Question

bank A's loan to deposit ratio is 80% and bank B's 60%. which bank has better liquidity

Answer 1

Loan to deposit ratio is a ratio used to measure a bank's liquidity. Its formula is given below:

=Total loans/ Total deposits

A higher ratio implies that the bank does not have enough liquidity to meet liabilities in case of any unforeseen circumstances in the future.

Whereas, a very low ratio implies that very few loans are being granted and thus the bank's income is less.

In the given case, Bank A's ratio is 80% while Bank B's ratio is 60%. Thus, Bank B has a better liquidity position in comparison to Bank A.