Investing for Beginners , investing

‘Loans to assets ratio’ is a financial ratio that usually is applied for banks (or credit unions) to measure the relation of the bank’s loan portfolio to the total assets.

Providing loans for clients is a main function of every bank, and it is normal that high part of bank’s assets is in loans form. Usually loans are provided for both: business clients and retail clients, but the exact structure of the loan portfolio depends on the strategy of the financial institution.

High ‘loans to assets’ ratio might mean two things:

• Bank is at higher risk because loans are less liquid assets than other financial assets. 

• Loans usually are the most profitable assets of the bank, and it is highly expected that bank with high ‘loans to assets ratio’ will have higher ‘net interest income’.

Another similar ratio is ‘loan to deposit ratio’.