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Research Proposal: An Analysis On Financial Performance of CIMB Group Holding Berhad After Merged
Research Proposal: An Analysis On Financial Performance of CIMB Group Holding Berhad After Merged
Research Proposal: An Analysis On Financial Performance of CIMB Group Holding Berhad After Merged
An Analysis on
Financial Performance of
CIMB Group Holding Berhad After Merged
PREPARED BY:
HARYANTI HUSSEN (2009476958)
BBA (HONS) FINANCE
PREPARED FOR:
PM MOHD ZAKI B. ZAKARIA
TABLE OF CONTENT
CHAPTER 1: INTRODUCTION
1.0 Background
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3.2 Methodology
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REFERENCES
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CHAPTER 1
INTRODUCTION
1.0 Introduction
Merger and acquisition activity results in overall benefits to shareholders when the
consolidated post-merger firm is more valuable than the simple sum of the two separate premerger firms. The primary cause of this gain in value is supposed to be the performance
improvement following the merger. The research for post-merger performance gains has
focused on improvements in any one of the following areas such as efficiency improvements,
increased market power, or heightened diversification.
The purpose of the paper is to examine the financial performance of CIMB Bank after
merged and effects of merger on the efficiency of the banks. The study has important
implications such as guiding the government policy regarding deregulation mergers.
Decision-makers hence need to be more cautious in promoting mergers in order to enjoying
efficiency gains.
By the end of the 1970s, Bank Negara Malaysia believed that there were too many
banks in the country compared to its real size. The creation of new banks was not allowed
and the existing banks were encouraged to consolidate. However, the call for bank
consolidation throughout the 80s was not received well by the bankers. Only a few
consolidations took place after the economic decline in 1985-86.In order to minimize the
potential impact of systemic risks on the banking sector as a whole, following the deepening
of the financial crisis, the Government took stronger measurers to promote or in other word is
force merging of banking institutions.
After the Asian financial crisis, the government announced a major consolidation in
1999 that would reduce the number of domestic banking institutions to ten banking groups by
2000. The ten banking groups or anchor banks are Malayan Banking Berhad, RHB Bank
Berhad, Public Bank Berhad, Bumiputra-Commerce Bank Berhad, Multi-Purpose Bank
Berhad, Hong Leong Bank Berhad, Perwira Affin Bank Berhad, Arab- Malaysian Bank
Berhad, Southern Bank Berhad and EON Bank Berhad. Each bank had minimum
shareholders funds of RM2 billion and asset base of at least RM25 billion.
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1.1 Overview of CIMB Bank
For this research, I had choose the CIMB Group which is Malaysia's second largest
financial services provider, and fifth largest in Southeast Asia by total assets. It is owned by
CIMB Group Holdings Berhad, which is listed on Bursa Malaysia with a market capitalization
of RM46.6 billion.
CIMB Group operates as a universal bank offering a full range of financial products
and services, covering corporate and investment banking, consumer banking, treasury,
insurance and asset management. CIMB Group offers products and services on a dual
banking basis, giving customers a choice of both conventional and Islamic solutions.
As a universal bank, it is able to serve everyone from all walks of life in Malaysia as
well as throughout the region, including large regional corporations, domestic listed
companies, entrepreneurial start-ups, high-net worth individuals, pensioners and children.
Today, CIMB serves close to seven million customers in over 600 locations through over
36,000 staff. The overview of CIMB Bank are below:
2005: Commerce Asset Holdings Berhad (CAHB) announced its strategic decision to create
a universal bank by combining its commercial and investment banks. Following this
announcement, Bumiputra-Commerce Group was acquired by CIMB. As part of the exercise,
CAHB was renamed Bumiputra-Commerce Holdings.
2006: In January, CIMB completed its restructuring exercise under Bumiputra-Commerce
Holdings Berhad. The new CIMB Group was known as a universal bank. It made a transition
to a full-service banking provider serving corporates to individuals. Then in March, CIMB
Group acquired SBB after extensive negotiations. After the acquisition, in September CIMB
Group was launched by the Prime Minister of Malaysia, YAB Dato' Seri Abdullah bin Haji
Ahmad badawi
d) Data Availability
Overall, this research relies on the secondary data gain from data stream,
CIMB Bank website itself, UiTM Library, Bursa Malaysia Library, Emerald website
and newspapers in order to gather the information and data.
c) To the student
By doing this research, I will gain so much experience and knowledge in
finishing a mini thesis. I will able to use my knowledge from the previous study
about research methodology, financial statement analysis and so on and
apply them in this research.
CHAPTER 2
LITERATURE REVIEW
2.0 Introduction
This chapter will describe the previous study and literature reviews about impact on
financial performance after get merged such as their positive and negative impacts.
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Positive impacts
The findings of Zhang (1995) on U.S. data contradict those of most abnormal return
studies . Among a sample of 107 mergers taki ng place between 1980 and 1990, the author
finds that mergers led to a significant increase in over all value. Although both merger
partners experienced an increase in share price around the merger announcement, target
shareholders benefitted much more on a percentage basis than the acquiring shareholders.
Cross-sectional results suggest that increases in value were smallest when improved
efficiency and increased market power were expected to have their greatest potential impact.
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Recently, several papers incorporate both approaches in the literature. The first of
these studies is conducted by Cornett and Tehranian (1992) and examines 30 large holding
company mergers occurring between 1982 and 1987. The authors find that profitability, as
measured by cash flo w returns on the market value of assets, improved significantly after
the merger. This finding, however, must be viewed closely for several reasons.
Pilloff (1996), like Cornett and Tehranian, combines both approaches found in the
literature to analyze a sample of 48 mergers of publicly traded banking organizations that
merged between 1982 and 1991. His study improves upon Cornett and Tehranian by
addressing many of the problems in that paper. First, results are based on traditional
measures of performance that are appropriate for a study of banking organizations. Second,
the performance of merging banks is compared to a more accurate benchmark that controls
for geographic location. Third, and perhaps most importantly, the merger sample is larger
with substantially fewer observations that are poorly suited for analysis. Pilloff obtains results
that are consistent with the bulk of the merger literature.
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In general, mergers were not associated with any significant change in performance,
suggesting that managers were unable to generate benefits from deals on average.
Moreover, the mean overall change in shareholder value was also quite small.
Revenue enhancements may result from cross-selling of bank services and the
improved ability to raise fee revenues and lower interest rates on deposits (Houston, James
and Ryngaert, 2001). Mergers can also increase efficiency when larger merged entities
reaches required critical mass to gain access to cost saving technologies or spread fixed
costs over a larger production base. The studies of US banking generally show very little cost
X efficiency improvement on average from bank mergers in the 1980s.
Bank mergers and acquisitions may enable banking firms to benefit from new
business opportunities that have been created by changes in the regulatory and
technological environment. Berger et al. (1999,p 136) pointed the consequences of mergers
and acquisitions, which may lead to changes in efficiency, market power, economies of scale
and scope, availability of services to small customers and payments systems efficiency.
Besides improvement in cost and profit efficiency, mergers and acquisitions could
also lead banks to earn higher profits through the banks market in leveraging loans and
deposit interest rates. Prager and Hannan (1998) found that banks mergers and
acquisitions has resulted in higher banks concentration, which in turn leads to significantly
lower rates on deposits. Some evidence also suggested that U.S. banks that involved in
M&As improved the quality of their outputs in the 1990s in ways that increased costs, but still
improved profit productivity by increasing revenues than costs (Berger and Mester (2003, p
88)).
Bank mergers can increase value by reducing costs or increasing revenues. Cost
reduction may be greater when merging banks have geographic overlap because banks
often claim that overlap elimination can result in cost savings amounting to around 30% of
the targets non-interest expenses 2277 (Houston, James and Ryngaert, 2001). Revenue
enhancements may result from cross-selling of bank services and the improved ability to
raise fee revenues and lower interest rates on deposits (Houston, James and Ryngaert,
2001).
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Bank mergers and acquisitions may enable banking firms to benefit from new
business opportunities that have been created by changes in the regulatory and
technological environment. Berger et al. (1999, p 136) pointed the consequences of
mergers and acquisitions, which may lead to changes in efficiency, market power,
economies of scale and scope, availability of services to small customers and payments
systems efficiency. Prager and Hannan (1998) found that banks mergers and acquisitions
have resulted in higher banks concentration, which in turn leads to significantly lower rates
on deposits.
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CHAPTER 3
RESEARCH METHODOLOGY
3.0 Introduction
This chapter describes the research methodology that used in this research paper. It
is a fundamental that specifies type of information collected, sources of data, data
collection method.
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3.3 Methodology
There are three tools used to analyze the financial performance of CIMB Bank such
as comparative financial statement, common size financial statement and ratio analysis.
3.3.1
3.3.2
3.3.3
Ratio Analysis
According to Dr. Nik Maheran Nik Muhammad (Fundamental of Financial
Statement Analysis) the ratio analysis is a useful way of gaining a snapshot
picture of a company. These ratios can be analyzed to identify the companys
strengths and weaknesses. Besides that, through the process, we can gain
the useful insights. There are four most commonly used groups of ratios such
as liquidity, debt or leverage, activity or turnover and profitability.
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3.3.3.1
Liquidity Ratio
It used to determine a companys ability to pay off its short terms debts
obligation. Usually, the higher the values of the ratio, the larger ability
for the company cover its short term debts. These ratios contain four
of common ratio such as current ratio, quick ratio, net working capital
and operating cash flow ratio. For this research, I will use three of
them.
a) Current Ratio
It is a ratio that measures a companys abilities to pay a short term
liabilities. The higher the current ratio, the better.
Current ratio = Current asset
Current liabilities
b) Quick Ratio
This ratio used to indicate the capability of a company whether it
has enough short term assets to cover its immediate liabilities
without selling inventory or not. The companies with a ratio less
than 1 will unable to pay their current liabilities immediately.
Quick ratio = Current asset Inventories
Current liabilities
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3.3.3.2
Activity Ratio
These ratios measure a companys ability to convert different account
within their balance sheets into cash or sales.
a) Total asset turnover
The total asset turnover ratio measures the ability of a
company to use its assets to generate sales.
TATO = Net sales
Total asset
3.3.3.3
Profitability Ratio
This ratio indicates how well a firm is performing in terms of its ability
to generate profit.
a) Net Profit Margin
Net profit margin indicates how well the company converts
sales into profits after all expenses is subtracted out.
Company's that generate greater profit per dollar of sales are
more efficient.
Net profit Margin = Net income x 100%
Net sales
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b) Return on asset
ROA tells you what earnings were generated from invested
capital (assets).
c) Return on equity
Return
on
equity measures
company's
profitability by
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REFERENCES
Books
Uma Sekaran (2003). Research Methods for Business: A Skill Building Approach (4 th ed).
John Wiley & Sons, Inc, 219.
Zainudin Hj Awang (2009). Research Methodology for Business and Social Science, 59-78.
Nik Maheran Nik Muhammad (2009). Manual book:Financial Statement Analysis
Journals
Allen D & V. Boobal. The Role Of Post-Crisis Bank Mergers In Enhancing Efficiency Gains
And Benefits To The Public In The Context Of A Developing Economy: Evidence From
Malaysia, p2278
Fadzlan Sufian. (2004). The Efficiency Effects Of Bank Mergers And Acquisitions In A
Developing Economy: Evidence From Malaysia. International Journal of Applied
Econometrics and Quantitative Studies. 1-4. p57-59.
Geneva. (2001). The Employment impact of mergers and acquisitions in the banking and
financial services sector. Report from International Labour Organization.
Ruby Ahmad, Mohamed Ariff 7 Michael Skully. (2007). Factors Determining Mergers Of Bank
In Malaysias Banking sector Reform. Multinational Finance Journal. 11
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Tina Weber. The Impact of Mergers and Acquisition in the Banking and Insurance Sectors.
ECOTEC
Elena Carletti, Philipp Hartmann & Steven Ongena. (2007). The Economic Impact of Merger
Control: What is special about banking?
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