RBC profit rises on wealth, loan growth; flags mortgage slowdown

TORONTO, Feb 24 (Reuters) - Royal Bank of Canada (RY.TO) kicked off Canadian lenders' first-quarter results with a stronger-than-expected 6% rise in adjusted earnings, driven by wealth management and loan growth.

RBC executives expect mortgage growth to slow to the high single digits by year-end, and to low- to mid-single digits by the end of 2023, as the central bank prepares to raise interest rates as early as next week. Mortgages grew about 11% in the first quarter and outpaced business loans and credit card balances.

However, Royal Bank is set to benefit from rate hikes, with a 25-basis-point rise in short-term rates resulting in over C$175 million ($136 million) of additional revenue over 12 months, the executives said.

Analysts and investors had been bracing for a somewhat more muted first quarter for Canada's major banks, following several periods of better-than-expected results, particularly due to expectations of higher expenses and declines in capital markets revenues. read more

Canada's biggest lender by market capitalization reported adjusted earnings of C$2.87 per share, up from C$2.69 a year earlier, versus analysts' estimates of C$2.73 a share.

The earnings beat was also driven by capital markets profits, which beat expectations even though the unit's earnings fell from a year ago as lower fixed-income trading revenues offset record corporate and investment banking performance.

"The results were quite clean and set the bank up for a solid run for the remainder of the year as anticipated rate increases should fuel further revenue growth, offsetting any potential easing in volumes," Barclays Analyst John Aiken wrote in a note.

RBC shares fell 2% to C$137.60 in early trading in Toronto, compared with a 1.5% decline in the Toronto stock benchmark (.GSPTSE). Markets globally were roiled by Russia's invasion of Ukraine. read more

Royal Bank's non-interest expenses saw little change from both a year and a quarter ago, but costs excluding variable compensation are set to increase at the higher end of the bank's forecast low-single-digit range, executives said on an analyst call.

Earnings from Royal Bank's personal and commercial banking unit climbed 10% from a year earlier and wealth management profit jumped 24%, driven by higher loan volumes in Canada and increased assets and the release of provisions at the latter's U.S. unit.

The positive numbers offset an 11-basis-point year-on-year decline in net interest margins and a 3% drop in profit from its capital markets unit, which posted record earnings a year earlier.

($1 = 1.2838 Canadian dollars)

Reporting by Nichola Saminather in Toronto and Manya Saini in Bengaluru Editing by Krishna Chandra Eluri, David Goodman, Susan Fenton and Jonathan Oatis

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