Asset manager and banking group Investec has warned that South Africa's interest rates are likely to remain elevated for longer than expected as a weaker rand and the risk of sanctions due to Pretoria's support for Russia add pressure on an already weak economy.

"Clearly, the economy in South Africa is under significant strain, given the forecast levels of growth of just 0.2% [for 2023]," CEO Fani Titi said during a media call on Thursday.

"And the recent deterioration in the rand exchange rate will not help the fight against inflation given some of the unfortunate events around our perceived alignment as a country to Russia, and the possibility that that may lead to a level of sanctions. So we do expect that interest rates will remain higher for longer," he said.

Investec reported its results for the year to end March on Thursday, benefitting more than most of its peers from a jump in interest rates as central banks scrambled to get a lid on inflation.

Its net interest income grew about 37% to £1.3-billion (R31-billion), despite a 5.8% decline in non-interest revenues (mostly fees), with higher interest rates and growth in loans helping to lift group revenue by almost 15%. Headline earnings per share rose just over a quarter, but funds under management fell almost 5% to £61-billion.

Investec's shares were up less than 1% on Thursday morning after the results, and have fallen just over 2% so far in 2023.

Banks can get a profit boost from higher interest rates. Their massive cash balances earn higher interest, and their net interest margins also improve. But higher rates curb credit demand and add pressure on clients, leading to more bad debts. Higher interest rates have brought a spike in debt counselling cases.

Titi said Investec would also expect some of its clients to "come under pressure". But because of the bank's business model in SA, which targets corporates, high-net-worth individuals and high-income clients, he expects Investec's client base to remain resilient.

"But generally, while our clients will have some pressure, they generally do much better and are more resilient than the general market, said Titi.

Still, the group's credit loss ratio almost tripled to 0.23%, though it is still only approaching the bottom end of its through-the-cycle range of 0.23% to 0.35%. In its 2024 guidance, Investec said it expects a normalisation to within its range.

In its SA specialist banking division, credit loss impairment charges from R51-million in March 2022 to R289-million at the end of this March, with the ratio rising to 0.08%, from zero previously.

"The charge this year results in a credit loss ratio of about eight basis points. That's still below where we anticipate to normally operate at between 20 to 30 basis points… We have started to experience some specific impairments. But those are really specific to specific exposures," said Investec financial director Nishlan Samujh.