{"id":35,"date":"2019-09-12T11:06:17","date_gmt":"2019-09-12T11:06:17","guid":{"rendered":"https:\/\/www.cac.net.in\/blog\/?p=35"},"modified":"2024-10-11T17:37:06","modified_gmt":"2024-10-11T12:07:06","slug":"merging-banks-and-risks-associated","status":"publish","type":"post","link":"https:\/\/www.cac.net.in\/blog\/merging-banks-and-risks-associated\/","title":{"rendered":"Merging Banks and Risks Associated"},"content":{"rendered":"\n

In a couple of years, it\u2019s likely that the majority of banks in\nAsia and Europe would look forward to merging or acquiring other smaller banks.\nEvery bank in a growing economy is looking to either purchase another bank or\nbe bought by a bigger bank. Many of such banks see acquisition or merger as a\nchance to scale up their operations which can reach and cater to a broader\nmarket.<\/p>\n\n\n\n

\"\"
Picture Credits: The Hindu <\/figcaption><\/figure><\/div>\n\n\n\n

However, it has drawbacks as well \u2013 particularly for the staff and\nbusiness units that work independently and have their style of working. There\nare multifaceted administration hassle, employees, ongoing deals, and logistics\nwhich are part of an active merger or acquisition. It\u2019s easy to forget the\nrisks that bank mergers pose to all involved.<\/p>\n\n\n\n

Efficiency of systems<\/strong><\/em><\/p>\n\n\n\n

Acquiring a bank not just scales efficiencies, but also operational effectiveness. Every bank has an infrastructure in place for AML, Compliance<\/strong><\/a>, Risk Management, Accounting, Infrastructure, Operations, and IT Security and as the two banks merge, they can efficiently consolidate and manage those operational infrastructures. Financially, a larger bank will have a lower accumulated risk profile as a more significant number of similar loans will decrease overall institutional risk.<\/p>\n\n\n\n

Compliance and\nRisk <\/strong><\/em><\/p>\n\n\n\n

Another factor which is considered crucial during a merger is a\nrisk and compliance culture of banks involved. Every financial institution\nhandles banking compliance and banking regulations differently, but it\u2019s\nessential that the merging banks agree on their approach moving forward.\nImagine if two mismatched risk cultures clash during the merger, it may\nnegatively affect the profitability of the business which can change the bottom\nline if both cultures don\u2019t agree to a standard working solution.<\/p>\n\n\n\n

Execution risk is another significant danger in bank mergers. In\nsome cases, bank officials don\u2019t commit time and resources into bringing the\ntwo banking platforms together, which results in impacting customers who lose\nfaith in the newly merged bank too. The newly formed bank should dedicate\nenough experienced resources towards integration to build a new entity.<\/p>\n\n\n\n

Keeping and Promoting\nthe in-house talent<\/strong><\/em><\/p>\n\n\n\n

The biggest fear for people in the merger is the uncertainty of\njobs, while this does not affect the balance sheet, but retaining and disposal\nof talent becomes a challenge even for leadership. Bank mergers can be viewed\nat multiple levels, and most of them fail to look over at people or culture\ninto account. Failure to assess cultural fit is one reason why many bank\nmergers ultimately fall through. Throughout the merger, the bank needs to\ncommunicate and interact with employees and addressing the issues. Human\nResources plays a very crucial role, and this human element should never be\ndisregarded or downplayed.<\/p>\n\n\n\n

Scaling up and\nlending<\/strong><\/em><\/p>\n\n\n\n

A newly formed bank merger would help it to scale up business\nquickly, expand and acquire new customers instantly. The acquisition gives the\nconsolidated bank an incremental capital to work with when it comes to lending\nto its new and old customers or to invest. It also provides a comprehensive\ngeographical reach in which they are operating and new geographies or products\nthey want to launch, which enables the combined bank to achieve their growth\ngoals faster.<\/p>\n\n\n\n

Understanding\nTechnological Gaps<\/strong><\/em><\/p>\n\n\n\n

Bank mergers and acquisitions empower your business to fill\nproduct or technology gaps. Acquiring another bank may offer an exceptional\nbusiness model or financial solution which is at times more comfortable than\nbuilding that business from scratch. From a technology perspective being taken\nover by a larger financial institution might allow both organizations to accept\nbest practices and upgrade its technology platform significantly and cater to\nits customer business needs.<\/p>\n\n\n\n

Customer Impact and\nPerception<\/strong><\/em><\/p>\n\n\n\n

While undergoing the merger, it\u2019s critical that you pay attention\nto the impact it has on customers. Notably smaller or semi-government banks\nwhere customers respond to their needs differently and can look at acquisition\ndifferently especially if their bank is getting acquired. It is essential that\nemployee manage customer expectations with regular meaningful and vigilant\ncommunication. Once the merger is underway, customers should be handheld to\nensure that changing technology platforms of financial products should not\nimpact customers business as it can spread negativity if one does not pay\nattention.<\/p>\n\n\n\n

Bank mergers and acquisitions are complex procedures with the\npossibility of extraordinary payoff \u2013 or extraordinary peril \u2013 so it\u2019s\nessential that you organizations pay detailed attention on each aspect or\nacquiring or getting merged.<\/p>\n\n\n\n

Please provide your thoughts and feedback on the article.<\/em><\/p>\n\n\n\n

Disclaimer : <\/strong>This content is meant for information only and should not be considered as an advice or opinion, or otherwise. CAC – Corporate Analyst and Consultant Pvt.Ltd.does not intend to advertise its services through this.<\/p>\n\n\n\n

Posted by:<\/strong><\/p>\n\n\n\n

CA Harmeet Singh Vohra<\/strong><\/p>\n\n\n\n

CAC – Corporate Analyst and Consultant Pvt.Ltd.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

In a couple of years, it\u2019s likely that the majority of banks in Asia and Europe would look forward to merging or acquiring other smaller banks. Every bank in a growing economy is looking to either purchase another bank or be bought by a bigger bank. Many of such banks see acquisition or merger as…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[196],"tags":[3,5,4],"class_list":["post-35","post","type-post","status-publish","format-standard","hentry","category-forensic-accounting-fraud-detection","tag-accounting","tag-compliance","tag-risk-management"],"_links":{"self":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/35","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/comments?post=35"}],"version-history":[{"count":3,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/35\/revisions"}],"predecessor-version":[{"id":40,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/posts\/35\/revisions\/40"}],"wp:attachment":[{"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/media?parent=35"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/categories?post=35"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.cac.net.in\/blog\/wp-json\/wp\/v2\/tags?post=35"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}