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WRAPUP 1-RBC warns of credit performance dependence on government aid after profit beat

By Nichola Saminather and Noor Zainab Hussain
    Feb 24 (Reuters) - Royal Bank of Canada  RY.TO  executives
cautioned on Wednesday that the company's credit performance in
2021 hinges on the outlook for government support after its
quarterly profit beat estimates on much lower than expected
provisions for loan losses.
    RBC, Canada's top lender, also flagged a moderation in
trading activity this year, after several quarters of strong
capital markets performance and record earnings in the unit in
the first quarter. 
    RBC and National Bank of Canada  NA.TO , the smallest of
Canada's six major lenders, followed rivals Bank of Montreal
 BMO.TO  and Bank of Nova Scotia  BNS.TO  in posting
better-than-expected profits that have also now surpassed
pre-pandemic levels.  urn:newsml:reuters.com:*:nL4N2KT2HP
    Canadian banks have largely avoided an increase in soured
loans thanks to several government assistance measures, expected
to end this summer.
    While BMO and RBC released some reserves on performing loans
during the quarter, signaling an improving outlook for loan
losses, RBC said delinquencies will still increase for the
remainder of 2021, accompanied by a rise in impaired loan
provisions.
    RBC Chief Risk Officer Graeme Hepworth told analysts the
degree to which the government support is extended or
transformed "will drive ... the expectations and implications
for our credit performance in the latter half of the year."
    RBC shares, which earlier rose from Tuesday's record close,
were flat in late morning, while National Bank stock was up 4.6%
at C$79.30. The Toronto stock benchmark  .GSPTSE  was up 0.55%. 
    Despite the somewhat murky credit picture, RBC executives
said they were heartened by expected improvement in the second
half on expectations of growth in higher-margin loans like
commercial and credit cards as businesses reopen and the economy
recovers.
    Canadian lending rose 6% in the three months through January
at RBC but this was driven entirely by increases in residential
mortgages, which have lower margins than other loans. 
    RBC expects continued mortgage growth will help drive a
consumer-led recovery in its Canadian banking unit, based on a
forecast of high-single-digit growth in Canadian housing prices
this year, following a record year in 2020 for resale activity.
 urn:newsml:reuters.com:*:nL1N2JQ1CQ
    RBC and National Bank also posted higher profits from a year
earlier in their wealth management and capital markets units.
    RBC reported adjusted cash earnings of C$2.69 per share
versus analysts' expectations of C$2.26. National Bank's
adjusted income rose to C$2.15 per share, compared with
estimates of C$1.71.  urn:newsml:reuters.com:*:nCNW10Pmma  urn:newsml:reuters.com:*:nCNWQlkbVa

 (Reporting by Nichola Saminather in Toronto and Noor Zainab
Hussain in Bengaluru; Additional reporting by Sohini Podder in
Bengaluru
Editing by Amy Caren Daniel and Matthew Lewis)
 ((Nichola.Saminather@thomsonreuters.com; +1-416-687-7604;))
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