South African banks opening the lending taps – with a catch

South Africa’s private sector credit extension, a proxy for bank lending to households and companies, has continued its strong growth. 

This is a positive indication of accelerating economic growth and a sign that South African companies and households are faring better financially and can thus afford more debt. 

However, a deeper look at the data shows that most of this growth has been driven by corporations and not households. 

This is partly because lending to corporates is coming off a low base, but is also reflective of the significant investments companies have made in alternative energy sources and water backup systems, Stanlib chief economist Kevin Lings said. 

South Africa’s private credit extension rose by a substantial R74.7 billion in December, which followed a rise of R39.2 billion in November. 

Crucially, both of these months saw month-on-month growth, indicating that private sector credit extension is accelerating. 

“Annually, private sector credit extension growth continued to accelerate. It was 8.7% y/y, up from 7.8% y/y in November, the fastest rate of growth in credit since October 2022,” Lings said.

This was above market expectations of year-on-year growth of 7.7%, surprising economists to the upside. 

However, Lings’ analysis of the monthly breakdown of credit extension reveals that corporate credit continued to drive most of the increase, rising by a robust R69.1 billion or 2.4% month-on-month.

In contrast, consumer credit increased by a much more modest R5.6 billion or 0.3% month-on-month. Lings explained that, generally, household credit remains muted and disappointing, particularly home loan growth. 

Lings expects corporate credit to maintain strong growth in 2026, helped by ongoing renewable energy projects and other investment initiatives, off a very low base. 

In this regard, corporate credit growth should not pose any threats to the Reserve Bank’s inflation outlook, as much of it will go towards investment and not consumption. 

Furthermore, coming off a low base, corporate credit growth has a long runway before it begins to concern the Reserve Bank. 

The R400 billion prize 

South African banks are expected to maintain strong lending to corporates as companies invest heavily in renewable energy generation. 

This investment has increasingly been coupled with capital being used to fund backup water systems, as companies look to reduce their reliance on ailing municipal distribution systems. 

Lings explained that investment in these parts of the economy is the main driving force behind the willingness of banks to extend credit to companies. 

Corporate lending has been subdued in South Africa over the past decade amid lacklustre economic growth and low business confidence. 

However, the need for companies to invest in backup electricity and water systems has seen them use some of their cash and raise debt to fund these projects. 

This trend is expected to continue as companies look to reduce their exposure to rapidly increasing electricity and water prices. 

S&P Global, as a result, expects bank lending growth to remain strong in 2026, with an increase of 8% to 9% projected by the rating agency. 

It noted that as South Africa’s electricity sector has been gradually opened to private players, local banks have been the main funders of these projects. 

In S&P’s South African Banking Outlook for 2026, the firm said it expects local banks to continue benefitting from positive signals in the country’s economy.

In particular, S&P highlighted slightly higher projected GDP growth of around 1.5% in 2026 and 2027, driven by increasing electricity generation by the private sector, lower interest rates, and the introduction of the two-pot retirement system.

In this environment, banks are set to benefit immensely, with lending activity expected to remain strong.

Coupled with the increased investment in the electricity sector and the need for funding, the slow opening of the logistics sector to private players presents another significant growth opportunity. 

“Banks intend to finance projects related to the government-led Renewable Energy Independent Power Producer Procurement Program – which they have supported over the past few years – as well as private power projects,” S&P said.

“For example, the private sector has a pipeline of 22,500 MW in energy generation projects that amount to almost R400 billion over the medium term.”

However, reforms in the energy sector are not the only projects South African banks are set to benefit from, with S&P also highlighting lending opportunities from ongoing reforms in the railway, ports, and water sectors.