{{unreferenced, date=August 2012
Loan-deposit ratio (LTD ratio or LDR) is a ratio between the banks total
loans
In finance, a loan is the lending of money by one or more individuals, organizations, or other entities to other individuals, organizations, etc. The recipient (i.e., the borrower) incurs a debt and is usually liable to pay interest on that de ...
and total
deposits
A deposit account is a bank account maintained by a financial institution in which a customer can deposit and withdraw money. Deposit accounts can be savings accounts, current accounts or any of several other types of accounts explained below.
...
. The ratio is generally expressed in percentage terms
If the ratio is lower than one, the bank relied on its own deposits to make loans to its customers, without any outside borrowing. If on the other hand the ratio is greater than one, the bank borrowed money which it reloaned at higher rates, rather than relying entirely on its own deposits. Banks may not be earning an optimal return if the ratio is too low. If the ratio is too high, the banks might not have enough
liquidity
Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include:
* Market liquidity, the ease with which an asset can be sold
* Accounting liquidity, the ability to meet cash obligations when due
* Liq ...
to cover any unforeseen funding requirements or economic crises. Banking analysts commonly used metric for assessing a bank's liquidity.
The LDR is not the only metric used to ascertain a bank's liquidity. Modern banks today have multiple sources of finance beyond equities and deposits. The diversity of financing sources reduces the importance of LDR in determining a bank's health.
Basel III
Basel III is the third Basel Accord, a framework that sets international standards for bank capital adequacy, stress testing, and liquidity requirements. Augmenting and superseding parts of the Basel II standards, it was developed in response t ...
which is part of the
Basel Accords provides various complementary statistics to measure banking liquidity more comprehensively.
Loans