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National Bank of Canada NA-T reported a 4-per-cent drop in fiscal fourth-quarter profit and raised its dividend by 5 per cent as rising provisions against loan losses outweighed strong gains in retail banking.

The Montreal-based bank is the third major lender to report fourth-quarter earnings and the first to fall short of analysts’ profit estimates. Royal Bank of Canada RY-T and Bank of Nova Scotia BNS-T both beat expectations even as their profits were flat or lower year over year.

In the quarter that ended Oct. 31, National Bank earned $738-million, or $2.08 per share, compared with $776-million, or $2.19 per share, in the same quarter last year.

On average, analysts were expecting earnings per share of $2.22, according to Refinitiv.

For the full fiscal year, however, National Bank’s profit and revenue were both up 8 per cent, to $3.38-billion and $9.65-billion respectively.

National Bank raised its quarterly dividend by five cents to 97 cents per share, a 5-per-cent increase. And it announced a plan to buy back as many as seven million shares, or 2.1 per cent of total shares outstanding.

Rising provisions for credit losses – the money banks set aside to cover loans that may default – weighed heavily on results. National Bank set aside $87-million in provisions, after recovering $41-million from its reserves in the same quarter last year.

The increase was mainly from a rise in provisions on loans that are still being paid back, but which the bank considers at great risk of default as its economic forecasts worsen. Actual losses on loans are still below prepandemic levels, but starting to tick higher as economic growth slows.

Higher provisions were the main factor driving a 14-per-cent drop in profit from the bank’s financial markets division, to $205-million.

At the same time, rising interest rates gave a boost to National Bank’s personal and commercial banking division. Profit was up 13 per cent to $351-million, helped by a 20-per-cent rise in the income it earns from interest.

The division’s net interest margin – the difference between what it earns on loans and pays on deposits – was 2.25 per cent, up from 2.05 per cent in the same quarter last year.

Wealth management profit of $198-million was up 24 per cent from a year ago, helped by higher interest rates even as fee income fell 3 per cent.

Profit from the bank’s international division was up 2 per cent to $132-million, mostly from higher revenue in its ABA Bank subsidiary in Cambodia.

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