How exposed is South African banking to Trump’s turbulence?
It has become clear over the last nine weeks that under the presidency of Donald Trump, any conventional geopolitical and economic expectations of the United States can no longer be taken for granted.
A marked change in the value system underlying the decisions made at the highest levels of US leadership has created much international uncertainty, with a recent analysis by the Financial Times finding that US conservatives’ global civil values are more aligned to the authoritarian politics of nations like Turkey and Russia than to traditional Western allies.
Trump’s focus on US protectionism, alongside the recent skirmishes with the South Africa government over alleged human rights violations (which led to the suspension of most US foreign aid), are significant events that indicate South Africa may suffer increased scrutiny and reprisal from America.
This period of volatility means that South Africa’s economy, and by extension its banking sector, could face significant headwinds in the future. For all the innovation and excellence within South Africa banking institutions, the industry has been continually hamstrung by prolonged mediocre economic growth, which may be aggravated by the turbulence created by Trump.
“It’s the economy, stupid”
A key concern for South African economic growth is a potential slowdown in interest rate cuts across 2025 stemming from volatile economic conditions resulting from America’s unpredictable foreign policy decisions. The most pressing example of this is Trump’s imposition of excess tariffs, which threatens to spark a global trade war.
With South Africa’s repo rate having come down to 7.5% in January 2025 from 8.25% in September 2024 (the highest the rate has been since 2009 after the Global Financial Crisis), central banks were hopeful that rates would continue to fall this year, benefitting their economies through access to cheaper financing. However, it now seems that rate cuts are likely to stall.
The South African Reserve Bank already highlighted its concern over an uncertain global outlook in January, and even suggested that US rates may increase this year in response to inflationary decision making. Ultimately, this prevents emerging markets from lowering their rates due to the negative impact on their asset competitiveness compared to the US. While banks would benefit from elevated net interest income, essential long-term credit growth will remain subdued.
Gambling with AGOA
Another concern for the South African economy, which feeds into the growth of the banking sector, will be targeted penalties from the US. The most obvious is South Africa’s possible exclusion from the Africa Growth and Opportunity Act (AGOA), which is set to expire on September 30, 2025. AGOA provides duty-free access to the US market for several industries, but particularly the automotive, chemical and agricultural sectors. In 2023, South Africa’s exports under AGOA amounted to around $3.2 billion.
A 2023 analysis by the Africa Growth Initiative at the Brookings Institute found that South Africa could lose as much as 0.11% of GDP due to AGOA termination. In an economy that grew by a measly 0.6% in 2024, this impact is monumental. Practically, impacted manufacturing and agricultural businesses will become less competitive in US markets, driving down export revenues and ultimately straining these sectors, which account for a significant proportion of South Africa’s commercial, corporate and investment banking portfolios.
Basel IV-boding
The last and most direct factor impacting South African banks is divergence in international bank capital standards. Since the 2007/2008 Global Financial Crisis, international regulators have pushed to tighten banking regulation to curb excessive risk taking and to ensure banks have sufficient financial buffers to absorb losses and remain stable during crises.
However, these regulations require banks to hold billions of rands in high-quality capital (think of them as emergency reserves that need to be put away), limiting their ability to utilise funds for riskier, higher-yielding activities. This can create a capital drag rather than a profit opportunity. The latest round of global reforms, known in the US as the Basel “Endgame” (or Basel IV in South Africa) is expected to be completely scrapped or significantly watered down by Trump.
This could lead to a significant divergence in banking standards resulting in a regulatory arbitrage. Regions like the European Union and South Africa, which are continuing to push ahead with implementation of Basel IV in 2025, will find themselves disadvantaged compared to US banks, which can take greater risks and offer more competitive pricing.
With the US experiencing a tumultuous start to 2025, geopolitical risk will certainly have risen to the top of bank executives’ lists of priorities around the world. While Trump’s turbulence does not directly impact the South African banking industry, its potential to slow down the country’s economic growth will ultimately negatively impact an industry that is desperate for growth opportunities.
To gain further insights into South Africa’s banking sector, join Monocle at the GIBS Beyond Banking Conference on 14 May 2025: GIBS/Monocle Beyond Banking Conference 2025
By Monocle Research
Monocle is an international consulting firm that specialises in banking insurance. They have a deep understanding of the South African banking landscape, having partnered with all the major South African Banks over the past 20 years.
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