By Kim Jae-kyoung
Staff Reporter
Korean banks are faced with the double burden of a rising loan-to-deposit ratio and a falling net interest margin (NIM), an indicator that their financial health is deteriorating amid the prolonged economic slump.
According to the Bank of Korea (BOK) Monday, local banks' loan-to-deposit ratio reached 90.2 percent in April, the highest in more than a decade when the figure stood at 90.3 percent in February 1998.
The ratio refers to the amount of a bank's loans divided by the amount of its deposits at any given time. A ratio of 90.2 percent means that the bank received 100 million won in deposits and extended 90 million won in loans, leaving only 10 million won at the bank.
The higher the ratio, the more the bank is relying on borrowed funds, which are generally more costly than most types of deposits. In other words, a higher ratio raises the possibility of deteriorating financial soundness.
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