우리나라 은행 합병의 효율성 분석

Abstract

Economic crisis touched off by plight in foreign currency that resulted from the bankruptcy of Hanbo, one of Korea's 10 business conglomerates, in 1997 as well as an agreement to postpone the insolvency of KIA Motors created a cloud in the mind of foreign investors on the situation of the Korean financial industry. At that time, 5 banks among 33 local banks were closed down and an additional 5 banks merged or disappeared from the scene. After this radical reform, a new financial environment was created. Due to the advent of new local financial institutions, competition among them grew more fierce and profitability declined. Further opening of the financial market along with accession to the OECD made competition with foreign financial institutions inevitable.

Although M&As of financial institutions is not the best answer, market pressure deemed mergers as a necessary strategy for survival. In this connection, future bank M&As should be voluntary to enhance competitiveness, in contrast to government-led M&As under public finance support.

Under the drastically changing internal and external environment, it is imperative for Korean financial institutions to improve their competitive edge for survival. Until recently, analyses of the effectiveness of our banking industry have been mainly focused on measuring economies of scale and scope. The ultimate purpose of bank mergers is to enlarge the scale and diversify operations to increase profitability and secure variety of income sources so as to realize effective input and utilization of business resources, expand market domination, improve business operation and boost the dynamic value of industry.

The purpose of this study is to find out the most effective type of merger through an econometric and empirical analysis and simulation of M&A. Utilizing data on 15 Korean banks from 1995 to 1999, we estimate the cost function to test and mutually compare the economies of scale and scope of the local banking industry. Major findings of this thesis are as follows:

1) Using Translog cost function, the economies of scale and scope for 15 general local banks were measured, but the result does not show evidence of economies of scale and scope.

2) Results of the empirical analysis revealed that M&A of Korean banks would produce approximately a 3% cost increase. Also, our results showed that about 64% among 105 possible combinations exhibit post-merger cost increase. Under the current circumstances, inter-bank mergers are fraught with considerable risk. The results of the test clearly disclosed that a merger among small scale banks brings about a negative outcome. This is a case where loss is evident.

In terms of risk of cost increase, a merger among big banks showed the lowest likely level of risk on average with respect to any combination of mergers. But in this case it should be remembered that the cause of cost decrease is also the lowest. On the other hand, M&A between middle-scale and small-scale banks would likely entail a considerably low cost decrease despite a substantial likelihood of increased burden cost-wise. Thus, it is revealed that a merger among banks, regardless of its form, clearly shows a relationship in its advantages and disadvantages.

From 1995 to 1999, Korea's macroeconomic condition was unlike any prior period of economic growth. In particular, considerable change in banks' cost structure was inherent for their insolvent credit and restructuring. Thus, a conclusion can be drawn that no synergy effect of cost can be realized merely through mergers in general. Increase in efficiency by generating a synergy effect from economies of scale and scope is what is expected from the merger of financial institutions. But we should remind ourselves that unconditional mergers are not a cure-all and may entail inefficiency too.

The success or failure of mergers of Korean banks are affected by the goals and strategy of the particular merger and various other factors such as the external environment. For this reason, prior to merging, a thorough plan should be established and feasible examination be made. The appropriate subject for merger should then be chosen and it to be implemented concurrently it is imperative to seek measures for maximizing the effect of a merger at this stage.

The limitations of this study are as follows:

First, due to limitations on the analysis of Translog method effect from regulation on banks and technical changes being considered as having major impact upon production, technical relationship of bank was not subjected to analysis.

Second, main stress was placed upon analysis of cost structure merely for this reason and as a result of the above-mentioned mock test did not give explanation on what kind of effect is produced upon profit structure.

Third, by using data on period containing duration of workout of banks for analysis of cost, there is no continuity and symmetry in terms of time sequence of data.

For the purpose of overcoming the above mentioned limitation of this study, which attempted to analyze the efficiency of bank mergers, a more systematic and empirical examination is required. In the future, the following research would be required:

First, instead of Translog cost function form containing local flexibility there is a need for analysis by means of nonparametric statistics with more flexibility across the whole sector.

Second, Translog cost function is only capable of finding out the cost aspect. Accordingly, a study by means of profit function approach, which takes account of the income aspect too, should be attempted.

Third, there is also need for a additional study on mergers among financial institutions of different kinds to form a leading international combined financial group and on the effect of such mergers on the financial industry.