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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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| Brian Paradza, CFA

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| Aditya Raghunath

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

| 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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| Andrew Walker

Bank of Nova Scotia is up nearly 30% in the past year. Are more gains on the way?

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Best Stock to Buy Right Now: TD Bank or Manulife Financial?

| Karen Thomas, MSc, CFA

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

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Is National Bank of Canada Stock a Buy for Its 3.4% Dividend Yield?

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Best Stock to Buy Right Now: BNS vs Canadian Imperial Bank of Commerce?

| Kay Ng

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Is TD Bank Stock a Buy for its 5% Dividend Yield?

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Is Canadian Imperial Bank of Commerce a Buy for its 4.4% Dividend Yield?

| Chris MacDonald

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Where Will Brookfield Stock Be in 5 Years?

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Here are some fundamental factors that could play a key role in helping Brookfield stock continue to surge over the…

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5% Dividend Yield: Why I Will Be Buying and Holding This TSX Stock for Decades!

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Down 20% This Stock Is Primed to Soar in 2025 and Beyond

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Is TD Bank Stock a Buy, Sell, or Hold for 2025?

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TD has underperformed some peers in 2024. Will 2025 be better?

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Is BNS Stock a Buy, Sell, or Hold for 2025?

| Andrew Walker

BNS stock is up in recent weeks. Are more gains on the way?

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Bank Stocks

BMO Stock: Should Canadian Investors Buy Now or Wait?

| Andrew Walker

BMO picked up a nice tailwind in the past month. Are more gains on the way?

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Should You Buy CIBC Stock or BMO Stock Today?

| Amy Legate-Wolfe

Both CIBC stock and BMO stock look like solid investments, with ultra-high dividends. But which is the better bet?

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3 Reasons to Buy TD Bank Stock Like There’s No Tomorrow

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These are my top three reasons why TD Bank stock could be a solid buy right now.

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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.