SARB moves to scrap prime rate for loan pricing

• SARB plans to replace prime rate with its policy rate, improving transparency and direct transmission of monetary policy into loan pricing.
• Over 12 million contracts worth R3.2 trillion linked to prime must transition carefully to avoid legal, operational and consumer disruption.
• Future loans likely priced as SPR plus margin, replacing prime-based pricing and reshaping how banks communicate interest rate changes to borrowers.

Repo vs Prime and why change now

‍For decades, South African lending has been anchored to the prime lending rate, which commercial banks use as the reference for pricing mortgages, vehicle finance, and business loans.

Prime itself is not set independently. Since 2001, it has been fixed at 3.5 percentage points above the Reserve Bank’s repo rate, the rate at which banks borrow from the South African Reserve Bank (SARB).

The Reserve Bank now wants to eliminate this extra step. Instead of banks quoting loans off “prime”, loans would reference the SARB policy rate, likely to be called the SARB Policy Rate (SPR), with banks adding a premium based on risk and funding costs.

The motivation is clear:

• Simplify rate communication
• Improve public understanding of loan pricing
• Strengthen the link between monetary policy decisions and lending rates
• Remove misconceptions that banks profit excessively from the fixed 3.5% prime margin

In parallel, SARB is modernising money markets by replacing Jibar with the new Zaronia rate for short-term financial contracts.

Impact of the change

The biggest challenge is scale. More than 12 million contracts, worth over R3.2 trillion, are currently linked to prime. Many are retail loans governed by consumer protection laws, making contract amendments complex and risky.

SARB therefore proposes:

• Existing contracts remain functional via a fallback margin equivalent to current prime pricing (policy rate + 3.5%).
• New contracts reference the SPR directly, eliminating prime going forward.

For borrowers, repayments would not suddenly change, but loan pricing would become clearer: SPR plus bank margin, rather than prime ± adjustments.

For banks, systems, disclosures, and customer communication must all be redesigned.

Reform process

‍The reform process will begin with industry consultation, with transition unlikely before 2027.

Next steps include:

1. Engagement with banks and financial institutions.
2. Designing legal and operational transition frameworks.
3. Introducing SPR-linked pricing in new lending.
4. Phasing out prime as contracts mature.

For borrowers and property investors, the practical advice is simple: focus on the margin above the reference rate, because that will increasingly define the real cost of credit.

South Africa’s rate system is moving toward global best practice, more transparent, easier to understand, and more directly tied to monetary policy decisions.

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