Mergers and Acquisitions and Performance of Commercial Banks in Kenya
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Date
2018-11
Authors
Kathali, Thiiru Daniel
Journal Title
Journal ISSN
Volume Title
Publisher
Kenyatta University
Abstract
Commercial banks and other financial sector players have faced a myriad of challenges
ranging from globalization, heightened competition, uncontrolled market and
unfavourable government policy. In Kenya most banks have gone into receivership and
others winding up due to entry of many players into the market and therefore high
competition. This had led to dwindling of profits, returns on assets, reduced investments
and therefore instability. Majority of the commercial banks have cut on their human
resource and branch network all aimed at lean operations. Mergers and acquisitions
among financial institutions have been a common happening in the world Economy. This
has been influenced by the challenges of globalization and fast technological changes and
as a consequence, firms are facing intense competition. To face the challenges and
explore the partial market opportunities, firms are going for inorganic growth through
several strategic alternatives like mergers and acquisitions strategic alliances and joint
ventures. Mergers and acquisitions (M&A) are being increasingly used world over for
improving competitiveness of companies through gaining greater market share,
broadening the portfolio to reduce business risk, for entering new markets and
geographies, and capitalizing on economies of scale not forgetting strategic positioning.
The main objective of this study was to establish the impacts of mergers and acquisitions
on the performance of commercial banks in Kenya. The specific objectives of the study
were; to examine the effect of capital base on performance of mergers of commercial
banks in Kenya, to determine effects of asset quality on mergers and acquisition and
finally, to determine the relationship between liquidity and performance of mergers of
commercial banks in Kenya. The study adopted a descriptive research design. The unit of
observation was the 16 banks that merged or were acquired in Kenya during the study
period of 2000 to 2010 while the unit of analysis was the individual banks‟ annual
financial reports. . The study used secondary sources of data from published and audited
annual reports of accounts for the population of interest, C.B.K., N.S.E., C.M.A., and
bank supervision annual reports from C.B.K. The data was analyzed using SPSS and
computation of financial ratios from the financial statements like the balance sheet, cash
flows, and profit and loss accounts and hence the interpretation of the study model. The
results of the analysis were presented in tables, percentages and graphs. Multiple
regression analysis between variables was also done which showed that the variables
under study were significant in explaining the relationship between the mergers and
acquisitions on the profitability of commercial banks. The study recommends that
institutions having weak capital base consolidate to create synergies so as to enjoy
economies of scale as this will improve their profitability instead of going public by
listing on the Nairobi Stock Exchange as this may be an expensive venture as it requires
much funds for listing and that those firms facing constraints on the market should
consolidate their energies by resorting to merger/acquisition so as to expand their
profitability as the merger/acquisition is not just for the best interest of the managers but
also shareholders as it leads to an increase in shareholders' wealth as opposed to each
independent financial institution. The study recommended further studies to be done on
the effect of mergers and acquisitions on the performance of other sectors like insurance,
manufacturing and ICT.
Description
A Research Project Submitted to the School of Business
In Partial Fulfilment for the Award of the Degree of
Master of Business Administration (Finance) of
Kenyatta University