Ang Yen Chui CGA020043CynthiaChong Chew Yee CGA020038 Submitted to the Graduate School of Business Faculty of Business and Accountancy University Malaya, in partial fulfillmentof the requirements for the DegreeofMastersof Business Administration April2005 We would especially like to thank Professor Dr. G. Sivalingam for his invaluable guidance and contribution to this research paper.
We thank you, Prof, for your patience and positive critiques, which is not limited to this research, but to ourlives in general. We would like to thank Encik GhazaliMohamed Fadzil and his team at the Knowledgement Management Center, Bank Negara Malaysia,Kuala Lumpur for their kind assistance. A special thankyou goes to Jason Liew for his priceless contribution, selfless effort and continuous encouragement in making this researchpaper possible. A sincereheartfelt to all individuals and companieswho have directly and indirectly contributed to this research paper.ABSTRACT In view of the liberalisation and globalisation of the banking sector, the consolidation ofdomestic banking institutions in 2000is inevitable. A fragmented banking system will only increase the vulnerability of the financial system and indeed the vulnerability of the economy as a whole, according to Tan Sri Dato’ Seri Ali Abul Hassan Bin Sulaiman, Governor of Bank Negara Malaysiaon August 1999. There is aneed for a strong and efficient banking system that is resilient in order to support the financing needs of the economy so that the nationcan continue to achieve a strong and sustainable economy.
This paper investigates the effectiveness between pre and post merger effect of the domesticmergers in Malaysiabanking institutions, which arguably is the precondition for sustainable industry growth, according to Tan Sri Dato’ Dr. Zeti Akhtar Aziz, Governorof Bank NegaraMalaysia on 20 August 2002. This paper is organisedas follows.
Chapter 1 presents the introduction of the domestic bank mergers and the rationale behind these nationwide consolidation exercises. Itreviews the theoretical framework of domestic bank merger exercise and merger theories. Chapter 2 reviews related literature. Chapter 3 discusses the recent bank mergers in Malaysia. Chapter 4 discusses the variables used in our research methodology to discuss the effect of domestic bank mergers on the performance of Malaysian banks. Chapter 5 argues the results and assesses the magnitude of the effect of the variables on the merger exercise. Chapter 6 concludes the paper.
II PAGE Acknowledgement. Abstract. .i ii Table of Contents iii Chapter One: Introduction 1.1 Problem Statement. 1 1.
2 The Banking Industry in Malaysia 1 1.3 The Rationale for Domestic Bank Mergers 4 1.4 Merger Theories 6 1.4.
1 Differential Efficiency 7 1.4.2 Managerial Synergy 8 1.4.3 Financial Synergy 9 1.
4.4 Operating Synergy 10 1.4.5 Pure Diversification 11 1.5 Conclusion 12 Chapter Two: Literature Review 2.
1 Introduction 13 2.2 Performance 13 2.3 Conclusion 17 Chapter Three: Recent Bank Mergers in Malaysia 3. I Introduction 19 3.2 Domestic Bank Mergers 20 3.3 Conclusion 28 Chapter Four: Research Methodology 4.1 Introduction 28 4.2 Methodology 29 4.3 Operating Performance 30