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