Royal Bank Earnings Top Expectations Despite Jump in Credit-Loss Reserves

By Robb M. Stewart

Royal Bank of Canada logged stronger-than-expected first-quarter earnings with a drop in taxes, which more than offset a jump in credit-loss provisions and weaker income across much of its business

The bank, the country's largest by market value, recorded net income of 3.58 billion Canadian dollars ($2.65 billion), or C$2.50 a share, for the three months to Jan. 31, up from C$3.13 billion, or C$2.23, a year earlier. The year-ago quarter included the C$1.05 billion impact of the federal government's Canada Recovery Dividend on the country's big banks.

On an adjusted basis, per-share earnings came in at C$2.85, ahead of the C$2.79 mean estimate of analysts polled by FactSet.

Total revenue was up 6.3% to C$13.49 billion, just missing the C$13.45 billion expected by the market.

The performance came as Canada's biggest banks faced a number of continuing headwinds, including high interest rates that have weighed on consumer and business spending and lifted borrowing costs and sluggish economic growth. Unemployment has also been ticking higher over the last year, though the country continues to add jobs, albeit at a pace that lags population growth.

Royal Bank's quarter was dented by a sharp rise in its credit-loss reserve, which increased 53% year-over-year to C$813 million, compared with a C$725 million provision for credit losses expected by analysts.

The rise reflected higher provisions in personal and commercial banking and Royal Bank's capital markets arm, partially offset by lower provisions in wealth management, it said. Royal Bank's credit-loss provision on impaired loans increased by C$328 million, which it said was due to increases in its Canadian banking portfolios and in capital markets, mainly for real estate and related activity.

The bank said its earnings before provisions and tax were down on a year earlier, thanks mainly to higher expenses and lower capital markets revenue with lower trading activity. Income for the quarter was lower for the bank's personal and commercial banking division, wealth management operation and its capital markets business, but was up in its insurance business.

The bank said it capital position remained strong, with a common equity tier 1 ratio of 14.9%, ahead of the regulatory requirement.

Write to Robb M. Stewart at robb.stewart@wsj.com

(END) Dow Jones Newswires

February 28, 2024 06:39 ET (11:39 GMT)

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