WINDHOEK - The stronger growth in credit extended to the private sector compared to credit extended to individuals is in general a welcome sign since households or individuals are already highly indebted. This was one of the sentiments expressed by local economist, Klaus Schade, a research associate at the Economic Association of Namibia, in response to Private Sector Credit Extension (PSCE) figures for September 2018 that were recently released by the Bank of Namibia.
These latest numbers indicate that total credit extended to the private sector rose by 7.3 percent compared to September 2017, which is the fastest pace on an annual basis since May 2017, to N$95.3 billion in September 2018. Compared to August 2018, PSCE increased by 0.6 percent, which was below the increase in August (1.5 percent), but the fourth strongest this year. “Furthermore, they (households and individuals) often use loans for non-productive purposes. However, other loans and overdrafts advanced to businesses have increased more rapidly, by 20 percent and 3.7 percent respectively, since the beginning of the year compared to mortgage loans,” Schade noted.
He further noted that at the same time, leasing transactions dropped by 6.9 percent since the beginning of 2018, saying these figures are indicative of the economic headwinds businesses are facing in general and the cash flow challenges in particular that result in increasing overdrafts.
BoN’s PSCE figures also show that credit extended to the business sector increased on an annual basis (compared to September 2017) to 6.0 percent from 5.2 percent in August, while credit extended to individuals slowed down slightly from 7.0 percent in August to 6.9 percent. On a month-on-month basis (September compared to August) credit extension slowed down from 0.8 percent to 0.5 percent (for individuals) and from 2.4 percent to 0.8 percent for businesses.
Compared to the beginning of 2018, credit extended to businesses expanded faster (5.2 percent) than credit extended to individuals (4.0 percent). At the same time in 2017, credit extended to the private sector had increased by only 2.2 percent compared to the beginning of 2017, while credit extended to individuals had grown slightly stronger (4.3 percent) than so far this year.
According to Schade, individuals continue to absorb most of total credit extended (58.6 percent), while businesses absorbed 40.2 percent and the remaining 1.2 percent are extended to the non-resident private sector.
Individuals have borrowed a total of N$55.8 billion, up by N$279 million compared to August, while businesses borrowed N$38.3 billion, up by N$308 million. Also, mortgages accounted for 52.1 percent of total PSCE, the same share as in August, totalling N$49.7 billion. Mortgage accounted for 68.3 percent of total funds for individuals (N$38.1 billion), while they accounted for 30.3 percent of total funds borrowed by businesses (N$11.6 billion).
The total amount of mortgages extended to individuals increased stronger (5.0 percent) than mortgages extended to businesses (3.1 percent) since the beginning of 2018. Compared to September 2017, mortgages extended to individuals rose by 7.9 percent and mortgages extended to businesses by 4.9 percent. Both increases are some of the lowest year-on-year increases during 2018.
“While mortgages extended to individuals rose slightly stronger since the beginning of 2018 (5.0 percent) than between the beginning of 2017 and September 2017 (4.9 percent), mortgages extended to businesses could not keep pace so far this year compared to the first nine months in 2017 – 3.1 percent compared to 4.3 percent,” Schade stated.