Household debt grows as corporate credit declines

Recent data released by Simonis Storm Securities has shown concerning trends in Namibia’s financial landscape, with household debt skyrocketing, while corporate credit uptake experiences a significant decline.

According to this report, household debt grew to N$66,8 billion in 2023 – an increase from N$64,7 billion recorded in December 2022.

“The credit uptake throughout 2023 was mainly driven by the household sector, which averaged a growth rate of 4,7%. In contrast, the corporate sector (businesses) experienced a decline, averaging -0,7% year on year (y/y) in the same period,” the report says.

While corporate debt witnessed a marginal increase to N$45,9 billion in December 2023, compared to N$45,8 billion during the previous year, it pales in comparison with the substantial rise in household debt.

According to the report, this imbalance raises concerns about the financial health of Namibian households and its potential ramifications on the broader economy.

“The surge in household debt stands in stark contrast to the corporate sector, which witnessed a decline, averaging -0,7% y/y during the same period,” the report states.

According to the report, the slowdown in corporate credit growth poses challenges for various sectors, such as mining, services, wholesale and retail trade, and agriculture.

Reduced demand and increased repayments by corporates have contributed to this trend, putting economic pressures in key industries.

“A detailed look into the various corporate credit categories reveals a continued negative growth in mortgage loans, other loans and advances, and overdrafts during December 2023.

“On a brighter note, the instalment and leasing category within corporate credit exhibited strong performance, recording a 21,6% y/y growth,” says the report.

In contrast to the decline in corporate credit uptake, non-resident debt showed a positive trend with a growth of 3,6% y/y in December 2023.

Factors such as foreign direct investment and ongoing mining exploration contributed to this uptick, along with investment in green hydrogen and other renewable energy projects.

Furthermore, the liquidity position of the banking industry showed signs of improvement by December 2023, with cash balances increasing to N$7,7 billion.

Factors such as diamond sales and corporate tax payments contributed to this improvement, as reported by the Bank of Namibia.

The report also noted improvement in the debt-to-gross domestic product ratio and ongoing challenges in managing public debt levels.