How to Analyse a Bank Stock
Banks don’t work like normal companies, so the usual metrics don’t apply. Here are the numbers that actually matter.
On this page
Banks are unusual businesses — their "inventory" is money, and debt is their raw material. So the usual ratios don’t apply, and you need a banking-specific toolkit.
The key metrics
- NIM (Net Interest Margin) — the gap between interest earned on loans and paid on deposits, as a % of assets. Higher and stable is better; it’s the bank’s core profitability.
- NPA (Non-Performing Assets) — loans that aren’t being repaid. Watch gross and net NPA ratios; rising NPAs signal poor lending quality.
- CASA ratio — the share of low-cost current & savings deposits. A high CASA means cheaper funding and better margins.
- CAR (Capital Adequacy Ratio) — the capital cushion against risk; regulators require a minimum. Higher means a safer, better-capitalised bank.
- Provisioning — money set aside for bad loans; the provision coverage ratio shows how well NPAs are buffered.
Profitability and valuation
- ROA matters more than ROE for banks (which are inherently leveraged); ~1%+ ROA is generally healthy.
- Banks are usually valued on price-to-book rather than P/E, because book value is meaningful for a balance-sheet business.
The big picture
A good bank combines strong, stable NIM, low and falling NPAs, high CASA, adequate capital and consistent ROA — plus trustworthy management, since banking is a game of risk control. Education only, not a recommendation.
