This year's Top 1000 survey has reinstated the loan-to-deposit ratio as a measure of bank liquidity. Loan-to-deposit ratios had been largely overlooked in the past two decades as banks relied more heavily on sources of funding other than deposits.

But during the peak months of the credit crisis in 2008, banks that had large deposit bases came into their own.

Banks that were able to fund their loan books with deposits were left in a much stronger position than banks that had a heavy reliance on bank and capital market funding, and which became crippled by the collapse of the wholesale capital markets.

As a result, competition for deposits became intense in 2008, particularly in Europe and eastern Europe, as banks tried to reduce their reliance on wholesale funding and increase liquidity by raising levels of deposits. In countries with high levels of lending relative to deposits, interest margins narrowed significantly as banks offered higher rates to attract deposits.

Banks in EU countries have the highest average loan-to-deposit ratios levels in this year's ranking at 121%, compared with the Top 1000 average of 104%.

Taking into account shareholders' equity, the average bank in the Top 1000 is likely to finance most of its loan book with deposits and shareholders' equity, whereas banks in EU countries and emerging Europe are likely to have significant capital market funding requirements.

Loan-to-deposit ratios historically hovered around the 100% mark, but average ratios have been rising over the past few years, particularly in emerging market regions such as eastern Europe, where levels of lending have risen faster than deposits. With increased access to alternative funding other than deposits, loan-to-deposit ratios of 150% or even 200% are not uncommon.

In its 2009 Global Financial Stability Report, the International Monetary Fund (IMF) marked as "areas for potential concern" all banking sectors with an average loan-to-deposit ratio of more than 100%, noting that some banking sectors now have average loan-to-deposit ratios of more than 200%.

Using the IMF's guideline of a 100% cut-off point as a guide, Top 1000 data shows that banks in Asia and Africa are less likely to be adversely impacted by the crisis than banks in the EU and emerging Europe, since they remain mostly well capitalised and locally funded, with low loan-to-deposit ratios.

Loan to deposit ratios by region - Average individual bank ratios; information from 524 banks

Loan to deposit ratios by region - Average individual bank ratios; information from 524 banks

Loans to deposits ratio (%) - % of Top 1000 banks, based on information from 524 banks

Loans to deposits ratio (%) - % of Top 1000 banks, based on information from 524 banks

PLEASE ENTER YOUR DETAILS TO WATCH THIS VIDEO

All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker



For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Join our community

The Banker on Twitter