BFIs’ issuance of margin loans increases 19.8 percent as private sector credit stands at 3.5 percent
KATHMANDU, Jan 13: Banks and Financial Institutions (BFIs) issued Rs 17.85 billion in loans against shares in the first five months of the current fiscal year.
According to Nepal Rastra Bank (NRB), the margin loans increased 19.8 percent in the review period. As of mid-July, the end of the FY 2023/24, the BFIs provided Rs 90.09 billion in margin loans, which increased to Rs 107.94 billion by mid-December.
Compared to the total private sector lending which grew 3.5 percent during mid-July and mid-December, the BFIs lending in shares as collateral surged multifolds. According to bankers, investors were attracted to inject money in the secondary market due to heavy decline in the deposit interest rates and ongoing slowdown of the economic activities in the country.
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In the last FY, the BFIs’ lending against share collateral declined 18.1 percent. The demand for margin loans started to grow this year after the central bank adopted flexible monetary policy for the current fiscal year by removing the Rs 200 million cap on loans for margin trading in share securities by institutional investors.
According to the NRB, margin loans worth Rs 10 million and more grew by the largest of 27.3 percent. During the review period, the big investors injected an additional Rs 15.25 billion in the share market by taking loans from the BFIs. Overall, the investors in this segment injected a total of Rs 71.18 billion through margin loans.
Likewise, margin loans in the range between Rs 5 million and Rs 10 million grew 11.3 percent. An additional Rs 1.40 billion was injected by the investors in this group during the review period.
The margin loans in the investment range of Rs 2.5 million to Rs 5 million increased by Rs 856.7 million (5.9 percent). Investments of less than Rs 2.5 million grew by Rs 336.7 million (4.6 percent).
NRB likely to fall short of its target to increase private sector lending this FY
Banks and Financial Institutions (BFIs) issued loans worth Rs 178.29 billion to the private sector during mid-July and mid-December, 2024. The figure shows a 3.5 percent increment in private sector credit by the BFIs.
According to Nepal Rastra Bank (NRB), the private sector lending in the review period this year was way higher compared to the slow growth of 2.3 percent (Rs 110.01 billion) in the same period in the last FY. However, the figure is not encouraging if it is compared with the central bank’s target to achieve the growth of 12.5 percent this year.
In the review period, outstanding loans of BFIs to the industrial production sector increased 5.4 percent, construction sector 3.5 percent, wholesale and retail sector 3.8 percent, transportation, communication and public sector 3.6 percent, service industry sector 5.0 percent and consumable sector increased 3.6 percent. However, agriculture sector credit decreased 0.7 percent.
