January 28, 2015

Banks suffer falling interest income

Many banks have been reporting falling interest income in the current environment of low rates and tight competition.

Fifth Third Bank, a regional bank based in Cincinnati, recently announced a 2 percent drop in net interest income during the fourth quarter, according to American Banker. The financial institution also revealed that its net interest margin dropped to 2.96 percent, 25 basis points lower.

The company also reported a 51 percent year-over-year decrease in mortgage banking income, and a 7 percent drop in fee income, American Banker reported. These factors combined to push the company's net income 4 percent lower for the fourth quarter when compared to one year before.

The Cincinnati-based lender is not alone in facing financial pressures caused by low interest rates, as SunTrust Banks and PNC Financial Services Group reported earlier this month that these low borrowing costs cut into their profits.

Amid these challenges, many banks are striving to enhance fee revenue and reduce their expenses so they can compensate for their inability to generate substantial profit growth through lending activities, American Banker reported.

In addition, some banks are turning to the secondary market to purchase loan portfolios and increase their interest income. Financial institutions that take this route must approach any transaction with care, as there is a complex framework of regulations that must be followed when making such deals.

To increase the odds of having a successful debt purchase, banks might consider working with Garnet Capital Advisors, a seasoned loan sale advisory firm with experience in many types of debt sales.