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Bank Stocks

What are bank stocks?

Bank stocks represent partial ownership in a financial institution that’s licensed to hold and loan money. Over time, bank stocks have been relatively safe investments, as they offer products and services that most people need.

How do you choose a good bank stock? 

1. Look at the bank’s profitability

First, you want to be sure the bank is even profitable. To do that, you can use the following metrics. 

  • Return on equity (ROE): this metric tells you how much profit a bank makes from its shareholder’s equity. The higher this metric, the more efficient a bank is using its stakeholder’s money. 
  • Return on assets (ROA): the ROA tells you the overall profit a bank makes in relation to its assets. The higher the ROA, the more profit a bank makes from its assets. 
  • Efficiency ratio: the efficiency ratio tells you how much revenue a bank uses towards its operating costs. The lower the efficiency ratio, the more revenue a bank theoretically has. 

2. Assess the bank’s risks 

One of the biggest risks a bank has is losing money on an outstanding loan. As with profitability, a couple metrics could help you see how much banks are losing.

  • Nonperforming loans ratio (NPL): Nonperforming loans are loans that are at least 90 days past their due date. A bank with a low percentage of NPL (2% is a good ratio) is doing fairly well collecting loan repayments from its customers. 
  • Net charge-offs: a net charge-off is a bank’s declaration stating that a loan hasn’t been paid and is unlikely to be paid. As with NPLs, the less net charge-offs a bank has, the less money it’s losing on outstanding loans. 

3.  Check back here for our top picks 

Finally, we’ll keep this page updated with our staff writer’s reviews and assessment of Canada’s bank stocks. Our writers often use these metrics to help investors see which bank stocks are doing well and which are doing poorly. 

Check back here for the most up to date information about bank stocks in Canada.

Top Articles

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| Andrew Button

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| Chris MacDonald

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| Brian Paradza, CFA

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CRA: 3 Big Changes Coming to 2023 Tax Breaks

| Aditya Raghunath

Use the tax breaks to lower your tax bill and purchase blue-chip TSX stocks such as Royal Bank of Canada.

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The 1 TSX Stock I’d Go All-In On

| Andrew Button

TD Bank (TSX:TD)(NYSE:TD) stock is out of favour now but could come back in a big way.

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Is Toronto-Dominion Bank Stock a Buy Now?

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This beaten-down financial stock still has the fundamentals and growth plans to deliver strong returns in the long run.

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Should You Buy TD Bank While It’s Below $100?

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TD Bank stock is gaining ground, but is this recent rally a real turnaround or just a temporary bounce?

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3 Canadian Bank Stocks Worth Buying With $15,000 Right Now

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1 Magnificent Canadian Bank Stock Down 9% to Buy and Hold for Life

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This bank stock may be down, but this could mean investors have a serious growth opportunity.

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| Amy Legate-Wolfe

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Scotiabank stock has long been a strong bank stock, but what do the next few years look like?

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Bank of Montreal: Buy, Hold, or Sell Now?

| Andrew Walker

Bank of Montreal is up 10% in recent weeks. Are more gains on the way?

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I’d Put $7,000 in This Canadian Bank Stock for Decades of Growth and Income

| Amy Legate-Wolfe

If there's one safe stock that any one can buy today with zero fear, it's this top bank stock.

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Bank of Nova Scotia: Buy, Hold, or Sell Now?

| Andrew Walker

Bank of Nova Scotia picked up a new tailwind in recent weeks. Is more upside on the way?

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TD Bank: Buy, Sell, or Hold Today?

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Frequently Asked Questions

Why invest in bank stocks?

Quality bank stocks have a strong history of generating profits and managing crises, making them a great investment.

In addition to their strong performance, many of Canada’s top banks pay dividends, with payouts that increase over time. For Canadian investors looking to pocket a little extra from their stocks, dividends can help you buy more shares or more cash.

Finally, bank stocks can help diversify your investing portfolio. If you already have stocks in other sectors (mining, technology, energy), bank stocks could add much needed stability, as well as expose you to the gains in another sector.