Post-Merger Commercial Bank Performance Trends: A Case of Kenya

Abstract

Commercial banks face performance challenges since most of them react to these challenges in a fairly standardized manner. This is because most of the commercial banks offer similar products and services. In so doing, they face high competitions and as a result, they engage activities in pursuit of a competitive edge in order to keep their current customers and attract new ones. Some of the strategic activities these companies have engaged in the recent past have been Mergers and acquisitions (M&A). M&A have become an effective strategic tool to consolidate the Banks and Financial Institutions (BFIs) in Kenya to increase their capital base, expand their business, and bring financial stability. However, despite venturing into mergers and acquisitions, evidence from elsewhere indicates that financial performance stability and improvement still remains a challenge forming a good basis for further empirical investigation. This paper provides an assessment of the post-merger commercial bank performance in Kenya over the period 2008 to 2019 using return on equity as a proxy for bank performance. The target population for this study comprised all 13 commercial banks operating in Kenya between the year 2008 and the year 2019. The study used purposive sampling to select thirteen (13) commercial banks that had undergone mergers and acquisitions in Kenya over eleven years (from 2008 to the year 2019). The study finds that the post-merger effect of mergers and acquisitions on financial performance is mixed. Some commercial banks reported improved ROEs while a few reported declining ROEs during the study period. To enhance performance, the study recommended that commercial banks should prioritize M&A opportunities that align with their long-term strategic goals. This might include expanding into new geographic regions, entering new markets, diversifying product offerings, or gaining access to new technologies. Banks should assess the potential risks associated with the M&A transaction, including credit risk, operational risk, and reputational risk. Develop strategies for mitigating these risks and ensuring a smooth transition. Keyword: Mergers, Strategy, Acquisitions, Performance, Return on Equity, Synergies, profitability.