National Bank profit rebounds to near pre-pandemic levels even as loss provisions rise

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National Bank of Canada’s third-quarter profit bounced back nearer to pre-pandemic levels, falling 1 per cent from a year ago even as it added to reserves to cover potential future losses.

The Montreal-based bank reported profit of $602-million, or $1.66 a share, for the fiscal quarter that ended July 31, compared with $608-million, or $1.66, a year earlier.

On average, analysts expected the bank to post earnings per share of $1.30, according to Refinitiv.

Canada’s sixth-largest bank added new provisions for credit losses – which are funds banks hold in reserve to cover potential defaults – of $143-million, up 66 per cent from a year ago. But those new provisions declined sharply from the $504-million National Bank set aside in the prior quarter, as it grappled with the effects of the novel coronavirus on the global economy.

Revenue rose by 1 per cent to $1.97-billion, and expenses fell 7 per cent to $1.07-billion, mostly because of special items recorded a year ago.

But while three other major banks that have reported earnings this week boosted their capital levels as corporations paid down balances on credit lines drawn early in the pandemic, National Bank’s common equity Tier 1 (CET1) capital ratio – a key measure of a bank’s resilience – was unchanged from the prior quarter, at 11.4 per cent.

Profit from personal and commercial banking, the bank's largest division, fell 15 per cent to $233-million, as lending margins narrowed and growth in personal and commercial loan portfolios slowed, while provisions increased year over year.

The impact of the pandemic has so far been dampened by a program that allowed banks to defer payments on loans for clients in financial hardship. As of July 31, National Bank had deferred loans to personal banking clients – including mortgages and credit card debt – worth $4-billion, and commercial and corporate loans of $4.5-billion. Though the commercial balance was unchanged from the prior quarter, which ended April 30, the balance of personal loans with deferred payments declined from $9.4-billion.

In the financial-markets division, profit was $188-million, up 5 per cent from a year earlier, driven by a large increase in revenue from fixed-income securities. But the results did not match the record earnings posted by the capital-markets arms of Royal Bank of Canada, Bank of Nova Scotia and Bank of Montreal in the same quarter.

Wealth management generated profit of $128-million, up 2 per cent from a year earlier, and the bank’s U.S. specialty finance and international division, which includes its ownership of ABA Bank in Cambodia, increased profits by 26 per cent year-over-year, to $87-million.

The bank kept its quarterly dividend constant at 71 cents a share as Canada’s banking regulator has told banks not to raise payouts to investors.

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