Impact of Merger and Acquisitions on Banks Financial Performance
IMPACT OF MERGER AND ACQUISITION ON BANKS FINANCIAL PERFORMANCE BY HIRA KHAN STUDENT OF MBA-I IN JINNAH UNIVERSITY FOR WOMEN DEPARTMENT OF BUSINESS ADMINSTRATION THIS RESEARCH PAPER SUBMITTED TO THE FACULTY OF JINNAH UNIVERSITY FOR WOMEN AND TO MRS, AMBREEN FAIZAN IN PARTIAL REQUIREMENT FOR THE DEGREE OF MBA FOR THE COURSE OF ADVACE RESEARCH METHOD 15TH JUNE, 2012 AC(C)K(K)N(N)O(O)W(W)L(L)E(E)D(D)G(G)E(E)M(M)E(E)N(N)T(T) I thank Allah for guiding me through the phases of compiling this research paper and helping me out in all the difficulties.
I would like to take this opportunity to thank MRS, AMBREEN FAIZAN my teacher for the course of “ADVANCE RESEARCH METHOD” at JINNAH UNIVERSITY FOR WOMEN, for her valuable support and encouragement, which she has offered. This research paper is a whole effort of HIRA KHAN and I could not have been made possible without the immense help and cooperation of my family members. Without their support and the amount of time that they gave us, this research paper would not have existed. Thanks a lot.
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ABSTRACT: The Pakistan banking industry is one of the most prosperous and flouring industry in Pakistan. Despite the political and economic turbulence that strikes this country, this industry remains solid and prosperous. In past few decades a wave of merger and acquisition has been arisen in the developing countries. Pakistan is no difference in this case. Looking at the data of listed companies on Karachi stock exchange (KSE), it is obvious that in 2001 and onwards the M&A have got momentum.
The Pakistan banking industry witnessing a growing trend of mergers and acquisition. The present paper examines the objective of the research to identify the extent of impact of merger and acquisition on banks financial performance. Quantitative research is adopted by this study. The sources of data for the study are secondary sources obtains from the banks audited annual reports, financial statements, balance sheet, income statement, cash flow statement and Karachi stock exchange (KSE) website where the provide past years analysis report of banks.
The liquidity, profitability and market stock value measures were compared for three year pre-merger (2004-2006) and (2007-2009) post-merger from the financial statements of the sample bank. I take the NIB bank and PICIC commercial bank as a sample bank in order to calculate its financial performance after the merger. The methods of analysis used for the study were paired sample or observation t-test. the results show that the financial performance of NIB bank limited in the areas of liquidity management, profitability and market stock value has been quite satisfactory before the merger deal.
The problem statement of the study was to examine the impact of merger and acquisitions on banks financial performance are the mergers improve the efficiency of the bank. In Pakistan banking industry merger and acquisition shows an increasing trend as we look into the past years in Karachi stock exchange they show a significant increasing number of mergers. This because of state bank of Pakistan (abbreviated SBP) instruction to commercial banks whereby there are required to increase their capital to RS. 6 billion by December 2009.
Some of the banks in local industry find it difficult to meet the capital requirement by given deadline . equity injection and/or reinvestment of profits are not enough to cover the gap between their existing capital and their required slab of RS. 6 billion. This scenario leads them seeking opportunity of merger or acquisition to increase their capital to the required level Merger and acquisition means when two companies or entity decide to combine their assets operations and revenues to increase the profitability of the firm it is merger.
When one company acquires another company, it is an acquisition. RESEARCH QUESTION: In this study I find out that “does merger and acquisition improves financial performance of the bank” by using three financial measures, that is liquidity ,profitability and market stock value these ratios are an analytical tool for calculating financial position of any financial institution by researching this question I experience the different aspects of merger in this study as the merger and acquisition called a pull up rofitability tool but in case of NIB bank limited its failed to prove this statement. Each merger is different from the other it only depends of its nature some banks go for merger in order to increase its revenues, expansion in operation etc. But some go for merger because their government imposes a restriction to increase their minimum capital and some banks find it difficult to meet the required requirements so that is another reason for merger of the banks. As M&A activities could still be considered and recommended as an option for improving the banks performance.
SIGNIFICANCE OF THE STUDY: In today’s globalize economy merger and acquisition are being increasingly used as a significance around the world over for improving competiveness of companies and banks through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies and capitalizing on economies of scale etc. The motives behind are economies of scale, economy of scope, increase market share and revenues, taxation, synergy and other diversification.
Due to these reasons banks merged with one another or targeted by acquiring bank. This study explains that by imposing restriction to increase capital by government the banks go for merger and to increase its market stock value the banks also go for merger. Because without merging they do not meet the required things like revenues ,increase in operation or profits etc. OBJECTIVE OF THE STUDY: ?The main objective of the study was to evaluate the financial performance of merged banks using three financial measure profitability, liquidity and market value. Also to analyze the 3-year pre and 3-year post merger financial performance of the merged financial institution in Pakistan in the past years. ?The aim of the study is to identify that does merger and acquisition improve the financial performance of the merged banks after merger. ?The financial performance of the NIB bank limited improves after the merger. LIMITATIONS/DELIMITATION: There are certain limitations and weaknesses of this research study. The main limitation of this study is I take only one sample bank to measure the financial performance after the merger because of the non- availability of inancial data before 2003 of other banks. The data before 2003 is not available on internet and Karachi stock exchange which are the utmost sources of information regarding financial data. Another limitation is that it only talk about the diversification effects of banks mergers and acquisition and it totally ignores the others factors of the economy. Although this study explains the financial performance of the banks efficiency but it did not covers the other effects of merger in banking sector like interest spread. SCOPE OF THE STUDY:
The scope of this research is that In today’s globalize economy merger and acquisition are being used as a significance around the world over for improving competiveness of companies and banks through gaining greater market share, broadening the portfolio to reduce business risk, for entering new markets and geographies and capitalizing on economies of scale etc. This study explains how merger improves the financial position of the bank but in the case of NIB bank limited it is failed to improve its performance after the merger. LITERATURE REVIEW:
Like the other sectors quite enough literature is present on the mergers and acquisition in banking sector. In order to study the diversification effect of Mergers on merged banks profitability or failure. I have reviewed the past era researches related to the topic. I have done the literature review of the different research article in order to analyze & extract the prolific results. (marcia milon cornett, 1992) talked about the post-merger and acquisition on the performance of merge banks between 1982 and 1987. They do the analysis through correlation technique.
The whole research showed that the merged banks outperform the banking industry. it is showing that market participants are able to identify in advance performance associated with bank acquisition and their better performance appears to result from improvement in the ability to attract loans, deposits, in employee productivity and in profitability asset growth. (Yener Altunbas, 2008) have discussed the impact of strategic similarities between bidders and targets on post-merger financial performance. They do the empirical analysis by using extensive sample of individual bank merger.
In this article they do the hierarchical regression analysis and correlation matrix of the impact on change in performance of strategic and other control variable. The descriptive and inferential statistics showed that on average bank mergers have resulted in improved performance and they also find that there are improvements in performance after the merger has taken place particularly in the case of cross border mergers. In terms of the impact of strategic relatedness on performance, the overall results showed that broad similarities among merging partners were conductive to an improved performance. morris knapp, 2005) have examine the post-merger performance of bank holding companies they take the sample of merging companies from 1987-1998. This paper shows the results of material merger between bank holding companies. The (BHC) experience post-merger profitability below the industry average. The most important causes of the poor post-merger performance are credit quality and the inadequate generation of free income. The controllability of these items demonstrates the management challenge associated with a material merger. A. rhoades, 1993) This study conducts test to determine whether banks involved in horizontal mergers achieve efficiency improvements relative to other firms. The analysis covers 898 banks mergers from 1981 to 1986; efficiency is measured by expense ratio. They indicate that during 1981-1986 horizontal bank mergers did not yield efficiency gains, notably, the findings are based on the mergers believed to be most likely to result in efficiency gains i. e. the acquiring firms are, on average, more efficient than the acquired firms. Dario Focarelli, 2002) In their paper trie (Sufian, 2004)s to find the purpose of merging. They found that Italian deals that consist of purchase of majority of the voting shares of the target appear to result in significant improvement, mainly due to a decrease in bad loans. The profitability was found to be increased in the long run. Merger seeks to improve income from services; return on equity improves because of a decrease in capital. Acquisition aim to restructure the loan portfolio of the acquired bank, improved lending policies result in higher profits. kamaly, 2007)This study shed some light on the direction and determinants of the aggregate M&A activity directed to developing countries in the 1990s. Results indicate that M&As activity embodies a moderate level of inertia, though much less than the one previously estimated for total (FDI). A decrease in international interest rate or an increase in S&P 500 index positively affect M&A indicating the procylical nature of directed to developing countries. Depreciation in the domestic exchanged rate strongly and positively effects M&A .
Finally and interestingly higher level of stock market activity and depth in developing countries decrease the amount of M&A directed to them. (kelnikola, 2005) the purpose of the study is to asses the overall financial performance and value implication of recent merger and acquisition in the Greek banking system. Consistent with the international literature, operating performance results do not provide much evidence of performance gains resulting from bank mergers. Nevertheless, merged banks seem to outperform the group of non-merging banks. The event study approach indicates that mergers create value on a net aggregate basis. Alin Marius Andries, 2011) The purpose of this is to analyze the impact of M&A on the performance of the two categories of banks involved in this operation: the bidder bank and the target bank. This analysis is performed on the case of M&A operations performed during 2001-2009 across central and eastern European banking system. The results showed that the bank acquisition determine the improvement of the level of technical efficiency of the target banks, and the results of the event study shows the fact that bank acquisition do not determine significant changes of the market value of the shares of the bidder bank. Lin, 2005) This study compiled input & output panel data of 46 commercial banks in Taiwan during the period from 1997 to 1999 and used the two –stage method to evaluate the effects of bank mergers on bank efficiency according to lin that banks relating to different cultures can achieve better results from merger regarding cost efficiency in Taiwan. Another finding is that small banks have superior performance than larger banks in Taiwan. (Peristiani, 1997) this paper investigates the post merger performance of acquiring banks that participated in a merger during the period 1980-90.
The evidence suggests that acquirers failed to improve x-efficiency after the merger and acquiring bank achieve moderate improvements in scale efficiency. This paper uses regression analysis and the regression results showed that improvements in post merger performance depend on the ability of the bank to strengthen asset quality. (Soongswang, 2011) This study features the impact of takeovers firm traded on the stock exchanged of Thailand (SET). The three parametric statistics tests were used for significance of the means.
The findings showed that takeover results in significant positive returns around the takeover announcement month for the target firm’s shareholders, meanwhile those for the biding firm’s shareholders are positive rather than negative. It is concluded that Thai takeovers results in positive total gains for the event firm’s shareholder. (musleh-ud-din, 2007) This study examines the determinants of interest spread in Pakistan using panel data of 29 banks. The result shows that the share of interest-insensitive deposits in total bank deposits is a key determinant of interest spread.
Furthermore, the ongoing merger wave in the banking industry will limit the options for the savers. We argue that to maintain a reasonably competitive environment, merger proposals may be subjected to review by an anti-trust authority. (Kalhoefer, 2009) This research is based on Egyptian banks which have faced M&A during the era of 2002-07. They calculated companies return on equity in order to the level of progress and success of banking reforms. Their analysis suggested an increase in the performance when companies are compared with the pre-merger performance.
It is concluded that M&A in the Egyptian banking sectors showed a significant improvement and a small positive impact on the credit risk position. (Sufian, 2004) Focused on the efficiency effects of M&A of banks in Malaysia. For this purpose Malaysian commercial banks were taken to analyze the technical efficiencies during the post merger year. Their results proved an overall increase in efficiency in the sample period which is around 95. 9%. they also conclude that merger program was successful in the Malaysian banks.
Although the financial sector especially banks took advantage and got benefits from mergers. (Mantravadi, 2008) Studied pre and post-merger performance in India and target the acquiring firms from diverse sectors and different industries but their major emphasis was on measurement of operating performance of the firms through financial ratios. They select the sample of all the mergers during 1991-2003. The findings of this study did not show much impact in the post merger operating performance of the firm in different industries in India. METHODOLOGY:
In this part of the research will provide you information about what method we use for research, what technique we use to measure or analyze the research etc. Research method can be classified as either qualitative or quantitative. In this kind of study we don’t have much information of the topic so I have gathered data from only quantitative technique in order to get the authentic information about the study. The methodology to be used for this research is only quantitative because it provides information in numerical form that can be easily calculated and analyzed.
The aim of the research is to answer “does merger and acquisition of the banks improves the financial performance”. The research endeavors to examine the effects of merger and acquisition on banks financial performance by using different financial measures. For this purpose, NIB bank limited is chosen as the sample bank for this research. Profitability, liquidity and market value ratios have been considered as the most reliable and efficient ratios to check the financial performance of the banks.
The annual statements of the merged financial banks were analyzed by using the profitability, liquidity and market value measures for pre- and post-merger three years period. SAMPLE BANKS: This research picked a sample of two financial banks that went through merger during the year 2008 in Pakistan. Table-1 shows the acquirer and the acquiree banks selected for the study. NO. OF BANKSACQUIRERACQUIREEDATE OF MERGING 1. NIB BANK LIMITED (NIB)PICIC COMMERCIAL BANK LIMITED (PICIC)01/01/2008 STATISTICAL TECNIQUE USED: The statistical techniques that we used in this research are paired sample t-test.
The measures for the acquirer and the acquiree banks were calculated for the three years pre-merger period and compared with the post-merger three years value by using paired observations (paired sample t-test taking ? =0. 05). The collected data were analyzed using t-statistic with the aids of statistical package for social sciences (SPSS). The t-statistic formula is given as, Where XD is average, SD standard deviation of those differences are used in the equation and n-1 is the degree of freedom. HYPOTHESIS: In order to fulfill the main objective of the study, following hypothesis has been formulated. H0: Merger and acquisition improves the financial performance of NIB bank after merger. ?HA: Merger and acquisition does not improve the financial performance of NIB bank after merger. DATA: This research utilizes secondary sources of data to gather information that provide the researcher authentic information. In order to analyze and calculate the liquidity and profitability performance of the bank, secondary data of (2004-2009) audited balance sheet, income statement, profit and loss a/c statements of NIB bank limited and PICIC commercial bank limited would be used.
DATA COLLECTION TECHNIQUE: To measure the impact of M&A on the financial performance of acquiring banks, the financial data were collected for the three years before and after the acquisition (pre- and post-deal) and a comparison of the ratios was made to determine if a change in performance is present. Financial ratios are the useful indicator of the firm performance and financial health. Most of the ratios are computed by the financial statements (balance sheet, PLS a/c and cash flow statement) of the banks.
Ratios convert these financial statements in such a simple and understandable way that a normal person can easily understand the financial position of that particular bank. As a highly important analytical tool financial ratios help the financial analysts to take decisions in order to improve the liquidity, profitability and market value etc. By using this method the owner of the business can identify the trends good, bad and then adjusts accordingly. In this study following performance indicators have been used: 1.
Liquidity ratios: advance to deposit ratio, deposit to total asset ratio, total equity to total asset ratio. 2. Profitability ratios: ROA (return on assets), ROE (return on equity), ROD (return on deposits). 3. Market value ratios: EPS (earning per share). The techniques for the collection of data in this study are banks financial annual reports, analysis reports audited balance sheet, income statement, profit and loss a/c statements etc. DATA SOURCE: Data has been collected for this study from various websites of banks and sources.
The KSE website helped a lot of things in gathering banks financial data which are not providing by the banks like analysis report, past years of annual reports data etc. The main source of data here is annual reports of NIB bank limited and PICIC commercial bank limited which have been gathered from the banks websites. DATA ANALYSIS: NIB bank limited acquired PICIC commercial bank in January 2008. To assess whether the merger of PICIC commercial bank and NIB bank was a success or otherwise profitability, liquidity and market value are computed which are considered essential to judge the financial performance of any bank (TARAWNEH, 2006) .
With the help of financial data available in audited statements of PICIC commercial bank and NIB bank limited three years accounting ratios have been computed as per formulae before merger (PICIC commercial bank) and after merger (NIB bank limited). The averages of these ratios are shown in following tables. The below given tables are the comparison of ratios before and after merger deal to show the post merger financial health or performance of the bank. BANKBEFORE MERGERAFTER MERGERBEFORE MERGER AFTER MERGER PICIC COMMERCIAL BANK LTDNIB BANK LIMITEDPICIC COMMERCIAL BANK LTDNIB BANK LIMITED
FOR (2004-2006)FOR (2007-2008) FOR (2004-2006)FOR (2007-2008) ADVANCE TO DEPOSIT RATIODEPOSIT TO TOTAL ASSET RATIO PRE-MERGERPOST-MERGER PRE-MERGERPOST-MERGER 58. 60%70. 40%84. 70%65. 90% 62%76. 80%82%58. 40% 59%89. 40%85%45. 10% AVG59. 80%78. 80%83. 90%56. 40% TABLE#2: LIQUIDITY RATIOS COMPARISON SOURCE: (http://www. nibpk. com/, 2012), (www. sbp. org. pk) TABLE#2. 1 BANKBEFORE MERGERAFTER MERGER PICIC COMMERCIAL BANK LTDNIB BANK LIMITED FOR (2004-2006)FOR (2007-2008) TOTAL EQUITY TO TOTAL ASSET RATIOTOTAL EQUITY TO TOTAL ASSET RATIO PRE-MERGERPOST-MERGER 6. 70%12. 70% 6. 20%22. 90% 5. 80%20. 00% AVG6. 20%18. 50%
The above tables clearly indicates the averages of the liquidity ratios of PICIC commercial bank and NIB bank limited for three years pre and post-merger in order to show the average result with regards to the liquidity position of the bank. As we look into the table 2 its average of advance to deposit ratio does not show the stable improvement in pre- merger period of PICIC commercial bank but is shows the significant improvement in the pre merger period for NIB bank by 19% increase in average of advance to deposit ratio. But in deposit to total asset ratio of NIB bank does not shows the improvement as its average decrease by 27. % for post merger period it shows the downturns because of the year of merger well PICIC commercial bank shows improvement in pre merger period of the bank by 83. 90%. In table 2. 1 total equity to total asset ratio indicates that how much the bank have its total asset and total equity in order to utilize it in expanding its operation but it is clearly shows that in pre merger period of PICIC commercial bank are not in improvement position as we see in the post merger period of NIB bank it shows the better improvement after the merger.
So NIB bank shows better result or average than PICIC commercial bank in terms of liquidity. TABLE#3: PROFITABILITY RATIOS COMPARISON BANKBEFORE MERGERAFTER MERGER BEFOR MERGER AFTER MERGER PICIC COMMERCIAL BANK LTDNIB BANK LIMITEDPICIC COMMERCIAL BANK LTDNIB BANK LIMITED FOR (2004-2006)FOR (2007-2008) FOR (2004-2006)FOR (2007-2008) RETURN ON ASSETS (ROA)RETURN ON EQUITY (ROE) PRE-MERGERPOST-MERGER PRE-MERGERPOST-MERGER 1. 73%-0. 19%25. 50%-1. 55% 2. 39%-4. 17%37. 10%-18. 22% 1. 47%0. 33%23. 80%1. 65% AVG1. 86%-1. 34%28. 80%-6. 04% SOURCE: (http://www. ibpk. com/, 2012), (www. sbp. org. pk) TABLE#3. 1 BANKBEFORE MERGERAFTER MERGER PICIC COMMERCIAL BANK LTDNIB BANK LIMITED FOR (2004-2006)FOR (2007-2008) RETURN ON DEPOSIT (ROD)RETURN ON DEPOSIT (ROD) PRE-MERGERPOST-MERGER 2. 03%-0. 41% 2. 81%-7. 14% 1. 62%0. 73% AVG2. 15%-2. 27% After liquidity comparison the profitability comparison of the bank is also an important measure of banks financial position. The ROA, ROE and ROD for PICIC commercial bank and NIB bank for pre- and post-merger three years period are summarized in the tables.
Table 3 indicated stable improvement in ROA in the pre-merger period for PICIC commercial bank as the average of 1. 86% but it doesn’t shows the improvement in post-merger period for NIB bank due to decrease in average of -0. 52% as the return on assets ROA indicates that how much the bank get return on its assets after paying interest and taxes. As the stockholders invest to get a return on their money and this the return on equity ratio tells how well they are doing in an accounting sense. The ROE ratio does not show the improvement in post-merger period for NIB bank as its average is -6. 4% and it shows better improvement in the pre-merger period for PICIC commercial bank as its average is 28. 80%. The return on deposits tells that how much the bank return on its deposits but it shows that it does not make improvement in the post merger period for the NIB bank. The above tables are the clear indication that the banks profitability is better before merger because of the reason that these profitability ratios are in favor of PICIC commercial bank. TABLE#4: MARKET STOCK RATIO COMPARISON BANK BEFORE MERGER AFTER MERGER
PICIC COMMERCIAL BANK LTDNIB BANK LIMITED FOR (2004-2006)FOR (2007-2008) EARNING PER SHARE RATIOEARNING PER SHARE RATIO PRE-MERGERPOST-MERGER 4. 93-0. 15 5. 5-2. 63 3. 540. 17 AVG4. 65-0. 87 SOURCE: (http://www. nibpk. com/, 2012), (www. sbp. org. pk), (www. google. com. pk) The above table clearly indicates the averages of the market value of the stock of the bank. These ratios help the investor in making right investment decisions. The position regarding stock market, the bank was in better condition before merger with NIB bank limited because it shows the decline in average by -0. 7 for the post-merger period that’s why PICIC commercial bank position is better before the merger as its average is 4. 65. T-STATISTICAL ANALYSIS PICIC COMMERCIAL BANK AND NIB BANK Table 5 indicated a significant improvement in the deposit to total asset ratio with p-values are 0. 049 and ? -value is 0. 05 respectively during the post-merger years over the pre-merger years, with standard deviation 11. 0599 and with mean of 27. 43 respectively. The EPS and advance to deposit ratios showed insignificant improvement with p-values are 0. 058 and 0. 081 and ? -value is 0. 5 respectively during the post-merger years over the pre-merger years, with standard deviation 2. 411 and 9. 985 and with mean of 5. 52 and -19. 0 respectively for the PICIC commercial bank and NIB bank limited. The ROA, ROE and ROD ratios showed insignificant improvement with p-values are 0. 198, 0. 078 and 0. 254 and ? -value is 0. 05 respectively during the post-merger years over the pre-merger years, with standard deviation 2. 930, 17. 90 and 4. 845 with mean of 3. 20, 34. 840 and 4. 426 respectively. And the total equity to total asset ratios shows a insignificant improvement with p-values are 0. 63 and ? -value is 0. 05 respectively during the post-merger years over the pre-merger years, with standard deviation 5. 597and with mean of -12. 30 respectively for the PICIC commercial bank and NIB bank limited. TABLE#5: T-STATISTICAL ANALYSIS PICIC COMMERCIAL BANK AND NIB BANK S. NORATIOSMEANS. DS. D ERROR MEANTD. FP-VALUERESULT 1EPS5. 522. 411231. 392123. 9702. 058insignificant 2ADVANCE TO DEPOSIT -19. 09. 985995. 76541-3. 2962. 081insignificant 3DEPOSIT TO TOTAL ASSET 27. 43311. 05996. 385494. 2962. 049significant 4TOTAL EQUITY TO TOTAL ASEST RATIO -12. 05. 597323. 23161-3. 8062. 063insignificant 5RETURN ON ASSETS3. 2062. 930141. 691721. 8962. 198insignificant 6RETURN ON EQUITY34. 84017. 904610. 337243. 3702. 078insignificant 7RETURN ON DEPOSITS4. 4264. 845722. 797681. 5822. 254insignificant CONCLUSION: Merger and acquisition is a phrase when two companies decide to combine their operations, it is a merger. When one company acquires another company, it is an acquisition. The motives behind are economies of scale, economy of scope, increase market share and revenues, taxation, synergy and other diversification.
Due to these reasons banks merged with one another or targeted by acquiring bank. In past few decades a wave of merger and acquisition has been arisen in the developing countries. Pakistan is no difference in this case. Looking at the data of listed companies on Karachi stock exchange (KSE), it is obvious that in 2001 and onwards the M&A have got momentum. The Pakistan banking industry witnessing a growing trend of mergers and acquisition. The banking industry in Pakistan has been transformed from a government dominant sector into a much more active, competitive and profitable industry.
Findings disclosed that the onwards from 2001 the Pakistan banking industry are showing increasing trend in mergers and acquisition. This is because of state bank of Pakistan (abbreviated SBP) instruction to commercial banks whereby there are required to increase their capital to RS. 6 billion by December 2009. Some of the banks in local industry find it difficult to meet the capital requirement by given deadline . equity injection and/or reinvestment of profits are not enough to cover the gap between their existing capital and their required slab of RS. 6 billion.
This scenario leads them seeking opportunity of merger or acquisition to increase their capital to the required level. The main objective of the study was to evaluate the financial performance of the merged financial institution/banks using three financial measures liquidity, profitability and market stock value by using paired sample or observations t-test. These measures are enough to calculate the financial performance or profitability of any financial institution or banks but in this case it is concluded that NIB bank limited does not improve or fail to improve its performance or pull up its profitability after merger.
The hypothesis of this study is rejected because it shows the insignificant improvement in EPS, ROA ROE, total equity to total asset, return on deposit, advance to deposit ratio but it shows the significant improvement in only one ratio that is deposit to total asset ratio and accepting alternative hypothesis that mergers and acquisition does not improve the financial performance of NIB bank. Due to ratio analysis it is proved that the NIB bank limited merger proves to be failure in banking industry.
M&A activities could still be considered and recommended as an option for improving the banks performance.
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Review of Economic and Business Studies , 79-92. Dario Focarelli, F. P. (2002). why do banks merge? Journal of Money, Credit and Banking , 1047-1066. Kalhoefer, A. B. (2009). The Effect of Mergers and Acquisitions in egypt. journal of Management technology , 1-15. kamaly, a. (2007). Trends and Determinants of Mergers and Acquisitions in Developing . international Research Journal of Finance and Economics , 1450-2887. kelnikola, m. &.