South Africa’s major banks reported resilient earnings in the first half of 2026, with combined headline earnings growth of 9.3% and return on equity of 20.5% compared with the same period in 2025.
This came after a promising domestic recovery at the start of the year was disrupted by renewed inflation, geopolitical tensions and intensifying competition, according to a statement by professional services firm PwC, which conducted an analysis of the banks' financial resuts.
“The first half of 2026 tested the banks’ ability to adapt as the expected benefits of lower inflation and interest rates gave way to a more uncertain and complex global environment. These results were not driven by a single earnings engine but instead reflected the portfolio benefits of diversification across products, sectors and geographies,” said Rivaan Roopnarain, PwC South Africa’s banking and capital markets assurance leader in a statement.
Stats SA reported that the economy contracted by 0.2% in the second quarter after expanding by 0.4% in the first quarter. Trade, manufacturing and mining were among the main contributors to the decline. Household consumption increased by 0.4%, highlighting the contrast between resilient consumer activity and challenges in several productive sectors.
The global backdrop also changed sharply. Conflict in the Middle East disrupted energy markets, lifted fuel costs and revived inflationary pressure. South African inflation reached 5.0% in June before moderating to 4.3% in July.
The South African Reserve Bank raised the policy rate by 25 basis points to 7.0% in May and kept it unchanged in July, interrupting expectations of continued monetary easing.
Roopnarain said these cross-currents created a challenging earnings environment for South Africa’s major banks. Lower average interest rates moderated endowment income on capital and transactional deposits, while the subsequent rate increase placed additional pressure on customers’ affordability.
Nevertheless, underlying momentum was supported by combinations of retail recovery, business and wholesale banking activity, trading and market revenues, cost discipline and credit performance. These gains were offset by institution-specific factors.
“A retail recovery, momentum in business and wholesale banking, market activity, disciplined cost control and strategic portfolio choices all contributed in different measure,” Roopnarain said.
Competition centres on client relationships
Client relationships remained the primary competitive battleground, according to PwC.
Competition intensified across retail, business and corporate banking. Digital activity and transaction volumes increased, while operating models moved closer to customer segments and relationship accountability.
Digital convenience was likely to continue to dominate routine customer service, but trusted human judgement remains important during periods of complexity, financial stress, dispute resolution and high-value decision-making.
Payments, merchant services and related businesses were becoming growth engines. They support fee income, deposits and data-rich client relationships. Banks are investing more in merchant services, acquiring capabilities and selected adjacent businesses, including through partnerships and acquisitions.
“The prize is not simply transaction revenue. It is a deeper position in the client’s operating flow and financial ecosystem, with opportunities spanning working-capital finance, insurance, value-added services and analytics,” Roopnarain said.
Developments in South Africa’s payments ecosystem are likely to intensify competition, including from non-bank financial-services providers, ultimately benefiting consumers.
Banks move AI into core operations
The analysis found that artificial intelligence was moving from experimentation to enterprise execution among the major banks.
The banks are extending AI and intelligent automation into client engagement, fraud management, credit decision-making, software development and employee productivity.
“The strongest message coming out of this results period is not the number of AI and automation use cases, but the need to convert technology investment into improved client outcomes, revenue opportunities, faster decisions and sustainable efficiency,” the report said.
Yusuf Bismilla, PwC South Africa’s technology partner, said: “AI is moving quickly into the operating fabric of banking. Its value will be determined by how well it is embedded into end-to-end processes, underpinned by trusted data, strong governance and controls, explainability, accountability and effective human oversight.”
While AI adoption continued to accelerate, many banks were refining how they measure and realise value from these investments.
Operating models were also being redesigned around clients, productivity and AI. Some banks were reorganising existing franchises, while others were integrating acquired payments, fleet, merchant and regional capabilities. These moves are intended to improve cross-selling and decision-making, but they also raise the execution bar.
“Ultimately, value will depend on disciplined integration, removal of duplication and measurable productivity, not organisational change alone,” PwC said.
Consumer recovery remains uneven
PwC said the consumer recovery had been interrupted, but not extinguished.
Lower interest rates and moderating inflation had begun to support household affordability, with improved activity in some areas, including cards, vehicle finance, home loans, payments and insurance. Higher fuel and transport costs slowed that progress.
The consumer outlook was likely to remain uneven across income groups and products, making detailed portfolio management increasingly important.
Pan-African diversification
Pan-African diversification was uneven.
Operations outside South Africa provided access to faster-growing markets, expanding demand for financial services and favourable demographics. The results also illustrated different routes to regional growth, including organic investment, customer-segment operating models, partnerships and selective acquisitions.
Currency movements, sovereign risk, liquidity constraints and differing interest-rate cycles would continue to create volatility for African operations, the report's authors wrote.
Edward.west@nationalmg.co.za
THE NATIONAL