Higher oil prices may cloud interest rate path – FNB

Rising oil prices linked to the escalating conflict in the Middle East could lift inflation and complicate the interest rate outlook for South Africa.

This is the word from First National Bank chief executive Harry Kellan, who spoke to Moneyweb after the lender’s recent annual results announcement.

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On Monday morning, Brent crude surged past $100 a barrel after major Middle East producers cut output, pushing prices sharply higher amid the conflict in Iran and the Gulf region.

Because South Africa is a net importer of oil, a sharp rise in global crude prices pushes up the local fuel price and ripples through the broader economy.

Kellan says the economic effects of the conflict – particularly through higher fuel costs – may take time to filter through to consumers and the banking system.

Oil, inflation and interest rates

Higher oil prices, combined with a weaker rand, could eventually push up inflation. The local currency has already come under pressure in recent weeks.

“Only weeks ago, the rand traded near R15.90 to the US dollar, but it has since moved closer to the R16.70 level,” Kellan says.

“How much of this is expected panic and how much of this is real, you can never say.”

Fuel price hikes tend to filter through the broader economy, although the link between fuel costs and food inflation is not direct.

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“There is a correlation to food, but it’s not one-for-one,” Kellan says.

Listen/read: $100 oil risks reigniting food inflation

Interest rate expectations could also shift if inflation accelerates. South Africa recently adopted a 3% inflation target, a move Kellan says was always expected to involve some adjustment for the economy.

FNB’s house view was for two more 25-basis-point interest rate cuts, but the global environment has become more uncertain.

“You can’t blame the Reserve Bank if they don’t cut at the next MPC [Monetary Policy Committee] meeting.”

At this stage, however, he believes an interest rate hike remains unlikely unless inflation pressures become entrenched.

“I don’t think the Reserve Bank will see the current circumstances and inflation as a long-term view. They might just tolerate a little bit of inflation as transient.”

From a banking perspective, the earliest sign of consumer stress is typically changes in employment, Kellan says.

“The first thing is always job losses and job cuts. That’s your leading indicator,” he says.

Banks often see shifts in payroll activity before official employment data is released.

“We haven’t seen anything yet. Actually, we are seeing a slight increase.”

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Solid growth for FNB

Against this backdrop, First National Bank (FNB) – part of FirstRand Limited – reported solid growth in earnings, lending and customers in its latest results.

FNB’s normalised earnings increased 8% to R13.12 billion, while profit before tax rose 7% to R18.6 billion.

Growth was largely driven by the South African business, where profit before tax climbed 10% to R16.9 billion. In the broader Africa, profits dropped from R1.93 billion in 2024 to R1.69 billion in 2025.

Core lending advances rose 5% to R606.4 billion, while deposits grew 6% to R1.06 trillion.

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Credit quality improved slightly during the period. The credit impairment charge declined marginally to R4.97 billion, while the credit loss ratio improved to 1.65%.

Non-performing loans decreased to 7.51% of advances from 7.70% previously.

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Customer growth was a key driver of performance. FNB’s active customer base increased 4% to 12.6 million, including 10.18 million customers in South Africa and 2.42 million across the rest of Africa.

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