CANADA’S No 1 lender Royal Bank of Canada (RBC) on Wednesday (Feb 28) beat analysts’ estimates for quarterly profit as higher interest rates helped the bank earn more on its interest-bearing assets.

Still, the lender set aside more funds to cover for potentially souring loans in an uncertain economy highlighting economic uncertainties ahead.

Canadian households are feeling the squeeze of higher interest rates and high costs of living since the Bank of Canada began a series of rate hikes to curb inflation.

It has fuelled concerns of outsized credit losses and dampened loan growth, a big worry for the banks which last year set aside C$3.54 billion in reserves.

However, higher rates generate more income for the banks that bring in more interest on mortgages and other loans.

“Results benefited from higher net interest income driven by solid volume growth, as well as higher fee-based client assets reflecting market appreciation,” the bank said in a statement.

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RBC’s total provisions for credit losses increased to C$813 million, or 53 per cent, from a year ago. Analysts had forecast C$728.7 million, according to LSEG data.

Net interest income, the difference between the interest banks earn on loans and pay out on deposits, rose 2.1 per cent.

Adjusted profit came in at C$4.07 billion, or C$2.85 per share, for the three months ended Jan 31, above analysts’ C$2.80 per share forecast, but below C$4.26 billion or C$3.04 per share, a year ago.

The bank said it was impacted by C$159 million special assessment fee by the US Federal Deposit Insurance Corporation, which has charged banks a fee to replenish its deposit insurance fund drained by the collapse of Silicon Valley Bank and Signature Bank last year.

The regional banking crisis south of the border has put some strain on City National Bank, a lender known for its Hollywood clientele RBC bought in 2015, forcing its parent to inject fresh capital, cut nearly 100 jobs and make management changes.

The bank said City National’s operational infrastructure remains a top priority.

Like its Canadian rivals, including TD and Bank of Montreal, RBC is looking for growth outside a highly saturated and regulated market at home.

RBC’s quarterly earnings come a day after peers BMO and Bank of Nova Scotia said they built bad loan allowances and warned of muted growth till the central bank begins rate cuts. REUTERS