The chief risk officer at Royal Bank of Canada says the money the bank sets aside for potential loan losses is expected to remain elevated for the next few quarters as trade tensions persist, even as the economy shows signs of resilience.
“In the ongoing uncertainty this quarter, we have maintained our prudent posture and retained the elevated weightings to our downside scenarios in line with last quarter,” Graeme Hepworth told analysts on a conference call Wednesday to discuss RBC’s third-quarter results.
RBC’s provision for credit losses for the period reached $881 million, up from $659 million a year earlier. “We continue to expect PCL and impaired loans to remain elevated for the next few quarters, potentially offset by releases and performing allowances as credit outcomes improve,” Hepworth said. The outlook will depend on the duration of U.S. tariffs, potential fiscal support, and the performance of labour markets, interest rates, and real estate prices.
RBC Wealth Management reported net income of $1.1 billion, up $147 million or 15% from last year, while capital markets profit was $1.3 billion, up $156 million or 13%. The increases were driven by higher fee-based client assets reflecting market appreciation and net sales, as well as higher net interest income from volume growth in deposits and wider spreads.
As of July 31, RBC’s total wealth management business had $4.8 trillion in assets under administration (up from $4.4 trillion a year earlier) and $1.4 trillion in assets under management (up from $1.3 trillion).
Earlier Wednesday, Canada’s largest bank by market capitalization reported a third-quarter profit of $5.4 billion, up from $4.5 billion a year earlier. The profit amounted to $3.75 per diluted share, compared with $3.09 per share a year ago.
Adjusted earnings of $3.84 per share beat the average analyst estimate of $3.32, according to LSEG Data & Analytics. Revenue totaled $16.99 billion, up from $14.63 billion. RBC shares jumped almost 6% in afternoon trading on the TSX to $201.68.
During the quarter, the bank’s commercial banking division reported net income of $836 million, up $19 million or 2%. “Overall, the commercial portfolio continues to be impacted by softer economic conditions and consumer spending in Canada,” Hepworth said. “Elevated impaired provisions over the last 12 months primarily reflect exposure to cyclical supply chain-related sectors like automotive, transportation, and industrial products, as well as consumer discretionary and real estate sectors, which have all been impacted by the high-rate environment and post-pandemic trends.”
The personal banking segment reported net income of $1.9 billion, up $352 million or 22%, while RBC Insurance earned $247 million, up $77 million or 45%.
Chief executive David McKay said the bank will closely monitor negotiations related to the Canada-U.S.-Mexico trade agreement.
“We encourage policy-makers on all sides to build on the foundational strengths of current trade agreements, which have provided significant benefits to all parties. Should current CUSMA-compliant goods largely maintain their qualified exemption to tariffs, Canada’s effective tariff rate should remain low, and the economy should remain resilient,” McKay said.
“However, as trade tensions extend, there may be persistent impacts, including declining consumer confidence, lower corporate profit margins, rising inflation, and softening labour markets across both the U.S. and Canada, with uncertain implications for monetary policy and capital flows.”