Canada's biggest banks shrug off mortgage concerns with profit beats

[May 24, 2018]   By Matt Scuffham

TORONTO (Reuters) - Royal Bank of Canada <RY.TO> and Toronto-Dominion Bank <TD.TO>, Canada's two biggest lenders, reported second-quarter earnings that exceeded market expectations on Thursday, shrugging off concerns over slowing mortgage growth.

Canadian authorities have introduced policies, including taxes on foreign buyers, intended to cool rampant housing markets in Toronto and Vancouver and bring about a "soft landing," where prices stabilize gradually.

Canada's banking regulator introduced new regulations in January, requiring borrowers taking out uninsured mortgages to be stress-tested to determine their ability to make repayments at a rate 200 basis points above their contracted mortgage.

TD's Chief Financial Officer Riaz Ahmed said the new rules had slowed new mortgage applications but he was happy with the direction the broader market was taking.

Ahmed said the bank had seen some reductions in mortgage applications in the second quarter, reflecting the slowdown in the overall market, but remained comfortable with its previous expectation of mid-single-digit growth for the year.

"I think we're happy with how this 'soft landing' appears to be emerging at the minute. Sales activity is down and prices are down. The market cooling seems to be working and we'll hope that it continues to play out that way," he said.

RBC, Canada's biggest lender by market value, posted an 11 percent rise in earnings per share to C$2.06 in the quarter to March 31. Excluding one-off items, earnings per share rose to C$2.10. Analysts had on average forecast earnings of C$2.05 a share, Thomson Reuters I/B/E/S data showed.

A Royal Bank of Canada (RBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie/File Photo

RBC said net income increased by 9 percent compared with the previous year to C$3.1 billion ($2.4 billion). That included net income of C$1.5 billion at its Canadian retail business, up 7 percent, reflecting improved margins and sales.

Rival TD said earnings per share, excluding one-off items, totaled C$1.62 in the quarter to March 31, compared with C$1.34 a year ago. Analysts had on average forecast earnings per share of C$1.50, according to Thomson Reuters I/B/E/S data.

Canadian banks are also benefiting from improved margins as a result of the country's central bank having raised its key interest rate three times since July 2017.

TD said net income at its Canadian retail business grew by 17 percent to C$1.83 billion.

Smaller rival CIBC said on Wednesday it expected new mortgage sales to drop by 50 percent in the second half.

(Reporting by Matt Scuffham; Editing by Keith Weir, Alexander Smith and Bernadette Baum)

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