Loan-to-Deposit Ratio (LDR) Explained: Impact on Lending & Rates in 2025

Loan-to-Deposit Ratio (LDR) might sound like banking jargon, but it’s a crucial figure shaping the way Australian banks lend money—and the rates you pay. In 2025, with new regulatory tweaks and shifting economic winds, understanding LDR is more important than ever for borrowers, savers, and investors.

Decoding LDR: The Balancing Act of Banking

The LDR measures a bank’s total loans compared to its total deposits. It’s calculated by dividing the total amount of loans by the total amount of deposits, then multiplying by 100. For example, if a bank has $900 million in loans and $1 billion in deposits, its LDR is 90%.

• LDR below 100%: The bank lends less than it holds in deposits. This usually signals conservative lending and ample liquidity.

• LDR above 100%: The bank is lending more than its deposit base, often funding extra lending through wholesale markets or other borrowing.

Australian Prudential Regulation Authority (APRA) keeps a close eye on LDRs because they influence financial system stability. Too low, and banks may not be generating enough profit; too high, and liquidity risks creep in.

Why LDR Matters for Borrowers and Savers

LDR isn’t just an internal metric for bank executives. It has a real-world impact on everyday Australians:

• Interest Rates: A high LDR often means banks are stretching their lending, which can push up interest rates to attract more deposits or compensate for risk.

• Loan Availability: If a bank’s LDR creeps too high, it may tighten lending standards, making it tougher for individuals and businesses to get approved for loans.

• Deposit Rates: Banks with low deposit growth may offer higher savings rates to attract more funds and keep their LDR in check.

For example, in 2023–2024, several mid-tier Australian banks, facing rising LDRs, boosted their term deposit rates to attract new savers. This trend is continuing in 2025, particularly as banks compete for funding in a higher-rate environment.

2025: New Rules and the LDR Landscape

This year, APRA has updated its guidance on liquidity risk management, nudging banks to maintain robust liquidity buffers. While there’s no official LDR cap in Australia, most banks aim for a range between 80–95% to keep both profitability and risk in balance.

• Regulatory Focus: APRA’s 2025 policy review has reinforced stress testing for liquidity scenarios, making banks more cautious about letting LDRs drift too high.

• Global Trends: Internationally, some regulators set hard limits on LDR, but Australia prefers a flexible, risk-based approach. Nevertheless, global economic uncertainty is prompting local banks to watch LDRs more closely.

• Market Examples: The big four banks have all reported LDRs between 80–90% in their latest half-year results, reflecting a cautious stance amid ongoing economic volatility.

Smaller lenders, meanwhile, are balancing the need to grow their loan books with the imperative to attract more retail deposits, sometimes offering market-leading rates to keep their LDRs in a safe zone.

How to Use LDR as a Banking Barometer

For customers, the LDR is a useful signal:

• Watch for banks aggressively marketing deposits—this can signal a high LDR and upcoming changes in loan or deposit rates.

• Compare LDRs in annual reports or on the APRA website to gauge a bank’s risk appetite and funding strategy.

• If you’re a business owner, a bank with a stable, moderate LDR may be more consistent in its lending practices over time.

Ultimately, LDR is just one factor among many, but it’s a telling indicator of how your bank manages risk, funds growth, and responds to economic shifts.