declaration i byamukama eliab

i

DECLARATION

I Byamukama Eliab declare that the work presented is my own and original and has

never been presented by any other person either in wholly or partly to any

university/institution of higher learning for the degree award or any other academic award.

Signature………………………………………

BYAMUKAMA ELIAB

(STUDENT)

DATE…………………………………………..

ii

APPROVAL

This research was carried out under my supervision and I certify that this work is

submitted with my approval as the university supervisor and is worthy for the award of

Bachelors degree of Commerce of Makerere University.

Signed: …………………………………………………

MR. EBIRU DAVID

SUPERVISOR

DATE: ……………………………………………………

iii

DEDICATION

I would like to dedicate this report to our lord Jesus Christ who took care of everything

that this book required. Then to my kind mother Mrs. Jane Karunganwa and my late father

Mr. Robinson Karunganwa, plus my sisters Janet and Ruth and my brothers Moses, Seth

and Julius, my late uncle Rev. Kabigumira and my Aunt Mauda respectively for the

continued support and guidance without which my hopes to attain education would be

shattered.

iv

ACKNOWLEDGEMENT

The success of this work depends on the support of several people to whom I owe

acknowledgment. It is against this that I would like to express my heartfelt thanks and

appreciations to the following people. First I say special thanks to my God who has been

the pillar amidst several trials and to him I give the entire honor. I wish to express my

thanks to my beloved mother Mrs. Jane Karunganwa for you priceless love and care and

inspiration since childhood and to my brother Mr. Julius Kumanya and his wife.

Particularly, I wish to convey my sincere thanks for the tireless efforts of my supervisor

Mr. Ebiru David who guided me and shaped my trend of thought and was very patient

with me right from the beginning to the end. Thank you very much and may God bless

you. I would like to thank the key informants that is staff of Barclays bank who helped me

in filling questionnaires and answering the interview guide from which this report was

derived May God bless you.

A special acknowledgment goes to my friends Liberty,Hilda,Maggie,Ronald, Mary,

Lillian,Calist,Michael,Roland,Patience,Agatha,Nyakaishiki,Patience,Shillar,SaviourZaabu

,Samuel,Sarah,Ruth and all my group mates who encouraged me and stood with me in

difficult times and kept me focused.

May God bless you all!

v

TABLE OF CONTENTS.

DECLARATION ............................................................................................................... i

APPROVAL .....................................................................................................................ii

DEDICATION ............................................................................................................... iii

ACKNOWLEDGEMENT ............................................................................................... iv

TABLE OF CONTENTS. ................................................................................................. v

LIST OF FIGURES. ....................................................................................................... xii

ABSTRACT ..................................................................................................................xiii

CHAPTER ONE: BACK GROUND TO THE STUDY .................................................... 1

1.0 Introduction................................................................................................................. ...1

1.1 Background to the study ........................................................................................... 1

1.2 Statement of the problem ......................................................................................... 5

1.3 Objectives of the study ............................................................................................. 6

1.4. Research questions ................................................................................................... 6

1.5 Conceptual framework ............................................................................................ 7

1.6 Scope of the study .................................................................................................... 8

1.6.1 Geographical scope .................................................................................................. 8

1.6.2 Content scope........................................................................................................... 8

1.6.3 Time scope ............................................................................................................... 8

1.7 Significance of the study .......................................................................................... 8

vi

1.8 Operational definition .............................................................................................. 9

CHAPTER TWO LITERATURE REVIEW .................................................................. 10

2.0 Introduction .......................................................................................................... 10

2.1 The concept of Bank takeovers ............................................................................... 10

2.1.1 Bank takeover.............................................................................................................10

2.1.2 From the legal perspective, the takeover is of three types. ...................................... 11

2.1.3 Key words in bank takeover ................................................................................... 11

2.2 Performance of bank takeovers............................................................................... 12

2.3 Factors affecting the performance of Bank takeovers.............................................. 13

2.3.1 Managerial factors that affect the performance of bank takeovers. .......................... 13

2.3.2 Economic factors that affect the performance of bank takeovers. ............................ 16

2.3.3 Government policy and performance of bank takeovers......................................... 21

2.3.4 Banking infrastructure. ........................................................................................... 23

2.4 Conclusion ............................................................................................................. 25

CHAPTER THREE: METHODOLOGY ........................................................................ 26

3.0 Introduction............................................................................................................. ......26

3.1 Research design ........................................................................................................ 26

3.2Study population ........................................................................................................ 26

3.2.1 Sampling method .................................................................................................. 26

3.2.2 Sample size. ........................................................................................................... 27

3.3 Data collection ...................................................................................................... 27

vii

3.3.1 Primary data source ............................................................................................... 27

3.3.2 Secondary data source ........................................................................................... 28

3.4 Data collection instruments. .................................................................................. 28

3.4.1 Questionnaire (primary data) .................................................................................. 28

3.4.2 Interviews .............................................................................................................. 28

3.4.3 Investigative procedure ......................................................................................... 29

3.5 Data presentation and analysis and processing ..................................................... 29

3.5.1 Data processing ..................................................................................................... 29

3.5.2 Data analysis .......................................................................................................... 30

3.5.3 Presentation of findings .......................................................................................... 30

3.6 Limitations of the study .......................................................................................... 30

CHAPTER FOUR: PRESENTATION, DISCUSSION

AND ANALYSIS OF FINDINGS. .............................................................................. 32

4.0 Introduction .......................................................................................................... 32

4.1 General information .............................................................................................. 32

4.1.1 Respondents according to age ................................................................................ 33

4.2.2 Findings about the introduction of new products of bank takeover of Barclays

bank.....................................................................................................................................37

4.3 Findings on the performance of bank takeover of Barclays bank ........................... 38

4.3.1 . Levels of Profitability for Barclays bank over the years 2006, 2007,2008,2009,2010.

....................................................................................................................................38

4.4 Findings on how managerial skills affect the performance of

bank takeover of Barclays bank...................................................................................... 39

4.4.1 Findings on management skills of performance of bank takeover ........................... 40

viii

4.4.2 Managerial systems of Barclays bank .................................................................... 41

4.5 Effect of economic factors on the performance of bank takeover of Barclays bank. 42

4.5.1 Economic globalization and the performance of bank takeover of Barclays bank... 43

4.6 The effect of government policy on performance of Barclays bank. ...................... 44

4.7 Effect of banking infrastructure on the performance of bank takeovers. .................. 45

4.7.1 Findings on how to use an ATM (as a banking infrastructure) ............................... 45

4.7.2 Findings on whether banking infrastructure has increased the level of efficiency and

effectiveness of a bank takeover. ..................................................................................... 45

4.8 Relationship between takeovers and performance of banks. ................................... 46

CHAPTER FIVE: SUMMARY, CONCLUSIONS AND RECOMMENDATIONS ........ 50

5.0 Introduction ........................................................................................................... 50

5.1 Summary of findings .............................................................................................. 50

5.2 Conclusions ........................................................................................................... 52

5.1 Recommendations .................................................................................................. 54

5.1 Areas for further research ...................................................................................... 56

REFERENCES ............................................................................................................... 57

APPENDICES

QUESTIONAIRE..........................................................................................APPENDIX 1

LETTER OF INTRODUCTION....................................................................APPENDIX 11

ix

ACRONYMS

ATMs Automated Teller Machines

BOU Bank of Uganda

CB Central Bank

CEO’s Chief Executive Officers

EMU European Monetary Union

ICT Information Communication Technology

IMF International Monetary Fund

P Profits

PAC Persons Acting in Concert

PIN Personal Identification Number

Q Output

ROA Return on Assets

SEBI Substantial Acquisition of Shares and Takeovers

TC Total Costs

TR Total Revenue

UCBL Uganda Commercial Bank Limited

x

UK United Kingdom

US United States

WB World Bank

xi

LIST OF TABLES

Table 1: Profitability trends of Barclays Bank before and after takeover. .......................... 5

Table 2: Sampling frame and sample size........................................................................ 27

Table 3:Sex composition of respondents ......................................................................... 32

Table 4: Respondents according to age. .......................................................................... 33

Table 5: Existence of bank takeover of Barclays bank ..................................................... 34

Table 6:Types or forms of takeovers of Barclays bank. ................................................... 36

Table 7: Introduction of new products at Barclays bank. ................................................. 37

Table 8:Levels of profits. ................................................................................................ 38

Table 9:Managerial cooperation of Barclays bank ........................................................... 39

Table 10:The extent of management skills and staff commitment in performance of bank

takeover. ......................................................................................................................... 40

Table 11: Management approach system of Barclays bank. ............................................. 41

Table 12: Economic globalization and the performance of bank takeover of Barclays

bank.. .............................................................................................................................. 43

Table 13: Relationship between bank takeovers and performance of banks ..................... 47

Table 14:Non parametric correlation ............................................................................... 48

xii

LIST OF FIGURES.

Figure 1: Findings on whether bank takeover is a good thing for employees. .................. 35

Figure 2: Findings on economic globalization and the performance of bank take over of

Barclays bank. ................................................................................................................ 44

Figure 3: Findings on whether banking has increased the level of efficiency and

effectiveness. .................................................................................................................. 46

xiii

ABSTRACT

The study contains an evaluation of the relationship between takeovers and business

performance, a case study of Barclays bank Uganda. It was guided by the following

objectives; to investigate the performance of banks in Uganda, to assess the effect of bank

takeovers on performance of Barclays Bank and to examine the relationship between

takeovers and performance of Banks.

The study was carried out using descriptive design to collect data from respondents. The

research focused on management of Barclays Bank and a total of 30 staff members of

Barclays Bank Uganda were taken for the study applying simple random sampling

methods to select respondents. The study uses both primary and secondary which was

collected using questionnaire. Data was analyzed using SPSS and presented using tables,

percentages in establishing the relationship between takeovers and performance of banks.

The findings indicate very strong positive relationship at r= (0.756), p>0.1 by spearman‟s

rank correlation coefficient.

Findings on economic factors indicated that interest rates charged on loans were high.

Findings on managerial factors showed that poor management, lack of staff commitment

and poor management styles negatively affects performance of bank takeovers. Findings

on banking infrastructure indicated that better infrastructure promotes bank takeovers. The

findings on government policy showed that fiscal discipline and government policy of

liberalization is a key ingredient of the performance of bank takeovers.

The study recommends that Barclays Bank should have the capacity to serve her clients

anywhere and should keep it mind that bank takeover is not only business proposal but a

xiv

co-operate marriage of both the entities which requires deeper and insightful solutions.

Barclays Bank should make financing available to business so that they can make enough

profits above the rate of inflation. It is also recommended that the government reduce

marginal income tax rates to stimulate the economy of the banking sector.

1

CHAPTER ONE

BACK GROUND TO THE STUDY

1.0 Introduction

This study was about the relationship between bank takeovers in Uganda, acase study of

Barclays bank. This chapter presents the back ground to the study, problem statement,

objectives of the study, conceptual frame work, research questions, scope of the study and

significance of the study.

1.1 Background to the study

In the nineties, a wave of bank mergers and takeovers transformed the financial sector.

This worldwide trend was described by the group of ten (2001). Bank takeovers in

particular have occurred across many countries and time periods. In recent years, more

takeovers have occurred in banking than any other industry and this is partly due to

liberalized laws affecting interstate banking and partly from the number of failed banks

and bankruptcy. In 1998, four of Canadian biggest banks proposed to merge and takeover.

The deal would have meant loss of thousands of Canadian jobs and the closure of

hundreds of branches across the country. A possible reason for this could be to enjoy

economies of scale and expansion.

Bank takeover is one of the ways through which commercial banks in Africa can

implement strategies on how to combat risk management, implement technologies to

streamline payment, and transactions, find out the latest developments in the banking

sector and learn how to expand business and increase bottom lines and customers.

Bank takeovers in Africa are different from non bank takeovers because of the regulatory

process involved. Before a bank takeover can occur, prior approval from one of the three

federal banks regulatory authorities, (controller of the currency, federal deposit insurance

2

co-operation, or Federal Reserve boards) and approval at the approval at the state level are

required. After approval is granted, there is a thirty day waiting period so the justice

department can scrutinize the takeover attempt. All in all, a takeover process can last four

months or more (David Ocheng, Benton, Gupp, 2008). In the past, phenomena such as

mergers, takeovers were rare, even when they did occur; their possible harmful effects

were not considered to be serious by the authorities.

Today in Uganda, bank takeovers have taken shape and most of the banks in Uganda have

acquired other banks for instance, Stanbic bank acquired commercial bank, Equity bank

acquired Uganda Micro Finance Limited (2008) by buying 100 Percent of their shares,

Bank of Africa took over allied bank (2007) and Barclays bank acquired Nile bank in

February 2007. Commercial banks in Uganda dominate the financial sector and account

over 90 percent of the assets of the banking system. In 1960‟s nationalization resulted in

state acquisition of majority shares in the banks. Despite the divestiture of states stake in

commercial banks under the privatization program, most local banks are weak with many

sticking to retail banking. Even the Ugandan commercial bank limited that dominated the

so called indigenous bank was bought by standard bank international (stanbic) of South

Africa.

Over the past 14 years, Uganda has been using economic stabilization programmes and

the changes in the banking laws have increased the importance of strategic marketing for

commercial banks which have now put up a new set of competitors as well as competing

between themselves as new products emerge to the market (Kambugu, 1998). Therefore

bank takeovers in commercial banks are the face of expansion, bold products and

international reckoning (Kamwe Ahadzi in the new vision news paper of January, 2007).

Banks are trying to out compete each other by offering almost the same services like free

3

cheque books, low minimum balance requirements , salary loans, motor vehicle financing,

opening more branches outside the capital Kampala and improved technologies for

instance Automated Teller Machines (ATM) and on line banking. This form of

competition has led to the acquisition and takeover of banks in order to expand and out

compete their slothful neighbours (Semakadde, 1997). As the state of Uganda liberalize its

laws regarding banking structure and regional facts, takeovers of the banks are expected to

increase and there will be need to understand the performance of these takeovers in the

banking industry which will shed a light on commercial bank operations.

Barclays bank (Dominion, colonial and overseas) opened the first branches at Jinja and

Kampala, on first August 1927.

By 1939, Barclay‟s staff in Africa numbered 78 Europeans, 87 Africans and some 138

Asians.

As in other parts of the continent Barclays was always engaged in the general welfare of

the country. 1964 saw the building of the Barclays library at Kyambogo teacher training

college, made possible with a grant of 8000 pounds to mark Uganda‟s independence .A

local board for Uganda was established in 1966 and the Ugandan business of DCO

became the first in Africa to be locally incorporated as Barclays bank of Uganda, on first

on first November 1969 the government acquired 49 percent of the new company while

DCO retained a51 percent holding, a GWoodcock as the first chairman and general

manager of the bank. At the same time Barclays bank acquired the Ugandan business of a

subsidiary of the French bank SFOM, the commercial bank of South Africa.

By 1969 there were 9 branches and 33 other offices. The main produce financed by the

bank in the early decades was coffee and sugar. In the 60‟shigh way robbery began to

affect cash movements between the branches, but despite the dislocation to business

4

caused by political instability and civil wars between the mid 60‟s and 80‟s, Barclay‟s

business survived. During the invasion London lost contact with Uganda altogether for a

while and a special team of experienced men volunteered to restore order to the branches.

In 1985, after years of civil war, the newly rebuilt branch in Luwum Street stood like a

phoenix to symbolize the rebirth of the business. Barclays again took a leading role in

financing the coffee industry as a vital element in rehabilitating the economy, and in the

major currency reform of 1987.

In May 1986, the spots club was quickly reformed and the Barclays Computer centre was

opened, and colleagues were looking forward to the advent of automation, with Barclays

chairing the Uganda‟s Bankers‟ Association computer Committee .The achievemement

since then have been remarkable.

In 1987, Barclays Uganda celebrated its Diamond Jubilee with various events, including a

concert featuring an anthem composed for the Barclays choir which was broadcast on

national radio. Barclays Uganda was the first to computerize its accounting, using NCR

9300 machines, and the first in Uganda to have same day accounting and clearing for all

branches.

In 1989, the remote Jinja branch was linked to the computer centre in Kampala. Many of

the expelled Asians had returned from Britain since the mid 90‟s bringing with them much

needed capital and skills.

In 2004, Barclays bank made two notable developments; the launch at the Sheraton Hotel,

Kampala of the first credit card for prestige customers and the new brand of visual

identity for the bank.

In 2007, Barclays acquired Nile bank and expanded its foot print from 7 branches to the

current 53 and 80 ATMS and employs more than 1000 colleagues. Barclays bank also

5

provides a range of banking services including personal current and savings account and

loans, finance to traders and a full service to large corporate with a special centre

assigning teams to each business customer.

In 2010, Barclays Uganda launched the premier customer‟s service centre, and an internet

banking service which included personal and commercial banking options

1.2 Statement of the problem

Bank takeovers have become the most common method of achieving growth,

competitiveness and market share in the existing or new markets and profitability. In

Ugandan banking sector, the strategy of bank takeovers has been adopted by many

commercial banks to widen their scale of operation in a competitive manner. Barclays has

grown fast in the recent years. However, this growth is concentrated in peri-urban areas. A

glance at Barclays bank indicates an upward trend in profits. According to the annual

report, the profit for 2006 was 2,216 billion pounds, 2007 was 1,431 billion pounds, 2008

was 4,382 billion pounds, and 2009 made a loss of 4.6 billion Uganda shillings, and 2010

was 9.7 billion Uganda shillings.

Table 1: Profitability trends of Barclays Bank before and after takeover.

Before After

Year Profit Year Profit

2006 2,216 billion pounds 2007 1,431 billion pounds

2008 4,382 billion pounds

2009 (4.6) billion Uganda shillings

2010 9.7 billion Uganda shillings

6

Despite the adoption of this strategy of bank takeover, the growth and performance of

Barclays bank continues to be rated low compared to other banks and has not effectively

competed with its rivals as earlier expected. The relatively inefficient performance of the

bank takeover of Barclays bank even after the takeover strategy could be attributed to

economic factors, managerial factors, banking infrastructure and government policy. This

therefore, necessitated a study to investigate the factors affecting the performance of bank

takeovers in Uganda.

1.3 Objectives of the study

The study was guided by the following objectives

I. To investigate the factors affecting the performance of banks in Uganda

II. To assess the effect of bank takeover on performance of Barclays Bank.

III. To examine the relationship between takeovers and performance of banks

1.4. Research questions

The study was guided by the following questions

a) What are the factors affecting the performance of banks in Uganda?

b) What is the effect of bank takeovers on the performance of Barclays bank?

c) What is the relationship between takeovers and performance of banks?

7

1.5 Conceptual framework

A conceptual framework showing the relationship between the independent variables and

dependent variable.

INDEPENDENT VARIABLE

Factors

Economic factors

-Exchange rate fluctuations

-Interest rates

Managerial factors

-Management skills

-Management style

Banking infrastructure

-ATMS

-ICT

Government policy

-Tax policy

-Banking regulations

According to the conceptual framework, when the independent variables (factors) are

favorable, the performance of the bank takeover will be high where as if the independent

variables are not favorable, the performance of the bank takeover will be low.

DEPENDENT VARIABLE

Bank performance

Profitability

Market share

Customer satisfaction

Competition

Technological growth

8

1.6 Scope of the study

1.6.1 Geographical scope

Geographically, the study was conducted in Barclays bank in Kampala district along Jinja

Road.

1.6.2 Content scope

As pertains to the content, the study covered the factors affecting the performance of bank

takeovers with reference to Barclays bank in Uganda.

1.6.3 Time scope

The study was confined to the period to the period 2007-2011 after the takeover of

Barclays bank with Nile bank and was conducted in three months.

1.7 Significance of the study

The study will be significant in many aspects as follows:

I. On the side of the policy makers, the information generated will help financial

policy makers for instance, Bank of Uganda (BOU) realize the factors affecting the

performance of bank takeovers.

II. The findings of the study will be used by managers of banks in designing policies

to enhance performance of bank takeovers.

III. The findings of the study will provide a basis for further research and investigation

on some gaps created in the study. More so, it will contribute to the body of

knowledge that will be used by other researchers.

IV. The study will enable me to get the award of the bachelor of commerce degree of

Makerere University.

9

1.8 Operational definition

Merging: It is where two or more firms come and join their resources to form a larger

firm in order to enjoy economies of scale production.

Takeover: It is the acquisition of control of a company which is already registered

through the purchase or exchange of shares.

Performance: It refers to the process of carrying out a task or function successfully.

10

CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction

This chapter looks at what other scholars and investigators have written in relation to the

problem under study. The literature cited in this chapter was basically on the factors

affecting the performance of bank takeovers that is managerial factors, economic factors,

banking infrastructure, government policy and banking regulations.

2.1 The concept of Bank takeovers

2.1.1 Bank takeover

Todola defines a takeover as where two or more firms come together and join their

resources to form a large firm in order to enjoy the economies of large scale production.

According to takeover code (Takeovers in the UK) Bank takeover refers to acquiring of

public companies only. The substantial acquisitions of shares and takeovers (SEBI) of

India define a bank takeover as taking over control or management of the target company.

According to the companies Act Cap. 110, a takeover is whereby a company A acquired

the issued share capital of company B so that they form a single group in which A is the

holding company and B is the subsidiary. Bank takeovers take place usually by acquisition

or purchase from the shareholders of a company or bank shares at a specified price to the

extent of at least controlling interest in order to gain control of the company.

11

2.1.2 From the legal perspective, the takeover is of three types.

i) Friendly takeover (negotiated takeovers)

Here, before a bidder makes an offer for another company, it usually first informs that

company‟s board of directors. If the board feels that accepting the offer serves

shareholders better. Then it recommends the offer be accepted by the shareholders (as per

provisions of sec 3 95 of the Companies Act 1956).

ii) Hostile takeover

A hostile takeover allows a sector to bypass a target company‟s management unwilling to

agree to a merger or takeover. A takeover is considered hostile if the target company‟s

board rejects the offer but the bidder continues to pursue it or the bidder makes the offer

without informing the target company‟s board before band (Williams Act).

iii) Reverse takeover (Bail out takeover) It is a type of takeover where a private company

acquires a public company. It‟s the takeover of a financially sick company by a financially

rich company as per special provisions Act 1985 to bail out.

2.1.3 Key words in bank takeover

It will be necessary to dwell into what is the meaning of (1) Acquirer (ii) target company,

(iii) control (iv) promoter, (v) persons acting in concert

(i) Acquirer: An acquirer means and includes Persons Acting in Concert (PAC)

with any individual, company or any other legal entity which intends to acquire or

12

acquires, the substantial quantity of shares or voting rights of Target Company or

acquires or agrees to acquire control over the target company.

(ii) Target Company: It is a listed company that is whose shares are listed on any

stocks exchange and whose shares or voting rights are acquired or being acquired

or whose control is taken over / being taken over by an acquirer.

(iii) Control: Control includes the right to appoint directly or indirectly by virtue

of agreements or any other manner of majority of directors on the board of the

target company or to control management or policy decisions affecting the target

company.

(iv) Promoter: The definition of promoter after amendment in 2006 now includes

“any person who is in control of the target company” or “named as promoter in an

offer document or shareholding pattern filed by the target company with the stock

exchanges according to the listing agreements, whichever is later”.

2.2 Performance of bank takeovers

Allan Pizzey (1987) defined bank performance as a barometer or indices that

measure the returns or profits in relation to costs. Performance means how well or

badly one does some thing by oxford advanced learners‟ dictionary 6th Edition.

Good performance is demonstrated by increasing profitability. Performance

measures involve assessing achievement against the objectives and the overall

performance during the financial year raising the financial ratios.

13

Accounts received = Sales

Profit margin = Net earnings

Return on investment = Net earnings

Net profit

According to Ngoma and Bakunda (2001) the indicators of good performance

include; high return / high profitability; expansion of services to the public; stable

work force; the increase on bank customers accounts; high quality employees in

terms of skills and efficiency and effective accounting systems for cost budget and

profit planning. The financial services sector is characterized by increasing levels

of expenditure on performance activities.

2.3 Factors affecting the performance of Bank takeovers

2.3.1 Managerial factors that affect the performance of bank takeovers.

Transfer of better management skills from the buyer to the target are often quoted as a

factor behind the performance of bank takeovers. For American banks, non interest

expenses and operating income don‟t seem to improve after the deal (Srinivasan, 1002).

For Italian banks, Focarelli, Panetta and Salleo (2002) find an improvement in the

performance of bank takeovers which they explain with better management practices

imposed by the acquirer. However, there is some evidence that CEO‟s with lower levels of

stock based relative to cash based compensation are more likely to lead their institutions in

Sales

Accounts receivable

14

making acquisitions (Bus and Rosen 2001) thus suggesting that takeovers are not

particularly beneficial. To meet a bank‟s regulatory requirement, the business managers

must compile information that is scattered across the enterprise and not semantically

equivalent even though the data may appear similar. This makes it difficult, time

consuming work and implies costly work hence poor performance of the bank takeover.

Bank of Uganda can address this issue by enabling standardization at the appropriate

business level using enterprises like common data models, semantic models and process

models. In moving to real time bank services with the performance of bank

Take over‟s. Barclays Bank Uganda will be able to comply with regulatory requirements

more economically.

Tyson (1982) and Haper (1988) concurred that the final means of collecting information is

through management by objectives. Here, a set of objectives is set for the following year.

For instance, the acquisition of Nile by Barclays bank was in its objectives and was well

achieved. Depending on whether these objectives are organizational objectives or more

local, some negotiations may be possible and the extent to which these objectives have

been met is measured. Jacob (1989) stresses that; good management may be assessed by a

variety of means including work place performance, simulations, written tests of various

types and self assessment. Information about the actual performance of a bank takeover

can be collected in different ways. First there are records such as files, sheets, secondly,

there are people who come into contact with individuals such as colleagues, customers and

staff in other departments who may be a source of information about the performance of

bank takeovers. The third way is through benchmarking with companies in the same

industry such as the number of profits and the number of accounts it holds.

Bank and financial sector supervisors normally approve bank takeovers if they can

15

enhance efficiency in management risk, viability competitiveness, financial deepening and

soundness. These arrangements lead to better performance and strategic fits in

management skills, staffing, resource allocation and shared values. Prudent takeovers

enhance capitalism technological sophiscation, and institutional economics of scale.

Therefore Ugandan banking environment seems to exhibit a higher profile partly due to

Bank takeovers (The Monitor 22‟‟ May 2008). Another issue under managerial factors is

cultural issues. It has been revealed that the overwhelming cause of poor performance of

bank takeovers is the people and cultural differences. Difficulties encountered in bank

takeover, mergers and acquisitions are amplified in cultural situations. Individual

preoccupation on “how is it all going to impact me?” weakens the commitment to the job

at hand. This in turn translates people looking in for work from other companies. Often a

firm in midst of transition losses its own talent strengthening the competition hence poor

performance. In France and Italy people caught in a midst of takeovers; mergers and

acquisitions often turn to unions. If unions cannot provide answers because they have been

excluded from the negotiations process, they are likely to go on strikes. These strikes may

do much more damage to bank or organization than any other factor. Employees‟

reluctance within the Target Company or bank of a bank takeover deal might also pose a

threat to the successful outcome of the transaction. Indeed, employees may not accept to

be managed from another company.

JHarvey (1993) stresses that when firms takeover, output increases which implies division

of labour to management. The function of management can be divided into production,

sales and transport. Moore (1996) notes that mergers and takeovers may remove banks

that are “out of step” In a rapidly changing environment, allowing more productive use of

16

resources and enhancing the industry‟s profitability. Hadlock, Hauston and Ryngaert

(1999) point out that bank managers have greater control over whether or not they are

acquired since few hostile takeovers are allowed by regulators. Peek (1999) focused on the

period around the time of ownership changes in the United States. Their study findings

indicated that target banks of foreign acquire exhibit lower profitability

prior to the acquisitions during the transition period, and in the long-run after the change

of ownership.

2.3.2 Economic factors that affect the performance of bank takeovers.

Degree of competition in the market share

According to Barge (1999) the structure-conduct-performance hypothesis, higher market

concentration leads to imperfect competition. This allows banks to set prices that are less

favorable to consumers and results in higher bank profits. A similar hypothesis of relative

market power asserts that only fu-ms with large market power and well differentiated

products are able to exercise market power in pricing these products and earn abnormal

profits. Demset (1973) formulates the efficient structure hypothesis which suggests that

more efficient banks, which are also more profitable, gain large market shares, which may

result in higher levels of market concentration. In Uganda, recent development in the

beverages sector, notably in carbonated soft drinks (soda) and bottled water sub sectors,

lay bare anticompetitive practice of market sharing. The two biggest soft drink producers,

franchises of big international companies. Pepsi Cola and Coca-Cola recently bought into

the leading water bottling companies. Pepsi bought into NC beverages companies of high

land brand mineral water and Rwenzori beverages companies makers of Rwenzori brand

went to Coca-Cola. The development was seen as a move towards shifting competition

17

from the water companies that analysis had noted were corroding the market of carbonated

soft drinks. Now the companies are able to control market shares through controlling the

production of both soft drinks and bottled water despite the fact that the two products lay

in different market segments. The acquisitions of stake in the bottled water companies by

the two beverage giants appear to have been inspired by the rationale suggested by some

study reports that the market for soft drinks is affected by the availability of near

substitutes like packed fruits juices and water.

A takeover driven mostly by an empire building strategy might result in an increase in

market power but not necessary in improved performance. Delong (2001) finds that

merges and acquisitions and takeovers that increase the focus of banks either

geographically or in terms of their portfolio of products generate positive returns. Entry

into new markets achieved via acquisition and takeovers increase profits involved. Zhang

(1995) finds positive results for out of market transactions. More in general Altoona‟s and

Ibanez (2004) find that for a sample of transactions among European banks, dissimilarities

in strategies have negative results. While takeovers among similar banks enhance

performance. In Uganda, the competition policy is designed to prevent actions that are non

ethical performance related and which therefore offer no benefits to consumers. The

actions include obstacles that prevent other actors from participating in the market or use

of coercion. In spite of the many market oriented reforms, that have taken place in

Uganda, the country does not have a policy on competition. There is no general regulatory

body or authority or government agency in place to regulate anticompetitive practices.

Therefore, Barclays Bank‟s performance in the market continues to face competition and

the role played by Barclays Bank as a commercial bank in promoting competition cannot

be ignored. In Europe integrating financial service markets and facilitating cross-boarder

18

provision of financial services are a primary objective of the European Monetary Union

(EMU). Mergers and acquisitions, takeovers have been overwhelmingly domestic,

directed at creating national champions. The supervision of financial markets are expected

to accelerate market changes and increases competition and efficiency. The monetary

union, opens national financial markets to competitors who can cherry pick profitable

segments — with the results that banks with low returns on capital increasingly risk being

taken over by predators focusing solely on share holder value.

Globalization

Globalization is a strong force that enables bank mergers and takeover to benefit every

time an open market purchase is made (Raxel, S. A). during the Asian Economic Crisis in

1997 and 1998 global organizations such International Momentary Fund (IMF), the World

Bank (WB) and W.T.O assisted and encouraged countries including Thailand, South

Korea and Indonesia to restructure their financial institutions and open up their economies

by reducing trade barriers. From 1998 — 2000 Thailand experienced a wave of

acquisitions or even merger activity. According to the economy of India the 201h century

began with the process of transforming the entire business scenario. With the

announcement of the policy of globalization, the doors of the Indian economy were

opened for the overseas investor. But, to compete at the world platform. The scale of

business was needed to be increased. In this changed scenario, mergers were the best

option available for the corporate considering the time factor involved in capturing the

opportunities made available by globalization. This created a need for some regulation to

protect the interest of the investors so that the process of merging and takeover is used to

develop the securities market and not sabotage it.

19

Globalization has had a number of drivers including advances in information and

technological advances in trade, the reduction of barriers to trade, and the growth of

overseas markets that could no longer be ignored. What characterizes the current

business?

Environment is that we see all bank mergers and takeovers potentially global and see all

banks for financial institutions taking part in the game. Globalization is a key to help in

the rapidity of the bank mergers and takeovers and acquisitions as it is globalization that

integrates world economics together and many nations have opened themselves, the

countries have made laws and regulations that attract new companies to come into the

country and make it easy for the companies to easily perform their operations of takeovers

mergers and acquisitions (The Odore Rooselt). There are also new forces in play that

make bank takeovers more feasible and capable of creating value. For instance Bank

investors are taking a more global perspective, customer profiles a cross markets and

becoming more homogenous so that companies build big customer bases.

Inflation, profits (earnings) and interest rates

Profits

The long term growth and soundness of a bank is dependent on its ability to organically

generate profits on a sustainable basis. Profitability is a core indicator of a banks

competitive position in the banking markets and also of the quality of management and

performance of bank takeovers. During the year ended 2005, the banking sector in Uganda

recorded a return on assets (ROA) ratio of 3.6% which was slightly lower than a level of

4.3% registered during the previous year. The drop was attributed to loan loss

provisioning requirements introduced during the year that slightly led to lower profits for

20

the year 2005 (The governor of Bank of Uganda Mutebile).

Profits = TR --TC

and TR = P (Q) D that a firm to maximize profits, more output should be produced

(Todolar).

Inflation and interest rates

Inflation is an economic phenomenon where there is persistent increase in the general

price level. Inflation in Uganda has largely remained under control in the last twelve years

remaining below 10%. In 1998-1999, it remained low breaking into the negatives for the

first months of the period under review. Thus the cost of borrowing in Uganda remains

high due to high interest rates. Demiguc — Kunt and Huizinga all find that price

instability presented by high and variable inflation exchange rate is attributed to high

interest spreads. If banks hold short-term or long-term assets relative to their liabilities,

interest rates are likely to fluctuate. Saunder and Schumacher (2002) Ho and Saundas

(1981) argue that if the central bank determines interest rates of banks through its

monetary policy strategy, unexpected interest rate shocks and interest rate volatility tend

to be small. However, if the central bank targets reserve money thereby leaving interest

rates to be determined by market forces, then interest rate volatility is likely to be high.

High and unstable inflation can compromise co-operations and household‟s ability to meet

their obligations e.g. loan obligations, especially if the imbalances significantly affect their

balance sheets. Banks use higher spreads to hedge against the likelihood of default arising

from variable inflation (Chirwa, 2004).

21

2.3.3 Government policy and performance of bank takeovers.

In Uganda, there are two major statutes that regulate the banking institutions. These are

the Bank of Uganda Statute 1993 and Financial Institutions Statute 1993. The Bank of

Uganda Statute 1993 makes provisions for maintaining a sound financial structure. The

central bank is established under the same statute to supervise, regulate control and

discipline all financial institutions as stipulated in sec 5(i) of the statute. In Uganda, the

role of the central bank has been felt by the public in the form of closure and liquidation of

banks that have failed to meet the required standards. In some cases, legal structures are

not only complex but could explain the low levels of performance of bank takeovers. Bank

takeover bids are complex transactions that may involve the handling of a significant

number of legal entities listed or not and which are often governed by legal rules

(company law, market regulations, bank regulations and government regulations). It is not

only lack of information but also some legal incapabilities might appear in the takeover

process resulting in a dead lock even though the bid would be friendly (Lang and WeIzel,

1996). This legal uncertainty may constitute a significant execution risk and act as a

barrier to good performance. The bank policy makes it possible for commercial banks to

tap bank information that is timelier and more accurate make better business choices,

adapt changes in compliance to rules of bank takeovers as they occur. The bank policy

also makes it possible for bank takeovers in commercial banks to progress in controllable

phases to the next targeted level of cost efficiency and business flexibility. To facilitate

this process, bank of Uganda has partnered with major industry players to create the

industry value network for banks (Mutebile). Tax problems also occur and it is one of the

ways to get out of the tax hassles as when a strong company acquires a financially poor

company. Despite some harmonized rules, taxation issues are mainly dealt within national

22

rules and not always fully clean to ascertain the tax impact of a bank takeover or merger.

This uncertainty on tax arrangements sometimes requires seeking for special

agreements/arrangements from the tax authorities on an adhoc basis (Gup; Benton E.

David, C. (1989).

Takeovers tend to substitute debt for equity. In a sense government tax policy of allowing

for deduction of interest expenses but not of dividends, has essentially provided a

substantial subsidy of takeovers. It can punish more conservative or prudent management

that do not allow their companies to leverage themselves into high risk positions. High

leverage will lead to high profits if circumstances go well, but can lead to catastrophic

failure if circumstances do not go favorably. This can create substantial negative

externalities for governments, employees and other stake holders.

Privatization and change

The financial institutions statue 1993 was enacted to put in place a new framework to deal

with financial institutions extensively including co-operative societies, credit institutions

and building societies. The law aimed at regulating and strengthening financial institutions

by the central bank as a precursor to opening up the sector to competition and therefore

more efficient service delivery. Enforcement of the new law resulted in the closure of four

local banks, partly for non compliance with the capital adequacy requirement stipulated in

the law. The law sought to break the practice of family ownership of banking institutions

blamed for mismanagement and closure of at least two of the four banks whose operations

were halted. After banks were closed competition in commercial banking sector increased

leading to improvement in service delivery, slight lowering of international rates,

launching of exotic credit schemes and proliferation of new services like Automated

23

Teller Machines and electronic money transfer among others. The situation in terms of

competition has changed following the sale of UCBL to Stanbic. It is obvious that the

acquisition of UCBL with its extensive network makes Stanbic the dominant commercial

bank in the country. In 2002, Standard

bank international of South Africa bought 80% of shares in UCBL, thus emerging the

dominant entity. The development has once again adjusted the market share of the various

banks in the commercial banking sub sector. Testa and Morosini (2001) conclude that

banks or organizations should rebrand themselves in respect of competition to a market

with sophisticated taste. To do this requires heavy investment, revamp the old

infrastructure as well as industry protection which the government provided at

privatization.

2.3.4 Banking infrastructure.

Global corporations today expect their bankers to have the expertise, products and

presence to serve them. Moore (2001) stresses that many bankers believe that a greater

resource base and presence across a wide range of markets is necessary to satisfy their

corporate customers and argue that restrictions of bank takeovers should be relaxed to

enable the development of institutions with the size and resources to compete globally.

Economies of scale (size) and scope (product mix) are now every day topic in the banking

infrastructure. Banks are also convinced that size is not only an effective defense against

being taken over but that takeovers provide the spring band to increase profitability and

performance through greater economies of scale and improved operational efficiency.

Banking infrastructure today has led bank takeovers to provide the necessary resource

base for investment in such high cost areas as product development and believe sufficient

24

regulatory provisions not involving restrictions on takeovers already exist to protect

consumers.

The 1960 law that was passed to provide anti trust standards of bank mergers and

takeovers (which were thought at the time to be exempt form challenge by the US

department of Justice) were actually subject to any challenges as any other business. In

1966, the Bank merger and take over Act of 1960 was amended but retained by DOJ

authority to challenge a bank takeover after it had been approved by appropriate banking

agency as a good indicator of performance (Richard C). Mozambique has been a strong

economic performer in sub-Sahara Africa. The drivers‟ factors of successful performance

include;

1. A key driver of economic expansion was the government‟s pro-growth policies,

sound monetary policies, lowering of restrictions such as price controls and

inefficient monopolies, mergers and acquisitions and takeovers and infrastructure

rehabilitation.

2. Investment in public service provision to address the severe lack of economic

services produced improvements in access and outcomes.

3. Focus on improving governance and accountability by getting government closer

to its citizens (Zhou, 2009).

According to equity building society of Kenya, Equity bank has been an innovator in

providing access and financial products to Kenya‟s underserved rural population. On

the verge of collapse in 1993, equity brought in outside experts, got involved in

mergers and acquisitions and committed to radical steps to turn the institution around.

25

This commitment has led to improved financial performance and increased output.

The key Factors/drives of success and good performance include;

• Developing a good market driven customer focused approach performing portfo lio,

increasing deposits and reaching rural customers.

• The bank has been innovative, creating new products to water the needs of

agricultural customers (Cook, T. 2004, Equity building society).

2.4 Conclusion

The performance of bank takeovers can be attributed to staff commitment and leadership,

high quality customer service, effective marketing, low barriers to access (especially

compared to banks that have not merged or taken over) appropriate product design and

enabling environment. All these can lead to cost reductions, revenue improvements,

efficiency gains and increase in market value. Scotiabank chair Peter Godsoe stresses that

banks do not have to takeover with another bank to achieve success and good

performance. According to Canadian perspectives summer (1998) the federal government

should stop the proposed takeovers by the banks, second tax the bank (and their excessive

profits) at a reasonable rate. Thirdly, force the banks to reinvest in Canadian communities.

26

CHAPTER THREE

METHODOLOGY

3.0 Introduction

This chapter described the research methodology and it included; research design, sample

size, sampling strategy and sources of information, research instruments, data processing

and analysis. It also provided an insight into the limitations that were encountered during

the study.

3.1 Research design

This study used a descriptive, analytical and cross sectional research design. The design

was chosen because of the following reasons: first, the design was the most appropriate for

data collection in this study that is, it was focused on perceptions, facts, feelings,

experiences and emotions of participants. Second, the research questions generated

required a descriptive and analytical perspective in order to describe the current state of

affairs, as the participants perceive them.

3.2Study population

The study population included all staff of Barclays bank for the year 2010 since they had

knowledge on both variables being studied.

3.2.1 Sampling method

Simple random sampling method was applied in the research to select key respondents

among the staff of Barclays bank.

27

3.2.2 Sample size.

The total sample comprised of 30 staff of Barclays Bank as respondents in the study.

Table 2: Sampling frame and sample size

Category Sample Percentage %

Senior management 8 26.6

Middle level management 6 20

Customer service 5 16.7

Administration 5 16.7

General 6 20

Total 30 100

3.3 Data collection

Data for this study was both primary and secondary. Data for statistical purposes

(secondary and primary) was used.

3.3.1 Primary data source

Primary data (data collected a fresh and for the first time from the source) was used for the

study.

28

3.3.2 Secondary data source

Secondary data that has been already collected and it has passed through the statistical

process was obtained from the banks records such manuals, Journals, articles, magazines,

Newspapers, and presentations concerning the subject matter of the study were consulted

at length.

3.4 Data collection instruments.

The data collection instruments were questionnaires and interviews.

3.4.1 Questionnaire (primary data)

Questionnaires with both structured and unstructured questions that addressed the

research objectives were developed and pilot tested to ascertain their validity and

reliability. Questionnaires were pre-tested in order to eliminate questions that are

vague, ambiguous and misleading. The questionnaires were mailed or administered to

selected respondents who were expected to read and understand the questions and

write down the reply in the spaces meant for the purpose in the questionnaire itself

corrections were made where necessary. Self administered structured questionnaire

were used to collect data. They were administered to the general staff and customer

service staff of Barclays Bank

3.4.2 Interviews

Interview guides were developed and pilot tested to ascertain their validity and

reliability. The interview guides were pre-tested in order to eliminate questions that are

vague ambiguous and misleading. These were administered to selected sample and

29

corrections made where necessary. The key informants were given unstructured

questions and they included management and staff of Barclays Bank Uganda.

3.4.3 Investigative procedure

Firstly, the researcher sought a letter of introduction from the Institute of Adult and

Continuing Education, Department of Distance Education of Makerere University

which enabled her interact with the staff of Barclays Bank with a minimum suspicion

from the letter. The researcher then went ahead to collect the relevant data for the

study. The researcher made use of interview guide and questionnaires while collecting

data. Data was summarized using frequency tables and graphs. Lastly, conclusions

were drawn and recommendations suggested by the researcher as regards the findings

from the study.

3.5 Data presentation and analysis and processing

3.5.1 Data processing

After collecting data from the field, the researcher cross checked it for accuracy and

completeness. Using the methods of data collection above, the collected data underwent

the following stages before the analysis. For the responses obtained from the open ended

questionnaires, and interviews, the data was edited. Editing was done on the very day data

was collected to allow farther consultation to the respondents about the gaps left in the

questionnaires and interview guide. At this stage, questionnaires, with blank spaces were

also handled.

30

3.5.2 Data analysis

Data was analyzed by checking the central tendency and dispersion. The research drew

conclusions by determining the frequency in the data& at this level biases were detected.

Data pieces collected through document search, interviews and questionnaire were

analyzed on a qualitative basis involving data reduction, organization and interpretation

Frequency distribution tables, charts and graphs were made.

3.5.3 Presentation of findings

Data was presented according to research findings after processing and editing, mainly in

form of frequency tables and discussions. This helped to put data into a meaningful form.

Presentation of the study findings was based on the research question. It also considered

the structure and purpose of the study; this helped to avoid misrepresentation of findings

3.6 Limitations of the study

The study to find out the factors affecting the performance of bank takeovers was

conducted at Barclays Bank Uganda. It had the following limitation.

1. The study largely confined to the senior staff of the bank. No opinion was solicited

from the interested public who could have enriched the findings.

2. There were some restrictions in accessing information that was considered confidential.

This is because few people have done research in this area.

3. The researcher encountered a problem of financial constraints whereby it took a lot of

money especially in transport, airtime in trying to link up with respondents, photocopying

31

and printing, and buying stationery. This was overcome by soliciting from friends and

parents.

4. Since the study was conducted at the same time when lectures were going on. Time was

limited however, the researcher tried to budget her time properly by putting more efforts

with and speed in conducting this research.

All in all, the researcher was of the view that the findings got are representative of the

performance of bank takeovers in commercial banks. The recommendations arising from

them should therefore be adopted and utilized for effective performance of bank takeovers

32

CHAPTER FOUR

PRESENTATION, DISCUSSIONS AND

ANALYSIS OF FINDINGS.

4.0 Introduction

This chapter presents findings that were got using questionnaires and interview guide. In

the same chapter findings were interpreted, discussed and analyzed to give respondents‟

perception and attitudes regarding the researcher questions and objectives of the study on:

to investigate the factors affecting the performance of banks in Uganda, to assess the

effect of takeover of performance of Barclays bank, to examine the relationship between

takeovers and performance of banks.

4.1 General information

Table 3: Sex composition of respondents

Response Frequency Percentage %

Male 8 27

Female 22 73

Total 30 100

Source: Primary data

33

Table 2 reveals that 27 percent of respondents were male and 73 percent were female. This

indicates that equal numbers of male and female were also interviewed.

4.1.1 Respondents according to age

Respondents were drawn proportionately from all departments of the bank. The sample

reflected the general age distribution of members of Barclays bank. The youngest group

(23-24) constituted 16.7 percent of the sample, at the end of the scale the oldest group 65

and above made up 10 percent of the total, young middle aged (25-44) accounted for 46.7

percent of those interviewed with the remaining 26.6 percent of the sample being drawn

from the data middle aged group (45-64) as illustrated below.

Table 4: Respondents according to age.

Age Frequency Percentage %

23-24 5 16.7

25-44 14 46.7

45-64 8 26.6

65 and above 3 10

Total 30 100


Table 4 indicates that 46.7% of the respondents were aged between 25-44years, 26.6%

were aged between 45-64years, 16.7% were between 23-24years and 10% were above

34

65years. Findings also indicated that those who are 65years and above included mostly the

share holders.

4.2 Findings on the takeover of Barclays bank

A questionnaire was posed to the respondents as to whether they have ever heard about the

bank takeover and their responses ere as follows as indicated in the table below.

Table 5: Existence of bank takeover of Barclays bank


Takeover existence 26 88

No takeover 4 12

Total 30 100


Table 5 shows that an overwhelming majority 88 % of the respondents has heard about the

takeover whereas 12 % of the respondents had not heard about the takeover.

According to the interview guide, the following question was posed to the interviewees.

From what you have heard or read, do you think that the bank takeover between your

organization and Nile bank is good for employees like you? Findings reveal that majority

of the respondents 90 % see it as a good thing whereas 10 % of the respondents viewed it

as a bad thing asserting that people have lost jobs through it. The same findings can be

presented graphically.

35

Figure 1: Findings on whether bank takeover is a good thing for employees.

Source: primary data

According to figure 1, it can be overwhelmingly deciphered that bank takeover at Barclays

is a good thing.

4.2.1 Findings on the types of bank takeovers

The following was posed to the respondents: What form of bank takeover did organization

go through? Respondents indicated the type of takeover in place as shown below

36

Table 6: Types or forms of takeovers of Barclays bank.


Friendly( Negotiated) 10 33.3

Hostile 2 6.7

Reverse (Bail out) 17 56.7

Selling by a beneficial owner 1 33

Total 30 100


Table 6 indicates that 56.7 % of the respondents of Barclays bank went through a reverse

takeover, 33.3 % went through a friendly takeover,3.3 % went through a hostile takeover

and 6.7 % of the respondents indicated selling by a beneficial owner.

It can be inferred from the findings above that Barclays bank went through a reverse

takeover. A majority of the respondents 56.7 % indicated that this type was done at the

instigation of Barclays bank the purpose being for Barclays bank to effectively float itself

while avoiding some of the expense and time involved.33 % of the respondents also

indicated that a friendly takeover is where a bidder makes an offer for another company. It

usually first informs that company‟s board of directors. If the board of directors feels that

accepting the offer serves shareholders better than rejecting it, it recommends the offer to

be accepted by accepted by the shareholders. Respondents indicated that Barclays bank is

37

a private company. Her shareholders and board of governors is the same people and are

closely connected with one another thus making the private acquisition friendly.

A few of the respondents 6.7 % indicated that a hostile takeover is considered if the target

company‟s board rejects the offer. But the bidder continues to pursue it or the bidder

makes the offer without informing the target company‟s board before hand. However, one

respondent 33 % indicated that the other form of a takeover is selling by a beneficial

owner. He said that objective of the beneficial owner should be to maximize the value of

the investment. He indicated that Nile bank sold its shares to Barclays bank to put itself up

for sale as a way of maximizing value for all stockholders.

4.2.2 Findings about the introduction of new products of bank takeover of

Barclays bank.

An interview guide on whether Barclays bank has rolled new products was asked and

findings were tabulated as shown.

Table 7: Introduction of new products at Barclays bank.


True 27 10

False 3 90

Total 30 100


38

Table 7 shows that an overwhelming majority 90 % indicated that Barclays bank has

introduced new products like mortgage and leasing facilities which have been offered by

few players at high interest rates while 10 %of the respondents did not mention anything.

Findings from the interview guide shows that the bank also offers long term financing at

affordable rate. This is due to limited access to long term financing in Uganda leading to

high interest rates.

4.3 Findings on the performance of bank takeover of Barclays bank

4.3.1 Levels of Profitability for Barclays bank over the years 2006,

2007,2008,2009,2010.

Findings obtained from documentary search indicated the level of profits for Barclays

bank over the years as indicated in the table below.

Table 8: Levels of profits.

Years Profits




2009 (4.6)billion Uganda shillings

2010 9.7 billion Uganda shillings

Source: Annual reports

39

Table 8 reveals profits indicated by the bank over the years indicated. One of the

interviewee pointed out that profits for Barclays bank have been increasing over the years.

Respondents noted that the increase in the level of profits for Barclays bank is related to

proficiency in work practices and good customer care, economic factors, managerial skills,

bank regulation and government policy. These have a link with the takeover in place.

4.4 Findings on how managerial skills affect the performance of

bank takeover of Barclays bank

Responses were solicited from the sample as to whether the managers of Barclays bank

cooperated closely to ensure that it acquired Nile bank and improve performance and the

findings were tabulated as follows.

Table 9: Managerial cooperation of Barclays bank

Responses Frequency Percentage %

Yes 9 30

No 5 16.7

Don‟t know 16 53.3

Total 30 100


Table 9 shows that the majority of the respondents 53.3 % do not know whether there was

a close cooperation of managers. 30 % of the respondents believed that there was co-

operation between the managers to ensure that the bank acquires. The respondents-

40

majority suggested that poor managers should be culled out of the organization and this

increases productivity, use of resources and enhancing performance. However, a few

respondents were in for bad management indicating that it is low profitability that leads to

higher profitability of takeover. The implication here is that data appears similar more so it

implies that the bank partnered with major industry players to acquire Nile bank.

4.4.1 Findings on management skills of performance of bank takeover

A questionnaire was posed to the respondents from the sample to ascertain the extent to

which management skills and staff commitment have played in the performance of bank

takeover of Barclays bank and the results were tabulated as below.

Table 10: The extent of management skills and staff commitment in performance of

bank takeover.


Strongly agree 10 33.3

Agree 15 50

Disagree 4 13.4

Strongly disagree 1 3.3

Not sure 0 0

Total 30 100


41

Table 10 shows that majority 50 % of the respondents indicated that to a bigger extent

managerial skills and staff commitment has played a big role in bank takeover

performance of Barclays bank. This is due to the fact that emphasis has been on recruiting

qualified personnel. Besides there is many staff undertaking refresher courses being

conducted by the Uganda Institute of Bankers. All these were and have been able to

booster the performance of Barclays bank. Where as, a few of the respondents 3.3 strongly

disagreed with the statement.

4.4.2 Managerial systems of Barclays bank

The following questionnaire was posed to respondents: what managerial approach has

your organization in improving her performance after the bank takeover? Findings

indicated that there is cooperative social system, group behavior system; contingency

system and systems approach as tabulated below.

Table 11: Management approach system of Barclays bank.


Group behavior system 10 33.4

Contingency system 0 0

Cooperative social system 19 63.3

Systems approach 01 3.3

Total 30 100

Source: Primary source

42

Table 11 reveals that the majority 63.3 % showed that there is cooperative social system at

Barclays bank; this indicated there is a set of beliefs and the resulting behaviors that are

shared throughout the organization. One of the interviewee suggested that there is reduced

formality and free flow of ideas in the meetings regardless of the position of the

contributor.

4.5 Effect of economic factors on the performance of bank takeover of Barclays

bank.

A questionnaire was posed to the respondents to know whether bank takeover of Barclays

bank has contributed to economic growth. Results indicated that majority of the

respondents 80 % were of the view that bank takeover of Barclays bank has contributed to

economic growth. By their own admission, respondent 80 % view the takeover as a way to

achieve greater effectiveness and economies of scale. It implies that reducing costs and

availability of services to depositors and no squeeze on access to small business loans at

reasonable interest rates. However, 20 % of the respondents indicated that interest rates

charged on loans were very high. As such respondent indicated that also the organization

is expected to accelerate market changes. Majority of the respondents 70 % said that the

final decision to increase the level of competition rests on accelerating market changes.

This will increase the level of efficiency. However, 30 % of the respondents indicated that

accelerating market changes means less competition especially in small rural communities

and even fewer loans to small and medium- sized Ugandan businesses.

43

4.5.1 Economic globalization and the performance of bank takeover of Barclays

bank.

An interview guide on how economic globalization affects the performance of bank

takeover of Barclays bank was asked and the results were tabulated below.

Table 12: Economic globalization and the performance of bank takeover of Barclays

bank.

Responses frequency Percentage %


Agree 15 50

Disagree 10 33.3

Strongly disagree 4 13.4

Not sure 0 0

Total 30 100


Table 12 reveals that Barclays bank is potentially global by majority of the respondents 54

%. This is contributed to the objective of expansion of Barclays bank during the takeover

which has been adverted and more customer services as illustrated graphically.

44

Figure 2: Findings on economic globalization and the performance of bank take over

of Barclays bank.

Source: Primary data.

Figure 2 reveals that there has been potential globalization and that this has integrated it

with the world economies. This can be shown by majority of respondents 50 %.

4.6 The effect of government policy on performance of Barclays bank.

The following question was posed to the respondents. In your opinion should the

government tax the bank‟s marginal income and its excessive profits? According to the

results all respondents 100 % showed that the government should tax banks and their

excessive profits but at a reasonable rate. In the same way, one respondent indicated that

the government tax policy of allowing a deduction of interest expenses but not dividends

has essentially provided a substantial subsidy to takeovers. It can finish more conservative

management that does not allow their companies to leverage themselves into high risk

position. High leverage will lead to high profits, if circumstances do not go favorably.

45

This can create substantial negative externalities for governments, employees, suppliers

and stakeholders.

4.7 Effect of banking infrastructure on the performance of bank takeovers.

4.7.1 Findings on how to use an ATM (as a banking infrastructure)

The following question was asked: Your organization has improved her ATM system

indicated how this has been done and how to use an ATM or 24 Teller machine? Results

from the interview question above to the respondents showed that „Automated Teller

Machines or 24 hour Tellers are electronic terminals that let you bank almost any time‟

said on respondent. The manager of Barclays bank Jinja road Kampala said that to

withdraw cash, make deposits or transfer funds between accounts, you generally insert an

ATM card and enter your PIN number. A fee is charged to consumers who do not have

account with them or on transactions at remote locations. The ATM manager said that

when once you report the loss of your ATM or debt card, you are no longer responsible

for additional authorized transfer occurring after that time. This implies that the bank

takeover of Barclays bank with Nile bank has increased more ATMs thus enhancing

banking infrastructure and performance of bank takeover.

4.7.2 Findings on whether banking infrastructure has increased the level of

efficiency and effectiveness of a bank takeover.

A questionnaire was posed to the respondents as to whether banking infrastructure

increases the level of efficiency and effectiveness of a bank takeover and results indicated

the following the following. An overwhelming majority 90% believed that banking

infrastructure has increased the level of efficiency and effectiveness implying that banking

46

infrastructure provides a spring band for bank takeovers to increase profitability and

performance through improved operational efficiency. Respondents again proved least

responsive to the arguments of banking infrastructure with 10% believing that banking

infrastructure would not increase efficiency and effectiveness as illustrated graphically.

Figure 3: Findings on whether banking has increased the level of efficiency and

effectiveness.

Source: primary data.

Figure 3 reveals that majority of respondents 905 believe that banking infrastructure

increases the level of efficiency and effectiveness of a bank takeover where 10% of the

respondents do not believe that banking infrastructure increases the level of efficiency and

effectiveness of bank takeover.

4.8 Relationship between takeovers and performance of banks.

The third objective of the study was to establish the relationship between bank takeovers

and performance of banks and the results were as follows

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Table 13: Relationship between bank takeovers and performance of banks

opinions Frequency Percentage %


Agree 0 0

Disagree 10 33.3

Strongly disagree 0 0

Not sure 0 0

Total 30 100


Table 13 shows that 66.7 % of the respondents agreed that there exist a relationship

between takeovers and performance of banks where as 33.3 % of the respondents

disagreed to the fact. Therefore there is a strong relationship between takeovers and

performance of banks as 66.7 % agreed that relationship exists.

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Table 14: Non parametric correlation

Correlations

Rating for

takeovers

Levels of

performance

Spearman’s rho Rating for

takeovers

Correlation

coefficient

1 .756(**)

Sig(2 tailed) 0

N 44 44

Levels of

performance

Correlation

coefficient

1 .756(**)

Sig (2 tailed) 0

N 44 44

** Correlation is significant at the 0.1 level( 2-tailed)

Source: Primary data (SPSS Analysis)

Table 14 reveals that there is a strong correlation of 0.756 which is closer to one signifies

a substantial positive correlation between takeovers and performance. The coefficient is a

strong positive relationship because it lies between r= ±0.7-±0.9

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Further the coefficient of determination suggest that the variability in the influence of

takeovers has on performance of Barclays bank as being 75.6 % where as the balance of

24.4 % accounting for other factors that influence performance of Barclays bank.

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CHAPTER FIVE

SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

5.0 Introduction

This chapter is subdivided into four sections namely, conclusions, recommendation and

areas for further study.

5.1 Summary of findings

Basing on the research findings in chapter five the researcher noted the following.

According to the first objective which was to investigate the performance of banks in

Uganda the following was found out.

Findings indicated that Barclays bank has been averagely successful in fostering a

sounding economic growth. Results show that Barclays bank after the takeover has

compelled to display bank charges at its banking halls to enhance disclosure and

transparency. According to the interview guide on performance of banks, results indicated

that the interest rate charged on loans borrowed was found to be high. Results further

indicated that loans are advanced on personal lending basis and there is security required

from customers before advancing loans to them. This implies that customers are not

borrowing due to inflation. The explanation the central bank (CB) gives is that they need

to rein inflation they want to discourage borrowing. One of the respondents pointed out

that if you discourage borrowing, you discourage growth and performance. The manager

customer care suggested that Barclays bank should make financing available to business

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so that they can make enough profit above the rate of inflation. On presenting the

questionnaires in economic factors affecting the performance of bank takeover of Barclays

bank, the assistant General Manager said that the banks economic growth has averaged

since the takeover. Results also indicated that economic globalization has helped Barclays

bank to open up her economies by reducing trade barriers. Globalization has led to the

growth of markets hence better performance. The respondents concluded that Barclays

bank should be a model of how to manage economic factors that affect the performance of

bank takeovers.

It was found out that the characteristic of bank takeover in a liberalized market are of

interest to regulators and managers as well. The people interviewed suggested that poor

management be culled out of the bank. One of the respondents noted that bank takeovers

may remove management that is „out of step‟ allowing more production and enhancing

profitability and performance. Another female respondent pointed out that bank managers

of Barclays bank have greater control over the performance of the bank. Results indicated

that there is a significant relationship between takeover and profitability and managerial

factors. Also, the management system and style matters much in the improvement of

performance of bank takeover. The study suggested that there is need for managerial skills

and cooperation in order to meet a bank‟s regulatory requirement. The managers must

compile information necessary about the staff and teach the culture of the bank.

Findings showed that 70% of the respondents said that better infrastructure promotes

performance of bank takeover and the people interviewed supported this by saying that

economies of scale and scope which are one of the objectives of a bank takeover decide

the success or failure of banking infrastructure also of the respondents 60% indicated that

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banking infrastructure increases the level of efficiency and effectiveness of bank takeover.

Results showed that all the problems with communication networks on ATM were

resolved by centralizing all branches. Barclays bank moved from having her ATMS

directly connected to branch to having them directly connected to satellite.

It was found out that government policy of liberalization positively affects the

performance of bank takeover. Results showed that fiscal discipline and trade

liberalization is a key ingredient of the performance of banks. The government in this case

has been careful not to borrow from the domestic banking system to avoid fueling

monetary growth and inflation. Results suggested that at least on surface, the government

should be committed to the laws governing financial institutions, so that the process

moves forward. Since the government policy has a huge impact on business, banks have to

be a ware of its implications in order for banks to navigate to stormy waves of their

services and products thus better performance.

5.2 Conclusions

After conducting the study and owing to the discussion and analysis made, one proceeds at

his/ her own peril in making the following conclusions.

Barclays bank took over Nile bank and in this research, the ability to combine (takeover)

increases flexibility which speeds new products to the market. Barclays bank has benefited

from accelerating integration with business partners, greater automation and improved

customer services through wider choice, better information and easy to use self services.

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The strength of the takeover at Barclays bank includes availability of good management,

and qualified staff and the weakness of the takeover at Barclays bank include competition,

low facilitation and conflict among staff.

Accordingly, globalization and deregulation of market have opened the way for Barclays

bank to grow through the takeover which has been one of the methods of achieving

growth, competitiveness and share in the existing or new markets. Despite being the

preferred method for growth of Barclays bank has not realized the expected benefits. And

this is so because the company has not managed adequately the critical success factors

associated to the pre and post takeover process due to lack of accumulated experience of

the takeover activity.

Barclays bank has been left to the vagaries of market forces. However, in general

Barclays bank has not competed its rivals as earlier expected even after the takeover. This

is because Uganda has no comprehensive laws covering competition though the

government and its agents are aware of the benefits fair competition can confer on the

economy and on the consumer.

New service providers such as insurance companies, stock brokers, distributors and

manufacturers are thus competing for provision of banking products. The multiplicity of

new entrants and the competitive power the internet provides have altered traditional

market rules. Although their market share may still be small, effects on margins have

been significant.

Accordingly, there is no evidence that Barclays bank members believe in economies of

scale and scope. The results from questionnaires indicate that cost reductions rather than

54

revenue enhancements. Market power seems to hold little value while entry commands a

premium.

The main driving factors behind the performance of bank takeovers seem to be the

economic factors, management factors, banking infrastructure, government policy and

bank regulation and other agency related issues. The co-existence of factors in any sample

of bank takeovers helps explain why on average the performance of bank takeover is low

or yields little results.

All parameters being equal, a bank has taken over is better or may have an advantage over

a competitor which has not taken over.

5.1 Recommendations

There is urgent need to review the factors affecting the performance of bank takeover at

Barclays bank. There is need to keep a breast with change over time, the need to align

managers interest to those of their shareholders, need to emphasize compliance with the

set of government and bank regulations, emphasize the fact that the present performance

of the bank has loopholes.

The technology innovation and market roll up at Barclays bank have opened at speeds

never encountered before and along this has come uncharted innovations in information

technology and knowledge, management and an explosion of new services, new products

and new markets. This has made the unwary executive of Barclays bank dizzy.

Respondents that were interviewed recommended that managers should learn to manage

the knowledge and information while staying in the driver‟s seat.

55

Competition policy should be provided with a home under the supervision of ministry

responsible for banking industry similar to the monopolies commission in the UK. It

should be the responsibility of this new agency to put up in place the benchmarks for

proper conduct with in the competition law and the mechanics for monitoring and

sanctions.

Barclays bank should have the capacity to serve her clients any where. A greater

resources base and presence across a wide range of market is necessary to justify her

customers and regulatory restrictions should be reduced or even relaxed to enable

development and improve performance and compete globally. Barclays bank contributes

to economic vitality and employment and her branches offer convenience access with a

personal touch to customers many of whom may have little or no prior experience with

banks. Therefore Barclays bank should create more branches in the neighborhood which

signals that it is interested in doing business with the community and these intangibles can

make an important difference when it comes to meeting local customer‟s needs. Some

respondents recommended that their company should specialize so that it becomes as good

as its competitors. Respondents argued that Barclays bank should specialize in order to

earn more by using less physical capital and her market capitalization will rocket as a

result.

Respondents recommended that motivation of staff and managers is very important in

order for them to be able to conduct their work as prescribed. In addition Barclays bank

should consider economies of scale as a motivation for performance because it is not yet

big enough and for economies of scope they should be considered because they increase

efficiency than specialized institutions.

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5.1 Areas for further research

Further research is recommended on;

Effect of bank takeover on employment and advertising

Challenges and opportunities of bank takeovers in all commercial banks that have

taken over.

57

REFERENCES

Baley Keneth (1994). “Methods of social research”. (4th Ed.), Published by Maxwell

Macmillan, New York.

Barclays bank (2007). Financial Annual Report, Kampala.

Barclays bank (2008). Financial Annual Report, Kampala.

Bringham, (1997). Predicting credit performance of financial institutions.

Cheng, David,Benton,Gupp, and Larry D. Wall, (1989). Financial

Determinants of bank takeovers, Journal of money, credit and banking Vol. 21-4, pp. 524-

536.

Financial Institutions Act (2004).

Group of Ten (2001). Report on consolidation in the Financial Sector. Basel: Bank for

International Settlements.

Gup Benton, E., David, C.Cheng, Larry, D.Wall, & Kartono, L. (1989)."Regional

Differences in Bank Merger Pricing”, in Bank Merger-Current Issues and Perspectives.

Benton, E, Gup et., Amsterdam:Kluwer Academic Publishers.

Hronec, S.M. (1998). Vital signs- using quality, time and cost performance

measurements to chart your company‟s future. Amacon, New York.

James, C.Van Horne (1995). Financial Management and Policy. Prentice Hall.

58

John, M. Managing Financial Service Marketing.

Kakuru Julius (1999). Financial management. (1st Ed.)

Kotler, A. (1995). Management. London and New York Routledge.

Modern Economics by J. Harvey 330 HAR.

Moore (2001). “Efficiency in European Banking”. European Economic Review

45(10), pp.1931 p.55.

Mugisha (2003). The banking environment in Uganda in the 1990s

Mwenda and Muuku (2001). Effects of interest rates on liquidity ratio.

Pandey,I. M. (1995). Financial management. (5th Ed.), Vikas Publishing House Pvt ltd.

Pandey,I. M. (1995). Financial management. (7th Ed.), Ram Printograph, Delhi-ST.

Patton, M. (1990). Qualitative evaluation and research methods. (2nd

Ed), California: Sage

Publications.

Vantatramen , N. & Ramanujan, V. (1996). Measurement of Business performance in

strategy research: A comparison of approaches. Academy of management review, Vol.

11/4,801-14.

Vaorino, P.G. & Varsahelyi, M.A.(April,23-24,2002). Continuous performance and

control monitoring at BIPOP. Paper presented at the European Accounting Systems

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Conference, Copenhagen: Denmark online at

http://accountingeducation.com/subsites/ecaisis/2002/Varsahelyi.

Zhang, H, (1995). “Wealth Effects at US Bank Takeovers”. Applied Financial

Economies.5(5),pgg.329-336.

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APPENDIX 1

QUESTIONNAIRES ON THE FACTORS AFFECTING THE PERFORMANCE

OF BANK TAKEOVERS, A CASE STUDY OF BARCLAYS BANK.

Dear respondents,

This questionnaire is designed to study the status of the factors affecting the performance

of Bank takeovers .The information you will provide will help us to better understand the

factors behind bank takeover performance at Barclays bank in Uganda.

The research is only conducted at the branch of Barclays Bank located within Kampala

along Jinja road and the study is particularly for academic purposes.

I wish to reassure you that the information that will be obtained from this questionnaire

will be confidential and will be used exclusively for this study.

Thank you very much for your time and co-operation I greatly appreciates your

organization and your help in furthering this research endeavor and building my future.

INSTRUCTIONS

1.Please, feel free to fill in any information as deemed necessary. All information shall be

accorded the highest level of confidentiality.

2. Answers should be written in the spaces provided. In case the space provided is not

enough, it is advisable you use an extra sheet of paper that must be attached with the filled

questionnaire

3. Writing your name on the questionnaire is optional

61

Thank you very much,

SECTION A. General Information

Qnl. Your title (optional) …………………….

Salary scale (optional) ………………………….

Qn2. Sex (tick box)

Male Female

Qn3.Age in years (tick box)

20-24 25-44 45-64

Qn4. Others specify

………………………………………………………………………………………………

………………………………………………………………………………………………

SECTION B: Takeover at Barclays Bank Uganda

Qn.5. Have you ever heard about a bank takeover? (Tick box)

Yes (Go directly to Qn.6 (a))

62

No (Read the following)

During the year 2007 Barclays Bank took over Nile Bank, forming one Bank.

Qn6 (a) what form of takeover did your organization go through? (Tick box)

Friendly (negotiated

Hostile takeover

Reverse takeover.

Selling by a beneficial owner

Qn6 (b). From what you have heard or read do you think that Bank takeover is a good

thing for employees like you? (Tick box)

Good

Bad

Indicate true or false for the statement below.

Qn7. Through the takeover, has Barclays Bank rolled out unique and affordable financial

products and services for her clients? (Tick box)

63

True

False

SECTION C: Performance of Bank takeover of Barclays Bank

Qn8. What have been the levels of profitability for Barclays Bank over the years?

2006 ……………………………………….

2007 ……………………………………….

2008 ……………………………………….

Could you be having a reason for the above observed pattern?

……………………………………………..

SECTION D: Managerial factors that affect the performance of Bank takeover of

Barclays Bank.

Qn9. Did the managers of your organization co-operate closely to ensure that it acquires

(Takes over) Allied Bank in order to improve the performance of the Bank? (Tick box)

Yes

No

Don‟t know

64

For the statement below, please say whether you strongly agree, agree, disagree strongly

disagree.

Qnl0. The management skills have played a key role in driving the process of bank

takeover. In the absence of these skills and non commitment of the staff it is like

that the performance of Barclays Bank would be very low.

(Please circle your choice)

1) Strongly agree

2) Agree

3) Disagree

4) Strongly disagree

5) Not Sure

Qn11. What managerial approach system has your organization in trying to improve

performance after the bank takeover? (Please circle your choice)

1) Cooperative social system

2) Group behavior system

3) Contingency system

4) Systems approach

5) Others (specify)

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SECTION E: Economic factors that affect the performance of Bank takeover of

Barclays bank

For the following statements below, please say whether you strongly agree, agree.

Disagree or strongly disagree.

Qn12. The takeover of Nile Bank by Barclays Bank is seen as a way to achieve greater

“efficiencies”, economies of scale “and contributing to real economic growth.


1) Strongly agree

2) Agree

3) Disagree

4) Strongly disagree

5) Not sure

Qn13. Economic globalization affects the performance of bank takeover of Barclays Bank.


I) strongly agree

2) Agree

3) Disagree

4) strongly disagree

5) don‟t know

Qn14. In your opinion, do you think that your organization is expected to accelerate

market changes and increase competition and efficiency since it took over?

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(Tick box)

Yes

No

Don‟t know

SECTION F: Government policy and the performance of bank takeover of Barclays

Bank

Qn15. in your opinion, what should the government do? (Tick box)

a) Stop proposed takeovers by banks

b) Tax the Bank and its excessive profit

c) Non of the above

Qn16. Does the fact that we are currently facing “globalization “make you feel that the

government should increase regulation of banks, decrease regulation or keep it the

same? (Please circle your choice)

i. Increase regulation

ii. Decrease regulation

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iii. Keep it the same

SECTION G: Banking infrastructure and the performance of bank takeover of

Barclays Bank

For the statement below indicate true or false

Qn17 your organization has improved her ATM system. Indicate how this has been done

and how to use an ATM?

Qnl8. Do you think that the banking infrastructure has increased the level of efficiency

and effectiveness of Bank of Africa? (Please circle your choice)

a) Yes

b) No

If yes how and if No why?

THANK YOU VERY MUCH FOR YOUR CO-OPERATION.

declaration i byamukama eliab

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