Top Canada banks RBC, National Bank's profits dip as bad debt provisions mount

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(Reuters) - Royal Bank of Canada (RBC) and National Bank of Canada said their fourth-quarter profits fell as they set aside larger loan loss provisions should aggressive interest rate hikes tip the economy into a recession.


Investors have been on alert for any signs of the Bank of Canada's hawkish monetary tightening campaign spilling over into loan demand, which has been resilient so far.

Profit from personal and commercial banking for RBC and National Bank in the quarter grew 5% and 13%, respectively.

"The lagging impact of monetary policy, combined with strong employment and significant liquidity, has likely delayed what may end up being a brief and moderate recession," RBC Chief Executive Officer Dave McKay said.

RBC earmarked C$381 million in provisions for credit losses (PCL), compared with a C$227 million release last year. National Bank reported C$87 million versus a C$41 million release a year ago.

The PCL build is not "outrageous", said Allan Small, senior investment adviser at the Allan Small Financial Group with iA Private Wealth.

"The overall sentiment is that markets have a little bit more certainty in terms of the path the central bank is going to take."

Shares of RBC, which agreed to buy HSBC's Canadian business on Tuesday, were down 1.4%, while National Bank fell nearly 4%.

RBC and National Bank's market-focused businesses took a hit in the fourth quarter, as tough economic conditions hurt corporate appetite for deals.

Net income from RBC's capital markets unit was down 33%, while National Bank's financial markets segment posted a 14% drop in earnings.

Excluding one-item costs, RBC earned C$2.78 per share, beating analysts' average estimate of C$2.68, according to Refinitiv IBES data.

National Bank, on the other hand, posted an adjusted profit of C$2.08 per share, below analysts' expectation of C$2.24.

($1 = 1.3540 Canadian dollars)

(Reporting by Niket Nishant, Mehnaz Yasmin and Johann M Cherian in Bengaluru; Editing by Shinjini Ganguli and Maju Samuel)

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