Central Bank Review 23 (2023) 100128

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Central Bank Review

journal homepage: http://www.journals.elsevier.com/central-bank-review/

A comparative analysis of the financial performance of commercial

banks after mergers and acquisitions using Nepalese data
Baburam Adhikari a, *, Marie Kavanagh b, Bonnie Hampson b
a
University of Southern Queensland, Springfield Central Queensland, 4300, Australia
b
School of Business at the University of Southern Queensland, Springfield Central Queensland, 4300, Australia

a r t i c l e i n f o a b s t r a c t

Article history: This article investigates consolidation and restructuring in the banking sector in Nepal that was induced
Received 6 May 2023 by regulatory intervention in recent years. We compare the financial performance of the overall com-
Received in revised form mercial banking sector and selected commercial banks on an individual basis before and after the
29 August 2023
mergers and acquisitions (M&A) policy intervention. The research employs an analysis of the financial
Accepted 14 September 2023
Available online 14 October 2023
ratios (profitability, liquidity, leverage, and wealth of shareholders ratios) before and after mergers that
took place between 2013 and 2020 on a sample of seven Nepalese commercial banks. Hypotheses are
tested using a paired sample t-test to measure any significant difference between the pre- and post-
Keywords:
Mergers and acquisitions
merger situations of the acquiring banks’ financial metrics. The findings indicate that the overall com-
Ratio analysis mercial banking sector significantly improved their liquidity and leverage ratios in the post-merger
Paired t-test period. Other measures, such as the profitability and shareholder wealth ratios showed either mixed
Commercial banks of Nepal or insignificant results after the M&A. The results for selected commercial banks on an individual basis
Pre- and post-comparative analysis were even less conclusive and mixed. While some banks showed improvement in financial ratios, other
results were insignificant.
© 2023 The Authors. Published by Elsevier B.V. on behalf of Central Bank of The Republic of Turkey. This
is an open access article under the CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/
4.0/).

1. Introduction banking sector, putting pressure on commercial banks' credit-to-

deposit (CD) ratios. There had been a tremendous surge in non-
The consolidation of banks and financial institutions (BFIs) performing loans and corporate governance failures in the
through mergers and acquisitions (M&A) has been a new trend in banking sector before the M&A policy. As a result, the central bank
Nepal since early 2010s. After the political reform in 1990, the Nepal Rastra Bank (NRB) enacted the ‘Mergers Bylaws 2011’ to
phenomenal growth of BFIs in a short period resulted in financial ensure financial stability in BFIs and strengthen the financial sec-
instability in the BFIs. The central bank of Nepal (Nepal Rastra Bank) tor's operational efficiency by cutting costs, diversifying risks, and
described the BFIs' functions, tasks, and responsibilities poorly, strengthening their capital base. Table 1 provides an overview of
causing confusion within the sector. All BFIs in Nepal fulfil similar the growth of different BFIs and their types.
functions, mainly collecting deposits and distributing out loans due In the monetary policy report 2015/2016 published in July 2015,
to limited market opportunities and the economy's small size. the NRB directed BFIs to fulfill the minimum new capital require-
Furthermore, an increasing number of unregulated savings and co- ment by mid-July 2017. After these directives, commercial banks
operatives institutions in the cities and regional areas create un- required Nepalese rupees (Rs) 8 billion, up from Rs 2 billion;
healthy financial competition directly or indirectly, which causes a development banks needed Rs 2.5 billion, up from Rs 0.64 billion;
financial vulnerability for the BFIs' stability. The lack of balance and finance companies required Rs 0.8 billion, up from Rs 0.3
between the deposit and loan growth rates gradually started to billion. BFIs that failed to meet the new capital requirement would
cause liquidity shortages and interest rate fluctuations in the face restrictions on opening new branches and declaring dividends
or bonus shares. Following that guidance, the number of develop-
ment banks and finance companies was successfully reduced
through M&A deals among BFIs in accordance with the new capital
* Corresponding author. requirements (see Table 1). However, these deals did not result in a
E-mail addresses: [email protected] (B. Adhikari), Marie.Kavanagh@usq.
substantial reduction in the number of commercial banks imme-
edu.au (M. Kavanagh), [email protected] (B. Hampson).
Peer review under responsibility of the Central Bank of the Republic of Turkey. diately. Nevertheless, according to the NRB Financial Stability

https://doi.org/10.1016/j.cbrev.2023.100128
1303-0701/© 2023 The Authors. Published by Elsevier B.V. on behalf of Central Bank of The Republic of Turkey. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Table 1
Overview of the growth of BFIs.

Types of BFIs and Categories 1995 (July) 2000 (July) 2005 (July) 2010 (July) 2012 (July) 2015 (July) 2018 (July) 2019 (July) 2020 (July) 2023 (July)

Commercial Banks (A) 10 13 17 27 32 30 28 28 27 20

Development Banks (B) 3 7 26 79 88 76 33 29 20 17
Finance Companies (C) 21 45 60 79 69 48 25 23 22 17
Microfinance Institutions (D) 4 7 11 18 24 38 65 90 85 64
Infrastructure Development Banks 1 1 1
Total 38 72 114 203 213 192 151 171 155 119

Source: NRB, Banks, and Financial Institutions Regulations Department

Report of 2020/2021, 229 BFIs had gone through M&A to form 58 the bank's market share (Pesendorfer, 2003). Thus, horizontal
BFIs by the middle of July 2021. On the whole, in the 12 years mergers boost the bank's revenue, eliminate competition, and
following the implementation of the M&A policy, 12 commercial promote a strong presence in the market through the innovation of
banks, 71 development banks, and 62 finance companies have new products and services.
merged with other BFIs. Table 2 shows that the asset share of Different theories are investigated to explain the main motives
commercial banks in BFIs increased due to the M&A of develop- of M&A in the banking sector. Such theories include synergy,
ment banks and finance companies, while the asset share of market and corporate control, and free cash flow. These theories
development banks and finance companies decreased. enhance financial performance after M&A (Mantravadi and Reddy,
Despite previous studies (Adhikari et al., 2023; Shrestha et al., 2008). According to Neary (2007), there are two significant reasons
2017) pointing out the limitations of M&A on the financial perfor- for M&A in business organisations: efficiency gain and strategic
mance of commercial banks, this research fills a gap in the literature. rationale. The efficiency gain is achieved when two firms integrate
This study compares the financial performance of banks in terms of and use their resources jointly. The strategic rationale is achieved
profitability, liquidity, leverage, and wealth of shareholders ratios, through the M&A process, which leads to changes in the structure
highlighting significant differences between the pre- and post-M&A of the combined entity that positively impact the company's prof-
period. It contributes to the existing literature on the effects of M&A itability. Seth (1990) suggests that M&As occur in the financial in-
on financial performance in the banking sector, particularly in dustry due to value-maximising and managerial theories. However,
developing countries. This study's findings provide information the author posits that no clear evidence exists. Most of the past
useful for investors and potential shareholders by demonstrating research in the banking industry produces mixed evidence that
that long-term M&A will increase profitability and wealth for M&A creates value for shareholders. Ayadi et al. (2013) suggest that
shareholders. The results here can help shareholders gain insight M&A results create shareholder value through market power or
into ideal M&A partners well before any negotiations commence. efficiency gain. This view contradicts the findings of Kalra et al.
Policymakers can develop and implement M&A plans to ensure that (2013) and Liargovas and Repousis (2011), whose results suggest
commercial banks participate actively in M&A activities with other that M&A does not create shareholders' wealth. DeYoung et al.
commercial banks. We find that the effect of M&A is significant in (2009) summarise 150 recent studies on M&A in financial in-
the banking industry and is of particular relevance in developing stitutions. The findings show that literature prior to the year 2000
country capital markets for the financial system's stability. suggests that efficiency improved in financial institutions in
Europe, the USA, and North America more broadly. However, event
study literature showed mixed results about the wealth effect on
2. Literature review shareholders. Similarly, post-2000 literature suggests the impact of
M&A on bank performance in the U.S. and Europe has produced
The terms ‘mergers’ and ‘acquisitions’ are interrelated and mixed results on geographic and product diversification and
interchangeable (Sherman and Hart, 2006). However, there are resulted in adverse impacts on depositors, borrowers, and other
some differences between them. In general, the word ‘M&A’ refers external stakeholders (DeYoung et al., 2009).
to the consolidation between companies. Mergers make firms Globally, M&A in the banking industry was most common in
stronger and more competitive, bringing skills, talents, and Europe and the United States before 2000. M&A in the banking
knowledge and establishing their strong presence in the business industry in developed economies resulted in synergy, cost savings,
or corporate world. There are different types of mergers in common risk diversification, efficiency, and profitability in the long run.
practice: horizontal, vertical, and conglomerate (Cartwright and Synergy is an important factor that determines whether the M&A
Schoenberg, 2006; Gauchan, 2011; Weston et al., 2010). In simple between the banks is successful in terms of economic benefit and
terms, horizontal mergers are defined as mergers between two utilisation of resources through innovation of new products and
similar firms operating in the same industry (Gaughan, 2010). It services and increasing the bank's image. All shareholders or in-
involves a merger between two banks with similar products or vestors are interested in the synergy or efficiency created when two
services, technology, and customer bases. Such mergers create banks merge, and their combined efforts perform better in the
synergies between the banks, eliminate competition, and increase

Table 2
Assets share of BFIs.

BFIs % Share as of Mid-July

2013 2014 2015 2016 2017 2018 2019 2020

Commercial Banks 78.20 78.00 78.73 79.74 83.41 82.76 80.88 83.61
Development Banks 13.00 13.60 13.34 12.81 9.71 9.99 10.67 7.83
Finance Companies 6.60 5.80 4.79 3.78 2.63 2.56 2.47 2.40
Microfinance Institutions 2.20 2.60 3.14 3.68 4.26 4.69 5.99 6.16
Total 100 100 100 100 100 100 100 100

Source: NRB Bank Supervision Report 2019/2020

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B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

market than a single bank (Gaughan, 2010). According to the effi- HO1. There is no significant difference in the financial ratios of
ciency theory, when an M&A occurred between two banks, overall commercial banking sector between pre-post-M&A.
shareholders of both banks achieved financial gains. Their value
HO2. There is no significant difference in the financial ratios of
positively contributed to the wealth of the shareholders of the
commercial banks on an individual basis between pre-post-M&A.
combined bank (Adegboyega, 2012). According to the synergy
theory, three types of synergy effects increase the shareholders'
wealth: financial, managerial, and operational synergies (Bradley 3. Research methodology
et al., 1988; Seth et al., 2000). The main source of the operating
synergy is to reduce the combined bank's operating costs. Oper- The data used in this research study is gathered from the annual
ating synergies are generated through combined efforts from reports of various individual banks. In addition, financial data is
economies of scale, scope, and market power. The economies of collected from the NRB BFIs' Supervision Report and Financial
scale for firms or merged banks are derived through cost-cutting in Stability Report, both of which are accessible through public do-
product and research development, sales and marketing, admin- mains. The study covers the period from 2013e2014 to 2019e2020.
istrative costs, and operating expenses by improving operating 19 commercial banks out of 27 had either merged or undergone
performance (Mantravadi, 2020; Mantravadi and Reddy, 2008). In acquisition between 2013 and 2020 (see Appendix A.9). To fulfill
addition, merged banks reduce costs by closing redundant the research objectives, 4 of those banks are removed from the
branches, and consolidating systems, administrative, processing, sample because they had not been involved in M&A activities
and payment systems (Pasiouras et al., 2005). The economic scope during the study period. The remaining 15 commercial banks are
is achieved when two merged banks share their broad range of further tested under the researcher's following criteria:
services and products to expand new products through reductions
in staffing costs and adopting new technology to give them a ❖ Mergers between commercial banks1
competitive edge in the business. The market power generated ❖ Mergers between commercial banks and development banks2
through newly acquired firms results in a strong presence in the ❖ M&A between commercial banks, development banks, and
market which increases the revenue through its market share. finance companies3
Therefore, operating synergies are generated by reducing costs and
revenue enhancement created from economies of scale, economic When examining the 15 banks that satisfied the criteria, the
scope, and market power from the combined operations of two main objective is to cover the larger M&A deals between com-
merged banks (Gaughan, 2010; Hankir et al., 2011; Seth, 1990). mercial banks and eliminate minor M&A deals between commer-
M&A has limited or no effect on the financial performance of cial banks and small and weaker financial institutions. It is also
banks in emerging countries, according to accounting performance evident that repeated mergers over time make it difficult to call
measures used in most studies (Abbas et al., 2014; Kalra et al., 2013; some banks pre-merger or post-merger and that there are limita-
Kemal, 2011; Lai et al., 2015; Shah and Khan, 2017). These studies tions in terms of the data available for 8 of those banks. Based on
found that banks’ profitability, efficiency, liquidity, and leverage those criteria, out of 15 commercial banks' that were through M&A
before and after they merged did not change much. However, few deals (see Appendix A.9), the following 7 banks are selected for the
ratios have significantly improved as a result of M&A. On the other final sample:
hand, M&A has had mixed results on financial performance in the
banking sector when compared to the pre-merger period, according 1. Bank of Kathmandu Limited (BOKL)
to other studies (Mantravadi and Reddy, 2008; Muhammad et al., 2. Global IME Bank Limited (GBIME)
2019a, 2019b; Rani et al., 2015; Sinha and Gupta, 2011). These au- 3. Prabhu Bank Limited (PRVU)
thors found that the profitability ratios of merged banks or companies 4. Nepal Credit and Commerz Bank Limited (NCCB)
improved compared to the pre-merger period. Similarly, Kumar and 5. NMB Bank Limited (NMB)
Bansal (2008) studied 74 M&A companies in India from 2000 to 6. Nepal Investment Mega Bank Limited (NIB)
2006 using five parameters (liquidity, overall efficiency, operating 7. Kumari Bank Limited (KBL)
efficiency, return to equity shareholders, and financing composition).
The findings concluded that in half of the M&A cases, the financial After the selection of those banks, the samples are pooled across all
performance of companies improved compared to the pre-merger seven banks to obtain a total of 42 observations for overall commercial
period. As a result, companies were able to generate synergy due to banking sector (6 observations for each bank on an individual basis),
business diversification and cost cutting after the M&A. 21 of those 42 being in the pre-M&A and 21 in the post-M&A period.
Research identifies gaps in the literature regarding M&A in the The fiscal years 2013e2016 are considered the pre-merger period,
BFIs in developing countries that differ from other developed coun- and the fiscal years 2017e2020 are the post-merger period. To elim-
tries. Several studies (Badreldin and Kalhoefer, 2009; Kalra et al., inate M&A costs, the year of M&A deals in the sample banks’ financial
2013; Kemal, 2011; Rathinam, 2016; Shah and Khan, 2017; Sufian performances is excluded from the data analysis. To determine the
and Habibullah, 2014; Vallascas and Hagendorff, 2011) have been best tools and techniques to include in the methodology mix, we have
undertaken in different countries relating to M&A in the banking examined various previous studies examining how M&A affects
sectors. However, the BFIs in Nepal operate under a different model financial performance. Previous studies (Abbas et al., 2014; Al-Hroot,
from those reported in these studies. No comprehensive research has 2015; Kalra et al., 2013; Kemal, 2011; Kumar, 2009; Lai et al., 2015;
been undertaken in the context of Nepal. Limited research has focused Shah and Khan, 2017) used a ratio analysis tool and a paired sample t-
on the impacts of M&A in the BFIs with the data analysis of a few test to measure the significant differences in financial performance
commercial banks. There has been limited research on the case of a before and after the M&A.
commercial bank's financial performance after the new mandatory
capital requirement of BFIs, which forced them to be involved in the 1
3 banks met this selection criteria (BOKL, GBIME, and PRVU).
ongoing M&A deals with other commercial banks in Nepal. 2
1 bank met this selection criteria (NCCB).
A review of previous literature from developed and emerging 3
11 banks met this selection criteria. Among them 3 banks (NMB, NIB, and KBL)
economies on the financial performance of M&A in the banking were selected based on the purposive sampling technique. The remaining 8 banks
industries leads to the development of the following hypotheses: were excluded from the final sample due to the limitations of the data.

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B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

This study uses a comparative research design. Comparative improved for the other two banks after the M&A. Among the
analysis is a tool to summarise changes in the selected bank's deteriorated performances of the five banks, only NIB's perfor-
financial performance in the pre-post-merger period. This research mance is statistically significant. However, the improved perfor-
aims to assess the changes in the financial performance of the mances of the other two banks are not statistically significant. The
banks chosen before and after an M&A period through ratio anal- poor banks' performances after the M&A are associated with rising
ysis (profitability, liquidity, leverage, and wealth of shareholders operational costs and limited use of shareholders' funds. However,
parameters; see Table 3). The ratio changes are calculated using the the ROE of overall commercial banks decreased by 14.10% in the
average of 3 years before and after the M&A. The results are shown post-M&A period, which is not statistically significant. This is also
so that the pre-merger period is deducted from the post-merger similar to previous findings by Abbas et al. (2014) and Shah and
period. If the difference shows a positive sign, financial perfor- Khan (2017), who found that most banks' ROE decreased in the
mance improved in the post-merger period. On the other hand, if post-merger period. Similarly, Table 4 shows the mixed results of
the difference shows a negative sign, the financial performance the ROA ratio after M&A. It is noted that the ROA of the three banks
deteriorated in the post-merger period. increased, and the ROA of the remaining three banks decreased in
After the ratio analysis, banks' financial differences are tested us- the post-merger period. Among the improved performances of the
ing a paired sample t-test at a 5% significance level to determine the three banks, only the performance of BOKL is statistically signifi-
significant differences between the pre-merger and post-merger cant. However, the negative performances of NCCB, NIB, and KBL
periods using the Statistical Package for Social Sciences (SPSS). The after the M&A are not statistically significant. The decreased per-
paired sample t-test is a statistical procedure used to determine formances after the M&A indicate that management did not utilise
whether the mean difference between two observations is zero. Two its assets and equity capital to generate more profit. However, the
means represent the financial performances of banks' pre-merger ROA of overall commercial banks increased by 3.48% in the post-
and post-merger periods. The t-test compares the actual difference merger period, which is not statistically significant. The results
between the two means with the variations in the data. The financial are similar to those of Abbas et al. (2014), Mantravadi and Reddy
performance of commercial banks is measured twice at two-time (2008), Patel (2018), Pathak (2016), and Shah and Khan (2017),
points through pre-post observations of the same variables or whose findings conclude that ROA improved after the M&A. Simi-
matched financial ratios. The pairs of variables from each group are larly, Table 4 shows mixed results for the NIM ratio after the M&A.
purposefully matched, and the groups are not independent. Several In the post-M&A period, we noted that the performance of the
researchers have employed short-term pre-post-M&A data (Abbas three banks improved while the performance of the remaining
et al., 2014; Adhikari et al., 2023; Aggarwal & Garg, 2022; Al-Hroot three deteriorated. Among the increased performances of the three
et al., 2015; 2020; Boloupremo and Ogege, 2019; Marques-Ibanez banks, only the performance of BOKL is statistically significant. On
and Altunbas, 2004; Gupta, 2015; Irfan Shakoor et al., 2014; Jallow the other hand, the decreased performances of NCCB, NIB, and KBL
et al., 2017; Kalra et al., 2013; Kumar, 2009; Lai et al., 2015; are not statistically significant. The decreased performances of the
Mantravadi and Reddy, 2008; Muhammad et al., 2019a, 2019b; Patel, three banks in the post-merger period suggest that they have not
2018; Pathak, 2016; Shah and Khan, 2017) and applied a paired t-test effectively utilised their assets and that their operating costs have
to measure the significant differences in the pre-post-M&A period. increased after the involvement of the M&A process with weaker
Additionally, Abbas et al. (2014) reported that 25 recent authors’ development banks and finance companies. However, the NIM of
studies of pre-post-M&A data covered a short period of 2006e2012. overall commercial banks increased by 7.29% in the post-M&A
Marques-Ibanez and Altunbas (2004) suggest that a short period is period, which is not statistically significant. This result contradicts
sufficient, arguing that external economic factors may produce a the findings of Shah and Khan (2017).
negative effect in the longer term. Further, Table 4 shows that the banks' spread ratio deteriorated
in the post-merger period. Among them, the declining perfor-
4. Data analysis and discussions mances of BOKL, GBIME, and KBL are statistically significant.
However, the SR ratio of overall commercial banks decreased by
4.1. Comparative ratio-wise comparison of pre-post-M&A 10.57%, which is statistically significant. This result is similar to the
performance findings of previous studies (Abbas et al., 2014), which reported
that the sample banks' SR decreased after the M&A. The decrease in
Table 4 shows that most banks' ROE ratios deteriorated after the the SR ratio of the sample banks indicates that their interest ex-
M&A. We found that the ROE of the five banks decreased, while it penses increased after M&A, which is bad for their profitability and

Table 3
Financial performance variables used in this study.

Parameters: Variables Names Description/Measurement

Profitability: Return on Equity (ROE) Net profit after tax/Total Equity

Return on Assets (ROA) Net profit after tax/Total Assets
Net Interest Margin (NIM) Interest earned-interest expense/Total Assets
Spread Ratio (SR) Net interest income/Total interest earned
Interest Expenses to Income Ratio (IEII) Interest Expense/Interest Income
Liquidity: Cash & Cash Equivalent to Total Assets (CETA) Cash & Cash Equivalent/Total Assets
Investment to Total Assets Ratio (ITA) Investment/Total Assets
Total Liabilities to Total Assets Ratio (TLTA) Total Liabilities/Total Assets
Leverage: Debt to Equity Ratio (DE) Total Debt/Total Equity
Total Deposit to Total Equity Ratio (TDTE) Total Deposit/Total Equity
Capital Adequacy Ratio (CAR) Total Equity/Total Assets
Total Loans to Total Deposit Ratio (TLOTD) Total Loans/Total Deposit
Wealth of Shareholders: Earnings Per Share (EPS) Net profit after tax/No. of ordinary shares
Market Price Per Share (MPS) Closing share price of share traded in the stock market
Dividends Per Share (DPS) Total Dividends/No of outstanding Shares

Source: Abbas et al. (2014), Kalra et al. (2013), and Shah and Khan (2017).

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B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Table 4
Comparison of M&A impact on profitability ratios.

Banks Return on Equity (ROE) Return on Assets (ROA) Net Interest Margin (NIM) Spread Ratio (SR) Interest Expenses to Interest
Income (IEII)

Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig

BOKL 8.09 11.47 þ 0.063 0.74 1.59 þ 0.029* 0.81 1.80 þ 0.045* 48.42 36.98 e 0.012* 51.58 63.02 þ 0.014*
GBIME 14.82 14.16 e 0.825 1.52 1.52 No 0.983 1.70 1.70 No 0.231 51.07 37.55 e 0.026* 48.93 62.45 þ 0.026*
PRVU 5.08 9.30 þ 0.809 0.78 0.94 þ 0.893 0.89 1.05 þ 0.900 49.59 37.79 e 0.078 50.41 62.21 þ 0.078
NCCB 15.33 12.40 e 0.300 1.59 1.37 e 0.610 1.77 1.57 e 0.660 43.52 33.14 e 0.084 56.48 66.82 þ 0.083
NMB 15.34 10.80 e 0.127 1.35 1.42 þ 0.842 2.55 2.92 þ 0.256 43.61 36.54 e 0.098 56.40 58.59 þ 0.501
NIB 20.04 12.21 e 0.015* 2.03 1.70 e 0.280 2.27 1.98 e 0.423 53.62 40.78 e 0.069 46.38 59.22 þ 0.069
KBL 13.69 9.04 e 0.282 1.27 1.06 e 0.605 1.41 1.20 e 0.651 38.79 31.74 e 0.042* 61.21 68.26 þ 0.042*
Mean Overall 13.20 11.34 - 0.395 1.33 1.37 þ 0.791 1.63 1.75 þ 0.427 46.95 36.36 - 0.000* 53.06 62.94 þ 0.000*

Notes: ‘þ’ denotes increase in ratio; ‘-’ denotes decrease in ratio; * significant at 0.05 level (2-tailed).

efficiency. The Nepalese banking sector's SR has decreased because banks' liquidity position improved. We found that only the per-
the regulatory body (NRB) has repeatedly told commercial banks formances of NMB and KBL are statistically significant, and the
how to reconfigure the interest rate spread. Similarly, Table 4 shows remaining five banks’ performance improvements are not statisti-
that all banks' IEII ratios increased after the M&A. This result in- cally significant. Meanwhile, the TLTA of overall commercial banks
dicates that banks' cost efficiency deteriorated in the post-merger decreased by 2.75% in the post-merger period, which is statistically
period. Among the seven banks, the increased performances of significant. These results contradict a previous study (Abbas et al.,
the IEII ratios of BOKL, GBIME, and KBL are statistically significant. 2014), which reported that sample bank ratios increased after the
However, the IEII ratio of overall commercial banks deteriorated by M&A.
8.3% after the M&A, which is statistically significant. These results Table 6 shows that all banks' debt-to-equity ratios improved in
indicated that banks could not minimise their interest and non- the post-merger period. We found that all seven banks' DE ratios
interest expenses in the post-merger period. These findings are declined after the M&A. The performances of BOKL, NMB, and KBL
similar to the previous findings of Abbas et al. (2014), who found are statistically significant, and the other banks' performances are
that sample banks of IEII increased after the M&A. not statistically significant. However, the DE ratio of overall com-
Table 5 shows that all banks' CETA ratios improved after the mercial banks declined by 24.32% in the post-merger period, which
M&A period. We found that among the increased performance of is statistically significant. The fact that the sample banks' debt
seven banks, only GBIME is statistically significant. Meanwhile, the decreased after the merger is a good sign for the bank's ability to
CETA ratio of overall commercial banks increased by 81.87% in the pay its long-term obligations. These results contradict the previous
post-merger period, which is statistically significant. This result studies of Mantravadi and Reddy (2008), who found that the
contradicts the previous findings of Abbas et al. (2014) and Shah sample banks' DE increased in the post-merger period. Likewise,
and Khan (2017), who found that the sample banks' CETA Table 6 shows that all the banks' TDTE ratios decreased after the
decreased in the post-merger period. However, the results are M&A. Thus, the decreased trend results indicate that the perfor-
similar to the findings of Shrestha et al. (2017). Table 5 shows that mance of sample banks improved after M&A. Among the decreased
the ITA ratio of the sample banks deteriorated in the post-M&A performances of sample banks, the performances of BOKL, GBIME,
period, except for BOKL. Among the six banks that experienced NMB, and KBL are statistically significant. However, the TDTE ratio
decreased performances in the ITA ratio, the performances of NMB of overall commercial banks' performance improved by 2.54% after
and NIB are statistically significant. The decreased performances of the M&A, which is statistically significant. This result contradicts
the other four banks are not statistically significant. On the other the findings of Shah and Khan (2017). Furthermore, Table 6 illus-
hand, the increased performance of BOKL is statistically significant. trates that all banks' CAR ratios improved, except for GBIME.
The decrease in the ITA ratio of banks indicates that bank produc- Among the seven banks, only the improved performance of NMB
tivity declined in the post-merger period. These results suggest that bank is statistically significant, and the other six banks are not
bank productivity and investment returns were managed effec- statistically significant. However, the CAR ratio of overall com-
tively in the pre-merger period. Meanwhile, the ITA ratio of overall mercial banks improved by 10.17% after the M&A, which is statis-
commercial banks decreased by 28.78%, which is statistically sig- tically significant. These results indicate that financial leverage has
nificant. This result contradicts the findings of Abbas et al. (2014) improved in the post-merger period. The CAR of all the sample
and Shah and Khan (2017), who reported that ITA improved after banks exceeds the mandatory 11% NRB requirement for commercial
M&A. Similarly, Table 5 illustrates that all banks' TLTA ratio banks and protects them from unforeseen losses. These findings
decreased in the post-M&A period, which indicates that the sample contradict Shah and Khan (2017), who found that the CAR of sample

Table 5
Comparison of M&A impact on liquidity ratios.

Banks Cash Equivalent to Total Assets (CETA) Investment to Total Assets (ITA) Total Liabilities to Total Assets (TLTA)

Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig

BOKL 2.15 3.06 þ 0.077 12.47 13.86 þ 0.038* 90.86 88.95 e 0.594
GBIME 2.24 7.10 þ 0.007* 16.75 10.60 e 0.146 89.70 89.30 e 0.076
PRVU 5.63 8.79 þ 0.495 14.72 10.01 e 0.614 91.90 89.86 e 0.438
NCCB 2.54 6.21 þ 0.140 11.27 9.89 e 0.282 90.19 87.20 e 0.092
NMB 4.23 5.59 þ 0.590 13.25 8.33 e 0.048* 91.17 86.94 e 0.042*
NIB 2.28 5.59 þ 0.054 20.31 10.02 e 0.003* 89.62 86.13 e 0.123
KBL 4.39 6.31 þ 0.521 12.49 10.41 e 0.255 90.27 88.29 e 0.025*
Mean Overall 3.35 6.09 þ 0.001* 14.47 10.30 - 0.004* 90.59 88.10 - 0.000*

Notes: ‘þ’ denotes increase in ratio; ‘-’ denotes decrease in ratio; * significant at 0.05 level (2-tailed).

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B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Table 6
Comparison of M&A impact on leverage ratios.

Banks Debt to Equity (DE) Total Deposit to Total Equity Capital Adequacy Ratio (CAR) Total Loans to Total Deposit
(TDTE) (TLOTD)

Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig

BOKL 9.97 6.40 e 0.022* 9.52 6.22 e 0.032* 12.53 14.45 þ 0.110 83.21 87.18 þ 0.249
GBIME 8.72 8.35 e 0.078 8.37 7.77 e 0.010* 12.47 12.09 e 0.330 80.17 88.29 þ 0.009*
PRVU 12.45 8.92 e 0.392 12.28 8.18 e 0.317 10.53 11.40 þ 0.557 64.55 77.69 þ 0.160
NCCB 8.74 7.93 e 0.549 8.58 7.61 e 0.475 13.78 12.99 e 0.651 79.23 86.45 þ 0.077
NMB 10.38 6.72 e 0.037* 10.07 5.74 e 0.027* 10.95 15.43 þ 0.004* 77.24 90.48 þ 0.057
NIB 8.83 6.22 e 0.135 8.41 5.91 e 0.137 12.70 13.15 þ 0.668 74.06 84.54 þ 0.100
KBL 9.77 7.57 e 0.011* 9.56 7.04 e 0.003* 11.45 13.49 þ 0.133 78.09 90.10 þ 0.011*
Mean Overall 9.84 7.44 - 0.000* 9.54 6.93 - 0.019* 12.06 13.28 þ 0.017* 76.65 86.39 þ 0.000*

Notes: ‘þ’ denotes increase in ratio; ‘-’ denotes decrease in ratio; * significant at 0.05 level (2-tailed).

banks decreased after the M&A. Table 6 shows that all seven banks' commercial banks declined by 46.01%, which is statistically sig-
TLOTD ratios increased after M&A. Among the improvement per- nificant. The significant reasons for the decline of MPS are the in-
formances of seven banks, only the performances of GBIME and KBL creases in the capital increment plans of BFIs by the regulatory
are statistically significant. However, the TLOTD ratio of overall bodies. In the initial period, the MPS of all BFIs increased as
commercial banks improved by 12.71% after the M&A, which is shareholders' expected bonuses and additional shares, which were
statistically significant. These results indicate that after the M&A, reflected in the total dividends declared by the sample banks in the
all the sampled banks started loan promotion and deposit collec- fiscal years 2014e2016. These capital increments at BFIs in a short
tion to increase their interest income and net profit. Thus, the period led to an oversupply of BFIs shares in the secondary market,
TLOTD ratio increment suggests that the sample banks' financial impacting the MPS after the M&A. Furthermore, Table 7 shows
conditions are stronger in the post-merger period, allowing them mixed results in the DPS ratio for the post-merger period. We found
to supply more loans to the public and increase their profitability. that the three banks' performances increased and the remaining
These findings are similar to Muhammad et al. (2019b). However, it four banks’ performances decreased after the M&A. Among the
contradicts Sufian's (2004) study in Malaysia, which reported that increased performances of the three banks, only the performance of
most of the sampled banks' TLOTD ratios decreased after the M&A. PRVU is statistically significant. Simultaneously, the decreased
Table 7 shows mixed results in EPS for all banks after the M&A. performances of BOKL, NCCB, NIB, and KBL are not statistically
We found that four banks' EPS increased and the other three banks' significant. However, the DPS ratio of overall commercial banks
EPS declined after M&A. The EPS of these three banks declined, decreased by 5.07%, which is not statistically significant. These
indicating that operating costs increased after M&A for the weaker findings suggest that DPS started to decline after the M&A due to
BFIs. However, none of the decreased performances of NCCB, NIB, increased capital by commercial banks after the fiscal year
and KBL are statistically significant. On the other hand, out of the 2015e2016.
four increased performances, only the performance of BOKL is
statistically significant. However, the EPS ratio of overall commer-
4.2. Summary of findings and hypotheses results
cial banks increased marginally by 0.01%, which is not statistically
significant. This poor improvement in the EPS is due to increased
The summary of sample banks on individual basis findings dif-
capital during the short period, which significantly reduces the EPS
fers from the overall commercial banking sector findings in the pre-
in the post-merger period as the banking business is limited and
post-M&A period. According to the findings of the overall com-
competitive in the small market. Therefore, the results are similar
mercial banking sector, out of 15 ratios (see Table 8), six are
to previous studies in India (Kalra et al., 2013; Patel, 2018) and UK
significantly improved and three are improved but not significantly
companies (Jallow et al., 2017). On the other hand, Table 7 shows all
in the post-merger period. On the other hand, the remaining four
the banks' market prices per share deteriorated after the M&A. The
ratios have significantly deteriorated, and two ratios have deteri-
decreases in MPS indicate that shareholders' wealth was severely
orated but not significantly in the post-merger period. Appendix
affected by its stock price on the Nepal Stock Exchange (NEPSE).
A.8 shows that 10 ratios out of 15 are significant in the pre-post-
Among the seven banks, the declining performances of BOKL,
merger period. Therefore, HO1 is rejected for these 10 ratios at a
GBIME, and KBL are statistically significant, and the other four
5% significance level, which concludes that M&A has a significant
banks are not statistically significant. However, the MPS of overall
impact on these ratios.

Table 7
Comparison of M&A impact on the wealth of shareholders ratios.

Banks Earnings Per Share (EPS) Market Price Per Share (MPS) Dividend Per Share (DPS)

Pre Post Diff Sig Pre Post Diff Sig Pre Post Diff Sig

BOKL 12.05 19.77 þ 0.045* 533.00 246.33 e 0.006* 20.44 19.33 e 0.089
GBIME 18.16 21.92 þ 0.482 544.67 274.00 e 0.029* 20.33 21.00 þ 0.890
PRVU 11.83 14.17 þ 0.863 323.33 224.67 e 0.192 0.00 11.93 þ 0.042*
NCCB 21.40 18.36 e 0.742 488.00 227.33 e 0.059 18.67 14.44 e 0.782
NMB 18.54 20.04 þ 0.782 610.67 379.00 e 0.126 16.49 27.07 þ 0.353
NIB 33.63 25.74 e 0.071 901.33 523.67 e 0.093 38.58 25.67 e 0.197
KBL 16.87 12.65 e 0.425 445.33 201.67 e 0.042* 22.90 11.01 e 0.251
Mean Overall 18.93 18.95 þ 0.992 549.48 296.67 - 0.000* 19.63 18.63 - 0.761

Notes: ‘þ’ denotes increase in ratio; ‘-’ denotes decrease in ratio; * significant at 0.05 level (2-tailed).

6
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Table 8
Total ratios comparison of overall commercial banking sector.

Number of Ratios Significant (Improved) Significant (Deteriorated) Not Significant (Improved) Not Significant (Deteriorated)

Profitability 5 e 2 2 1
Liquidity 3 2 1 e e
Leverage 4 4 e e e
Wealth of Shareholder 3 e 1 1 1
Total 15 6 4 3 2
Percentage 100% 40.00% 26.66% 20.00% 13.34%

Similarly, in the findings from sample banks on an individual deteriorating significantly. Overall, the financial performances of
basis, BOKL indicates that 9 out of 15 ratios (see Appendix A.1) commercial banking sector improved 9 out of 15 ratios after the
significantly differ in the pre-post-merger period. The results are M&A. In summary, according to these findings, M&A produced
consistent with the findings of Al-Hroot (2015). As a result, HO2 is improved or mixed results, and is consistent with previous findings
rejected on these nine ratios at a 5% significance level, which (Kumar and Bansal, 2008; Mantravadi and Reddy, 2008;
concludes that M&A has a significant impact on these ratios. Muhammad et al., 2019a, 2019b; Oloye and Osuma, 2015; Patel,
Likewise, the findings of GBIME indicate that 6 out of 15 ratios (see 2018; Rani et al., 2015), while contradicting some other findings
Appendix A.2) are significant in the pre-post-merger period. (Abbas et al., 2014; AL-HROOT et al., 2020; Badreldin and Kalhoefer,
Therefore, HO2 is rejected on these six ratios at a 5% significance 2009; Kalra et al., 2013; Kumar, 2009; Lai et al., 2015; Shah and
level, which concludes that M&A significantly impacts these ratios. Khan, 2017).
Similarly, in the case of PRVU, 1 out of 15 ratios (see Appendix A.3) The government of Nepal reclassified its BFIs into different
is significant. Therefore, HO2 is accepted on these 14 ratios at a 5% categories because they perform similar functions and create
significance level, which concludes that M&A has had no significant confusion among the public. We conclude from our results that the
impact on these ratios. Furthermore, in the case of NCCB, none of central bank should voluntarily promote M&A certainty among
the ratios (see Appendix A.4) are significant at a 5% significance commercial banks by relaxing regulatory ratio requirements and
level. Therefore, HO2 is accepted, concluding that M&A has not resolving M&A complexities regarding share swap ratios, brand
significantly impacted these ratios. The results of NMB indicate that names, and management, and avoid causing cultural clashes
only 5 out of 15 ratios (see Appendix A.5) have a significant dif- through supervision and regulatory guidelines. Instead of ineffec-
ference. As a result, HO2 is rejected on these five ratios at a 5% tive M&A deals between weaker BFIs, the NRB should encourage
significance level, which concludes that M&A has a significant commercial banks to identify strategic partners by diversifying risk,
impact on these ratios. In the case of NIB, 2 out of 15 ratios (see expanding markets, reducing costs, and gaining synergy over time.
Appendix A.6) show significant differences at a 5% significance Furthermore, commercial banks should reduce their operating
level. As a result, HO2 is accepted on these 13 ratios, concluding that costs by adopting technology advancements, diversifying their
M&A has had no significant impact. The results of the KBL show products and loan quality, improving their employees’ skills, and
that 7 out of 15 ratios (see Appendix A.7) show significant differ- cutting unnecessary and unproductive staff.
ences at a 5% significance level. As a result, HO2 is rejected on these This research's limitation is the timing of the year of M&A of
seven ratios, which concludes that M&A significantly impacted commercial banks involved in the M&A process; it is complicated to
these ratios. separate purely the pre- and post-merger periods as the selected
Overall, the results of each bank show mixed results in the banks were involved in different M&A processes multiple times in
financial ratios of BOKL, GBIME, NMB, and KBL and insignificant different calendar years. Furthermore, there is no specific data
differences in the financial ratios of PRVU, NCCB, and NIB. regarding acquired banks. Consequently, the effect of M&A on
target BFIs was excluded from the data analysis due to the un-
availability of data from the electronic database. Sample banks' raw
5. Conclusion, recommendation, and limitation
data were manually collected from the annual reports. This
research only applies accounting performance measures to
This research found the effects of M&A on selected commercial
examine the overall impact of M&A on the financial performance of
banks on an individual basis are different according to the bank's
the acquirer banks, and it ignores the impact of target BFIs due to
condition at the time of M&A. The results indicate a significant
the unavailability of data. However, different approaches, such as
impact of M&A on the financial ratios of BOKL and minimal impacts
the CAMEL framework, event study methodology, and data envel-
on GBIME, NMB, and KBL.4 However, there was no significant
opment analysis methods, may produce broad conclusions with
impact on the financial ratios of PRVU, NCCB, and NIB.
more extended periods and larger samples in the future.
The first finding from overall commercial banking sector shows
that M&A had a mixed impact on profitability ratios, such as ROA
and NIM, which improved insignificantly. In contrast, SR and IEII Author contributions
ratios deteriorated significantly. Similarly, the second finding of the
overall commercial banking sector analysis concludes that liquidity These authors contributed equally.
ratios improved significantly, except for the ITA ratio. Similarly, all
leverage ratios for overall commercial banking sector improved Conflicts of interest
significantly after the M&A. However, M&A had a mixed impact on
the wealth of shareholders ratios of commercial banking sector, The authors declare no conflict of interest.
with the EPS improvement not being significant and the MPS
Appendix

4
See section 3 for the abbreviations.

7
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Appendix A.1
Paired samples t-test of Bank of Kathmandu (BOKL)

Paired Differences t Df Sig. (2-tailed) Hypothesis Relation Results

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Ratios:
Pair 1 ROE (Pre-Post) 3.37667 1.54546 0.89227 7.21579 0.46246 3.784 2 0.063 NS NS
Pair 2 ROA (Pre-Post) 0.85667 0.25968 0.14993 1.50175 0.21159 5.714 2 0.029 NS S
Pair 3 NIM (Pre-Post) 0.98333 0.37554 0.21682 1.91624 0.05043 4.535 2 0.045 NS S
Pair 4 SR (Pre-Post) 11.30667 2.12550 1.22716 6.02664 16.58669 9.214 2 0.012 NS S
Pair 5 IEII (Pre-Post) 11.44000 2.35635 1.36044 17.29351 5.58649 8.409 2 0.014 NS S
Liquidity Ratios:
Pair 6 CETA (Pre-Post) 0.91333 0.46608 0.26909 2.07115 0.24448 3.394 2 0.077 NS NS
Pair 7 ITA (Pre-Post) 1.39000 0.48031 0.27731 2.58316 0.19684 5.012 2 0.038 NS S
Pair 8 TLTA (Pre-Post) 1.90333 5.24504 3.02822 11.12607 14.93273 0.629 2 0.594 NS NS
Leverage Ratios:
Pair 9 DE (Pre-Post) 3.56667 0.94108 0.54333 1.22889 5.90444 6.564 2 0.022 NS S
Pair10 TDTE (Pre-Post) 3.30000 1.04704 .60451 .69900 5.90100 5.459 2 0.032 NS S
Pair 11 CAR (Pre-Post) 1.92000 1.20611 0.69635 4.91614 1.07614 2.757 2 0.110 NS NS
Pair 12 TLOTD (Pre-Post) 3.97000 4.27509 2.46822 14.58991 6.64991 1.608 2 0.249 NS NS
Wealth of Shareholders Ratios:
Pair 13 EPS (Pre-Post) 7.71333 2.92049 1.68614 14.96822 0.45845 4.575 2 0.045 NS S
Pair 14 MPS (Pre-Post) 286.66667 37.07200 21.40353 194.57471 378.75862 13.393 2 0.006 NS S
Pair 15 DPS (Pre-Post) 1.11000 13.22804 7.63721 31.75028 33.97028 0.145 2 0.898 NS NS

Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

Appendix A.2
Paired samples t-test of Global IME Bank (GBIME)

Paired Differences t df Sig. (2-tailed) Hypothesis Relation Result

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre-Post) 0.66333 4.57985 2.64418 10.71365 12.04031 0.251 2 0.825 NS NS
Pair 2 ROA (Pre-Post) 0.00667 0.46758 0.26996 1.15487 1.16821 0.025 2 0.983 NS NS
Pair 3 NIM (Pre-Post) 0.22667 0.23072 0.13321 0.79982 0.34648 1.702 2 0.231 NS NS
Pair 4 SR (Pre-Post) 13.52333 3.83503 2.21415 3.99660 23.05007 6.108 2 0.026 NS S
Pair 5 IEII (Pre-Post) 13.52333 3.83503 2.21415 23.05007 3.99660 6.108 2 0.026 NS S
Liquidity Parameters:
Pair 6 CETA (Pre-Post) 4.86000 0.70704 0.40821 6.61637 3.10363 11.906 2 0.007 NS S
Pair 7 ITA (Pre-Post) 6.14667 4.58744 2.64856 5.24917 17.54251 2.321 2 0.146 NS NS
Pair 8 TLTA (Pre-Post) 0.40000 0.20298 0.11719 0.10422 0.90422 3.413 2 0.076 NS NS
Leverage Parameters:
Pair 9 DE (Pre-Post) 0.36667 0.18877 0.10899 0.10226 0.83559 3.364 2 0.078 NS NS
Pair 10 TDTE (Pre-Post) 0.59667 0.10504 0.06064 0.33573 0.85760 9.839 2 0.010 NS S
Pair 11 CAR (Pre-Post) 0.38000 0.51507 0.29738 0.89951 1.65951 1.278 2 0.330 NS NS
Pair 12 TLOTD (Pre-Post) 8.12333 1.32553 0.76530 11.41614 4.83053 10.615 2 0.009 NS S
Wealth of Shareholders Parameters:
Pair 13 EPS(Pre-Post) 3.76000 7.60974 4.39348 22.66364 15.14364 0.856 2 0.482 NS NS
Pair 14 MPS (Pre-Post) 270.66667 82.12998 47.41777 66.64449 474.68884 5.708 2 0.029 NS S
Pair 15 DPS (Pre-Post) 0.66667 7.37111 4.25572 18.97753 17.64420 0.157 2 0.890 NS NS

Notes: Significant at 0.05 level (two-tailed) NS ¼ Not significant S ¼ Significant.

8
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Appendix A.3
Paired samples t-test of Prabhu Bank (PRVU)

Paired Differences t df Sig. (2-tailed) Hypothesis Relation Result

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Ratios:
Pair 1 ROE (Pre-Post) 4.22333 26.60975 15.36315 70.32563 61.87896 0.275 2 0.809 NS NS
Pair 2 ROA (Pre-Post) 0.16000 1.82732 1.05500 4.69932 4.37932 0.152 2 0.893 NS NS
Pair 3 NIM (Pre-Post) 0.16333 1.98072 1.14357 5.08370 4.75704 0.143 2 0.900 NS NS
Pair 4 SR (Pre-Post) 11.80333 6.09182 3.51711 3.32958 26.93625 3.356 2 0.078 NS NS
Pair 5 IEII (Pre-Post) 11.80333 6.09182 3.51711 26.93625 3.32958 3.356 2 0.078 NS NS
Liquidity Ratios:
Pair 6 CETA (Pre-Post) 3.16667 6.62769 3.82650 19.63075 13.29742 0.828 2 0.495 NS NS
Pair 7 ITA (Pre-Post) 4.70667 13.76201 7.94550 29.48006 38.89340 0.592 2 0.614 NS NS
Pair 8 TLTA (Pre-Post) 2.03667 3.66751 2.11744 7.07393 11.14727 0.962 2 0.438 NS NS
Leverage Ratios:
Pair 9 DE (Pre-Post) 3.53667 5.65709 3.26612 10.51632 17.58965 1.083 2 0.392 NS NS
Pair 10 TDTE (Pre-Post) 4.09667 5.37161 3.10130 9.24716 17.44049 1.321 2 0.317 NS NS
Pair 11 CAR (Pre-Post) 0.87333 2.16320 1.24892 6.24702 4.50035 0.699 2 0.557 NS NS
Pair 12 TLOTD (Pre-Post) 13.14000 10.38581 5.99625 38.93979 12.65979 2.191 2 0.160 NS NS
Wealth of Shareholders Ratios:
Pair 13 EPS (Pre-Post) 2.34000 20.69481 11.94816 53.74877 49.06877 0.196 2 0.863 NS NS
Pair 14 MPS (Pre-Post) 98.66667 88.18919 50.91605 120.40743 317.74076 1.938 2 0.192 NS NS
Pair 15 DPS (Pre-Post) 11.93000 4.38111 2.52943 22.81327 1.04673 4.716 2 0.042 NS S

Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

Appendix A.4
Paired samples t-test of Nepal Credit and Commerz Bank (NCCB)

Paired Differences t df Sig. (2-tailed) HypothesisRelation Result

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre-Post) 2.93000 3.65619 2.11090 6.15247 12.01247 1.388 2 0.300 NS NS
Pair 2 ROA (Pre-Post) 0.21667 0.62613 0.36149 1.33872 1.77205 0.599 2 0.610 NS NS
Pair 3 NIM (Pre-Post) 0.19667 0.66726 0.38524 1.46089 1.85423 0.511 2 0.660 NS NS
Pair 4 SR (Pre-Post) 10.38000 5.55222 3.20557 3.41247 24.17247 3.238 2 0.084 NS NS
Pair 5 IEII (Pre-Post) 10.34333 5.52179 3.18801 24.06021 3.37355 3.244 2 0.083 NS NS
Liquidity Parameters:
Pair 6 CETA (Pre-Post) 3.66667 2.66429 1.53823 10.28513 2.95179 2.384 2 0.140 NS NS
Pair 7 ITA (Pre-Post) 1.38333 1.64016 0.94695 2.69106 5.45772 1.461 2 0.282 NS NS
Pair 8 TLTA (Pre-Post) 2.98333 1.68364 0.97205 1.19905 7.16572 3.069 2 0.092 NS NS
Leverage Parameters:
Pair 9 DE (Pre-Post) 0.81333 1.97305 1.13914 4.08800 5.71467 0.714 2 0.549 NS NS
Pair 10 TDTE (Pre-Post) 0.97333 1.93014 1.11437 3.82140 5.76806 0.873 2 0.475 NS NS
Pair 11 CAR (Pre-Post) 0.79667 2.62134 1.51343 5.71511 7.30844 0.526 2 0.651 NS NS
Pair 12 TLOTD (Pre-Post) 7.22000 3.68570 2.12794 16.37579 1.93579 3.393 2 0.077 NS NS
Wealth of Shareholders Parameters:
Pair 13 EPS(Pre-Post) 3.04667 13.99615 8.08068 31.72170 37.81503 0.377 2 0.742 NS NS
Pair 14 MPS (Pre-Post) 260.66667 115.15352 66.48392 25.39054 546.72387 3.921 2 0.059 NS NS
Pair 15 DPS (Pre-Post) 4.23000 23.21620 13.40388 53.44225 61.90225 0.316 2 0.782 NS NS

Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

9
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Appendix A.5
Paired samples t-test of NMB Bank (NMB)

Mean Std. Deviation Std. Error Mean 95% Confidence Interval t df Sig. (2-tailed Hypothesis Relation Result
of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre-Post) 4.54333 3.10331 1.79170 3.16572 12.25238 2.536 2 0.127 NS NS
Pair 2 ROA (Pre-Post) 0.07000 0.53507 0.30892 1.39919 1.25919 0.227 2 0.842 NS NS
Pair 3 NIM (Pre-Post) 0.37333 0.41016 0.23681 1.39223 0.64557 1.577 2 0.256 NS NS
Pair 4 SR (Pre-Post) 7.06667 4.15206 2.39720 3.24763 17.38096 2.948 2 0.098 NS NS
Pair 5 IEII (Pre-Post) 2.19667 4.66920 2.69576 13.79560 9.40227 0.815 2 0.501 NS NS
Liquidity Parameters:
Pair 6 CETA (Pre-Post) 1.36000 3.70858 2.14115 10.57263 7.85263 0.635 2 0.590 NS NS
Pair 7 ITA (Pre-Post) 4.91667 1.94526 1.12310 0.08437 9.74896 4.378 2 0.048 NS S
Pair 8 TLTA (Pre-Post) 4.23667 1.54869 0.89414 0.38951 8.08382 4.738 2 0.042 NS S
Leverage Parameters:
Pair 9 DE (Pre-Post) 3.66000 1.25044 0.72194 0.55374 6.76626 5.070 2 0.037 NS S
Pair 10 TDTE (Pre-Post) 4.33000 1.24976 0.72155 1.22542 7.43458 6.001 2 0.027 NS S
Pair 11 CAR (Pre-Post) 4.47333 0.46918 0.27088 5.63885 3.30782 16.514 2 0.004 NS S
Pair 12 TLOTD (Pre-Post) 13.24333 5.73753 3.31256 27.49614 1.00948 3.998 2 0.057 NS NS
Wealth of Shareholders Parameters:
Pair 13 EPS(Pre-Post) 1.50000 8.23838 4.75643 21.96527 18.96527 0.315 2 0.782 NS NS
Pair 14 MPS (Pre-Post) 231.66667 157.85225 91.13604 160.46006 623.79340 2.542 2 0.126 NS NS
Pair 15 DPS (Pre-Post) 10.57667 15.25518 8.80758 48.47264 27.31931 1.201 2 0.353 NS NS

Notes: Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

Appendix A.6
Paired samples t-test of Nepal Investment Bank (NIB)

Paired Differences t df Sig. (2-tailed) Hypothesis Relation Result

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre-Post) 7.83333 1.67360 0.96625 3.67588 11.99078 8.107 2 0.015 NS S
Pair 2 ROA (Pre-Post) 0.33000 0.39000 0.22517 0.63881 1.29881 1.466 2 0.280 NS NS
Pair 3 NIM (Pre-Post) 0.29000 0.50239 0.29006 0.95802 1.53802 1.000 2 0.423 NS NS
Pair 4 SR (Pre-Post) 12.84000 6.14090 3.54545 2.41485 28.09485 3.622 2 0.069 NS NS
Pair 5 IEII (Pre-Post) 12.84000 6.14090 3.54545 28.09485 2.41485 3.622 2 0.069 NS NS
Liquidity Parameters:
Pair 6 CETA (Pre-Post) 3.31667 1.39059 0.80286 6.77108 0.13774 4.131 2 0.054 NS NS
Pair 7 ITA (Pre-Post) 10.29333 0.91194 0.52651 8.02795 12.55872 19.550 2 0.003 NS S
Pair 8 TLTA (Pre-Post) 3.48667 2.34530 1.35406 2.33938 9.31272 2.575 2 0.123 NS NS
Leverage Parameters:
Pair 9 DE (Pre-Post) 2.61000 1.85097 1.06866 1.98807 7.20807 2.442 2 0.135 NS NS
Pair 10 TDTE (Pre-Post) 2.49667 1.78733 1.03191 1.94330 6.93663 2.419 2 0.137 NS NS
Pair 11 CAR (Pre-Post) 0.45667 1.59067 0.91837 4.40811 3.49478 0.497 2 0.668 NS NS
Pair 12 TLTD (Pre-Post) 10.48000 6.22000 3.59112 25.93134 4.97134 2.918 2 0.100 NS NS
Wealth of Shareholders Parameters:
Pair 13 EPS(Pre-Post) 7.89333 3.85539 2.22591 1.68399 17.47065 3.546 2 0.071 NS NS
Pair 14 MPS (Pre-Post) 377.66667 214.62836 123.91574 155.49974 910.83307 3.048 2 0.093 NS NS
Pair 15 DPS (Pre-Post) 12.91333 11.75766 6.78829 16.29431 42.12098 1.902 2 0.197 NS NS

Notes: Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

10
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Appendix A.7
Paired samples t-test of Kumari Bank (KBL)

Paired Differences t df Sig. (2-tailed) Hypothesis Relation Relation

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre-Post) 4.65667 5.53090 3.19327 9.08285 18.39618 1.458 2 0.282 NS NS
Pair 2 ROA (Pre-Post) 0.21000 0.59808 0.34530 1.27571 1.69571 0.608 2 0.605 NS NS
Pair 3 NIM (Pre-Post) 0.20667 0.67929 0.39219 1.48078 1.89411 0.527 2 0.651 NS NS
Pair 4 SR (Pre-Post) 7.05000 2.57286 1.48544 0.65867 13.44133 4.746 2 0.042 NS S
Pair 5 IEII (Pre-Post) 7.05000 2.57286 1.48544 13.44133 0.65867 4.746 2 0.042 NS S
Liquidity Parameters:
Pair 6 CETA (Pre-Post) 1.92000 4.31170 2.48936 12.63087 8.79087 0.771 2 0.521 NS NS
Pair 7 ITA (Pre-Post) 3.08667 3.38993 1.95718 5.33439 11.50772 1.577 2 0.255 NS NS
Pair 8 TLTA (Pre-Post) 2.41333 0.67855 0.39176 0.72772 4.09895 6.160 2 0.025 NS S
Leverage Parameters:
Pair 9 DE (Pre-Post) 2.19333 0.41016 0.23681 1.17443 3.21223 9.262 2 0.011 NS S
Pair 10 TDTE (Pre-Post) 2.52333 0.25580 0.14769 1.88789 3.15877 17.086 2 0.003 NS S
Pair 11 CAR (Pre-Post) 2.04000 1.43899 0.83080 5.61466 1.53466 2.455 2 0.133 NS NS
Pair 12 TLOTD (Pre-Post) 12.00667 2.21523 1.27896 17.50960 6.50374 9.388 2 0.011 NS S
Wealth of Shareholders Parameters:
Pair 13 EPS(Pre-Post) 4.21333 7.33908 4.23722 14.01794 22.44461 0.994 2 0.425 NS NS
Pair 14 MPS (Pre-Post) 243.66667 88.89507 51.32359 22.83907 464.49426 4.748 2 0.042 NS S
Pair 15 DPS (Pre-Post) 11.89000 12.88022 7.43640 20.10624 43.88624 1.599 2 0.251 NS NS

Notes: Notes: Significant at 0.05 level (2- tailed) NS ¼ Not significant S ¼ Significant.

Appendix A.8
Paired samples t-test of overall Commercial Banking Sector

Paired Differences t df Sig. (2-tailed) Hypothesis Relation Results

Mean Std. Deviation Std. Error Mean 95% Confidence Interval

of the Difference

Lower Upper

Profitability Parameters:
Pair 1 ROE (Pre & Post) 1.86095 9.82037 2.14298 2.60922 6.33113 0.868 20 0.395 NS NS
Pair 2 ROA (Pre & Post) 0.04619 0.78978 0.17234 0.40569 0.31331 0.268 20 0.791 NS NS
Pair 3 NIM (Pre & Post) 0.15048 0.85040 0.18557 0.53757 0.23662 .811 20 0.427 NS NS
Pair 4 SR (Pre & Post) 10.56714 4.57920 0.99926 8.48272 12.65157 10.575 20 0.000 NS S
Pair 5 IEII (Pre & Post) 9.88524 5.45096 1.18950 12.36649 7.40399 8.310 20 0.000 NS S
Liquidity Parameters:
Pair 6 CETA (Pre & Post) 2.74333 3.22012 0.70269 4.20911 1.27755 3.904 20 0.001 NS S
Pair 7 ITA (Pre & Post) 4.16333 5.93815 1.29581 1.46032 6.86635 3.213 20 0.004 NS S
Pair 8 TLTA (Pre & Post) 2.49429 2.56930 0.56067 1.32476 3.66382 4.449 20 0.000 NS S
Leverage Parameters:
Pair 9 DE (Pre & Post) 2.39238 2.41751 0.52754 1.29195 3.49282 4.535 20 0.000 NS S
Pair 10 TDTE (Pre & Post) 1.71619 3.09147 0.67461 0.30897 3.12341 2.544 20 0.019 NS S
Pair 11 CAR (Pre & Post) 1.22667 2.16116 0.47160 2.21041 0.24292 2.601 20 0.017 NS S
Pair 12 TLOTD (Pre & Post) 9.74048 5.70667 1.24530 12.33812 7.14283 7.822 20 0.000 NS S
Wealth of Shareholders Parameters:
Pair 13 EPS (Pre & Post) 0.02286 10.40790 2.27119 4.76047 4.71476 0.010 20 0.992 NS NS
Pair 14 MPS (Pre & Post) 252.80952 130.44256 28.46490 193.43278 312.18627 8.881 20 0.000 NS S
Pair 15 DPS (Pre & Post) 0.99571 14.78778 3.22696 5.73560 7.72703 0.309 20 0.761 NS NS

Notes: Significant at 0.05 level (2-tailed) NS ¼ Not Significant S ¼ Significant.

11
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128

Appendix A.9
M&A deals of commercial banks in Nepal

S. N Commercial bank Names after M&A Acquired/Merged BFIs Names Final Approval Date Share SWAP Ratio Type

1 Bank of Kathmandu Limited* Lumbini Bank Limited 08/07/2016 100:83 Merger

2 Century Commercial Bank Limited* Sagarmatha Finance Ltd. 10/07/2017 100:95 Acquisition
Innovative Development Bank Ltd. 31/05/2017 100:85 Acquisition
Araniko Development Bank Ltd. 31/05/2017 100:90 Acquisition
Alpine Development Bank Ltd. 31/05/2017 100:93 Acquisition
Seti Finance Ltd. 20/11/2017 100:70 Acquisition
3 Citizen Bank International Limited Sahayogi Vikas Bank Ltd. 24/06/2020 100:91.75 Acquisition
Premier Finance Ltd. 04/07/2016 100:28 Acquisition
Nepal Housing and Merchant Finance 09/04/2015 100:40 Acquisition
Peoples Finance Ltd. 09/04/2015 100:40 Acquisition
4 Civil Bank Limited* Unique Finance Ltd. 15/06/2017 100:90 Acquisition
Hama Merchant and Finance Ltd. 15/06/2017 100:89 Acquisition
International Leasing & Finance 27/09/2017 100:74.72 Acquisition
Axis Development Bank Ltd. 27/09/2016 100:79 Acquisition
Civil Merchant Bitiya Sanstha Ltd. 6/04/2014 100:79 Acquisition
5 Global IME Bank Limited* Bank of Kathmandu Limited* 03/01/2023 100:100 Merger
Janata Bank Nepal Limited 20/12/2019 100:85 Merger
Hathway Finance Ltd. 01/09/2019 100:42 Acquisition
Reliable Development Bank Ltd. 09/07/2017 100:82.9 Acquisition
Pacific Development Bank Ltd. 12/02/2017 100:69.26 Acquisition
Social Development Ltd. 09/07/2013 100:40 Merger
Gulmi Bikash Bank Ltd. 09/07/2013 100:50 Merger
Commerz & Trust Bank Ltd. 03/04/2014 100:65 Acquisition
IME Finance Ltd. 25/06/2012 100:79 Merger
Lord Buddha Finance Ltd. 25/06/2012 100:70 Merger
6 Kumari Bank Limited* Nepal Credit & Commerce Bank Ltd.* 26/12/2022 100:100 Merger
Kasthamandap Development Bank Ltd. 26/06/2017 100:85 Acquisition
Mahakali Bikash Bank Ltd. 26/06/2017 100:86 Acquisition
Kakrebihar Bikash Bank Ltd. 26/06/2017 100:87 Acquisition
Paschimanchal Finance Ltd. 26/06/2016 100:88 Acquisition
7 Laxmi Sunrise Bank Limited* Sunrise Bank Limited* 07/07/2023 100:100 Merger
Professional Diyalo Development Bank 26/12/2006 100:50 Acquisition
Hisef Finance Ltd. 02/04/2004 100:100 Merger
8 Macchapuchhre Bank Limited Standard Finance Ltd. 25/12/2006 100:85 Merger
9 Mega Bank Nepal Limited* Gandaki Bikas Bank Ltd. 24/06/2020 100:100 Acquisition
Tourism Development Bank Ltd. 22/04/2018 100:95 Merger
Pashchimanchal Development Bank Ltd 12/04/2016 104.25:67 Merger
10 Nepal Credit & Commerz Bank Limited* Infrastructure Development Bank Ltd 05/12/2016 100:76 Merger
Apex Development Bank Ltd. 05/12/2016 100:47 Merger
Supreme Development Bank Ltd. 05/12/2016 100:77 Merger
International Development Bank Ltd. 05/12/2016 100:72 Merger
11 Nepal Investment Mega Bank Limited* Mega Bank Nepal Limited* 29/11/2022 100:90 Merger
City Express Finance Ltd. 10/07/2019 100:30 Acquisition
Jebil's Finance Ltd. 10/07/2019 100:33 Acquisition
Ace Development Bank Ltd. 13/07/2017 100:41 Acquisition
12 NIC Asia Bank Limited Bank of Asia Limited 30/06/2013 100:50 Merger
13 NMB Bank Limited Kanchan Development Bank Ltd. 09/08/2020 100:85 Acquisition
Om Development Bank Ltd. 19/09/2018 100:76 Merger
Pathibara Bikas Bank Ltd. 23/09/2015 100:67 Merger
Bhrikuti Bikas Bank Ltd. 23/09/2015 100:87 Merger
Clean Energy Development Bank Ltd. 23/09/2015 100:75 Merger
Prudential Finance Ltd. 23/09/2015 100:43 Merger
14 Prabhu Bank (Kist Bank Ltd.) * Century Commercial Bank Limited* 03/01/2023 100:100 Acquisition
Kist Bank Limited 06/08/2014 107.31:97.31 Acquisition
Prabhu Bikas Bank Ltd. 06/08/2014 100:107.31 Acquisition
Grand Bank Nepal Ltd. 29/01/2016 121.45:65.58 Acquisition
Gaurishankar Development Ltd. 06/08/2014 107.31:107.31 Acquisition
Zenith Finance Ltd 06/08/2014 107.31:92.31 Acquisition
15 Prime Commercial Bank Limited Kailash Bikas Bank Ltd. 01/03/2020 100:94 Acquisition
Kanki Bikas Bank Ltd. 01/09/2019 100:71.50 Acquisition
Biratlaxmi Bikash Bank Ltd. 03/04/2017 100:75 Acquisition
Country Development Bank Ltd. 03/04/2017 100:40 Acquisition
16 Sanima Bank Limited Bagmati Development Bank Ltd. 16/12/2016 100:41 Acquisition
17 Siddhartha Bank Limited Business Universal Development Ltd. 05/06/2016 100:55 Merger
18 Sunrise Bank Limited* NIDC Capital Market Ltd. 26/01/2017 100:65 Acquisition
Narayani National Finance Ltd. 03/07/2016 100:77 Acquisition
19 Nepal Bangladesh Bank Limited* Nepal Bangladesh Finance Ltd. 18/09/2007 100:50 Merger
Nepal Srilanka Merchant Finance Ltd. 02/01/2011 100:50 Merger
20 Everest Bank Limited No M&A
21 Himalayan Bank Limited* Civil Bank Limited* 24/02/2023 100:80.28 Acquisition
22 Nepal SBI Bank Limited No M&A
23 Standard Charted Bank Limited No M&A
24 Nabil Bank Limited* Nepal Bangladesh Bank Limited* 29/06/2022 100:43 Acquisition

12
B. Adhikari, M. Kavanagh and B. Hampson Central Bank Review 23 (2023) 100128
Appendix A.9 (continued )

S. N Commercial bank Names after M&A Acquired/Merged BFIs Names Final Approval Date Share SWAP Ratio Type

25 Agriculture Development Bank Limited No M&A

26 Nepal Bank Limited No M&A
27 Rastra Banijya Bank Limited No M&A

Source: (Adhikari et al., 2023) Notes: *M&A deal completed in 2022e2023 (Bank of Kathmandu, Civil Bank, Sunrise Bank, Mega Bank Nepal, Nepal Credit & Commerz Bank, and
Nepal Bangladesh Bank no longer exist in their names after M&A deals completed in 2022/2023).

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