Credit loss ratios have fallen from 2023, provisioning pressures have eased, and lenders have maintained conservative impairment buffers despite improving conditions.
Image: ChatGPT
South Africa's largest banks say conditions in the credit market have improved, helped by tighter lending standards and better-performing loan books.
That is one of the key findings from BDO, South Africa’s latest Tier 1 Banking Report, which found that non-performing loans peaked in the second half of 2024 and have since stabilised, while credit loss ratios have moved back towards normal levels.
“The credit cycle has definitively turned,” said Kevin Hoff, BDO South Africa’s director and banking sector lead for financial services.
According to the June report, consumers had benefited from cooling inflation and the onset of rate cuts, contributing to lower credit costs and creating more room for future credit extension.
The report indicates that credit loss ratios have normalised toward the lower end of through-the-cycle target ranges, while “enhanced risk modelling and proactive collections have successfully curtailed the migration of loans into non-performing status”.
Experian’s Consumer Default Index improved from 4.04 to 3.68 from December 2024 through to last December, representing a 9% year-on-year improvement – although debt in its index was at R21.6 billion. Home-loan defaults improved by 20%, while vehicle-finance defaults improved by 12%.
“This points to the fact that mid- to high-affluence consumers – who typically qualify for high-end credit products such as Home Loans – are now starting to see a turn in the tide of the relentless deterioration observed, said Experian.
Experian added that “this might be related to the high-affluence end of the market reaching a point where they cannot take on any more of these premium credit products.”
DebtBusters also reported an improvement in consumer debt burdens. Consumers applying for debt counselling in the first quarter of 2026 required 64% of their take-home pay to service debt, down from a peak of 73% in 2021.
The debt-management company attributed some of the improvement to successive interest-rate cuts and access to two-pot retirement savings.
However, the average number of credit agreements per applicant was at the highest level since 2017, while unsecured debt levels are now 23% higher than in 2021 on average, said DebtBusters.
The Eighty20/XDS Credit Stress Report for the first quarter of the year found that overdue debt increased 13.9% year-on-year, driven by rising arrears on credit cards, vehicle finance and personal loans. It reported that 35% of loans were in arrears during the quarter.
“The ongoing conflict in the Middle East is likely to weaken the outlook,” said the Eighty20/XDS Credit Stress Report.
This report found that loan balances were up 0.7% in the mass credit market, down in the middle class, and up 7.2% in what it calls the “heavy hitters” segment – the wealthiest 5% of South African adults with a monthly income ranging between R42,100 and R120,000. Students and scholars saw debt gain 14.4%.
The Eighty20/XDS Credit Stress Report found the highest percentage of defaulters in the mass credit market at 52%, students and scholars accounted for 45%, while middle-class workers were at 43% and heavy hitters at 24% in the first quarter of the year.
DebtBusters likewise cautioned that financial stress remains widespread despite improving conditions. It found that 96% of consumers applying for debt counselling had a personal loan, while 61% had a payday loan and 78% regularly relied on credit cards.
Against that backdrop, Hoff argues that banks have emerged from a difficult period in a stronger position. Credit loss ratios have normalised from 2023 highs, while banks have retained elevated expected credit loss coverage buffers.
The report also highlights growing contributions from fee income, insurance and digital banking revenues as banks adapt to a lower interest-rate environment. “That said, the broader market backdrop is no longer looking quite so rosy,” said Hoff.
Hoff added that “persistent uncertainties, ranging from geopolitical tensions to uneven regional growth, mean that while the pipeline ahead shows promise, the conditions for the next phase of expansion will be tested against a more challenging environment”.
IOL BUSINESS