Medium Term Funding Ratio(MTF)

Banks earn money from mismatches, i.e. by borrowing short term and lending long term. Bank has to find out the right combination for longer term mismatch. MTF ratio is based on the amount of liability with a contractual maturity of more than one year to assets with a contractual maturity of more than one year, that is MTF should be done on the basis of 1 year and above but less than 2 years term deposit. The desirable ratio of MTF should be 15% to 20%.