Royal Bank Quarterly Earnings Rise Even as Loan-Loss Provisions Climb -- Update

Published: 2025-05-29 07:49:08 ET BMO.TO

Published on 05/29/2025 at 07:49

By Robb M. Stewart

Royal Bank of Canada saw a jump in earnings in the latest quarter thanks to the addition of HSBC's local operations and strength in its wealth management business, though like Canada's other big lenders it is bracing for the fallout from President Trump's trade war.

The bank, the country's largest by market value and one of the biggest in North America, continued to set aside more money against the risk of loans defaulting as its macroeconomic projections and scenarios deteriorate.

Still, with a strong capital position, Royal Bank boosted its quarterly dividend and laid out plans to buy back shares--echoing moves by several of its peers to also raise shareholder payouts.

Royal Bank recorded second-quarter net income of 4.39 billion Canadian dollars ($3.17 billion), or C$3.02 a share, for the three months to April 30, against C$3.95 billion, or C$2.74, a year earlier. Earnings rose across most of the bank's operations, and included a C$258 million boost from HSBC Canada.

Excluding items related to the HSBC acquisition and other measures, adjusted per-share earnings came in at C$3.12, shy of the C$3.18 mean forecast of analysts polled by FactSet.

Royal Bank's overall revenue increased 21% to C$15.67 billion, however the Toronto-based bank's provision for credit losses was up C$374 million on the quarter before and increased C$504 million year-over-year to C$1.42 billion. That was greater than the C$1.08 billion expected by analysts.

For loans considered impaired, the provision increased 27% on a year earlier due mainly to allowances in the commercial banking operations. The provision for loans still in good standing was raised C$324 million from last year, a signal the economic outlook has deteriorated and requires greater reserves against the risk of default in the future.

The provisions match moves by the other banks in the country. Royal Bank said the provision against performing loans was mainly driven by unfavorable changes to its macro forecast to reflect the potential affects of trade disruptions, including tariffs.

Even as the risk of mortgage stress has subsided thanks to seven interest rate cuts through March, households and businesses have become spooked by concerns over the fallout from the Trump administration's trade policies and higher import levies, prompting many to scale back spending and investment plans. The housing market in particular has weakened in recent months as prospective buyers have moved to the sidelines thanks to worries about job security and price pressures as tariffs and reciprocal measures imposed by Ottawa work through the economy.

Royal Bank said America's international trade policy had weakened the growth outlook across most advanced economies. Assuming the Trump administration's sweeping tariffs and retaliatory measures by Canada and other countries remain through the rest of 2025 before easing, it expects slower growth in the U.S. and Canada than last year and a rising in consumer prices, particularly in the U.S.

Canadian Imperial Bank of Commerce, which with Royal Bank on Thursday rounded out earnings season for Canada's Big Six lenders, similarly said the continuing global trade war meant a more challenging environment for economic activity in Canada and abroad. It too expects that will lead to slower growth or outright downturns in many countries in the short term, as well as higher inflation. For Canada, it anticipates some progress to reduce some of the sector-specific tariffs already imposed or that Trump has proposed, but expects U.S. tariffs on Canada to end up at higher levels than prevailed in recent decades.

CIBC's second-quarter provision for credit losses increased to C$605 million in the latest quarter, from C$573 million the quarter before and C$514 a year earlier. That was slightly higher than the C$598 million provision expected by analysts.

Still, the bank's net income for the quarter rose to C$2 billion, or C$2.04 a share, from C$1.74 billion, or C$1.79, a year earlier. On an adjusted basis, per-share earnings came in at to C$2.05, beating the C$1.88 mean estimate of analysts polled by FactSet. CIBC's revenue was up 14% at C$7.02 billion

The two banks, like Canada's other large banks, continue to maintain capital ratios well above the minimums set by the industry regulator in Canada. In Royal Bank's case, it ended the second quarter with a common equity Tier 1 ratio of 13.2%, steady on the prior quarter.

Royal Bank said it was raising its quarterly dividend by 4% to C$1.54 and plans to buy back up to 35 million of its shares for cancellation. The new payout, equal to C$6.16 a year, represents an annual yield of about 3.45% based on Wednesday's closing price for its shares.

This week, National Bank's board approved a 3.5% increase in the quarterly dividend to C$1.18 a share. Bank of Montreal raised its payout 2.5% to C$1.63 a share, and Bank of Nova Scotia bumped up its dividend on outstanding shares by 3.8% to C$1.10 a share.

In March last year, Royal Bank finalized a $10.1 billion deal to buy the Canadian assets of HSBC, bolstering its personal and commercial banking operations and adding roughly and 780,000 clients.

Write to Robb M. Stewart at [email protected]

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05-29-25 0748ET