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Motives and Non-Economic Reasons for Bank Mergers and Acquisitions
-- Carsten Lausberg and Teresa Stahl
This paper aims to identify non-economic reasons for bank mergers and examines their influence vis-a-vis
economic reasons. The authors expand the current economic literature by applying methods from psychological
research, which acknowledges the existence of personal motives and managerial self-interest, but mostly fails to prove
their importance. Personality inventories, interviews, and scenarios are used to investigate the relationship
between selected motives (power, achievement, sensation seeking, and prestige) and decision-making behavior of 20
German bank managers and 40 subjects of a control group. A multiple regression analysis demonstrates the
predictability of behavior according to the prominence of the four motives. Furthermore, the results support the
conclusion that managers tend to accept great economic disadvantages in following their own motives.
© 2009 IUP. All Rights Reserved.
Effect of Mergers on Efficiency
and Productivity: Some Evidence
for Banks in Malaysia
-- Alias Radam,
A H Baharom,
A M Dayang-Affizzah and Farhana
Ismail
The study investigates the extent to which mergers lead to efficiency. The data covers the period
1993-2004, which includes the pre- and post-merger years. This study attempts to evaluate technical efficiency,
efficiency change, technical change, and productivity of commercial banks, finance companies, and merchant banks
by using a non-parametric Data Envelopment Analysis (DEA) and Malmquist Index approach as the framework
for the analyses. It is found that: (i) on an average, productivity across banking institutions increased at an annual
rate of 5.8% over the study period; (ii) the results also indicate that almost all of the productivity growth comes
from technical change rather than improvement in efficiency change, which contributes to 6.1% of productivity
growth, while the latter accounted for 0.2% decline; and (iii) the merger process led to productivity improvements
whereby it is observed that the productivity of Malaysia's banking sector has been improved after the implementation
of merger program.
© 2009 IUP. All Rights Reserved.
Credit Risk Management Framework at Banks in India
-- B S Bodla and Richa Verma
Credit risk emanates from a bank's dealings with an individual, corporate, bank, financial institution or a
sovereign. The present paper is designed to study the implementation of the Credit Risk Management Framework
by Commercial Banks in India. To achieve the above mentioned objective a primary survey was conducted.
The results show that the authority for approval of Credit Risk vests with `Board of Directors' in case of 94.4%
and 62.5% of the public sector and private sector banks, respectively. This authority in the remaining banks,
however, is with the `Credit Policy Committee'. For Credit Risk Management, most of the banks (if not all) are
found performing several activities like industry study, periodic credit calls, periodic plant visits, developing MIS,
risk scoring and annual review of accounts. However, the banks in India are abstaining from the use of
derivatives products as risk hedging tool. The survey has brought out that irrespective of sector and size of bank, Credit
Risk Management framework in India is on the right track and it is fully based on the RBI's guidelines issued in
this regard.
© 2009 IUP. All Rights Reserved.
On the Merits of Equated
Monthly Installments Method
of Term Financing:
Some Analytics and Arithmetics
-- S K Bose and D D Mukherjee
The Equated Monthly Installments (EMI) based term financing has been found to be convenient by both
the lending and borrowing communities, especially in the case of small ticket equipment financing. However,
there remains considerable scope for clarity and understanding of the EMI mode of term financing. This paper
summarizes the various responses received from borrowers as well as lenders on the EMI-related issues, identifies the
areas requiring clarity and understanding, and then works out the formulation for EMIs in various periodicities
of compounding with the common base of monthly reducing balance and monthly repayment of installments.
All the EMI formulations are then reduced to a general formulation that can be applied to all such situations with
a change in the value of variables. The paper then studies the impact of varying interest rates and varying
periodicities of compounding on the EMIs and how the borrowers and lenders respond to such situations.
© 2009 IUP. All Rights Reserved.
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February '09
