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Key Morningstar Metrics for Royal Bank of Canada
Royal Bank of Canada RY reported decent fiscal fourth-quarter earnings, delivering strong growth in net interest income, wealth management, and capital markets. Net revenue increased 19% from C$15.1 billion a year ago, and 3% from a quarter ago. Adjusted earnings of C$4.4 billion were up 18% year over year (9% when excluding adjusted earnings of C$318 million from HSBC Canada).
The results translate into an adjusted return on equity of 15.1%, below management’s medium-term target of 16%. As we incorporate 2024 fourth-quarter results and the bank’s 2025 outlook, we do not expect a material change in our fair value estimate of C$139 per share, which we view as overvalued.
Net interest income increased 17% from last year to C$7.7 billion, driven by the acquisition of HSBC Canada, core bank balance sheet growth, and net interest margin expansion. Average earning assets increased 4% from last year. More importantly, the bank’s net interest margin expanded by 10 basis points from last quarter to 1.68% and 17 basis points from last year.
Provisioning expenses increased to C$840 million from C$659 million last quarter. The increase was entirely driven by provisioning on performing loans, typically caused by changes in projections or economic assumptions, not credit results. Provisioning on performing loans increased to C$208 million compared with C$42 million in the previous quarter. Gross impaired loans rose to 0.59% of total loans from 0.58% last quarter and 0.42% last year. On a more positive note, new formations of impaired loans decreased from the previous quarter, though they remain somewhat elevated from more normal levels. We continue to expect credit costs to be a headwind for the bank, but we project the company should manage it well. Royal Bank of Canada’s balance sheet is strong, with a common equity Tier 1 ratio of 13.2%.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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