Loan-to-deposit ratio refers to the ratio of total bank loans to total deposits, also known as loan-to-deposit ratio. From the point of view of bank profitability, the higher the loan-to-deposit ratio, the better, because deposits have to pay interest, which is the so-called cost of capital. If a bank has more deposits and less loans, it shows that its cost is high, its income is low and its profitability is poor.
Because the bank's main profit source is the deposit-loan spread, that is, the net income after deducting the deposit interest expense from the loan interest income.