Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- New tariffs announced by the USA as a measure to boost revenue have brought immediate attention and impact on the sentiments of world leaders and businesses.
- Retaliation to the tariff announcements by major economies has further aggravated the situation. While matters are currently under consideration, with only 10% base tariff and wider tariff announcements on hold, there is an immediate threat of more action in the event world leaders are unable to reach a common consensus.
- The role of the CFO for banking and financial institutions (BFSIs) has become more complex, requiring a balance of agility, data-backed insight, and rapid execution to support high-stakes decisions.
Introduction
On April 2, 2025 the Trump administration announced a new tariff regime applicable to most of the nations doing business with the USA. The announcement of tariff rates that ranged from 10% to as high as 50% had an immediate impact on global sentiment. Major markets reacted sharply evidenced by a fall in global indices.
In reciprocation, China announced a retaliatory tariff on US imports in response to the severe and immediate impact these tariffs would have on China’s economy. A week later the European Union announced a 25% tariff on US imports and other countries followed , which made the situation worse. While India has not retaliated against the 50% tariff imposed by the US directly, it has adjusted its own tariff positions to protect strategic sectors and stay globally competitive.
The Trump administration announced a 90-day pause on the new tariffs, which ended on July 9 with a further extension announced until August 1st. The new tariff rates came into effect from August 7, keeping intact the 10% universal base tariff clause. There have been intermittent updates since. While the eventual outcome of the tariff pause is yet to be seen, the changes in trade terms and the immediate impact on organizations is evident. CFOs need to gear up and assess the situation and prepare a strategy to withstand tariff impacts in the time to come.
Impact on BFSI
The new tariff policies have significantly increased global financial instability. A sharp repricing of risk assets came in the wake of the tariff announcements in February and accelerated following the April 2 release of plans for larger-than-anticipated tariffs. Financial market volatility across stocks, currency, and bond markets rose significantly. The response by other countries further amplified uncertainties.
Although the BFSI sector is not directly impacted by the tariffs, they have caused major distress in the global banking and insurance sectors, evidenced by the 5-10% fall in the share prices of major banks and insurance companies. Analysts and investors are worried that this might signal a deeper economic downturn, possibly leading to a full-blown recession in 2025. The impact is not limited to the USA.; European and Asian banking sectors have suffered substantial declines, highlighting the interconnectedness of the global economy.
The signs of stress have already reflected in reduced business confidence, thereby putting hold on the discretionary spends by banking and financial services sector. We have already seen several layoffs in the industry. While analysts believe the layoffs are attributable to AI, the tariff announcements have added fuel to the fire.
While the final outcomes of the tariff discussions remain uncertain, it is imperative that BFSI CFOs brace themselves with the right tools and capabilities to help their firms navigate these uncertainties successfully.
BFSI CFO playbook
With the ongoing uncertainty, CFOs need to enhance existing FP&A frameworks to be able to assess the impacts of tariffs on an ongoing basis; and work in close coordination with business functions to enable swift responses to those situations, as they evolve.
The key levers CFO organizations should deploy are outlined below:
- Financial analytics: The ability to provide real-time insights on key financial metrics, by business segment, geography, and important markets. Success will depend on the ability of the finance department to be able to clearly predict the impact of tariffs on various facets of business.
- This can be achieved by implementation of real-time dashboards for tracking financial key performance indicators (KPIs) and ensuring that multinational finance teams have timely, accurate, and actionable insights. A well-designed dashboard brings together vast amounts of data, consolidates it into an accessible, visual format and facilitates decision-making.
- Forecasting and budgeting: The ability to assess impacts of tariff effectively and create scenario-based forecasting of revenue, margins, assets, liabilities etc.
- A strong simulation model that supports the impact on sales, cost of goods sold (COGS), margins and cash flow for every additional tariff charge to the products. This can be further aligned with key financial and non-financial risk exposure like changes in interest rate, foreign currency, product mix, and geography mix. The CFO can assist the organization with strong financial simulations on strategic decisions such as resource planning, cost allocations, product mix and achieving varied financial outcomes.
- Risk management and controls: Proper controls on the reporting segments, classifications, and risk governance for implementing any regulatory changes.
- Achieved by incorporating a strong financial risk mitigation plan embedded in forecasting, planning resulting from close coordination with the Chief Risk Office.
Speed and accuracy of response is going to be the game changer. In this scenario, deployment of AI and Agentic AI can play a key role considering the benefits it can deliver in terms of faster decisions, data-driven analysis, and managing large volumes. Some key benefits that AI deployment can bring to the CFO, if invested prudently:
- Data driven decision making: With the volume of data available in LLMs, decision making can be assisted by AI with quick simulations and scenario-based analysis.
- Improved efficiency: The speed with which the AI/Agentic AI can process data will support quick decisions and improved analysis with less effort spent on data gathering. These innovative technologies promise 30-70% efficiency gains over the current baseline.
- Quick adaptation: Agentic AI can be built to quickly analyze and provide alternate scenarios, so businesses can adapt to changes and take decisions in their best interest.
Conclusion
BFSI firms have been contending with uncertain economic environments for the last few years, with the pandemic, geo-political tensions and so on. Dynamic economic and trade policies have further added to the turmoil. “Failing to plan is planning to fail.”
The way for BFSI CFOs to help their firms navigate the impact is by having a robust data foundation and strong analytical capabilities to deliver reliable insights, and agile finance practices. Newer technologies based on AI and GenAI will come in handy to rapidly bolster the required capabilities, and manage the newer risks posed by the uncertainties created by tariffs.
Additionally, it is crucial for BFSI CFOs to set up a dedicated tariff management team which continuously assesses markets; collaborates with business; derives responses to the impacts of changes; and works closely with business leaders to drive strategy to mitigate risks.
