EQ Bank becomes Canada’s top bank stock for 2023

Amid a challenging environment for Canadian financial institutions, mid-cap bank EQB Inc emerged as the best-performing bank stock of 2023, with its shares soaring more than 50% on strong earnings growth. Investors are optimistic about the bank’s prospects in 2024 as the Toronto-based digital bank has no physical branches, manages costs efficiently and outperforms its peers.

EQ Bank, Canada’s seventh-largest bank, reported an 11.2% increase in adjusted net profit for the last fiscal year, while the major banks’ earnings grew just 0.7% and fell 23%. The bank’s non-interest expenses rose 15.5%, a figure significantly lower than the more than 20% increases at the top three banks, which have had to cut jobs to minimize costs.

Bank shareholders are currently focusing on EQ’s competitive mortgage products and its strategic acquisition of Concentra Bank for C$495 million in 2022 as potential drivers of future earnings growth. Van Berkom Global Asset Management analyst Maxime Robillard highlighted EQ’s growing market share and its marketing efforts as spurring “challenger bank sentiment,” signaling growing investment interest and ability to Soaring.

While CIBC and National Bank, among the Big Six banks, also posted significant gains in 2023, with share prices up 16% and 11% respectively, EQ Bank’s impressive momentum did little to boost its valuation. The stock’s price-to-earnings ratio of 8.07 is still low compared to Royal Bank of Canada’s (RBC) 12.78 and TD Bank’s (TD) 15.29, suggesting the stock’s upward trajectory may continue.

Despite EQ’s success, it remains a smaller entity in Canada’s dominant banking landscape, where the largest six banks control more than 90 per cent of assets. EQ’s C$3.3 billion market capitalization pales in comparison to the C$4.1 billion in profits recorded by industry leader Royal Bank of Canada in its most recent quarter.

EQ Bank chief executive Andrew Moor expressed confidence in the bank’s digital strategy, which aims to grow its customer base by 30%-40% from more than 550,000. Moore acknowledged that changing banking habits is a challenge because many Canadians remain loyal to their family’s traditional banking institution. To overcome this problem, EQ targets young customers by offering attractive interest rates (such as 3% interest on salary deposits) and simplified banking processes.

Looking ahead to 2024, EQ Bank plans to expand services to small businesses, an area Moor said is underserved. EQ aims to provide exceptional services to this population through a challenger banking approach.

Reuters contributed to this article.

This article was created and translated with the help of artificial intelligence and reviewed by an editor. For more information, please see our terms and conditions.