RBC beats profit estimates on higher interest income

Adjusted profit came in at C$4.07 billion, or C$2.85 per share, for the three months ended Jan. 31.

Royal Bank of Canada on Wednesday beat analysts’ estimates for quarterly profit as higher interest rates helped the bank earn more on its interest-bearing assets.

Still, Canada’s top lender set aside more funds to cover for potentially souring loans in an uncertain economy highlighting economic uncertainties ahead.

Canadian households are feeling the squeeze of higher interest rates and high costs of living since the Bank of Canada began a series of rate hikes to curb inflation.

It has fuelled concerns of outsized credit losses and dampened loan growth, a big worry for banks, which last year set aside C$3.54 billion in reserves.

However, higher rates generate more income for the banks that bring in interest on mortgages and other loans.

RBC’S total provisions for credit losses increased to C$813 million, or 53 per cent, from a year ago.

Net interest income, the difference between the interest banks earn on loans and pay out on deposits, rose 2.1 per cent.

Adjusted profit came in at C$4.07 billion, or C$2.85 per share, for the three months ended Jan. 31, above analysts’ C$2.80 per share, according to LSEG data.

KBW analyst Mike Rizvanovic noted that the beat was also driven by strong results in its capital markets unit, which he expects to moderate in the coming quarters.

RBC’S quarterly earnings come a day after peers Bank of Montreal and Bank of Nova Scotia said they built bad loan allowances and warned of muted growth until the central bank begins rate cuts.

The regional banking crisis south of the border has put some strain on City National Bank, a lender known for its Hollywood clientele that RBC bought in 2015, forcing its parent to inject fresh capital, cut nearly 100 jobs and make management changes.

The bank said City National’s operational infrastructure remains a top priority.