By Hilary Mare
ACCORDING to Simonis and Storm Securities, annual growth in Treasury Bills (TBs) slowed significantly by 11.1 percent compared to 45.1 percent recorded in the prior year and on a monthly basis; the debt instruments grew at a slower pace as the demand for bonds and TBs dried up.
“This is evident as the tenders received are low compared to the amount offered,” details a credit report titled shrinking corporate credit growth.
Total domestic debt grew by 0.5percent m-o-m to N$34.3billion at the end of August 2016 compared to 1.1percent growth recorded in July 2016. Longer term Government bonds constitute about 60 percent of total domestic debt and had grown by 35.8 percent y-o-y to N$19.6 billion in August 2016 from N$14.4 billion in August 2015.
On the contrary, the demand for bonds was weak in the 3Q2016.
“The Government was forced to do a private placement as most of the bond tenders were under-allocated during August and September 2016. The demand for debt instruments (TBs and bonds) has dried up in recent tenders, specifically in August and beginning of September 2016. The low demand at current prices will result in Government bond yields to rise at the longer end of the curve which will eventual lead to a steepening yield curve going forward,” Purvance Heuer, director of research and securities explained.
The nominal outstanding amount stood at N$34.4billion at the end of August compared to N$26.6 billion in the prior year. Bonds account for 57.1 percent of the total amount outstanding, while TBs account for 39.3 percent. Meanwhile, total debt grew by 27.0 percent y-o-y to N$144.1 billion in August 2016 compared to N$113.4 billion recorded at the end of August 2015. On a monthly basis, total debt contracted by 1.9 percent compared to a positive 2.5 percent growth rate recorded in the prior month. The contraction can be attributed to a monthly decline in Government debt by -5.8 percent coupled with slow growth in corporate debt of 1.2 percent. In contrast, household debt grew by 1.4 percent m-o-m in August compared to 0.5 percent recorded in the prior month.
“Our view is that the Government will have to continue implementing further consolidation and cost cutting measures. Tax reforms may also be on the cards again in order to avoid a credit downgrade at the next credit review by Fitch,” explained Heuer.
Private Sector Credit Extension (PSCE) grew by 10.9 percent (y-o-y), its lowest growth since February 2012. Borrowing through mortgage loans continued to grow at a slower pace of 10.5 percent in August compared to 16.7percent recorded in the prior year. On a monthly basis, Mortgage loans grew by 0.8 percent in August 2016 compared to 0.6 percent in the prior month. The monthly growth in total mortgage loans emanated from borrowings by individuals that grew by 1.2 percent m-o-m in August 2016 compared to 0.6 percent recorded in July. Borrowing through Overdraft facilities and instalment credit picked up on a monthly basis, growing by 1.1 percent and 1.6 percent, respectively compared to -3.4 percent and 1.2 percent in July. Monthly recovery in credit facilities is only evident in the individual debt category. The corporate category continued its downward trend which in turn put pressure on overall PSCE.
Foreign reserve levels declined by 10.1 percent to N$20.5 billion during August 2016 compared to N$22.8 billion recorded in the prior month. BoN cited that the decline came as a result of net Government payments and net commercial banks’ Rand purchases.
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