Abstract
M.Com. (Financial Management)
There seems to be a distinct difference in bank behaviours between a merged bank and a non-merged bank. More specifically, it is evident that South African banks that engage in merger and acquisition (M&A) pacts seem to lower the price of their loans following a merger. One of the key motivating factors for banks to engage in an M&A deal is to create value. This value creation may arise through an increase in share price which creates value for the business and the shareholders in particular. This concept of value creation is based on a managerial theory which is a theory based on maximising shareholder wealth (Mueller, 2007). This research examines the impact of South African banks’ mergers and acquisitions (M&As) on their loan pricing processes and procedures by analysing the factors affecting bank loan interest rates. The Monti-Klein model of a banking firm is applied to analyse these relationships. This model utilises macroeconomic factors as well as banking financial indicators to ascertain an optimal price for loans. Research on the impact of M&As on company performance in South Africa concluded that the share price increases following an M&A deal and abnormal returns between the range of 30% to 40% are experienced by shareholders (Affleck-Graves et al., 2011; Bhana, 2009). The findings from the South African studies aforementioned were consistent with the findings from international studies that also concluded that shareholder value was created following an M&A deal. The international studies claimed that shareholders experienced abnormal gains within the range of 16% to 45% (Kohers & Kohers, 2012; Becher, 2013; Andrade, Mitchell & Stafford, 2011). The lowering of the loan price may be an indication that the bank has experienced enhanced efficiency gains as a result of the merger. The improved levels of efficiency may be as a result of the merged banks better diversifying their risk or improving lending systems, processes or technology. Ultimately, borrowers or customers of the merged bank gain by means of paying a reduced price for lending. The empirical studies explored in the research stated that M&As do actually create value for the shareholders and it is therefore imperative to fully understand the potential impact and influences that M&As can have on our banking industry as it may affect financial performance of the target and acquiring banks.