The Nepal Rastra Bank’s (NRB) actions against financially weak institutions have led to a significant decline in the share prices of finance companies. Last week, NRB declared Karnali Development Bank a problematic institution and assumed control of its management. Similarly, Pokhara Finance is set to face prompt corrective action, according to NRB sources. This has negatively impacted the share prices of all companies in the finance group, with the group's index dropping by a notable 5.19% on Tuesday.
The announcement regarding prompt corrective action against Pokhara Finance caused its share price to plummet by 10%. Compared to the previous trading day, its share price decreased by Rs 57.70 per unit, settling at Rs 519.30. On Tuesday, 42,454 shares of Pokhara Finance worth Rs 22.06 million were traded. The institution's non-performing loans (NPL) stand at 14.44%, while its capital adequacy ratio (CAR) is 10.99%. According to NRB regulations, institutions with NPL exceeding 5% and CAR below 10% are subject to prompt corrective action.
Decline in Share Prices Across Finance Companies
Pokhara Finance is not the only company affected. The announcement also led to a 10% decline in Janaki Finance's share price. Despite reporting a net profit of approximately Rs 70 million in the first quarter of the current fiscal year, Janaki Finance's NPL surged from 17.60% in the same period last year to 34.64% this year. Its CAR stands at a mere 3.84%.
Similarly, shares of Guheshwori Merchant Banking and Finance fell by 9.34% on Tuesday, with the price dropping by Rs 51 to settle at Rs 495 per unit. Among finance companies, Manjushree Finance remains the most profitable, reporting a net profit exceeding Rs 94.2 million in the first quarter of the current fiscal year. However, its share price also fell by 3.20% on Tuesday, decreasing by Rs 20.80 per unit to Rs 629.20.
Concerns Over Regulatory Actions
Investors are attributing the decline in the sector's share prices to NRB’s regulatory action against weak financial institutions. Experienced investor Chhotelal Rauniyar commented, "Recently, the share prices of weak companies were artificially inflated through group efforts. The indication of imminent regulatory action has now led to a drop in share prices."
Rauniyar further suggested that regulatory bodies should monitor trading for a longer duration to identify insider trading patterns. "Despite visible manipulation by certain groups to inflate share prices, the regulator seems to have overlooked these activities," he remarked, questioning NRB’s vigilance.
NRB data highlights that the average NPL of finance companies is 10.84%, significantly higher than the 4.28% of commercial banks and 4.37% of development banks as of mid-November. The high NPL levels among finance companies indicate a greater degree of financial vulnerability compared to other banking sectors.
