Abstract
Following the 2007 global financial crisis, more than 15 M&A transactions took place among financial institutions in the kingdom of Bahrain. This paper evaluates the impact of M&As on the financial performance of four such deals between banks in Bahrain. Data was collected from financial statements of the banks and the Bankscope database during 2004–2015. 15 accounting ratios were applied to CAMEL Rating Model approach. Financial modelling with Excel has been applied to test for the significance of changes in the financial performance of the banks three years before and three years after mergers. No significant difference in the financial performance of the local banks between pre and post M&As in the kingdom of Bahrain was observed. No significant difference in the financial performance of the acquirer bank or the target bank was observed except Bahraini Saudi Bank (target bank) which showed significant improvement in the financial performance after the merger with acquirer bank namely Al Salaam Bank. No significant change in the overall CAMEL ratios was observed for all banks involved in the M&As in Bahrain during 2004-15. The study provides an empirical analysis of the M&As before and after the mergers which can serve as a basis for further evaluation of future strategy of the banking sector in the kingdom of Bahrain.
Highlights
Introduction and Literature ReviewThe aim of this paper is to evaluate the effect of M&As on the financial performance of merged local banks in Bahrain during 2004-2015 by applying the CAMEL rating model
Three different tests used in this study namely, paired sample t-test for all ratios to examine the significant difference for pre and post M&A for each deal and for any significant difference in the financial performance of the target and the acquirer banks before and after M&A involved in each deal; t-test between the financial ratios pre and post M&A individually for each ratio reported for all deals; and t-test for the overall financial performance between pre and post M&A have been reported
The results showed that there were no significant improvements in the financial performance of the target or the acquirer banks after the mergers except in deal 2 where a significant improvement in Bahraini Saudi Bank’s financial performance was noticed after merger with Al Salam Bank
Summary
Introduction and Literature ReviewThe aim of this paper is to evaluate the effect of M&As on the financial performance of merged local banks in Bahrain during 2004-2015 by applying the CAMEL rating model. The CBB has supported M&As in the banking sector, especially for those with lower capitalization, since this could potentially result in institutions becoming sustainable in the long run. Kaur (2014) mentioned that some of the driving factors for M&A include enhancement of market power, lower risk profile, expansion opportunities, replacement of inefficient management, diversification of products and markets and achievement of economies of scope and scale. These are considered as value maximization reasons for merger, while others could be hubris and for managerial purposes. Central banks around the world have some influence on the integration and restructuring practices of financial institutions
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