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South African banks could increase lending in 2025 amid improved economic outlook

January 22, 2025

South African banks could increase lending in 2025 amid improved economic outlook by moderating inflation and lower interest rates.

According to a 2025 outlook report by S&P Global, the banking sector’s credit growth will also rest on the ability of the Government of National Unity, a coalition government comprising the African National Congress and Democratic Alliance, to implement proposed economic reforms.

The report added that the primary focus of these reforms is addressing the country’s long-standing infrastructure deficits in the transport, energy, and water sectors.

“Progress in addressing the energy constraints in the country and a pick-up in private investment will support economic growth in 2025.

Planned economic reforms under the GNU, which largely focus on addressing infrastructure deficits, particularly in the railway, ports, energy, and water sectors, will create lending opportunities for banks. For example, the private sector pipeline of 22,500 MW of energy generation projects is nearly South African rand (ZAR) 400 billion over the medium term. This will also be supported by the decrease in interest rates,” the report read.

Favourable lending conditions in the sector are expected to significantly benefit businesses and households. Private sector credit is projected to grow to about 9% in 2025, while the credit-to-GDP ratio is anticipated to rise from approximately 76% in 2024 to 80%.

What S&P hopes to achieve

S&P also hopes that lower inflation, interest rate cuts, and access to retirement funds under the new two-pot retirement system will boost households’ disposable incomes, improving their ability to service debt and reduce non-performing loans in the sector.

“We expect that the banking sector’s credit loss ratio will normalize, averaging 90 bps in 2025, from an estimated 100 bps in 2024. Similarly, nonperforming loans will improve toward 4.4% of total loans at year-end 2025 from an estimated 4.7% in 2024,” the research stated.

Furthermore, the report maintained that the decline in the interest rate will not affect bank profitability in 2025 because the sector will be buffered by higher credit growth, non-interest income, and lower provisioning.

The two-pot retirement system, introduced in 2024, is a policy that allows retirement fund members to make partial withdrawals from their retirement savings before retirement, while safeguarding a portion that can only be accessed at retirement. This approach is aimed at enhancing retirement outcomes.

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