Stanbic, Absa, FNB well positioned to weather spillovers from US-Iran war – Fitch

South Africa's leading banks, including Standard Bank, Absa, and First National Bank, along with their parent holding companies, are in a strong position to withstand the economic repercussions of the escalating US-Iran conflict, according to Fitch Ratings. The report highlights the banks' robust franchises, diverse revenue streams, robust profitability, and ample capital and liquidity reserves as key factors contributing to their resilience.

The ongoing conflict has led to a rise in South Africa's headline inflation to 5.0% in June 2026, up from 3% in February 2026. In response to the inflationary pressure, the South African Reserve Bank increased the repo rate by 25 basis points to 7% in May 2026. Fitch projects an additional 25 basis points increase by year-end 2026, followed by a 50 basis point reduction by end-2027.

These rate changes, coupled with the forecasted acceleration in real GDP growth from 1.1% in 2025 to 1.3% in 2026, are expected to maintain stable profitability metrics in the near term.

Although impaired loan ratios remain elevated, Fitch notes that they are gradually decreasing and well-covered by existing loan loss allowances, which take into account the value of tangible collateral and the prospects for recovery. The pre-impairment operating profits provide a substantial buffer against loan impairment charges, thereby bolstering internal capital generation.

The banks' common equity Tier 1 capital ratios stand at 12.0%-13.1% as of end-2025 (for Investec Limited, the figure is for the first quarter of 2026). These ratios surpass the regulatory minimum requirements, ensuring a strong capital base. The sector's overall funding and liquidity positions are robust, with the net stable funding ratio and liquidity coverage ratio both sitting at 117% and 161%, respectively, as of end-May 2026.

In an effort to bolster their resilience further, the five major banking groups have recently introduced a new debt class called FLAC (Fixed Rate Absorption Convertible). This innovative instrument is designed to absorb losses and convert into regulatory capital during the event of bank resolution. The implementation of FLAC is being rolled out gradually over a period of six years, with banks required to meet 60% of the base requirement by the end of 2028 and achieve full compliance by the end of 2031.

Fitch has upgraded the credit ratings of the banks and their holding companies, as well as their BHCs, to 'BB' with a Stable Outlook from 'BB-' with a Stable Outlook in June 2026. This upgrade was prompted by the sovereign credit upgrade, which has alleviated the sovereign credit constraint on the banks' individual credit profiles. The Stable Outlooks assigned to the banks' and BHCs' Long-Term Issuer Default Ratings (IDRs) reflect this improved credit environment.