(Yicai) April 8 -- While President Donald Trump’s so-called reciprocal tariffs on US trading partners may strain parts of China’s banking sector, especially banks much involved in export financing and cross-border services, analysts expect the overall impact to be manageable.

The tariffs could squeeze borrowing demand and net interest margins -- or the difference between the amount of money a bank earns on loans and the amount it pays on deposits -- but the sector’s asset quality should remain stable overall, with the broader impact of rising tariffs expected to be controllable, Dai Zhifeng, chief banking analyst at Zhongtai Securities, told Yicai.

As export-driven businesses face mounting pressures, the banks that cater to them may experience pressure on credit demand, loan pricing, and asset quality, meaning that banks with a relatively larger share of such clients are likely to feel a bigger impact, Dai pointed out.

The emergence of a gap in export credit may force down corporate lending rates, putting further pressure on net interest margins at banks, Dai added.

Reduced funding needs at import-export companies, including a potential slump in cross-border settlement volumes, would likely be among the most immediate and notable effects of the tariffs, with banks that are heavily exposed to foreign-related business more likely to bear the brunt of the impact, a source at a joint-stock bank said.

On the flip side, the chances of a further easing in China's monetary policy has increased, which will help lower banks' funding costs, Dai said, adding that government policies to boost demand are expected to stimulate retail credit growth.

According to Zhongtai Securities, trimming the reserve requirement ratio -- which dictates the share of deposits banks must hold in reserve -- and cutting fixed deposit rates could help ease the pinch on net interest margins, with the squeeze this year expected to be less severe than it was last year.

Due to the low market valuation of banking stocks and their high dividend yields, banks’ shares could attract relatively stronger buying interest when market volatility increases due to the escalation in tariffs.

Opening again after a three-day weekend, China’s stock market tumbled yesterday in the wake of the "reciprocal tariffs." The benchmark Shanghai Composite Index closed down 7.3 percent, the Shenzhen Component Index sank 9.7 percent, and Shenzhen's Nasdaq-style ChiNext Board plunged 12.5 percent.

Banking industry stocks were among the three most resilient sectors, with the Shenwan Bank Stock Index ending just 4.7 percent lower.

Editors: Tang Shihua, Martin Kadiev