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RBC reports $3.9B Q4 profit as it prepares for a more turbulent year ahead

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By Ian Bickis in Toronto

Royal Bank of Canada is taking measures to prepare for a more uncertain year ahead, but results from the past quarter still show gains in key areas like loans and new client additions.

The bank, which on Tuesday announced it had reached a deal to buy HSBC Bank Canada for $13.5 billion, said Wednesday it was raising its dividend for the last time until the deal is closed, while also announcing a two per cent discount on dividend reinvestments to help boost its balance sheet.

Given the potential slowdown ahead, the bank also set aside $381 million for potentially bad loans, compared with a reversal of $227 million last year, which offset gains elsewhere in the quarter to leave earnings of $3.88 billion just $10 million shy from a year earlier.

The actions on loan provisions and dividend discounts come as elevated housing and energy prices, geopolitical instability, and rising interest rates put pressure on growth, affect asset valuations and adds to market volatility, said RBC chief executive Dave McKay.

“We maintain our cautious stance on the outlook for economic growth,” he said on an analyst call.

“Although higher interest rates are needed to preserve long term economic stability, the lagging impact of monetary policy, combined with strong employment and significant liquidity in the system, has likely delayed what may end up being a brief and moderate recession.”

While rising rates put pressure on the economy, RBC is especially well positioned to benefit from them as the net interest margins on its sizable deposit base grows.

The bank said it saw net income in personal and commercial banking grow five per cent from a year ago to $2.14 billion, mostly due to those higher margins along with average volume growth of 10 per cent in loans, and wealth management also got a boost from higher net interest income and loan volume growth.

The boost from rising interest margins come as a benefit of RBC’s scale, which it continues to push to increase, both through the HSBC Canada acquisition, and more organic growth.

HSBC Canada gives the potential for RBC to add some 800,000 clients if it goes through as expected in late 2023, while this year the bank added 400,000 clients, and expects its client referral deal with the Canadian division of India’s ICICI Bank to direct some 50,000 more customers as immigration levels reach record highs.

The bank is well-positioned to add more clients, and deposits, next year to provide lower-cost funding for its loans, said McKay.

“We believe our largely deposit-funded balance sheet will be a key driver of profitability in a rising rate environment,” he said.

The bank’s capital markets business shows the clearest indications of volatility, with net income of $617 million down 33 per cent from a year earlier, but up 29 per cent from the third quarter.

Revenue totalled $12.57 billion, up from $12.38 billion a year earlier.

The quarter showed strong loan growth and no signs of a credit spike for RBC, said Scotiabank analyst Meny Grauman in a note, but he wondered about what the bank’s move on the discounted dividend reinvestment plan (DRIP) shows for the bank’s capital outlook, given the expected tougher economic conditions next year.

“In that context a defensive move on the DRIP raises questions about downside risks,” said Grauman.

He said the bank’s better-than-expected earnings, which came in at an adjusted $2.78 per diluted share for the quarter compared with a consensus of $2.68, according to Refinitiv, was from higher revenues and smaller loan provisions than expected.

Bank expenses however, which were up 9.5 per cent for the quarter compared with last year on higher staffing costs and some acquisition-related increase, came in higher than expected.

RBC said it will now pay a quarterly dividend of $1.32 per share, an increase of four cents.

For its full financial year, RBC said it earned $15.81 billion or $11.06 per diluted share on $48.99 billion in revenue compared with a record profit of $16.05 billion or $11.06 per diluted share on $49.69 billion in revenue in the same period last year.

This report by The Canadian Press was first published Nov. 30, 2022.

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Immigration increase alone won’t fix the labour market, experts say

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By Rosa Saba

Experts say Canada’s plan to increase immigration may ease some pressures in the labour market, but bigger changes are needed to ensure new permanent residents are matched with the jobs that most need filling.

With the unemployment rate at historic lows, many companies are “starved” for workers, and new immigrants will help fill some of the need, said Ravi Jain, principal at Jain Immigration Law and co-founder of the Canadian Immigration Lawyers Association.

The federal government’s new immigration plan calls for the admission of 1.45 million more new permanent residents over the next three years, beginning with 465,000 in 2023 and reaching 500,000 in 2025. That’s compared with 341,000 in 2019.

According to Immigration, Refugees and Citizenship Canada, the plan is intended to help attract labour in key sectors, including healthcare, skilled trades, manufacturing and technology.

“It’s clear that there are real gaps, real demands, and real needs,” said Naomi Alboim, a senior policy fellow at Toronto Metropolitan University and a former Ontario Deputy Minister of Immigration.

But upping immigration levels is just one way to begin addressing those needs, she said — the government’s plan should be part of a wider initiative to address temporary workers, international students and a larger range of jobs.

Change is needed to ensure new Canadians are well-matched to jobs that maximize their skills, qualifications and experience, said Alboim.

Recent immigrants are less likely to see their skills and education utilized than Canadian-born workers, Statistics Canada said, and new and recent immigrants are overrepresented in certain industries, including transportation and warehousing, and accommodation and food services.

Government policies have created a mismatch between the specific skills employers are looking for and the skills of immigrants being approved, Toronto immigration lawyer Sergio Karas said.

Some of this mismatch begins with international students, said Karas. Though many international students plan to become permanent residents after they graduate, many of them aren’t in programs for jobs that are in demand by immigration policies, like healthcare or trades, he said.

International students and temporary foreign workers (TFWs) have made up an increasingly large portion of Canada’s economic immigrants, or those selected for their contribution to the economy, who made up more than half of recent immigrants in 2021, Statistics Canada said.

In 2020, 67 per cent of the country’s principal applicants in the economic class were previously temporary foreign workers or international students, the agency said.

But that 67 per cent is a relatively small portion of all the temporary workers and international students in Canada, said Alboim. Canada had 777,000 TFW work permit holders in 2021, and almost 622,000 international students that year, Statistics Canada said.

Canada’s dependence on temporary workers to fill long-term gaps is a huge problem, said Alboim. It creates little incentive to improve wages, conditions or supports for temporary workers, she said.

Federal immigration policy seems laser-focused on jobs requiring higher levels of training and education, said Alboim, a barrier to permanent residency for many TFWs and international students.

That’s despite the fact that much of Canada’s labour shortage is in jobs that require lower levels of education or experience, jobs that many temporary workers and students take on, said Alboim.

The federal government should expand its scope to prioritize more of these kinds of jobs, she said.

“There are way, way, way more people here now with temporary status that will never be able to transition to permanent residency, assuming they want to, unless the rules for permanent residency are changed to recognize that we actually need them too,” she said.

However, not all the onus lies on the federal government, Jain said. One ongoing problem has been immigrants’ credentials not being recognized in Canada, and while there have been some recent changes aimed at improving that, more needs to be done, he said. These credentials are the jurisdiction of provinces and territories, not Ottawa.

Provincial and regional immigration programs often do a better job of bringing in workers who can meet a wide range of labour needs including in lower-skill jobs, Alboim said, noting those programs are set to increase under the federal government’s plan.

A legislative amendment recently gave the minister of immigration the power to select immigrants for Express Entry programs based on specific qualities like occupation, but currently Alboim anticipates that use of that power will be focused on higher-level jobs.

“(There are) real needs at the high end, which immigration should certainly be focused on, but not exclusively,” she said.

Jain agreed.

“My worry is that if the targeted draws get too heavy, like if it’s weighted too much in terms of the proportion of people coming in, then I worry that some of these other folks will get marginalized,” he said.

“There needs to be some kind of a balance.”

— With files from Lee Berthiaume

This report by The Canadian Press was first published Jan. 19, 2023.

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Alberta

Popular roller-coaster at West Edmonton Mall amusement park to be removed

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Canada’s largest shopping centre says a popular roller-coaster at its amusement park is being removed after nearly 40 years in operation.

West Edmonton Mall’s vice-president of parks and attractions says in a statement that while the Mindbender will be missed, the mall is excited to announce it is working on new plans for the site.

The Mindbender was known as the world’s tallest and longest indoor, triple-loop roller-coaster.

In 1986, three people were killed on the roller-coaster, which forced the mall to shut it down for a year for safety modifications.

Galaxyland initially opened in 1983, but was known as Fantasyland until 1995.

The indoor amusement park partnered with Hasbro in 2022 and features attractions licensed from the franchise.

This report by The Canadian Press was first published Jan. 30, 2023.

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