Financial sector review 2025: The security barometer of markets

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JIMMY MOYAHA: We’re continuing our reflections on the performances of the various sectors throughout the year. Today we’re dipping into the financial services and banking sector, a sector that historically has been considered undervalued in the global markets but has for the 2025 year been a very good barometer of the strength and confidence that international markets might have in South Africa’s domestic market.

For more on this, I’m joined on the line by our resident banking specialist, director at Denker Capital, Kokkie Kooyman, to take a look at this and see what we make of it. Oom Kokkie, always lovely having you on the show. Thanks so much for taking the time to catch up with us. Certainly a very interesting year for financial sector stocks, a lot to contend with.

Perhaps let’s start the conversation at the start of the year and the volatility that we saw in financial sector stocks when, for the first time in South Africa’s democratic history, we had to skip the first budget speech.

KOKKIE KOOYMAN: Yes, you’re quite right. By the way, it’s been a fascinating year, not only for financials but for the market as well – and you’re quite right.

The budget speech was actually a momentous event. In fact, I forget now, but I think it was the first time ever in South Africa that the budget speech had to be cancelled because it wasn’t accepted.

Obviously the right decision was made not to increase taxes and to go back and do a better budget.

It did actually set the scene for more confidence in South Africa and later the removal off the greylisting list helped as well.

But for a long time it looked as though the markets didn’t care about the financial stocks, despite all the positivity and the stronger end. So yes.

JIMMY MOYAHA: Oom Kokkie, let’s then take a look at the performance of the financial sector stocks throughout the year. I mentioned in the intro that for a lot of international investors the confidence that we see in South African markets, and in the South African rand in part, can sometimes be felt in the financial sector – stocks first as almost a leading indicator of the markets. Is that still the case going into 2026, and has the performance of the 2025 year been reflective of that?

KOKKIE KOOYMAN: It’s interesting. I’ve been around a few years [chuckling] and hence you started calling me ‘Oom’.

I did my first trip to Southeast Asia in 1995, just before the whole emerging market collapse.

So I’ve seen quite a few cycles of emerging markets re-emerging and becoming flavour of the month, or individual economies recovering.

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But as you said, there’s almost a set pattern that generally is followed.

Firstly, the government does the right things. You get inflation under control, you attract capital. And then as you attract capital your currency strengthens. As your currency strengthens, your inflation comes down, interest rates come down.

And normally while this is happening your financial stocks start rerating. The main reason is that obviously your financial stocks will do best. Initially they’re most geared to the economy – so as an economy does well, your banks are often the first to start rewriting and anticipating that higher growth.

And so far in South Africa it hasn’t been the case. We’ve seen that actually in Europe now, we’ve seen it even in Brazil, we’ve seen it in India. We’ve seen in most other emerging markets, but not in South Africa. The only reason I can think of that – and obviously we debate this a lot – is that the gold and commodity prices have rallied. So there seems to have been a lot of switching of investors out.

It’s not only, by the way, that banks have done relatively poorly, also retailers.

But what we call South African incorporated, what we call SA Inc, has been sold down to buy shares in gold miners and platinum miners.

Normally you are in a situation where your country does well and you get foreign investors. But the foreign investors seem to have still stayed away because the government hasn’t been concrete so far in announcing good steps that will show how they’re going to grow the economy.

So there are two things going against us: the gold price being very strong – and for other shares, that will come in; we’ll get to 2026 just now, because it will in the end come through for South Africa – and foreign investors still staying away.

JIMMY MOYAHA: Oom Kokkie, let’s take a look at how we’ve performed against international markets. I know you’ve travelled recently, you’ve been to Europe and you’ve seen how the banking sectors have been performing in other regions. How has South Africa’s banking sector fared against its global peers over the 2025 period?

KOKKIE KOOYMAN: It’s interesting that in Europe financial stocks and specifically banks have really shot the lights out.

Shares like ABN Amro, ING and especially banks in more your Eastern Europe – Erste Group Bank, even Commerzbank in Germany – have all seen at least a 50%, 60% or 100% gain.

In the UK as well you had Barclays – I think doing really close to 100%.

In the US it was a mixed bag. Your investment banks have done very well, but what we call your regional banks – those are massive banks – let’s say even Wells Fargo, US Bancorp have started picking up in the last quarter but actually are flat.

So if you take our South African banks – despite all our complaining now, in dollar terms South African banks have not done that poorly.

I mean, Standard Bank as an example is up 23% year to date for almost 12 months, and the currency is, let’s say, 10%. So in dollars, you’ve done 32% in Standard Bank, which is actually not too bad.

The disappointment is more from like Nedbank, which was down 10% year to date. And then you’ve had Investec which is down 5%.

And all [with] specific problems, but that has brought down the average. So your index has done poorly because of, mainly Nedbank and Investec disappointing.

JIMMY MOYAHA: Oom Kokkie, let’s take a look at some of the moving factors that influenced the markets, particularly in terms of financial sector stocks. We’ve been contending with the inflation conversation across the board in South Africa, around the world.

From a South African perspective in particular, we’ve had to contend with being grey-listed, coming off the grey list, as well as having to deal with tariff conversations in between, and making sure that we’re maintaining our own financial standpoint.

How have those factors affected the performance locally, and have they given the market an added level of confidence that we’re able to make it through these challenges?

KOKKIE KOOYMAN: You hit on the nail there. Confidence was missing on the consumer side. It’s interesting – just last week I saw ABN Amro and ING in Amsterdam, and we saw the other banks in Eastern Europe as well. There your mortgage growth has started picking up strongly; we’re seeing mortgage growth of 12%, while in South Africa your consumer spending has been very flat. So we haven’t seen loan growth coming through.

That is largely a result of interest rates that were still high – and I’m not saying too high, because the Sarb [South African Reserve Bank] is obviously doing what it can to get inflation down.

But we haven’t seen the right level of job creation yet with policy.

So the consumer has been under pressure and that has come through in poor lending growth.

Similarly, the corporates, South African corporates, have not been investing. So the cash in the system is building up capital – [it’s] available, but they’re waiting on government in that regard to really come with policies that will give them opportunity or certainty to invest. And that’s happening.

If you look at the banks generally, the results we have seen, the good results, have come from two aspects:

1. One is the investments in Africa: African countries’ growth rates have been much better than South Africa’s, and so Standard Bank and even Absa have come with good results in Africa.
2. And then on the fee income side, it has really been [about] South African lending.

And by the way, you can see that if you just look at the performance of Foschini, of Truworths, of a Pep, of a Spar – they’ve all had problems; the retailers, Mr Price, have all done poorly as well, which reflects the same underlying phenomenon – that the consumer has not been spending money and they’ve been bringing down the debt.

Now, if you look forward to 2026, then the South African Reserve Bank has started cutting interest rates and we’ll most probably see more as inflation remains subdued. The stronger rand will help bring inflation down. Obviously the oil price internationally remains low. So it’s coming through lower in the fuel prices than it was six months ago.

So I think going into next year you’re going to probably have consumer spending picking up.

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Most importantly, South Africa needs job creation. We need people getting back into jobs. You need capital to come into the country, or else we’re going to see maybe more or less the same, where the valuations are attractive but the growth is not there.

JIMMY MOYAHA: So then, Oom Kokkie, going into the 2026 year, what do we have to look forward to? South African markets in general, particularly mining stocks, have run hard throughout this year. Banking stocks continue to remain discounted compared to some of their global peers, even though our South African banks continue to be well capitalised and well positioned.

What do we have to look forward to in 2026 from a financial sector perspective, and could we see a strong performance from our financial stocks?

KOKKIE KOOYMAN: Look, as you said, the banks are very well capitalised. They are very safe; they are very well managed. It’s just that the growth isn’t there. The returns on capital are fairly good, and all of them are working on bringing their cost structures down. That’s international, by the way, as we see increased digitalisation. So you get faster service, better service, even cheaper.

But firstly, I think being invested in bank stocks or the financial sector in 2026, you won’t cry.

You potentially only cry if you look at other performances, but you’ll be surprised if you do less in 15%.

By the way, I actually happen to run a Nedbank financial fund, and that’s up 20% for the year. So 20% is good. It’s just that the JSE has done, I think, 36%. And that’s what makes people feel financial stocks haven’t done that well with 20% compared to 36%.

So I would be surprised if the financial sector on average doesn’t at least do 15% next year; that’s simply the shareholder value growth. You’ve got good dividend yield, some rerating of, let’s say further [rerating] of Absa, which is very cheap, and Nedbank and Investec are very cheap.

So I would say 15, 20%. Remember, inflation is down now to let’s say 5%, 4%, and the target is 3%. So that’s a good return, with interest rates being where they are as well.

But for the financial sector to give you something like a really nice return of 30%, you’re going to need the consumer spending and corporates to borrow.

JIMMY MOYAHA: Quite the year for financial sector stocks, and a lot to think about as we head into the new financial year. Perhaps early in the new year, we’ll get some early predictions around what we could potentially look forward to.

We’ll catch up in the new year to see how the year might be shaping up. For now, we’ll leave this conversation on that note. Thank you so much, Kokkie, as always, for the time and for the insights.

That was a Denker Capital’s Kokkie Kooyman joining us to take a look at the performance of the financial sector and banking stocks in the 2025 year – and what 2026 may hold.

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