Royal Bank of Canada (RY.TO) and National Bank of Canada (NA.TO) both comfortably beat analysts’ expectations for third-quarter profit on Wednesday, driven primarily by the release of provisions set aside to cover bad loans.
And while growth in earnings excluding the impact of provisions was muted compared with the second quarter, they rose strongly from a year ago and were better than expected as growth in lending offset margin challenges, and strong investment banking performance compensated for weaker trading divisions.
With the outsized impact of provisions for credit losses (PCLs) on earnings expected to fade in coming quarters, markets are focused on loan growth and fee revenues to determine the future health of Canadian banks.
Royal Bank, Canada’s biggest lender by market value, had pre-tax pre-provision (PTPP) earnings of C$5 billion ($3.96 billion), up 6% from a year ago but down 1% from the prior quarter. PTPP earnings at National Bank, the smallest of the country’s Big Six lenders, were C$1 billion, 15% higher than a year earlier and flat on the previous quarter.
Analysts expected PTPP earnings across the country’s biggest lenders would fall about 1% from the second quarter.
On Tuesday, Bank of Montreal and Bank of Nova Scotia both beat estimates, with the former also posting strong PTPP earnings growth, while the latter’s performance was driven almost entirely by lower PCLs.
Royal Bank and National Bank benefited from strength in their personal and commercial banking and wealth management divisions, which posted double-digit year-on-year growth. Their capital markets divisions made strong showings, thanks largely to improved provisions and contributions from investment banking. Royal Bank said it saw record investment banking revenue.
Royal Bank reported adjusted earnings of C$3 a share, up from C$2.23 a year earlier, beating analysts’ estimates of C$2.71.
National Bank had adjusted income of C$2.36 per share, versus C$1.66 a year earlier. Analysts had expected C$2.13
($1 = 1.2623 Canadian dollars)