Bank mergers are not a new or recent phenomenon. These strategic steps have been taken by bankers during the first half of 20th century bank mergers were occurring at the rate of 150 to 350 per year with a population of banks totaling above 25,000, the Bank Merger Rate was in the range of 0.6% to 1.4%. The rate due to the impact of pandemic and inflation grows to grow 2.3% with 107 bank mergers in 2023. During earlier period of There was no law defining a true merger between two banks. The work-around solution was to have the Selling Bank liquidate and to have the Acquiring Bank purchase the assets and assume the deposits and other liabilities (think Credit Union acquisition of a commercial bank today). For a national bank, the surviving bank could only operate out of a single office as no branching was allowed such that one of the offices of the newly merged bank would close. This trend and regulatory complexity in the 21st century completely changed globally.
Recently the global financial sectors were struggling to manage the impact of inflation, postmortem effect of covid-19 resulting in the capital strength of bankers and insurers. It was our recent memory that the impact of covid-19 on the world financial sector and global economy was beyond the known parameters of measurement. Particularly the financial sector is challenged by Profitability and credit management/cost of risk, operational resilience and business continuity management, high volatility in stock markets depressed banks’ valuation, securitization landscape And Customer relationship and commercial models
Yet globalization pressures persist and the global competitive landscape becomes progressively more dynamic, mergers and acquisitions (M&As) continue to be a popular growth strategy among multinational corporations (MNCs) headquartered in every region of the world. In fact, at the turn of the second decades these millennia, the total value of announced M&A transactions on a global basis exceeded $3.5 trillion. This recent growth in M&A activity is driven in part by the increasing need for MNCs to expand beyond the developed markets of North America and Europe in search of larger customer bases along with related scale economies, improved access to raw materials or other location advantages, as well as greater opportunities to exploit current competitive advantages and develop new ones. During this period the total number of deals involving African target firms increased from 242 to 367 and the total deal value grew from 15.0 billion to 17.9 billion on an overall basis. In recent years, mergers and acquisitions (M&A) activities have become an important channel for investment in Africa for both global and local market players. M&A deals have allowed companies to consolidate their positions in African markets, contributing to better market access and competitiveness.
In African financial sector alone, merger picked the highest and the rate of merger during pandemic reached 2%. (than decades before) . In the last decade the total number of bankers and insurers merged due to economic of scale , high return , synergy , diversification , seeking of strong capital and using it as a strategically channel for investment accordingly.
Mergers and acquisitions in the financial services sector are receiving a great deal of attention in the Ethiopian financial sector ever since the decision of the government opening up the financial sector. The trend of attracting foreign investor seems an inevitable one. As Merger and acquisition encompasses the various parts of the financial sector in Ethiopian, case particularly commercial banking, insurance companies and some bigger micro financial institute, there should be a well- planned and thoughtful strategy to implement. The sector waits some big challenge. Some of them even difficult to predict their impact surface on if left with stagey of tackling them.
Regardless different reasons one with the others have i.e. strong capital , market expansion , enhanced competitive advantage , competitiveness , technological , brand , existence , accelerated growth , capital formation and creating strong asset , all banks should map a clear strategy of merger and or acquisitions. Selecting peer bank intermesh of the finance function, The HR function, Strategic direction, IT systems, Product and service lines and binding legal contracts are challenging job and demanding reactiveness in line with progressive decision made by the regulatory body. When we compare the largest and strongest African bank Standard Bank (Stanbank) Group: (South Africa) with an asset $172.9 billion, alone is 7.2 fold than the leading bank, Commercial Bank of Ethiopia. the figure even will be far if we compare it with the remaining all commercial banks in Ethiopia whose total asset is lower than commercial banks of Ethiopia i.e more than 10 folds . the implication is leave alone individual Ethiopian commercial bank with other African bank , all local bank merged capital or total asset is far below than standard criteria of merger.
This indicates that commercial banks should have to have a workable strategy a strategy of Merger and acquisition, regardless the method and type the merger is implemented.
The ongoing change in the financial sector by the regulatory body , the national bank of Ethiopia , i.e historical reform deciding market rated currency than regulated one , indicate that foreign banker entry is approaching , that will shift the financial land scape including merger ,and acquisitions, which is an inevitable one leaving which bank merge locally with the other ,or which bank acquire the other and or what strategy is fit in to merge with foreign bank donkey work for merger strategists.
