A Rise in Interest Rates Brings A Positive Outlook for Banks

A Rise in Interest Rates Brings A Positive Outlook for Banks

With the economy always shifting in reaction to customer confidence, changes on the political landscape, and other external factors, one of the most efficient ways to rate how banks are performing is to look at loan-to-deposit ratios. LDRs are created when the amount of loans taken is divided by the total money deposited into the bank. The ideal for any bank is around 80%, and it means the bank is not only making money, but also has the ability to react to last minute problems and needs.

The Previous Landscape

For the last seven years, LDRs have been decreasing, making banks nervous. However, in the first quarter of this year, banks have seen a modest increase in the ratios. This is a much-needed boost of confidence in the industry. That increase was provided by the Federal Government raising interest rates in an attempt to brighten the investing environment.

The Present

Higher interest rates tempt investors with lucrative options, meaning that loans will not grow quite as rapidly as in the past and that deposits will rise slightly. The low interest rates, which have been prevalent over the past few years, have kept deposits low and increased the amount of loans. Banks are looking optimistically to the future as higher LDRs mean that the banks themselves are making more money.

In the Future

While most banks anticipate that loan requests will continue, they will not be in such high numbers as the past several years. However, this steady increase in deposits will lead to a levelling of the LDRs, making a robust economy and a positive outlook for the next several quarters. An uptick is a good time to start investing and it is helpful to take advantage of good opportunities as soon as they emerge.

With the economy always in flux, it is always worth looking at the Loan-to-Deposit ratios of the bank you are considering borrowing from. As noticed by, some banks are recovering more slowly than others, and others prefer certain kinds of investments and diversifications.  

Before deciding on a loan, it is important to do some research to see how the economy is responding at the moment and what company is interested in specifically in order to get the best offer and return on your investment.