Nedbank’s turnaround is taking shape – now comes the credit test

JOHANNESBURG – Nedbank’s turnaround strategy is beginning to show results, but the South African lender now faces a more difficult test: whether it can grow faster without allowing credit losses to undermine the recovery.

The bank has been reshaping its business under CEO Jason Quinn, with management targeting stronger revenue growth, improved productivity and a more focused African strategy.

The early numbers are encouraging.

But investors are increasingly looking beyond headline earnings and asking a more important question:

Is Nedbank gaining market share without sacrificing the quality of its loan book?

Earnings are moving in the right direction

Nedbank reported first-half 2026 headline earnings of approximately R8.4 billion, representing a slight increase from the comparable period.

Net interest income increased by about 4%, while non-interest revenue grew by approximately 10%.

That suggests the bank is generating stronger momentum from its core operations.

However, the picture becomes more complicated when credit costs are examined.

Nedbank’s impairment charges increased by 26%, reflecting a higher cost of credit.

That is where the next phase of the turnaround becomes particularly important.

The credit-loss ratio is rising

Nedbank’s credit loss ratio increased to approximately 95 basis points, from 81 basis points in the previous year.

That is a meaningful deterioration.

The credit-loss ratio essentially measures the level of credit impairments relative to the bank’s average lending exposure.

A higher ratio means more of the bank’s lending income is being absorbed by credit losses.

The immediate question is whether the increase represents normalisation after unusually low impairment levels or the beginning of a broader deterioration in asset quality.

Why credit quality matters

A bank can grow its loan book rapidly and still create little shareholder value if the additional lending eventually produces large losses.

That makes credit quality one of the most important indicators for investors watching Nedbank’s turnaround.

The bank’s management needs to balance three objectives:

Grow the loan book.

Nedbank wants to capture additional market share and increase lending activity.

Protect margins.

It needs sufficient pricing to compensate for funding costs and credit risk.

Control impairments.

Loans must remain sufficiently healthy so that growth does not result in excessive bad debts.

The difficulty is that these objectives can sometimes conflict.

Market-share gains are encouraging

One of the strongest signals supporting Nedbank’s strategy is improved momentum across parts of the business.

The bank previously identified stronger loan payouts and improved business pipelines as early signs that its strategic changes were gaining traction.

Nedbank also reached 8 million clients for the first time in its history.

That provides the bank with a larger customer base from which to generate deposits, lending, transaction income and other financial services revenue.

But acquiring customers is only part of the equation.

The bank needs to turn that larger customer base into profitable, sustainable relationships.

The real test is asset quality

The most important question now is whether Nedbank can maintain growth while keeping its loan book healthy.

That is particularly relevant because the South African consumer remains exposed to high living costs, household debt and economic uncertainty.

Corporate borrowers also face pressure from weak economic growth, infrastructure constraints and higher operating costs.

If economic conditions deteriorate, banks can see rising arrears and defaults.

That ultimately flows through to impairment charges.

Nedbank is investing while controlling costs

One of the more positive aspects of the turnaround is the bank’s ability to maintain cost discipline while continuing to invest in its business.

This is important because banks are under pressure to spend heavily on technology, digital channels, cybersecurity and customer acquisition.

If operating costs rise faster than revenue, the benefits of increased business activity can quickly disappear.

Nedbank’s challenge is therefore to invest enough to remain competitive without allowing its cost base to become excessive.

Digital banking remains central

Technology is an important part of Nedbank’s strategy.

The bank has reported strong growth in digital transaction volumes and values as customers increasingly use digital channels.

That shift matters because digital banking can potentially reduce the cost of servicing customers while improving convenience.

It also provides banks with more data that can be used to understand customer behaviour and improve risk management.

For Nedbank, the opportunity is to convert that digital engagement into sustainable revenue growth.

The NCBA deal changes the growth story

Nedbank is also expanding its African strategy.

The bank has agreed to acquire approximately 66% of Kenya-based NCBA for about R13.9 billion.

The transaction would significantly strengthen Nedbank’s position in East Africa.

NCBA has operations in Kenya, Uganda, Tanzania and Rwanda, alongside a digital presence in other African markets.

The acquisition would also give Nedbank access to NCBA’s fintech business, Loop.

Why NCBA matters

The deal is about more than adding another bank to Nedbank’s portfolio.

It provides exposure to markets where infrastructure investment, renewable energy, resources and corporate finance could create long-term opportunities.

Nedbank’s management has indicated that the transaction can strengthen its capabilities in areas such as corporate and investment banking, infrastructure finance and wealth management.

That creates a potentially powerful growth platform.

But it also increases execution risk.

Bigger does not automatically mean better

The acquisition comes with a fundamental banking lesson:

Growth only creates value when returns exceed the cost of capital and risks remain manageable.

Nedbank therefore needs to demonstrate that its African expansion will generate attractive returns.

The bank’s balance sheet remains strong.

At the end of 2025, Nedbank reported a CET1 ratio of 12.9% and a tier 1 capital ratio of 14.5%. Its return on equity was 15.4%.

Those figures provide a solid foundation for expansion.

However, acquisitions require careful integration and capital discipline.

The South African economy remains the wild card

Nedbank’s performance cannot be separated from the broader South African economy.

Lower interest rates can support household borrowing and economic activity.

Nedbank’s own economic research expects the gradual recovery in household credit to continue, while corporate credit should remain relatively resilient as investment in renewable energy and structural reforms continue.

But the recovery remains uneven.

A weaker economy would place pressure on borrowers and potentially increase impairments.

That is why the credit cycle will be so important over the next few quarters.

What investors should watch

There are several numbers that will tell investors whether Nedbank’s turnaround is genuinely becoming sustainable.

1. Credit loss ratio

The 95-basis-point figure needs to stabilise.

If it continues climbing, it could offset gains from revenue growth.

2. Loan growth

Nedbank needs to grow lending, but not by sacrificing underwriting standards.

3. Return on equity

The bank has targeted medium-term ROE of around 17%, compared with 15.4% in 2025.

Whether it can reach that target will depend heavily on revenue growth, costs and impairments.

4. Cost efficiency

Investors will want evidence that revenue growth is translating into improved operating leverage.

5. NCBA execution

The East African acquisition could become a major source of future growth, but integration and regulatory approval remain important milestones.

A potentially stronger Nedbank

The evidence increasingly suggests that Nedbank is moving into a different phase.

The immediate restructuring work is beginning to give way to a growth strategy.

That is visible in the bank’s expanding customer base, improved revenue performance, digital momentum and African expansion plans.

But growth creates a new set of risks.

The bank now has to prove that it can grow profitably and sustainably.

The credit test

This is why the increase in the credit loss ratio matters so much.

The question isn’t whether Nedbank can grow.

The question is whether it can grow without creating a future impairment problem.

If the credit-loss ratio stabilises while revenue continues to accelerate, Nedbank’s turnaround case becomes significantly stronger.

If impairments continue rising sharply, investors could begin questioning whether some of the market-share gains are being purchased at too high a risk.

That is the credit test now facing the bank.

The bottom line

Nedbank’s turnaround is beginning to take shape.

Revenue growth is improving, digital activity is expanding, the customer base has reached a record level and management is pursuing a major East African expansion strategy.

But the next phase will be harder.

The bank needs to demonstrate that its growth is translating into high-quality earnings, rather than simply a larger balance sheet.

With the credit-loss ratio rising from 81 to 95 basis points, asset quality has moved to the centre of the investment debate.

For Nedbank, the turnaround story is no longer just about becoming bigger or more competitive.

It is about proving that the bank can grow faster, control costs and keep credit losses under control at the same time.

That is where the real test begins.