Critical Analysis

On

Merger and Its Impact on Financial

Performance of Commercial Banks in Nepal

By

Niraj Chataut

Supervised By

Prof. Dr. Ram Chandra Paudel

Department Of Management

Masters of Philosophy in Management

Far-Western University

Mahendranagar, Kanchanpur, Nepal

Abstract

Mergers and acquisitions (M&A) are common in the banking business as a strategic move to
obtain a competitive advantage, increase market share, and boost financial performance. The
purpose of this critical evaluation is to examine the impact of mergers on the financial
performance of Nepalese commercial banks. This review investigates the causes driving bank
mergers, the financial performance metrics used to analyze the impact of mergers, and the
overall consequences for Nepal's banking industry by evaluating current research and empirical
studies. The findings illustrate both the good and negative effects of mergers on bank
performance, providing policymakers, investors, and bank management with valuable
information.

1. Theoretical Framework

This section provides a theoretical framework outlining the fundamental theories and concepts
associated with bank mergers and their impact on financial performance. Agency theory, market
power theory, efficiency theory, and resource-based approach are among the frameworks.

2. Motives for Bank Mergers

This section investigates the motivations behind bank mergers in Nepal. Synergies, economies of
scale, market entry/expansion, risk diversification, and enhanced efficiency may be among the
motivations. The article critically evaluates empirical evidence and explores the specific
motivations driving bank mergers in Nepal.

3. Indicators of Financial Performance

It is critical to determine the relevant measures in order to assess the impact of mergers on
financial performance. This section explores commonly used financial performance measures,
such as return on assets (ROA), return on equity (ROE), net interest margin (NIM), cost
efficiency, and non-performing loan ratios. The review discusses the advantages and limitations
of these indicators in assessing the impact of mergers.

4. Empirical Studies on Bank Mergers in Nepal

This section provides a comprehensive analysis of empirical studies conducted on bank mergers
in Nepal. The review critically examines the methodologies, data sources, and findings of these
studies. It considers both the short-term and long-term implications of mergers on financial
performance and efficiency.

5. The Benefits of Bank Mergers

This section focuses on the favorable benefits of mergers on the financial performance of
Nepalese commercial banks. It investigates the prospective advantages, such as higher market
share, improved efficiency, economies of scale, and increased competitiveness. The review
evaluates the empirical data supporting these favorable effects critically.

6. The Negative Effects of Bank Mergers

While there are possible advantages, bank mergers can have risks and drawbacks. This section
highlights the negative consequences of mergers, including as increased operating expenses,
integration difficulties, cultural clashes, and potential decreases in consumer satisfaction. The
review reviews empirical data critically and identifies the potential negative effects of bank
mergers in Nepal.

7. Implications for Policy and Future Research

Based on the critical review results, this section discusses policy implications for Nepalese
regulators, investors, and bank management. It provides ways for maximizing the benefits of
bank mergers while mitigating the hazards. It also identifies gaps in the available literature and
suggests future study directions.

8. Conclusion

The conclusion summarizes the key findings of the review and their implications. It reiterates the
impact of mergers on financial performance and emphasizes the need for effective integration
strategies and regulatory oversight in the Nepalese banking industry.

Overall, this critical assessment offers useful insights into the influence of mergers on the
financial performance of Nepalese commercial banks. It explores the factors that influence post-
merger performance and discusses the potential benefits and drawbacks of bank consolidation.
The findings add to the current research on bank mergers and provide direction to Nepal's
policymakers, regulators, and bank management.