High spread rate, despite low cost of funds, helped commercial banks churn profit

ShareSansar, Aug 16:

Commercial banks have widened the spread rate–the difference between interest rate charged on loans and paid for deposits -- despite the decline on cost of fund. The current growth in profits reported by the commercial banks has been attributed to the higher spread rate.

While the spread rate of five commercial banks is higher than 5 percent, others have also increased the spread rate compared to last year.

Except for Prime Commercial, Laxmi and Century, all the other commercial banks have increased the spread rate.

While the costs of funds of old banks have come down to around 4.5%, other banks pay around 7 percent. Earlier, the cost of funds for older banks was 6% and for the new banks 10.5%. The banks that opened in the period in between paid around 9 percent. Cost of funds for Standard Chartered, which pays the least, is as low as 2.34%.

Meanwhile, the spread rate of Nabil, Nepal Investment, Everest, Lumbini and Nepal Bangladesh is higher than 5%.  

NRB has already set the cap on spread rate at 5% through a new monetary policy released a few months ago. The rule will come into effect after the NRB issues a directive in this regard.