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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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Recent Bank Stocks News

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Is this market rally a cue for investors to continue buying stocks or is it a better move to wait?

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| Andrew Walker

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| Andrew Walker

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| Matt Smith

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| Andrew Walker

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| Jared Seguin

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Danger: Is Now the Time to Sell the Canadian Banks?

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| Christopher Liew, CFA

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| Nicholas Dobroruka

Bank stocks were hit extremely hard during the last recession but rebounded very well. Which is the better bank stock…

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Royal Bank (TSX:RY) to CIBC (TSX:CM): Are Canadian Bank Dividends Safe?

| Andrew Walker

Canadian bank stocks now offer high dividend yields. Are the distributions safe?

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Canadian Investors: Why Bank Stocks Will Disappoint This Year

| Ambrose O'Callaghan

Royal Bank of Canada (TSX:RY)(NYSE:RY) and its peers are in for a rough 2020, but there are reasons for investors…

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Stock Market Crash: “Doom and Gloom” Bank Now Says the Bottom Is in!

| Andrew Button

With banks now changing their doom and gloom forecasts, could stocks like CargoJet Inc (TSX:CJT) be buys?

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Revealed: 2 Great Canadian Stocks I’m Buying for My Portfolio Today

| Nelson Smith

What are you waiting for? Great Canadian stocks like Bank of Montreal (TSX:BMO)(NYSE:BMO) and Extendicare (TSX:EXE) are on sale.

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The “Big Short” Guy Says Stay Away From These Canadian Bank Stocks

| Ryan Vanzo

One of the most successful investors in recent history is warning you to stay away from bank stocks like Royal…

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TFSA Investors: 2 Crazy-Cheap Dividend Stocks I’d Buy With an Extra $2,000

| Joey Frenette

TFSA investors should consider loading up on dirt-cheap dividend stocks like Bank of Montreal (TSX:BMO)(NYSE:BMO) before they correct upwards.

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Forget Air Canada (TSX:AC) — Buy TD Bank (TSX:TD) Instead!

| Aditya Raghunath

While Air Canada remains a top pick for contrarian investors, TD Bank provides safety given its market size and dividend…

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BMO (TSX:BMO) Has Survived Over 200 Years of Market Crashes

| Christopher Liew, CFA

The Bank of Montreal stock is caught in a two-fold crisis that has been causing economic dislocation. However, the oldest…

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Bank Stocks

Why You Should Invest in Bank Stocks Today

| Nicholas Dobroruka

Many Canadians may be hesitant to invest in the stock market after the recent market crash. Find out why bank…

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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.