What it is
A bank's business is the gap between what it pays for money and what it earns on it, and how much of its deposits it can put to work.
Cost of funds is the price of its money; the base rate is the floor it lends at; the spread is the regulated gap; the credit-to-deposit ratio shows how much room it has under NRB's 90% cap. Deposits and loans give the rupee scale.
The headline verdict ranks cost of funds among sector peers: a lower cost is a durable advantage because it comes from the deposit mix, which changes slowly.
How it is calculated
Headline = ratio.cost_of_funds (lower is better among peers). Supporting = ratio.base_rate, ratio.interest_spread, ratio.credit_to_deposit (all neutral), bs.liabilities.deposits_from_customers, bs.assets.loans_and_advances_customers.
Worked on Nabil Bank Limited, FY 2082/83 Q4
NABIL, FY 2082/83 Q4: cost of funds 3.09%, base rate 4.44%, spread 3.18 points, CD ratio 80.18%, deposits Rs 59,255.94 crore, loans Rs 46,031.78 crore.
What good looks like
Cost of funds below the sector median; CD ratio with some room under 90%; spread near the cap without breaching it.
Watch out
- Spread and base rate are regulated, so differences between banks are small by design.
- The CD ratio is neither good nor bad on its own; it shows room to grow.
- Sector-wide rate moves change all these numbers together.
In Nepal
Spread cap 4% (commercial banks) and 4.6% (development banks and finance companies); CD ratio ceiling 90%; base rate built from cost of funds, CRR and SLR cost, operating cost and a fixed 0.75% return. All reported in NRB's quarterly ratio schedule.
Questions
The spread is capped, so it tells you little about one bank versus another. Cost of funds is where banks genuinely differ.
The bank cannot lend much more until deposits grow, so it may pay more for deposits, which raises its cost of funds.