- The credit growth in Namibia has surpassed the average annual credit growth over the past few years, largely driven by corporate entities.
- The private sector credit uptake has reached a remarkable N$118 billion in 2022, which reflects a 3.6 per cent average growth compared to the 3.4 per cent predictions.
- The 4.2 per cent year-on-year credit growth in December 2022, as opposed to the 3.7 per cent growth recorded in November 2022, has been instrumental in this upward trend.
The financial landscape in Namibia has undergone a significant shift as the private sector’s credit uptake surpasses the N$100 billion mark. Analysts at Simonis Storm Securities have reported that credit growth in 2022 exceeded expectations, reaching N$118 billion with an average growth rate of 3.6 per cent, compared to the predicted 3.4 per cent.
December 2022 saw a year-on-year credit growth rate of 4.2 per cent, a significant increase from November’s 3.7 per cent. This growth can be attributed to a surge in credit uptake by corporations, which averaged 4.6 per cent compared to households’ 2.9 per cent. The increased demand for credit by corporates in the energy and services sector was a significant driving factor behind the growth.
However, this surge in credit uptake has resulted in an increase in debt stock, including household debt at N$64.7 billion, corporate debt at N$45.8 billion, and non-resident debt at N$7.6 billion. The Bank of Namibia reported that non-resident debt, including foreign individuals and firms, saw a 1,927 per cent year-on-year increase from December 2021 to December 2022. This increase can be attributed to a rise in foreign direct investment, including investments in the energy and mining sector.
What is private sector credit?
At its core, private sector credit is a mechanism through which individuals and corporations can secure the necessary funds to pursue their financial objectives. From expanding operations and investing in new ventures, to purchasing assets and stimulating economic growth, the benefits of private sector credit are numerous and far-reaching. Yet, this boon is not without its costs, as the very act of borrowing funds can have a significant impact on the balance sheets of both borrower and lender.
The advantages of private sector credit are clear. By providing much-needed capital to businesses and individuals, credit can be leveraged to drive economic growth, increase job opportunities, and improve standards of living. This, in turn, can lead to increased consumer confidence and greater investment in the economy.
However, the disadvantages of private sector credit are equally apparent. The act of borrowing funds can lead to increased debt levels, which can be difficult to repay in the event of an economic downturn. This can result in reduced consumer confidence and decreased investment, thereby exacerbating the economic cycle of boom and bust.
Household credits in Namibia
Despite the rise in interest rates and inflation, the demand for credit remained resilient throughout 2022. For the households, the main contributors to credit uptake were other loans and advances, and instalment and leasing credit, while the corporations were driven by instalment and leasing credit and mortgages. On the other hand, overdrafts for households decreased by 0.4 per cent year-on-year, and for corporations, it increased by a meagre 1.1 per cent year-on-year in December 2022.
Household credit refers to the loan or credit extended by financial institutions, such as banks and credit unions, to individuals for personal use. This type of credit can be used for a variety of purposes, including home improvements, vehicle purchases, debt consolidation, and education expenses, among others.
The benefits of household credit are numerous. Firstly, household credit provides individuals with the necessary funds to finance big-ticket purchases or unexpected expenses that they would otherwise not be able to afford. Secondly, household credit allows individuals to smooth their consumption over time, enabling them to maintain their standard of living, even if their income is not enough to meet all of their needs.
Household credit also provides financial institutions with an opportunity to generate revenue through interest payments and fees. In addition, household credit can help to spur economic growth by increasing consumer spending, which in turn drives demand for goods and services, creating jobs and stimulating the overall economy.
Repo rate predictions
Namibia is currently 50 basis points behind South Africa, with its repo rate at 6.75 per cent and its prime rate at 10.5 per cent. The Namibian central bank will announce its decision on price stability on February 15, 2023.
However, the analysts caution that risk aversion among local commercial banks remains a risk to the outlook. Namibia needs increased investment spend, financed by credit, to stimulate economic activity and development. If sentiment among banks improves and they believe higher economic growth rates can be sustained, it could lead to more loan applications being accepted and higher credit and economic growth.
