WINDHOEK, Sept. 4 – Private Sector Credit Extension (PSCE) increased by 6,9% yearly, standing at N$87,5 billion in July, as opposed to the 7,3% yearly recorded in June 2017.
This was the slowest growth seen since a 6,4% year-on-year (y-o-y) growth recorded in July 2007. Slowing PSCE can be accredited to a narrowing in instalment credit for two consecutive months (June:-0,7% year-on-year and July: -1,5% y-o-y).
These figures were released by the Central Bank last week and they showed that historically, this is the first time instalment credit recorded negative growth on an annual basis.
Meanwhile, Simonis Storm Securities (SSS) noted that despite the current high interest rate environment, it believes that appetite for instalment credit was partially hampered by the Credit Agreement Act.
“We appreciate BON cutting interest rates by 25basis points to 6,75%, but we believe that another rate cut is eligible to reduce pressure on PSCE. A prolonged contraction in instalment credit will create further damage to the vehicle industry,” SSS noted.
The SSS added that it remains worrisome that the high appetite for overdrafts especially by individuals is carrying PSCE, adding that in July, overdrafts rose by 17,7% y-o-y compared to 2,1% in the prior year.
“Credits through overdrafts by individuals increased by 17,9% in July 2017 compared to a 0,4% y-o-y contraction in the prior year. This still suggests that the consumer remains under severe pressure,” SSS stressed.
Moreover, the SSS said foreign reserves stood at N$33,7b in July 2017 compared to the N$28,5b recorded in June 2017.
SSS noted that the Central Bank cited that the increase was due to the repatriation of funds by financial institutions, the African Development Bank (AfDB) loan inflow and the repayments by the National Bank of Angola.
“Historically, BON critically looked at instalment credit and foreign reserves. In this case, foreign reserves are at record highs while instalment credit is down the drain. We strongly believe that BON should cut interest rates again to support both economic and PSCE growth,” SSS said. – Sharma Mundingi