engleski

Consolidation of the banking sector in Macedonia: effects and benefits

Modern-day banking is characterized by constant change and development, as a result of the globalisation in the world economy. It is currently passing through its most turbulent period ever since its inception, considering the ever-growing and fierce competition, the constant changes of technologies, the financial innovations, the entrance and domination of foreign banks on the market, the decrease of the prices of bank services and decrease of interest rates as well as the slow recovery from the Global financial crisis. Ever since the global financial crisis occurred, banks all over the globe are struggling and facing decreased efficiency and profitability, especially small banks that are limited in many ways - they cannot diversify their portfolios nor use economies of scale, not to mention their limited access to new customers, new technologies and financial innovations. The case in the transition countries is even more dramatic, due to the fact that the financial system itself has not been developed enough and the entrance of foreign fierce competitors is more noticeable. This paper revolves around the group of small banks in the Macedonian banking market, who have been facing negative financial results ever since the Macedonian economy has noticed the effects of the global financial crisis, due to the limited bank assortment, the small participation in overall loans and deposits and the limitations of being small in a globalized market. The main objective of this paper is to emphasize the benefits of the consolidation in the banking sector in the Republic of Macedonia and to stress its inevitability. Consolidation will bring strong competition among quality competitors, higher quality of bank services, diversification of the assortment of bank services, lower cost of capital, branch optimization, change of the business models, implementation of up-to-date methods for risk management and most importantly, higher profitability and higher efficiency of the banks and the banking system as a whole. Furthermore, M&A influence the concentration in the banking sector ; they bring higher competitive advantages and transfer of technologies, know-how, knowledge and innovative thinking. The synergy created by M&A’s should not be underestimated. Our research and the results of the valuation methods used strongly encourage banks' managements to consider the proposed consolidation, in order to gain higher efficiency, competitive advantage and opportunity to grow. Thus, we suggest that consolidation of the banking sector is an inevitable process which Macedonian banks must implement, the sooner the better. However, it does require structural change of the banking sector and organizational transformation of the banks, but that is a small price to pay for the benefits the banks will enjoy.

banks, consolidation, banking sector, efficiency, mergers, Republic of Macedonia

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