South African banks are opening the taps – but not for everyone

South Africa’s banks are looking to open the lending taps to businesses and the state as they try to benefit from the government turning to the private sector to help with service delivery. However, struggling consumers will find their odds of opening credit lines are still strained.

According to PwC’s latest Major Banks Analysis, South Africa’s ‘Big Four’ banks – Absa, FirstRand, Nedbank, and Standard Bank – will take a R53 billion hit from non-performing loans in 2024 as their credit loss ratios rise.

The main driver behind this rise is the country’s stagnant economy, which has resulted in flat disposable income. At the same time, interest rates and inflation have risen sharply.

Higher interest rates and inflation will hurt local banks by increasing bad debt and making it more difficult for South Africans to repay their loans.

This led many banks to note that they would remain wary of accelerating credit extensions given the strains on household finances.

However, there’s an exception, as the big banks now want to ride the government’s eagerness for public-private partnerships.

Nedbank is hoping to hire more investment bankers as it seeks to take advantage of a surge of deals in renewable energy, water, and logistics in Africa’s most developed economy. 

With South Africa in the throes of an electricity crisis and intensifying water shortages, outgoing Chief Executive Officer Mike Brown told Bloomberg that the government is increasingly looking to ink public-private partnerships to address those issues adequately.

As a result, Nedbank hopes to hire more investment bankers and deploy more capital to the business to put together such deals, he said in follow-up comments to an interview on Monday.  

The lender’s corporate and investment bank has been a bright spot in recent quarters, generating R6.8 billion in headline earnings in 2023 even as operating expenses jumped.

“This infrastructure opportunity — be it renewable energy, logistics and water — we think is a multiyear growth path for our investment bank,” Brown said in the interview on Monday.

“Ideally, that is where we would want to deploy capital.”

Africa’s most developed economy has faced many energy and infrastructure challenges due to years of underinvestment and mismanagement.

As part of its response, the government introduced an offering of state-guaranteed contracts to buy power for years to come.

The program has made South Africa a top destination for green-power investments across the continent.

Standard Bank is also looking to take advantage of this, with the bank noting that it will continue to finance renewable energy projects on various scales.

The bank highlighted that its growth in home loans was subdued at only 2% for the year, and lending to small businesses declined by 5% to mitigate the impact of non-performing loans.

Credit cards and unsecured lending also saw limited growth at 2% each, respectively.

The one exception to this trend was loans to large corporations and governments, which grew 16% in 2023 due to the need to fund renewable energy projects and state deficits.

Reported with Bloomberg

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