Economic agents ‘reluctant’ on credit uptake

Otis Daniels_Finck
Windhoek ∙ [email protected]

Statistics released by the Bank of Namibia (BoN) indicated that private sector credit extension (PSCE) growth slowed to 1.7% year-on-year in November 2021 from 2.7% year-on-year in October 2021.

Overall credit growth edges lower due to reduced demand for long-term debt and repayments on short-term debt mainly from businesses in the commercial retail and manufacturing sectors, the centra bank said.

Household debt increased by 2.6% year-on-year in November 2021, compared to 2.8% in the prior month, while corporate debt increased by 0.6% year-on-year in November 2021 compared to 3.0% year-on-year in the prior month.

Household debt stock increased from N$60.2 billion in November 2020 to N$61.7 billion November 2021. The biggest contributors to household credit growth were mortgages, increasing by 3.4% year-on-year in November 2021 compared to 3.2% year-on-year in the prior month and other loans and advances, increasing by 2.3% year-on-year in November 2021 compared to 2.6% year-on-year in the prior month, BoN said.

Corporate debt stock increased marginally from N$44.2 billion in November 2020 to N$44.5 billion in November 2021. The biggest contributors to corporate credit growth were instalment and leasing credit, increasing by 7.9% year-on-year in November 2021 compared to in the prior month and mortgage loans, increasing by 3.4% year-on-year in November 2021 compared to 6.1% year-on-year in the prior month). Other loans and advances, increased by 2.3% year-on-year in November 2021 compared to 0.9% year-on-year in the prior month, BoN added.

According to Simonis Storm (SS), “year to date, annual credit growth has averaged 2.4%, whereas we forecasted 2.5% average annual credit growth for 2021.” Naturally, this is indicative of slow economic recoveries in lost jobs and business closures since last year.

The current economic environment does not bode well for consumer or business confidence, hence demand for credit wanes. “Owing to a better economic recovery expectation in 2022, we forecast average annual credit growth of 2.6% in 2022,” SS said.

Green energy

Simonis Storm notes that Bank Windhoek issued its Green Bond in December 2018 and helped fund six renewable energy projects in Namibia. These six projects, mainly solar, cost a total of N$66 million with an estimated 15.6 GWh electricity generation in twelve months’ time.

The Green Bond matured on 6 December 2021, with most investors of the green bond being interested to also invest in Bank Windhoek’s Sustainability Bond, SS said.

Local banks have advanced loans to retail clients as well, who look at investing in renewable energy technology for small scale projects however, these loans were priced at market interest rates.

Banks generally are expecting a lot of interest from the private sector in anticipation of government’s green hydrogen project, but also due growing focus and concerns on Environmental, Governance and Social (ESG) related projects in Namibia, SS emphasised.

Another green debt initiative in Namibia includes the Solar Revolving Fund (SRF) which is administrated solely by the Ministry of Mines and Energy. The SRF is a credit facility which aims to provide greater access to renewable energy technologies in rural areas, especially for communities living in off-grid areas and urban clients.

Loan applicants must be Namibian citizens, between 21 and 55 years old and whose loans do not exceed three months’ basic salary. The SRF has a list of registered energy service providers from whom applicants must use and products include a maximum loan amount of N$60 000 for solar water pumps, N$6 000 – N$60 000 solar home systems and N$35 000 for solar water heaters.

“We believe that much room for growth and product innovation exists in the local green debt space. However, a key product feature would be to offer concessionary loans in order to incentivise behaviour change or energy conversion.”

“This would lower the cost of investing in renewable energy technologies in both the wholesale and retail segment in Namibia and would incentivise to undertake decarbonisation investments. While significant achievements have been made thus far, we believe there is further growth opportunities for green debt as climate change, decarbonisation and renewable energy will likely remain important themes in 2022,” SS said.