RBC sees profit rise in Q3 as credit quality outperforms peers

Royal Bank of Canada reported a jump in earnings in the third quarter that handily beat analyst expectations as it had only a modest increase in money set aside for potentially bad loans while revenue rose.

The bank reported a third-quarter profit of $4.49 billion, up from $3.86 billion a year earlier.

RBC says the addition of HSBC Bank Canada increased its net income by $239 million for the quarter.

On an adjusted basis, RBC says it earned $3.26 per diluted share, up from an adjusted profit of $2.83 per diluted share a year ago.

Earnings were well above the average of $2.97 per share that analysts had expected, according to LSEG Data & Analytics.

“While there’s a higher degree of geopolitical uncertainty and volatility, our diversified businesses are well positioned for the macro driven shifts in the operating environment,” said chief executive Dave McKay on an earnings call Wednesday.

Revenue totalled $14.63 billion, up from $12.98 billion a year ago, while the bank’s provision for credit losses for the quarter amounted to $659 million, up from $616 million in the same quarter last year.

While the bank set aside more money in total, the proportion of loans under provision fell 0.02 percentage points from last year and 0.14 percentage points from the previous quarter.

The 0.27 per cent of loans the bank is concerned about was well under the 0.38 per cent expected by analysts, helping lead to the strong earnings beat.

“Credit was a standout for Royal, with provisions coming in well below expectations,” said Jeffries analyst John Aiken in a note.

The credit performance is in sharp contrast to some other banks that have reported so far, such as BMO, where worsening provisions weighed heavily on results.

RBC however not only beat on credit, it saw higher interest income from its retail banking unit and a rise in wealth management earnings from revenue growth.

RBC said its personal and commercial banking operations earned $2.49 billion, up from $2.13 billion in the same quarter last year.

The bank’s wealth management arm earned $862 million, up from $663 million a year earlier, while its insurance business earned $170 million, down from $215 million in the same quarter last year.

RBC’s capital markets business earned $1.17 billion in its latest quarter, up from $949 million a year ago.

The bank’s corporate support group lost $208 million in the quarter compared with a loss of $101 million in the same quarter last year.

This report by The Canadian Press was first published Aug. 28, 2024.