Royal Bank of Canada (RY) profits increase in Q2, inventories rise 1.3%
Actions of Royal Bank of Canada RY gained 1.3% on the NYSE in response to results for the second quarter of fiscal 2021 (ended April 31). The company reported net income of C $ 4 billion ($ 3.2 billion), up significantly from the figure for the previous year quarter.
The bank has seen revenue growth and a decline in provisions. However, the increase in spending, as well as the decline in deposit balances, has been on the decline.
Year over year, wealth management, personal and business banking, insurance and business support grew by 63%, 258%, 4% and 171%, respectively, quarterly net profit. Nonetheless, net income from investor services and treasury declined 47%, while increasing significantly in capital markets year over year.
Increase in income and expenses, decrease in provisions
Total revenue was C $ 11.6 billion ($ 9.4 billion) in the February-April quarter, up 13% year-over-year. Income was favorably impacted by the increase in non-interest income.
Net interest income was Can $ 4.9 billion ($ 4 billion), down 11% from the previous year quarter. Non-interest income was Can $ 6.8 billion ($ 5.5 billion), up 38.9%.
Non-interest expense was C $ 6.1 billion ($ 4.9 billion), up 7% from the quarter last year. This increase is mainly due to the increase in human resources and capital expenditure.
As of April 31, 2021, Royal Bank of Canada net lending was C $ 673.5 billion ($ 543.1 billion), up slightly from the previous quarter. Deposits totaled C $ 1.03 trillion ($ 0.83 trillion), down about 2% sequentially. Total assets were Can $ 1.62 trillion ($ 1.31 trillion), down 3.3% from the previous quarter.
The company recorded a negative allowance for credit losses of C $ 96 million ($ 77 million) in the quarter, compared to provisions of $ 2.8 billion in the quarter last year. The decrease is mainly due to the reduction in provisions in personal and corporate banking and in capital markets and wealth management.
Strong capital position
As at April 31, 2021, Royal Bank of Canada’s Tier 1 capital ratio was 14.1%, up from 12.7% in the previous fiscal quarter. The total capital ratio was 15.8%, up from 14.6% in the previous year quarter.
The company’s estimated Common Equity Tier 1 (CET1) ratio stood at 12.8%, up 110 basis points from the previous year quarter.
Our point of view
We believe that improving loan balances and a diversified product line will drive Royal Bank of Canada’s organic growth in the days to come. Although stringent regulatory reforms, as well as reduced revenues, keep us skeptical about the long-term sustainable growth of the company, the export-oriented Canadian economy is expected to benefit from the recovery of the US economy which has been hit hard by the chaos of the coronavirus, thus helping the bank.
Royal Bank of Canada price and consensus
Royal Bank of Canada Price Consensus Chart | Quote from the Royal Bank of Canada
Royal Bank of Canada currently holds a Zacks Rank # 2 (Buy). You can see The full list of current Zacks # 1 Rank (Strong Buy) stocks here.
Bank of Montreal BMO reported for the second quarter of fiscal 2021 (ended April 30) adjusted net income of C $ 2.10 billion ($ 1.67 billion), a significant year-over-year increase. The company saw improved revenues and lower provisions in the reported quarter, which supported results to some extent. However, an increase in spending was negative.
Among other Canadian banks, The Bank of Nova Scotia BNS and Canadian Imperial Bank of Commerce CM is expected to communicate the results shortly.
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