BFIs reluctant to issue share purchase loans

KATHMANDU, AUG 10:

 Stockbrokers and investors have begun talks with bankers to urge them to issue loans to buy shares as they have been holding back despite the central bank’s go-ahead.

About a month ago, Nepal Rastra Bank (NRB) lifted the ban on share purchase loans to allow banks and financial institutions (BFIs) to increase credit to the sector in a bid to revive the slumping stock market. The central bank had banned such loans in 2008 after the stock market overheated and pushed the Nepal Stock Exchange (Nepse) index to an unnatural high of 1100 points.

A meeting of the stakeholders is scheduled to be held on Aug 10 with the participation of the Stock Brokers’ Association of Nepal (SBAN), Nepal Bankers’ Association (NBA), Development Bankers’ Association of Nepal (DBAN) and Nepal Finance Companies Association (NFCA).

The SBAN took the initiative to bring BFIs to a meeting to encourage them to provide loans to invest in stock. According to an NRB directive, such credit should be issued to investors against a guarantee given by stockbrokers.   “The main agenda of the meeting is to help investors to get share purchase loans from BFIs as soon as possible,” said Anjan Raj Poudyal, president of the SBAN. “The gathering will discuss the procedures to be followed to make such loans happen.”

Furthermore, the meeting will seek to bring uniformity and consistency in documentation and procedures while extending such loans. “We will also discuss how to bring uniformity in the paperwork,” said Poudyal. “This will make the loan process less complicated and more attractive to investors.”

Another item on the agenda is margin call. According to Poudyal, they will try to standardise the procedure, for example, the time by when payment has to be made to the BFIs after the margin call. The meeting also aims to sort out confusion created by the recent circulars issued by NRB and the Securities Board of Nepal (Sebon). Sebon has asked stockbrokers to play the role of facilitator while NRB has directed stockbrokers to be the guarantor as per its Unified Directive 2012. “We will ask bankers to talk to NRB and clarify the matter,” said Poudyal.      

Initially, such loans will be issued against a guarantee from stockbrokers and the share purchase receipt. Under this arrangement, investors will put up some money and arrange the rest by borrowing from a bank. However, only a few BFIs have extended such loans.

Meanwhile, NBA president Ashoke Rana said they considered share purchase loans to be a very important product, and that the planned meeting would be crucial in making them happen. “The stock market is a very important part of our financial system as it is the place where the value of our shareholders’ wealth is determined,” said Rana.

NFCA president Rajendra Man Shakya said that they had identified share purchase loans as one of the crucial factors to boost the capital market besides being a very important loan product for BFIs. “So we will try to bring uniformity regarding the procedure in order to avoid unhealthy competition among BFIs.”

Source: The Kathmandu Post