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It is a matter of common sense that banks under the pressure of competition constantly look
for newer ways of widening their geographical reach and range of products to achieve
economies of scale and scope, improving their efficiency and one such commonest
tool among the newer ways is `mergers'. Research too reveals that businesses with
above-average margins often resort to mergers for rapidly increasing their sales (Sorensen, 2000). Even
Andrade et al. (2002) argue that most of the reasons for mergers provided by economic theorysuch
as efficiency-related reasons, attempts to increase market power, market discipline, agency
costs, or diversificationare "relevant to a comprehensive understanding of what drives acquisitions".
As against this commonly held belief, the authors, Carsten Lausberg and Teresa Stahl
of the first article of this issue, "Motives and Non-Economic Reasons for Bank Mergers
and Acquisitions", argue that in the light of recent forays under the discipline of behavioral
finance, there is a need to look at non-economic reasons such as motives of the decision makers in
the organization, to have a complete understanding of the underlying reasons for mergers.
Accordingly, the authors have explored to study the influence of four select motives of decision
makers namely, power motive, achievement motive, sensation-seeking motive and prestige motive
on mergers decision in the banks. They have also explained the underlying principles of
management and psychology that influenced their formation of the hypothesis for empirical
investigation. The hypothesis was tested using the methods of questioning, drawing personality
inventories and scenarios on a sample selected from German banks that have witnessed mergers
during the years 2004-2008. The sample consisted of 20 German bank managers involved in
mergers and 40 subjects of a control group. The multiple regression analysis indicates that there is
a scope for predicting the behavior of the decision makers depending on the prominence of
the four motives. The results also indicate that managers do not mind in accepting greater
economic disadvantages while following their own motives. It thus becomes evident that there are also
non-economic reasons that influence mergers in banks. However, there is a need for
carrying out these studies with a larger, and randomly chosen sample for drawing inferences of
statistically significant nature.
There is another interesting article on mergers in banks, "Effect of Mergers on
Efficiency and Productivity: Some Evidence for Banks in Malaysia". The authors, Alias Radam,
A H Baharom, A M Dayang-Affizzah and Farhana Ismail of the article, have investigated
the impact of mergers on improving efficiency of service delivery to the public as also the
productivity in banks of Malaysia that have undergone mergers during the period 1993-2004. Using
Data Envelopment Analysis and Malmquist Index Approach they have evaluated technical
efficiency, efficiency change, technical change and productivity of merged banks and found that on
an average productivity in banking institutions increased at an annual rate of 5.8% over the
period of study. The study also revealed that much of the improvement in productivity is more due
to technical change that has come up subsequent to mergers than the improvement in
efficient change.
The authors, B S Bodla and Richa Verma of the third article of the issue, "Credit
Risk Management Framework at Banks in India", studied the implementation of credit
risk management framework by commercial banks in India by carrying out a survey. The
study revealed that the authority for approval of credit risk policy in banks rest with board of
directors. Risk rating activity is found to be the major tool of credit risk management and the same
is carried out annually. About 60% of the surveyed banks preferred risk adjusted pricing of
the portfolio. Around 73% of banks have clearly defined their off-balance sheet exposure.
However, derivatives are seldom used as tools of credit risk management. The survey results indicate
that by and large the credit risk management model adopted by the Indian banks is in
conformity with the Reserve Bank of India guidelines.
In the last article of the issue, "On the Merits of Equated Monthly Installments Method
of Term Financing: Some Analytics and Arithmetics", the authors, S K Bose and D D
Mukherjee, have carried out a survey to ascertain the response of the borrower and lenders on
certain issues pertaining to Equated Monthly Instalments (EMI) method of financing. The
authors have retail worked out the formula for EMIs in various periodicities of compounding with
the common base of monthly reducing balance and monthly repayment of installments.
They have also studied the impact of varying interest rates and varying periodicities of
compounding on the EMIs and also the reaction of the borrowers and lenders there of against and
summarized the findings.
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GRK Murty
Consulting
Editor
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