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Private sector credit extension September 2018 – demand by businesses remains strong

Date.

01 Nov 2018

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The Bank of Namibia has released selected statistical data for September 2018 that cover among others the extension of credit to the private sector (PSCE).

Herewith some of the highlights:

  • Total credit extended to the private sector rose by 7.3% compared to September 2017- the fastest pace on an annual basis since May 2017 –to NAD95.3 billion in September 2018. Compared to August 2018, PSCE increased by 0.6%, which was below the increase in August (1.5%), but the fourth strongest this year.
  • Credit extended to the business sector increased on an annual basis (compared to September 2017) to 6.0% from 5.2% in August, while credit extended to individuals slowed down slightly from 7.0% in August to 6.9%. On a month-on-month basis (September compared to August) credit extension slowed down from 0.8% to 0.5% (for individuals) and from 2.4% to 0.8% for businesses.
  • Compared to the beginning of 2018, credit extended to businesses expanded faster (5.2%) than credit extended to individuals (4.0%). At the same time in 2017, credit extended to the private sector had increased by only 2.2% compared to the beginning of 2017, while credit extended to individuals had grown slightly stronger (4.3%) than so far this year.
  • Individuals continue to absorb most of total credit extended (58.6%), while businesses absorbed 40.2%. The remaining 1.2% are extended to the non-resident private sector.
  • Individuals have borrowed a total of NAD55.8 billion, up by NAD279 million compared to August, while businesses borrowed NAD38.3 billion, up by NAD308 million.
  • Mortgages accounted for 52.1% of total PSCE, the same share as in August, totalling NAD49.7 billion. Mortgage accounted for 68.3% of total funds for individuals (NAD38.1 billion), while they accounted for 30.3% of total funds borrowed by businesses (NAD11.6 billion).
  • The total amount of mortgages extended to individuals increased stronger (5.0%) than mortgages extended to businesses (3.1%) since the beginning of 2018. Compared to September 2017, mortgages extended to individuals rose by 7.9% and mortgages extended to businesses by 4.9%. 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%) than between the beginning of 2017 and September 2017 (4.9%), mortgages extended to businesses could not keep pace so far this year compared to the first nine months in 2017 – 3.1% compared to 4.3%.

The stronger growth in credit extended to the private sector compared to credit extended to individuals is in general a welcome sign since households (individuals) are already highly indebted. Furthermore, they often use loans for non-productive purposes. However, other loans and overdrafts advanced to businesses

have increased more rapidly – by 20.0% and 3.7% respectively – since the beginning of the year than mortgage loans. At the same time, leasing transactions dropped by 6.9% since the beginning of 2018. 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.

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