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The future impact on commercial banks of the recent on-again off-again tariffs is not yet known, as nothing like it has happened for generations. Bankers are struggling with the unpredictability of the near-term and the uncertainty of the not-too-distant future. While nothing is certain, two recent articles in the RMA Journal, “Tariffs, Turbulence, and the Road Ahead for Banks,” (4/9/2025) and “Tips on Managing Tariff Risk in Your Lending Portfolio” (4/16/2025) have outlined the areas most likely to be impacted by these tariffs, and some proactive approaches banks can take to prepare for the unknown.

An obvious place to start is to review borrowers that rely on imports as an important part of their business model. From construction to consumer goods, import-heavy industries could see margins shrink rapidly, so it makes sense to examine how much imports matter to any individual company. Prepare for credit quality to deteriorate as higher costs and slowing demand would negatively impact cash flow and increase delinquencies in these companies. Bankers should consider best practices like stress-testing export-heavy business borrowers as well, since export businesses could face increased pressure.

Other industries to prioritize include manufacturing and construction as the costs of building and housing could rise because of the tariffs on Canadian lumber. Due to the tariffs on China, the price of appliances and fixtures will most likely rise, and the price of electrical equipment to HVAC will increase with tariffs on Mexico.

Companies relying on agriculture could feel some pain if other countries boycott our agricultural product exports. This will likely negatively impact the transportation distribution industry as there will be less trade, fewer shipments, less manufacturing activity and logistics. This could also lead to softening in the warehousing market as much less imported material goods would need to be stored.

There is also justifiable concern over commercial real estate portfolios as a large amount of CRE debt will need to be refinanced in the near term. Defaults would rise if those loans fail to roll over due to higher interest rates at the same time as we experience a weaker economy, and borrowers face a stiffer underwriting standard. In addition, many banks that have spent significant effort in the past few years trying to balance out their CRE exposure by increasing their C & I portfolio may be surprised at how the tariffs would add increased risk in those holdings instead.

While none of this scrutiny and proactive risk management alone will erase the growing uncertainty about the future, credit managers do have the best practices of concentration stress testing in their risk management tool kit to help. The prudent use of stress testing borrowers in tariff-sensitive industries like those mentioned in this article can help banks understand the potential weight of near- term economic change on their bank’s earnings and capital. Leveraging common stress testing tactics can help bankers anticipate possible negative results of the new uncertainty .

If you are interested in more information on how proactive stress testing can help your bank gain clarity in uncertain situations, please join us for our complimentary webinar “Contain Credit Uncertainty with Stress Testing Practices” on Wednesday, June 4th at Noon EST. This presentation, in partnership with ProSight (RMA), will describe how banks can use basic stress testing to show examiners that their institution is proactively managing risk levels – from both a commercial and consumer perspective.

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