NRB Relaxes Share-Backed Lending Rules, Allows Higher Loans Against Strong Stocks

Nepal Rastra Bank (NRB) has amended the Unified Directives 2082, introducing greater flexibility in share-backed lending by allowing banks and financial institutions to extend higher loans against shares of fundamentally strong listed companies. Under the revised provision, lenders must prepare a product paper establishing a framework to assess the strength of listed companies before extending share-backed loans. Based on this evaluation, banks may increase the existing loan-to-value (LTV) ratio by up to 10 percentage points for companies that receive the highest ratings. The central bank has directed banks to evaluate companies using at least six criteria: paid-up capital, minimum listing period on the stock exchange, profitability and dividend distribution history, credit rating, compliance with regulatory requirements, and the regular conduct of annual general meetings. For example, if the existing LTV limit for a particular stock is 70 percent, banks may now extend financing of up to 80 percent for companies that score highly under the assessment framework. The revised policy is expected to encourage lending against shares of fundamentally strong companies while promoting more risk-sensitive credit practices in the banking sector.