Loans to Deposit Ratio

Posted in Finance, Accounting and Economics Terms, Total Reads: 975

Definition: Loans to Deposit Ratio

As a financial term and as a means of statistic analysis of a bank, it is used to measure the liquidity by calculation of the ratio of total loans to the total deposits of the bank.

It is better known as LTD ratio/ percentage, and quantifies the risks of the firm. If the ratio is low, then the banks have lesser total loans than deposits which results in the lesser earnings, on the other hand, if the ratio is high, then the banks have higher loans than deposits which signifies that the banks cannot easily liquefy so to cover any immediate requirements.

Eg: A bank with a LTD of 40 % is supposed to have low earnings as compared to a bank with LTD of 70% and a bank with LTD of 150 % runs a high of inability to liquefy at ease. At times, the ratios are compared to the home base ones of a particular state in order to decide on way forward about opening a new branch etc.

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