Share mortgage lending nears Rs. 125 billion; large borrowers surge by 51%

 

KATHMANDU, MAY 12: Despite the absence of significant gains in the stock market, both individual and institutional investors have increased their investments substantially in the first nine months of the current fiscal year. This trend is underscored by the sharp rise in share mortgage lending from banks and financial institutions (BFIs)—a reflection of growing investor confidence, particularly among larger institutional players.

A key driver behind this growth has been the Nepal Rastra Bank’s (NRB) more flexible monetary policy for 2024/25. Notably, the central bank removed the Rs. 200 million cap on margin loans for institutional investors and reduced the risk weight applied to share-backed loans. These policy changes have incentivized greater borrowing against shares, even though the stock market itself has remained relatively stagnant.

As of mid-April this fiscal, the BFIs had issued over Rs. 124.1215 billion in share mortgage loans—a 44 percent increase compared to Rs. 886.155 billion. recorded in the same period last fiscal year. Of this, commercial banks accounted for Rs. 101.60 billion, development banks for Rs. 18.28 billion, and finance companies for Rs. 4.23 billion.

The growth in lending has been particularly notable among large borrowers.  The loans exceeding Rs. 10 million grew by 51.04 percent during the review period, amounting to Rs. 84.70 billion. Similarly, the loans between Rs. 5 million and Rs. 10 million rose by 19.94 percent, reaching Rs. 14.84 billion. The borrowing in the Rs. 2.5 million to Rs. 5 million range increased by 15.4 percent to Rs. 16.64 billion. In contrast, the smaller loans below Rs. 2.5 million grew by only 8.6 percent, totalling Rs. 7.94 billion.

This shift toward higher-value lending suggests that institutional investors are increasingly active in the stock market. With significant funds still flowing into the market from the banking sector, the optimism for a market rebound is growing. However, the continued political instability and delays in appointing a new central bank governor have restrained investor sentiment.

The current financial environment is marked by excess liquidity, prompting banks to reduce both deposit and lending rates. The average interest rate on share mortgage loans has now dropped to just 8.12 percent, making borrowing more affordable and encouraging greater use of margin loans to invest in the stock market.

Nevertheless, the overall credit growth across the economy remains subdued, reflecting the broader economic slowdown. Still, the sharp increase in margin lending—particularly among institutional investors—highlights a shift in the market dynamics and signals a cautious but renewed interest in capital market activity.