BFIs compete to lure investors with schemes for share loans

Published On: September 7, 2017 08:57 AM NPT By: Republica  | @RepublicaNepal

KATHMANDU, Sept 7: After tightening lending toward stock market for nearly six months, bank and financial institutions (BFIs) are now resuming margin lending to lure the stock market investors. Some BFIs have even published notice to attract investors for share loans with schemes. 

The schemes also offer respite for stock market investors who were not only facing rejection of credits to invest in stocks from BFIs but also increasing margin calls from the BFI is recent days in the wake of 'shortage of lendable fund'. 

However, with the ease in the liquidity position of the BFIs, which they can turn into credit, they are now rolling red carpets to stock investors. Investors say that BFIs who used to thumb down their loan request until recently are now inviting and offering them loans against the share pledge.  

"Share loans have become easier and cheaper in recent days. Banks now call investors to come to get loans," Dipendra Agrawal, a stock investor, told Republica. 

BFIs' schemes include easy processing of loans in a day or two and lower interest rates. As BFIs are in a comfortable liquidity position in recent days with the surge of deposits, they have found stock market a convenient way for investment.   

"There is surplus of lendable fund in the banking industry. Since share loan is where banks can make immediate business, they are making investments there," Manoj Gyawali, deputy CEO of Jyoti Bikas Bank Ltd (JDBL), told Republica. JDBL is one among the BFIs which has come up with share loan scheme named 'Jyoti Share Karja'. Its scheme includes sanctioning of the share loan at interest rates of 12.4 percent within one business day.

Nabil Bank Ltd, NIC Asia Bank Ltd, Muktinath Bikas Bank Ltd and Kailash Bikas Bank, among other BFIs, have introduced similar type of schemes to lure stock investors for share loans. 
Though the Nepal Rastra Bank has been discouraging lending toward unproductive sectors like stock market, BFIs are now again focusing their investment toward the stock market.  

The NRB has capped the margin lending of BFIs to 40 percent of their core capital through the monetary policy of the current Fiscal Year --  FY2017/18. Earlier in the last fiscal year, the NRB had reduced the loan-to-value-ratio on share loans to tighten credit flow toward stock market. According to this rule, BFIs will be able to float only 50 percent loans on the valuation of average trading price of shares of the last 180 days or the late market price of the share, whichever is lower. Such loan-to-value ratio was 60 percent earlier. 

The easy and cheaper financing has buoyed stock investors.

According to observers, the relaxation of margin lending from BFIs is likely to drive up stocks which were on a downward trend after BFIs started tightening their fund toward the stock market.

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