The margin lending issued by banks doubled in the past five years, however the performance of the secondary market could not be better off compared to heavy cash flow for purchasing shares.
In the fiscal year 2018/19, loan against shares stood at Rs 45.20 billion, which has now increased to Rs 87.11 billion. Of the amount, Rs 10.80 billion was added in the current FY.
According to experts, the increased credit in the segment must help increase the demand for shares. However, the records with Nepal Stock Exchange (NEPSE) show that its index has not been able to increase despite doubling of the credit provided by banks over the period.
In the fiscal year 2018/19, NEPSE opened at 1,259 points, which rose by 103.4 points to close at 1,362.4 points. In the same year, the loans against shares increased by Rs 3.99 billion.
The coronavirus pandemic affected most of the sectors including the share market in the fiscal year 2020/21. The online trading of the shares boomed in the year while banks also issued the share mortgage loans exorbitantly taking it to Rs 106.28 billion. It took the NEPSE index to a new height of 2,862.4 points in that particular fiscal year.
In September 2021, NEPSE set a new record, reaching 3,198.6 points. With the reduced impacts of the COVID-19 in the consecutive year, the margin loans decreased by 24.3 percent. Due to this reason, the NEPSE index dropped down to 2,009.5 points.
With the bearish trend in the secondary market, investors also withdrew their investment from the market rapidly. This led to the decline in margin loans of Rs 76.30 billion by the end of the FY 2022/23. The policy adopted by the central bank to cap equity lending and to increase risk weightage of margin loans also slowed the market.
With Nepal Rastra Bank (NRB) adopting flexible policies this FY, the investment is gradually being mobilized in the share market. According to the NRB, the margin loan has increased by 14.15 percent in the first 11 months of the current FY.
Over the period, the NRB has reduced the risk weight of loans up to Rs 5 million from 150 to 125 and then to 100 percent. In the same way, bank interest rates have also decreased to single-digit. In the past two weeks following the new political development, NEPSE went up by 204 points.
