How African Banks Make Money

Interest, fees, and the alchemy of other people’s deposits

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EXECUTIVE INTRODUCTION

The first thing to understand about African banking is that it is exceptionally profitable — far more profitable than banking anywhere else in the world.

In 2024, African banks delivered a return on equity of 19%. In 2025, an estimated 17% . The global average? Approximately 10% . African banks are nearly twice as profitable as their peers in Europe, the Americas, and Asia. They achieved this while navigating currency collapses, sovereign debt crises, and infrastructure deficits that would cripple financial institutions elsewhere.

The second thing to understand is that this profitability is not accidental. It is structural.

African banks operate in markets with wide interest margins (the difference between what they pay depositors and what they charge borrowers), limited competition in many segments, and a growing appetite for fee-based services as digital payments displace cash. They have learned to monetise every transaction — every ATM withdrawal, every mobile money transfer, every school fee payment processed — and they have done so at a scale that now exceeds $107 billion in annual revenue .

This profile examines how African banks actually make money: the mechanics of net interest income (borrowing low, lending high), the explosive growth of non-interest income (fees, commissions, and trading gains), the structural advantages of concentrated markets, and the emerging challenges as interest rates fall and competition from fintechs intensifies.

The bank is no longer just a place to keep money. In Africa, it is a toll booth on the entire economy — and the tolls are rising.

THE TWO PILLARS OF BANK REVENUE

Every bank in the world makes money through two primary channels: net interest income (lending) and non-interest income (fees, commissions, trading). African banks are no different — but the balance between these two pillars is shifting, and the margins on both are unusually high.

Pillar 1: Net Interest Income (The Traditional Engine)

Net interest income is the difference between what a bank earns on loans and what it pays on deposits. It is the oldest banking business model: take money from savers (pay them a small amount), lend it to borrowers (charge them a larger amount), keep the difference.

How the math works:

For context, net interest margins in Europe and North America are typically 2-4%. African banks operate at 2-4x that spread because:

• Inflation is higher (depositors demand higher returns, but banks raise lending rates even more)

• Credit risk is higher (banks price in higher default rates)

• Competition is limited (oligopolistic markets in many countries)

• Operating costs are higher (cash-intensive, branch-heavy models)

Loan growth expectations (2026): S&P Global Ratings expects robust loan growth in Egypt, Morocco, and Nigeria, with a mild recovery in South Africa, driven by infrastructure spending and increasing consumption .

Pillar 2: Non-Interest Income (The Growth Engine)

Non-interest income is the money banks make from services other than lending. This includes:

• Account maintenance fees (monthly charges for current accounts)

• ATM withdrawal fees (especially for “foreign” transactions)

• Electronic banking fees (transfer charges, mobile app fees)

• Card-based fees (issuance, annual maintenance, cross-border)

• Remittance fees (inbound and outbound)

• Letters of credit and trade finance fees (for importers/exporters)

• Brokerage and financial advisory fees (wealth management, investment banking)

• Foreign exchange trading gains (currency conversion spreads)

Why this matters now: As interest rates decline in key markets like Nigeria and Egypt, non-interest income becomes increasingly important. Banks with diversified revenue streams are better positioned to maintain profitability when lending margins compress .

THE NUMBERS THAT MATTER

Revenue Scale and Concentration

Africa’s banking sector generated approximately $99billioninrevenuein2024,crossingthe$100 billion threshold for the first time in 2025 to an estimated $107 billion .

Revenue concentration is extreme:

Five countries — South Africa, Nigeria, Egypt, Morocco, and Kenya — generate approximately 70% of all banking revenue on the continent . South Africa alone contributes more than a quarter.

Growth rates: On a constant-currency basis (adjusting for inflation and exchange rate fluctuations), African banking revenues grew at approximately 17% annually between 2020 and 2024 — far faster than the global average. In US dollar terms, growth was more modest at about 5.2% annually, reflecting sharp exchange-rate swings across several markets .

Profitability That Outpaces the World

African banks are nearly twice as profitable as their global peers . This outperformance reflects:

1. Wider interest margins (higher inflation, higher risk, less competition)

2. Growing non-interest income (digital transaction fees, remittances)

3. Favourable macroeconomic conditions in key markets (infrastructure spending, consumption growth)

Non-Interest Income in Action: The Nigerian Example

Nigeria provides the clearest picture of how non-interest income is transforming bank profitability.

Q1 2026 data (six major banks):

Sources of fee income include: account maintenance charges, ATM charges, electronic banking fees, letters of credit commission, remittances fees, card-based fees, brokerage commission, and financial advisory fees .

Full-year 2024 data (ten banks):

Context for growth: Nigerian banks processed transactions totaling N1.07 quadrillion via the NIBSS Instant Payment (NIP) platform in 2024 — a historic record, up from N600 trillion in 2023 .

What is driving e-payment revenue growth?

• Transaction-based fees: Banks typically charge N10–50 per digital transaction

• Increased volume: NIP transaction volume jumped to 11.3 billion in 2024 (from 9.7 billion in 2023)

• PoS expansion: Point-of-sale transaction value rose to N79.5 trillion (from N46.9 trillion)

• Regulatory tailwind: Federal Government directive imposing N50 fee on transfers above N10,000 (December 2024) directly boosts bank revenue 

The technology investment cycle: Banks are reinvesting heavily in digital infrastructure. Six major Nigerian banks spent N268.7 billion ($171.5 million) on technology and compliance-related infrastructure in 2024 — a 74.5% increase from N153.8 billion the previous year .

THE BUSINESS MODEL IN PRACTICE

Bank of Africa Benin: A Case Study in Diversification

Bank of Africa Benin’s Q1 2026 results illustrate the shift toward non-interest income in action .

Key observations:

• Fee income growth (19%) dramatically outpaced interest income growth (8.5%) — the bank is actively shifting toward transaction-based revenue

• Customer deposits crossed 753.7 billion FCFA ($1.35bn), with non-remunerated deposits (free funding) growing 3.5% — this is the ideal deposit base for profitability

• Outstanding loans held flat at 386.5 billion FCFA ($690.7m) — the bank is being selective about credit rather than chasing growth

• The gap between income growth (11%) and profit growth (1%) suggests rising costs — likely provisioning or operating expenses 

Why this matters: Bank of Africa Benin is part of the Moroccan BMCE Bank of Africa group, which has built one of the most extensive branch networks in sub-Saharan Africa. The Benin operation serves one of West Africa’s faster-growing economies (8.3% GDP growth in Q4 2025) .

The Deposit Franchise: African Bank’s Strategic Pivot

African Bank (South Africa) provides a textbook example of how deposit gathering drives profitability .

The strategic importance of deposits:

African Bank’s transformation:

• Retail deposits now 53% of total deposit base

• Cost of funding improved dramatically: from 1.3x prime interest rate (FY21) to 0.7x prime (1H25)

• Loan-to-deposit ratio (LDR) target: reduce from 1.3x toward banking sector average of 0.9x 

The bank is paying higher interest rates than competitors to attract retail fixed deposits — an intentional strategy to build a stable funding base in preparation for an eventual initial public offering (IPO). The trade-off (higher funding costs today for a more stable, valuable franchise tomorrow) appears to be working .

THE SHIFT FROM INTEREST TO FEES: A CONTINENTAL TREND

What the Research Shows

An academic study of 300 commercial banks across 46 African countries examined the impact of business models on bank performance and stability .

Key finding: The shift toward non-interest income is associated with a decrease in net interest margins and overall performance. The research suggests that African banks do not clearly benefit from diversification — but ownership and size matter .

Interpretation: For smaller banks, diversification away from lending can be destabilising because they lack the scale to compete in fee-based businesses (digital payments, trade finance, wealth management). For larger banks with established customer bases and technology platforms, fee income is highly profitable and growing rapidly .

Why the Shift Is Accelerating

Several structural factors are driving the pivot toward non-interest income:

The Nigerian e-payment explosion in context: In 2014, cash accounted for over 90% of transactions in Nigeria. By 2024, it had declined by 59% — one of the fastest cash-to-digital transitions globally . Every percentage point shift from cash to digital represents new fee income for banks.

The Regulatory Driver: Government Policy as Revenue Catalyst

The Nigerian government’s December 2024 directive imposing a N50 fee on transfers above N10,000 is a clear example of how regulatory policy directly impacts bank revenue . Similar dynamics exist across the continent:

• Ghana: E-Levy (1.5% on mobile money transfers above threshold) — while a tax, it affects transaction volumes and bank fee income

• South Africa: Proposed changes to payment system regulation may affect bank interchange fees

• Kenya: Mobile money taxation affects M-Pesa transaction volumes (which impacts bank partners)

FORECASTS AND CHALLENGES (2026 AND BEYOND)

S&P Global Ratings Outlook

S&P Global Ratings expects economic and financing conditions in most African countries to remain broadly supportive in 2026, leading to resilient credit growth and asset quality .

Profitability outlook varies by country:

The interest rate challenge: S&P expects “a sharp reduction in interest rates” in Nigeria and Egypt as inflation subsides in 2026. For banks that have enjoyed exceptionally wide net interest margins in these high-inflation environments, this will be a significant headwind. Banks with diversified non-interest income will weather the transition better than those dependent on lending spreads .

Asset Quality and Credit Risk

Improving outlook: S&P expects asset quality to stabilize or improve moderately across most African banking sectors in 2026, supported by:

• Declining inflation (boosts household disposable income)

• Lower interest rates (eases debt service burden)

• Supportive economic conditions 

Vulnerabilities remain:

Capital Requirements and Regulatory Pressure

Nigeria: Banks are completing capital strengthening initiatives to meet new, higher capital requirements .

Morocco: Minimum common equity Tier 1 requirement for domestic systemically important banks increased by 200 basis points in late 2025 .

South Africa: Domestic systemically important banks must issue additional loss-absorbing capital (FLAC) — three years to meet 60% of requirements, six years for full compliance .

The capital conundrum: Higher capital requirements make banking safer, but they also reduce return on equity (ROE) unless banks can increase profitability. This is why non-interest income is so important — it generates revenue without consuming capital (unlike lending, which requires capital backing).

Customer Deposits: The Funding Anchor

S&P expects customer deposits to remain the primary source of funding for African banks . This is a structural strength compared to banks in some emerging markets that rely heavily on wholesale funding (which can disappear during crises).

The deposit competition dynamic: In markets with high inflation, depositors demand higher interest rates. Banks must balance the need to attract deposits (to fund lending) against the cost of those deposits (which compresses net interest margins). Banks with strong retail deposit franchises have a structural advantage.

THE COMPETITIVE LANDSCAPE

Concentration and Market Structure

Africa’s banking market remains heavily concentrated. The top five countries generate ~70% of revenue . Within those countries, banking sectors are typically oligopolistic:

The Fintech Challenge

Fintechs are not displacing banks — yet. But they are changing the competitive dynamics:

• Payment processing: Fintechs like OPay, PalmPay, and Wave have captured significant payment volume, but banks remain the primary settlement layer

• Lending: Digital lenders (Branch, Carbon, FairMoney) are growing but remain small relative to bank loan books

• Neobanks: Nyla (Islamic neobank launching in Ghana, 2026) targets specific underserved segments rather than competing directly with incumbents 

How banks are responding:

• Investing heavily in technology (N268.7bn by six Nigerian banks in 2024)

• Launching or acquiring fintech subsidiaries

• Partnering with fintechs for distribution (e.g., bank-backed mobile money agents)

• Improving digital user experiences to retain customers

The Smaller Market Opportunity

While the top five markets dominate revenue, smaller African countries are growing faster and represent the next frontier .

Strategies for smaller markets (per McKinsey and experts):

Sheriff Adedokun, CEO of Nigerian fintech Clea, notes: “The next wave of growth will not come from replicating large-market models, but from solving structural gaps — trade finance, diaspora payments, and transaction-based services” .

FUTURE OUTLOOK

Short-to-Medium Term (1-5 years)

• Interest rate declines (Nigeria, Egypt) will compress net interest margins. Banks with diversified fee income will outperform .

• E-payment revenue growth continues. Digital transaction volumes are still rising rapidly; each transaction generates fee income.

• Capital requirements increase in Nigeria, Morocco, South Africa. Banks will manage via reduced dividends, slower growth, or capital raising .

• SME lending becomes the growth battleground. McKinsey projects SME lending to be the fastest-growing segment, reaching ~$52 billion by 2030 .

• Fintech partnerships multiply. Banks will acquire or partner with fintechs rather than build competing platforms from scratch.

Long-Term (5-10 years)

Scenario 1: Platform Banking (Probability: 55%)
Banks transform into digital financial platforms — offering banking, payments, investments, insurance, and e-commerce through a single interface. They compete directly with fintechs and telcos. Non-interest income exceeds interest income for leading institutions.

Scenario 2: Continued Concentration (Probability: 30%)
The top five markets remain dominant. Regional banks expand across borders (e.g., Moroccan banks deepening West African presence). Smaller markets remain underserved or served by fintechs rather than traditional banks.

Scenario 3: Fintech Displacement (Probability: 15%)
Fintechs and telcos (MTN, Vodacom/ Safaricom with M-Pesa) capture the majority of payments and lending volumes in key markets. Banks are relegated to regulatory-required functions (deposit taking, settlement) but lose customer relationships.

Strategic Risks to Monitor

ASJ CONCLUSION

African banking is a story of structural advantage. Wide interest margins, concentrated markets, and a continent-wide shift from cash to digital payments have created an environment where banks earn returns on equity nearly double the global average .

But the environment is changing.

Interest rates are falling in key markets. Non-interest income is becoming the battleground — and the banks that succeed will be those that monetise every transaction, every payment, every remittance. The N50 fee on a digital transfer may seem small. Multiply it by 11.3 billion transactions (Nigeria’s 2024 volume), and it becomes a meaningful revenue stream .

The African bank of the future will look less like a traditional lender and more like a digital toll booth — collecting fees on the continent’s rapidly growing digital economy. The shift is already underway. In Nigeria, e-payment revenue grew 58% in a single year . In Benin, fee income growth (19%) dramatically outpaced interest income growth (8.5%) . In South Africa, banks are building retail deposit franchises to stabilise funding and generate transaction-based revenue .

The bank that fails to adapt — that remains dependent on lending spreads while digital payments bypass it — will be left behind. The bank that embraces the shift, invests in technology, and monetises the transaction economy will continue to earn the extraordinary returns that have defined African banking.

The tolls are rising. And the banks are collecting.

FAQ SECTION

1. How do African banks make money?

African banks generate revenue through two primary channels: net interest income (the difference between interest earned on loans and interest paid on deposits) and non-interest income (fees, commissions, and trading gains). Non-interest income sources include account maintenance fees, ATM charges, electronic banking fees, remittance fees, card-based fees, letters of credit, and foreign exchange trading .

2. How profitable are African banks compared to global peers?

African banks are significantly more profitable. Return on equity (ROE) stood at 19% in 2024 and an estimated 17% in 2025, compared to a global banking average of about 10%. African banks are nearly twice as profitable as their peers in other regions .

3. What is the size of the African banking market?

African banking revenue reached approximately $99billionin2024andcrossed$100 billion for the first time in 2025, reaching an estimated $107 billion. On a constant-currency basis, revenues grew about 17% annually between 2020 and 2024 — far faster than the global average .

4. Which African countries have the largest banking markets?

Five markets generate approximately 70% of Africa’s banking revenues: Egypt, Kenya, Morocco, Nigeria, and South Africa. South Africa is the largest single market, generating about $26.4 billion in customer-driven revenues in 2024 .

5. How much do Nigerian banks earn from e-payments?

Ten major Nigerian banks generated a combined N674 billion ($419.7 million) in e-payment revenue in 2024 — a 58% surge from N428.6 billion in 2023. UBA led with N236.3 billion, followed by Access Holdings with N178.6 billion. Transaction fees typically range from N10–50 per transfer .

6. What is the outlook for African bank profitability in 2026?

S&P Global Ratings expects profitability to vary by country. Moroccan and South African banks should show resilient profitability, supported by higher volumes and lower credit losses. Nigerian and Egyptian banks are likely to see a gradual decline in profitability as interest rates fall — partially offset by lower credit losses .

7. How do banks benefit from customer deposits?

Customer deposits — particularly non-remunerated (non-interest-bearing) deposits — provide banks with low-cost or zero-cost funding that can be lent out at higher rates. Banks with strong retail deposit franchises have more stable funding, lower costs, and generate additional fee income from transaction activity on those accounts .

8. Why are net interest margins higher in Africa than elsewhere?

African banks operate with wider net interest margins (8-15%) than global peers (2-4%) due to higher inflation, higher credit risk, limited competition in many markets, and higher operating costs (cash-intensive, branch-heavy models). Banks price loans to compensate for these risks and costs .

9. How are fintechs affecting traditional banks in Africa?

Fintechs have captured significant payment volume but have not yet displaced traditional banks as the primary settlement layer. Banks are responding by investing heavily in technology (six Nigerian banks spent N268.7bn on IT in 2024), launching fintech subsidiaries, and partnering with fintechs for distribution. The relationship is increasingly collaborative rather than purely competitive .

10. What is the fastest-growing customer segment for African banks?

Small and medium-sized enterprises (SMEs) are projected to be the fastest-growing customer segment. McKinsey projects lending to SMEs will reach approximately $52 billion by 2030. This segment remains underserved by traditional banks in many African markets .

11. How do interest rate changes affect bank profitability?

Interest rate changes affect net interest margins directly. When rates rise, banks can increase lending rates faster than deposit rates, widening margins. When rates fall (as expected in Nigeria and Egypt in 2026), net interest margins compress unless offset by higher lending volumes or increased non-interest income. Banks with diversified revenue streams are better positioned to weather rate declines .

12. What are the main risks facing African banks in 2026?

Key risks include: accelerated interest rate declines compressing margins (Nigeria, Egypt), currency volatility (especially for foreign currency-denominated loans), fintech disintermediation of payments, sovereign debt exposures, and geopolitical/trade tensions affecting commodity prices and remittance flows 

Source: Accra Street Journal 

Last Updated on May 23, 2026 by Samuel Kwame Boadu

Samuel Kwame Boadu

Samuel Kwame Boadu is a Ghanaian media entrepreneur and storyteller with a passion for amplifying urban voices and uncovering everyday truths. He is the Editor-in-Chief and Founder of Accra Street Journal, a dynamic digital platform dedicated to capturing the pulse of Ghana’s capital—its people, culture, challenges, business, sports and innovations.

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