Consolidation of the banking sector in Macedonia: Effects and Benefits

Fotov, Risto and Fotova Cikovikj, Katerina (2015) Consolidation of the banking sector in Macedonia: Effects and Benefits. Economic recovery in the post-crisis period, 1 (1). pp. 262-277. ISSN 978-608-212-052-2

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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.
Keywords: banks, consolidation, banking sector, efficiency, mergers, Republic of Macedonia
JEL classification codes: G21, G20, G34

Item Type: Article
Subjects: Social Sciences > Economics and business
Divisions: Faculty of Economics
Depositing User: Risto Fotov
Date Deposited: 25 Feb 2016 13:11
Last Modified: 25 Feb 2016 13:11

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