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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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Recent Bank Stocks News

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Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) is attractively valued and underappreciated with solid growth prospects, making now the time to buy.

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Beat the Big Five Banks With This Under-appreciated Bank Stock Yielding 4%

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Get a tasty 4% yield and steady growth by investing in National Bank of Canada (TSX:NA).

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3 Reasons Why TD (TSX:TD) Is a Buy-and-Hold Forever Stock

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| David Jagielski

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3 Dividend Stocks to Buy and Hold for the Next Decade

| Mat Litalien, MBA

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Is It Time to Sell My Toronto Dominion Bank (TSX:TD) Shares?

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| Nelson Smith

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This One Financial Move Can Supercharge Your RRSP

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Ignore the Absurd Thesis for Shorting Canada’s Banks

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Bolster your exposure to Royal Bank of Canada (TSX:RY)(NYSE:RY) and Toronto-Dominion Bank (TSX:TD)(NYSE:TD), despite the claims of short-sellers.

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A Top Dividend Stock to Buy and Hold for the Next 50 Years

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Toronto-Dominion Bank (TSX:TD)(NYSE:TD) is a top dividend stock to buy if your investing horizon is long-term.

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Should You Be Worried About the Big Bank Short?

| Ambrose O'Callaghan

Notorious money manager Steve Eisman is targeting Royal Bank of Canada (TSX:RY)(NYSE:RY) and other top banks. Should investors be worried?

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The Best Bank for Your Buck Is the 1 You’d Least Expect

| Joey Frenette

Why Canadian Western Bank (TSX:CWB) may be the best Canadian bank to buy this May.

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The 3 Cheapest Canadian Banks: Which Is the Best Buy?

| Kay Ng

Here’s why one of these cheap Canadian banks is the best buy. Could it be Canadian Imperial Bank of Commerce…

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Is the Bear Coming for Cannabis Stocks This Spring?

| Ambrose O'Callaghan

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Will Dividend-Paying Top Bank Stocks Drop 20%?

| Vishesh Raisinghani

A reputed investor says Canada's top banks, including Royal Bank of Canada (TSX:RY)(NYSE:RY), could drop this year. Vishesh Raisinghani takes…

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Dividend Stocks

Banking Investors: Swap These Financial Stocks to Reduce Risk

| Victoria Hetherington

Here’s why Canadian investors may want to cool off on Big Six bankers like Bank of Nova Scotia (TSX:BNS)(NYSE:BNS).

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Investors: Here’s My Best Tip for Getting Rich

| Nelson Smith

The key to getting rich is saving consistently and putting your cash to work in great stocks like Bank of…

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If You’re Looking to Bank on Innovation, CIBC (TSX:CM) Is the Obvious Choice

| Will Ashworth

The news out of Canadian Imperial Bank of Commerce (TSX:CIBC)(NYSE:CIBC) is coming fast and furious and much of it has…

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Dividend Stocks

2 Canadian Banks I’d Buy if I Didn’t Own Them Already

| Kay Ng

Here's why you should own Toronto-Dominion Bank (TSX:TD)(NYSE:TD) and another quality bank in your long-term portfolio.

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Bank Stocks

Which Bank Is Better: Royal Bank (TSX:RY) or Scotiabank (TSX:BNS)?

| Amy Legate-Wolfe

While banks may have flat-lined in the new year, investors should look to Bank of Nova Scotia (TSX:BNS)(NYSE:BNS) and Royal…

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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.