Loan-To-Deposit Ratio Is Second Worst In The Nation
There are a lot of indicators that New Mexico’s economy has been in the tank for years. We’ve got the second-highest unemployment rate in the nation, people continue to leave the state, our job growth has been dismal, our personal income rate is around 80 percent of the national average, and on and on.
But there’s another measure that shows just how lousy the state’s economy is, especially when compared to surrounding states. It’s kind of for nerds and geeks, but it is telling.
It’s called the loan-to-deposit ratio, and it’s a measure of what percentage of deposits that locally-owned banks are lending out. That, in turn, is a measure of loan demand, or economic activity.
And New Mexico’s loan-to-deposit ratio is the second-worst in the nation at 61 percent.
It means that the state’s economy is so bad that businesses aren’t taking out loans because they’re either fearful of doing so, or just don’t have the money to support an expenditure funded by a loan.
“It’s an indication that the state is still in the doldrums economically,” said Jerry Walker, president and CEO of the Independent Community Bankers Association of New Mexico. “What 60 percent tells you is that our economy is certainly slower than in other states.”
In general, banks like to see that ratio in the 75-to-85 percent range, Walker said, adding that banks make most of their money by lending out deposits at higher interest rates than they pay to get them. If banks aren’t making loans, they’re not making money.
So how do New Mexico’s banks, and its economy, compare to other states?
Nevada had a loan-to-deposit ratio of 109 percent, meaning its economy is in overdrive, while the rate in both Nevada and Arizona’s was 86 percent. In Oklahoma it was 84 percent; in Texas, 74 percent; and in Colorado, 73 percent.
Wyoming had the lowest rate at 60 percent.
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