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1. INTRODUCTION

1.1 Background of the Study

The Pakistani banking sector has undergone extraordinary transformation over the years, in provisions of number of organizations, ownership constitution, as well as the deepness of operations. These modifications have been prejudiced mostly by challenges pretended by deregulation in policies of financial sector, globalization of procedures, technical innovations and embracing of managerial and prudential necessities that kowtow to international principles.

The wave of merger and acquisitions that currently swept through the banking sector started after the announcement by the state bank of Pakistan, that banks in Pakistan should beef up their minimum capital adequacy ratio should according to bank risk weighted assets or set by SBP.

Mergers and Acquisitions are commonplace in developing countries of the world but are just becoming prominent in Pakistan. Merger and acquisition is simply another way of saying survival of the fittest that is to say a bigger, more efficient, better-capitalized, more skilled industry. Is part of the natural evolution of industries? It is primary driven by Business motives or market forces and Regulatory interventions. The issues therefore , which this study intend to address are whether merger and acquisition will bring about efficient reliable and sound capital base for the bank that fully embraced mergers and to what extend can bank merge boost the confidence of the customers , the investors , the shareholders and ability to finance the real time sector .

1.2 Problem statement

The recent sudden increase of bank mergers in Pakistan is attracting much attention, partly because of keen interest in what motivates companies to merge and how mergers affect efficiency.

A view holds that company's merger not just to obtain superior but also to be well-organized. It is argued that mergers allow the banking industry to take improvement of new occasions created by transformation in the technical and authoritarian surroundings.

A dispute of this is the reduction in the number of banks countrywide but the concentration of power in local banking markets has not increased. The problems of under-capitalization, mismanagement and poor corporate governance have continued to be sources of instability and corruption in successive Pakistani banking crises up till now. Hence, mergers are singing a useful role in restructuring the banking industry with no risk and lack of opposition though, it collide on competence be worthy of attention. This research will consider this inspection by probing the effect of the merger as well acquisition that had taken place in the banking sector of Pakistan on the performance of a selected bank.

1.3 Objectives of the study

The reason of this project is to examine the overall impact of Banks mergers and acquisitions in the Pakistani Banking sector.

This research also focuses on some issues:

Ø To explore the collision of merger as well as acquisition on bank effectiveness, profitability, enlargement and endurance.

Ø To observe the impact of the merger as well as acquisition on the stage of competitiveness in the Pakistani Banking Sector.

Ø To classify those which will give advantage and be defeated in the merger and acquisition procedures?

Ø Does merger boost the capital base of banks?

Ø Does merger improve customer's service delivery in the area of information technology, innovation and boosting customer's confidence?

1.4 Hypothesis

The hypothesis with the intention of testing in this research is stated below as:

H0: Merger and acquisition has not impact on the banks' performance in Pakistan

h3: Merger and acquisition has an impact on the banks' performance in Pakistan

1.5 Significance of the study

The requirement for having a jingle economy and most especially disinfecting the banking sector; It is anticipated that this work will hold out a solution to the importance and recompense of merger and acquisition as a policy tool for the survival of our banking sector. It will equally be of a tremendous significance to those outside the financial sector, who do not know much about some of the benefit of bank merger and acquisition.

1.6 The scope and limitation of the study

The study will not in any way inhabit on the technical issues connecting to merger and acquisition or in the locale of work out figures, slightly, it will attempt to examine the impact of merger and acquisition in the Banking industry of Pakistan.

The study will be carried out in Islamabad/Rawalpindi. For this reason the result cannot be generalized. Also, the study has nothing to do with other banks even though a number of them have experienced mergers too.

CHAPTER 2

2.0 LITERATURE REVIEW

There are many companies that coming together to originate another company and companies taking over the currently existing companies to expand their business (Altunbas, 2005).

Due to recession many Pakistani companies are facing the feeling of uncertainty rising which become reason to alarmed to businessmen, it is not astonishing when we listen to about the enormous corporate restructurings comes into being, particularly in the previous couple of years. Some companies have been taken over and numerous have going to take internal restructuring, while confident companies in same area of trade have consider it valuable to merge with each other to form one company.

There are many gears of merger and acquisitions, offshoot, tender proposal, and many other forms of corporate restructuring in our daily news paper. Thus significant matters both for company decision and policy making and public image have been elevated. No company is considered secure from a conquest risk. On the encouraging elevation Mergers may be dangerous for the strong expansion and enlargement of the company. Victorious entry into innovative product and services and ecological markets may necessitate Mergers at some stage in the company's development. Flourishing contest in international markets may focus on abilities gain in a timely and proficient fashion in the course of Mergers. Most disputed that mergers boost value and competence and move capital to their uppermost and best uses, thus mounting shareholder value (Kruse, 2002).

To decide on a merger or not is a complex issue, particularly in provisos of the technicalities concerned. We encompass almost all issues that the management must focus before taking final decision for merger. A lot of brainstorming would be necessary through the managements to attain conclusion. Judgment has to be fulfilled after discussing the advantages and disadvantages of the planned merger and the impact of that merger on the business, administrative benefits, on shareholders' value, tax implications including stamp duty.

2.1 MERGER

Meaning

“A merger is a combining two companies in one corporation which is completely absorbed by another company. The less significant company loses its name and operates with more important company, which exists with its identity.” (Chawla, 2008)

What Mergers actually mean:

A merger is a combining two companies in one corporation which is completely absorbed by another company. It may entail absorption or consolidation.

In absorption one company acquires another company. For example, Telenor and Tameer Microfinance Bank (TMB).

In consolidation, two or more companies combine to form a new company. For example, Polka and Walls.

The less significant corporation loses its identity and turn into the more significant corporation, which keep hold of its identity. A merger put out the merged corporation, and the existing company supposes all the rights, civil liberties, and liabilities of the merged company. A merger is not like a consolidation, in which two companies lose their detach uniqueness and join to make a totally new company.

A rule is based on the relation that mergers inevitably remove competition between the merging companies. This relation is most sharp where the parties are direct opponent, because courts often believe that such provision are more horizontal to limit output and to raise prices. The terror that mergers and acquisitions decrease competition has inevitable that the government carefully examine planned mergers (Altunbas, 2005).

in spite of disquiet about a decreasing of competition, companies are comparatively free to buy or sell whole companies or particular parts of a company. Mergers and acquisitions frequently result in a number of social reimbursements. Mergers can convey better management or technological skill to abide on underused assets. They also can create economies of scale and range that decrease costs, get better quality, and raise output. The opportunity of a takeover can deject company managers from acting in ways that fail to capitalize on profits. A merger can enable to owner to sell the company to someone who is more proverbial with the particular industry and maintain a better position to shell out the highest price. The view of a profitable sale encourages entrepreneurs to form new company.

Merger is known as amalgamation too. Merger is the synthesis of two or more companies which are working in same era. All current and fixed assets, short and long term liabilities and the stocks of one company shifted toward other Company in reflection of payment in nature of:

§ Cash

§ Equity share of the acquired corporation,

§ Debentures of acquired corporation,

§ All of the above in mixed mode (Chawla, 2008)

2.2 Mergers vs. Acquisitions

These conditions are usually used to describe same thing but in actuality, they have vaguely dissimilar meanings. An acquisition and merger pass on to the act of one corporation attainment of another company and obviously fitting the new possessor. Legally, the target corporation, the corporation that is bought, no more presents. Generally acquisition is use to acquired property in ownership. In the scenario of corporation combinations, an acquisition is to buy one company by getting controlling interest in all resources of other company.

A merger is a combination of two or more corporations that are frequently about the similar size and concur to bond into one large corporation. In the scenario of a merger, mutually company's stocks come to an end to trade as the fresh corporation selects a latest name and a new stock is announced in position of the two different company's stock. This view of a merger is unrealistic by real world standards as it is often the case that one company is actually bought by another while the terms of the deal that is struck between the two allows for the company that is bought to publicize that a merger has occurred while the company that is doing the buying backs up this claim. This is done in order to allow the company that is bought to save face and avoid the negative connotations that go along with selling out.

2.3 Purpose of Mergers & Acquisition:

Purposes for mergers are given below.

(1) Procurement of materials:

Ø To uphold the resources of supplies of raw materials or mediator product

Ø To get hold of economies of purchase as a discount, reduce transportation costs, many overhead costs to introduce new department, etc.

Ø To divide the reimbursement of suppliers economies by generalizing the resources (Cartwright, 1995).

(2) Revamping production facilities:

Ø To accomplish economies of scale by combining production services throughout concentrated utilization of deposit and capital

Ø To generalized product specifications, perfection in quality of manufactured goods, growing market and planning at customers' satisfaction in the course of amplification subsequent to sale services (Chawla, 2008)

Ø To attain improved manufacturing technology and knowledge from the acquired company

Ø To diminish cost, improvement in quality and manufacture competitive goods to hang on to and get better market share (Altunbas, 2005).

(3) Market expansion and strategy:

Ø To get rid of competition and defend present market;

Ø To get new market channel in control of the acquirer;

Ø Strategic control of patents and copyrights

Ø To acquire innovative product for diversification or replacement of accessible goods and to increase products range; (Kruse, 2002)

Ø Strengthening keep hold of channels and sale the products to downsize the distribution;

Ø To decrease advertising cost and get better public image

(4) Financial strength:

Ø To perk up liquidity and boast direct right to use to cash.

Ø To organize of extra and obsolete assets for cash

Ø To improve mechanism to maintain capacity, make use of better strength and the superior assets assistance; (Chawla, 2008)

Ø To achieve tax advantages

Ø To get better Earning Per Share

(5) Commonachievements:

Ø To get better representation and draw attentions of better-quality managerial aptitude to administer its associations;

Ø To give more satisfaction to customers or product user (Chawla, 2008)

(6) Own developmental plans:

The main reason of merger and acquisition is reversed by the acquirer corporation's strategies.

A corporation decide to acquire the other business only when it develop it own goals to enlarge its operation by examining its internal strength where it is not going to face any difficulty in tax, accounting and in valuation of company, etc. It has a goal to attain a suitable amalgamation that provide opportunities to enhancement in its funds by increasing its securities.

(7) Strategic purpose:

The Acquirer Corporation inspect the merger to attain strategic goals in the course of substitute of amalgamation which could be vertical, horizontal merger, product expansion, market expansion or other particular different goals according to attentions of achieving the corporate strategies. Thus, various types of combinations distinct with each other in nature are adopted to pursue this objective like vertical or horizontal combination.

(8) Corporate friendliness:

Even though it is uncommon but it is reality that companies demonstrate degrees of cooperative spirit regardless of competitiveness to give security to each other from hostile takeovers and develop circumstances of partnership allotment of goodwill of another to get more efficiency through business amalgamation.

(9) Desired level of integration:

Mergers and acquisition are hunted to achieve the most wanted level of integration between the two corporations. This type of merger could be an operational or financial. The main reason and the necessities of the acquiring corporation get a long term benefit in choosing a appropriate partnership in merger or acquisition in companionship. (Chawla, 2008)

2.4 Reasons of merger & Acquisition:

The principal economic rationale of a merger id that the value of the combined entity is expected to be greater than the sum of the independent values of the merging entities. For example, if companys A and B merge, the value of the combined entity, V (AB), is expected to be greater than (VA+VB), the sum of the independent values of A and B. (Chawla, 2008)

A variety of reasons like growth, diversification, economies of scale, managerial effectiveness and so on are cited in support of merger proposals. Some of them appear to be plausible in the sense that they create value; others seem to be dubious as they don't create value.

The most plausible reasons in favor of mergers are strategic benefits, economies of scale, economies of scope, economies of vertical integration, complementary resources, tax shields, utilization of surplus funds, and managerial effectiveness.

Strategic benefit:

Ø As a pre-emptive move it can prevents competitor from establishing a similar position in that industry.

Ø It offers a special timing advantage because the merger alternative enables the company to ‘leap frog' several stages in the process of expansion.

Ø It may entail less risk and even less cost

Ø In a ‘saturated market', simultaneous expansion and replacement (through merger) makes more sense than creation of additional capacity through internal expansion

Economies of scale:

When two or more companys combine, certain economies are realized due to larger volume of operations of the combined entity. These economies arise because of more intensive utilization of production capacity, distribution networks, and research and development facilities, data processing systems and so on. Economies of scale are prominent in horizontal mergers where the scope of more intensive utilization of resources is greater. Even in conglomerate mergers there is scope for reduction of certain overhead expenses.

Economies of scope:

A company may use a specific set of skills or assets that it possesses to widen the scope of its activities. For example: proctor and gamble can enjoy economies or scope if it acquires a consumer product company that benefits from its highly regarded consumer marketing skills.

Economies of vertical integration:

When corporations occupied at dissimilar stages of manufacturing and value chain merge, financial system of vertical integration may be comprehend. For instance, the merger of a corporation occupied in searching and production with a company occupied in cleansing and marketing may get better co-ordination and manage.

Vertical integration, though, is not forever a good thought. If a company does everything in-house it may not get the advantage of outsourcing from self-governing suppliers who may be additional well-organized in their division of the value chain.

Complementary resources:

If two companies have harmonizing resources, it may make sense for them to merge. A good example of a merger of companies which complemented each other well is the merger of online gift shop with TCS. Online gift shop is best to know the demands of customer but they don't have excellent transport infrastructure to deliver that gifts to customers but to make its system efficient online gift business should be merge/acquire with TCS or any other service like that.

Tax shields:

When a company with accumulated losses and/or unabsorbed depreciation merges with a profit making company, tax shields are utilized better. The company with accumulated losses and/or unabsorbed depreciation may not be able to derive tax advantages for a long time. However, when it merges with a profit making company, its accumulated losses and/or unabsorbed depreciation can be set off against the profits of the profit making company and the tax benefits can be quickly realized. (Mylonakis, 2006)

Utilization of surplus funds:

A company in a mature industry may generate a lot of cash but may not have opportunities for profitable investment. Such a company ought to distribute generous dividends and even buy back its shares, if the same is possible. However, most management has a tendency to make further investments, even though they may not be profitable. In such a situation, a merger with another company involving cash compensation often represents a more efficient utilization of surplus funds.

Managerial effectiveness:

One of the potential gains of merger is an increase in managerial effectiveness. This may occur if the existing management team, which is performing poorly, is replaced by a more effective management team. Another allied benefit of a merger may be in the form of greater congruence between the interests of the managers and the share holders. (Mylonakis, 2006)

Often mergers are motivated by a desire to diversify and lower financing costs. Prima facie, these objectives look worthwhile, but they are not likely to enhance value.

Diversification:

A frequently acknowledged reason for mergers is to attain risk diminution through diversification. The degree, to which risk is condensed, of course, depends on the association connecting with the earnings of the merging units. at the same time as negative correlation fetches superior lessening in risk, positive correlation takes smaller diminution in risk.

Corporate diversification, though, may present value in at smallest amount two special gears. (Chawla, 2008)

1) If a company is overwhelmed with troubles which can put in danger its existence and its merger with one more company can hoard it from possible liquidation.

2) If shareholders do not have the chance of diversification because one of the corporations is not traded in the bazaar, corporate diversification might be the merely possible route to risk diminution.

Lower financing costs:

The outcomes of larger size and greater earnings and stability, many argue, are to reduce the cost of borrowing for the merged company. The reason for this is that the creditors of the merged company enjoy better protection than the creditors of the merging companies independently.

Increase Supply-Chain Pricing Power:

Bybuying out one of its suppliers or one of the distributors, a business can eliminate a level of costs. If a company buys out one of its suppliers,it is able to save on themargins that the supplier was previouslyadding to its costs; this isknown asa vertical merger.If a company buys out a distributor, it may be able to ship its products at a lower cost.

Eliminate Competition:

Many M&A dealsallow the acquirer to eliminate future competition and gain a larger market share inits product's market.The downside of thisis that a large premium is usually required to convince the target company's shareholders to accept the offer. It is not uncommon for the acquiring company's shareholdersto sell their shares and push the price lower in response to the company paying too much for the target company.

Synergy:

The most used word inM&A is synergy, which is the idea that by combining business activities, performance will increase and costs will decrease. Essentially, a business will attempt to merge with another business that has complementary strengths and weaknesses. (Mylonakis, 2006)

2.5 categories of mergers & Acquisitions

The resulted merger and acquisition is based on the offeror corporation's attention what it desires to attain. Depend on offeror's goal, mergers could be conglomeratic, vertical, horizontal, and circular which will explain below.

I. Vertical combination:

A corporation merged with another company to increase espousing in backward integration and forward integration to absorb the resources of supply in market. The acquiring business due to merger can reduce inventories and finished products. In the vertical combination, the acquirer may be a supplier or a buyer who use their intermediary material for finished goods. (Ahmed Badreldin, October 2009)

There are some benefits from merger that acquiring companies achieved i.e.

1. Due to imperfect market and shortage of resources and obtained products, it gets strong position.

2. Has monopoly in goods specifications.

II. Horizontal combination:

It is a combination of two competitive companies which are at same level of success in industry, and both companies should be related from same business. The main rationale of such mergers is to get economies of scale by removing repetition of conveniences and the processes and expansions the product line, diminution in speculation in working capital, removal in competition attentiveness in product, lessening in advertising costs, raise in market segments and work out improved control on market (Badreldin, 2009).

III. Circular combination:

Corporations generating unique products look for merger to contribute to general division and investigate facilities to get economies by reducing cost on replication and prop up market growth. The acquiring corporation gets advantaged as diversification and resource sharing.

IV. Conglomerate combination:

It is combination of two corporations affianced in different businesses. Main reason of this type of merger remains consumption of finances and increase debt capacity by bringing change in their financial system and also boost share holders' leveraging and earning per share, lessening average cost of capital and in that way raising present worth of the outstanding shares. Merger increases the on the whole constancy of the acquirer corporation and generates balance in the corporation's whole portfolio of various products and manufacturing processes. (Sue Cartwright, May 01, 1995)

V. Market-extension

This entails the grouping of two corporations that sell the identical products in dissimilar markets. A market-extension permits for the market that can be accomplished to develop into larger and is the foundation for the repute of the merger.

VI. Product-extension

This merger is flanked by two corporations that sell different, but to some extent associated products, in a same market. This allows the new, larger company to group their goods and sells them with better success to the previously common market with the intention of the two different companies shared.

VII. Accretive

In accretive an acquired firm's earnings per share enlarge. A substitute way of manipulative this is if a corporation with a high cost to earnings ratio obtains one with a less price earning ratio. (Chawla, 2008)

2.6 Concerns of Mergers & Acquisitions

Conglomerate, Horizontal and vertical mergers each hoist unique competitive alarms.

Horizontal Mergers: Horizontal mergers lift up three basic cutthroat problems. The first is the removal of competition among merging corporations, which, depending on their bulk, could be important. The second is that the amalgamation of the merging company's operations might make sizeable market power and might facilitate the merged company to raise prices by falling output unilaterally. The third difficulty is that, by rising concentration in the related market, the deal might make stronger the ability of the market's outstanding contributors to synchronize their pricing and production decisions. The terror is not that the companies will connect in secret partnership but that the decrease in the number of industry members will improve implicit coordination of performance. (Chawla, 2008)

Vertical Mergers: Vertical mergers have two essential forms:

Forward integration: by which a company purchases a customer, and backward integration, in which a company gets a supplier. Swapping the market contacts with interior transfers can present at least two foremost benefits. First, the vertical merger maintains all transactions between a producer and its supplier, as a result adapt a potentially adversarial association into impressive more like a partnership. Next, internalization can provide management more effectual ways to scrutinize and get better performance.

Vertical integration merger does not diminish the total number of economic units working at one level of the market, but it is changing patterns of industry performance. Either its a forward or backward integration, the newly acquired company may make a decision to deal only with the acquiring company, thus changing competition between the acquiring company's suppliers, customers, or opponents. Suppliers may misplace a market for their possessions; retail channel may be destitute of supplies; or opponents may locate that both supplies and channel are infertile. These potential raise to the anxiety that vertical integration will shut out opponents by restrictive their access to resources of supply or to customers. Vertical mergers also might be less competitive because their well-established market power may hamper new industry from entering the market. (Chawla, 2008)

Conglomerate Mergers: Conglomerate mergers take many forms, series from provisional joint ventures to complete mergers. Moreover a multinational merger is wholesome, ecological, or a product-line addition, it engages company's that operate in separate markets. Therefore, a corporation transaction generally has no direct result on competition. There is no reduction or other alters in the number of companies in both the acquiring and acquired corporation's market. (Chawla, 2008)

Conglomerate mergers can provide a market or "requirement" for companies, therefore giving entrepreneurs liquidity at an open market price and with a key inducement to form new enterprises. The danger of conquest might force offered managers to increase competence in competitive markets. Conglomerate mergers also offer openings for companies to lessen capital costs and transparency and to attain other efficiencies.

Conglomerate mergers, though, may lessen future competition by get rid of the option that acquiring company would have come into the acquired company's market separately. A conglomerate merger may exchange a strong company into a leading one with an influential competitive benefit, or else formulate a policy to make it complex for other corporations to penetrate the market. Such mergers also may lessen the number of minor companies and may enlarge the merged company's political influence, in that way weaken the social and political objectives of keeps self-governing decision-making hubs, assurance that small firm will get opportunities, and defending democratic practices. (Mylonakis, 2006)

2.7 Benefits of Mergers & Acquisition

Diversification:

Corporations that want quick growth in dimension or diversification or market share in the variety of products may discover that a merger can be worn to accomplish the intentions instead of obtainable throughout the volume overriding practices of internal expansion or diversification. The company may attain the similar goals in a short time period merging with an existing company. Moreover this type of a strategy is frequently show low cost than the alternative of mounting the necessary production potential and capability. If a company that wants to expand operations in existing or new product area can find a suitable going concern (Altunbas, 2005).

It may avoid many of risks associated with a design; manufacture the sale of addition or new products. Moreover when a company expands or extends its product line by acquiring another company, it also removes a potential competitor.

Synergism:

The scenery of synergism is very simple. Synergism exists at any time the value of the combination is greater than the sum of the real values. We can explain it as; synergism is “2+2=5”. But categorize synergy on appraise it may be difficult; in fact occasionally its implementations may be very delicate (Chawla, 2008). As generally defined to include any incremental worth is resulting from business combination, synergism in the basic economic good reason of merger. The incremental value may draw from raise in either operational or financial competence. (Chawla, 2008)

Operating Synergism:

Operating synergism may result from economies of scale, some degree of monopoly power or increased managerial efficiency. The value may be achieved by increasing the sales volume in relation to assts employed increasing profit margins or decreasing operating risks. Although operating synergy usually is the result of either vertical/horizontal integration some synergistic also may result from conglomerate growth. In addition, sometimes a company may acquire another to obtain patents, copyrights, technical proficiency, marketing skills, specific fixes assets, customer relationship or managerial personnel. (Chawla, 2008)

Operating synergism occurs when these assets, which are intangible, may be combined with the existing assets and organization of the acquiring company to produce an incremental value. Although that value may be difficult to appraise it may be the primary motive behind the acquisition.

Financial synergism

Among these are incremental values resulting from complementary internal funds f lows more efficient use of financial leverage, increase external financial capability and income tax advantages.

a) Complementary internal funds flows Seasonal or cyclical fluctuations in funds flows sometimes may be reduced or eliminated by merger. If so, financial synergism results in reduction of working capital requirements of the combination compared to those of the companies standing alone (Altunbas, 2005).

b) More efficient use of Financial Leverage

Financial synergy may result from more efficient use of financial leverage. The acquisition company may have little debt and wish to use the high debt of the acquired company to lever earning of the combination or the acquiring company may borrow to finance and acquisition for cash of a low debt company thus providing additional leverage to the combination. The financial leverage advantage must be weighed against the increased financial risk.

c) Increased External Financial Capabilities

Many mergers, particular individuals of comparatively small companies into large ones, happen when the acquired corporation easily cannot finance its process. Usually this is the situations are the small growing company with expending financial requirements (Kruse, 2002).

The company has pooped its bank credit and has practically no right to use the long term debt and equity markets. Sometimes the small company has met operating complexity, and the bank has served up note that its loan will not be rehabilitated? In this type of condition a large company with enough cash and credit to finance the necessities of smaller one perhaps can get a good buy bee. The only substitute the small company may have is to attempt to interest two or more large companies in suggesting merger to initiate, competition into those request for acquisition. The smaller company's conditions might not be so miserable. It may not be endangered by non renewable of growing loan. But is management may be familiar with that constant growth to take advantage in its market will need financing be on its earnings. Even though its bargaining situation will be improved, the financial synergy to get hold of company's strong financial potential may offer the momentum for the merger. Occasionally the acquired companies hold the financing potential. The acquisition of a strong company with respect to cash whose operations have grown may supply additional financing to smooth the progress of growth of the acquiring company. (Chawla, 2008)

In some gear, the acquiring may be capable to recuperate all or elements of the cost of obtaining the cash shrewd strong company when the merger is achieved and the cash then fit into it.

d)The Income Tax Advantages

In some cases, income tax consideration may provide the financial synergy motivating a merger, e.g. assume that a company A has earnings before taxes of about rupees ten corers per year and company B now break even, has a loss carry forward of rupees twenty corers accumulated from profitable operations of previous years. The merger of A and B will allow the surviving corporation to utility the loss carries forward, thereby eliminating income taxes in future periods. (Rehman, 2010)

Counter Synergism

Certain factors may oppose the synergistic effect contemplating from a merger. Often another layer of overhead cost and bureaucracy is added. Do the advantages outweigh disadvantages? Sometimes the acquiring company agrees to long term employments contracts with managers of the acquiring company. Such often are beneficial but they may be the opposite. Personality or policy conflicts may develop that either hamstring operations or acquire buying out such contracts to remove personal position of authority. (Chawla, 2008)

Particularly in conglomerate merger, management of acquiring company simply may not have sufficient knowledge of the business to control the acquired company adequately. Attempts to maintain control may induce resentment by personnel of acquired company. The resulting reduction of the efficiency may eliminate expected operating synergy or even reduce the post merger profitability of the acquired company. The list of possible counter synergism factors could goon endlessly; the point is that the mergers do not always produce that expected results. Negative factors and the risks related to them also must be considered in appraising a prospective merger (Cartwright, 1995).

Other Motives for Merger and Acquisition

Merger may be motivated by two other factors that should not be classified under synergism. These are the opportunities for acquiring company to obtain assets at bargain price and the desire of shareholders of the acquired company to increase the liquidity of their holdings.

Purchase of Assets at Bargaining

Mergers clarify by chance to acquire assets, particularly land limestone rights, deposit and tools, at inferior cost than would be bringing upon you if they were purchased or shaped at the present market prices. If the market price of many punches has been significantly below the substitution cost of the assets they signify, expanding company bearing in mind construction plants, mounting mines or purchasing equipments have found that the preferred assets could be got where by heaper by acquiring a company that previously owned and activated that asset. Risk could be condensed because the assets were previously in position and human resources of organization knew how to functions and market their goods. Most of mergers can be funding by cash tender proposal to the acquired company's stockholders at price considerably above the present market. Though, the assets can be acquired for smaller amount than their current casts of manufacturing. The essential factor elementary this it looks that inflation in manufacturing costs not completely rejected in share prices due to high interest rates and partial optimism by investors concerning prospect economic circumstances (Khawaja, 2007).

Increased Managerial Skills or Technology

infrequently a company will have superior potential that is finds it not capable to expand fully because of shortages in convinced locale of management or an nonappearance of wanted product or technology which required for production. If the business cannot hire the management or can't get the technology it wants, it might unite with a well-matched company that has needed that expertise which other company possess. Abviusly, any merger, in spite of precise reason for it, should put in to the maximization of capital and resources of bank. (Chawla, 2008)

Adopt new technology -To remain competitive, corporations require keeping on top of technical developments and their commerce applications. By purchasing a smaller firm with up to date technologies, a strong company canuphold or expanda competitive perimeter.

2.8 Shortcoming of Merger & Acquisition

If a merger directs to a considerable increase in market share, both in local and national markets, the new company could put into effect of monopoly power. The lawful meaning of a monopoly is a company with more than 35% of the market. If the company has monopoly influence there could be the subsequent shortcomings:

Ø Higher prices leading to allocate inefficiency

Ø Low Quantity and diminution in customer spare

Ø Monopolies are to be expected a productive incompetent and not manufacture on the lower point on average cost curve

Ø Easy to plot

Ø If there is low competition smugness amongst companies can guide to low quality products and not as much of investment in new products

Ø smaller amount of companies consequently less choice for customer

Ø With augmented supernormal earnings the company can employ in cross subsidization or rapacious pricing rising Barriers to Enter in market. (Chawla, 2008)

2.8.1 Risks linked with merger

There are more than a few risks linked with consolidation and a small number of them are as tracks

Ø When two banks merge with each other after that there is a predictable augment in the size of the union. Large size may not eternally be better. The size may obtain too extensively and go away from the control of the management. The improved size may turn into a treatment relatively than an asset.

Ø Consolidation does not guide to immediate outcomes and there is a production period before the outcomes arrive. Mergers and acquisitions are from time to time followed by losses and sturdy overruling periods before the concluding profits dispense in. Patience, self-control and elasticity are required in plentiful measure to create any merger a victory story.

Ø Consolidation mostly comes up to, to take decision at the top. It is a lopsided decision and readiness of the rank and file of both companies may not be approaching. This goes ahead with problems of manufacturing relations, withdrawal, gloominess and de-motivation among the staff. This type of work force can not at all whip out superior results. As a result, personal management at the top order with humanitarian stroke alone can overlay the way.

Ø The structure, systems and the procedures followed in two banks may be vastly different. The previous composition, systems and process may not be favorable in the new atmosphere. A systematic revamping and systems scrutiny has to be done to appreciate mutually the union. At this time overwhelming procedure and requires lot of vigilance approaches to trim down the resistance.

Ø There is a difficulty of valuation linked with mergers. The investor of existing unit has to provide new shares. Up till now wonderful valuation system for shift and compensation is still need to emerge.

Ø Additional, there is a trouble of brand projection too. This turn into more complexes when existing brands have a good attraction for customer. Question occurs either the previous brands should carry on to be anticipated or should they be flooded in support of innovative inclusive identity. (Cartwright, 1995).

2.9 Steps in Bringing About Merger & Acquisition

Due diligence:

It's a term used for a number of concepts involving either the performance of an investigation of a business or person, or the performance of an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations. A common example of due diligence in various industries is the process through which a potential acquirer evaluates a target company or its assets for acquisition (Chawla, 2008).

Due diligence in business transactions:

In transactions of business, the due diligence procedure differs for diverse corporations. The related area of apprehension may comprise the real and personal property, legal, tax, labor, and commercial situation of the company. additional locale comprise intellectual property, financial, international transactions , employee benefits and labor matters, debt instrument review, insurance and liability coverage (Altunbas, 2005).

Approval by shareholders:

A meeting of share holders should be detained by every corporation for approving the plan of mergers at least 80% of shareholders who take part in an election either in individual or by substitute have to support the proposal of merger (Khawaja, 2007).

Authorization of the scheme by the court:

Once the drafts of merger application is accepted by the particular boards, each corporation should formulate an application to the high court of the state where its registered office is situated so that it can summon the get-together of share holders and creditors for passing the merger proposal

Once the mergers scheme is passed by the share holders and creditors, the companies involved in the merger should present a petition to the high court for concompanying the scheme of merger. However the high court is authorized to change the format and pass orders consequently. (Badreldin, 2009).

2.9.1 Legal Procedure for Bringing About Merger & Acquisition

Legal Procedure in Pakistan

In Pakistan, Sections 284 to 289 of the Companies Ordinance, 1984 (the “Ordinance”) and rules, 55 to 68, contained in the Companies (Courts) Rules, 1997, deals with the requirements for Mergers and Acquisitions of companies. An application is required to be made under Section 284 of the Ordinance to the High Court by all the merging companies for the purpose.

The preparation of a scheme of amalgamation/merger by the companies, which have arrived at a consensus to merge, is the most critical step towards undertaking the activity. There is no specific form but it generally contains rationale for activity, financial information, valuations of shares and involved determinations, any pending litigation, etc

Another focus area for the companies, is the valuation and pricing of shares that must be fair and reasonable. The purpose of valuation of shares of companies is to ascertain the swap ratio to be used for the exchange of shares of the merging company or companies with the surviving company (SPB, 2010).

2.10 Failure of Mergers and Acquisitions

Revenue required extra attention in mergers; in fact, a crash to hub on this significant explains why many merger fails and not pays more. Most corporations drop their revenue momentum because they concentrate on cost synergies and give less attention on post merger performance. As a result, lower performance hurts the souk.

2.11 Merger and acquisition in banking sector

Mergers and acquisitions is supporting the banks to make globalization and improved synergy and permit large banks to get hold of on weak banks. Merger in Pakistan held between weak and strong banks that could be reformed given the permanence of employment with working force, utilization of assets sterile up in weedy banks and adding up constructively to the richness of the country throughout increased finances (Pasha, 2010).

The SME banks are operating under risks from economic background which is full of problem for them, insufficiency in capital, old-fashioned technology, on well management, uncertain marketing hard work and weak financial structure. Their presence ruins beneath challenge in lack of keeping speed with increasing computerization and obsolete technology and lack of innovation in product range. These banks face threat form larger banks. (Pasha, 2010).

2.12 Procedure of Bank Merger Acquisition

The procedure for merger either voluntary or otherwise is outlined in the respective state statutes/ the Banking regulation Act. The Registrars, being the authorities vested with the responsibility of administering the Acts, will be ensuring that the due process prescribed in the Statutes has been complied with before they seek the approval of the State Bank of Pakistan. They would also be ensuring compliance with the statutory procedures for notifying the amalgamation after obtaining the sanction of the SBP.

Ø Before deciding on the merger, the authorized officials of the acquiring bank and the merging bank sit together and discuss the procedural modalities and financial terms. After the conclusion of the discussions, a scheme is prepared incorporating therein the all the details of both the banks and the area terms and conditions.

Ø Once the scheme is finalized, it is tabled in the meeting of Board of directors of respective banks. The board discusses the scheme thread bare and accords its approval if the proposal is found to be financially viable and beneficial in long run.

Ø After the Board approval of the merger proposal, an extra ordinary general meeting of the shareholders of the respective banks is convened to discuss the proposal and seek their approval.

Ø After the board approval of the merger proposal, a registered valuer is appointed to valuate both the banks. The valuer valuates the banks on the basis of its share capital, market capital, assets and liabilities, its reach and anticipated growth and sends its report to the respective banks.

Ø Once the valuation is accepted by the respective banks, they send the proposal along with all relevant documents such as Board approval, shareholders approval, valuation report etc to Reserve Bank of India and other regulatory bodies such Security & exchange commission of Pakistan for their approval.

Ø After obtaining approvals from all the concerned institutions, authorized officials of both the banks sit together and discuss and finalize share allocation proportion by the acquiring bank to the shareholders of the merging bank's SWAP ratio.

Ø After completion of the above procedures, a merger and acquisition agreement is signed by the bank (Greenwich University, 2007).

2.13 Overview of merger & acquisition in banking sector of Pakistan

In Pakistan, banks have chosen to acquire / merge with other banks in order to comply with the statutory requirement of raising their paid up capital to at-least Rs.10 billion by the end of 2009. Although, some of the banks have tackled the requirement of capital adequacy by increasing their paid up capital, however M&A has become a business reality in the country. This has involved merger of investments banks with their mainstream banks as well as acquisition of smaller banks by the larger banks. The privatization policy of the government has resulted in acquisitions of ABL, UBL and PTCL (Greenwich University, 2007).

Banking sector in Pakistan has undergone several mergers and acquisitions. Some mergers took place at the time of nationalization of Pakistani banks on January 1, 1974 reducing the number of bank from 16 to 5.however merger and acquisition took place at large scale during 1980's, 1990's and 21st century. Many Pakistani and foreign were small banks (Rehman, 2010).

Merger offered the optimum size operation. Foreign banks have usually small numbers of branches. If they acquire Pakistani bank they get lager branch network. Some small foreign banks were not running profitability they merger themselves to Pakistani banks. An interacting example was the Pakistani operations of bank of America and Emirates banks were sold to Union bank. Later on Union Bank itself bought by Standard Chartered Bank (Greenwich University, 2007).

2.13.1 History of bank mergers and Acquisitions in pakistan (SBP)

CHAPTER 3

3.0 RESEARCH METHODOLOGY

This chapter describes the procedures for data collection and method of data analysis that was used for this research. The section therefore, explores the most suitable research methodology required for the collection, presentation and analysis of data for the study with a view of reaching objective outcome. The methodology of this study will include research design, sources of data, sample size determination, tools for data analysis and instrument for data collection.

3.1 Research Design

This study is based on the use of calculation of financial ratio method through the use of financial statements to gather data.

The study is also based on most common financial ratios which are used to measure the performance of bank by many audit members to be acquainted with internal and market performance of bank.

I selected these ratios with communal discussion of audit manager of banks.

3.2 Research instrument

The major instrument for data collection was primary and secondary data, the primary data include the use of financial statements of banks to elicit information to calculate financial ratio , while the secondary data, consists of information obtained from the work of other authors , using textbook , journals , magazine.

3.3 Sources of Data

3.3.1 Primary Sources of Data

Data collected for the first time and for a specific purpose is considered to be from primary source. All primary sources of data for this research were obtained from financial statements of banks.

3.3.2 Secondary Sources of Data

Secondary data are those materials gathered for other purposes not specifically to achieve the objective of the research. Therefore, necessary caution was applied to ensure that only relevant and accurate secondary data was used. Secondary sources of data include journals, magazines, books, publications, circulars, audited accounts and others.

3.4 Data Analysis Method

Simple percentages and financial ratio calculation employed to analyze the data. The data are represented in a tabulated form and in graphical form. This was based on the calculations of financial ratio.

CHAPTER 4

4.0 DATA ANALYSIS AND INTERPRETATION

4.1 Introduction

This chapter deals with calculations of financial ratios. In this chapter the data is presenting in the form of tables and graph with interpretation of calculated data.

This chapter also present the average variation form pre-merger to post-merger era in bank performance in different scenarios.

4.2. Profitability indicator

Data Findings (SCBPL):

Table 1(a): Standard chartered bank (SCBPL)

2002

2003

2004

2005

2006

2007

2008

2009

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Return on assets

3.4

3.2

3.23

3.25

1.23

1.29

0.27

0.25

3.27

0.76

Return on Equity

53

36

36.67

16.5

17.19

13.75

14.65

16.65

35.54

15.56

Return on deposits

5.39

4.64

4.56

4.57

3.29

3.73

1.57

0.36

4.79

2.23

capital employed

58.0

54.01

64.03

69.05

49.08

45.08

47.16

47

61.23

47.08

Graphical representation:

Interpretation:

The three ratio return on assets, return on equity and return on deposits showing same declining behavior but in return on capital employed ratio in first year value decrease but after that bank goes in increasing trend which depict a way toward better performance.

Data Findings (FBPL)

Table 2: Faysal bank

1998

1999

2000

2001

2002

2003

2004

2005

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Return on assets

6.9

6.54

7.023

7.12

6.03

6.00

5.57

5.12

7.12

5.12

Return on Equity

65

64.12

57.37

61.89

45.12

40.39

41.57

48.34

61.89

48.34

Return on Deposits

4.45

5.12

4.78

5.32

4.11

5.19

3.89

4.12

5.32

4.12

Capital employed

61.5

59.23

60.05

59.78

48

48.89

52.07

51.34

59.78

51.34

Graphical Representation:

Interpretation:

As above graph depicts gradually decreasing in return on assets which shows bank performance on assets is not going adequate.

But in the case of Return on equity shows decline in first three years but in 2005 return in equity increased suitably. It indicates the improvement or bank is going to retain its pre-merger performance or improving its performance.

Return on deposits also showing steadily decline in worth of bank's deposit ratio.

Return on capital employed just decline in first year of post merger but in last three years (in sample) capital employed embark to boost in value.

Profitability finale:

As an intact the average variation in values of profitability ratios or indicators are shown in graph given below.

Return on assets in both banks decreased after merger which indicate indicates that performance on both banks assets is not sufficient. The case of other three ratios is also same as return on assets.

All these ratios show that the profitability indicators are slowly declining after merger and acquisition.

4.3. Capital adequacy indicators

Data finding (SCBPL):

Table 3 capital adequacy SCBPL

2002

2003

2004

2005

2006

2007

2008

2009

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Total capital to assets

7.82

7.89

8.27

7.31

7.99

6.93

7.25

7.72

7.31

7.72

Loans to total capital

0.95

0.99

1.72

1.22

0.98

1.29

0.99

1.96

1.22

1.96

Deposits to total capital

7.01

5.17

5.34

6.03

6.78

6.08

7.89

7.91

6.03

7.91

Capital/ risk assets

18.11

17.99

17.61

17.93

16.87

17.19

16.98

17.49

17.93

17.49

Graphical Representation:

Interpretation:

Total capital to assets ratio is presenting escalating tendency year to year which is showing positive response for capital adequacy improvement.

Loans to total capital ratio is growing very low in post-merger and acquisition period as compare pre-merger period.

Deposits to total capital ratio is increasing continuously after merger and acquisition which is giving a positive result in bank capital management.

Capital/risk assets ratio or capital adequacy ratio basically find out how banks can cope up with the risks. It is a measurement which shows how much capital is used to maintain the banks' risk assets. So this ratio determines the capacity of a bank in terms of meeting with the legal responsibility and extra risks such as credit risk and operational risk. So capital provides cushion for potential losses.

There is no specific fluctuation in capital adequacy ratio its representing same trend as pre-merger and acquisition period.

Data finding (FBPL):

Table 4: capital adequacy faysal bank

1998

1999

2000

2001

2002

2003

2004

2005

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Total capital to assets

5.78

5.63

6.64

6.61

6.01

5.23

5.85

6.12

6.61

6.12

Loans to total capital

1.15

0.89

1.20

1.06

1.01

1.09

0.99

0.96

1.06

0.96

Deposits to total capital

6.34

6.67

5.34

5.43

5.78

5.98

6.19

6.51

5.43

6.51

Capital/ risk assets

15.78

14.89

15.09

16.03

11.07

13.15

13.68

15.09

16.03

15.09

Graphical Representation:

Interpretation (FBPL):

Total capital to assets ratio is decreased in first year after that ratio begin to increase which is showing improvement in performance of capital adequacy management.

Loans to total capital ratio is growing very low in post-merger and acquisition period as compare pre-merger period.

Deposits to total capital ratio is increasing constantly in post merger period.

capital adequacy ratio decreased in first couple of years but in last two years it perform well as pre-merger but not show as good as pre merger performance in all periods.

Capital Adequacy finale

The variation from pre-merger to post merger period of capital adequacy is shown in graph.

Graph signifies that overall average performance of both banks decreased in post merger period.

4.4. Liquidity risk indicator

Data finding (SCBPL)

Table 5: liquidity risk of SCBPL

2002

2003

2004

2005

2006

2007

2008

2009

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Loans to total assets

10.15

9.73

9.97

10.12

9.67

9.91

10.69

11.24

10.08

10.38

deposits to total assets

5.25

5.48

6.89

5.93

4.47

4.56

5.18

5.89

5.88

5.02

loans to deposits

75

69

71

73

67

62

70

74

72

67

Fixed assets to total assets

15

13

17

18.3

16

19

17.5

17

15.82

17

Graphical Representation:

Interpretation:

Liquidity ratios challenge to calculate a business aptitude to pay off its temporary debt commitments. This is done by match up to business mainly liquid asset its temporary liabilities.

“The loans to assets ratio measure the total loans exceptional as a percentage of total assets. The superior this ratio point to a bank is finance up and its liquidity is small. The more the ratio, the higher risky a bank may be to high defaults.”

In SCBPL the loans to assets ratio increase year to year which is risky for bank.

Deposits to total assets ratio in post merger era is declining which is not in favor of bank performance.

If loan to deposit ratio is too high, it means that banks might not have enough liquidity to cover any unexpected fund requirements. If the ratio is too low, banks may not be earning as much as they could be. Loan to deposit ratio decreased in first three years of merger but in last it boosts up.

Fixed assets to total assets a measure of the extent to which fixed assets are financed with owner's equity (capital). A high ratio specify an inefficient use of working capital which lessens the enterprise's handiness to carry accounts receivable and maintain inventory, it means a low cash reserve. It often limits ability to take action to improved demand for services.

Fixed assets to total assets ratio increased in post merger era which indicates that the liquidity condition of banks is fetching weaker.

Data finding (FBPL)

Table 6: liquidity risk of FBPL

1998

1999

2000

2001

2002

2003

2004

2005

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

Loans to total assets

9.12

9.89

10.18

10.01

9.91

10.02

9.89

10.1

9

9.8

10.0025

deposits to total assets

6.14

6.00

5.89

5.23

5.21

5.98

6.12

6.29

5.815

5.9

loans to deposits

69

67

71

79

70

68

67

72

71.5

69.25

Fixed assets to total assets

17

18

16

19

20

19

18

22

17.5

19.75

Graphical Representation

Interpretation

In FBPL all ratios of liquidity except loan to deposit showing increasing trend that is a sign of low performance.

Liquidityfinale:

The above graph indicates the average measurement of pre and post merger of both SCBPL and FBPL banks. The overall liquidity performance of both banks is waning after merger and acquisition.

4.5. Growth indicators

Data Finding (SCBPL)

Table 7: Growth indicator of SCBPL

2002

2003

2004

2005

2006

2007

2008

2009

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

EPS

5.36

4.87

5.12

5.19

5.89

4.91

5.09

5.37

5.13

5.43

Price Earnings ratio

4.89

4.38

5.10

4.79

4.12

4.92

5.67

5.84

4.79

5.13

Dividend Yield ratio

35

29

37

33

32

38

41

45

33.5

39

Dividend Payout ratio

24

22

28

31

26

31

37

39

26.5

33.25

Graphical Representation

Interpretation

Earning per share tells how much profit was formulated on per share. EPS increased in post merger period which is showing better performance in stock.

Price Earning ratio is calculated to craft a guess of appreciation in the value of a share of a bank and is broadly used by investors to take a decision either to buy shares or not. The higher the price earning ratio indicates positive sign in performance. In our data finding the price earning ratio is increasing which showing in post merger era the market growth of bank is going well.

Dividend yield ratio measures what percentage return a bank gives to its shareholders as a dividends. Higher the ratio higher the dividend is paid to shareholder and higher the satisfaction of customer which cause reputable fortune for a bank.

Dividend pay out ratio gives you an idea about what percentage of a bank's income it is giving to bank's investors as dividends. Higher the ratio is in favor of bank performance.

The growth indicators are going toward performance in a good health condition.

Data Finding (FBPL)

Table 8: Growth indicator of FBPL

1998

1999

2000

2001

2002

2003

2004

2005

Average

Pre

Pre

Pre

Pre

post

Post

Post

Post

Pre

Post

EPS

4.86

4.83

3.92

4.19

4.89

4.91

5.29

5.97

4.45

5.265

Price Earnings ratio

8.9

8.08

7.11

6.79

6.82

8.12

8.83

8.34

7.72

8.0275

Dividend Yield ratio

28

32

31

29

35

38

38

41

30

38

Dividend Payout ratio

11

9

17

21

19

23

20

22

14.5

21

Graphical representation

Interpretation

FBPL is showing same trend in growth indicators as SCBPL so the above interpretation is same for FBPL.

Growth Finale

The growth indicator of both banks is boosting up with positive response in performance which shows that the market value of bank turns into better-quality after merger.

CHAPTER 5

5.0 CONCLUSION AND RECOMMENDATION

5.1 Conclusion:

In this study challenges was made to highlight the consequence of mergers and acquisition in the Pakistani banking sector.

From the analysis of related literature, analysis and interpretation of data the study conclude that mergers and acquisition are really means for rapid growth, superior control, and continued existence of banks in Pakistan.

One can positively of company that there is a wan of a new era in the banking industry which is bringing a lot of challenges to the stakeholders in the banks on their toes .This is outstanding to the information that the SPB is not resting on its oars to bring out policies aimed at ensuring stability and transparency in the banking operating environment.

The study shows that mergers and acquisitions in banking commerce are among the policy trusts of SBP to correct the anomalies in the industry. More importantly, the merger has sharpened the competitive edge in the industry that they need to play in the emerging global financial markets.

The study further shows that one of the fall outs of the mergers is the shrinkage in the industry. Pakistan has banks with huge capital to invest now, but it is instructive to note that size and huge capital do not necessarily make a good and sound bank.

Usually, the study asserts that for a bank to survive in the current indulgence it needs to maximize its competitive advantage, by promoting its uniqueness in the areas where it performs best. The decisive factors for completion and profitability in the new era would be the optimization of reduces by the emerging banks. If any bank wishes to complete in the coming era, now is the time to plan for optimal resources structure, because the banks with the best brains and best hands would have an opportunity to enhance its performance by taking good decision to merge with other bank.

Bring to a close, merger and acquisition in banking sector of Pakistan lug change in performance of bank. In post merger era banks performance enhance in many areas and decline in some areas too. So the merger and acquisition has a long term impact on bank performance.

As the ratio analysis data results indicates the impact of merger and acquisition is long lasting and in post merger early period performance of bank decline in almost all indicators such as market, liquidity and profitability but time to time performance improved and capital base also increased which is really a positive sign for success of any bank.

5.2 Recommendation

Ø There are some recommendations after conclusion of this study;

Ø Government should provide enabling environment that will encourage more merger in Pakistan, whereby our nation can have a strong bank with good capital bases.

Ø SBP should make such policies which can control monopoly creation in banking industry.

Ø SBP should be fix minimum capital base for all banks to run their operation successfully and in risk free environment.

5.3 Limitations

In this study there were many limitations to get correct results such as

Ø Study sample was very short due to time constraint.

Ø Many important financial ratios could not calculated due to incomplete financial data in financial statements.

Ø Impact of merger and acquisition is correctly examine after 2 or 3 years of M&A because management take time to adjust with changes in banks that comes with M&A. In my study I have taken 4 years data before and after merger to be acquainted with the impact of merger and acquisition.

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