A Comparative Study of Merger Effect on Financial Performance of Banking and Financial Institutions in Nepal

Abstract

<p>Merger and Acquisition is relatively new reorganization practice undertaken to strengthen the BFIs in the Nepalese financial market. This study makes an attempt to analyze the financial performance of merged banking and financial institutions relative to their pre-merger performance, and assess the perception of the stakeholders towards merger. Six banks and financial institutions are considered as sample to undertake this study along with 120 respondents for secondary and primary data respectively. The financial ratios comparison method along with t-test of changes in performance measures has been used. This study found that merger impacts performance positively when larger and stable parties such as commercial banks act as bidders as opposed to the merger between smaller BFIs mainly other than commercial banks as bidder. The loan quality significantly deteriorates after merger in most of the cases and profitability measured in terms of ROA and ROE is adversely affected in most of the cases after the merger. Therefore, the merger should not be considered as the definite solutions to overcome the challenges faced in the market; enough evaluation is needed to select the right partners before executing the merger.</p><p>Journal of Business and Social Sciences Research, Vol. 2, No. 1 & 2, pp. 47-68</p>

An Assessment of Financial Performance and Service Facility Improvement after Merger and Acquisition of Financial Institutions of Nepal

“…This study found that the loan quality significantly deteriorates after merger in most of the cases and profitability measured in terms of ROA and ROE was adversely affected in most of the cases after the merger. Therefore, it has suggested that the merger should not be considered as the definite solutions to overcome the challenges faced in the market enough evaluation is needed to select the right partners before executing the merger (Shrestha, Thapa, & Phuyal, 2017). The finding was slightly differed with the finding of present study because the present study had shown the significant improvement in the ROA and ROE in post-merger phase.…”

“…In contrast to the above findings was reported in the study of Shrestha, Thapa, & Phuyal (2017). A Comparative Study of Merger Effect on Financial Performance of Banking and Financial Institutions in Nepal makes an attempt to analyze the financial performance of merged banking and financial institutions relative to their pre-merger performance, and assess the perception of the stakeholders towards merger.…”

“…The Government of Nepal has been promoting integration as a means of achieving efficiency through the economy of scale and breadth by facilitating the integration between weak and strong banks to create a more efficient and stable business (Baniya & Adhikari, 2018). Nepal Rastra Bank (NRB) has introduced the Merger by law -2068 BS with the objective of reducing the number of BFIs, enhancing financial stability and promoting public confidence on the banking sector (Shrestha, Thapa, & Phuyal, 2017). In the study of Bhatta, he had stated that the mergers led to changes in bank's share ownership.…”

Abnormal Returns around Mergers and Acquisitions in the Nepali Stock Market

“…Studies in the Nepali context by Sharma (2018) and Acharya (2020) found a positive impact of mergers on the performance of financial institutions while the studies by Dwa and Shah (2017) and Chhetri and Baral (2018) found no such effect. On the other hand, in contrast to mergers between smaller financial institutions, positive effects of mergers are found if bigger and stable parties including commercial banks are bidders (Shrestha, et al, 2017).…”

“…There are ample evidences for a comprehensive account of banks mergers in developed countries and a few of the emerging ones, but less of Nepal (Acharya, 2020; Chhetri & Baral, 2018;Dwa & Shah, 2017;Gurung, 2013;Pathak, 2013;Sharma, 2018;Shrestha, et al, 2017), signifying the requirement for further research in the Nepali context.…”