/cloudfront-us-east-1.images.arcpublishing.com/tgam/VBY7JAQ7CBGSHLPDL5DPSKGVFM.jpg)
Royal Bank of Canada’s profit fell only 2 per cent from a year ago despite the impact of a global pandemic, driven by soaring earnings from capital markets and easing provisions for loan losses.
Canada’s largest lender reported profit of $3.2-billion, or $2.20 a share, for the three months that ended July 31. In the same fiscal quarter a year earlier, RBC earned $3.26-billion, or $2.22 a share.
Adjusted for certain items, RBC said it earned $2.23 a share, far above analysts’ consensus estimate of $1.81, according to Refinitiv.
The bank kept its quarterly dividend steady at $1.08 a share, following guidance from Canada’s banking regulator not to raise payouts to investors.
Provisions for credit losses – or the money banks set aside to cover loans that may not be repaid – were $675-million. That was up 59 per cent from a year ago and high by historical standards, but it was roughly half the total provisions some analysts predicted for the bank. Provisions fell precipitously from the prior quarter, when RBC earmarked $2.83-billion in new reserves against potential future losses.
Profit in RBC’s core retail-banking division came under pressure from tighter lending margins, falling 18 per cent to $1.37-billion. The division also accounted for most of the bank’s provisions for credit losses, adding $527-million in reserves, more than half of which was for loans that are already impaired.
But the full impact of the pandemic has been delayed by payment deferrals granted to clients on mortgages, credit cards, personal and business loans. As of July 31, about 278,400 RBC clients still had payments deferred on 344,541 loans worth $62.8-billion, down from nearly 580,000 loans totalling $78.3-billion last quarter. In RBC’s Canadian retail-banking division, 12 per cent of all loans were still deferred, with a value of $55-billion, though some clients with deferrals have chosen to continue making payments.
The decline in retail profits was roughly offset by a surge in profit from capital markets, which increased 45 per cent to $949-million compared with a year ago. Higher returns from fixed-income and equities trading was the main driver amid volatile markets recovering from steep losses at the outset of the coronavirus pandemic.
The bank’s insurance division also boosted profit by 6 per cent to $216-million, but wealth-management earnings fell 12 per cent to $562-million.
The bank’s capital levels improved as corporations paid down balances on credit lines that they had drawn early in the pandemic. RBC’s common equity Tier 1 (CET1) ratio increased to 12 per cent, from 11.7 per cent in the prior quarter, which was already the highest among the major Canadian banks. The CET1 ratio is an important measure of a bank’s ability to absorb losses and continue lending.
RBC is the third major bank to report earnings for the fiscal third quarter, after Bank of Nova Scotia and Bank of Montreal each posted sharper declines in quarterly profit on Tuesday, weighed down by higher-than-expected provisions for credit losses.
On Wednesday, National Bank of Canada also reported stronger results than analysts expected, with profit falling 1 per cent to $602-million year over year.
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.
