Canadian bank stocks are ending 2025 in the spotlight again. On December 2, 2025, Scotiabank kicked off bank earnings week with a clear profit beat, a new ETF focused on the Big Six launched on the TSX, and analysts debated whether the sector is now “priced for perfection.” [1]
At the same time, research from Scotiabank, Motley Fool and others continues to frame Canadian banks as core long‑term holdings for income and growth — from blue‑chip giants like Royal Bank of Canada (RBC) and TD Bank to faster‑growing “challenger” lenders such as EQB Inc. [2]
This article pulls together the latest news, forecasts and analysis as of December 2, 2025, to help you understand where Canadian bank stocks may be headed in 2026 and which names are drawing the most attention for dividends, TFSA strategies and long‑term growth.
Quick reminder: Nothing here is personal financial advice. Use this as context, then match it to your own goals and risk tolerance (or speak with a professional).
1. 2025 Scorecard: Bank Stocks Have Beaten the TSX – But at a Price
After a tough 2023–2024, Canada’s Big Six banks (RBC, TD, BMO, Scotiabank, CIBC and National Bank) have staged a powerful rebound:
- A Reuters roundup ahead of this week’s earnings reports estimates the group is up about 32% in 2025, versus roughly 27% for the S&P/TSX Composite Index. [3]
- That rally has pushed the banks’ average forward P/E ratio to around 12.9×, about 23% above their 10‑year average, leading several analysts to describe the sector as “fully valued.” [4]
In other words, Scotiabank’s early‑year call that “banks and financials could do quite well in 2025” has largely played out — at least in share‑price performance. In its January 2025 Market Outlook, Scotiabank strategist Hugo Ste‑Marie argued that:
- The Bank of Canada’s aggressive rate cuts would eventually support consumer spending,
- Loan growth and mortgage activity should improve,
- Consensus earnings expectations for banks were “on the low side,” leaving room for positive surprises, and
- Bank valuations were attractive versus history. [5]
Fast‑forward to December, and banks have indeed delivered strong earnings and outperformance — but that earlier valuation “cushion” has thinned out dramatically.
2. Rate Cuts, Then a Pause: The Macro Backdrop for 2026
Bank stocks live and die by two big forces: interest rates and credit quality.
Bank of Canada: From aggressive cuts to a long pause?
- The Bank of Canada cut its policy rate from 5.0% in mid‑2024 to 2.25% by October 2025, helping ease pressure on borrowers and boosting bank margins versus the worst of 2023–24. [6]
- Scotiabank’s November 2025 forecast tables now say the BoC is “done cutting rates,” expecting the next move to be a 50‑basis‑point hike in the second half of 2026 as inflation risks linger. [7]
- By contrast, RBC’s November 2025 Monthly Forecast Update projects the BoC holding the overnight rate at 2.25% through the end of 2026, while the U.S. Federal Reserve gradually trims its own rate toward 3.25–3.5%. [8]
Despite the differences, both big‑bank research teams broadly agree: rates are likely to stay near current levels for some time, which:
- Supports reasonably healthy net interest margins (NIMs),
- Reduces the risk of a fresh rate shock for households, but
- Leaves banks sensitive to any renewed inflation or growth slowdown.
Credit and growth risks still linger
Canadian GDP has been choppy: the second quarter of 2025 actually shrank by 0.4%, rebounded in Q3, and early data suggest another soft patch in October. Unemployment is hovering near 6.9%. [9]
Analysts are watching:
- Trade uncertainty and tariff‑related shocks,
- The health of leveraged consumers and housing, and
- How quickly provisions for credit losses (PCLs) can normalise after the precautionary builds in 2024–early 2025. TS2 Tech+1
Put simply: macro conditions are “good enough” for banks to earn healthy profits, but not so strong that credit risks have vanished. That tension is central to today’s valuation debate.
3. Scotiabank Sets the Tone: Q4 2025 Earnings Beat and 2026 Targets
On December 2, Bank of Nova Scotia (Scotiabank, TSX:BNS) became the first of the Big Six to report Q4 2025 results — and it came out swinging.
Headline numbers: solid beat, strong ROE
Across multiple news and transcript sources, Scotiabank reported for Q4 2025 (quarter ended October 31): [10]
- Adjusted EPS: C$1.93 (vs. consensus around C$1.83)
- Adjusted net income: about C$2.56 billion, up from ~C$2.12 billion a year earlier
- Return on equity: roughly 12.5%, up nearly 2 percentage points year‑over‑year
- Revenue: approx C$9.77 billion, beating forecasts by about 3–4%
- Net interest income: higher year‑on‑year, reflecting the benefit of still‑elevated rates
- Provision for credit losses: increased modestly, but remained manageable given income growth
- Restructuring charges: around C$373 million, linked to layoffs and footprint changes in Canada and Asia
Capital markets and wealth management were standout performers, with near‑50% profit growth in global banking and markets and high‑teens growth in wealth, powered by fees and underwriting activity. [11]
Strategy: refocusing and Latin American reshuffle
Heading into the quarter, Scotiabank also closed a major transaction with Davivienda, transferring operations in Colombia, Costa Rica and Panama for a roughly 20% stake in the new Davivienda Group. The deal trades lower‑return Latin American assets for a more capital‑efficient equity stake, at the cost of an expected C$300 million accounting loss in Q1 2026 but a small boost to its CET1 ratio. TS2 Tech
Management is now signalling:
- An ambition for double‑digit EPS growth in 2026,
- A path for ROE to approach 14%,
- Continued heavy investment in technology and AI, and
- Ongoing share buybacks after repurchasing ~10.8 million shares in fiscal 2025. [12]
Valuation snapshot: BNS near 52‑week highs
On December 2:
- BNS traded around C$96–98 on the TSX, just shy of its 52‑week high near C$99–100, after a 26–27% total return over 12 months. TS2 Tech+1
- Dividend yield sits near 4.5%, based on an annual payout of about C$4.40 per share. TS2 Tech
- Trailing P/E is roughly 18×, with price‑to‑book around 1.5×, both towards the upper end of recent history. TS2 Tech
Interestingly, valuation models disagree:
- Some fundamental models (e.g., Simply Wall St) still see BNS as ~20% undervalued relative to intrinsic value based on excess returns analysis. [13]
- Many street analysts carry a “Hold” rating with average targets a bit below today’s price, suggesting limited upside after the rally. TS2 Tech
That encapsulates the broader theme: results are strong, but expectations are high.
4. “Priced for Perfection”: What Analysts Are Saying Ahead of the Rest of Q4
The Canadian Press summarised the mood neatly in a widely cited piece: “Banks head into fourth quarter priced for perfection.” [14]
Key points from that and related analyst commentary:
- Big Six forward P/E ≈ 13× vs ~10.5× 20‑year average.
- TD shares are up roughly 50% year‑to‑date, helping bank stocks beat the wider market by about 6 percentage points. [15]
- Jefferies downgraded RBC and TD from “Buy” to “Hold,” warning that current prices embed “fully valued” assumptions at a time when revenue growth is thin and credit pressures haven’t fully cleared. [16]
- National Bank’s Gabriel Dechaine notes heavy share buybacks (≈45 million shares last quarter) have further supported EPS, raising questions about how sustainable that tactic is at elevated valuations. [17]
At the same time, Scotiabank analyst Mike Rizvanovic expects “another solid quarter” to end a very strong year, emphasising robust capital markets and wealth management, and pointing out that long‑term valuations for 2027 earnings look less stretched (~11.9× P/E) once earnings catch up. [18]
So, the consensus view might be summarised as:
Short-term: fully priced, little room for disappointment.
Long-term (3+ years): still attractive franchises, with solid capital buffers and earnings power, if the economy avoids a severe downturn.
5. Dividend Heavyweights: TD, RBC and BNS as Core Long‑Term Picks
A recent Motley Fool analysis (republished via Moomoo) spotlighted Toronto‑Dominion Bank, Royal Bank of Canada and Scotiabank as three Canadian bank stocks capable of delivering decades of dividends and total returns, each with a slightly different profile. [19]
TD Bank (TSX:TD): Growth‑tilted income with U.S. exposure
- TD is frequently cited as offering one of the best total‑return profiles in the sector, combining mid‑single‑digit dividend yield with solid earnings growth. [20]
- As of early December:
- TSX price is just below C$118, near a 52‑week high. TS2 Tech+1
- 12‑month performance: roughly +48–49%. TS2 Tech+1
- Dividend yield is about 3.6%, with a 12‑year streak of dividend increases and ~6–7% 5‑year dividend CAGR. [21]
- A large slice of TD’s long‑term growth story lies in the United States, where its retail footprint is larger than in Canada, plus fee‑based businesses and trading operations. [22]
The main overhang is its US$3 billion anti–money‑laundering (AML) settlement in the U.S., which brings ongoing monitoring costs and legal risk even as the core franchise continues to perform well. TS2 Tech
Investor takeaway: TD suits investors comfortable with a bit more regulatory and U.S. exposure risk in exchange for higher growth and a solid, growing dividend.
Royal Bank of Canada (TSX:RY): Blue‑chip compounder near record highs
Royal Bank is widely regarded as the safest and most systemically important Canadian bank:
- A TechStock² deep dive notes RY is trading near all‑time highs on both the TSX and NYSE, with:
- Trailing P/E around 16×,
- Forward P/E around 14×, and
- 2025 total return (including dividends) in the low‑30% range. TS2 Tech
- Dividend metrics:
- Forward yield of roughly 2.8–2.9%,
- Around 15 consecutive years of dividend growth, and
- 3‑year dividend CAGR close to 6–9%, depending on the source. [23]
RBC’s strength is its diversified engine:
- A powerful capital markets franchise,
- A large wealth management and asset‑management arm, and
- The integration of HSBC Canada, which is seen as a long‑term positive for scale and cross‑selling, though it contributed to the 2025 rally that has RBC trading at a premium multiple. TS2 Tech+1
Investor takeaway: RBC is the quintessential “own it for decades” core holding — but buyers today should recognise they’re paying full price for quality and will be relying on earnings growth rather than multiple expansion for future returns.
Scotiabank (TSX:BNS): High yield plus international kicker
Among the Big Six, Scotiabank tends to appeal to income‑focused investors:
- The recent dividend‑focused article emphasised BNS as the choice for those seeking a higher initial yield and exposure to international growth, especially in Latin America. [24]
- Today’s metrics:
- Dividend yield around 4.5–4.6% at C$96–98,
- 12‑month share‑price gain of roughly 26–27%,
- P/E roughly 18×, above its long‑term average. TS2 Tech+2TS2 Tech+2
Scotiabank has long been seen as a laggard versus RBC and TD, in part due to slower‑than‑hoped payoffs from earlier international expansion. But 2025’s earnings momentum — especially in capital markets and wealth — suggests those investments are finally pulling their weight. [25]
Investor takeaway: BNS offers the richest yield among the “big three” in this discussion and more international diversification – in exchange for a bit more earnings volatility and policy risk from non‑Canadian markets.
6. TFSA Ideas Beyond the Big Six: Challenger Banks Like EQB
The third link in your brief looked at “Max Out Your TFSA With 2 Canadian Bank Stocks Poised for Huge Growth,” focusing on two under‑the‑radar lenders. While the full article is behind paywalls, multiple related pieces and data hubs make it clear one of the highlighted names is EQB Inc. (TSX:EQB), parent of Equitable Bank / EQ Bank. [26]
EQB at a glance
From MarketBeat and other recent coverage: [27]
- Business model: Digital‑first “challenger bank” with EQ Bank, focused on high‑interest savings accounts, online mortgages and niche lending rather than a traditional branch network.
- Scale: ~C$3.3 billion market cap, serving ~360,000 customers; one of Canada’s larger independent Schedule I banks.
- Valuation:
- Current share price around C$86–87,
- Trailing P/E ~9.8×, well below the broader market,
- Forward P/E ~6.9×, implying expectations of strong earnings growth.
- Dividend: Yield ~2.3%, lower than the Big Six but with plenty of room for growth given a modest payout ratio.
- Analyst view: Consensus rating “Hold” with a C$101.40 average target price, implying about 17% upside from current levels.
EQB has had a tougher 2025 than the Big Six — shares are down ~12% year‑to‑date — in part because of restructuring charges and caution around its more concentrated lending book. [28]
Yet, the very characteristics that make it riskier in the short term (smaller scale, more niche portfolio) are what the TFSA‑oriented bullish case highlights:
- Higher potential EPS growth from a lower base,
- A structurally leaner cost base thanks to its digital model, and
- Long runway if Canadian regulators continue to encourage banking competition.
The original TFSA article refers to a second “under‑the‑radar lender” alongside EQB, but that name isn’t clearly visible in publicly accessible mirrors. Rather than guess, it’s safer to generalise: small regional or digital banks with strong capital positions and growing deposits are being pitched as ways to add growth to a TFSA while still collecting dividends — but they demand more due diligence and higher risk tolerance than the Big Six.
Investor takeaway: For younger, growth‑oriented TFSA investors willing to tolerate volatility, names like EQB can complement, not replace, core positions in RBC, TD or BNS.
7. New Ways to Play the Banks: Leveraged and Covered‑Call ETFs
Evidence of investor demand for Canadian bank exposure is also showing up in the ETF world.
On December 2, 2025, Evolve Funds Group brought the Evolve Big Six Canadian Banks UltraYield Index ETF (TSX:SIXY) to market. [29]
Key features:
- Tracks an equal‑weight index of the Big Six banks (RBC, TD, BMO, Scotiabank, CIBC, National Bank).
- Uses modest leverage (up to 1.33×) to amplify returns.
- Adds a covered‑call writing strategy to generate higher cash distributions, paid at least twice per month.
- Designed primarily for income‑seeking investors who want enhanced yield from the bank sector.
As the prospectus itself stresses, leverage increases risk. SIXY magnifies both upside and downside moves, and covered calls can cap participation in sharp rallies.
Investor takeaway: For experienced investors, ETFs like SIXY offer packaged exposure to the bullish bank thesis — but they are not substitutes for a conservative savings vehicle, and they introduce layers of complexity (leverage, options) that many TFSA or retirement investors may not need.
8. 2026 Outlook: Can Bank Stocks Keep Outperforming?
Looking beyond this week’s earnings, the big question is whether Canadian bank stocks can continue to beat the TSX into 2026.
Tailwinds
- Solid capital and profitability
CET1 ratios across the Big Six are generally north of 12–13%, giving management flexibility to sustain dividends, buy back shares and invest in technology, even if growth slows. [30] - Stabilising macro backdrop
- RBC sees labour markets stabilising and expects the BoC to hold at 2.25% through 2026. [31]
- A Reuters poll of strategists projects the TSX hitting new highs in 2026, supported by easing trade uncertainty and ongoing resource and tech strength, with banks playing a central role given their large index weight. [32]
- Capital markets and wealth momentum
Q4 previews emphasise capital markets and wealth management as key profit drivers in 2025 — trends that could continue if markets remain constructive and AI‑related investment stays strong. [33]
Headwinds
- Valuation risk
With the sector trading at a 20–25% premium to historical forward P/E multiples, banks need to keep beating expectations just to maintain current prices. Any disappointment on earnings or guidance could trigger a pullback. [34] - Credit quality and trade policy
The ongoing U.S.–Canada trade tensions and tariff overhang, plus a still‑uncertain outlook for 2026 GDP growth, mean provisions for credit losses could stay elevated or spike if conditions worsen. [35] - Regulatory and political risk
TD’s massive AML settlement shows how quickly regulatory issues can change the narrative around a bank stock, particularly for those with large U.S. operations. TS2 Tech
What a balanced view looks like
Putting those factors together, the most defensible base case is:
- Earnings growth in the low‑ to mid‑single digits for the sector through 2026, with pockets of stronger growth in U.S. and wealth/capital markets businesses.
- Dividends remain secure and continue to grow slowly, barring a severe recession.
- Share‑price performance more muted than 2025, with total returns leaning heavily on dividends plus modest EPS growth rather than big valuation multiple expansion.
That still looks attractive for long‑term investors — but it’s very different from buying banks when they were “cheap and hated” in late 2023.
9. Practical Takeaways for Different Types of Investors
Again, not advice — but here’s how investors often think about the current menu of Canadian bank stocks and related plays:
For conservative, income‑focused investors
- Core holdings: RBC (stability, global reach), TD (balanced income and growth), BNS (higher yield with international kicker). [36]
- Key questions to ask yourself:
- Am I comfortable buying after a big rally, knowing volatility is possible?
- Do I value dividend growth (RBC/TD) or current yield (BNS) more?
For TFSA investors seeking growth plus dividends
- Consider a blend of one or two Big Six names plus a small position in a challenger bank like EQB to tilt toward growth. [37]
- Accept that smaller lenders are more volatile and closely monitor position size.
For more tactical or yield‑oriented traders
- Products like SIXY, or other covered‑call bank ETFs, can boost cash distributions but magnify downside via leverage or capped upside via options. Make sure you understand the structure before diving in. [38]
10. Bottom Line: The Bank Rally Isn’t Over — But the Easy Money Might Be
Scotiabank’s strategist started 2025 by “banking on financials,” and as of December 2 that call looks prescient: Canadian bank stocks have outperformed, earnings are strong, and investor enthusiasm is back. [39]
However:
- Valuations are now rich versus history,
- Analysts are openly debating whether the sector is priced for perfection, and
- 2026 will likely be more about grinding out earnings and protecting credit quality than enjoying another 30%‑plus rally.
For long‑term investors using TFSAs or RRSPs, that’s not necessarily bad news. It simply means Canadian bank stocks may shift from being a contrarian bargain to a solid, fairly priced core holding — one where dividends and patience matter more than timing the next breakout.
References
1. www.reuters.com, 2. www.gbm.scotiabank.com, 3. www.reuters.com, 4. www.advisor.ca, 5. www.gbm.scotiabank.com, 6. www.advisor.ca, 7. www.scotiabank.com, 8. www.rbcis.com, 9. www.advisor.ca, 10. www.reuters.com, 11. www.reuters.com, 12. www.investing.com, 13. simplywall.st, 14. www.advisor.ca, 15. www.advisor.ca, 16. www.investing.com, 17. www.advisor.ca, 18. www.advisor.ca, 19. www.moomoo.com, 20. www.moomoo.com, 21. www.dividend.com, 22. www.moomoo.com, 23. www.digrin.com, 24. www.moomoo.com, 25. www.reuters.com, 26. www.fool.ca, 27. www.marketbeat.com, 28. www.marketbeat.com, 29. www.tradingview.com, 30. www.investing.com, 31. www.rbcis.com, 32. www.reuters.com, 33. www.reuters.com, 34. www.advisor.ca, 35. www.scotiabank.com, 36. www.moomoo.com, 37. www.marketbeat.com, 38. www.tradingview.com, 39. www.gbm.scotiabank.com
