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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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If oil can continue its rally, Gamehost Inc (TSX:GH) is one of the top stocks poised to benefit from an…

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Access the power of compounding and accelerate wealth creation by owning Brookfield Infrastructure Partners L.P. (TSX:BIP.UN)(NYSE:BIP) in your TFSA.

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| Amy Legate-Wolfe

These two stocks, including Royal Bank of Canada (TSX:RY)(NYSE:RY), are already proving to be great investments.

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| David Jagielski

Millennials can make their future a whole lot brighter by buying shares of Toronto-Dominion Bank (TSX:TD)(NYSE:TD) today.

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2 Banks With Tremendous Room to Run

| Kay Ng

Buy Canadian Western Bank (TSX:CWB) and Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) now for dividends and price appreciation!

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Nutrien Ltd. (TSX:NTR)(NYSE:NTR) and another two top Canadian companies should be solid picks right now for a buy-and-hold RRSP portfolio.…

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| David Jagielski

If you're looking for a quality dividend stock to put your savings into, look no further than Canadian Imperial Bank…

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Should You Buy Shares of Toronto-Dominion Bank (TSX:TD)?

| Prosper Bakiny

Toronto-Dominion Bank (TSX:TD) (NYSE:TD) failed to impress investors with its latest earnings report, but here is why the company is…

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TFSA Investors: Make $500 Per Month in Tax-Free Income

| Amy Legate-Wolfe

Need extra cash? Bring BCE Inc. (TSX:BCE)(NYSE:BCE) and these two other stocks on board.

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| Aditya Raghunath

Why investors need to let go of Constellation Software (TSC:CU) and Royal Bank of Canada (TSX:RY)(NYSE:RY) right now.

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3 Stocks Bouncing off 52-Week Lows

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Why Canopy Growth Corp. (TSX:WEED)(NYSE:CGC) and two other stocks are timely value bets for September.

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new stock pick
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Investors: This Small Cap Technology Stock Has Gained 34% This Week

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How long can shares of Maxar Technologies Ltd. (TSX:MAXR)(NYSE:MAXR) sustain its upward spiral?

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Revealed: These 3 Dividend Kings Haven’t Missed a Payout in 50 Years

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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.