PRESENTATION ON SUMMER PROJECT REPORT

IMPACT OF MERGERS AND ACQUISITION TO BANK PERFORMANCE

By Mina Kumari Tharu
 ACKNOWLEDGEMENT

First of all I would like to express my special thanks to Shreebas Adhikari sir who guided
me to prepare this report and presentation and also for his timely valuable direction. I also
would like to express thanks to my classmates who also helped me to prepare this
presentation.
 INTRODUCTION

 Merger refers to two companies joining (usually through the exchange of shares) to
become one.
 Acquisition refers to process of buying, purchasing the assets or shares of another
company by paying cash, stock or other assets value to the seller.
 According to Frier, Ross, Wester field, & Jordan, 2004 “A merger is the complete
absorption of one company by another, wherein the acquiring firm retains its identity
and the required firm ceases to exist as a separate entity.”
 Objectives Of The Study
 To study the impact of merger on profitability of Prabhu Bank before and after merger.
 To demonstrate the effect of merger on liquidity and leverage position of Prabhu Bank
before and after merger.
 To investigate the influence of merger on management efficiency of Prabhu Bank
before and after merger.
 Limitation Of The Study
 The kist Bank has turned into Prabhu Bank just eight years ago, so there is no
availability of sufficient data to conduct an extensive and more informative report.
 This report has not used complex statistical tools such as regression, correlation etc.
 The study is only based on one commercial bank that has gone through merge process
out of 20 commercial banks that have conducted M&A activity.
 Research Methods used for data collection and analysis

Research
 Design
Descriptive Research design is used to conducting research as it seeks to
accumulate facts and provides a basic picturesque of financial position of the
banks going in for M&A.

Population and Sample

Convenience Sampling technique has been used to select the sample firms
for the study.
Sources
 of Data
The Secondary data has been used, which was collected from a wide array of
research papers, capital market, article from national newspaper, and bank
supervision report by Nepal Rastra Bank.
 Data Processing Technique
1. Tabulation and Diagrammatic Representation of data
Various diagram such as bar diagram, line chart, etc have been used to give vivid
presentation of data.

2. Statistical and Financial Tools

Some of the major financial ratios used for data analysis are Capital
Adequacy Ratio, Core Capital Ratio, Return On Equity, Return On Assets, Net Profit
Margin, Assets Utilization Ratio, Loan to deposit Ratio, Cash and Equivalent to Total
Deposit Ratio, Cash Reserve Ratio, Debt to Equity Ratio, Debt to Asset Ratio and Non
Performing Loan Ratio.
 Findings
 Prior to merger, Kist bank had maintain Core Capital Ratio higher than the minimum
requirement set by the Nepal Rastra Bank, however, the bank has failed to maintain
minimum Capital Adequacy Ratio of 11 percent in the FY 2013/14. Nevertheless, after
merger Prabhu Bank has maintain both CCR and CAR above the minimum requirement
set by Nepal Rastra Bank.
 Kist Bank suffered heavy losses in FY 2012/13 and FY 2013/14. The negative ROE, NPM,
and ROA of Kist Bank reveals that the bank is suffering financially, which eventually led
to its bankruptcy. After merger with Prabhu Bank, the ROE, NPM, and ROA gradually
recovered.
 Non-Performing Loan is actually bad loans for bank that adds risk to bank. High non-
performing loan symbolizes that bank is not utilizing its deposit in good loans. Kist bank
eventually plunged to bankruptcy due to burgeoning non-performing loan. After merger
with Prabhu Bank, Prabhu Bank managed to dwindle high Nonperforming loan in the
latter years.
 Kist Bank in its years of collapse was struggling to maintain liquidity. The low CETDR
reflects that bank has failed to maintain enough liquidity ensuing the drastic situation
of bank panic. Kist bank in its year of collapse maintained CETDR
 Conclusion
 Financial performance of the merged bank has been analyzed on the basis of
profitability performance, liquidity performance, credit performance, capital base and
leverage position.
 The pre-merger scenario of Kist Bank was not satisfactory as Kist Bank during 2013/14
was deemed to be the period of apex upheaval, as Kist Bank failed to maintain Capital
Adequacy Ratio with shortfall of 2.32% points.
 The profitability position before merger was critical level during 2012 and 2013 with
negative ROA, ROE and NPM prior to merger (in FY 2012/13 and FY 2013/14) the bank
has been struggling to maintain the adequate liquidity.
 The diminishing Cash and Equivalent to Total Deposit Ratio and Cash Reserve Ratio the
bank was in short of cash and possibly ensuing bank run. Similarly, credit performance
measured by Non-Performing Loan to Total Loan and Advances Ratio is higher during
pre-merger period of study. This indicates the bank has been struggling to recover the
loans. Likewise, leverage ratios namely Debt Asset Ratio and Debt Equity Ratio was
studied. The debt to asset ratio prior to merger was measured at 9.36 and 9.46 in terms
of asset base of 10 (0.936 and 0.946 in terms of 1) in FY 2012/13 and FY 2013/14
respectively. This high debt to asset ratio eventually led to bankruptcy.
THANK YOU!