RBC, National Bank report higher profits. What to know

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Royal Bank of Canada on Wednesday beat analysts’ estimates for quarterly profit as higher interest rates helped the bank earn more on its interest-bearing assets.

Still, the lender set aside more funds to cover for potentially souring loans in an uncertain economy highlighting economic uncertainties ahead.

Canadian households are feeling the squeeze of higher interest rates and high costs of living since the Bank of Canada began a series of rate hikes to curb inflation.

It has fueled concerns of outsized credit losses and dampened loan growth, a big worry for the banks which last year set aside $3.54 billion in reserves.

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However, higher rates generate more income for the banks that bring in more interest on mortgages and other loans.

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“Results benefited from higher net interest income driven by solid volume growth, as well as higher fee-based client assets reflecting market appreciation,” the bank said in a statement.

RBC’s total provisions for credit losses increased to $813 million, or 53 per cent, from a year ago. Analysts had forecast $728.7 million, according to LSEG data.

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Net interest income, the difference between the interest banks earn on loans and pay out on deposits, rose 2.1 per cent.

Adjusted profit came in at $4.07 billion, or $2.85 per share, for the three months ended Jan. 31, above analysts’ $2.80 per share forecast, but below $4.26 billion or $3.04 per share, a year ago.

The bank said it was impacted by $159 million special assessment fee by the U.S. Federal Deposit Insurance Corporation, which has charged banks a fee to replenish its deposit insurance fund drained by the collapse of Silicon Valley Bank and Signature Bank last year.

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The regional banking crisis south of the border has put some strain on City National Bank, a lender known for its Hollywood clientele RBC bought in 2015, forcing its parent to inject fresh capital, cut nearly 100 jobs and make management changes.

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The bank said City National’s operational infrastructure remains a top priority.

National Bank quarterly profit rises on financial markets unit strength

National Bank of Canada reported a higher first-quarter profit on Wednesday as robust performance at its financial markets unit cushioned the hit from an increase in loan loss provisions.

First-quarter revenue at the lender’s financial markets unit jumped 10 per cent to $755 million.

However, an uncertain economic environment and high borrowing costs have raised the threat of more borrowers falling behind on their loan repayments, prompting lenders to set aside bigger rainy-day funds.

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Montreal-based National Bank’s provisions for credit losses in the first quarter rose to $120 million from $86 million.

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The windfall from high interest rates has also tapered off as banks pay out more on deposits to retain customers from chasing higher-yielding alternatives.

National Bank’s net interest income, or the difference between what banks earn on loans and pay out on deposits, fell 31.7 per cent to $751 million in the first quarter.

The bank’s net income rose to $922 million, or $2.59 per share, in the quarter, from $876 million, or $2.47 per share, a year earlier.

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