THE merchant banking subsector suffered 18 percent decline in interest income in 2018, which constrained growth in revenue, prompting operators to switch to non-interest income to offset impact of lower fixed income yield on their financial performance.
Similarly, yields on 182 Days PMA TBs dropped 470 bpts to 10.3 percent in June 2018 from 15 percent in December 2017. It, however, rose by 280 bpts to 13.1 percent by the end of 2018., on the declines in the income of merchant banks in the financial year 2018, Ayo Akinwunmi, Head of Research, FSDH Merchant Bank said: “Lower interest rate and yield environment on fixed income securities in 2018 compared with 2017 were responsible.
This was caused by 13 percent decline in interest income which dropped to N16.6 billion in 2018 from N19.1 billion in 2017, while interest expense remained flat at N12.2 billion in 2018. This was caused by 106 percent increase in interest expense which rose to N10.1 billion in 2018 from N4.9 billion in 2017. This wiped out the 50 percent growth recorded in interest income during the period.
The above helped the five banks to achieve 27 percent growth in profitability, with profit before tax rising to N39.4 billion in 2018 from N28.9 billion in 2017.Consequently, to enhance revenue growth and sustain the double digit growth in profitability, the five merchant banks are consolidating on strategies to enhance non-interest income as well as attract stable source of funds.
“We are going to further leverage on our technology to bring in funds and bring it in cheaply like commercial banks” The bank also expedited measures to increase income from foreign exchange and fixed income trading as well as from electronic channels.