Base rate, interest spread rate and cost of funds of commercial banks as of Q4 of FY 2075/76; Banks with lower base rate enjoying higher spread rate

Mon, Aug 26, 2019 2:44 PM on Exclusive, Featured, Interest Rates,
Base rate,...

The base rate published by commercial banks refers to the minimum rate below which they are not allowed to lend to the borrowers. The BFIs usually add a premium to base rate in order to determine the base rate. The base rate includes:

  • Cost of funds
  • Cost of liquidity (CRR and SLR)
  • Cost of operation

Similarly, the interest rate spread refers to the gap between interest rates charged by banks on loans and the interest rates provided on deposits. The difference between these two, essentially accounts for around 80% of the total revenue of BFIs.

The base rates and spread rates of 28 commercial banks as published on the fourth quarter report of FY 2075/76 are listed below:

S.N. Company Name Symbol Base Rate Interest Spread Rate Cost of Funds
1 Agriculture Development Bank Limited ADBL 10.58 4.68 7.41
2 Bank of Kathmandu Limited BOKL 9.98 4.4 7.26
3 Civil Bank Limited CBL 11.11 3.76 8.45
4 Citzen Commercial Bank Limited CCBL 11.29 4.2 8.19
5 Citizen Bank International Limited CZBIL 10.52 3.15 8.58
6 Everest Bank Limited EBL 8.12 4.29 6.21
7 Global IME Bank Ltd. GBIME 9.54 4.47 7.18
8 Himalayan Bank Limited HBL 9.05 4.47 6.55
9 Janata Bank Nepal Limited JBNL 9.95 4.42 7.53
10 Kumari Bank Limited KBL 10.82 3.54 8.35
11 Laxmi Bank Limited LBL 10.31 4.37 7.01
12 Machhapuchchhre BankLimited MBL 10.37 4.27 7.88
13 Mega Bank Limited MEGA 9.96 4.73 7.67
14 Nabil Bank Limited NABIL 8.09 4.43 6.13
15 Nepal Bangladesh Bank Limited NBB 10.2 4.64 7.6
16 Nepal Bank Limited NBL 7.98 4.45 5.5
17 Nepal Credit and Commerce Bank Limited NCCB 10.23 4.7 7.49
18 Nepal Investment Bank Limited NIB 8.33 4.38 6.31
19 NIC Asia Bank Limited NICA 9.48 4.41 6.97
20 NMB Bank Limited NMB 9.86 4.26 7.26
21 Prime Commercial Bank Limited PCBL 10.03 4.32 7.9
22 Machhapuchchhre BankLimited PRVU 9.36 4.7 6.16
23 Rastriya Banijya Bank Limited RBB 5.5 4.46 3.52
24 Sanima Bank Limited SANIMA 9.45 4.35 7.39
25 Nepal SBI Bank Ltd. SBI 9.72 4.43 6.51
26 Siddhartha Bank Limited SBL 10.57 4.07 7.54
27 Standard Chartered Bank Limited SCB 7.63 4.45 5.5
28 Sunrise Bank Limited SRBL 10.32 4.44 7.33
Average 9.58 4.33 7.05

As you can see in the table above, out of three banks with Government investment two have least base rate. RBB and NBL has base rate of only 5.5% and 7.98% respectively. Similarly, SCB stands between them taking the second position at 7.63%.

ADBL, on the other hand, has base rate of 10.58% which is one of the highest among commercial banks. The banks above them are KBL, CBL and CCBL with 10.82%, 11.11% and 11.29%.

The base rate is significant because higher base rate inevitably means higher lending rates and expensive loan facilities.

Likewise, the spread rate determines the banks' earning capability. Higher spread leads to higher revenue. However, the banks can't rampantly increase their spread by providing low rates to depositors and high rates to lenders. They have to comply to the standards set by the regulator, Nepal Rastra Bank (NRB).

Currently, the spread rate is limited at 4.4% as announced in the Monetary Policy of FY 2076/77, the rate was 4.5% last year. In addition to that, NRB has recently issued a circular which forbids the banks to incorporate Government securities under spread calculation. The implementation of this new method will decrease the profit of commercial banks by a total of Rs 20 arba.

As you can see in the table, Mega Bank has the highest spread of 4.7%, which it will have to control and bring down. Similarly other banks above the range are PRVU, NCCB, ADBL, NBB, HBL, GBIME, RBB, SCB and NBL.

Similarly, on the lower end with least spread rate are CZBIL, KBL and CBL with 3.15%, 3.54% and 3.76% respectively. The lower spread rates are reflected in the profitability of the banks.