South African banks closing the taps – but not for everyone 

South Africa’s big banks are closing their lending taps due to a rise in nonperforming loans but are still willing to extend credit to certain sectors and wealthy individuals. 

Standard Bank South Africa CEO Lungisa Fuzile said that while household credit growth is slowing, higher-income households remain in a strong position. The bank will also continue to finance renewable energy projects on various scales. 

This echoes broader analyses of the banking sector, with S&P Ratings saying that South African banks will reduce their lending in 2024 due to a rise in bad loans. 

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 pay back their loans. 

S&P expects the banking sector’s credit loss ratio will remain slightly higher than the historical low of 0.75%, averaging 1.4% of total loans through 2024. 

If a credit loss ratio of 1.4% persists throughout the year, South African banks could take a hit of up to R74 billion from unpaid loans. 

Similarly, non-performing loans will likely remain above 4% of systemwide loans in 2024.

These factors will combine to simultaneously subdue the private sector’s appetite for more credit and reduce local banks’ willingness to extend credit. 

Domestic credit growth will remain lower in 2024 at around 5%, after lending plunged in 2023 following a rebound in 2022 as banks became more cautious about extending credit as interest rates rose. 

However, S&P said banks are likely to extend further credit to specific sectors, such as renewable energy companies and enterprises that import renewable energy equipment, as the country continues to face an energy crisis. 

This analysis by S&P was reflected in Standard Bank’s annual financial results, with Fuzile echoing many of the issues raised by the rating agency. 

Lungisa said the South African operating environment continues to be fraught with headwinds and growing financial pressure on consumers. 

Thus, while Standard Bank South Africa recorded pre-provision profit growth of 9%, this was dampened by higher impairment charges in 2023, growing 34% compared to 2022. 

This was largely due to consumer strain linked to the elevated interest and inflationary environment and increased non-performing loans.

In response, the company reduced its household lending and raised provisions for increasing non-performing loans. 

Moreover, the bank is shifting its approach to clients by offering them different products and tightening its risk management and collection strategy. 

In particular, 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. 

The areas where Standard Bank is tightening its lending criteria can be seen in the graphs below.