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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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Canadian banking stocks are safe holdings for dividends, but a few also offer decent capital appreciation and thus stand out.

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| Amy Legate-Wolfe

Bank stocks offer TFSA investors secure passive income that lasts decades, but these three are my favourites right now.

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ALERT: I’m Buying Scotiabank (TSX:BNS) Stock for Cheap Today!

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Better Buy: TD Stock or Bank of Nova Scotia?

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Could BNS Stock Be a Big Winner in 2023?

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Could TD Stock Be a Big Winner in 2023?

| Andrew Walker

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| Andrew Walker

TD stock is off the 2022 lows. Are more gains on the way in 2023?

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Better Buy: TD Bank or Bank of America?

| Andrew Button

TD Bank and Bank of America are both great bank stocks, but which is #1?

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Bank of Nova Scotia and another cheap TSX value stock to keep a close watch on this year.

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This year, I'm loading up on bank stocks like Bank of America and TD Bank.

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Is RBC Stock a Buy in January 2023?

| Andrew Walker

Investors who missed the rally off 2020 lows are wondering if this is a good time to buy Royal Bank…

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| Joey Frenette

TD stock and another golden opportunity for value investors in Canada in the New Year.

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| Kay Ng

The best Canadian bank stocks are worthy as core holdings in a diversified investment portfolio. Here's the winner of 2022!

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Has CIBC Stock Bottomed Out?

| Andrew Walker

CIBC's share price plunged in 2022. Is the stock now oversold?

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Should You Buy BNS Stock or Royal Bank Now?

| Andrew Walker

Bank stocks took a hit last year. Is Bank of Nova Scotia or Royal Bank stock a buy?

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Why BMO Stock Lost 10% Last Year – Should You Buy?

| Vineet Kulkarni

Banks continue to look under pressure in 2023, but does BMO stock stand out?

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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.