Royal Bank, BMO brace for fallout
Royal Bank of Canada and Bank of Montreal joined their Canadian peers in setting aside record provisions for loan losses as they brace for the economic fallout from the coronavirus pandemic.
Royal Bank, Canada’s largest lender by assets, earmarked $2.83 billion in the fiscal second quarter for souring debt, the highest among the Canadian banks that have reported so far, while Bank of Montreal put aside $1.12 billion. Both Toronto-based firms reported earnings Wednesday that missed analysts’ estimates.
The two lenders follow Bank of Nova Scotia and National Bank of Canada in posting higher provisions for credit losses to brace for the aftershocks from plunging oil prices and a pandemic that has caused a near economic standstill, with the set-asides cutting into earnings across the banks in the three months through April 30.
Royal Bank’s provisions contributed to a 54-per-cent decline in net income and hurt earnings throughout its key operations. Canadian personal and commercial banking, the lender’s largest division and biggest profit generator, saw earnings plunge 56 per cent as set-asides more than tripled to $1.51 billion. Earnings in the company’s capital-markets division, the largest among Canada’s big banks, plunged 86 per cent after the firm earmarked more than $1 billion for bad loans.
Royal Bank “appears to be the most conservative in its reserving for Covid-19 related credit losses ...,” Barclays Plc analyst John Aiken said in a note to clients Wednesday.
“A conservatism, a strength, a diversification and an earnings capability position us well to withstand the uncertainty and turn around and exit this a stronger bank and a bank that can take advantage of the opportunity that will present itself in the future,” Royal Bank chief executive Dave Mckay told analysts Wednesday.
At Bank of Montreal, Canada’s fourth-largest lender, higher provisions also contributed to 54-per-cent decline in net income, with the set-asides weighing on results across its operations.
Canadian banking, the largest division, saw a 41-per-cent earnings decline as provisions more than tripled to $497 million.
“The strength and resilience of our overall diversified business model has been tested, and we are performing well through these challenges,” CEO Darryl White said Wednesday on a conference call with analysts.