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Februar y 2025 African Business 9 Business Intelligence News The infrastructure policies of South Africa’s government of national unity could unlock more lending opportunities for the countr y’s banks, predicts S&P. Camilla Mina reports. Banks’ performance in South Africa is expected to improve under the government of national unity, according to a report from S&P Global Rat ings. The firm’s South Africa Banking Outlook 2025 says that credit conditions in South Africa are set to ease gradually through 2025 amid moderating inflation and interest rate cuts. (See also page 66.) The outlook for the sector is further bolstered by planned economic reforms led by the government of national unity (GNU), a coalition comprising the African National Congress and its long-time opponents in the more pro-business Democratic Alliance, which largely focus on addressing the country’s longstanding infrastructure deficits. “We forecast that growth in credit to the private sector will accelerate and hover around 8% to 9% in 2025, mainly stemming from investments in infrastructure, including logistics and renewable projects. Private sector credit to GDP will slightly increase to about 80% from an estimated 76% in 2024,” the authors write. The report said that opportunities opened up by the GNU in infrastructure spending will offer lending opportunities for the banki ng s e c t or. “Progress in addressing the energy constraints in the country and a pick-up in private investment will support economic growth in 2025… Planned economic reforms under the GNU, which largely focus on addressing infrastructure deficits particularly in the railway, ports, energy, and water sectors, will create lending opportunities for banks. For example, the private sector pipeline of 22,500 MW of energy generation projects is nearly 400bn rand [$21.5bn] over the medium term. This will also be supported by the decrease in interest rates.” Profitability to remain strong As well as increasing lending, the improving business climate could also benefit banks’ existing loan books. “We expect the banking sector’s credit loss ratio will normalise below 1% in 2025, closer to historical trends, as pressure on households’ disposable incomes eases because of lower inflation and d e c r e a s i n g i nt e r e s t r a t e s... Coalition reforms expected to boost South African banks We anticipate that the sector will maintain strong average return on equity of 15% to 16%, despite lower interest rates, supported by higher credit growth, noninterest income, and lower provisioning,” the authors write. “We expect banks’ profitabilit y to remain strong.” In 2024 the banks’ asset quality metrics – used to assess the riskiness of their loans and the qualit y of their overall assets – improved but remained under pressure. Households’ disposable incomes and ability to repay debt were constrained by high interest rates and relatively high food prices. “We anticipate that improving macroeconomic conditions in South Africa, and the abilit y of households to access part of their retirement savings through the recent two-pot retirement system, will ease pressure on their capacity to ser vice debt,” the authors write. The two-pot system will allow retirement fund members to make partial withdrawals from their retirement funds, while preser ving a portion that can be accessed only at retirement. Selemela Solar Park near Lichtenburg contributes 256 MW to the 22,500 MW of planned renewable energy generation projects in South Africa.

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