December 26, 2018 | Investopaper
Nepal Rastra Bank issued a circular on Poush 11,2075 related to Margin Lending, Stock Broker and Base Rate of the financial institutions. The circular is directed to “A’, “B” and “C” class financial institutions. In the circular, NRB has decreased the risk-weighted exposure from 150% to 100% on the share loans. Also, Banks & Financial Institutions can provide Margin share loan up to 65% of 180-day average share price or latest share price whichever is lower. Previously, it was 50%.
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NRB also directed BFIs to consider bonus shares and right shares while calling on margin loans. The BFIs can lend 40% of their core capital on the margin loan. This was 25% previously. But, banks cannot float margin loans on the share of a single company more than 10% of their core capital. The circular also allows Commerical Bank to form a subsidiary company and work as a stockbroker. The bank should possess 51% holding of the brokerage subsidiary.
NRB issued the recent circular to bring reform into the current turmoil in the share market of Nepal. The market has been consistently decreasing for almost three years. The investors have been protesting to the regulating authorities to protect their interest in the market. In response to the crisis, the finance ministry and the central bank have coordinated with each other to bring positive changes in the market.
For the full transcript of NRB circular, click the link below