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May 26, 2022

RBC hikes dividend, posts profit gain as COVID-19 risks recede

Royal Bank of Canada RY-T +0.15%increase reported higher second-quarter profit and raised its quarterly dividend as the bank sees risks related to the COVID-19 pandemic receding, which allowed it to claw back hundreds of millions of dollars in loan loss provisions.

RBC is the fourth major bank to report earnings for the fiscal second quarter, which ended April 30, joining Bank of Nova Scotia BNS-T +1.23%increase and Bank of Montreal BMO-T +1.93%increase in exceeding analysts’ profit expectations. Canadian Imperial Bank of Commerce CM-T -1.46%decreasefell shy of estimates on Thursday, in part because of costs incurred from an acquisition of a credit card portfolio.

In the quarter, RBC earned $4.25-billion, or $2.96 per share, compared with $4-billion, or $2.76 per share, in the same period last year.

On an adjusted basis, RBC said it earned $2.99 per share, far above the consensus estimate of $2.71, according to Refinitiv.

RBC raised its quarterly dividend by eight cents per share, or 7 per cent, to $1.28.

Provision for credit losses, which are the funds banks set aside to cover loans that could default, played a large role in RBC’s rising earnings. The bank had a net recovery of $342-million in provisions in the second quarter, whereas analysts had estimated it would add $223-million to reserves, according to Refinitiv.

RBC said that was “mainly driven by reduced uncertainty relating to the COVID-19 pandemic.” But it tempered its reserve releases because of what it called “increased downside risk, including rising inflation and interest rates.”

The bank’s revenue fell 3 per cent to $11.22-billion in the quarter, while expenses increased 1 per cent to $6.43-billion.

In RBC’s core personal and commercial banking division, profit of $2.24-billion was up 17 per cent, but driven mainly by lower loan loss provisions.

Wealth management profit rose 10 per cent, as the division increased sales and assets appreciated.

But capital markets profit fell 26 per cent year over year, as lower revenue from fixed income and equity trading was compounded by lower corporate and investment banking revenue and higher provisions for credit losses.

The bank maintained strong capital levels, with a common equity Tier 1 (CET1) ratio of 13.2 per cent – down from 13.5 in the previous quarter but still far above regulatory minimums.

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