Loan-to-deposit ratio

A bank's total loans divided by its total deposits: how much of its deposit funding it has lent out.

DefinitionA bank's total loans divided by its total deposits: how much of its deposit funding it has lent out.

The loan-to-deposit ratio, or LDR, compares a bank's loans with the deposits that fund them. It is a quick read on liquidity: a low ratio means deposits are sitting unlent and earning little, while a high ratio means the bank depends on other, usually more expensive, funding and has less room if deposits leave.

How it is computed

LDR = total loans / total deposits × 100, both at the same date and on the same basis (gross or net of loan loss allowance; state which).

Example

A bank with $820 million of loans and $1.0 billion of deposits has an LDR of 82%. If $50 million of deposits leave and loans stay flat, the ratio rises to $820 million / $950 million = 86.3%.

Where it goes wrong

Reading it without the deposit mix: a ratio built on stable consumer deposits is safer than the same ratio funded by a few large uninsured accounts. Period-end figures can also be dressed up. The full guide is loan-to-deposit ratio.

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