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2. Loan to Deposit Ratio

Loan to Deposit Ratio

96.21%
98.00%
96.00% 93.14%
94.00% 91.28%
92.00%
90.00%
88.00%

2018 2017 2016

Loan to deposit ratio is used to access the bank’s liquidity by dividing bank’s total loan and to its
total deposit within the same time of period. Laon to deposit ratio can be the benchmark that

banks may not have much liquidity to cover unforeseen fund requirement as well as bank abilities
to cover loan losses and withdrawals by the customers. In addition, investor use bank’s loan to
deposit ratio to monitor the bank’s ability in the event of economic downturn which likely resulting

in loan default. LDR is frail balance for banks, this is because there is pros and cons such as if
the banks extending too much of their deposits, they might overextend themselves, especially
during economic extension. However, if the banks lend only few of their deposits, they may be

having to forgo the opportunity to earns revenues by lending suitable amount to the borrowers as
they can obtain profit margin. The chart above portrays Public Bank’s loan to deposit ratio and it
shows that there is downtrend whereas the percentage plunge from 96.21% in 2016, to 93.14%

in 2017 and drop to 91.28% in 2018. Therefore, it can be concluded that the loan to deposit ratio
of Public Bank Berhad can be tool that measure asset quality performance as the higher ratio

indicates that better profit, but banks will face higher risk which is known as risk of non-performing
loan.

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