01 Oktober 2021 | Wirtschaft

Low interest rates do little to stimulate growth

Private sector credit extension growth edged lower to 2.0% at the end of August 2021 from a growth of 3.0% at the end of July 2021.

Local commercial banks focus more on driving Non-Interest Revenue (NIR) to diversify their income streams. Theo Klein, Economist: Simonis Storm

PHILLEPUS UUSIKU

Despite interest rates being at its historic low of 3.75%, growth in private sector credit extension (PSCE) remained subdued aided by low domestic economic activities as borrower’s appetite for credit remains low.

According to the Bank of Namibia (BoN), credit extended to the private sector weakened to 2.0% year-on-year in August 2021 from 3.0% year-on-year in July 2021. Credit growth continues to be driven mainly by households, with all subcategories recording positive growth, where mortgage loans was the only sub-category recording an increase in credit growth for corporates.

Repayments and lower demand in overdrafts and other loans and advances by businesses in the commercial services and construction sectors weighed most on corporate credit growth, BoN pointed out.

Household annual credit growth increased by 4.4% year-on-year in August 2021 compared to 4.0% year-on-year in July 2021. The biggest contributors were overdrafts, increasing by 9.1% year-on-year in August 2021, compared to 8.7% year-on-year in the prior month and mortgage loans, increasing by 4.6% year-on-year in August 2021 compared to 4.4% year-on-year in the prior month. Instalment and leasing credit lifted to 1.2% year-on-year in August 2021 compared to 0.6% in the prior month, BoN added.

Corporate credit growth slowed to 1.2% year-on-year in August 2021 compared to 2.0% year-on-year in July 2021. Moderated corporate borrowing was mainly attributed to overdrafts, which decreased by 3.1% year-on-year in August 2021 compared to 8.7% year-on-year in July 2021.

This drop was mainly caused by repayments by businesses in the commercial service sector. The second biggest negative contributor was instalment and leasing credit, decreasing by 2.6% year-on-year in August 2021 compared to 5.2% year-on-year in the prior month, the central bank said.

Commercial banks

All the local commercial banks have released their financial results following the latest earnings season on the Namibian Stock Exchange (NSX).

According to Simonis Storm Economist Theo Klein, one common theme across most of the banks is a rising trend in non-performing loans to date. "Local commercial banks focus more on driving Non-Interest Revenue (NIR) to diversify their income streams." Non-interest income is income derived primarily from fees including deposit and transaction fees and monthly account service charges.

From the latest set of results, the Capricorn Group (Bank Windhoek) recorded 3.6% growth in NIR, whereas Firstrand (FNB) recorded 2.6% growth, however Standard Bank recorded a contraction of 29.8% in NIR. Standard Bank reported half year results, whereas the other banks reported full year results.

Due to the repo rate cuts and lower demand for credit, Net Interest Income’s (NII’s) share of operating revenue has decreased, artificially pushing up NIR’s share of operating revenue as a result. NIR constitutes 53.5% of operating revenue for Firstrand, 54.5% for Standard Bank and 44.9% for the Capricorn Group, he pointed out.

“Since the beginning of the year till end of August, household debt has been declining by about N$8.9 million per day, whereas corporate debt has been increasing by about N$6.4 million per day during the same period. Going forward, we do expect demand for credit to remain subdued,” Klein said.

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