Loans against shares up last fiscal
KATHMANDU, AUG 23:
Loans against shares floated by financial institutions recorded a single digit growth in the last fiscal, despite the bullish share market throughout the year.
Total loans floated by banks against the collateral of non-government securities have increased by 8.2 per cent, according to data published by Nepal Rastra Bank (NRB). In the previous fiscal year, the amount of such loans had gone down by 7.7 per cent. Commercial banks, development banks and finance companies extended loans worth Rs 8.2 billion at the end of fiscal year 2012-13, which amounted to Rs 7.6 billion in the beginning — mid-July, 2012. Likewise, in July 2010, the banks’ portfolio contained loans worth Rs 8.2 billion under the heading.
The continuous slump of the stock market even prompted the regulators —Securities Board of Nepal and NRB — to allow margin lending based on brokers’ guarantee even during a blank transfer, a year ago. The appreciation of the Nepse index by almost 40 per cent and doubling of average daily turnover is also attributed to the easy availability of loans against shares.
“But of late, the amount of margin type lending based on brokers’ guarantee is once again being replaced by loans against shares as collateral due to the interest rate,” said broker Bharat Ranabhat. At present, about 15 financial institutions — development banks and finance companies — are engaged in margin type financing. In this set-up, financial institutions provide 60 per cent to 70 per cent of the amount required to buy shares while the rest has to be furnished by the investors themselves. The amount is lent to investors the very next day of the transaction, provided brokers substantiate the transfer has been made. Earlier, financial institutions provided loans against share certificates as collateral so only investors who had concluded the share transfer process could avail the loan.
“Financial institutions are charging more than 14 per cent interest for lending amount during a blank transfer while banks are lending at 10 per cent to 12 per cent if share certificates are pledged,” said Ranabhat, who is managing director of Kohinoor Investment. Moreover, traditional loans against shares has become quite in demand during IPOs as investors pledge existing shares to apply for primary shares.
Source: THT
