Ratings agency S&P expects private sector credit to flourish in 2025 with the mooted multibillion-rand outlay in rail, water, ports and energy expected to increase lending opportunities for the country’s top banks.
The ratings agency in a report looking at the prospects of SA’s lenders said demand for credit could firm up this year, with progress in addressing the energy constraints in the country and a pickup in private investment expected to support economic growth.
“Planned economic reforms under the GNU [government of national unity], which largely focus on addressing infrastructure deficits particularly in the railway, ports, energy and water sectors, will create lending opportunities for banks,” S&P said.
“For example, the private sector pipeline of 22,500MW of energy generation projects is nearly R400bn over the medium term. This will also be supported by the decrease in interest rates.”
Investment into SA’s crumbling infrastructure is expected to ramp in the year ahead, after the move by transport minister Barbara Creecy in December to approve the publishing of the Transnet Network Statement, a major step in facilitating open access to the country’s rail network by third-party operators — a move welcomed by the business community and industry players.
The network statement shows that Transnet needs about R14bn a year of investment in its six corridors, which have been plagued by theft, vandalism and outdated systems.
The cash-strapped Transnet, which last month reported a R2.2bn interim loss for the six months ended September, operates the country’s 21,323km of rail infrastructure.
Third-party access will see private sector freight and passenger transport entities procure, deploy and operate their own rolling stock on state-owned railways while paying access fees to the infrastructure owner, Transnet.
The network statement is a crucial step forward for the rail industry (and commodity providers reliant on rail services), which has been monopolised by Transnet, now opening the door to private investment.
The move will also give Transnet the means to reduce its vast debt, now at a debilitating R136bn, with the entity recently put on a credit downgrade watch by S&P Global Ratings.
Africa’s largest bank by assets, Standard Bank, has pencilled in about R150bn in investment in rail and infrastructure.
The lender has said public-private partnerships are likely to attract R700bn in investments over the next three years.
Standard Bank corporate and investment banking CEO Luvuyo Masinda and Tristan le Masne, MD of Alstom Southern Africa, in a joint thought analysis said strategic partnerships with the public sector could unlock significant value for passenger and freight rail.
“With extensive experience collaborating with governments and public sector representatives across Southern Africa and other continental regions. We know first-hand the potential for success through strategic financing initiatives and joint ventures. It’s time to act decisively and capitalise on these opportunities,” they said.
“By prioritising substantial investment in rail infrastructure and embracing innovative funding models such as public-private partnerships, the nation can lay the groundwork for a stronger, more equitable future. The time to act is now; the opportunities are ripe for the taking.”
S&P said SA banks’ profitability is likely to remain strong, supported by higher credit growth and non-interest income.
“We expect a 20 [basis points] net interest margin compression by the end of 2025 relative to 2024 because of the anticipated interest rate cuts. Banks’ diversified revenue bases, with 41% of their operating revenue stemming from non-interest revenue in 2024, will support their performance in a decreasing interest rate environment.
“We anticipate that the sector will maintain adequate return on equity of 16% and 1.4% of return on assets on average in 2025. This compares well in the broader emerging market context.
“Banks source local-currency deposits from nonbank financial institutions (30%-40% of their funding base) because professional money managers dominate contractual savings. However, in a hypothetical crisis, resident exchange controls mitigate banks’ exposure to institutional funding and strengthen the stability of domestic deposits,” they said.
S&P also noted that SA had broad, deep capital markets, providing an alternative source of funding for banks.
“Major banks are not exposed to external refinancing risks, but the financial sector remains vulnerable to global investor sentiment and external financing conditions, which are tied to US interest rates and a prolonged stay on the [Financial Action Task Force] greylist.”
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