A Comparative Study of the Effect of Mergers and Acquisitions on the Financial Performance in Commercial Banks in Nepal

A Comparative Study of the Effect of Mergers and Acquisitions on the Financial Performance in Commercial Banks in Nepal

This paper investigates the consolidation and restructuring in the banking and financial institutions (BFIs) in Nepal, predominately through the Mergers and Acquisitions (M&As) process. Despite making significant contributions to the economy, financial institutions in Nepal are often guilty of malpractice, lack corporate governance practices, and condone unhealthy competition in loan disbursement and deposit collection processes. These problems create a liquidity crunch, higher sensitivity in interest rates, increments in non-performing loans (NPL), and a lack of capacity to finance large scale projects. Due to poor professional practices, high numbers of BFIs threaten the financial stability in the country. The underlying research philosophy guiding this research is a positivist paradigm which will entail reviewing existing theory from literature, identifying variables, testing hypotheses, and producing empirical results. This research studied the effect of M&As on the financial performance of commercial banks and individual banks in Nepal. Therefore, this research evaluates the financial performance of the selected banks based on the financial ratios (profitability, liquidity, leverage, and wealth of shareholders ratios) from the perspective of pre-merger and post-merger periods covering 2013-2020. To compare the pre-post M&As performance of Nepalese commercial banks during this period of 2013-2020, statistical methods were used including a paired sample t-test to measure the significant differences. This research found that the commercial banks (financial performance) significantly improved the liquidity and leverage ratios in the post-merger period. However, profitability and wealth of shareholders ratios show either mixed or insignificant results after the M&As. On the other hand, in the case of individual banks, M&A results in a mixed improvement in the financial ratios of BOKL, GBIME, NMB, KBL bank and insignificant differences in the financial ratios of PRVU, NCCB, and NIB bank. It is concluded that the effect of M&A on the financial performances of individual banks is different to commercial banks.

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