RBC's profit jumps to $4.3-billion on reversal in loan-loss provisions, gains at banking units - The Globe and Mail

A Royal Bank of Canada branch, in Halifax, on April 2, 2019.

Andrew Vaughan/The Canadian Press

Royal Bank of Canada’s third-quarter profit soared to $4.3-billion, driven by a huge reversal in loan loss provisions and strong results from retail and investment banking.

The Toronto-based bank is the third major lender to report earnings that beat analysts’ expectations, after Bank of Nova Scotia and Bank of Montreal reported larger quarterly profits on Tuesday.

In the fiscal quarter that ended July 31, RBC earned $2.97 per share. In the same quarter last year, the bank reported profit of $3.2-billion, or $2.20 per share.

Adjusted for certain items, RBC said it earned $3.00 per share, compared to an average estimate of $2.71 among analysts, according to Refinitiv.

RBC recovered $540-million of provisions for credit losses, which are the funds banks set aside to cover loans that could default. The bank took $146-million in new provisions for loans that are past due, but also reclaimed $638-million that had previously been earmarked against possible losses.

Defaults and writeoffs have been much lower than the bank once feared in the early months of the COVID-19 pandemic, and the bank is now reducing the massive reserve it built up against losses as economic forecasts improve.

With growth in loans in sharp focus this quarter as a measure of the economic recovery, RBC’s average loan balances increased 8 per cent year-over-year. But that was largely driven by a 12.9-per-cent increase in mortgages as housing markets have been busy.

Business loans rose 2.5 per cent from the same quarter last year, but credit card balances are still down 2.4 per cent year-over-year.

That still helped push profit from commercial and personal banking to $2.1-billion, up 55 per cent year-over-year, which also benefitted from lower loan loss provisions.

The bank’s capital markets arm had its best quarter of revenue from investment and corporate banking, even as trading returns dipped from a high point last year, and capital markets profits increased 19 per cent to $1.1-billion.

Wealth management profits were up 31 per cent, as assets that earned fees increased, and profits from insurance as well as investor and treasury services also increased year-over-year.

The bank kept its quarterly dividend unchanged at $1.08 per share, as Canada’s banking regulator has temporarily prohibited dividend hikes or share buybacks.

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RBC's profit jumps to $4.3-billion on reversal in loan-loss provisions, gains at banking units - The Globe and Mail
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