Nepse hit as BFIs land in trouble
KATHMANDU, JUN 14 -
With banks and financial institutions (BFIs) landing into trouble one after the other owing to liquidity crunch and bad governance, the country’s capital market has been hit.
Nepal Stock Exchange (Nepse) is now going through a six-year low with the benchmark index threatening to drop below the 300 mark. On Monday, Nepse Index dropped by 2.4 points to settle at 301.73 points. Such is the downfall in stocks that Nepse lost a massive 41.04 points in the last two weeks. The capital market suffered due to the weak performance of BFIs in the past two weeks.
The banking sub-index led to Nepse’s downfall for the past two consecutive weeks with 25.56 points last week and 13.87 points the previous week. This followed problems that sufaced in some financial institutions.
The shares of commercial banks were hot cakes once. Right after the initial public offering, the share price of the banks used to climb many folds and just the news of rights shares being offered by any bank would have been enough to push the share price of that bank up.
However, the situation has changed now. There are eight banks whose per share price is below Rs 150. A total of 16 ‘B’ and ‘C’ class financial institutions are witnessing per share prices below Rs 100. Promoters themselves are not buying the rights shares of their own banks.
As a result of the acute liquidity crunch and disappointing performance of the stock market, commercial banks are hardly providing loans against shares as collateral (margin lending).
Investors were upbeat after the central bank relaxed margin lending provision, allowing the BFIs not to call margin as long as price of the share put as collateral decreased by 10 percent. The central bank also relaxed the margin lending by allowing BFIs to renew such loans for once, provided they pay all the outstanding interests. On the other hand, Securities Board of Nepal (Sebon) introduced the mutual fund regulation, CDS regulation and credit rating agency regulation, but they failed to make an impression on the market.
Despite efforts being made by government agencies, the bearish run of the capital market has been continuing. Former chairman of Sebon Chiranjeebi Nepal said he does not expect the market to revive anytime soon as long political instability continues. “As long as those who oppose the liberal market economy remain at the helm, investors’ confidence will remain shaken,” he said.
Investors have been saying that the liquidity crunch in the banking system discouraged BFIs to lend in the area that is considered risky. They have also been maintaining that the rise of deposit interest rate against the return from the stock investment also diverted potential investors from the capital market.
Nepal recommended that the government give tax rebate to stock investors to revive the capital market. “Bringing institutional investors in the capital market will also help,” he said.
The government has already asked major institutional investors, including the Employees’ Provident Fund, Citizens Investment Trust (CIT) and Rastriya Beema Sansthan, to invest in the stock market to boost confidence of investors. On Monday, the government decided to ask them to invest in the secondary market. Earlier, the CIT had purchased the promoter shares of Citizens Bank from the primary market.
Source: Kantipur
With banks and financial institutions (BFIs) landing into trouble one after the other owing to liquidity crunch and bad governance, the country’s capital market has been hit.
Nepal Stock Exchange (Nepse) is now going through a six-year low with the benchmark index threatening to drop below the 300 mark. On Monday, Nepse Index dropped by 2.4 points to settle at 301.73 points. Such is the downfall in stocks that Nepse lost a massive 41.04 points in the last two weeks. The capital market suffered due to the weak performance of BFIs in the past two weeks.
The banking sub-index led to Nepse’s downfall for the past two consecutive weeks with 25.56 points last week and 13.87 points the previous week. This followed problems that sufaced in some financial institutions.
The shares of commercial banks were hot cakes once. Right after the initial public offering, the share price of the banks used to climb many folds and just the news of rights shares being offered by any bank would have been enough to push the share price of that bank up.
However, the situation has changed now. There are eight banks whose per share price is below Rs 150. A total of 16 ‘B’ and ‘C’ class financial institutions are witnessing per share prices below Rs 100. Promoters themselves are not buying the rights shares of their own banks.
As a result of the acute liquidity crunch and disappointing performance of the stock market, commercial banks are hardly providing loans against shares as collateral (margin lending).
Investors were upbeat after the central bank relaxed margin lending provision, allowing the BFIs not to call margin as long as price of the share put as collateral decreased by 10 percent. The central bank also relaxed the margin lending by allowing BFIs to renew such loans for once, provided they pay all the outstanding interests. On the other hand, Securities Board of Nepal (Sebon) introduced the mutual fund regulation, CDS regulation and credit rating agency regulation, but they failed to make an impression on the market.
Despite efforts being made by government agencies, the bearish run of the capital market has been continuing. Former chairman of Sebon Chiranjeebi Nepal said he does not expect the market to revive anytime soon as long political instability continues. “As long as those who oppose the liberal market economy remain at the helm, investors’ confidence will remain shaken,” he said.
Investors have been saying that the liquidity crunch in the banking system discouraged BFIs to lend in the area that is considered risky. They have also been maintaining that the rise of deposit interest rate against the return from the stock investment also diverted potential investors from the capital market.
Nepal recommended that the government give tax rebate to stock investors to revive the capital market. “Bringing institutional investors in the capital market will also help,” he said.
The government has already asked major institutional investors, including the Employees’ Provident Fund, Citizens Investment Trust (CIT) and Rastriya Beema Sansthan, to invest in the stock market to boost confidence of investors. On Monday, the government decided to ask them to invest in the secondary market. Earlier, the CIT had purchased the promoter shares of Citizens Bank from the primary market.
Source: Kantipur
