Banking Institutions: the supply and demand dynamics

As banking industry grows, rather over-grows in the region, the opportunities to acquire hardcore banking assets diminish. The prospects of managing a profitable banking enterprise are not as lucrative as they used to be. Bankers are now faced with several challenges. The most difficult of these could be building the right banking book.

Limited corporate assets to choose from, surplus capital and demands for higher returns are all making life miserable for the top bank managers. And when bidding wars start, intense competition results in over-valuing the deals thus minimizing the returns. In principle because of the dynamic IAS fair value accounting, overpriced assets should come to haunt.

But these calculation errors may not become apparent readily. Yet ultimately they will emerge when economy softens up.

Here is my solution: banks should acquire banks like private equity players acquire corporates. But make sure you don't overpay, close loss-making operations, reassign strategic direction (create value), write-off bad debt, enhance regulatory arbitrage and exit the deal.

Banking mergers and consolidation is likely to become hectic. Especially, when viewed in the context of over-banked regional economies. Consolidation in banking is good - only if you are not Chuck Prince!