Historically, TSX bank stocks have delivered outsized gains to shareholders in the past two decades. The Canadian banking sector is highly regulated, which raises entry barriers and allows incumbents to build a competitive moat.
Moreover, TSX banks are far more conservative compared to their lending peers south of the border, which enables them to thrive across business cycles. In this article, I have identified two top TSX bank stocks you can buy right now.
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Is this TSX bank stock undervalued?
The National Bank of Canada (TSX:NA) offers personal and commercial banking, wealth management, and financial markets services nationwide.
The National Bank of Canada delivered impressive second-quarter results, with earnings per share increasing 12% year-over-year to $2.85 and a return on equity of 15.6%. This performance reflects strong organic growth across business segments and early momentum from the recently acquired Canadian Western Bank (CWB).
Financial Markets was a standout performer, generating over $500 million in net income as volatile market conditions created ideal trading opportunities. “We had close to an ideal trading environment,” said Etienne Dubuc, EVP Financial Markets, noting that tariff announcements created profitable volatility episodes that the bank’s defensive positioning captured effectively.
Strong CWB synergies
The CWB integration is progressing ahead of schedule, with $44 million in combined cost and funding synergies already realized, representing 43% of the three-year target. The bank leveraged its superior credit rating to optimize CWB’s capital structure while consolidating IT infrastructure and centralized functions.
“We are off to a strong start, and we are excited about the opportunities ahead,” said CEO Laurent Ferreira, highlighting positive client reception and employee onboarding success. The first wave of client migrations is scheduled to begin this summer, setting the stage for revenue synergies by year-end.
Despite macroeconomic uncertainty from trade tensions, the National Bank maintained its outlook for mid-single-digit earnings growth and a 15% adjusted return on equity for fiscal 2025. The bank’s strong 13.4% capital ratio provides flexibility for continued growth, particularly in Western Canada, where CWB has significantly expanded its footprint.
Analysts tracking the TSX stock estimate adjusted earnings to expand from $10.39 per share in fiscal 2024 to $12.28 per share in fiscal 2027. If the bank stock is priced at 13 times forward earnings, it will trade around $160 in early 2027, indicating an upside potential of over 15% over the next 18 months.
Is this TSX bank stock a good buy?
EQB (TSX:EQB) is a challenger bank with a thriving specialized lending business. In 2025, it will serve over 560,000 customers with $9.4 billion in deposits.
EQB reported disappointing second-quarter results last month, with a return on equity of 11.9%, as elevated credit losses and tariff uncertainty weighed on performance.
The Canadian bank reported $29 million in provisions for credit losses, nearly double the amount from the previous quarter, primarily driven by stressed commercial loans and a problematic 2022 mortgage vintage.
The credit deterioration stemmed largely from properties originated during peak market conditions in 2022, when asset values were elevated and interest rates were low. As these loans were renewed at higher rates amid declining property values, borrowers faced significant stress. CEO Andrew Moor acknowledged this represents a high watermark for provisions, though elevated losses may persist through the third quarter.
Operational strength
Despite credit headwinds, EQB demonstrated operational strength across key franchises. Single-family residential originations surged 28% year-over-year with substantial market share gains, while the CMHC-insured (Canada Mortgage and Housing Corp.) multi-unit portfolio grew 10% quarter-over-quarter. The company’s apartment sector leadership continued to expand term loans under management at a 29% annual rate.
EQ Bank’s digital platform demonstrated impressive momentum, adding customers at a rate of 23% annually, while deposits grew 4% quarterly to reach $9.4 billion.
Demand deposits increased 32% year-over-year, providing lower-cost funding as more customers choose the platform for everyday banking needs, including payroll.
Management maintained confidence in medium-term prospects, expecting to return to above-15% ROE levels once credit normalization occurs. The bank’s strong capital position and market-leading franchise position it well for recovery as economic uncertainty subsides and the housing market stabilizes.
