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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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TD Bank (TSX:TD)(NYSE:TD) stock looks unsustainably undervalued going into 2020.

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CIBC appears cheap right now. Is the stock a buy?

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| Andrew Button

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A market crash in 2020 or the next shouldn’t drive to you panic if you have Royal Bank of Canada…

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| Nelson Smith

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Will TD Bank (TSX:TD) Crash in 2020?

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Which Is the Better Bank Stock in 2020: Toronto-Dominion Bank (TSX:TD) or Royal Bank of Canada (TSX:RY)?

| Kay Ng

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| Cindy Dye

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| Victoria Hetherington

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| Kay Ng

Should you get a 4% yield from quality Toronto-Dominion Bank (TSX:TD)(NYSE:TD) right now?

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Should You Buy Canadian Imperial Bank of Commerce (TSX:CM) Stock in 2020?

| Andrew Button

After a weak showing in 2019, could Canadian Imperial Bank of Commerce (TSX:CM)(NYSE:CM) be a buy in 2020?

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Royal Bank of Canada (TSX:RY) Could Be the Best Canadian Bank for Your Buck in 2020

| Joey Frenette

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| Joey Frenette

Bank of Montreal (TSX:BMO)(NYSE:BMO) and another Canadian bank I wouldn't advise touching with a barge pole going into 2020.

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| Adam Othman

If you plan your finances right and save enough money, you and your spouse can retire early and enjoy the…

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2020 Will Be a Strong Year for Canadian Metal and Oil Stocks

| Victoria Hetherington

Here’s why stocks such as Canadian Natural Resources Ltd. (TSX:CNQ)(NYSE:CNQ) could richly reward investors in the new year.

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Ranking Canada’s Top Banking Stocks for 2020 (Part 2)

| Mat Litalien, MBA

The top 3 Canadian banking stocks heading into 2020 are revealed!

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Canada Stock Market Investing: Better TFSA Profit Margins

| Debra Ray

Buy undervalued stocks with wide profit margins like Equitable Group Inc (TSX:EQB) for your TFSA and watch your stock market…

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| Andrew Walker

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3 High-Yield Dividend Stocks With Outlandish Dividend Growth

| Christopher Liew, CFA

The Canadian Natural Resources stock, TransAlta Renewables stock, and Toronto Dominion stock offers both dividend growth and dividend safety to…

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2 Severely Undervalued Stocks to Buy at a Discount Before 2020

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Nutrien and Toronto Dominion stocks are two stocks that you can buy on a bargain for your investment portfolio moving…

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| Christopher Liew, CFA

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Ranking Canada’s Top Banking Stocks for 2020 (Part 1)

| Mat Litalien, MBA

It was a mixed year for Canada's Big Banks. As some of the usual outperformers stumbled, others began to turn…

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Canada Revenue Agency 2020: 1 Crucial TFSA Change You Must Be Aware of

| Christopher Liew, CFA

While the annual limit is unchanged at $6,000, the total accumulated contribution room will rise to $69,500 next year. To…

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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.