and then for interest rates to remain unchanged at elevated levels until the second half of 2024, when there should be the first rate cut.

The year 2022 has shown us that demand for credit remained resilient in an environment of higher inflation and interest rates. With improved economic growth rates and job creation that have taken place, we are expecting credit growth to continue on an upward trend throughout 2023.

“Risk aversion among local commercial banks remains a risk to our outlook. In a country that does not have a savings culture, Namibia needs much investment spend financed by credit in order to stimulate economic activity and development,” said the analysts.

“If sentiment among banks improve and if they are convinced that higher economic growth rates can be sustained in the medium-term, we could see more loan applications being accepted and so support higher credit and economic growth,” said Simonis.

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