EFFICIENCY AND PROFITABILITY IN INDONESIA
By
Maria Vania Ramli 11603011
BACHELOR’S DEGREE in
INTERNATIONAL FINANCE AND BANKING BUSINESS COMMUNICATION
SWISS GERMAN UNIVERSITY The Prominence Tower
Jalan Jalur Sutera Barat No. 15, Alam Sutera Tangerang, Banten 15143 - Indonesia
June 2020
Revision after Thesis Defense on Monday, July 6, 2020
Maria Vania Ramli STATEMENT BY THE AUTHOR
I hereby declare that this submission is my own work and to the best of my knowledge, it contains no material previously published or written by another person, nor material which to a substantial extent has been accepted for the award of any other degree or diploma at any educational institution, except where due acknowledgement is made in the thesis.
Maria Vania Ramli
_____________________________________________
Student
July 20, 2020
Date
Approved by:
Ir. Nurdayadi, MSc.
_____________________________________________
Thesis Advisor
July 20, 2020 Date
Dr. Nila K. Hidayat, SE., MM.
_____________________________________________
Dean
July 20, 2020 Date
Maria Vania Ramli ABSTRACT
MERGERS AND ACQUISITIONS TOWARDS BANK EFFICIENCY AND PROFITABILITY IN INDONESIA
By
Maria Vania Ramli Ir. Nurdayadi, MSc.
SWISS GERMAN UNIVERSITY
Mergers and acquisitions can be an alternative solution for banks that are experiencing liquidity problem as a strategic step to improve bank’s efficiency and profitability. The purpose of this study is to determine the differences in the performance efficiency levels and profitability of banks, using the Data Envelopment Analysis (DEA) model and paired sample t test, before and after conducting merger and acquisition. This study uses the population of five banks that operate and have a head office in Indonesia, and have conducted mergers and acquisitions in the period of 2008-2019 and are still operating until 2019. The time span taken for twelve years is considered to be sufficiently representative samples to examine the concept of banking efficiency and profitability referred in this study. The result of the efficiency
Maria Vania Ramli analysis using DEA shows a significant difference on the bank’s efficiency before and after mergers and acquisitions. Meanwhile, the result of the profitability analysis shows no significant difference between bank’s profitability before mergers and acquisitions compared to bank’s profitability after mergers and acquisitions. All things considered, mergers and acquisition have a significant impact towards bank’s efficiency but show no significant impact towards bank’s profitability.
Keywords: Acquisition, Bank Efficiency, Bank Profitability, Data Envelopment Analysis (DEA), and Merger.
Maria Vania Ramli
© Copyright 2020 by Maria Vania Ramli
All rights reserved
Maria Vania Ramli DEDICATION
I dedicate this works for to my beloved mother and father for their great support and love.
Maria Vania Ramli ACKNOWLEDGEMENTS
First and foremost, praises and thanks to God, the Almighty, for His mercy, ease, and blessings throughout completing my thesis work successfully with the tittle “Mergers and Acquisitions Towards Bank Efficiency and Profitability”, including being able to complete my studies in Swiss German University. I offer my sincere appreciation for the learning opportunities provided by this university.
I realize that this thesis work is not my work alone, but is the result obtained from a series of collective work process. This thesis will have not been completed without the help, support, guidance, contribution of ideas, criticisms and suggestions from various parties. Therefore, on this occasion the I would like to express my highest appreciation and sincere thanks to:
1. My advisor, Ir. Nurdayadi, MSc. for his continuous support of this study, for his patience, motivation, advices, and immense knowledge. His guidance helped me in all the time of this study and writing this thesis work report. I could not have imagined having a better advisor and mentor for my Bachelor study.
2. My Parents, Mr. and Mrs. Wenys Ramli, for the countless times they helped me throughout my journey in achieving my Bachelor Degree. Their encouragement in rough times are much appreciated.
3. My family and friends, without their support, my completion of this study will have not been accomplished. Special thanks to Jennifer, Nadia, and Sonam for being such supportive, intelligent, and humble friends.
Maria Vania Ramli TABLE OF CONTENTS
Page
STATEMENT BY THE AUTHOR ... 2
ABSTRACT ... 3
DEDICATION ... 6
ACKNOWLEDGEMENTS ... 7
TABLE OF CONTENTS ... 8
LIST OF FIGURES ... 11
LIST OF TABLES ... 12
CHAPTER 1 - INTRODUCTION ... 14
1.1 Background ... 14
1.2 Research Problems ... 21
1.3 Research Objectives ... 21
1.4 Significance of Study ... 21
1.5. Research Questions ... 22
1.6. Hypothesis ... 22
CHAPTER 2 - LITERATURE REVIEW ... 23
2.1 Framework of Thinking ... 23
2.2 Theoretical Perspectives ... 25
2.2.1 Merger ... 25
2.2.2 Acquisition ... 27
2.2.3 Bank Efficiency ... 29
2.2.4 Bank’s Profitability ... 33
Maria Vania Ramli
2.2.6 Merger and Acquisition Towards Bank’s Profitability ... 36
2.2.7 Data Envelopment Analysis (DEA) ... 37
2.2.8 Paired Samples t Test ... 39
2.3 Previous Studies ... 41
CHAPTER 3 – RESEARCH METHODS ... 44
3.1 Types and Sources of Data ... 44
3.2 Population and Sample ... 44
3.2.1 Population ... 44
3.2.2 Samples ... 44
3.3 Analysis Technique ... 46
3.3.1 Data Envelopment Analysis (DEA) ... 46
3.3.2 Paired Sample t Test ... 49
3.4 Research Model ... 50
CHAPTER 4 – RESULTS AND DISCUSSIONS ... 51
4.1 Initial Evaluation ... 51
4.1.1 Background of CIMB Niaga Mergers ... 51
4.1.2 Background of Bank Central Asia Acquisitions ... 55
4.1.3 Background of Bank OCBC NISP Mergers ... 57
4.1.4 Background of Bank Rakyat Indonesia Acquisitions ... 59
4.1.5 Background of Bank Woori Saudara Indonesia Acquisitions ... 64
4.1.6 CIMB Niaga, Bank Central Asia, BCA Syariah, OCBC NISP, Bank Rakyat Indonesia, BRI Agro, and Bank Woori Saudara A Year After Mergers or Acquisitions ... 66
4.1.7 CIMB Niaga, Bank Central Asia, BCA Syariah, OCBC NISP, Bank Rakyat Indonesia, BRI Agro, and Bank Woori Saudara Two Years After Mergers or Acquisitions ... 68
4.1.8 CIMB Niaga, Bank Central Asia, BCA Syariah, OCBC NISP, Bank Rakyat Indonesia, BRI Agro, and Bank Woori Saudara Three Years After Mergers or Acquisitions ... 69
Maria Vania Ramli
4.2 Data Analysis ... 70
4.2.1 Efficiency Analysis of the Banking Industry experiencing mergers or acquisitions in Indonesia Based on Data Envelopment Analysis (DEA) ... 71
4.2.2 Profitability Analysis of the Banking Industry experiencing mergers or acquisitions in Indonesia Based on Paired Sample t Test ... 80
4.3 Discussion ... 82
CHAPTER 5 – CONCLUSIONS AND RECCOMENDATIONS ... 85
5.1 Conclusions ... 85
5.2 Recommendations ... 85
APPENDIX ... 87
GLOSSARY ... 89
REFERENCES ... 91
Maria Vania Ramli LIST OF FIGURES
Figures Page
Figure 1.1 Annual Inflation and Bank Indonesia Interest Rate... 20 Figure 3.1 Research Model ... 50 Figure 4.1 Efficiency Analysis Before Merger or Acquisition ... 76 Figure 4.2 Efficiency of Banking Companies one to three years after experiencing mergers and acquisitions in Indonesia ... 78
Maria Vania Ramli LIST OF TABLES
Table Page
Table 2. 1 Framework of Thinking ... 23
Table 2.2 Operational Variables Definition ... 32
Table 2.3 List of Previous Studies ... 41
Table 3.1 Research Sample Selection Process ... 45
Table 3.2 Names of Banks Selected as Samples ... 45
Table 3.3 Input Output Variables ... 47
Table 4.1 Bank Performance Three Years Before Mergers in 2005 ... 53
Table 4.2 Bank Performance Two Years Before Mergers in 2006 ... 53
Table 4. 3 Bank Performance One Year Before Mergers in 2007 ... 54
Table 4. 4 Bank Performance During Three Years Before Acquisition ... 56
Table 4. 5 Bank Performance During Three Years Before Acquisition ... 58
Table 4.6 Bank Performance One Years Before Mergers in 2008 ... 62
Table 4.7 Bank Performance Two Years Before Mergers in 2009 ... 62
Table 4.8 Bank Performance Three Years Before Mergers in 2010 ... 63
Table 4.9 Bank Performance During Three Years Before Acquisition ... 65
Table 4. 10 Banks’ Performance A Year After Mergers or Acquisitions ... 67
Table 4.11 Banks’ Performance Two Years After Mergers or Acquisitions ... 68
Table 4.12 Banks’ Performance Three Years After Mergers or Acquisitions ... 70
Table 4.13 Lippo Bank and Bank Niaga’s Efficiency Score ... 72
Table 4.14 BCA’s Efficiency Score ... 72
Table 4.15 Bank NISP’s Efficiency Score ... 73
Table 4.16 BRI and Bank Agro’s Efficiency Score ... 73
Table 4.17 Bank Saudara Indonesia’s Efficiency Score ... 74
Maria Vania Ramli experiencing mergers and acquisitions in Indonesia... 74 Table 4.19 Banking Company Efficiency Calculation Results one to three Years After Experiencing Mergers or Acquisitions in Indonesia ... 76 Table 4.20 Banking Company Efficiency Calculation Summary One to Three Years Before and After Experiencing Mergers or Acquisitions ... 79 Table 4.21 Descriptive Analysis of ROA and ROE... 80 Table 4. 22 Descriptive Statistics Test Results of ROA and ROE ... 81
