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Top 1000 World Banks – CEE grows LTD ratio against global trend

Loan-to-deposit ratios among the global regions have generally fallen, though central and eastern Europe has risen from 107.61% to 112.79% in the 2014 Top 1000 World Bank rankings.
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Top 1000 World Banks Ranking 2014 – Loan to deposit ratios

As with many banking indicators, a loan-to-deposit ratio (LTD) is something that would ideally be neither too high nor too low. If a bank's loans are substantially higher than its deposits, it will run into liquidity issues; if the opposite is true, the bank is probably not earning as much as it could.

Philip Alexander reports on the full results of The Banker’s Top 1000 World Banks ranking 2014, in the story Top 1000 World Banks 2014: Back on track?

Given the various economic circumstances of countries around the world, size and changes in LTD ratios must be put into context. LTD figures continued to fall in the 2014 Top 1000 World Banks ranking, though not as severely as they did in 2013's ranking. Among the 947 banks for which The Banker collected such data, the LTD ration is 88.1%, against 90.6% in 2013 and 99% in 2012 (though the 99% aggregate ratio was based on a smaller sample of 795 banks). The only region where the indicator grew is central and eastern Europe, from 107.61% to 112.79%. This may point towards a future expansionary mode in the region.

On the other side of the spectrum, Asia-Pacific has fallen the most, with a 3.95-percentage-point drop, and has further distanced itself as the least leveraged region in the world – banks make just $73 of loans for every $100 of deposits they gather. Unchanged Chinese ratios left other countries influencing the regional LTD ratio, with South Korea, for example, falling by 8.19 percentage points to 113.79%.

Central and South America’s LTD ratio has dropped by 3.86 percentage points but the region continues to be by far the most leveraged in the world, with a 118.96% ratio. Concerns about high levels of personal indebtedness in countries such as Brazil or Chile are not as serious as they were a few months ago, but have not disappeared either.

In western Europe, banks are still dealing with the aftermath of the eurozone crisis and it should not surprise that aggregate LTD ratios have continued to decrease. The ratio is now 110.59%, 3.53 percentage points lower than in the 2013 ranking. Greece holds the record for most substantial deleverage in western Europe, down by 21.08 percentage points to 126.33%, followed by Italy’s 20.1 percentage-point cut to 124.05%.

The figure for North America has fallen too, but by a lower margin than in western Europe. Canadian and US banks’ ratios are traditionally low as more corporate funding takes place in their capital markets than in Europe, where bank lending is still dominant. This is also reflected in the distribution of LTD ratios across regions. In North America, fewer than one-fifth of banks have larger volumes of loans than deposits on their books (LTD ratios of more than 100%); in Europe, this is the case for almost two-thirds of lenders – with about one-third of lenders having an LTD ratio of more than 125%.

The Middle East's LTD ratio has fallen by only 1.53 percentage points, as the Gulf countries gently reduce their bank leverage. Africa’s LTD ratio has been reduced by an even thinner margin, just 0.14 percentage points to 78.1%. The region also displays a barely perceptible proportion of banks with LTD ratios of more than 100%, just 3.13% of them. Half of all lenders have ratios of less than 75%, while the rest occupy the 75% to 100% bracket. This includes the region’s largest economy, South Africa, which has an aggregate LTD of 94.11%.

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Silvia Pavoni is editor in chief of The Banker. Silvia also serves as an advisory board member for the Women of the Future Programme and for the European Risk Management Council, and is part of the London council of non-profit WILL, Women in Leadership in Latin America. In 2019, she was awarded an honorary fellowship by City University of London.
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