In its second-quarter earnings report, the bank posted a rise in residential mortgage delinquencies, with 90-day past-due rates climbing to 30 basis points, up from 28 bps in Q1 and just 19 bps a year earlier. Gross impaired loans in the mortgage book followed a similar trend, hitting 29 bps, up from 19 bps a year ago.
Speaking on the bank’s earnings call, Chief Risk Officer Graeme Hepworth dismissed suggestions that the deterioration was linked to RBC‘s recent acquisition of HSBC Canada’s mortgage portfolio. “The client base we absorbed from HSBC is very high quality and actually skews higher than the rest of our consumer book,” he said.
Instead, he pointed to rising strain among existing clients in regions more exposed to the payment shock from higher borrowing costs—particularly the Greater Toronto Area (GTA).
“We are seeing impairments as more clients are facing challenges in this higher rate environment,” Hepworth told analysts, adding that it’s markets that are “more challenged” by the higher payment environment. “This would be the GTAs of the world that are really driving our impairments these days.”
According to RBC’s investor presentation, the 90-day delinquency rate in the Greater Toronto Area now sits at 0.39%, significantly higher than the 0.23% seen in the Greater Vancouver Area and 0.30% nationally.
Still, Hepworth stressed that overall borrower quality remains strong, with relatively few loans ending in write-offs. Nearly two-thirds of RBC’s mortgage clients have credit scores above 785, and most have a healthy equity cushion. Just 7% of the mortgage book has a combined loan-to-value above 80%, while almost 60% is under 65%.
Keeping a close eye on condos and commercial
Beyond residential lending, RBC is also watching for signs of weakness in other areas of its real estate portfolio, including the high-rise condo segment and commercial real estate.
“While we are seeing more balanced conditions in the Canadian housing market with improving affordability and rising inventory levels, we are monitoring the risk of further slowdown in the condo segment and certain regions harder hit by economic weakness,” Hepworth said.
He added that the bank has built higher loan-loss allowances in areas where it sees elevated risk. As for the condo developer segment—a part of the market that’s been under pressure from slowing presales—RBC’s exposure remains relatively small.
“For context, our exposure to high-rise condo developers represents only about 1% of total loans and acceptances,” Hepworth said. “This portfolio has a very strong credit profile, reflecting our focus on top-tier developers and conservative underwriting, including minimum presales backed by deposits and sufficient liquidity support.”
On the commercial side, gross impaired loans climbed by $1.1 billion in Q2 to $8.9 billion, largely due to weakness in U.S. office markets and the insolvency of a major Canadian retailer. That latter case also impacted related commercial real estate exposures.
Hepworth noted that some of the increase in impairments was also tied to administrative issues that have since been resolved
RBC earnings highlights
Q2 net income (adjusted): $4.5 billion (+8% Y/Y)
Earnings per share: $3.12 (+7%)
| Q2 2024 | Q1 2025 | Q2 2025 | |
|---|---|---|---|
| Residential mortgage portfolio | $401B | $410B | $412B |
| HELOC portfolio | $37B | $37B | $38B |
| Percentage of mortgage portfolio uninsured | 78% | 79% | 80% |
| Avg. loan-to-value (LTV) of uninsured book | 71% | 70% | 68% |
| Portfolio mix: percentage with variable rates | 29% | 28% | 33% |
| Average remaining amortization | 24 yrs | 19 yrs | 18yrs |
| 90+ days past due (mortgage portfolio) | 0.20% | 0.29% | 0.30% |
| Gross impaired loans (mortgage portfolio) | 0.18% | 0.27% | 0.29% |
| Canadian banking net interest margin (NIM) | 2.71% | 2.87% | 2.92% |
| Provisions for credit losses | $920M | $1.05B | $1.4B |
| CET1 Ratio | 12.8% | 13.2% | 13.2% |
Conference Call
President and CEO Dave McKay provided updates on the following topics:
On the economic outlook:
- “Although we are not projecting a recession in either Canada or the U.S., the prevailing uncertainty is dampening confidence, sentiment and client activity in certain parts of the North American economy, including housing. North American consumers have remained resilient. They are continuing to spend, albeit less on discretionary items and savings are growing.”
On deposit growth:
- “Average deposits increased 13% year-over-year or 8% excluding the acquisition of HSBC Canada, led by outsized growth in our lower cost core banking and savings products…We continue to grow our core deposit franchises across our segments, including in Canadian Banking, whereas the loan-to-deposit ratio improved to 97%, helping fund loan growth in an efficient and stable manner.”
On the mortgage portfolio growth:
- “Residential mortgage growth was largely supported by stronger client renewals, higher origination volumes driven by strong mortgage switch in activity, partly offset by higher paydowns. We expect housing resell activity and mortgage growth to remain contained in the near term as the uncertainty around tariffs outweighs lower debt servicing costs from lower interest rates. Amidst ongoing intense competition, we will maintain the disciplined mortgage growth strategy we articulated over the past year.”
Updates on the HSBC Canada integration:
- “We are continuing to bring new capabilities to market as we’ve now completed the migration of the largest and most complex commercial clients acquired through the acquisition of HSBC Canada pursuant to the transition services agreement. As we exit Q2, the execution of cost synergy initiatives is largely complete and we are increasingly confident of achieving our targeted annualized cost synergies by next quarter.”
Source: RBC Q2 conference call
Note: Transcripts are provided as-is from the companies and/or third-party sources, and their accuracy cannot be 100% assured.
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Last modified: May 30, 2025
