Knock-on effects from the Russia-Ukraine war could endanger an otherwise positive outlook for the global securities services industry.

The secondary impact from the conflict on securities services revenues "could be huge if the war escalates and causes a major meltdown of the global equity market," Eric Li, research director at research company Coalition Greenwich, said in an interview. Large securities services banks have limited direct exposure to Russia, Li said.

Revenues at the 12 largest securities services banks globally grew by 2% in 2021, according to Coalition Greenwich. This followed two years of revenue decline at securities services banks, which have faced significant margin pressure due to growing competition and a low interest rate environment.

The banks could enjoy a further boost in revenues in 2022 from central bank plans to lift interest rates, which will support their net interest income. The Fed, which raised interest rates last week for the first time since 2018, signaled six additional rate increases this year.

Coalition Greenwich's securities services index tracks revenues at Brown Brothers Harriman & Co., BNP Paribas SA, The Bank of New York Mellon Corp., CACEIS Bank SA, Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co., Northern Trust Corp., Royal Bank of Canada, Société Générale Société anonyme and State Street Corp.

Higher levels of assets under custody and administration as well as strong transaction volumes drove fund services revenues up by 7% in 2021, while custody services grew by 1%, according to the research. Net interest income continued to be weak, it found.

Other services — a category that includes corporate trust, depository receipt, agency securities lending, broker/dealer clearing and settlement and collateral management services — was down by 1%.

Europe, the Middle East and Africa recorded the largest regional increase of 5% in revenues in 2021, driven by growth in almost all products and bolstered by strong local currency, Coalition Greenwich said. In the Americas, lower net interest income and money market fee waivers caused revenues to remain flat.

While the securities services industry could take a hit if the war escalates, it stands to benefit significantly if a peace deal is reached, said Li. Such a scenario would likely boost asset values and transaction volumes, which together with improved net interest income "will be very positive" for securities services revenues, he said.

Coalition Greenwich is a business division of CRISIL, which is part of S&P Global Inc.