Royal Bank of Canada and Canadian Imperial Bank of Commerce posted higher second-quarter profits, lifted by gains in domestic consumer lending and a decline in provisions for bad loans.
Royal Bank, the country's largest lender by assets, said today in a statement that profit for the period ended April 30 rose 26 percent to C$1.94 billion ($1.88 billion), or C$1.27 a share, from C$1.53 billion, or 99 cents, a year earlier. Canadian Imperial raised its dividend after posting an 8 percent increase in profit to C$876 million, or C$2.12 a share, from C$811 million, or C$1.90, a year ago.
Both Toronto-based banks benefited from profit growth in domestic retail banking even as indebted Canadians reduce borrowing amid a consumer-lending slowdown. Royal Bank's domestic personal and commercial banking profit jumped 11 percent to C$1.04 billion from a year earlier, while CIBC's retail and business banking rose 8.6 percent.
"Retail banking earnings were better than expected on revenues," Andre-Philippe Hardy, an analyst at RBC Capital Markets, said in a note on CIBC's results. "Lower than expected provisions for credit losses and expenses also contributed to the better than expected retail earnings."
Royal Bank earned C$1.31 a share excluding some items, according to the statement, missing the C$1.32 average estimate of 12 analysts surveyed by Bloomberg. CIBC's adjusted profit was C$2.12 a share, the lender said, beating by five cents the average estimate of 14 analysts.
Royal Bank set aside C$288 million for bad loans, down 17 percent from a year earlier. CIBC, Canada's fifth-largest lender, reserved C$265 million in provisions, 14 percent less than the same period last year.
Royal Bank's results were also helped by contributions from buying out partner Banque Internationale a Luxembourg SA in their RBC Dexia Investor Services joint venture in July, and its Feb. 1 takeover of the Canadian auto-financing and deposit business of Ally Financial Inc.
Canadian banks, ranked the world's soundest for the past five years by the Geneva-based World Economic Forum, are facing a slowdown in domestic consumer lending as the housing market cools and Canadians are urged to curb borrowing.
Household debt rose to a record 165 percent of disposable income at the end of last year, according to Statistics Canada. The International Monetary Fund last month cut its 2013 growth forecast for Canada to 1.5 percent, the slowest among Group of 20 countries outside Europe and down from a 2 percent estimate in October.
Bank of Montreal yesterday reported results that included a 0.7 percent decline in domestic banking, hurt by higher costs and lower net interest margins. Toronto-Dominion Bank, Canada's second-largest lender, said May 23 that domestic consumer- banking profit rose 4.8 percent, while National Bank had a 1.8 percent increase in consumer lending. Bank of Nova Scotia reported a 19 percent surge in Canadian banking profit, aided by its C$3.1 billion takeover of ING Groep NV's Canadian operations.
Personal and commercial-banking profit at RBC, which included Caribbean banking, rose 12 percent to C$1.06 billion from a year earlier, helped by lower provisions and C$12 million of earnings from the Ally acquisition.
Investor and treasury services posted profit of C$67 million, compared with a year-earlier loss of C$121 million tied to costs from the RBC Dexia deal.
Insurance earnings rose 9.9 percent to C$166 million while wealth-management profit increased 6.1 percent to C$225 million. RBC Capital Markets, the firm's investment-banking unit, reported profit of C$386 million, up 4 percent from a year earlier.
"With wealth management and capital market performances lackluster, focus will be on retail banking, and domestic in particular, which is also not likely to be warmly received by the market," John Aiken, an analyst with Barclays Plc, said of RBC's results in a note to clients.
CIBC also reported gains in investment banking, with profit from its wholesale unit surging 51 percent to C$198 million. Wealth-management earnings rose 16 percent to C$92 million from a year ago.
CIBC raised its dividend 2.1 percent to 96 cents a share, joining Montreal-based National Bank of Canada as the only other lender in the quarter to raise its quarterly payout.
