Kathmandu, December 26
The Nepal Rastra Bank (NRB), the central bank, has raised margin lending ceiling, brought down the risk weight for loans issued against securities and granted permission to commercial banks to establish subsidiary brokerage firm.
These measures were taken days after the team of experts formed to recommend ways to end the volatility in the banking sector and capital market submitted its report to Finance Minister Yubaraj Khatiwada.
Issuing a circular today, the central bank raised the ceiling on loan-to-value ratio for margin lending to 65 per cent from 50 per cent in the past. This provision is expected to help investors to acquire more loans against the collateral of securities, such as bonds and shares.
The central bank has also reduced the risk weight for loans extended on the back of securities to 100 per cent from 150 per cent in the past. It has also allowed banks and financial institutions to provide margin loans equivalent to 40 per cent of their core capital. Previously, this ceiling stood at 25 per cent. Also, banks and financial institutions, from now onwards, have to factor in the value of bonus and right shares before making margin calls.
These regulatory changes were made as per the recommendation made by the team of experts formed under Shiva Raj Shrestha, the central bank deputy governor. The team had submitted 58-point recommendation to Minister Khatiwada last week to revive the confidence of stock investors and stabilise lending rates.
As per the team’s recommendation, the central bank has also allowed commercial banks to establish subsidiary brokerage firms. Banks should have a stake of at least 51 per cent in such companies.
Written by Sandeep
This news first appeared on https://thehimalayantimes.com/business/nrb-raises-margin-loan-ceiling/ under the title “NRB raises margin loan ceiling”. Bolchha Nepal is not responsible or affiliated towards the opinion expressed in this news article.