Margin loans of commercial banks surge 35.57 percent

Commercial banks have reported a healthy growth in margin lending in the first five months of the current fiscal year. According to Nepal Rastra Bank (NRB), margin loans of 20 out of 19 commercial banks increased by 35.57 percent to Rs 86.33bn in mid-Dec 2024, compared to Rs 63.67 in mid-Dec 2023. 

Margin loans refers to loans extended by banks by accepting shares listed on the Nepal Stock Exchange (Nepse) as collateral.  Among commercial banks in the country, only Standard Chartered Bank Nepal Ltd has not issued margin loans. With liquidity in the banking system rising amid slowdown in credit disbursement and surging deposits, investors say banks are encouraging them to take margin loans.

The Nepal Rastra Bank (NRB) removed the Rs 200m ceiling on margin loans for institutional investors through the Monetary Policy for fiscal year 2024/25. This means that institutional investors can now borrow as much as they want. The policy intervention has led to a surge in margin loan disbursements. Margin loans have been capped at Rs 120m for individuals. In the last fiscal year, lending against share collateral had declined by 18.1 percent. 

The total margin loans amounted to Rs 50.4bn in the fiscal year 2019/20. It grew by a whopping 110.84 percent to reach Rs 106.28bn by mid-Aug 2021 as investors poured money into the stock market due to a lack of viable investment avenues during the covid pandemic. Concerned by investment of over Rs 100bn in margin loans, the central bank started tightening such loans. As a result, such loans fell by 24.25 percent to Rs 80.5bn in mid-July 2022 and further to Rs 64bn in the next month.

Data provided by the central bank shows that margin loans of Nepal SBI Bank increased by a whopping 1,890.46 percent in the review period. The bank’s margin loans rose from Rs 23.94m in mid-December last year to Rs 476.58m in mid-December this year.

The bank, however, has the lowest exposure to margin lending. Nabil Bank Ltd has the highest exposure to margin loans among Class ‘A’ banks in the country. Such loans of the bank went up by 2.78 percent to Rs 11.39bn in mid-Dec 2024. The bank had disbursed Rs 11.08 billion in margin loans in mid-December last year.

Global Bank Ltd follows with total margin loans of Rs 11.31bn in mid-December this year—a growth of 77.87 percent from Rs 6.36bn in mid-December last year.

 

Table

Margin loan disbursement by commercial banks

Source: NRB