SA’s credit surge outpaces growth: Why borrowers should be worried

• Credit supply is booming despite GDP growth below 1%, signalling a widening disconnect between lending and real economic output.
• Borrowers face an increasingly crowded, complex lending market filled with banks, private credit funds, DFIs and fintech lenders.
• Lessons from the US private credit market reveal early warning signs South Africa cannot afford to ignore.

A deep dive into South Africa’s lending boom and the hidden risks beneath it.

‍South Africa’s financial sector is experiencing a surge that defies the underlying economy. While GDP limps along at less than 1%, the country’s major banks and credit providers are reporting robust gains. In the first half of 2025 alone, the major banks’ headline earnings jumped 11.2% to R69.7 billion, a striking contrast to the sluggish national economy.

Alongside the banks, a wave of private credit funds, DFIs, insurance-backed lenders, asset managers and fintech platforms has entered the market, dramatically expanding the pool of available capital. For now, the sentiment is simple: it’s a great time to borrow, but a risky time to misunderstand the cost of borrowing.

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Gary Palmer, CEO of Paragon Finance, sums it up: “There’s a surge in credit from every direction, banks, DFIs, private credit funds, fintech lenders, even insurers. It’s a very good time to be a borrower, but only if you understand the risks.”

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Borrowers caught in a crowded, complex marketplace

‍The demand for credit, particularly among SMEs has intensified. A recent national SME survey reveals:

• 56% of small businesses struggle with cash flow
• 63% feel banks do not prioritise their lending needs

This vacuum has been filled rapidly by non-bank and alternative lenders offering speed, digital access and flexible qualification criteria. But with convenience comes complexity.

Fintech lenders in particular often structure products using revenue-based repayments, dynamic fees, or non-traditional credit models that can obscure the real cost of capital. Many borrowers struggle to calculate their effective interest rates, and terms can vary dramatically depending on monthly cash flow.

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Palmer warns: “The blurring of lines often masks the true cost of borrowing. Many clients don’t grasp the full repayment obligations and that’s how debt traps form.”

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The biggest danger?
Short-term, high-cost facilities becoming permanent financing, embedding expensive debt into a business’s capital structure. Once that happens, growth becomes almost impossible.

South Africa vs the US: A tale of two credit markets

‍South Africa’s surge mirrors the trajectory of the United States after 2008, where private credit exploded into a $3 trillion market, projected to reach $5 trillion by 2029. But the US is now showing stress fractures, particularly around risky structures such as PIKs (payment-in-kind interest).

• In the US, PIK features grew from 7% in 2021 to 10.6% in 2025.
• Over half of those are “bad PIKs” added later due to borrower distress.

This is a clear sign of deteriorating credit quality, even in a deep, sophisticated market.

South Africa is not there yet, but the warning signs are instructive.
Its regulatory environment is still catching up, while banks play a dual role, they compete with private credit funds, yet also fund them, creating hidden interdependencies.

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Palmer cautions: “Private credit is growing fast here, but the economy isn’t. That mismatch raises concerns of credit quality, leverage and the potential for a bubble. We must learn from the US before cracks appear.”

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Impact on borrowers and the wider economy
Banks in South Africa remain healthy:

• Strong fee, trading and commission income
• Stable deposits
• Improved loan performance
• Growing African expansion
• Supportive interest-rate environment (repo at 7.00%, prime at 10.5%)

But the combination of aggressive bank lending, a surging private credit market, and opaque fintech products inside a low-growth economy is creating real systemic risks:

• Over-indebted SMEs
• Rising borrower confusion
• Poor understanding of true lending costs
• Higher default risk
• Lenders chasing riskier deals for shrinking margins

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As Palmer notes: “Banks are being pushed up the risk curve. They’re doing riskier deals for the same or even lower returns. That’s not healthy.”

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Crucially, while lending is booming, it’s not translating into strong economic output. The gap between financial-sector earnings and GDP growth is widening, a sign that capital may be flowing to less productive activity or circulating within the credit ecosystem rather than stimulating new growth.

Transparency, oversight and smarter borrowing

‍South Africa stands at an inflection point. Its credit ecosystem is expanding rapidly, but without clear guardrails, borrowers could end up absorbing risks they don’t fully understand.

Three steps are essential

1. Radical transparency
Borrowers must be given clear, simple, comparable lending terms.
No hidden fees. No blurred “revenue share” models. No disguised interest structures.

2. Responsible lending practices
Lenders need to avoid turning short-term liquidity solutions into long-term structural debt.

They must be honest about affordability and exits, especially for SMEs.

3. Smarter regulation
South Africa can learn from the US credit boom and its emerging cracks, by building a framework that protects borrowers while supporting market innovation.

A market full of opportunity and risk
South Africa’s credit boom represents both a lifeline and a looming challenge. The capital is there. The demand is there. But without transparency, education and disciplined oversight, the lending surge could easily tip from opportunity to vulnerability.

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Paragon Finance believes the future must be built on clarity: “Borrowers deserve full transparency in every transaction, from every lender. Clear costs, clear risks, and clear repayment terms. Only then can credit support sustainable growth.”

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South Africa’s challenge now is to ensure its expanding credit markets contribute to real economic progress, not just bigger balance sheets.

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