IMPACT OF MERGER AND ACQUISITION ON THE FINANCIAL PERFORMANCE OF NEPALESE COMMERCIAL BANKS

Abstract

This dissertation examines the immediate impact of mergers and acquisitions (M&A) on the financial performance of selected Nepalese commercial banks, specifically Rastriya Banijya Bank Limited (RBBL), Prabhu Bank Limited (PRVU), and Nabil Bank Limited (NABIL). M&A activities have been increasingly adopted in Nepal’s banking sector as a strategic tool to enhance competitiveness, operational efficiency, and financial stability. Using financial performance indicators such as Return on Equity (ROE), Return on Assets (ROA), Capital Adequacy Ratio (CAR), Profit Margin, and Credit to Deposit (CD) Ratio, this research analyzes quarterly financial data from three quarters before and after each bank’s merger. The methodology involves a comparative analysis of these financial ratios to evaluate pre-merger and post-merger performance. Statistical tools such as mean, standard deviation, t-test, p-value analysis, correlation and regression were employed to assess the significance of changes in financial performance after the merger. The results reveal a significant decline in profitability indicators post-merger, with ROE and Profit Margin showing downward trends. ROA exhibited minor improvements in two of the banks, while CAR showed mixed results. Asset quality worsened in PRVU and NABIL after the merger, suggesting immediate challenges in managing loan portfolios. Despite these challenges, the study found that capital adequacy remained stable, with RBBL showing a notable improvement. The research concludes that while mergers in the Nepalese banking sector offer potential long-term benefits, the immediate effects on profitability and asset quality can be negative. These findings are crucial for policymakers, investors, and bank management in making informed decisions about future M&A strategies and improving integration processes in the post-merger period.