Share-backed lending surges to Rs 148.78 billion as banks shift focus

KATHMANDU: Banks and financial institutions have sharply increased lending against shares after Nepal Rastra Bank (NRB) removed the maximum cap on margin loans, with outstanding share-backed credit reaching Rs 148.78 billion by the end of Mangsir in the current fiscal year 2082/83.

NRB data show margin lending has grown 5.7 percent compared to the end of Asar, underscoring a decisive shift in bank credit allocation at a time when loan demand from industry and business remains subdued despite ample liquidity in the financial system.

With traditional corporate credit pipelines slowing, banks are prioritizing collateralized lending tied to capital market assets.

Disaggregated by loan size, the strongest growth has occurred in the Rs 5 million to Rs 10 million bracket, where share-backed loans expanded by 11.7 percent.

Loans below Rs 2.5 million rose 4.1 percent, while those in the Rs 2.5 million to Rs 5 million range increased 6.7 percent, indicating broadened access among small and mid-sized investors following the policy relaxation.

The central bank formally removed the Rs 2.5 million cap for individual investors in the second week of Asoj this fiscal year. Institutional investors had already seen their margin loan ceiling scrapped from Shrawan 2081.

The cumulative policy reversal marks a clear departure from NRB’s earlier tightening stance aimed at curbing speculative leverage in the equity market.

Historically, NRB introduced strict limits through the FY 2078/79 monetary policy, allowing a borrower to obtain a maximum of Rs 40 million from one institution and Rs 120 million from the entire banking system against shares.

That regime led to a 39.15 percent contraction in margin loans above Rs 10 million, as banks retreated from large-ticket exposure.

Subsequent policy recalibrations gradually loosened the framework. In FY 2079/80, the single-institution cap was removed, while system-wide ceilings of Rs 120 million for individuals and Rs 200 million for institutions were introduced.

The following year, the institutional limit was fully scrapped, culminating in the removal of the individual cap this year.

Banking executives say the change has opened a channel to deploy surplus liquidity with secured exposure, as listed shares provide mark-to-market collateral and relatively short loan tenors.

However, the pivot also increases the banking sector’s indirect linkage to equity market volatility.

Investor representatives argue the move supports capital market depth. Investor Chhotelal Rouniyar said the stock market, with capitalization nearing Rs 5 trillion, remains under-leveraged relative to its size.

He argued that higher margin lending can enhance bank profitability, reduce non-performing loans through secured exposure, and improve dividend capacity.

Investor Bhakti Thapa said the removal of the cap has improved sentiment, particularly after earlier policy uncertainty and political disruptions dampened risk appetite. He expects margin lending and market activity to strengthen further amid improving confidence.

While rising margin credit is injecting liquidity into the secondary market, policymakers remain cautious. The debate now centers on systemic risk transmission, pro-cyclicality, and the need for dynamic collateral valuation, loan-to-value discipline, and stress testing to prevent asset-price shocks from feeding back into bank balance sheets.