Share Mortgage Loans Rising

The stock market in Nepal experienced significant fluctuations in the past fiscal year, which directly influenced bank loans to the stock market. According to data from Nepal Rastra Bank, loans from banks and financial institutions to the stock market have decreased by more than 5 percent. This decline reflects the performance of the stock market: as it fluctuates, so does the demand for loans for stock investments.

At the end of the previous fiscal year, banks and financial institutions had invested NPR 80 billion 500 million in share mortgage loans. However, by the close of last Ashad, this figure had fallen to NPR 76 billion 30 million. This reduction in investment in stock mortgage loans mirrors the stock market's mixed performance.

Typically, when the stock market is bullish, investors tend to increase their investments, leading to higher transaction volumes. Bank loans play a crucial role in facilitating these investments, as they are one of the primary sources of funds entering the stock market.

In the last fiscal year, the stock market witnessed multiple fluctuations, with index values oscillating between 1800 and 2200 points. Unfortunately, this volatility did not result in a sustained upward trend. The central bank's rigidity towards the stock market, combined with a lack of government prioritization, hindered the stock market's growth. Consequently, even investors hesitated to take loans from banks for stock market investments.

Furthermore, the tightening of share mortgage loan regulations by the central bank contributed to the continuous decrease in these loans. Initially, the Nepal Rastra Bank imposed a 150 percent risk weight on loans exceeding NPR 25 lakh. However, in the current financial year's monetary policy, this risk weight was reduced to 100 percent for loans up to NPR 5 million. Banks are typically less inclined to invest in high-risk areas as they need to allocate more capital for loans with risk weights exceeding 100 percent. Despite investors' repeated requests for a revision of the Nepal Rastra Bank's risk-weight policy, there has been no response.

Margin loans also saw significant changes after the implementation of a loan policy by the Nepal Rastra Bank. Initially, individuals could borrow up to NPR 12 million from the entire banking system and up to NPR 40 million from a single bank. Later, the central bank removed the NPR 4 crore limit and maintained the NPR 12 crore limit. Since 12 crore cap policy implemented by NRB, margin loans have plunged from 108 billion, this is a fall of 24.3 percent.

While these loans have been continuously decreasing, they have recently shown signs of gradual increase, thanks in part to the stock market stabilizing and attracting more investors towards share mortgage loans.

In Ashad, share mortgage loans increased by nearly NPR 2.5 billion, following a relatively positive trend in the stock market and reduced interest rates offered by banks. With adequate liquidity in banks and increased government spending toward the end of the fiscal year, banks began to increase their investments in the stock market.

Some banks have also started offering share mortgage loans more readily, inviting investors back into this space after the central bank's earlier tightening measures. Currently, banks possess substantial liquidity, but the lack of loan demand in other sectors has prompted banks to introduce new schemes for share mortgage loans. Notably, banks like Nabil Bank, Nepal Bank, and NIC Asia Bank have become more accommodating in offering share mortgage loans to investors.