Nedbank: Growth slows, inflation peaks and rates stay higher for longer

A sudden diplomatic resolution in the Middle East has shifted South Africa’s inflationary trajectory, offering a late second-quarter reprieve to domestic banks and consumers after an aggressive spike in energy costs forced a sharp revision to the national growth outlook.

According to Nedbank Group Limited’s H1 2026 pre-close investor update released on Wednesday, South Africa’s operating environment during the first five months of the year remained profoundly mixed.

While real GDP growth surprised on the upside in the first quarter, expanding by 0.5% quarter-on-quarter via strong net trade positions, domestic demand contracted sharply due to a relapse in fixed investment and a marked slowdown in consumer spending.

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As a direct consequence of global supply chain disruptions and volatile energy markets, Nedbank officially downgraded its full-year South African GDP growth forecast for 2026 to approximately 1.3%, down from the 1.5% it had projected in February.

Nedbank share price

The inflation rollercoaster and policy guardrails

The primary risk catalyst during the first half of the year was the escalation of conflict in the Middle East, which directly fuelled local transport and manufacturing costs.

Higher fuel prices drove South African consumer inflation up from a low of 3% in February to 4.5% in May.

This rapid acceleration prompted the South African Reserve Bank’s (Sarb) Monetary Policy Committee (MPC) to hike the prime lending rate by 25 basis points to 10.5% in May.

Read: Sarb hikes rates by 25 basis points

However, the macroeconomic landscape has experienced a sharp structural pivot. In its disclosure, Nedbank highlighted an international breakthrough that is set to reverse these mounting price pressures: “Inflation will likely rise further to a peak of around 4.6% in June, before easing to about 3.2% by year-end, as global oil prices reduced in recent weeks after the US and Iran reached an agreement to end hostilities and reopen the Strait of Hormuz.”

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Despite this recent de-escalation, the bank anticipates that the MPC will maintain a cautious and measured stance, holding interest rates at their current elevated levels until inflation trends permanently toward the Sarb’s 3% target, deferring further monetary easing into 2027.

Core operations vs credit stress

Financially, Nedbank’s performance for the five-month period aligned broadly with management’s initial expectations. Pre-provisioning operating profit growth climbed at an upper single-digit rate when excluding associate income.

This underlying operational momentum was, however, materially offset by a rising impairment charge and the complete absence of associate income from Ecobank Transnational Incorporated following the disposal of the investment in 2025.

Nedbank’s credit risk profile highlighted a stark divergence between corporate resilience and household distress during the five-month period.

While the credit loss ratio for Corporate and Investment Banking remained exceptionally healthy, sitting below its through-the-cycle target range of 60 bps to 100 bps, the Business and Commercial Banking unit saw its ratio increase into the lower end of that range due to a single client default.

Conversely, the Personal and Private Banking division increased to slightly above the top end of its through-the-cycle target range, severely impacted by deteriorating underlying macroeconomic assumptions and rising consumer delinquencies across most asset classes.

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Net interest income grew at a low-to-mid-single-digit pace, suppressed by a contraction in the group’s net interest margin. This margin erosion was primarily a run-rate consequence of the interest rate cuts implemented during 2025, which dragged down endowment income.

In contrast, non-interest revenue posted robust upper-single-digit growth, powered by double-digit expansion in insurance income and solid fee generation from value-added services.

Operating expenses remained exceptionally tight, expanding at a below-mid-single-digit rate across computer processing, travel, and wages.

Sovereign upgrades and East African expansion

Despite a complex domestic credit environment, the broader fiscal backdrop for South Africa has received significant reinforcement from global credit rating agencies.

Following S&P’s rating upgrade of the South African sovereign to BB (positive outlook) in late 2025, Moody’s affirmed its Ba2 rating with a revised positive outlook, while Fitch upgraded the country’s long-term foreign currency rating from BB- to BB with a stable outlook.

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On the deal-making front, Nedbank provided an operational timeline regarding its ongoing corporate transaction with Kenya’s NCBA Group. Offer documents were officially distributed to NCBA shareholders on 4 May 2026, with the formal acceptance window opening on 28 May and closing on 10 July 2026.