As U.S. tariffs loom, Canada’s largest bank is hoping for the best but preparing for the worst.
Executives at the Royal Bank of Canada said Thursday they feel confident the bank can handle whatever trade policies come out of the Trump administration, including the punitive tariffs the U.S. president has threatened against Canadian goods.
But just in case, the bank is raising its provisions. RBC’s provisions for credit losses were 1.05 billion Canadian dollars in the quarter ending January 31, 2024, which the bank refers to as the first quarter of 2025. That marked an increase of CA$237 million from the same quarter one year ago.
In the company’s earnings call with analysts, RBC’s leaders made clear that the increased provisions were at least partly to prepare for Trump’s tariffs.
“It remains highly uncertain how the prospect of tariffs will impact the broader economy,” said Graeme Hepworth, RBC’s chief risk officer. “We kept our downside risk weights at an elevated level this quarter to account for this new uncertainty.”
Trump has vowed to impose a 25% tariff on all Canadian goods starting on March 4. He has also threatened to impose the same measure on Mexican imports, and to raise his tariff on Chinese goods from 10% to 20%.
“The proposed TARIFFS scheduled to go into effect on MARCH FOURTH will, indeed, go into effect, as scheduled,” Trump wrote in a social media post on Thursday.
RBC has considered a number of potential consequences for Canada’s economy, including a possible recession, Hepworth said. One scenario that RBC has contemplated involves Canada’s unemployment rate rising to 10.4% — a steep jump from its current rate of 6.6%.
RBC’s CEO, Dave McKay, said the bank would be able to weather the storm.
“We believe we are in a strong position to navigate the uncertainty, given the strength of our capital, our diversified funding, our brand and our diversified business and geographic model,” McKay said. “Our stress testing suggests that even under a more severe scenario of lower revenue and higher credit losses, our capital levels would remain above regulatory minimums.”
The CEO did note, however, that Trump’s policies may have a chilling effect on business loans.
“In the near term, commercial banking loan growth may moderate as clients hold back plans and investments amidst the tariff-driven uncertainty,” McKay said. “However, absent more severe and sustained tariffs, we expect loan growth in the high single-digit range through this year.”
RBC’s recent performance bolstered McKay’s confidence. From November 2024 through January 2025, the bank’s net income was CA$5.1 billion, marking a 43% increase from the same period one year ago.
Diluted earnings per share reached CA$3.54, a 42% jump from the year before.
And revenue for the quarter was CA$16.7 billion, a 24% increase from the prior year.
RBC credited much of its revenue growth to two units: wealth management and capital markets. Wealth management net income for the quarter was CA$980 million, 48% more than the year before. Capital markets, meanwhile, took in net income of CA$1.4 billion, a 24% increase from one year ago.
Against that backdrop, McKay expressed optimism that RBC will be able to handle whatever challenges 2025 brings. One analyst’s question, asking him to compare the tariff crisis to the COVID-19 pandemic, reminded him that the bank has been through worse before.
“The world’s not going to collapse overnight,” McKay said. “At the end of the day, we’re not shutting the whole economy down like we had to during COVID. So I would expect whatever the scenario is, this should be more manageable.”
