TORONTO (Reuters) – The Royal Bank of Canada and the National Bank of Canada beat analysts’ expectations for third-quarter earnings on Wednesday, mainly due to the release of NPL reserves.
Profit excluding provisions for both banks rose year-on-year, but analysts viewed Royal Bank’s results more positively as they were driven by higher fees and commission income and lower costs. At the National Bank, a decrease in net interest income and an increase in expenses somewhat diminished the benefit from higher fees.
Both banks have benefited from increased income in their personal and commercial banking divisions as increased lending compensated for margin problems. The more modest results from their wealth management and capital markets business were largely expected, although the National Bank disappointed more than Royal Bank.
Bank of Montreal and Bank of Nova Scotia both beat forecasts on Tuesday, with the former also showing strong growth in profit before tax (PTPP), while the latter was driven almost entirely by declining loan loss provisions (PCL). …
Royal Bank shares rose 1.2% to C $ 133.60 in Toronto morning trading, awaiting a record close, while National Bank shares fell 0.7% to C $ 99.05. The Toronto stock index was unchanged.
The undue positive impact on earnings from the release of reserves previously set aside to cover problem loans is expected to fade in the coming quarters, and markets focus on loan growth and fee income to determine the future health of Canadian banks.
PTPP’s profit at Royal Bank, Canada’s largest lender by market value, rose 6% year-over-year, but fell 1% quarter-on-quarter. The PTPP profit of the National Bank, the smallest of the country’s Big Six lenders, was 15% higher than a year earlier, but unchanged from the previous quarter.
Analysts had expected PTPP earnings from the country’s largest lenders to fall by about 1% from the second quarter.
While both banks issued loan loss provisions as impairment remained low, Royal Bank was somewhat cautious.
“While the uncertainty surrounding the pandemic has eased … uncertainty remains heightened due to the rise in delta COVID-19 cases,” Graham Hepworth, chief risk officer at Royal Bank, said by phone.
He added that as a result, provisions for impaired loans are expected to exceed the bank’s long-term average in 2022, but this is expected to be offset by issuance on existing loans.
Royal Bank reported adjusted earnings of C $ 3 per share, up from C $ 2.23 a year earlier, beating analysts’ estimates of C $ 2.71.
The National Bank’s adjusted earnings were CAD 2.36 per share versus CAD 1.66 per share a year earlier. Analysts had expected it to be C $ 2.13.
Reporting by Noor Zainab Hussein in Bangalore and Nikolay Saminater in Toronto; Edited by Amy Karen Daniel, Steve Orlofsky and Jonathan Oatis