Standard Bank, Absa, FirstRand and Nedbank score big

South Africa’s Big Four banks performed well in 2024, as their credit loss ratios and credit impairments dropped—while headline earnings hit close to R120 billion.

PwC’s Major Banks Analysis highlights key themes affecting South Africa’s ‘Big Four’ banks—Absa, FirstRand, Nedbank and Standard Bank—which hold 83% of the total banking sector’s assets.

2024 was a turbulent year for global and regional economies due to heightened uncertainty, geopolitical tensions and shifting trade dynamics.

Although inflation moderated, delayed interest rate cuts placed a strain on the position of several developing economies.

However, South Africa saw many positive developments that countered this.

Most notably, the creation of the Government of National Unity (GNU) meant that structural reforms became more likely, especially in the nation’s energy supply and logistics.

These factors contributed to a stronger rand and relatively improved investor sentiment.

Despite the improvements, though, the rand remained weak, unemployment remained high and real GDP growth was just 0.6%.

PwC said South African banks demonstrated resilience by navigating these and other complex conditions with “strategic agility”.

“2024 has been another testament to the strength and adaptability of South Africa’s banking sector,” said Rivaan Roopnarain, PwC South Africa Banking and Capital Markets Partner.

“Despite continuing and evolving challenges in the global, regional and domestic operating environment, the major banks’ management teams remained focused on delivering value to customers, managing risks and investing in future growth opportunities.”

Several themes emerged from PwC’s analysis of the major banks over the year, including the solid foundations as bank balance sheets remained anchored by robust capital and liquidity needs.

The “Big Four” have solid buffers beyond regulatory requirements, supporting risk-taking and strategic investments.

Earnings growth was also resilient in 2024 due to steady growth in lending (5.4%) and deposit-taking (8.7%)

Larger balance sheets and increased customer numbers meant that core banking activity revenues saw good growth.

There were differing experiences across the banks’ trading businesses due to divergent strategies and market volatility.

Moreover, sub-Saharan Africa remained central to the overall bank strategy, with banks trying to attract young, mobile, and digitally savvy individuals in high-growth markets.

Banks operating at scale saw strong underlying growth and constant currency performance in several West and East African territories, diversifying their businesses and revenue streams.

That said, regulatory challenges, economic constraints and significant currency volatility dampened results in rand terms.

Credit boost

High accounting standards and strong risk management meant that credit provisions kept pace with balance sheet growth, allowing the banks to navigate some risky credit markets.

Overall credit performance in 2024 improved, with the combined credit loss ratio declining from 102 basis points in 2023 to 89 basis points in 2024.

Improved credit trends, especially within retail lending, led to lower credit impairments and supported overall earnings growth.

The credit loss ratio reflects the total income statement impairment charge against average gross loans and advances.

It is sensitive to several factors, including forward-looking macroeconomic outlook scenarios, sector-specific behavioural characteristics, and individual credit quality.

PwC has consistently commented on the relationship between market interest rates and credit impairment charges.

However, in 2024, much of the portfolio stress came from elevated interest rates and was incorporated into credit models, muting the effect of new impairments.

Additionally, inflows into early arrear portfolios were actively managed via enhanced collection strategies and close monitoring by the major banks’ credit teams.

The credit loss ratio of South Africa’s biggest banks in 2024 remains at the higher end of the banks’ through-the-cycle range of between 70 and 100 basis points, at 89 basis points.

Nevertheless, the reduction is still an improvement from prior years. The credit loss ratio of 0.89% in 2H24 is far below the 1.1% in 1H23 and 2.32% in 1H20.