FINA 6092 Advanced Financial Management
Harvard Business School Case Study
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Shenzhen Development Bank

Case Report
Section A: Group 6

Name

CATALOGUE

PART 1: BACKGROUND INTRODUCTION ..................................................................... 1
PART 2: THE INVESTMENT VALUE OF SHENZHEN DEVELOPMENT BANK ..... 1
PART 3: RISK ANALYSIS .................................................................................................... 2
PART 4: RISK CONTROL .................................................................................................... 4
PART 5: ADVANTAGES POSSESSED BY NEWBRIDGE IN THE SDB
INVESTMENT …show more content…

SDB is under the control of Shenzhen government and it is often obligated to provide financing for a range of municipal projects. The special relationship with local government leads to that the major shareholders of SDB are also its own borrowers. These conflicts of interests further hampers independent management and exacerbate asset quality problems. Furthermore, as a state-owned bank, the compensation of the management team is not closely tied to performance and most board members do not have the incentive to perform fiduciary duty to push forward changes in the interest of the dispersed shareholders.

Thirdly, the potential investment risk can be attributed to the distrust of foreign institution from local investor. Such a control transfer from local government to foreign institution may lose several existing clients and the business scale may shirk as well. How to maintain current investors and exploit the market are important issues that Newbridge should take into consideration.

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Part 4: Risk Control

To ensure the investment in SDB is successful and profitable, Newbridge should take measures to control those risks and alleviate existing problems. For the credit risk management, a sound monitoring system and a strict approval system are required to be established. With a solid risk management and control system, the large proportion of NPLs can be driven down, so is the default risk. At the same time, it is