Answer to Question #155659 in Management for Prabhdeep

Question

Role of merger in improving performance of banks?(Please Answer in 100 to 150 Words )

Answer 1

Solvency refers to the ability of a company to survive for quite a long period of time, solvency is a vital concept when measuring the financial health of a company, it determines the ability of accompany to manage its operations into the unforeseen future, merging banks increases solvency since there is increase in banks assets, thus the differences between the assets and liabilities is great improving shareholder’s equity. Synergies  refers to cooperation of two or more organizations to produce a combined great effect than individual effects, it emphasizes the need of working together as one of produce bigger results. The goal is to benefit both parties. This synergies include; increasing profitability thus enhancing firms performance, when a weak and ailing bank merger with a better one, the principle of “value increasing theory” tends to apply, since the merging positively, affect financial performance due to improved management, accounting and reporting systems, better credit assessments and reduced staffing levels.