Investors, brokers press for easy margin lending
KATHMANDU, MAY 2:
Both, brokers and investors, have strongly urged for easy access to margin finance to boost the current market scenario.
“If investors had easy access to margin loans either through brokers or financial institutions, then they would have been able to buy more shares, sustainably fuelling the current surge in the stock market,” pointed out general secretary of Nepal Investors’ Forum Raj Kumar Timilsina.
“The stock market would have highly benefited in the present context when buyers are flocking if they had easy access to margin finance through brokers,” stressed president of the Stock Brokers
Association of Nepal (SBAN) Anjan Raj Paudyal.
In the last couple of weeks, the stock market’s wheel of fortune has taken a hundred and eighty degree turn and is enjoying a surge after a long period. Investors trying to cash in on the lowered share prices have pushed the index by 40 per cent as more and more buyers are being lured. “Margin lending would have increased the purchasing capacity of investors, pushing the demand further up,” he added.
The capital market regulator –– Securities Board of Nepal (Sebon) –– has commissioned a study by
an expert to design the procedure for margin lending through brokers. “Sebon has recognised the importance of allowing margin lending by brokers to boost the market so we are going to prepare a proper legal infrastructure once the report is out,” informed an officer at Sebon. Under margin lending, brokers give partial loans to clients in order to cover a larger investment than one’s capital could directly cover for a fee. The margin account with brokers acts as leverage for investors, allowing them to purchase shares despite being short of cash, thus promoting transactions.
However, in Nepal, margin lending is loosely referred to as loans floated by banks and financial institutions against the collateral of shares. Though financial institutions are not prohibited to float loans against shares to the public, investors feel that in the current scenario, obtaining loans through financial institutions by pledging shares has become difficult.
The central bank that had tightened loans against shares by increasing the ceiling in order to curb speculative investment has completely removed the ceiling –– leaving the amount of loans to be floated on the discretion of the financial institutions.
“This provision, instead of helping investors, has given power to financial institutions who are providing loans to their near and dear ones at low margins while most investors are not getting loans worth even half the price of the shares,” pointed out Timilsina.
Five years back, during the heyday of the capital market, easy availability of margin type loans had fuelled the bullish trend of the stock market pushing it to a peak. “If the opening up of margin finance through brokers is going to take a long time, it will be prudent to revert to the earlier system of banks giving a portion of stock price as loans on the recommendation of the brokers,” he said.
This is one of the major issues, which investors have raised at the Finance Ministry during their ongoing protest programme. The margin lending done by financial institutions against the collateral of non-government securities has gone down by 20 per cent by the second quarter of the current fiscal year..
The central bank governor had also announced recently that the central bank is doing its homework to simplify the provisions for margin type lending to facilitate the stock market.
