KATHMANDU, Dec 1: The Securities Board of Nepal (SEBON) has started investigation over the possible ‘insider trading’ on share transactions of the crisis-ridden Karnali Development Bank Limited (KDBL).
On Tuesday, Nepal Rastra Bank (NRB) through a public notice declared the KDBL as problematic after the bank failed to meet the mandatory capital adequacy ratio. Citing the risk due to the bank’s deteriorating financial health, the central bank imposed immediate corrective measures, asking the KDBL to halt deposit collection and loan disbursements.
Despite the NRB’s move, the share price of the KDBL had its share price rise by a whopping rate in the stock trading on the following day. Due to this reason, the regulator imposed a positive circuit breaker on trading of the KDBL’s shares.
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On Wednesday, the KDBL’s share price escalated by Rs 76.90 per unit and reached Rs 845.90 per unit. A total of 250,439 units of the bank’s share worth Rs 201.30 million were traded on the day. The whopping rise in share price despite the worsening financial condition of the KDBL raised the regulator’s concern regarding possible insider trading.
Niranjaya Ghimire, spokesperson for the SEBON, said the board has started investigation over the share transaction of the KDBL. “It is quite unusual that the share price of the crisis-ridden organisation surged at an abnormal rate just the next day of being declared problematic,” he said.
According to Ghimire, the board suspecting insider trading in this regard has sent a letter to Nepal Stock Exchange (NEPSE) asking for the details of the share trading of the KDBL. “SEBON will look for necessary action after getting the details from the NEPSE.”
The insider trading is an unfair practice in which the authorities concern leak the sensitive information related to stock exchange market in order to secure undue benefits. A study conducted by the Ministry of Finance two years ago also showed that anomalies like insider trading, pump-and-dump and circular trading had been flourishing in the country’s only stock exchange market.
In its onsite inspection of the KDBL conducted during July 21-26, the NRB found significant shortcomings in the credit management and loan loss provisions of the development bank. The NRB’s report indicated that the KDBL’s non-performing loan (NPL) ratio stood alarmingly high at 40.85 percent on top of its failure to maintain the minimum capital adequacy ratio prescribed by the sector’s regulator.
According to the NRB, it has invoked clause-3 of the "Prompt Corrective Action Regulations, 2017" to safeguard the interests of depositors and the general public. As provisioned by this directive, the KDBL will get a six-month period to improve its financial indicators. Until then, the development bank is barred from collecting new deposits, opening accounts or disbursing loans.
