IMPACT OF MERGERS AND ACQUISITIONS ON PROFITABILITY POSITION OF NEPALESE COMMERCIAL BANKS

Abstract

The objectives of the study focus on the impact of mergers and acquisitions on the profitability position of selected commercial banks in Nepal. It outlines the significance of merger and acquisitions as a strategy for banks to enhance their competitiveness and financial stability in a rapidly evolving market. The study aims to evaluate the liquidity and profitability of these banks before and after merger and acquisitions, examining various financial metrics such as Return on Assets (ROA), Earnings per Share (EPS), Market Price per Share (MPS), Dividend per Share (DPS), and others. The study takes a seven commercial banks like NMB Bank Ltd., Prabhu Bank Ltd., Bank of Kathmandu Ltd., Nepal Investment Bank Ltd., Nepal Credit and Commerce Bank Ltd., Global IME Bank Ltd. And Prime Commercial Bank Ltd. as a sample bank to find out the existing positions of these banks before and after the merger. The study employs a quantitative approach, utilizing the secondary data from financial reports of the selected banks over a ten-year period, covering five years prior and after the mergers from 2013 to 2023. Key findings indicate that while some banks experienced improvements in certain financial indicators post-merger, others faced challenges such decreased profitability and market confidence. The study highlights the mixed results of mergers and acquisitions on bank performance, emphasizing the need for good consideration of the factors influencing the success of these transactions. For instance, while some banks like Global IME Bank experienced a slight decrease in ROA while other bank like Prime Commercial Bank saw a decline in profitability, EPS also displayed variability. The Price to earnings ratio showed improvements in valuation for certain banks, while Earning Yield increased indicating better earning potential. However, the Non-Performing Loans ratio rose for some institutions, suggesting heightened credit risk, and Net Profit Margin decrease, reflecting challenges in cost management. Furthermore, Return on Equity declined for several banks, signaling lower return on shareholders. Overall, the findings underscore the complex nature of merger and acquisitions outcomes, where the financial performance of merged entities can vary significant, emphasizing the necessity for strategic evaluation and planning in such corporate activities.