The Bank Balance Sheet Ratio Calculator is a tool that you can use to determine a bank's financial strength and stability using items found on a balance sheet. This calculator uses several inputs such as common shares, risk-weighted assets, and total deposits. Using the inputs, the calculator will produce ratios that are important for the analysis of a bank's balance sheet. This template includes the following ratios:
- Loan to Deposit Ratio
- Common Equity Tier 1 (CET1) Ratio
- Leverage Ratio
Loan to Deposit Ratio (LDR)The loan to deposit ratio is used to determine a bank's liquidity by comparing the total amount of loan outstanding to deposits stored in a bank. A high LDR means a bank has a relatively higher amount of capital in loans than deposits. By having more funds tied up in loans, this increases the risk that the bank would not have enough capital for customers that wants to take out their deposit. The formula for the loan to deposit ratio is: Loan to Deposit = Total Loans / Total Deposits
Common Equity Tier 1 (CET1) RatioThe Common Equity Tier 1 (CET1) Ratio is a requirement set by Basel III. This ratio measures the financial strength of a bank. This is done by comparing a bank's core capital to its risk-weighted assets. The formula for the CET1 ratio is: CET1 Ratio = Common Equity Tier 1 Capital / Risk Weighted Assets Basel III requires all banks to have a ratio of above 4.5%. This allows the regulators to ensure the bank remains solvent even during times of financial stress.
Leverage RatioThe leverage ratio is another requirement introduced by Basel III. It is similar to the CET1 ratio as it also compares capital to assets. However, for the leverage ratio, the Tier 1 capital is used and the total asset is not weighted by risk. The formula for the leverage ratio is: Leverage Ratio: Tier 1 Capital / Total Assets (Exposure) Basel III set a minimum leverage ratio requirement of 3%. This requirement ensures the bank has enough liquid capital to cover its exposure (assets).