The Ministry of Finance plans to create a task force including capital market experts to study the performance of the stock exchange and make policy recommendations to the government.

Speaking at a parliamentary Financial Committee meeting on Tuesday, Finance Minister Yuba Raj Khatiwada said the House panel should should start work to form a task force that could be mandated to analyse the fundamentals of the country’s only stock market and fluctuations in transactions in the last three years.

“The government will strongly consider implementing the expert group’s policy recommendations,” said Khatiwada. He expressed concern over the conflict of interest seen in the sector when devising and implementing policy. Participants in the parliamentary committee meeting raised concern over the free fall of the Nepal Stock Exchange (Nepse) index which has been largely affected by the interest rate war launched by banks. Over the last week, banks have raised the interest rate on deposits by 2.5 percentage points.

The finance minister said that the liquidity shortage seen in the banking sector had affected stock transactions adversely. “With high demand for loans along with an expansion in economic activities, the net liquidity existing in the system is inadequate compared to the soaring demand for loanable funds,” Khatiwada said.

Government bodies including the ministry, Nepal Rastra Bank, stockbrokers and investors pointed to a decline in demand for stocks for the sharp fall in the Nepse index. The Nepse is down to a three-year low of around 1,100 points.

According to the Securities Board of Nepal (Sebon), the market declined by 23 percent in the current fiscal year. “With the fall in demand, the transaction volume in the fiscal year 2017-18 dropped 41 percent,” said Sebon Chairman Rewat Bahadur Karki, adding that the regulator had targeted expanding stock transactions from outside the Kathmandu Valley to increase demand.

Criticising the slow implementation of government policies, stockbrokers and investors stressed the need to allow margin trading by stockbrokers. Margin trading through stock brokering firms allows investors to buy shares by borrowing money from their brokers using stock as collateral.

“Although Sebon announced introducing the platform a year ago, it has not done so,” said Bharat Ranabhat, president of the Stockbrokers’ Association of Nepal. According to him, the provision will help bring investments of Rs3-4 billion instantly into the market which could help increase demand in the secondary market. Nepal Rastra Bank Governor Chiranjibi Nepal stressed raising awareness and expanding brokering services outside the Valley to address the current problems in the stock exchange market. According to him, the central bank has taken a lenient policy when it comes to providing loans against shares.

The central bank has permitted banks to provide margin loans of up to 50 percent of the value of the shares to their customers. Banks are also allowed to invest up to 25 percent of their loan portfolio in the primary sector in the stock market.

According to the central bank, banks can offer Rs93 billion out of their total loan portfolio of Rs371 billion as loans against shares. Currently, banks have issued only Rs34 billion for purchasing shares.