Halfway through their latest earnings season, Canada’s big banks have downplayed the spectre of new housing regulations.
Results reported by three of the Big Six lenders have been relatively rosy, despite underwriting changes that kicked in at the start of the year, including a new stress test for uninsured mortgages that banks anticipate will slow their originations.
Royal Bank of Canada reported Thursday net income of $3.1 billion for the quarter ended April 30, up about nine per cent from a year ago.
RBC chief financial officer Rod Bolger said the bank also saw six per cent growth in mortgage volume for the quarter, and that it continues to expect mid-single-digit mortgage growth for the full year.
Even if growth slows more than expected, he said the benefits from central bank rate hikes would offset that hit.
“For example, if mortgage balances grow at half our expected rate, the impact on 2019 revenue would be less than the benefit we receive from one Bank of Canada rate hike,” Bolger said.
Bolger said in an interview that the dollar value of such a rate-hike-related benefit would be about $110 million in the first year after each quarter percentage point increase.
“I don’t believe it’s going to be a significant impact for us,” Bolger said of the new housing regulations.
The banks have also used the occasion to highlight the importance and performance of other businesses.
RBC chief executive Dave McKay noted during his bank’s conference call that they saw continuing momentum in business lending for the second quarter. Bolger said that business lending had grown nearly 13 per cent year-over-year, as the bank kept gaining market share.
On Wednesday, Canadian Imperial Bank of Commerce said second-quarter profit shot up 26 per cent compared with last year, hitting $1.3 billion. And in reporting results, CIBC noted revenue growth at the bank has shifted somewhat away from housing.
A year ago, two-thirds of revenue growth for CIBC’s Canadian personal and small business banking unit stemmed from its real estate secured lending business, chief financial officer Kevin Glass told analysts during a conference call. For the three months ended April 30, that lending was less than a third of its year-over-year revenue growth, “with over two-thirds driven by higher-volume growth, margin expansion and higher non-interest income growth across other lines of business,” Glass said.
“We’re continuing to diversify our platform for growth,” said Victor Dodig, president and chief executive of CIBC, during an analysts’ conference call.
The shift comes as the bank is expecting mortgage originations in the latter half of this year to decline by about 50 per cent when compared with the same period last year, according to Christina Kramer, head of Canadian personal and small business banking for CIBC.
It also follows the bank’s US$5-billion acquisition last year of Chicago-based PrivateBancorp Inc. and its subsidiary, The PrivateBank, which was rebranded as CIBC Bank USA and contributed $94 million to CIBC’s net income for the quarter.
The bank had missed some growth opportunities over the past decade, and has been trying to put the “commerce” back in its name, Dodig said.
“We’re doing that in the Canadian market,” he told analysts. “We’re doing that now in the U.S. market. We’re doing that with the capital markets business that’s highly aligned with the rest of the bank. And we’re simply trying to recapture some of the ground that we had lost in the first half of that decade.”
Toronto-Dominion Bank, meanwhile, posted $2.9 billion in earnings for the second quarter, a 17-per-cent increase year-over-year. The bank also saw net income for its Canadian retail banking unit climb 17 per cent from a year ago, to approximately $1.8 billion.
Moreover, the bank’s total real-estate-secured lending, including mortgages and home equity lines of credit, was up about five per cent year-over-year. TD even noted in its results that it launched a digital “pre-approval tool” for mortgages in the second quarter, streamlining the experience for Canadian customers.
TD’s chief executive Bharat Masrani said it was “another terrific quarter” for the bank, with all its businesses on both sides of the border performing well.
“Canadian retail had a banner quarter…. We benefited from our No. 1 share in core deposits, with rising rates driving further margin expansion,” Masrani told analysts on a call Thursday.
A note from Eight Capital on TD’s earnings was headlined: “This is the reason TD is the consensus long.”