Operating performance and shari`ah compliance awareness of the acquired banks : a case study of Bahrain

Abstract

Mergers and Acquisitions M&A are a popular practice in the modern financial world, firms – including banks – tend to merge or acquire to achieve numerous benefits, in-cluding financial and operating synergies. Economies of scale play significant role in acquiring such synergies, whereby additional resources will be added for the firms, hence, lower cost of production or more effective controls will arise. In 2009, Al Salam Bank Bahrain –ASBB- acquired the Bahraini Saudi bank-BSB-, in which the former is an Islamic bank and the later is a conventional bank, raising a question of feasibility of this transaction. The interesting factors of productions would influence the efficiency of the two banks, therefore, this paper would apply the Data Envelop-ment Analysis –DEA- to measure if there was any operating synergy gains resulted from this unique case. Efficiencies are to be analyzed within three periods, the pre-acquisition era, post acquisitions and on the year of the acquisition itself, this will be compared with the efficiency of the other banks within the same period. The results suggests that Operational Efficiency, Pure Technical Efficiency and Scale Efficiency improved for BSB and SE evolved for ASBB, furthermore, the study argues that the Bahraini banking sector improved its relative efficiency for the same period, whereas the sources of inefficiencies were mainly due to scale efficiency. Furthermore, the pa-per assessed the Islamic banking perception of the employees, and by processing the survey, it was found out that the respondents were lacking the essential knowledge needed to safeguard the bank from operational and Shari’ah non-compliance risks