Credit wheels keep rolling in July

BUSINESS’ credit appetite stayed strong last month, while consumers remained cautious, causing the annual growth rate for credit extended to the domestic private sector in July to increase to 11,4 per cent from 10,6 per cent in June.

The continued recovery in credit growth was probably as a result of the low interest rate regime of the Bank of Namibia (BoN) the past two years, Bank Windhoek economist John Steytler said when he released the latest figures yesterday.

He said despite annual inflation increasing slightly from 4,3 per cent in June to 4,6 per cent in July, credit extended to the private sector last month grew by 6,8 per cent in real terms compared to 6,3 per cent the month before.

“This can be attributed to the fact that magnitude of the increase in nominal terms was bigger than the increase in consumer price inflation,” Steytler said.

Credit extended in July grew relatively broad-based, he said.

The business sector was the most robust, registering annual growth of 18 per cent following an increase of 16,5 per cent during June. On the other hand, the annual growth rate in credit to the household sector only moderately improved to 7,8 per cent from 7,6 per cent during the previous month, Steytler said. 

“The relative strong expansion in credit extended to businesses bodes well for future economic activities, given the importance of credit growth as a lead economic indicator,” he said.

Credit to the mortgage sector also expanded at a “healthy” annual growth rate of 10,9 per cent during the month of July, compared to 10,3 per cent during the previous month. 

“The outlook for the mortgage sector continues to look favourable in view of the strong growth in the number and value of building plans approved by the City of Windhoek, which increased by 22 per cent during the first eight months of 2010 as compared to the corresponding period of 2009,” Steytler said.

“Since building plans approved is a good leading economic indicator, especially for the property market, it is expected that the appetite for mortgage credit will increase during the months ahead,” he said.

Instalment credit, which is mainly earmarked for vehicle asset financing, increased on an annual basis by 6,1 per cent in July, a “moderate” improvement from 5,1 per cent during June, Steytler said. 

“The BoN attributed the improvement in instalment credit to strong vehicle sales during the month of July, on account of purchasing of government fleet.”

Steytler said although credit conditions in South Africa moderately improved during the month of July, credit conditions in Namibia continuous to remain more favourable. While the annual growth in credit expanded by almost two per cent in South Africa, the increase in Namibia was much stronger at 11,4 per cent. “This divergence can partly be explained by the fact the BoN pursued a more accommodative monetary policy stance much earlier than the South African monetary authority. Since the transmission mechanism of monetary policy takes about 18 to 24 months to impact on the nominal demand for credit, it is expected that growth in private sector in South Africa will continue to accelerate in the months ahead, while in the case of Namibia a stabilisation in credit conditions is expected,” he said.

Steytler therefore expects that the BoN will follow an “unchanged or neutral” monetary policy stance in the short term.

“It is expected that the BoN will be more concerned about inflationary pressure and hence it is expected that policy will be attuned accordingly during the course of 2011,” he said.

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