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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. 

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Check back here for the most up to date information about bank stocks in Canada.

Top Articles

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Use the tax breaks to lower your tax bill and purchase blue-chip TSX stocks such as Royal Bank of Canada.

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The 1 TSX Stock I’d Go All-In On

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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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There are signs that the growing unrest in South America could impact Bank of Nova Scotia's (TSX:BNS)(NYSE:BNS) financial performance.

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Earnings Season Is Back and This Bank Is Loving it!

| Demetris Afxentiou

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There’s a New Reason to Buy This 3.8%-Yielding Bank Stock

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TFSA Wealth: Is This a Good Time to Buy Bank of Nova Scotia (TSX:BNS) Stock?

| Andrew Walker

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Here’s Why it’s Time to Back Up the Truck on TD Bank (TSX:TD) Stock

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| Matt Smith

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TFSA Investors: Should You Buy BCE (TSX:BCE) or Royal Bank (TSX:RY) Stock Today?

| Andrew Walker

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| Christopher Liew, CFA

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How to Choose Between an RRSP and a TFSA

| Andrew Button

If you opt for an RRSP over a TFSA, it's best to buy "long-term" stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD).

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3 Costly Sins Investors Should Never Commit!

| David Jagielski

Unless you're investing in a very safe stock like Toronto-Dominion Bank (TSX:TD)(NYSE:TD), you'll want to avoid making these mistakes.

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Canada’s 3 Best TFSA Stocks for 2020

| Haris Anwar

BCE Inc. (TSX:BCE)(NYSE:BCE) is among the three best Canadian stocks that fit nicely in any TFSA portfolio.

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The TFSA Mistake That 57% of Canadian Millennials Are Making

| Joey Frenette

Here's how stocks like Toronto-Dominion Bank (TSX:TD)(NYSE:TD) can help correct the massive TFSA mistake over half of millennials are making.

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Bank Stocks

RRSP Investors: Should You Buy Bank of Nova Scotia (TSX:BNS) or Canadian National Railway (TSX:CNR) Today?

| Andrew Walker

Bank of Nova Scotia (TSX:BNS) (NYSE:BNS) and Canadian National Railway Company (TSX:CNR) (NYSE:CNI) are two of Canada's top companies. Is…

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3 Top Canadian Bank Stocks That Are No-Brainer Buys

| Adam Othman

Laurentian Bank stock, Canadian Imperial Bank of Commerce stock, and National Bank of Canada stock are three dividend aristocrats that…

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The Canadian Housing Market Continues to Stay Strong: Here’s 1 Stock Taking Advantage

| Daniel Da Costa

The Canadian housing market has been a lot more resilient than many expected and the biggest beneficiary of that has…

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Ranking the Big 5 Bank Stocks Right Now

| Ambrose O'Callaghan

The fourth and final round of bank earnings are set to be released in the next few weeks, so it…

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Income Investors: 3 High-Yield Stocks for Your TFSA in 2020

| Andrew Walker

Some Canadian investors are missing out on a great opportunity to generate tax-free passive income.

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How to Invest in Stocks Like Warren Buffett Does?

| Haris Anwar

Investing in stocks, such as Toronto-Dominion Bank (TSX:TD)(NYSE:TD), can put on a path to grow your wealth like Warren Buffett.

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Secure Your Retirement With These 3 Top Pension-Approved Stocks

| Nelson Smith

Copy this large pension manager and add stocks like Royal Bank (TSX:RY)(NYSE:RY), Morguard REIT (TSX:MRT.UN), and Suncor Energy (TSX:SU)(NYSE:SU) to…

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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.