RBC posts record annual profit while cutting corporate loans

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Royal Bank of Canada showed it can defy expectations even while being more selective in lending.

The country's second-largest bank posted record profit of C$11.5 billion ($7.57 billion) for the fiscal year ended Oct. 31 despite shrinking its corporate-loan book to its lowest level in more than two years. Royal Bank has taken a step back in corporate lending after spending the first half of the decade pushing to gain more large clients.

Total corporate loans dropped to C$83 billion, down from a peak of C$89.7 billion in the first quarter of 2016 and the lowest since the third quarter of 2015, according to financial results posted Wednesday. Average balances of corporate loans have declined for seven straight quarters.

A weakening greenback relative to the Canadian currency explains part of the decline, because some of RBC's corporate loans are in U.S. dollars, Chief Financial Officer Rod Bolger said in a phone interview. But the bank is also being more discriminating, he said.

The Royal Bank of Canada logo is reflected on a surface in Toronto.

"We also have focused on ensuring that we are achieving the relationships with those lending customers that we expected to achieve vis-a-vis advisory, underwriting and other relationship revenues," Bolger said.

Royal Bank's 2018 forecast includes a "plan to grow the capital markets loan book at a modest pace with an increased focus on higher fee-based revenue," the company said in a presentation on its website. The bank also expects "double-digit" loan growth at its City National U.S. banking operation, and "mid-single-digit" mortgage growth in Canadian banking for next year.
'Solid Quarter'

The bank's capital-markets unit tripled lending to its largest corporate clients between 2010 and its 2016 peak, giving it an edge in winning other business including arranging stock sales and advising on takeovers. Such loans help companies bolster balance sheets, expand operations and finance acquisitions.

Royal Bank posted C$584 million of earnings for its capital-markets business in the fourth quarter, up 21 percent from a year earlier, helped by lower provisions for credit losses and higher recoveries. Lower provisions also contributed to earnings gains in personal-and-commercial banking and wealth management as the Toronto-based lender reported profit that topped analysts' estimates.

Royal Bank shares rose 0.9 percent to C$101.31 at 10:14 a.m. in Toronto, boosting this year's advance to 11 percent.

"A solid quarter," Robert Sedran, a CIBC Capital Markets analyst who rates the stock as outperform, said in a note. "Key revenue lines came in ahead of expectations and loan losses found a new trough."

Royal Bank anticipates an uptick in provisions next year as it adopts the IFRS 9 accounting standards, Bolger said. Still, if the economy and employment remain strong, he expects 2018 provisions "comparable to these levels, plus or minus a few basis points."

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