Margin loans on an upswing

Banks have seen a healthy growth in margin loan disbursements after the central bank removed lending limits for institutional investors.

According to the Nepal Rastra Bank (NRB), margin loans have gone up by 12.5 percent, or nearly Rs 8.79bn, over the first two months of the fiscal year 2024-25. With this, the margin lending portfolio of commercial banks reached Rs 79.14bn in mid-September, compared to Rs 70.34bn in mid-July.

Nepal SBI Bank saw its margin lending portfolio increase by a whopping 115.6 percent to Rs 434.6m in mid-September, compared to Rs 201.5m in mid-July. Margin loans of Machhapuchchhre Bank Ltd logged a growth of 81.61 percent to Rs 848.2m, followed by Nepal Investment Mega Bank, which saw a 57.54 percent growth in its margin loans to Rs 2.92bn.

Data show the margin lending portfolio of Kumari Bank Ltd expanded by 50.85 percent to Rs 6.6bn, while NMB Bank recorded a 49.2 percent growth to Rs 1.46bn.

Four commercial banks saw single-digit growth in margin loan disbursements, with Everest Bank seeing the lowest growth of 0.83 percent during the two-month period. Citizens Bank, Sanima Bank, and Nepal Bank expanded their margin lending portfolios by 9.74 percent, 9.2 percent, and 7.64 percent, respectively.

The growth in margin loan disbursements coincided with a bull run in the stock market. The benchmark Nepal Stock Exchange (Nepse) index, which was at 2,095.25 points in mid-July, closed at 2,637.79 points on Sept 15. The benchmark index peaked at 3,000.81 points on August 15 with total turnover of Rs 29.3bn.

Six commercial banks saw their margin lending portfolios shrink during the period. NIC Asia Bank experienced the highest decline of 18.97 percent, with its portfolio falling to Rs 3.21bn. Himalayan Bank's portfolio declined by 8.85 percent to Rs 1.83bn, while Nabil Bank saw a 7.87 percent reduction to Rs 10.52bn.

Rastriya Banijya Bank, Prabhu Bank and Agricultural Development Bank saw their margin lending portfolios shrink by 4.19 percent, 2.81 percent and 0.61 percent, respectively.

Falling interest rates have also contributed to the growth in margin lending. Interest rates on margin loans have dropped to single digits for the first time in three years. The average interest rate on margin loans in the second month of the current fiscal year (mid-Aug to mid-Sept) was 9.9 percent, down from its peak of 14.58 percent.

Interest rates have been falling consistently since the beginning of the fiscal year 2023-24.