Loan to Deposit Ratio
Calculate your lending institution's ability to cover withdrawals and assess overall liquidity health.
Total amount of outstanding loans given to customers.
Total savings and deposits held by the institution.
Loan to Deposit Ratio (LTD)
80.0%
"This is generally considered the ideal range for maintaining a balance between growth and liquidity."
Institutional Benchmarks
Regulators and insurers monitor this ratio to ensure financial stability.
Low Utilization
< 65%
High safety, low lending growth.
Ideal Range
65% - 85%
Optimal balance of growth and liquidity.
High Risk
> 85%
Potential liquidity crunch risk.
What is the Loan to Deposit Ratio?
The formula for the loan to deposit ratio is exactly as its name implies: loans divided by deposits.
The loan to deposit ratio is used to calculate a lending institution's ability to cover withdrawals made by its customers. A lending institution that accepts deposits must have a certain measure of liquidity to maintain its normal daily operations.
Loans given to customers are mostly not considered liquid, meaning that they are investments over a longer period of time. Although a bank will keep a certain level of mandatory reserves, they may also choose to keep a percentage of their non-lending investing in short term securities to ensure that any monies needed can be accessed in the short term.
Liquidity and the LTD Ratio
Loans in the numerator of the formula are investments or assets for a bank. Deposits in the denominator can be considered the same as debt, as depositors are essentially granting monies to the institution that can be called upon at any time. In these respects, the loan to deposit ratio is similar to a liquidity ratio and debt ratio.
Use of the Ratio
The loan to deposit ratio can be used by investors and internally by the company to determine the financial institution's short-term viability. Banking insurance companies may also find this ratio of use when underwriting policies to determine insurability.