South Africa's four largest banks — Absa, FirstRand, Nedbank, and Standard Bank — delivered combined headline earnings growth of 9.4% in their 2025 financial year, pushing aggregate profits to R152.5 billion and marking one of the strongest performances in the sector's history, according to PwC's annual Major Banks Analysis released this week. The results came despite a turbulent operating environment shaped by geopolitical tensions, volatile commodity prices, and the lingering effects of domestic infrastructure challenges that have long constrained the economy.

BALANCE SHEET STRENGTH ON DISPLAY

The combined return on equity for the four lenders reached 20%, up from 19.7% in the prior year, a level that places South Africa's banks among the most profitable in any major emerging market. Combined deposits grew 8.4% to R8.3 trillion, while gross loans and advances expanded 5.8% to R6.8 trillion. The common equity tier 1 ratio edged up to 17.3% from 17.2%, underscoring the conservative capital management that has been a hallmark of South African banking through multiple economic cycles.

Credit quality showed continued improvement, with the combined credit loss ratio declining to 182 basis points from 187 basis points a year earlier. Total non-performing loans fell 0.2%, comprising 5.1% of gross loans and advances compared to 5.4% in the prior year. The improvement reflected a combination of tighter underwriting standards, better collection performance, and a modest recovery in household financial health as inflation fell to an average of roughly 3.2% during the year — a level that gave the South African Reserve Bank scope to cut the repo rate to 6.75% by year-end.

ABSA'S AFRICA BET PAYS OFF

Among the individual results, Absa Group's performance stood out for the strength of its pan-African strategy. The lender reported headline earnings growth of 12% to R24.8 billion, supported by a 51% surge in profits from its Africa Regional Operations division. That unit now accounts for approximately 10% of overall headline earnings, up from a much smaller share just a few years ago, and its growth trajectory has prompted Absa to accelerate expansion plans across the continent.

East Africa, often described as the continent's most dynamic subregion, remained a standout performer for banks with regional footprints, offering fast-expanding consumer markets, infrastructure investment opportunities, and growing cross-border economic integration. West Africa presented a more mixed picture: while Nigeria and Ghana offer long-term structural opportunity, currency volatility and inflation continued to weigh on reported earnings in rand terms.

DOMESTIC TAILWINDS EMERGE

Several developments supported domestic optimism during the year. South Africa was removed from the Financial Action Task Force grey list, a milestone that had weighed on the country's reputation and complicated international banking relationships. Credit rating upgrades from major agencies provided further validation, and household credit demand — subdued for an extended period — showed signs of recovery as lower inflation and rate cuts improved affordability.

The cost-to-income ratio for the combined sector remained well-managed at 51%, up marginally from 50.4%, reflecting continued investment in technology and digital infrastructure alongside disciplined headcount management. Non-interest revenue growth of 9.3% was a key driver of earnings, as banks benefited from increased transactional activity and stronger performance in their global markets and investment banking divisions during periods of elevated market volatility.

ENERGY TRANSITION AS COMMERCIAL OPPORTUNITY

A recurring theme across all four sets of results was the framing of South Africa's energy transition as a primary commercial growth driver rather than merely a regulatory obligation. Renewable energy finance has moved into the mainstream of corporate and investment banking, with management teams across the sector positioning their institutions to capture the bankable infrastructure investment being generated by the country's shift away from coal-dominated power generation.

PwC's Francois Prinsloo, who leads the firm's banking analysis, noted that the results "reflect familiar themes observed over recent periods: broad-based balance sheet resilience, disciplined cost management, and the continued pursuit of growth in Africa." The question for 2026 is whether the favourable domestic trends can be sustained in the face of the headwinds now building globally — particularly the sharp rise in energy prices triggered by the Middle East conflict, which threatens to reverse some of the inflation progress that enabled the Reserve Bank's easing cycle.