ComBank-NDB merger:Benefits all around

The capital adequacy ratio was declining since it wasn't coming from the shareholders. NDB was brought into the fray because of their adequate capital and was a good fit. Sources said since the Central Bank unveiled its new monetary policies for 2007, the issues pertaining to Commercial Bank’s shareholdings has largely been sorted out.

The banking sector was a buzz with news of negotiations which could lead to a possible merger between Commercial Bank and NDB last week, following separate meetings of the Boards of Directors of the two banks.

However, insiders told The Sunday Times FT that discussions of a possible merger came about due to problems Commercial Bank had been having with their capital and shareholdings.

The capital adequacy ratio was declining since it wasn't coming from the shareholders. NDB was brought into the fray because of their adequate capital and was a good fit. Sources said since the Central Bank unveiled its new monetary policies for 2007, the issues pertaining to Commercial Bank’s shareholdings has largely been sorted out.

At the beginning of this year, CB Governor, Nivard Cabraal stated that the ownership of banks would be broad-based to promote better corporate governance, to reduce the concentration of ownership and to address conflicts of interest that may arise due to large shareholdings. "New policies on share ownership will be issued shortly, where a single entities' material share ownership would be generally limited to 15 per cent of a bank's share capital," Cabraal told business leaders, bankers and the media.

Sources said there was growing concern at NDB over this proposed merger, due to the fact that Commercial Bank has close to 4000 employees and NDB has approximately 700, the difference in size between the two banks have NDB employees fearing, to some extent, the security of their jobs. Furthermore, Commercial Bank has 147 branches while NDB has only 29. If a merger does occur, the Commercial Bank and NDB Bank entities will be replaced by another entity all together. The source also said that statistics show that between the announcement and the actual merger, there is a 50% rate of success. Furthermore, the chance of achieving the goals set forth is only a mere 20%.

According to a press release, the Boards of Commercial Bank and NDB have decided that they should explore the possibility of merging the two institutions and determine if the efficiencies, synergies and the critical mass that a merger would bring about, would result in benefits for all stakeholders of both Banks. The Boards also positively viewed the complementary nature of the businesses of the two Banks. Thus, the combined entity would have strengths across the board in commercial banking, international trade, finance, SME and consumer finance, as well as in project finance, capital markets and insurance.

Furthermore, it would result in a wider customer base to maximize cross-selling opportunities. The combined strength of the two entities would also make it more feasible to exploit opportunities in the international markets.

Senior Deputy General Manager of Finance and Planning at Commercial Bank, Ranjith Samaranayake told the Sunday Times FT that the Bank has only decided in principle to start negotiations of a possible merger.

" We have to see if we can agree. There are so many issues to sort out." When asked why discussions of a possible merger came about, Samaranayake said the Bank has become a larger entity but could not give a time frame as to when negotiations would begin.

The Boards also took cognisance of the common values and aspirations of both institutions and their financial strengths, which together could combine to form a powerful force for the benefit of customers, employees, shareholders and the country.

Secretary of the Commercial Bank Union M.R. Shah told the Sunday Times FT that the employees were informed by the management of Commercial Bank of a possible merger. "Negotiations are in fact underway for a possible merger but of course, we have raised concerns," Shah said. "One is the possible staff cuts that could take place as is the case with any merger."

Shah also confirmed that NDB employees are extremely concerned about their job security. He explained that NDB employees have no union to look after the interests of the staff. "In that context, our union is taking care of them as well in spite of the fact they are not members."

According to Shah, Commercial Bank management has given them assurances that if a merger were to take place, there would be no staff cuts at either bank. "That is our primary concern and now, we are quite comfortable. We will be getting it in writing to that effect."
(NG)