Royal Bank, National Bank post profit beat on fewer provisions
Royal Bank of Canada and National Bank of Canada comfortably beat estimates for third-quarter profit on Wednesday as they set aside about half the money analysts had expected to cover bad loans.
But executives at Canada’s biggest bank RBC said on an analyst call that the lender is putting greater emphasis on its downside scenario to reflect the “increasing uncertainty about how the economy will perform through the fall.” That scenario assumes Canadian unemployment will remain at around 10 per cent until mid-2022, and home prices will decline eight per cent and remain depressed until mid-2023.
RBC and National Bank set aside $675 million and $143 million in provisions respectively, including on performing loans in anticipation of higher delinquencies as government and customer support programs aimed at helping clients hurt by the coronavirus pandemic wind down.
RBC also received a boost from its capital markets business, which posted a 45-percent jump in earnings.
Both banks’ smaller-than-expected provisions were attributable to their “sizable reserve build” in the previous quarter, Credit Suisse analyst Mike Rizvanovic wrote in a note.
But the weaker performance of both lenders’ Canadian banking businesses, driven by more margin compression than anticipated and higher provisions, raised concerns about more challenges in future quarters.
RBC said about 70 per cent of customers with deferred loans were in Canadian banking, where active deferral balances accounted for 12 per cent of the total loan portfolio. Most of these wind down in the fourth quarter. Deferred loans at National Bank account for 5.6 per cent of its portfolio, the lender said.
On Tuesday, Bank of Montreal also posted better-than-expected earnings, while Bank of Nova Scotia missed estimates, weighed down by its Latin American business, which was hit by the coronavirus pandemic later than North America.