Why South Africa's big banks are hunting new revenue

South Africa’s big banks are hunting for new ways to make money as local interest rates keep sliding.

This is according to the latest BDO Banking Report, which found that banks’ margins are being squeezed ahead of the latest interest rate cut on Wednesday.

South African Reserve Bank’s interest rate brings the cumulative drop since last September to 1.25 percentage points.

The prime lending rate is now 10.25%, which is good for consumers.

But the easing cycle hasn’t been all good news for banks, said Kevin Hoff, South Africa’s banking sector lead for BDO.

There is now more pressure on traditional lending margins, compressing net interest margins across most institutions, Hoff said.

“What we are seeing across South Africa’s banking landscape is not merely survival, but disciplined innovation; an industry re-engineering itself for a lower-growth, higher-complexity future,” said Hoff.

Faced with falling interest rates, Absa, Standard Bank, Nedbank, FirstRand, Investec, and Capitec are diversifying their revenue streams.

Banks are boosting fee-based services, expanding digital platforms, and forging strategic fintech partnerships to preserve profitability.

Regional diversification is also proving vital.

Hoff said Absa and Standard Bank now generate more than 30% of their earnings from markets outside South Africa.

Strong loan book growth, steady profitability, and consistent foreign income flows have made expansion across Africa an essential part of long-term sustainability, said Hoff.

Despite these challenges, the sector is holding up “remarkably well despite sluggish domestic growth and tighter margins,” said BDO.

“This resilience reflects a shift toward strategic, long-term transformation rather than short-term survival tactics,” it said.

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