Royal Bank of Canada has received a downgrade from stable to negative from credit rating agency Standard & Poor due to higher relative risk appetite and increased credit risk exposure. The cut comes despite positive reported earnings last week, and a 5% increase year over year to $1.71 per share – higher than the forecasted $1.64.
Much of the bank’s increased risk exposure may be attributed to a heightened chance of default among oil and gas loans, which account for 1.4% of RBC’s loans portfolio, representing $115 million. This has increased from $106 million in the first quarter, a cumulative 335 basis points.
However, in last week’s earnings, RBC also reported a healthy boost to wealth management, which rose to by a whopping 42% year over year, based on contributions from City National. The Bank also saw gains in its insurance and Canadian banking sectors.
Canada’s big banks have become increasingly exposed to high-risk borrowing, as the national debt to income ratio has exceeded 165%. Unstable consumer debt has been named by the Bank of Canada as a leading threat to Canada’s economic stability and growth.
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