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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

TD Bank (TSX:TD)(NYSE:TD) stock is out of favour now but could come back in a big way.

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Recent Bank Stocks News

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Losses during a market crash are inevitable but can be trimmed with timely moves. However, with blue-chip assets like the…

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Why Royal Bank of Canada (RY) Stock Price Fell 12.7% in March

| Karen Thomas, MSc, CFA

The Royal Bank of Canada stock price falls in March but remains a leading bank stock for investors to accumulate…

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| Aditya Raghunath

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| Andrew Walker

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Buy Alert: 2 Bank Stocks on Sale Today

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CRA Clawbacks: How to Earn an Extra $4,310 and Protect OAS Pension Payments

| Aditya Raghunath

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| Christopher Liew, CFA

Keep earning the tax-free from the Bank of Nova Scotia stock. The time will come to reckon with the 15%…

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| Haris Anwar

As the market tries to find its bottom after a major sell-off, this is a good time to focus on…

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TFSA Investors: Buy Canadian Banks Now, Get Filthy Rich Later

| Joey Frenette

Bank of Montreal (TSX:BMO)(NYSE:BMO) and other Canadian banks that are must-buys amid their historic collapses that could rival the Financial…

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Market Crash: 3 Things You Must Do

| Amy Legate-Wolfe

It can be an emotional time during a market crash, but remember these rules before making any sudden movements.

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Bank of Nova Scotia’s (TSX:BNS) Exposure to Latin America Increases its Vulnerability to a Recession

| Matt Smith

Bank of Nova Scotia's (TSX:BNS)(NYSE:BNS) earnings will be sharply impacted by the economic fallout from the coronavirus.

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During Volatility, Focus on Buying These Quality Stocks

| Kris Knutson

When markets are moving up and down in as chaotic a fashion, as they have been in recent weeks, focus…

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Recession Portfolios: How to Manage Your TSX Stocks in a Market Crash

| Victoria Hetherington

Canadians are seeing wild price fluctuations in the markets right now. Here’s why Fortis Inc. (TSX:FTS)(NYSE:FTS) can help build recession…

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TFSA Investors: 2 Steps to Shield Your Money From the Market Crash

| Adam Othman

Protect your investment portfolio and invest in a stock like Toronto-Dominion during the market crash.

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Investors: Here’s What You Got in Trudeau’s $82 Billion Aid Package!

| Andrew Button

Trudeau's new aid package provides an incentive to hold bank stocks like The Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

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Bank Stocks

Market Rebound: 2 Surging Dividend Stocks for RRSP Investors

| Andrew Walker

These top Canadian dividend stocks still look cheap.

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2020 Stock Market Crash: Worse Times Ahead for Stocks

| Matt Smith

Ignore the latest market downturn and buy Royal Bank of Canada (TSX:RY)(NYSE:RY) today.

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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.