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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 anti- competitive 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
Source: Primary data
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
Response Frequency Percentage %
Takeover existence 26 88
No takeover 4 12
Total 30 100
Source: Primary data
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.
Response Frequency Percentage %
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
Source: Primary data
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.
Response Frequency Percentage %
True 27 10
False 3 90
Total 30 100
Source: Primary data
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
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
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
Source: Primary data
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.
Responses Frequency Percentage %
Strongly agree 10 33.3
Agree 15 50
Disagree 4 13.4
Strongly disagree 1 3.3
Not sure 0 0
Total 30 100
Source: primary data
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.
Responses Frequency Percentage %
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 %
Strongly agree 1 3.3
Agree 15 50
Disagree 10 33.3
Strongly disagree 4 13.4
Not sure 0 0
Total 30 100
Source: primary data
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
47
Table 13: Relationship between bank takeovers and performance of banks
opinions Frequency Percentage %
Strongly agree 20 66.7
Agree 0 0
Disagree 10 33.3
Strongly disagree 0 0
Not sure 0 0
Total 30 100
Source: Primary data
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
51
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
52
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.
53
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.
56
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
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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
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Hronec, S.M. (1998). Vital signs- using quality, time and cost performance
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James, C.Van Horne (1995). Financial Management and Policy. Prentice Hall.
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John, M. Managing Financial Service Marketing.
Kakuru Julius (1999). Financial management. (1st Ed.)
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Modern Economics by J. Harvey 330 HAR.
Moore (2001). “Efficiency in European Banking”. European Economic Review
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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
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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
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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.
(Please circle your choice)
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.
(Please circle your choice)
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?
66
(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.