Kevin Hoff | Head | Banking & Lending | BDO South Africa | mail me |
In an increasingly uncertain global and domestic landscape, the banking sector delivers steady performance while demonstrating resilience and strategic clarity.
Through disciplined management, digital transformation and customer-focused innovation, the country’s leading banks continue to maintain stability despite economic headwinds. Their ability to adapt to shifting market dynamics, diversify revenue streams and expand across the African continent highlights a sector not merely enduring volatility but actively redefining growth through foresight and adaptability.
Navigating complexity with purpose
South Africa’s major banks have demonstrated exceptional resilience and strategic adaptability through the first half of 2025. They navigated a complex macroeconomic environment through four key strategic pillars: revenue diversification, African market expansion, digital transformation and customer-centric innovation.
According to our Tier 1 Banking Peer Report (November 2025), the banking sector delivers steady performance despite sluggish domestic growth and compressed interest margins. This resilience reflects a collective shift toward long-term strategic transformation rather than short-term defensive measures.
What we are seeing across South Africa’s banking landscape is not merely survival but disciplined innovation. The industry is re-engineering itself for a lower-growth, higher-complexity future.
Credit quality trends – strength in prudence
The banking sector delivers steady performance, partly due to marked improvement in asset quality metrics. The average credit loss ratio (CLR) declined from 212 basis points in H1-2024 to 187 basis points in H1-2025. This reflects both stronger borrower profiles and more disciplined risk management.
Tighter underwriting standards and proactive delinquency management lowered default rates and improved recovery outcomes. According to the Prudential Authority, South Africa’s non-performing loan ratio improved to 5.2% by mid-2025, reinforcing balance sheet resilience.
Interest rate environment – a double-edged sword
The South African Reserve Bank’s (SARB) easing of monetary policy has provided significant relief to retail and corporate borrowers.
Inflation moderated to the lower end of the SARB’s 3–6% target range, with a long-term anchor closer to 3%. However, this easing cycle created pressure on traditional lending margins, compressing net interest margins (NIM) across most institutions.
In response, banks accelerated growth in non-interest revenue (NIR) streams. These include fee-based services, digital platforms and strategic fintech partnerships. The goal is to preserve profitability while diversifying earnings.
Revenue diversification and digital innovation
South Africa’s six main banks – Absa, Standard Bank, Nedbank, FirstRand, Investec and Capitec – are shifting toward more diversified revenue models. Non-interest income now constitutes a larger share of total revenue. This growth is driven by transactional services, wealth management, embedded financial products and digital ecosystems.
Digital transformation has moved far beyond app development or automation. It is now about creating dynamic, customer-driven ecosystems that redefine how banks earn, serve, and grow.
With over 21 million active digital banking users in South Africa, the banking sector delivers steady performance by leveraging technology as a strategic growth engine. This drives operational efficiency and deepens customer engagement.
African expansion – growth beyond borders
Regional diversification across Africa has become a key stabiliser for South African banking groups. For instance, Absa and Standard Bank now generate more than 30% of their earnings from markets outside South Africa.
These regional operations help offset domestic margin compression while enhancing group-wide returns on equity (ROE). Strong loan book growth, robust profitability, and consistent foreign income flows make African expansion indispensable for long-term sustainability.
Once again, the banking sector delivers steady performance by combining domestic stability with strategic regional growth.
Economic context and outlook
The macroeconomic backdrop remains subdued. South Africa’s GDP growth forecast has been revised down to 1.0% for 2025. However, signs of recovery in mining and manufacturing, along with expected growth in renewable energy and infrastructure, provide cautious optimism. Stability offered by the Government of National Unity (GNU) further supports the medium-term outlook.
Fiscal constraints persist, with a debt-to-GDP ratio around 77%, limiting public investment capacity. Meanwhile, global geopolitical tensions and trade disruptions continue to influence investor sentiment and capital flows.
Sector performance metrics
Despite the constrained environment, key performance indicators across the Tier 1 sector remain solid:
- Return on Equity (ROE) – Stable across the sector, underpinned by disciplined capital allocation.
- Cost-to-Income Ratio (CIR) – Slightly higher due to strategic investment in technology and African expansion, positioning banks for scalability.
- Loan Portfolio Growth – Up 7% year-on-year, supported by growing demand for business and term loans.
- Net Interest Margin (NIM) – Compressed across most institutions. Capitec expanded from 770 (2024) to 834 basis points in H1 2025 through agile pricing and a differentiated retail model.
The Corporate and Investment Banking (CIB) segment remains strategically vital and profitable. The CIB segment delivered an average ROE of 21.5%, supported by a 7.3% increase in net interest income and a 5.2% rise in non-interest revenue. The average credit loss ratio improved from 22.3 to 10.8 basis points, demonstrating effective risk control and strategic capital deployment, particularly in infrastructure and energy finance.
Steady hands, strong currents, clear direction
South Africa’s banking sector continues to prove that strategic adaptability is the foundation of resilience. Through digital innovation, cross-border expansion and a sharper focus on customer value, the banking sector delivers steady performance while positioning itself not just to withstand volatility but to lead through it.
Steady paddling. Strong currents. Clear direction. The sector’s stability and strong leadership through 2025 reinforce that resilience is not about weathering the storm. It’s about steering confidently through it.
