It can be said without fear of contradiction that Tom Boardman - the man who hauled Nedbank out of the mire after it made its first loss in a decade in 2004 and put it back onto its feet - knows a thing or two about banking.

So, it was no small matter to see Boardman assure shareholders at his bank's AGM in May that "we've seen a far less attractive banking market in the first quarter of 2008 than at the same time last year".

What this means is that despite the fact that the banks are rolling in profit - Standard Bank is making the seventh-highest revenue in the country according to this year's Top Companies rankings - the prognosis looks a whole lot worse for the following year.

The reason for this is two-fold.

The first factor is a specifically local concern and relates to SA Reserve Bank governor Tito Mboweni's unwavering commitment to hiking interest rates to fight rising inflation.

The second factor is global - imploding international financial markets have all but wiped out liquidity, as nasty subprime instruments (effectively packets of poor quality debt dressed up to look pretty) came back to bite.

"Now is not a good time to be a banker," wrote John Micklethwait, the editor of the Economist, recently.

Luckily, SA banks don't have much exposure to subprime instruments.

But while banking shares were initially punished along with all global banks over the fears of a subprime crash, it is rising interest rates in SA that are keeping the shares subdued.

As Boardman said at Nedbank's AGM, the problem is that while consumers can stomach the first few interest rate hikes, once the dam is broken the bad debt effect is exponential.

Clearly, some banks underestimated just how tough - and how long - this particular credit cycle will last.

When Standard Bank CEO Jacko Maree was asked in April just how far SA is into the cycle, he said: "I think we're at the beginning," then he added ominously, "and there's lots more to come."

Were it not for interest rates and the subprime crisis, last year's SA banking environment would have been overshadowed by the largest foreign investment yet in SA.

This occurred when the Industrial & Commercial Bank of China (ICBC) appeared from nowhere to buy 20% of Standard Bank, Africa's largest bank, for R37,5bn.

At the time, Maree told the FM: "In a worst case scenario, even if our partnership doesn't make a cent, we will still get US$2,4bn from ICBC (from new shares issued to the Chinese), a large chunk of which we would have had to raise anyway next year".

The cash from the deal remains at Standard Bank's fingertips, giving it flexibility to continue buying up foreign assets. In the past two years, this strategy enabled Maree's bank to buy banks in places such as Argentina, Nigeria and Kenya.

The bonus in this strategy is that while SA is slowing down, markets in places like Nigeria continue to fly. Last year, 18% of Standard Bank's profits came from overseas markets.

After Barclays bought 56% of Absa in 2004, the discussion revolved principally around which SA bank would be "bought" next.

Now, it appears the ICBC deal has altered the game: though the outright sale of another SA bank probably wouldn't be allowed by the SA Reserve Bank, further strategic investments of minority stakes could become common.

Already, there are signs that some banks haven't been as prudent as they ought to be.

In its half-year results to December last year, it emerged that FirstRand's bad debts for credit cards had hit 9,1%. When asked if FirstRand had misread the cycle, CEO Paul Harris conceded that "in some areas, we did". Harris says banks face a tough task in walking the tightrope between being too conservative and losing market share, and dishing out credit.

But jittery investors should be aware that though banks' profits are likely to drop, any such "fall" would come from an absurdly high base.

The figures for this year's Top Companies attest to these stellar profits.

For the last date taken into account for the Top Companies ranking, FirstRand made the most profits - a rather staggering R12,6bn - on revenues of R63bn for the year to June last year.

The other three banks all have a December year-end, which skews the comparison somewhat. But for 2006, Standard Bank was by far the largest when it comes to assets (R965bn), and made the most revenue of R69,2bn. But its net profit, however, was R10,6bn, lower than FirstRand's.

Standard's 2007 results meant it again took the top spot when it came to profits (R13,6bn in aftertax profit), and it remains the seventh-largest company in SA when it comes to turnover.

The country's largest retail bank, Absa, returned net profits of R8bn for 2006 (the last date taken into account for the Top Companies ranking). Its most recent results continue this trend, as Absa made R10bn in aftertax profit.

The most recent results of all the banks continue the trend of sound profits. Standard Bank's earnings climbed 22% for 2007, Absa's profits grew 19,6% while Nedbank's climbed 33,5% (but off a low base). For the six months to December, FirstRand's profits grew 12%.

Clearly, this doesn't provide evidence of a sector on its knees.

When it comes to returns in these Top Companies rankings, the clear winner is African Bank, which reported an average internal rate of return of 56% over the past five years. African Bank is primarily a microlender, and has been reaping the rewards of an expanding middle class eager to access credit.

Importantly for investors, African Bank hasn't felt the effects of rising interest rates as harshly as its mainstream competitors. Equally, other small banks - such as Mercantile and Capitec - appear to be coping just fine at the moment.

At this stage, there doesn't appear to be the same risk of failure that brought the likes of Saambou and BoE to their knees in 2002, and sparked a crisis in the SA banking sector.

But at the very least, next year's Top Companies table will reveal where any weaknesses lie. If any banks have been anything less than prudent with their risk assessment, it could be a gory picture indeed.