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Bank merger: Choosing the right partner is crucially important

The post merger half yearly performance review shows that most of the performance indicators like deposit, advance, NII registered extensive growth, NPL declined substantially and CRAR increased significantly from its earlier state.
Niranjan Chandra Debnath
Bank merger: Choosing the right partner is crucially important

A news item was published by different print and electronic media recently on probable merger of two banks. The news has drawn attention of experts of banking industry of the country and some of them have viewed such probable merger adversely.

Bank merger is a common phenomenon and widely adopted strategy for consolidation of bank companies around the globe.

Sometimes banks voluntarily agree to merge them for attaining synergies, economics of scope and scale, diversification, tax savings and even to survive. The regulatory bodies or the government also direct some banks for merger in view of greater national interest. At times, bank merger becomes inevitable when it is too late to identify the decay of a bank or financial institution timely. Merger also happens to cope with the national and international financial crisis.

Every year a good number of banks are merged in different countries voluntarily and forcibly. During the Asian financial crisis of 1997 many banks and financial institutions of different South Asian countries like Malaysia, Sri Lanka and Pakistan were merged. America merged many of its banks to get by financial crisis in 2008. In Bangladesh, through nationalization order, reconstitution programme and directed initiatives many banks were merged, reconstituted and taken over by other banks in the past. In 2019 and 2020 large amount of merger and acquisitions took place around the globe and it was all time high in the first half of 2021 that has been triggered by covid-19 pandemic. Increased competition leaves a little room for a weak bank to continue its operation and merge eventually. So, mergers and acquisitions (M&A) have evolved as a common tool of consolidation of business in international arena.

“Merge with bigger and stronger” is a basic principal applies in merger. Indian authority in their PSB (Public Sector Banks) mergers in 2020 has followed the same principle and attained expected outcomes. Indian PSBs merger in 2020 have shown remarkable improvement in almost all spheres of their operations after merger even in an unprecedented corona pandemic situation. The post merger half yearly performance review shows that most of the performance indicators like deposit, advance, NII registered extensive growth, NPL declined substantially and CRAR increased significantly from its earlier state. Only two indicators like ‘other operating income’ and ‘percentage of provision maintained’ plummeted slightly.

Let us have a quick look on the key performance indicators of merged banks in Bangladesh. Post merger appraisal report discloses that private sector banks and foreign banks merger in Bangladesh achieved satisfactory improvement in their post merger performances. Most of the key financial indicators of these banks reflected considerable development after merger. On the other hand, the state-owned bank merger in our country failed to maintain even pre-merger financial position, let alone achieve any improvement.

So, it is necessary to look into the factors of success of private and foreign banks merger in Bangladesh and success of PSB merger in India vis-à-vis causes of failure of state owned banks merger in Bangladesh. The crucial factors identified behind success of merger of private and foreign banks in Bangladesh are; ensuring good governance and management, removing unnecessary and inefficient manpower, reengineering products and services and technological transmission. Along with many other factors, the concept of “merge with bigger and stronger” contributed a lot towards the success of Indian PSB mergers. Indian authority expects that these merged PSBs will see more performance improvements in the COVID-19 pandemic free situation.  The critical analysis reveals that almost all these key success factors are absent in state owned banks merger in Bangladesh.

Bank merger is a complex decision. If done prudently merger may pay off or it may cause peril if done haphazardly. The target of merger of two organizations should be to attain synergies not to respite inherent problems. Merger of two weak organizations does not fit rather it is contrary to the basic principles of merger. It will be like adding or multiplying two zeros which may eventually produce another big zero.

Choosing the right partner, ensuring efficient management, rationalizing manpower, expediting digitization and ensuring adequate capital are crucial factors for success of bank merger. We expect the expert committee and the concerned authority to pay deeper attention to these crucial success factors, putting the principle “merge with bigger and stronger” at the top in taking future merger decisions. The merger strategy should be used to resolve the problem, not to respite it.

The writer is General Manager & CFO, BASIC Bank Ltd, Head Office, Dhaka. Email: [email protected]

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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