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Cross-Border Mergers And Acquisitions In International Banking

The international banking landscape has been pivotal in the development of the worldwide economy and has undergone a journey of transformation characterised by cross-border tactics. Owing to the rise of privatisation, cross border mergers and acquisitions (CBM&A) have been introduced as a phenomenon and they involve assets and operations of firms belonging to two different countries.

Financial institutions are seeking cross-border transactions to overcome obstacles and seize new opportunities in a time characterised by increasing interconnection and technology breakthrough along with the desire for operational efficiency.

This research paper aims to explore the complex dynamics of international mergers and acquisitions in the banking industry. Banks are becoming more involved in strategic deals outside of their home markets due to the attraction of expanding their market reach, utilising economies of scale, and enhancing their competitiveness. Understanding the causes behind, difficulties faced, and results of cross-border banking mergers is essential for regulators, scholars, and stakeholders as the financial world grows increasingly interconnected and dependant.

Cross-border strategies have marked the evolution of the international banking environment, which has played a crucial role in the growth of the global economy. Due to the increasing trend of privatisation, cross-border mergers and acquisitions, or CBM&As, have become increasingly frequent. These deals involve the operations and assets of businesses that are based in two separate nations.

"Acquisition refers to the purchasing of assets or stocks of part or all of another firm (or other firms) that result in operational control of the whole or part of the other firm whereas mergers describe the case where two separate firms are combined or amalgamated into a single business."[1]

A merger can refer to a situation where two businesses, possibly of the same size, "merge" into each other and continue as a single new entity. This action is referred to as 'merger of equals'. A case in point would be the merger of Vodafone-Idea group. This merger of equals took the telecom industry by storm as this new entity became the second-largest telecom network in India, only preceding Airtel.[2]

On the other hand, an acquisition refers to a transaction where a company buys 50% of an entity's shares and hence, by default, an acquisition takes place by the company which purchased the shares. If this transaction is done with the consent and knowledge of the firm acquired then it is referred to as an acquisition whereas, if the transaction is done without the consent of the company, then the latter is referred to as a hostile takeover.

The globalisation of economic activities has led to a significant increase in international banking in recent times. It's not the first time in history that the banking industry has seen a growth in its globalisation process. Banks can expand their operations overseas in a variety of ways, as noted by Goldberg and Saunders (1981) and can include:
  • providing loans and asset and liability management to foreign counterparts,
  • opening a foreign branch,
  • acquiring shareholdings in a foreign bank (subsidiary)
However, in recent years, cross-border banking activities have increasingly taken the form of international acquisitions, particularly on the part of large and powerful institutions in more developed nations seeking to expand into less developed economies. While the number of bank foreign branches in developed countries rose quickly between the early 1960s and the mid-1980s, in the years that followed, foreign branching lost popularity. This resulted in a decline in the number of foreign institutions directly operating in New York, which fell from 323 at the end of 1985 to 205 in 1998 (Brealey and Kaplanis, 1996) and mergers and acquisitions in the banking sector increased sharply (Berger, 2000).

The process of bank internationalisation has accelerated in the years that have followed, particularly in developing nations. Foreign banks have become more prevalent, although the trend has not been consistent across all regions. Currently, foreign ownership accounts for more than half of the total banking assets in certain Latin American and Central and Eastern European nations (CEECs). The nationalisation of public financial institutions in the CEECs has facilitated foreign participation by moving the economies towards greater market orientation (Papi and Revoltella, 2000).

While the trend has been noteworthy in these nations as well, growth has been slower in Asia, Africa, the Middle East, and the former Soviet Union. This could be because of stronger official and informal entry obstacles as well as a less noticeable overall integration process. Overall, foreign banks made up almost 7% of all bank assets in developing nations in 2002, up from 3% in the past seven years, according to Claessens and Lee (2002).[3]

Studying about these particular trends and the macro-economic influence they exert on underdeveloped and developed nations is of crucial importance because

This paper also aims to investigate the complex features of cross-border banking industry consolidation against the background of globalisation. My study aims to decipher the complexities of the worldwide framework of mergers and acquisitions in the banking sector, from the regulatory nuances and cultural quirks that drive these deals to the projected synergies and potential hazards involved. I hope to contribute to a thorough knowledge of how cross-border mergers and acquisitions are influencing the future of international banking by looking at noteworthy case studies and discernible trends.

Cross-Border Mergers And Acquisitions In Africa

In Africa, the trend of developed banks cutting down and emerging country banks expanding their worldwide reach has been especially prominent (Beck, 2014; Enoch et al., 2015). Due in large part to a wave of mergers and acquisitions that significantly altered the composition of the African foreign bank population, banks from all over Africa as well as non-African emerging markets have emerged as major players in the African banking sector during the past 20 years (Beck, 2014).

A different establishment that has dominated the African economy would be the presence of Pan-African Banks (PABs).

Banks with cross-border operations and an African headquarters are known as Pan-African Banks, or PABs and are regarded as the most effective companies in the financial sector in sub-Saharan Africa.[4] Hence, to be precise, PAB's are those whose main investor is headquartered in Africa. The competitive domestic advantages of local banks are combined with the worldwide benefits of international banks through PABs. Following the global financial crisis and the retreat of traditional European and US banking organisations, they have expanded their activity throughout the African continent.[5]

According to the study published by Anthony Mukanya[6], it is observed that 'overall, African acquired banks outperform their international counterparts from rich nations: average firm value rises by roughly 3.83% when the acquirer is from Africa, compared to a 0.94% loss of value when the acquirer is from a developed country.'

Through this analysis, it can be said that acquired banks and acquirer banks which share a particular geographical location on the map, such as, belonging to the same continent share greater benefits than their international counterparts. Therefore, it is contested that culture, linguistics, ethnic diversity etc. might have a role to play towards the value increment of the acquired bank.

The reason for multinational banks' failure to keep up with its African acquirer counterparts can be attributed to differences in geography, geopolitical position, culture, language, tradition, practice, values, and ethics.

Cross-Border Mergers And Acquisition Trend In Asia

It is estimated that the accumulated value amount of bank mergers and acquisitions in Asia crossed a mark of US$30 billion dollars in 2005, making Asia one of the busiest continents for international financial mergers and acquisitions. China took the longest leap in 2005 when its total investment value rose to more than 15 billion USD. The Chinese banking industry opened itself to cross-border mergers and acquisitions in the 1980s with the Chinese government launching a policy titled "Go Global" in 1999 which enabled China to open its doors to being susceptible of international mergers and acquisitions and most deals secured during the second wave of this policy were above US$100 million dollars. This can also be attributed to the fact that the China Banking Regulatory Commission increased the cap applied on foreign ownership stakes from 15% to 20% which will help more active participation from international banks.[7]

Coming to South Korea, following the 1997 currency crisis, it implemented reforms that fundamentally restructured the banking industry. Financial institutions are shifting their focus from lending to industrial chaebols (South Korean family conglomerates[8]) to serving affluent savers and investors. Over the last three years, Korean retail banks have rapidly consolidated, with the four largest institutions currently holding over 75% of the market. However, there is still potential for merger-driven growth in the insurance and brokerage sectors.

Cultural differences are what the banks consider to be the most prominent of problems when initiating cross-border M&As. One of the interviewee said it could lead to a lot of compromising as each bank has its own culture, and being from different countries will further enhance these differences. The problems of different corporate cultures were something all of the banks discussed.

They said the bigger the banks are that they acquire or merge with, the bigger the problems would be as well due to a stronger corporate culture. Something to be considered, though, is that it is not only the culture of the country to take into consideration but also of the region and of the particular bank. The problems of different cultures will also show in difficulties of communication, as different cultures have their own way of communicating. It is also important to look at the positive synergies from the cultural differences, such as those of diversification and improved managerial quality.

  1. Vargas, A.T. and Villazul, J.J. (2016) 'Chapter 18', in Handbook of Research on Driving Competitive Advantage through Sustainable, Lean, and Disruptive Innovation. Mexico City, Mexico: IGI Global Publishing House.
  2. Top 10 Indian merger and acquisition deals Finology Insider - Best Financial Articles with Trending Market News. Available at: (Accessed: 03 February 2024).
  3. Pozzolo, A.F. (2009) 'Bank Cross-Border Mergers and Acquisitions: Causes, Consequences, and Recent Trends', The Changing Geography of Banking and Finance, pp. 155�183. doi:10.1007/978-0-387-98078-2_8.
  4. Samantha.Payne (2019) Pan-African banking is changing the region's financial landscape, African Review of Business and Technology. Available at: (Accessed: 04 February 2024).
  5. Raga, S. and Tyson, J. (2021) Impact of pan-African banks on financial development in sub-Saharan Africa, ODI. Available at: (Accessed: 04 February 2024).
  6. Mukanya, A. (2018, June 19). An Analysis of Cross-border Mergers & Acquisitions in the banking sector in Africa: A case for Africa-based Financial Institutions.
  7. Lin, E., Jr., Turner, G., Park, C.-J., & Ratanasuwanasri, P. (n.d.). Banking on mergers in Asian financial services.
  8. Kenton, W. (2021, August 28). What are Chaebol structures in South Korea? Investopedia.

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