No market makers anytime soon at Nepse

KATHMANDU, APR 05, 2013

The domestic capital market will not have a market maker any time soon. Citizens Investment Trust (CIT) that was deputed by the Finance Ministry and Securities Board of Nepal (Sebon) to carry out the role of a market maker in the stock market is not ready yet.

“The draft proposal has been readied which needs to be endorsed by the CIT board and the Finance Ministry for final approval,” said executive director of CIT Rishi Ram Gautam. “All these might push the entry of a market maker further than the end of the current fiscal year,” he added.

The Finance Ministry had directed CIT in February, 2012, to prepare a mechanism to start operations as a market maker to absorb excess shares and release shares in case of supply shortage to bring a balance in the share market.

A market maker can make bulk purchase or sale of securities unlike other ordinary investors and can quote both a buy and sell price of a financial instrument. It stands ready with a firm ask and bid price ensuring liquidity in the market. In a stock market like that of Nepal which is usually bugged by oversupply, a market maker is essential to steady the temporary imbalance.

In March last year, when Nepse hit a six-year low — 292 points — investors had specifically demanded for a market maker to balance the stock market. Since CIT has legal authority to work as a market maker as mentioned in its Act, it was deemed the most suitable entity to do so.

Due to the insistence of investors, regulators had asked CIT to design a modality for its wholesale entry, however, things cooled down once the market became bullish.

“There is not much urgency for CIT to become a market maker like it was last year, so things are progressing slowly,” pointed out Gautam. CIT had proposed to the Finance Ministry to form a pool fund among Employees Provident Fund, Rastriya Beema Sansthan and other insurance companies for seed money for a market making entity in the capital market.

CIT’s resources alone would not have been sufficient as we are planning to create a fund worth Rs five billion for the purpose, because the larger the size of the fund, the better it will be for the market due to increased capacity to purchase shares, informed Gautam.

However, Sebon is not happy with the delay. “CIT’s governing regulation and Act allows it to perform a market maker’s job but it is not ready to take up the role which has caused all the delays,” said chairman of Sebon Baburam Shrestha.

In addition, for a market maker to become functional, Nepal Stock Exchange (Nepse)’s trading system needs to add a window. Since market makers can quote a buy and sell price themselves they need a separate point of access to the trading system which is missing in Nepse’s current software. Nepse, that is in the process of replacing current trading system, will be incorporating a platform for a market maker.

Source: THT

Gold loses glitter, price drops to 10-month low

KATHMANDU, APR 05, 2013

The domestic precious metal market saw the price of gold plunge by Rs 900 in a week due to the retreating price in the international bullion market.

As the price of gold sunk to $1,550 in the global market, the price in the domestic market has been determined at Rs 55,700 for a tola (11.664 grams) — the lowest in last 10 months — as the price had reached to this level on February 21 and July 13, 2012.

Following the United States Federal Reserve’s zero-rate policy, risk assets of the equity markets in the US have become attractive and as a result investors are moving funds to these instruments for short-term gains. The aversion of a full blown Cyprus banking crisis has also reduced the appeal of gold at present. Moreover, Credit Suisse has also cut gold price forecasts for this year and next — reducing its 2013 price estimation on gold to $1,580 from $1,740 an ounce.

Earlier in September, the price of gold had reached Rs 61,760 per tola as its price shot up worldwide to $1770 per troy ounce. United States’ Federal Reserve back then had revealed its plans to purchase $40 billion worth of mortgage-backed securities per month until it saw a substantial improvement in the employment picture.

Nepal imported gold worth Rs 15.5 billion in the first seven months of the current fiscal year. Government allows only banks to import 15 kilos of gold per day. Traders have been asking the government to increase the quota saying the supply is half the demand.

Source: THT

NRB guideline on BFI staff salary on cards

KATHMADU, APR 05 - 2013

Staffers of banks and financial institutions will not take home salaries less than that of government employees in the same position, if the Nepal Rastra Bank’s ( NRB ) new guideline is put in place.

Once the salary guideline comes into effect, the lowest-ranked BFI staffer will get a monthly remuneration of at least Rs 10,320 — an amount equivalent to what the lowest-ranked civil service employee gets as per the government-set salary scale for civil servants last year.

The central bank is coming up with the new guideline amid complaints about a huge gap between the salaries of the top-level executive (CEO) and junior staff. Particularly, there are complaints that the junior staff are not being paid “justifiably”.

The guideline also seeks to maintain the gap between the salaries of top- and junior-level staff at a “justified level”, according to NRB sources. “The main objective of this plan is to reduce the gap between the salaries of the chief executive officer and other employees,” said a senior NRB official. “The plan is likely to come next week.”

The central bank had planned to introduce the BFI staff salary guideline when it introduced another guideline on BFI CEOs’ remunerations three years ago. But the plan was aborted due to divergent views within the central bank. “It has been a long since we started working on the guideline, and now we have reached the final stage,” said another NRB official.

The Insurance Board’s (IB) recent move to set the criteria on the difference between the salaries of the CEO and junior staff at insurance companies also encouraged the central bank to act fast on the matter. “The IB’s guideline, of course, pressed us to introduce this plan soon,” said the NRB official.

Introducing a directive on good governance, the IB has provisioned that the salary of the chief executive should not be more than 15 times the salary of the junior-most staff.

The central bank plans to implement the guideline in commercial banks, development banks and finance companies, while leaving micro-finance institutions. “Being small entities with limited transactions, implementing the plan in micro-finance institutions may not be practical,” said the second NRB official.

Amid global concerns about high executive compensation after the 2008-09 financial crisis, the NRB had fixed the salary scale for BFI CEOs in 2010. As per the remuneration guidelines, a commercial bank CEO’s annual compensation should be 5 percent of the total average expenses for all employees in the last three years or 0.025 percent of total assets of the bank maintained in the previous year, whichever is lower.

As for the remuneration of CEOs of B, C and D class financial institutions, the central bank has been flexible. The salaries of B, C and D class FIs’ CEOs should be fixed based on the financial status of FIs in the last three years, also taking into consideration components such as return on equity, size of business, operating profit, future outlook, existing risks in FIs and academic qualification, experiences and leadership quality.

Source: The Kathmandu Post

Trade deficit widens as remittance increases

KATHMANDU, APR 05, 2013

The country’s trade deficit is growing as the relative income from remittance has contributed in growing consumption among Nepalis.

Nepal received Rs 360 billion ($4 billion) as remittance income in the first seven months of the current fiscal year.

In the review period, trade deficit also widened by Rs 271.2 billion. Data of the first seven months shows that the amount of remittance income and amount of trade deficit is almost perfectly correlated.

The positive correlation shows that both trade deficit and remittance income are moving in near perfect sync.

“Remittance has increased the income of households which is mostly spent in consumption, increasing the demand for commodities, and since Nepal’s manufacturing capacity is pretty limited, demand for imported goods has soared,” said senior economist Dr Chiranjibi Nepal.

“Higher consumption can be good for developed countries but is not beneficial to a country that has to import even the basic necessities,” he added.

Of the total households, 55 per cent receive remittance from members abroad, according to the preliminary report of Nepal Living Standard Survey -III released by the Central Bureau of Statistics.

Of the total remittance received, 79 per cent is consumed by families and only three per cent goes to capital formation, with the rest being spent on repaying debts and on education, according to the National Migration Survey.

“Nepal is suffering from the Dutch disease brought in by remittance, as it has contributed in the expansion of consumption without actually boosting national productivity,” added Dr Nepal.

Dutch disease refers to the situation in which an economy actually suffers due to increase in income, mostly arising from a large inflow of foreign exchange. The concept is related to an increase in exploitation of natural resources and consequent decline in manufacturing sector.

However, in many developing countries like Nepal, increase in labour export for remittance is showing a detrimental effect in the overall development in the long run.

In the last fiscal year, Nepal received remittance worth Rs 360 billion, while its export earnings stood at Rs 72 billion and it imported goods worth Rs 462 billion.

Likewise, the manufacturing sector contributed a mere Rs 95 billion in the Gross Domestic Product (GDP) worth. The industrial sector — that is considered a mass employment generator — witnessed a growth of 1.69 per cent, while remittance income surged by 41 per cent.

“Since the country’s balance of payments situation is in surplus and foreign reserves are also swelling thanks to remittance, policy makers are complacent as there is not much pressure to create a conducive and productive environment to create jobs,” said Dr Nepal.

“The more the income through exported labour, the more the government will encourage Nepalis to go abroad for work, while the home turf becomes barren and without able manpower,” he added.

According to the Department of Foreign Employment, a little over 155,000 Nepalis have left for foreign employment by the first half of this fiscal year, which is a 20.4 per cent increment in comparison to that of the previous year.

At present, 52.8 per cent of the total households have at least one absentee member.

Increasing unemployment has not only fuelled the migrant outflow but also helped widen the trade deficit as the the remittance they have been sending is widely spent on consumption rather than on capital formation.

According to the Central Bureau of Statistics, only four per cent of the remittance is used in capital formation, which needs to be increased to strengthen the economy.

Source: THT

More primary shares in offing

KATHMANDU, APR 04, 2013

The primary market is gearing up for more than 15 initial public offerings (IPOs), while investors are eager for bigger IPOs but giving a cold shoulder to small offerings of regional development banks and finance companies.

More than 15 companies are seeking approval for the primary offering of ordinary shares worth more than Rs 1.16 billion at the capital market regulator — Securities Board of Nepal (Sebon).

The capital market will see the public offering of Mega Bank, Sanima Mai Hydropower, Sana Kisan Bikas Bank and Rural Microfinance Development Center (RMDC) before the end of the fiscal year.

“Investors are keen on shares of commercial banks and hydropower companies due to the assurance of better returns,” said president of Nepal Investors’ Forum Sitaram Thapaliya.

Recent IPOs of two commercial banks — Civil Bank, and Commerz and Trust Bank — were well received by the public. Civil Bank’s IPO was oversubscribed by more than seven times, while Commerz and Trust Bank’s IPO was also oversubscribed by 11 times. Likewise, the Nabil Bank sponsored mutual fund scheme also got subscribed by four times.

On the other hand, IPOs of regional development banks and finance companies are not subscribed even within one month of the opening date. Last year, Bhargab Bikas Bank’s promoters and underwriters had to pitch in due to the lukewarm participation of investors. Likewise, the underwriter of Lotus Investment Finance — Civil Capital — refused to buy the shares that were unsubscribed. Sebon might allow the underwriter to get away with not fulfilling its obligations and annul the IPO.

Recently, Jebil’s Finance postponed the closing of its IPO of 980,000 unit shares. The finance company had opened its public offering on March 15 but, due to under-subscription, investors can buy the shares until April 18.

“Investors are not confident about the future of smaller development banks and finance companies so they are not interested in purchasing their shares, irrespective of the possibility of good returns,” pointed out Thapaliya.

Earlier, during the peak at the capital market, investors were jumping into the primary market irrespective of the companies and prospects.

“Moreover, a few class ‘B’ and ‘C’ financial institutions have been liquidated and half a dozen are facing prompt corrective action from the regulator, which is not helping attract investors to the primary market,” he added.

Though class ‘B’ and ‘C’ financial institutions are faring well in the primary market, investors are into microfinance development banks — class ‘D’ entities. The recent public issue of Swarojgar Laghubitta Bikas Bank worth Rs 47 million was oversubscribed by almost 10 times.

Microfinance development banks are one of the best dividend payers in the stock market and their share price has also been appreciating.

Source: THT

IPO Allotment of Sworojgar Laghu Bitta Bikas Bank Limited

Sworojgar Laghu Bitta Bikas Bank Limited has successfully allotted its 47,100 kitta Ordinary Share today at the allotment function organized at NMB Capital Limited, Babarmahal, Kathmandu. Out of the 47,100 kitta allotted to the 1,997 applicants; 1,413 kitta were allotted to the company staffs and remaining 45,687 kitta were allotted to the 1,949 general public investors.

Altogether, 2,724 applicants have applied for 5,16,390 kitta; out of which small investors (applicants applying less than or equal to 500 kitta) numbering 2,590 applicants have applied for 3,64,810 kitta got 11.30% of their investment; on the other hand big investors (applicants applying more than 500 kitta) were 81 applicants who have applied for 1,51,580 kitta also got 11.30% of their overall investment.

An allotment of 50, 60, 70, 80, 90 and 100 kitta module was conducted as per the lottery system. And each allottee applicant under the mentioned investment band were allotted 10 kitta each on their investment. Overall, 727 applicants were left unlucky who did not get any kitta on their investment due to the lottery system.

As per the SEBON IPO allotment directives, small investors provide 40% of the overall issue whereas big investors get 60% of the total issue amount.

As per the company, there were 5 applicants whose 250 kitta got invalid. And the number of staff applicants stands 48 in total.

Earlier, the company have closed its IPO issue on 18^th Falgun 2069 with an overwhelming response from the general public with issue oversubscribed by more than 11 times. Sworojgar Laghu Bitta Bikas Bank Limited has appointed NMB Capital Limited as its issue manger to manage the IPO.

Click here for Allotment Result

RMDC seeks Sebon approval for Premium value of its IPO shares

KATHMANDU, APR 03, 2013

Rural Microfinance Development Centre (RMDC) is going to be the third company — after Chilime Hydro and Nepal Telecom — and the first financial institution to issue primary shares at a premium.

“RMDC has asked Securities Board of Nepal for the final approval to issue 1,560,000 units of primary shares at a face value of Rs 100, with a premium of Rs 80, making it a total of Rs 180 per unit,” said chief executive of RMDC Shankar Man Shrestha.

RMDC, the wholesale lender for microfinance institutions, had sold 300,000 units of shares worth Rs 30 million face value at Rs 180 per unit to International Finance Corporation (IFC) — a private sector lending window of the World Bank Group — recently. “IFC paid Rs 54 million in total,” he said, adding that Siddhartha Bank had also bought 140,000 unit shares at a premium at various rates of up to Rs 315 per unit. “Siddhartha Bank paid Rs 39.48 million in total.”

The class ‘D’ financial institution, with a paid capital of Rs 364 million, had a net worth of Rs 1.15 billion by the end of the second quarter of the current fiscal year. The net worth is projected to increase to Rs 1.60 billion by the end of the current fiscal year.

RMDC — that has 117 microfinance institutions as its partner institutions across the country serving one-fourth of the total population — was initially promoted by Nepal Rastra Bank and 13 other commercial banks.

According to the current share holding, Standard Chartered Bank Nepal holds 14.33 per cent, Nabil Bank holds 13.93 per cent, Himalayan Bank 13 per cent, Nepal Investment Bank nine per cent and Nepal Bank holds eight per cent, after the entry of IFC that holds 8.2 per cent shares.

Nepal Rastra Bank’s share has also come down to five per cent from the initial 25 per cent.

After the public issue, their current share holding per cent will further reduce. “RMDC posted an operating profit of Rs 136.5 million in the last fiscal year 2011-12,” said Shrestha.

After the public issue, RMDC will have a paid capital of Rs 520 million. It has appointed Ace Capital as its issue and sales manager for the primary issue.

Source: THT

ATM Fraud : Nine banks lower debit card transaction limits

KATHMANDU, MAR 31 - 2013

Following illegal cash withdrawals from Nepal Investment Bank Limited (NIBL) using fake debit cards, nine commercial banks, including NIBL, have lowered the debit card transaction limits.

The banks have brought down the daily ATM withdrawal limit to Rs 50,000 from the previous Rs 120,000. Customers of these banks can withdraw a maximum of Rs 10,000 per transaction, and can make up to five transactions a day.

The banks have also lowered the transaction limit from point-of-sale (POS) machines and ATM s in India. Customers of the banks can now pay a maximum of Rs 50,000 for purchasing goods by swiping their cards.

The banks that have imposed the ATM withdrawal limit are Siddhartha Bank, Rastriya Banijya Bank (RBB), Global IME Bank, Sunrise Bank, Machhapuchhre Bank, Laxmi Bank, Kumari Bank and Citizens Bank International, besides NIBL.

As NIBL is a Visa member and other eight banks are the associate Visa members through NIBL, they took the joint step to mitigate risks. “The move was taken to reduce risks to all the banks that are associated members of Visa through NIBL,” said RBB CEO Krishna Prasad Sharma, adding the limit will be imposed until current information systems of the banks are reviewed and card pin numbers are changed.

NIBL Deputy General Manager Rajan Amatya said the move was taken after holding consultations with other banks. “Any unilateral decision of NIBL would affect other banks too,” he said.

With the new changes, people having accounts with the nine banks can withdraw a maximum of IRs 5,000 (Rs 8,000) per day and up to IRs 50,000 (Rs 80,000) per month from ATM counters in India. Earlier, the daily withdrawal limit from Indian ATM s was IRs 10,000 and monthly limit was IRs 100,000. Also, the bank customers can pay a maximum of IRs 31,250 (Rs 50,000) for purchasing goods in India by swiping cards.

After lowering the debit card transaction limits, the banks are minutely monitoring cash withdrawal trends from ATM s in Nepal and India.

Bankers say cardholders have to change their pin numbers time to time to be secure. They said 85 percent of cardholders use the same pin number provided initially by the banks. “We have also asked customers to change their pin numbers to reduce the risk of unauthorised withdrawal,” RBB CEO Sharma said.

After arresting three Indian nationals for illegally withdrawing money from NIBL, the police are currently investigating the matter. The Patan Appellate Court on Wednesday granted the police 10 more days (starting Sunday) for the investigation.

Indian nationals Suresh Singh Bista, Mohan Singh Bista and Chandra Singh Bista of Indranagar, Naintal Gram District, India, were arrested in Mahendranagar, Kanchanpur on Sunday and brought to Kathmandu on Monday.

According to NIBL, Rs 120,000 was withdrawn in an unauthorised way from seven-eight ATM counters in New Delhi. The bank has termed the incident a data compromise, which means the racketeers had access to the bank’s clients’ data. Police had seized 28 payment cards of ‘Diner Club International’ from the arrests and a few debit cards of Nepali commercial banks.

Source: The Kathmandu Post

Mutual fund managers seek lower broker fees

KATHMANDU, APR 03, 2013

Companies managing mutual funds have found brokerage fees to be exorbitant.

According to the prospectus of Nabil Balanced Fund I, the mutual fund is expected to pay Rs 17.2 million in five years to brokerage firms as commissions for the transactions conducted. The sum is equivalent to 2.3 per cent of the fund’s initial size of Rs 750 million.

“Brokerage commissions need to be slashed for mutual fund transactions because the funds will be conducting transactions in large volumes every day,” said chief executive of Nabil Investment Banking Ltd — fund manager for recently launched Nabil Balanced Fund I — Pravin Raman Parajuli.

At present, brokerage fee is distinguished in terms of kinds of securities that are traded and trading volume. According to regulations, for share trading, brokers can charge one per cent to 0.7 per cent of the amount traded as brokerage fee based on the volume.

Likewise, for trading of bonds and debentures, brokers can charge between 0.2 per cent and 0.05 per cent as commission. Brokers can charge between 0.75 per cent and 0.40 per cent for instruments such as preference shares and mutual fund units. The larger the volume, the smaller is the commission for brokers.

“The broker fee looks small but since we conduct large transactions these commissions become pretty huge,” pointed out Parajuli, adding that the stock exchange can provide a separate platform for the mutual fund to undertake transactions.

“Regulators can provide mutual funds a separate window that does not require going through brokers to place orders so that transactions become swifter and cost less,” he said.

Mutual funds are subjected to higher frictional expenses — the overhead expenses incurred in brokerage commissions, and capital gain tax along with management fees.

At present, there is only one mutual fund listed at Nepse — Siddhartha Investment Growth Fund I — which has been actively trading stocks since January. Likewise, Nabil Balanced Fund I will become functional in two months. NMB Capital is also preparing to launch its mutual fund scheme while Siddhartha Capital is preparing to launch another scheme soon.

“Brokerage commissions are one of the biggest expenses for us. It will be better if the regulator and stock exchange can provide a separate window of trading for mutual funds,” said CEO of Siddhartha Capital Dhurba Timilsina.

Capital market regulator — Securities Board of Nepal (Sebon) — does not agree with providing a separate trading window for mutual funds that bypasses brokers. “The brokerage fee fixed is the maximum allowable charge. Since mutual funds undertake large number of transactions they can ask brokers to give them brokerage service at a discounted rate,” said chairman of Sebon Baburam Shrestha.

“Since mutual funds are managed by professionals, they can make deals with brokers at a competitive price and find the right balance between expenses and income,” he added. At present, there are 58 brokers at the stock exchange.

Source: THT

NIC Bond 2076 soon

KATHMANDU, APR 03:

NIC Bank has signed a ‘Bond Issue Management Agreement’ with Nabil Investment on Monday for the issuance of NIC Bond 2076 worth Rs 500 million with a coupon rate of eight per cent per annum. “NIC will issue 500,000 units of bonds with a face value of Rs 1,000 units,” the bank said, adding that 80 per cent of bonds will be offered through private placement while the rest will be offered to the public. CEO of NIC Bank Sashin Joshi and CEO of Nabil Investment Pravin Raman Parajuli signed the pact.

Source: THT