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RBC: A good year, with more to come

Royal Bank of Canada reckons it is in a good position to capitalize on opportunities in a rising rate environment – and has room to grow in investment banking.

RBC chief executive Dave McKay and newly appointed chief financial officer Nadine Ahn end 2021 with much to be happy about. Revenues rose 5% and pre-provision profits rose 6%.

In 2021, the bank was able to release a net 17% of the total provisions that it took in 2020, a reflection of the quality of its performing portfolio. The biggest release among its domestic peers was 3%.

The bank ends the year with a record common equity tier-1 ratio of 13.7%, up 120 basis points on the previous year.

RBC reckons it stands to gain if rates rise, given the profile and size of its Canadian domestic franchise. Presenting annual earnings to analysts on December 1, McKay said that the bank’s testing of its exposures meant it had no “material” credit concerns from higher defaults in a higher rate environment.

Dave McKay

He thinks the unusually low rate period has cut some C$1 billion ($787 million) from the bank’s annual revenues in each of the last two years – a figure that would represent 20% of 2021’s total and 25% of 2020’s – giving an indication of how he thinks about the potential.


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