International trade disputes have had numerous consequences, and banks are no exception. Reports in The Wall Street Journal said trade conflict has caused global banks’ shares to take a hit. But some FIs see opportunity in these trade disagreements, reports said, and are using them take advantage of new trade routes.
Citigroup, Standard Chartered and HSBC have all said that tariffs will lead to the shuttering of some trade routes, forcing the opening of new ones; this, in turn, will allow global banks to service clients in those new trade corridors. In this way, banks have an opportunity to see rising business in their trade finance operations.
Spain’s Santander and France’s BNP Paribas both see trade finance as having the largest share of their total loan portfolios, Citigroup analysis says, though on the whole, trade finance remains a less lucrative business for banks.
“Supply chains or trade routes may realign, but they don't go away,” Citigroup chief executive Michael Corbat said earlier this month during an analyst call.
“A ratcheting up of tariffs, of course, is not a good thing for global growth or the citizens of the U.S. and China, but it’s not a bad thing for Standard Chartered,” said Standard Chater’s chief executive Bill Winters.
The remarks may help ease concerns among investors. While banks’ earnings have yet to show the negative consequences of trade disputes, their earnings have declined in recent months, with analysts pointing to trade disputes as a possible explanation as investors grow concerned about whether tariffs will hamper economic growth.
Trade finance revenue among the world’s ten largest banks dropped by $5.8 billion last year, reports said, citing Coalition data. Analysts said exporters and importers are relying less on banks and more on hedge funds and private equity firms to finance trade. Some banks have faith that trade disputes could cause a rebound in their trade finance offerings, while others, including Credit Suisse, expect greater demand for FX hedging and derivatives — another potentially positive effect of trade finance.