The Securities Board of Nepal (SEBON) has launched an investigation into potential insider trading related to share transactions involving the financially troubled Karnali Development Bank Limited (KDBL).
On Tuesday, Nepal Rastra Bank (NRB) issued a public notice declaring KDBL as problematic after the bank failed to meet the required capital adequacy ratio. Due to the deteriorating financial health of the bank, the central bank implemented immediate corrective actions, ordering KDBL to stop accepting deposits and issuing loans.
However, despite the NRB’s actions, KDBL’s share price saw a significant increase in trading the following day. This prompted the regulator to implement a positive circuit breaker on the trading of KDBL shares.
On Wednesday, KDBL’s share price surged by Rs 76.90, reaching Rs 845.90 per unit. A total of 250,439 units of the bank’s shares, valued at Rs 201.30 million, were traded that day. The sharp rise in the share price, despite the bank’s worsening financial situation, raised concerns about potential insider trading.
Niranjaya Ghimire, SEBON’s spokesperson, confirmed that the board has initiated an investigation into the share transactions of KDBL. “It is highly unusual for a crisis-hit organization’s share price to rise so dramatically the day after being declared problematic,” Ghimire said.
SEBON has requested detailed trading information from the Nepal Stock Exchange (NEPSE) regarding KDBL shares. “Once we receive the necessary details from NEPSE, SEBON will decide on further action,” Ghimire added.
Insider trading refers to the illegal practice of using confidential information about the stock market to gain unfair advantages. A study conducted by the Ministry of Finance two years ago revealed that market anomalies such as insider trading, pump-and-dump schemes, and circular trading were prevalent in Nepal’s sole stock exchange market.
During an inspection from July 21-26, NRB identified significant issues in KDBL’s credit management and loan loss provisions. The NRB’s report showed that KDBL’s non-performing loan (NPL) ratio had reached an alarming 40.85%, in addition to its failure to maintain the required capital adequacy ratio.
In response, NRB invoked clause-3 of the “Prompt Corrective Action Regulations, 2017” to protect depositors and the public. As part of the directive, KDBL has been given six months to improve its financial standing, during which time it is prohibited from accepting new deposits, opening new accounts, or disbursing loans.
