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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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Should You Buy Royal Bank of Canada (TSX:RY) or TD Bank (TSX:TD) Stock in September?

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TD Stock vs. CIBC Stock: Which Is a Better Buy Today?

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| Andrew Button

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Should You Buy CIBC (TSX:CM) Stock for its 5.6% Dividend Yield?

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| Victoria Hetherington

Find out why Scotiabank (TSX:BNS)(NYSE:BNS) might be a better stock to buy this week than some of its larger competitors.

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| Sneha Nahata

Holding these dividend-paying stocks for the long term could fetch you higher returns.

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Canadians: 2 Bank Stocks to Buy After Earnings

| Ambrose O'Callaghan

Canadians should consider bank stocks like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and National Bank (TSX:NA) after third-quarter earnings season.

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Warren Buffett: Is Another Stock Market Crash Inevitable?

| Puja Tayal

The stock market is surging, even though the GDP is contracting. The Warren Buffett Indicator signals that equities are overvalued…

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Better Buy: TD Bank (TSX:TD) vs. Royal Bank (TSX:RY)

| Ambrose O'Callaghan

Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and Royal Bank of Canada (TSX:RY)(NYSE:RY) released their third-quarter earnings last week.

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Top 2 Earnings This Week: Dollarama (TSX:DOL) and Alimentation Couche-Tard (TSX:ATD.B)

| Jitendra Parashar

After top Canadian banks released their latest earnings last week, Dollarama (TSX:DOL) and Alimentation Couche-Tard (TSX:ATD.A)(TSX: ATD.B) will release their…

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CIBC (TSX:CM) Stock’s Recovery Rally Isn’t Over Yet

| Joey Frenette

CIBC (TSX:CM)(NYSE:CM) stock has been picking up momentum of late, but should you bet on the bank amid the COVID-19…

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How to Turn a $69,500 TFSA Into $1,000,000

| David Jagielski

Investing in Toronto-Dominion Bank (TSX:TD)(NYSE:TD) can be part of a great strategy to grow your TFSA over the long term.

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Forget Air Canada (TSX:AC) Stock–Buy Banks Instead!

| Andrew Button

Air Canada (TSX:AC) stock is way too risky, but bank stocks are good post-pandemic plays.

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Are TSX Financial Stocks Undervalued?

| Debra Ray

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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.