South African banks are expected to gradually ease credit conditions in 2025, driven by moderating inflation and lower interest rates. This positive outlook is based on a 2025 report by S&P Global, which highlights the banking sector’s credit growth potential.
The report emphasizes that the Government of National Unity’s ability to implement proposed economic reforms will play a crucial role in the banking sector’s growth.
These reforms aim to address South Africa’s long-standing infrastructure deficits in 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 will create lending opportunities for banks, particularly in the railway, ports, energy, and water sectors.
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%.
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.
The report also notes that the banking sector’s credit loss ratio will normalize, averaging 90 basis points (bps) in 2025, from an estimated 100 bps in 2024.
Similarly, non-performing loans will improve to 4.4% of total loans at year-end 2025 from an estimated 4.7% in 2024. Furthermore, the decline in interest rates is not expected to affect bank profitability in 2025, as the sector will be buffered by higher credit growth, non-interest income, and lower provisioning.
