The first two interim report cards from South Africa’s big four banks are in. So far, they’re showing signs that South Africa Inc is alive and kicking.
Standard Bank, the country’s biggest traditional lender, has delivered another record performance. Nedbank, the smallest of the four, produced a flatter headline number that nevertheless exceeded expectations and offered early evidence that a year of restructuring is beginning to pay off.
Anchor Capital investment analyst Keagan Higgins says Standard Bank’s results were solid and slightly above market expectations. What impressed him was the combination of good cost control and better credit outcomes, with operating expenses up only 5% and the credit loss ratio improving to 73 basis points (bp).
The strongest growth came from corporate and investment banking (CIB), where headline earnings went up 15%. Earnings from personal and private banking (PPB) and business and commercial banking (BCB) slipped 1% and 2%, respectively.
Standard Bank Group CEO Sim Tshabalala is not particularly troubled by this gap. “The data does not support worry.” He argues that this is cyclical and does not reflect the underlying health of the bank’s retail business. Higgins agrees, saying PPB and BCB are being affected by lower interest rates and pressure on margins, rather than any obvious deterioration in the underlying franchises.
Perhaps the only blemish on an otherwise excellent performance is net interest income (NII), which grew by 4%. “Revenue was a little softer than expected, particularly NII, but the stronger credit and cost performance more than made up for that,” says Higgins.
Though Standard Bank’s valuation is “obviously less compelling” after its strong share price performance, Higgins still likes the business. Over the past year, the share price has risen 31.56% to R327.72 by the release of the interim results.
“The total return proposition remains attractive, combining robust expected earnings growth with a forecast dividend yield in the mid-single digits.”
Mergence Investment Managers portfolio manager Radebe Sipamla is bullish on the bank’s prospects. He argues that a return on equity (ROE) of 19.8% puts the bank comfortably within its 18%–22% target range. He compares that with FirstRand, which has historically commanded a valuation above two times book value on the strength of its superior returns. Standard Bank, he argues, still trades below that level and so has room to rerate.
“I don’t think the valuation is stretched,” Sipamla says. “The share has done well, but justifiably so, given how they’ve been able to sustain earnings.”
He adds that the results highlight the bank’s resilience after losing much talent. Standard has lost a string of senior executives over the past year, many to Absa. This includes Kenny Fihla, the red competitor’s new CEO.
Higgins says: “That inevitably raises questions around retention and succession.” The bigger issue is probably competitive rather than operational, he argues. “I would not see it as a material concern for the Standard Bank investment case at this point.”
Differential Capital CEO Vincent Anthonyrajah says losing good people is never a good thing. Fihla, who was instrumental in Standard Bank’s growth, knows the “secret sauce”. Still, Standard Bank has a breadth and depth that other banks lack, says Anthonyrajah. “Even the benchwarmers at Standard Bank are really high calibre.”
The bank “grudgingly” accepts this. It’s actually good for South Africa Inc, says Tshabalala. “If there’s better and greater competition, it improves the client experience. It’s not comfortable for those of us who are subject to departures, but it’s part of the business.”
The Africa regions division now contributes 40% of group earnings, while Standard Bank’s presence in 21 African countries gives it particular strength in corporate banking, payments and cross-border flows. That footprint is arguably its greatest competitive advantage.
“We have not even begun to scratch the surface [in Africa],” says Tshabalala. “The continent will be growing faster than every single major region in the world. And we are well positioned to benefit from this.”
Sipamla thinks this growth is unlimited, especially when considering the demographic dividend and future buying power of Africans.
“Standard Bank is in quite an enviable position relative to its competitors, because it’s going to be extremely difficult for anyone to catch up.”
That won’t stop them from trying, though.
The race to close the gap
“In Africa, you’re not fighting over a shrinking pie,” says Anthonyrajah. With its proposed acquisition of a controlling stake in NCBA, Nedbank is increasingly trying to grow beyond South Africa.
Coronation Fund Managers portfolio manager Neill Young says Nedbank remains more dependent on South Africa, where the rate of economic expansion limits how quickly the domestic franchise can grow. Expanding into markets with stronger underlying growth offers an opportunity to diversify that exposure. Unlike its previous minority investment in Ecobank Transnational, NCBA would give Nedbank control.
CFO Mike Davis says Nedbank is not acquiring a broken business that needs to be fixed. “NCBA is extremely well run, strongly profitable and well capitalised, meaning it can continue operating independently from day one.”
He adds that the group sees opportunities to bring to the East African market its expertise in areas including commercial property finance, infrastructure, renewable energy and mining, while using Nedbank’s larger balance sheet to support bigger transactions.
Nedbank’s first-half headline earnings were essentially flat at R8.4bn, while its credit loss ratio increased to 95bp from 81bp last year. Yet the market reacted enthusiastically, with the share price jumping 6.3% on results day.
“The market was expecting results to be down 2%. So obviously flat is a win in terms of expectations,” says Davis.
The comparison was distorted by Nedbank’s sale of its 20.1% Ecobank stake last year. The first half of 2025 included R927m in post-tax associate earnings that didn’t make the books this time around.
Strip out that base effect and Nedbank’s underlying headline earnings grew 12%, while diluted headline earnings increased 2%. ROE proved resilient at 15%, just under 2025’s 15.2%.
Young says investors also looked beyond the rise in credit losses to stronger non-interest revenue (NIR) and tight cost control. NII rose 4% and NIR 10%, while operating expenses increased just 3%. That helped improve the cost-to-income ratio, despite impairments jumping 26%.
Davis argues that those numbers provide early validation of some fairly substantial changes made under CEO Jason Quinn last year. There are several tangible proof points on which the organisational restructure is paying dividends, he says.
The group reorganised its retail and wealth businesses into PPB, bringing insurance closer to its individual customer base. BCB was separated into its own cluster.
“It looks like it’s starting to deliver sustainable benefits,” says Young. While it is too soon to know whether all the gains will endure, he says management appears confident that much of what it has done is “a sustainable thing, not just a one-off”.
The consumer is proving a tougher nut to crack.
“The disappointment in the first-half numbers was that the credit loss ratio printed higher than we had expected,” says Davis. The higher impairments were concentrated largely in PPB, with Nedbank seeing “signs of distress”, particularly in the middle- to lower-income market.
Davis points to the surge in fuel prices and its knock-on effect on transport costs. “A large portion of disposable income goes into paying for transport costs,” he says. The squeeze has contributed to high levels of arrears and high levels of defaults in certain parts of Nedbank’s books.
Young agrees that consumers are operating in “a more strained environment” but is not yet convinced that this represents a fundamental deterioration in household credit quality. If the inflation shock proves relatively short-lived and rate cuts resume next year, he sees the pressure as “more cyclical than a sign of massive underlying stress in these books”.
He says: “Scale has an impact here. There’s no question.” Nedbank’s smaller retail and business banking franchises leave it with higher cost-to-income ratios than some larger competitors. Closing the gap will require revenue growth as well as continued cost discipline.
“It’s not going to be easy,” Young says. But if the current operational momentum continues and credit costs begin to moderate, the bank’s longer-term targets are not impossible.
“They’re starting to put the building blocks in place to get there,” Young says. “And I think these results reflect the start of that.”
