Merchant Banks: Definition, Functions & Examples

What is a Merchant Bank?

A merchant bank is a ‘wholesale bank’ which deals in large sums of money and whose main functions are: issuing of shares and dealing in discounting and acceptance of bills.

Examples are Chase Merchant Bank, Nigeria Acceptance Limited, ICON Limited, etc.

Functions of Merchant Banks

• Helping public companies to issue new shares: They arrange the issue and sale of new shares, thereby enabling companies to raise large amounts of capital.
• Underwriting of shares: They guarantee buying of shares which may not be subscribed by the public.
• Acceptance of bills of exchange: They ‘accept bills’ and undertake to pay the discount if the debtor (the drawee and importer) defaults on the maturity of the bill. This function is important in international trade financing.
• Provision of medium and long-term loans: They provide loans for investment thereby helping to stimulate economic development.
• Provision of financial and technical advice: They provide advice to investors on matters relating to investment which could be financial, technical or managerial.