ABSTRACT
The process of globalization and liberalization has strongly influenced the banking sector. During this period, the banks put in place effective risk management mechanisms, which is very important to the banking industry. By concentrating on the top line and bottom line, banks across the board have improved their profit while reducing their operational costs and more number of banks has improved their financial performance by using the concept of mergers and acquisitions.
CAMEL rating is used by most banks across the world as a performance evaluation technique. It undertakes all the important criteria, i.e., Capital, Assets, Management, Earnings and Liquidity (CAMEL), for the evaluation of any bank. The study investigates the extent to which merger lead to efficiency. It is found that the private sector merged banks are dominating over the public sector merged banks in profitability and liquidity but in case of capital adequacy and NPAs, the results are contrary to the public sector merged banks.
Keywords: Banking Sector, CAMELS, Financial Performance, Mergers & Acquisitions, consolidation.
Background
A sound banking system is important for smooth development of banking sectors. It can play a key role in the economy as it gathers savings from all over the country and provides liquidity for industry and trade. In the context of Nepal, it is very difficult to trace the correct chorological history of the banking systems because there are no sufficient historical records and data about the banking in Nepal.
At present there are 31 commercial banks, 87 development banks, 79 financial companies, 21 micro credit development banks and 16 saving and credit co-operatives (licensed by Nepal Rastra Bank) established so far in Nepal. These commercial banks and financial institutions have played significant roles in creating banking habit among the people, widening area and business communities and the