Bank Mergers Research Articles

Merger and Acquisition of Indian Banks and Their Impact on its Financial Performance & Shareholder Wealth

This study investigates the financial performance and shareholder value outcomes of mergers and acquisitions (M&A) in the Indian banking sector. Through the analysis of three major bank mergers—State Bank of India and its associates, Bank of Baroda with Vijaya and Dena Banks, and Punjab National Bank with Oriental Bank of Commerce and United Bank—the research evaluates operational performance, profitability, and shareholder returns pre- and post-merger. Using financial ratios and t-tests, the study identifies significant changes in financial metrics and shareholder wealth. The findings suggest that while M&A can enhance operational efficiency and shareholder value, the results vary based on individual merger circumstances and integration strategies.

MICROPRUDENTIAL ASPECT BEYOND RULE OF THUMB IN RURAL BANK INDUSTRY IN INDONESIA

Objective: This research aims to examine the microprudential aspects beyond traditional rule of thumb measures in the regulation of Rural Banks in Indonesia, particularly focusing on the implications of recent regulatory changes that have prompted Rural Bank mergers. Theoretical Framework: This research utilizes a framework that incorporates financial ratios as critical indicators of bank performance and health. It considers the influence of regulatory frameworks—especially those outlined in POJK regulations—on the operational effectiveness and stability of Rural Banks. Related to the forced corporate action, reason that administrative reform may not have increased merger activity as expected is that larger, combined activities are likely to be more readily able to absorb the significant costs of complying with administrative reform than smaller Rural Bank. Method: This research methodology used is a qualitative descriptive method. In conducting this study, researchers used primary data and secondary data. Primary data obtained from the results practitioners' perspective of interviews (in-depth interviews) with experts and practitioners, who have an understanding of the issues discussed in Rural Bank Industry so that we can presumably determine the real current situation using a Qualitative Descriptive method with a Phenomenology study approach. While secondary data was complemented by data collected from literature studies, from the Financial Service Authority (OJK) official website, Several Rural Bank Performance Report and Financial Report during 2019 - 2023, scientific articles, books, information from the mass media and other relevant sources of information. Result and Discussion: This study highlights that reliance solely on the rule of thumb can be misleading in assessing bank health. It shows that a detailed analysis of various financial ratios—such as capital adequacy, asset quality, earnings, and liquidity—provides a more comprehensive understanding of a bank's performance and risks associated with mergers. The banking industry those had time to familiarize itself with the subject and to put legislation into concrete action. Other findings indicate that the enforcement of regulations aimed at increasing capital adequacy and reducing systemic risk has led to forced mergers among Rural Banks. Research Implication: The study underscores the importance of integrating microprudential regulations into the operational frameworks of Rural Banks. It suggests that regulators should prioritize comprehensive assessments based on financial ratios rather than simplistic heuristic methods, especially in the context of forced mergers driven by regulatory pressures. Effective and appropriate use of the merger strategies forced by regulator (OJK) have not facilitated Rural Banks’ efforts exactly to earn above-average returns. However, even when pursued for value-creating reason, merger strategies are not problem-free. Reason for the use of merger strategies and potential problem with such strategies are suboptimum goals congruence because of management control problem – include lack of direction, motivational problem, and personal limitation (Merchant et al, 2017). Recommendation: The research recommends that Rural Banks systematically evaluate their financial health using detailed financial ratios and adapt to the new regulatory landscape that encourages mergers. It also urges regulators to refine their guidelines to include these metrics as essential tools for ongoing performance assessment. Enhanced training for bank management on interpreting and applying these financial ratios can improve overall operational effectiveness, particularly in the context of mergers. Merger is not just about consolidating financial aspects, but also harmonizing the combination of tangible (Numbers on Balance Sheet) and intangible assets (Human capital aspect).

The real effects of distressed bank mergers

We show that distressed bank mergers that are a widely used instrument for bank resolution have the potential to generate adverse real economic effects. We analyze distressed mergers of German savings banks and show that they represent exogenous shocks to the (initially non-distressed) acquiring bank. In the years after a distressed merger: (i) the performance of the acquiring savings bank deteriorates; (ii) the shock is transmitted to firms in the acquirer’s region which cut back their investments and reduce employment and (iii) the overall macroeconomic dynamics in the region of the acquirer deteriorates, leading to reductions in investment and employment growth. To support a causal interpretation of our results we perform several tests that confirm that local economic dynamics is affected by the shock to the acquiring bank and not by real economic contagion.

The effects of bank mergers on listed U.S. borrowers

AbstractWe examine the effects of U.S. bank mergers on listed U.S. borrowers. Target bank borrowers receive lower loan spreads and no change in loan amount post‐merger in comparison to pre‐merger. In contrast, acquiring bank borrowers receive an increase in loan amount and a relatively small decrease in loan spread in the post‐merger period. Analysis shows that these benefits are available only when borrowers have bargaining power through lending relationships with non‐merging banks. We examine how borrower size, merger type, bank size, and borrower relationship intensity affect our results. Overall, our analysis suggests that efficiency gains from bank consolidation outweigh market power effects.

An Analytical Study on Account Holders' Perceptions and Satisfaction with reference to Banking Service Quality Post Merger of selected Public Sector Bank in India

Public Sector Banks in India have undergone significant mergers, which enable them to expand their activities, develop further, and strengthen their position as a key sector in the economy. Despite challenges such as rising non-performing assets, increasing frauds, political interference, and favouritism, mergers and acquisitions are graceful to benefit the newly formed banks, the economy, and the industry as a whole. This study examines the impact of recent bank mergers on customer awareness, perceptions, and satisfaction levels, focusing on four major public sector banks: Bank of Baroda, Canara Bank, Union Bank of India, and Indian Bank. Data were collected using structured questionnaires and personal interviews, incorporating 16 variables measured on a five-point Likert scale. The reliability of the data was confirmed with a Cronbach's Alpha value of 0.816, indicating high internal consistency. Analysis using One-Way ANOVA and descriptive statistics revealed significant variations in service quality perceptions across different age groups and bank affiliations, while awareness, digital banking, product/service efficiency, and trust/confidence showed consistent perceptions. The study highlights the positive reception of technological improvements post-merger and provides insights for banks to tailor their communication and service strategies to different customer demographics.

A comparative study on the efficiency of the public and private sector banks post-merger: A Data Envelopment Analysis

The paper compares the operation efficiency of the public service banks against the private service banks post-merger. The paper also makes an attempt to rank the individual banks in the years before and after mergers. Hence, the study taken a period of five years from 2017 to 2022. The researchers employed the data envelopment analysis (DEA) methodology to calculate the efficiency. From this viewpoint, the merger of the public service banks enhanced their performance but still lagged behind the private sector banks.

CEO power and risk taking: evidence from European banks mergers and acquisitions

PurposeThis study investigates the relationship between CEO power and the risk profile (RP) of acquiring banks through mergers and acquisitions (M&A) transactions.Design/methodology/approachThe analysis is based on 214 transactions between 2010 and 2022 involving European Union-based acquirers. To assess the impact of M&A on the acquiring bank’s RP, we compare changes in the acquirer’s RP to control banks. We use linear regression with two-stage least squares instrumental variables (2SLS-IV) to examine the effect of CEO power on changes in merger-related risk.FindingsThe findings suggest that CEO power reduces the RP of the acquiring bank. Specifically, CEOs who hold both the CEO and board chair positions tend to take fewer risks. Additionally, CEOs with high ownership, CEO pay and extensive experience (measured by tenure and acquisition experience) decrease the RP. However, prestige power is positively correlated with an increase in RPs.Practical implicationsThis research examines CEO influence on bank risk post-mergers, providing insights into governance, risk and strategic choices. The findings can guide banks in CEO selection and governance to mitigate M&A risks, improving risk management and decision-making in the financial sector.Originality/valueThis study is the first empirical investigation introducing diverse executive power metrics to analyze the link between executive power and risk-taking in the European banking sector, with a specific emphasis on the impact on M&A as critical investment choices.

Corporate Governance, Market Competition and Performance of Indian Banks

The purpose of the study is to determine how market competition and corporate governance affect bank performance (measured by profitability and asset quality). Additionally, it seeks to determine how market competition influences the governance and performance link in Indian banks between 2005 and 2022. The study primarily employs a technique of two-step system generalized method of moments, and a propensity score matching technique is applied to support our investigation. The study shows that adhering to corporate governance standards enhances bank profitability and decreases non-performing assets in India, while market concentration adversely impacts bank performance. Furthermore, the study indicates that corporate governance is more significant in low-market competition environments. The study reveals an intriguing ‘substitutive’ link between market competitiveness and corporate governance. Finally, it concludes that effective governance practices such as an effective board, transparency, board committees and shareholder rights are crucial during periods of declining profitability, poor asset quality and bank mergers.

The merger of Slice and North East Small Finance Bank: a marriage made in heaven?

Learning outcomes After completion of the case study, the students will be able to explore the challenges involved in growing a business during its early stages inorganically, discuss the challenges faced by start-ups in their quest for growth in an emerging market, investigate the reasons behind the mergers and acquisitions, comprehend the issues in the merger of a start-up and a conventional bank, identify the various possible synergies out of the merger and examine the growth strategies that a troubled start-up such as Slice can follow to survive and expand its business operations. Case overview/synopsis The case study discusses the challenges that Slice, a modern fintech organization, and North East Small Finance Bank (NESFB) face due to the changing business and regulatory environment. After working tirelessly to earn the trust of India’s banking regulator, Slice got the approval for its merger with NESFB. While Slice and NESFB got a new lease of life after the approval of their merger, Rajan Bajaj, founder of Slice, needed to make the merger a success by leveraging on the strength of the combined entity and meeting all the lending and other regulatory requirements applicable to small finance banks. Complexity academic level This case study is suitable for MBA/MS/BBA/BS students. Supplementary materials Teaching notes are available for educators only. Subject code CSS 11: Strategy.

Profitability of Bank of Baroda: An Analysis

One of the industries in India with the highest growth is the banking sector. The banking industry is getting more complex today. In India, there are various banking organizations in operation. Bank of Baroda, the second- largest public sector bank, is the current choice. The study's goal is to anayse the Bank of Baroda's financial situation and performance both before and after the bank's merger. Bank profitability can be measured in a variety of ways, including WACC, regression analysis, the CAMEL model, and DuPont analysis. The study has used the DuPont model, which analyses the profitability of banks from each of the key parameters such net profit margin, assets turnover, and equity multiplier, since it makes it simple to analyze the profitability of businesses. Key words: DuPont model, Bank of Baroda, Profitability.

Understanding the aftermath of banks merger: analyzing price effects on public sector banks since the COVID-19 pandemic

PurposeThe current study immerses in the realm of bank mergers among prominent PSBs in India, focusing on the financial performance of six recently merged PSBs entities. Amidst the global impact of the COVID-19 pandemic on economies, the study aims to uncover the efficiency of these PSBs in navigating this unprecedented crisis.Design/methodology/approachThe evaluation encompasses panel data on an annual basis spanning from 2020 to 2023. To assess the overall efficiency of merged PSBs, the advanced statistical technique like one-step system generalized method of moments has been applied to estimate its efficiency.FindingsThe study findings affirm that PSB mergers have bolstered financial metrics and efficiency. Enhanced return on equity (ROA) and net profit margin (NPM) signify improved profitability and efficiency. The consolidation also facilitates better asset management and utilization. Moreover, merged entities benefit from economies of scale, cost efficiencies, risk diversification, technological investments, and overall performance improvements.Practical implicationsThe study's policy suggestions stress ongoing consolidation efforts to boost banking sector resilience, advocating for improved efficiency, governance, and asset quality management. These steps are crucial for successful bank mergers and fostering a robust, competitive banking landscape in India.Originality/valueThis study is a novel attempt to analyze Indian bank profitability and efficiency post PSB mergers amid COVID-19 pandemic. In a developing country like India, especially in PSBs has experienced significant structural changes over the previous 7 years just before pandemic, such a study necessitates a prompt empirical investigation.

The Moderating Role of Merger on the Switching Intention to Use Islamic Bank: The Case of Indonesia

Objective –Since February 2021, the government decided to merge 3 Islamic banks to increase Islamic bank markets. This policy raises pros and cons in society. This research analyses the mediating role of mergers on the switching intention to use Islamic banks.Design/Methodology –This research is a quantitative study using the Structural Equation Model Partial Least Square (SEM-PLS). A total of 108 respondents' data were analyzed. The data was collected through an online survey utilizing social media which was shared directly with respondents in the city of Surabaya. The respondents' criteria were selected using purposive sampling techniques.Results –The moderating effects showed that the merger was a poor moderator of the reality between attitude, subjective norms, and perceived behavioral control on the switching intention to use Islamic banks. However, the direct effects showed a significant relationship between mergers and switching intention. Besides, this study shows that attitude, subjective norm, and perceived behavioral control have a significant influence on switching intention. Subjective norm is the most dominant factor.Research limitation/implication – This study uses limited variables and was carried out shortly after the merger of Islamic banks. However, this study provides a comprehensive analysis related to the relationship between mergers and switching intention. The implications of this research urge the government as a policymaker to do its best to increase public awareness of Islamic banks. Islamic bank managers must conduct massive socialization by utilizing various existing technologies and media to reach all levels of society to use Islamic banking services.Contribution – This study emphasizes the significance influence of subjective norm and switching intention. Thus, the government and Islamic banks must intensify socialization of Islamic bank to encourage Islamic bank users.Novelty/Originality –This study complements the literature by analysing the impact of Islamic bank mergers with switching intention to use Islamic banks as far as the authors' knowledge of merger research is still limited to analysing the performance of Islamic banks after the merger.

Canadian Bank Capital and Liquidity Creation*

AbstractWe find a significantly positive relationship between the Tier 1 capital ratio and on‐balance‐sheet liquidity creation for Canadian Big Six banks, implying that large banks in Canada can take risk due to risk absorption by using capital to fund illiquid assets. Our results are robust to the 2018 initiation of a domestic stability buffer (DSB) of total risk‐weighted assets for Pillar 2 risks, core deposits financing, non‐deposit funding restrictions, and bank mergers and acquisitions. The positive relation (regulatory capital ratio with liquidity creation) becomes significantly negative during the 2007–9 Global Financial Crisis and COVID‐19 pandemic.

Theoretical Aspects Of The Essence Of Bank Consolidation

The article considers theoretical aspects of the essence of bank consolidation. The author emphasises the diversity and multifaceted nature of «consolidation», which has led to its use in various activities. A detailed analysis of the literature sources made it possible to outline the essential meaning of the term «consolidation» by the most common areas and directions of its use. It is noted that consolidation can be used as a tool for stabilisation, systematisation, transformation, etc. in various fields of activity. The carried out scientific analysis of terminological definitions revealed a clear link between the concepts of «reorganisation», «restructuring», «integration» and «consolidation» in the banking sector. It is proposed to use a comprehensive approach to determine the essence of bank consolidation, which includes three levels: legal, accounting, and economic. It is proved that the processes of bank consolidation should be studied in two aspects: as a process of capital pooling and as a process of bank merger. It is emphasised that in the narrow sense, bank consolidation is a merger of banks, in which there is a legal succession in the form of transfer of all rights and obligations of several banks to one bank. In a broader sense, bank consolidation, which includes three levels: legal, accounting, and economic. It is proved that the processes of bank consolidation should be studied in two aspects: as a process of capital pooling and as a process of bank merger. It is emphasised that in the narrow sense, bank consolidation is a merger of banks, in which there is a legal succession in the form of transfer of all rights and obligations of several banks to one bank. In a broader sense, bank consolidation can be viewed as a process focused on achieving specific goals and is a series of sequential actions implemented through a set of measures of a legal and economic nature. It is substantiated that the term «consolidation» in relation to banks is a collective concept, which includes not only individual transactions or legally significant actions regarding mergers, acquisitions, or takeovers of banks but also the acquisition of corporate control by a newly formed bank. The forms of bank consolidation include mergers, acquisitions, accessions, and amalgamations. The economic basis of bank consolidation is formed by social relations that develop in the commercial activity of banks and are aimed at combining their economic and financial potential and corporate control over banking activities in the financial market.

Discrepancy in efficiency scores due to sampling error in data envelopment analysis methodology: evidence from the banking sector

Background Data Envelopment Analysis (DEA) methodology is considered the most suitable approach for relative performance efficiency calculation for banks as it is believed to be superior to traditional ratio-based analysis and other conventional performance evaluations. This study provides statistical evidence on the sampling error that can creep into performance evaluation studies using the DEA methodology. Inferences are drawn based on samples, and various preventive measures must be taken to eliminate or avoid sampling errors and misleading results. This study demonstrates the possibility of sampling error in DEA with the secondary data available in financial statements and reports from a sample set of banks. Methods The samples included 15 public sectors and five leading private sector banks in India based on their market share, and the data for calculating efficiencies were retrieved from the published audited reports. The sample data was collected from 2014 to 2017 because the banking sector in India witnessed a series of mergers of public sector banks post-2017, and the data after that would be skewed and not comparable due to the demonetization policy implementation and merger process-related consolidation implemented by the Government of India. The efficiency measures thus computed are further analyzed using non-parametric statistical tests. Results We found statistically significant discrepancies in the efficiency score calculations using DEA approach when specific outlier values. Evidence is provided on statistically significant differences in the efficiencies due to the inclusion and exclusion of particular samples in the DEA. Conclusion The study offers a novel contribution along with statistical evidence on the possible sampling error that can creep into the performance evaluation of organizations while applying the DEA methodology.

Employee Perception on Merger and Acquisition of Commercial Bank in Nepal

Employee Perception on Merger and Acquisition of Commercial Bank in Nepal

Does banking consolidation improve bank stability? Evidence from Sub-Saharan Africa

PurposeThis study aims to investigate the influence of banking consolidations on bank stability in Sub-Saharan African (SSA) countries for the period 2003–2019, following a series of bank mergers and acquisitions (M&As) in the region and whether regulation-induced bank M&As affect banking sector stability.Design/methodology/approachThe fixed effect panel regression model is used to understand the influence of regulation-induced and voluntary bank mergers and acquisitions on banking stability in SSA. The study also controlled for bank-specific factors, market concentration and macroeconomic variables that affect banking stability. The study used three measures of bank stability: the Z-score, risk-adjusted return on assets and risk-adjusted bank capital.FindingsThe study results reveal that voluntary bank M&As, market concentration, net interest margin, bank capital, bank deposits and income diversification influence banking sector stability positively. However, the findings show that regulation-induced bank mergers and acquisitions impact banking stability negatively. Where bank M&As were a result of banking regulatory reforms, called regulation-induced mergers and acquisitions (RIM&As), banking stability suffered, but voluntary bank M&As improved banking stability. Again, the study supports the concentration–stability argument rather than the competition–stability hypothesis. Therefore, more concentrated banking markets in SSA countries have more stable banks and fewer risks of system-wide bank failures. Other factors influencing banking stability in SSA are return on equity, bank efficiency (cost-to-income), bank size and deposits-to-assets ratio. However, their relationship is negative with the stability of the banking sector.Practical implicationsThe findings imply that the regulatory authorities should encourage voluntary bank M&As and not regulation-induced bank M&As to improve the stability of the banking systems in SSA.Originality/valueThe study provides new evidence on the effects of regulation-induced bank M&As on the stability of banks.

European banking M&As: The role of financial advisors

We investigate the puzzle of banks contracting the services of external advisors for deals they can self-manage and the role of financial advisors in mergers and acquisitions among European banking firms. We also study the determinants of the choice by bank acquirers and bank targets to either appoint external advisors or manage in-house, as well as between appointing either top or lower tier advisors. Top tier advisors are more likely to be employed in debt financed and cross-border deals. We also find that most European bank mergers are managed in-house, contrary to prior findings reporting mostly externally managed deals attributed to the certification effect. Targets fail to benefit from deals where they do not match acquirer’s decision to appoint external advisors. However, there is an overall propensity to match the counter party’s tier of advisor.

Migration Success Strategy and Implementation of Enterprise System: A Case Study on PT XYZ Biller Message Switching and Aggregator Service Merger Work From Home

Purpose – The purpose of the research is to determine the strategy for the successful implementation of Biller Message Switching and Aggregator carried out by organizations with multicultural employees during work from home conditions. Methodology – The method used in this research was a summative evaluation with the research subjects of the merger of Bank X, Bank Y, and Bank Z. Research subjects were chosen because of the success of the development team in integrating enterprise systems to support the merger process carried out during the pandemic. Results – The results of the research concluded that the ES implementation strategy during the pandemic required consistency, actively documenting each process, over-communicating, and using the appropriate SDLC method. Originality – This research conducted a thematic analysis on the process of integrating and migrating ES companies that merged during the pandemic. Contribution – This research contributes to organizations that want to integrate and migrate ES during the pandemic. For academics, research can serve as a foundation for future research in developing theories of ES implementation in virtual or pandemic environments.

Dynamic Capability Theory in Islamic Bank Merger Discourse in Indonesia (Profitability, Productivity, and Efficiency Perspective)

Dynamic Capability Theory in Islamic Bank Merger Discourse in Indonesia (Profitability, Productivity, and Efficiency Perspective)