Loan against shares down 31 pc

KATHMANDU,DEC 8: 

As the bearish trend on the secondary market continued along side soaring interest rate, the amount of loans floated against shares by the commercial banks has gone down by 31 per cent in the first quarter.

The commercial banks have floated loans worth Rs 7.3 billion in the first quarter of current fiscal year that stood at Rs 9.6 billion in the corresponding period last fiscal year, according to the financial reports of the commercial banks. The investors were not able to take advantage of Nepal Rastra Bank’s move to relax provision for loans against shares due to skyrocketing interest rates. 

The struggling capital market can only be expected to take advantage of slackened margin type lending from the banks if the interest rates are affordable for borrower. “At the present rates of 15-17 per cent it is not prudent for the investors to pledge the shares to borrow for further investment,” said Anjan Raj Poudel, president of Stock Brokers Association of Nepal. “If the interest rates go down by 2-4 percentage point, then the investors can be expected to opt for loan against shares to buy more shares.” 

The higher deposit interest rate offered by banks that is yielding more return than investment in share market had turned a portion of investors to depositors. At the same time high lending rate and low return on shares had removed any prospects prospect for investors buying more shares by obtaining loans. Nepal Rastra Bank, in July had completely relaxed the ceiling for loan against shares. The central bank has left the prerogative of sanctioning the loan against the shares on the bank’s prudence. 

Earlier, according to the central bank’s lending regulations, banks and financial institutions were 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. 

The stakeholders used to blame the tight ceiling for loan against shares as one of the reason for the capital market’s bearish trend in the recent times. The relaxed margin type lending had contributed in pushing the stock market to new high during the heydays of capital market three to four years ago. 

As the financial system is flushed with liquidity at present, the banks are likely to lower the interest rate some have even brought the lending rate down by 0.25 percentage points.

Source: THT