Why SunTrust Has a Higher Loan-to-Deposit Ratio



 A higher loan-to-deposit ratio

The average loan-to-deposit ratio for regional banks is currently 85%–90%. The ratio for SunTrust Bank (STI) is 95%. This indicates that the bank is giving out most of its deposits in loans. A very high ratio suggests that the bank doesn’t have enough liquidity to cover any unforeseen needs. This could be a matter of concern.


The graph above shows SunTrust’s loan-to-deposit ratio over the last three years and the average ratio for the industry over the same period. The ratio is higher for STI due to the company’s comparatively smaller deposit base.

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Ratio across banks

The ideal loan-to-deposit ratio for a bank depends on its business model. Some banks that focus on core banking, such as US Bancorp (USB), have high loan-to-deposit ratios. US Bancorp’s ratio is around 90%. The ratio for JPMorgan Chase (JPM) is 55% due to its custodian banking operations that require it to hold more highly liquid assets.

The ratios of Citigroup (C), Wells Fargo (WFC), and Bank of America (BAC) lie somewhere in between US Bancorp’s 90% and JPMorgan’s 55%. Combined, C, WFC, and BAC make up about 19.5% of the Financial Select Sector SPDR ETF (XLF). The banking sector forms 55% of the iShares US Financial Services ETF (IYG).

Focus on deposit growth

Period-end deposit balances for SunTrust actually declined in 2013 compared to 2012. However, deposits increased 7% in 2014 as a result of the bank’s continuous focus on driving growth.

STI is deepening relationships with existing clients, growing its client base, and increasing deposits while managing the rates it pays for deposits. The bank maintains pricing discipline and pays one of the lowest rates of 0.21% on deposits.

Other initiatives to attract deposits include advancements in analytics that leverage client segmentation to identify optimal products and solutions. STI is leveraging its brand to improve visibility in the marketplace and client loyalty. This should help the company further capture some of the industry-wide deposit growth.


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