“Americans make money by playing ‘money games’, namely mergers, acquisitions, by simply moving money back and forth … instead of creating and producing goods. having real value. “- Akio Morita, Japanese businessman and Sony co-founder Mergers and acquisitions are the merging of two or more companies to achieve a certain goal. Mergers and acquisitions are one of the most popular options. more desirable to tighten the economy which is just at its top tipping point.It can strengthen a company’s capital base and, in the case of banks and financial institutions (IFCs), risk-taking capacity is reinforced.
On August 4, 2021, Harvard Business Publishing Education first published a case study on the merger of two equally sized Indian banks – Allahabad Bank with Indian Bank. The results of the “Merger of Equals” study concluded that Indian Bank not only emerged in a better financial position than before, but also defined its vision as a bank ready for the future. Broadly, there are two options for growth, internal expansion or organic growth and external expansion or inorganic growth.
Mergers and acquisitions are part of inorganic growth while franchising, licensing, joint ventures, strategic alliances and the appointment of overseas distributors are alternatives to mergers and acquisitions. Thus, mergers and acquisitions can be a formidable economic tool for expansion within national borders.
After the publication of the merger statutes by the Central Bank of Nepal in 2011 and the capital improvement policy in 2015, merger and acquisition activities between banks and financial institutions have taken on a breakneck pace. As a result, 185 Class A, B and C BFIs in mid-July 2010 were reduced to 62 by mid-July 2021. Their mergers have had a positive impact on financial indices although there is some turbulence in the industry. integration of human resources.
In order to save financial institutions and improve financial ratios, bank mergers may be an alternative option, if CIBs are not sufficient to develop organically or internally.
Prior to making an acquisition in 2016, Grand Bank Nepal Limited (GBNL) capital adequacy ratio (CAR) was less than 10% and reported a net loss of Rs 1.6 billion after failing to collect some big loans. After its merger with Prabhu Bank, it not only recovered its financial situation, but also posted remarkable profit in the following years.
Likewise, Machhapuchhre Bank Limited (MBL) and Standard Finance Limited started their joint operations on July 9, 2012. Prior to their merger, MBL’s CAR was below the regulatory requirement of 10% and was unable to do good business despite many opportunities. However, Standard Finance’s CAR was quite high, slowing its fund. Thus, mergers and acquisitions have become an important step for the two CIBs.
Researchers often refer to the Malaysian model of bank mergers. After the Asian financial crisis of 1997, Bank Negara Malaysia (BNM), Malaysia’s central banking authority, introduced a forced merger policy, which reduced the number of banks from 71 to 24 from 1999 to 2000. At the Currently, nine local banks and 20 foreign banks operate in Malaysia, which has grown into an Asian Tiger Cub economy. Although the applicability of the Malaysian model to Nepal is unclear, Malaysia’s economy was recovering, or growing, in 1997, as Nepal is today. Malaysia’s GDP was less than US $ 100 billion in 1997 while Nepal’s GDP was $ 34.47 billion in 2020. In 2020, Malaysia’s GDP was $ 338.28 billion and is expected to reach $ 359 billion by the end of 2021.
Therefore, bank merger became one of the root causes of development when Malaysia’s economy was growing.
Thus, mergers and acquisitions can be one of the preferred alternatives for a healthy and heavy capital investment in the country.
In another case, the Indian government had adopted measures to reform its public sector banks (PSBs) and strengthen their competitiveness. It merged 10 PSBs in 4 and started its joint operations from April 1, 2021. With this, the number of PSBs fell to 12 from 27 in 2017. After 10 months of mergers, the Reserve Bank of India, in a summary report, highlighted superior performance as a result of mergers.
As a result, going through the various waves of mergers to cope with the economy’s need for capital adjustment, the State Bank of India is today one of the largest banks in the world with 245,652 employees. , with each employee contributing a net profit of Rs 828,350 in 2020. – 21. However, mergers cannot be the magic trick in the corporate world for any reason. In July 2006, Facebook rejected Google’s merger offer.
Rather than opting for simple integration, a post-merger strategy as well as an appropriate human resources assimilation and placement plan are essential. In 2016, Tesla rejected Apple’s takeover offer.
Merger and acquisition are an ongoing process. The five different waves of 20th century mergers occurred during the periods 1893-1904, 1919-1929, 1955-1975, 1984-1989 and 1993-2000 mainly in the United States, United Kingdom and European countries . The waves of mergers have caused major changes in the structure of the company with high economic growth, technological innovations, an exit from economic recession and a phase of recovery.
According to Angela Braley, CEO of a US-based health insurance company, talent and scale come from mergers.
Economic and financial volatility, persistent trade deficit, limited investment opportunities, competition with foreign banks, dependence on external factors like tourism, remittances and government spending are some of the problems of Nepalese banks.
On the other hand, the Nepalese banking sector experiences an excess and shortage of loanable funds in a very short period of time, which can even lead to bankruptcy if there is no regular flow of funds to them. current projects. The problem can be removed by the formation of competent and large-scale financial institutions.
Sharma is a banker
A version of this article appears in the October 22, 2021 print of The Himalayan Times.