# Loan to Deposit Ratio: Definition, Formulas, Factors, and Functions

Nikereact.org  – Loan to Deposit Ratio (LDR) is often used as an indication in assessing the company’s financial health in carrying out various business activities. Check out a more complete explanation of the Loan to Deposit Ratio starting from the Definition, Formulas, Factors, to Calculation Functions:

## Definition of Loan to Deposit Ratio

Loan to deposit ratio is the ratio of loans to deposits (LDR) which is often used in assessing bank liquidity by comparing total deposits and total bank loans in the same period. If the calculation of the Loan to deposit ratio (LDR) then shows a higher number ratio, then it then lends all the funds it has, so that the bank is relatively illiquid. On the other hand, if the Loan to deposit ratio (LDR) is of high value, the bank will then become liquid with excess capacity of funds that are ready to be loaned.

In a loan-to-deposit ratio calculation, the total amount of bank loans to the total number of deposits will then be divided into the same period. This ratio can then ultimately be used as an indication of the level of ability of a conventional bank in distributing funds from the public.

This distribution can also be done through various other banking products, ranging from savings, time deposits, current accounts, certificates of time deposits, and many more. The loan to deposit ratio (LDR) is also often used as an indication in assessing the financial health of the company in carrying out its various business activities.

By calculating the Loan to Deposit Ratio (LDR) ratio, the ability of a bank to retain and acquire customers will be known. If a bank’s receipt of funds then continues to increase, then new sources of funds and new customers will then be successfully obtained.

For investors, the Loan to deposit ratio (LDR) itself is very important as an indication used to determine whether this bank will then be operated properly. If the receipt of a bank’s funds does not increase, then it will show a decrease, then the bank will have only a small amount of funds to be credited.

In addition, the Loan to deposit ratio (LDR) also helps to show how well the bank is in retaining and attracting customers. If within a certain period of time deposits in the bank soar and increase, new clients and money will then join. So the bank will have more money to lend, which also increases revenue.

Although it is opposite in nature to loans, intuition as an asset for the bank will then make it earn interest income from loans. On the other hand, deposits are the bank’s obligation because they have to pay interest on these deposits, even if only at a low interest rate. While the Loan to deposit ratio (LDR) also has a complicated balance for a bank.

If banks make loans with too many deposits it can result in a downturn in economic terms. However, if banks lend too little, they may have an opportunity cost because deposits on the balance sheet will not generate income. The bank that has the lowest LTD ratio may have lower interest income and thus lower income.

Various factors alone can drive changes in the loan to deposit ratio. Economic conditions also affect the demand for loans and the amount of investor deposits. If consumers do not have jobs, then they are unlikely to increase savings. The central bank also regulates monetary policy by raising and lowering interest rates. If interest rates are too low, the demand for loans may increase depending on economic conditions at the time.

In short, there are many external factors that will affect the loan to deposit ratio (LDR) of a bank. It should be noted that the ideal loan-to-deposit ratio is 80%-90%. A 100% loan-to-deposit ratio then means the bank lends a customer one dollar for every dollar it receives in deposits it receives. It also means that the bank then does not have significant and available reserves for expected and unforeseen contingencies. Central bank regulations are also a factor in how banks are managed and have an impact on their loan to deposit ratios.

## LDR Calculation Formula

The formula for calculating the Loan to deposit ratio (LDR) itself refers to the PBI policy no. 17/11/PBI/2015. Loan to deposit ratio (LDR) as a comparison between total loans disbursed and total receipts. The following is the loan to deposit ratio formula:

LDR = (Loans Granted / Total Funds Received) x 100%

Loans used in the self-calculation formula include the volume of credit granted to third parties (where credit to other banks is not included) then divided again by funds from bank capital, this third party fund itself includes savings, current accounts, and time deposits (excluding inter-banks). ), and securities issued. Meanwhile, the soundness of the bank based on the Loan to deposit ratio (LDR) is as follows:

• The minimum loan to deposit ratio (LDR) allowed by BI is 78%.
• The maximum limit for the Loan to deposit ratio (LDR) allowed by BI is 92%

A healthy loan to deposit ratio itself generally ranges from 78%-92%. However, with certain requirements, the maximum limit for the Loan to deposit ratio (LDR) is then relaxed to 94%, i.e., if the NPL (Non-Performing Loan) requirements are met, gross credit and MSME NPL are below 5%. Meanwhile, according to central bank regulations, the tolerance limit for the loan to deposit ratio is 85-110%.

## Factors Affecting LDR

The cause of the fluctuations in the Loan to deposit ratio (LDR) can then come from internal or external conditions of a banking company. Although in general, several factors then have the potential to change the Loan to deposit ratio (LDR), including:

• The economic condition of the community also affects the demand for credit and the amount of savings. If Third Party Funds slow down, there will be a tightening of the Loan to deposit ratio (LDR). The trend of lending will also slow down, the loan to deposit ratio (LDR) of banks will then also loosen. This is also influenced by the rapid growth of TPF. If there is an ups and downs in interest rates as monetary policy is regulated by the central bank. This will then affect the Loan to deposit ratio (LDR), ie if interest rates are low, the demand for credit may also increase.
• Capital Adequacy Ratio (CAR) as a ratio that shows how far all bank assets contain risks (credit, securities, investments, claims on other banks) are also financed from the bank’s own capital funds in addition to obtaining funds from sources outside the bank, such as loans (debt), public funds, and others (Dendawijaya 2009:121).
• The Capital Adequacy Ratio (CAR) ratio is also used to measure the adequacy of the capital owned by the bank in supporting assets or generating risk, for example on loans. The higher the Capital Adequacy Ratio (CAR), the stronger the bank’s ability to bear various risks of productive assets and any risky credit. Furthermore, the factor that affects the Loan to Deposit Ratio (LDR) is the quality of earning assets as investment funds in the form of securities, credit, or other investments that have the potential to provide benefits for the bank.
• Earning asset quality includes research on asset quality based on allowance for impairment losses on productive assets (based on PBI Number 14/15/PBI/2012). With the amount of reserves formed, it shows that the quality of the bank’s productive assets has decreased until Revenue until it is finally received by the bank has decreased. Revenue itself also decreased causing a decrease in capital which resulted in a decrease in the ability of banks to finance risky assets (credit).
• Operational costs to operating income (BOPO) with a comparison between operating costs and operating income in measuring the level of efficiency and ability of banks to carry out their operations (Rivai, et al.
• 2007:722). Based on this explanation, operational costs also have a negative effect on the loan to deposit ratio (LDR) because the smaller the BOPO, the more efficient the costs borne by the bank in generating high income from credit (loans).
• The net open position also limits the risk of banks in foreign exchange transactions, thereby affecting fluctuating exchange rate changes. The bank’s net open position is also used to limit speculative transactions and to maintain the source and use of foreign exchange funds in banks. Based on Bank Indonesia regulation number 17/5/PBI/2015 dated 29 May 2015, the maximum net open position promised by Bank Indonesia is 20% of the bank’s capital. So it can be concluded that if the PDN ratio increases, the Loan to Deposit Ratio (LDR) decreases.

## Loan to Deposit Ratio Calculation Function

The Loan to Deposit Ratio (LDR) will assist investors in observing the condition of a bank, whether it is feasible to operate, as well as how its financial condition is, whether the receipt of funds is also increasing or decreasing. In some cases, the bank will then lend funds to increase interest. However, if the funds are used to fund credit management, the bank will then have to bear the cost of paying the interest on the debt. In addition, the Loan to Deposit Ratio (LDR) also shows the quality of the bank in serving and paying attention to customers.

If the deposit of funds increases, the customer will also increase. On the other hand, the bank will then lend a lot of funds to customers, thereby reducing the level of income. Banks that lend funds to their customers will also generate low profit margins.

However, a balanced Loan to Deposit Ratio (LDR) is the best way for banks. With the increasing number of deposits being lent, it is possible for the economy to decline. However, if too few deposits are lent, the assets tend not to increase and are in a stable condition.

In the scope of the company, the Loan to Deposit Ratio (LDR) is also known as the debt to assets ratio. The function itself is similar to the loan to deposit ratio, except that the debt to assets ratio is used to measure the total assets that can be used to cover the company’s debt. With the aim of knowing the effectiveness of the company’s asset management and generating income, the activity ratio is used. Meanwhile, the current ratio is used to indicate the company’s ability to pay short-term debt. Both are then included in the indication of the debt to assets ratio.

Banking itself requires a Loan to Deposit Ratio (LDR) as an assessment tool that shows how healthy the business activities being run by a banking company are. Another function of the Loan to Deposit Ratio (LDR) itself is as an indicator of bank health, as well as an indicator of standard evaluation of Anchor Banks or Anchor Banks (minimum LDR 50%).

As a major determinant of the minimum Statutory Reserves (GWM) of banks. As one of the conditions for tax relief given to banks for mergers. While customers and investors who plan to deposit funds in a bank, the Loan to Deposit Ratio (LDR) figure itself is an indication of how well the bank is then operated.

## Recommended Books Regarding Loan to Deposit Ratio

### 1. Banking Smart Series, Commercial Bank Credit According to Banking Theory and Practice

The Smart Banking Series, Commercial Bank Credit According to Banking Theory and Practice is the third book by author A. Wangsawidjaja published. This book material on Commercial Bank Credit According to Indonesian Banking Theory and Practice is expected to provide input as an introduction to understanding various conventional banking credit transactions and commercial bank credit law, including the general settlement of non-performing loans for conventional commercial banks.

The material for this book is based on the author’s practical experience, both as a banking practitioner at BNI branch offices, regional offices and BNI main offices from 1970 to 1999. In this book, the author also adds to the author’s practical experience as an advocate, partner in law. Offices of Remy & Darus and Law Offices Of Remy & Partners from 2000 to 2013, as well as a founder and partner at WKI & Associates (www.kantor Hukum dki.com) from 2013 to the present, providing consulting conventional banking law and Islamic banking to its clients.

The author completed his undergraduate education at Sriwijaya Palembang State University (UNSRI), Masters Degree in Law at the University of Indonesia (UI) Jakarta, and Doctoral Degree at Syarif Hidayatullah State Islamic University (UIN Syarif Hidayatullah) Jakarta. The material in this book was given as lecture material from the author in the Banking Law course at the Postgraduate Law Masters program at the University of Indonesia (UI), Surabaya University (Ubaya), Military Law College (STHM) Jakarta, and the Jakarta Indonesian Banking Development Institute ( LPPI), a writer at that time (2000–2011) as assistant to Prof. Dr. Sutan Remy Sjahdeini, S.H., as a professor of Banking Law.

The material for this book is also provided by the author in the form of papers that the author presents in several banking seminars, workshops, and in-house training in several conventional banking institutions and Islamic banking, as well as non-banking institutions related to banking business activities.

### 2. Sovereign People’s Credit Union (Credit Union)

The presence of this book is to contribute to a more complete literature on credit cooperatives. A cooperative characterized by the movement for liberation from poverty and empowering communities that are considered “weak”, marginalized, but actually rich and empowered. The scarcity of literature on the cooperative movement, especially credit unions that adhere to the Rochdale principle, and the many misunderstandings that credit cooperatives are just a savings and loan cooperative institution in the style of capital investment, has led this book to be published.

Most of what is written in this book is not only sourced from existing literature, but is based on the author’s first experience who closely and deeply participated in establishing, managing, and spreading the Credit Union for the People’s Sovereignty Movement to various regions of the country during the last 20 years.