Image copyright Getty Images Image caption RBC has seen profits boosted by its wealth management division
Royal Bank of Canada says profits rose 6% in 2018 but interest margin pressures weighed on the performance.
The company said last year’s profit of $11.6bn was up from $11.2bn the year before.
But its net interest margin – which measures how much it makes from loans – dropped 6 basis points to 2.55%. This is down from 2.86% in 2017.
The company said other factors to blame included higher regulatory costs.
It also said it had “more than doubled” its capital reserves in 2018 due to concerns over rising US corporate taxes.
“Our 2018 results demonstrate that our diversified business model continues to deliver strong and predictable financial performance, while providing a strong foundation for our future,” said chief executive David McKay.
Regulatory concerns
Canada’s biggest banks are expanding in wealth management and international banking, as regulations make it more expensive to keep operating banks.
But in December, Bank of Montreal reported that its Canadian personal and commercial banking income slipped 4.6%.
The Toronto-based lender said that this was due to higher regulatory costs and a decline in deposit fees.
The biggest difference in the capital reserves saw Royal Bank of Canada raise its quarterly dividend by 4.3% to 84.5 Canadian cents, as it increased its quarterly payout by 30% to US$1.02 for its core tier one capital ratio.
But the US dollar dividend will only be paid to investors if the US Federal Reserve raises interest rates.
The Federal Reserve raised rates for the first time since 2011 in December as it lifted its projection for increases in 2019.
The Bank of Canada has also raised its target for rates from 1% to 1.75% and projected three more hikes this year, all in the second half of 2019.
Royal Bank of Canada has now raised its dividend for 28 consecutive years.
Analysis
Tim Cockerill, wealth management strategist at Rowan Dartington said the bank had “announced its third dividend increase in four months”.
He added: “It has successfully performed in a highly competitive environment. It has grown a wide spectrum of business lines.”
There has been a lot of concern in the markets over higher regulatory costs recently, though RBC and other Canadian banks have all reported strong results.
“These extra costs are not unexpected. They are structural and will not change materially in the short term,” said Tim McMillan, president and chief executive of the Canadian Bankers Association.