South Africa's major banks, including Standard Bank, Absa, and First National Bank, are seen as well-positioned to weather the potential spillovers from the US-Iran conflict, according to Fitch Ratings.
The conflict has already pushed South Africa's headline inflation to 5.0% in June 2026, up from 3% in February of the same year. This increase in inflation has led the South African Reserve Bank to raise the repo rate by 25 basis points to 7% in May 2026.
Banking Sector Resilience
Fitch Ratings has stated that South Africa's major banks and their bank holding companies are reflecting their strong franchises and diversification, healthy profitability, and sound capital and liquidity buffers. These factors should enable them to absorb potential spillovers from the US-Iran conflict.
According to Fitch, impaired loans ratios remain elevated but are on a declining path, adequately covered by specific loan loss allowances. Pre-impairment operating profits provide a large buffer to absorb loan impairment charges and support internal capital generation.
Capital and Liquidity Buffers
The banking sector's common equity Tier 1 capital ratios of 12.0%-13.1% at end-2025 are comfortably above regulatory minimums. Funding and liquidity are also sound, with the sector's net stable funding ratio and liquidity coverage ratio at 117% and 161%, respectively, at end-May 2026.
New Debt Class for Loss Absorption
The five major banking groups have begun issuing a new debt class, FLAC, designed for loss absorption and conversion to regulatory capital during bank resolution. The requirements are being phased in over six years, with banks required to meet 60% of their base requirement by end-2028 and reach full compliance by end-2031.
Ratings Upgrade
Fitch Ratings has upgraded the banks' and bank holding companies' Long-Term Issuer Default Ratings (IDR) to 'BB'/Stable, from 'BB-'/Stable, in June 2026, following the sovereign upgrade. This upgrade reflects the easing of the sovereign constraint on their standalone credit profiles.
Stable Outlooks
The Stable Outlooks on the Long-Term IDRs mirror that on the sovereign's Long-Term IDR. This indicates that Fitch Ratings expects the banks and bank holding companies to maintain their current credit profiles in the near term.
The US-Iran conflict is likely to have significant implications for the global economy, and South Africa's major banks are well-positioned to weather any potential spillovers. However, the ongoing situation in the Middle East remains uncertain, and it is essential to monitor developments in the region to assess the potential impact on the banking sector.
Source: Joy Online
