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RY - Royal Bank Of Canada News Story

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Sector
Financials
Size
Large Cap
Market Cap £71.03bn
Enterprise Value £228.08bn
Revenue £27.38bn
Position in Universe 1st / 2628

UPDATE 1-Canada raises capital buffer for banks to highest level since requirement began

Tue 10th December, 2019 3:33pm
(Adds details of capital requirements throughout)
    By Nichola Saminather and Abhishek Manikandan
    Dec 10 (Reuters) - Canada's banking regulator on Tuesday
increased the capital lenders must hold to protect against risks
to 2.25% of total risk-weighted assets, adding to the challenges
they face following their worst year of earnings growth since
the financial crisis.
    The Office of the Superintendent of Financial Institutions,
which reviews the domestic stability buffer requirement twice a
year, has increased it by 25 basis points every time since it
was introduced at 1.5% in June 2018.
    "The key vulnerabilities include Canadian household
indebtedness, asset imbalances and institutional indebtedness,"
the regulator said in a release. "In addition, global
vulnerabilities related to ongoing trade tensions and rising
leverage are growing, which could increase the chance of a
spillover of external risks into the Canadian financial system."
    The increase shines a further spotlight on the challenges
facing Canadian banks, which have been plagued by a falloff in
investment banking income as deals have dried up, rising credit
provisions as household indebtedness remains elevated, and
pressure on margins as interest rates have stayed low.
 urn:newsml:reuters.com:*:nL4N28F2XU
    The rule will be come into effect on April 30. 
    The increase to the domestic stability buffer brings the
amount of Common Equity Tier 1 (CET1) capital - the core measure
of a bank's capital, excluding preferred shares and
non-controlling interests - banks must hold to at least 10.25%
of risk-weighted assets; a base level of 4.5%, a "capital
conservation buffer" of 2.5%, and a 1% common equity capital
surcharge, in addition to the DSB. 
    Canada's systematically important banks all reported CET1
ratios above that level in the fourth quarter of 2019; 11.1% at
Bank of Nova Scotia  BNS.TO , 11.4% at Bank of Montreal
 BMO.TO , 11.6% at Canadian Imperial Bank of Commerce  CM.TO ,
11.7% at National Bank of Canada  NA.TO  and 12.1% at Royal Bank
of Canada  RBC.TO  and Toronto Dominion Bank  TD.TO . 
    "Our disciplined capital management practices are unchanged
as we continue to manage our capital considering multiple
factors, including OSFI's latest DSB requirement," a spokeswoman
for RBC said by email.
    The other banks did not immediately respond to requests for
comment. 
    The Canadian banks index  .GSPTXBA  fell 0.4% in morning
trade in Toronto to a two-month low, compared with a 0.1% drop
in the Toronto stocks benchmark.  .GSPTSE .
    Last month, TD Bank joined RBC on a global list of systemic
banks that must hold extra capital.  urn:newsml:reuters.com:*:nL8N282296

 (Reporting by Nichola Saminather in Toronto and Abhishek
Manikandan in Bengaluru; Editing by Maju Samuel and Steve
Orlofsky)
 ((Nichola.Saminather@thomsonreuters.com; +1-416-687-7604;
Abhishek.Manikandan@thomsonreuters.com; within the U.S. +1 646
223 8780, outside the U.S. +91 80 6749 2963;))
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