(Reuters) -Royal Bank of Canada (RBC) and National Bank of Canada, two of the biggest banks in the country, posted a drop in profits as their market-focused businesses took a hit from the central bank’s hawkish monetary tightening campaign.
National Bank on Wednesday reported a bigger-than-expected fall in fourth-quarter profit, while RBC managed to beat earnings estimates on strong loan growth.
As inflation reached decades-high levels this year, the Bank of Canada raised borrowing costs to cool the economy, but that hurt corporate appetite for deals, squeezing advisory fees for banks that benefited from record volume and size of deals last year.
Net income from RBC’s capital markets unit was down 33% in the quarter, while National Bank’s financial markets segment posted a 14% drop in earnings.
To cushion the hit from markets, banks have turned to their lending business that got a boost from the central bank’s rate hikes.
Profit from personal and commercial banking for RBC and National Bank grew 5% and 13%, respectively.
But an uncertain economic outlook and worries of a potential recession have raised fears of more loan defaults. To minimize the impact, banks are setting aside bigger provisions for credit losses (PCLs).
RBC reported C$381 million in PCLs, compared with a C$227 million release last year. National Bank set aside C$87 million versus a C$41 million release a year ago.
Excluding one-item costs, RBC earned C$2.78 per share, beating analysts’ average estimate of C$2.68 per share, according to Refinitiv IBES data.
While National Bank posted an adjusted profit of C$2.08, below analysts’ expectation of C$2.24.
RBC reported a modest drop in profit to C$3.88 billion, while National Bank’s earnings dropped 4% to C$738 million.
On Tuesday, RBC agreed to buy British bank HSBC’s Canadian business for C$13.5 billion.
($1 = 1.3540 Canadian dollars)
(Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Shinjini Ganguli)
