Little chance of interest rate reliefBy: JO-MARÉ DUDDY
NAMIBIANS appetite for credit is “unhealthy” and it is unlikely that the Bank of Namibia (BoN) will follow the recent example of its South African counterpart and bring interest rate relief soon, analysts have said.
Although lower than in May and April, private sector credit extension growth in June came in at 12,2 per cent and remained amongst the highest figures seen in the past four years, Patrick Britz, assistant portfolio manager at Capricorn Asset Management, said.
BoN Governor Ipumbu Shiimi in June already said he regarded Namibians’ credit spending spree as disturbing and that he would look into the “toolkit” of the central bank to intervene if the situation gets out of hand.
Britz said the latest credit growth figures, coupled with the declining savings rate in Namibia, “undoubtedly raise further concern about the unhealthy credit growth and household indebtedness in the country”. He said increasing levels of inflation accompanied by significant reductions of the interest rate over the last three years has resulted in a prolonged negative real interest rate over the last three quarters.
“For the first time in eight months, inflation has dipped to below the repo rate, creating a positive real interest rate,” Britz said.
“This means that after nine months there now exists a financial incentive for Namibians to save. Currently this looks unlikely to change, as we do not expect the central bank to drop the repo rate for the remainder of the year and the short term inflation outlook remains on the downside,” he said.
Britz said both businesses and individuals continue to cash in on credit extension, driving growth.
Credit to companies increased by N$1,64 billion between June 2011 and June 2012, he said. “The majority of this increase in business credit extension was driven by increases in mortgage loans, which increased by just over N$1 billion over this one-year period”.
Individual credit extension increased by approximately N$3,55 billion during the period under review. Britz said the main contributors to this growth came from increased mortgage lending, which increased by approximately N$2 billion over this period.
Installment credit too increased dramatically over this year period, by almost N$800 million, he said.
Britz said mortgage lending makes up the largest component of total loans advances. Since June 2011, credit extension for mortgage loans has averaged 14,5 per cent. Growth in June however was slightly below this at 13,6 per cent, he said.
Mortgage loans to businesses increased by 23 per cent, while extension to individuals was 11,2 per cent.
“The current rate of growth remains extremely high compared to past years, and is largely driven by the significant reduction in the repo rate (and thus prime and mortgage lending rates) seen since January 2009,” Britz said.
Mortgage loans totalled N$25,1 billion by the end of June, of which approximately N$5,5 billion was business mortgages, and N$19,6 billion mortgage loans to individuals.