Ratings agency S&P says the economic risk for SA banks has reduced and the sector has entered an expansionary phase as investments in logistics, renewable energy and infrastructure open up lending opportunities.
The agency said the country’s leading lenders would also be aided by an expected uptick in household lending, which it expected to unfold at a measured pace.
“We now view the SA banking system as being in an expansionary phase and think the risk of economic imbalances has receded since we expect real estate prices to increase moderately in nominal terms and lending growth to remain cautious and mainly driven by investments in infrastructure,” it said.
“Therefore, we regard economic risk for SA banks as having reduced and revised upward our anchor for rating banks in SA to ‘bbb-’ from ‘bb+’.”
Business Day reported earlier that Standard Bank expects R700bn in public-private investment over the next three years in SA, with rail and water infrastructure set for a huge windfall, in what could be a rare win for President Cyril Ramaphosa’s grand plan to revive the economy through a private sector-led recovery.
SA’s rail industry is undergoing the most fundamental change in a generation, after a government decision to move forward in granting the private sector access to sprawling rail infrastructure of more than 21,000km.
If it materialises, the influx of cash, with the cheerful mood in corporate boardrooms, would advance one of the pillars of Ramaphosa’s plan to lift the economy.
S&P expects SA’s credit growth to accelerate to 7%-8% this year, with the ratings agency saying the banking sector’s credit loss ratio will normalise, averaging 90 basis points (bps) in 2025, from about 100 bps in 2024.
The agency added that it expected nonperforming loans to improve towards 4.5% of total loans at the end of this year from 5.1% in 2024.
‘Resilient performance’
“We expect resilient financial performance for SA banks. We anticipate adequate returns on equity of 16% on average in 2025, supported by banks’ diversified business models, stable share of noninterest income, lower provisions and higher credit growth.
“SA banks are not exposed to large-scale refinancing risk thanks to their limited exposure to international funding. This positively differentiates SA banks from other emerging market banks.”
On individual banks, S&P said it expected Investec’s asset quality indicators to continue improving, arguing that the group’s better-than-average creditworthiness supported its resilience and business stability.
The agency expects African Bank to continue to scale and diversify, particularly in retail, upgrading the bank’s ratings.
S&P also expects Absa’s profitability to slightly improve supported by growth in earning assets, noninterest income and lower credit provisions.
The agency is bullish on Capitec’s prospects, saying the Stellenbosch-based lender’s profitability is likely to remain strong and “above that of peers”.
On FirstRand, the agency does not expect a material increase in the bank’s capitalisation, which it sees as a negative rating factor.
The agency also sees Nedbank’s capitalisation as a negative rating factor, but highlighted that the lender’s asset quality metrics compare well with those of peers, expecting its credit losses to moderate to about 80 bps in 2025, slightly below the expected sector average.
The ratings agency maintained a positive outlook for the Development Bank of Southern Africa, saying this is based on its belief that there is an “almost certain likelihood that the SA government would provide timely and sufficient extraordinary support” to the lender in the event of financial distress.
African Bank CEO Kennedy Bungane said the upgrade by S&P recognised the progress made in strengthening its balance sheet.
“The new rating enhances our reputation and positions us strongly as we continue our journey towards becoming a listed institution, which is another step in our commitment to build a customer-centric, digital enabled diversified business that is scalable and sustainable.”
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