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The world’s largest trade finance banks are bracing for a potential revenue hit from US President Donald Trump’s tariff spree but claim they are well prepared for slowing exports and supply chain disruptions.

In early April, the US slapped tariffs of 145% on China, which retaliated with duties of 125% on US imports, while several countries are benefitting from a 90-day pause on higher rates unleashed by Trump.

The measures have created a gloomy outlook for trade, with the World Trade Organization now estimating that goods trade volumes will fall by 0.2% this year, after growing 2.9% last year.

Despite this darkening picture, global banks including Citi, HSBC and BNP Paribas say business has remained strong in recent weeks, and a trade war – should tariffs escalate – may even yield opportunities.

Kanika Thakur, Citi’s head of treasury and trade solutions for Japan, Asia North and Australia, says clients across the Asia Pacific have been “balanced and calm” and despite current pressures are not making “knee-jerk reactions”.

“We have seen balanced demand for products. There was an artificial spike in April as companies rushed to catch the 90-day window prior to tariff implementation,” she tells GTR. “For now, everyone is watching and waiting.”

In the coming weeks, Thakur expects there may be a slight increase in working capital demand as Asian companies look to export goods into the US and build inventory in local warehouses.

Other banks paint a similar picture.

In a Q1 earnings call last week, HSBC chief executive Georges Elhedery said there has been a “major slowdown” on US-China trade flows and some of the bank’s “large” capex investments are on hold.

But for now, he says corporate customers are taking a cautious approach.

“Certainly, some of the shipments from China, specifically to the US, have slowed down, but we’ve seen no panic… there’s been no significant drawdowns. Deposit behaviour has remained normal, so nothing really to call out beyond the wait and see,” Elhedery said.

He highlighted how HSBC’s transaction banking business also covers domestic activity in China and Asia, across diverse products and intraregional corridors, and said there has been a “very fast pace” of growth in trade flows within Asia or between Asia and the Middle East.

“Remember, a lot of our business is, let’s say, with multinational customers operating in Asia or in China,” Elhedery said. “A lot of their business is in China for China, or in Asia for Asia, where they produce and manufacture locally and distribute locally.”

Though some of these companies may be affected by tariffs, the impact is likely to be limited, he said.

In its Q1 earnings call, BNP Paribas likewise suggested that trade finance activity has remained strong despite the tumult.

“We are particularly European in activity,” said the French bank’s CFO, Lars Machenil, in response to a question about trade finance.

“With the interest rates coming down, you would have assumed that activity – the P&L contribution – would be going down,” he said.

However, the uncertain business environment means that “even with the interest rates tapering off, the volumes are higher”.

“That’s what you see in Q1 and that’s why you see the evolution,” Machenil said.

 

Deepening relationships?

Trump’s trade policy has been fluctuating in recent months, with tariffs imposed only to be withdrawn, amended or paused.

In its Q1 earnings report, HSBC acknowledges that a “plausible downside scenario” characterised by escalating tariffs, slowing trade and falling GDP globally would affect its business.

In that scenario, the bank would suffer an estimated “low-single-digit” percentage drop in revenues and expected credit losses would rise by US$500mn, Elhedery told investors.

“The exercise that we’ve conducted is meant to, basically, evaluate the impact of plausible downside scenarios on our overall activities, obviously including trade,” he said.

The International Monetary Fund (IMF) warned last week that global banks may not be as insulated as they think. A sharp rebound in profits enjoyed by the banking sector in 2024 could be undermined by US tariffs, with trade finance flagged as a vulnerable area.

“Tariffs might disrupt banks’ trade finance, a business that supports over US$10tn in annual transactions and generates US$18bn of bank revenues globally,” the IMF report says.

“Trade finance depends on stable cash flows, supply chains and regulatory frameworks, all of which might be disrupted by abrupt tariff changes.”

It adds that as borrower cashflow becomes less predictable and demand grows for larger credit facilities, banks could “tighten lending criteria due to rising credit risks”.

“Tightening credit availability intensifies borrowers’ default pressures, leading to a negative spiral of shrinking financing and trade volumes. Tariffs can also reconfigure supply chains and require new compliance processes, raising banks’ costs and reducing their underwriting appetite,” it says.

But global trade finance banks argue they are well positioned to withstand an escalating trade war and have the global reach and expertise to support clients, both existing and new.

“We have more than 5,000 trade experts in more than 50 jurisdictions working with clients to help them think through what this means for their business model, and how they can help them adapt and adjust and create resilience,” HSBC’s Elhedery said.

“Therefore, in an environment like this one, we expect to deepen relationships with clients. We expect to acquire new clients and to consolidate our position as a leading trade bank, and we expect to make hopefully a difference for our customers in navigating these uncertainties.”

Citi is likewise prepared should a high-tariff environment take hold and trade volumes slow, Thakur says.

“We are in over 90 markets and some clients will have increased needs in various areas, including hedging where our markets business can help,” she tells GTR.

“Yes, the trade world is going to be stressed. But trade is one part of our large business split to support clients [and] will also see some evolving client needs. If clients are focused on inventory build-up for instance, they will need inventory finance solutions.

“We could also see increased demand for receivables financing from suppliers, and leveraging our full franchise, we can support clients who want to boost credit and liquidity in an uncertain environment.”

Thakur adds the bank is thinking holistically to ensure it remains relevant to clients in each market, and can help them “navigate through these changes”.