Nepal's Share-Backed Margin Lending Surges by 18% to NPR 166.5 Billion, Outpacing Overall Credit Expansion

Nepal's capital market is witnessing a significant surge in share-backed margin lending, with the total volume from banks and financial institutions escalating by an impressive 18.34% over the past year. This robust growth has pushed the total margin loan portfolio to NPR 166.50 billion as of Ashar (mid-July) of the fiscal year 2082/83 (2025/26 AD), according to the latest data released by Nepal Rastra Bank (NRB).

This substantial increase represents an additional NPR 25.81 billion in margin loans within a single year, up from NPR 140.70 billion recorded in the previous Ashar. What makes this trend particularly noteworthy is its pace: the NRB data reveals that the expansion of margin lending is considerably faster than the overall credit growth across the banking and financial system. While the total credit extended by banks and financial institutions grew by 6.48% in FY 2082/83, share-backed margin lending surged by 18.34% – a growth rate nearly three times higher than the general credit expansion.

Delving deeper into the composition of these loans, it's evident that larger credit facilities dominate the margin lending landscape. Loans exceeding NPR 1 crore constitute the largest segment, growing by 20.75% over the year to reach NPR 119.45 billion. This category alone accounts for approximately 72% of the total margin lending, indicating a significant concentration among larger investors or institutional players. In the previous Ashar, this segment stood at NPR 98.93 billion, meaning an increase of NPR 20.53 billion in this category alone. Furthermore, when combining loans above NPR 50 lakh, the figure rises to NPR 138.61 billion, representing about 83% of the total margin loans, underscoring the prevalence of substantial leveraged positions in the market.

Other segments also experienced growth, albeit at varying rates. Margin loans ranging from NPR 50 lakh to NPR 1 crore increased by 19.49% to NPR 19.15 billion. Loans between NPR 25 lakh and NPR 50 lakh saw a 7.34% rise, reaching NPR 18.85 billion, while those below NPR 25 lakh grew by 10.59% to NPR 9.04 billion.

The expansion of margin lending is not a recent phenomenon but rather a sustained trend. NRB data shows that in Ashar 2081, such loans amounted to NPR 90.09 billion. This figure then climbed to NPR 140.70 billion in Ashar 2082 and further to NPR 166.50 billion in Ashar 2083. Over this two-year period, margin lending has expanded by more than NPR 76.42 billion, reflecting a consistent appetite for leverage in the stock market.

However, while the absolute value of margin loans continues its upward trajectory, the rate of growth has shown a deceleration. In FY 2081/82, margin lending experienced a remarkable 56.17% increase, jumping from NPR 90.09 billion to NPR 140.70 billion. In contrast, the growth in FY 2082/83 was limited to 18.34%. This indicates that while the market continues to attract capital through leverage, the explosive growth seen in the preceding year has moderated, suggesting a more measured expansion.

For investors, this trend presents a dual perspective. On one hand, the robust growth in margin lending signals increased investor confidence and participation in the stock market, potentially indicating a bullish sentiment. On the other hand, it also highlights the inherent risks associated with leveraged investments. A significant downturn in share prices could trigger margin calls, forcing investors into distressed selling and potentially amplifying losses. From the banking sector's viewpoint, while margin loans offer attractive returns, they also carry collateral risk if the underlying share values depreciate sharply. The Nepal Rastra Bank, as the central regulatory authority, will undoubtedly continue to monitor these trends closely to ensure financial stability.

This increased activity in the capital market coincides with the period when listed companies in the Nepali capital market have begun distributing returns to their shareholders from the previous fiscal year's earnings. Several companies have already announced their dividends, with more expected to follow suit. This dividend season often fuels investor interest and demand, potentially contributing to the sustained, albeit moderating, growth in margin lending as investors seek to capitalize on market opportunities. The interplay between dividend announcements, investor sentiment, and the availability of leverage will continue to shape the dynamics of the Nepali stock market.