In August 2016, Bank Al Baraka concluded due diligence and subsequently entered into negotiations with the management of Burj Bank on sale purchase deal. The parties eventually reached an agreement between them for the acquisition. Afterwards, State Bank of Pakistan (SBP) gave green signal to Al Baraka Bank for acquiring Burj Bank which also paved the way towards consolidation of two struggling banks to become a stronger bank. The evaluation has been made by constructing interviews from Al-Baraka employees to check whether the merger resulted into the profitable acquisition or not. The analysis revealed that the company get into loss due to poor management of the merger assets and poor calculation. This in-effective management appears to be the only reason due to which Al-Baraka faced loss. Based on analysis few recommendations are proposed that could be the solution to the major problem Al-Baraka Bank was encountering.
The bank also offered investment and corporate advisory services. Burj Bank merged into Al Baraka Bank in 2016.
Al Baraka Bank was established as the result of a merger between Al Baraka Islamic Bank Pakistan (AIBP), the branch operations of Al Baraka Islamic Bank (AIB) Bahrain and Emirates Global Islamic Bank (Pakistan). The merged entity commenced operations on November 1st 2010. The merger, a first in the Islamic Banking sector in Pakistan, positions Al Baraka for an important role in growing an industry which has witnessed tremendous growth over the last 12 years. The bank’s balance sheet is positive, showing a profit of Rs 125 million by the end of half year of 2016.
In April 2016, Bank Al Baraka was granted permission to conduct due diligence of Burj Bank. Besides, Bank of Khyber and Summit Bank also expressed their intention to acquire the smallest full-fledged Islamic bank in Pakistan.
In August 2016, Bank Al Baraka concluded due diligence and subsequently entered into negotiations with the management of Burj Bank on sale purchase deal. The parties eventually reached an agreement between them for the acquisition.
Afterwards, State Bank of Pakistan (SBP) gave green signal to Al Baraka Bank for acquiring Burj Bank which also paved the way towards consolidation of two struggling banks to become a stronger bank.
Human Resource Management affected by Merger
Upon survey completion there were few issues we observed which were effecting the business of Al-Baraka bank and that effecting the human satisfaction. Employees highly stressed on the facts that operational tasks were highly effected because of the merger reason that both the banks were using different software and were unable to cater the needs of customers properly. As the employees of both banks were unable to understand other’s system so they were provided with training but it was also a long process to train whole employees all over Pakistan. One thing that demotivated the employees was that they were getting higher pays in Burj bank but after the merger the bank decided to either re-hire new staff, cut down the salaries or fire the staff of Burj bank to lower their costs.
Over-lapping of Branches due to Merger resulted into confusion:
Many branches overlapped which were situated in the same vicinity. After merger the bank decided to merge these branches. But it was not possible immediately. In the first phase it was decided to relocate branches and the merged branch migrated to the premises of surviving branch. Premises was merged but in books there were actually two branches working in one premises. This created confusion for both employees working as well as customers. This was a lengthy process for back end employees working for reconciliation etc.
Al-Baraka’s Culture dominated over Burj Culture:
As far as the culture of Al-Baraka and Burj bank is concerned both banks were highly concerned about their employees as well as their customers but after the merger the culture remained the same as most of the branches were merged together with Al-Baraka branches and the culture of Al-Baraka bank dominated the culture of Burj bank.
Poor Management caused the in-efficiency instead of Profitability:
As the reasons of acquisitions and mergers is mostly to expand and increase the network, the merger between Al-Baraka and Burj bank was also done to increase their overall presence and profitability in Pakistan but after the merger they started to close or merge most branches and as it is a lengthy process they were to hold their operations for weeks or months even thus turning away the customers and decreasing the profitability of branches. As they were already in loss so it was again a huge cost for the bank to bear because of no funds coming in but more funds going out. Funds can be generated through deposit portfolio and deposit done by the branches or bank and closing/merging or holding their operations were decreasing the banks growth and profitability.
There were a lot of issues which a bank or organizations must cater prior to their acquisitions or mergers. As Al-Baraka already acquired a bank in 2010 it must have experience about mergers and acquisition and it must have catered that experience to resolve or set a proper timeline for all the tasks and prioritizing them accordingly.
As banking is a service industry you cannot perform well if your services are not up to mark. There are so many banks working in Pakistan for so long and are giants of the industry. So, customers can easily switch towards them as they are well established and organized. Therefore, Al-Baraka should have realized the situation and plan the things accordingly to avoid loss and bad reputation of bank’s image.
- Al-Baraka Bank merged with Burj Bank in a haphazard manner in which it was unable to manage the internal as well as external pressure.
- First it acquired Burj to increase its network then it started to close branches creating a new cost and extra expense for bank.
- Merger took place without any intimation to the customers about the merger.
- Highly dissatisfied customers.
- Employee retention.
Al Baraka Bank and Burj Bank have successfully merged operations under the name of Al Baraka Bank (Pakistan) Limited in August 16, 2016. Al Baraka Bank Limited received the approval from the State Bank of Pakistan to conduct the due-diligence of Burj Bank. The Merger was a big success of Al-Baraka but due to the poor prior management of the acquired bank branches and account information of customer led the Al-Baraka to face loss. In the report, the issues were discussed in detail in order to analyze the challenges faced by Al-Baraka bank and recommendation given to bank to cope up with these challenges and remain successful in the banking industry of Pakistan.
- Al-Baraka should have prior disseminated the merger related information in the form of Letters and text message Alerts to customers and human resource.
- The information should also be shared in the Social Media Platform and official website in order to gain customer Satisfaction.
- The on-job training should be given to employees to enhance the quality of services so that most of the benefit could be gained through merger.
- Management should have consulted with IT professionals how system integration will be done after merger to run system smoothly and avoid customer dissatisfaction.