South Africa's major banks (Standard Bank, Absa and First National Bank) and their bank holding companies (BHCs) are well positioned to weather spillovers from the US-Iran war, reflecting their strong franchises and diversification, healthy profitability, and sound capital and liquidity buffers, Fitch Ratings has said in a new report.

The spillovers of the US-Iran conflict pushed South Africa’s headline inflation to 5.0% in June 2026 (February 2026: 3%), with the South African Reserve Bank raising the repo rate by 25bp to 7% in May 2026.

Fitch forecasts a further 25 basis points rise by end-2026, followed by a 50 basis points cut by end-2027, which, together with accelerating real Gross Domestic Product (GDP) growth (1.3% forecast in 2026; 2025: 1.1%), should ensure profitability metrics remain broadly stable in the near term.

According to the UK-based firm, impaired loans ratios remain elevated but are on a declining path, adequately covered by specific loan loss allowances, which consider tangible collateral and recovery prospects.

Pre-impairment operating profits provide a large buffer to absorb loan impairment charges and support internal capital generation. Common equity Tier 1 capital ratios of 12.0%-13.1% at end-2025 (excluding unappropriated profits; end-1Q26 for Investec Limited) are comfortably above regulatory minimums.

Funding and liquidity are sound, with the sector’s net stable funding ratio and liquidity coverage ratio at 117% and 161%, respectively, at end-May 2026.

The five 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.

Fitch upgraded the banks' and BHCs' Long-Term Issuer Default Ratings (IDR) to ‘BB’/Stable, from ‘BB-‌’/Stable, in June 2026, following the sovereign upgrade, reflecting the easing of the sovereign constraint on their standalone credit profiles.

The Stable Outlooks on the Long-Term IDRs mirror that on the sovereign’s Long-Term IDR.