The banking sector of the economy Essay Sample
- Word count: 779
- Category: banking
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The banking sector of the economy Essay Sample
The banking sector of the economy throughout the world has undergone significant changes in recent decades, characterized by the globalization of financial markets, the consolidation of the financial sector, which is reflected in a reduction in the number of financial institutions, expansion of the business of banks, manifested in the internationalization of business and diversification of the product range, products and services. Deregulation and changes in tax laws in many countries have a major impact on the financial sector.
Consequently, a wider knowledge of reasons for mergers and acquisitions provides us answer what drives organizations, firms and other banks in establishing this kind of affiliations. Moreover, contrasting the causes with the outcomes allows us to evaluate around the efficiency of M&A agreements and make forthcoming predictions. Therefore, this research is focused on the study of practices and features of mergers and acquisitions of the banks of the Republic of Kazakhstan.
The mixture of notions mergers and acquisitions is comparatively new in Kazakhstan and yet has no clear definition (Grata, 2010). However, the definition of these features is well known to many people. Merger happens when two or more acknowledgeable parties unite to turn into new business entity, while acquisition compromises the gaining of assets or shares in the company. The problems in the area of mergers and acquisitions of banks in Kazakhstan are extremely fundamental in terms of investigating since the Republic is young independent country with the lack of big experience.
In addition to the problems in the functioning and formation of its own banking system, there is also weaknesses in efficiency of management control, including risks, legal regulation and control for the private banks, etc. Furthermore, all actions towards reconstruction of businesses including merger and acquisition are controlled by the Civil Law of the Republic of Kazakhstan. Other than this specificity, it can be clearly said, that the regulatory pressure involved of banking M&A are much greater and at first glance, contradictory. As a result, this makes banking M&A unique.
Moreover, what makes banking unique is that the regulators insist that the new firm resulting from the M&A activity is able to trade as a single entity with all of its regulatory reporting and risk put in place from “day one”. Therefore, considerable work between the two banks and constable integration and testing are required. In addition, the working process are potential risk and both sides need to be aware of the legal environment existing, and what specific restraints it places on them. For instance, in some countries you cannot make any headcount reduction until after the change of control.
Also, future business strategies cannot be discussed or real client data exchanged. All of these restrictions need to be clearly perceived and agreed during the early stages of the M&A process to prevent unintended regulatory breach. While the need of clearly defined process is evident, the intersection of competition law and banking law may create a number of gaps or uncertainties. Although the M&A can strengthen and enhance the achievement of bank, the academic research on this topic somehow restricted.
In addition, in some industrial countries, the process for considering banking mergers and acquisitions has developed over time, and while market participants understand it, it may not be formally defined. On the other hand, in the case of both industrial and developing countries, competition law can contradict with banking law. Therefore, these issues are important given the upward trend in both number and value of financial sector mergers, and increasing financial sector concentration levels in countries throughout the world.
The regulation of banking activity in Kazakhstan is at the stage of development and improvement. In this regard, the issues of banking consolidations and their regulation by the current law acquirer special importance, as this tool might be used for ensuring the stability of the country’s banking system as whole. According to, many efforts have been done to learn the motives for mergers and acquisitions in the banking industry. Moreover, recent researches on M&A in banking were conducted in Kazakhstan.
However, these examinations center on depicting the present circumstance and making future prediction of M&A transactions in the banking segment yet none of them answers to the intentions in mergers and acquisitions. Thus, the purpose of the present research is to study the processes of the consolidation of the banks of Kazakhstan in the form of M&A, to identify their features and to give evidence-based recommendations having theoretical and practical importance on providing stable, flexible and effective banking infrastructure in the country corresponding the best world practices.
In order to achieve the above-named aim, the research is focused on the following questions:
– Theoretical Background of Mergers and Acquisitions
– The motives of banking mergers and acquisitions
– Conceptual Model