Share-backed loans surge by Rs 4.9 bn in two months, total reaches Rs 145.6 bn

KATHMANDU: Nepal’s share-backed lending has continued to expand despite tight market liquidity, with banks and financial institutions disbursing an additional NPR 4.9 billion in such loans during the months of Saun and Bhadra (mid-July to mid-September), according to the latest data from Nepal Rastra Bank (NRB).

The central bank’s report shows that as of the end of Bhadra, the total amount of share mortgage loans reached NPR 145.60 billion, up from NPR 140.70 billion at the end of Asar (mid-July). This marks a 3.4 percent rise in just two months and a remarkable 45.9 percent increase year-on-year, underscoring renewed investor appetite in Nepal’s secondary market and growing leverage among stock investors.

During the same period last year, share-backed lending stood at NPR 99.76 billion, showing how rapidly this credit category has expanded despite regulatory caution and volatile share market conditions.

The NRB’s detailed breakdown indicates that large-scale loans above NPR 10 million (1 crore) dominate the market, reaching NPR 102 billion, or more than 70 percent of the total share-backed credit portfolio. This concentration signals that a limited number of borrowers — likely institutional and high-net-worth investors — continue to hold the majority of leveraged positions in the stock market.

By loan segment, credit between NPR 5 million and NPR 10 million (50 lakh–1 crore) surged by 11.7 percent, while loans between NPR 2.5 million and NPR 5 million (25–50 lakh) rose by 1.7 percent compared to Asar-end levels. However, loans below NPR 2.5 million fell by 0.8 percent, suggesting small investors are either deleveraging or unable to access new credit amid tighter collateral requirements.

Financial analysts say the continuous rise in margin lending reflects rising confidence in the capital market following moderate index recovery and improved trading volumes in recent months. However, they also warn that the sharp yearly jump in share-backed loans poses potential systemic risks if the market experiences another correction.

“Such a rapid increase in margin lending, especially concentrated among large borrowers, could magnify volatility in the stock market if prices turn downward,” said a senior market analyst. “The central bank should strengthen monitoring and ensure that financial institutions are managing collateral risk prudently.”

The NRB had earlier instructed banks to maintain strict valuation and margin call mechanisms to prevent excessive exposure to equity-backed lending. However, with investor optimism returning, commercial banks appear to have relaxed disbursement slightly to capitalize on the demand surge.

The current lending trend also signals that liquidity pressures have eased somewhat in the banking sector, as credit expansion to capital market investors gains pace after months of contraction earlier this year.

The regulator and market observers will now be closely watching whether this renewed credit momentum sustains without triggering excessive speculative borrowing.