
South African banks have seen a notable increase in revenue this year, thanks to a more favorable macroeconomic environment and a stabilizing political situation that brightens the outlook for the country’s banking sector.
In the first half of 2024, Standard Bank reported headline earnings of 22 billion rand ($1.22 billion), reflecting a 4% rise from the same period last year, alongside a return on equity of 18.5%. Meanwhile, Old Mutual’s pretax profit skyrocketed by over 10% to 9.22 billion rand ($510 million), and Capitec’s headline earnings surged by 36% to 6.4 billion rand ($354 million).
FirstRand, Absa, and Nedbank also displayed similarly strong revenue growth. Overall, South Africa’s major banks achieved an aggregate headline earnings growth of 2.5% in the first half of 2024 compared to 2023, despite facing a challenging macroeconomic environment marked by a tumultuous election campaign and notable political uncertainty.
What factors contribute to this impressive overall performance? A significant part of the explanation is the elevated interest rates in South Africa and worldwide. With interest rates starting at 8.25% for the year and now at 7.75%—compared to pandemic levels of around 3.5%—this has favorably influenced the net interest income generated from outstanding loans by South African banks.
South African firms expand across the continent
Another driver of growth is the increasing investment by major South African financial entities in diverse African markets.
Moreover, international banks headquartered in the UK or Europe, such as HSBC, Standard Chartered, and BNP Paribas are gradually withdrawing from Africa to focus on their core operations and markets. This shift has opened up opportunities for Africa’s leading financial institutions, many of which are South African, to occupy the space left by their exit.
However, pan-African expansion poses its own set of challenges. While numerous African markets are experiencing significant revenue growth in local currency terms, the persistent strength of the US dollar and the considerable devaluation of African currencies create hurdles for international banks operating in these regions.
Yet, the potential benefits are substantial. For example, 41% of Standard Bank’s headline earnings now come from its operations in the “Africa regions,” with particularly robust growth in countries such as Angola, Ghana, Kenya, Mozambique, and Nigeria. Thanks to their expansion across Africa, Standard Bank’s active client base grew by 5% in the first half of the year.
Other South African banks are following suit by striving to extend their presence across the continent. Nedbank is seeking to reduce its dependence on South Africa by entering new African markets, with a recent objective to boost the profit share from other African nations from the current 9.2% to nearly 40% within the next ten years.
Making strides in fintech
Another factor contributing to their excellent performance is the swift embrace of digitalization by South African banks. A recent report by PwC noted that “the migration of customers to digital banking platforms and channels […] has shifted from being a theme to a certainty.”
The report highlighted, “South Africa’s major banks have consistently increased their number of digitally active clients every reporting period since the second half of 2019, totaling approximately 20 million.” This transition towards digital banking has enabled South African banks not only to enlarge their customer base but also to improve and customize the customer experience, all while implementing cost-saving strategies that enhance profitability.
These digitalization trends have also fueled the growth of South Africa’s fintech sector, emerging as a significant player in the country’s financial ecosystem. By 2023, South Africa was home to 140 fintech start-ups, representing about 20% of the total across the African continent. Many traditional financial institutions in South Africa see the growth potential in these new fintech ventures and actively support their progress.
For instance, in March this year, Standard Bank announced a 200 million rand ($11 million) “growth facility” for the Johannesburg-based fintech Float, which offers “buy now, pay later” services, enabling consumers to use credit cards and spread payments over 24 interest-free and fee-free monthly installments. This funding will allow Float to expand its platform extensively and accelerate its growth trajectory over the next four years.
Standard Bank noted that “Float aligns with Standard Bank’s strategy of fostering sustainable growth and supporting fintech businesses that enhance financial inclusion and digital transformation across Africa […] assisting innovative, high-growth enterprises is a key element of achieving sustainable growth in the African technology, media, and telecom sectors.”
The promise of South Africa’s fintech sector is vividly demonstrated by the substantial investments secured this year. In December, the South African digital bank Tyme Group reached unicorn status by securing $250 million from Brazilian firm Nubank in a Series D funding round that valued the company at $1.5 billion.
TymeBank, which serves lower-income and financially underserved communities, already boasts 10 million users in South Africa. This strategy has produced impressive growth before Nubank’s investment, with its net operating income tripling year-on-year in 2024, even as operational expenses rose by 10%.
Further growth is anticipated for TymeBank and other South African fintechs, with projections indicating that the number of South Africans using neobanks will reach 19.5 million by 2027, driven by increasing demand for mobile banking and a focus on serving underserved populations through digital solutions.
Coalition government stability
The outlook for South Africa and its banking sector remains optimistic. The formation of a stable coalition government following a historic election in May has provided reassurance to investors and businesses, particularly as the government initiates an ambitious reform agenda in key areas such as energy and logistics.
While ongoing issues, particularly related to ports and rail networks, have hindered growth, the new coalition government has emphasized addressing these challenges as critical. South Africa’s government of national unity (GNU) has also committed to enhancing job creation, reducing public debt, and investing in infrastructure.
The Bureau for Economic Research predicts that these reforms will result in a stronger growth rate of 2.2% by 2025. With inflation tapering off, the South African rand stabilizing and appreciating against the US dollar, and a projected decrease in interest rates, the growth outlook for South Africa appears promising. Similar trends are anticipated in the key markets where South African banks operate.
Recently, global credit ratings agency S&P revised its outlook for South African debt from “stable” to “positive,” indicating that the upgrade “reflects our view that increased political stability following the May general elections and a push for reforms could enhance private investment and GDP growth.” Although South Africa’s rating remains at BB-, which is below investment grade, a potential credit rating upgrade could lower the government’s borrowing costs when seeking to fund its infrastructure initiatives.
South Africa’s banks have showcased their resilience amidst challenging macroeconomic conditions, with vigorous expansion and digitalization efforts propelling increased revenues and profitability. As economic pressures ease and higher growth levels are projected, South African banks are poised to maintain this favorable trajectory.