Why Do Banks Merger? Meaning and Advantages

A merger is an agreement between 2 or more existing companies/banks in the market wherein they come together to collaborate their business and establish it as one entity to achieve a common goal.
In other words, a Merger stands for the process of joining forces between 2 or more parties to create one force to achieve a common goal. While Merger companies come together they help each other by sharing their technologies, ideas, experience, knowledge,
and provide financial assistance to each other together they reduce to increase the business and decrease the competition.
In this topic, we will understand what is merger and meaning and advantages of the merger

Why Do Banks Merge?

Well by the merger of two banks provide greater efficiency to the future revenue,
it generates greater opportunities for both the banks for sharing resources to expand their business to the next level.
Well, a merger is a self-implemented decision between two or more companies so there can be several reasons for a merger,
but ultimately the final goal/moto is to exist in the market.

 

Here are the few Advantages why banks go for mergers:

 

1. Increase the profit
2. Diversification
3. Combined Synergy
4. Reduce Risk
5. Reduction of competition
6. Market Share

 

• Increase the Profit:
  One of the main reasons for starting a business is to make a  profit, so a merger plays the same role in any business.
  combinations of two businesses mean sharing the resources and compensating for the loss. Taking a decision together
  the number of business options increase, in other words, opportunities for new business come into the light which directly
  leads to higher profits.
• Diversification:
  Merger helps the business to create and expand the business into various different categories that it has not been into before.
  for EX: A bike Manufacture can merge with the helmet manufacturers so that they promote each other’s products and services
• Combined Synergy:
  The second main reason for the merger is synergy, synergy means exchanges/sharing the resources with each other
  to increase the business proficiency to its fullest potential.

• Reduce Risk:
  Risk reduction in the case of one company it is low but in the case of the merger all the decision are taken by the
  group of manager who provides the new ideas to the table, there are more people compared before the merger so
  the decision-making process is time-consuming but its provide better new creative ideas and strategy to the
  businessman, which in return reduces the risk.

• Reduction of competition:
  One of the major reason for a merger is competition as time pass similarly competition increase and most of the time,
  many of the business gets destroyed but to still exist in the market the companies who are in the verge of
  the breakdown comes together, as a result, to support each other by joining forces against the competition.

• Market Share:
  Market share refers to the position your company holds in the market which also determines the value of the company,
  major companies enter into the merger to keep themself in that position so that they don’t get destroyed by the
  upcoming new entities.

 

Conclusion:
In summarizing the whole topic [Why Do Banks Merger? Meaning and Advantages],
we can conclude that mergers bring not only growth but also creates a bond of synergy.
That synergy as a result reflects in the growth of the Banks, similarly provides itself with new opportunities.