TORONTO, May 26 (Reuters) - Royal Bank of Canada and
Toronto-Dominion Bank on Thursday reported
second-quarter profits that beat estimates, as provisions for
credit losses (PCLs) improve at most Canadian banks, while
Canadian Imperial Bank of Commerce (CIBC) posted the
lone miss on the earnings front as its PCLs rose.
Royal Bank, Canada's largest lender, reported higher profit
in the three months ended April 30 from a year earlier,
exceeding estimates. TD, the second-biggest Canadian bank,
posted lower profit but still beat expectations.
CIBC's profit fell and it slightly missed estimates, with
the bank attributing its 847% surge in PCLs to both its
acquisition of the Canadian Costco credit card portfolio as well
as unfavorable changes in the economic outlook.
TD shares were up 2.7% at C$96.32 in morning trading in
Toronto. Royal Bank shares rose 0.5% to C$129.14. CIBC fell 1.3%
to C$69.24. The broader Toronto share index rose 1%.
Canadian banks' broad improvements in PCLs have raised
questions from analysts concerned about their seemingly sanguine
response to the emergence of economic uncertainties, high
inflation and geopolitical risks.
Royal Bank executives said the bank has increased the
severity and likelihood of its downside economic scenarios.
But "given low unemployment, rising wages and elevated
liquidity, we believe the key ingredients are in place to help
mitigate any sustained slowdown," said Dave McKay, chief
executive officer at Royal Bank, which recovered C$342 million
of PCLs in the quarter.
TD took provisions of C$27 million, versus the expected
C$237 million. Excluding that impact, its adjusted earnings were
almost 11% higher than a year earlier.
TD Chief Financial Officer Kelvin Tran told Reuters that
while the risk of an economic slowdown has increased, customers
continue to pay down loans and deposits continue to grow, albeit
at a slower rate than during the coronavirus pandemic.
On Wednesday, Bank of Nova Scotia and Bank of
Montreal also reported better-than-expected profits
driven by lower PCLs.
Alongside improving provisions, strength in lending books
and fees has continued to lift Canadian lenders' earnings, but
they are also seeing increased expenses due to tight labor
markets and inflation.
Loan growth helped CIBC post a 7% increase in adjusted
earnings excluding taxes and provisions from a year earlier.
Executives said consumers remain prudent in managing debt
despite higher costs.
At RBC, excluding the impact of taxes and loan-loss
provision releases, earnings fell 2% as lower revenues from its
capital markets business outweighed strength in wealth
management and lending.
That weighed on revenue, which dropped 3%, even as expenses
excluding variable compensation rose 7%.
CIBC's adjusted expense growth of 11% outpaced a revenue
increase of 9%. Its capital markets business also faced
challenges, although that was driven more by a decline in
investment banking fees while trading remained strong.
While TD had an adjusted expense increase of 5% from a year
ago, its revenue rose 8% thanks to higher loan volumes and fees.
($1 = 1.2818 Canadian dollars)
(Reporting By Nichola Saminather in Toronto; Additional
reporting by Manya Saini and Niket Nishant in Bengaluru; Editing
by Shailesh Kuber, Chizu Nomiyama and Paul Simao)