RBC profit falls 54 per cent

A massive increase in provisions for bad loans due to the COVID-19 pandemic resulted in Royal Bank of Canada reporting a 54 per cent decline in its second-quarter profit.

It recorded a $2.4-billion increase in provisions for credit losses at its personal and commercial banking, capital markets and wealth management units.

"We moved quickly to support our clients, including granting payment relief to more than 490,000 clients so they could redirect their money to where it was most needed," chief executive Dave McKay told analysts in a conference call.

But McKay assured analysts that RBC's capital levels remain above regulatory minimums "giving us a solid foundation to face these risks head on."

RBC's net profit for the three months ended April 30 declined to $1.48 billion from $3.23 billion a ago.

The drop was due mainly to $2.83 billion of provisions for credit losses, up from $426 million in the same quarter last year.

RBC's net income amounted to $1.00 per diluted share, down from $2.20 per diluted share.

Its adjusted diluted cash earnings for the quarter amounted to $1.03 per share, down from $2.23 per share a year ago.

Analysts on average had expected an adjusted profit of $1.59 per share for the quarter, according to financial markets data firm Refinitiv.

Barclays Capital analyst John Aiken said in a research note that RBC had taken a very conservative approach to COVID-19 credit losses.

"While we believe that RY's conservatism will allow for better earnings going forward, we are concerned that the earnings comparison to peers this quarter will weigh on its valuation," Aiken wrote.