Royal Bank of Canada eyes further margin gains in 2019

By Matt Scuffham

TORONTO (Reuters) - Royal Bank of Canada said it anticipated margins will continue to improve next year after reporting a forecast-beating 17 percent jump in fourth-quarter earnings on Wednesday.

RBC has benefited from the Bank of Canada raising interest rates five times since last summer, helping it improve its net interest margin (NIM), the difference between the interest it gets from borrowers and what it pays to savers.

The bank posted earnings per share of C$2.20 in the three months to Oct. 31, ahead of a consensus analyst forecast of C$2.12, according to IBES data from Refinitiv. It benefited from growth at its Canadian retail and wealth management businesses.

Shares in RBC, Canada's biggest lender by market value, were up 1.6 percent in mid-morning trading.

"The solid headline beat, good operating trends in Canadian banking and resilient underwriting in capital markets are encouraging," said Eight Capital analyst Steve Theriault.

The bank reported a 15 percent increase in net income to C$3.25 billion ($2.45 billion) during the quarter. That included a 10 percent rise in net income from retail banking to C$1.54 billion, benefiting from improved margins and growth in residential mortgages, commercial lending and deposits.

RBC lifted its net interest margin by 12 basis points over the course of 2018 to 2.77 percent and Chief Financial Officer Rod Bolger said it is forecasting an average 1-2 basis point rise in its NIM during each quarter next year, resulting in a 4-8 basis point improvement across the year.

Bolger said that forecast takes into account increasing competition for deposits. Analysts have said an emerging price war between banks could crimp profits going forward.

"Competition for deposits has always been strong," Bolger said in an interview. "As rates increase, deposits become more valuable for both banks and consumers so I think it's quite healthy that there's deposit competition."

RBC reported a 13 percent increase in net income at its wealth management business to C$553 billion, reflecting higher average fees from clients. Net income from insurance rose 20 percent from a year ago to C$318 million.

The bank's investment banking business increased net income by 14 percent from a year ago to C$666 million, driven by beneficial U.S. tax reforms and higher trading revenue arising from market volatility.

For the full year, RBC reported record net income of C$12.4 billion, up 8 percent on the year before.

($1 = 1.3319 Canadian dollars)

(Editing by David Goodman/Keith Weir)