KATHMANDU, SEP 11, 2012
The continuous decline in loans against shares floated by commercial banks seems to have slowed down with the bullish share prices as the fiscal year approached the end.
In fiscal year 2011-12, total loans floated by banks against collateral of non-government securities had declined by 3.8 per cent, according to data published by Nepal Rastra Bank.
In the previous fiscal year, the amount of such loans had gone down by 23.3 per cent. Commercial banks extended loans worth Rs 4.8 billion by end of fiscal year which amounted to Rs 5.8 billion in the beginning –– July, 2011. In July, 2010, banks portfolio contained loans worth Rs 6.75 billion. The steady decline in share prices coupled with escalating interest rate and the central bank enforcing margin on such loans had squeezed the loans.
However, following the bull-run at the Nepse from mid-April, the amount of loans forwarded against securities as collateral has grown. Though the Nepse index had slumped by more than 15 per cent by the ninth month, in the last three months it surged by about 30 per cent. The benchmark index was then down near 300 points in mid-April which rested near 400 points at the end of the fiscal year.
The amount of loans against shares increased by seven per cent in the last month as compared to the 11th month. “The appreciation in share prices encouraged investors to seek loans to buy shares,” said general secretary of Nepal Investors’ Forum Raj Kumar Timilsina. “Number of Initial Public Offerings in the later part of the year also got investors to borrow from financial institutions to apply for loans pledging shares,” he added.
Even though regulators have opened up margin financing based on brokers’ guarantee even during blank transfer of the shares, not all brokers and financial institutions have come aboard, since June. “We are still holding talks with Nepal Bankers’ Association, Nepal Development Bankers’ Association, and Nepal Finance Company Association to design a working plan so that all brokers and financial institutions get uniform procedures for margin financing,” said president of Stock Brokers’ Association of Nepal Anjan Raj Paudyal.
After much struggle, investors had convinced the capital market regulator ––Securities Board of Nepal –– and banking regulator –– Nepal Rastra Bank –– to allow margin lending based on brokers’ guarantee even during blank transfer. “If all brokers and financial institutions start providing margin finance then investors will get loans more easily and at competitive interests,” pointed out Paudyal. Financial institutions are charging 12 per cent to 16 per cent as interest rate for loans against shares, and margin is determined by the institutions themselves.
Source: THT
The continuous decline in loans against shares floated by commercial banks seems to have slowed down with the bullish share prices as the fiscal year approached the end.
In fiscal year 2011-12, total loans floated by banks against collateral of non-government securities had declined by 3.8 per cent, according to data published by Nepal Rastra Bank.
In the previous fiscal year, the amount of such loans had gone down by 23.3 per cent. Commercial banks extended loans worth Rs 4.8 billion by end of fiscal year which amounted to Rs 5.8 billion in the beginning –– July, 2011. In July, 2010, banks portfolio contained loans worth Rs 6.75 billion. The steady decline in share prices coupled with escalating interest rate and the central bank enforcing margin on such loans had squeezed the loans.
However, following the bull-run at the Nepse from mid-April, the amount of loans forwarded against securities as collateral has grown. Though the Nepse index had slumped by more than 15 per cent by the ninth month, in the last three months it surged by about 30 per cent. The benchmark index was then down near 300 points in mid-April which rested near 400 points at the end of the fiscal year.
The amount of loans against shares increased by seven per cent in the last month as compared to the 11th month. “The appreciation in share prices encouraged investors to seek loans to buy shares,” said general secretary of Nepal Investors’ Forum Raj Kumar Timilsina. “Number of Initial Public Offerings in the later part of the year also got investors to borrow from financial institutions to apply for loans pledging shares,” he added.
Even though regulators have opened up margin financing based on brokers’ guarantee even during blank transfer of the shares, not all brokers and financial institutions have come aboard, since June. “We are still holding talks with Nepal Bankers’ Association, Nepal Development Bankers’ Association, and Nepal Finance Company Association to design a working plan so that all brokers and financial institutions get uniform procedures for margin financing,” said president of Stock Brokers’ Association of Nepal Anjan Raj Paudyal.
After much struggle, investors had convinced the capital market regulator ––Securities Board of Nepal –– and banking regulator –– Nepal Rastra Bank –– to allow margin lending based on brokers’ guarantee even during blank transfer. “If all brokers and financial institutions start providing margin finance then investors will get loans more easily and at competitive interests,” pointed out Paudyal. Financial institutions are charging 12 per cent to 16 per cent as interest rate for loans against shares, and margin is determined by the institutions themselves.
Source: THT
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