RBC, TD see business loans surge as mortgage growth plateaus

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A surge in business loans at Royal Bank of Canada and Toronto-Dominion Bank is helping lessen the sting of a mortgage slowdown.

Royal Bank’s balances from Canadian business lending rose 22% to C$97.2 billion ($75.6 billion U.S.) in the fiscal second quarter from a year earlier, the Toronto-based lender said Thursday. Growth in that area, along with a 25% jump in wealth-management earnings, helped Royal Bank post profit that beat analysts’ estimates. Toronto-Dominion’s business loans in its Canadian retail division climbed 9.8% to C$71.8 billion.

"We’ve been quite focused on making sure that we have the best business bankers,” Toronto-Dominion Chief Financial Officer Riaz Ahmed said in a phone interview. “We have focused on a number of areas where we have been under-represented, including markets outside of Ontario, agriculture, dealer financing, leasing, etc."

Canadian banks have seen growth in domestic business lending while mortgage growth has cooled as tougher mortgage qualification rules, elevated housing prices and overextended borrowers weigh on demand. The country’s business leaders are showing positive sentiment supported by healthy sales prospects even with evidence of capacity and labor pressures from recent strong demand, according to Bank of Canada’s latest survey on the topic.

Domestic business loans at Royal Bank have accelerated at a pace exceeding 12% since the second quarter of 2017, while residential mortgages have hovered around 5%. Home loans comprise about 55% of Royal Bank’s total Canadian lending portfolio compared with 21% for business loans. Toronto-Dominion has seen at least six quarters of business loan growth above 8%.

“Notwithstanding monetary tightening and regulatory changes that affected some homeowners, we continued to see solid mortgage volume growth this quarter,” Royal Bank CEO David McKay said on a call with analysts. “We also saw momentum continue in business lending as the result of our focus on growing a commercial client base."

Financial firms have been anticipating a slowdown in home lending, with Canadian Imperial Bank of Commerce on Wednesday reporting the slowest growth in three years. Royal Bank’s Canadian mortgage book rose 5%, a similar pace from prior quarters. Toronto-Dominion’s edged up 1.2%, though growth including amortizing home-equity loans climbed 5.9%.

Here’s a summary of RBC and TD results:

Royal Bank said net income for the period ended April 30 rose 9% to C$3.06 billion, or C$2.06 a share, from C$2.81 billion, or C$1.85, a year earlier. Adjusted profit, which excludes some items, was C$2.10 a share, the bank said. That beat the C$2.05 average estimate of 14 analysts surveyed by Bloomberg.

Toronto-Dominion’s net income rose 17% to C$2.92 billion, or C$1.54 a share, from C$2.5 billion, or C$1.31, the lender said in a separate statement. Adjusted profit was C$1.62, exceeding the C$1.50 average estimate of 13 analysts surveyed by Bloomberg.

Earnings from Toronto-Dominion’s U.S. retail division, which includes its stake in TD Ameritrade, increased 16% to C$979 million. Profit at Royal Bank’s wealth-management division, which includes Los Angeles-based City National Bank, jumped 25% to C$537 million.

Bloomberg News