Cross-Border Bank M&A in Emerging Markets —Value Creation or Destruction?

Abstract

This chapter considers the post-1998 wave of cross-border bank mergers and acquisitions (M&A) activity involving purchases of stakes in target banks in emerging market economies (EME) by acquiring banks from industrialized countries (international banks). This international consolidation of the banking industry has followed hard on the heels of extensive domestic consolidation processes, which began in the United States and Europe in the mid-1980s before spreading across EME in the 1990s and beyond (see Berger, Demsetz and Strahan, 1999; Berger, DeYoung et al., 2000).¹ Banking sector consolidation is one outcome of financial liberalization and technological developments over the past quarter-century. However, there are salient differences between the consolidation processes in industrial markets and EME: (1) cross-border M&A is a more important source of consolidation in EME; (2) consolidation is used to restructure EME banking sectors following episodes of financial crisis rather than to eliminate excess capacity; (3) governments in EME are active participants in the consolidation process (Gelos and Roldós, 2004).