Appetite for credit uptake at microlenders
Outpacing uptake at commercial banks
Private sector credit extension growth stood at 2.6% year-on-year at the end of January 2023 compared to 4.2% at the end of December 2022
Credit extended to the private sector from microlenders has outpaced credit uptake from commercial banks for most of the post-pandemic period, Simonis Storm said.Microlending credit extension averaged 4.6% for the first three quarters of 2022, whereas credit growth from commercial banks averaged 3.5% during the same time. Form the demand side, there is appetite for loans – despite higher interest rates – however the supply side might not be as forthcoming, Simonis Storm pointed out.
At the same time that microlending credit uptake has been growing at a faster pace, the number of clients at microlenders has been declining. The average loan amount per client increased from N$26 091 in the first quarter of 2019 to N$31 336 per client in the third quarter of 2022. Since the third quarter of 2021, the number of term lenders has decreased whereas the number of payday lenders increased.
This speaks to the financial strain that rising living costs have placed on household budgets and so raising the immediate need for cash. This took place while overdrafts at commercial banks were being repaid, pointing to that clients have reached their overdraft limits. In addition, this data to some extent also supports the view that commercial banks are fairly risk averse and so artificially limiting credit growth in the private sector, Simonis Storm added.
The microlenders credit figures were obtained from the Namibia Financial Institutions Supervisory Authority (NAMFISA), while the figures for commercial banks were obtained from the central bank.
According to the Bank of Namibia (BoN), private sector credit extension (PSCE) growth stood at 2.6% year-on-year at the end of January 2023 compared to 4.2% at the end of December 2022. The decrease in credit uptake growth is explained by a lower demand and net repayments by corporates in the services, as well as the wholesale and retail trade sectors.
In February, the BoN increased the repo rate by 25 basis points (bps) from 6.75% to 7%, hiking the prime lending rate from 10.5% 10.75%.
“BoN has indicated that if monthly inflation data does not consistently reduce closer to 6%, we can expect more rate hikes. In our view, if monthly inflation data disappoints, we could see one to two more repo rate hikes of 25bps each in magnitude,” Simonis Storm said.
Inflation in 2022 averaged 6.1% and came in at 7% in January 2023.