Investors want loan-to-value ratio to be hikedCurrently, investors can borrow up to 65 percent of the value of the shares being used as collateral.
Currently, investors can borrow up to 65 percent of the value of the shares being used as collateral. Last December, Nepal Rastra Bank raised the ratio to 65 percent from 50 percent, acting on a 58-point recommendation submitted by a task force of the Ministry of Finance.
Under the existing law, banks issue margin loans by calculating the value of the shares based on an 180-day average price or the prevailing market price, whichever is lower.
Submitting a charter of demands to Prime Minister KP Sharma Oli on Tuesday, investors have urged the government to raise the ceiling.
Margin trading, or buying shares with borrowed money, launched in the country’s only stock exchange with a brokerage house issuing loans to its clients on Tuesday. The government has permitted 21 out of the 50 brokerage companies to provide margin loans.
The Nepal Stock Exchange has been in a bearish mood for the past three months. The NEPSE index slid to 1,149.40 points from 1,280 points during the period.
The daily turnover has shrunk to Rs150-200 million from Rs300-350 million, and market
capitalisation has plunged by around Rs150 billion to Rs1,435.32 billion.
Blaming inadequate demand for shares for the prolonged downturn in the secondary market, investors said they had sought government intervention to boost stock prices. Rajan Lamsal, a member of the Nepal Investors’ Forum, said investors were expecting the government mechanism to increase cash flow in the market to boost demand for shares.
Nepal Rastra Bank officials are not keen on raising the loan-to-value ratio for margin loans. “Banks may be unable to manage risk if the ceiling is raised to 80 percent,”
said an anonymous central bank official.
Expanding remote work stations, resolving glitches in the online trading system and allowing non-resident Nepalis to trade on the stock market are among the demands of investors. The government has been talking about permitting investment by non-resident
Nepalis in stocks for several years, but it has not happened.
The central bank source said the government may be reluctant to allow non-resident Nepalis to invest in stocks due to lack of laws permitting them to repatriate profits from stock trading. “As they expect to take away profits from stock transactions in foreign currency, there is a need for a separate law to implement the provision,” the source said.