Bank Consolidation Research Articles

The impacts of fintech on small business borrowing

Consolidation in banking raise concerns about exclusion and predatory practices in small-business lending. Fintech lenders, largely unregulated credit providers with lending decisions and loan terms determined primarily by algorithm, have rapidly increased their lending to small businesses. I analyze loan-level data on consumer and small business loans from Fintech lenders and a comparison sample of small-business loans from regulated bank lenders. Fintech small-business loans charge average annual interest rates 3 percentage points higher than consumer loans from the same lender and 4 to 7 percentage points higher than small business loans from regulated banking entities. The large interest-rate premium points to the need for regulatory clarity and additional supervision to protect this crucial market segment from predatory non-bank lenders.

Central and South – Eastern Europe Banking Sectors in the Sustainable Development Function

Abstract Changes in banking sectors with the onset of the global financial crisis were related to: globalization, sector deregulation, technological change and financial innovation. Structural changes within banking services (at the end of the 20th century) relate to: the consolidation of banks, the merging of banking and non-banking financial institutions and their competition with one another. Significant place in the part of sustainable development belongs to bank performance, vision and mission of banks. The corporate vision of banks should be the “framework” for the future development of a bank. The corporate mission should be a “roadmap” to the realization of the bank’s vision and an expression of the business philosophy of the bank in question. It is of particular importance for the banking sectors of the CEE countries to define: the vision, the mission, the situational analysis and the planned long-term goals of the bank. With the advent of the global financial crisis, the financial activity of banks in the Central and Southeastern European region decreased, as the number of attractive fusion and acquisition banks in the region concerned was reduced. The aim of the research is to determine the importance of the vision, mission and clearly set goals in banks, where the analysis of banking sectors in 13 countries over a period of 11 years was carried out. The analysis of GDP and its growth in the period from 2008 to 2018 indicates a dynamic growth in the countries of Central Europe and some countries of Southeast Europe. The analysis of the assets of the banking sector and its share in GDP indicates the dominant participation of the countries of Central and Southeastern Europe that are members of the European Union relative to the candidate countries for EU member states. Analysis of the banking sector of the influx countries shows that more than 70% of the banking market in Southeast European countries is influenced by foreign highly developed banking groups. Sustainable development can only be achieved through the active joint action of the banking sectors of the Central and Southeast European countries.

PERSEPSI MAHASISWA TERHADAP PENGGUNAAN QUIZIZZ DALAM PEMBELAJARAN AKUNTANSI KONSOLIDASI BANK SYARIAH DI IAIN PONOROGO

Penelitian ini bertujuan untuk mengetahui persepsi mahasiswa terhadap efektivitas penggunaan aplikasi pembelajaran berbasis permainan (game based learning) yaitu Quizizz. Populasi penelitian adalah seluruh mahasiswa perbankan syariah semester 4 angkatan tahun 2018. Responden dalam penelitian ini berjumlah 200 mahasiswa yang sedang menempuh mata kuliah akuntansi konsolidasi bank syariah yaitu mahasiswa semester 4 jurusan perbankan syariah di fakultas ekonomi dan bisnis islam IAIN Ponorogo. Analisis data dilakukan menggunakan metode deskriptif yang dianalisis secara kuantitatif dan kualitatif. Data penelitian diperoleh dengan menyebarkan survey kepada seluruh sampel penelitian dengan memanfaatkan aplikasi google forms. Instrumen kuesioner diukur menggunakan 5 skala likert yaitu sangat tidak setuju, tidak setuju, kurang setuju, setuju dan sangat tidak setuju. Hasil penelitian menunjukkan bahwa secara umum mahasiswa menganggap penggunaan Quizizz untuk mengerjakan kuis yang ditugaskan sebelum perkuliahan secara tatap muka di kelas berdampak yang positif dalam kegiatan pembelajaran pada mata kuliah akuntansi konsolidasi bank syariah. Mahasiswa menganggap Quizizz merupakan aplikasi yang mudah digunakan, penggunaannya membuat perkuliahan menjadi lebih menyenangkan, meningkatkan penguasaan materi, dan menambah motivasi dan keaktifan mahasiswa dalam mempelajari mata kuliah akuntansi konsolidasi bank syariah. Terdapat beberapa keterbatasan dan permasalahan yang terdapat pada penggunaan Quizizz menurut mahasiswa, diantaranya adalah keterbatasan koneksi internet, batasan waktu yang diberikan terlalu sedikit, dan beberapa mahasiswa juga merasa perlu untuk dilakukan pembahasan tentang soal-soal yang dikerjakan melalui aplikasi Quizizz di kelas, sehingga diketahui jawaban mana yang benar dan jawaban mana yang salah.

Overcapacities in banking: Measurement, trends and determinants

Global banks face profitability challenges since the global financial crisis. Besides cyclical factors, structural features such as overcapacities have been identified as root causes. While policymakers agree on the need for bank consolidation, there is less consensus on the definition and measurement of overcapacities in banking. This paper contributes by conceptualising and formalising the different dimensions of overcapacities in banking and by constructing a novel measure thereof. In addition, it empirically tests the main determinants of overcapacities in banking from 2006 to 2017 and assesses their relative importance. The results indicate that non-bank competition, the interest rate environment and bank business models are the most important driving factors of banking sector overcapacities. This is because shadow banks, benefitting from regulatory arbitrage, have altered banks’ capacity needs, low rates compressed margins and increased pressure to improve cost efficiencies, and retail-oriented business models have operated extensive branch networks entailing heavy fixed costs.

Big Bank Theory: A Study of Amalgamation Plan of 10 Public Sector Banks into 4 Entities

The Indian government on 30th August 2019 unveiled a plan to merge 10 public sector banks (PSBs) into four, reducing the number of state-owned banks from 18 to 12, in a bid to create “next-generation” financial institutions with stronger balance sheets and bigger risk appetite. Having done two rounds of bank consolidation earlier, this is what Government wants to do for a robust banking system and a $5-trillion economy. Punjab National Bank will take over Oriental Bank of Commerce & United Bank of India to become the country’s largest lender after State Bank of India in terms of business. Canara Bank will subsume Syndicate Bank; Andhra Bank and Corporation Bank will merge with Union Bank of India; and Allahabad Bank will become part of Indian Bank. The key factors for the mergers were: Technological platform, customer reach, cultural similarities, and competitiveness. In 2017, India had 27 PSBs, but the National Democratic Alliance government implemented two rounds of mergers in its previous tenure. One was the merger of five associate banks and Bharatiya Mahila Bank with SBI (from April 2017); second, Dena Bank and Vijaya Bank merged with Bank of Baroda to create the country’s third-biggest lender, which came into effect from April 1 this year. The present paper is based on the study of Public Sector banks total business, deposits and Non-Performing Assets (NPA). The paper also studies the Government’s plan to amalgamate the 10 public sector banks into four large institutions as a part of its attempt to bolster the capital base of these lenders. The paper in the end, studies the impact of PSBs Merger and how customers are likely to be impacted.

Consolidation of Indian PSU banks and the way forward

The increasing non‐performing assets (NPAs) and to meet the higher funding needs, India witnessed the biggest consolidation in public sector banks. In India the surging NPAs is long witnessed concern and major economic reforms were initiated in Indian banking to curb the issue. The recent merger has brought in a major policy concern with this consolidation which is availability of loans to smaller businesses. The paper analyses the impact of banks consolidation on Indian economy by considering both positive as well as negative aspects of banks mergers. The paper also presents the history of Indian banking and recommending a way forward.

A critical commentary on the proposals to reform India's financial system in its 2019–20 union budget

The 2019–20 Union budget aims to signal that the economic gains from cleaning of the financial system are likely to be recognizable in the future. The non‐performing assets in commercial banks have dropped substantively in last year subsequent to unprecedented recoveries over the past 4 years due to Insolvency and Bankruptcy Code and other legal measures, provision coverage ratio is now at its highest in 7 years, and domestic credit growth has risen to 13.8%. The government has smoothly carried out the consolidation of public sector banks. However, the drop in banks' NPAs appears to be reflected by a liquidity squeeze and mirrored by mounting NPAs confronting the non‐banking finance company (NBFC). In addition, the problems are acute for the analyzed sub‐group of Housing Finance Corporations. While the government has announced its decision to streamline the regulatory processes within this sub‐sector, it has mandated the banks, the chief source of funds to mobilize capital for the NBFCs that appear vital to revive India's economic growth. The government has raised tax rates for the uber‐rich and import duties on a few articles such as Gold while offering tax credits on affordable housing and electric vehicles. It has attempted to improve the microstructure of the capital markets, mitigate inefficiencies in the pension space and enhance market penetration of insurance and incentivize foreign investment through budgetary proposals. This article offers a critical commentary on the proposed policy actions.

Bank Competition and Credit Risk in Euro Area Banking: Fragmentation and Convergence Dynamics

Consolidation in euro area banking has been the major trend post-crisis. Has it been accompanied by more or less competition? Has it led to more or less credit risk? In all or some countries? In this study, we examine the evolution of competition (through market power and concentration) and credit risk (through non-performing loans) in 2005–2017 across all euro area countries (EA-19), as well as core (EA-Co) and periphery (EA-Pe) countries separately. Using Theil inequality and convergence analysis, our results support the continued existence of fragmentation as well as of divergence within and/or between core and periphery with respect to competition and credit risk, especially post-crisis, in spite of some partial reintegration trends. Policy measures supporting faster convergence of our variables would be helpful in establishing a real banking union.

The impact of interest rate on the demand for credit in Ghana

This article investigates the impact of financial liberalization on the demand for credit in Ghana. It contributes by making suggestions pertaining to questions on the effectiveness of interest rate liberalization in driving private sector demand for credit both in the short and the long‐run, as well as the speed of adjustments to equilibrium after the implementation of the financial liberalization programme. The study results indicate that interest rate has no significant impact on the demand for credit both in the short‐run and long‐run. Moreover, inflation has a negative significant effect on the demand for credit in the short‐run. The results also suggest that about 66% of disequilibrium from the preceding year is corrected in the current year. However, these findings seem to indicates that the financial market in Ghana is not fully competitive. The oligopolistic and noncompetitive financial system may be attributable to the extreme minimum capital requirement and the emerging consolidation of commercial banks through government takeovers as well as the various credit rationing practices by banks aimed at reducing the risk of adverse selection and insolvency.

Market-driven Indian Bank Merger Announcements and Stock Returns

The Government of India, Reserve Bank of India and bank managers, in general, favour bank consolidation for various reasons. They support consolidation to create a few large global banks, to achieve rapid growth and to gain from economies of scale and scope. However, international studies and Indian studies on bank mergers indicate that the evidence in favour of bank mergers is mixed, at best. Hence, this study was conceived to analyse the effect of market-driven Indian bank-to-bank mergers on stockholders during the post-reform period, 1999 – 2014. Event study analysis was performed using the „market model‟ with the BSE-500 stock index as the reference index. Each merger announcement was considered as an event and daily stock returns in a 30-day time window were computed before and after the event. Overall, if the abnormal returns had been positive it could be implied that merger announcements have a positive impact on the stock prices. However, the results indicate that stock returns of acquiring banks and acquired banks generally declined in the time period around merger announcement. In the case of acquiring banks, adverse reaction was observed in six out of nine mergers that were analysed. Among the nine acquired banks, five were listed and adverse reaction was noted in three cases. Overall, merger announcements appear to have had an undesirable effect on stock returns of acquiring and acquired banks. Hence, future merger decisions should be taken only if other alternatives are not available and such decisions must be driven by due diligence.

The Impact of Merger and Acquisition on Financial Intermediation: Empirical Evidence from Nigerian Banking Industry

The paper examines the impact of bank consolidation on financial inter-mediation using data from the Nigerian bank industry from 2002 to 2010. Two models were specified and estimated: one for the lending activity and the other for the deposit activities. The model for lending activity has an interest rate on the loan as the dependent variable and deposit rate represents the dependent variable in the deposit model. The results showed that merger and acquisition, which was the main policy instrument for bank consolidation, has a significant effect on both lending and deposit activities of the banks in Nigeria. The result also shows that changes in the degree of average competition in bank markets proxied by the spread between interest rate among the banks is positive and significant in both the loan and deposit markets. This confirms the high level of price competition among the banks. The consolidation exercise had significant positive effects on both financial inter-mediation and especially on deposit mobilization. The study concluded though, the consolidation policy might have had other side effects, it has at least led to higher deposit mobilization, higher competition but however, it has led to higher cost of borrowing and spread between lending and deposit rates.

State Intervention, Globalization and the Evolution of Malaysian Banks' Identities

This article describes and explains the evolution of Malaysia's locally owned banks in a series of mergers and acquisitions within national borders and beyond. It argues that state intervention, external economic and financial crises and the liberalization of the financial sector have compelled the consolidation of local banks in Malaysia. The consolidation process has resulted in the increased size of state-owned banks, decreased the number of local Chinese-owned banks and seen a decline in family shareholding in the remaining Chinese-controlled banks. Through regional expansion both Chinese-controlled and stateowned operations have become large-scale regionally based banking groups or global banks, deepening the financial integration in ASEAN countries.

Вплив форм консолідації на зростання вартості банків

The article aims at studying the banks’ value and managing it during consolidation in order to identify the relationship between the consolidation form and the growth of the bank’s value. The main consolidation forms are systematized and generalized taking into account global and domestic experience, which include the following: mergers, takeover, partial takeover, acquisition of assets, acquisition of specific assets, acquisition of fixed assets, acquisition of residual share, repurchase, recapitalization, exchange. It is noted that the choice of the banks’ consolidation form is determined primarily by the purpose of realizing the business interests of the parties to the agreement. The statistics of the scales of global M&A agreements by consolidation forms is given. 26901 bank consolidation agreements in various forms for the period from 01.01.1965 to 30.04.2019 in 146 countries have been analyzed. It is noted that the dynamics of M&A transactions in the banking business reached peak values in the period from the early 2000s to the end of 2010. It was during this crisis period (the crisis in the IT industry and the global financial crisis of 2007–2008) that 50 % of all consolidation agreements tool place. The country with the largest number of transactions is the United States, and the region dominating the sphere by the total volume of transactions is Western Asia. It is noted that each consolidation form is characterized by a specific set of factors that affect it. As a result, it is these factors that, as a result of the existing cause-and-effect relationships, shape the resulting bank’s value. Research has shown that there is a link between the forms of consolidation processes and the value influencing factors, and this link should be identified to better understand the banks’ value formation before concluding M&A agreements. It is proposed to expand the existing list of factors in research works in Economics, taking into account the business component of consolidation processes.

Determinants of Bank Lending Interest Rates in Tanzania

The study seeks to examine the determinants of bank lending interest rates in Tanzania, largely focusing on identifying the key determinants and their relative importance. Techniques employed comprise interest rates decomposition and econometric estimation using banks’ annual balance sheet data. Results on interest rates decomposition suggest that, the main drivers of lending rates are operating costs, non-performing loans; and costs of funds (deposits interest rates). The three factors accounted for 70.4 percent of small banks’ average lending rates in 2014-17; while for medium and large banks, they constituted about 69.5 percent and 67.4 percent of the lending rates, respectively. Statutory minimum requirement ratio (SMR) appears to play an important role in all banks’ lending rates, but its share has been declining overtime consistent with the expansionary monetary policy measures pursued since 2014. With respect to econometric estimations, the findings confirm the role of operating costs, non-performing loans, and cost of funds in explaining bank lending rates dynamics. Operating costs, cost of funds, and inflation have a statistically significant positive effect on bank lending rates, while bank size and level of liquidity have a negative influence. SMR ratio is statistically significant but bears a negative sign except for locally owned banks. In relative importance, the main determinants of bank lending rates could be ranked as follows: inflation with an average positive impact of 0.432 on lending rates for a unit change in inflation, trailed by operating costs (0.261), and cost of funds (0.255). Bank size has the largest negative effect of 0.288 for every unit increase in the variable. The implication of the findings is that effort should be directed at improving operational efficiency aiming at reducing banks operating costs. The key areas of attention are with respect to employees’ salaries and benefits, as well as rental and depreciation expenses related to premises and equipment. Banks may consider to take advantage of ICT advancement in the country to cut on costs of “mortal and brick” and employees. Priority could be put on utilizing the growing agent banking framework, and digital banking technology. Prudent consolidation of small banks could as well help cut on operating costs, improve efficiency, and enhance liquidity levels. Measures need to be taken to reduce non-performing loans including through enhancing borrowers screening mechanisms enabled by credit risk management frameworks at bank level and mandatory use of credit reference system to reduce credit risk. Strengthening of the regulatory and supervisory role is important mostly targeting to ensure adequate liquidity in the banking system for daily needs. It is recommended to cautiously reduce SMR so as to enhance banks’ lending capacity.

Bank Competition and Credit Risk in the Euro Area, 2005–2017: Is There Evidence of Convergence?

Consolidation in euro area banking has been the major trend post-crisis. Has it been accompanied by more or less competition? Has it led to more or less credit risk? In all or some countries? In this study, we examine the evolution of competition (through market power and concentration) and credit risk (through non-performing loans) in 2005-2017 across all euro area countries (EA-19), as well as core (EA-Co) and periphery (EA-Pe) countries separately. Using Theil inequality and convergence analysis, our results support the continued existence of fragmentation as well as of divergence within and/or between core and periphery with respect to competition and credit risk, especially post-crisis, in spite of some partial reintegration trends. Policy measures supporting faster convergence of our variables would be helpful in establishing a real banking union.

The Impact of Alternative Forms of Bank Consolidation on Credit Supply and Financial Stability

Between 2009 and 2011, the Spanish banking system underwent a restructuring process based on consolidation of savings banks. The program’s design allows us to study how alternative forms of consolidation affect credit supply and financial stability. Compared to bank business groups, we find that bank mergers’ market power produces a contraction in credit supply, higher interest rates, but also a reduction in non-performing loans. We then estimate a structural model of credit demand and supply. We show that short-run welfare gains from improved financial stability outweigh losses from reduced credit supply, while small long-run cost efficiencies generate large welfare increases.

Consolidation of Banks, Before and Beyond

Consolidation of Banks, Before and Beyond

ТЕОРЕТИЧНІ ТА ПРАКТИЧНІ АСПЕКТИ КОНСОЛІДАЦІЇ БАНКІВ

The article deals with the issues of bank consolidation through mergers and acquisitions. Based on the analysis of publications of foreign and domestic scientists, the motives and goals of bank consolidation were determined. It has been found that the main motive behind the merger and acquisition process is to obtain a synergistic effect, which is reflected in the qualitative and quantitative indicators of banking activity.It is justified that the process of bank consolidation is always carried out in the context of the trends observed in the national and world economy. The crisis situation of the economy as a whole, and of the banking system in particular, contributes to the bankruptcy of both small and large banks, which stimulates them to merge and absorb. It is noted that the peculiarity of the process of bank consolidation after the 2008 crisis was the merger and acquisition with the participation of the state, i.e. full nationalization of banks or the acquisition by the state of a strategic stake in financial companies.The subject of the article covers the study of the positive and negative effects of the forced consolidation of banks, which some countries have resorted to.It is concluded that in Ukraine the active phases of the banks' mergers and acquisitions took place in the context of two significant trends in the banking sector. The first is related to the rapid development of the banking market and the emergence of foreign capital. The second one is with the crisis of the banking system and the rapid outflow of foreign capital. It is determined that overcoming the crisis in the country's economy and the banking sector creates conditions for the resumption of foreign investment inflows. The banking sector remains the most attractive for mergers and acquisitions alongside industries such as agriculture, innovation and technology, and the insurance market.It is substantiated that the intensification of the bank consolidation process will be facilitated by the macro-financial stability and economic growth observed in the current year and the large potential of lending to small and medium-sized businesses. It is necessary to solve the problem of "bad" loans (NPL) in the banking system as a whole, which hinders the activation of mergers and acquisitions agreements.

An Empirical Study on the Big Consolidations of Indian Banking Industry

India declared a broad consolidation of state-claimed banks that will see 10 of them being merged to frame four greater moneylenders to reinforce a sector battling with a terrible advance cleanup and planned for making loan specialists of worldwide scale that can bolster the economy’s flood to $5 trillion by 2024. The government additionally reported administration changes to improve their wellbeing. This was the most recent in a progression of announcements by the government since a week ago as it looks to animate demand and resuscitate the economy. In a different announcement, the government said development had dropped to a six-year low in the quarter to June. The most recent consolidation move will slice the quantity of state-claimed loan specialists to 12 from 27 of every 2017, Sitharaman stated, featuring the banking changes embraced by the Narenda Modi government that have likewise included noteworthy cleaning up of asset reports. This isn’t the first occasion when that the possibility of merging state-claimed banks has picked up momentum. In his way breaking 1991 report on banking sector changes, M. Narasimham, a former Reserve Bank of India senator, had recommended mergers to shape a three-level structure with three enormous banks with international nearness at the best, eight to 10 national banks at level two, and countless provincial and nearby banks at the base. Afterward, the P.J. Nayak Committee had additionally recommended that state-run banks ought to either be merged or privatize. To be sure, as per Indian Banking Association information, there have been in any event 49 mergers since 1985. Hence, the present study has been focused to highlight the brief of top vital consolidation on Indian Banking sector and study based on secondary sources of data.

Bank consolidation and financial stability in Indonesia

This paper extends prior literature on the impact of bank market power as a proxy of bank consolidation on financial stability using a single country setting. From a sample of Indonesian commercial banks over the 2010–2015 time span, our empirical results show that higher bank market power is associated with lower insolvency risk and higher capital ratios, suggesting that bank consolidation is beneficial for financial system stability in general. A deeper analysis however reveals that higher market power is detrimental for financial stability in state-owned banks and small private-owned banks. This paper therefore suggests that strengthening market power in large private-owned banks, but encouraging competition in state-owned banks and small private-owned banks to reduce market power, could enhance financial stability.