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.
Keywords: Bank Mergers; Efficiency; Performance; Data Envelopment
Analysis; CAMEL Variables
JEL classification: G21, G34, C33, C67