May 28 (Reuters) - Royal Bank of Canada (RY.TO), opens new tab, TD Bank (TD.TO), and CIBC (CM.TO), on Thursday beat analysts’ profit estimates, largely benefiting from strong growth at home and lower loan loss provisions, or the money set aside to shield profits from souring loans.
The six large banks, which dominate the Canadian banking landscape, all surpassed analysts’ estimates for second-quarter profits, navigating a challenging economic landscape laced with uncertainty from U.S.-Canada trade tensions, the Middle East conflict and higher commodity prices that have weighed on consumers’ finances.
“At this point of the cycle, and with inflation, that is for sure putting pressure on consumers, but if you look at our PCL… it is below the midpoint (of our expectation), so that means that the consumer continues to be resilient, even though there's pressure,” TD Bank’s CFO Kelvin Tran said in an interview.
“The way to not get into trouble is actually thinking about it when you underwrite the loans at the beginning,” he said.
Canadian lenders are known for their resilience, supported by strong capital buffers built over the years and a tightly regulated framework to limit systemic stress.
The banks reported income growth at their personal banking segments in Canada, the segment most exposed to consumer wallets, and benefited from loan growth or lower loan loss provisions from a year ago when trade disruptions had weighed on performing loans.
At RBC, the personal banking segment grew 17%, CIBC showed 15% growth and TD recorded a 15% rise in its Canadian personal and commercial banking segment.
Net interest income - the difference between what the bank earns on loans and pays out on deposits - rose 5.5% at RBC, 14.7% at CIBC and 9% at TD.
RBC's adjusted earnings of C$3.90 per share topped average analysts' estimates of C$3.78, according to LSEG data. TD's earnings of C$2.38 beat estimates of C$2.26, while CIBC's earnings of C$2.54 per share comfortably beat the estimate of C$2.44.
Loan loss provisions at RBC were at C$912 million, lower than the estimate of C$993 million. TD's provision of C$1 billion was better than the estimate of C$1.1 billion. CIBC's provisions of C$605 million were flat compared to a year ago.
CIBC SELLS CARIBBEAN UNIT
CIBC said it would sell 91.7% of its stake in CIBC Caribbean to Bermuda-based Bank of N.T. Butterfield & Son (NTB.N), for about $1.6 billion, as the Canadian lender prioritises its North American business.
The move would consolidate CIBC's business within the North American corridor, a region that has been largely preferred by the Canadian banks for growth prospects as options to expand in the domestic market became limited.
Scotiabank (BNS.TO), in 2023 laid out a afresh plan under its new CEO to focus on the North American trade region and exit some unprofitable businesses in South America. Since then, the bank has sold some businesses in Colombia and Costa Rica and bought a stake in U.S.-based regional bank KeyCorp.
The deal includes $1 billion in cash and the rest will be paid with Butterfield’s shares, CIBC said. The deal is expected to close in the first half of 2027.
Once the deal closes, RBC and Scotiabank will be the only two Canadian lenders with exposure to the region.
($1 = 1.3861 Canadian dollars)
Reporting by Pritam Biswas in Bengaluru and Nivedita Balu in Toronto; Editing by Jonathan Ananda and Chizu Nomiyama
