South African banks poised for resilience amid economic challenges - Fitch Ratings

Tawanda Karombo

South African banks will remain resilient to domestic and global economic upheavals and slow growth, capitalising on diverse revenue streams, asset quality and stable profitability prospects, Fitch Ratings analysts said on Thursday.

Fitch has a GDP growth forecast for South Africa of 1.2% for this year, up from 0.5% last year. The ratings agency, however, has projected a 1% GDP growth for South Africa next year.

“Growth remains constrained by persistent structural challenges, particularly in energy and logistics,” noted Fitch Ratings analyst, Olga Ignatieva.

This forecast for South Africa GDP growth factors in “the impact of new US tariffs on South African exports, which should be manageable due to moderate export” volumes. 

Fitch estimates the effective tariff rate of 18.6% versus the nominal 30%, due to exemptions. Although the tariffs – affecting less than 8% of South Africa’s exports are likely to have a manageable direct impact, broader risks remain, said Fitch.

In a new report on major South African Bank, Fitch analysts said they expected loan quality in the country to pick up this year in a show of resilient economic activity.

“Major South African banks are resilient to the weak growth environment, supported by sustained pre-impairment profitability, diversified revenue streams, and reasonable asset quality. Loan growth in 2025 is likely to match 2024 levels (5.8%), with a pick-up in 2H25 following subdued activity in 1H25, aided by recent policy rate cuts,” noted the report.

Operating profitability for the South African banks is thus expected to remain solid despite margin pressures. Still-high interest rates, resilient non-interest income and good cost controls are all factors expected to provide some support.

Further impetus for the SA banks’ earnings will come from a gradual normalisation of loan impairment charges within banks’ targeted ranges.

Fitch Ratings holds stable outlooks for the major South African banks’ and bank holding companies. This reflects Fitch Ratings’ expectations that the SA banks’ financial profiles will remain resilient to medium-term global and domestic challenges.

However, the SA banks’ ratings remain highly sensitive to any downgrade of the South African sovereign rating, given their significant exposure to domestic assets, including government debt.

Operating profitability was set to remain solid in 2025 against the backdrop of slower growth in interest income driven by muted loan expansion and narrowing margins due to policy rate cuts and high competition. This was set to be offset by resilient non-interest income, particularly fees and trading income.

According to Fitch, FirstRand Bank has consistently solid, above-peers profitability, underpinned by revenue diversification and a competitive cost of funding. 

The banks’ pre-impairment performance remained solid in 2024, despite the first two cuts in policy rates, stated the Fitch Ratings analysts, adding that FirstRand’s performance was supported by improved lending activity in the second half of 2024, resilient non-interest revenues and good cost controls.

Profitability for Standard Bank Group and Absa Banking Group was being supported by geographical diversification.

The contribution of Sub Saharan African subsidiaries had grown markedly in 2023 and remained high, reflecting regional business expansion and robust revenue and balance-sheet growth that was outpacing domestic performance.

Major banks in South Africa had adopted more cautious views on credit growth in 2023 and 2024 due to the impacts of economic slowdown and affordability pressures on borrower profiles.

“We expect the banks to maintain this approach in 2025, and without relaxation of underwriting criteria, as operating conditions remain challenging.”

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