South African banks poised for growth amid rising precious metals prices

Tawanda Karombo

South African banks are expected to expand lending to the broader economy over the next two years, supported by strong export earnings driven by elevated precious metals prices, according to S&P Ratings.

The ratings agency said on Monday that economic growth is likely to average 1.5% in both 2026 and 2027, up from a subdued 0.6% recorded in 2024, despite ongoing logistical constraints and tariff-related bottlenecks.

Last week, the ratings agency told Business Report that it was exploring raising SA’s rating within a year should fiscal imbalances improve.

On Monday, Charlotte Masvongo, an analyst with S&P, said economic growth was likely to average 1.5% in 2026 and 2027, rising from a subdued 0.6% in 2024.

“We expect GDP growth will average 1.5% over 2026-2027, from a subdued 0.6% in 2024,” said Masvongo.

South African business leaders have noted improvements in the country’s infrastructure and policy reforms,although the cost of electricity remains a worry. For S&P, "logistical and tariff-related pressures will persist" for longer.

Nonetheless, currently elevated prices for gold and platinum group metals are expected to provide some respite and to underpin economic growth.

“South Africa also benefits from the ongoing rally in precious metals, and we expect strong exports will support headline growth,” explained Masvongo.

South African banks are also set to benefit from the higher precious metals prices, with S&P prescribing an improvement in asset quality and loan advancements by local lenders.

This also comes at a time when the South African Reserve Bank (Sarb) is projected to lower interest rates later this year, providing further impetus to the rand. The local unit of exchange has been appreciating over the past few months.

“Asset quality (banking) should improve, with nonperforming loans decreasing to about 4% of total loans by 2026 and credit losses stabilizing at 90 basis points," explained Masvongo.

"We forecast that the improving economic backdrop, coupled with infrastructure investments in logistics and renewables, will lead to robust credit growth of 8%-9% through 2026, supported by falling interest rates.”

Overall lending activity by SA banks will be spurred by infrastructure investments, including in logistics and renewable projects.

The banks have “prioritized lending to the renewable energy sector, with corporate credit growing by 7.6% as at the end of September 2025 compared to 5.2% in 2024 and 2.5% in 2023.

High prospects of rate cuts later this year by Sarb are expected to further solidify inflation, providing additional spending power. The Sarb, in agreement with Treasury has revised its inflation target down to 3%.

“Even though global tariffs could pose risks, we expect inflation will remain close to this new target in 2026,” Masvongo said.

S&P expects local banks to start issuing Financial Loss Absorbing Capital (FLAC) debt instruments which refer to specialized, unsecured, and subordinated debt instruments.

According to Fitch, these debt instruments ensure that banks can absorb losses and recapitalize during a resolution without relying on public funds.

S&P said FLAC istruments “will strengthen the banking system's loss-absorption capacity” and reduce systemic risks.

Furthermore, South African banks' diversified revenue bases are expected to support their performance in a decreasing interest rate environment at a time non interest revenue contributes to about 40% of banks' operating revenue. This is now set to increase by an average of 5%-7% in 2026.

“We anticipate an average return on equity of 15%-16% in 2026, supported by banks' diversified business models, stable share of noninterest income, lower provisions, and higher credit growth," Masvongo said.

"We expect net interest income growth will remain positive in 2026 due to the limited effect of declining interest rates on banks' net interest margins (NIMs) and strong lending opportunities.”

Nonetheless, most South African banks have interest rate hedges in place, helping “to limit the negative effect of looser monetary policy” on profitability.

BUSINESS REPORT