RBC tops forecasts as loan-loss provisions decline, costs fall – The Globe and Mail

Royal Bank of Canada’s profit rose modestly in the fiscal fourth-quarter, as the bank set aside less money to cover potential loan losses and clamped down on costs.

The bank’s earnings were stronger than expected, bolstered in part by a surge in returns from capital markets. But as with two rival banks that also outperformed analysts’ expectations on Tuesday, a decline in provisions for credit losses – the money banks set aside to cover loans at risk of defaulting – was the driving force.

For the three months that ended Oct. 31, RBC earned $3.25-billion, or $2.23 per share, compared with $3.21-billion, or $2.18 a share, in the same period a year earlier.

Adjusted for certain items, RBC said it earned $2.27 per share, well ahead of the consensus estimate of $2.05 per share among analysts, according to Refinitiv.

The bank kept its quarterly dividend unchanged at $1.08 per share, in keeping with restrictions imposed by regulators that temporarily prevent banks from raising payouts.

RBC’s 1-per-cent bump in earnings marked the first time its quarterly profit has risen, compared with a year earlier, since the start of the coronavirus pandemic. But the bank’s full-year profit of $11.44-billion was down 11 per cent – the first annual decline since the global financial crisis in 2009.

In the fourth quarter, RBC reported $427-million in provisions for credit losses, which was down 21 per cent from the same quarter last year, and 37 per cent from the previous quarter this year. It was also far shy of the $774-million analysts expected, according to Refinitiv.

Over the same span, the balance of loans with deferred payments – a measure of relief banks offered to clients struggling amid the pandemic – fell to $10.5-billion, from $62.8-billion as of July 31.

Quarterly revenue of $11.1-billion fell 2.4 per cent, but that decline was more than offset by a 4-per-cent drop in expenses, which were just shy of $6.1-billion.

Low interest rates compressed lending margins, which contributed to a 7-per-cent decline in profit from RBC’s retail banking division, to $1.5-billion.

But profit from the bank’s capital markets division was up 44 per cent to $840-million.

“There is very little to complain about in [RBC’s] earnings,” said John Aiken, an analyst at Barclays Capital Canada Inc., in a note to clients.

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