02 September 2021 | Wirtschaft
Weak economy drives low credit uptake
Growth in credit extended to businesses rose to 1.8%, while households edged lower at 3.7% at the end of July 2021.
We calculate household and corporate debt to Gross Domestic Product (GDP) at 46.2% and 32.6% respectively. Simonis Storm
Private Sector Credit extension (PSCE) generally remains subdued due to the persistent low domestic economic activities and as such borrower’s appetite for credit remains low. The repo rate currently stands at its historic low of 3.75% to make borrowing attractive in order to boost economic activities.
According to the Bank of Namibia (BoN) money and banking statistics for July 2021, PSCE growth rose to 2.9% in July 2021 compared from 2.7% in June 2021. The upsurge in PSCE growth is explained by an increase in demand for credit by businesses particularly in the short-term lending space.
Growth in credit extended to businesses rose to 1.8% in July 2021, compared to 0.8% in the preceding month. The rise reflects an increased demand for credit specifically in the form of overdrafts and other loans and advances extended to the mining, fishing and financial services sectors during the period under review, the central bank pointed out.
According to Simonis Storm (SS), lower demand for longer-term credit by corporates is in line with declining investment taking place in our economy.
“Gross Fixed Capital Formation (GFCF) in the private sector declined by 8.6% annually in 2020. We expect private GFCF to continue on a downward trend, given low business confidence and uncertainty regarding future business prospects,” SS said.
The annual growth in credit extended to households edged lower at 3.7% at the end of July 2021. The downturn was reflected by a decline in other loans and advances coupled with a lower growth in mortgage credit and instalment and leasing sales credit, during the period under review, BoN added.
“We calculate household and corporate debt to Gross Domestic Product (GDP) at 46.2% and 32.6% respectively,” SS said.
On an annual basis, growth in overdraft credit increased to 8.7% at the end of July 2021 from 5.6% at the end of June 2021. The rise was driven by increased demand from both households and corporates specifically businesses in the fishing and financial services sectors during the period under review.
The 12-month growth in other loans and advances edged up to 1.9% at the end of July 2021 from growth of 0.5% at the end of June 2021. The increase was mainly due to an increasing demand from businesses in the services and construction sectors during the period under review, BoN pointed out.
Instalment and leasing sales credit registered a negative growth of 1.5% at the end of July 2021, relative to a contraction of 2.1% in the preceding month. The low growth in instalment and leasing sales credit is consistent with low domestic economic activity as borrowers’ appetite for asset backed credit is generally low.
The annual growth in mortgage credit edged lower at 2.8% at the end of July 2021 from 3.9% at the end of June 2021. The slower growth in mortgage credit was reflected by a lower demand from the household sector coupled with repayments from the corporate sector during the period under review, BoN [email protected]