The latest Bank of Namibia Money and Banking Statistics report paints a gloomy picture for Namibia’s financial sector, with a decline in foreign reserves, and slow growth recorded in money supply and private credit extension.
The stock of foreign reserves declined at the end of March, the latest Bank of Namibia statistics have shown.
The levels of reserves declined 0,4 percent to N$22,6 billion at the end of March 2017 from N$22,7 billion in February.
According to the report: “The decline in the level of reserves during the month under review emanated mainly from decreased net purchases of rand by commercial banks, geared towards investments and payments to non-residents.”
Broad money supply (M2) growth slowed at the end of the review period. The annual growth in M2 slowed to 2,7 percent at the end of March 2017, from a growth of 4,4 percent at the end of the preceding month.
The overall liquidity position of commercial banks stood at N$1,4 billion at the end of March 2017, from N$2,1 billion at the end of February 2017 owing to a fall in government deposits and securities, the central bank said.
“The slower growth in M2 was due to a significant decline in deposits. Transferable deposits of the commercial banks contracted by 4,7 percent to –7, and 4 percent, driven by a decrease in the deposits of other financial corporations. Other deposits also contributed significantly to the slowdown, contracting by 3,7 percent, which is driven by a decrease in the deposits of the government. Similarly, Net Foreign Assets further contracted to -29,1 percent. This was driven by a decrease in government securities,” the central bank said.
The central bank said the slower growth in private sector credit extension was mainly reflected in the decreased demand for credit by the corporate sector during the review period.
Total credit extension to the private sector in nominal terms remained at N$86,8 billion at the end of March, similar to February 2017. The slowdown in annual growth can be attributed to all credit categories except other loans and advances as well as overdrafts, the report said.
The annual growth in other loans and advances (i.e. personal loans and credit cards) rose at the end of March 2017. Annual growth in other loans and advances, which represents about 11,5 percent of total credit to the private sector, rose to 16,8 percent at the end of March 2017, an increase of 1,2 percentage points, when compared to the previous month. The higher growth during the review period was mainly driven by base effects.
Commenting on the report, IJG Securities said the outlook for private sector credit extension remains muted.
“The recent downgrade of South Africa to junk status increased the risk of interest rate hikes just when the outlook was turning decidedly positive. While the currency has not depreciated as rapidly as might have been expected, and thus the inflation outlook in South Africa remains largely intact at present, the general search for yield and fund flows into emerging markets in all likelihood masked the effects of the downgrade to some extent and future currency depreciation is likely,” IJG said.
The firm said as the South African Reserve Bank is an inflation targeting bank, an unexpected increase in inflation due to currency weakness could trigger interest rate hikes, which would have to be matched by Bank of Namibia, putting pressure on credit extension.