The amount of margin type loans floated by financial institutions has jumped 23 per cent in the last two fiscal years, as the stock market turns bullish.Although commercial banks seem wary of such type of lending, the engagement of development banks and
finance companies in it has nearly doubled. By mid-January, total margin type loans by financial institutions reached Rs 13.14 billion as against Rs 10.6 billion two years ago — mid-January 2012.
In the last two years — between January 2012 and January 2014 — the change in the fortune of stocks has attracted investors pledging shares to buy more shares from the market. At present, commercial banks’ portfolio contain such loans worth Rs 6.9 billion, development banks have floated Rs 2.9 billion, while finance companies have disbursed Rs 3.3 billion by mid-January, according to Nepal Rastra Bank data.
During the period, the stock index — Nepse index — surged by more than one-and-a-half times. The benchmark index, that was going through one of its worst years in recent history two years ago, stood near
324 points. However, the recent bullish stock prices pushed the index to 785 level by mid-January, 2014.
Moreover, with the capital market regulator allowing financial institutions to provide margin financing to investors based on brokers’ guarantee, availability of loans for investors to purchase shares was further boosted.
“Thanks to margin type financing, investors are able to purchase more shares, which has buoyed the transaction volume of late and aided the bull-run,” pointed out acting president of Nepal Investors’ Forum Raj Kumar Timilsina.
Since July 2012, financial institutions were allowed to provide certain portion of amount required to buy shares, while the remaining has to be furnished by investors themselves. Once the brokers substantiate the transfer has been made, the amount is lent to investors very next day of the transaction even if the shares are in a blank transfer state.
“Moreover, with the ongoing surplus liquidity, financial institutions are eager to lend for share purchase, as the nature of these loans are short-term and with the bullish market, the rate of repayment is also guaranteed,” Timilsina added.
Although commercial banks are not involved in this type of margin financing, they provide loans against collateral of shares. “Lately, the interest rate of loan against shares has come down to as low as 10 per cent per annum, while share trading can provide more than 10 per cent returns in a month,” he informed.
The easy financing for loan purchase had been attributed as one of the reasons for the stock market boom back in 2008, when Nepse index had hit the highest ever of 1175 points. Later in December 2009, when the central bank capped the ceiling on margin of such loans fearing a bubble, already slumping stock prices started to fall rapidly.
However, post-November when the stock index skyrocketed to 800 points from 600 points in less than 30 days, NRB asked the financial institutions to furnish details of their loan against shares. The central bank’s probable intervention made the financial institutions cautious, curbing chances of issuing margin type loans haphazardly.
source:the himalayan times,27 feb 2014
LINK
finance companies in it has nearly doubled. By mid-January, total margin type loans by financial institutions reached Rs 13.14 billion as against Rs 10.6 billion two years ago — mid-January 2012.
In the last two years — between January 2012 and January 2014 — the change in the fortune of stocks has attracted investors pledging shares to buy more shares from the market. At present, commercial banks’ portfolio contain such loans worth Rs 6.9 billion, development banks have floated Rs 2.9 billion, while finance companies have disbursed Rs 3.3 billion by mid-January, according to Nepal Rastra Bank data.
During the period, the stock index — Nepse index — surged by more than one-and-a-half times. The benchmark index, that was going through one of its worst years in recent history two years ago, stood near
324 points. However, the recent bullish stock prices pushed the index to 785 level by mid-January, 2014.
Moreover, with the capital market regulator allowing financial institutions to provide margin financing to investors based on brokers’ guarantee, availability of loans for investors to purchase shares was further boosted.
“Thanks to margin type financing, investors are able to purchase more shares, which has buoyed the transaction volume of late and aided the bull-run,” pointed out acting president of Nepal Investors’ Forum Raj Kumar Timilsina.
Since July 2012, financial institutions were allowed to provide certain portion of amount required to buy shares, while the remaining has to be furnished by investors themselves. Once the brokers substantiate the transfer has been made, the amount is lent to investors very next day of the transaction even if the shares are in a blank transfer state.
“Moreover, with the ongoing surplus liquidity, financial institutions are eager to lend for share purchase, as the nature of these loans are short-term and with the bullish market, the rate of repayment is also guaranteed,” Timilsina added.
Although commercial banks are not involved in this type of margin financing, they provide loans against collateral of shares. “Lately, the interest rate of loan against shares has come down to as low as 10 per cent per annum, while share trading can provide more than 10 per cent returns in a month,” he informed.
The easy financing for loan purchase had been attributed as one of the reasons for the stock market boom back in 2008, when Nepse index had hit the highest ever of 1175 points. Later in December 2009, when the central bank capped the ceiling on margin of such loans fearing a bubble, already slumping stock prices started to fall rapidly.
However, post-November when the stock index skyrocketed to 800 points from 600 points in less than 30 days, NRB asked the financial institutions to furnish details of their loan against shares. The central bank’s probable intervention made the financial institutions cautious, curbing chances of issuing margin type loans haphazardly.
source:the himalayan times,27 feb 2014
LINK
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