Banks Allowed to Invest in Listed Shares Only for Periods Exceeding 45 Days
Nepal Rastra Bank, through an amendment to the unified directive, has allowed banks and financial institutions to invest in shares and debentures of companies listed on NEPSE only for periods exceeding 45 days. Previously, such a period was six months. Additionally, short-term investments have been completely prohibited.
Kathmandu. Now banks and financial institutions will be allowed to invest in shares of companies listed on the Nepal Stock Exchange (NEPSE) only for periods exceeding 45 days. Nepal Rastra Bank added this provision by amending the unified directive issued for class 'A', 'B', and 'C' banks and financial institutions.
According to the amended directive, banks and financial institutions will be allowed to invest in shares and debentures of organized institutions that have already sold shares to the general public and are listed on NEPSE only for periods exceeding 45 days. Previously, such a period was more than 6 months. Additionally, a provision has been made that banks and financial institutions cannot make short-term investments in shares and debentures of organized institutions through any kind of arrangement.
The central bank has made a provision that banks and financial institutions must include the following topics in their investment policy and procedures related to government securities, Nepal Rastra Bank bonds, and shares and debentures of organized institutions, with the objective of minimizing speculative risk, and implement them only after approval from their board of directors.
Policy-related topics:
- Objectives and strategy of investment
- Shares, debentures, and other instruments eligible for investment
- Classification of investment instruments into banking book and trading book
- Acceptable and unacceptable investments
- Eligible counterparty
- Minimum and expected holding period according to the investment instrument
- Provision to invest in shares and debentures of organized institutions that have already sold shares to the general public and are listed on the securities exchange market only for periods exceeding 45 days. In addition, provision not to make short-term investments in shares and debentures of organized institutions through any kind of arrangement
- Methods and procedures to be adopted for identifying, monitoring, controlling, and reporting conflicts of interest in investment decisions and transactions with subsidiary companies under own ownership, significant shareholders, and risk takers, ensuring no conflict of interest
- Clear process for approving investments and provisions regarding authority, and provisions regarding the limit up to which the designated official authorized to conduct investment transactions can invest
- Clear provisions regarding capacity building of officials authorized to invest
Risk management-related topics:
- Clear division of work and responsibilities of various committees and units including ALCO involved in investment
- Trading strategy, risk appetite and limits, and profit and stop loss triggers and limit
- Investment exposure and concentration limit
- Daily mark to market (trading book)
- Methods, procedures, and models for measuring and managing other market risks including stress testing
- Methods and procedures to be adopted for identification, measurement, monitoring, management, control, and reporting of market risk, liquidity risk, and other risks that may arise from investment
- Provision for regular internal risk rating of the issuer of financial instruments
- Reporting-related topics