By Nichola Saminather
TORONTO (Reuters) -Royal Bank of Canada 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.
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 (LON:BARC) 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. Markets globally were roiled by Russia's invasion of Ukraine.
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)