© Bloomberg. A staircase at the HSBC Holdings Plc headquarters building is illuminated in red light at night in Hong Kong, China, on Sunday, July 30, 2017. HSBC is set to announce plans to buy back $2 billion of shares when it unveils second-quarter results on July 31, the Sunday Times reported, without saying where it got the information. Photographer: Anthony Kwan/Bloomberg© Bloomberg. A staircase at the HSBC Holdings Plc headquarters building is illuminated in red light at night in Hong Kong, China, on Sunday, July 30, 2017. HSBC is set to announce plans to buy back $2 billion of shares when it unveils second-quarter results on July 31, the Sunday Times reported, without saying where it got the information. Photographer: Anthony Kwan/Bloomberg

(Bloomberg) — For banks that finance trade in Asia, the tariff war between the U.S. and China couldn’t come at a worse time.

Lenders globally have faced declining revenue from the $9 trillion business of funding cross-border commerce for five years running, thanks to a drop in margins that is persisting in Asia. Now, as the trade dispute between the world’s two biggest economies intensifies, the risk is that volumes decline, worsening prospects for the top banks in the region including HSBC Holdings Plc (LON:HSBA) and Standard Chartered (LON:STAN) Plc.

“It’s going to be a very challenging story, especially for those in Asia who are trying to grow the business,” said Eric Li, research director at Coalition Development Ltd. in London. “There are a lot of traditional players chasing the shrinking pie.”

The U.S. last week pushed ahead with plans to impose tariffs on a further $200 billion of Chinese products by releasing a list of targeted products, President Donald Trump’s latest salvo in a conflict that China calls the “the largest trade war in economic history.” While some bankers say it’s too early to determine the impact of the dispute on trade flows, the implications for lenders in the industry could be serious if shipments weaken.

Read this timeline of the events leading to a trade war

“As growth prospects for trade finance are inextricably linked to the volume of merchandise trade, the financial implications of an all-out trade war, compared with protectionist bluster, are enormous,” said Olivier Paul, head of policy at the International Chamber of Commerce’s banking commission.

Global revenue for trade finance banking, which includes import and export letters of credit and supply-chain finance, fell in 2017 to $26.6 billion, the lowest level in at least eight years, Coalition data show, and Li expects another decline this year.

Asia is a key market for the industry, accounting for about a third of trade finance revenue worldwide. Yet margins have been shrinking as global banks face growing competition from lenders in Japan, Australia and Singapore, Li said. Rising compliance costs are also hampering margins in the region, which seem to be improving elsewhere, according to a May report by the International Chamber of Commerce.

Lenders across Asia are now talking with clients to assess the implications of the trade spat on their business and wider supply chains and it’s too soon to decide how to react, according to bankers interviewed by Bloomberg. Concerns include whether manufacturers will need to move factories to countries not affected by the tariffs and whether demand for goods will weaken.

A trade war may lead to the redrawing of supply chains that could hurt the credit quality of some borrowers, said Chris Dyer, director of global equity at Eaton Vance Management in London. “This would create winners and losers and result in higher potential credit losses in segments of the commercial loan book,” he said, adding that tariffs would increase credit stress on Chinese exporters to the U.S.

Read more: American steaks, German cars early victims as tariff pain bites

Still, the direct hit to bank earnings may be manageable, given that the already low-margin business tends to account for a small portion of their profits. At HSBC — the industry leader in Asia last year, according to Greenwich Associates — global trade and receivables finance accounted for about 13 percent of commercial banking operating income in the first quarter of this year.

Despite the escalating dispute, HSBC remains bullish on the outlook for trade.

“It’s too early to predict whether trade tensions will impact client activity and trade flows,” said Ajay Sharma, regional head of global trade and receivables finance for Asia Pacific. “Long-term fundamentals of trade remain strong,” driven by strong economic growth in the region, he said.

Representatives for Standard Chartered weren’t available to comment.

Any realignment of trade ties could present opportunities to banks outside of the U.S., Dyer said. Eleven countries signed up to a trans-Pacific trade deal this year even after the U.S. withdrew, while China is working on another regional agreement.

“The imposition of significant tariffs would likely encourage greater inter-Asia trade integration and increase economic and political cooperation between Asia and Europe,” he said.

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