Despite a challenging start to the year, Nedbank remains cautiously optimistic about its outlook for the remainder of 2025, citing improving credit growth, rising consumer demand, and the potential for further interest rate cuts to support economic momentum.

In a pre-close update, the lender acknowledged that the South African operating environment during the first five months of 2025 remained under pressure, shaped by weak domestic growth and heightened global uncertainty.

The bank pointed to international financial market volatility stemming from unpredictable US economic policy and escalating geopolitical tensions—particularly the widening conflict in the Middle East, which continues to threaten global oil supplies and prices.

Locally, South Africa’s economy stalled in early 2025. After modest gains at the end of last year, GDP growth slowed to just 0.1% quarter-on-quarter in Q1, down from 0.4% in Q4 2024.

The deceleration was largely due to declining government expenditure, weak investment, and a deterioration in net trade. While consumer spending provided some support to the services sector, the mining and manufacturing industries continued to struggle amid structural inefficiencies, soft commodity prices, and tepid global demand.

Nevertheless, Nedbank expects a gradual economic rebound over the next few quarters, led by increased consumer activity as real incomes rise, inflation remains subdued, and borrowing costs ease.

However, the bank revised its 2025 GDP growth forecast down from 1.4% to 1.0%, citing lingering policy uncertainty, weak fixed investment, and dampened business confidence.

The South African Reserve Bank’s monetary policy committee has already responded to the muted inflation outlook – forecast at 3.4% for the year – by reducing interest rates by a cumulative 50 basis points in the first half of 2025.

Nedbank anticipates a further 25 basis point cut in July, which would lower the prime lending rate to 10.5%, after which rates are expected to remain steady.

The group’s financial performance for the first five months of 2025 was flat compared to the same period last year, in line with its earlier guidance for earnings to be “broadly flat” in the first half of the year before improving in the second half.

The bank noted that transactional activity was hampered by sluggish economic conditions and delays in deal closures due to ongoing uncertainty.

Credit quality showed encouraging signs of improvement. As of end-May, the group’s annualised credit loss ratio (CLR) was comfortably within the upper half of its through-the-cycle target range of 60 to 100 basis points.

On the capital front, Nedbank reported a strong position, with its Common Equity Tier 1 (CET1) ratio well above the group’s board-approved target range of 11% to 12%. Liquidity levels also remained robust.

Although credit growth across the industry remained relatively subdued, Nedbank saw early signs of improvement. Corporate lending grew 7.5% in April, up from 5% in the first quarter, while household credit growth edged up to 3.0% year-on-year.

The bank expects a more meaningful recovery in credit demand during the second half of the year.