The trend of the merger in the Nepalese corporate world is not anything new. It has been remarkably operating within Nepal for a long time. Be it merger of Dish TV and Home TV back in 2010 forming DishHome or NIC and Bank of Asia forming NIC Asia Bank in 2013 – the trend of merging to be a giant has been prevalent in Nepalese corporate world one way or the other. There had been enough discussions regarding the forced merger, or motivational merger as well. However, it is necessary to understand why the is merger important in the Nepalese context.
You May Also Like: Merger/Acquisition By Commercial Banks In Nepal
The merger strengthens the entire national economy. A strong business firm will have direct ties up with the national economical framework, because of which the role of huge firms will mark in a higher proportion towards the economy as a whole. The following are the key reasons why a national economy requires a big merger.
When two big firms combine to be one single unit, they turn out to be a giant. As a result, this firm will increase up their productivity level at a wider scale. The same case appears out for banks as well. When two banks combine, their lending capacity drastically rises. After the big merger of Global IME Bank and Janata Bank, their lending power has grown up directly and amounts to almost Rs 190 Arba (As of Ashad end, 2077).
Also Read: Current Status of Banking in Nepal
When Global IME Bank merged with Janata Bank Ltd, the total paid-up capital has reached 18.98 Arba leading the entire industry. This is the bank with the highest paid-up capital in the industry as a whole. Apart from the issue of capital, their overall capacity rises in a large proportion as well. Investors seeking in Nepal need not rush for International credits at those times and then. These large banks will prove out to be standing within the International banking scene as well.
Reduction of unhealthy competition
One of the commercial banks decided to establish it’s a branch in Damak. Now, Damak, which already was a saturated market – now all it can do is snatch depositors of others, snatch loan clients of other existing banks. Just because there are more than twenty banks – it is more about snatching and sustaining. The big merger will prevent this trend and practice hereby. Only healthy competition will start gaining space reducing unhealthy practice at a larger scale.
The recent trend in India, where the forceful merger prevented shut down of banks is an example. Or it can be traced back from merger among Lloyds TSB and HBOS while the banking industry was in crisis, which successfully came out with impressive outcomes. Those weaker banks can tie up together to appear as a giant.
Banking Sector View Point
The big merger is not only about benefiting a nation. There lie several spaces through which the merging banks get benefited as well. From the cost of operation to an increased number of customers – those banks who merge down will be into a win-win situation from every angle. Here lie the points explaining how big a merger helps the banking industry.
Economy of Scale
Because of the merger, the banks turn out to be large and hence can buy materials on a larger scale gaining huge discounts. Be that for the use of software, or other stationery products – their cost will get lowered down. As a result, from technical to bulk buying activities; from financial stability to organizational structure – the benefit of economy of scale can be obtained. Not just that, as the policy is supposed to be friendly enough – there will be various offers in taxation as well for merged banks. That will again be impressive enough.
You May Also Like: History Of Modern Banking In Nepal
Increase in volume of transaction
Because no longer will the merged bank work for one specific bank’s customer. Merged banks will have to carry out the transaction for all the merged banks – as a result, the transaction flow will be rapidly increased. This increased level of the transaction will ensure better spaces and rooms for huge turnover. This will ultimately contribute to the generation of more profit in the long run. Ain’t NIC Asia working impressively than NIC and Bank of Asia?
Deserving one will get the space. So, who is better in the Letter of Credit? One from Bank A or Bank B? How much experience does each of them possess? That will be evaluated, and hence the one who deserves will be into the head position. Not just that, the employees who are better and competitive will gain spaces around and hence a team of perfection will stand out. Reshuffle of the team members in any branches or departments will allow the best practice to work out.
The standard of service delivery will be improved, as the bank concentrates on its customer retention from both angles. Also, as the bank will have to work with customers of not just one bank, but the multiple banks after the merger – their level of service delivery will be improvised for sure. They will stay prepared to deliver service to a large bunch of customers within a shorter period and then.
Public Sector View Point
There lies an important question about what benefit will the public get from such mergers. Public means those account holders, investors, and other general public. The proportion of the amount that the bank will have to allocate to CSR activities will not lower down at any place, but rather when the fund grows up, this CSR fund will be strong enough as well. Besides, the public gets benefited through these ways:
Easy Financial Access
There are already enough branches that commercial banks possess as of now. The merger will no way remove those branches but can create the situation to shift those branches to the next favorable space. This will benefit public people as their branches won’t be too far geographically. Besides, the ATM centers will not be that far. Before the acquisition of Siddhartha Development Bank, those people from the Tinkune area had to reach New Baneshwor for Janata’s banking service – be that branch or ATM. However, after the acquisition – Siddhartha Development Bank of Tinkune turned into Janata Bank and people could get access easily.
No matter where ever you go in India – you can always find SBI bank. Be that in the railway station, or somewhere around in Bus Park. When banks get giant, this is the best benefit that customers get directly.
Competitive product and services
An important benefit that the public gets is the best banking product and services. Because before the merger the offered product and services will also be introduced as one specific product. Those account holders can then get better products among both without any effort. They get switched to those products offering better interest rates.
You May Also Like: Technological Advancements in Banking Industry
Satisfactory return for investors
Those investors who had invested into these banks, they then get next bunch of satisfactory return thereby. From every section – be that dividend or right shares – their performance will turn out to be better. Although the swap ratio can create some impact over their move, in the long run, the big merger will likely ensure better returns and yield around.
When the size of the bank grows up, when the bank turns out to be a greater giant, one impressive perception that gets created within the public is regarding trust. The level of trust-ability lies up drastically because of their huge nature. The large volume of customers gets the feeling that the bank that they are carrying out a transaction with is something remarkable from every section thereby.
Read Related Contents:
[Mr. Dwaipayan Regmi is currently working as the Assistant Manager in Rastriya Banijya Bank]
(Liked this article??? If you are also interested in publishing your articles related to business, finance, and economics, then mail us your article on Investopaper@gmail.com.)