Thesis: Advances to Deposits Ratio

Sample Thesis Paper

The Advances to Deposit Ratio (also known as the Loan to Deposit Ratio) is a ratio that is widely used by banks. The total loans (which are the money lent by the bank and are the assets of the bank) are placed in the numerator and divided by total deposits (the money received by banks that are the liabilities of banks). This ratio shows the proportion of deposits that is loaned out by the bank. This is a highly important measure of liquidity for banks as banks are now required to keep a specified amount of cash as reserves for depositors if they want to cash their deposited amounts for personal use.

The Advances to Deposits ratio for MCB rose from 74.96% in 2007 to 79.48% in 2008 as compared to 71.17 % and 76.12 % for HBL in 2007 and 2008 respectively. The Annual Report of the State Bank of Pakistan for the year ended 2007 shows that the ratio for the entire commercial banking industry also shared a similar pattern as the advances to deposits ratio fell from 69.9 % in 2006 to 67.8 % in 2007 ((SBP 2007). This shows that MCB is moving in line with a press statement made by the Governor of the State Bank of Pakistan (the Central Bank of Pakistan), Dr. Shamshad Akhtar (SBP 2008) in which she said:

‘State Bank of Pakistan (SBP) has been monitoring closely the recent developments regarding the overall and bank specific liquidity position. Keeping in view overall liquidity condition of the market, SBP has decided to take the following actions to ease the immediate liquidity situation and further incentivize banks to rely on medium /long term balance sheet funding with effect from18th October 2008.

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