Nepse mulls guaranteeing loans taken against shares
KATHMANDU, MAY 16 -
In a bid to stimulate the flagging capital market, the Nepal Stock Exchange (Nepse) is mulling providing guarantees to banks and financial institutions (BFIs) on behalf of investors who have taken loans against shares but want to sell them.
The new provision is expected to be implemented in the next two months. “Our plan is to bring it at the earliest as we’ve giving final touch to the related directives, which is yet to get finalised,” said Nepse chairman Tanka Paneru.
Once the directives come into effect, they will provide respite to investors wanting to sell the shares they have put up as collateral. “We’ll provide guarantees to BFIs to allow investors to sell their shares,” added Paneru.
As per the directive, BFIs will have to free the shares against Nepse’s guarantee. Either Nepse or stockbrokers will clear the loans and interest owed by investors after the shares are sold.” However, we’ve yet to decide who’ll do this job,” said Paneru.
Different BFIs in the country had lent around Rs 9 billion on margin loans. According to Paneru, stockbrokers will most probably be given this task. “We don’t want to get involved in it,” said Paneru.
Stock analysts say that if the provision comes into effect, it will boost the secondary market. “Currently, BFIs don’t trust individual investors with regard to such a provision; but if Nepse itself provides a guarantee to them, then they will surely accept it,” said Rabindra Bhattarai, a stock analyst. “It will be a good initiative.”
Nanda Kishore Mundada, president of the Nepal Stockbrokers Association, concurs. He said that investors were having a hard time repaying their loans. “Presently, if an investor fails to make timely repayments, BFIs direct them to sell their stocks to recover their loans.” Nepse’s move comes amid a prolonged downturn in the capital market that has not only hit investors but also its earnings. The country’s only secondary market saw its net profit tumble 28.33 percent in fiscal 2009-10. Nepse posted a net profit of Rs 61.2 million last year.
“The volume of transactions in the last two years has been severely affected by various reasons,” said Paneru. “As our major source of income is commissions from share trading, our income in 2009-10 got affected with the drop in the volume of transactions.”
Paneru is worried about Nepse’s performance in the current fiscal year too. Market turnover during the first nine months of the fiscal year amounted to Rs 4.63 billion from the trading of 17.89 million shares, down 52.97 percent compared to the last fiscal year.
The secondary market registered a turnover of Rs 11.85 billion from the trading of 26.23 million shares in 2009-10. In 2008-09, a total of 30.54 million shares worth Rs 21.68 billion had changed hands.
Source: Kantipur
In a bid to stimulate the flagging capital market, the Nepal Stock Exchange (Nepse) is mulling providing guarantees to banks and financial institutions (BFIs) on behalf of investors who have taken loans against shares but want to sell them.
The new provision is expected to be implemented in the next two months. “Our plan is to bring it at the earliest as we’ve giving final touch to the related directives, which is yet to get finalised,” said Nepse chairman Tanka Paneru.
Once the directives come into effect, they will provide respite to investors wanting to sell the shares they have put up as collateral. “We’ll provide guarantees to BFIs to allow investors to sell their shares,” added Paneru.
As per the directive, BFIs will have to free the shares against Nepse’s guarantee. Either Nepse or stockbrokers will clear the loans and interest owed by investors after the shares are sold.” However, we’ve yet to decide who’ll do this job,” said Paneru.
Different BFIs in the country had lent around Rs 9 billion on margin loans. According to Paneru, stockbrokers will most probably be given this task. “We don’t want to get involved in it,” said Paneru.
Stock analysts say that if the provision comes into effect, it will boost the secondary market. “Currently, BFIs don’t trust individual investors with regard to such a provision; but if Nepse itself provides a guarantee to them, then they will surely accept it,” said Rabindra Bhattarai, a stock analyst. “It will be a good initiative.”
Nanda Kishore Mundada, president of the Nepal Stockbrokers Association, concurs. He said that investors were having a hard time repaying their loans. “Presently, if an investor fails to make timely repayments, BFIs direct them to sell their stocks to recover their loans.” Nepse’s move comes amid a prolonged downturn in the capital market that has not only hit investors but also its earnings. The country’s only secondary market saw its net profit tumble 28.33 percent in fiscal 2009-10. Nepse posted a net profit of Rs 61.2 million last year.
“The volume of transactions in the last two years has been severely affected by various reasons,” said Paneru. “As our major source of income is commissions from share trading, our income in 2009-10 got affected with the drop in the volume of transactions.”
Paneru is worried about Nepse’s performance in the current fiscal year too. Market turnover during the first nine months of the fiscal year amounted to Rs 4.63 billion from the trading of 17.89 million shares, down 52.97 percent compared to the last fiscal year.
The secondary market registered a turnover of Rs 11.85 billion from the trading of 26.23 million shares in 2009-10. In 2008-09, a total of 30.54 million shares worth Rs 21.68 billion had changed hands.
Source: Kantipur
