UNIVERSITI TEKNIKAL MALAYSIA MELAKA

FACULTY OF TECHNOLOGY MANAGEMENT & TECHNOPRENEURSHIP

MBA
MTKM 5043 ACCOUNTING & FINANCE FOR MANAGERS
SEMESTER I 2021/2022

INDIVIDUAL ASSIGNMENT

CIMB GROUP
MERGER & ACQUISITION

PREPARED FOR:
PROF MADYA DR. MOHAMMED HARIRI BIN BAKRI

PREPARED BY:
NURAKMAL BIN HASSAN (M 062110002)

SUBMISSION DATE: 5 DEC 2021

 TABLE OF CONTENT

No. Content Pages

1.0 Introduction 2-3

2.0 Background of Study

2.1 Literature Review of Bank Merger and Acquisitions 4-5
2.2 Company Background 6-7

3.0 SWOT Analysis

3.1 Strength 8
3.2 Weaknesses 9
3.3 Opportunities 10
3.4 Threats 10-11

4.0 Discussion
4.1 Measuring Financial Performance 12
4.2 Total Deposit 13
4.3 Interest Expense 14
4.4 Total Loans 15
4.5 Interest Income 16
4.6 Non-Performing Loan 17
4.7 Revenue 18
4.8 Shareholders Fund 19
4.9 Tier 1 Capital 20
4.10 Overhead Expense 21
4.11 Profit After Tax 22

5.0 Recommendation 23

6.0 Conclusion 24

7.0 References 25-27

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1.0 Introduction

Due to the dynamic changes in the global environment, the business environment will
become more dynamic by the day. The key element influencing organizational performance is
increased competition. Mergers and acquisitions are a frequent approach for a company to
develop. As part of its expansion strategy, the company will extend its activities both globally
and domestically. As a result of the globalization trend, mergers and acquisitions have been on
the increase over the past decade and are still on the rise. Mergers and acquisitions is an area
of strategy, management, and corporate finance that deals with the acquisition and/or merger
of two or more enterprises. Although the phrases merger and acquisition are used
interchangeably, there is a subtle distinction between them.

When the boards of directors of two companies agree to merge and seek shareholder
approval, it is called a merger. In a simple definition, A merger occurs when two companies
join forces to start a new business with a new name. Because the businesses involved are often
of equivalent size and stature, the term "merger of equals" is occasionally employed. In 1998,
for example, Digital Equipment Corporation and Compaq decided to merge, Compaq acquired
Digital Equipment Corporation. Compaq and Hewlett-Packard combined in 2002. Compaq's
pre-merger ticker symbol was CPQ. This was combined with Hewlett-(HWP) Packard's ticker
symbol to form the current ticker symbol (HPQ).

In a normal acquisition, the acquiring corporation obtains a majority stake in the

acquired firm, which keeps its name and structure of the organization. On the other hand, one
corporation buys a second, often smaller company, which can be integrated into the parent
company or managed as a subsidiary. The target refers to a corporation that is being considered
for a merger or acquisition by another company. The acquisition of John Hancock Financial
Services by Manulife Financial Corporation in 2004 is an example of this type of transaction,
in which both organizations retained their names and organizational structures.

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 Mergers and acquisitions may be the key to breaking into the international market.
Acquiring an existing overseas firm allows a corporation to get its resources, such as expertise,
technology, and people resources, as well as acquire entry to its current foreign exchange
market (Shimizu, 2010). A value strategy is also created through the merger of the acquirer and
the acquired enterprise. Impacts to merger and acquisition news on the stock market are
regularly studied by researchers. However, there have been instances where the stock value has
dropped following the announcement of a merger or acquisition. Mergers and acquisitions will,
in the long run, introduce new management and operation structures that will boost productivity
and competitiveness (Mody, 2010).

The assignment's aim is to conduct a thorough investigation of the organization's

merger and acquisition. I will start with a literature analysis on this issue, then go on to the
background of the firm I have picked. The following step is the topic's study and suggestion,
which includes analysis and measuring the impact on financial performance after merger and
acquisition. Finally, I will draw a line under the conversation by summarizing it.

This case study will give a full explanation of the merger and acquisition process, as
well as post-merger integration, as part of this case study. The period following a merger or
acquisition is critical for the organizations involved since This is the point where culture,
synergy, people, and business all come together. Because of this, this signifies whether CIMB
Group's performance has improved as a result of the merger and acquisitions or not.

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2.0 Background of Study

Globalization, regulatory restrictions, and competitive pressures have all prompted

banking businesses across the world to undergo some type of corporate reorganization. China,
Malaysia, Japan, South Korea, Hong Kong, Indonesia, Singapore, Thailand, and Taiwan have
all had to restructure their banking industry. This is mostly related to the Asian financial crisis
of 1998. (Yusuf & Sheidu, 2015). During this reorganization process, the number of banks has
continuously decreased for a variety of causes, including Failures at times of crisis, national
interstate constraints, promoted consolidation, and mergers of unrelated institutions (Broome
& Markham, 1999). Mergers and consolidation have been viewed as a successful strategy to
resuscitate failing banks and stabilize their financial capabilities over the years as a result of
the restructuring process (Kowalik, Davig, Morris, & Regehr, 2015).

2.1 Literature Review of Bank Merger and Acquisition

According to Ong and Ng (2013), a merger is a collaboration of two or more distinct

entities having an economic motivation and a specified goal. Whereas Weinberg and Blank
(1979) define a merger as "the investment of two large assets of two independent
corporations," When two or more financial institutions join, it is critical that the newly merged
company's name be put, reformatted, or maintained for both firms. Furthermore, the
acquisition bank would not only manage the resources of the selected bank. but will also be
accountable for their obligations (Srivastava, 2016). The acquisitions, according to Manne
(1965), is a transition phase where a firm with statutory authority over another executes its
power to take over the business activities of the other company. It often occurs only when the
acquirer purchases a targeted firm's assets or shares. As a result, the acquirer assumes the
direction of the takeover process. When the transfer is complete, the targeted firm will no
longer exist as a separate entity. According to Berger, Demsetz, and Strahan (1999), Mishkin
(1999), financial service integration is the process of combining financial services from
various financial firms. According to Gelos and Roldo (2013), key drivers for financial
industry mergers are industrialization, technological breakthroughs, and regulation. The
absence of data and accessibility, as well as merge variations in policy requirements, customs,
as well as ownership structures, are among the difficulties impeding banking and finance
mergers among financial institutions based on the rapidly increasing banking industry (Jin &
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Myers, 2006). According to Gelos and Roldo (2004), a major factor of the growing market
merging process is government-led reform and foreign bank entry.

Furthermore, Berger and Humphrey (1991) show how after combining and
consolidating, the insufficient value of the design problem may be solved. Whenever one
institution combines with the other, it expands the firm's size and improves the economics of
high output. According to Pahuja and Samridhi’s (2016) research, before merging and
consolidating, many financial organizations (such as banks) first determine their key goal for
the merging activity. Following that, they employ the most appropriate technique to attain
their primary goal. According to Singh and Kohli (2006), many financial institutions use
strategic methods to analyze the firm’s financial performance following the initial merger.
Samridhi (2016) observed that when banks combine, they trade companies are engaged with
each other in the order to have a better understanding of culture. Good interaction and
communication with investors, employees, and bondholders are necessary for a successful
merger and consolidation (Raquib, Musif & Mohamed, 2003). Aside from that, the company's
administration should be prepared to cope with future pluralism. Furthermore, transparency
of information is a vital component in forming relationships between stakeholders (Pautler,
2001).

Mergers and acquisitions contain various characteristics, according to Pahuja and

Samridhi (2016) and Gachanja (2013). It stated that mergers and acquisitions are classified
into four types: vertical mergers, conglomerate mergers, horizontal mergers, and co-generic
mergers. Mergers and acquisitions have provided one of the chances to capitalize on and
develop the bank. Banks engage in merger and acquisition activities in order to increase their
strength in order to survive in a competitive (Nikolova, Rana & Jayasooriya, 2010). Mergers
are key components in the banking business today in order to survive corporate restructuring.
Furthermore, Berger and Humphrey (1991) show that mergers and acquisitions can solve the
target's insufficient value issue. Whenever one banks combines with the other, the size of the
operation and the economics of large-scale production rise, according to Nikolova, Rana, and
Jayasooriya (2010). Furthermore, mergers and acquisitions might eliminate the need for
repetitive processes such as accounting, purchasing, marketing, and production.

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2.2 Company Background

CIMB Group is the company I picked for the case study. Commerce International
Merchant Bankers Berhad is another name for CIMB Group.CIMB Group, headquartered in
Kuala Lumpur and formed in 1974, runs a well-established commercial bank, a larger global
bank, and an Islamic bank, employing 16,699 people since about June 2019. CIMB Group is
Malaysia's second-largest regional bank and a commercial bank. It has been one of Southeast
’s top banking industry. Their mission statement is "To Be South East Asia's Most Valuable
Universal Bank" (CIMB Group, 2010).

The origin of this merging firm is intricate, but chronologically, there are two
significant companies that play a vital part in developing CIMB Group. Those entities are
Southern Bank Berhad (SBB) and Bumiputra Commerce Holdings Berhad (BCHB). These
important historical events are as follows:

1965
Southern Banking Ltd. is the precursor to Southern Bank Berhad (SBB). It began
operations in Penang and has since expanded into other states. Simultaneously, the Bank
Bumiputera Malaysia Berhad (BBMB) was established (CIMB Group, 2010). It was
extensively developed up to 1979, having bank infrastructure and activities ranging from
metropolitan to remote areas. This was the first bank in Malaysia that implement their
MEPS/ATM technology, which is still in use today.

1970 - 2000
Several distinct merging banks and other notable actions occur around the 30-year
mark. United Asian Bank Berhad (UAB) was created in 1972 by the merger of Indian Bank
Ltd, United Commercial Bank Ltd, and Indian Overseas Bank Ltd. Pertanian Baring Sanwa
Multinational Berhad (PBS) was established in 1974. While Bank of Commerce Berhad
assumed control of PBS in 1986, the company was renamed Commerce International
Merchant Bankers Berhad (CIMB) (CIMB Group, 2010).

In November 1991, Bank of Commerce Berhad combined together United Asian Bank
Berhad to become Commerce-Asset Holdings Berhad (CAHB). Malaysia was badly damaged
by the Asian Economic Crisis in 1997, and then in October 1999, Bank Bumiputera Malaysia
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Berhad and Bank of Commerce combined to form Bumiputra-Commerce Bank (BCB), that
is managed by Commerce-Asset Holdings Berhad. They have formed the largest merger in
Banking industry history (CIMB Group, 2010).

2000 - 2005
CIMB has been fully engaged in the finance industry from the year 2000. In January
2003, CIMB Berhad successfully listed on the Bursa Saham Kuala Lumpur (BSKL), as well
as founding CIMB Islamic (CIMB Group, 2010). Additionally, in 2004, CIMB acquired 70%
of CTB and CAFM from BCHB. It then was merged to form CIMB-Principal Asset
Management Berhad (CPAM). In June 2005, CIMB also acquired Bumiputra-Commerce
Group and G.K. Goh Securities Pte Ltd from Commerce-Asset Holdings Berhad. As a result,
Commerce-Asset Holdings Berhad was called Bumiputra-Commerce Holdings Berhad
(BCHB) (CIMB Group, 2010).

2006 - 2008
Following the purchase of many banks and its listing in Bursa Saham Kuala Lumpur,
CIMB Group has stabilised its operations and completed the transformation effort under
Bumiputera-Commerce Holdings Berhad. The Board of Directors of Southern Bank Berhad
decided in March 2006 to be acquired by Bumiputera-Commerce Holdings Berhad, a
subsidiary of the CIMB Group. By integrating consumer banking, Islamic banking and
investment banking, the experience of Bank of Commerce Bank, and the adaptability of
Southern Bank Berhad, CIMB Group was capable of creating an influence mostly on
Malaysian banking landscape (CIMB Group, 2010). It's also currently perceived as an
important financial institution. CIMB Group is ready to begin operations as establish itself
with a top scale, in accordance with the company's slogan, "To Be South East Asia's Most
Valuable Universal Bank."

CIMB was capable of making a decision to invest inside the Bank of Yingkou, China,
and launch CIMB-Principal Islamic Asset Management in 2008. In addition, CIMB Group
has bought BankThai (CIMB Group, 2010).

2009 and Present

CIMB Group was one of the most prominent firms of Malaysia's financial sector since
2009. CIMB, CIMB BANK, and CIMB ISLAMIC are the three principal sub-brands of the
7
 CIMB Group. The CIMB Group can meet the needs of its customers in a number of ways.
Despite this, the CIMB Group continues to thrive and do business not just in Malaysia, but
also in other nations.

3.0 SWOT Analysis of CIMB Group

3.1 Strengths
The CIMB Group is Malaysia's foremost financial company. It was one of Southeast
Asia's top global banking businesses. Furthermore, as of 30 June 2010, they were the third-
largest firm on the Bursa Malaysia, with a market capitalization of RM49.4 billion. In general,
the CIMB Group provides a comprehensive variety of financial goods and services, ranging
from corporate and investment banking to insurance, asset management, treasury, and client
banking. Besides, CIMB Group has a large customer base of about 7 million customers in
over 14 countries.CIMB has also diversified its banking services into three key branded units:
CIMB bank, CIMB investment bank, and CIMB Islamic. Clients can now choose between
traditional and Islamic banking. CIMB employs 40,000 people in total, covering around 83
percent of ASEAN's population and contributing to 89 percent of ASEAN's GDP; with 1080
outlets globally, CIMB is the largest in the Southeast Asia region.

The CIMB Group's business mix is diversified. CIMB Bank Labuan, for example, is a
corporation which offers Islamic, investment and private banking products and services for
customers all over the world. They offer foreign exchange, wealth management, fund
management services, insurance good and services and asset management. Aside from that,
CIMB Bank is a multinational corporation with a wide range of business concepts, including
Securities International and CIMB Thai.

In detail, CIMB Investment Bank Berhad has unrivaled strength in product-market

expertise, transaction execution competence, and high-quality strategic advice putting it at
the forefront of Malaysia's and Southeast Asia's corporate advising, debt capital markets, and
equity. Moreover, CIMB Islamic Bank Berhad provides Islamic goods and services that
closely follow to Shariah principles, as guided by the CIMB Islamic Shariah committee,
which is comprised of a global highest Islamic expert. In addition, CIMB are considered also
as leading nation in Islamic financial markets. CIMB is one of the world's leading advertisers
8
of Islamic bonds, or Sukuk, according to Bloomberg statistics. The bonds are intended to
avoid interest expenses, that are forbidden according Shariah Islamic regulations in Islam.

3.2 Weaknesses
Despite the fact that CIMB has multiple branches in the area, many consumers are
dissatisfied with their staff’s customer service. The bank's advice to consumers gives
erroneous and inaccurate information, which leads to misunderstanding of financial services
and various hassles for the two parties. Furthermore, CIMB admittance employees with little
expertise and knowledge were allocated for give consumers with guidance and information.
This may lead to a variety of issues, including deceiving consumers into risky investments,
improper use of bank services, and even personal injury. Because there are numerous clients
and just a few counters, the wait time at the customer service counter is considerable. Many
people lose time and opportunities to invest because CIMB offers to invest in goods and
services. Customers have access to 2100 ATM machines across the country to assist them in
dealing with the problem of running out of cash, however, the breakdown costs from these
devices are rising continuously, and also the system connected to these machines is frequently
down, preventing the information from the ATM card from being read.

The CIMB Group has a problem with third-party supervision. All CIMB Group
insurance and Takaful joint ventures, along with Bank Assurance Development, were
overseen by the Insurance and Takaful Group. Since the insurance and Takaful were handled
by a third party, the corporation became vulnerable, and this issue would affect all CIMB
bank locations.

Overall, CIMB coverage in a large number of nations propels them to greater levels
internationally. Despite their high position, CIMB Bank's central firm is located in Malaysia,
where very few and more capabilities are necessary to monitor the bank's global operations.
Furthermore, in Malaysia, experienced and professional labour forces are becoming scarce;
as a result, central bank expansion is slowing. Because of Malaysia's poor economic
development, CIMB may be impacted in a variety of ways, including stock price.

CIMB's share price is lower than that of Maybank. CIMB has grown 128 percent in the
last year, closing the gap between the two businesses' market valuations, but there is still a 3
billion difference between the two.
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3.3 Opportunities
In Malaysia, where Muslim’s account for almost 60% of 27 million population, CIMB
Islamic controls a 25% of the Islamic bonds, giving it a share that is double that of its nearest
competitor. Because CIMB Islamic is the bank's best-known branding, CIMB Group's entry
further into worldwide Islamic banking industry will provide a slew of new options. This
business focuses on shari'a advisory, the debt market, and other areas. The CIMB group
organisation in Islamic Banking management has increased need as from financial industry
and a larger client service.

In recent years, the business and household sectors have had significant annual growth
rates. Finance loan and floating personal debt instruments are increasing at such a consistent
annual rate. Despite a drop in business finance demand, loan approval and pay out remain
strong. Those loans are made as from retail, manufacturing, and service sectors. Furthermore,
demand for personal autos and personal loans in the family sector is steadily expanding. The
banking industry as a whole is likely to grow. In other words, CIMB has more opportunities
to expand its company.

CIMB Bank has expanded its financial services to a number of countries, including
Indonesia, Brunei, Myanmar, the United States, Thailand, Bahrain, the United Kingdom,
China, Hong Kong, and Singapore. Because of this, CIMB has the ability to develop its
operations abroad and acquire a competitive advantage over other banks. With the exception
of third-world nations, internet connection is now available practically everywhere in the
world, thanks to fast technological advancements in recent years. The availability of internet
connectivity makes it easier to conduct commercial transactions. As a result, potential
investors in countries where there are no CIMB offices can invest through the CIMB Group's
internet services.

3.4 Threats
Many industries are suffering as a result of the economic slump. There is a recession.
As a result, salary incomes are decreasing, forcing savings to grow. Expenses are lowered,
and bank debts are cut. Finally, when the economy suffers a downturn, banks may suffer as
well.

10
 Many banks compete with CIMB bank, including Maybank, Hong Leong Bank,
AmBank, and others. These rivals frequently employ various techniques in an attempt to
acquire more clients, hence impacting CIMB's primary business. For example, provide a
cheaper interest rate and a waiver of yearly fees. CIMB must also contend with rivals who
provide the same service to clients. CIMB Islamic Bank and Public Bank, for example, both
provide Islamic banking services to their customers. To establish a devoted customer base,
the bank should demonstrate enticing services.

Besides, CIMB must deal with changes in currency exchange rates. Like a banking
institution dealing with currency, CIMB Group must be able to figure out the problem of an
unpredictable currency exchange rate. It's due to the fluctuating foreign currency rate, that is
always determined by the global environment.

Another difficulty that CIMB should deal with which is competition that provides the
same product and service to clients. CIMB Islamic Bank and Public Bank, for example, both
provide Islamic banking to its clients. As a result, consumers are free to choose whichever
product they like. Further from that, there is a potential that CIMB's existing clients will go
to a competitor.

Lastly, due to the economic crisis, international investors' trust is eroding. Because
CIMB may be a victim of the economic slump, investors may be wary of the company's
present ventures. As a consequence of the lack of trust from both domestic and overseas
investors, CIMB's firm suffers.

11
4.0 Discussion

4.1 Measuring Financial Performance

The financial ratios listed below are being used to assess the performance change:

Total Deposits Total client deposits as well as bank and other financial
institution deposits and placements.

Interest Expense The expense spent by a company for borrowing money.

Total Loans The amount of money borrowed that must be repaid.

Interest Income The amount of interest earned within a specified time

period.

Net Non-Performing A loan in which the borrower has defaulted and has not
Loan (NPL) made any scheduled principal or interest payments for an
extended period of time.

Revenue The revenue is generated by the selling of a company's

goods or services.

Shareholders Fund The amount of a company's equity that belongs to its

shareholders.

Tier 1 Capital The fundamental capital held in a company's reserves and

was used to support the business activities of a customer.

Overhead Expense A continuing cost of doing business.

Profit After Tax The amount that remains after all operational and non-
operating expenditures, other liabilities, and taxes have
been paid off by a corporation.

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4.2 Total Deposit

Graph 1: Total Deposit Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 1: Average Annual of Deposits Growth Before (2001 - 2005) and After the
Merger (2006 - 2009)

Based on Graph 1 and Table 1, it is obvious that deposit growth at CIMB Bank before
the merger averaged 5.77% per year, but deposit growth at CIMB Bank post-merger averaged
16.96% per year. Banks earn money by lending the balance of depositors' monies. This money
can then be spent on goods and services before returning to the financial system as a deposit
in another bank, which can then lend part of it. When compared to an FTP curve, they generate
more spread revenue. They earn more money through service charges on deposit accounts
(SCDAs). They reduce credit risk since lenders are not under undue pressure to pursue higher
rate/greater risk credits in order to maintain the bank's Net Interest Margin. In the conclusion,
CIMB shows a positive result of the total deposit after the merger.

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4.3 Interest Expense

Graph 2: Interest Expense Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 2: Average Annual of Interest Expense Growth Before (2001 - 2005) and After the
Merger (2006 - 2009)

Interest expense is crucial since it may considerably reduce a company's profitability if

it is excessively high. Increases in interest rates may be detrimental to businesses, particularly
those with many or bigger loans. Interest rate rises have the greatest impact on businesses
with the most assets. According to Graph 2 and Table 2, pre-merger CIMB Bank interest
expense increase averaged 2.76 percent per year, whereas post-merger CIMB Bank interest
expense growth averaged 2.18 percent per year. That explains that CIMB Bank deposits are
increasing three times faster than before the merger, while the cost of obtaining bank capital
of interest costs was already decreased, resulting in lower average growth. As a result, CIMB
Bank is getting deposits faster and at a reduced cost.

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4.4 Total Loans

Graph 3: Total Loans Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 3: Average Annual of Loan Growth Before (2001 - 2005) and After the
Merger (2006 - 2009)

According to Graph 3 and Table 3, loans have grown consistently at a pace of 7.76
percent per year during the before and after the merger periods. This indicates that loans are
rising at a consistent rate, but with a much higher penetration return from these better loans.
This clearly demonstrates that CIMB has achieved positive outcomes in terms of total loans
following the merger.

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4.5 Interest Income

Graph 4: Interest Income Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 4: Differences in Average of Interest Income Before (2001 - 2005) and After the
Merger (2006 - 2009)

The interest gained on funds temporarily kept in savings accounts, certificates of

deposit, or other assets is referred to as interest income. According to Graph 4 and Table 4,
interest income earned prior to the merger averaged RM5.13 billion per year, whereas interest
income earned after the merger averaged RM6.85 billion per year. This equates to an RM1.7
billion difference in average annual interest earned income before and after the merger, or a
34% increase in average interest revenue produced. This obviously demonstrates that CIMB
has achieved favourable outcomes in terms of interest income following the merger.

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 4.6 Non-Performing Loan

Graph 5: Non-Performing Loan Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 5: Differences in Average of Non-Performing Loan Before (2001 - 2005) and After the
Merger (2006 - 2009)

Non-performing loans are a reality of life for banks since people losing their jobs and
businesses going bankrupt are regrettably common occurrences. However, they always incur
expenses for the bank, thus banks must maintain the number of bad loans to a minimum. Non-
performing loans on the balance sheet have also fallen by 51% when comparing the average
non-performing loans of RM6.4 billion before the merger to the average non-performing
loans of RM3.1 billion after the merger, as shown in Graph 5 and Table 5. This suggests that
the credit quality of CIMB Bank's balance-sheet assets is increasing and delivering a higher
return. This clearly shows that CIMB has positive results after the merger in the aspect of
non-performing loans.

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4.7 Revenue

Graph 6: Revenue Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 6: Average Annual of Revenue Growth Before (2001 - 2005) and After the Merger
(2006 - 2009)

A corporation's revenue is the money it earns through the sale of its goods and services.
Cash flow is defined as the net amount of cash transferred into and out of a firm. Revenue
represents a company's sales and marketing success, whereas cash flow gauges liquidity. As
seen in Graph 6 and Table 6, revenue grew at an average rate of 4.02% per year previous to
the merger, but it grew at a rate of 9.06% per year after the merger, more than doubling its
performance prior to the merger and acquisition. This clearly shows that CIMB has positive
results after the merger in the aspect of revenue.

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4.8 Shareholders Fund

Graph 7: Shareholders Fund Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 7: Average Annual of Shareholders Fund Growth Before (2001 - 2005) and After the
Merger (2006 - 2009)

The declaration of shareholders' funds assists the company in planning how to distribute
its profits. A corporation must make judgments about how much of its profits will be retained
earnings and how much will be delivered to shareholders upfront. As indicated in Graph 7
and Table 7, the average yearly increase of shareholder funds following the merger has also
been doubled. The average annual growth of the shareholder’s fund prior to the merger was
8.82 percent, but it has increased to 17.58 percent post-merger, nearly double the pre-merger
performance. This clearly shows that CIMB has positive results after the merger in the aspect
of shareholder’s fund.

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4.9 Tier 1 Capital

Graph 8: Tier 1 Capital Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 8: Average Annual of Tier 1 Capital Before (2001 - 2005) and After the
Merger (2006 - 2009)

Tier 1 capital is the most powerful type of capital, and it consists of shareholder stock,
stated reserves, and certain other revenue. Banks must retain Tier 1 capital equal to 6% of
their risk-weighted assets under Basel III rules. This enables them to withstand unexpected
losses while continuing to operate as a going concern. Graph 8 and Table 8 illustrate that
CIMB Bank's Tier 1 capital has increased from 9.21 percent pre-merger to 10.76 percent post-
merger. This clearly shows that CIMB has positive results after the merger in the aspect of
Tier 1 capital.

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4.10 Overhead Expense

Graph 9: Overhead Expense Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 9: Differences in Average Annual of Overhead Expense Before (2001 - 2005) and
After the Merger (2006 - 2009)

In terms of overhead expenditure control, as demonstrated in Graph 9 and Table 9, the

average overhead cost after the merger has increased by just 66% about RM 1.1 billion when
compared to the average overhead cost before the merger. Because CIMB Bank has been
expanding its abroad offices and adding new employees, the growth in overhead expenses
has remained quite moderate. And the consequence of paying this overhead cost has evolved
CIMB Bank into the ASEAN bank with the largest branch network, as well as one of the
banks with market-leading technology servicing clients across ASEAN. This clearly shows
that CIMB has positive results after the merger in the aspect of overhead expense.

21
4.11 Profit After Tax

Graph 10: Profit After Tax Before (2001 - 2005) and After the Merger (2006 - 2009)

Table 10: Differences in Average Annual of Profit After Tax Before (2001 - 2005) and After
the Merger (2006 - 2009)

Profit After Tax is an essential metric of a corporation since it reflects the real amount
that a firm makes during the fiscal year. It displays the company's costs and cash earnings,
which affects operational efficiency and performance. Analysts frequently analyse the health
of firms by comparing earnings after tax of companies in the same market category. This
figure is also utilized in other ratios and complex formulae, such as the profit-after-tax margin,
to provide a more objective and complete view of the firm. It is crucial in demonstrating a
company's ability to convert sales into profits. According to Graph 10 and Table 10, profit
after tax increased by an average of 146 percent four years following the merger. This clearly
shows that CIMB has positive results after the merger in the aspect of profit after tax.

22
5.0 Recommendations

Based on this case study, it is suggested that CIMB Group should examine their policies
and processes if they wish to do another merger and acquisition. It is also suggested to CIMB
Group that they must examine the risks associated with financial performance and create an
appropriate framework for future merger and acquisition agreements.

Besides, CIMB Group should expand its market power so that it acquires greater
dominance and becomes more robust in the business. As a result of the merger, there will be
more prospects for growth because it will cover a greater variety of sectors (banking,
investment, securities). Profitability, size, and productivity will all improve when a firm
expands in this sector.

Because mergers are motivated by the goal to broaden the customer base for services,
CIMB must deliver the finest service possible to customers. Mergers such as CIMB must be
prepared to grant money to large firms because it has more sustainability, which is why a bank
can survive since it has diverse revenue and funding.

Furthermore, CIMB Group should benefit from the purchased firm. The acquisition's
purpose is to gain a competitive advantage over the other company. For example, CIMB and
Bank Thai may learn about Thai culture and transactional practices. As a consequence, CIMB
will obtain new abilities and discover the business practises of their competitors, giving them
a competitive advantage.

Finally, when confronted with a convincing circumstance, organizations are

periodically obliged to merge. The economy has a large impact on this. For example, when the
economy is in a slump and small businesses are struggling to stay afloat, larger companies will
gain a competitive advantage by merger with it. Except if the speciality firm has a defence plan
or another option, that's one of the company's survival possibilities. From the perspective of a
huge organization like CIMB, there should be a chance to buy such little enterprises.

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5.0 Conclusions

The primary goal of this case study is to assess the financial success of the CIMB Group
merger and acquisition. Much research, according to the literature analysis, has demonstrated
that not all mergers and acquisitions effectively attained the targeted goal and that other
mergers and acquisitions failed terribly. In this scenario, a qualitative technique is being used
to examine the financial performance of the CIMB Group following the merger. The case study
results reveal that there is a considerable difference in CIMB Group's financial performance
before and after mergers and acquisitions. This signifies that CIMB Group's performance has
improved as a result of the merger and acquisitions. Profitability, efficiency, and liquidity are
all improving.

Financially, the merger has propelled CIMB to the top of Malaysian banks in terms of
sales and customer loyalty, whether through the inherited portfolio or new customers lured
towards the newer CIMB name.

Diversification, urgency, reduced competition and growth, expansion, and receiving an

advantage from the acquired business are the key objectives for CIMB Group's engagement in
the merger and acquisitions process. As previously stated, CIMB Group is focused on acquiring
a competitive advantage and launching its strategy ahead of its competitors. In this globalizing
era, CIMB Group's strategy has been merger & acquisition.

Presently, the CIMB Group is a pioneer in involving consumers via digital media
platforms such as Twitter and Facebook, and also has is among Malaysia's most popular winner
mobile banking platforms. CIMB Group is presently one of its top 5 banks in ASEAN and the
largest financial bank in Asia Pacific, performing a tremendous number of transactions on a
daily basis using an advanced payroll system. In order to better serve its ASEAN clients, CIMB
announced a RM1.1 billion 1Platform regional core banking effort in 2010.

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