South Africa’s largest banks are reporting a meaningful improvement in credit market conditions, supported by tighter lending standards and better-performing loan books. These findings form part of BDO South Africa’s latest Tier 1 Banking Report, which concluded that non-performing loans peaked in the second half of 2024 and have since stabilised, with credit loss ratios gradually returning to industry-normal levels. Kevin Hoff, BDO South Africa’s director and banking sector lead for financial services, described the shift as definitive, stating that the credit cycle had turned.
Key Takeaways
- Credit cycle has turned: Non-performing loans peaked in the second half of 2024 and have since stabilised, with credit loss ratios normalising from their 2023 highs and banks maintaining strong ECL coverage buffers.
- Consumer debt stress remains widespread: Despite improving conditions, 35% of loans were in arrears in Q1 2026, unsecured debt levels are 23% higher than in 2021, and the mass credit market recorded a default rate of 52%.
- Banks are diversifying revenue streams: As interest rates decline, South Africa’s major banks are increasingly growing income from fees, insurance and digital banking to reduce reliance on traditional interest income.
About Arcadia Finance
Find the right loan with Arcadia Finance. Compare offers from 19 trusted lenders with no application fees and enjoy a simple, secure application process from start to finish.
Cooling Inflation and Rate Cuts Provide Relief
According to the June report, consumers have benefited from a combination of cooling inflation and the onset of interest rate cuts, both of which have contributed to lower credit costs and created additional room for future credit extension across the country.
The South African Reserve Bank (SARB) began its rate-cutting cycle in late 2024, reducing the repo rate incrementally to ease the burden on borrowers who had faced some of the highest borrowing costs in over a decade.
The report further indicates that credit loss ratios have normalised towards the lower end of through-the-cycle target ranges. Enhanced risk modelling and proactive collections strategies have also successfully limited the migration of loans into non-performing status, offering banks greater confidence in the quality of their existing books.
Consumer Default Trends: What the Data Shows
Experian’s Consumer Default Index recorded a notable improvement, moving from 4.04 in December 2023 to 3.68 by December 2024, representing a 9% year-on-year improvement, although total debt tracked within the index remained elevated at R21.6 billion.
Key improvements by credit product type included:
- Home loan defaults improved by 20% over the period
- Vehicle finance defaults improved by 12% over the same period
The Consumer Default Index (CDI) measures the rate at which consumers are failing to meet their debt obligations. A lower score indicates fewer defaults across the measured credit population, and is considered a leading indicator of financial health within the credit market.
Experian noted that mid- to high-affluence consumers, who typically qualify for premium credit products such as home loans, were beginning to see an improvement after a prolonged period of deterioration. The company also suggested that this segment of the market may have reached a point of debt saturation, where consumers are simply unable to take on any additional premium credit products regardless of their willingness to do so.
DebtBusters: Debt Burden Easing but Still High
DebtBusters likewise reported an improvement in consumer debt burdens. Consumers who applied for debt counselling during the first quarter of 2026 required 64% of their take-home pay to service existing debt obligations, a meaningful decline from the peak of 73% recorded in 2021.
Debt counselling in South Africa is a formal, legislated process governed by the National Credit Act. Consumers who are over-indebted can apply to a registered debt counsellor, who then negotiates restructured repayment terms with creditors on their behalf.
The debt-management company attributed a portion of this improvement to successive interest rate cuts as well as consumer access to the two-pot retirement savings system, which allowed many South Africans to access a portion of their retirement funds for immediate financial relief.
However, despite these improvements, DebtBusters cautioned that the average number of credit agreements per applicant had risen to its highest level since 2017, while unsecured debt levels were now 23% higher on average compared to 2021.
Debt Stress Remains Widespread
The Eighty20/XDS Credit Stress Report for the first quarter of 2026 painted a more cautious picture, finding that overdue debt had increased by 13.9% year-on-year, driven primarily by rising arrears on credit cards, vehicle finance and personal loans. The report further found that 35% of all loans were in arrears during the quarter.
Arrears refer to payments that are overdue or have not been made by the agreed-upon date. A loan is typically classified as in arrears once a scheduled payment is missed, and prolonged arrears can lead to a loan being reclassified as non-performing.
The report noted that ongoing geopolitical tensions, particularly the conflict in the Middle East, are likely to weaken the economic outlook and could place further pressure on South African consumers through higher import costs and rand volatility.
Loan balances across segments showed a mixed picture:
| Market Segment | Loan Balance Change | Default Rate (Q1 2026) |
|---|---|---|
| Mass credit market | +0.7% | 52% |
| Middle class | Declined | 43% |
| Heavy hitters (top 5%, R42 100–R120 000/month) | +7.2% | 24% |
| Students and scholars | +14.4% | 45% |
The Burden on Lower-Income Consumers
The mass credit market continues to bear the heaviest burden, recording the highest proportion of defaulters at 52% in the first quarter of 2026. Students and scholars followed at 45%, while middle-class workers recorded a default rate of 43%.
DebtBusters further cautioned that financial stress remains widespread despite the improving headline conditions. Among consumers applying for debt counselling:
- 96% held at least one personal loan
- 78% regularly relied on credit cards to supplement their income or meet living expenses
- 61% held a payday loan
Payday loans are short-term, high-interest credit products typically used to bridge cash flow gaps between salary payments. In South Africa, these products are regulated under the National Credit Act, but their high cost of credit makes them a significant contributor to debt distress when used repeatedly.
Banks Emerge in a Stronger Position
Despite the broader challenges facing consumers, Hoff argued that South Africa’s major banks have navigated the difficult period from a position of growing strength. Credit loss ratios have normalised from their 2023 highs, and banks have maintained elevated expected credit loss (ECL) coverage buffers as a precaution against future deterioration.
The BDO report also highlighted growing contributions from fee income, insurance revenues and digital banking as banks actively adapt their business models to a lower interest rate environment, diversifying away from pure interest income as their primary revenue driver.
A Cautious Outlook Despite Recovery
Hoff noted, however, that the broader market backdrop was no longer uniformly positive. Persistent uncertainties, including geopolitical tensions and uneven regional economic growth, mean that while the pipeline ahead shows promise, the conditions underpinning the next phase of credit expansion will be tested against a considerably more challenging global environment than the one that preceded the current recovery.
Conclusion
South Africa’s credit market is showing genuine signs of recovery, with non-performing loans stabilising, credit loss ratios normalising, and banks emerging from a difficult cycle in a demonstrably stronger position. However, the improvement is uneven, with mass-market consumers, students and lower-income borrowers continuing to carry significant debt burdens even as conditions ease at the higher end of the market. Banks are adapting thoughtfully to a lower interest rate environment by broadening their revenue bases, yet persistent geopolitical uncertainty and uneven economic growth mean that the road ahead demands continued caution. The overall picture is one of cautious optimism, where the foundations for the next phase of credit expansion are being carefully laid, but by no means taken for granted.
Fast, uncomplicated, and trustworthy loan comparisons
At Arcadia Finance, you can compare loan offers from multiple lenders with no obligation and free of charge. Get a clear overview of your options and choose the best deal for you.
Fill out our form today to easily compare interest rates from 19 banks and find the right loan for you.
