First-quarter revenues at the top 10 global transaction banks fell for the first time in three years as central banks cut interest rates to stimulate demand amid the economic impact of the COVID-19 pandemic, data by research company Coalition shows.

Total revenues in the quarter fell 6% year over year to $7.4 billion, according to Coalition's transaction banking index. The revenue decline is expected to worsen in the second quarter with volumes projected to shrink across the board.

From bad to worse

"We won't be surprised if we see a decline in every product in the second quarter," Eric Li, research director at Coalition, said in an interview. Given the uncertainty about the impact of the pandemic later in the year, it is too early to make a projection for revenues in the third and fourth quarters, he said. This will depend on how long lockdowns last in various countries and how quickly economies recover, Li said.

However, given the weak first half of the year, it is safe to assume that 2020 transaction banking revenues will drop below their 2019 level, he said. It is hard to see a scenario where third- and fourth-quarter revenues are so strong that they offset the slump in the first two quarters of this year. Therefore, it is not a question of whether, but rather by how much, revenues will fall, according to Li.

Cash management hit

The decline in total revenues was driven by a 7% fall in cash management revenues, while trade finance revenues edged down 1% year over year despite the pandemic-related supply chain disruption, according to Coalition's report. The weakness in cash management stemmed from a drop in liquidity and balances revenues, where low interest rates led to a slump in net interest margins that outpaced the surge in deposit balances. But payables and receivables revenues remained flat year over year, partly due to a lag in COVID-19's impact on the corporate sector.

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Trade finance was backed by the continued strong growth in supply chain finance where financing volumes increased. Commodities trade finance revenues were weaker in the first quarter as transaction volumes declined.

Supply chain finance is seen as slightly more resilient than other products in the current crisis, but the overall trend in both trade finance and cash management is a continued decline, Li said.

Americas, APAC more vulnerable

On a regional basis, first-quarter transaction banking revenues decreased across all main regions — the Americas; Asia-Pacific; and Europe, the Middle East and Africa — for the first time in four years. Asia-Pacific and the Americas were hardest hit, booking year-over-year revenue drops of 8% and 7%, respectively. EMEA recorded a smaller fall of 2% over the quarter.

Revenues in the Americas and Asia-Pacific will continue to underperform EMEA later in the year, Li said. The former two regions are seen as more vulnerable than EMEA because of the interest rate outlook in the U.S. and economic disruption in Asia.

Interest rates in Europe have been negative for a long time, but in the U.S. rates have gone to zero and may turn negative for the first time ever, Li said. Asia is managing the pandemic better than the U.S. and Europe, but it is an export-based region and is therefore at risk of taking a hit from the steep decline in economic activity elsewhere in the world, he said.

Coalition tracks cash management and trade finance revenues at Bank of America Corp., Barclays PLC, BNP Paribas SA, Citigroup Inc., Deutsche Bank AG, HSBC Holdings PLC, JPMorgan Chase & Co., Société Générale SA, Standard Chartered PLC and Wells Fargo & Co. The analysis includes revenues and deposits from all institutional clients and corporates with an annual turnover of more than $1.5 billion.

Coalition is owned by CRISIL. CRISIL and S&P Global Market Intelligence are owned by S&P Global Inc.