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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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Canada is on the verge of a recession, which is another test for the Royal Bank of Canada stock. However,…

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Is It Time to Buy Bank of Nova Scotia (TSX:BNS)?

| Demetris Afxentiou

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| Andrew Walker

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| Matt Smith

Canadian bank stocks have been hit hard by the stock market crash, leaving Royal Bank of Canada (TSX:RY)(NYSE:RY) attractively valued,…

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| Christopher Liew, CFA

The Royal Bank of Canada stock and Toronto Dominion Bank stock are closing in on their 52-week lows. However, if…

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| Mat Litalien, MBA

Canadian bank stocks are trading at levels not seen since the Financial Crisis. Now is the time to buy stocks…

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Down 22% From Record High, Is Royal Bank of Canada (TSX:RY) Stock a Buy Right Now?

| Aditya Raghunath

Should you buy this Canadian banking giant after the recent pullback?

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How Will a Housing Market Crash Impact Bank Stocks?

| Vishesh Raisinghani

A housing market crash in 2020 could put Canada's largest banks at risk.

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Value Investors: You Won’t Believe the Bargain Offered by This Cheap Bank Stock

| Nelson Smith

Equitable Group (TSX:EQB) is one cheap bank stock. You won't believe just how inexpensive this unloved stock has become.

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Market Crash: 2 Top TSX Index Dividends Stocks for RRSP Investors Today

| Andrew Walker

Top Canadian dividend stocks are on sale today.

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Toronto-Dominion Bank’s (TSX:TD) Stock Price Beat the TSX by 29% in March

| Karen Thomas, MSc, CFA

Toronto-Dominion Bank's stock price outperformed the TSX index as one of Canada's leading banks, providing long-term safety and dividend income.

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Market Crash Alert: TD Bank (TSX:TD) Stock Just Plunged 22%

| Kay Ng

This stock market crash is not over yet. So, space out your buys to ensure you have cash to put…

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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.