Royal Bank of Canada saw a big bump in profits last quarter, propelled by loan growth and higher interest rates at its personal and commercial banking business that defied the housing slump.
The seven per cent boost in net income came despite a big uptick in provisions on impaired loans.
Chief executive David McKay expressed confidence in the housing market and the domestic economy, in spite of record levels of household debt among Canadians late last year and a "softened" gross domestic product.
"Regulatory changes have helped some of Canada's major housing markets stabilize, particularly in Ontario and to the East. Western Canadian markets remain under downward pressure overall, making housing more affordable," McKay said Thursday on a conference call with investors.
"If we see slower volume growth and slower revenue growth as we hit a cycle, we have plans to manage...in that type of cycle too," he added. "The Canadian economy remains resilient."
The Bank of Canada has hiked interest rates five times between mid-2017 and last fall, a "big driver" behind RBC's 14 per cent year-over-year revenue boost to $11.5 billion, said chief financial officer Rod Bolger.
Amid soaring household debt, delinquency rates remain low and stable, with fewer highly indebted and vulnerable consumers, according to a Canada Mortgage and Housing Corp. report this week.
Nonetheless, total provisions for credit losses at RBC climbed 55 per cent to $426 million in the second quarter — up from $274 million in the same quarter last year — due to higher provisions in personal and commercial banking, wealth management and capital markets.
"Canadian banking was softer, impacted by higher provisions," said Canaccord Genuity analyst Scott Chan in a note to investors.
While Canadian Imperial Bank of Commerce on Wednesday reported one per cent mortgage contraction, RBC grew domestic mortgage balances by 5.2 per cent to nearly $253 billion.
The country's biggest bank by market value earned $3.23 billion in its latest quarter, helped by growth in its capital markets, personal and commercial banking and wealth management businesses.
RBC said the profit amounted to $2.20 per diluted share for the quarter ended April 30, compared with a profit of $3.06 billion or $2.06 per diluted share a year ago.
On an adjusted basis, RBC reported $2.23 in diluted cash earnings per share for the quarter, up from $2.10 per share a year ago.
Analysts on average had expected a profit of $2.21, according to Thomson Reuters Eikon.
The Toronto-based lender's capital markets business raised profits 17 per cent year over year to $776 million. Its wealth management division enjoyed a nine per cent jump in net income to $585 million, due mainly to "strong loan growth and higher spreads" at City National Bank, the company's U.S. unit.
McKay pointed to healthy GDP growth and record low unemployment south of the border. "Trade tariffs are expected to temper GDP growth, however the underlying fundamentals of consumer spending and business investment remain favourable," he said.
RBC's insurance and investor and treasury services units put a blotch on the bullish results, with net income tumbling 10 per cent and 29 per cent, respectively, for a combined profit of $305 million.
On the Toronto Stock Exchange, Royal Bank's shares lost $3.09 or 2.9 per cent at $102.09 in afternoon trading.
Companies in this story: (TSX:RY)
Christopher Reynolds, The Canadian Press