How To Spot and Manage Tariff Risk in Your Loan Book

With tariffs threatening to hurt many business bottom lines, two credit risk pros say in a new RMA Journal article that it’s time to get ahead of the curve—especially if you lend to borrowers with substantial international exposure. Here are some practical tips for surfacing and managing tariff risk in your portfolio: 

Start by determining the sources and level of your tariff-related lending risk. If you’re looking to identify borrowers most likely to feel tariff pain, NAICS codes are a good starting point. So is transaction history: import standby letters of credit, incoming overseas wires, or outbound payments tied to international suppliers or customers may point to exposure. “That could be an identifier,” said Jason Alpert, managing partner of Castlebar Holdings and author of RMA’s “Ask the Workout Window” column.  

Past underwriting might not provide the whole picture. A borrower that looked fine a year ago may not be today. “The environment has changed very quickly,” said Saad Aslam, executive vice president and head of credit review at Citizens Bank. If you’re not proactively reviewing borrowers with global supply chains or foreign buyers, you could miss signs of growing risk. A borrower may have even moved supply lines from China to Vietnam—only to now face tariffs there, too. 

Talk to your borrowers—before the data turns. If tariffs are likely to hit margins or sales, you want to know before the borrower starts missing payments. “Getting in front of your customers early is going to be the key,” Alpert said. Use a call or questionnaire to gauge how they plan to absorb or pass through higher costs—and whether they have the liquidity to survive disruption. 

Triage your portfolio. Once you’ve flagged affected borrowers, prioritize. Start with those nearing maturity. “These are the ones you look at first,” Aslam said. You may want to renegotiate or wind down the relationship—decisions that are easier to make if you’re monitoring closely now. 

Get your workout team ready—even if the loan is still performing. Some borrowers may be scraping by now, but not for long. If you suspect tariff exposure, stay alert for early warning signs like elevated credit line usage. Consider looping in your special assets group so they’re prepared to act quickly if conditions worsen. 

Banks don’t need to panic—but they do need a plan. For now, Aslam said, he is drawing on a “crisis playbook” in the same manner he did during COVID. It’s for when “we know something is going wrong but it’s not reflected yet in the data. We know a crisis is probably coming. What can we do about it right now?”