Loan to Deposit Ratio
Loan to deposit ratio is financial ratio used for banks or other financial institutions. This ratio compares bank’s loan portfolio to deposit portfolio and measures financial liquidity of the institution.
The core business of every commercial bank or other lending institution is to take deposits from clients and to lend that money to other clients that need capital. In this case the deposit is a liability for the bank, and the loan is an asset. Deposits are quite stable source of funding for a bank (it depends on the structure of deposits) and loans are riskier asset than other financial assets because of lower market liquidity.
High loan to deposit ratio may indicate several things:
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