HBS Case Study
HBS Case Report: Shenzhen Development Bank
Contents
Executive Summary
This report provides an analysis and evaluation of Newbridge’s proposed investment into Shenzhen Development Bank. Methods of analysis include an assessment of the bank’s financial performance, examining factors such as its asset quality, earning capability and capital adequacy. It also provides an in-depth analysis into the appropriateness of the price Newbridge must pay for the stake, given some set circumstances. All graphs, tables and exhibits for the analysis can be found in the appendices of this report. Our assessment of these key factors show that Newbridge’s proposed investment into Shenzhen Development Bank is overall recommended despite certain negative aspects of it. It should be noted that there are some limitations to the analysis in this report because of the small scope of data that was given for the analysis.
Shenzhen Development Bank’s Financial Performance
Shenzhen Development Bank’s Asset Quality
To begin analysing whether Newbridge investment into Shenzhen Development Bank (SDB) is appropriate, their performance should be examined first. Firstly, the quality of assets which SDB has invested in should be taken into consideration. Exhibit 10 highlights SDB’s Non-performing loans (NPL) ratio of 11.6% is higher compared to other industry peers with the exception of Bocom with 16.7%. Overall, SDB has a higher NPL ratio than the average of its industry peers at 7.3%. This indicates that a higher proportion of SDB’s assets are of lower quality, given the higher credit risk for those loans. It should be noted SDB’s NPL ratio may even be higher because of them likely reporting a low NPL number. This is because these are book values, and hence the values are subject to the bank’s discretion, in which they are less likely to recognise any negative aspects of their bank to continue investor confidence.
Moreover, as highlighted
Contents
Executive Summary
This report provides an analysis and evaluation of Newbridge’s proposed investment into Shenzhen Development Bank. Methods of analysis include an assessment of the bank’s financial performance, examining factors such as its asset quality, earning capability and capital adequacy. It also provides an in-depth analysis into the appropriateness of the price Newbridge must pay for the stake, given some set circumstances. All graphs, tables and exhibits for the analysis can be found in the appendices of this report. Our assessment of these key factors show that Newbridge’s proposed investment into Shenzhen Development Bank is overall recommended despite certain negative aspects of it. It should be noted that there are some limitations to the analysis in this report because of the small scope of data that was given for the analysis.
Shenzhen Development Bank’s Financial Performance
Shenzhen Development Bank’s Asset Quality
To begin analysing whether Newbridge investment into Shenzhen Development Bank (SDB) is appropriate, their performance should be examined first. Firstly, the quality of assets which SDB has invested in should be taken into consideration. Exhibit 10 highlights SDB’s Non-performing loans (NPL) ratio of 11.6% is higher compared to other industry peers with the exception of Bocom with 16.7%. Overall, SDB has a higher NPL ratio than the average of its industry peers at 7.3%. This indicates that a higher proportion of SDB’s assets are of lower quality, given the higher credit risk for those loans. It should be noted SDB’s NPL ratio may even be higher because of them likely reporting a low NPL number. This is because these are book values, and hence the values are subject to the bank’s discretion, in which they are less likely to recognise any negative aspects of their bank to continue investor confidence.
Moreover, as highlighted