Nepal’s share-backed loans surge past NPR 125 billion, raising market concerns

KATHMANDU: Share-backed loans (margin nature loans) issued by Nepal’s banks and financial institutions have crossed NPR 125 billion in the first 10 months of the fiscal year 2081/82 (2024/25), according to the Nepal Rastra Bank (NRB). Banks disbursed NPR 125.52 billion in share-backed loans by April 2025, a 45.64% increase (NPR 39.33 billion) compared to NPR 86.18 billion in the same period last year.

Commercial banks alone accounted for NPR 103.13 billion in share loans, up 53.14% (NPR 35.79 billion) from NPR 67.34 billion last year. Despite the surge in lending, the stock market has failed to gain momentum, raising concerns among stakeholders about market dynamics and regulatory clarity.

Significant Growth in Share Loans

Nepal SBI Bank led the surge, increasing its share-backed loans by 388.59% to NPR 614.3 million from NPR 125.7 million last year. Other banks with notable increases include:

Machhapuchhre Bank: 291.95% growth to NPR 1.89 billion.
Agricultural Development Bank: 157.82% rise to NPR 3.39 billion.
Kumari Bank: 146.61% increase to NPR 9.57 billion.
NMB Bank: 128% growth to NPR 2.02 billion.
Prime Bank: 92.13% rise to NPR 7.82 billion.
Global IME Bank: 64.51% increase to NPR 11.59 billion.
Nabil Bank: 28.42% growth to NPR 14.59 billion, the highest in absolute terms.
Conversely, NIC Asia Bank reduced its share loans by 46.76%, dropping to NPR 2.17 billion from last year’s NPR 4.08 billion.

Market Stagnation Despite Loan Surge

Sagar Dhakal, President of the Stock Brokers Association of Nepal, noted that the increased lending has not translated into a bullish stock market. “Despite the rise in share-backed loans, the market remains stagnant. The NRB’s monetary policy must clearly define the percentage of financing allocated to the capital market,” Dhakal said.

He argued against imposing caps on share loans, stating, “Loans should be based on borrowers’ capacity and business needs, not arbitrary limits. Clear guidelines, like allocating a percentage of core capital to the stock market, would prevent artificial shortages.”

Dhakal compared loan restrictions to panic-driven fuel queues, suggesting that predictable access to credit would stabilize market dynamics. He also called for positive government policies to curb market manipulation and boost investor confidence.

Diversion to Pre-IPO Investments

Santosh Mainali, former President of the Nepal Stock Brokers Association, attributed the market’s lackluster performance to funds being diverted to pre-IPO investments. “Despite low interest rates, much of the loan capital is flowing into IPO-bound companies rather than the secondary market,” Mainali said. He noted that investors are either using personal funds or bank loans for IPO applications, reducing liquidity in the Nepal Stock Exchange (NEPSE).

Regulatory and Economic Implications

The rapid growth in share-backed loans has sparked debates about regulatory oversight and market stability. Experts urge the NRB to balance capital market growth with risk management to prevent over-leveraging. Dhakal suggested allocating 1-2% of bank loans to the stock market, with the remainder directed toward agriculture, tourism, and industry to diversify economic growth.

The NRB data highlights the banking sector’s increasing exposure to the capital market, raising questions about the sustainability of such lending amid a stagnant stock market. Policymakers face the challenge of fostering a vibrant capital market while mitigating risks associated with high-margin lending.