Loan against shares contracts 13 pc
KATHMANDU, May 5:
The falling share prices have shrunk the amount of loans floated against shares by commercial banks in the recent months as investors are less than willing to borrow by pledging shares.
The amount of loans floated against shares by the commercial banks has contracted by 13.1 per cent in the first eight months of the current fiscal year. By mid-March 2011, the loans floated against the shares have declined by Rs 887.3 million compared to the beginning of the current fiscal year.
According to Nepal Rastra Bank (NRB), these loans against shares floated by the commercial banks amount to Rs 5.8 billion which was Rs 6.7 billion in the beginning of the fiscal year. The corresponding period of the previous fiscal year had recorded an increase of Rs 1 billion, 29.2 per cent up from the beginning of the last fiscal year.
These loan against shares consist 1.14 per cent of the total lending of the commercial banks.
“It is difficult for the investors to maintain their margin with the banks to avoid margin call as the stock prices have been plummeting,” said Prakash Rajoria, general secretary, Nepal Stock Investors’ Association.
“There is no environment for taking loans by pledging shares. The investors that have pledged the shares based on the stock prices six months ago are in financial difficulty due to falling share prices,” he added.
Since the beginning of the fiscal year, the Nepse index has been consistently plunging so that the value of shares pledged six months back for loans have declined rapidly.
Nepse index — the stock market indicator — have slipped by 29 per cent from the beginning of the fiscal year to present. The index that had opened at 477.73 points on July 18, the beginning of the fiscal year 2010-11 reached 338 points today.
According to the central bank’s lending regulations banks and financial institutions are allowed to lend only 60 per cent amount of the shares pledged based on the shares’ average price of the last 180 days or the last traded price, whichever is lower. NRB had revised the ceiling of loan against shares from 50 per cent to 60 per cent in the monetary policy for 2010-11.
Though the central bank was expected to further revise the ceiling to boost the ailing capital market, NRB only relaxed the provision for rescheduling the margin type loans two months back.
The new provision does not help the investors or stock market but only reduces the non performing assets of banks by rescheduling the loans.
Moreover, increasing ceiling on margin type lending would not have facilitated the investors in the bearish market as no prudent investor would prefer to pledge shares whose value is deteriorating with each trading day and risk themselves to margin call.
Source: THT
The falling share prices have shrunk the amount of loans floated against shares by commercial banks in the recent months as investors are less than willing to borrow by pledging shares.
The amount of loans floated against shares by the commercial banks has contracted by 13.1 per cent in the first eight months of the current fiscal year. By mid-March 2011, the loans floated against the shares have declined by Rs 887.3 million compared to the beginning of the current fiscal year.
According to Nepal Rastra Bank (NRB), these loans against shares floated by the commercial banks amount to Rs 5.8 billion which was Rs 6.7 billion in the beginning of the fiscal year. The corresponding period of the previous fiscal year had recorded an increase of Rs 1 billion, 29.2 per cent up from the beginning of the last fiscal year.
These loan against shares consist 1.14 per cent of the total lending of the commercial banks.
“It is difficult for the investors to maintain their margin with the banks to avoid margin call as the stock prices have been plummeting,” said Prakash Rajoria, general secretary, Nepal Stock Investors’ Association.
“There is no environment for taking loans by pledging shares. The investors that have pledged the shares based on the stock prices six months ago are in financial difficulty due to falling share prices,” he added.
Since the beginning of the fiscal year, the Nepse index has been consistently plunging so that the value of shares pledged six months back for loans have declined rapidly.
Nepse index — the stock market indicator — have slipped by 29 per cent from the beginning of the fiscal year to present. The index that had opened at 477.73 points on July 18, the beginning of the fiscal year 2010-11 reached 338 points today.
According to the central bank’s lending regulations banks and financial institutions are allowed to lend only 60 per cent amount of the shares pledged based on the shares’ average price of the last 180 days or the last traded price, whichever is lower. NRB had revised the ceiling of loan against shares from 50 per cent to 60 per cent in the monetary policy for 2010-11.
Though the central bank was expected to further revise the ceiling to boost the ailing capital market, NRB only relaxed the provision for rescheduling the margin type loans two months back.
The new provision does not help the investors or stock market but only reduces the non performing assets of banks by rescheduling the loans.
Moreover, increasing ceiling on margin type lending would not have facilitated the investors in the bearish market as no prudent investor would prefer to pledge shares whose value is deteriorating with each trading day and risk themselves to margin call.
Source: THT
