Royal Bank of Canada and National Bank post profits beaten by market strength, fewer provisions
TORONTO (Reuters) – Royal Bank of Canada and National Bank of Canada significantly exceeded third-quarter profit estimates on Wednesday, setting aside about half the money analysts expected to cover on receivables doubtful.
But executives at Canada’s largest bank, RBC, said on an analyst call that the lender is placing more emphasis on its bearish scenario to reflect “growing uncertainty over the performance of the economy. during the fall ”. This scenario assumes that unemployment in Canada will remain at around 10% until mid-2022, and that house prices will drop by 8% and remain depressed until mid-2023.
RBC and National Bank have set aside C $ 675 million (C $ 512.3 million) and C $ 143 million respectively in provisions, including on performing loans in anticipation of an increase in delinquencies as government programs and customer support are aimed at helping customers affected by the coronavirus pandemic.
RBC also received a boost in its capital markets operations, which posted a 45% jump in earnings.
RBC and National Bank shares rose 2.1% in morning trading in Toronto, on track to hit their highest close in six months. The benchmark Toronto equities added 0.4%.
The lower-than-expected provisions of the two banks were attributable to their “significant reserve building” in the previous quarter, Credit Suisse analyst Mike Rizvanovic wrote in a note.
But the weaker performance of the Canadian banking activities of the two lenders, driven by larger-than-expected margin squeeze and higher provisions, raised fears of further challenges in the coming quarters.
RBC said about 70% of clients with deferred loans are in the Canadian banking industry, where active deferral balances represent 12% of the total loan portfolio. Most of them end in the fourth trimester. Deferred loans to National Bank represent 5.6% of its portfolio, the lender said.
Investors had speculated before the results were announced that the extensive and expanded aid programs that helped keep borrowers healthy likely contained loan write-downs at Canadian banks.
This also helped support capital levels, with RBC showing an increase in its Tier 1 capital ratio – a bank’s basic measure of capital – from the previous quarter to 12%, while the National Bank maintained its level of 11.4%. Both were above the regulatory requirement of 9%.
The Bank of Montreal also posted better-than-expected earnings on Tuesday, while the Bank of Nova Scotia missed estimates, weighed down by its activities in Latin America, which were hit by the coronavirus pandemic later than North America.
The Toronto-Dominion Bank and the Canadian Imperial Bank of Commerce report their results on Thursday.
($ 1 = 1.3176 Canadian dollars)
Reporting by Nichola Saminather; edited by Chizu Nomiyama and Grant McCool