Lenders split between domestic players and those with global reach as trade tensions disrupt markets
As UK banks prepare to release their first-quarter reports this week, the economic fallout from President Donald Trump’s controversial tariff policies looms large. With global markets jittery and uncertainty over growth prospects, banks with significant exposure to international markets, particularly in Asia and the US, are expected to feel the pinch. While domestic-focused institutions like NatWest and Lloyds may fare better, international heavyweights like HSBC and Standard Chartered are bracing for tougher times ahead.
The first-quarter earnings, which only cover the period up to the end of March—before Trump’s tariff rollout on April 2—will give investors a glimpse into how UK banks are weathering a storm of global instability. But analysts and investors are already watching closely for any signs of potential trouble, including higher provisions for defaults and cautious outlooks on future profits.
Divided in Two: Domestic Banks vs. International Giants
The impact of Trump’s trade policies is expected to separate UK banks into two distinct categories. The first group, composed of banks that mainly serve the UK market—such as NatWest and Lloyds—are likely to be less affected by the tariff chaos. On the other hand, banks like HSBC and Standard Chartered, which derive a significant portion of their profits from Asia, particularly China, will face greater risks as the tariffs disproportionately affect that region.
Analysts are already predicting a challenging period for these global players. HSBC, for example, which makes the majority of its profits in Asia, is forecast to see a sharp drop in its first-quarter profits. With China imposing hefty retaliatory tariffs, including a 145% tariff on most US goods, HSBC’s exposure to the region will likely weigh heavily on its financial results.
Gary Greenwood, an analyst at Shore Capital, noted that banks with a large footprint in Asia “are more likely to be impacted by tariffs than domestic-focused ones, given the significant effect tariffs will have on credit demand, credit risk, and client activity.” This means that banks such as HSBC and Standard Chartered, which also deal heavily in wealth management, will feel the pressure more than their domestic peers.
The Tariff Ripple Effect: Economic Risks and Profit Predictions
For global players like HSBC, the situation is expected to get worse before it gets better. The bank, which had already been trimming its operations in Europe and the US, is now dealing with the added complication of escalating trade tensions. As the bank prepares to report its first-quarter results, analysts predict a 38% decline in profits, down to $7.8 billion, as the impact of the tariff war overshadows other growth areas like wealth management in Asia.
Moreover, the bank is expected to increase provisions for loan defaults by 20% compared to the same period last year. With tariffs affecting consumer sentiment and corporate borrowing, HSBC is putting aside a hefty $868 million to prepare for possible defaults, a substantial increase from prior years.
Impact of Trump’s tariffs on global banks:
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HSBC: Expected 38% drop in first-quarter profits.
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Standard Chartered: Likely to see a hit from Chinese market slowdown.
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Barclays: Potential risks due to exposure to US consumer lending.
At Barclays, concerns are also high. Despite its significant US operations, the full impact of tariffs on its performance remains unclear. While some market activity could benefit from increased volatility, the risk to capital-raising and consumer lending might dampen overall performance. Barclays will release its results on Wednesday, and investors are eagerly awaiting any signs of cautious forecasts or adverse adjustments to earnings projections.
Domestic Banks: Weathering the Storm with Stability
Unlike their international counterparts, UK banks with a domestic focus are expected to remain relatively insulated from the direct impact of the US-China tariff war. NatWest, in particular, is likely to report stronger-than-expected first-quarter profits. Analysts are forecasting a 20% rise in pre-tax profits, bringing them up to £1.6 billion.
However, even these banks are not entirely immune to the broader economic uncertainty. Provisions for loan defaults are expected to rise significantly, as banks prepare for an expected slowdown in consumer and business activity amid global trade tensions.
For Lloyds Banking Group, first-quarter profits are forecast to dip by about 6% to £1.5 billion. However, the real story lies in the bank’s provisions for bad debts, which are expected to quadruple compared to the previous year, reaching £279 million. As the economic outlook weakens, banks with heavy domestic exposure are likely to face a higher default rate, which will be reflected in their balance sheets.
Interestingly, these UK-focused banks are also expected to be beneficiaries of shifting investor sentiment. As concerns about the stability of US banks mount, there’s growing interest in European and UK financials. With stronger domestic franchises, banks like NatWest and Lloyds could see heightened investor interest, helping to offset some of the broader economic challenges.
The Uncertainty Ahead: What’s Next for UK Banks?
With so much of the global economy in flux, investors and analysts alike are looking for signals from UK banks on how they plan to manage the rising risks tied to the ongoing tariff conflict. As the first-quarter reports come in, much of the focus will be on whether banks increase their bad debt provisions and how they adjust their future earnings forecasts in light of rising global uncertainties.
In the meantime, UK banks’ financial stability will continue to depend on both domestic and international factors. While the domestic banks might be more shielded from the worst effects of the trade war, global giants like HSBC and Standard Chartered are facing a tough road ahead. As tariffs continue to disrupt the global supply chain, it’s clear that UK banks—no matter their size or reach—will need to stay agile to weather this storm.
