The bank’s net income for the three-month period ended Jan. 31 was approximately $3.85 billion, an increase of 10 per cent from a year earlier
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The chief executive of Canada’s biggest bank said Wednesday that they anticipate weak supply, rock-bottom interest rates and stockpiles of savings to keep driving demand for residential real estate, which comes as policymakers are starting to see froth in the housing markets.
Canadian housing activity “remains elevated,” according to Dave McKay, Royal Bank of Canada’s president and CEO.
“While rising permit issuance is building up the new construction pipeline, we expect a lack of supply, low interest rates, elevated savings rates, continuing work-from-home arrangements and the potential resumption of immigration to underpin continued demand,” McKay said during a conference call for analysts and investors.
The comments followed Toronto-based RBC reporting first-quarter earnings that were better than expected, helped by both loan growth and a drop in the amount of money it had to set aside for potential loan losses. The base-case economic outlook that the bank uses for calculating expected credit losses also foresees Canadian housing prices to rise by 4.9 per cent over the next 12 months.
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Yet the same kind of factors that RBC sees driving demand in the housing market are the same ones that policymakers are beginning to eye warily.
Bank of Canada Governor Tiff Macklem on Tuesday said that they are seeing some signs of “excess exuberance” in the housing market, albeit not to the level that prompted past policy actions such as mortgage stress tests. The governor noted that the economy is still coping with the coronavirus pandemic and said that “we need the growth we can get.”
Even so, Macklem said that even they were surprised by the strength of the housing market’s rebound, which has been driven by factors such as a COVID-19-related desire for more space, helping to drive up demand and prices for suburban real estate. According to the Canadian Real Estate Association, home sales set another all-time record in January, with the actual national average sale price increasing by 22.8 per cent from a year earlier.
Macklem told reporters on Tuesday that the central bank looks for signs of “extrapolative expectations,” which would involve people counting on “unsustainable” increases in home prices to continue.
“If people start to … think that those are going to go on indefinitely, that becomes a concern,” the governor said. “We are acutely aware that in a world of very low interest rates, there is a risk that housing prices could get stretched, households could get stretched, and certainly that’s a risk we want to guard against.”
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RBC, however, sees some debt-related risk abating, which helped the lender to beat earnings expectations.
The bank’s net income for the three-month period ended Jan. 31 was approximately $3.85 billion, an increase of 10 per cent from a year earlier. When adjusted for certain items, Canada’s biggest bank said first-quarter earnings per share were $2.69, up 10 per cent year-over-year and better than the $2.28 consensus of analyst estimates.
Profit from RBC’s personal and commercial banking unit rose six per cent from a year ago, to nearly $1.8 billion, as it grew both Canadian deposits and loans during the quarter. An improved outlook for credit quality also allowed RBC to release $97 million in reserve funds, with the bank’s total provisions for credit losses for the quarter $110 million, down 74 per cent from a year earlier.
McKay pointed to the progress being made on vaccines as a reason for its improving outlook.
“We’re growing in confidence in the trajectory of the vaccination of our population and the mitigation of risk,” he said in response to an analyst’s question. “We’re not there yet, so we’re still waiting to see the execution of this, but we’re getting more confident that the timing is starting to narrow around when this will happen.”
RBC also said its most recent financial results were boosted by a flurry of stock trading earlier this year and in late 2020, as the lender managed to beat first-quarter earnings expectations.
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The bank’s capital-markets business reported net income of approximately $1.07 billion for the first quarter, up 21 per cent from a year ago.This, the bank said, was mostly because of higher revenue, “largely driven by higher equity trading primarily in the U.S. reflecting increased client activity, partially offset by lower, albeit strong M&A revenue, which was the second highest following the historical high in Q1 2020.”
Market conditions gave RBC’s insurance business a lift as well, with the unit’s net income increasing 11 per cent year-over-year, to $201 million. This was chiefly because of “improved claims experience and higher favourable investment-related experience,” the bank said in a press release.
Also reporting an earnings beat on Wednesday was Montreal-based National Bank of Canada, which said its adjusted EPS for the quarter ended Jan. 31 were $2.15, better than the $1.71 analysts had been anticipating.
In keeping with what its rivals have been reporting this earnings season, National said that its loan-loss provisions had fallen in the quarter, decreasing nine per cent year-over-year to $81 million.
“While uncertainty remains on the exact path and timing of a full recovery, the economy is adapting to a new reality and creating an environment conducive to revenue growth,” said Louis Vachon, president and CEO of National, during his bank’s conference call on Wednesday. “With more people working from home, coupled with historically low interest rates, we continue to see significant pent-up demand in the housing market.”
• Email: gzochodne@postmedia.com | Twitter: GeoffZochodne
https://news.google.com/__i/rss/rd/articles/CBMic2h0dHBzOi8vZmluYW5jaWFscG9zdC5jb20vbmV3cy9mcC1zdHJlZXQvcm95YWwtYmFuay1vZi1jYW5hZGEtYmVhdHMtcHJvZml0LWV4cGVjdGF0aW9ucy1vbi1jYXBpdGFsLW1hcmtldHMtc3RyZW5ndGjSAaEBaHR0cHM6Ly9maW5hbmNpYWxwb3N0LmNvbS9uZXdzL2ZwLXN0cmVldC9yb3lhbC1iYW5rLW9mLWNhbmFkYS1iZWF0cy1wcm9maXQtZXhwZWN0YXRpb25zLW9uLWNhcGl0YWwtbWFya2V0cy1zdHJlbmd0aC93Y20vMDQ3YTY0NmQtMWMzZi00Y2NlLTlkZjMtOTI2OGZhMGI0ZmEyL2FtcC8?oc=5
2021-02-24 21:56:15Z
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