The Canadian banks’ wealth-management divisions stood out for producing strong earnings in the first quarter (Q1) of fiscal 2017, according to a new report from DBRS Inc.
“Higher client activity, increased consumer confidence, market volatility and appreciation all contributed to higher average assets under management, resulting in higher management and trading fees,” the credit-rating agency’s report says.
In addition, the banks’ capital markets divisions also delivered strong results in fiscal Q1, the report says, as business confidence improved during the quarter.
Notably, both Royal Bank of Canada and Canadian Imperial Bank of Commerce reported capital markets net income growth of more than 30%, quarter-over-quarter.
“These large gains can be primarily attributed to higher corporate banking income, debt and equity issuance, equity and derivative trading and lower loan losses in the commercial banking portfolio, particularly in the oil and gas sector,” the DBRS report states.
Overall, average net income increased by 25.4% from the previous quarter, and average earnings improved by 36.9% year-over-year. Asset quality also improved for all of the banks, the DBRS report says, “primarily as a result of improvements in the energy sector.”
In addition, the banks’ capital positions improved, the report says. It notes that the average common equity Tier 1 ratio increased by 50 basis points (bps) quarter-over-quarter and by 110 bps year-over-year, “reflecting strong internal capital generation and favourable pension accounting changes, partially offset by increased risk-weighted assets.”
Looking ahead, modest economic growth is expected in Canada for the rest of 2017, “although this may change given the strong economic performance during this quarter,” the DBRS report says.
“The level of growth remains largely contingent on a number of external factors, including the strength of the U.S. economy, the stability of the Canadian housing market, the price of oil and the overall strength of the Canadian dollar,” the report says. “Furthermore, the full effects from the regulatory changes designed to cool the housing market remain to be seen.”
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