Weak credit uptake expected to persist in 2022
Growth in credit uptake remained subdued in line with the prevailing slow economic activity as borrower’s appetite for credit remains low.
PHILLEPUS UUSIKU
Weak credit uptake by the private sector is expected to persist in 2022, while inflation and interest rates are expected to rise.
The expectations will result in an increase in the prices of goods and services as well as in cost of borrowing.
According to Simonis Storms economist, Theo Klein, he expects the central bank to hike the repo rate by 125 basis points (bps) in 2022, increasing the repo rate from 3.75% to 5.00% and subsequently taking the prime lending rate from 7.50% to 8.75% by the end of 2022.
Meanwhile, Ruusa Nandago, FirstRand Namibia economist, expects the Bank of Namibia (BoN) to hike interest rates over the course of 2022 as regional central banks started signalling a normalisation of monetary policy. “We expect interest rates to end the year at 4.50%, 75 basis points (bp) higher than current levels,” she said.
According to the BoN money and banking statistics, private sector credit extension (PSCE) growth slowed to 1.2% at the end of December 2021 from a growth of 1.7% at the end of November 2021.
The figure recorded in December was the lowest for 2021, while a growth rate of 3.1% in April 2021 was the highest recorded.
“We expect demand for credit to remain subdued not only due to solvency concerns amongst the private sector as a result of a low growth environment, but also due to commercial banks growing more cautious and risk averse in lending out to the public,” Klein pointed out.
“For example, we are aware that many clients at various dealerships see their car loans rejected by the banks. Another factor would be that banks will start to earn higher interest rates on shorter-term deposits and money market securities, increasing the risk trade-off between lending money to clients versus safely earning higher yields.”
“Growth in credit extension averaged 2.4% in 2021, compared to our forecast of 2.5%. We forecast average credit growth of 1.7% in 2022,” he added.
Economy
The decline in credit uptake is explained by low demand by businesses as reflected in most credit categories. Growth in PSCE remained subdued in line with the prevailing slow economic activity as borrower’s appetite for credit remains low, the central bank said.
Credit extended to businesses contracted by 0.1% in December 2021, compared to a growth of 0.6% a month ago.
In addition, credit extended to households edged lower at 2.1% at the end of December 2021, compared to the 2.5% a month earlier, BoN pointed out.
“During 2021, household debt increased from N$60.1 billion in January 2021 to N$61.8 billion in December 2021, an increase of 2.8%. This is a daily increase of about N$4.6 million during 2021,” Kelin said.
The household debt stock increased by 2.1%, compared to the N$60.5 billion recorded in December 2020. In the corporate sector, corporate debt decreased from N$44.9 billion in January 2021 to N$44.3 billion in December 2021, a decline of 1.3%.
This translates to a daily repayment on corporate debt of about N$1.7 million. The household and corporate debt stock account for about 25.3% and 35.3% of nominal gross domestic product (GDP) at the end of 2021, compared to 25.3% and 34.6% of GDP in 2020, Klein added.
Prices
Namibia’s annual inflation rate rose to 4.5% in December 2021, higher than the 4.1% in November 2021. The rise in inflation was mainly evident in the price level transport inflation while food and housing declined over the same period.
According to Simonis Storm (SS) quarterly report, “we maintain our annual average inflation rate of 4.7% for 2022 and expect local inflation to be driven higher by oil, food, alcohol, hotels, education restaurants and furniture. Deflationary pressure is likely to emanate from utilities, health and clothing.
Global food prices eased slightly towards the end of 2021, with December 2021 recording the lowest annual increase since March 2021.
However, this is expected to reverse going into 2022. With food shortages and empty grocery store shelves worldwide, it is a matter of time that Namibia faces significant shortages as well.
“We also expect climate change impacts on food production to remain a big theme in 2022,” SS said. [email protected]
Weak credit uptake by the private sector is expected to persist in 2022, while inflation and interest rates are expected to rise.
The expectations will result in an increase in the prices of goods and services as well as in cost of borrowing.
According to Simonis Storms economist, Theo Klein, he expects the central bank to hike the repo rate by 125 basis points (bps) in 2022, increasing the repo rate from 3.75% to 5.00% and subsequently taking the prime lending rate from 7.50% to 8.75% by the end of 2022.
Meanwhile, Ruusa Nandago, FirstRand Namibia economist, expects the Bank of Namibia (BoN) to hike interest rates over the course of 2022 as regional central banks started signalling a normalisation of monetary policy. “We expect interest rates to end the year at 4.50%, 75 basis points (bp) higher than current levels,” she said.
According to the BoN money and banking statistics, private sector credit extension (PSCE) growth slowed to 1.2% at the end of December 2021 from a growth of 1.7% at the end of November 2021.
The figure recorded in December was the lowest for 2021, while a growth rate of 3.1% in April 2021 was the highest recorded.
“We expect demand for credit to remain subdued not only due to solvency concerns amongst the private sector as a result of a low growth environment, but also due to commercial banks growing more cautious and risk averse in lending out to the public,” Klein pointed out.
“For example, we are aware that many clients at various dealerships see their car loans rejected by the banks. Another factor would be that banks will start to earn higher interest rates on shorter-term deposits and money market securities, increasing the risk trade-off between lending money to clients versus safely earning higher yields.”
“Growth in credit extension averaged 2.4% in 2021, compared to our forecast of 2.5%. We forecast average credit growth of 1.7% in 2022,” he added.
Economy
The decline in credit uptake is explained by low demand by businesses as reflected in most credit categories. Growth in PSCE remained subdued in line with the prevailing slow economic activity as borrower’s appetite for credit remains low, the central bank said.
Credit extended to businesses contracted by 0.1% in December 2021, compared to a growth of 0.6% a month ago.
In addition, credit extended to households edged lower at 2.1% at the end of December 2021, compared to the 2.5% a month earlier, BoN pointed out.
“During 2021, household debt increased from N$60.1 billion in January 2021 to N$61.8 billion in December 2021, an increase of 2.8%. This is a daily increase of about N$4.6 million during 2021,” Kelin said.
The household debt stock increased by 2.1%, compared to the N$60.5 billion recorded in December 2020. In the corporate sector, corporate debt decreased from N$44.9 billion in January 2021 to N$44.3 billion in December 2021, a decline of 1.3%.
This translates to a daily repayment on corporate debt of about N$1.7 million. The household and corporate debt stock account for about 25.3% and 35.3% of nominal gross domestic product (GDP) at the end of 2021, compared to 25.3% and 34.6% of GDP in 2020, Klein added.
Prices
Namibia’s annual inflation rate rose to 4.5% in December 2021, higher than the 4.1% in November 2021. The rise in inflation was mainly evident in the price level transport inflation while food and housing declined over the same period.
According to Simonis Storm (SS) quarterly report, “we maintain our annual average inflation rate of 4.7% for 2022 and expect local inflation to be driven higher by oil, food, alcohol, hotels, education restaurants and furniture. Deflationary pressure is likely to emanate from utilities, health and clothing.
Global food prices eased slightly towards the end of 2021, with December 2021 recording the lowest annual increase since March 2021.
However, this is expected to reverse going into 2022. With food shortages and empty grocery store shelves worldwide, it is a matter of time that Namibia faces significant shortages as well.
“We also expect climate change impacts on food production to remain a big theme in 2022,” SS said. [email protected]
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