Credit growth averaged 3.2% in 1Q 2023
3.9% recorded in March
Year to date, the Bank of Namibia increased the repo rate by 50 basis points from 6.75% to 7.25%.
Annual private sector credit extension (PSCE) growth averaged 3.2% in the first three months of 2023, compared to 2.5% recorded in the first quarter of 2022, according to data provided by the Bank of Namibia.Growth in credit extended to businesses posted a growth rate of 1.8% in March 2023 relative to a 0.4% in February 2023. The uptick in growth stemmed from corporates in the manufacturing as well as the wholesale and retail sector in March, the central bank pointed out.
In addition, growth in loans extended to households rose for a seventh month consecutively in March 2023 reaching its pre-pandemic levels. Loans advanced to households grew by 5.4% year-on-year at the end of March 2023, relative to growth of 5.0% reported at the end of the previous month. Demand for credit with respect to mortgage, personal loans, credit cards and overdrafts picked up and contributed to this growth during the period under review, BoN added. Overall, growth in PSCE edged up to 3.9% year-on-year in March 2023 compared to 3.1% at the end of February 2023.
Year to date, the Bank of Namibia increased the repo rate by 50 basis points from 6.75% to 7.25%. The prime lending rate currently stands at 11%. According to the Namibia Statistics Agency (NSA), inflation averaged 7.1% in the first quarter 2023 and stood at 7.2% in March.
According to Simonis Storm, “we do not necessarily see higher interest rates as a deterrence to credit demand. However, we do expect the Bank of Namibia to hike its repo rate by 25 basis points at their next Monetary Policy Committee meeting on 14 June 2023.”
Banks
Since December 2020 to date, real private sector credit extension has been negative, indicating that less credit has been extended to the private sector. The nominal value of credit is growing at a slower pace than inflation and so the real value of credit is decreasing, Simonis Storm said.
Real credit growth can be negative due to low consumer demand for credit or if banks are unwilling to lend or experiencing difficulties to provide credit due to other factors. “Based on our engagements, it seems a bit of both are at play. Some banks see demand for credit, but then their internal models have become very restrictive. Other banks do not see bankable projects and are unwilling to take on excessive risk, whilst other banks are keen to give loans but their head office in South Africa is not.”
Negative credit growth has consequences for economic growth as it could lead to a decrease in investment as businesses battle to obtain credit in this environment. “Our economic recovery from the lockdown induced recession has not been broad based, with growth being focused in only a select few sectors. Only 42% of all the sectors in our economy have recovered back to pre-pandemic levels. This could partly explain why some banks do not see bankable or financially viable projects at the moment,” Simonis Storm pointed out.
The Namibian economy expanded by 4.6% in 2022, compared to 3.5% recorded in 2021. The Bank of Namibia expects the local economy to grow by 3% in 2023, while the ministry of finance expects a growth rate of 3.2% this [email protected]