Commercial banks, amid high liquidity levels due to a slump in credit demand, have significantly increased margin lending. According to Nepal Rastra Bank (NRB) data, margin lending as of mid-February in the current fiscal year (FY) 2024/25 has risen by nearly 40 percent compared to the same period last fiscal year. As of mid-February, banks have disbursed a total of Rs 93.12 billion in margin loans.

Overall, banks and financial institutions have extended Rs 115.11 billion in margin lending during the first seven months of the current fiscal year. The sharp rise is attributed to most commercial banks expanding their exposure in this segment.

Nepal SBI Bank, which had a minimal margin loan portfolio last fiscal year, has witnessed a staggering 1,956 percent surge. Machhapuchhre Bank’s margin lending has increased by nearly 193 percent, while Kumari Bank has expanded its portfolio by over 108 percent. Nabil Bank remains the largest provider of margin loans in terms of total volume.

The surge in margin lending is largely driven by NRB’s flexible monetary policy and a bullish stock market. Currently, individual investors can avail loans of up to Rs 150 million against pledged shares, while institutional investors face no borrowing limits. NRB removed the Rs 200 million cap on institutional margin loans through the current fiscal year’s monetary policy.

"Liquidity conditions have improved recently, and interest rates have declined to single digits, making margin lending more accessible," said Chhotelal Rauniyar, former president of Investors Forum Nepal. "With the stock market performing well, it is natural to see a sharp rise in margin loans."

Among Nepal’s 20 commercial banks, Standard Chartered Bank has not extended margin loans, while NIC Asia Bank and Himalayan Bank have reduced their exposure to share-backed lending. All other banks have increased such loans.

According to the Nepal Bankers’ Association, based on the deposit and lending scenario as of mid-February, banks still have the capacity to extend an additional Rs 646 billion in loans. In recent months, banks have significantly increased credit for imports and margin lending.