KATHMANDOU, May 26: The Nepal Rastra Bank (NRB) has banned banks and financial institutions (BFIs) from making short-term investments in the secondary market at a time when the stock market is experiencing a meteoric rise in transactions.
Publishing a unified directive on Tuesday, NRB only authorized CIBs to invest in shares of listed companies for a period of more than a year. Likewise, BIFs are also prohibited from investing in the shares of microfinance companies.
Recently, FFIs have invested large sums of money in the country’s secondary market due to excess liquidity resulting from lower investment in loans to real sectors. For this reason, CIBs have been able to make significant profits as early as the third quarter of the current fiscal year, even when the economy is under the effects of the pandemic.
Central bank cap measures appear to prevent CIBs from overexposing themselves to equity trading, NRB officials said.
In addition to buying shares, the central bank also imposed a restriction on the sale of shares by CIBs. According to NRB, CIBs can now only sell shares up to one percent of the principal capital of their equity investment amount. “CIBs can sell the shares they buy from Monday, May 24, 2021, regardless of the amount by mid-July, the end date of this fiscal year,” reads the NRB directive.