Loan-to-Deposit Ratio

A metric assessing a bank's liquidity by comparing its total loans outstanding to its total deposits.

The Loan-to-Deposit Ratio (LDR) is a key liquidity and structural metric used to evaluate a bank's financial health. It measures the proportion of a bank's total loans outstanding relative to its total customer deposits. By comparing these two balance sheet items, investors can assess how much of a bank's core, stable funding is tied up in relatively illiquid loans versus how much remains available as cash or highly liquid reserves. To calculate the ratio, an investor divides the bank's total loans by its total deposits over the same period, expressing the result as a percentage. Regulators and analysts monitor this metric closely because deposits represent a bank's primary and cheapest source of funding, while loans represent its primary interest-earning assets. For investors, interpreting the LDR requires balancing profitability and safety. A low LDR (e.g., 60%) indicates strong liquidity and a conservative balance sheet, meaning the bank has ample room to expand lending but may be sacrificing potential interest income by holding too much low-yielding cash. Conversely, an excessively high LDR (e.g., over 95%) suggests the bank is highly leveraged and may have to rely on more expensive wholesale funding to support loan growth, increasing its vulnerability during a deposit run or credit crunch.

Bank A has $150 billion in outstanding loans and holds $200 billion in total customer deposits. Its Loan-to-Deposit Ratio is calculated as: ($150 billion / $200 billion) 100 = 75%.