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Exploration of Shanghai Pudong Development Bank for Ways to Serve Technological Enterprises
Source:wenhui    Writer:shen qiusha    Released on:2015-09-02    

 Understanding is key to the bank lending to technological enterprises

Though difficult financing for small and medium-sized technological enterprises is heard long before, banks which are at the other end of financing “seesaw” are in unprecedentedly entanglement. On one hand, they are afraid of losing opportunities and missing potential customers; on the other hand, they are afraid of “gambling on a wrong choice” and the given loans will become bad debts.
Innovative small and medium-sized enterprises constitute a new engine that drives economic development. Premier Li Keqiang has required banks to increase their support for those enterprises for many times. Shanghai Pudong Development Bank has made considerable efforts: by June 2015, the banks had served more than 13, 000 technological enterprises and offered more than 140-billion yuan credit for technological enterprises. To sum up, the outstanding loans for technological enterprises reach about 80 billion yuan.
Why Shanghai Pudong Development Bank dares to offer loans as organizer of the Technology Finance Forum of Pujiang Innovation Forum? According to Yang Bin who is general manager of business management department of the bank head office, the key to resolve the bank’s “hesitation” is that the bank should understand high-tech enterprises.

“Diamond drill” of Silicon Valley Bank
In order to develop insights about technological enterprises, Shanghai Pudong Development Bank co-established SPD Silicon Valley Bank with American Silicon Valley Bank in 2011. SPD Silicon Valley Bank focuses on areas like hardware, software, internet, mobile, consumption technical products, life science, biotechnology, clean energy and new material.
There is a good reason for the cooperation with Silicon Valley Bank, that is, almost all service objects of Silicon Valley Bank are small and medium-sized technological enterprises. In this way, it is highly complementary to Shanghai Pudong Development Bank which is in early stage regarding serving small and medium-sized enterprises and technology.
Silicon Valley Bank dares to take over tough task because it understands. According to Yang Bin, a complementary mechanism that shares customers, businesses, resources and technologies has been established after the two banks cooperated. Consequently, “understanding enterprises” has been applied in SPD Silicon Valley Bank; meanwhile, it has enlightened Shanghai Pudong Development Bank for technological and financial development.
Yang Bin confessed that the bank does not worry about companies in traditional fields that have gone through technological transformations and upgrading but does worry about pure IT enterprises; when having little knowledge about an enterprise, the bank with discuss with professionals inside and outside the industry.
Yang Bin said that:”the biggest risk for technological enterprise is technological risk and “Waterloo” is likely to happen when technologies are mass produced”. Another risk is emotional risk. Every entrepreneur has dreams and their strong emotional coloring may affect judges of bosses. Nevertheless, banks need to be calm; “in short, bankers should remain untouched by wonderful stories”.
Shanghai Pudong Development Bank has learnt some “tricks” to evaluate enterprises, such as how to evaluate market potential and value of an enterprise’s core technology. The accumulated experience enables Shanghai Pudong Development Bank to conduct more extensive and in-depth explorations in the field of technological finance.

The experience of investment-loan linkage is something that can be copied.
One of primary business models of Shanghai Pudong Development Bank is “investment-loan linkage”.
The so-called “investment-loan linkage” means linkage between investments and loans. In general, it means a commercial bank achieve strategic cooperation with investment institutions like private fund and the investment institutions practice equity investment in enterprises; upon that, the bank provide loans for enterprises to form linkage between equity investment and bank creditor investment.
This model has been applied by Shanghai Pudong Development Bank with facility. So far as the journalist knows, LongChang company that used to engage in construction of many venues for Shanghai World Expo has attracted attention from risk investment in the process of development; meanwhile, Shanghai Pudong Development Bank has gained for the enterprise higher market valuation through increasing the ratio (1.25:1) between investment and loan to double finance.
“We’ve been thinking how to offer loans for startup enterprises while making sure the risk is controllable. The investment-loan linkage is the most feasible one” said by Yang Bin.
Compared with banks that are used to dealing with traditional enterprises, venture partners are more familiar with high and new technologies. Enterprises that are invested by venture partners are generally distinguished and offering loans by following venture partners can effectively reduce risks.

A door for banks that especially serve small and medium-sized enterprises
In the United States, 50% to 60% companies that have got venture investments are customers of Silicon Valley Bank and warrant is a very important part of the distinct risk-control system of the bank. The so-called warrant is a kind of forward credential. In popular words, if a bank gets warrant of an enterprise, the bank can buy new shares at agreed price if the enterprise goes public successfully.
In other words, if Silicon Valley Banks attains warrant of a high-risk enterprise that goes public finally, previous loss of bad loans will be balanced and risks can be controlled effectively.
So far, however, relevant regulations in China do not support banks to attain warrant of enterprises.
Relevant responsible persons of Shanghai Rural Commercial Bank believe: if enterprises remain untied regarding risk return, serving small and medium-sized enterprises will remain passive and banks will run out of enthusiasm. The reason lies in that banks can only get loan interests even when investment-loan linkage turns out to be very successful.
As a bank that especially serves small and medium-sized technological enterprises, Silicon Valley Bank has a system that guarantees its service objects. According to Yang Bin, the future development trend for banks is focusing on certain field or area and improving professional competence.
In Shanghai, many banks have established technological financial service centers or technological special branches; moreover, they are offering corresponding services according to different development stages of technological enterprises. Yang Bin said Shanghai Pudong Development Bank has established not only a technological financial office in its head office but also head office-level technological financial service centers in Shanghai, Beijing, Tianjin and Shenzhen. Another piece of good news is that China Banking Regulatory Commission has declared that it is driving the research of investment-loan linkage mechanism of commercial banks and encouraging banks with mature conditions to explore about establishing financial service divisions in technological enterprises so as to support development of technological start-up enterprises.


Journalist: Shen Qiusha