Investors' Attraction towards Shares of Commercial Banks Declining

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Investors' Attraction towards Shares of Commercial Banks Declining

The interest of investors in the shares of commercial banks, which were once considered attractive in the secondary market of securities, has been declining over the past few years. This is clearly evident from the data published by Nepal Stock Exchange (NEPSE) for the last three fiscal years (FY). Although the market capitalization of commercial banks is strong, the shares of commercial banks have recently taken a nosedive in the secondary market.

Investor Navraj Dahal says that the investors’ attraction towards commercial banks has decreased as they are more attracted to other sectors that gives them more returns in a short period of time. According to him, this is also due to the impact of the share mortgage loan limit. The investors are not happy with the limit of share mortgage loan fixed by the authorities.

 “Many investors buy shares of commercial banks basically to take loans. It is because they believe that they will get more loans by gaining the trust of the banks. But, if the central bank makes some policy changes, they will have to sell the shares under pressure. That's why they opt for other safe areas for investment," said Dahal, adding, "Another reason is the declining dividend of commercial banks. Another investor, Manju Parajuli, says that since the shares of commercial banks are in the hands of many people, it is not possible to make huge capital gains by manipulating them like the shares of other sectors. 

Looking at the data of NEPSE for the last three years, it seems that the share transactions of commercial banks has decreased significantly. In the fiscal year (FY) 2077/78, the share of commercial banks was 25.99 percent of the total transactions, but by the end of the fiscal year 2079/80, it decreased to 14.31 percent.

In the year 2077/78, the commercial bank traded 951 million shares worth Rs 378 billion, while in the last fiscal year, only 217.2 million shares worth Rs 66.85 billion were traded. 

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