Profit margins are getting squeezed as the Royal Bank of Canada (RBC) faces the effect of low-interest rates as well higher interest pay-outs to Bankers.
The Bank’s net interest margins which is the difference between what it earns from the loans and what it pays to its depositors, reduced to 1.43 % in the fourth quarter of the fiscal down from 1.51% in the quarter, as per a statement from the Toronto based lender Wednesday.
As per Bloomberg news, the profit fell short of the estimates as the Analyst has predicted a 1.51% margin.
Paul Gulberg, a Bloomberg Intelligence analyst, said in an interview that the yield curve had flattened a bit and the margins were affected.” Most people are expecting the bank’s margins to stabilize in the fourth quarter“.
RBC shares rose to C$126.43 up by 0.1% Wednesday at 9:41 a.m. in Toronto, trailing the tagin of 1.2% in the TSX Commercial Banks and S&P Index. The stock has already grown 21% this year, compared to the bank’s index growth of 27%.
Nadine An, the Chief Financial Officer of RBC on call said that the bank expects margins in both City National U.S. private and commercial bank and Canadian banking it’s to stabilize at current levels, with a scope of expansion as central banks raise the rates. She said “The City Nation interest rates interest-rates is driven mainly by the short-term rate increase, Canadian banking will be from the across-the-curve increase,” she said.
RBC has to pay higher costs to bankers, who have helped capital markets to surge in its revenue this year. RBC non-interest expenses rose 8.7% from C$5.16 billion in the previous year to C$6.58 billion. Analysts had projected it at C$6.49 billion.
The nation’s sixth-largest bank by assets, the National Bank of Canada also reported lower profits due to lower margins and fell short of analysts’ estimates.
National Bank’s commercial and personal banking net interest margin narrowed to 2.06% in quarter 4 down from 2.11% in the third quarter. The adjusted profit was C$2.21 against the estimated C$2.24 of the analysts. Shares of the national bank of Canada fell by 2% to C$97.29.
Royal Bank of Canada dividend playout for the quarter increased to 11 % to C$1.20 per share. The bank announces a buyback of 45 million shares which at current market value would cost C$5.68 billion. The regulators in Canada have allowed insurance companies and Banks to increase the dividend payout and also buy back shares that were temporarily put on hold during the pandemic to protect the financial system.
Capital market profits rose by 9.5% to C$920 million in the current year on account of increased revenue in corporate and investment banking.
