KATHMANDU, June 11: Nepal Rastra Bank (NRB) has allowed banks and financial institutions to extend margin loans to shareholders without pawning original share certificate on condition stock brokers agree to pose as guarantors for such credit.
This type of lending, called margin lending, is expected to boost share trading as share investors do not have to wait for share certificates to arrive, which takes more than a month, to apply for loan.
“While extending such loans, banks and financial institutions should refer to provisions of the Securities Board of Nepal (Sebon) and Nepal Stock Exchange (Nepse), and issue loans based on invoice. They should also make necessary arrangements to minimize risks created by distribution of such loans,” an NRB directive issued on Sunday says, adding maturity period of such loans should not exceed one year.
The central bank has also raised the deadline on repayment of loans, issued to investors purchasing unsubscribed shares of initial public offering (IPO), till the period when firms launching IPO refund money to investors following completion of share allotment process.
The central bank only allows banks to extend loans to purchase IPO shares if the stocks are undersubscribed in the first seven days of floatation. Until now, loans offered after that period had to be returned by the time share allotment process was complete.
In an effort to give a boost to the slowing stock market, the government and investors have agreed on 9-point measures that, among others, include the provision to issue loan to stock investors in the guarantee of share brokers.
Responding to the directive, Stock Brokers Association of Nepal (SBAN) has said that it would forward suggestions to Sebon to make necessary arrangement for initiating margin lending.
“We are the agencies that stand as guarantors for margin lending. Other process of lending has to be performed by lending banks and financial institutions themselves,” said Anjan Raj Poudel, SBAN president.
Besides stock brokers, merchant bankers are also interested to get involved in margin lending. The five-year plan for capital market development also incorporates provisions that allow stock brokers to stand as guarantors for margin lending.
Investors on warpath
Investors of National Hydropower Company have decided not to exchange any shares in stock market during 12 noon to 1 p.m. on Monday to protest mistreatment by the officials of Securities Board of Nepal (Sebon).
Issuing a press statement on Sunday, investors have alleged that Securities Board of Nepal (Sebon) officials mistreated investors who had reached Sebon office on Friday, demanding action against the promoters of the company, who announced postponement of the company´s annual general meeting that has been overdue for three years.
Public investors of the company have also expressed objection over abrupt postponement of the meeting scheduled to be held on Thursday. The company had notified the investors about the postponement of the meeting to July 1.