Bear market bites share trading income of banks in last fiscal

With the domestic stock market going through an extended bearish run, there has been a big decline in the income of commercial banks from share investments and trading. Banks’ income from share trading has decreased by 6.87 percent in the last fiscal year.

As per the unaudited financial reports of 20 commercial banks for the fourth quarter, they have earned Rs 6.39bn in income from share trading till mid-July of FY 2022/23, which is Rs 470m less than in the same period of 2021/22. Commercial banks had earned Rs 6.86 billion from share trading in 2021/22.

Bankers say income from share trading declined as the stock market has been in the bear territory for over the last one year. In the first half of 2021/22, the stock market had a bullish run with the Nepse Index reaching an all-time high of 3198.19 points. As the market was on an upward trend, banks managed to earn high profits by trading shares.

Only four commercial banks saw growth in their income from share trading in the last fiscal year. Agricultural Development Bank Limited (ADBL), Nepal SBI Bank, Prabhu Bank, and Machhapuchhre Bank recorded growth in their income from the capital market.

In the last fiscal year, ADBL earned the highest income from share trading. The bank had earned Rs 1.05bn from share trading in the last fiscal compared to a loss of Rs 232.35m in 2021/22.

The Standard Chartered Bank Nepal is in second place with an income of Rs 582.14m. However, the bank’s share trading income in 2022/23 decreased by 11.45 percent compared to 2021/22 in which it had earned Rs 657.43m. Likewise, Nepal Investment Mega Bank is in third place with Rs 507.63m, a decline of 23.92 percent compared to the previous fiscal.

Likewise, the income of Machhapuchhre Bank from share trading has increased by 37.62 percent in the last fiscal. The bank earned Rs 298.17m in 2022/23 compared to Rs 216.65 in 2021/22.

Nepal SBI Bank’s income has also increased by 26.34 percent. The bank which earned Rs 264.28m from share trading in 2021/22, earned Rs 333.89m in 2022/23.

The Nepal Rastra Bank (NRB) has given the facility to the banks to invest one percent of its paid-up capital in the stock market. Banks should show the investment made in the stock market through this facility in net trading income. Apart from the share investments, the banks keep the income earned by share trading as other operating profit.

In 2020/21, the banks’ income from share trading hit a record high of Rs 11.4bn. However, commercial banks’ income from share trading started to decline after the central bank tightened the margin lending as well as the rules for banks and financial institutions to invest in the stock market. By issuing a directive in May 2021, the central bank said banks would not be allowed to buy and sell shares of listed companies in the secondary market for the short term. The central bank barred the banks from selling the listed shares and debentures within a year of buying them.