Lina Novickytė,

Vilnius University Lithuania lina.novickyte@gmail.com

ASSESSMENT OF MERGERS    AND ACQUISITIONS IN BANKING ON SMALL OPEN ECONOMY

AS SUSTAINABLE DOMESTIC FINANCIAL SYSTEM

DEVELOPMENT

Graziano Pedroja,

Juris Treuhand AG Switzerland

The Lithuanian Innovation and Technology Institute Lithuania pedroja@juris.ch

ABSTRACT. Purpose – The banking and financial sector is a dynamic sector that regularly goes through a series of structural changes. Global bank consolidation and concentration processes have prompted a lively discussion on the part of scholars and practitioners regarding the influence of concentration on the efficiency and competition levels in the banking system, the financial and macroeconomic stability of countries and the growth of economies. It has been noted that the banking sector tolerates high levels of concentration rather well compared to other business sectors, thanks to the apparent benefits of concentration on the increasing stability of the financial system. The aim of this article is to identify underlying causes affecting the mergers and acquisitions in banking and to assess their effect on the domestic financial system.

Design/methodology/approach – The authors used qualitative and quantitative methods of study in an- alysing the impact of bank mergers and acquisitions on the country’s financial system. The qualitative analysis has allowed the authors to present their own interpretation of the issue at hand, and has given them a chance to approach the problem of the study holistically. The quantitative study has provid- ed a basis for analysing dynamic regularities, performing and comparing calculations, assessing data interrelation and reliability. The article includes logical analysis and synthesis of studies dealing with bank mergers and acquisitions. To identify the potential elements that lead to stability in the financial system, and the possible impact that the on-going consolidation process might have on the banking sector, the authors have carried out expert analysis.

Findings – Mergers and acquisitions in banking take place to enhance the wellbeing of shareholders and to attain an economic effect; the aspect of stability in mergers and acquisitions is short-lived and is usually inspired by the government. Lithuania’s modern banking market has evolved through mergers and acquisitions; strategic investors have helped countries with transitional economies ensure the stability of their banking systems and capitalise on economies of scale. Several large banks operating in a small open econo- my (and a transitional economy in particular) provide the backbone for the stability of its financial sector. Originality/Value – This article dealing with the impact of mergers and acquisitions of banks on the country’s financial system is a new and original piece of scientific work that evaluates the mutual ties of banks’ mergers and acquisitions, as well as their effect on the domestic financial system. The authors have conducted an in-depth study of the impact of mergers and acquisitions on the country’s financial system, revealing potential problems involved in merger and acquisition transactions.

Received: December, 2014

1st Revision: : January, 2015 Accepted: April, 2015

DOI:10.14254/2071- 789X.2015/8-1/6

JEL Classification: E44, G34

Keywords: mergers; acquisition; banking; financial intermediaries; financial system.