Businesses credit uptake back in negative territory

PHILLEPUS UUSIKU

Credit extended to businesses recorded a negative growth of 1.2 percent at the end of December 2020, compared to a positive growth of 1.6 percent a month earlier.

The contraction emanated from negative growth rates in the asset-backed credit facilities of mortgages and instalment and leasing.

The contraction was further strengthened by slower growths in other loans and advances as well as overdraft credit as the domestic economic activity remain subdued, according to the Bank of Namibia (BoN).

The repo rate is at historic low of 3.75% while the prime lending rate stands at 7.50% to encourage borrowing by both households and corporates in order to stimulate the economy.

The repo rate is the cost of borrowing by the commercial banks from the central bank, while consumers borrow at a prime lending rate from commercial banks.

According to Cirrus Capital (CC), they anticipate that businesses will continue to struggle to access finance at the current rates, as the mismatch between administered and market-determined rates discourage commercial lending.

Given the increased risk and slow recovery expected, access to finance may still be constrained particularly for firms in the construction, tourism and aviation industries, CC added.

Growth in credit extended to the household sector increased slightly in December 2020. The 12- month growth in credit extended to households rose to 4.5 percent at the end of December 2020, from 4.2 percent at the end of November 2020.

The marginal increase in household credit was sustained by a relatively higher uptake of mortgage credit during December 2020, amid slowdowns registered in most household categories during the period under review, the central bank pointed out.

The South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced on 21 January 2021 that there would be no change to the repo rate. Namibia thus maintains its 25bps spread over South Africa, with the repo in Namibia being 3.75%, CC said.

“The Bank of Namibia’s MPC is set to meet on the 17 February 2021, where we expect no change to the repo rate. We maintain that a spread should be kept for the foreseeable future as any deviation to the upside motivates financial flows into Namibia, especially at higher spreads, and may help bolster our reserve position,” CC added.

Credit instruments

Annual growth in overdraft credit declined to 11.9 percent at the end of December 2020, from 15.5 percent in November 2020. The slower growth was in part due to lower demand for overdraft credit by the corporate sector, but also net repayments from households during December 2020.

In addition, annual growth in other loans and advances slowed by 3.5 percentage points, month-on-month, to 2.0 percent at the end of December 2020. The decline was due to lower demand as well as net repayments in December 2020 from both businesses and households as economic activities remain subdued, BoN said.

Furthermore, instalment and leasing credit registered a contraction of 7.7 percent at the end of December 2020, relative to a deeper contraction of 8.5 percent recorded in the preceding month.

The negative growth in instalment and leasing credit was consistent with the generally sluggish growth in the wholesale and retail trade sector and the overall domestic economy.

Finally, annual growth in mortgage credit stood at 1.7 percent at the end of December 2020, an inadequate 0.2 percentage point above the rate recorded in the previous month.

The subdued growth in mortgage credit continues to reflect the generally low demand and net repayments from the corporate sector during the period under review, BoN added.

Price monster, Reserves

The stock of international reserves rose by 4.0 percent month-on-month to N$31.8 billion at the end of December 2020. The increase in the official reserve stock was mainly due to net inflows of Rand currency from commercial banks during the period under review.

Namibia’s annual inflation rate stood at 2.4 percent in December 2020, relative to 2.2 percent recorded in the preceding month. The main contributors to the rise in inflation were food and non-alcoholic beverages, alcoholic, beverages and tobacco and education during the period under review, BoN pointed out.

Inflation is the increase in the prices of goods and services which reduces the purchasing power of the domestic currency.

This shows that consumers had to increase their budgets in December to ensure that they maintain their consumption levels or alternatively cut down on their [email protected]