TORONTO – Royal Bank of Canada says it’s beginning to see early signs of trouble brewing in its consumer loan books in Alberta, where the oil price shock has led to a rise in unemployment.
“We’ve noticed a slight — and I would stress the word slight — upward trend in auto and credit card delinquencies in Alberta and while they haven’t translated into writeoffs, we are monitoring the performances of these portfolios,” said Mark Hughes, RBC’s chief risk officer.
Hughes noted that rate of delinquent loans — where the borrower is late on a payment — is higher in communities within the province that are more dependent on the energy sector.
The bank also added eight new companies to its watchlist in the energy sector. Loans to the oil and gas sector comprise 1.6 per cent of the bank’s total loan book.
“Overall, our portfolio is performing as expected and we continue to work closely with our clients to help them manage through this sustained period of low oil prices,” Hughes said of commercial loans in the oilpatch.
Hughes made his comments as RBC announced net income of $2.59 billion in the three months ended Oct. 31, up 11 per cent from a year ago when it earned $2.33 billion. That amounted to $1.74 per share, above analyst estimates and up from $1.57 in the same quarter last year.
For the year, the bank earned a record $10.03 billion of profit.
That’s despite concern from analysts that the sluggish domestic economy, the sustained decline in the price of crude and a slowdown in consumer borrowing could hurt bottom lines at Canada’s biggest banks.
Barclays analyst John Aiken noted that RBC’s better than expected results stem partly from a favourable tax adjustment.
“When normalized, it appears that retail banking and capital markets faced some challenges, although not necessarily unexpected,” Aiken said in a note to clients. “Consequently, we believe that RY’s Q4 notionally met expectations.”
The bank also reduced its total number of full-time employees by 528 positions — mostly by not replacing workers who resigned or retired.
Managing costs has become a dominant theme for all of the country’s biggest banks as they strive to increase earnings despite dampened economic conditions that have made revenue growth challenging. One way has been by digitizing certain back-office functions such as document processing, allowing for fewer employees.
“We’re continuing to invest in our digital channels … and also to invest in automating and simplifying our processes,” Janice Fukakusa, RBC’s chief financial officer, said during the company’s conference call Wednesday.
Royal’s fourth-quarter growth was largely driven by its capital markets operations, which increased its net income by 38 per cent or $153 million to $555 million.
Meanwhile, profits from its Canadian operations were relatively flat at $1.23 billion.
Royal’s banking operations in the Caribbean and the United States turned profitable, compared with last year’s losses, but profit declined in the bank’s wealth management, insurance and treasury services operations.
Total revenue was $8.02 billion, down from $8.34 billion in the fourth quarter of fiscal 2014.
“While Royal continues to shrug off any immediate concerns on credit, growth will remain a challenge in 2016,” Aiken said.
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Note to readers: This is a corrected story. An earlier version misreported RBC’s quarterly dividend at 69 cents per share.