Canada's Royal Bank earnings disappoint, National Bank beats

The Royal Bank of Canada (RBC) logo is seen outside of a branch in Ottawa, Ontario, Canada, February 14, 2019. REUTERS/Chris Wattie/File Photo

Aug 24 (Reuters) - Royal Bank of Canada (RBC) (RY.TO) on Wednesday missed analyst estimates for third-quarter profit, while National Bank of Canada did slightly better than expected, as the former's capital markets business weighed on earnings while the latter's helped lift them.

Canadian banks, which have mostly outperformed market expectations in recent quarters, are starting to see some negative impacts from market challenges and economic uncertainties.

RBC, the country's biggest bank, is forecasting a moderate recession in Canada and the United States in 2023, and sees a 12% decline in average Canadian home prices from their peak, executives said on an analyst call.

In contrast, a recession is not National Bank's base case, executives said on its analyst call, and said the bank sees a "soft landing" of the Canadian economy.

RBC took provisions for credit losses (PCLs) of C$340 million to guard against potential loan impairments, compared with a recovery of C$540 million a year earlier. National Bank, the smallest of Canada's Big Six banks, had PCL of C$57 million, versus a release of C$43 million a year earlier.

"Current conditions (including unemployment and economic growth) are so benign and yet, there's so much uncertainty in the forward views," said National Bank's chief risk officer, William Bonnell. "That's why you'll see very low impaired (loans) and yet pretty significant build in performing (loan) provisions."

Royal Bank's reported pre-tax, pre-provision earnings fell 3% from a year earlier, while National Bank's rose 7%.

Shares of RBC dropped 3.1% to C$122.59, compared with a 0.1% gain in the Toronto stock benchmark (.GSPTSE). National Bank shares rose 0.5%.

RBC reported adjusted earnings of C$2.55 per share, compared with analysts' expectations of C$2.66.

RBC saw a 58% decline in its capital markets earnings, which overshadowed strong margin expansion and loan growth in its banking business. It expects margins to rise another 10 to 15 basis points over the next couple of quarters, executives said.

RBC does not see much risk in its mortgage book until 2025 or 2026, when fixed loans taken at record-low rates during the pandemic come up for renewal, executives said.

National Bank posted earnings of C$2.35 a share, beating estimates of C$2.34.

Its 12% increase in capital markets earnings, driven by strong performance in its trading business, helped offset deals weakness. National Bank also reported strong growth in both commercial and mortgage loans.

Businesses and consumers still have savings above pre-pandemic levels, helping shield them from rising interest rates and keep delinquencies low, National Bank executives said on the analyst call.

On Tuesday, Bank of Nova Scotia's earnings disappointed markets on a decline in profit in its capital markets business and lower margins from its international business. read more

($1 = 1.2974 Canadian dollars)

Reporting by Nichola Saminather in Toronto; Additional reporting by Mehnaz Yasmin and Manya Saini in Bengaluru; Editing by Maju Samuel, Chizu Nomiyama and Leslie Adler

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