Mergers and Acquisitions, and Financial Performance of Commercial Banks and Non-Bank Financial Institutions in Kenya

Abstract

Mergers and acquisitions (M&As) are essential strategies for Kenyan commercial banks and non-bank financial institutions aiming to enhance competitiveness and financial performance; however, outcomes vary significantly due to limited research on integration effectiveness and the absence of standardized performance metrics. This study addresses these gaps by evaluating the impact of M&As on financial performance, with a focus on synergy, merger types, and integration effectiveness. The research objectives were to assess synergy through indicators such as cost-to-income ratios, revenue growth, and market share; analyze merger types using return on assets (ROA), market share expansion, and earnings per share; and examine integration effectiveness via employee retention, operational timelines, and customer satisfaction. Employing a descriptive research design, the study targeted 240 senior managers, executives, and compliance officers from banks involved in M&As between 2016 and 2023. Using the Yamane formula and purposive sampling techniques, 150 respondents were selected, of whom 138 completed structured questionnaires. Primary data gathered was supplemented by secondary data from financial statements and Central Bank of Kenya reports. A pilot test conducted with 30 participants at Britam Holdings confirmed the reliability of the research instrument (Cronbach’s alpha > 0.70) and established face validity. Data analysis utilized SPSS Version 24, combining descriptive statistics and multiple regression analysis to explore how synergy, merger type, and integration effectiveness relate to financial performance. Ethical considerations including informed consent and confidentiality were upheld throughout the study. The findings reveal moderate consensus that synergies improve profitability, with horizontal mergers and effective integration positively impacting financial outcomes. Secondary data corroborated these results, showing ROA increased from 2.2% in 2018 to 3.5% in 2023, and ROE rose from 12.5% to 20.1%. This study contributes to policy development by guiding regulatory frameworks, informs bank management on optimizing M&A execution, and enhances academic understanding of M&A dynamics in emerging markets through a longitudinal approach and robust integration metrics.