Proposal on Assessment of merger and Post merger impact on Global IME

Introduction:
Mergers and Acquisitions (abbreviated M&A) refers to the aspect of corporate strategy,
corporate finance and management dealing with the buying, selling, dividing and combining of
different companies and similar entities that can aid, finance, or help an enterprise grow rapidly
in its sector or location of origin or a new field or new location without creating a subsidiary,
other child entity or using a joint venture. Merger is the form of complete consolidation of
business organization. Absorbing one a business enterprise forms a merger of business
enterprises by another unit. Under merger absorbing business enterprises outright the assets and
properties of the absorbed business unit and a single enterprise is created. The absorbed business
unit loses its identity completely merges itself completely. The business is carried on the name of
the absorbing business company.
In the word of Prof. L.H.Hanery, Merger is a form of business organization which is
established by the outright purchase of the properties into a single business unit.

Reason for initiating Mergers

To secure tax advantage by acquiring other firms with accumulated losses which can be

set off against the current or future profit.

An opportunity to grow faster, with a ready-made market share.
To attain higher growth rate than is possible through internal growth strategy.
To improve the efficiency of operation and attain higher profitability through potential

synergistic effects.
To bring about an increase in the price-earnings ratio and market price of the share.

Statement of the Problem

Banks & Financial Institutions are competing among themselves in many different
aspects. Some may be in case of advancing loans, accepting deposits, management operating
patterns, increasing market price/earnings per share.
As of now, any individual banks lending capacity is far from being impressive. The
banks are not able to finance cost-intensive projects. For business and commerce to intensify and
industries to grow, a strong banking system with financial depth is a prerequisite. Its heartening
that the country has a plethora of banks. The only problem is that they lack capacity and that is a
big drawback. Institutional capacity and strong capital base are the fundamental parameters for
the banking industry the world over. And, Nepali banks will have to do the catching up before
they are taken seriously both within and outside the country.
A merger between banks rated highly for their institutional and financial strengths are
merging which helps the industry in a big way. Now, the new entity can finance even more costintensive projects. This is good news for the industry and the economy of the country. Industrial
development has not taken off in the country as yet but with a more stable political environment,
this is likely to begin soon. And, for that to begin, banks need to be in a position to drive and
sustain such growth, which basically means they need to have the institutional capacity and
capital base of a different level, something perhaps unimaginable now.
Research problems may be stated in the form of following questions:
a) What are the reason behind merging the banks and financial institutions among
b)
c)
d)
e)

themselves?
What necessary step/procedure needed to be carried out at the time of proposing merger?
Is there necessary of merger for the development of banking/financial sector?
What are the impacts on banking sector after merger?
Whether there is necessary requirement to be fulfilled under prevailing law for merging
the banks/financial institution?

Objective of the Study

The main objective of the study is to assess the reason for merger and impact thereafter
between Banks/Financial Institutions. However the specific objectives are:
a) To make comparative analysis of impact of merger on financial performance of Global
IME and Commerz and Trust Bank.
b) To review the assessment made in the due diligence report of the merging of Global IME
and Commerz and Trust Bank.
c) To determine the liquidity management, asset management efficiency, profitability
position, risk position, investment practices of merged banks.
d) To study the following performance indicators:
Liquidity Ratios.
Assets Management Ratios
Profitability Ratios.
Solvency / Leverage Ratios.
Return on Investment Ratios.
Market Stock Ratios.

Significant of the Study

Banks in the developing countries like Nepal have the greatest responsibilities towards
the economic development of the country. Shareholders are determined to know the actual affair
of the business so as to result in increase in their wealth. Creditors as well needs information to
know the status of the business because creditability of the business is based on the solvency
position whether it is able to pay the debts.
Mergers and acquisition (M&As) has been for years, the principal tools for corporate
restructuring is to gain major economic advantages such as economies of scale, synergy gain,
fast growth, tax benefit and diversification.
The proposed study is focused on the financial performance of bank & financial
institution after consolidation. The study will focus on diversification of the assets, risk of assets,

capital adequacy, composition of Non- Performing Assets, financial liquidity & solvency
requirement, evaluation of market performance of stock and risk mitigation practices.
This study can be effective guideline for the policy makers and the persons in the
implementation body. On the other hand this study will help the management of bank/financial
institution and the regulatory body NRB. The study will find strength, weakness, cause of
weakness and suggest ways to mitigate it.

Limitation of the Study

The study has some limitations. The main limitations of the study are as follows:
a) The sole study is on the impact of merger of Global IME Bank and Commerz and Trust
b)
c)
d)
e)

Bank and is not generalized.

This study concentrates on merger between Global Bank and Commerz and Trust Bank
The study is based on secondary data.
In this study, only selected financial tools as well as techniques are used.
The data are before and after merger of these two banks has been taken under study.