International banks have for the past few years been divesting from Africa. Although the continent is still brimming with potential for growth, these institutions have chosen to concentrate on their core markets. At least nine international banks have withdrawn from 32 African countries, according to our recent analysis of the landscape.
Taking a closer look at the market, retail banking has faced a range of challenges, including economic shocks, regulatory uncertainty, currency depreciation, sovereign debt crises, technological disruptions, and the rise of dominant local players. Furthermore, the high capital costs required to maintain operations in Africa have compelled some banks to exit the market and reassess their geographical footprint to enhance shareholder value.
Nonetheless, significant opportunities remain in Africa for banks that adapt to the evolving market. South African banks, which already have a strong presence across the continent, are particularly well-positioned to capitalize on the opportunities, especially as they seek growth outside their stagnating home market.
Africa's economic potential and financial sector growth
While sub-Saharan Africa’s growth rates have slowed compared to the 2000s and 2010s, the region still offers considerable potential. According to the World Bank, GDP growth in the region is expected to rebound to 3% in 2024 and 4.1% in 2025, opening up new opportunities for financial institutions. All major South African banks have clearly committed to diversifying their revenue streams by expanding their operations beyond their home market.
Moreover, regional integration initiatives such as the African Continental Free Trade Area (AfCFTA) are set to boost trade and incomes in Africa. The World Bank estimates that AfCFTA could increase incomes in the continent by 7%, or US$450 billion, by 2035. As individual wealth rises, so will the need for more diversified financial services and the demand for banking services.
Beyond general economic expansion, specific sectors like financial services are thriving. For example, Tanzanian commercial banks saw a 38% profit increase between 2021 and 2023, according to Tanzania Invest.
While one or two large banks dominate many markets in sub-Saharan Africa, there are also many smaller banks competing for limited market share, especially in countries like Kenya and Tanzania. As regulators tighten requirements — such as increasing capital reserves and enforcing stricter compliance — smaller, less stable banks may struggle to keep up. This pressure is likely to lead to consolidation, with smaller banks merging or exiting the market. For well-capitalized African banks, the exit of international players creates a unique opportunity to step in, capture their market share, and expand operations as the competitive landscape evolves.
South African banks already seeing success in Africa
Several South African banks have already found success expanding into other African markets. Institutions such as Nedbank, Standard Bank, FirstRand, and Absa now have a presence in several African countries. Factors including higher interest rates, capital optimization strategies, and a focus on corporate and investment banking (CIB) have been key drivers of revenue growth.
In fact, South African banks with significant operations outside of South Africa have demonstrated stronger overall growth, highlighting the benefits of regional expansion. For example, analysis of 2022 financial results shows that Standard Bank achieved the highest revenue growth in Africa (28%) among South Africa’s biggest banks. This growth was driven by balance sheet strength, higher interest rates, and relatively stable currencies. The same analysis shows that Standard Bank’s revenue from African markets has grown from 20% of its total revenue in 2014 to 39% in 2023. Similarly, Absa reported 21.3% revenue growth across 12 African markets in 2022, further demonstrating the success of its African expansion.
Scaling strategies for growth in African banking
As African banks concentrate on sub-Saharan Africa to fuel their growth, they have multiple avenues available to expand their operations across the continent.
One approach is to specialize in particular target segments, such as businesses or high-net-worth individuals. This enables banks to focus efforts and investments, while also concentrating on high-growth areas and creating innovative products for these segments.
Another strategy is to adopt a digital-first approach. By leveraging digital tools, banks can streamline processes, reduce costs, and improve service delivery. This strategy can also drive digital transformation across all business units, improving both customer experience and operational efficiency. Banks looking to accelerate this approach could consider strategic partnerships and acquisitions to acquire new digital capabilities.
A third option is to optimize the cost base and improve distribution efficiency, helping to increase profit margins. This could involve new distribution models, such as innovative branches and agency banking. There is also a growing focus on sustainable cost management rather than short-term cost-cutting measures.
Banks can also pursue an ecosystem- and platform-based approach, which allows them to distribute third-party products more efficiently and reach new customer segments. This model can help banks generate non-interest income at scale, a critical revenue stream in the face of declining interest rates.
Finally, banks can tap into the rapidly growing African fintech landscape by either offering similar services or partnering with fintech companies. This provides immediate access to a larger customer base, introduces new technologies, and enables banks to differentiate themselves in the market through deeper market insights and innovative solutions.
With South Africa’s sluggish economy, the country’s banks must look beyond their borders to achieve medium-term growth targets. While the challenges confronting the sub-Saharan African banking landscape — such as political instability, currency depreciation, infrastructure limitations, and intense local competition — are clear, South African banks can effectively navigate these obstacles by adopting well-planned expansion strategies that are both scalable and sustainable.
The African banking market offers enormous potential, especially in light of the recent exit of international players. If South African banks fail to seize this opportunity to expand and innovate, they risk letting others take the lead.