The Efficiency Effects of Mergers and Acquisitions in Malaysian Banking Institutions

Abstract

This paper analyses the efficiency and financial performance using CAMEL-type variables, three years before and after the consolidation programme for the domestic banking sector initiated by Bank Negara as a result of the 1997 financial crisis. The results suggest that the mergers did not seem to enhance the productive efficiency of the banks as they do not indicate any significant difference. The financial performance suggests that the banks are becoming more focussed on their intermediation activities to generate high net interest income. However, due to their conservative loan loss reserve policies and cost inefficiencies after the merger, it has somehow resulted in the loan growth and interest earning ratio variable giving a negative impact on ROE.

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