The impact of mergers and acquisition on the financial performance of commercial Banks in Kenya

Abstract

Mergers have become the main means of attaining higher performance which is the ultimate goal of every firm, including banks. The objective of this study was to determine the impact of mergers and acquisition on the financial performance of commercial banks in Kenya. The study set to establish whether the many mergers that have happened in Kenya’s banking Sector had influenced financial performance. The type of research design was the causal study that relies on control factors. The study employed a survey of the merged banks within the period of study. The population of the study consisted of 32 banks that merged in the period 1994 to 2010 in Kenya The study used secondary sources of data from the audited annual reports of accounts for the respective banks over the period. Financial data from Statement of financial position, Statement of comprehensive Income and Statement of Cash Flow of the respective commercial banks for five years before and after the mergers was used to calculate and analyse the profitability (EPS), ROE, ROA and CAR from the published financial statements and reports for the merged banks for the period under study. The study established that following the merger or the acquisition, the Returns on Assets and Returns on equity both improved as the assets of the company improved. Adequate capitals requirements help lessen the chance that banks will become insolvent if sudden shocks occur therefore ensuring financial sector stability. With higher the risk-weighted capital adequacy ratios (CARs), the new financial institution formed after the merger is more financially sound as it carries with it lower is the probability that banks will be exposed to the risk of insolvency. that merging/acquisitions on its own cannot achieve strong, efficient and competitive banking systems because performance is dependent on several factors. This study recommends that commercial banks with a weak and unstable capital base should seek to consolidate their establishments through mergers and acquisitions. The study also recommends that the commercial banks need to deepen their services as statistics only indicate that less than 50% of the population have access to financial services.