Loan to deposit ratio.(LDR)

Loan to deposit ratio.(LDR)

Simply means if u deposit 100 the bank will spend how much money to loan out to make interest earning.

Example

If u deposit 100 ; bank loan 80 means LDR is 80% ;

If u deposit 100 ; bank loan 90 means LDR is 90% ;

Unlikely bank will loan out 100% of money as it need to ensure there is sufficient cash flow to sustain operation,

As well to encounter any economy crisis which will increase NPL(Non-performing Loan)

If the LDR too low, means the bank not making any profit, and will be dump by investor,

Therefore to maintain a suitable level is the Key.

So common practise is around LDR 80-90% consider comfortable zone.