South Africa’s Tier 1 Banks Deliver Stability Through Strategic Intent

South Africa's largest banks have emerged from one of the most turbulent macro-economic cycles in recent memory not merely intact, but stronger.

That is the central finding of BDO South Africa's May 2026 Tier 1 Banking Report, which analyses the results of the country's biggest banking groups.

Kevin Hoff, BDO South Africa Director and Banking Sector Lead for Financial Services, says the 2025/26 reporting cycle marks a genuine inflection point for the sector.
One of the most significant structural shifts in BDO's analysis is the growing contribution of Non-Interest Revenue across the sector. As the SARB began its rate-cutting cycle in 2025, the "endowment effect" that had bolstered Net Interest Income during the high-rate environment started to fade. In response, the Tier 1 Banks activated fee income, digital transaction revenues, and insurance revenues as a primary earnings engine, with Non-Interest Revenue in the Corporate and Investment Banking segment growing by an average of 9.9%.

"The move from being interest-rate sensitive to ecosystem-led is showing up in the numbers," says Hoff. "The banks that entered this declining rate cycle with a diversified revenue base are the ones posting the most resilient results."

Net Interest Margins have compressed sector-wide, but stabilised within manageable ranges, with banks defending margins through disciplined asset pricing, growing customer bases and active endowment hedging, despite the declining interest rate environment.

The strategic focus on Pan-African operations has matured from an aspiration into an indispensable profit driver. Regional businesses across markets including Kenya, Nigeria, and Mauritius are delivering Return on Equity well above domestic banking operations, averaging 4–5% GDP growth compared to South Africa's 1.1% in 2025.

Possibly the most consequential development for the sector’s medium-term outlook is the decisive improvement in asset quality. Credit Loss Ratios have normalised sharply from FY23 peak levels, with the major banks now sitting comfortably within or toward the lower end of their through-the-cycle target ranges. In the Corporate and Investment Banking segment, the average Credit Loss Ratio improved to 10.5%, reflecting a significant moderation from prior-period elevated levels as the impact of the restrictive monetary environment continued to ease. This trend mirrors the broader report findings, which point to a period of credit normalisation supported by enhanced underwriting precision, improved collections strategies, and the early migration of Stage 3 balances back toward performing status.

Non-performing loans peaked in the second half of 2024 and have since stabilised, with early signs of Stage 3 balances migrating back toward performing status.

"The credit cycle has definitively turned," says Hoff. "Consumers benefited from cooling inflation and the onset of rate cuts, and you can see that clearly in the numbers. Lower credit costs and more headroom for credit extension, that is what the next financial year looks like."

Despite the improvement, banks have maintained elevated ECL coverage buffers as a precautionary measure to cover continuing global and macro-economic uncertainty; a deliberate and conservative posture that Hoff sees as the right call.

The relationship between Return on Equity and Cost-to-Income ratios tells a compelling story about the payoff from years of digital investment, whilst also serving as the key differentiator for the relative performance and successes of each of the 6 large banks featured in the BDO analysis. Across the peer group, banks are generally achieving positive operating leverage, growing balance sheets while keeping cost ratios stable or declining, which is protecting profitability, even as margins normalise. The sector's most digitally mature business models are leading on both metrics, demonstrating that the transformation agenda has moved well beyond cost-saving into being the primary driver of ROE expansion.

South Africa's removal from the FATF Grey list is identified as one of the most significant structural tailwinds for the sector, reducing friction in cross-border transactions and lowering the country's sovereign risk profile.

"The FATF exit is genuinely significant," says Hoff. "It is not just a regulatory tick-box, but it directly supports the Pan-African growth strategies that are now a core part of these banks' earnings stories."

GDP is projected to accelerate to 1.6% in 2026, underpinned by a R1.07 trillion public-sector infrastructure pipeline and significant private energy investment. However, global geopolitical uncertainty, reflected in South Africa's Policy Uncertainty Index rising to 77.8 in Q1 2026, continues to prompt caution from the SARB and may delay the full benefit of the rate-cutting cycle.

Hoff’s overarching read of the results is one of cautious optimism. “What stands out is the quality of the execution by the Tier 1 banks for the year under review. These institutions spent years building the digital infrastructure, the risk modelling capability, and the regional networks that are now paying off. The results are not simply the product of a favourable macro environment, but of strategic intent, deliberately and precisely executed. That said, the broader market backdrop is no longer looking quite so rosy. Persistent uncertainties, ranging from geopolitical tensions to uneven regional growth, mean that while the pipeline ahead shows promise, the conditions for the next phase of expansion will be tested against a more challenging environment.”

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