Royal Bank of Canada
Annual Report 2024
Royal Bank o
f
Canada
Annual Report 202
4
Guided by
our Vision
to be among the world’s most
trusted and successful financial institutions, and
driven by
our Purpose
, we aim to be:
Our Purpose
Helping clients thrive and
communities prosper
We are guided by
our Values
:
In the United States:
the preferred partner to
institutional
,
corporate
,
commercial and high net
worth
clients and their
businesses
In Canada:
the
undisputed
leader
in financial
services
In select global
financial centres:
a
leading financial
services partner
valued for
our expertise
Accountability
Client First
Collaboration
Diversity &
Inclusion
Integrity
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Royal Bank of Canada Annual Report 2024
Table of contents
CEO Letter
6
Chair Letter
10
2024 Highlights
12
Management’s Discussion
22
and Analysis
Enhanced Disclosure Task
140
Force Recommendations
Index
Reports and Consolidated
141
Financial Statements
Ten-Year Statistical Review
248
Shareholder Information
249
For more information on how we are leading with Purpose in creating
differentiated value for our clients, communities, employees and
shareholders, please visit RBC Stories.
Connect
with us:
tiktok.com/@rbc
x.com/@RBC
facebook.com/rbc
linkedin.com/company/rbc
youtube.com/user/rbc
instagram.com/rbc
When we say ‘we’, ‘us’, ‘our’, ‘the bank’ we mean Royal Bank of Canada or its subsidiaries as applicable
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Royal Bank of Canada Annual Report 2024
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3
18+ million
clients
98,000+
employees
29
countries
R
oyal Bank of Canada is
a
g
lobal
fi
nancial institution w
ith a purpose-
d
riven, principles-led app
roach to
d
eliverin
g
leadin
g
performance. Our
s
uccess comes from
the 98,000+
e
mployees who br
in
g
our vision,
v
alues and strat
e
g
y to life so we
c
an help our clien
ts thrive and
c
ommunities pros
per. As Canada’s
b
i
gg
est bank and
one o
f
the lar
g
est
i
n the world
,
ba
sed on market
c
a
p
italization, we
have a diversified
b
u
s
ine
ss
m
o
del
with a f
o
cu
s
o
n
i
nnovation and
providin
g
exceptional
e
xperiences to o
ur more t
h
an 18+
m
i
ll
ion c
l
ients
in Cana
d
a, t
h
e U.S.
a
n
d
27
ot
h
er countries.
Who we are
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Royal Bank of Canada Annual Report 2024
Why invest?
Diversified business model
with scale and market-leading franchises that
provide a full suite of products, advice and services for clients
Market-leading presence
in Canada and an established multi-platform U.S.
strategy with a long runway for premium growth
Strong outlook for synergies
associated with our HSBC Bank Canada acquisition
Premium ROE
and disciplined expense management
Strong balance sheet
and prudent risk management
Leading Canadian core deposit franchise
that serves as a stable source
of funding
Strong governance and deep expertise
across our Board and executive team
Differentiated technology and innovation investments
that go beyond
banking, including leadership in AI-driven innovation
Well-positioned
for the evolving macro environment
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Royal Bank of Canada Annual Report 2024
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Today, as our society
navigates this changing world,
RBC’s role as a stabilizing
force for our 18+ million
clients and the thousands of
communities they call home
matters more than ever.
“
”
David McKay
President and CEO
Dear fellow shareholders,
Our vision of being among the world’s most trusted and
successful organizations means we must continually
challenge ourselves to raise the bar, staying ahead
of our clients’ expectations in an increasingly
complex world.
I’m writing this letter at the end of a year when Team
RBC relentlessly pursued this ambition across our
businesses and key regions.
Finding ways to create value for our 18+ million clients,
and the communities they call home, is a driving force
behind everything we do. It’s one of the things that
makes me most proud of our incredible employees
around the world — the dedicated team of 98,000+
people across nearly 30 countries who support our
clients with ideas, insights and a commitment to
excellence, each and every day.
Over my 10 years as CEO, I’ve seen our employees
rise to the occasion countless times. In 2024, the full
strength of RBC came together in unprecedented ways
in our effort to exceed expectations from our clients,
communities and shareholders.
One of the year’s defining moments was the
completion of our transformational acquisition of
HSBC Bank Canada — and the technological feat that
was required to integrate nearly 800,000 clients, 4,000+
employees and 100+ branches over a single weekend.
With this once-in-a-generation opportunity, we’ve
expanded our global banking capabilities at a time
when our Canadian commercial clients want greater
connectivity to international markets. We’re also
delivering new products and digital capabilities
that are redefining and expanding the value we can
offer to clients through deeper insights and more
personalized experiences.
In the United States, our second home market, we’re
building on our reputation for strength, stability
and trust with our corporate, institutional and high
net worth clients. Just one example of this is the
successful launch of RBC Clear™, our U.S. digital cash
management platform that’s being used by Fortune
1000 companies for their treasury management
operations, while expanding our deposit base.
Outside of North America, this year marked another
important chapter in the RBC story in the United
Kingdom and Europe as we continued to expand our
market presence and scale following the acquisition
of RBC Brewin Dolphin in 2022. We are focused on
leveraging our global capabilities to deliver trusted
advice and greater value for our clients in this
important region.
Globally, the RBC brand continues to be an important
pillar in our overall success, helping to convey our
Message
to our
shareholders
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Royal Bank of Canada Annual Report 2024
value proposition and earn the trust of those we serve.
Not only was RBC ranked the most valuable brand in
Canada in 2024, but it’s also considered one of the
most valuable brands in the world.
(1)
This recognition
reflects our employees, who go above-and-beyond to
support our clients and communities.
In short, RBC was at the top of its game in 2024 — a
year that could be described as an inflection point in
our long-term, premium growth story.
I’m proud to show you how we plan to build on this
momentum and continue to help our clients thrive and
our communities prosper.
Our financial and strategic strength across
RBC’s global footprint
In 2024, we generated record earnings of $16.2 billion
and a Return on Equity of 14.4 per cent as we continued
to deepen client relationships and build new ones
across our lines of business.
Our share price increased by 52 per cent year-over-
year, and we returned $8.1 billion to our shareholders
through common dividends and share buybacks; all of
which enabled RBC to outperform in Total Shareholder
Return over three, five and 10 years against our global
peer average. Importantly, we delivered our record
earnings and dividend growth while maintaining a
disciplined approach to risk and cost management.
We entered our fiscal 2025 year as a top-10
bank globally and top-five in North America by
market capitalization.
Our financial strength underpins our strong credit
ratings — among the highest of banks globally — and
is a testament to our diversified business model, scale
and strong balance sheet.
Canada
In Canada, we continue to be the leading bank, with
the number one market share in all key personal and
business banking product categories.
Much of our success comes down to the meaningful
value we create. This includes helping consumers save
on their groceries and everyday purchases through
partnerships with popular household brands and
through the Avion Rewards loyalty program, enabling
Canadians to shop, save, earn and redeem points from
more than 2,400 retailers and brands.
Our investments in digital experiences and advice
that clients truly value continue to earn industry
recognition, including a win for all 11 of Ipsos’ Financial
Service Excellence awards among Canada’s biggest
banks and ranking #1 in Canada Retail Banking
Satisfaction by J.D. Power.
RBC has also been recognized as the Best Bank in
Canada and North America for small and medium-sized
businesses, as well as the Safest Bank in Canada and
North America, and the Safest Commercial Bank in
the world.
(2)
The acquisition of HSBC Bank Canada — the largest
deal in our history — has extended our leadership in
Canada and generated $453 million in net income since
the deal closed in March of this year.
Given the significant growth in our former Personal and
Commercial Banking business segment, we created
two standalone segments to better respond to evolving
client needs and further differentiate the experiences
we bring to them.
In Commercial Banking, we’re bringing clients new
products across cash management, international
payments and trade solutions that will help establish
RBC as the bank of choice for internationally-minded
businesses, while offering timely advice and expertise
to business clients of all sizes as they manage and
grow their operations. Across our Personal Banking
business, we’re continuing to redefine and expand the
value we deliver to Canadians — from mobile banking
through to human interactions at key moments
that matter.
(1) Kantar BrandZ
(2) Global Finance Awards 2024
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RBC will continue to leverage its scale to extend its
leadership position through our Wealth Management
platform, which has the largest full-service wealth
advisory business in Canada
(3)
serving high net worth
and ultra high net worth clients, and the largest
Canadian retail mutual fund company in Canada.
(4)
RBC Insurance is one of the largest Canadian bank-
owned insurance organizations,
(5)
which is also well-
positioned to harness the power of our business and
brand to drive future growth.
United States
In the U.S., our second home market, RBC can grow
organically through our three established businesses
and because of the efforts of our more than 16,000
dedicated colleagues across the region.
The country presents a significant and attractive
opportunity through its compelling market structure
and attractive client segments that are aligned with our
global expertise and lines of business.
The strength of our U.S. franchise is anchored by
our Capital Markets business. RBC Capital Markets,
LLC is the 9th largest investment bank in the U.S.,
(6)
where we compete against some of the world’s largest
players. Our full-service Wealth Management business
ranks 6th largest among publicly traded wealth
management advisory firms in the U.S.,
(7)
based on
assets under administration, providing us with the
scale and resources to continually attract some of
the best advisors to our team. City National Bank, our
premier U.S. private and commercial bank, continues to
differentiate itself in the mid-sized market, and set itself
up for long-term, sustainable growth.
We see great opportunity to grow our impact in the
U.S. by continuing to deepen the connections between
these three businesses, enhancing our product
capabilities and delivering a more holistic experience
to our clients.
United Kingdom and Europe
Since establishing operations in the U.K. and Europe
over a century ago, we’ve been committed to growing
with our clients. Today we’ve achieved scale in a highly-
fragmented wealth management market as a top-five
wealth manager by assets under administration in the
U.K.
(8)
We’re also focused on untapped opportunities
to serve existing and potential clients in this
important region.
Our next phase of growth
With the needs of our clients changing as quickly as
the world around them, we’re focused on becoming a
simpler, faster and more innovative company.
In 2024, we elevated a new generation of talent to
senior leadership positions across the bank and
empowered them with bold mandates. Some of our
most experienced and skilled leaders have been
assigned to new and emerging opportunities. All our
leaders are focused on reimagining the way our teams
operate, removing complexity and facilitating faster
decision-making. They are also finding more ways to
create value for our clients, by innovating and better
leveraging our operational, brand and data scale.
Across every business, we’re singularly focused
on going beyond what people expect from us
and delivering hyper-personalized, digital client
experiences to rival the best in any industry, period.
To accomplish this, we’re investing in advanced
technologies, such as generative artificial intelligence
(AI), that can deliver data-based insights and advice
to help clients make better decisions and anticipate
their needs.
We increasingly see a world where client interactions
and business decisions are informed by AI. Our
bank, through its RBC Borealis division, has earned
a reputation as a leader in this transformative
technology.
(9)
Clients have benefitted through several
innovations, including NOMI
®
, which uses AI and
data-driven insights to help them stay on top of
(3)
Industry information sourced from Investor Economics, as of June 2024; As measured by
assets under administration (AUA). Refer to Glossary for definition on page 137
(4)
Industry information sourced from Investments Funds Institute of Canada (IFIC), as of
September 2024; As measured by assets under management (AUM). Refer to Glossary
for definition on page 137
(5)
On a total revenue basis, Q3 YTD
(6) Based on global investment banking fees (fiscal 2024), Dealogic
(7)
Based on publicly available information for full-service wealth advisory firms (excluding
independent broker-dealers) in the U.S., as of September 2024
(8)
Based on publicly available information for wealth management firms (excluding
platform businesses) in the U.K., as of September 2024
(9) Evident AI Index
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Royal Bank of Canada Annual Report 2024
their finances and deliver highly personalized and
unique experiences.
In 2024, for the third year in a row, the Evident AI
Index ranked RBC in the top-three out of 50 global
financial institutions for AI maturity, in terms of our
talent, innovation, leadership and transparency. We
are exploring how to safely and securely tap into
generative AI’s full potential to create even more value
for our clients, the economy and society.
We’re confident in our ability to continue to drive
premium growth by extending our leadership across
our Canadian businesses, growing our U.S. businesses,
capturing the growth in global wealth, expanding
our deposit base and leveraging our scale to drive
efficiency and fuel growth.
Ideas for People and Planet
™
Our clients’ ability to thrive relies on our communities’
ability to prosper. RBC’s long-term success depends
on both.
That’s why, this year,
RBC, RBC Foundation
®
and
RBC Foundation USA announced a commitment of
$2 billion in community investments
(10)
by 2035 to
support community ideas that help seed, scale and
sustain solutions in three key areas where we believe
they can have a meaningful impact: supporting the
transition to a net-zero economy, equipping people
with the skills for a thriving future and driving more
equitable opportunities for prosperity.
The magnitude of climate change was evident in
the effects on our environment and economies in
2024. There’s little time and much to do to place
our planet on a more environmentally sustainable
path. It will require unprecedented collaboration
across all areas of the economy, which is why RBC
engages with external experts and organizations
to support Canadians in our collective journey to a
low-carbon future.
It will also require more capital to finance the
transition. In 2024, we set a goal to triple lending to
renewable energy
across RBC Capital Markets and
Commercial Banking,
(11)
and to allocate $1 billion to
support the development and scaling of innovative
climate solutions
(12)
—both by 2030. We also aim to
accelerate the deployment of capital to the emissions
reduction efforts of clients in high-emitting, hard-
to-abate sectors that are producing the traditional
energy the world still relies on. While there is still more
work to be done, these important actions will lay the
foundation to help our clients make progress on the
journey to a net-zero future at a quicker pace.
Alongside these initiatives and investments, I am most
proud of our colleagues who are making a positive
impact in the places where they live and work. Their
generosity of spirit highlights the purposeful and
passionate people that want to make an impact every
day for our clients and communities.
Thank you
In 2024, Team RBC showed the world what it’s truly
capable of doing. We successfully closed our largest
acquisition to-date, extending our differentiated
solutions and services, and are continuing our journey
to build the bank of the future. We are in a position of
strength with the momentum to continue to grow.
I’m grateful for the trust our clients place in us, and
the confidence of our investors, which we work hard to
earn every day.
RBC’s future comes with great expectations from all
those we serve. Not only will we aim to anticipate their
needs, we will also strive to exceed them. That’s our
defining difference and what drives us forward. I’m
excited about the journey ahead.
David McKay
President and CEO
(10)
Includes donations and community investments made by RBC, RBC Foundation or RBC
Foundation USA, employee volunteer grants and gifts in kind, as well as contributions to
non-profits and non-registered charities. Figure includes community sponsorships and
investments made to the RBC Communities Together Fund, RBC Emerging Artists, RBC
Future Launch and RBC Tech for Nature™
(11) Please refer to footnote 2 on page 18 for more information on this goal
(12) Please refer to footnote 3 on page 18 for more information on climate solutions
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Royal Bank of Canada Annual Report 2024
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In my first full fiscal year as Chair, I had the privilege
of meeting RBC employees across various regions,
gaining deeper insights into RBC’s core values and
distinct strengths. No matter who I met, or where I
was, I found a focus on placing the bank’s clients first,
pursuing bold ambitions and growing in ways that bring
out the best in all RBCers.
One way this passion came to life in 2024 was through
the successful close of the HSBC Bank Canada
acquisition. As Dave McKay notes, this milestone
expands the bank’s products and services, and
provides RBC with new ways to create even more value
for those it serves.
For the Board, this acquisition showcased the depth
of talent at RBC as well as the expertise of those who
joined from HSBC Bank Canada. The bank’s robust
bench of talent provides a strong foundation for
the Board to focus on executive development and
cultivating the next generation of leaders.
Changes to RBC’s Group Executive in 2024 exemplify
this focus. The moves have aligned leadership and
their teams with the bank’s growth priorities, while
broadening the field of new, emerging and diverse
talent that will shape RBC’s future. Moreover, these
changes to RBC’s Group Executive team have improved
gender parity within the leadership team and are
in lockstep with enterprise-wide efforts to attract,
develop and retain talent with the skills to enable a
high-performance culture.
The Board recognizes that RBC’s continued success
relies on upholding the public’s trust. To this end, our
directors provide oversight as the bank seeks to meet
the expectations placed on it by regulators, clients,
employees, communities and shareholders. This
includes constructively challenging management, and
holding them and ourselves to account. As always,
the aim is to help sustain our shared vision of being
among the world’s most trusted and successful
financial institutions.
A message
from the Chair
of the Board
Jacynthe Côté
Chair of the Board
The bank’s robust bench
of talent provides a
strong foundation for
the Board to focus on
executive development
and cultivating the next
generation of leaders.
“
”
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Royal Bank of Canada Annual Report 2024
In Dave, RBC benefits from a highly experienced
CEO, who consistently finds ways to enhance the
bank’s value proposition and deliver outstanding
performance. His efforts in 2024 strengthened RBC’s
leadership position in Canada and secured its ranking
as one of the largest global financial institutions by
market capitalization with one of the most valuable
brands in the world.
Under RBC’s CEO, and with his executive team, as well
as the bank’s talented colleagues around the world,
the Board is confident in RBC and its future. We look
forward to the next chapter of its growth story.
Jacynthe Côté
Chair of the Board
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Clients
At RBC, our client-centric
culture is relentlessly focused
on those we proudly serve.
Enabled by investments in our
technology and talent, we have
a clear goal of delivering long-
term value through exceptional
advice, deep insights and
differentiated products.
Our rankings and industry
recognition across our
businesses underscore the
value we create for our clients.
2024 highlights across our
balanced scorecard
(1)
Market share is calculated using most
current data available from The Office of
the Superintendent of Financial Institutions
(OSFI) (M4), IFIC and Canadian Bankers
Association (CBA), and is as at August 2024,
June 2024 and March 2024, respectively
Based on six key product categories: Personal
Lending (including residential mortgages),
Personal Core Deposits and Guaranteed
Investment Certificates (GICs), Credit Cards,
Long-term Mutual Funds, Business Loans,
Business Deposits
(2)
Based on global investment banking fees
(fiscal 2024), Dealogic
(3)
Based on market share (fiscal 2024), Dealogic
(4)
Industry information sourced from Investor
Economics, as of June 2024
(5) Refer to Glossary definition on page 137
(6)
Industry information sourced from
Investment Funds Institute Canada, as of
September 2024
(7)
Refer to Glossary for definition on page 137
(8)
Based on publicly available information for
full-service wealth advisory firms (excluding
independent broker-dealers) in the U.S., as of
September 2024
(9)
Based on publicly available information
for wealth management firms (excluding
platform businesses) in the U.K., as of
September 2024
(10) On a total revenue basis, Q3 YTD
Market-leading client franchises
#1 market share
in all key personal and business
banking product categories across Canada
(1)
10th largest global investment bank,
(2)
#1 in Canada
and #1 Canadian investment bank in the U.S.
(3)
Largest full-service wealth advisory business in
Canada
(4)
as measured by assets under administration
(AUA)
(5)
, serving high net worth and ultra high net
worth clients
Largest retail mutual fund company in Canada
(6)
based on assets under management (AUM)
(7)
6th largest full-service wealth advisory firm in
the U.S.
(8)
and a top-5 largest wealth management
firm in the U.K.
(9)
as measured by assets under
administration (AUA)
(5)
One of the largest Canadian bank-owned
insurance organizations
(10)
Ranked highest in customer satisfaction
for the 4th
consecutive year in the J.D. Power 2024 Canada Retail
Banking Advice Satisfaction Study. Clients rated RBC #1
across all study factors evaluated, including frequency,
quality, relevancy to needs, clarity and concern for needs
Customer Service Excellence Award Winner
among the
big 5 banks – Recognized in all 11 categories of the 2024
Ipsos Financial Service Excellence Awards for the 6th time
in 7 years
Ranked highest
in customer satisfaction among the big
5 banks in the J.D. Power 2024 Canada Retail Banking
Satisfaction Study
Best in Banking Mobile App
and
Online Banking
Satisfaction
in the J.D. Power 2024 Canada Banking Mobile
App Satisfaction Study and the J.D. Power 2024 Canada
Online Banking Satisfaction Study, respectively
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Royal Bank of Canada Annual Report 2024
RBC Global Asset Management
®
named
TopGun
Investment Team of the Year
for the 9th time
(11)
One of the
top 3 Greenwich Quality Leaders
in
Canadian Institutional Investment Management
Service for the 10th consecutive year
(12)
Recognized as the
Most Valuable Canadian Brand
for
the 6th consecutive year
(13)
Recognized as
8th Most Valuable Financial Services
Brand in the world
and
64th on the list of Top 100
Most Valuable Global Brands
(13)
RBC Capital Markets
®
recognized as the
Best Investment Bank in Canada
(14)
and for our
Outstanding Cash Management Platform, RBC Clear
,
an innovative U.S. digital cash management solution
for treasury teams
(15)
Best Private Bank in Canada
(16)
and
Best Domestic Private Bank
in Canada
(17)
RBC Dominion Securities
®
ranked
highest among
Canadian bank-owned investment brokerage firms
for the 18th consecutive year
(18)
Connected
more than 4.52 million Canadians
to a
personalized plan through MyAdvisor
®
, our digital
advice platform, since 2017
(11)
Brendan Wood International, since 2013
(12) Coalition Greenwich
(13) Kantar BrandZ
(14)
Euromoney Awards for Excellence 2024
(15)
The Digital Banker Digital CX
Awards 2024
(16)
Global Finance, Best Private Bank
Awards 2024
(17)
Euromoney, Private Banking
Awards 2024
(18)
Investment Executive Brokerage
Report Card 2024
(19)
Global Finance Magazine 2024
Best Treasury and Cash Management Bank
in Canada,
Best Trade Finance Provider
in
Canada and
Best Bank in Canada for small and
medium-sized businesses
(19)
RBCx™
supports 3,500+ tech and innovation clients
and in-house ventures like Mydoh
®
(used by 230,000+
Canadians, since 2021), Ownr
®
(registered 185,000+
Canadian businesses, since 2017), Houseful™ (supporting
12+ million consumers in Canada through access to
real estate resources) and Dr. Bill
®
(serving 17,000+
physicians, since 2020)
As the Official Financial Services Partner and
Official Ticket Access Partner of Taylor Swift | The
Eras Tour in Canada
, RBC provided Avion Rewards™
members unique access to the concerts with an
exclusive allocation of tickets and prize packages.
RBC also gave tickets to fans in the community
through Big Brothers Big Sisters of Canada
Our
newest loyalty programs with Metro Inc
. and
Pattison Food Group
and their popular household
brands broaden our Avion Rewards everyday
value offering to our clients with grocery partners
across Canada. This adds to our strategic retail
collaborations, including
Petro-Canada, WestJet,
Rexall, DoorDash
and more
NOMI Find and Save
®
has helped our Canadian retail
banking clients put aside more than $7 billion into
savings since launching in 2017
Awarded the
Celent Model Bank Award for Digital
Onboarding
and the
Digital Banker’s Digital CX
Award for Omni-Channel Customer Experiences
Launched a
Truth and Reconciliation Office
under
RBC Origins
™ with the intent to apply the principles,
norms and standards of a reconciliation framework to
RBC’s corporate policy and core operational activities
involving Indigenous peoples and their lands
and resources
Ranked 3rd overall and
#1 in Canada for AI maturity
out of 50 global financial institutions in the Evident
AI Index
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Royal Bank of Canada Annual Report 2024
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Among
Canada’s Top 100 Employers
,
Best Workplaces
and
Top Companies
in 2024
(1)(2)(3)
One of Canada’s Best Diversity Employers, Best
Workplaces for Women
and
Best Places to Work for
Disability Inclusion
(1)(2)(4)
Recognized as one of
Canada’s Top Employers for
Young People
(1)
Working Families, the U.K. charity for working parents
and carers, named
RBC
in the
U.K.
one of its
Top 30
Employers for Working Families in 2024
Employees
The starting point of our success
as a global organization is our
people, who bring our vision,
values, culture and strategy to
life every day. We take pride in
supporting and empowering our
employees as they help clients
thrive and communities prosper.
Ongoing learning is a cornerstone of how we support
our colleagues’ professional development and career
aspirations. Our workforce collectively invested
over 3 million hours
in building their technical and
business skills
(6)
Launched a new
digital wellness platform
, enabling RBC
employees to track and earn rewards for participating in
wellness challenges, activities and education
Approximately
$21 billion
in competitive compensation
and benefits
2024 highlights across our
balanced scorecard
2024 Employee Engagement Survey
found employees are
highly engaged and feel proud to be part of RBC
(5)
92%
feel they contribute to RBC’s success
87%
are proud to be part of RBC
86%
are willing to go above and beyond
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Royal Bank of Canada Annual Report 2024
(1)
MediaCorp Canada Inc.
(2)
Great Place to Work Institute
(3)
LinkedIn
(4) DisabilityIN
(5)
Employee Engagement Survey conducted between
April 24 to May 8, 2024; Participation rate was 75%
(6)
Learning hours encompass the cumulative time
devoted to various learning initiatives during fiscal
2024, including technical, business and compliance
related training from our Learning Management
System, in addition to other web-based, instructor-
led and informal learning hours. Excludes City
National
Bank as this subsidiary has not been
integrated onto our primary HR platform; includes
HSBC Bank Canada colleagues who joined RBC at the
acquisition date
(7)
Based on self-identification
(8)
BIPOC includes all individuals who self-identify as a
race/ethnicity other than White or who “prefer not to
say”. In Canada, this includes those that self-identify
as Indigenous. Indigenous Peoples is a collective
name for the original peoples of North America and
their descendants. In Canada, the term Aboriginal
Peoples is also used for individuals identifying
themselves as First Nations, Inuit or Metis.
Data represents individuals who self-identify as
Indigenous or Indigenous and another race/ethnicity
(9)
Hires include new external hires and rehires globally
excluding City National Bank and RBC Brewin
Dolphin; excludes summer interns, students and
co-ops; based on self-identification. HSBC Canada
employees who joined RBC at the acquisition date are
not included in new hires
(10)
Promotions are defined as an upward change in
Global Grade (e.g., position level). The metrics
are based on employee self-identification and the
calculation excludes students and co-ops. Excludes
City National Bank and RBC Brewin Dolphin as these
subsidiaries have not been integrated onto our
primary HR platform
(11)
A new executive appointment is the appointment of
an internal employee or external hire as a first-time
Vice President, Senior Vice President or Executive
Vice President. Our goal is to achieve representation
of 30% BIPOC executives and 50% women executives
by 2025. HSBC Canada executives who joined RBC at
the acquisition date are not included in new executive
appointments
Continued our focus on
Diversity & Inclusion
(7)
Black, Indigenous and People of
Colour (BIPOC)
(8)
represented
(7)
Welcomed
1,900+
global summer students
recruited from 300+ schools around the world
35%
of new executive
appointments, relative to
our goal of 30%
(11)
64%
of hires
(9)
48%
of promotions
(10)
Women represented
(7)
44%
of new executive
appointments, relative to
our goal of 50%
(11)
50%
of hires
(9)
53%
of promotions
(10)
15
Royal Bank of Canada Annual Report 2024
|
15
FIX IT
Communities
At RBC, our Purpose of helping
clients thrive and communities
prosper is at the heart of
everything we do. Through global
partnerships, sponsorships,
employee initiatives and
community investments, we aim
to invest in Ideas for People and
Planet to support the transition
to a net-zero economy, equip
people with skills for a thriving
future and drive more equitable
opportunities for prosperity.
RBC Training Ground,
a national talent identification and
athlete funding program, hosted 21 events in 8 regions
across Canada in 2024. Since its inception in 2016, over
16,000 athletes across Canada have put their athletic
skills to the test in hopes of being scouted for Canada’s
Olympic teams. The program has had a meaningful impact
on Canada’s Olympic performance, with 12 RBC Training
Ground alumni bringing home medals to date
In 2024,
RBC Race for the Kids™
raised over $11 million
for local youth charities across the globe. Since inception
in 2009, RBC Race for the Kids has hosted over 470,000
participants and raised $100+ million in fundraising
Through the
RBC Celebration of Impact
, where employees
track and celebrate community engagement, RBC employees
donated over $26.5 million in 2023, supporting over 11,800
charities in nearly 100 countries around the world
Through RBC Emerging Artists, RBC and RBC Foundation
have helped equip the next generation of creatives with
skills for a thriving future. Since 2004, investments in arts
organizations have exceeded $140 million, supporting
51,500+ individual creatives
RBC Charity Day for the Kids
donated US$5 million to
78 youth charities around the globe. Since launching
in 2015, this initiative has donated US$35.2 million to
140+ organizations
Since 2017,
RBC Future Launch
®
has reached
8.4+ million Canadian youth and provided $451 million of
the $500 million commitment by 2025 through 960+ partner
programs, helping set up young people in our communities
with skills needed for a thriving future
2024 highlights across our
balanced scorecard
16
|
Royal Bank of Canada Annual Report 2024
(1)
Includes donations and community investments made by RBC, RBC Foundation or RBC Foundation
USA, employee volunteer grants and gifts in kind, as well as
contributions to non-profits and non-registered charities. Figure includes community sponsorships and investments made to the RBC Communities Together
Fund, RBC Emerging Artists, RBC Future Launch and RBC Tech for Nature
™
(2)
Since October 2019 for McGill University, January 2022 for University of Guelph, and May 2022 for Western University
(3)
Groups that share a particular characteristic, as well as geographic communities, who have been systematically denied a full opportunity to participate in
aspects of economic, social and civic life. These groups may include but are not limited to people who are socio-economically disadvantaged, geographically
isolated, educationally disenfranchised people, or those who have been historically excluded due to race, gender, sexual orientation, disability status or other
identity-based factors
My Money Matters
™ is RBC’s digital
destination of comprehensive content,
resources and tools to help Canadians
navigate their personal relationship with
money. Since launching in 2023, the site has
been visited 2.5+ million times
Over 18,000 RBC employees and retirees tracked
317,600 volunteer hours in 2024 through our
myCommunity platform
RBC, RBC Foundation and RBC Foundation
USA together provided $184+
million
globally
through
community investments
, with RBC
providing nearly $2.1 million in
humanitarian
and relief
support efforts globally, including
disaster response efforts in Canada
(1)
RBC proudly celebrated its 77th year as a
partner of Team Canada at the
Paris 2024
Olympic Games
. This year, 16 RBC Olympians
were named to the Team Canada delegation,
with 4 bringing home medals. Since its
inception in 2002, hundreds of current and
former Olympians have benefited from the
RBC Olympians Program
In 2024, the
RBC Communities Together
Fund
, a program that enables employees to
help address pressing needs in their regions,
supported 2,500 volunteer projects, engaging
6,000+ employees in 6 countries, mobilizing
$3.8+ million in grants and tracking nearly
37,300 volunteer hours
In collaboration with professors from
McGill
University, Ivey Business School at Western
University and Guelph University
, RBC
enables individuals and small business owners
to build confidence and new skills. To date,
(2)
more than 380,000 Canadians have registered
for free online courses in financial literacy,
entrepreneurship and agriculture management
RBC launched a Separately Managed Account
impact investment initiative that supports
underserved communities
(3)
across the U.S.,
making it easier for our clients to invest
specifically in pools of government-guaranteed
small-business loans
17
Royal Bank of Canada Annual Report 2024
|
17
Planet
RBC is working together with
our clients and other key
stakeholders to support the
transition to a net-zero economy,
while supporting clients in
high-emitting, hard-to-abate,
traditional energy sectors to
meet the needs of today.
We’re doing this by actively
engaging Capital Markets and
Commercial Banking clients to
understand their transition plans,
providing financial solutions for
emission reduction efforts and
convening key stakeholders to
advance ideas that contribute to
Canada’s climate progress.
(1)
The Client Engagement Approach on Climate is available at rbc.com/climate
(2)
Our low-carbon energy lending goal and exposures are measured on an authorized lending
basis, to reflect our total lending commitment. Low-carbon energy activities include
the construction, development, operation, acquisition, maintenance and connection of:
renewable energy sources (e.g., solar, wind), other low-carbon energy sources (e.g., nuclear
and hydrogen) as well as electricity transmission and distribution systems, energy storage
devices (e.g., batteries) and efficiency improvements (e.g., smart grids). For details on the
eligibility criteria refer to our Sustainable Finance Framework at rbc.com/esgreporting.
For power generation clients in Capital Markets that have more than one energy source,
authorized lending exposure is allocated on a pro-rata basis as a share of generation type
based on revenue or an available proxy
(3)
For purposes of identifying and tracking investment commitments eligible to count towards
this goal and disclosing our progress towards this goal, climate solutions are technology,
products, services or actions that help mitigate or adapt to the impacts of climate change.
Solutions include those that support GHG emissions reductions and/or the low-carbon
transition, but also those that support outcomes linked to society’s resilience to the physical
impacts of climate change (e.g. adaptation of infrastructure, nature and/or biodiversity
gains).
While our approach may evolve over time, we intend to prioritize allocating capital
toward solutions that will lead to GHG emissions reductions in Canada and globally.
We aspire to achieve this goal by 2030; however, legislative and regulatory changes,
market developments and/or changes in data availability and reliability, technological
advancements, and the evolution of climate science and transition pathways, among other
factors — many of which are beyond our control and the effects of which can be difficult
to predict, could impact our ability to invest capital to advance climate solutions over this
timeframe
2024 highlights across our
balanced scorecard
We completed the first year of client engagement under
RBC’s
Client Engagement Approach on Climate – Energy
Sector
, which outlines RBC Capital Markets’ approach to
engagement with its energy sector clients on their plans
for the energy transition
(1)
RBC set a goal to
triple lending to renewable energy
across RBC Capital Markets and Commercial Banking from
$5 billion in 2023 to $15 billion and to grow overall low-
carbon energy lending to $35 billion by 2030
(2)
We set a goal to allocate
$1 billion
by 2030 to support the
development and scaling of climate solutions
(3)
RBC Capital Markets was joint lead arranger and joint
bookrunner on a US$2.25 billion tax equity term loan to
support Pattern’s SunZia wind and transmission project, a
major renewable energy infrastructure project in the U.S.
RBC provided 2 green loans to Nicola Wealth Real Estate
for the construction of a multi-family rental apartment
building that is targeting certain levels of energy efficiency
in Victoria and an advanced self-storage facility, which is
certified under Canada’s Green Building Council (CaGBC)
Zero Carbon Building – Design Standard
RBC financed the Higgins Mountain Wind Project, a 100
MW wind power project in Nova Scotia led by Elemental
Energy, along with their partners, Sipekne’katik First
Nation and Stevens Wind
RBC Tech for Nature
™ supported 140+ community
investment partners in areas such as agriculture, energy
and nature-based climate solutions through $29 million in
community investments, an increase of 38% from 2023.
Since 2019, RBC and RBC Foundation have invested $90
million of the $100-million commitment by 2025 to help
address climate change and biodiversity loss
18
|
Royal Bank of Canada Annual Report 2024
RBC announced plans to accelerate the retrofit
of the Canadian branch network where we are
responsible for HVAC by investing $35 million over
3 years (2025-2027) in the first phase through
the installation of energy efficient, low-carbon
heating and cooling systems such as heat pumps,
which will replace aging heating, ventilation and
air conditioning equipment
To learn more about RBC’s climate
commitments, please visit rbc.com/climate
The
Canadian Alliance for Net-Zero Agri-food
(CANZA)
, a Generate Canada Solution Space, is
an industry alliance of which RBC is a founding
member, that is continuing its work on the
Climate-Smart Farming Initiative. CANZA has
been working on a pilot project in Saskatchewan
with the University of Guelph and the University
of Saskatchewan to evaluate new tools to
measure and monitor soil carbon to help farmers
implement climate-smart agricultural practices
and create related income
We released The RBC Climate Action Institute’s
inaugural annual report on Canada’s net-zero
progress, exploring the challenges and opportunities
for Canada’s climate journey
19
Royal Bank of Canada Annual Report 2024
|
19
(1)
A medium-term (3-5 year) objective is considered to be
achieved when the performance goal is met in either a
3- or 5-year period. These objectives assume a normal
business environment and our ability to achieve them in a
period may be adversely affected by the macroeconomic
backdrop and the cyclical nature of the credit cycle. Our
financial performance reflects the impact of specified
items and the amortization of acquisition related
intangibles
(2)
Annualized TSR is calculated based on the TSX common
share price appreciation plus reinvested dividend income.
Source: Bloomberg, as at October 31, 2024. Please refer to
page 27
(3)
Excludes Corporate Support
(4)
Compound Annual Growth Rate
Financial performance metrics
Medium-Term Objectives
(1)
3-Year
5-Year
Diluted EPS growth of 7%+
1%
5%
ROE of 16%+
15.0%
15.6%
Strong capital ratio (CET1)
13.4%
13.3%
Dividend payout ratio of 40%–50%
49%
48%
Total shareholder return
(2)
Medium-Term Objectives
(1)
3-Year
5-Year
RBC
14%
14%
Global peer average
11%
12%
Earnings
net income (C$ billion)
Annualized
Dividend
Increase of:
7%
Five year
(4)
7%
Ten year
(4)
$14.6
2023
2024
$16.2
Revenue by segment
(3)
(C$ billion)
Shareholders
RBC is driven by its
vision
,
values
and
commitment
to delivering
long-term results.
$12.0
Capital
Markets
$19.6
Wealth
Management
$1.2
Insurance
$17.3
Personal
Banking
$7.4
Commercial
Banking
2024 highlights across our
balanced scorecard
20
|
Royal Bank of Canada Annual Report 2024
(5) Refer to the Glossary for definition on page 138
(6)
Refer to the Glossary for definition on page 137
(7)
Total payout ratio is calculated as total common shareholder distributions (common dividends of $7,916 million + common share repurchases of $140 million) as a
percentage of net income available to common shareholders ($15,908 million). $8.1 billion is for common shares
14.4%
return on common equity
(5)
$5.60
dividends declared per share
, up 5%
from 2023; dividend payout ratio of 50%
13.2%
robust common equity tier 1 (CET1) ratio
(6)
Prudent risk management
with 28 basis points of provision for
credit losses (PCL) on impaired loans
$11.25
diluted earnings per share (EPS)
, up 9%
from 2023
Strong funding profile
99% ratio of loans to deposits in
Canadian Banking
$8.1 billion of profits returned to our
shareholders
through dividends and
share repurchases; total payout ratio
of 51%
(7)
21
Royal Bank of Canada Annual Report 2024
|
21
Management’s Discussion and Analysis
Management’s Discussion and Analysis (MD&A) is provided to enable a reader to assess our results of operations and financial condition for the fiscal
year ended October 31, 2024, compared to the preceding fiscal year. This MD&A should be read in conjunction with our 2024 Annual Consolidated
Financial Statements and related notes and is dated December 3, 2024. Effective November 1, 2023, we adopted IFRS 17
Insurance Contracts
(IFRS 17).
Comparative amounts have been restated from those previously presented. All amounts are in Canadian dollars, unless otherwise specified, and are
based on financial statements presented in accordance with International Financial Reporting Standards (IFRS) as issued by the International
Accounting Standards Board (IASB), unless otherwise noted.
Additional information about us, including our 2024 Annual Information Form, is available free of charge on our website at rbc.com/investorrelations, on
the Canadian Securities Administrators’ website, SEDAR+, at sedarplus.com and on the EDGAR section of the United States (U.S.) Securities and Exchange
Commission’s (SEC) website at sec.gov.
Information contained in or otherwise accessible through the websites mentioned herein does not form part of this report. All references in this report to
websites are inactive textual references and are for your information only.
Table of contents
Caution regarding forward-looking
statements
22
Overview and outlook
23
Selected financial and other highlights
23
About Royal Bank of Canada
24
Vision and strategic goals
24
Economic, market and regulatory
review and outlook
24
Key corporate events of 2024
25
Defining and measuring success
through total shareholder returns
26
Financial performance
27
Overview
27
Impact of foreign currency translation
27
Total revenue
28
Provision for credit losses
29
Non-interest expense
30
Income and other taxes
30
Client assets
31
Business segment results
32
Results by business segment
32
How we measure and report our
business segments
32
Key performance and non-GAAP
measures
33
Personal Banking
37
Commercial Banking
42
Wealth Management
45
Insurance
52
Capital Markets
55
Corporate Support
60
Quarterly financial information
61
Fourth quarter performance
61
Quarterly results and trend analysis
62
Financial condition
63
Condensed balance sheets
63
Off-balance sheet arrangements
64
Risk management
66
Top and emerging risks
66
Overview
69
Enterprise risk management
70
Principal risks
75
Credit risk
75
Market risk
85
Liquidity and funding risk
90
Insurance risk
104
Operational risk
104
Compliance risk
107
Strategic risk
107
Reputation risk
108
Overview of other risks
108
Legal and regulatory environment risk
108
Competitive risk
109
Systemic risk
110
Government fiscal, monetary and
other policies
110
Tax risk and transparency
110
Environmental and social risk
111
Capital management
114
Accounting and control matters
125
Critical accounting policies and
estimates
125
Controls and procedures
129
Related party transactions
129
Supplementary information
129
Glossary
137
Enhanced Disclosure Task Force
recommendations index
140
Caution regarding forward-looking statements
From time to time, we make written or oral forward-looking statements within the meaning of certain securities laws, including the “safe harbour” provisions
of the
United States Private Securities Litigation Reform Act of 1995
and any applicable Canadian securities legislation. We may make forward-looking
statements in this 2024 Annual Report, in other filings with Canadian regulators or the SEC, in other reports to shareholders, and in other communications. In
addition, our representatives may communicate forward-looking statements orally to analysts, investors, the media and others. Forward-looking statements
in this document include, but are not limited to, statements relating to our financial performance objectives, priorities, vision and strategic goals, the
economic, market, and regulatory review and outlook for Canadian, U.S., United Kingdom (U.K.), European and global economies, the regulatory environment
in which we operate, the expected impacts of the HSBC Bank Canada (HSBC Canada) transaction, including transaction and integration costs, the Strategic
priorities and Outlook sections for each of our business segments, the risk environment including our credit risk, market risk, liquidity and funding risk as
well as the effectiveness of our risk monitoring, our climate- and sustainability-related beliefs, targets and goals and related legal and regulatory
developments, and include statements made by our President and Chief Executive Officer and other members of management. The forward-looking
statements contained in this document represent the views of management and are presented for the purpose of assisting the holders of our securities and
financial analysts in understanding our financial position and results of operations as at and for the periods ended on the dates presented, as well as our
financial performance objectives, vision, strategic goals and priorities and anticipated financial performance, and may not be appropriate for other
purposes. Forward-looking statements are typically identified by words such as “believe”, “expect”, “suggest”, “seek”, “foresee”, “forecast”, “schedule”,
“anticipate”, “intend”, “estimate”, “goal”, “commit”, “target”, “objective”, “plan”, “outlook”, “timeline” and “project” and similar expressions of future or
conditional verbs such as “will”, “may”, “might”, “should”, “could”, “can”, “would” or negative or grammatical variations thereof.
By their very nature, forward-looking statements require us to make assumptions and are subject to inherent risks and uncertainties, both general and
specific in nature, which give rise to the possibility that our predictions, forecasts, projections, expectations or conclusions will not prove to be accurate,
that our assumptions may not be correct, that our financial performance, environmental & social or other objectives, vision and strategic goals will not be
achieved, and that our actual results may differ materially from such predictions, forecasts, projections, expectations or conclusions.
We caution readers not to place undue reliance on our forward-looking statements as a number of risk factors could cause our actual results to differ
materially from the expectations expressed in such forward-looking statements. These factors – many of which are beyond our control and the effects of
which can be difficult to predict – include, but are not limited to: credit, market, liquidity and funding, insurance, operational, compliance (which could lead
to us being subject to various legal and regulatory proceedings, the potential outcome of which could include regulatory restrictions, penalties and fines),
strategic, reputation, legal and regulatory environment, competitive and systemic risks and other risks discussed in the risk sections of our 2024 Annual
Report, including business and economic conditions in the geographic regions in which we operate, Canadian housing and household indebtedness,
information technology, cyber and third-party risks, geopolitical uncertainty, environmental and social risk, digital disruption and innovation, privacy and
data related risks, regulatory changes, culture and conduct risks, the effects of changes in government fiscal, monetary and other policies, tax risk and
transparency, and our ability to anticipate and successfully manage risks arising from all of the foregoing factors. Additional factors that could cause actual
results to differ materially from the expectations in such forward-looking statements can be found in the risk sections of our 2024 Annual Report, as may be
updated by subsequent quarterly reports.
We caution that the foregoing list of risk factors is not exhaustive and other factors could also adversely affect our results. When relying on our
forward-looking statements to make decisions with respect to us, investors and others should carefully consider the foregoing factors and other
uncertainties and potential events, as well as the inherent uncertainty of forward-looking statements. Material economic assumptions underlying the
forward-looking statements contained in this 2024 Annual Report are set out in the Economic, market and regulatory review and outlook section and for each
business segment under the Strategic priorities and Outlook headings, as such sections may be updated by subsequent quarterly reports. Assumptions
about costs related to post-close consolidation and integration activities were considered in the estimation of transaction and integration costs. Any
forward-looking statements contained in this document represent the views of management only as of the date hereof, and except as required by law, we do
not undertake to update any forward-looking statement, whether written or oral, that may be made from time to time by us or on our behalf.
Additional information about these and other factors can be found in the risk sections of this 2024 Annual Report, as may be updated by subsequent
quarterly reports.
22
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Overview and outlook
Selected financial and other highlights
Table 1
(Millions of Canadian dollars, except per share, number of and percentage amounts)
2024
(1)
2023
(2)
2024 vs. 2023
Increase (decrease)
Total revenue
$
57,344
$
51,464
$
5,880
11.4%
Provision for credit losses (PCL)
3,232
2,468
764
n.m.
Non-interest expense
34,250
30,813
3,437
11.2%
Income before income taxes
19,862
18,183
1,679
9.2%
Net income
$
16,240
$
14,612
$
1,628
11.1%
Net income – adjusted
(3), (4)
$
17,430
$
15,829
$
1,601
10.1%
Segments – net income
Personal Banking
(5)
$
5,921
$
5,418
$
503
9.3%
Commercial Banking
(5)
2,818
2,582
236
9.1%
Wealth Management
(5)
3,422
2,693
729
27.1%
Insurance
729
549
180
32.8%
Capital Markets
4,573
4,139
434
10.5%
Corporate Support
(1,223)
(769)
(454)
n.m.
Net income
$
16,240
$
14,612
$
1,628
11.1%
Selected information
Earnings per share (EPS) – basic
$
11.27
$
10.33
$
0.94
9.1%
– diluted
11.25
10.32
0.93
9.0%
– basic adjusted
(3), (4)
12.11
11.21
0.90
8.0%
– diluted adjusted
(3), (4)
12.09
11.19
0.90
8.0%
Return on common equity (ROE)
(4)
14.4%
14.3%
n.m.
10 bps
ROE – adjusted
(3), (4)
15.5%
15.5%
n.m.
– bps
Average common equity
(6)
$
110,650
$
100,400
$
10,250
10.2%
Net interest margin (NIM) – on average earning assets, net
(4)
1.54%
1.50%
n.m.
4 bps
PCL on loans as a % of average net loans and acceptances
0.35%
0.29%
n.m.
6 bps
PCL on performing loans as a % of average net loans and acceptances
0.07%
0.08%
n.m.
(1) bps
PCL on impaired loans as a % of average net loans and acceptances
0.28%
0.21%
n.m.
7 bps
Gross impaired loans (GIL) as a % of loans and acceptances
0.59%
0.42%
n.m.
17 bps
Liquidity coverage ratio (LCR)
(4), (7)
128%
131%
n.m.
(300) bps
Net stable funding ratio (NSFR)
(4), (7)
114%
113%
n.m.
100 bps
Capital, Leverage and Total loss absorbing capacity (TLAC) ratios
(4), (8), (9)
Common Equity Tier 1 (CET1) ratio
13.2%
14.5%
n.m.
(130) bps
Tier 1 capital ratio
14.6%
15.7%
n.m.
(110) bps
Total capital ratio
16.4%
17.6%
n.m.
(120) bps
Leverage ratio
4.2%
4.3%
n.m.
(10) bps
TLAC ratio
29.3%
31.0%
n.m.
(170) bps
TLAC leverage ratio
8.4%
8.5%
n.m.
(10) bps
Selected balance sheet and other information
(10)
Total assets
$ 2,171,582
$ 2,006,531
$
165,051
8.2%
Securities, net of applicable allowance
439,918
409,730
30,188
7.4%
Loans, net of allowance for loan losses
981,380
852,773
128,607
15.1%
Derivative related assets
150,612
142,450
8,162
5.7%
Deposits
1,409,531
1,231,687
177,844
14.4%
Common equity
118,058
107,734
10,324
9.6%
Total risk-weighted assets (RWA)
(4), (8), (9)
672,282
596,223
76,059
12.8%
Assets under management (AUM)
(4)
1,342,300
1,067,500
274,800
25.7%
Assets under administration (AUA)
(4), (11)
4,965,500
4,338,000
627,500
14.5%
Common share information
Shares outstanding (000s) – average basic
1,411,903
1,391,020
20,883
1.5%
– average diluted
1,413,755
1,392,529
21,226
1.5%
– end of period
1,414,504
1,400,511
13,993
1.0%
Dividends declared per common share
$
5.60
$
5.34
$
0.26
4.9%
Dividend yield
(4)
3.9%
4.3%
n.m.
(40) bps
Dividend payout ratio
(4)
50%
52%
n.m.
(200) bps
Common share price (RY on TSX)
(12)
$
168.39
$
110.76
$
57.63
52.0%
Market capitalization (TSX)
(12)
238,188
155,121
83,067
53.5%
Business information
(number of)
Employees (full-time equivalent) (FTE)
94,838
91,398
3,440
3.8%
Bank branches
1,292
1,247
45
3.6%
Automated teller machines (ATMs)
4,367
4,341
26
0.6%
Period average US$ equivalent of C$1.00
(13)
$
0.736
$
0.741
$
(0.005)
(0.7)%
Period-end US$ equivalent of C$1.00
$
0.718
$
0.721
$
(0.003)
(0.4)%
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal
Banking, Commercial Banking, Wealth Management and Capital Markets segments. For further details, refer to the Key corporate events section.
(2)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. For further details on the impacts of the
adoption of IFRS 17 including the description of accounting policies selected, refer to Note 2 of our 2024 Annual Consolidated Financial Statements.
(3)
These are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP measures section.
(4)
See Glossary for composition of these measures.
(5)
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments: Personal Banking and Commercial
Banking. With this change, RBC Direct Investing
®
moved from the previous Personal & Commercial Banking segment to the Wealth Management segment. Amounts have
been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of Canada section.
(6)
Average amounts are calculated using methods intended to approximate the average of the daily balances for the period.
(7)
The LCR and NSFR are calculated in accordance with the Office of the Superintendent of Financial Institutions’ (OSFI) Liquidity Adequacy Requirements (LAR) guideline.
LCR is the average for the three months ended for each respective period. For further details, refer to the Liquidity and funding risk section.
(8)
Capital ratios and RWA are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline, the Leverage ratio is calculated using OSFI’s Leverage Requirements
(LR) guideline, and both the TLAC and TLAC leverage ratios are calculated using OSFI’s TLAC guideline. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in the second quarter of 2023, as further updated on October 20, 2023 as part of OSFI’s
implementation of the Basel III reforms. The results for the year ended October 31, 2024 also reflect our adoption of the revised market risk and CVA frameworks that
came into effect on November 1, 2023. For further details, refer to the Capital management section.
(9)
As prior period restatements are not required by OSFI, there was no impact from the adoption of IFRS 17 on regulatory capital, RWA, capital ratios, leverage ratio, TLAC
available and TLAC ratios for periods prior to November 1, 2023.
(10)
Represents period-end spot balances.
(11)
AUA includes $15 billion and $6 billion (2023 – $13 billion and $7 billion) of securitized residential mortgages and credit card loans, respectively.
(12)
Based on TSX closing market price at period-end.
(13)
Average amounts are calculated using month-end spot rates for the period.
n.m. not meaningful
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
23
About Royal Bank of Canada
Royal Bank of Canada is a global financial institution with a purpose-driven, principles-led approach to delivering leading
performance. Our success comes from the 98,000+ employees who leverage their imaginations and insights to bring our vision, values
and strategy to life so we can help our clients thrive and communities prosper. As Canada’s biggest bank and one of the largest in the
world, based on market capitalization, we have a diversified business model with a focus on innovation and providing exceptional
experiences to our more than 18 million clients in Canada, the U.S. and 27 other countries. Learn more at rbc.com.
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments:
Personal Banking and Commercial Banking. With this change, RBC Direct Investing moved from the previous Personal &
Commercial Banking segment to the Wealth Management segment. Comparative results in this MD&A have been revised to
conform to our new basis of segment presentation.
Our business segments are described below.
Personal
Banking
Provides a broad suite of financial products and services to retail clients in Canada, the Caribbean and
the U.S. Our commitment to building and maintaining deep and meaningful relationships with our
clients is underscored by the delivery of exceptional client experiences, the breadth of our product
suite, our depth of expertise and the features of our digital solutions.
Commercial
Banking
Offers a wide range of lending, deposit and transaction banking products and services to Canadian
companies and foreign businesses in Canada. Our team of relationship managers and specialists
serves the full lifecycle of commercial clients, from entrepreneurs and mid-market enterprises to the
largest Canadian privately owned companies, public corporations and Canadian subsidiaries of global
multinationals.
Wealth
Management
Primarily serves affluent, high net worth (HNW) and ultra-high net worth (UHNW) clients from our
offices in key financial centres across the globe. We offer a comprehensive suite of wealth,
investment, trust, banking, credit and other solutions to this client segment. We also provide a self-
directed investment service in Canada, as well as asset management products globally to institutional
and individual clients through our distribution channels and third-party distributors. We offer asset
services and investor services to financial institutions, asset managers and asset owners in Canada.
Insurance
Offers a comprehensive suite of advice and solutions for individual and business clients including life,
health, wealth solutions, property & casualty, travel, group benefits, longevity reinsurance and
reinsurance. We provide tailored, client-led advice and solutions, harnessing the power of technology
and data and leveraging the strength and scale of the RBC enterprise as our competitive advantage.
Capital Markets
Provides expertise in advisory & origination, sales & trading, lending & financing and transaction
banking to corporations, institutional clients, asset managers, private equity firms and governments
globally. We serve clients from 58 offices in 16 countries across North America, the U.K. & Europe,
Australia, Asia and other regions.
Vision and strategic goals
Our business strategies and actions are guided by our vision,
“To be among the world’s most trusted and successful financial
institutions.”
Our three strategic goals are:
•
In Canada, to be the undisputed leader in financial services;
•
In the U.S., to be the preferred partner to institutional, corporate, commercial and HNW clients and their businesses; and
•
In select global financial centres, to be a leading financial services partner valued for our expertise.
For our progress in 2024 against our business strategies and strategic goals, refer to the Business segment results section.
Economic, market and regulatory review and outlook – data as at December 3, 2024
The predictions and forecasts in this section are based on information and assumptions from sources we consider reliable. If this
information or these assumptions are not accurate, actual economic outcomes may differ materially from the outlook presented
in this section.
Economic and market review and outlook
Central banks have begun reducing interest rates from elevated levels as inflation slows. Unemployment rates remain low across
most advanced economies but have increased more substantially in Canada. The U.S. economy remains resilient with strong GDP
growth and a low unemployment rate. The number of job openings has continued to decline, signaling a slowdown in hiring demand
but high levels of government spending are expected to continue to protect against a significant softening in U.S. labour markets in
calendar 2025. We expect the Bank of Canada (BoC) to cut interest rates more aggressively than in other regions in response to
underperforming economic growth and deteriorating labour market conditions. However, we do not expect a meaningful acceleration
of GDP growth in Canada in calendar 2025, in part because of planned reductions in Canadian immigration levels that are expected to
slow population growth. We anticipate the outperformance of the U.S. economy will lead to fewer and smaller interest rate reductions
from the U.S. Federal Reserve (Fed). GDP growth in the Euro area and the United Kingdom is expected to abate with the Bank of
England (BOE) and the European Central Bank (ECB) also expected to lower interest rates at a more gradual pace.
24
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Canada
Canadian GDP is expected to increase 1.0% in calendar 2024 following a 1.5% increase in calendar 2023. GDP has continued to
increase, in aggregate, but has declined on a per-capita basis for six consecutive quarters as of the third calendar quarter of
2024. Labour market conditions have weakened as the unemployment rate increased by 0.8% from a year ago in October and is
approximately one percent above 2019 (pre-pandemic) levels. Inflation rates have moderated sharply. Year-over-year growth in
the Canadian consumer price index (CPI) has been below the top end of the BoC’s 1% to 3% target range since January 2024, and
was at the 2% mid-point target in October. Canadian population growth is expected to slow in calendar 2025 amidst reductions in
federal government visa issuances. The weakening economy signals that inflation is likely to continue to slow, prompting further
interest rate reductions from the BoC. The BoC has already reduced the overnight rate by 125 basis points since June 2024 and we
expect further reductions to a 2.0% rate by the end of the third calendar quarter of 2025. GDP growth is expected to remain slow
in calendar 2025 with the lagged impact of lower interest rates supporting stronger per-capita GDP growth, combined with the
impact of slower population growth.
U.S.
U.S. GDP growth has remained resilient and is expected to increase 2.8% in calendar 2024 following a 2.9% increase in calendar
2023. Consumer spending has been robust despite high interest rates and employment has continued to increase at a solid pace.
Hiring demand has continued to slow, indicated by declining job openings, and wage growth has shown signs of deceleration. The
unemployment rate has edged higher but remains low at 4.1% as of October. U.S. inflation growth has slowed after showing signs
of reacceleration earlier in calendar 2024 but remains above the Fed’s 2% target. Slower price growth and gradual increases in
the unemployment rate over the last year prompted the Fed to begin lowering interest rates with a 50 basis point reduction to the
target range for the federal funds rate in September and followed with a 25 basis point reduction in November. We expect an
additional 50 basis points of reductions to the target range for the federal funds rate by the end of the first calendar quarter of
2025. A significant government budget deficit is expected to keep GDP growth positive and prevent a substantial increase in the
unemployment rate. However, this is also expected to limit the slowing in inflation and interest rates reductions in calendar 2025.
Europe
Euro area GDP is expected to rise by 0.7% in calendar 2024 following a 0.5% increase in calendar 2023. Unemployment rates
remain very low across countries in the Euro area, however GDP growth is expected to remain slow in the first half of calendar
2025. Inflation in the Euro area has slowed with year-over-year growth in consumer prices down to 2.3% in November. The ECB
has cut the deposit rate by 75 basis points since early June 2024 and we expect further gradual reductions to a 2.25% rate by the
end of the second calendar quarter of 2025. U.K. GDP is projected to rise by 0.9% in calendar 2024 after a 0.3% rise in calendar
2023. In the U.K., GDP growth strengthened over the first half of calendar 2024 but is expected to grow at a slower pace in the
second half of the year. The unemployment rate in the U.K. is expected to remain low through calendar 2025. U.K. inflation has
moderated, allowing the BOE to begin gradually lowering interest rates from higher levels. The BOE reduced the Bank Rate by
25 basis points to 4.75% in November and we expect further gradual reductions to 4.0% by the end of the third calendar quarter
of 2025.
Financial markets
Government bond yields increased after declining into the summer as markets await the extent to which central banks will be
able to cut interest rates in the year ahead, particularly in the U.S. where the economy remains resilient and inflation remains
elevated in part due to elevated government budget deficits. Equity markets have increased to record highs. Commodity prices,
on average, remain well below peak levels from 2022 but are still historically high. Oil prices have been volatile but are below
levels a year ago.
Regulatory environment
We continue to monitor and prepare for regulatory developments and changes in a manner that seeks to ensure compliance with
new requirements, while mitigating adverse business or financial impacts. Such impacts could result from new or amended laws
or regulations and the expectations of those who enforce them. A high level summary of the key regulatory changes that have the
potential to increase or decrease our costs and the complexity of our operations is included in the Legal and regulatory
environment risk section.
For a discussion on risk factors resulting from these and other developments which may affect our business and financial
results, refer to the risk sections of this 2024 Annual Report. For further details on our framework and activities to manage risks,
refer to the risk and Capital management sections of this 2024 Annual Report.
Key corporate events
HSBC Bank Canada
On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada). The acquisition of HSBC Canada (the
HSBC Canada transaction) gives us the opportunity to enhance our existing businesses in line with our strategic goals and better
positions us to be the bank of choice for commercial clients with international needs, newcomers to Canada and globally
connected clients. HSBC Canada results have been consolidated from the closing date and are included in our Personal Banking,
Commercial Banking, Wealth Management and Capital Markets segments.
Total consideration of $15.5 billion in cash included $13.5 billion for 100% of the common shares of HSBC Canada, $2.1 billion
for the preferred shares and subordinated debt held directly or indirectly by HSBC Holdings plc, $(0.5) billion for the settlement of
pre-existing relationships with HSBC Canada and $0.4 billion for an additional amount that accrued from August 30, 2023 to the
closing date. This additional amount was calculated based on the $13.5 billion all-cash purchase price for the common shares of
HSBC Canada and the Canadian Overnight Repo Rate Average. Relatedly, under a locked box mechanism, HSBC Canada’s
earnings from June 30, 2022 to the closing date accrued to RBC and were reflected in the acquired net assets on closing. For
further details, refer to Note 6 of our 2024 Annual Consolidated Financial Statements.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
25
As the fair values of HSBC Canada’s fixed rate financial assets and liabilities are sensitive to changes in market interest rates,
increases in interest rates prior to closing would have reduced the net fair value of the financial assets and liabilities to be
acquired, which would have increased the goodwill recognized on closing and reduced our capital ratios. To manage this, we had
previously de-designated certain interest rate swaps in cash flow hedging relationships such that future mark-to-market gains
(losses) were recorded in net income, instead of Other comprehensive income (OCI), to mitigate closing capital ratio volatility.
For the year ended October 31, 2024, we recognized $222 million of mark-to-market losses in Non-interest income – Other on the
swaps and $91 million in Net interest income related to the reclassification of amounts previously accumulated in OCI, both of
which are treated as specified items and reflected in Corporate Support. Subsequent to closing, we re-designated these interest
rate swaps into cash flow hedging relationships. Adjusted results excluding specified items are non-GAAP measures. For further
details, including a reconciliation, refer to the Key performance and non-GAAP measures section.
The following table provides details on the impact of the HSBC Canada transaction on our Personal Banking segment,
Commercial Banking segment and consolidated results, and reflects revenue, PCL, non-interest expenses and income taxes
associated with the acquired operations and clients, which include the acquired assets, assumed liabilities and employees with
the exception of assets and liabilities relating to treasury and liquidity management activities (HSBC Canada results).
Table 2
For the year ended October 31, 2024
Segment results –
Personal Banking
Segment results –
Commercial Banking
Consolidated results
(Millions of Canadian dollars)
Excluding
HSBC
Canada
HSBC
Canada
Total
Excluding
HSBC
Canada
HSBC
Canada
Total
Excluding
HSBC
Canada
HSBC
Canada
Total
Net interest income
$ 11,911
$
527
$ 12,438
$
5,308
$
753
$ 6,061
$
26,598
$ 1,355
$ 27,953
Non-interest income
4,822
82
4,904
1,194
127
1,321
29,030
361
29,391
Total revenue
16,733
609
17,342
6,502
880
7,382
55,628
1,716
57,344
PCL
(1)
1,745
57
1,802
671
304
975
2,861
371
3,232
Non-interest expense
7,117
368
7,485
2,238
274
2,512
33,529
721
34,250
Income before income
taxes
7,871
184
8,055
3,593
302
3,895
19,238
624
19,862
Income taxes
2,083
51
2,134
994
83
1,077
3,451
171
3,622
Net income
$
5,788
$
133
$
5,921
$
2,599
$
219
$ 2,818
$
15,787
$
453
$ 16,240
(1)
Segment results – Personal Banking and Segment results – Commercial Banking include initial PCL on purchased performing financial assets of $44 million and
$142 million, respectively. Consolidated results include initial PCL on purchased performing financial assets of $200 million, of which $193 million relates to purchased
performing loans.
Defining and measuring success through total shareholder returns
Our focus is to maximize total shareholder returns (TSR) through the achievement of top half performance compared to our
global peer group over the medium-term (3-5 years), which we believe reflects a longer-term view of strong and consistent
financial performance.
Maximizing TSR is aligned with our three strategic goals discussed in the Vision and strategic goals section and we believe
represents the most appropriate measure of shareholder value creation. TSR is a concept used to compare the performance of
our common shares over a period of time, reflecting share price appreciation and dividends paid to common shareholders. The
absolute size of TSR will vary depending on market conditions, and the bank’s position reflects the market’s perception of our
overall performance relative to our peers over a period of time.
Financial performance objectives are used to measure our performance against our medium-term TSR objectives and are
used as goals as we execute against our strategic priorities. We review and revise these financial performance objectives as
economic, market and regulatory environments change. Our financial performance reflects the impact of specified items and the
amortization of acquisition related intangibles.
The following table provides a summary of our 3-year and 5-year performance against our medium-term financial
performance objectives:
Financial performance compared to our medium-term objectives
Table 3
Medium-term objectives
(1)
3-year
(2)
5-year
(2)
Diluted EPS growth of 7% +
1%
5%
ROE of 16% +
15.0%
15.6%
Strong capital ratio (CET1)
(3)
13.4%
13.3%
Dividend payout ratio 40% – 50%
49%
48%
(1)
A medium-term (3-5 year) objective is considered to be achieved when the performance goal is met in either a 3- or 5-year period. These objectives assume a normal
business environment and our ability to achieve them in a period may be adversely affected by the macroeconomic backdrop and the cyclical nature of the credit cycle.
(2)
Diluted EPS growth is calculated using a Compound Annual Growth Rate (CAGR). ROE, CET1 and dividend payout ratio are calculated using an average.
(3)
The CET1 ratio is calculated using OSFI’s CAR guideline. For further details on the CET1 ratio, refer to the Capital management section.
Our 3-year and 5-year medium-term financial performance objectives will remain unchanged in fiscal 2025.
26
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
We compare our TSR to that of a global peer group approved by our Board of Directors (the Board). The global peer group
consists of the following 9 financial institutions:
•
Canadian financial institutions:
Bank of Montreal, Canadian Imperial Bank of Commerce, Manulife Financial Corporation,
National Bank of Canada, The Bank of Nova Scotia, and The Toronto-Dominion Bank.
•
U.S. banks:
JPMorgan Chase & Co. and Wells Fargo & Company.
•
International banks:
Westpac Banking Corporation.
Medium-term objectives – 3- and 5-year TSR vs. peer group average
Table 4
3-year TSR
(1)
5-year TSR
(1)
Royal Bank of Canada
14%
14%
Top half
Top half
Peer group average (excluding RBC)
11%
12%
(1)
The 3- and 5-year annualized TSR are calculated based on our common share price appreciation as per the TSX closing market price plus reinvested dividends for the
period October 31, 2021 to October 31, 2024 and October 31, 2019 to October 31, 2024.
Common share and dividend information
Table 5
For the year ended October 31
2024
2023
2022
2021
2020
Common share price (RY on TSX) – close, end of period
$ 168.39
$
110.76
$ 126.05
$ 128.82
$
93.16
Dividends paid per share
5.60
5.34
4.96
4.32
4.26
Increase (decrease) in share price
52.0%
(12.1)%
(2.2)%
38.3%
(12.3)%
Total shareholder return
57.8%
(8.3)%
1.6%
43.8%
(8.4)%
Financial performance
Overview
2024 vs. 2023
Net income of $16,240 million was up $1,628 million or 11% from last year. Diluted EPS of $11.25 was up $0.93 or 9% and ROE of
14.4% was up 10 bps. Our CET1 ratio was 13.2%, down 130 bps from last year.
Adjusted net income of $17,430 million was up $1,601 million or 10%. Adjusted diluted EPS of $12.09 was up $0.90 or 8% and
adjusted ROE of 15.5% remained unchanged.
Our earnings were up from last year, primarily driven by higher results across all of our business segments. Prior year results
reflect the impact of the Canada Recovery Dividend (CRD) and other tax related adjustments, as well as the favourable impact of
certain deferred tax adjustments, both of which were treated as specified items and reported in Corporate Support. Results in the
current year also reflect higher HSBC Canada transaction and integration costs, which is treated as a specified item, and
unallocated costs in Corporate Support.
For further details on our business segment results and CET1 ratio, refer to the Business segment results and Capital
management sections, respectively.
Adjusted results
Adjusted results exclude specified items and the after-tax impact of amortization of acquisition-related intangibles. Adjusted
results are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP
measures section.
Impact of foreign currency translation
The following table reflects the estimated impact of foreign currency translation on key income statement items:
Table 6
(Millions of Canadian dollars, except per share amounts)
2024 vs. 2023
Increase (decrease):
Total revenue
$
310
PCL
6
Non-interest expense
219
Income taxes
(4)
Net income
89
Impact on EPS
Basic
$
0.06
Diluted
0.06
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
27
The relevant average exchange rates that impact our business are shown in the following table:
Table 7
(Average foreign currency equivalent of C$1.00) (1)
2024
2023
U.S. dollar
0.736
0.741
British pound
0.575
0.599
Euro
0.677
0.689
(1)
Average amounts are calculated using month-end spot rates for the period.
Total revenue
Table 8
(Millions of Canadian dollars, except percentage amounts)
2024
2023
(1)
Interest and dividend income
$ 104,951
$
86,991
Interest expense
76,998
61,862
Net interest income
$
27,953
$
25,129
NIM
1.54%
1.50%
Insurance service result
$
777
$
703
Insurance investment result
(2)
294
156
Trading revenue
2,327
2,392
Investment management and custodial fees
9,325
8,344
Mutual fund revenue
4,437
4,063
Securities brokerage commissions
1,660
1,463
Service charges
2,294
2,099
Underwriting and other advisory fees
2,672
2,005
Foreign exchange revenue, other than trading
1,142
1,292
Card service revenue
1,273
1,240
Credit fees
1,592
1,489
Net gains on investment securities
170
193
Income (loss) from joint ventures and associates
(16)
(219)
Other
1,444
1,115
Non-interest income
$
29,391
$
26,335
Total revenue
$
57,344
$
51,464
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective
November 1, 2023. Refer to Note 2 of our 2024 Annual Consolidated Financial Statements for further details on these
changes.
(2)
The 2023 restated results may not be fully comparable to the current period as we were not managing our asset and
liability portfolios under IFRS 17.
2024 vs. 2023
Total revenue increased $5,880 million or 11% from last year, mainly due to higher net interest income and investment
management and custodial fees. Higher underwriting and other advisory fees, mutual fund revenue, and other revenue also
contributed to the increase. The prior year also reflected impact of a specified item in income (loss) from joint ventures and
associates. The impact of foreign exchange translation increased revenue by $310 million. The inclusion of HSBC Canada revenue
contributed $1,716 million to total revenue.
Net interest income increased $2,824 million or 11%, of which $1,355 million reflects the inclusion of HSBC Canada net interest
income. The remaining increase of $1,469 million or 6% was largely due to average volume growth and higher spreads in both
Personal Banking and Commercial Banking.
NIM was up 4 bps compared to last year, mainly driven by the benefit of higher interest rates across most of our business
segments, favourable product mix shift in Personal Banking and the acquisition of HSBC Canada including the accretion of fair
value adjustments. These factors were partially offset by competitive pricing pressures in Personal Banking and Commercial
Banking and higher funding costs in Capital Markets.
Investment management and custodial fees increased $981 million or 12%, mainly reflecting higher fee-based client assets
reflecting market appreciation and net sales.
Mutual fund revenue increased $374 million or 9%, largely due to higher fee-based client assets reflecting market
appreciation and net sales in Wealth Management, and higher average mutual fund balances driving higher distribution fees in
Personal Banking.
Underwriting and other advisory fees increased $667 million or 33%, mainly due to higher debt origination across all regions
and higher M&A activity across most regions.
Income (loss) from joint ventures and associates improved $203 million, as the prior year included the impact of the
specified item relating to impairment losses on our interest in an associated company in Wealth Management.
Other revenue increased $329 million or 30%, mainly attributable to changes in the fair value of the hedges related to our
U.S. share-based compensation plans, which was largely offset in Non-interest expense, as well as the impact of economic
hedges. These factors were partially offset by the impact of management of closing capital volatility related to the HSBC Canada
transaction, which is treated as a specified item.
28
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Additional trading information
Table 9
(Millions of Canadian dollars)
2024
2023
Net interest income
(1)
$
1,742
$
1,510
Non-interest income
2,327
2,392
Total trading revenue
$
4,069
$
3,902
Total trading revenue by product
Interest rate and credit
$
2,371
$
2,528
Equities
817
604
Foreign exchange and commodities
881
770
Total trading revenue
$
4,069
$
3,902
(1)
Reflects net interest income arising from trading-related positions, including assets and liabilities that are classified or
designated at fair value through profit or loss (FVTPL).
2024 vs. 2023
Total trading revenue of $4,069 million, which is comprised of trading-related revenue recorded in Net interest income and
Non-interest income, increased $167 million or 4% from last year, mainly due to higher equity trading revenue across all regions
and higher foreign exchange trading revenue. This was partially offset by lower fixed income trading revenue across most regions.
Provision for credit losses
(1)
Table 10
For the year ended
(Millions of Canadian dollars, except percentage amounts)
October 31
2024
October 31
2023
Personal Banking
(2)
$
399
$
301
Commercial Banking
(2)
260
68
Wealth Management
(2)
(119)
154
Capital Markets
86
137
Corporate Support and other
(3)
1
–
PCL on performing loans
627
660
Personal Banking
(2)
$
1,418
$
978
Commercial Banking
(2)
714
247
Wealth Management
148
175
Capital Markets
340
436
Corporate Support and other
–
–
PCL on impaired loans
(3)
2,620
1,836
PCL – Loans
3,247
2,496
PCL – Other
(4)
(15)
(28)
Total PCL
$
3,232
$
2,468
PCL on loans is comprised of:
Retail
$
414
$
295
Wholesale
213
365
PCL on performing loans
627
660
Retail
1,586
1,051
Wholesale
1,034
785
PCL on impaired loans
2,620
1,836
PCL – Loans
$
3,247
$
2,496
PCL on loans as a % of average net loans and acceptances
0.35%
0.29%
PCL on impaired loans as a % of average net loans and
acceptances
0.28%
0.21%
(1)
Information on loans represents loans, acceptances and commitments.
(2)
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.
(3)
Includes PCL recorded in Corporate Support and Insurance.
(4)
PCL – Other includes amounts related to debt securities measured at fair value through other comprehensive income
(FVOCI) and amortized cost, accounts receivable, and financial and purchased guarantees.
2024 vs. 2023
Total PCL increased $764 million or 31% from last year, mainly due to higher provisions in Commercial Banking and Personal
Banking, partially offset by lower provisions in Wealth Management and Capital Markets. The PCL on loans ratio increased 6 bps.
PCL on performing loans decreased $33 million or 5%, largely due to favourable changes to our macroeconomic forecast and
scenario weights, partially offset by unfavourable changes in credit quality and the initial PCL on performing loans purchased in
the HSBC Canada transaction.
PCL on impaired loans increased $784 million or 43%, mainly due to higher provisions in Commercial Banking and Personal
Banking, partially offset by lower provisions in Capital Markets.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
29
Non-interest expense
Table 11
(Millions of Canadian dollars, except percentage amounts)
2024
2023
(1)
Salaries
$
8,878
$
8,478
Variable compensation
8,838
7,608
Benefits and retention compensation
2,408
2,139
Share-based compensation
959
628
Human resources
21,083
18,853
Equipment
2,537
2,381
Occupancy
1,805
1,619
Communications
1,369
1,261
Professional fees
2,525
2,171
Amortization of other intangibles
1,549
1,471
Other
3,382
3,057
Non-interest expense
$
34,250
$
30,813
Efficiency ratio
(2)
59.7%
59.9%
Efficiency ratio – adjusted
(2), (3)
57.1%
58.2%
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective
November 1, 2023. Refer to Note 2 of our 2024 Annual Consolidated Financial Statements for further details on these
changes.
(2)
See Glossary for composition of these measures.
(3)
This is a non-GAAP ratio. For further details, including a reconciliation, refer to the Key performance and non-GAAP
measures section.
2024 vs. 2023
Non-interest expense increased $3,437 million or 11% from last year, of which $721 million reflects the inclusion of HSBC Canada
non-interest expense. The remaining increase of $2,716 million or 9% was primarily due to higher variable compensation costs
commensurate with increased revenue, higher HSBC Canada transaction and integration costs, which is treated as a specified
item, as well as the change in the fair value of our U.S. share-based compensation plans, which was largely offset in Other
revenue. Higher staff costs, the impact of foreign exchange translation and ongoing technology investments also contributed to
the increase. These factors were partially offset by reduced expenses following the sale of RBC Investor Services.
Our efficiency ratio of 59.7% decreased 20 bps from 59.9% last year. Our adjusted efficiency ratio of 57.1% decreased 110 bps
from 58.2% last year.
Adjusted efficiency ratio is a non-GAAP ratio. For further details, including a reconciliation, refer to the Key performance and
non-GAAP measures section.
Income and other taxes
Table 12
(Millions of Canadian dollars, except percentage amounts)
2024
2023
(1)
Income taxes
$
3,622
$
3,571
Other taxes
Value added and sales taxes
680
597
Payroll taxes
1,060
990
Capital taxes
47
55
Property taxes
155
144
Insurance premium taxes
45
35
Business taxes
61
82
2,048
1,903
Total income and other taxes
$
5,670
$
5,474
Income before income taxes
$
19,862
$
18,183
Effective income tax rate
18.2%
19.6%
Effective total tax rate
(2)
25.9%
27.3%
Adjusted results
(3), (4)
Income taxes – adjusted
$
3,984
$
3,317
Income before income taxes – adjusted
21,414
19,146
Effective income tax rate – adjusted
18.6%
17.3%
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective
November 1, 2023. Refer to Note 2 of our 2024 Annual Consolidated Financial Statements for further details on these
changes.
(2)
Total income and other taxes as a percentage of income before income taxes and other taxes.
(3)
These are non-GAAP measures. For further details, including a reconciliation, refer to the Key performance and non-GAAP
measures section.
(4)
See Glossary for composition of these measures.
30
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
2024 vs. 2023
Income tax expense increased $51 million or 1% from last year, primarily due to the impact of certain deferred tax adjustments in
the prior year, which was treated as a specified item, higher income before income taxes and the net impact of tax adjustments.
These factors were partially offset by the impact of the CRD and other tax related adjustments, which was treated as a specified
item in the prior year, and the impact of changes in earnings mix. Adjusted income tax expense increased $667 million or 20%.
The effective income tax rate of 18.2% decreased 140 bps, primarily due to the impact of the CRD and other tax related
adjustments noted above. This factor was partially offset by the impact of certain prior year deferred tax adjustments noted
above, the net impact of tax adjustments and the impact of changes in earnings mix. Adjusted effective income tax rate of 18.6%
increased 130 bps.
Other taxes increased $145 million or 8% from last year, primarily due to higher value added and sales taxes commensurate
with increased purchase activity and higher payroll taxes driven by higher staff-related costs.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Client assets
Assets under administration
AUA are assets administered by us which are beneficially owned by our clients. We provide services that are administrative in
nature, including safekeeping, collecting investment income, settling purchase and sale transactions, and record keeping.
Underlying investment strategies within AUA are determined by our clients and generally do not impact the administrative fees
that we receive. Administrative fees can be impacted by factors such as asset valuation level changes from market movements,
types of services administered, transaction volumes, geography and client relationship pricing based on volumes or multiple
services.
Our Wealth Management business is the primary business segment that has AUA with approximately 94% of total AUA,
mainly in the Investor Services line of business with approximately 54% of AUA, as at October 31, 2024. The Personal Banking
business has approximately 5% of total AUA.
2024 vs. 2023
AUA increased $628 billion or 14% from last year, primarily due to market appreciation.
The following table summarizes AUA by geography and asset class:
AUA by geographic mix and asset class
Table 13
(Millions of Canadian dollars)
2024
2023
Canada
(1)
Money market
$
32,800
$
34,900
Fixed income
784,600
705,800
Equity
701,800
770,500
Multi-asset and other
1,458,300
1,045,800
Total Canada
2,977,500
2,557,000
U.S.
(1)
Money market
36,600
31,600
Fixed income
144,600
131,600
Equity
335,900
271,600
Multi-asset and other
432,900
326,500
Total U.S.
950,000
761,300
Other International
(1)
Money market
19,200
19,100
Fixed income
130,800
130,000
Equity
425,600
404,100
Multi-asset and other
462,400
466,500
Total International
1,038,000
1,019,700
Total AUA
$ 4,965,500
$ 4,338,000
(1)
Geographic information is based on the location from where our clients are serviced.
Assets under management
AUM are assets managed by us which are beneficially owned by our clients. Management fees are paid by the investment funds
and other clients for the investment capabilities of an investment manager and can also cover administrative services.
Management fees may be calculated daily, monthly or quarterly as a percentage of the AUM, depending on the distribution
channel, product and investment strategies. In general, equity strategies carry a higher fee rate than fixed income or money
market strategies. Fees are also impacted by asset mix and relationship pricing for clients using multiple services. Higher risk
assets generally produce higher fees, while clients using multiple services can take advantage of synergies which reduce the fees
they are charged. Certain funds may have performance fee arrangements where fees are recorded when certain benchmarks or
performance targets are achieved. These factors could lead to differences in fees earned by product and therefore net return by
asset class may vary despite similar average AUM. Our Wealth Management segment is the primary business segment that has
AUM with approximately 99% of total AUM as at October 31, 2024.
2024 vs. 2023
AUM increased $275 billion or 26% from last year, primarily due to market appreciation.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
31
The following table presents the change in AUM for the year ended October 31, 2024:
Client assets – AUM
Table 14
2024
2023
(Millions of Canadian dollars)
Money market
Fixed income
Equity
Multi-asset
and other
Total
Total
AUM, beginning balance
$
40,600
$
217,300
$ 130,200
$ 679,400
$ 1,067,500
$
999,700
Institutional inflows
214,100
74,000
9,300
21,000
318,400
239,100
Institutional outflows
(217,000)
(48,000)
(12,600)
(17,900)
(295,500)
(226,000)
Personal flows, net
800
5,700
2,700
10,600
19,800
10,400
Total net flows
(2,100)
31,700
(600)
13,700
42,700
23,500
Market impact
1,600
24,900
37,500
137,900
201,900
27,900
Acquisition/dispositions
2,300
800
7,600
9,900
20,600
–
Foreign exchange
200
900
300
8,200
9,600
16,400
Total market, acquisition/dispositions
and foreign exchange impact
4,100
26,600
45,400
156,000
232,100
44,300
AUM, balance at end of year
$
42,600
$
275,600
$ 175,000
$ 849,100
$ 1,342,300
$ 1,067,500
Business segment results
Results by business segments
Table 15
2024
2023
(1)
(Millions of Canadian dollars,
except percentage amounts)
Personal
Banking
(2)
Commercial
Banking
(2)
Wealth
Management
(2)
Insurance
Capital
Markets
(2), (3)
Corporate
Support
(3)
Total
Total
Net interest income
$
12,438
$
6,061
$
4,979
$
–
$
3,183
$
1,292
$
27,953
$
25,129
Non-interest income
4,904
1,321
14,647
1,224
8,829
(1,534)
29,391
26,335
Total revenue
17,342
7,382
19,626
1,224
12,012
(242)
57,344
51,464
PCL
1,802
975
29
2
424
–
3,232
2,468
Non-interest expense
7,485
2,512
15,312
285
7,016
1,640
34,250
30,813
Income before income
taxes
8,055
3,895
4,285
937
4,572
(1,882)
19,862
18,183
Income taxes
2,134
1,077
863
208
(1)
(659)
3,622
3,571
Net income
$
5,921
$
2,818
$
3,422
$
729
$
4,573
$ (1,223)
$
16,240
$
14,612
ROE
(4)
24.8%
18.5%
14.4%
35.3%
14.2%
n.m.
14.4%
14.3%
Average assets
$ 528,200
$ 165,400
$
176,200
$ 26,400
$ 1,134,300
$ 78,000
$ 2,108,500
$ 2,004,500
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal
Banking, Commercial Banking, Wealth Management and Capital Markets segments. For further details, refer to the Key corporate events section.
(3)
Net interest income, Non-interest income, Total revenue, Income before income taxes, and Income taxes are presented in Capital Markets on a taxable equivalent basis
(teb). The teb adjustment is eliminated in the Corporate Support segment. For a further discussion, refer to the How we measure and report our business segments
section.
(4)
For further details, refer to the Key performance and non-GAAP measures section.
n.m. not meaningful
How we measure and report our business segments
Our management reporting framework is intended to measure the performance of each business segment as if it were a stand-
alone business and reflects the way that the business segment is managed. This approach is intended to ensure that our
business segments’ results include all applicable revenue and expenses associated with the conduct of their business and
depicts how management views those results.
Key methodologies
The following outlines the key methodologies and assumptions used in our management reporting framework. These are
periodically reviewed by management to ensure they remain valid. Effective November 1, 2023, we adopted IFRS 17
Insurance
Contracts
(IFRS 17). Comparative amounts have been restated from those previously presented. For further details, refer to
Note 2 of our 2024 Annual Consolidated Financial Statements. Effective the fourth quarter of 2024, the Personal & Commercial
Banking segment became two standalone business segments: Personal Banking and Commercial Banking. With this change, RBC
Direct Investing moved from the previous Personal & Commercial Banking segment to the Wealth Management segment. For
further details, refer to the About Royal Bank of Canada section.
32
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Expense and tax allocation
To ensure that our business segments’ results include expenses associated with the conduct of their business, we allocate costs
incurred or services provided by Technology & Operations and Functions, which are directly undertaken or provided on the
business segments’ behalf. For other costs not directly attributable to our business segments, including overhead costs and
other indirect expenses, we use our management reporting framework for allocating these costs to each business segment in a
manner that is intended to reflect the underlying benefits.
Capital attribution
Our management reporting framework also determines the attribution of capital to our business segments in a manner that is
intended to consistently measure and align economic costs with the underlying benefits and risks associated with the activities
of each business segment. The amount of capital assigned to each business segment is referred to as attributed capital.
Unattributed capital and associated amounts are reported in Corporate Support. Effective November 1, 2023, we prospectively
revised our attributed capital methodology to include the allocation of leverage to our business segments to further align our
allocation processes with evolving regulatory capital requirements. For Insurance, the allocation of capital remains unchanged
and continues to be based on fully diversified economic capital. For further information, refer to the Capital management
section.
Funds transfer pricing
Funds transfer pricing refers to the pricing of intra-company borrowing or lending for management reporting purposes. We
employ a funds transfer pricing process to enable risk-adjusted management reporting of segment results. This process
determines the costs and revenue for intra-company borrowing and lending of funds after taking into consideration our interest
rate risk and liquidity risk management objectives, as well as applicable regulatory requirements.
Provisions for credit losses
PCL is recorded to recognize expected credit losses on all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. For details on our accounting
policy on Allowance for credit losses (ACL), refer to Note 2 of our 2024 Annual Consolidated Financial Statements.
PCL is included in the results of each business segment to fully reflect the appropriate expenses related to the conduct of
each business segment.
In addition to the key methodologies described above, the following components of our management reporting framework also
impact how our business segments are managed and reported:
•
Wealth Management results include disclosure in U.S. dollars, primarily for U.S. Wealth Management (including City National
Bank (“City National”)) as we review and manage the results of this business largely in this currency.
•
Capital Markets results are reported on a teb basis, which grosses up total revenue from certain tax-advantaged sources
(Canadian taxable corporate dividends received on or before December 31, 2023 and the U.S. tax credit investment business)
to their effective taxable equivalent value with a corresponding offset recorded in the provision for income taxes. We record
the elimination of the teb adjustments in Corporate Support. We believe these adjustments are useful and reflect how
Capital Markets manages its business, since it enhances the comparability of revenue and related ratios across taxable
revenue and our principal tax-advantaged sources of revenue. The use of teb adjustments and measures may not be
comparable to similar GAAP measures or similarly adjusted amounts disclosed by other financial institutions. For further
details on the elimination of the availability of the dividend received deduction for Canadian taxable corporate dividends
after December 31, 2023, refer to the Legal and regulatory environment risk section.
•
Corporate Support results include all enterprise level activities that are undertaken for the benefit of the organization that
are not allocated to our five business segments, such as certain treasury and liquidity management activities, including
amounts associated with unattributed capital, and consolidation adjustments, including the elimination of the teb gross-up
amounts. In addition, we record gains (losses) on economic hedges of our U.S. Wealth Management (including City National)
share-based compensation plans, which are reflected in revenue, and related variability in share-based compensation
expense driven by changes in the fair value of liabilities relating to these plans in Corporate Support as we believe this
presentation more closely aligns with how we view business performance and manage the underlying risks.
Key performance and non-GAAP measures
Performance measures
We measure and evaluate the performance of our consolidated operations and each business segment using a number of
financial metrics, such as net income and ROE. Certain financial metrics, including ROE, do not have a standardized meaning
under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed by other
financial institutions.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
33
Return on common equity
We use ROE, at both the consolidated and business segment levels, as a measure of return on total capital invested in our
business. Management views the business segment ROE measure as a useful measure for supporting investment and resource
allocation decisions because it adjusts for certain items that may affect comparability between business segments and certain
competitors.
Our consolidated ROE calculation is based on net income available to common shareholders divided by total average
common equity for the period. Business segment ROE calculations are based on net income available to common shareholders
divided by average attributed capital for the period. For each segment, with the exception of Insurance, average attributed
capital includes the capital and leverage required to underpin various risks as described in the Capital management section and
amounts invested in goodwill and intangibles and other regulatory deductions. For Insurance, the allocation of capital is based
on fully diversified economic capital.
The attribution of capital involves the use of assumptions, judgments and methodologies that are regularly reviewed and
revised by management as deemed necessary. Changes to such assumptions, judgments and methodologies can have a material
effect on the business segment ROE information that we report. Other companies that disclose information on similar
attributions and related return measures may use different assumptions, judgments and methodologies.
The following table provides a summary of our ROE calculations:
Calculation of ROE
Table 16
2024
2023
(1)
(Millions of Canadian dollars,
except percentage amounts)
Personal
Banking
(2)
Commercial
Banking
(2)
Wealth
Management
(2)
Insurance
Capital
Markets
(2)
Corporate
Support
Total
Total
Net income available to
common shareholders
$
5,842
$
2,775
$
3,355
$
724
$
4,483
$
(1,271)
$
15,908
$
14,369
Total average common
equity
(3), (4)
23,600
15,000
23,250
2,050
31,650
15,100
110,650
100,400
ROE
24.8%
18.5%
14.4%
35.3%
14.2%
n.m.
14.4%
14.3%
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements to allocate capital to our business segments. For further details on
changes to our attributed capital methodology, refer to the How we measure and report our business segments section.
(3)
Total average common equity represents rounded figures.
(4)
The amounts for the segments are referred to as attributed capital.
n.m. not meaningful
Non-GAAP measures
We believe that certain non-GAAP measures (including non-GAAP ratios) are more reflective of our ongoing operating results and
provide readers with a better understanding of management’s perspective on our performance. These measures enhance the
comparability of our financial performance for the year ended October 31, 2024 with the results from last year. Non-GAAP
measures do not have a standardized meaning under GAAP and may not be comparable to similar measures disclosed by other
financial institutions.
The following discussion describes the non-GAAP measures we use in evaluating our operating results.
Adjusted results
We believe that providing adjusted results as well as certain measures and ratios excluding the impact of the specified items
discussed below and amortization of acquisition-related intangibles enhances comparability with prior periods and enables
readers to better assess trends in the underlying businesses.
Our results for all reported periods were adjusted for the following specified item:
•
HSBC Canada transaction and integration costs.
Our results for the current year were adjusted for the following specified item:
•
Management of closing capital volatility related to the HSBC Canada transaction. For further details, refer to the Key
corporate events section.
Our results for the prior year were adjusted for the following specified items:
•
Impairment losses on our interest in an associated company.
•
Certain deferred tax adjustments: reflects the recognition of deferred tax assets relating to realized losses in City National
associated with the intercompany sale of certain debt securities.
•
CRD and other tax related adjustments: reflects the impact of the CRD and the 1.5% increase in the Canadian corporate tax
rate applicable to fiscal 2022, net of deferred tax adjustments, which were announced in the Government of Canada’s 2022
budget and enacted in the first quarter of 2023.
34
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Consolidated results, reported and adjusted
The following table provides a reconciliation of reported results to our adjusted results and illustrates the calculation of adjusted
measures presented. The adjusted results and measures presented below are non-GAAP measures or ratios.
Table 17
(Millions of Canadian dollars, except per share, number of and percentage amounts)
2024
2023
(1)
Total revenue
$
57,344
$
51,464
PCL
3,232
2,468
Non-interest expense
34,250
30,813
Income before income taxes
19,862
18,183
Income taxes
3,622
3,571
Net income
$
16,240
$
14,612
Net income available to common shareholders
$
15,908
$
14,369
Average number of common shares (thousands)
1,411,903
1,391,020
Basic earnings per share (in dollars)
$
11.27
$
10.33
Average number of diluted common shares (thousands)
1,413,755
1,392,529
Diluted earnings per share (in dollars)
$
11.25
$
10.32
ROE
14.4%
14.3%
Effective income tax rate
18.2%
19.6%
Total adjusting items impacting net income (before-tax)
$
1,552
$
963
Specified item: HSBC Canada transaction and integration costs
(2), (3)
960
380
Specified item: Management of closing capital volatility related to the HSBC Canada
transaction
(2), (4)
131
–
Specified item: Impairment losses on our interest in an associated company
(5)
–
242
Amortization of acquisition-related intangibles
(6)
461
341
Total income taxes for adjusting items impacting net income
$
362
$
(254)
Specified item: HSBC Canada transaction and integration costs
(2)
201
78
Specified item: Management of closing capital volatility related to the HSBC Canada
transaction
(2), (4)
36
–
Specified item: Certain deferred tax adjustments
(2)
–
578
Specified item: Impairment losses on our interest in an associated company
(5)
–
65
Specified item: CRD and other tax related adjustments
(2), (7)
–
(1,050)
Amortization of acquisition-related intangibles
(6)
125
75
Adjusted results
Income before income taxes – adjusted
$
21,414
$
19,146
Income taxes – adjusted
3,984
3,317
Net income – adjusted
17,430
15,829
Net income available to common shareholders – adjusted
(8)
17,098
15,586
Average number of common shares (thousands)
1,411,903
1,391,020
Basic earnings per share (in dollars) – adjusted
$
12.11
$
11.21
Average number of diluted common shares (thousands)
1,413,755
1,392,529
Diluted earnings per share (in dollars) – adjusted
$
12.09
$
11.19
ROE – adjusted
15.5%
15.5%
Effective income tax rate – adjusted
18.6%
17.3%
Adjusted efficiency ratio
Total revenue
$
57,344
$
51,464
Add specified item: Management of closing capital volatility related to the HSBC Canada
transaction (before-tax)
(2), (4)
131
–
Add specified item: Impairment losses on our interest in an associated company
(5)
–
242
Total revenue – adjusted
(8)
$
57,475
$
51,706
Non-interest expense
$
34,250
$
30,813
Less specified item: HSBC Canada transaction and integration costs (before-tax)
(2)
960
380
Less: Amortization of acquisition-related intangibles (before-tax)
(6)
461
341
Non-interest expense – adjusted
(8)
$
32,829
$
30,092
Efficiency ratio
59.7%
59.9%
Efficiency ratio – adjusted
57.1%
58.2%
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
These amounts have been recognized in Corporate Support.
(3)
As at October 31, 2024, the cumulative HSBC Canada transaction and integration costs (before-tax) incurred were $1.3 billion and it is currently estimated that an
additional $0.2 billion will be incurred, for a total of approximately $1.5 billion.
(4)
For the year ended October 31, 2024, we included management of closing capital volatility related to the acquisition of HSBC Canada as a specified item for non-GAAP
measures and non-GAAP ratios. Refer to the Key corporate events section for further details.
(5)
During the fourth quarter of 2023, we recognized impairment losses on our interest in an associated company. This amount was recognized in Wealth Management.
(6)
Represents the impact of amortization of acquisition-related intangibles (excluding amortization of software), and any goodwill impairment.
(7)
The impact of the CRD and other tax related adjustments does not include $0.2 billion recognized in other comprehensive income.
(8)
See Glossary for composition of these measures.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
35
Segment results, reported and adjusted
The following table provides a reconciliation of Wealth Management reported results to our adjusted results. The adjusted
results and measures presented below are non-GAAP measures or ratios.
Wealth Management
Table 18
2023
(1), (2)
Item excluded
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
As reported
Specified item
(3)
Adjusted
Total revenue
$ 18,161
$
242
$ 18,403
PCL
328
–
328
Non-interest expense
14,387
–
14,387
Income before income taxes
3,446
242
3,688
Net income
$
2,693
$
177
$
2,870
Net income available to common shareholders
$
2,637
$
177
$
2,814
Total average common equity
(4), (5)
24,200
24,200
Revenue by business
U.S. Wealth Management (including City National)
$
7,969
$
242
$
8,211
U.S. Wealth Management (including City National) (US$ millions)
5,908
175
6,083
Key ratios
ROE
10.9%
11.6%
Pre-tax margin
(6)
19.0%
20.0%
(1)
There were no specified items for the year ended October 31, 2024.
(2)
Certain amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal
Bank of Canada section.
(3)
Impairment losses on our interest in an associated company.
(4)
Total average common equity represents rounded figures.
(5)
The amounts for the segments are referred to as attributed capital.
(6)
Pre-tax margin is defined as Income before income taxes divided by Total revenue. Adjusted pre-tax margin is calculated in the same manner, using adjusted income
before income taxes and adjusted total revenue.
36
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Personal Banking
Personal Banking provides a broad suite of financial products and services to retail clients for their day-to-day banking, investing
and financing needs. We are focused on building deep and meaningful relationships with our clients, underscored by the delivery
of exceptional client experiences, the breadth of our product suite, our depth of expertise and the features of our digital
solutions.
~14.7 million
#1
38,642
Number of Personal Banking –
Canada clients
Ranking in market share for all key
retail products
1
Employees (FTE)
2
Revenue by business lines
We operate through two businesses – Personal Banking – Canada and
Caribbean & U.S. Banking. Personal Banking – Canada serves our home market
in Canada. We have the largest branch network, the most ATMs, and one of the
largest mobile sales forces across Canada along with market-leading digital
capabilities. In Caribbean & U.S. Banking, we offer a broad range of financial
products and services in targeted markets.
In Canada, we compete with other Schedule 1 banks, independent trust
companies, foreign banks, credit unions, caisses populaires and auto financing
companies, as well as emerging entrants to the financial services industry.
In the Caribbean, our competition includes banks, emerging digital banks, trust
companies and investment management companies serving retail and
corporate clients, as well as public institutions. In the U.S., we compete
primarily with other Canadian banking institutions that have U.S. operations.
93%
Personal Banking - Canada
7% Caribbean & U.S. Banking
Total revenue
$17.3 billion
2024 Operating environment
›
Following months of record high interest rates, the BoC began to loosen monetary policy in June 2024 in response to easing
inflationary pressures. As a result of the higher rate environment throughout 2024, we saw sustained volume growth as well as
an increasing NIM, carrying through from 2023.
›
Residential real estate markets have been impacted by the offsetting impacts of high population growth supporting demand,
and the negative impact on housing affordability from high interest rates and a softening labour market. With interest rates
stabilizing in the first half of the year at peak cycle levels and declines in the second half of the year, housing activity remained
stable with mortgage originations up from the prior year.
National composite house price measures have changed little from
the end of calendar 2023.
›
In an environment where clients have had lower purchasing power due to higher interest rates and inflation, and as consumer
spending continues to show signs of softness, credit card purchase volumes exhibited strong growth primarily through robust
card account acquisition and client engagement strategies.
›
We recorded significant growth in term deposit products, reflecting client preference for low-risk products at higher yields,
driven by the BoC’s monetary policy. Although the BoC began cutting interest rates in June 2024, we continue to experience
growth in term deposit products, as well as sustained leadership in overall deposit volumes.
›
We have observed favourable equity market conditions throughout fiscal 2024, which has driven higher average mutual fund
balances.
›
Clients continued to demonstrate a preference for digital offerings, augmented by experienced advisors, increasing our
capacity to deliver personalized advice and an exceptional client experience.
›
The credit environment was impacted by slowing economic growth, rising unemployment rates and elevated interest rates,
resulting in higher provisions on impaired and performing loans.
›
Non-interest expense reflects investments in staff, the integration of HSBC Canada, ongoing investments in technology and
marketing costs associated with new client acquisition campaigns.
›
The Caribbean region’s economy continued to expand at a healthy pace in 2024, propelled by robust tourism performance
alongside sustained foreign investment inflows largely targeting tourism developments and residential real estate. The
inflation rate in the region further subsided as the pass-through from higher prices on imported goods and services receded.
Our Caribbean Banking business benefitted from higher interest rates, as well as volume growth in loans, and we continued to
invest in growing the franchise.
›
In our U.S. Banking business, net interest income benefitted from solid loan and deposit growth, as well as the impact of higher
interest rates.
1
Market share is calculated using most current data available from OSFI (M4), Investment Funds Institute Canada (IFIC) and Canadian Bankers Association (CBA), and is
as at August 2024 and June 2024, respectively.
2
Includes FTE for all shared services across Personal Banking and Commercial Banking, for which the Non-interest expenses are allocated to both Personal Banking and
Commercial Banking.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
37
Strategic priorities
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
Accelerate our growth and
deepen relationships
Acquired and integrated HSBC Canada’s retail clients,
of which a significant percentage are affluent clients,
well-positioning RBC to be the bank of choice for
newcomers to Canada and retail clients who need
global capabilities. Existing RBC retail clients are also
benefitting from new product and service capabilities,
including foreign currency accounts
Demonstrated growth in client acquisition volumes
driven by robust value propositions, such as RBC
Vantage
TM
, client acquisition in the newcomer segment
and partnership referrals
Announced the launch of Global Credit Connect with
Nova Credit, a cross-border credit bureau, to help
eligible RBC newcomer clients leverage their
international credit history in Canada, which can then
be used in applications for RBC credit products and
solutions
Expanded our strategic partnership with METRO Inc.,
one of Canada’s leading Canadian food retailers, into
Ontario. METRO’s Moi
‡
Rewards program is now linked
with Avion Rewards, our loyalty and consumer
engagement platform. In addition, we announced a new
strategic loyalty partnership between Avion Rewards
and Pattison Food Group’s More Rewards
‡
, one of
Western Canada’s leading loyalty programs from
Canada’s largest Western-based provider of food and
health products
Avion Rewards was recognized for a second
consecutive year as the International Loyalty Program
of the Year (Americas) at the 2024 International Loyalty
Awards. This award recognizes the highest level of
excellence and innovation in loyalty programs on a
global scale. Avion Rewards also won top honours at
the 2024 Loyalty360 Awards, including Platinum (top
spot) for “Brand-to-Brand Partnerships”
Continue to deepen relationships with HSBC Canada
clients to facilitate growth
Focus on engaging key high-growth client segments and
empowering our advisors to build new and deeper
relationships with superior advice to drive industry-
leading volume growth
Enable unparalleled value for consumers through a
best-in-class loyalty program
Establish additional key partnerships to continue to
drive new client acquisition and deepen relationships
through added value for our clients
Continue to build a suite of best-in-class value
propositions, digital experiences and Beyond Banking
to accelerate client acquisition, engaging Canadians
earlier, more often and in more compelling ways
Transform sales, advice and
service, while digitizing to unlock
productivity
We are the first Canadian bank to win The Digital
Banker’s Digital CX Award for Excellence in Omni-
Channel Customer Experiences. Regardless of the
client’s channel of choice, RBC was recognized for
empowering its clients to start banking swiftly,
conveniently and safely. The award builds upon global
recognition from Celent as Model Bank for Digital
Onboarding and further establishes RBC as a global
leader in creating seamless account opening
experiences for its clients
Received highest ranking in client satisfaction in the
J.D. Power 2024 Canada Banking Mobile App
Satisfaction Study, Canada Online Banking Satisfaction
Study and Canada Retail Banking Satisfaction Study
Secured a win for all 11 Ipsos 2024 Financial Service
Excellence Awards among the Big 5 banks, including
four solo wins in “Recommend to Friends or Family (Net
Promoter Score)”, “Financial Planning & Advice”, “ATM
Banking Excellence” and “Online Banking Excellence”
Ranked third overall and #1 in Canada for AI maturity
among 50 global financial institutions in the Evident AI
index which evaluates financial institutions on talent,
innovation, leadership and transparency. RBC was one
of only two banks to rank in the top 10 across all four
pillars and improved its year-over-year ranking in the
two heaviest-weighted pillars – Talent and Innovation
Provide flexibility by continuing to deliver anytime,
anywhere solutions to our clients across all channels
Lead in mobile capabilities and enable fulfillment of
servicing through digital channels with access to
advisors to help clients on their chosen path of
interaction
Continue to reimagine our branch network to meet the
evolving needs of our clients
Continuously upskill our expert advisor network to
deliver more personalized insights and address
complex advice needs for a superior client experience
Leverage digital and agile methods to drive faster
delivery of products and services while improving
productivity and efficiency
38
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
Support sustainable communities
Continued to support Canadians on the adoption of
electric vehicles (EV) through collaborations with Tesla,
Lucid and Vinfast, Avion Rewards campaign incentives
and educational support along the EV buying and
ownership journey
Supported the financing of new homes through the
green home mortgage program and explored
opportunities to support energy efficiency
improvements in homes
Increased employee engagement and awareness on the
impacts of climate change through a leadership
summit, and establishing additional climate champion
networks in three new regions
Announced plans to accelerate the retrofit of the
Canadian branch network where we are responsible for
HVAC by investing $35 million over three years (2025-
2027) in the first phase through the installation of
energy efficient, low-carbon heating and cooling
systems such as heat pumps, which will replace aging
heating, ventilation and air conditioning equipment
Expanded Mydoh
‡
to Quebec and went subscription-
free to continue helping parents across Canada
educate youth about money management
Continue to focus on opportunities to support
Canadians in achieving their climate goals, including
building upon our existing portfolio of products,
services and advice
Continue to focus on increasing employee awareness,
knowledge and engagement on climate initiatives to
better support clients on their environmental journey
Continue to support the financial wellbeing of
Canadians by enabling individuals to build confidence,
establish financial security and reach their goals
through dedicated products, services and partnerships
Attract, grow and retain future-
ready Talent
Continued to engage employees through awareness
and development seminars, including targeted
initiatives to develop and retain high-performing
employees
Invested in skills development, elevating performance
and fostering a culture of inclusive leadership through
programs, such as people manager masterclasses,
reskilling programs and learning series
Strengthened our culture of inclusion and belonging
through initiatives that provide access to opportunities
for growth and development, including: Canadian
Banking Women’s Forum, Empower Program (BIPOC
and People with Disabilities) and Indigenous
Development Program
Coach and enable our employees to grow and develop
skills to thrive
Empower teams to deliver value to our clients and
shareholders, and drive our strategic ambitions
Develop leaders who create the right conditions for a
high-performance culture to unlock the best of RBC
Foster inclusive access to development opportunities
and further strengthen our culture of belonging
In the Caribbean
Continued our Investing for Growth strategy by
expanding product offerings while progressing
initiatives to simplify and digitize operational
processes to deliver an enhanced client and employee
experience
Prioritize and accelerate the delivery of key initiatives
in our Investing for Growth strategy that will enhance
the employee and client experience as we expand
products and prioritize resources to modernize,
simplify and streamline our business
In the U.S.
Continued to drive business growth through deeper
integration with Canadian franchise product, channel
and marketing strategies
Ongoing automation and development of digital tools
to enhance scalability, simplify processes and improve
the client experience
Further align with Canadian product and channel
experiences to support client acquisition and anchoring
relationships, including clients from the HSBC Canada
transaction
Continued transformation of sales and service channels
to streamline client acquisition and enhance
acquisition and servicing processes
Outlook
The BoC has begun lowering interest rates, but the lagged impact of earlier increases continues to slow economic growth in
Canada. Rapid population growth driven by immigration has helped support total GDP growth and consumer spending, but GDP
has been declining on a per-capita basis, and population growth is expected to slow sharply in calendar 2025 due to planned
reductions in federal government immigration levels. GDP growth is expected to remain slow in calendar 2025 with strengthening
per-capita output growth in the second half of the year offset by slower expected population increases. The weakening economy
signals that inflation is likely to continue to slow, prompting further interest rate reductions from the BoC. We expect the
continued benefit of our structural hedges to reduce volatility in NIM from short-term rate movements, while varying levels of
competitiveness on mortgages and GICs may generate pressures on margins.
In the Caribbean, the speed of economic growth in 2025 is anticipated to moderate further as the region’s economies
converge to their medium-term potential. Climate vulnerability, notably hurricane shocks, remain an ever-present risk, while
worsening geopolitical conflicts and geoeconomic fragmentation have the potential to further impede growth prospects in the
region.
In the U.S., the resilience of U.S. GDP growth supported by a large government budget deficit is expected to limit downward
pressure on labour markets and inflation in calendar 2025. We anticipate this will lead to fewer and smaller interest rate
reductions from the Fed than from the BoC.
We will continue to pursue industry-leading growth and deepen client relationships to meet the evolving needs of our clients.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
39
Personal Banking
Table 19
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
2024
(1)
2023
(2)
Net interest income
$
12,438
$
10,945
Non-interest income
4,904
4,526
Total revenue
17,342
15,471
PCL on performing assets
392
301
PCL on impaired assets
1,410
963
PCL
1,802
1,264
Non-interest expense
7,485
6,813
Income before income taxes
8,055
7,394
Net income
$
5,921
$
5,418
Revenue by business
Personal Banking – Canada
$
16,206
$
14,401
Caribbean & U.S. Banking
1,136
1,070
Key ratios
ROE
(3)
24.8%
28.9%
NIM
2.43%
2.30%
Efficiency ratio
43.2%
44.0%
Operating leverage
(4)
2.2%
1.3%
Selected balance sheet information
Average total assets
$
528,200
$
487,900
Average total earning assets, net
512,300
475,500
Average loans and acceptances, net
502,700
465,700
Average deposits
404,600
350,300
Other information
AUA
(5), (6)
$
255,400
$
205,200
Average AUA
235,500
213,300
AUM
(6)
6,400
5,900
Number of employees (FTE)
(7)
38,642
37,017
Credit information
PCL on impaired loans as a % of average net loans and acceptances
0.28%
0.21%
Other selected information – Personal Banking – Canada
Net income
$
5,550
$
5,074
NIM
2.35%
2.22%
Efficiency ratio
41.6%
42.4%
Operating leverage
2.3%
0.8%
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances
and ratios for 2024. For further details, refer to the Key corporate events section.
(2)
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments: Personal Banking and Commercial
Banking. With this change, RBC Direct Investing moved from the previous Personal & Commercial Banking segment to the Wealth Management segment. Amounts have
been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of Canada section.
(3)
Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements to allocate capital to our business segments. For further details on
changes to our attributed capital methodology, refer to the How we measure and report our business segments section.
(4)
See Glossary for composition of this measure.
(5)
AUA includes securitized residential mortgages and credit card loans as at October 31, 2024 of $15 billion and $6 billion, respectively (October 31, 2023 – $13 billion and $7 billion).
(6)
Represents year-end spot balances.
(7)
Includes FTE for all shared services across Personal Banking and Commercial Banking, for which the Non-interest expenses are allocated to both Personal Banking and
Commercial Banking.
Financial performance
2024 vs. 2023
Net income increased $503 million or 9% from last year. The inclusion of HSBC Canada results increased net income by
$133 million. Excluding HSBC Canada results, net income increased $370 million or 7%, primarily driven by higher net interest
income reflecting higher spreads and average volume growth of 6% in Personal Banking – Canada, partially offset by higher PCL.
Total revenue increased $1,871 million or 12%, of which $609 million reflects the inclusion of HSBC Canada revenue. The
remaining increase of $1,262 million or 8% was primarily due to higher net interest income reflecting higher spreads and average
volume growth of 9% in deposits and 4% in loans in Personal Banking – Canada. Higher average mutual fund balances driving
higher distribution fees, higher service charges, mainly reflecting higher client activity, and the prior year impact of HST on
payment card clearing services also contributed to the increase.
NIM was up 13 bps, mainly due to the impact of the higher interest rate environment and changes in product mix. These
factors were partially offset by competitive pricing pressures.
PCL increased $538 million or 43%, primarily due to higher provisions on impaired loans mainly in our Canadian personal
and credit cards portfolios, resulting in an increase of 7 bps in the PCL on impaired loans ratio.
Non-interest expense increased $672 million or 10%, of which $368 million reflects the inclusion of HSBC Canada non-interest
expense. The remaining increase of $304 million or 4% was primarily due to increased operating expenses, higher marketing
costs largely associated with new client acquisition campaigns, higher professional fees and staff-related costs, as well as
ongoing technology investments.
Average loans and acceptances increased 8%, primarily driven by the inclusion of HSBC Canada loans and acceptances and
mortgage loan growth.
Average deposits increased 16%, primarily reflecting an increase in term deposits and the inclusion of HSBC Canada
deposits. These factors were partially offset by a decline in demand deposits.
40
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Business line review
Personal Banking – Canada
Personal Banking – Canada offers a full range of products focused on meeting the needs of our individual Canadian clients at
every stage of their lives through a wide range of financing and investment products and services. This includes home equity
financing, personal lending, chequing and savings accounts, private banking, indirect lending (including auto financing), mutual
funds, GICs, credit cards, and payment products and solutions.
We rank #1 in market share for all key Personal Banking products in Canada, supported by the largest retail banking network
in Canada, with 1,189 branches and 4,042 ATMs.
Financial performance
Total revenue increased $1,805 million or 13% compared to last year, of which $609 million reflects the inclusion of HSBC Canada
revenue. The remaining increase of $1,196 million or 8% was primarily due to higher net interest income reflecting higher spreads
and average volume growth of 9% in deposits and 4% in loans.
Average residential mortgages increased 8% compared to last year, primarily driven by the inclusion of HSBC Canada
residential mortgages and an increase in mortgage originations.
Average deposits increased 16% from last year, primarily reflecting an increase in term deposits and the inclusion of HSBC
Canada deposits. These factors were partially offset by a decline in demand deposits.
Selected highlights
Table 20
(Millions of Canadian dollars, except number of)
2024
(1)
2023
(2)
Total revenue
$
16,206
$
14,401
Other information
Average residential mortgages
388,500
358,400
Average other loans and acceptances, net
78,300
74,800
Average deposits
382,300
328,400
Average credit card balances
23,400
20,800
Credit card purchase volumes
185,000
174,200
Branch mutual fund balances
(3)
223,600
174,700
Average branch mutual fund balances
204,000
183,100
Number as at October 31:
Branches
(4)
1,189
1,143
ATMs
(4)
4,042
4,003
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada
results have been consolidated from the closing date, which impacted results
for 2024. For further details, refer to the Key corporate events section.
(2)
Certain amounts have been revised from those previously presented to
conform to our new basis of segment presentation. For further details, refer to
the About Royal Bank of Canada section.
(3)
Represents year-end spot balances.
(4)
Branches and ATMs are shared across Personal Banking and Commercial
Banking.
0
50,000
100,000
300,000
350,000
200,000
250,000
150,000
Other loans and
acceptances, net
Residential mortgages
Deposits
Average residential mortgages, loans and deposits
(Millions of Canadian dollars)
2024
2023
(1)
400,000
(1)
Average other loans and acceptances, net and average deposits amounts
have been revised from those previously presented to conform to our new
basis of segment presentation. For further details, refer to the About Royal
Bank of Canada section.
Caribbean & U.S. Banking
Our Caribbean Banking business provides personal and commercial banking to a range of clients, including individuals, small
businesses, general commercial entities, regional and multi-national corporations, and governments; supported by an extensive
branch, ATM, online and mobile banking network.
Our U.S. Banking business serves the needs of Canadian retail and small business clients providing personalized, digitally-
enabled cross-border banking solutions enabling a cross-border lifestyle in all 50 states across the U.S.
Financial performance
Total revenue increased $66 million or 6% from last year, primarily due to higher net interest income reflecting higher spreads.
Average loans and acceptances increased 7% and average deposits increased 1%, primarily due to increased client activity
and the impact of foreign exchange translation.
Selected highlights
Table 21
(Millions of Canadian dollars,
except number of and percentage amounts)
2024
2023
Total revenue
$
1,136
$
1,070
Other information
NIM
4.26%
4.08%
Average loans and acceptances, net
12,500
11,700
Average deposits
22,300
21,900
AUA
(1)
11,000
10,800
Average AUA
10,700
10,500
AUM
(1)
5,700
5,500
Average AUM
5,600
5,400
Number as at October 31:
Branches
38
38
ATMs
259
271
(1)
Represents year-end spot balances.
2023
Loans and acceptances, net
Deposits
Average loans and deposits
(Millions of Canadian dollars)
0
10,000
12,500
15,000
17,500
5,000
7,500
2,500
20,000
2024
22,500
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
41
Commercial Banking
Commercial Banking offers a wide range of lending, deposit and transaction banking products and services to businesses across
Canada. With one of the largest teams of relationship managers and specialists in the industry, our commitment to client
experience and trusted advice has earned us leading market share in business lending and deposits.
> 1 million
#1
> 2,700
Number of Commercial Banking clients
Ranking in market share in
commercial lending and deposits
1
Client-facing advisors and
specialists
Revenue by Product
We are a market-leading bank with a full range of services to meet the needs
of Canadian companies and foreign businesses operating in Canada.
In Canada, we compete with other Schedule 1 banks, foreign banks, credit
unions, auto financing companies, as well as emerging entrants to the
financial services industry.
For small businesses, we offer convenience through 1,189 branches and
comprehensive digital solutions supported by experienced advisors. For
mid-market businesses, we provide customized banking advice through our
network of relationship managers, and product and industry specialists. For
large commercial and corporate clients, we offer tailored service and
solutions through our broad team of specialists and market-leading
capabilities.
61%
Deposits and Cash Management
39% Lending
Total revenue
$7.4 billion
2024 Operating environment
›
Following months of record high interest rates, the BoC began to loosen monetary policy in June 2024, responding to easing
inflationary pressures. As a result of the higher rate environment in 2024, net interest income was favourably impacted,
carrying through from 2023.
›
Despite the challenging macroeconomic environment, including competitive intensity with aggressive terms and pricing,
Commercial Banking achieved strong volume growth across most products and client segments due to our continued focus on
growing our strategic client segments along with our ongoing sales enablement.
›
We continue to hold an industry-leading position and are growing market share across most lending and deposit segments.
›
The credit environment was impacted by slowing economic growth, rising unemployment rates and elevated interest rates,
resulting in higher provisions on impaired and performing loans.
›
Non-interest expense reflects staff-related costs, the integration of HSBC Canada, investments in sales enablement improving
the client experience, and ongoing investments in technology.
1
Market share is calculated using most current data available from OSFI (M4), IFIC and CBA, and is as at August 2024 and March 2024, respectively.
42
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Strategic priorities
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
Further strengthen our market-
leading value proposition for
Small Business and Mid-Market
Commercial clients
Extended our Canadian leadership position in the small
business and mid-market commercial banking
segments
Sharpened and deepened focus on priority sectors to
enhance competitiveness
Continued to invest in the client experience and
digitization of our platforms
Grow our share of new businesses through our market-
leading small business value proposition
Digitize our business to drive more convenience,
efficiency and speed for our clients
Develop capabilities in key strategic assets (e.g., Ownr,
Dr. Bill, PayEdge, etc.), and foster partnerships to drive
increased value for clients
Become bank of choice for
Canadian nexus international
clients
Acquired and integrated HSBC Canada’s
internationally-focused business and talent to better
position us to be the bank of choice for commercial
clients with international needs
Invested in new product capabilities to better serve
clients with international needs such as virtual
accounts, liquidity management, international
payments and structured trade
Collaborated with Capital Markets to strengthen FX and
foreign currency offerings to better meet needs of
international clients
Complete integration of colleagues, clients and
capabilities from the former HSBC Canada organization
to enable growth
Invest in our leading global payments solutions,
extending to RBC clients, in conjunction with Capital
Markets
Enhance sales and servicing model for international
clients, leveraging HSBC Canada’s best practices
Accelerate growth and deepen
relationships with large
commercial and corporate clients
Onboarded experienced HSBC Canada relationship
managers and product specialists, bolstering the client
experience and our capacity in key markets
Migrated HSBC Canada legacy clients onto RBCEdge,
our next-generation business banking platform
Continued to enhance specialty finance and
sustainable finance capabilities through strategic
hiring and product enhancements
Broaden and deepen coverage and expertise in priority
sectors and Canadian markets
Accelerate investment in RBC Edge
TM
and market-
leading capabilities (e.g., virtual accounts, liquidity,
etc.) to deliver next-generation treasury platform and
extend it to RBC clients
Invest in large commercial/corporate coverage and
servicing model to further enhance the client
experience
Support sustainable communities
Scaled sustainable finance offerings, with a focus on
market and business development for initial sectors in
focus
Helped Canadian businesses grow through dedicated
products, services, along with RBC Beyond Banking
business services and offers
Shared insights and ideas to help employees,
communities, governments and organizations move
towards sustainability goals
Launched training programs to support advisors’
climate education
Expand sustainable finance business through
investments in our value proposition, advisor
capabilities and foundational processes
Continue to help Canadian businesses grow through
dedicated products, services and collaborations
Continue sharing insights and ideas to help employees,
communities, governments and organizations move
towards their sustainability goals
Attract, grow and retain future-
ready talent
Invested in skills development, elevating performance
and fostering a culture of inclusive leadership through
programs such as people manager masterclasses,
reskilling programs and learning series
Continued to help employees achieve their work and
life goals through targeted health and wellbeing
support
Strengthened our culture of inclusion and belonging
through initiatives that provide access to opportunities
for growth and development, including: Canadian
Banking Women’s Forum, Empower Program (BIPOC
and People with Disabilities), and Indigenous
Development Program
Coach and enable our employees to grow and develop
skills to thrive
Empower teams to deliver value to our clients and
shareholders, and drive our strategic ambitions
Develop leaders who create the right conditions for a
high-performance culture to unlock the best of RBC
Foster inclusive access to development opportunities
and further strengthen our culture of belonging
Outlook
Rapid population growth driven by immigration has helped to support total GDP growth and consumer spending, but GDP has been
declining on a per-capita basis. Sharply reduced immigration rates are expected to weigh on total consumer demand growth in 2025, but
per-person GDP growth is expected to accelerate gradually starting in the second half of 2025, reflecting lower inflation and the lagged
impact of BoC interest rate cuts. The cooling inflation may reduce cost pressures, which have been challenging for many Canadian
businesses, allowing more opportunities for business growth and reduce the risk of default. Changes in the U.S. trade policies may also
adversely impact some export-oriented Canadian businesses, which could reduce business activity and volumes.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
43
Commercial Banking
Table 22
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
2024
(1)
2023
(2)
Net interest income
$
6,061
$
4,771
Non-interest income
1,321
1,261
Total revenue
7,382
6,032
PCL on performing assets
261
70
PCL on impaired assets
714
245
PCL
975
315
Non-interest expense
2,512
2,143
Income before income taxes
3,895
3,574
Net income
$
2,818
$
2,582
Key ratios
ROE
(3)
18.5%
23.7%
NIM
4.06%
4.39%
Efficiency ratio
34.0%
35.5%
Operating leverage
5.2%
1.0%
Selected balance sheet information
Average total assets
$
165,400
$
127,200
Average total earning assets, net
149,400
108,800
Average loans and acceptances, net
161,600
125,800
Average deposits
281,800
241,800
Other information
Number of employees (FTE)
(4)
1,290
928
Credit information
PCL on impaired loans as a % of average net loans and acceptances
0.44%
0.20%
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances
and ratios for 2024. For further details, refer to the Key corporate events section.
(2)
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments: Personal Banking and Commercial
Banking. With this change, RBC Direct Investing moved from the previous Personal & Commercial Banking segment to the Wealth Management segment. Amounts have
been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of Canada section.
(3)
Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements to allocate capital to our business segments. For further details on
changes to our attributed capital methodology, refer to the How we measure and report our business segments section.
(4)
Excludes FTE for all shared services across Personal Banking and Commercial Banking, for which the Non-interest expenses are allocated to both Personal Banking and
Commercial Banking.
Financial performance
2024 vs. 2023
Net income increased $236 million or 9% from last year. The inclusion of HSBC Canada results increased net income by
$219 million. Excluding HSBC Canada results, net income increased $17 million or 1%, as growth in total revenue more than offset
higher PCL and higher non-interest expenses.
Total revenue increased $1,350 million or 22%, of which $880 million reflects the inclusion of HSBC Canada revenue. The
remaining increase of $470 million or 8% was primarily due to higher net interest income reflecting average volume growth of 9%
in deposits and 13% in loans and acceptances, including the impact of the cessation of Bankers’ Acceptance-based lending, which
was largely offset in non-interest income, and higher spreads. These factors were partially offset by lower non-interest income,
primarily in credit fees reflecting the impact of the cessation of Bankers’ Acceptance-based lending, which was largely offset in
net interest income as noted above.
PCL increased $660 million, largely due to higher provisions on impaired loans in a few sectors, including the automotive and
real estate and related sectors, resulting in an increase of 24 bps in the PCL on impaired loans ratio. Higher provisions on
performing loans, mainly reflecting the initial PCL on performing loans purchased in the HSBC Canada transaction and
unfavourable changes in credit quality, also contributed to the increase.
Non-interest expense increased $369 million or 17%, of which $274 million reflects the inclusion of HSBC Canada non-interest
expense. The remaining increase of $95 million or 4% was primarily attributable to higher staff-related costs and ongoing
technology investments.
Average loans and acceptances increased 28%, primarily driven by the inclusion of HSBC Canada loans and acceptances and
our continued focus on growing strategic client segments and ongoing sales enablement.
Average deposits increased 17%, primarily driven by the inclusion of HSBC Canada deposits and growth across all client
segments.
44
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Wealth Management
Wealth Management primarily serves affluent, high net worth (HNW) and ultra-high net worth (UHNW) clients from our offices in
key financial centres across the globe. We offer a comprehensive suite of wealth, investment, trust, banking, credit and other
solutions to this client segment. We also provide a self-directed investment service in Canada, as well as asset management
products globally to institutional and individual clients through our distribution channels and third-party distributors. We offer
asset services and investor services to financial institutions, asset managers and asset owners in Canada.
$19.6 billion
> 6,100
~ 80%
Total revenue
Client-facing advisors
GAM AUM outperforming the benchmark
on a blended 1-3-5 year basis
1
Asset under Administration
(AUA)
Total AUA
$4,686 billion
41% Personal
58% Institutional
1% Mutual Funds
Assets under Management
(AUM)
Total AUM
$1,332 billion
51% Personal
25%
Mutual Funds
24% Institutional
Our lines of business include Canadian Wealth
Management, U.S. Wealth Management (including
City National), Global Asset Management (GAM),
International Wealth Management and Investor
Services.
•
Canadian Wealth Management includes a
full-service wealth advisory business serving
HNW and UHNW clients, as well as a leading
self-directed investment service in Canada. The
full-service wealth advisory business is the
largest in Canada, as measured by AUA
•
U.S. Wealth Management (including City
National) encompasses our private client group
(PCG) and clearing and custody (C&C)
businesses. PCG is a full-service wealth
advisory firm in the U.S., and City National is a
U.S.-based relationship bank serving the
entertainment industry, mid-market businesses,
HNW individuals and other clients who value
personalized banking relationships
•
GAM is the largest retail mutual fund company
in Canada as measured by AUM, as well as a
leading institutional asset manager
•
International Wealth Management serves HNW
and UHNW clients, primarily through key
financial centres in the U.K., Ireland, the
Channel Islands and Asia
•
Investor Services safeguards client assets and
supports the growth of Canadian asset
managers, asset owners, insurance companies
and investment counsellors. Investor Services
also provides sub-custody services to global
financial institutions and brokers
2024 Operating environment
›
Earnings in the current fiscal year benefitted from strong growth in client assets, primarily driven by favourable market
conditions and positive net flows. U.S. Wealth Management (including City National) earnings also benefitted from the higher
interest rate environment and lower PCL.
›
Our wealth advisory businesses performed well with continued net positive flows of fee-based client assets reflecting the
strength of our business driven by the quality of our advice, the breadth of our investment and holistic wealth planning
solutions and clients’ trust in our brand. The Canadian mutual fund sector started to show improvement in sales due to
favourable market conditions and the expectation of reduced interest rates.
›
We continued to invest in our people and technology to maintain our competitive advantage and increase efficiencies in an
environment characterized by market volatility, rapidly changing client preferences and increasing regulatory requirements.
›
While the credit environment in fiscal 2024 reflected elevated interest rates, it also reflected favourable changes in our
economic outlook towards the latter half of the year, resulting in releases of provisions on performing loans and lower
provisions on impaired loans.
1
As at September 2024, gross of fees, excluding RBC Indigo Asset Management Inc. (formerly HSBC Asset Management Canada).
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
45
Strategic priorities
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
In Canada, be the premier service
provider for HNW and UHNW clients,
and build on our leading position
serving self-directed investors
Further extended our position as an industry leader in
our full-service private wealth business
Continued to focus on holistic wealth planning, including
advisor training on intergenerational and business
wealth transfer
Continued to expand RBC
®
Premier Banking to deepen
banking relationships with Wealth Management clients
Focused on the business owner client segment,
deepening client relationships across the various
business segments
Continued to enhance our digital and data capabilities to
drive increased client satisfaction and advisor
productivity
Implemented unique capabilities that are becoming
increasingly important to our client base, such as private
alternative investment products
Successfully transitioned HSBC Canada clients onto the
RBC Direct Investing
®
platform and RBC Phillips, Hager &
North Investment Counsel
®
Expanded online trading capabilities to new foreign stock
exchanges
Continue to retain and attract top-performing advisors to
strengthen our talent advantage
Deliver a differentiated client experience through
enriched advisor-client interactions and seamless digital
experiences
Deepen client relationships by leveraging the combined
strengths across other business segments with a focus
on the business owner client segment
Continue to invest in digital solutions to streamline and
improve efficiency and advisor productivity, including our
positioning with early stage investors through RBC Direct
Investing
Modernize infrastructure and systems to ensure ongoing
resiliency in our technology platforms
In the U.S., become the leading
private and commercial bank and
wealth manager in our key markets
Continued to invest in key areas needed to drive growth
in the U.S. market, including banking and lending
solutions, enhancements to the digital platform,
increased brand presence and financial advisor
recruitment
At City National, we continued to focus on enhancing our
risk management and compliance capabilities across the
three lines of defence for sustainable, organic growth in
the future
Continue to deliver an exceptional client experience for
targeted HNW and UHNW segments by deepening client
relationships with the expansion of our banking and
lending offering
Leverage the combined strengths within U.S. Wealth
Management (including City National) and Capital
Markets to deepen client relationships
At City National, we will continue to focus on enhancing
our risk management and compliance capabilities across
the three lines of defence for sustainable, organic growth
in the future
In select global financial centres,
become the most trusted regional
private bank
Continued to deliver on growth initiatives, bringing the
full strength and breadth of RBC to our clients
Focused on delivering a differentiated client experience
by leveraging our global capabilities
Continued to leverage RBC Brewin Dolphin to support our
position as a top five largest wealth manager in the U.K.
2
Achieved growth and continued momentum in Asia
through the addition of experienced client-facing
advisors and net new assets
Focus on growing market share in target markets
Continue to leverage our global strengths to better serve
clients and deepen relationships, taking advantage of our
expanded product suite and distribution channels
Continue to deliver an exceptional client experience and
increase business effectiveness and talent capabilities
Continue to enhance client value proposition and
consolidation of position in the U.K. local market
In Asia, continue to focus on achieving scale by growing
the business through hiring of experienced client-facing
advisors and leveraging our global capabilities
In asset management, be a leading,
diversified asset manager focused on
global institutional and North
American retail clients
Maintained #1 market share in Canadian mutual fund
AUM
RBC
®
iShares strategic alliance maintained #1 market
share in Canadian ETFs
Integrated RBC Indigo Asset Management Inc., formerly
HSBC Asset Management Canada, as part of the broader
HSBC Canada acquisition
Continue to focus on delivering exceptional investment
performance and valued insights with client experience
at the centre of all that we do
Continue to expand our investment capabilities to meet
evolving client needs in our target distribution regions
In Investor Services, be the market
leader of investment servicing in
Canada
Continued to focus on our Canadian business and
completed divestiture of the non-Canadian operations
Continue investments in client experience and for driving
efficiency in operations
Attract, grow and retain future-ready
talent
Continued to focus on leadership capabilities to grow
and develop our employees through programs, such as
people manager masterclasses, learning series and
workshops
Strengthened our culture of inclusion and belonging
through initiatives that provide access to opportunities
for growth and development, including: Women in
Investments, Women Advisor Experience listening
sessions, Diversity Leadership Councils and Employee
Resource Groups
Embedded refreshed practices to grow and retain our
employees by increasing coaching, mentorship, reskilling
programs and sponsorships
Coach and enable our employees to grow and develop
skills to thrive
Empower teams to deliver value to our clients and
shareholders, and drive our strategic ambitions
Develop leaders who create the right conditions for a
high-performance culture to unlock the best of RBC
Foster inclusive access to development opportunities
and further strengthen our culture of belonging
Outlook
Markets will continue to be impacted by the evolving macroeconomic environment, including the impact of interest rates which are
expected to decline further as well as a slowdown in economic growth in Canada.
Despite this backdrop, we believe our diversified businesses remain well-positioned to continue growing our leading position
in Canada and increasing our market share in the HNW and UHNW client segments globally, leveraging the strength of our brand,
reputation and strong financial position. Our strategy remains unchanged as we continue to focus on delivering an unmatched
client experience through holistic goals-based advice, attracting and retaining top-performing advisors, and collaborating across
the enterprise to bring the full breadth of our capabilities to our clients. We will continue to invest in our people and technology
to improve client and advisor experiences, drive operational efficiencies, and further strengthen our risk, compliance and
controls infrastructure to meet heightened regulatory expectations.
2
Based on publicly available information for wealth management firms (excluding platform businesses) in the U.K., as of September 2024.
46
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.
Wealth Management
Table 23
(Millions of Canadian dollars, except number of, percentage amounts and as otherwise noted)
2024
(1)
2023
(2)
Net interest income
$
4,979
$
4,853
Non-interest income
14,647
13,308
Total revenue
19,626
18,161
PCL on performing assets
(119)
153
PCL on impaired assets
148
175
PCL
29
328
Non-interest expense
15,312
14,387
Income before income taxes
4,285
3,446
Net income
$
3,422
$
2,693
Revenue by business
Canadian Wealth Management
(2)
$
5,777
$
5,060
U.S. Wealth Management (including City National)
8,906
7,969
U.S. Wealth Management (including City National) (US$ millions)
6,550
5,908
Global Asset Management
2,948
2,626
International Wealth Management
1,295
1,273
Investor Services
(3)
700
1,233
Key ratios
ROE
(4)
14.4%
10.9%
NIM
3.26%
2.84%
Pre-tax margin
(5)
21.8%
19.0%
Selected balance sheet information
Average total assets
$
176,200
$
194,600
Average total earning assets, net
152,500
170,900
Average loans and acceptances, net
114,600
115,300
Average deposits
(3)
163,400
169,200
Other information
AUA
(3), (6), (7)
$
4,685,900
$
4,110,200
U.S. Wealth Management (including City National)
(6)
930,000
752,700
U.S. Wealth Management (including City National) (US$ millions)
(6)
668,100
542,800
Investor Services
(6)
2,681,400
2,488,600
AUM
(6)
1,332,500
1,058,900
Average AUA
(3)
4,384,200
5,119,500
Average AUM
1,218,900
1,058,000
PCL on impaired loans as a % of average net loans and acceptances
0.13%
0.15%
Number of employees (FTE)
25,672
25,278
Number of advisors
(8)
6,116
6,169
Adjusted results
(9)
Total revenue – adjusted
$
19,626
$
18,403
Income before income taxes – adjusted
4,285
3,688
Net income – adjusted
3,422
2,870
U.S. Wealth Management (including City National) revenue – adjusted
8,906
8,211
U.S. Wealth Management (including City National) revenue (US$ millions) – adjusted
6,550
6,083
Key ratios – adjusted
(9)
ROE – adjusted
14.4%
11.6%
Pre-tax margin – adjusted
(5)
21.8%
20.0%
Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items
(Millions of Canadian dollars, except percentage amounts)
2024 vs. 2023
Increase (decrease):
Total revenue
$
144
PCL
–
Non-interest expense
120
Net income
23
Percentage change in average U.S. dollar equivalent of C$1.00
(1)%
Percentage change in average British pound equivalent of C$1.00
(4)%
Percentage change in average Euro equivalent of C$1.00
(2)%
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances
and ratios for 2024. For further details, refer to the Key corporate events section.
(2)
Effective the fourth quarter of 2024, RBC Direct Investing moved from the previous Personal & Commercial Banking segment to the Wealth Management segment.
Comparative amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About
Royal Bank of Canada section.
(3)
We completed the sale of RBC Investor Services operations in Europe, Jersey and the U.K to CACEIS on July 3, 2023, December 1, 2023 and March 25, 2024, respectively (the
sale of RBC Investor Services operations). For further details, refer to Note 6 of our 2024 Annual Consolidated Financial Statements.
(4)
Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements to allocate capital to our business segments. For further details on
changes to our attributed capital methodology, refer to How we measure and report our business segments section.
(5)
Pre-tax margin is defined as Income before income taxes divided by Total revenue. Adjusted pre-tax margin is calculated in the same manner, using adjusted income
before income taxes and adjusted total revenue.
(6)
Represents year-end spot balances.
(7)
In addition to Canadian Wealth Management, U.S. Wealth Management (including City National), International Wealth Management and Investor Services, AUA includes
$7,400 million (2023 – $6,200 million) related to GAM.
(8)
Represents client-facing advisors across all our Wealth Management businesses.
(9)
These are non-GAAP measures and non-GAAP ratios. During the year ended October 31, 2023, we recognized impairment losses of $177 million (before-tax $242 million) on
our interest in an associated company. For further details on this specified item, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
47
Client assets – AUA
Table 24
(Millions of Canadian dollars)
2024
2023
(1)
AUA, beginning balance
(2)
$
1,621,600
$
1,515,500
Asset inflows
474,000
428,800
Asset outflows
(458,800)
(410,600)
Total net flows
(2)
15,200
18,200
Market impact
341,700
45,500
Acquisitions/dispositions
21,400
–
Foreign exchange/other
4,600
42,400
Total market, acquisition/dispositions and foreign exchange/other impact
(2)
367,700
87,900
AUA, balance at end of year
(2)
2,004,500
1,621,600
Investor Services, balance at end of year
(3)
2,681,400
2,488,600
Total AUA
$
4,685,900
$
4,110,200
(1)
Certain amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal
Bank of Canada section.
(2)
Includes AUA from the following lines of business; Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management and
International Wealth Management.
(3)
Includes the impact from the sale of RBC Investor Services operations. For further details, refer to Note 6 of our 2024 Annual Consolidated Financial Statements.
AUA by geographic mix and asset class
Table 25
(Millions of Canadian dollars)
2024
2023
(1)
Canada
(2), (3)
Money market
$
28,400
$
32,300
Fixed income
61,500
55,700
Equity
248,400
183,400
Multi-asset and other
510,300
400,500
Total Canada
848,600
671,900
U.S.
(2), (3)
Money market
36,300
31,600
Fixed income
144,600
131,600
Equity
335,900
271,600
Multi-asset and other
413,200
318,000
Total U.S.
930,000
752,800
Other International
(2), (3)
Money market
19,200
18,800
Fixed income
13,200
11,300
Equity
56,800
49,300
Multi-asset and other
136,700
117,500
Total International
225,900
196,900
AUA, balance at end of year
(3)
2,004,500
1,621,600
Investor Services, balance at end of year
(4)
2,681,400
2,488,600
Total AUA
$
4,685,900
$
4,110,200
(1)
Certain amounts have been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal
Bank of Canada section.
(2)
Geographic information is based on the location from where our clients are served.
(3)
Includes AUA from the following lines of business; Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management and
International Wealth Management.
(4)
Includes the impact from the sale of RBC Investor Services operations. For further details, refer to Note 6 of our 2024 Annual Consolidated Financial Statements.
Client assets – AUM
Table 26
2024
2023
(Millions of Canadian dollars)
Money
market
Fixed
income
Equity
Multi-asset
and other
Total
Total
AUM, beginning balance
$
40,600
$ 214,800
$ 129,700
$ 673,800
$ 1,058,900
$
991,500
Institutional inflows
214,100
74,000
9,300
20,500
317,900
239,200
Institutional outflows
(217,000)
(48,100)
(12,600)
(17,400)
(295,100)
(226,000)
Personal flows, net
800
5,700
2,600
10,700
19,800
10,300
Total net flows
(2,100)
31,600
(700)
13,800
42,600
23,500
Market impact
1,600
24,700
37,200
137,500
201,000
27,500
Acquisition/dispositions
2,300
800
7,600
9,900
20,600
–
Foreign exchange
200
900
300
8,000
9,400
16,400
Total market, acquisition/dispositions
and foreign exchange impact
4,100
26,400
45,100
155,400
231,000
43,900
AUM, balance at end of year
$
42,600
$ 272,800
$ 174,100
$ 843,000
$ 1,332,500
$ 1,058,900
48
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Financial performance
2024 vs. 2023
Net income increased $729 million or 27% from last year, primarily due to higher fee-based client assets reflecting market
appreciation and net sales, which also drove higher variable compensation. Higher transactional revenue and lower PCL also
contributed to the increase. Adjusted net income increased $552 million or 19%, as the prior year included the impact of the
specified item relating to impairment losses on our interest in an associated company.
Total revenue increased $1,465 million or 8%, primarily due to higher fee-based client assets reflecting market appreciation
and net sales. Higher transactional revenue, mainly driven by client activity and the impact of foreign exchange translation also
contributed to the increase. The prior year also included the impact of the specified item relating to impairment losses on our
interest in an associated company. These factors were partially offset by reduced revenue following the sale of RBC Investor
Services operations. Adjusted total revenue increased $1,223 million or 7%.
PCL decreased $299 million or 91%, primarily due to releases of provisions on performing loans this year in U.S. Wealth
Management (including City National), mainly driven by favourable changes to our macroeconomic forecast, as compared to
provisions taken last year.
Non-interest expense increased $925 million or 6%, primarily driven by higher variable compensation commensurate with
increased commissionable revenue. The cost of the FDIC special assessment, the impact of foreign exchange translation, and
higher staff costs including continued investments in the operational infrastructure of City National also contributed to the
increase. These factors were partially offset by reduced expenses following the sale of RBC Investor Services operations, and the
impact of legal provisions in the prior year.
AUA and AUM increased $576 billion or 14% and $274 billion or 26% respectively, primarily due to market appreciation.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Business line review
Canadian Wealth Management
Canadian Wealth Management includes our full-service wealth advisory business as well as our self-directed investment service
in Canada. Our full-service wealth advisory business is the largest in Canada as measured by AUA, with approximately 2,000
investment advisors providing comprehensive financial solutions with a focus on HNW and UHNW clients. We provide
discretionary investment management and estate and trust services to our clients through over 140 investment counsellors and
over 120 trust professionals across Canada.
We compete with domestic banks and trust companies, investment counselling firms, bank-owned full-service brokerages
and boutique brokerages, mutual fund companies and global private banks. In Canada, bank-owned wealth managers continue to
be the major players for the HNW/UHNW segment.
Financial performance
Revenue increased $717 million or 14% from last year, largely due to higher fee-based client assets reflecting market appreciation
and net sales. Higher transactional revenue, mainly driven by client activity, also contributed to the increase.
Selected highlights
Table 27
(Millions of Canadian dollars)
2024
(1)
2023
(2)
Total revenue
$
5,777
$
5,060
Other information
Average loans and acceptances,
net
6,500
6,700
Average deposits
25,000
26,300
AUA
(3)
855,800
677,300
AUM
(3)
240,500
184,300
Average AUA
791,100
668,200
Average AUM
218,600
182,200
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada
results have been consolidated from the closing date, which impacted results
for 2024. For further details, refer to the Key corporate events section.
(2)
Certain amounts have been revised from those previously presented to
conform to our new basis of segment presentation. For further details, refer to
the About Royal Bank of Canada section.
(3)
Represents year-end spot balances.
AUA
AUM
Average AUA and AUM
(Millions of Canadian dollars)
2024
2023
(1)
0
200,000
100,000
300,000
400,000
800,000
700,000
600,000
500,000
(1)
Average AUA amounts have been revised from those previously presented to
conform to our new basis of segment presentation. For further details, refer
to the About Royal Bank of Canada section.
U.S. Wealth Management (including City National)
U.S. Wealth Management (including City National) encompasses PCG and our C&C businesses. PCG is a full-service wealth
advisory firm in the U.S. with over 2,200 financial advisors. Our C&C business delivers clearing and execution services for small to
mid-sized independent broker-dealers and registered investment advisor firms. City National provides comprehensive financial
solutions to affluent individuals, entrepreneurs, professionals, their businesses and their families, and other clients who value
personalized banking relationships through a high-touch service model, proactive advice and financial solutions. City National
offers a broad range of lending, deposit, cash management, equipment financing, wealth management and other products and
services. In the U.S., we operate in a fragmented and highly competitive industry. Our competitors include other broker-dealers,
commercial banks and other financial institutions that service HNW and UHNW individuals, entrepreneurs and their businesses.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
49
Financial performance
Revenue increased $937 million or 12% from last year. In U.S. dollars, revenue increased $642 million or 11%, mainly due to higher
fee-based client assets reflecting market appreciation and net sales. Higher transactional revenue, mainly reflecting client
activity, also contributed to the increase. The prior year also included the impact of the specified item relating to impairment
losses on our interest in an associated company. Adjusted revenue in U.S. dollars increased $467 million or 8%.
NIM was up 18 bps, primarily driven by lower wholesale borrowing and the impact of higher interest rates, partially offset by
higher deposit costs.
For further details on specified items, including a reconciliation, refer to the Key performance and non-GAAP measures section.
Selected highlights
Table 28
(Millions of Canadian dollars,
except as otherwise noted)
2024
2023
Total revenue
$
8,906
$
7,969
Other information
(Millions of U.S. dollars)
Total revenue
6,550
5,908
NIM
2.71%
2.53%
Average earning assets, net
100,600
103,500
Average loans, guarantees and
letters of credit, net
75,500
75,900
Average deposits
84,100
83,200
AUA
(1)
668,100
542,800
AUM
(1)
220,200
176,900
Average AUA
629,100
544,000
Average AUM
206,300
174,500
(1)
Represents year-end spot balances.
2024
2023
AUA
AUM
Average AUA and AUM
(Millions of U.S. dollars)
0
200,000
100,000
300,000
400,000
700,000
600,000
500,000
Global Asset Management
GAM provides global investment management services and solutions for individual and institutional investors in Canada, the
U.K., the U.S., Europe and Asia. We provide a broad range of investment management services through mutual, pooled and
private funds, fee-based accounts and separately managed portfolios. We distribute our investment solutions through a broad
network of bank branches, our self-directed and full-service wealth advisory businesses, independent third-party advisors and
private banks, and directly to individual clients. We also provide investment solutions directly to institutional clients, including
pension plans, insurance companies, corporations, endowments and foundations.
We are the largest retail fund company in Canada measured by AUM, as well as a leading institutional asset manager. We
face competition in Canada from banks, insurance companies and asset management organizations. The Canadian fund
management industry is large and mature, but remains a relatively fragmented industry.
In the U.S., our asset management business offers investment management solutions and services, primarily to institutional
investors, and competes with independent asset management firms, as well as those that are part of national and international
banks and insurance companies.
Internationally, through our global capabilities distributed under the RBC BlueBay Asset Management platform, we offer
investment management solutions for institutions and, through private banks including RBC Wealth Management
®
, to HNW and
UHNW investors. We face competition from asset managers that are owned by international banks, as well as national and
regional asset managers in the geographies where we serve clients.
Financial performance
Revenue increased $322 million or 12% from last year, mainly due to higher fee-based client assets reflecting market appreciation
and net sales. Changes in the fair value of seed capital investments and the inclusion of HSBC Canada revenue also contributed
to the increase.
Selected highlights
Table 29
(Millions of Canadian dollars)
2024
(1)
2023
Total revenue
$
2,948
$
2,626
Other information
Canadian net long-term mutual
fund sales (redemptions)
(2)
1,898
(11,367)
Canadian net money market
mutual fund sales
(redemptions)
(2)
1,334
1,121
AUM
(3)
680,300
541,300
Average AUM
619,900
550,700
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada
results have been consolidated from the closing date, which impacted results
for 2024. For further details, refer to the Key corporate events section.
(2)
As reported to the Investment Funds Institute of Canada. Includes all
prospectus-based mutual funds across our Canadian GAM businesses.
(3)
Represents year-end spot balances.
0
2024
2023
Average AUM
(Millions of Canadian dollars)
100,000
200,000
300,000
500,000
400,000
600,000
700,000
50
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
International Wealth Management
International Wealth Management includes operations in the U.K., Ireland, the Channel Islands and Asia. We provide customized
and integrated wealth management solutions to affluent, HNW, UHNW and corporate clients in key financial centres. Competitors
to our International Wealth Management business include global wealth managers, traditional private banks and domestic
wealth managers.
Financial performance
Revenue increased $22 million or 2% from last year, primarily due to the impact of foreign exchange translation and higher
fee-based client assets reflecting market appreciation. These factors were partially offset by lower net interest income driven by
lower spreads and deposit volumes.
Selected highlights
Table 30
(Millions of Canadian dollars)
2024
2023
Total revenue
$
1,295
$
1,273
Other information
Average loans, guarantees
and letters of credit, net
4,500
4,800
Average deposits
11,500
11,800
AUA
(1)
211,300
185,400
AUM
(1)
105,000
87,900
Average AUA
201,100
185,200
Average AUM
99,800
89,600
(1)
Represents year-end spot balances.
0
50,000
100,000
250,000
200,000
150,000
2024
2023
AUA
AUM
Average AUA and AUM
(Millions of Canadian dollars)
Investor Services
Investor Services delivers asset servicing solutions to Canadian asset managers, asset owners, insurance companies and
investment counsellors, and provides sub-custody services for global financial institutions and brokers. Our product and service
offering includes custody, fund administration, shareholder services, pension benefit services and market services (including
foreign exchange, securities finance and cash/liquidity management). Competitors to our Investor Services business include
domestic and international custodians with Canadian entities and operations.
Financial performance
Revenue decreased $533 million or 43% from last year, primarily reflecting reduced revenue following the sale of RBC Investor
Services operations. The prior year also included the gain on the sale of RBC Investor Services operations.
Selected highlights
Table 31
(Millions of Canadian dollars)
2024
2023
Total revenue
(1)
$
700
$
1,233
Other information
Average deposits
(1)
11,600
18,000
AUA
(1), (2)
2,681,400
2,488,600
Average AUA
(1)
2,529,400
3,525,500
(1)
Amounts reflect the impact of the sale of RBC Investor Services operations.
For further details, refer to Note 6 of our 2024 Annual Consolidated Financial
Statements.
(2)
Represents year-end spot balances.
0
4,000,000
2024
2023
Average AUA
(Millions of Canadian dollars)
3,000,000
2,000,000
1,000,000
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
51
Insurance
RBC Insurance
®
provides insurance advice and protection to approximately 4.9 million clients. We provide tailored, client-led
advice and solutions, harnessing the power of technology and data and leveraging the strength and scale of the RBC enterprise
as our competitive advantage.
$1.2 billion
~ 4.9 million
2,788
Total revenue
Number of clients
Employees (FTE)
Premiums and Deposits
Total premiums
and deposits
$6 billion
47% Life and Health
43% Annuity
8%
Segregated Fund Deposits
2%
Property and Casualty
RBC Insurance is one of the largest Canadian bank-owned insurance
organizations on a total revenue basis.
We offer a comprehensive suite of advice and solutions for individual and
business clients, including life, health, wealth solutions, travel, group benefits
and reinsurance. We provide property & casualty insurance through a
distribution agreement with Aviva Canada. We also offer longevity reinsurance,
and reinsurance solutions for creditor life, disability and critical illness.
Our products and services are distributed through multiple channels, including
our proprietary sales force, digital platforms, and a network of independent
brokers and partners.
2024 Operating environment
›
In 2024, RBC Insurance successfully transitioned to IFRS 17 and repositioned our portfolio for the new standard accordingly.
›
Elevated interest rates and a softening economy impacted insurance affordability. Amidst this macroeconomic backdrop, we
maintained growth, increasing total premiums and deposits, new business sales and investment returns.
›
Despite modest industry growth in life and health insurance products, we achieved strong new business premium growth in our
term insurance product line through competitive pricing, product feature enhancements and process improvements to
expedite underwriting. In health insurance, we also regained our market leadership position in disability insurance sales.
›
Companies continued to leverage pension risk transfer transactions to de-risk their pension plans against a backdrop of higher
interest rates. As a result, our group annuity business experienced disciplined growth within our risk tolerance driven by
holistic pricing. Our individual annuities business also benefitted from a favourable interest rate environment.
›
Modest growth in overall creditor premium volume in line with stable housing activity and increased mortgage originations.
›
As affordability continues to be a concern for Canadians, we have grown our home & life business by offering an economical
package of home & life solutions.
›
Pent up demand for travel by Canadians post-pandemic continued to drive strong sales in our travel insurance offering.
›
As consumer preferences for digital channels and more simplified, personalized services continue to evolve, we initiated a
digital transformation to harness digital, data and technology to build leading client experiences, bolster sales and marketing,
and automate processes to make it easier for clients to do business with us.
52
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Strategic priorities
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
Deliver a market-leading client experience
Completed the national roll-out of
HomeProtector
®
Basic Life Coverage, providing
enhanced training for 1,500+ mortgage specialists,
and offering additional choice and flexibility to
clients during challenging economic conditions
Launched Life Affinity to provide multi-product
advice and affordable solutions to support our
clients having coverage for all their needs. With
this launch, clients who have both life and
property insurance with RBC can access savings
on their property insurance
Launched Corporate Life Insurance School,
helping advisors build their corporate insurance
knowledge and expand their life business to
corporate clients. Over 2,500+ insurance advisors
have earned continuing education credits in less
than three months
Drive profitable business growth by continuing the
journey to become a client-led organization
underpinned by superior advice and solutions
Drive deep client relationships through
distribution excellence, including channel growth,
and by supporting our agents and partners with
best-in-class tools and unique value propositions
Lead in digital, data and technology
Transitioned to our new Agile Operating Model,
resulting in approximately 30% YoY increase in
overall digital release volume
Achieved an approximately 17% reduction in call
hold time through “ProcedureFlow”, a digital
solution enabling advisors to quickly find
information, scripting, and processes when they
need it
Achieved an approximately 40% reduction in cycle
time for underwriting life contracts following the
full transition to the Agile Operating Model, driving
cost optimization
Create innovative client experiences, leveraging
data and analytics to proactively anticipate future
insurance needs
Harness the power of RBC and the RBC Brand to
grow our Insurance business
Maintained leadership in Creditor products (total
insured lending balance) through advancements
in the online digital enrollment channel
Launched the Wealth Management and Insurance
Collaboration Accelerator, designed to help our
respective businesses partner more closely to
meet client needs by enhancing partnership,
tailoring products, and elevating service delivery
Leveraged Enterprise Gen AI code generation
tools for application development and testing,
increasing team productivity by approximately
25%
Harness the power of being a bank-owned insurer
by tapping into enterprise capabilities,
relationships, channels, best practices and the
RBC brand to maximize enterprise opportunities
Drive operational excellence through automation
and streamlined processes
Achieved an approximately 55% reduction in client
approval time for life insurance applications
through business process re-engineering,
surpassing the goal of a 50% reduction
Achieved approximately 45% reduction in claim
payment time for group life claims, and
approximately 79% reduction in new claim
payment time for long-term disability claims,
through end-to-end process review and
optimization
Celebrated the one-year launch anniversary of our
Enhanced Mental Health Claims program. Clients
who have completed treatment in this program
have returned to work approximately 10 months
sooner compared to prior outcomes
Reimagine our processes through automation,
advanced capabilities and resilient operations to
position us for scale and to deliver an enhanced
client experience
Attract, develop, and retain future-ready talent
Continued to develop advisors’ capabilities and
drive a high-performance culture
Leveraged our Agile framework to integrate teams
and optimize decisions that benefitted both
clients and the business
Strengthened our culture of inclusion and
belonging through initiatives that provide access
to opportunities for growth and development,
including: Diversity Champions Program, and The
Black Professional Network-Insurance Program
Coach and enable our employees to grow and
develop skills to thrive
Empower teams to deliver value to our clients and
shareholders, and drive our strategic ambitions
Develop leaders who create the right conditions
for a high-performance culture to unlock the best
of RBC
Foster inclusive access to development
opportunities and further strengthen our culture
of belonging
Outlook
The insurance industry is expected to continue experiencing demographic changes and technological advancements. With an
aging population, there is an expected increase in demand for life, health and wealth insurance products tailored to the needs of
different client segments. As the integration of digital technologies is transforming the industry, we will remain focused on further
strengthening our digital and data technology to offer more personalized insurance products and services. We will also seek to
further enhance the client experience by investing in operational improvements and focusing on sustainable growth, enabling
achievement of our goal of continuing to be a market leading insurer providing tailored, client-led solutions by harnessing the
power of technology and data.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
53
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.
Insurance
Table 32
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
2024
2023
(1), (2)
Non-interest income
Insurance service result
$
777
$
703
Insurance investment result
294
156
Other income
153
151
Total revenue
1,224
1,010
PCL
2
–
Non-interest expense
285
293
Income before income taxes
937
717
Net income
$
729
$
549
Key ratios
ROE
35.3%
25.3%
Selected balance sheet information
Average total assets
$
26,400
$
25,100
Other information
Premiums and deposits
(3)
$
6,004
$
5,929
Net insurance contract liabilities
(4)
21,643
18,345
Contractual service margin (CSM)
(5)
2,137
1,956
Number of employees (FTE)
2,788
2,781
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
The 2023 restated results may not be fully comparable to the current period as we were not managing our asset and liability portfolios under IFRS 17.
(3)
Premiums and deposits include premiums on risk-based individual and group insurance and annuity products as well as segregated fund deposits, consistent with
insurance industry practices.
(4)
Includes insurance contract liabilities net of insurance contract assets.
(5)
Represents the CSM of insurance contract assets and liabilities net of reinsurance contract held assets and liabilities. For insurance contracts, the CSM represents the
unearned profit (net inflows) for providing insurance coverage. For reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance.
The CSM is not applicable to contracts measured using the premium allocation approach.
Financial performance
2024 vs. 2023
Net income increased $180 million or 33% from last year, mainly due to higher insurance investment result largely attributable to
lower capital funding costs and favourable investment-related experience as we repositioned our portfolio for the transition to
IFRS 17. Higher insurance service result, primarily due to business growth across the majority of our products, also contributed to
the increase. The results in the prior period are not fully comparable as we were not managing our asset and liability portfolios
under IFRS 17.
Total revenue increased $214 million or 21%, primarily due to higher insurance investment result and higher insurance
service result, as noted above.
Non-interest expense decreased $8 million or 3%.
54
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Capital Markets
RBC Capital Markets
®
is a premier global investment bank providing expertise in advisory & origination, sales & trading,
lending & financing and transaction banking to corporations, institutional clients, asset managers, private equity firms and
governments globally. Our professionals provide clients with the advice, products and services their businesses need from
58 offices in 16 countries. Our presence extends across North America, the U.K. & Europe, Australia, Asia and other regions.
> 22,500
#10
7,424
Number of clients
Global league table rankings
1
Employees (FTE)
Revenue by Geography
Total revenue
$12 billion
51% U.S.
28% Canada
16% U.K. & Europe
5% Australia, Asia and
other regions
We operate two main business lines: Corporate & Investment Banking and
Global Markets.
In North America, we offer a full suite of products and services, including equity
and debt origination and distribution, advisory services, sales & trading and
transaction banking. In Canada, we are a market leader with a strategic
presence in all lines of capital markets businesses. In the U.S., where our
competitors include large global investment banks, we have a full industry
sector coverage and investment banking product range, as well as capabilities
in credit, secured lending, municipal finance, fixed income, currencies &
commodities and equities.
Outside North America, we have a targeted strategic presence in the U.K. &
Europe, Australia, Asia and other markets aligned to our global expertise. In the
U.K. & Europe, we offer a diversified set of capabilities in key industry sectors of
focus. In Australia and Asia, we compete with global and regional investment
banks in targeted areas aligned to our global expertise, including fixed income
distribution and currencies trading, secured financing, as well as corporate &
investment banking.
2024 Operating environment
›
The fiscal 2024 operating environment was characterized by declining interest rates and subsiding inflation signaling an
improvement in the macroeconomic outlook despite ongoing geopolitical uncertainty.
›
Industry-wide fee pools, particularly in the U.S. and Europe, began to recover in the first half of 2024 and continued to carry
strong momentum through the second half, compared to 2023 during which fee pools were muted as clients largely maintained
a risk-off position. In addition to the benefit of a recovering fee pool, we continued to advance our advisory capabilities and
grew our market share across investment banking products which underpinned strong performance, as reflected in our solid
top 10 ranking in the global league table.
›
Trading activity, supported by strong client flow, continued to be robust during the year as the credit trading environment was
mostly constructive while rates and foreign exchange trading saw a slight normalization compared to 2023 on lower market
volatility.
›
We maintained a moderate growth strategy in our lending businesses, and delivered strong financial performance, despite
elevated funding costs that began to normalize in the second half of the year. We also continued to leverage our balance sheet
strength to support our clients during the 2024 fiscal year, including new clients acquired as part of the HSBC Canada
transaction.
›
While the credit environment in fiscal 2024 reflected elevated interest rates, it also reflected favourable changes in our
economic outlook towards the latter half of the fiscal year, resulting in releases of provisions on performing loans and lower
provisions on impaired loans.
1
Source: Dealogic, based on global investment bank fees, Fiscal 2024
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
55
Strategic priorities
OUR STRATEGY
PROGRESS IN 2024
PRIORITIES IN 2025
Grow and deepen client relationships
Leveraged our globalized business model to drive
multi-product global client relationships, resulting
in high quality mandates and notable wins in
Corporate & Investment Banking and Global
Markets
A notable client example is:
•
Sole underwriter on GFL Environmental
US$723 million registered block trade of
secondary shares
Awarded Best Investment Bank in Canada as part
of Euromoney’s Awards for Excellence in 2024
Awarded #1 Broker for in-person roadshows, and
joint #2 for virtual roadshows for North American
companies (IR Magazine)
Deliver advisory, origination and sales & trading
solutions across a broad client franchise through
continued investments in talent, technology and
financial resources
Expand client coverage in target sectors and
products
Increase collaboration and connectivity within
RBC Capital Markets and across RBC to amplify
our holistic approach to serving clients
Lead with advice and extend capabilities
Launched our U.S. Cash Management platform,
RBC Clear, with strong momentum in client
acquisition, leading to multiple industry awards,
including:
•
Outstanding Cash Management Platform and
Best Wholesale / Transaction Bank for Digital
Customer Experience in the United States
(The Digital Banker)
Expanded existing capabilities within credit
products and risk solutions
Advanced RBC Capital Markets’ contribution to
RBC’s actions on climate. A notable client example
is:
•
Exclusive financial advisor to Schroders
Greencoat on the £700 million acquisition of a
U.K.-based solar photovoltaics portfolio, lead
underwriter for bridge financing and exclusive
financial advisor for subsequent refinancing
Lead financial advisor and committed financing to
J.M. Smucker Co. on the US$5.6 billion acquisition
of Hostess Brands, Inc.
Pursue adjacencies to our existing core
capabilities across Corporate & Investment
Banking and Global Markets
Scale U.S. Cash Management capabilities across
RBC Capital Markets’ clients
Lead with advice by accelerating growth in
Mergers & Acquisitions (M&A), Equity Capital
Markets and Risk Solutions
Continue to advance RBC Capital Markets’
contribution to RBC’s actions on climate
Leverage digital and data to deliver
innovative solutions
Expanded Aiden
®
, RBC Capital Markets’ AI
solution, to drive productivity benefits in Equity
Research and select businesses
Leveraged alternative data sets to provide
differentiated research and insights to our clients,
resulting in record publications and increased
readership
Scale digital products and generative AI solutions
globally across businesses
Continue to advance the client digital experience
and broaden electronic execution capabilities
Prioritize and align for impact
Reorganized the structure of Global Investment
Banking to better align with our clients and drive
increased global coordination
Launched a refreshed governance framework for
productivity and efficiency to strategically focus
benefit efforts and address key cost areas
Successfully transitioned to a T+1 settlement cycle
Further increase productivity and improve
efficiencies through an RBC Capital Markets wide
approach
Align investments in operational and
technological architecture to business priorities
Drive agility and ease of doing business
Simplified our technology infrastructure through
consolidation of applications, promotion of
platform reuse and retirement of applications that
are no longer strategic
Progressed delivery of a streamlined, end-to-end
client lifecycle management technology system
and piloted the new system across select regions
and businesses
Further simplify technology infrastructure and
automate functional support to improve client and
employee experience
Continue to modernize the back-office service
model to streamline the client experience while
amplifying controls and risk management
Continue to expand the scope of the client
lifecycle management system
Engage, enable and empower our talent
Invested in leadership capabilities through the
launch of a people manager training program
Invested in talent across internal promotions,
external senior hires, and support for internal
mobility
Strengthened our culture of inclusion and
belonging through our Employee Resource Group
initiatives which provide access to opportunities
for growth and development
Coach and enable our employees to grow and
develop skills to thrive
Empower teams to deliver value to our clients and
shareholders, and drive our strategic ambitions
Develop leaders who create the right conditions
for a high-performance culture to unlock the best
of RBC
Foster inclusive access to development
opportunities and further strengthen our culture
of belonging
56
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Outlook
For fiscal 2025, the macroeconomic outlook, while uncertain, is expected to continue evolving with favourable impacts across our
diversified business as interest rates further decline and inflation continues to abate. Amidst these market dynamics, we expect
global investment banking fee pools to continue to have strong momentum through fiscal 2025, while global markets industry
revenue pools are expected to remain robust. We will continue to pursue market share growth in both our Corporate &
Investment Banking and Global Markets businesses. In Investment Banking, we remain focused on key industry sectors and
investments in talent, with an emphasis on advisory services. In Global Markets, we expect to continue delivering strong results
through acceleration of cross-selling activities, further deployment of electronic and digital capabilities, and building on our
strong risk management practices. In Corporate Banking, we will maintain a disciplined growth approach underpinned by strong
credit risk management practices to deepen relationships with lending clients and drive stronger performance in our non-lending
businesses. Across our businesses, our strategy remains client-centric while optimizing our financial resources, including the
ramp up of our Cash Management capabilities in the U.S. We believe this strategy positions us well to navigate the
macroeconomic environment, including uncertainty and challenges.
For further details on our general economic review and outlook, refer to the Economic, market and regulatory review and outlook
section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
57
Capital Markets
Table 33
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
2024
(1)
2023
Net interest income
(2)
$
3,183
$
3,379
Non-interest income
(2)
8,829
7,672
Total revenue
(2)
12,012
11,051
PCL on performing assets
84
125
PCL on impaired assets
340
436
PCL
424
561
Non-interest expense
7,016
6,509
Income before income taxes
4,572
3,981
Net income
$
4,573
$
4,139
Revenue by business
Corporate & Investment Banking
(3)
$
6,399
$
5,593
Global Markets
(3)
5,879
5,795
Other
(266)
(337)
Key ratios
ROE
(4)
14.2%
14.6%
Selected balance sheet information
Average total assets
$
1,134,300
$
1,107,100
Average trading securities
183,400
160,900
Average loans and acceptances, net
148,200
144,900
Average deposits
296,400
291,700
Other information
Number of employees (FTE)
7,424
7,253
Credit information
PCL on impaired loans as a % of average net loans and acceptances
0.23%
0.30%
Estimated impact of U.S. dollar, British pound and Euro translation on key income statement items
(Millions of Canadian dollars, except percentage amounts)
2024 vs. 2023
Increase (decrease):
Total revenue
$
155
PCL
6
Non-interest expense
85
Net income
58
Percentage change in average U.S. dollar equivalent of C$1.00
(1)%
Percentage change in average British pound equivalent of C$1.00
(4)%
Percentage change in average Euro equivalent of C$1.00
(2)%
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, which impacted results, balances
and ratios for 2024. For further details, refer to the Key corporate events section.
(2)
The teb adjustment for 2024 was $294 million (2023 – $559 million). For further discussion, refer to the How we measure and report our business segments section.
(3)
Effective the third quarter of 2024, we moved the majority of our debt origination business from Global Markets to Corporate & Investment Banking. Comparative
amounts have been revised from those previously presented.
(4)
Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements to allocate capital to our business segments. For further details on
changes to our attributed capital methodology, refer to the How we measure and report our business segments section.
2024
2023
Revenue by region
(Millions of Canadian dollars)
0
3,000
1,500
4,500
13,500
12,000
10,500
6,000
7,500
9,000
U.S.
U.K. & Europe
Canada
Australia, Asia & other regions
58
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Financial performance
2024 vs. 2023
Net income increased $434 million or 10% from last year, mainly due to higher revenue in Corporate & Investment Banking and
lower PCL. These factors were partially offset by higher taxes reflecting favourable tax adjustments in the prior year and higher
compensation.
Total revenue increased $961 million or 9%, mainly due to higher debt origination across all regions. Higher M&A activity
across most regions, the impact of foreign exchange translation and lower residual funding and capital costs also contributed to
the increase. These factors were partially offset by lower fixed income trading revenue across most regions. Equity trading
revenue in Canada was also lower primarily due to the elimination of the availability of the dividend received deduction for
certain Canadian taxable corporate dividends.
PCL decreased $137 million or 24%, mainly due to lower provisions on impaired loans, resulting in a decrease of 7 bps in the
PCL on impaired loans ratio. Provisions on impaired loans in the current year were largely driven by the real estate and related
sector. Lower provisions on performing loans also contributed to the decrease, largely due to favourable changes to our
macroeconomic forecast, partially offset by unfavourable changes in credit quality.
Non-interest expense increased $507 million or 8%, mainly due to higher compensation on increased results, the impact of
foreign exchange translation, ongoing technology investments and higher legal provisions.
Business line review
Corporate & Investment Banking
Corporate & Investment Banking comprises our corporate lending, municipal finance, loan syndication, debt and equity
origination, M&A advisory services and transaction banking services. For debt and equity origination, revenue is allocated
between Corporate & Investment Banking and Global Markets based on the contribution of each group in accordance with an
established agreement. Effective the third quarter of 2024, we moved the majority of our debt origination business from Global
Markets to Corporate & Investment Banking. Comparative amounts have been revised from those previously presented.
Financial performance
Corporate & Investment Banking revenue of $6,399 million increased $806 million or 14% from last year.
Investment banking revenue increased $462 million or 20%, mainly due to higher M&A activity across most regions and
higher debt origination across all regions.
Lending and other revenue increased $344 million or 10%, mainly due to higher volumes in securitization financing and
lending, improved margins in our transaction banking business and the impact of foreign exchange translation.
Selected highlights
Table 34
(Millions of Canadian dollars)
2024
(1)
2023
Total revenue
(2), (3)
$
6,399
$
5,593
Breakdown of total revenue
(2)
Investment banking
(3)
2,745
2,283
Lending and other
(4)
3,654
3,310
Other information
Average assets
129,000
125,000
Average loans and acceptances, net
121,000
117,000
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada
results have been consolidated from the closing date, which impacted results
for 2024. For further details, refer to the Key corporate events section.
(2)
The teb adjustment for the year ended October 31, 2024 was $265 million
(October 31, 2023 – $135 million). For further discussion, refer to the How we
measure and report our business segments section.
(3)
Effective the third quarter of 2024, we moved the majority of our debt
origination business from Global Markets to Corporate & Investment Banking.
Comparative amounts have been revised from those previously presented.
(4)
Comprises our corporate lending, client securitization, and global credit
businesses.
0
1,000
7,000
5,000
2,000
3,000
4,000
2024
2023
Investment banking
Lending and other
Breakdown of total revenue
(Millions of Canadian dollars)
6,000
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
59
Global Markets
Global Markets comprises our sales and trading businesses including fixed income, foreign exchange, commodities and equities,
as well as our repo and secured financing products. As mentioned above, effective the third quarter of 2024, we moved the
majority of our debt origination business from Global Markets to Corporate & Investment Banking. Comparative amounts have
been revised from those previously presented.
Financial performance
Global Markets revenue of $5,879 million increased $84 million or 1% from last year.
Revenue in our Fixed income, currencies and commodities business remained relatively flat, as higher debt origination
primarily in North America was offset by lower fixed income trading revenue across all regions.
Revenue in our Equities business decreased $99 million or 8%, primarily due to lower equity trading revenue in Canada.
Revenue in our Treasury services and funding business increased $182 million or 13%, primarily due to higher fixed income
trading revenue across most regions.
Selected highlights
Table 35
(Millions of Canadian dollars)
2024
(1)
2023
Total revenue
(2), (3)
$
5,879
$
5,795
Breakdown of total revenue
(2)
Fixed income, currencies and
commodities
(3)
3,118
3,117
Equities
1,210
1,309
Treasury services and funding
(4)
1,551
1,369
Other information
Average assets
995,000
968,000
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada
results have been consolidated from the closing date, which impacted results
for 2024. For further details, refer to the Key corporate events section.
(2)
The teb adjustment for the year ended October 31, 2024 was $29 million
(October 31, 2023 – $424 million). For further discussion, refer to the How we
measure and report our business segments section.
(3)
Effective the third quarter of 2024, we moved the majority of our debt
origination business from Global Markets to Corporate & Investment Banking.
Comparative amounts have been revised from those previously presented.
(4)
Comprises our secured funding businesses for internal businesses and
external clients.
0
1,000
2,000
7,000
6,000
3,000
4,000
5,000
2024
2023
Treasury services
and funding
Equities
Fixed income, currencies
and commodities
Breakdown of total revenue
(Millions of Canadian dollars)
Other
Other includes our legacy portfolios, which mainly consists of U.S. commercial mortgage-backed securities (MBS), bank-owned
life insurance (BOLI) derivative contracts and structured rates in Asia.
Financial performance
Other revenue improved $71 million or 22% from last year, primarily reflecting lower residual funding and capital costs.
Corporate Support
Corporate Support consists of Technology & Operations, which provides the technological and operational foundation required
to effectively deliver products and services to our clients, Functions, which includes our finance, human resources, risk
management, internal audit and other functional groups, as well as our Corporate Treasury function. Reported results for
Corporate Support mainly reflect enterprise level activities which are not allocated to business segments. For further details,
refer to the How we measure and report our business segments section.
Corporate Support
Table 36
(Millions of Canadian dollars)
2024
2023
Net interest income (loss)
(1)
$
1,292
$
1,181
Non-interest income (loss)
(1), (2)
(1,534)
(1,442)
Total revenue
(1), (2)
(242)
(261)
PCL
–
–
Non-interest expense
(2)
1,640
668
Income (loss) before income taxes
(1)
(1,882)
(929)
Income taxes (recoveries)
(1)
(659)
(160)
Net income (loss)
$
(1,223)
$
(769)
(1)
Teb adjusted.
(2)
Revenue for the year ended October 31, 2024, included gains of $499 million (October 31, 2023 – gains of $111 million) on economic hedges of our U.S. Wealth Management
(including City National) share-based compensation plans, and non-interest expense included $473 million (October 31, 2023 – $109 million) of share-based compensation
expense driven by changes in the fair value of liabilities relating to our U.S. Wealth Management (including City National) share-based compensation plans.
60
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Due to the nature of activities and consolidation adjustments reported in this segment, we believe that a comparative period
analysis is not relevant.
Total revenue and Income taxes (recoveries) in Corporate Support include the deduction of the teb adjustment related to
gross-up of income from the U.S. tax credit investment business and income from Canadian taxable corporate dividends received
on or before December 31, 2023 that are recorded in Capital Markets. For further details on the elimination of the availability of
the dividend received deduction for Canadian taxable corporate dividends after December 31, 2023, refer to the Legal and
regulatory environment risk section.
The teb amount for the year ended October 31, 2024 was $294 million and was $559 million last year.
The following identifies the material items, other than the teb impacts noted previously, affecting the reported results in each
year.
2024
Net loss was $1,223 million, primarily due to the after-tax impact of the HSBC Canada transaction and integration costs of
$759 million, which is a specified item. Unallocated costs also contributed to the net loss.
2023
Net loss was $769 million, primarily due to the impact of the CRD and other tax related adjustments of $1,050 million, as well as
the after-tax impact of the HSBC Canada transaction and integration costs of $302 million, both of which are specified items.
These factors were partially offset by a specified item relating to certain deferred tax adjustments of $578 million. In addition, the
net loss includes an unfavourable impact from residual unallocated items offset by a favourable impact from tax-related items.
For further details on specified items, refer to the Key performance and non-GAAP measures section.
Quarterly financial information
Fourth quarter performance
Q4 2024 vs. Q4 2023
Fourth quarter net income of $4,222 million was up $283 million or 7%. Diluted EPS of $2.91 was up $0.15 or 5% and ROE of 14.3%
was down 60 bps. Our CET1 ratio of 13.2% was down 130 bps from a year ago. The inclusion of HSBC Canada net income
contributed $265 million to total net income. The remaining increase of $18 million was driven by higher earnings in Wealth
Management, Personal Banking and Insurance. This was largely offset by Corporate Support, which reflected the impact of the
specified item relating to certain deferred tax adjustments in the prior year.
Total revenue increased $2,389 million or 19%. The inclusion of HSBC Canada revenue contributed $743 million to total
revenue.
Net interest income increased $1,129 million or 17%, of which $607 million reflects the inclusion of HSBC Canada net interest
income. The remaining increase of $522 million or 8% was mainly due to average volume growth and higher spreads in both
Personal Banking and Commercial Banking.
Non-interest income increased $1,260 million or 21%, of which $136 million reflects the inclusion of HSBC Canada non-interest
income. The remaining increase of $1,124 million or 18% was mainly due to higher fee-based client assets reflecting market
appreciation and net sales in Wealth Management, as well as changes in the fair value of the hedges related to our U.S. share-
based compensation plans, which was largely offset in Non-interest expense. The impact of economic hedges in Corporate
Support and higher average mutual fund balances driving higher distribution fees in Personal Banking also contributed to the
increase. The prior period reflected the impact of the specified item relating to impairment losses on our interest in an
associated company and a favourable impact from prior period tax-related items.
Total PCL of $840 million increased $120 million or 17%, mainly reflecting higher provisions in Commercial Banking and
Personal Banking, partially offset by releases of provisions in the current quarter in Wealth Management as compared to
provisions taken in the prior year and lower provisions in Capital Markets. The PCL on loans ratio of 35 bps increased 1 bp.
Non-interest expense increased $960 million or 12%, of which $306 million reflects the inclusion of HSBC Canada non-interest
expense. The remaining increase of $654 million or 8% was primarily attributable to higher variable compensation costs
commensurate with increased revenue, the change in fair value of our U.S. share-based compensation plans, which was largely
offset in Other revenue, as well as ongoing technology investments.
Income tax expense increased $1,026 million, primarily due to the impact of certain deferred tax adjustments in the prior
period, which was treated as a specified item, and higher income before income taxes. The effective income tax rate of 19.0%
increased 1,980 bps from last year, primarily due to the impact of certain prior period deferred tax adjustments as noted above
and the net impact of tax adjustments.
Q4 2024 vs. Q3 2024
Net income of $4,222 million was down $264 million or 6% compared to last quarter, primarily due to higher PCL. The impact of
legal provisions in the current period and lower fixed income trading in Europe and Canada, both in Capital Markets, as well as
ongoing technology investments also contributed to the decrease. These factors were partially offset by higher spreads, mainly
in Personal Banking, as well as lower taxes, primarily in Capital Markets.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
61
Quarterly results and trend analysis
Our quarterly results are impacted by a number of trends and recurring factors, which include seasonality of certain businesses,
general economic and market conditions, and fluctuations in the Canadian dollar relative to other currencies. The following table
summarizes our results for the last eight quarters (the period):
Quarterly results
(1)
Table 37
2024
2023
(2)
(Millions of Canadian dollars,
except per share and percentage amounts)
Q4
(3)
Q3
(3)
Q2
(3)
Q1
Q4
Q3
Q2
Q1
Personal Banking
(4)
$
4,658
$
4,490
$
4,163
$
4,031
$
4,009
$
3,898
$
3,711
$
3,853
Commercial Banking
(4)
2,077
2,036
1,656
1,613
1,565
1,511
1,433
1,523
Wealth Management
(4)
5,186
4,964
4,789
4,687
4,332
4,556
4,548
4,725
Insurance
278
285
298
363
248
336
272
154
Capital Markets
(5)
2,903
3,004
3,154
2,951
2,564
2,679
2,662
3,146
Corporate Support
(5)
(28)
(148)
94
(160)
(33)
(3)
(181)
(44)
Total revenue
15,074
14,631
14,154
13,485
12,685
12,977
12,445
13,357
PCL
840
659
920
813
720
616
600
532
Non-interest expense
9,019
8,599
8,308
8,324
8,059
7,765
7,400
7,589
Income before income taxes
5,215
5,373
4,926
4,348
3,906
4,596
4,445
5,236
Income taxes
993
887
976
766
(33)
736
765
2,103
Net income
$
4,222
$
4,486
$
3,950
$
3,582
$
3,939
$
3,860
$
3,680
$
3,133
EPS – basic
$
2.92
$
3.09
$
2.75
$
2.50
$
2.77
$
2.73
$
2.60
$
2.23
– diluted
2.91
3.09
2.74
2.50
2.76
2.73
2.60
2.23
Effective income tax rate
19.0%
16.5%
19.8%
17.6%
(0.8)%
16.0%
17.2%
40.2%
Period average US$ equivalent
of C$1.00
$
0.733
$
0.730
$
0.734
$
0.745
$
0.732
$
0.750
$
0.737
$
0.745
(1)
Fluctuations in the Canadian dollar relative to other foreign currencies have affected our consolidated results over the period.
(2)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(3)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal
Banking, Commercial Banking, Wealth Management and Capital Markets segments. For further details, refer to the Key corporate events section.
(4)
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments: Personal Banking and Commercial
Banking. With this change, RBC Direct Investing moved from the previous Personal & Commercial Banking segment to the Wealth Management segment. Amounts have
been revised from those previously presented to conform to our new basis of segment presentation. For further details, refer to the About Royal Bank of Canada section.
(5)
Teb adjusted. For further discussion, refer to the How we measure and report our business segments section.
Seasonality
Seasonal factors may impact our results in certain quarters. The first quarter has historically been stronger for our Capital
Markets businesses. The second quarter has fewer days than the other quarters, which generally results in a decrease in net
interest income and certain expense items. The third and fourth quarters include the summer months which generally results in
lower client activity and may negatively impact the results of our Capital Markets trading business.
Trend analysis
Earnings over the period have been impacted by the factors noted below.
Personal Banking revenue has benefitted from volume growth in loans and deposits over the period. NIM has been
favourably impacted by the higher interest rate environment, partially offset by competitive pricing pressures. HSBC Canada
revenue has been included since the transaction closed on March 28, 2024.
Commercial Banking revenue has benefitted from volume growth in loans and deposits over the period. HSBC Canada
revenue has been included since the transaction closed on March 28, 2024.
Wealth Management revenue has generally benefitted from growth in average fee-based client assets, which was impacted
by market conditions. On July 3, 2023, we completed the sale of the European asset servicing activities of RBC Investor Services
and its associated Malaysian centre of excellence. The fourth quarter of 2023 reflected impairment losses on our interest in an
associated company.
As part of our adoption of IFRS 17, effective November 1, 2023, fluctuations in Insurance revenue are reflective of market
conditions and insurance experience, while new business gains are deferred through CSM.
Capital Markets revenue is influenced, to a large extent, by market conditions that impact client activity. While investment
banking fee pools were muted in 2023, we saw an increase in activity beginning the second quarter of 2024, during which we also
improved market share across all major products. Sales & trading activity increased in 2023 and carried strong momentum into 2024.
PCL is comprised of provisions taken on performing assets and provisions taken on impaired assets. PCL on performing
assets fluctuated over the period as it is impacted by changes in credit quality, macroeconomic conditions and exposures.
Provisions on performing assets over the period have generally been reflective of unfavourable changes in credit quality. During
the early part of the period, there were unfavourable changes in our macroeconomic forecast. Starting in 2024, we have seen
improvements in our macroeconomic forecast. The second quarter of 2024 includes initial PCL on performing loans purchased in
the HSBC Canada transaction. PCL on impaired assets was low during the early part of the period, but has generally trended
upwards over the remainder of the period.
Non-interest expense has been impacted by fluctuations in variable compensation over the period, commensurate with
fluctuations in revenue and earnings. Changes in the fair value of our U.S. share-based compensation plans, which are largely
offset in revenue, have also contributed to fluctuations over the period and are impacted by market conditions. While we
continue to focus on efficiency management activities, expenses over the period also reflect investments in staff and technology.
62
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Beginning in fiscal 2023, expenses have also included HSBC Canada transaction and integration costs. HSBC Canada non-interest
expenses have been included since the transaction closed on March 28, 2024.
Our effective income tax rate has fluctuated over the period, mostly due to varying levels of tax adjustments and changes in
earnings mix. The first quarter of 2023 reflects the impact of the CRD and other tax related adjustments. The fourth quarter of
2023 reflects the recognition of deferred tax assets relating to realized losses in City National associated with the intercompany
sale of certain debt securities.
Financial condition
Condensed balance sheets
Table 38
As at October 31 (Millions of Canadian dollars)
2024
2023
(1)
Assets
Cash and due from banks
$
56,723
$
61,989
Interest-bearing deposits with banks
66,020
71,086
Securities, net of applicable allowance
(2)
439,918
409,730
Assets purchased under reverse repurchase agreements and securities borrowed
350,803
340,191
Loans
Retail
626,978
569,951
Wholesale
360,439
287,826
Allowance for loan losses
(6,037)
(5,004)
Other – Derivatives
150,612
142,450
– Other
126,126
128,312
Total assets
$
2,171,582
$ 2,006,531
Liabilities
Deposits
$
1,409,531
$ 1,231,687
Other – Derivatives
163,763
142,629
– Other
457,550
505,682
Subordinated debentures
13,546
11,386
Total liabilities
2,044,390
1,891,384
Equity attributable to shareholders
127,089
115,048
Non-controlling interests
103
99
Total equity
127,192
115,147
Total liabilities and equity
$
2,171,582
$ 2,006,531
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
Securities are comprised of trading and investment securities.
2024 vs. 2023
Total assets increased $165 billion or 8% from October 31, 2023. Foreign exchange translation decreased total assets by
$30 billion.
Cash and due from banks decreased $5 billion or 8%, largely due to lower deposits with central banks reflecting short-term
cash management activities.
Interest-bearing deposits with banks decreased $5 billion or 7%, mainly due to lower deposits with central banks reflecting
short-term cash management activities.
Securities, net of applicable allowance, increased $30 billion or 7%, largely due to higher equity trading securities reflecting
favourable market conditions, as well as the impact of the HSBC Canada transaction. These factors were partially offset by lower
Canadian government debt securities primarily reflecting liquidity management activities.
Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $11 billion or 3%,
mainly due to liquidity management activities.
Loans (net of Allowance for loan losses) increased $129 billion or 15%, primarily due to the impact of the HSBC Canada
transaction and growth in wholesale loans, including the impact from the cessation of Bankers’ Acceptance-based lending as
part of interest rate benchmark reform. For further details on interest rate benchmark reform refer to the Legal and regulatory
environment risk section.
Derivative assets increased $8 billion or 6%, mainly attributable to higher fair values on foreign exchange and equity
contracts partially offset by the impact of foreign exchange translation and lower fair values on interest rate contracts.
Other assets decreased $2 billion or 2%, largely due to lower customers’ liability under acceptances from the cessation of
Bankers’ Acceptance-based lending as noted above, partially offset by higher goodwill and intangible assets from the impact of
the HSBC Canada transaction.
Total liabilities increased $153 billion or 8%. Foreign exchange translation decreased total liabilities by $30 billion.
Deposits increased $178 billion or 14%, primarily due to the impact of the HSBC Canada transaction, higher personal and
business deposits driven by increased client activity and investment preferences, as well as an increase in the issuance of
long-term notes for funding requirements.
Derivative liabilities increased $21 billion or 15%, mainly attributable to higher fair values on foreign exchange and equity
contracts, partially offset by the impact of foreign exchange translation and lower fair values on interest rate contracts.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
63
Other liabilities decreased $48 billion or 10%, primarily due to lower obligations related to repurchase agreements (repos)
reflecting decreased funding requirements, as well as lower acceptances from the cessation of Bankers’ Acceptance-based
lending as noted above.
Subordinated debentures increased by $2 billion or 19%, reflecting new issuances, net of redemptions.
Total equity increased $12 billion or 10%, reflecting earnings, net of dividends, and the net issuance of common shares, limited
recourse capital notes and preferred shares.
Off-balance sheet arrangements
In the normal course of business, we engage in a variety of financial transactions that, for accounting purposes, are not recorded
on our Consolidated Balance Sheets. Off-balance sheet transactions are generally undertaken for risk, capital and funding
management purposes which benefit us and our clients. These include transactions with structured entities and may also include
the issuance of guarantees. These transactions give rise to, among other risks, varying degrees of market, credit, liquidity and
funding risk, which are discussed in the Risk management section.
We use structured entities to securitize our financial assets as well as assist our clients in securitizing their financial assets.
These entities are not operating entities, typically have no employees, and may or may not be recorded on our Consolidated
Balance Sheets.
In the normal course of business, we engage in a variety of financial transactions that may qualify for derecognition. We
apply the derecognition rules to determine whether we have transferred substantially all the risks and rewards or control
associated with the financial assets to a third party. If the transaction meets specific criteria, it may qualify for full or partial
derecognition from our Consolidated Balance Sheets.
Securitizations of our financial assets
We periodically securitize our credit card receivables and residential and commercial mortgage loans primarily to diversify our
funding sources, enhance our liquidity position and for capital purposes. We also securitize residential and commercial
mortgage loans as part of our sales and trading activities.
We securitize our credit card receivables, on a revolving basis, through a consolidated structured entity. We securitize single
and multiple-family residential mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS) program.
The majority of our securitization activities are recorded on our Consolidated Balance Sheets as we do not meet the
derecognition criteria. During 2024, we derecognized $122 million (October 31, 2023 – $nil) of mortgages securitized through the
NHA MBS program. For further details, refer to Note 7 and Note 8 of our 2024 Annual Consolidated Financial Statements.
We also periodically securitize commercial mortgage loans by selling them in collateral pools, which meet certain
diversification, leverage and debt coverage criteria, to structured entities, one of which is sponsored by us. Securitized
commercial mortgage loans are derecognized from our Consolidated Balance Sheets as we have transferred substantially all of
the risks and rewards of ownership of the securitized assets. During the year ended October 31, 2024, we did not securitize any
commercial mortgages (October 31, 2023 – $nil). Our continuing involvement with the transferred assets is limited to servicing
certain of the underlying commercial mortgages sold. As at October 31, 2024, there was $1 billion of commercial mortgages
outstanding that we continue to service related to these securitization activities (October 31, 2023 – $2 billion).
Involvement with unconsolidated structured entities
In the normal course of business, we engage in a variety of financial transactions with structured entities to support our
customers’ financing and investing needs, including securitization of our clients’ financial assets, creation of investment
products, and other types of structured financing.
We have the ability to use credit mitigation tools such as third-party guarantees, credit default swaps, and collateral to
mitigate risks assumed through securitization and re-securitization exposures. The process in place to monitor the credit quality
of our securitization and re-securitization exposures involves, among other things, reviewing the performance data of the
underlying assets. We affirm our ratings each quarter and formally confirm or assign a new rating at least annually. For further
details on our activities to manage risks, refer to the Risk management section.
Below is a description of our activities with respect to certain significant unconsolidated structured entities. For a complete
discussion of our interests in consolidated and unconsolidated structured entities, refer to Note 8 of our 2024 Annual
Consolidated Financial Statements.
Multi-seller conduits
We administer multi-seller conduits which are used primarily for the securitization of our clients’ financial assets. Our clients
primarily use our multi-seller conduits to diversify their financing sources and to reduce funding costs by leveraging the value of
high-quality collateral. The conduits offer us a favourable revenue stream and risk-adjusted return.
We provide services such as transaction structuring, administration, backstop liquidity facilities and credit enhancements to
the multi-seller conduits. Revenue for all such services amounted to $437 million during the year (October 31, 2023 – $387 million).
Our total commitment to the conduits in the form of backstop liquidity and credit enhancement facilities is shown below. The
total committed amount of these facilities exceeds the total amount of the maximum assets that may have to be purchased by
the conduits under the purchase agreements. As a result, the maximum exposure to loss attributable to our backstop liquidity
and credit enhancement facilities is less than the total committed amounts of these facilities.
64
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Liquidity and credit enhancement facilities
Table 39
2024
2023
As at October 31 (Millions of Canadian dollars)
Notional of
committed
amounts
(1)
Allocable
notional
amounts
Maximum
exposure
to loss
(2)
Notional of
committed
amounts
(1)
Allocable
notional
amounts
Maximum
exposure
to loss
(2)
Backstop liquidity facilities
$ 56,511
$ 53,011
$ 53,247
$ 54,713
$ 51,469
$ 51,469
Credit enhancement facilities
(3)
3,500
3,500
3,500
3,244
3,244
3,244
Total
$ 60,011
$ 56,511
$ 56,747
$ 57,957
$ 54,713
$ 54,713
(1)
Based on total committed financing limit.
(2)
Not presented in the table above are derivative assets with a fair value of $32 million (October 31, 2023 – $2 million) which are a component of our total maximum
exposure to loss from our interests in the multi-seller conduits. Refer to Note 8 of our 2024 Annual Consolidated Financial Statements for more details.
(3)
Includes $18 million (October 31, 2023 – $18 million) of Financial standby letters of credit.
As at October 31, 2024, the notional amount of backstop liquidity facilities we provide increased $1,798 million or 3% from last
year, primarily due to an increase in outstanding securitized assets of the multi-seller conduits. The notional amount of credit
enhancement facilities we provide increased $256 million or 8% from last year, primarily due to an increase in the amount
required by the conduits.
Maximum exposure to loss by asset type
Table 40
2024
2023
As at October 31 (Millions of dollars)
US$
C$
Total C$
US$
C$
Total C$
Outstanding securitized assets
Auto and truck loans and leases
$ 12,882
$
4,478
$ 22,409
$
11,197
$
3,874
$
19,402
Consumer loans
4,931
–
6,864
4,170
–
5,783
Credit cards
3,180
510
4,937
4,226
510
6,371
Dealer floor plan receivables
1,063
683
2,163
1,075
592
2,083
Equipment receivables
1,639
236
2,517
2,086
965
3,858
Fleet finance receivables
2,227
255
3,355
1,835
190
2,735
Commercial loans
701
592
1,567
542
530
1,282
Residential mortgages
–
2,295
2,295
–
1,785
1,785
Student loans
1,789
142
2,632
2,312
141
3,348
Trade receivables
3,132
–
4,359
2,954
–
4,097
Transportation finance
2,512
153
3,649
2,752
153
3,969
Total
$ 34,056
$
9,344
$ 56,747
$
33,149
$
8,740
$
54,713
Canadian equivalent
$ 47,403
$
9,344
$ 56,747
$
45,973
$
8,740
$
54,713
Our overall exposure increased $2 billion or 4% compared to last year, primarily due to an increase in the outstanding securitized
assets of the multi-seller conduits. All of the multi-seller conduits transactions were internally rated A or above. All transactions
funded by the unconsolidated multi-seller conduits are internally rated using a rating system as outlined in the internal ratings
map in the credit risk section.
Multiple independent debt rating agencies review all of the transactions in the multi-seller conduits. Transactions financed
in the U.S. multi-seller conduits are reviewed by Moody’s Investors Service (Moody’s‡), Standard & Poor’s (S&P‡) and Fitch
Ratings (Fitch‡). Transactions in two of the Canadian multi-seller conduits are reviewed by DBRS Morningstar (DBRS‡) and
Moody’s while one of the Canadian multi-seller conduits is also reviewed by S&P. Each applicable rating agency also reviews
ongoing transaction performance on a monthly basis and may publish reports detailing portfolio and program information
related to the conduits.
As at October 31, 2024, the total asset-backed commercial paper (ABCP) issued by the conduits amounted to $37 billion, flat
from last year. The rating agencies that rate the ABCP rated 100% (October 31, 2023 – 100%) of the total amount issued within the
top ratings category.
Structured finance
We provide liquidity facilities to certain municipal bond tender option bond trusts in which we have an interest but do not
consolidate because the residual certificates issued by the tender option bond trusts are held by third parties. As at October 31,
2024, our maximum exposure to loss from these unconsolidated municipal bond tender option bond trusts was $3 billion
(October 31, 2023 – $3 billion).
We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquire
loans and issue term collateralized loan obligations (CLO). Subordinated financing is provided during the warehouse phase by
either the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs
losses prior to ourselves as the senior lender. A portion of the proceeds from the sale of the term CLO is used to fully repay the
senior warehouse financing that we provide. As at October 31, 2024, our maximum exposure to loss associated with the
outstanding senior warehouse financing facilities was $704 million (October 31, 2023 – $796 million). The decrease in our
maximum exposure to loss from last year was driven by the repayment of existing financing facilities partially offset by the
addition of new financing facilities.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
65
We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.
Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as
the first loss tranche which absorb losses prior to ourselves as the senior lender. These facilities tend to be longer in term than
the CLO warehouse facilities and benefit from credit enhancement designed to cover a multiple of historical losses. As at
October 31, 2024, our maximum exposure to loss associated with the outstanding senior financing facilities was $8 billion
(October 31, 2023 – $6 billion). The increase in our maximum exposure to loss from last year was driven by the addition of new
financing facilities partially offset by the repayment of existing financing facilities.
Non-RBC managed investment funds
We invest in hedge funds primarily to provide clients with desired exposures to reference funds. As we make investments in the
reference funds, exposures to the funds are simultaneously transferred to clients through derivative transactions. Our maximum
exposure to loss in the reference funds is limited to our investments in the funds. As at October 31, 2024, our maximum exposure
to loss was $3 billion (October 31, 2023 – $2 billion). The increase in our maximum exposure to loss from last year was driven by
an increase in our holding of third-party investment funds and market appreciation.
We also provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate preferred
shares and invest in portfolios of tax-exempt bonds. As at October 31, 2024, our maximum exposure to loss on these funds was
$948 million (October 31, 2023 – $632 million). The increase in our maximum exposure to loss from last year was largely driven by
an increase in our holding of third-party investment funds.
Third-party securitization vehicles
We hold interests in certain unconsolidated third-party securitization vehicles, which are structured entities. We, as well as other
financial institutions, are obligated to provide funding to these entities up to our maximum commitment level and are exposed to
credit losses on the underlying assets after various credit enhancements. As at October 31, 2024, our maximum exposure to loss
in these entities was $21 billion (October 31, 2023 – $15 billion). The increase in our maximum exposure to loss compared to last
year reflects an increase in client activity with third-party securitization vehicles. Interest and non-interest income earned in
respect of these investments was $698 million (October 31, 2023 – $528 million).
Other
Other unconsolidated structured entities include managed investment funds, arrangements to pass credit risk to third parties,
credit investment products and tax credit funds. Refer to Note 8 of our 2024 Annual Consolidated Financial Statements for more
details regarding our other unconsolidated structured entities.
Guarantees, retail and commercial commitments
We provide our clients with guarantees and commitments that expose us to liquidity and funding risks. Our maximum potential
amount of future payments in relation to our commitments and guarantee products as at October 31, 2024 amounted to
$551 billion compared to $496 billion last year. The increase compared to last year was primarily driven by growth in sponsored
member guarantees, other commitments to extend credit and performance guarantees. Refer to Liquidity and funding risk
section and Note 23 of our 2024 Annual Consolidated Financial Statements for details regarding our guarantees and
commitments.
Risk management
We are in the business of managing the risks inherent to the financial services industry as we aim to create maximum value for
our shareholders, clients, employees and communities. The ability to manage risk is a core competency of the bank, and is
supported by our risk-aware culture and risk management approach. Our view of risks is dynamic, and reflects the pace of
change in the financial services industry.
Top and emerging risks
An important component of our risk management approach is to seek to ensure that top and emerging risks, as they evolve, are
identified, managed and incorporated into our existing risk management assessment, measurement, monitoring and escalation
processes and addressed in our risk frameworks and policies. These practices are intended to ensure a forward-looking risk
assessment is maintained by management in the course of business development and as part of the execution of ongoing risk
oversight responsibilities. Top and emerging risks are discussed by senior management and the Board on a regular basis.
We have developed supplementary internal guidance to support enterprise-wide identification and assessment of all
material risks, including those that are not readily apparent. Top and emerging risks encompass those that could materially
impact our financial results, financial and operational resilience, reputation, business model or strategy, as well as those that
may materially impact us as the risks evolve. The following represents our top and emerging risks:
66
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Top & emerging risks
Description
Business and economic
conditions
Our financial results are affected to varying degrees by the general business and economic conditions in
the geographic regions in which we operate. These conditions may include factors such as: economic
growth or contraction trends; consumer saving and spending habits; consumer and corporate borrowing
and repayment patterns; unemployment rates; the differing economic trajectories among nations across
the globe; global tensions and geopolitical uncertainty and conflicts; the level of business investment
and overall business sentiment; trade policy developments; the emergence of a new outbreak of a
pandemic or other health crisis; the level of government spending, as well as fiscal and monetary policy;
the level of activity and volatility of the financial markets; disruptions to energy and other commodity
markets; competitiveness; supply chain challenges and labour shortages; the evolution of inflationary
pressures; and possible stagflation or deflation. Moreover, interest rate changes and actions taken by
central banks to manage inflation, deflation or the broader economy have implications for us. Our
financial results are sensitive to changes in interest rates, as described in the Government fiscal,
monetary and other policies section.
For example, a slowdown in economic growth or an economic downturn could adversely impact
employment rates and household incomes, consumer spending, housing prices, corporate earnings and
business investment, and could adversely affect our business, including, but not limited to, the demand
for our loan and other products, and result in lower earnings and higher credit losses. In addition to risks
arising from monetary policy uncertainty (e.g., the pace and magnitude of monetary easing), risks are
also emerging around how governments manage elevated debt burdens and how they may introduce
new support measures provided to deal with emerging economic challenges. This may include, for
example, changes to tax policy to address fiscal capacity concerns and to balance budgets in the future.
There are also emerging risks related to wealth and income inequality, as well as changing
demographics and immigration, which could impact the labour market, the housing market, inflation,
demand and consumer trends, and potentially have broader societal and government policy
implications.
Canadian housing and
household indebtedness
Canadian housing and household indebtedness risks remain heightened given the current interest rate
environment and affordability challenges. Concerns around the ability of Canadian households to meet
debt obligations could escalate if interest rates remain elevated for longer, if there is a resurgence in
inflation, or if the job market deteriorates significantly, potentially resulting in, among other things,
higher credit losses or reduced housing market activity. Moreover, slowing economic growth could
further adversely impact housing market activity and housing prices, which could push loan-to-value
(LTV) ratios higher and further increase credit losses.
While interest rates have started to decline, a slowdown in the real estate rental market, challenging
affordability conditions, an increase in condominium supply, and elevated borrowing and construction
costs, may have an adverse impact on future real estate investment and demand. The combination of
multiple challenges, including but not limited to elevated home prices, high debt levels, an increasingly
high cost of living, a rising unemployment rate and government policy uncertainty (e.g., immigration
policy), may make key Canadian housing markets particularly vulnerable to a potential economic shock
or financial instability.
Information technology,
cyber and third-party risks
Information technology (IT) risk, cyber risks and third-party risk remain top risks, not only for the financial
services sector, but for other industries worldwide. Geopolitical tensions have increased the risk of nation
state actors attacking critical infrastructure, including banks and critical third parties. We continue to be
subject to the heightened inherent risk of cyberattacks, data breaches, cyber extortion and similar
compromises, due to: (i) the size, scale and global nature of our operations; (ii) our heavy reliance on the
internet to conduct day-to-day business activities; (iii) our intricate technological infrastructure; and
(iv) our reliance on third-party service providers. Our potential exposure to these risks increases as we
continue to partner with third-party service providers and adopt new business models and technologies
(e.g., cloud computing, software-as-a-service (SAAS), generative artificial intelligence (GenAI) and
machine learning). Threat actors gravitate towards vulnerabilities in an ecosystem, and the weakest link
in the supply chain can be a supplier or third-party service provider that may not have sufficiently robust
controls. Other key drivers of third-party risk include global economic pressures related to inflation, and
concentration of suppliers and fourth parties (i.e. suppliers of our third-party providers) within the
broader supply chain. Third-party providers critical to our operations are actively monitored for impacts
on their ability to deliver services to us, including impacts resulting from fourth parties.
Ransomware threats continue to grow in sophistication and be used to launch major supply chain attacks.
Resulting implications could include business interruptions, client service disruptions, financial loss, theft
of intellectual property and confidential information, litigation, enhanced regulatory attention and
penalties, as well as reputational damage. Furthermore, the adoption of emerging technologies, such as
cloud computing, AI, including GenAI, and robotics, call for continued focus and investment to manage risks
effectively. For more details on how we are managing these risks, refer to the Operational risk section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
67
Top & emerging risks
Description
Geopolitical uncertainty
Tensions remain elevated between China and the U.S. and its allies over a number of issues including
trade, technology, human rights, Taiwan, Hong Kong and Macau. Moreover, these tensions produce
additional vulnerabilities to the Canadian economy given the country’s trading relationships with the
U.S. and China, Canada’s two largest trading partners. Tensions among China and its neighbours over
territorial claims, and the prospect of even closer relations between China, Russia, Iran and North Korea,
add further global and economic uncertainty. Additionally, continued weakening in the Chinese
economy, driven by real estate sector decline and consumer demand related challenges, may be
exported globally and negatively impact global economic growth.
The lead-up to the U.S. elections saw elevated levels of political polarization and threats of violence. The
uncertainty produced by the elections could impact RBC’s business and operations, as well as generate
broader economic and market impacts.
Geopolitical tensions in the Middle East and other regions, such as the Korean Peninsula, continue to
add to economic and market uncertainties. In particular, Middle East tensions may further destabilize
global security, supply chains, markets and economic growth, along with key commodity markets. In
addition, an uncertain geopolitical or economic environment could lead to further increases in
polarization, social unrest or terrorism, each of which could have direct or indirect impacts to the bank.
In 2024, the Russia-Ukraine conflict continued to produce turmoil in the geopolitical landscape, with ongoing
impacts to the global economy and markets. Domestic disturbances in Russia may also signal weakening
internal stability. This, along with Ukraine’s incursions into Russia, could portend growing tail risks
associated with Russia-West tensions. The duration and path of the conflict remain uncertain and could
continue to exacerbate global tensions, energy and other commodity shortages, supply chain disruptions,
inflationary pressures, weakening sentiment and growth prospects, market volatility, cyberattacks, and the
proliferation of sanctions and trade measures. In particular, Europe continues to face uncertainty given its
military and trade relationships with impacted regions and its weakening economic prospects.
More broadly, the future of global trade remains uncertain, as countries look to decrease reliance on the
global supply chain and nations with differing values. Increased global polarization, protectionist
measures, including protectionist trade policies and the imposition of tariffs, and economic nationalism
could reshape global alliances and financial systems as the supply of critical goods of economic and
national importance (e.g., energy, critical minerals, semiconductors) remains one of the top priorities of
governments. Furthermore, a volatile geopolitical environment could generate an increase in espionage
and foreign interference activities that indirectly or directly impact the financial services sector. We will
continue to monitor these developments and others, and will assess the implications they have on us.
Environmental and
social risk
We, like other organizations, are subject to increased regulatory requirements and stakeholder
expectations to address environmental and social risks.
Environmental and social risks are unique and transverse in nature and may impact our principal risks in
different ways and to varying degrees, including but not limited to strategic, operational, credit,
reputation and compliance risks.
For details on how we are managing environmental and social risk, refer to the Overview of other risks –
Environmental and Social risk section, and the Legal and regulatory environment risk section.
Digital disruption
and innovation
As the demand for digital banking services grows, the need to meet the rapidly evolving needs of clients
and compete with traditional and non-traditional competitors has increased our strategic and reputation
risks. Additional risks continue to emerge as demographic trends, evolving client expectations, the
increased power to analyze data and the emergence of disruptors are creating competitive pressures
across a number of sectors. Moreover, established technology companies, new competitors and
regulatory changes continue to foster new business models that could challenge traditional banks and
financial products. Finally, while the adoption of new technologies, such as AI (including GenAI) and
machine learning, presents opportunities for us, it is resulting or could result in new and complex
strategic, operational, regulatory, compliance and reputation risks that would need to be managed
effectively.
Privacy and data
related risks
The protection and responsible use of Personal Information (PI) are critical to maintaining our clients’
trust. PI is information entrusted to RBC that identifies an individual or can be reasonably used to
identify an individual and can relate to current, former and prospective clients, employees and
contractors. In addition, the management and governance of our data also remains a top risk given the
high value attributed to our data for the insights it can generate for clients and communities. Resulting
implications from failing to manage data and privacy risks could include financial loss, theft of
intellectual property and/or confidential information, litigation, enhanced regulatory attention and
penalties, and reputational damage. Effective privacy and information management practices continue
to grow in importance, as demonstrated by the continued development of complex regulations in the
jurisdictions in which we operate. Privacy and data related risks have also heightened as a result of the
evolving threat landscape and associated data breach risks. For details on how we are managing these
risks, refer to the Operational risk section.
68
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Top & emerging risks
Description
Regulatory changes
The ongoing introduction of new or revised regulations requires enhanced focus across the organization
on meeting additional regulatory requirements across the multiple jurisdictions in which we operate.
Financial and other reforms that have been implemented or are being implemented across multiple
jurisdictions, such as digital, data and technology reforms, cyber security and anti-money laundering
regulations, interest rate benchmark and payments reform, as well as privacy, tax reforms, climate,
sustainability and consumer protection regulatory initiatives, continue to impact our operations and
strategies. For more details, refer to the Overview of other risks – Legal and regulatory environment risk
section.
Culture and conduct risks
Our Purpose, values and risk principles are key dimensions of our culture. We demonstrate our culture
through our conduct – the behaviours, decisions and actions of the organization and our employees.
Culture and conduct risks are considered top risks for the financial services industry due to the impact
that our choices, behaviours, and overall risk governance can have on outcomes for our clients and
other stakeholders. We embed client considerations into our decision-making processes and continue to
focus on the fair treatment of clients which also aligns with regulatory direction. We seek to be
responsive to evolving employee needs while expecting employees to always act with integrity.
Regulators continue to focus on conduct risks, and heightened expectations generally from regulators
could lead to investigations, remediation requirements, higher compliance costs and enforcement
actions and fines, and potential criminal prosecutions or imposition of sanctions, which may involve
prohibitions or restrictions on some of our activities. While we take steps to continue to strengthen our
conduct practices, and prevent and detect risk outcomes which could potentially harm clients,
employees or the integrity of the markets, such outcomes may not always be prevented or detected.
Additionally, RBC continues to focus efforts on enhancing and fostering a strong risk culture. A strong
risk culture reinforces risk-aware mindsets, competencies and behaviours by promoting responsible risk-
taking decisions across the bank. For more details, refer to the Culture and conduct risk section.
Overview
As a global financial institution with a diversified business model, we actively manage a variety of risks to help protect and
enable our businesses by following these risk management principles:
Risk management principles
•
Effectively balance risk and reward to enable sustainable growth.
•
Collectively share the responsibility for risk management.
•
Undertake only risks we understand and make thoughtful and future-focused risk decisions, taking environmental and
social considerations into account.
•
Always uphold our Purpose and vision, and consistently abide by our values and Code of Conduct to maintain our
reputation and the trust of our clients, colleagues and communities.
•
Maintain a healthy and robust control environment to protect our stakeholders.
•
Use judgment and common sense.
•
Always be operationally prepared and financially resilient for a potential crisis.
The dynamic nature of the financial services industry, and technological innovation, necessitate that our processes, tools, and
practices are continuously improving and responding to the changing landscape and emerging risks. We seek to accomplish this
through an effective and evolving risk management approach. All risk-taking activities and exposures are within the Board-
approved risk appetite, corresponding constraints and risk limits. We seek to ensure that our business activities and transactions
provide an appropriate balance of return for the risks assumed and the costs incurred. Our organizational design and
governance processes are structured with the intent of maintaining the independence of Group Risk Management (GRM) and
Regulatory Compliance from the businesses and functions they support.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
69
Principal Risks
We define risk as the potential vulnerabilities in the short-, medium- or long-term that may impact our financial results, financial
and operational resilience, reputation, business model or strategy. Risk can be realized through losses or an undesirable
outcome with respect to volatility of earnings in relation to expected earnings, capital adequacy or liquidity. Our Principal Risks
are the key risks that most significantly affect the achievement of our strategic objectives and include credit, market, liquidity,
insurance, operational, compliance, reputation and strategic risks. The classification of our Principal Risks provides a common
language and foundation for the broader risk taxonomy and enables a disciplined identification and assessment of risks. There
are certain activities that we undertake that will give rise to several risks. There are also certain risks that are transverse
(e.g., reputation, compliance, climate and conduct risks) that can impact or manifest in other risk types.
Macroeconomic
Adverse changes in the macroeconomic environment can lead to a material impact on the real economy or
the financial system in any of the regions in which we operate.
– Examples include persistent inflationary pressures and high interest rates, high unemployment, economic
slowdowns or recessions, deterioration in the Canadian housing market, abrupt changes in the geopolitical
environment, unfavourable global trade agreements, political uncertainties, or the outbreak of a pandemic
or other health crises.
Resultant impacts can materialize as loss of revenue, increased costs, as well as the realization of credit,
market or operational risk losses.
Strategic
Business strategy is a major driver of our risk appetite, including acquisitions and dispositions, responses to
threats posed by non-traditional competitors and responses to proposed changes in the regulatory
environment. Consequently, the strategic choices and capital allocations we make may change our risk
profile.
Choosing the wrong strategy, or poorly executing on the correct strategy, could result in reputational risk
consequences, impact our revenue mix, and/or affect our exposure to earnings volatility and loss absorption
capacity.
Operational /
Regulatory
Compliance
The complexity and scope of our operations across the globe exposes us to operational and regulatory
compliance risks.
We seek to manage and mitigate the compliance risks associated with failing to comply with, or adapt to,
current and changing laws and regulations in the jurisdictions in which we operate.
Transactional /
Positional
The risk of credit, market, liquidity and insurance losses, arising from, among other things, lending
transactions and balance sheet positions is a more traditional risk perspective. These risks are an
integral part of our day-to-day business activities.
While we earn revenue by taking these transactional/positional risks, we seek to understand these risks
and endeavor to effectively balance risk and reward.
Enterprise risk management
Under the oversight of the Board and senior management, the Enterprise Risk Management Framework (ERMF) provides an
overview of our enterprise-wide programs for managing risk, including identifying, assessing, measuring, controlling, monitoring
and reporting on the significant risks that face the organization.
Risk governance
We have an effective and well-established risk governance framework in place that seeks to ensure risks impacting our
businesses are identified, appropriately categorized, assessed, managed and communicated to the Board in a timely manner.
This framework has been established, and is maintained in alignment with, the expectations of OSFI, the Basel Committee on
Banking Supervision’s (BCBS) corporate governance principles and the requirements and expectations of other regulators in the
jurisdictions in which we conduct business, and in accordance with industry best practices. The Board oversees the
implementation of our risk management framework, while employees at all levels of the organization are responsible for
managing the day-to-day risks that arise in the context of their mandates. As illustrated below, we use the three lines of defence
governance model that helps to enforce a clear segregation of duties so that risks are appropriately and adequately managed
throughout the enterprise to achieve our strategic objectives.
70
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
FIRST LINE OF DEFENCE
RISK OWNERS
RISK OWNERS
SECOND LINE OF DEFENCE
RISK OVERSIGHT
RISK OVERSIGHT
RISK
MANAGEMENT
OTHER
FUNCTIONAL
UNITS
GLOBAL
COMPLIANCE
AND ANTI-
MONEY
LAUNDERING
THIRD LINE OF DEFENCE
INDEPENDENT ASSURANCE
INDEPENDENT ASSURANCE
AUDIT COMMITTEE
RISK COMMITTEE
BOARD OF DIRECTORS
GOVERNANCE COMMITTEE
HUMAN RESOURCES COMMITTEE
THE GROUP EXECUTIVE AND GROUP RISK COMMITTEE AND SENIOR MANAGEMENT COMMITTEE
All employees across our businesses
and functional areas are responsible
for ensuring risk controls are in place
Accountable for:
Identification;
Assessment;
Mitigation and management;
Monitoring; and
Reporting of risks against approved
policies and appetite
Establishes risk management practices, policies
and provides risk guidance
Oversees and challenges the effectiveness of
First Line risk management practices
Monitors and independently reports on the
level of risk against established risk appetite
Internal Audit
Independent assurance to management
and the Board on the effectiveness of risk
management practices of the
First Line and Second Line of Defence
The CRO, the CCO and the CAMLO have direct
access to the Risk Committee
While the following functional units perform First
Line activities where Risk Management provides
independent oversight and challenge, they also
provide advice and support across all three lines
of defence: CFO Group, Human Resources and
the Chief Legal and Administrative Officer
(CLAO) Group
The
Board
approves our Code of Conduct and closely collaborates with management to set the tone from above and promote a strong governance
culture that influences RBC at every level and across all our global businesses. The Board also approves our risk appetite, provides oversight and
carries out its risk management mandate primarily through its committees:
The
Risk Committee
assists the Board in overseeing our risk management by seeking to ensure that policies, processes and procedures, as well as the
appropriate organizational structure, budget and resources are in place to manage RBC’s significant risks. The Risk Committee oversees the risk
management function, annually assesses the risk management function’s effectiveness and periodically reviews the results of independent assessments.
Its oversight activities include evaluation of the risk management function’s success against its key priorities, the mandate of the Chief Risk Officer (CRO),
and the risk management function’s organizational structure, budget and resources. The Risk Committee also oversees Regulatory Compliance and Financial
Crimes (including Anti-Money Laundering functions), having regard to the independence of the businesses whose activities they review. It annually assesses
the effectiveness of the Regulatory Compliance and Financial Crimes (including Anti-Money Laundering) functions, and it reviews and approves
their respective mandate, organizational structure, budget and resources, as well as the mandates of the Chief Compliance Officer (CCO) and the
Chief Anti-Money Laundering Officer (CAMLO).
The
Audit Committee
assists the Board in its oversight of the integrity of our financial statements; the qualifications, performance, and independence of
our external auditors; and the performance of our Internal Audit function and our internal controls. In addition, it oversees the Chief Financial Officer (CFO)
Group and Internal Audit functions, having regard to their independence from the businesses whose activities they review. It annually assesses the
effectiveness of the CFO Group and Internal Audit functions, and it reviews and approves their respective organizational structure, budget and resources,
and charter, as well as the mandates of the CFO and the Chief Audit Executive.
The
Governance Committee
recommends to the Board individuals for Board member election or re-election and oversees the process for evaluating
Board, committee and director effectiveness. Moreover, the Governance Committee serves at the conduct review committee and oversees the management
of culture and conduct. Additional responsibilities include (i) developing and recommending governance frameworks, principles and policies to the Board;
(ii) overseeing and coordinating ESG matters at the Board and its committees; (iii) monitoring developments in corporate governance and adapting best
practices to the bank’s needs and circumstances; and (iv) reviewing shareholder proposals and recommending responses to the Board.
The
Human Resources
Committee
assists the Board in its oversight of compensation policies and major compensation programs, compensation risk
management and the compensation for the CEO and other members of the Group Executive (GE). It also oversees our pension plans, key talent
management and human resources strategies and practices, including employee engagement, diversity & inclusion and health & wellness, as well as
succession plans for key senior leadership roles.
Actively shapes enterprise risk appetite and recommends it for Board approval.
Visibly supports and communicates enterprise risk appetite, seeking to ensure that sufficient resources and expertise are in place to help
provide effective oversight of adherence to the enterprise risk appetite.
Seeks to ensure principles, policies, authorities, resources, responsibilities and reporting are in place to support the control infrastructure
necessary for an effective enterprise-wide risk management program.
Oversees culture and conduct strategy and key activities.
Provides appropriate and timely information to the Board and its Committees with regard to the identification, measurement and management
of the significant risks to which we are exposed across all of our legal entities, businesses and operations globally.
Specifically, the Compensation Risk Management Oversight Committee (CRMOC) oversees the design of major compensation programs in an
effort to ensure alignment with sound risk management principles, and that risks that may not be fully captured in our current financial
performance are appropriately considered in variable compensation payouts, including our enterprise risk profile relative to risk appetite. The
CRMOC has responsibility for ensuring our compensation programs align with the Financial Stability Board (FSB) Principles for Sound
Compensation Practices and Implementation Standards and other applicable guidance and best practices.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
71
Risk appetite
Effective risk management helps protect us from unacceptable
losses or undesirable outcomes with respect to our earnings
volatility, concentration, capital adequacy or other Principal
Risks while supporting and enabling our overall business
strategy. It requires the clear articulation of our risk appetite,
which is the amount and type of risk that we are able and willing
to accept in the pursuit of our business objectives. Risk appetite
reflects our self-imposed upper bound to risk-taking, set at
levels inside of regulatory limits and constraints, and influences
our risk management philosophy, Code of Conduct, business
practices and resource allocation. It provides clear boundaries
and sets an overall tone for balancing risk-reward trade-offs
intended to ensure the long-term viability of the organization.
Our risk appetite is integrated into our strategic, financial,
and capital planning processes, as well as ongoing business
decision-making processes and is reviewed and approved
annually by the Board.
Our Enterprise Risk Appetite Framework (ERAF) outlines the
foundational aspects of our approach to risk appetite,
articulates our quantitative and qualitative risk appetite
statements and their supporting measures and associated
constraints, which can be applied at the enterprise, business
segment, business unit and legal entity level, and describes our
requirements and expectations to embed effective risk appetite
practices throughout the organization.
Risk Capacity
Risk Limits &
Management Delegated
Authorities
Risk Appetite &
Board Delegated Authorities
Risk Profile
Risk Posture
R
i
s
k
A
p
p
e
t
i
t
e
C
o
m
p
o
n
e
n
t
s
Risk appetite statements
Quantitative statements
Qualitative statements
•
Manage earnings volatility and exposure to future
losses under normal and stressed conditions.
•
Avoid excessive concentrations of risk.
•
Ensure capital adequacy and sound management of
liquidity and funding risk.
•
Ensure sound management of operational and
regulatory compliance risk.
•
Maintain strong credit ratings and a risk profile in the
top half of our peer group.
•
Always uphold our Purpose and vision and
consistently abide by our values and Code of Conduct
to maintain our reputation and the trust of our
clients, colleagues and communities.
•
Undertake only risks we understand. Make thoughtful
and future-focused risk decisions, taking
environmental and social considerations into account.
•
Effectively balance risk and reward to enable
sustainable growth.
•
Maintain a healthy and robust control environment to
protect our stakeholders.
•
Always be operationally prepared and financially
resilient for a potential crisis.
The allocation of our risk appetite across the bank is supported by the establishment of delegated authorities or risk limits.
These delegated authorities or risk limits represent the maximum level of risk permitted for a line of business, portfolio,
individual or group and are used to govern ongoing operations. Risk posture, the anticipated shift in risk profile as a result of
changes in objectives, strategies and external factors, is used to provide insights on key areas that may require management
attention to better seek to ensure strategies are able to be executed successfully within our risk appetite.
Risk measurement
Quantifying risk is a key component of our enterprise-wide risk and capital management processes. Risk measurement and
planning processes are integrated across the enterprise, especially in regards to forward-looking projections and analyses,
including but not limited to, stress testing, recovery and resolution planning, and credit provisioning.
Certain risks, such as credit, market, liquidity and insurance risks, can be more easily quantified than others, such as
operational, reputation, strategic or compliance risks. For the risks that are more difficult to quantify, greater emphasis is placed
on qualitative risk factors and assessment of activities to gauge the overall level of risk. In addition, judgmental risk measures
and techniques such as stress testing, and scenario and sensitivity analyses can be used to assess and measure risks, and we
are continuously evolving our risk measures and techniques to manage our risks. Our primary methods for measuring risk
include:
•
Quantifying expected loss: losses that are statistically expected to occur as a result of conducting business in a given time
period;
•
Quantifying unexpected loss: an estimate of the deviation of actual earnings from expected earnings, over a specified time
horizon;
•
Stress testing: evaluates, from a forward-looking perspective, the potential effects of a set of specified changes in risk
factors, corresponding to exceptional but plausible adverse economic and financial market events. RBC’s stress testing
programs are performed at different levels of the organization (enterprise-wide, subsidiary-level and risk-level) to allow
relevant risk profiles and concentrations to be reflected in scenario design, analysis and decision-making; and
•
Back-testing: the realized values are compared to the parameter estimates that are currently used in an effort to ensure the
parameters remain appropriate for regulatory and economic capital calculations.
72
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Stress testing
Stress testing is an important component of our risk management framework. Stress testing results are used for:
•
Assessing the viability of long-term business plans and strategies;
•
Monitoring our risk profile relative to our risk appetite in terms of earnings and capital at risk;
•
Setting limits;
•
Identifying key risks to, and potential shifts in, our capital and liquidity levels, as well as our financial position;
•
Enhancing our understanding of available mitigating actions in response to potential adverse events; and
•
Assessing the adequacy of our capital and liquidity levels.
Our enterprise-wide stress tests evaluate key balance sheet, income statement, leverage, capital and liquidity impacts arising
from risk exposures and changes in earnings. The results are used by the Board, Group Risk Committee (GRC) and senior
management risk committees to understand our performance drivers under stress, and review stressed capital, leverage and
liquidity ratios against regulatory thresholds and internal limits. The results are also incorporated into our Internal Capital
Adequacy Assessment Process (ICAAP) and capital plan analyses.
We evaluate a number of enterprise-wide stress scenarios over a multi-year horizon, featuring a range of severities. Our
Board reviews the recommended scenarios developed after a thorough risk identification process. Results from across the
organization are integrated to develop an enterprise-wide view of the impacts, with input from subject matter experts in GRM,
Corporate Treasury, Finance, Economics and our business segments. Generally, our stress testing scenarios evaluate global
recessions, equity market changes, elevated debt levels, changes in interest rates, real estate price corrections, and shocks to
credit spreads and commodity markets, among other factors. During our fiscal 2024 stress testing exercises, we addressed
several top and emerging risks including but not limited to geopolitical tensions, changing interest rates, cyber threats and
climate risks with a focus on the impacts of these risks on revenue, losses, net income, liquidity and capital projections.
Ongoing stress testing and scenario analyses within specific risk types, such as market risk (including Interest Rate Risk in
the Banking Book (IRRBB)), liquidity risk, retail and wholesale credit risk, operational risk and insurance risk, supplement and
support our enterprise-wide analyses. Results from these risk-specific programs are used in a variety of decision-making
processes including risk limit setting, portfolio composition evaluation, risk appetite articulation and business strategy
implementation.
In addition to ongoing enterprise-wide and risk-specific stress testing, we use ad hoc and reverse stress testing to deepen
our knowledge of the risks we face. Ad hoc stress tests are one-off analyses used to investigate developing market conditions or
to stress a particular portfolio in greater depth. Reverse stress tests aim to reverse-engineer scenarios that might lead to a
particular severe outcome, such as bank non-viability, and are used in resolution & recovery planning and to improve our
understanding of risk/return boundaries.
In addition to internal stress tests, we participate in a number of regulatory stress testing exercises, on a periodic basis, across
several jurisdictions.
Model governance and validation
Models are used for many purposes including, but not limited to, the valuation of financial products, the identification,
measurement and management of different types of risk, stress testing, assessing capital adequacy, informing business and risk
decisions, measuring compliance with internal limits, meeting financial reporting and regulatory requirements, and issuing public
disclosures.
Model risk is the risk of adverse financial and/or reputational consequences to the enterprise arising from the use or misuse
of a model at any stage throughout its life cycle, and is managed through our model risk governance and oversight structure. The
governance and oversight structure, which is implemented through our three lines of defence governance model, is founded on
the basis that model risk management is a shared responsibility across the three lines spanning all stages of the model’s life
cycle.
Prior to being used, models are subject to independent validation and approval by our enterprise model risk management
function, a team of modelling professionals with reporting lines independent of those of the model owners, developers and users.
The validation seeks to ensure that models are sound and capable of fulfilling their intended use. In addition to independently
validating models prior to use, our enterprise model risk management function provides controls that span the life-cycle of a
model, including model change management procedures, requirements for ongoing monitoring, and annual assessments in an
effort to ensure each model continues to serve its intended purpose.
AI based applications are subject to enhanced model governance and validation requirements and are assessed in
conjunction with other relevant risk functions. Controls for predominant AI risks, including fairness and explainability, are subject
to Risk Committee oversight and approval. Model risk reports including AI matters are reviewed periodically by the Board.
Risk control
Our enterprise-wide risk management approach is supported by a comprehensive set of risk controls that are defined in our
ERMF. The ERMF serves as the foundation for our approach to risk management and promotes RBC’s risk management
principles, approach and governance. It further sets the expectations for the development and communication of policies, the
establishment of formal independent risk review and approval processes; and the establishment of risk appetite, delegated risk
approval authorities and risk limits. Enterprise-wide control programs are an important risk control mechanism that seek to
establish sufficient risk diversification and risk/return optimization. The ERMF is further reinforced and supported by a number of
additional Board-approved risk frameworks and various policies. Together, our risk frameworks and supporting policies provide
direction and insight on how respective risks are identified, assessed, measured, managed, mitigated, monitored and reported.
The enterprise-wide policies are considered our minimum requirements, articulating the parameters within which business
groups and employees must operate.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
73
Enterprise Risk Management
Framework
Enterprise Risk Appetite
Framework
Enterprise Culture and
Conduct Risks
Framework
Enterprise-Wide Policies for Multiple Risk Types
(e.g., Client, Product and Suitability Risk Policy; Policy on Risk Limits and Risk Approval Authorities; Policy on Environmental, Social and Governance Risk; Policy on Stress Testing)
RBC Entity (Segment or Region-specific) Risk Policy Documents and Addendums
The approval hierarchy for risk frameworks and policy documents:
Board of Directors or Board Committees
Senior Management Committees
(e.g., Policy Review Committee, Operational Risk Committee, Asset and Liability Committee) for most policies.
Board or Board Committee approval is required in some instances (e.g., RBC Code of Conduct, Dividend Policy)
Generally, by business or Functional Unit management/committees.
Group Risk Management approval is required if there are significant
risk implications.
Enterprise Risk Policy Architecture
Supporting Risk-specific Enterprise-Wide Policies (examples)
Financial
Crimes
Compliance
Management
Framework
Information
Management
Risk
Framework
Credit Risk
Management
Framework
Operational
Risk
Management
Framework
Market Risk
Management
Framework
Regulatory
Compliance
Management
Framework
Regulatory
Compliance
Management
Framework
Information
Technology
Risk
Management
Framework
Reputation
Risk
Management
Framework
Operational
Risk
Management
Framework
Liquidity
Risk
Management
Framework
Insurance
Risk
Management
Framework
Capital
Management
Framework
Credit Risk
Mitigation
Policy
Internal
Controls
Management
Policy
Market Risk
Policy
Liquidity
Risk Policy
Insurance
Risk
Mitigation
Policy
AML / ATF
Client Risk
Management
Policy
Information
Management
Risk
Policy
Dividends
& Capital
Note Coupons
Policy
Privacy Risk
Management
Policy
Internal
Controls
Management
Policy
Information
Security
Policy
Fiduciary
Risk Policy
Risk appetite, risk approval authorities and risk limits
Risk Appetite is the amount and type of risk that we are able and willing to accept in the pursuit of our business objectives. It
reflects our self-imposed upper bound to risk taking and influences our risk management philosophy, conduct, operating style
and resource allocation. It is generally set at a level providing a risk absorption buffer to our risk capacity and allows for
recovery during periods of heightened exposure or stress. Risk Appetite is supported by Risk Approval Authorities delegated by
the Board to senior management which provide thresholds for escalation of exposures and transactions to the Risk Committee of
the Board for review and approval. The allocation of Risk Appetite and Board Delegated Authorities may be supported by the
establishment of management delegated authorities and/or risk limits as well as risk approval authorities delegated to the Chief
Risk Officer and/or the Chief Credit Officer of applicable RBC Subsidiaries. These represent the maximum level of risk permitted
for a line of business, portfolio, individual or other groups. These authorities and limits are used to implement risk management
strategies and govern ongoing operations. Excesses to risk approval authorities and risk limits can act as early warning
indicators for risk appetite constraints allowing for timely management attention. Senior management can delegate some or all
of their authorities onwards to others in the organization. The delegated authorities enable the approval of single name,
geographic and industry sectors, and product and portfolio exposures within defined parameters and limits. They are also used
to manage concentration risk, establish underwriting and inventory limits for trading and investment banking activities and set
market risk tolerances.
Risk review and approval processes
Risk review and approval processes provide an important control mechanism and are established by GRM based on the nature,
size and complexity of the risk involved. In general, the risk review and approval process involves a formal review and approval
by an individual, group or committee that is independent from the originator. The approval responsibilities are governed by the
Enterprise Risk Appetite Framework and the delegated risk authorities and risk limits are based on the following categories:
credit (including borrower, country, regional, and sector risks), market, underwriting and distribution, liquidity and insurance
risks. Requirements for the review and approval of risks related to projects and initiatives, new products and services, and
transaction specific risks are set out in enterprise-level risk policies and procedures.
Risk monitoring and reporting
Enterprise and business segment level risk monitoring and internal reporting are critical components of our enterprise risk
management program and support the ability of senior management and the Board to effectively perform their risk management
and oversight responsibilities. The ongoing monitoring of our risk profile, and the organization’s risk exposure against our risk
appetite, enables proactive risk management and oversight. It seeks to ensure that our businesses operate within established
and approved risk appetite; detect areas where business activity or growth may be constrained in the future; identify situations
where risk-taking may be overly conservative or aggressive; enable senior management to assess the impact of stress and
unanticipated events; and inform the development and implementation of risk mitigation strategies in order to operate within
risk appetite. At each meeting of the Risk Committee of the Board, the CRO provides a risk update that has been reviewed by
senior management, and which includes, among others, top and emerging risks, industry trends or other notable items. On a
quarterly basis, we provide our Enterprise Risk Report to senior management and the Risk Committee of the Board which
includes, among others, top and emerging risks, risk profile relative to our risk appetite, portfolio quality metrics and a range of
risks we face along with an analysis of the related issues, key trends and, when required, management actions. On an annual
74
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
75
basis, we provide a benchmarking review to the Board which compares our performance to peers across a variety of risk metrics
and includes a composite risk scorecard which provides an objective measure of our ranking relative to the peer group. In
addition to our regular risk monitoring, other risk-specific presentations are provided to, and discussed with, senior management
and the Board on top and emerging risks or changes in our risk profile. In addition, we publish external reports on risk matters to
comply with regulatory requirements.
Risk controls monitoring and issue management
The monitoring and testing of internal controls is an important part of our risk management approach. Our robust governance
structure is outlined within the Enterprise Operational Risk Management Framework and supporting policies. We seek to
establish a consistent, principles based approach to the development, identification and management of internal controls as well
as clearly defined roles and responsibilities.
Issue management is a risk management capability that facilitates the identification, rationalization and management of
issues. These are defined as risk exposures resulting from the i) absence of controls, or ii) deficiencies in control design or
operating effectiveness. Effective issue management practices enable us to consistently identify and assess such issues for
severity, design remediation actions, and to track the progress of remediation plans through completion. An enterprise issue
management program is in place to outline a standardized set of parameters for issue management, including a universal
definition of issues, sources, scope, taxonomies and severity of ratings of issues. Our approach to the issue management
program is tailored to individual issue sources across the three lines of defence and to specific needs of each business segment
and functional unit, including local governance processes, roles and responsibilities and regulatory expectations.
Escalation of risks and event issues
We actively monitor and manage risks inherent to our activities and consequently maintain processes and controls to manage
those activities. However, there may be times when processes and/or controls do not work as expected leading to risk events, or
new risks arise that were not anticipated. Timely escalation of risks or events allows for appropriate awareness and action
(where required) by senior management, relevant committees and the Board, supporting adherence with regulatory
expectations. All three lines of defence have monitoring and reporting processes in place that are intended to enable effective
communication and escalation of risks and events.
our disclosures on credit, market and liquidity and funding risks in accordance with IFRS 7
, Financial Instruments: Disclosures
,
and include discussion on how we measure our risks and the objectives, policies and methodologies for managing these risks.
Therefore, these shaded text and marked tables represent an integral part of our 2024 Annual Consolidated Financial
Principal risks
on a timely basis and may arise directly from the risk of default of a primary obligor (e.g., issuer, debtor, counterparty,
borrower or policyholder), indirectly from a secondary obligor (e.g., guarantor or reinsurer), and/or through off-balance sheet
exposures, contingent credit risk, associated credit risk and/or transactional risk. Credit risk includes counterparty credit risk
arising from both trading and non-trading activities. Exposure to credit risk occurs any time funds are extended, committed or
The responsibility for managing credit risk is shared broadly following the three lines of defence governance model. The
allocation of the Board approved credit risk appetite is supported by the establishment of risk approval authorities and risk
limits, delegated by the Board to the President & CEO and CRO. Credit transactions in excess of these authorities must be
approved by the Risk Committee of the Board. To facilitate day-to-day business activities, the CRO has been empowered to
further delegate credit risk approval authorities to individuals within GRM, the business segments and functional units, as
deemed necessary.
•
Ensuring credit quality is not compromised for growth;
•
Managing credit risks in transactions, relationships and portfolios;
•
Avoiding excessive concentrations in correlated credit risks;
•
Using our credit risk rating and scoring systems or other approved credit risk assessment or rating methodologies,
policies and tools;
•
Pricing appropriately for the credit risk taken;
•
Detecting and preventing inappropriate credit risk through effective systems and controls;
•
Applying consistent credit risk exposure measurements;
•
Ongoing credit risk monitoring and administration;
•
Transferring credit risk to third parties where appropriate through approved credit risk mitigation techniques (e.g., sale,
hedging, insurance, securitization); and
•
Avoiding activities that are inconsistent with our values, Code of Conduct or policies.
76
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
The Enterprise Credit Risk Management Framework (ECRMF) provides an overview of our approach to the management of
Credit Risk including principles, methodologies, systems, roles and responsibilities, reports and controls. Additional
supporting policies exist that are designed to provide further clarification of roles and responsibilities, acceptable practices,
limits and key controls within the enterprise.
Credit risk measurement
We quantify credit risk at both the individual obligor and portfolio levels to manage expected credit losses and minimize
unexpected losses to limit earnings volatility and ensure we are adequately capitalized.
We employ a variety of risk measurement methodologies to measure and quantify credit risk for our wholesale and retail
credit portfolios. The wholesale portfolio is comprised of businesses, sovereigns, public sector entities, banks and other
financial institutions, as well as certain HNW individuals. The retail portfolio is comprised of residential mortgages, personal
loans, credit cards and small business loans. Our credit risk rating systems are designed to assess and quantify the risk
inherent in credit activities in an accurate and consistent manner. The resulting ratings and scores are then used for both
client- and transaction-level risk decision-making and as key inputs for our risk measurement and capital calculations.
Measurement of economic and regulatory capital
Economic capital, which is our internal quantification of risks, is used for limit setting. It is also used for internal capital
adequacy and allocation of capital to the Insurance segment. Our methodology for allocating capital to our business
segments, other than Insurance, is based on regulatory requirements. For further details, refer to the Capital management
section.
In measuring credit risk to determine regulatory capital, two principal approaches are available: the Internal Ratings
Based (IRB) Approach and the Standardized Approach as per OSFI’s CAR guideline. The IRB Approach allows both a full model-
based approach referred to as the Advanced Internal Ratings Based (A-IRB) Approach and a more supervisory-based
approach known as the Foundation Internal Ratings Based Approach (F-IRB).
The Standardized Approach applies primarily to Wealth Management, including our City National wholesale portfolio, our
Caribbean banking operations and certain non-mortgage retail portfolios acquired through the HSBC Canada transaction, and
is based on risk weights prescribed by OSFI that are used to calculate RWA for credit risk exposure.
The A-IRB Approach, which applies to most of our retail and wholesale credit risk exposures (excluding F-IRB exposures
discussed below), utilizes three key parameters which form the basis of our credit risk measures for both regulatory and
economic capital:
•
Probability of default (PD): An estimated percentage that represents the likelihood of default within a given time period of
an obligor for a specific rating grade or for a particular pool of exposure.
•
Exposure at default (EAD): An amount expected to be owed by an obligor at the time of default.
•
Loss given default (LGD): An estimated percentage of EAD that is not expected to be recovered during the collections and
recovery process following a default.
These parameters are determined based primarily on historical experience from internal credit risk rating systems in
PD is estimated based on a long-run average of default rates for a specific rating grade or for a particular pool of
exposure. The PD assigned to a default grade(s) or pools, consistent with the definition of default, is 100%.
factors such as the current utilization of approved limit. As with LGD, rates are estimated to reflect an economic downturn,
with added conservatism to reflect data and statistical uncertainties identified in the modelling process.
Each credit facility is assigned an LGD rate that is largely driven by factors that impact the extent of losses anticipated in
the event the obligor defaults. These factors mainly include seniority of debt, collateral and the industry sector in which the
obligor operates. Estimated LGD rates draw primarily on internal loss experiences. Where we have limited internal loss data,
we also refer to appropriate external data to supplement the estimation process. LGD rates are estimated to reflect
conditions that might be expected to prevail in a period of an economic downturn, with additional conservatism added to
reflect data limitations and statistical uncertainties identified in the estimation process.
Estimates of PD, LGD and EAD are reviewed on an annual basis and updates are then validated by an independent
validation team within the bank. In addition, quarterly monitoring and back-testing is performed by the estimation team.
These ratings and risk measurements are used to determine our expected losses as well as economic and regulatory capital,
setting of risk limits, portfolio management and product pricing.
The F-IRB Approach is a prescribed regulatory approach that must be used to determine RWA related to our exposures to
all banks and large corporates defined as having total consolidated revenues in excess of $750 million annually. The F-IRB
Approach uses the same PD parameter as the A-IRB Approach but requires the use of supervisory-prescribed EAD and LGD
parameters.
Financial and regulatory measurement distinctions
Expected loss models are used for both regulatory capital and accounting purposes. Under both models, expected losses are
calculated as the product of PD, LGD and EAD. However, there are certain key differences under current Basel and IFRS
reporting frameworks which could lead to significantly different expected loss estimates, including:
•
Basel PDs are based on long-run averages over an entire economic cycle. IFRS PDs are based on current conditions,
adjusted for estimates of future conditions that will impact PD under probability-weighted macroeconomic scenarios.
•
Basel PDs consider the probability of default over the next 12 months. IFRS PDs consider the probability of default over
the next 12 months only for instruments in stage 1. Expected credit losses for instruments in stage 2 are calculated using
lifetime PDs.
•
Basel LGDs are based on severe but plausible downturn economic conditions. IFRS LGDs are based on current conditions,
adjusted for estimates of future conditions that will impact LGD under probability-weighted macroeconomic scenarios.
For further details, refer to the Critical accounting policies and estimates section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
77
Gross credit risk exposure
Gross credit risk is categorized as i) lending-related and other credit risk or ii) trading-related credit risk, and is calculated
based on the Basel III framework. Under this method, EAD for all lending-related and other credit transactions and trading-
related repo-style transactions is calculated before taking into account any collateral and is inclusive of an estimate of
potential future changes to that credit exposure. EAD for derivatives is calculated inclusive of collateral in accordance with
regulatory guidelines.
Lending-related and other credit risk includes:
•
Loans and acceptances outstanding, undrawn commitments, and other exposures, including contingent liabilities such as
letters of credit and guarantees, debt securities carried at FVOCI or amortized cost and deposits with financial
institutions. Undrawn commitments represent an estimate of the contractual amount that may be drawn upon at the time
of default of an obligor.
Trading-related credit risk includes:
•
Repo-style transactions, which include repurchase and reverse repurchase agreements and securities lending and
borrowing transactions. For repo-style transactions, gross exposure represents the amount at which securities were
initially financed, before taking collateral into account.
•
Derivative amounts which represent the credit equivalent amount, as defined by OSFI as the replacement cost plus an
add-on amount for potential future credit exposure, scaled by a regulatory factor. For further details on replacement cost
and credit equivalent amounts, refer to Note 9 of our 2024 Annual Consolidated Financial Statements.
Credit risk assessment
Wholesale credit risk
The wholesale credit risk rating system is designed to measure the credit risk inherent in our wholesale credit activities.
Each obligor is assigned a borrower risk rating (BRR), reflecting an assessment of the credit quality of the obligor. Each
BRR has a PD calibrated against it. The BRR differentiates the riskiness of an obligor and represents our evaluation of the
obligor’s ability and willingness to meet its contractual obligations on time over a three year time horizon. The assignment of
BRRs is based on the evaluation of the obligor’s business risk and financial risk through fundamental credit analysis, as well
as data-driven modelling. The determination of the PD associated with each BRR relies primarily on internal default history
since 2006. PD estimates are designed to be a long-run average of our experience across the economic cycle in accordance
with regulatory guidelines.
Our rating system is designed to stratify obligors into 22 grades. The following table aligns the relative rankings of our
22-grade internal risk ratings with the external ratings used by S&P and Moody’s.
Internal ratings map*
Table 41
PD Bands | ||||||
Ratings | Business and Bank | Sovereign | BRR | S&P | Moody’s | Description |
1 | 0.0000% – 0.0500% | 0.0000% – 0.0150% | 1+ | AAA | Aaa | Investment Grade |
2 | 0.0000% – 0.0500% | 0.0151% – 0.0250% | 1H | AA+ | Aa1 | |
3 | 0.0000% – 0.0500% | 0.0251% – 0.0350% | 1M | AA | Aa2 | |
4 | 0.0000% – 0.0500% | 0.0351% – 0.0450% | 1L | AA- | Aa3 | |
5 | 0.0000% – 0.0550% | 0.0451% – 0.0550% | 2+H | A+ | A1 | |
6 | 0.0551% – 0.0650% | 2+M | A | A2 | ||
7 | 0.0651% – 0.0750% | 2+L | A- | A3 | ||
8 | 0.0751% – 0.0850% | 2H | BBB+ | Baa1 | ||
9 | 0.0851% – 0.1030% | 2M | BBB | Baa2 | ||
10 | 0.1031% – 0.1775% | 2L | BBB- | Baa3 | ||
11 | 0.1776% – 0.3470% | 2-H | BB+ | Ba1 | Non-investment Grade | |
12 | 0.3471% – 0.6460% | 2-M | BB | Ba2 | ||
13 | 0.6461% – 1.0620% | 2-L | BB- | Ba3 | ||
14 | 1.0621% – 1.5520% | 3+H | B+ | B1 | ||
15 | 1.5521% – 2.2165% | 3+M | B | B2 | ||
16 | 2.2166% – 4.5070% | 3+L | B- | B3 | ||
17 | 4.5071% – 7.1660% | 3H | CCC+ | Caa1 | ||
18 | 7.1661% – 13.1760% | 3M | CCC | Caa2 | ||
19 | 13.1761% – 24.9670% | 3L | CCC- | Caa3 | ||
20 | 24.9671% – 99.9990% | 4 | CC | Ca | ||
21 | 100% | 5 | D | C | Impaired | |
22 | 100% | 6 | D | C | ||
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
Counterparty credit risk
Counterparty credit risk is the risk that a party with whom we have entered into a financial or non-financial contract will fail to
fulfill its contractual agreement and default on its obligation. It incorporates not only the contract’s current value, but also
considers how that value can move as market conditions change. Counterparty credit risk usually arises from trading-related
derivative and repo-style transactions. Derivative transactions include forwards, futures, swaps and options, and can have
underlying references that are either financial (e.g., interest rate, foreign exchange, credit, or equity) or non-financial (e.g.,
precious metal or other commodities). For further details on our derivative instruments and credit risk mitigation, refer to Note 9
of our 2024 Annual Consolidated Financial Statements.
78
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Trading counterparty credit activities are undertaken in a manner consistent with the relevant requirements under
enterprise Credit, Market, and Model risk management frameworks and with approval in accordance with the appropriate
delegated authorities.
The primary risk mitigation techniques for trading counterparty credit risk are close-out netting and collateralization.
Close-out netting considers the net value of contractual obligations between counterparties in a default situation, thereby
reducing overall credit exposure. Collateralization is when a borrower pledges assets as security, which provides recourse to the
lender in the event of default. The policies that we maintain in relation to the recognition of risk mitigation from these techniques
incorporate such considerations as:
•
The use of standardized agreements such as the International Swaps and Derivatives Association Master Agreement and
Credit Support Annex;
•
Generally restricting eligible collateral to high quality liquid assets, primarily cash and highly-rated government securities,
subject to appropriate haircuts; and
•
The use of initial margin and variation margin arrangements in accordance with regulatory requirements and internal risk
standards.
Similarly, for securities finance and repurchase trading activity we mitigate counterparty credit risk via the use of
standardized securities finance agreements, and by taking collateral generally in the form of eligible liquid securities.
We also mitigate counterparty credit risk through the use of central counterparties (CCPs). These highly-regulated entities
intermediate trades between participating bilateral counterparties and mitigate credit risk through the use of initial and
variation margin and the ability to net offsetting trades amongst participants. The specific structure and capitalization, including
contingent capital arrangements, of individual CCPs are analyzed as part of assigning an internal counterparty credit risk rating
and determining appropriate counterparty credit risk limits.
Wrong-way risk
Wrong-way risk is the risk that exposure to a counterparty is adversely correlated with the credit quality of that counterparty.
There are two types of wrong-way risk:
•
Specific wrong-way risk, which exists when our exposure to a particular counterparty is positively correlated with the PD of
the counterparty due to the nature of our transactions with them (e.g., loans collateralized by shares or debt issued by the
counterparty or a related party). Specific wrong-way risk over-the-counter (OTC) derivative trades are done on an exception
basis only, and are permitted only when explicitly pre-approved by GRM. Factors considered in reviewing such trades include
the credit quality of the counterparty, the nature of the asset(s) underlying the derivative and the existence of credit
mitigation.
•
General wrong-way risk, which exists when there is a positive correlation between the PD of the counterparties and general
macroeconomic or market factors. General wrong way risk can arise in various circumstances, depending on the transaction,
collateral type, and the nature of the counterparty. We monitor general wrong-way counterparty credit risk using a variety of
metrics including stress scenarios, correlation analysis, and investment strategy concentration.
Credit scoring is the primary risk rating system for assessing obligor and transaction risk for retail exposures. Scoring models
use internal and external data to assess and score borrowers, predict future performance and manage limits for existing loans
and collection activities. Credit scores are one of the factors employed in the acquisition of new clients and management of
existing clients. The credit score of the borrower is used to assess credit risk for each independent acquisition or account
management action, leading to an automated decision or guidance for an adjudicator. Credit scoring improves credit decision
quality, adjudication timeframes and consistency in the credit decision process and facilitates risk-based pricing. We seek to
continuously improve our credit scoring and analytic capabilities by exploring client behavioural data and advanced
analytical techniques to make sound credit decisions.
To arrive at a retail risk rating, borrower scores are categorized and associated with PDs for further grouping into risk
rating categories. The following table maps PD bands to various summarized risk levels for retail exposures:
Internal ratings map*
Table 42
PD bands | Description |
0.050% – 3.965% | Low risk |
3.966% – 7.428% | Medium risk |
7.429% – 99.99% | High risk |
100% | Impaired/Default |
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
Credit risk mitigation
of collateral.
Structuring of transactions
Specific credit policies and procedures set out the requirements for structuring transactions. Risk mitigants include the use of
guarantees, collateral, seniority, LTV requirements and covenants. Product-specific guidelines set out appropriate product
structuring as well as client and guarantor criteria.
Collateral
When we advance credit, we often require obligors to pledge collateral as security. The extent of risk mitigation provided by
collateral depends on the amount, type and quality of the collateral taken. Specific requirements relating to collateral
valuation and management are set out in our credit risk management policies.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
79
The types of collateral we use to secure credit or trading facilities within the bank are varied. For example, our securities
financing and collateralized OTC derivatives activities are primarily secured by cash and highly-rated liquid government and
agency securities. Wholesale lending to business clients is often secured by pledges of the assets of the business, such as
accounts receivable, inventory, operating assets and commercial real estate. In Personal Banking, Commercial Banking and
Wealth Management, collateral typically consists of a pledge over a real estate property, or a portfolio of debt securities and
equities trading on a recognized exchange.
•
We employ a risk-based approach to property valuation. Property valuation methods include automated valuation
models (AVM) and appraisals. An AVM is a tool that estimates the value of a property by reference to market data
including sales of comparable properties and price trends specific to the Metropolitan Statistical Area in which the
property being valued is located. Using a risk-based approach, we also employ appraisals which can include drive-by or
•
We continue to actively manage our mortgage portfolio and perform stress testing, based on a combination of increasing
unemployment, rising interest rates and a downturn in real estate markets.
•
We seek to be in compliance with regulatory requirements that govern residential mortgage underwriting practices,
including LTV parameters and property valuation requirements.
held during the period.
Credit risk approval
The Board, GE, GRC and other senior management committees work together to ensure the ECRMF and supporting policies,
processes and procedures exist to manage credit risk and approve related credit risk limits. Reports are provided to the
Board, the GRC, and senior executives to keep them informed of our risk profile, including significant credit risk issues, shifts
in exposures and trending information, to ensure appropriate and timely actions can be taken where necessary. Our
enterprise-wide credit risk policies set out the minimum requirements for the prudent management of credit risk in a variety of
borrower, transactional and portfolio management contexts.
Transaction approval
Credit transactions are governed by our RBC Enterprise Policy on Risk Limits and Risk Approval Authorities that captures the
authorities and risk limits delegated to management as well as the credit rules policy, which outlines the minimum standards
for managing credit risk at the individual client relationship and/or transaction level. The credit rules policy is further
supported by business and/or product-specific policies and guidelines as appropriate. Where a transaction exceeds senior
management’s authorities, the approval of the Risk Committee of the Board is required.
Product approval
Proposals for credit products and services are comprehensively reviewed and approved under a product risk assessment
process and are subject to product and suitability risk approval authorities which increase as the level of risk increases. New
and amended products must be reviewed relative to all risk drivers, including credit risk. All existing products must be
reviewed on a regular basis following a risk-based assessment approach.
Credit risk limits
•
The allocation of risk appetite and Board delegated authorities are supported by the establishment of risk limits which
take both regulatory constraints and internal risk management judgment into account. Risk limits are established at the
following levels: single name limits, regional, country and industrial sector limits (notional and economic capital),
regulatory large exposure limits, product and portfolio limits, and underwriting and distribution risk limits. These limits
apply across all businesses, portfolios, transactions and products.
•
We actively manage credit exposures and limits to ensure alignment with our risk appetite, to maintain our target
business mix and to ensure that there is no undue concentration risk.
•
Concentration risk is defined as the risk arising from large exposures that are highly correlated such that the obligors’
ability to meet contractual obligations could be similarly affected by changes in economic, political or other risk
drivers.
•
Credit concentration limits are reviewed on a regular basis after considering business, economic, financial and
Credit risk administration
Loan forbearance
In our overall management of borrower relationships, economic, legal or other reasons may necessitate forbearance to certain
clients with respect to the original terms and conditions of their loans. We have specialized groups and formalized policies that
direct the management of high risk, delinquent or defaulted borrowers. We strive to identify borrowers in financial difficulty early
and modify their loan terms to minimize losses and assist clients in need. A forbearance agreement may be entered into with the
borrower where we will forbear from enforcing on security in exchange for concessions made by the borrower or additional
security provided by the borrower. In these circumstances, a borrower may be granted concessions that would not otherwise be
considered. Examples of such concessions to retail borrowers may include rate reduction, payment deferral and term extensions.
Concessions to wholesale borrowers may include payment deferral or amendment, restructuring the agreements, modifying the
original terms of the agreement and/or relaxation of covenants. For both retail and wholesale loans, the appropriate remediation
techniques are based on the individual borrower’s situation, our policy and the client’s willingness and capacity to meet the new
or modified loan terms.
80
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Credit risk exposure by portfolio, sector and geography
The following table presents our credit risk exposures under the Basel regulatory defined classes and reflects EAD. The
classification of our sectors aligns with our view of credit risk by industry.
Credit risk exposure by portfolio, sector and geography
Table 43
As at
October 31
2024
October 31
2023
Credit risk
(1), (2)
Counterparty credit risk
(5)
Credit risk (1), (2)
Counterparty credit risk (5)
On-balance
sheet amount
Off-balance sheet
amount
(3)
Repo-style
transactions
Derivatives
Total
exposure
On-balance
sheet amount
Off-balance sheet
amount (3)
Repo-style
transactions
Derivatives
Total
exposure
(Millions of Canadian dollars)
Undrawn
Other
(4)
Undrawn
Other (4)
Retail
Residential secured
(6)
$
498,014
$
124,743
$
–
$
–
$
–
$
622,757
$
451,610
$ 114,612
$
–
$
–
$
–
$
566,222
Qualifying revolving
(7)
33,571
95,776
–
–
–
129,347
36,091
110,473
–
–
–
146,564
Other retail
53,257
21,530
162
–
–
74,949
48,162
20,804
136
–
–
69,102
Total retail
$
584,842
$ 242,049
$
162
$
–
$
–
$
827,053
$
535,863
$ 245,889
$
136
$
–
$
–
$
781,888
Wholesale
Agriculture
$
13,257
$
3,241
$
77
$
–
$
210
$
16,785
$
11,316
$
2,792
$
46
$
–
$
117
$
14,271
Automotive
14,424
9,605
639
–
1,454
26,122
11,568
8,586
680
–
1,148
21,982
Banking
87,601
3,187
2,967
91,791
32,949
218,495
82,319
3,060
2,267
101,736
41,300
230,682
Consumer discretionary
24,516
11,719
918
–
1,242
38,395
18,348
9,132
650
–
1,030
29,160
Consumer staples
10,094
8,631
795
–
1,907
21,427
8,680
6,996
546
–
2,070
18,292
Oil and gas
6,365
8,688
2,002
–
2,052
19,107
6,498
8,373
1,614
–
3,134
19,619
Financial services
51,313
23,405
4,103
73,020
29,958
181,799
48,589
24,140
4,818
83,692
22,611
183,850
Financing products
3,945
1,235
2,388
604
1,684
9,856
3,988
1,265
1,447
472
1,079
8,251
Forest products
2,225
1,589
387
–
84
4,285
1,485
1,004
313
–
67
2,869
Governments
283,893
7,891
2,149
13,334
7,933
315,200
270,382
6,960
1,482
10,736
5,692
295,252
Industrial products
15,526
12,463
940
–
1,052
29,981
11,251
9,898
623
–
811
22,583
Information technology
6,353
7,892
251
42
976
15,514
5,252
6,942
357
118
704
13,373
Investments
30,015
7,151
786
103
99
38,154
25,921
4,608
701
–
383
31,613
Mining and metals
2,821
3,950
1,684
–
427
8,882
2,144
3,548
1,044
–
391
7,127
Public works and
infrastructure
2,871
2,329
1,383
–
300
6,883
2,613
1,534
529
–
156
4,832
Real estate and related
115,332
26,197
2,209
83
1,115
144,936
102,235
20,406
1,592
–
850
125,083
Other services
35,980
15,870
3,461
–
1,236
56,547
30,617
14,203
2,598
–
741
48,159
Telecommunication
and media
7,814
7,210
159
–
2,874
18,057
8,597
6,529
132
–
2,794
18,052
Transportation
10,517
7,235
1,533
–
2,470
21,755
8,461
5,925
1,009
–
2,408
17,803
Utilities
14,652
21,110
5,993
–
5,451
47,206
14,495
20,389
6,367
–
4,638
45,889
Other sectors
11,119
2,578
1,887
227
24,520
40,331
8,698
2,773
1,193
88
20,084
32,836
Total wholesale
$
750,633
$ 193,176
$ 36,711
$ 179,204
$ 119,993
$ 1,279,717
$
683,457
$ 169,063
$ 30,008
$ 196,842
$ 112,208
$ 1,191,578
Total exposure
(1)
$ 1,335,475
$ 435,225
$ 36,873
$ 179,204
$ 119,993
$ 2,106,770
$ 1,219,320
$ 414,952
$ 30,144
$ 196,842
$ 112,208
$ 1,973,466
By geography
(8)
Canada
$
845,343
$
320,434
$
15,533
$
72,852
$
51,427
$
1,305,589
$
729,131
$ 306,474
$ 10,676
$
80,664
$
42,123
$ 1,169,068
U.S.
360,803
84,633
15,277
56,415
22,201
539,329
358,605
79,256
13,459
62,966
24,878
539,164
Europe
55,936
21,879
3,432
31,987
31,555
144,789
58,496
21,987
3,467
27,637
31,749
143,336
Other International
73,393
8,279
2,631
17,950
14,810
117,063
73,088
7,235
2,542
25,575
13,458
121,898
Total exposure
(1)
$ 1,335,475
$ 435,225
$ 36,873
$ 179,204
$ 119,993
$ 2,106,770
$ 1,219,320
$ 414,952
$ 30,144
$ 196,842
$ 112,208
$ 1,973,466
(1)
Excludes securitization, banking book equities and other assets not subject to the standardized or IRB approach.
(2)
EAD for standardized exposures are reported net of allowance for impaired assets and EAD for IRB exposures are reported gross of all ACL and partial write-offs as per
regulatory definitions.
(3)
EAD for undrawn credit commitments and other off-balance sheet amounts are reported after the application of credit conversion factors.
(4)
Includes other off-balance sheet exposures such as letters of credit and guarantees.
(5)
Counterparty credit risk EAD reflects exposure amounts after netting. Collateral is included in EAD for repo-style transactions to the extent allowed by regulatory
guidelines. Exchange traded derivatives are included in Other sectors.
(6)
Includes residential mortgages and home equity lines of credit.
(7)
Includes credit cards, unsecured lines of credit and overdraft protection products.
(8)
Geographic profile is based on country of residence of the borrower.
2024 vs. 2023
Total credit risk exposure increased $133 billion or 7% from last year, mainly due to the impact of the HSBC Canada transaction in
the second quarter of 2024.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
81
Net International exposure by region and client type
(1), (2)
Table 44
As at
October 31
2024
October 31
2023
Asset type
Client type
(Millions of Canadian dollars)
Loans
Outstanding
Securities
(3)
Repo-style
transactions
Derivatives
Financials
Sovereign
Corporate
Total
Total (7)
Europe (excluding
U.K.)
$ 15,845
$ 26,086
$
6,262
$
4,114
$ 25,470
$ 10,997
$ 15,840
$
52,307
$
43,766
U.K.
12,800
16,775
4,254
2,482
16,061
9,628
10,622
36,311
42,104
Caribbean
6,581
11,088
2,920
2,023
10,286
4,425
7,901
22,612
21,592
Asia-Pacific
5,994
31,777
4,447
1,656
19,245
20,530
4,099
43,874
47,774
Other
(4)
1,924
1,657
4,403
38
3,908
2,015
2,099
8,022
6,726
Net International
exposure
(5), (6)
$ 43,144
$ 87,383
$
22,286
$ 10,313
$ 74,970
$ 47,595
$ 40,561
$ 163,126
$ 161,962
(1)
Geographic profile is based on country of risk, which reflects our assessment of the geographic risk associated with a given exposure. Typically, this is the residence of
the borrower.
(2)
Exposures are calculated on a fair value basis and net of collateral, which includes $459 billion against repo-style transactions (October 31, 2023 – $374 billion) and
$16 billion against derivatives (October 31, 2023 – $17 billion).
(3)
Securities include $14 billion of trading securities (October 31, 2023 – $13 billion), $29 billion of deposits (October 31, 2023 – $44 billion), and $44 billion of investment
securities (October 31, 2023 – $38 billion).
(4)
Includes exposures in the Middle East, Africa, and Latin America.
(5)
Excludes $6,950 million (October 31, 2023 – $5,686 million) of exposures to supranational agencies.
(6)
Reflects $4,296 million of mitigation through credit default swaps, which are largely used to hedge single name exposures and market risk (October 31, 2023 –
$2,533 million).
(7)
Amounts have been revised from those previously presented. Collateral amounts are now reflected net of haircuts, consistent with OSFI’s CAR guidelines.
82
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Residential mortgages and home equity lines of credit (insured vs. uninsured)
(1)
Residential mortgages and home equity lines of credit are secured by residential properties. The following table presents a
breakdown by geographic region.
Residential mortgages and home equity lines of credit
Table 45
As at October 31, 2024
(Millions of Canadian dollars,
except percentage amounts)
Residential mortgages
Home equity
lines of credit
(2)
Insured
(3)
Uninsured
Total
Total
Region
(4)
Canada
Atlantic provinces
$
8,692
43%
$
11,688
57%
$
20,380
$
1,704
Quebec
11,781
25
35,129
75
46,910
3,346
Ontario
32,011
14
189,638
86
221,649
18,173
Alberta
18,804
43
24,459
57
43,263
4,448
Saskatchewan and
Manitoba
8,549
41
12,258
59
20,807
1,718
B.C. and territories
12,607
14
75,575
86
88,182
8,061
Total Canada
(5)
92,444
21
348,747
79
441,191
37,450
U.S.
–
–
33,092
100
33,092
2,144
Other International
–
–
3,261
100
3,261
1,421
Total International
–
–
36,353
100
36,353
3,565
Total
$ 92,444
19%
$ 385,100
81%
$ 477,544
$ 41,015
As at October 31, 2023
(Millions of Canadian dollars,
except percentage amounts)
Residential mortgages
Home equity
lines of credit
(2)
Insured
(3)
Uninsured
Total
Total
Region
(4)
Canada
Atlantic provinces
$
8,474
44%
$
10,765
56%
$
19,239
$
1,630
Quebec
11,831
27
31,741
73
43,572
3,111
Ontario
30,359
15
168,264
85
198,623
16,558
Alberta
18,840
45
22,596
55
41,436
4,403
Saskatchewan and
Manitoba
8,546
42
11,803
58
20,349
1,749
B.C. and territories
11,911
16
62,475
84
74,386
7,048
Total Canada
(5)
89,961
23
307,644
77
397,605
34,499
U.S.
–
–
33,683
100
33,683
2,090
Other International
–
–
3,213
100
3,213
1,538
Total International
–
–
36,896
100
36,896
3,628
Total
$ 89,961
21%
$ 344,540
79%
$ 434,501
$ 38,127
(1)
Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and
Procedures).
(2)
Includes $40,998 million and $17 million of uninsured and insured home equity lines of credit, respectively (October 31, 2023 –
$38,108 million and $19 million, respectively), reported within the personal loan category. The amounts in the U.S. and Other
International include term loans collateralized by residential properties.
(3)
Insured residential mortgages are mortgages whereby our exposure to default is mitigated by insurance through the Canadian
Mortgage and Housing Corporation or other private mortgage default insurers.
(4)
Region is based upon the address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador,
Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest
Territories and Yukon.
(5)
Total consolidated residential mortgages in Canada of $441 billion (October 31, 2023 – $398 billion) includes $12 billion
(October 31, 2023 – $12 billion) of mortgages with commercial clients in Commercial Banking, of which $9 billion (October 31, 2023 –
$9 billion) are insured mortgages, and $18 billion (October 31, 2023 – $18 billion) of residential mortgages in Capital Markets, of which
$18 billion (October 31, 2023 – $18 billion) are held for securitization purposes. All of the residential mortgages held for securitization
purposes are insured (October 31, 2023 – all insured).
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
83
Residential mortgages portfolio by amortization period
(1)
The following table provides a summary of the percentage of residential mortgages that fall within the remaining amortization
periods based upon current customer payment amounts, which incorporate payments larger than the minimum contractual
amount and/or higher frequency of payments.
Residential mortgages portfolio by amortization period
Table 46
As at
October 31
2024
October 31
2023
Canada
(2)
U.S. and other
International
Total
Canada
U.S. and other
International
Total
Amortization period
≤
25 years
62%
31%
60%
57%
26%
55%
> 25 years
≤
30 years
28
69
30
20
74
24
> 30 years
≤
35 years
10
–
10
1
–
1
> 35 years
–
–
–
22
–
20
Total
100%
100%
100%
100%
100%
100%
(1)
Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and
Procedures).
(2)
Our policy is to originate mortgages with amortization periods of 30 years or less. Amortization periods greater than 30 years reflect the
impact of increases in interest rates on our variable rate mortgage portfolios. For these loans, the amortization period resets to the
original amortization schedule upon renewal. We do not originate mortgage products with a structure that would result in negative
amortization, as payments on variable rate mortgages automatically increase to ensure accrued interest is covered.
Average loan-to-value (LTV) ratios
(1)
The following table provides a summary of our average LTV ratios for newly originated and acquired uninsured residential
mortgages and RBC Homeline Plan
®
products by geographic region, as well as the respective LTV ratios for our total Canadian
Banking residential mortgage portfolio outstanding.
Average LTV ratios
Table 47
For the year ended
October 31
2024
October 31
2023
Uninsured
Uninsured
Residential
mortgages
(2)
RBC Homeline
Plan
®
products
(3)
Residential
mortgages
(2)
RBC Homeline
Plan
®
products
(3)
Average of newly originated
and acquired for the period,
by region
(4)
Atlantic provinces
68%
68%
71%
71%
Quebec
64
67
70
70
Ontario
63
60
70
64
Alberta
66
67
72
71
Saskatchewan and Manitoba
69
70
73
73
B.C. and territories
51
60
68
63
U.S.
72
n.m.
74
n.m.
Other International
70
n.m.
69
n.m.
Average of newly originated
and acquired for the
period
(5), (6), (7)
60%
61%
70%
66%
Total Canadian Banking
residential mortgages
portfolio
(8)
56%
47%
55%
47%
(1)
Disclosure is provided in accordance with the requirements of OSFI’s Guideline B-20 (Residential Mortgage Underwriting Practices and
Procedures).
(2)
Residential mortgages exclude residential mortgages within the RBC Homeline Plan products.
(3)
RBC Homeline Plan products are comprised of both residential mortgages and home equity lines of credit.
(4)
Region is based upon the address of the property mortgaged. The Atlantic provinces are comprised of Newfoundland and Labrador,
Prince Edward Island, Nova Scotia and New Brunswick, and B.C. and territories are comprised of British Columbia, Nunavut, Northwest
Territories and Yukon.
(5)
The average LTV ratio for newly originated and acquired uninsured residential mortgages and RBC Homeline Plan products is calculated
on a weighted basis by mortgage amounts at origination.
(6)
For newly originated mortgages and RBC Homeline Plan products, LTV is calculated based on the total facility amount for the residential
mortgage and RBC Homeline Plan product divided by the value of the related residential property.
(7)
Includes the HSBC Canada portfolio acquired in the second quarter of 2024, impacting the year ended October 31, 2024. Excluding the
acquired HSBC Canada portfolio, the average of newly originated and acquired residential mortgages and RBC Homeline Plan products
for the year ended October 31, 2024 was 70% and 65%, respectively.
(8)
Weighted by mortgage balances and adjusted for property values based on the Teranet – National Bank
House Price Index
‡.
n.m.
not meaningful
84
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Credit quality performance
The following credit quality performance tables and analysis provide information on loans, which represents loans, acceptances
and commitments, and other financial assets.
Gross impaired loans (GIL)
Table 48
As at and for the year ended
(Millions of Canadian dollars, except percentage amounts)
October 31
2024
October 31
2023
Personal Banking
(1), (2)
$
1,652
$
1,050
Commercial Banking
(1), (2)
2,372
855
Wealth Management
508
514
Capital Markets
1,335
1,285
Total GIL
$
5,867
$
3,704
Impaired loans, beginning balance
$
3,704
$
2,199
Classified as impaired during the period (new impaired)
(2)
6,272
3,959
Net repayments
(2)
(848)
(622)
Amounts written off
(2,521)
(1,572)
Other
(3)
(740)
(260)
Impaired loans, balance at end of period
$
5,867
$
3,704
GIL as a % of related loans and acceptances
Total GIL as a % of related loans and acceptances
0.59%
0.42%
Personal Banking
(1), (2)
0.31%
0.22%
Personal Banking – Canada
0.26%
0.16%
Commercial Banking
(1), (2)
1.29%
0.64%
Wealth Management
(1)
0.42%
0.43%
Capital Markets
0.88%
0.89%
(1)
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.
(2)
Certain GIL movements for Personal Banking – Canada retail and wholesale portfolios are generally allocated to new
impaired, as Net repayments and certain Other movements are not reasonably determinable. Certain GIL movements for
Caribbean Banking retail and wholesale portfolios are generally allocated to Net repayments and new impaired, as Net
repayments and certain Other movements are not reasonably determinable.
(3)
Includes return to performing status during the period, recoveries of loans and advances previously written off, sold,
amounts related to foreclosed properties held as investment properties and interests in joint ventures for certain
co-lending arrangements, foreign exchange translation and other movements.
2024 vs. 2023
Total GIL increased $2,163 million or 58% from last year and the total GIL ratio of 59 bps increased 17 bps, mainly due to higher
impaired loans in Commercial Banking and Personal Banking.
GIL in Personal Banking increased $602 million or 57%, mainly due to higher impaired loans in our Canadian residential
mortgages portfolio.
GIL in Commercial Banking increased $1,517 million, mainly due to higher impaired loans in a few sectors, including the real
estate and related and automotive sectors.
GIL in Capital Markets increased $50 million or 4%, mainly due to higher impaired loans in the financing products sector,
partially offset by lower impaired loans in the real estate and related sector. The reduction in the real estate and related sector
includes $485 million in foreclosed properties which are accounted for as investment properties and interests in joint ventures
for certain co-lending arrangements.
Allowance for credit losses
Table 49
As at
(Millions of Canadian dollars)
October 31
2024
October 31
2023
Personal Banking
(1)
$
3,273
$
2,780
Commercial Banking
(1)
1,626
938
Wealth Management
466
618
Capital Markets
986
1,012
Corporate Support and other
(1)
1
–
ACL on loans
6,352
5,348
ACL on other financial assets
(2)
12
18
Total ACL
$
6,364
$
5,366
ACL on loans is comprised of:
Retail
$
3,011
$
2,591
Wholesale
1,825
1,609
ACL on performing loans
$
4,836
$
4,200
ACL on impaired loans
1,516
1,148
(1)
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. For
further details, refer to the About Royal Bank of Canada section.
(2)
ACL on other financial assets mainly represents allowances on debt securities measured at FVOCI and amortized cost,
accounts receivable and financial guarantees.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
85
2024 vs. 2023
Total ACL increased $998 million or 19% from last year, primarily reflecting an increase of $1,004 million in ACL on loans.
ACL on performing loans increased $636 million or 15%, mainly due to unfavourable changes in credit quality and the initial
allowances on the performing loans purchased in the HSBC Canada transaction, partially offset by favourable changes to our
macroeconomic forecast.
ACL on impaired loans increased $368 million or 32%, mainly due to higher ACL in Commercial Banking and Personal
Banking, partially offset by lower ACL in Capital Markets.
due to changes in market-determined variables such as interest rates, credit spreads, equity prices, commodity prices, foreign
The measures of financial condition impacted by market risk include the following:
1.
Positions whose revaluation gains and losses are reported in revenue, which includes:
a)
Changes in the fair value of instruments classified or designated as FVTPL, and
b)
Hedge ineffectiveness.
2.
CET1 capital, which includes:
a)
All of the above, plus
b)
Changes in the fair value of FVOCI securities where revaluation gains and losses are reported as OCI,
c)
Changes in the Canadian dollar value of investments in foreign subsidiaries, net of hedges, due to foreign exchange
translation, and
d)
Changes in the fair value of employee benefit plan deficits.
3.
CET1 ratio, which includes:
a)
All of the above, plus
b)
Changes in RWA resulting from changes in traded market risk factors, and
c)
Changes in the Canadian dollar value of RWA due to foreign exchange translation.
4.
The economic value of the Bank, which includes:
a)
Points 1 and 2 above, plus
b)
Changes in the economic value of other non-trading positions, net interest income, and fee based income, as a
result of changes in market risk factors.
1
As an element of the ERAF, the Board approves our overall market risk appetite. The Market and Counterparty Credit Risk
function within GRM is responsible for creating and managing the controls and governance procedures that are designed to
ensure that risk taken is consistent with risk appetite constraints set by the Board. These controls include limits on
probabilistic measures of potential loss such as Value-at-Risk and stress tests as defined below:
Value-at-Risk (VaR)
is a statistical measure of potential loss for a financial portfolio computed at a given level of confidence
and over a defined holding period. We measure VaR at the 99th percentile confidence level for price movements over a
one-day holding period using historic simulation of the last two years of equally weighted historic market data. These
calculations are updated daily with current risk positions, with the exception of certain less material positions that are not
actively traded which are updated on at least a monthly basis.
Trading VaR captures potential loss for our trading portfolio
that excludes the impacts of non-trading FVTPL positions such as loan underwriting commitments. Total VaR captures
potential loss for all positions classified as FVTPL.
VaR is a statistical estimate based on historical market data and should be interpreted with knowledge of its limitations,
which include the following:
•
VaR will not be predictive of future losses if the realized market movements differ significantly from the historical periods
used to compute it.
•
VaR projects potential losses over a one-day holding period and does not project potential losses for risk positions held
over longer time periods.
•
VaR is measured using positions at close of business and does not include the impact of trading and hedging activity over
the course of a day.
We validate our VaR measures through a variety of means – including subjecting the models to vetting and validation by a
group of independent model developers and by back-testing the VaR against daily marked-to-market revenue to identify and
examine events in which actual outcomes in trading revenue exceed the VaR projections.
Stress tests
– Our market risk stress testing program is used to identify and control risk due to large changes in market prices
and rates. We conduct stress testing daily on positions that are marked-to-market. The stress tests simulate both historical
and hypothetical events which are severe and long-term in duration. Historical scenarios are taken from actual market events
and range in duration up to 90 days. Examples include the COVID-19 Pandemic of 2020, Global Financial Crisis of 2008 and the
Taper Tantrum of 2013. Hypothetical scenarios are designed to be forward-looking at potential future market stresses, and are
designed to be severe but plausible. We are constantly evaluating and refining these scenarios as market conditions change.
1
Trading portfolios are comprised of trading instruments in accordance with OSFI’s Capital Adequacy Requirements (CAR) Guideline. Trading involves market-making,
positioning and arbitrage activities conducted primarily within our Global Markets business in the Capital Markets segment.
86
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
These measures are computed on all positions that are FVTPL for financial reporting purposes, with the exception of those in a
designated hedging relationship and those in our insurance businesses.
Market risk measures – FVTPL positions
Table 50
| October 31, 2024 | October 31, 2023 | |||||||||||||||
For the year ended | For the year ended | |||||||||||||||
(Millions of Canadian dollars) | As at | Average | High | Low | As at | Average | High | Low | ||||||||
Equity | $ | 23 | $ | 14 | $ | 26 | $ | 6 | $ | 10 | $ | 11 | $ | 26 | $ | 6 |
Foreign exchange | 6 | 5 | 10 | 2 | 4 | 3 | 25 | 2 | ||||||||
Commodities | 11 | 6 | 11 | 4 | 5 | 5 | 8 | 4 | ||||||||
Interest rate (1) | 23 | 30 | 44 | 19 | 38 | 32 | 49 | 20 | ||||||||
Credit specific (2) | 8 | 8 | 9 | 7 | 7 | 5 | 8 | 4 | ||||||||
Diversification (3) | (37) | (34) | n.m. | n.m. | (35) | (31) | n.m. | n.m. | ||||||||
Trading VaR | $ | 34 | $ | 29 | $ | 41 | $ | 20 | $ | 29 | $ | 25 | $ | 36 | $ | 16 |
Total VaR | $ | 34 | $ | 70 | $ 138 | $ | 26 | $ 121 | $ | 51 | $ 127 | $ | 27 | |||
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
(1)
General credit spread risk and funding spread risk associated with uncollateralized derivatives are included under interest rate VaR.
(2)
Credit specific risk captures issuer-specific credit spread volatility.
(3)
Trading VaR is less than the sum of the individual risk factor VaR results due to risk factor diversification.
n.m.
not meaningful
2024 vs. 2023
Average Trading VaR of $29 million increased $4 million from last year, primarily driven by exposure changes in our securities
financing portfolio.
Average total VaR of $70 million increased $19 million from a year ago, primarily driven by the impact of management of
closing capital volatility related to the HSBC Canada transaction, partially offset by a reduced impact relating to our loan
underwriting commitments.
The following chart displays a bar graph of our daily trading revenue and a line graph of our daily market risk Trading VaR. We
incurred no net trading losses in 2024.
Trading revenue
(teb), (1)
and Trading VaR
(Millions of Canadian dollars)
Nov 1, 2023
Jan 31, 2024
Apr 30, 2024
July 31, 2024
Oct 31, 2024
50
30
40
10
20
-20
-30
-10
-40
0
-50
Trading Revenue
(teb) (1)
Trading VaR
(1)
Trading revenue (teb) in the chart above excludes the impact of loan underwriting commitments.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
87
The following chart displays the distribution of daily trading revenue in 2024 and 2023 with no net trading losses in 2024 as noted
above and one day of net trading losses in 2023. The largest reported trading revenue was $44 million with an average daily
revenue of $17 million.
Frequency in Number of Days
Daily net trading revenue (C$ millions)
2024
2023
0
10
20
30
40
50
60
70
80
90
Trading revenue for the year ended October
31, 2024
(teb), (1)
(1)
(1)
Trading revenue (teb) amounts in the chart above exclude the impact of loan underwriting commitments and structured entities.
Market risk measures for assets and liabilities of RBC Insurance
®
2
We offer a range of insurance products to clients and hold investments to meet future obligations to policyholders. The
investments which support actuarial liabilities are predominantly fixed income assets measured at FVTPL. Consequently,
changes in the fair values of these assets are largely offset by changes in the discount rates used in the measurement of
insurance and reinsurance contract assets and liabilities, and the impacts of both are reflected in Insurance investment result in
the Consolidated Statements of Income. As at October 31, 2024, we held assets in support of $20 billion of insurance contract
liabilities net of insurance contract assets and reinsurance contracts held balances (October 31, 2023 – $17 billion).
3
IRRBB arises primarily from traditional customer-originated banking products such as deposits and loans, and includes
related hedges and interest rate risk from securities held for liquidity management purposes. Factors contributing to IRRBB
include mismatches between asset and liability repricing dates, relative changes in asset and liability rates in response to
market rate scenarios, and other product features affecting the expected timing of cash flows, such as options to pre-pay
loans or redeem term deposits prior to contractual maturity. IRRBB sensitivities are regularly measured and reported, and
subject to limits and controls with independent oversight from GRM.
The Board approves the risk appetite for IRRBB, and the Asset Liability Committee (ALCO) and GRM provide ongoing
governance through IRRBB risk policies, limits, operating standards and other controls. IRRBB reports are reviewed regularly by
GRM, ALCO, the GRC, the Risk Committee of the Board and the Board.
IRRBB measurement
To monitor and control IRRBB, we assess two primary metrics, Net Interest Income (NII) risk and Economic Value of Equity
(EVE) risk, under a range of market shocks, scenarios, and time horizons. Market scenarios include currency-specific parallel
and non-parallel yield curve changes, interest rate volatility shocks, and interest rate scenarios prescribed by regulators.
In measuring NII risk, detailed banking book balance sheets and income statements are dynamically simulated to estimate
the impact of market stress scenarios on projected NII. Assets, liabilities and off-balance sheet positions are simulated over
various time horizons. The simulations incorporate maturities, renewals, and new originations along with prepayment and
redemption behaviour. Product pricing and volumes are forecasted based on past experience to determine response
expectations under a given market shock scenario. EVE risk captures the market value sensitivity to changes in rates. In
measuring EVE risk, deterministic (single-scenario) and stochastic (multiple-scenario) valuation techniques are applied to spot
position data. NII and EVE risks are measured for a range of market risk stress scenarios which include extreme but plausible
changes in market rates and volatilities. IRRBB measures assume continuation of existing hedge strategies.
Management of NII and EVE risk is complementary and supports our efforts to generate a sustainable high-quality NII
stream. NII and EVE risks for specific units are measured daily, weekly or monthly depending on materiality, complexity and
hedge strategy.
A number of assumptions affecting cash flows, product re-pricing and the administration of rates underlie the models used
to measure NII and EVE risk. The key assumptions pertain to the projected funding date of mortgage rate commitments, fixed-
rate loan prepayment behaviour, term deposit redemption behaviour, and the term and rate profile of non-maturity deposits. All
assumptions are derived empirically based on historical client behaviour and product pricing with consideration of possible
forward-looking changes. All models and assumptions used to measure IRRBB are subject to independent oversight by GRM.
Market risk measures – IRRBB Sensitivities
The following table shows the potential before-tax impact of an immediate and sustained 100 bps increase or decrease in
interest rates on projected EVE and 12-month NII, assuming no subsequent hedging. Interest rate risk measures are based on
current on and off-balance sheet positions which can change over time in response to business activity and management
2
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
3
IRRBB positions include the impact of derivatives in hedge accounting relationships, FVOCI securities used for interest rate risk management and economic hedges.
88
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Table 51
October 31 | October 31 | |||||||||||||||
2024 | 2023 | |||||||||||||||
EVE risk | NII risk (1) | |||||||||||||||
Canadian | U.S. dollar | Canadian | U.S. dollar | |||||||||||||
(Millions of Canadian dollars) | dollar impact | impact | Total | dollar impact | impact | Total | EVE risk | NII risk (1) | ||||||||
Before-tax impact of: | ||||||||||||||||
100 bps increase in rates | $ | (1,775) | $ | (301) | $ | (2,076) | $ | 264 | $ | 136 | $ | 400 | $ | (1,552) | $ | 651 |
100 bps decrease in rates | 1,705 | (42) | 1,663 | (315) | (187) | (502) | 1,353 | (751) | ||||||||
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
(1)
Represents the 12-month NII exposure to an instantaneous and sustained shift in interest rates.
As at October 31, 2024, an immediate and sustained -100 bps shock would have had a negative impact to our NII of $502 million,
down from $751 million last year, and an immediate and sustained +100 bps shock would have had a negative impact to our EVE of
$2,076 million, up from $1,552 million last year. The change in NII sensitivity reflects a change in product mix and the change in
EVE sensitivity can be attributed to net growth in fixed rate assets including growth in book capital. During 2024, NII and EVE risks
remained within approved limits.
Market risk measures for other material non-trading portfolios
Investment securities carried at FVOCI
We held $156 billion of investment securities carried at FVOCI as at October 31, 2024, compared to $128 billion at the end of the
prior year. We hold debt securities carried at FVOCI primarily as investments, as well as to manage liquidity risk and hedge
interest rate risk in our non-trading banking balance sheet. As at October 31, 2024, our portfolio of investment securities carried
at FVOCI is interest rate sensitive and would impact OCI by a pre-tax change in value of $5 million as measured by the change in
the value of the securities for a one basis point parallel increase in yields. The portfolio also exposes us to credit spread risk of a
pre-tax change in value of $31 million, as measured by the change in value for a one basis point widening of credit spreads. The
value of the investment securities carried at FVOCI included in our IRRBB measures as at October 31, 2024 was $152 billion. Our
investment securities carried at FVOCI also include equity exposures of $1 billion as at October 31, 2024, compared to $1 billion at
the end of the prior year.
Foreign exchange rate risk is the potential adverse impact on earnings and economic value due to changes in foreign currency
rates. Our revenue, expenses and income denominated in currencies other than the Canadian dollar are subject to
fluctuations as a result of changes in the value of the average Canadian dollar relative to the average value of those
currencies. Our most significant exposure is to the U.S. dollar, due to our operations in the U.S. and other activities conducted
in U.S. dollars. Our other significant exposure is to the British pound due to our activities conducted internationally in this
currency. A strengthening or weakening of the Canadian dollar compared to the U.S. dollar and British pound could reduce or
increase, as applicable, the translated value of our foreign currency denominated revenue, expenses and earnings and could
have a significant effect on the results of our operations. We are also exposed to foreign exchange rate risk arising from our
investments in foreign operations. For unhedged equity investments, when the Canadian dollar appreciates against other
currencies, the unrealized translation losses on net foreign investments decreases our shareholders’ equity through the other
components of equity and decreases the translated value of the RWA of the foreign currency-denominated asset. The reverse
is true when the Canadian dollar depreciates against other currencies. Consequently, we consider these impacts in selecting
Derivatives related to non-trading activity
Derivatives are also used to hedge market risk exposure unrelated to our trading activity. Hedge accounting is elected where
applicable. These derivatives are included in our IRRBB measures and other internal non-trading market risk measures. We use
interest rate swaps to manage our IRRBB, funding and investment activities. Interest rate swaps are also used to hedge changes
in the fair value of certain fixed-rate instruments. We also use foreign exchange derivatives to manage our exposure to equity
investments in subsidiaries that are denominated in foreign currencies, particularly the U.S. dollar and British Pound.
For further details on the application of hedge accounting and the use of derivatives for hedging activities, refer to Notes 2 and 9
of our 2024 Annual Consolidated Financial Statements.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
89
Linkage of market risk to selected balance sheet items
The following tables provide the linkages between selected balance sheet items with positions included in our trading market risk
and non-trading market risk disclosures, which illustrates how we manage market risk for our assets and liabilities through
different risk measures:
Linkage of market risk to selected balance sheet items
Table 52
As at October 31, 2024
Market risk measure
(Millions of Canadian dollars)
Balance sheet
amount
Traded risk
(1)
Non-traded
risk
(2)
Non-traded risk
primary risk sensitivity
Assets subject to market risk
Cash and due from banks
$
56,723
$
–
$
56,723
Interest rate
Interest-bearing deposits with banks
66,020
3
66,017
Interest rate
Securities
Trading
183,300
161,031
22,269
Interest rate, credit spread
Investment, net of applicable allowance
256,618
–
256,618
Interest rate, credit spread, equity
Assets purchased under reverse repurchase
agreements and securities borrowed
350,803
299,032
51,771
Interest rate
Loans
Retail
626,978
–
626,978
Interest rate
Wholesale
360,439
3,152
357,287
Interest rate
Allowance for loan losses
(6,037)
–
(6,037)
Interest rate
Other
Derivatives
150,612
147,017
3,595
Interest rate, foreign exchange
Other assets
115,133
47,936
67,197
Interest rate
Assets not subject to market risk
(3)
10,993
Total assets
$
2,171,582
$
658,171
$
1,502,418
Liabilities subject to market risk
Deposits
$
1,409,531
$
63,706
$
1,345,825
Interest rate
Other
Obligations related to securities sold short
35,286
34,985
301
Obligations related to assets sold under
repurchase agreements and securities
loaned
305,321
280,386
24,935
Interest rate
Derivatives
163,763
157,587
6,176
Interest rate, foreign exchange
Other liabilities
94,666
39,802
54,864
Interest rate
Subordinated debentures
13,546
–
13,546
Interest rate
Liabilities not subject to market risk
(4)
22,277
Total liabilities
$
2,044,390
$
576,466
$
1,445,647
Total equity
127,192
Total liabilities and equity
$
2,171,582
(1)
Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading
portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.
(2)
Non-traded risk includes positions used in the management of IRRBB and other non-trading portfolios. Other material non-trading portfolios include positions from
RBC Insurance
®
and investment securities, net of applicable allowance, not included in IRRBB.
(3)
Assets not subject to market risk include physical and other assets.
(4)
Liabilities not subject to market risk include payroll related and other liabilities.
90
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
As at October 31, 2023 (1)
Market risk measure
(Millions of Canadian dollars)
Balance sheet
amount
Traded risk
(2)
Non-traded
risk
(3)
Non-traded risk
primary risk sensitivity
Assets subject to market risk
Cash and due from banks
$
61,989
$
–
$
61,989
Interest rate
Interest-bearing deposits with banks
71,086
1
71,085
Interest rate
Securities
Trading
190,151
171,483
18,668
Interest rate, credit spread
Investment, net of applicable allowance
219,579
–
219,579
Interest rate, credit spread, equity
Assets purchased under reverse repurchase
agreements and securities borrowed
340,191
304,672
35,519
Interest rate
Loans
Retail
569,951
–
569,951
Interest rate
Wholesale
287,826
3,134
284,692
Interest rate
Allowance for loan losses
(5,004)
–
(5,004)
Interest rate
Other
Derivatives
142,450
139,011
3,439
Interest rate, foreign exchange
Other assets
(4)
112,477
37,664
74,813
Interest rate
Assets not subject to market risk
(4), (5)
15,835
Total assets
$
2,006,531
$
655,965
$
1,334,731
Liabilities subject to market risk
Deposits
$
1,231,687
$
51,025
$
1,180,662
Interest rate
Other
Obligations related to securities sold short
33,651
33,555
96
Obligations related to assets sold under
repurchase agreements and securities
loaned
335,238
312,551
22,687
Interest rate
Derivatives
142,629
130,094
12,535
Interest rate, foreign exchange
Other liabilities
(4)
116,445
41,778
74,667
Interest rate
Subordinated debentures
11,386
–
11,386
Interest rate
Liabilities not subject to market risk
(4), (6)
20,348
Total liabilities
$
1,891,384
$
569,003
$
1,302,033
Total equity
115,147
Total liabilities and equity
$
2,006,531
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
Traded risk includes positions that are classified or designated as FVTPL and positions whose revaluation gains and losses are reported in revenue within our trading
portfolios. Market risk measures of VaR and stress tests are used as risk controls for traded risk.
(3)
Non-traded risk includes positions used in the management of IRRBB and other non-trading portfolios. Other material non-trading portfolios include positions from
RBC Insurance
®
and investment securities, net of applicable allowance, not included in IRRBB.
(4)
Amounts have been revised from those previously presented to align with the definition of trading risk in accordance with OSFI’s CAR Guidelines.
(5)
Assets not subject to market risk include physical and other assets.
(6)
Liabilities not subject to market risk include payroll related and other liabilities.
timely and cost-effective manner to meet our commitments. Liquidity risk arises from mismatches in the timing and value of
on-balance sheet and off-balance sheet cash flows.
Governance of liquidity risk
Our liquidity risk management activities are conducted in accordance with internal frameworks and policies, including the
Enterprise Risk Management Framework (ERMF), the Enterprise Risk Appetite Framework (ERAF), the Enterprise Liquidity Risk
Management Framework (LRMF), the Enterprise Liquidity Risk Policy, and the Enterprise Pledging Policy. Collectively, our
frameworks and policies establish liquidity and funding management requirements appropriate for the execution of our
strategy and ensuring liquidity risk remains within our risk appetite.
Liquidity risk objectives, policies and risk appetite are reviewed regularly, and updated to reflect changes in industry
practice and relevant regulatory guidance. Enterprise policies are supported by subsidiary, operational, desk and product-
level policies and standards that specify risk control elements, such as parameters, methodologies, limits and authorities
governing the measurement and management of liquidity. Management practices, parameters, models and methodologies are
also subject to regular review, and are updated to reflect market conditions and business mix. Stress testing is employed to
assess the robustness of the control framework and inform liquidity contingency plans.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
91
Responsibilities for liquidity risk oversight and management
The Board, the Risk Committee of the Board, the Group Risk committee (GRC), the Asset Liability Committee (ALCO), and the
Policy Review Committee (PRC) are accountable for the identification, assessment, control, monitoring and oversight of
liquidity risk. The GRC, PRC and/or the ALCO review liquidity reporting and policies prior to review by the Board or its
committees.
•
The Board, the Risk Committee of the Board, the GRC and the ALCO regularly review information on our consolidated
liquidity position;
•
The PRC approves the Liquidity Risk Policy, which establishes minimum risk control elements in accordance with the
Board-approved risk appetite and the LRMF, and the Pledging Policy, which outlines the requirements and authorities for
the management of our pledging activities;
•
The ALCO annually approves the Enterprise Liquidity Contingency Plan (ELCP) and provides strategic direction and
oversight to Corporate Treasury, other functions, and business segments on the management of liquidity and funding.
In addition to our committee oversight framework, liquidity risk management activities are subject to the three lines of
defence governance model. Corporate Treasury, the first line of defence for the management of liquidity risk, is subject to
independent second line challenge and oversight by GRM. RBC Internal Audit is the third line of defence. The three lines of
defence are independent of the business whose activities generate liquidity risks.
Liquidity risk mitigation strategies and techniques
Our liquidity management policies and practices are designed to ensure the soundness of our liquidity position. Our liquidity
profile is structured to ensure that we have sufficient liquidity to satisfy current and prospective commitments in both normal
and stressed conditions. For this purpose, we employ the following liquidity risk mitigation strategies and techniques:
•
Maintaining a sufficient buffer of cash, central bank reserves, and unencumbered marketable securities, supported by a
demonstrated capacity to monetize these securities during stress;
•
Access to a broad range of funding sources, including a stable base of core client deposits and a diversified wholesale
funding mix;
•
Access to central bank funding facilities in Canada and the U.S., and select other jurisdictions in which we operate;
•
Timely and granular risk measurement and reporting to control and monitor liquidity sources and uses, and inform liquidity
risk management decisions;
•
A comprehensive program for liquidity stress testing and crisis management;
•
Governance of pledging activity through limits and designated liquid asset buffers to address potential increased pledging
activity;
•
Achieving an appropriate balance between the level of exposure allowed under our risk appetite and the cost of risk
mitigation;
•
Transparent liquidity transfer pricing and cost allocation mechanisms to align risk management with business strategies;
and
•
A three-lines-of-defence governance model providing effective oversight and challenge of liquidity risk strategies, metrics,
assumptions, and controls.
Our dedicated liquid asset portfolios are managed and controlled in accordance with internal policies and are subject to
minimum asset quality and other relevant requirements (e.g., term to maturity, diversification, and eligibility for central bank
advances). These securities, along with other unencumbered liquid assets held for trading or other activities, contribute to our
liquidity reserve, as reflected in the liquidity disclosures below.
Risk tolerance
Our liquidity risk appetite is reviewed at a minimum annually by ALCO, GRC, and the Risk Committee of the Board before it is
recommended for approval to the Board. Risk appetite, a key element of our enterprise risk management framework, is
defined as the amount and type of risk that RBC is able and willing to take in pursuit of its business objectives.
Risk measurement and internal liquidity reporting
We maintain robust liquidity risk measurement capabilities to support timely and frequent reporting of information for the
management of our liquidity position and oversight of risk. This reporting, which includes internal and regulatory metrics, is
used to monitor adherence with our risk appetite and limits, and position relative to regulatory minimums. Regulatory metrics
used to manage and control liquidity risk include OSFI’s Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and
Net Cumulative Cash Flow (NCCF). The specificity with which we measure and manage liquidity allows us to make ongoing
informed assessments of the demands and mobility of liquidity, considering currency requirements, access to foreign
exchange markets and commitments, and expectations under local regulations.
Internal assessments of liquidity risk include application of scenario-specific assumptions against our assets and
liabilities, and various off-balance sheet commitments and obligations to project cash flows over varying time horizons and
degrees of stress. For example, certain government bonds could be quickly and easily converted to cash without significant
loss of value. In contrast, lower-rated securities may not be deemed appropriate sources of liquidity in times of stress, or may
incur higher potential monetization costs. While relationship-based deposits contractually can be withdrawn immediately, in
practice, these balances can be relatively stable sources of funding depending on several factors, such as the nature of the
client and their intended use. Assumptions and methodologies informing our assessment of liquidity risk are periodically
reviewed and validated to ensure alignment with our operating environment, expected economic and market conditions,
rating agency preferences, regulatory requirements and generally accepted industry practices.
92
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
To manage liquidity risk within our liquidity risk appetite, we set limits on various metrics over a range of time horizons,
jurisdictions and currencies. We also consider various levels of stress conditions in our development of appropriate
contingency, recovery and resolution plans. Our liquidity risk measurement and control activities cover multiple areas:
Structural (longer-term) liquidity risk
We use both internal and regulatory metrics to manage and control the structural alignment between long-term illiquid assets,
the availability of core relationship deposits and longer-term funding. Conversely, we aim to align the use of shorter-term
wholesale funding with assets of equivalent liquidity-generating potential.
Tactical (shorter-term) liquidity risk
To address potential immediate cash flow risks during periods of stress, we use short-term net cash flow limits to control risk
at the material unit, subsidiary and currency levels. Net cash flow positions are determined by applying internally-derived risk
assumptions and parameters to known and anticipated cash flows for all material unencumbered assets, liabilities and
off-balance sheet activities. Additional product-level controls and limits are employed to manage concentration risk and
perceived market capacity limitations for more sensitive liquidity sources and uses. We also control tactical liquidity by
adhering to relevant regulatory standards, such as LCR.
Stress testing
Our comprehensive stress testing program informs internal assessments of the sufficiency of liquid assets, and whether they
are adequately pre-positioned and accessible to meet stressed liquidity needs. Our stress tests, which include elements of
scenario and sensitivity analyses, measure our prospective exposure to systemic and RBC-specific events over periods of
time. Different degrees of severity are considered for each type of crisis with some scenarios reflecting multiple downgrades
to our credit ratings.
Contingency liquidity risk management and funding plans
Contingency liquidity risk planning assesses the impact of sudden stress on our liquidity risk position and identifies a range of
potential mitigating actions and plans. Corporate Treasury maintains the Enterprise Liquidity Contingency Plan (ELCP) and
regional liquidity contingency plans (LCPs) that identify potential sources of stress and guide our responses to liquidity crises.
Potential sources of stress are calibrated based on relevant historical experience and resulting contingent funding needs,
including those from draws on committed credit and liquidity lines, demands for increased collateral and deposit run-offs. The
ELCP also identifies alternative liquidity sources and considerations for their use.
Additionally, under the leadership of Corporate Treasury, enterprise and regional Liquidity Crisis Teams (LCTs) each meet
regularly to assess our liquidity status, review, and approve the LCPs and during times of stress, provide linkages to the front
line and other functions to support effective and coordinated crisis management and oversight. Enterprise and local LCTs
include members from key business segments, GRM, Finance, Operations, and Communications. The liquidity status
assessment and monitoring process informs management, the Board and regulatory agencies of our assessment of internal
Liquidity reserve and asset encumbrance
The following tables provide summaries of our liquidity reserve and asset encumbrance. To varying degrees, unencumbered
assets represent a ready source of funding. Unencumbered assets are the difference between total and encumbered assets from
both on- and off-balance sheet sources. Encumbered assets include: (i) bank-owned liquid assets that are either pledged as
collateral (e.g., repo financing and derivative pledging) or not freely available due to regulatory or internal policy requirements
(e.g., earmarked to satisfy mandatory reserve or regional capital adequacy requirements and to maintain continuous access to
payment and settlement systems); (ii) securities received as collateral from securities financing and derivative transactions
which have either been re-hypothecated where permissible (e.g., to obtain financing through repos or to cover securities sold
short) or have no liquidity value since re-hypothecation is prohibited; and (iii) illiquid assets that have been securitized and sold
into the market or that have been pledged as collateral in support of structured term funding vehicles. As per our liquidity
management framework and practice, encumbered assets are not considered a source of liquidity.
Liquidity reserve
Our liquidity reserve consists only of available unencumbered liquid assets. Although unused wholesale funding capacity could
be another potential source of liquidity, it is excluded in the determination of the liquidity reserve.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
93
Liquidity reserve
Table 53
As at October 31, 2024
(Millions of Canadian dollars)
Bank-owned
liquid assets
Securities
received as
collateral from
securities
financing and
derivative
transactions
Total liquid
assets
Encumbered
liquid assets
Unencumbered
liquid assets
Cash and deposits with banks
$
122,743
$
–
$
122,743
$
3,269
$
119,474
Securities issued or guaranteed by sovereigns, central
banks or multilateral development banks
(1)
323,826
385,479
709,305
426,552
282,753
Other securities
165,875
126,205
292,080
163,635
128,445
Other liquid assets
(2)
37,601
–
37,601
31,583
6,018
Total liquid assets
$
650,045
$
511,684
$1,161,729
$
625,039
$
536,690
As at October 31, 2023
(Millions of Canadian dollars)
Bank-owned
liquid assets
Securities
received as
collateral from
securities
financing and
derivative
transactions
Total liquid
assets
Encumbered
liquid assets
Unencumbered
liquid assets
Cash and deposits with banks
(3)
$
135,353
$
–
$
135,353
$
3,329
$
132,024
Securities issued or guaranteed by sovereigns, central
banks or multilateral development banks
(1)
325,002
363,377
688,379
425,109
263,270
Other securities
130,209
118,651
248,860
153,700
95,160
Other liquid assets
(2)
31,706
–
31,706
28,953
2,753
Total liquid assets
$
622,270
$
482,028
$ 1,104,298
$
611,091
$
493,207
As at
(Millions of Canadian dollars)
October 31
2024
October 31
2023
Royal Bank of Canada
$
243,915
$
210,191
Foreign branches
69,723
79,947
Subsidiaries
223,052
203,069
Total unencumbered liquid assets
$
536,690
$
493,207
(1)
Includes liquid securities issued by provincial governments and U.S. government-sponsored entities working under U.S. Federal government’s conservatorship
(e.g., Federal National Mortgage Association and Federal Home Loan Mortgage Corporation).
(2)
Encumbered liquid assets amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.
(3)
Includes balances that were classified as held for sale and presented in Other assets. For further details, refer to Note 6 of our 2024 Annual Consolidated Financial
Statements.
The liquidity reserve is typically most affected by routine flows of retail and commercial client banking activities, where liquid
asset portfolios reflect changes in deposit and loan balances, as well as business strategies and client flows related to the
activities in Capital Markets. Corporate Treasury also affects liquidity reserves through the management of funding issuances,
which could result in timing differences between when debt is issued and funds are deployed into business activities.
2024 vs. 2023
Total unencumbered liquid assets increased $43 billion or 9% from last year, mainly due to an increase in both securities
received under reverse repurchase agreements and on-balance sheet securities reflecting growth in deposits, partially offset by
a decrease in cash and deposits with banks.
94
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Asset encumbrance
The table below provides a summary of our on- and off-balance sheet amounts for cash, securities and other assets,
distinguishing between those that are encumbered, and those available for sale or use as collateral in secured funding
transactions. Other assets, such as mortgages and credit card receivables, can also be monetized, albeit over longer timeframes
than those required for marketable securities. As at October 31, 2024, our unencumbered assets available as collateral comprised
25% of total assets (October 31, 2023 – 24%).
Asset encumbrance
Table 54
As at
October 31
2024
October 31
2023
Encumbered
Unencumbered
Encumbered
Unencumbered
(Millions of Canadian dollars)
Pledged as
collateral
Other
(1)
Available as
collateral
(2)
Other
(3)
Total
Pledged as
collateral
Other (1)
Available as
collateral (2)
Other (3)
Total
Cash and deposits
with banks
(4)
$
–
$
3,269
$
119,474
$
–
$
122,743
$
–
$
3,329
$
132,024
$
–
$
135,353
Securities
Trading
86,124
–
105,489
2,488
194,101
99,990
–
100,517
2,252
202,759
Investment, net of
applicable allowance
19,668
–
236,950
–
256,618
7,752
–
211,827
–
219,579
Assets purchased under
reverse repurchase
agreements and securities
borrowed
(5)
508,862
31,156
30,767
1,084
571,869
495,233
27,343
6,876
1,862
531,314
Loans
Retail
Mortgage securities
27,927
–
29,523
–
57,450
26,365
–
28,079
–
54,444
Mortgage loans
71,307
–
40,851
307,936
420,094
69,802
–
37,313
272,942
380,057
Non-mortgage loans
6,343
–
–
143,091
149,434
6,775
–
–
128,675
135,450
Wholesale
–
–
25,250
335,189
360,439
–
–
10,056
278,052
288,108
Allowance for loan losses
–
–
–
(6,037)
(6,037)
–
–
–
(5,004)
(5,004)
Other
Derivatives
–
–
–
150,612
150,612
–
–
–
142,450
142,450
Others
(6) (7)
31,583
–
6,018
88,525
126,126
28,953
–
2,753
92,507
124,213
Total assets
$
751,814
$
34,425
$
594,322
$
1,022,888
$ 2,403,449
$ 734,870
$ 30,672
$
529,445
$ 913,736
$ 2,208,723
(1)
Includes assets restricted from use to generate secured funding due to legal or other constraints.
(2)
Represents assets that are immediately available for use as collateral, including NHA MBS, our unencumbered mortgage loans that qualify as eligible collateral at FHLB,
as well as loans that qualify as eligible collateral for discount window facility available to us and lodged at the FRBNY.
(3)
Other unencumbered assets are not subject to any restrictions on their use to secure funding or as collateral but would not be considered immediately available.
(4)
Includes balances that were classified as held for sale and presented in Other assets. For further details, refer to Note 6 of our 2024 Annual Consolidated Financial
Statements.
(5)
Includes bank-owned liquid assets and securities received as collateral from off-balance sheet securities financing, derivative transactions, and margin lending.
Includes $31 billion (October 31, 2023 – $27 billion) of collateral received through reverse repurchase transactions that cannot be rehypothecated in its current legal form.
(6)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(7)
The Pledged as collateral amount represents cash collateral and margin deposit amounts pledged related to OTC and exchange-traded derivative transactions.
2024 vs. 2023
Total unencumbered assets available as collateral have increased $65 billion from last year, mainly due to an increase in both
on-balance sheet securities and securities received under reverse repurchase agreements, as well as higher available loan
balances eligible as collateral at FHLB. These factors were partially offset by a decrease in cash and deposits with banks.
Funding
Maintaining a diversified funding base is a key strategy for managing our liquidity risk profile.
Core funding, comprising capital, longer-term wholesale liabilities and a diversified pool of personal as well as the stable
portion of our commercial and institutional deposits, is the foundation of our structural liquidity position.
Wholesale funding activities are well-diversified by geography, investor segment, instrument, currency, structure and
maturity. We maintain an ongoing presence in different funding markets, which allows us to continuously monitor market
developments and trends, identify opportunities and risks and take appropriate and timely actions.
We continuously evaluate opportunities to expand into new markets and untapped investor segments since
diversification expands our wholesale funding flexibility, minimizes funding concentration and dependency and generally
reduces financing costs.
We regularly assess our funding concentration and have implemented limits on certain funding sources to support
Deposit and funding profile
As at October 31, 2024, relationship-based deposits, which are the primary source of funding for retail and commercial lending,
were $977 billion or 55% of our total funding (October 31, 2023 – $844 billion or 52%). The remaining portion is comprised of short-
and long-term wholesale funding.
Funding for highly liquid assets consists primarily of short-term wholesale funding that reflects the monetization period of
those assets. Long-term wholesale funding is used mostly to fund less liquid wholesale assets and to support liquid asset buffers.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
95
Senior long-term debt issued by the bank on or after September 23, 2018, that has an original term greater than 400 days and
is marketable, subject to certain exceptions, is subject to the Canadian Bank Recapitalization (Bail-in) regime. Under the Bail-in
regime, in circumstances when the Superintendent of Financial Institutions has determined that a bank may no longer be viable,
the Governor in Council may, upon a recommendation of the Minister of Finance that he or she is of the opinion that it is in the
public interest to do so, grant an order directing the Canada Deposit Insurance Corporation (CDIC) to convert all or a portion of
certain shares and liabilities of that bank into common shares. As at October 31, 2024, the notional value of issued and
outstanding long-term debt subject to conversion under the Bail-in regime was $111 billion (October 31, 2023 – $106 billion).
For further details on our wholesale funding, refer to the Composition of wholesale funding tables below.
Long-term debt issuance
During 2024, we continued to experience favourable unsecured wholesale funding access and pricing. We issued, either directly
or through our subsidiaries, unsecured long-term funding of $38 billion in various currencies and markets.
management purposes. Our total secured long-term funding includes outstanding MBS sold, covered bonds that are
For further details, refer to the Off-balance sheet arrangements section.
(1)
Table 55
As at | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Unsecured long-term funding | $ | 150,682 | $ | 139,882 |
Secured long-term funding | 83,353 | 74,720 | ||
Subordinated debentures | 13,714 | 12,038 | ||
$ | 247,749 | $ | 226,640 | |
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
(1)
Based on original term to maturity greater than 1 year.
The following table summarizes our registered programs and their authorized limits by geography.
Programs by geography
Table 56
Canada
U.S.
Europe/Asia
•
Canadian Shelf Program – $25 billion
•
U.S. Shelf Program – US$75 billion
•
European Debt Issuance Program – US$75 billion
•
Global Covered Bond Program –
€
75 billion
•
Japanese Issuance Programs – ¥1 trillion
As presented in the following charts, our current long-term debt profile is well-diversified by both currency and product.
Euro
19%
Canadian dollar
26%
U.S. dollar
45%
Other
10%
Long-term debt
(1)
– funding mix by currency of issuance
Covered Bonds
24%
Unsecured
funding
61%
MBS/CMB (2)
7%
Cards
securitization
3%
Subordinated
debentures
5%
Long-term debt
(1)
– funding mix by product
(1)
Includes unsecured and secured long-term funding and subordinated
debentures with an original term to maturity greater than 1 year
(1)
Includes unsecured and secured long-term funding and subordinated
debentures with an original term to maturity greater than 1 year
(2)
Mortgage-backed securities and Canada Mortgage Bonds
96
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
The following table shows the composition of our wholesale funding based on remaining term to maturity:
Composition of wholesale funding
(1)
Table 57
As at October 31, 2024
(Millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 12
months
Less than
1 year
sub-total
1 year to
2 years
2 years and
greater
Total
Deposits from banks
(2)
$
7,248
$
118
$
120
$
1,025
$
8,511
$
–
$
–
$
8,511
Certificates of deposit and commercial paper
(3), (4)
8,377
10,413
16,882
37,702
73,374
139
–
73,513
Asset-backed commercial paper
(5)
4,140
3,951
7,167
2,286
17,544
–
–
17,544
Senior unsecured medium-term notes
(4), (6)
5,436
7,786
7,253
12,750
33,225
20,453
57,351
111,029
Senior unsecured structured notes
(7)
1,249
1,846
4,668
3,263
11,026
3,540
19,851
34,417
Mortgage securitization
41
509
1,296
946
2,792
2,143
11,949
16,884
Covered bonds/asset-backed securities
(8)
–
2,243
1,514
7,451
11,208
19,017
36,245
66,470
Subordinated liabilities
–
–
–
–
–
2,088
11,626
13,714
Other
(4), (9)
5,121
311
1,082
1,460
7,974
16,992
160
25,126
Total
$ 31,612
$ 27,177
$ 39,982
$ 66,883
$ 165,654
$ 64,372
$ 137,182
$ 367,208
Of which:
– Secured
$
9,252
$
6,788
$
9,977
$ 10,683
$
36,700
$ 21,160
$
48,194
$ 106,054
– Unsecured
22,360
20,389
30,005
56,200
128,954
43,212
88,988
261,154
As at October 31, 2023
(Millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 12
months
Less than
1 year
sub-total
1 year to 2
years
2 years and
greater
Total
Deposits from banks
(2)
$
4,606
$
460
$
319
$
355
$
5,740
$
–
$
–
$
5,740
Certificates of deposit and commercial paper
(3), (4)
11,558
8,231
12,575
28,202
60,566
69
–
60,635
Asset-backed commercial paper
(5)
4,533
3,829
6,354
2,155
16,871
–
–
16,871
Senior unsecured medium-term notes
(4), (6)
1,118
6,311
733
18,828
26,990
22,790
54,070
103,850
Senior unsecured structured notes
(7)
1,343
1,898
2,081
3,343
8,665
5,495
15,744
29,904
Mortgage securitization
–
530
375
1,484
2,389
2,225
9,607
14,221
Covered bonds/asset-backed securities
(8)
–
3,236
–
1,685
4,921
10,844
44,733
60,498
Subordinated liabilities
–
–
–
1,500
1,500
2,748
7,791
12,039
Other
(4), (9)
6,415
3,887
976
1,289
12,567
14,058
90
26,715
Total
$
29,573
$
28,382
$
23,413
$
58,841
$
140,209
$
58,229
$
132,035
$
330,473
Of which:
– Secured
$
10,861
$
10,124
$
7,483
$
5,324
$
33,792
$
13,069
$
54,340
$
101,201
– Unsecured
18,712
18,258
15,930
53,517
106,417
45,160
77,695
229,272
(1)
Excludes bankers’ acceptances and repos.
(2)
Excludes deposits associated with services we provide to banks (e.g., custody, cash management).
(3)
Includes bearer deposit notes (unsecured).
(4)
In the first quarter of 2024, we changed our presentation to include bearer deposit notes (unsecured) within Certificates of deposit and commercial paper and to include
floating rate notes (unsecured) within Senior unsecured medium-term notes to better align with how we view our composition of wholesale funding. These amounts were
previously included in Other. Prior period amounts have been revised from those previously presented to conform to the presentation adopted in the current period.
(5)
Only includes consolidated liabilities, including our collateralized commercial paper program.
(6)
Includes deposit notes and floating rate notes (unsecured).
(7)
Includes notes where the payout is tied to movements in foreign exchange, commodities and equities.
(8)
Includes covered bonds collateralized with residential mortgages and securities backed by credit card receivables.
(9)
Includes tender option bonds (secured) of $5,157 million (October 31, 2023 – $5,104 million), other long-term structured deposits (unsecured) of $19,777 million
(October 31, 2023 – $16,896 million), FHLB advances (secured) of $nil (October 31, 2023 – $4,507 million), and wholesale guaranteed interest certificates of $192 million
(October 31, 2023 – $208 million).
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
97
Credit ratings
Our ability to access unsecured funding markets and to engage in certain collateralized business activities on a cost-effective
basis are largely dependent on maintaining competitive credit ratings. Credit ratings and outlooks provided by rating agencies
reflect their views and methodologies. Ratings are subject to change, based on a number of factors including, but not limited to,
our financial strength, competitive position, liquidity and other factors not completely within our control.
The following table presents our major credit ratings:
Credit ratings
(1)
Table 58
As at December 3, 2024
Short-term debt
Legacy senior long-term debt
(2)
Senior long-term debt
(3)
Outlook
Moody’s
(4)
P-1
Aa1
A1
stable
Standard & Poor’s
(5)
A-1+
AA-
A
stable
Fitch Ratings
(6)
F1+
AA
AA-
stable
DBRS
(7)
R-1 (high)
AA (high)
AA
stable
(1)
Credit ratings are not recommendations to purchase, sell or hold a financial obligation in as much as they do not comment on market price or suitability
for a particular investor. Ratings are determined by the rating agencies based on criteria established from time to time by them, and are subject to
revision or withdrawal at any time by the rating organization.
(2)
Includes senior long-term debt issued prior to September 23, 2018 and senior long-term debt issued on or after September 23, 2018 which is excluded
from the Bail-in regime.
(3)
Includes senior long-term debt issued on or after September 23, 2018 which is subject to conversion under the Bail-in regime.
(4)
On October 8, 2024, Moody’s affirmed our ratings with stable outlook.
(5)
On June 25, 2024, Standard & Poor’s affirmed our ratings with a stable outlook.
(6)
On June 11, 2024, Fitch Ratings affirmed our ratings with a stable outlook.
(7)
On May 10, 2024, DBRS affirmed our ratings with a stable outlook.
Additional contractual obligations for rating downgrades
We are required to deliver collateral to certain counterparties in the event of a downgrade from our current credit rating. The
following table shows the additional collateral obligations required at the reporting date in the event of a one-, two- or three-
notch downgrade. These additional collateral obligations are incremental requirements for each successive downgrade and do
not represent the cumulative impact of multiple downgrades. The amounts reported change periodically due to several factors,
including the transfer of trading activity to centrally cleared financial market infrastructures and exchanges, the expiration of
transactions with downgrade triggers, the imposition of internal limitations on new agreements to exclude downgrade triggers,
as well as normal course mark-to-market. There is no outstanding senior debt issued in the market that contains rating triggers
that would lead to early prepayment of principal.
Additional contractual obligations for rating downgrades
Table 59
As at
October 31
2024
October 31
2023
(Millions of Canadian dollars)
One-notch
downgrade
Two-notch
downgrade
Three-notch
downgrade
One-notch
downgrade
Two-notch
downgrade
Three-notch
downgrade
Contractual derivatives funding or margin requirements
$
232
$
100
$
199
$
217
$
138
$
199
Other contractual funding or margin requirements
(1)
41
63
16
41
57
42
(1)
Includes GICs issued by our municipal markets business out of New York.
98
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Liquidity Coverage Ratio (LCR)
The LCR is a Basel III metric that measures the sufficiency of high-quality liquid assets (HQLA) available to meet liquidity needs
over a 30-day period in an acute stress scenario. The BCBS and OSFI regulatory minimum coverage level for LCR is 100%.
OSFI requires Canadian banks to disclose the LCR using the standard Basel disclosure template and calculated using the
average of daily LCR positions during the quarter.
Liquidity coverage ratio common disclosure template
(1)
Table 60
For the three months ended
October 31
2024
(Millions of Canadian dollars, except percentage amounts)
Total unweighted
value (average)
(2)
Total weighted
value (average)
High-quality liquid assets
Total high-quality liquid assets (HQLA)
$
399,835
Cash outflows
Retail deposits and deposits from small business customers, of which:
$
404,173
$
40,302
Stable deposits
(3)
129,256
3,878
Less stable deposits
274,917
36,424
Unsecured wholesale funding, of which:
446,275
202,996
Operational deposits (all counterparties) and deposits in networks of cooperative
banks
(4)
171,270
40,319
Non-operational deposits
256,251
143,923
Unsecured debt
18,754
18,754
Secured wholesale funding
40,340
Additional requirements, of which:
399,537
85,096
Outflows related to derivative exposures and other collateral requirements
70,102
20,616
Outflows related to loss of funding on debt products
11,723
11,723
Credit and liquidity facilities
317,712
52,757
Other contractual funding obligations
(5)
24,866
24,866
Other contingent funding obligations
(6)
810,866
14,496
Total cash outflows
$
408,096
Cash inflows
Secured lending (e.g., reverse repos)
$
298,783
$
53,693
Inflows from fully performing exposures
19,009
11,269
Other cash inflows
29,693
29,693
Total cash inflows
$
94,655
Total adjusted
value
Total HQLA
$
399,835
Total net cash outflows
313,441
Liquidity coverage ratio
128%
July 31
2024
(Millions of Canadian dollars, except percentage amounts)
Total adjusted
value
Total HQLA
$
389,190
Total net cash outflows
308,325
Liquidity coverage ratio
126%
(1)
The LCR is calculated in accordance with OSFI’s LAR guideline, which, in turn, reflects liquidity-related requirements issued by the BCBS. The LCR for the quarter ended
October 31, 2024 is calculated as an average of 63 daily positions.
(2)
With the exception of other contingent funding obligations, unweighted inflow and outflow amounts are items maturing or callable in 30 days or less. Other contingent
funding obligations also include debt securities with remaining maturity greater than 30 days.
(3)
As defined by the BCBS, stable deposits from retail and small business customers are deposits that are insured and are either held in transactional accounts or the bank
has an established relationship with the client making the withdrawal unlikely.
(4)
Operational deposits from customers other than retail and small and medium-sized enterprises, are deposits which clients need to keep with the bank in order to
facilitate their access and ability to use payment and settlement systems primarily for clearing, custody and cash management activities.
(5)
Other contractual funding obligations primarily include outflows from unsettled securities trades and outflows from obligations related to securities sold short.
(6)
Other contingent funding obligations include outflows related to other off-balance sheet facilities that carry low LCR runoff factors (0% – 5%).
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
99
We manage our LCR position within a target range that reflects our liquidity risk tolerance, business mix, asset composition and
funding capabilities. The range is subject to periodic review, considering changes to internal requirements and external
developments.
We maintain HQLA in major currencies with dependable market depth and breadth. Our treasury management practices are
designed to ensure that the levels of HQLA are actively managed to meet target LCR objectives. Our Level 1 assets, as calculated
according to OSFI LAR and the BCBS LCR requirements, represent 87% of total HQLA. These assets consist of cash, placements
with central banks and highly rated securities issued or guaranteed by governments, central banks and supranational entities.
LCR captures cash flows from on- and off-balance sheet activities that are either expected or could potentially occur within
30 days in an acute stress scenario. Cash outflows result from the application of withdrawal and non-renewal factors to demand
and term deposits, differentiated by client type (wholesale, retail and small- and medium-sized enterprises). Cash outflows also
arise from business activities that create contingent funding and collateral requirements, such as repo funding, derivatives, short
sales of securities and the extension of credit and liquidity commitments to clients. Cash inflows arise primarily from maturing
secured loans, interbank loans and non-HQLA securities.
LCR does not reflect any market funding capacity that we believe would be available in a stress situation. All maturing
wholesale debt is assigned 100% outflow in the LCR calculation.
Q4 2024 vs. Q3 2024
The average LCR for the quarter ended October 31, 2024 was 128%, which translates into a surplus of approximately $86 billion,
compared to 126% and a surplus of approximately $81 billion in the prior quarter. Average LCR moderately increased compared to
the prior quarter mainly due to an increase in retail and wholesale deposits, largely offset by a decline due to securities and
securities financing transactions.
Net Stable Funding Ratio (NSFR)
NSFR is a Basel III metric that measures the sufficiency of available stable funding relative to the amount of required stable
funding. The BCBS and OSFI regulatory minimum coverage level for NSFR is 100%.
Available stable funding is defined as the portion of capital and liabilities expected to be reliable over the one-year time
horizon considered by the NSFR. Required stable funding is a function of the liquidity characteristics and residual maturities of
various bank assets and off-balance sheet exposures.
OSFI requires Canadian D-SIBs to disclose the NSFR using the standard Basel disclosure template. Amounts presented in this
disclosure template are determined in accordance with the requirements of OSFI’s LAR guideline and are not necessarily aligned
with the classification requirements prescribed under IFRS.
100
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Net Stable Funding Ratio common disclosure template
(1)
Table 61
As at October 31, 2024
Unweighted value by residual maturity
(2)
Weighted value
(Millions of Canadian dollars, except percentage amounts)
No maturity
< 6 months
6 months to
< 1 year
≥
1 year
Available Stable Funding (ASF) Item
Capital:
$ 128,613
$
–
$
–
$
12,535
$
141,148
Regulatory Capital
128,613
–
–
12,535
141,148
Other Capital Instruments
–
–
–
–
–
Retail deposits and deposits from small business customers:
339,625
132,676
63,135
68,039
549,519
Stable deposits
(3)
99,281
54,888
32,284
29,534
206,665
Less stable deposits
240,344
77,788
30,851
38,505
342,854
Wholesale funding:
331,656
442,583
76,397
162,005
395,947
Operational deposits
(4)
180,797
–
–
–
90,399
Other wholesale funding
150,859
442,583
76,397
162,005
305,548
Liabilities with matching interdependent assets
(5)
–
2,701
1,535
22,638
–
Other liabilities:
51,315
242,015
16,606
NSFR derivative liabilities
26,474
All other liabilities and equity not included in the above
categories
51,315
198,205
1,460
15,876
16,606
Total ASF
$ 1,103,220
Required Stable Funding (RSF) Item
Total NSFR high-quality liquid assets (HQLA)
$
45,224
Deposits held at other financial institutions for operational
purposes
–
1,555
–
–
777
Performing loans and securities:
296,363
337,673
126,892
522,122
784,047
Performing loans to financial institutions secured by Level 1
HQLA
–
104,289
10,795
50
10,947
Performing loans to financial institutions secured by
non-Level 1 HQLA and unsecured performing loans to
financial institutions
12,573
123,014
31,267
18,510
61,307
Performing loans to non-financial corporate clients, loans to
retail and small business customers, and loans to
sovereigns, central banks and PSEs, of which:
193,510
60,080
32,355
167,384
352,660
With a risk weight of less than or equal to 35% under the
Basel II standardized approach for credit risk
–
597
496
5,310
3,998
Performing residential mortgages, of which:
39,992
46,526
51,112
312,269
293,801
With a risk weight of less than or equal to 35% under the
Basel II standardized approach for credit risk
39,992
46,487
51,081
311,134
292,802
Securities that are not in default and do not qualify as HQLA,
including exchange-traded equities
50,288
3,764
1,363
23,909
65,332
Assets with matching interdependent liabilities
(5)
–
2,701
1,535
22,638
–
Other assets:
6,018
336,495
102,008
Physical traded commodities, including gold
6,018
5,115
Assets posted as initial margin for derivative contracts and
contributions to default funds of CCPs
26,422
22,459
NSFR derivative assets
29,983
3,509
NSFR derivative liabilities before deduction of variation
margin posted
58,204
2,910
All other assets not included in the above categories
–
156,486
14
65,386
68,015
Off-balance sheet items
876,651
33,928
Total RSF
$
965,984
Net Stable Funding Ratio (%)
114%
As at July 31, 2024
(Millions of Canadian dollars, except percentage amounts)
Weighted
value
Total ASF
$ 1,077,002
Total RSF
941,437
Net Stable Funding Ratio (%)
114%
(1)
The NSFR is calculated in accordance with OSFI’s Liquidity Adequacy Requirements (LAR) guideline, which, in turn, reflects liquidity-related requirements issued by the
BCBS.
(2)
Totals for the following rows encompass the residual maturity categories of less than 6 months, 6 months to less than 1 year, and greater than or equal to 1 year in
accordance with the requirements of the common disclosure template prescribed by OSFI: Other liabilities, NSFR derivative liabilities, Other assets, Assets posted as
initial margin for derivative contracts and contributions to default funds of CCPs, NSFR derivative assets, NSFR derivative liabilities before deduction of variation margin
posted, and Off-balance sheet items.
(3)
As defined by the BCBS, stable deposits from retail and small business customers are deposits that are insured and are either held in transactional accounts or the bank
has an established relationship with the client making the withdrawal unlikely.
(4)
Operational deposits from customers other than retail and small and medium-sized enterprises, are deposits which clients need to keep with the bank in order to
facilitate their access and ability to use payment and settlement systems primarily for clearing, custody and cash management activities.
(5)
Interdependent assets and liabilities represent National Housing Act Mortgage-Backed Securities (NHA MBS) liabilities, including liabilities arising from transactions
involving the Canada Mortgage Bond program and their corresponding encumbered mortgages.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
101
Available stable funding is comprised primarily of a diversified pool of personal and commercial deposits, capital, and long-term
wholesale liabilities. Required stable funding is driven mainly by the bank’s mortgage and loan portfolio, secured loans to
financial institutions and to a lesser extent by other less liquid assets. NSFR does not reflect any unused market funding capacity
that we believe would be available.
Volume and composition of available stable funding is actively managed to optimize our structural funding position and
meet NSFR objectives. Our NSFR is managed in accordance with our comprehensive LRMF.
Q4 2024 vs. Q3 2024
The NSFR as at October 31, 2024 was 114%, which translates into a surplus of approximately $137 billion, compared to 114% and a
surplus of approximately $136 billion in the prior quarter. NSFR remained relatively stable from the previous quarter as the
increase in deposits and stable funding was offset by higher funding requirements for securities, securities financing
transactions and loans.
Contractual maturities of financial assets, financial liabilities and off-balance sheet items
The following tables provide remaining contractual maturity profiles of all our assets, liabilities, and off-balance sheet items at
their carrying value (e.g., amortized cost or fair value) and maturity profiles of assets and liabilities of insurance contracts and
reinsurance contracts held at their carrying value based on the estimated timing of when the settlement of the amounts are
expected to occur at the balance sheet date. Off-balance sheet items are allocated based on the expiry date of the contract.
Details of contractual maturities and commitments to extend funds are a source of information for the management of
liquidity risk. Among other purposes, these details form a basis for modelling a behavioural balance sheet with effective
maturities to calculate liquidity risk measures. For further details, refer to the Risk measurement and internal liquidity reporting
section.
Contractual maturities of financial assets, financial liabilities and off-balance sheet items
Table 62
As at October 31, 2024
(Millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 year
to 2 years
2 years
to 5 years
5 years
and greater
With no
specific
maturity
Total
Assets
Cash and deposits with banks
$ 120,584
$
6
$
–
$
–
$
–
$
–
$
–
$
–
$
2,153
$
122,743
Securities
Trading
(1)
80,203
148
380
22
34
229
707
11,903
89,674
183,300
Investment, net of applicable allowance
5,974
7,588
6,782
12,445
9,746
51,674
67,730
93,451
1,228
256,618
Assets purchased under reverse repurchase
agreements and securities borrowed
(2)
170,052
65,837
57,921
15,720
20,727
181
–
–
20,365
350,803
Loans, net of applicable allowance
40,647
32,131
45,916
52,365
50,309
287,726
288,217
79,694
104,375
981,380
Other
Customers’ liability under acceptances
22
2
–
–
–
–
11
–
–
35
Derivatives
13,657
19,365
9,293
6,548
5,797
17,376
31,389
47,187
–
150,612
Other financial assets
42,579
4,573
2,168
423
671
175
732
1,829
4,229
57,379
Total financial assets
473,718
129,650
122,460
87,523
87,284
357,361
388,786
234,064
222,024
2,102,870
Other non-financial assets
11,393
2,158
1,450
259
233
1,941
3,122
9,501
38,655
68,712
Total assets
$ 485,111
$ 131,808
$ 123,910
$
87,782
$
87,517
$ 359,302
$ 391,908
$ 243,565
$ 260,679
$ 2,171,582
Liabilities and equity
Deposits
(3)
Unsecured borrowing
$ 122,083
$
72,933
$
83,574
$
84,252
$
77,207
$
55,196
$
85,458
$
44,264
$ 668,975
$ 1,293,942
Secured borrowing
4,437
6,000
9,513
3,939
1,956
7,447
14,969
9,050
–
57,311
Covered bonds
–
2,245
1,498
4,019
2,230
17,134
27,207
3,945
–
58,278
Other
Acceptances
22
2
–
–
–
–
11
–
–
35
Obligations related to securities sold short
35,286
–
–
–
–
–
–
–
–
35,286
Obligations related to assets sold under
repurchase agreements and securities
loaned
(2)
221,377
38,828
14,726
7,586
2
466
–
–
22,336
305,321
Derivatives
13,153
23,372
12,176
11,160
8,025
18,305
32,865
44,707
–
163,763
Other financial liabilities
40,922
3,332
2,917
2,060
2,024
1,073
2,393
16,788
1,293
72,802
Subordinated debentures
–
–
–
–
–
2,025
–
11,521
–
13,546
Total financial liabilities
437,280
146,712
124,404
113,016
91,444
101,646
162,903
130,275
692,604
2,000,284
Other non-financial liabilities
1,501
5,769
452
231
198
1,664
1,821
21,425
11,045
44,106
Equity
–
–
–
–
–
–
–
–
127,192
127,192
Total liabilities and equity
$ 438,781
$ 152,481
$ 124,856
$ 113,247
$
91,642
$ 103,310
$ 164,724
$ 151,700
$ 830,841
$ 2,171,582
Off-balance sheet items
Financial guarantees
$
917
$
2,929
$
4,485
$
3,818
$
4,368
$
1,563
$
7,140
$
1,977
$
25
$
27,222
Commitments to extend credit
7,317
9,060
15,891
17,305
20,109
63,200
217,555
25,580
2,950
378,967
Other credit-related commitments
51,645
1,600
2,360
2,927
2,534
460
1,299
113
81,379
144,317
Other commitments
7
12
19
20
19
70
179
260
926
1,512
Total off-balance sheet items
$
59,886
$
13,601
$
22,755
$
24,070
$
27,030
$
65,293
$ 226,173
$
27,930
$
85,280
$
552,018
(1)
With the exception of debt securities within the Insurance segment, trading debt securities classified as FVTPL have been included in the less than 1 month category as
there is no expectation to hold these assets to their contractual maturity.
(2)
Open reverse repo and repo contracts, which have no set maturity date and are typically short-term, have been included in the with no specific maturity category.
(3)
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a core
base for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.
102
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
As at October 31, 2023 (1)
(Millions of Canadian dollars)
Less than
1 month
1 to 3
months
3 to 6
months
6 to 9
months
9 to 12
months
1 year
to 2 years
2 years
to 5 years
5 years
and greater
With no
specific
maturity
Total
Assets
Cash and deposits with banks
$ 130,121
$
8
$
–
$
–
$
–
$
–
$
–
$
–
$
2,946
$
133,075
Securities
Trading
(2)
117,373
56
103
26
46
99
127
8,997
63,324
190,151
Investment, net of applicable allowance
5,090
6,436
3,890
5,547
8,678
41,734
66,047
81,337
820
219,579
Assets purchased under reverse repurchase
agreements and securities borrowed
(3)
146,722
71,346
60,468
20,475
16,889
3,754
–
–
20,537
340,191
Loans, net of applicable allowance
30,889
23,026
31,442
37,978
41,285
201,479
320,082
77,460
89,132
852,773
Other
Customers’ liability under acceptances
16,493
5,247
–
–
–
–
5
–
(50)
21,695
Derivatives
10,074
13,655
9,292
6,955
6,173
18,905
33,260
44,136
–
142,450
Other financial assets
41,115
2,803
3,205
212
588
191
279
2,513
3,170
54,076
Total financial assets
497,877
122,577
108,400
71,193
73,659
266,162
419,800
214,443
179,879
1,953,990
Other non-financial assets
5,651
666
1,765
190
2,550
1,976
2,422
8,615
28,706
52,541
Total assets
$ 503,528
$ 123,243
$ 110,165
$
71,383
$
76,209
$ 268,138
$
422,222
$
223,058
$
208,585
$
2,006,531
Liabilities and equity
Deposits
(4)
Unsecured borrowing
$ 109,666
$
59,128
$
62,531
$
76,957
$
66,846
$
59,845
$
77,782
$
27,314
$
588,165
$
1,128,234
Secured borrowing
4,992
6,044
7,337
4,100
1,489
6,965
13,616
8,706
–
53,249
Covered bonds
–
2,543
–
–
1,687
9,422
31,847
4,705
–
50,204
Other
Acceptances
16,493
5,247
–
–
–
–
5
–
–
21,745
Obligations related to securities sold short
33,651
–
–
–
–
–
–
–
–
33,651
Obligations related to assets sold under
repurchase agreements and securities
loaned
(3)
254,955
37,121
19,509
(6)
(1)
279
–
–
23,381
335,238
Derivatives
9,716
16,359
9,311
6,346
5,974
19,290
32,400
43,233
–
142,629
Other financial liabilities
43,397
5,295
3,028
1,382
1,673
959
2,253
14,402
3,945
76,334
Subordinated debentures
–
–
–
–
–
–
1,937
9,449
–
11,386
Total financial liabilities
472,870
131,737
101,716
88,779
77,668
96,760
159,840
107,809
615,491
1,852,670
Other non-financial liabilities
1,856
6,422
221
216
150
1,048
2,009
17,228
9,564
38,714
Equity
–
–
–
–
–
–
–
–
115,147
115,147
Total liabilities and equity
$ 474,726
$ 138,159
$ 101,937
$
88,995
$
77,818
$
97,808
$
161,849
$
125,037
$
740,202
$
2,006,531
Off-balance sheet items
Financial guarantees
$
544
$
2,013
$
3,528
$
3,691
$
4,716
$
784
$
7,314
$
701
$
23
$
23,314
Commitments to extend credit
7,086
8,338
14,774
14,447
18,361
58,978
205,504
23,181
5,524
356,193
Other credit-related commitments
14,799
1,173
1,563
1,858
1,659
169
435
49
95,099
116,804
Other commitments
91
10
15
15
15
55
128
178
985
1,492
Total off-balance sheet items
$
22,520
$
11,534
$
19,880
$
20,011
$
24,751
$
59,986
$
213,381
$
24,109
$
101,631
$
497,803
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
With the exception of debt securities within the Insurance segment, trading debt securities classified as FVTPL have been included in the less than 1 month category as
there is no expectation to hold these assets to their contractual maturity.
(3)
Open reverse repo and repo contracts, which have no set maturity date and are typically short-term, have been included in the with no specific maturity category.
(4)
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a core
base for our operations and liquidity needs, as explained in the preceding Deposit and funding profile section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
103
The following tables provide remaining contractual maturity analysis of our financial liabilities and off-balance sheet items.
Disclosed amounts are the contractual undiscounted cash flows of all financial liabilities (e.g., par value or amount payable
upon maturity). The amounts do not reconcile directly with those in our consolidated balance sheets as the table incorporates
only cash flows relating to payments on maturity and do not recognize premiums, discounts or mark-to-market adjustments
recognized in the instruments’ carrying values as at the balance sheet date. Financial liabilities are based upon the earliest
period in which they are required to be paid. For off-balance sheet items, the undiscounted cash flows potentially payable
under financial guarantees and commitments to extend credit are classified based on the earliest date they can be called.
Contractual maturities of financial liabilities and off-balance sheet items – undiscounted basis*
Table 63
| As at October 31, 2024 | ||||||||||||
On | Within | 1 year | 2 years | 5 years | ||||||||
(Millions of Canadian dollars) | demand | 1 year | to 2 years | to 5 years | and greater | Total | ||||||
Financial liabilities | ||||||||||||
Deposits (1) | $ 585,524 | $ | 560,583 | $ | 79,909 | $ 127,421 | $ | 58,193 | $ 1,411,630 | |||
Other | ||||||||||||
Acceptances | – | 24 | – | 11 | – | 35 | ||||||
Obligations related to securities sold short | – | 35,326 | – | – | – | 35,326 | ||||||
Obligations related to assets sold under | ||||||||||||
repurchase agreements and securities loaned | 22,336 | 282,478 | 466 | – | – | 305,280 | ||||||
Other liabilities | 563 | 51,192 | 382 | 731 | 15,011 | 67,879 | ||||||
Lease liabilities | – | 709 | 631 | 1,566 | 1,767 | 4,673 | ||||||
Subordinated debentures | – | – | 2,026 | – | 11,530 | 13,556 | ||||||
608,423 | 930,312 | 83,414 | 129,729 | 86,501 | 1,838,379 | |||||||
Off-balance sheet items | ||||||||||||
Financial guarantees (2) | $ | 25,553 | $ | 1,485 | $ | 10 | $ | 174 | $ | – | $ | 27,222 |
Other commitments (3) | – | 77 | 70 | 179 | 260 | 586 | ||||||
Commitments to extend credit (2) | 3,081 | 121,652 | 54,443 | 190,073 | 9,718 | 378,967 | ||||||
28,634 | 123,214 | 54,523 | 190,426 | 9,978 | 406,775 | |||||||
Total financial liabilities and off-balance sheet | ||||||||||||
items | $ 637,057 | $ 1,053,526 | $ 137,937 | $ 320,155 | $ | 96,479 | $ 2,245,154 | |||||
As at October 31, 2023 | ||||||||||||
On | Within | 1 year | 2 years | 5 years | ||||||||
(Millions of Canadian dollars) | demand | 1 year | to 2 years | to 5 years | and greater | Total | ||||||
Financial liabilities | ||||||||||||
Deposits (1) | $ | 510,868 | $ | 482,738 | $ | 74,465 | $ | 124,906 | $ | 42,920 | $ | 1,235,897 |
Other | ||||||||||||
Acceptances | – | 21,740 | – | 5 | – | 21,745 | ||||||
Obligations related to securities sold short | – | 33,741 | – | – | – | 33,741 | ||||||
Obligations related to assets sold under | ||||||||||||
repurchase agreements and securities loaned | 23,381 | 311,154 | 279 | – | – | 334,814 | ||||||
Other liabilities | 608 | 54,844 | 284 | 657 | 12,463 | 68,856 | ||||||
Lease liabilities | – | 653 | 621 | 1,519 | 1,971 | 4,764 | ||||||
Subordinated debentures | – | – | – | 1,939 | 9,457 | 11,396 | ||||||
534,857 | 904,870 | 75,649 | 129,026 | 66,811 | 1,711,213 | |||||||
Off-balance sheet items | ||||||||||||
Financial guarantees (2) | $ | 23,308 | $ | 2 | $ | 4 | $ | – | $ | – | $ | 23,314 |
Other commitments (3) | – | 61 | 55 | 128 | 178 | 422 | ||||||
Commitments to extend credit (2) | 5,617 | 114,495 | 48,848 | 178,048 | 9,185 | 356,193 | ||||||
28,925 | 114,558 | 48,907 | 178,176 | 9,363 | 379,929 | |||||||
Total financial liabilities and off-balance sheet | ||||||||||||
items | $ | 563,782 | $ | 1,019,428 | $ | 124,556 | $ | 307,202 | $ | 76,174 | $ | 2,091,142 |
*
This table represents an integral part of our 2024 Annual Consolidated Financial Statements.
(1)
A major portion of relationship-based deposits are repayable on demand or at short notice on a contractual basis while, in practice, these customer balances form a core
base for our operations and liquidity needs, as explained in the preceding Deposit and funding profile.
(2)
We believe that it is highly unlikely that all or substantially all of these guarantees and commitments will be drawn or settled within one year, and contracts may expire
without being drawn or settled. The management of the liquidity risk associated with potential extensions of funds is outlined in the preceding Risk measurement and
internal liquidity reporting section.
(3)
Includes commitments related to short-term and low-dollar value leases, leases not yet commenced, and lease payments related to non-recoverable tax.
104
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Insurance risk
Insurance risk refers to the potential financial loss that may arise where the amount, timing and/or frequency of benefit and/or
premium payments under insurance and reinsurance contracts are different than expected. Insurance risk is distinct from those
risks covered by other parts of our risk management framework (e.g., credit, market and operational risk) where those risks are
ancillary to, or accompany, the risk transfer. Our main insurance sub-risks are: morbidity, mortality, longevity, policyholder
behaviour (lapse) and travel risk. In addition, we are subject to expense risk, which is the exposure to the variability in future
expenses that are expected to be incurred in servicing insurance contracts.
Our Insurance Risk Management Framework provides an overview of our processes and tools for identifying, assessing,
managing, mitigating and reporting on the insurance risks that face the organization. These are also supported by our robust
three lines of defence governance structure, which is consistent with our Enterprise Risk Management Framework.
Operational risk
Operational risk is the risk of loss or harm resulting from people, inadequate or failed internal processes, controls and systems
or from external events. Operational risk is inherent in all of our activities and third-party activities and failure to manage
operational risk can result in direct or indirect financial loss, reputational impact or regulatory scrutiny and proceedings in the
various jurisdictions where we operate.
Our management of operational risk follows the three lines of defence governance model, encompassing the organizational roles
and responsibilities for a coordinated enterprise-wide approach. For further details on the structure and organization of our
operational risk management and control function, refer to the Risk management – Enterprise risk management section.
Operational risk framework
We have an Enterprise Operational Risk Framework which sets out the processes to identify, assess, monitor, measure, report
and communicate on operational risk. The processes are established through the following:
•
Risk identification and assessment tools, including the collection and analysis of risk event data, help risk owners
understand and proactively manage operational risk exposures. Risk assessments are intended to ensure alignment
between risk exposures and efforts to manage them. Management uses outputs of these tools to make informed risk
decisions.
•
Risk monitoring tools alert management to changes in the operational risk profile. When paired with escalation and
monitoring triggers, risk monitoring tools can identify risk trends, warn management of risk levels that approach or exceed
defined limits, as well as prompt actions and mitigation plans to be undertaken.
•
Risk capital measurement is designed to provide credible estimation of potential risk exposure, including surfacing risk
vulnerabilities, and informs strategic and capital planning decisions, which are ultimately intended to ensure that the bank is
sufficiently resilient to withstand operational risk losses both in normal times and under stress situations.
•
Risk reporting and communication processes seek to ensure that relevant operational risk information is made available to
management in a timely manner to support risk-informed business decisions.
Conclusions from our operational risk programs enable learning based on what has occurred, insights into whether it could
happen elsewhere in the organization, and what controls we need to amend or implement. These conclusions support the
articulation of our operational risk appetite and are used to inform the overall level of operational risk exposure which thereby
defines our operational risk profile. This profile includes significant operational risk exposures, potential new and emerging
exposures and trends, and overall conclusions on the control environment and risk outlook.
We consider the potential risks and rewards of our decisions to strike a balance between accepting potential losses versus
incurring costs of mitigation, the expression of which is in the form of our operational risk appetite. Our operational risk appetite
is established at the Board level and cascaded throughout each of our business segments. We proactively identify and
investigate corporate insurance opportunities to mitigate and reduce potential future impacts of operational risk.
Management reports have been implemented at various levels to support proactive management of operational risk and
transparency of risk exposures. These reports are provided to senior management on a regular basis and provide detail on the
main drivers of the risk status and trend for each of our business segments and the bank overall. In addition, changes to the
operational risk profile that are not aligned to our business strategy or operational risk appetite are identified and discussed at
the Operational Risk Committee (comprised of executives across the business and risk management) and presented to GRC and
the Risk Committee of the Board.
Our operations expose us to many different operational risks, which may adversely affect our businesses and financial
results. The following list is not exhaustive, as other factors could also adversely affect our results.
Operational risk
Management strategy
Information technology
and cybersecurity risk
Information technology risk is the risk associated with the use, ownership, operation and adoption
of information systems that can result in business interruptions, client service disruptions and loss
of confidential information causing financial loss, reputational damage, and regulatory fines and
penalties. We maintain a risk driven program to address the risks following our operational risk
framework supported by a global team of technology risk management experts.
Cybersecurity risk is the risk to the business associated with cyberattacks initiated to disrupt or
disable our operations or to expose or damage data. We have a dedicated team of technology and
cybersecurity professionals that manage a comprehensive program to help protect the
organization against breaches and other incidents by ensuring appropriate security and
operational controls are in place. We continue to strengthen our cyber-control framework and to
improve our resilience and cybersecurity capabilities including 24-hour monitoring, cyber
intelligence analysis of internal and external threats, and alerting of potentially suspicious
security events and incidents. Throughout the year, we continued to invest in our cybersecurity
program. In addition, scenario-based testing, assessments and simulations were conducted to test
our resiliency strategy.
Information management
and privacy risk
Information management risk is the risk of failing to manage information appropriately through its
lifecycle due to inadequate processes, controls and technology resulting in legal and regulatory
consequences, reputational damage and/or financial loss. We have made investments in the
Enterprise Chief Data Office (CDO) and functional and regional data management and data
governance units to promote awareness of and effectively manage information management risk.
Managing information management risk is fundamental to become a data-driven organization that
uses data effectively and efficiently to improve client experience and decision-making.
Privacy risk is defined as the risk of improper creation or collection, use, disclosure, retention or
destruction of PI, including the failure to safeguard PI against unauthorized access. PI is
information entrusted to RBC that identifies an individual or can be reasonably used to identity an
individual. PI can relate to current, former and prospective clients, employees and contractors.
The collection, use and sharing of data, as well as the management and governance of data, are
increasingly important as we continue to invest in digital solutions and innovation, as well as
expanding our business activities, which is also reflected through regulatory developments
relating to data privacy. GRM partners with cross-functional teams to develop and implement
enterprise-wide standards and practices that describe how data is obtained, used, protected,
managed and governed.
Money laundering and
terrorist financing risk
Money laundering and terrorist financing risk is the risk that our products, services and delivery
channels are misused to facilitate the laundering of proceeds of crime, financing of terrorist
activity, bribery, corruption and other activities that may violate applicable economic sanctions
(collectively know as “Financial Crimes”). We maintain an enterprise-wide program designed to
deter, detect and report suspected money laundering and terrorist financing or suspicious
activities across our organization, while seeking to ensure compliance with the laws and
regulations of the various jurisdictions in which we operate. Our Enterprise Financial Crimes
program is dedicated to the continuous development and maintenance of robust policies,
guidelines, training, risk-assessment tools and models to enable our employees to manage
evolving money laundering and terrorist financing risks, economic sanctions and regulatory
expectations. The Enterprise Financial Crimes program is regularly evaluated in an effort to ensure
it remains current and aligned with industry standards, best practices and all applicable laws,
regulations and guidance. Risks of non-compliance can include enforcement actions (which may
involve substantial fines or limitations on our business activities), criminal prosecutions and
reputational damage.
Third-party risk
Third-party risk is the risk of failure to effectively manage third parties which may expose us to
service disruptions, regulatory action, financial loss, litigation or reputational damage. We have a
risk-based, enterprise-wide program designed to provide oversight for third-party relationships,
ensure compliance with global regulatory expectations, and enable effective responses to events
that can cause service disruptions, financial loss or various other risks that could impact us. Our
approach to third-party risk mitigation is outlined in policies and standards that establish the
requirements for identifying and managing risks throughout the engagement with a third-party
(including risks resultant from supplier concentration and through fourth parties across the supply
chain). Third-party providers critical to our operations are actively monitored for their ability to
deliver services to us, including impacts resultant from suppliers of our third-party providers
(i.e. fourth parties).
Business continuity risk
Business continuity risk is the risk of being unable to maintain, continue or restore essential
business operations during and/or after an event that prevents us from conducting business in the
normal course. Exposure to disruptive operational events interrupts the continuity of our business
operations and could negatively impact our financial results, reputation, client outcomes and/or
result in harm to our employees. These operational events could result from the impact of severe
weather, outbreak of a pandemic or other health crisis, failed processes, technology failures or
cyber threats. Our risk-based enterprise-wide business continuity management program considers
multiple scenarios to address the consequences of a disruption and its effects on the availability
of our people, processes, facilities, technology and third-party arrangements. Our approach to,
and requirements for, business continuity management are outlined in policies and standards
embedded across the organization and the related risks are regularly measured, monitored,
reported and integrated into our operational risk management and control framework.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
105
Operational risk capital
Requirements for operational risk capital are determined in accordance with OSFI’s CAR guidelines using the Basel III
Standardized Approach (SA) for operational risk. The SA methodology is a formula-based calculation where a Business Indicator
Component (BIC) is multiplied by an Internal Loss Multiplier (ILM) to determine operational risk capital. The BIC is a financial
statement-based proxy for operational risk that reflects a three-year average of specified components of net income multiplied
by a set of supervisory provided coefficients. The ILM is a scaling factor that is based on our 10-year historical operational loss
average relative to the BIC. Operational risk losses are recorded in our operational risk management system, and robust
processes exist to support high quality internal loss data. For further details on operational risk capital, refer to the Capital
management section.
Operational risk loss events
As at October 31, 2024, our operational risk losses remain within our risk appetite. For further details on our contingencies,
including litigation, refer to Notes 23 and 24 of our 2024 Annual Consolidated Financial Statements.
Culture and conduct risk
Our values set the foundation of our organizational culture and translate into desired behaviours as articulated in our Code of
Conduct and leadership model. We define conduct as the manifestation of culture through the behaviours, judgment, decisions,
actions and inactions of the organization and its employees. Our organizational direction establishes the expectation of good
conduct outcomes as the operating norm for the organization, all employees and third-party service providers operating on our
behalf to drive fair outcomes for our stakeholders, including our clients, our employees, the financial markets we operate in and
our reputation. We hold ourselves to the highest standards of conduct to build the trust of our clients, colleagues and
communities. The desired outcomes from effective culture and conduct practices align with our purpose and values and support
our risk appetite statements.
Risk culture is a subset of our overall culture that influences how, individually and collectively, we take and manage risks.
Our risk culture helps us identify and understand risks, openly discuss risks and act on the organization’s current and perceived
future risks. Our risk culture practices are grounded in our risk management and human resource practices and protocols. When
combined with the elements of effective leadership and values, these practices provide a base from which the resulting risk
culture and conduct outcomes can be assessed and monitored, and practices can be sustained and/or further enhanced.
Our Board-approved Enterprise Culture and Conduct Risks Framework provides organizational direction and describes our
approach to a set of related topics applicable to all risk categories such as fair outcomes for clients and other stakeholders, and
our culture, including accountability and risk culture, conduct risk, sales conduct, client practices and misconduct.
On a regular basis, management communicates behavioural expectations to our employees with an emphasis on conduct
and values. Our leadership model also supports and encourages effective challenge between the businesses and control
functions. These behavioural expectations are supported by tools and resources which are designed to help employees live our
values, report misconduct and raise concerns, including those that might have ethical implications. We are committed to
fostering an environment where employees feel safe to speak up without retaliation. Employees have the ability to report
matters through a global anonymous Conduct Hotline. In addition, our Code of Conduct outlines an employee’s responsibility to
be truthful, respect others and comply with laws, regulations and our policies. Anyone who breaches or fails to report an actual
or possible breach of the Code of Conduct is subject to corrective or disciplinary action. This can range from reprimands and
impacts on performance ratings and compensation, to termination of employment relationships with the organization. As well,
Internal Audit conducts select behavioural science reviews to better understand and enhance employee attitudes and
behaviours as they relate to risk management.
Organizational Direction
articulated through:
Values
Leadership Model
Code of Conduct
Risk Appetite
Risk Principles
Outcomes for
Stakeholders
Clients
Employees
Financial Markets
Regulators
Our Reputation
Shareholders
Individual &
Collective Conduct
exhibited through:
Behaviours
Judgment
Decisions
Actions
Drives
Apply lessons learned
Sets expected
Influences
Shapes
Culture Factors
Influential to Managing
Conduct Risk
Risk Awareness
Tone from Above
Accountability
Speaking Up
Incentives
106
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Compliance risk
Compliance risk is the risk of potential non-conformance with laws, rules, regulations and prescribed practices in any jurisdiction
in which we operate. Issues regarding compliance with laws and regulations can arise in a number of areas in large complex
financial institutions, such as ourselves, and are often the result of inadequate or failed internal processes, controls, people or
systems. We currently are, and may be at any given time, subject to a number of legal and regulatory proceedings and subject to
numerous governmental and regulatory examinations, investigations and other inquiries.
Laws and regulations are in place to protect the financial and other interests of our clients, shareholders and the public. As a
large-scale global financial institution, we are subject to numerous laws and extensive and evolving regulation by governmental
agencies, supervisory authorities and self-regulatory organizations in Canada, the U.S., the U.K., Europe and other jurisdictions in
which we operate. Such regulation continues to become increasingly extensive and complex. In addition, regulatory scrutiny and
expectations in Canada, the U.S., the U.K., Europe and other jurisdictions for large financial institutions with respect to, among
other things, governance, risk management practices and controls, and conduct, as well as the enforcement of regulatory
compliance matters, has intensified. Failure to comply with these regulatory requirements and expectations or to resolve any
identified deficiencies could result in increased regulatory oversight and restrictions. Resolution of such matters can also result
in the payment of substantial penalties, agreements with respect to future operation of our business, actions with respect to
relevant personnel, admission of wrongdoing, and guilty pleas with respect to criminal charges, which in turn prohibit us from
conducting certain types of business absent regulatory relief, receipt of which cannot be assured.
Operating in this increasingly complex regulatory environment and intense regulatory enforcement environment, we are and
have been subject to a variety of legal proceedings, including civil claims and lawsuits, criminal charges, regulatory scrutiny,
examinations and proceedings, investigations, audits and requests for information by various governmental regulatory agencies
and law enforcement authorities in various jurisdictions, and we anticipate that our ongoing business activities will give rise to
such matters in the future. The global scope of our operations also means that a single issue may give rise to overlapping
regulatory investigations, regulatory proceedings and or civil litigation claims in different jurisdictions. RBC can be subject to
such proceedings due to alleged violations of law or, if determined by regulators, allegedly inadequate policies, procedures,
controls or remediation of deficiencies. Changes to laws, including tax laws, regulations or regulatory policies, as well as the
changes in how they are interpreted, implemented or enforced, could adversely affect us, for example, by lowering barriers to
entry in the businesses in which we operate, increasing our costs of compliance, or limiting our activities and ability to execute
our strategic plans. In addition, the severity of the remedies sought in legal and regulatory proceedings to which RBC is subject
have increased. Further, there is no assurance that we always will be, or be deemed to be, in compliance with laws, regulations or
regulatory policies or expectations. Accordingly, it is possible that we could receive a judicial or regulatory enforcement
judgment or decision that results in significant fines, damages, penalties, and other costs or injunctions, criminal convictions, or
loss of licenses or registrations that would damage our reputation, and negatively impact our earnings and ability to conduct
some of our businesses. We are also subject to litigation arising in the ordinary course of our business and the adverse
resolution of any litigation could have a significant adverse effect on our results or could give rise to significant reputational
damage, which in turn could impact our future business prospects.
Our Regulatory Compliance Management Framework outlines how we manage and mitigate the regulatory compliance risks
associated with failing to comply with, or adapt to, current and changing laws and regulations in the jurisdictions in which we
operate.
Regulatory compliance risk includes the regulatory risks associated with financial crimes (which include, but are not limited
to, money laundering, terrorist financing, bribery, corruption, and violations of economic sanctions), privacy, market conduct,
consumer protection and business conduct, as well as prudential and other generally applicable non-financial requirements.
Specific compliance policies, procedures and supporting frameworks have been developed to seek to manage regulatory
compliance risk.
Strategic risk
Strategic risk is the risk to earnings, capital or liquidity arising from adverse or suboptimal strategic business decisions, improper
implementation or execution of strategic initiatives, or inadequate responses to changes in the external operating environment
by the bank or a particular business unit. To help protect us from unacceptable losses or undesirable outcomes, risk appetite is
integrated into our strategic, financial and capital planning processes. Risk appetite enables discussions as part of strategic
decision making and is a key consideration for RBC’s planning cycle.
Responsibility for selecting and successfully implementing business strategies is mandated to the individual heads of each
business segment. Oversight of strategic risk is the responsibility of the heads of the business segments and their operating
committees, the Enterprise Strategy & Transformation group, the GE and the Board. The Enterprise Strategy & Transformation
group supports the management of strategic risk through the strategic planning process, articulated within our Enterprise
Strategic Planning Policy, ensuring alignment across our business, financial, capital and risk planning.
Our annual business portfolio review and project approval request processes help to identify and mitigate strategic risk by
seeking to ensure that strategies for new initiatives, lines of business, and the enterprise as a whole align with our risk appetite
and risk posture. GRM provides oversight of strategic risk by providing independent reviews of these processes, establishing
enterprise risk frameworks, and independently monitoring and reporting on the level of risk established against our risk appetite
metrics in accordance with the three lines of defence governance model.
For details on the key strategic priorities for our business segments, refer to the Business segment results section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
107
Reputation risk
Reputation risk is the risk of an adverse impact on stakeholders’ perception of RBC due to i) perceived or actual misalignment
between stakeholder perceptions of RBC and the actions or inactions of the bank, its employees or individuals or groups
affiliated with RBC (e.g. stakeholder perceptions of our role as a good corporate citizen), ii) negative or shifting public sentiment
on existing, evolving or emerging industry or global issues, or iii) negative outcomes relating to any risk inherent to the financial
services industry, including ineffective management of these risks, or situations beyond our control such as external events or
systemic risks. A strong and trustworthy reputation will generally strengthen our market position, reduce the cost of capital,
increase shareholder value, attract and retain top talent and help us weather a crisis. Conversely, damage to our reputation can
result in reduced share price and market capitalization, loss of strategic flexibility, inability to enter or expand into markets, loss
of client loyalty and business, or regulatory fines and penalties. The sources of reputation risk are widespread. Reputation risk is
a transverse risk which can manifest as an outcome of other risk types including but not limited to credit, regulatory, legal,
operational, and environmental and social risks. We can also experience reputation risk from a failure to maintain an effective
control environment, exhibit good conduct and maintain appropriate cultural practices.
Managing our reputation risk is an integral part of our organizational culture and our overall enterprise risk management
approach, as well as a priority for employees and our Board. Our Board-approved Enterprise Reputation Risk Management
Framework provides an overview of our approach to identify, assess, manage, monitor and report on reputation risk. This
framework outlines governance authorities, roles and responsibilities, and controls and mechanisms to manage our reputation
risk, including our culture of integrity, compliance with our Code of Conduct and operating within our risk appetite.
Our governance of reputation risk aims to be holistic and provides an integrated view of potential reputation issues across
the organization. This governance structure is designed to ensure that ownership and accountability for reputation risk are
understood across the enterprise, both proactive and reactive reputation risk decisions are escalated to senior management for
review and evaluation, and reporting on reputation risk is comprehensive and integrated.
Overview of other risks
In addition to the risks described in the risk sections, there are other risk factors, described below, which may affect our
businesses and financial results. The following discussion is not exhaustive as other factors could also adversely affect our results.
Legal and regulatory environment risk
Legal and regulatory environment risk is the risk that new or modified laws and regulations, and the interpretation or application
of laws and regulations, will negatively impact the way in which we operate, both in Canada and in the other jurisdictions in
which we conduct business. The full impact of some of these changes on our business will not be known until final rules are
implemented and market practices have developed in response. We continue to respond to these and other developments and
are working to minimize any potential adverse business or economic impact. The following provides a high-level summary of
some of the key regulatory changes that have potential to increase or decrease our costs, impact our profitability and increase
the complexity of our operations.
Global uncertainty
In October 2024, the International Monetary Fund (IMF) projected global growth of 3.2% for calendar 2024, unchanged from its
July forecast. The IMF projected global growth for calendar 2025 is also projected to be 3.2%. Amidst global disinflation,
significant uncertainty continues to pose risks to the global economic outlook, driven by: challenges in monetary policy
normalization, including persistent inflation in the services sector offsetting disinflation in other sectors; potential financial
market instability or faster-than-anticipated deceleration in growth resulting from the persistence of inflation and elevated
interest rates, along with their associated impact on consumer and business confidence; potential restrictive fiscal policies in
response to high government debt; deepening economic concerns in China, particularly in the real estate sector, that could have
an impact on global growth; growing geopolitical tensions, such as those between Russia and Ukraine, the conflict in the Middle
East, and those between China and Taiwan and the West; the recent U.S. election, which could result in changes in economic,
trade and foreign policy; escalating trade tensions and increased social unrest; extreme weather-related events; and cyclical
imbalances in the global economy. Our diversified business model, as well as our product and geographic diversification,
continue to help mitigate the risks posed by global uncertainty.
Environment and social-related legal and regulatory activity
Applicable environmental and social-related laws, regulations, frameworks, and guidance continue to rapidly evolve. As such,
new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements,
and may subject us to different and potentially conflicting requirements in the various jurisdictions in which we operate. We
continue to monitor the development of applicable laws and regulations in this area, including but not limited to the evolution of
sustainability disclosure requirements, sustainability due diligence requirements, and climate risk management requirements for
financial institutions.
In Canada, OSFI released its final Guideline B-15 – Climate Risk Management on March 7, 2023, which sets out expectations
for the management and disclosure of climate-related risks for federally regulated financial institutions (FRFIs) and aims to
support FRFIs in developing greater resilience to, and management of, these risks. On March 20, 2024, OSFI released an updated
guideline that includes additional climate-related disclosure requirements aligned with IFRS S2 Climate-related Disclosures
issued by the International Sustainability Standards Board (ISSB), and will be effective in at least three phases, beginning for
fiscal 2024, with annual disclosures required to be made publicly available no later than 180 days after fiscal year-end. Additional
disclosure expectations will be effective for fiscal 2025, with the effective date for a further phase of expectations still to be
determined by OSFI. OSFI intends to review and amend the guideline as practices and standards evolve, and we continue to
monitor any further developments in this area. We have assessed the fiscal 2024 expectations and do not anticipate any issues
meeting the first phase of expectations by the effective date. We are currently assessing the impact of the later phases of the
guideline and have initiated work to meet the requirements by the effective dates.
108
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
In the U.S., the SEC issued climate-related disclosure rules on March 6, 2024, which exempt many Canadian registrants
including us. The SEC has since stayed the rules pending judicial review of legal challenges of the rules. We continue to monitor
developments in this area. In addition, various states in the U.S. have enacted or proposed statutes or regulations addressing
environmental and/or social matters, including climate disclosure laws and laws that address the consideration of environmental
and/or social factors in state investments or contracting or in financial institutions’ provision of services. As environmental and
social issues become more politicized, statutes or regulations in certain states may be interpreted to prohibit governmental
entities, such as public pension funds and issuers of municipal bonds, from doing business with certain financial institutions, and
political pressure may be placed upon governmental entities to not do business with certain financial institutions, based on the
financial institutions’ perceived positions on certain environmental and/or social matters. We continue to monitor developments
in this area and assess their impacts on our businesses.
Internationally, the ISSB issued its inaugural standards on June 26, 2023, being IFRS S1 General Requirements for Disclosures
of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures (collectively, the ISSB Standards). IFRS S1
sets out general reporting requirements for disclosing sustainability-related financial information. IFRS S2 requires an entity to
disclose information about climate-related risks and opportunities and the impact on an entity’s financial position, performance,
cash flows, strategy and business model. The applicability of the standards and the effective date for Canadian reporting issuers
is subject to adoption by Canadian regulators, and we continue to monitor developments, including from the Canadian Securities
Administrators.
In addition, the European Union’s Corporate Sustainability Reporting Directive (CSRD) requires reporting under the European
Sustainability Reporting Standards (ESRS). The ESRS, which were adopted by the European Commission on July 31, 2023, set out the
requirements for companies to report on sustainability-related impacts, opportunities and risks. We anticipate that we will be
subject to reporting obligations under the CSRD from fiscal 2029 at the consolidated level, and are currently assessing the impact
of these requirements.
We continue to monitor the development of applicable anti-greenwashing laws and regulations as well as climate-related
litigation and regulatory enforcement actions related to greenwashing, including certain recent amendments to the Competition
Act (Canada) which came into force on June 20, 2024, and which introduced new and uncertain substantiation standards for
environmental claims. These provisions are in addition to the pre-existing provisions of the Competition Act (Canada) that
prohibit the making of claims that are materially false or misleading. We continue to assess the impacts of these laws,
regulations and actions on our litigation and regulatory compliance risks. “Greenwashing” generally refers to the practice of
conveying false or misleading information about an organization’s products or services or operations to suggest that the
organization is doing more to protect the environment than it is.
Interest Rate Benchmark Reform
As part of the interest rate benchmark reform, the publication of all remaining Canadian Dollar Offered Rate (CDOR) settings
ceased on June 28, 2024. Relatedly, we have ceased Bankers’ Acceptance-based lending. As at October 31, 2024, and consistent
with our transition plan, our exposure to financial instruments referencing CDOR and interest rates substantially similar to CDOR
is no longer material to our Consolidated Financial Statements.
Government of Canada 2023 and 2024 budgets
The Fall Economic Statement Implementation Act, 2023 (the FESIA), introduced as Bill C-59 and tabled by the Government of
Canada, received Royal Assent and was enacted on June 20, 2024. The FESIA implements a variety of tax measures including:
subject to certain exceptions, eliminating availability of the dividend received deduction in respect of dividends received by
financial institutions after December 31, 2023 on shares of corporations resident in Canada, where such shares are
mark-to-market property or tracking property for tax purposes; and a new 2% tax applicable to certain publicly listed
corporations on net share buybacks in excess of $1 million occurring on or after January 1, 2024. The 2024 impact from the
enactment of the legislation was not material.
The Budget Implementation Act, 2024, No. 1 (the BIA), introduced as Bill C-69 and tabled by the Government of Canada, received
Royal Assent and was enacted on June 20, 2024. The BIA included the Global Minimum Tax Act (the GMTA) which implemented into
Canadian law certain measures relating to the Organisation for Economic Co-operation and Development’s two-pillar plan to combat
tax base erosion and profit shifting, including a 15% global minimum corporate tax on certain multinational enterprises (Pillar Two). A
number of other countries in which RBC operates have also enacted Pillar Two legislation. The GMTA and corresponding foreign Pillar
Two legislation will be effective for our fiscal year beginning November 1, 2024. Had Pillar Two legislation in all relevant jurisdictions
applied to the fiscal year ended October 31, 2024, RBC’s effective tax rate would have increased by an estimated 1% to 2%. For further
details, refer to Note 21 of our 2024 Annual Consolidated Financial Statements.
For further details on regulatory capital and related requirements, refer to the risk and Capital management sections of this 2024
Annual Report.
Competitive risk
Competitive risk is the risk of an inability to build or maintain a sustainable competitive advantage in a given market or markets
and includes the potential for loss of market share due to competitors offering superior products and services. Competitive risk
can arise from within or outside the financial sector, from traditional or non-traditional competitors, domestically or globally.
There is intense competition for clients among financial services companies. Client loyalty and retention can be influenced by
several factors, including new technology used or services offered by our competitors, relative service levels and prices, product
and service attributes, reputation, actions taken by our competitors, and adherence with competition and anti-trust laws. Other
companies, such as insurance companies and non-financial companies, as well as new technological applications, are
increasingly offering services traditionally provided by banks. This competition could also reduce our revenue which could
adversely affect our results.
We identify and assess competitive risks as part of our overall risk management process. Our products and services are
regularly benchmarked against existing and potential competitors. In addition, we regularly conduct risk reviews of our products,
services, mergers and acquisitions strategy, and we seek to ensure adherence to competition and anti-trust laws. Our annual
strategy-setting process also plays an integral role in managing competitive risk.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
109
Systemic risk
Systemic risk is considered a macroeconomic driver because it can significantly impact the stability of the financial system and
the broader economy. Systemic risk is the risk that the financial system as a whole, or a major part of it – either in an individual
country, a region or globally – is put in real and immediate danger of collapse or serious damage due to an unforeseen event
causing a substantive shock to the financial system with the likelihood of material damage to the economy, and which would
result in financial, reputation, legal or other risks for us.
Systemic risk can lead to increased vulnerabilities as experienced during the 2008 global financial crisis and the COVID-19
pandemic. In 2023, U.S. regional bank failures highlighted the potential vulnerability of the financial system to systemic risks,
particularly given tightening financial regulations and technology-driven increases in transaction velocity. Our ability to mitigate
systemic risk when undertaking business activities is limited, other than through collaborative mechanisms between key industry
participants, and, as appropriate, the public sector and regulators to reduce the frequency and impact of these risks. The two
most significant measures in mitigating the impact of systemic risk are diversification and stress testing.
Our diversified business model, portfolios, products, activities and funding sources help mitigate the potential impacts from
systemic risk. Our established risk limits also seek to ensure our portfolio is diversified, and concentration risk is reduced and
remains within our risk appetite.
Stress testing involves consideration of the simultaneous movements in several risk factors. Stress testing seeks to ensure
our business strategies and capital planning are robust by measuring the potential impacts of credit, market, liquidity and
operational risks, under adverse economic conditions. Our enterprise-wide stress testing program evaluates the potential effects
of a set of specified changes in risk factors, corresponding to exceptional but plausible adverse economic and financial market
events. These stress scenarios are evaluated across the organization, and results are integrated to develop an enterprise-wide
view of the impacts on our financial results and capital requirements. For further details on our stress testing, refer to the
Enterprise risk management section.
Our financial results are affected by the business and economic conditions in the geographic regions in which we operate.
These conditions include consumer saving and spending habits as well as consumer borrowing and repayment patterns,
business investment, government spending, exchange rates, sovereign debt risks, the level of activity and volatility of the capital
markets, strength of the economy and inflation. Given the importance of our Canadian and U.S. operations, an economic
downturn may largely affect our personal and business lending activities and may result in higher provisions for credit losses.
Deterioration and uncertainty in global capital markets could result in continued high volatility that would impact results in
Capital Markets. In Wealth Management, weaker market conditions could lead to lower average fee-based client assets and
transaction volumes. In addition, worsening financial and credit market conditions may adversely affect our ability to access
capital markets on favourable terms and could negatively affect our liquidity, resulting in increased funding costs and lower
transaction volumes in Capital Markets and Wealth Management.
Government fiscal, monetary and other policies
Our financial results are also sensitive to changes in interest rates. Although major central banks in Canada, the U.S., the EU and
the U.K. started cutting interest rates in 2024, interest rates remain elevated and changes may impact the economy with a lagged
effect. While higher interest rates may be a potential benefit to our NIM, elevated interest rates generally result in higher funding
costs and may adversely impact household balance sheets by causing credit deterioration, hence negatively impacting our
financial results. Conversely, lower interest rates generally lead to spread compression across many of our businesses, resulting
in an unfavourable impact on NIM. If elevated interest rates are coupled with persistent inflation, this could increase market
volatility, reduce asset values, and adversely impact household and corporate balance sheets. This could lead to credit
deterioration and impact our financial results, particularly in our Personal Banking, Commercial Banking, Wealth Management
and Capital Markets businesses. If central banks move forward with a well-timed cycle of gradual interest rate decreases, this
can promote economic stimulation and drive higher volumes for our businesses.
Our businesses and earnings are affected by monetary policies that are adopted by the BoC, the Fed in the U.S., the ECB in
the European Union (EU), the BoE in the U.K. and monetary authorities in other jurisdictions in which we operate. In addition, our
businesses and earnings may be affected by the fiscal policies of the governments of Canada, the U.S., the U.K., Europe and such
other jurisdictions, which may include protectionist trade policies and the imposition of tariffs. Such policies can have positive or
adverse affects on our clients and counterparties in Canada, the U.S. and internationally, which may decrease or increase the
risk of default by such clients and counterparties.
Tax risk and transparency
Tax risk refers to the risk of loss related to unexpected tax liabilities. The tax laws and systems that are applicable to us are
complex and wide-ranging. As a result, we seek to ensure that any decisions or actions related to tax always reflect our
assessment of the long-term costs and risks involved, including their impact on our reputation and our relationship with clients,
shareholders and regulators.
Our approach to taxation is grounded in principles which are reflected in our Code of Conduct, is governed by our Enterprise
Tax Risk Management Policy, and incorporates the fundamentals of our risk drivers. Oversight of our tax policy and the
management of tax risk is the responsibility of the GE, the CFO and the Senior Vice President, Taxation. We discuss our tax
strategy with the Audit Committee annually and provide updates on our tax position on a regular basis.
Our tax strategy is designed to provide transparency and support our business strategy, and is aligned with our corporate
vision and values. We seek to maximize shareholder value by structuring our businesses in a tax-efficient manner while
considering reputation risk by being in compliance with all laws and regulations. Our policy requires that we:
•
Act with integrity and in a straightforward, open and honest manner in all tax matters;
•
Ensure tax strategy is aligned with our business strategy supporting only bona fide transactions with a business purpose
and economic substance;
•
Ensure all intercompany transactions are conducted in accordance with applicable transfer pricing requirements;
•
Ensure our full compliance and full disclosure to tax authorities of our statutory obligations; and
•
Endeavour to work with the tax authorities to build positive long-term relationships and where disputes occur, address
them constructively.
110
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
With respect to assessing the needs of our clients, we consider a number of factors including the purpose of the transactions. We
seek to ensure that we only support bona fide client transactions with a business purpose and economic substance. Should we
become aware of client transactions that are aimed at evading their tax obligations, we will not proceed with the transactions.
We operate in 29 countries worldwide. Our activities in these countries are subject to both Canadian and international tax
legislation and other regulations, and are fully disclosed to the relevant tax authorities. The Taxation group and GRM both
regularly review the activities of all entities in an effort to ensure compliance with tax requirements and other regulations.
Given that we operate globally, complex tax legislation and accounting principles have resulted in differing legal
interpretations between the respective tax authorities we deal with and ourselves, and we are at risk of tax authorities
disagreeing with prior positions we have taken for tax purposes. When this occurs, we are committed to an open and transparent
dialogue with the tax authorities to facilitate a quick assessment and prompt resolution of the issues where possible. Failure to
adequately manage tax risk and resolve issues with tax authorities in a satisfactory manner could adversely impact our results,
potentially to a material extent in a particular period, and/or significantly impact our reputation.
Tax contribution
In 2024, total income and other tax expense, including income taxes in the Consolidated Statements of Comprehensive Income
and Changes in Equity, to various levels of governments globally totalled $5 billion (2023 – $5 billion). In Canada, total income
and other tax expense for the year ended October 31, 2024 to various levels of government totalled $4 billion (2023 – $4 billion).
Payroll taxes
Income taxes
Value added and
sales taxes
Capital taxes
Property taxes
Insurance premium taxes
Business taxes
0
2,000
1,000
7,000
6,000
5,000
4,000
3,000
2024
2023
Income and other tax expense – by category
(Millions of Canadian dollars)
8,000
0
2,000
1,000
7,000
6,000
5,000
4,000
3,000
Other International
U.S.
Canada
2024
2023
Income and other tax expense – by geography
(Millions of Canadian dollars)
8,000
For further details on income and other tax expense, refer to the Financial performance section.
Environmental and social risk
Environmental and social (E&S) risk is the potential for an E&S issue associated with us, a client, transaction, product, supplier or
activity, to have a negative impact on us, including our financial position, operations, legal and regulatory compliance, or
reputation. It refers to the risk that we face as a result of the manner in which we, a supplier or a client manages E&S issues or
relationships with stakeholders and communities. Because different stakeholders and communities may have divergent views on
E&S issues, any actual or perceived action or inaction by us in the management of an E&S issue may be perceived negatively by
at least some stakeholders and, as a result, may increase our E&S risks.
E&S issues include, but are not limited to, climate change, site contamination, waste management, land and resource use,
biodiversity, water quality and availability, environmental regulation, human rights (including, but not limited to social and racial
inequality and Indigenous Peoples’ rights), diversity and inclusion, and community engagement.
E&S risks are unique and transverse in nature and may impact our principal risks in different ways and to varying degrees,
including but not limited to strategic, operational, credit, reputation, and compliance risks. See the Climate risk section below for
additional information specific to climate risk.
Governance
The Board oversees our enterprise approach to and management of E&S risks and how we conduct our business to meet high
standards of E&S responsibility. The Board also approves any updates to our enterprise climate strategy which sets out our
strategic priorities, commitments and actions. Committees of the Board have oversight of E&S risks that are specific to their
respective responsibilities, with the Governance Committee playing a specific oversight and coordination role over ESG matters,
including over certain of our ESG-related disclosures. For further details on risk governance, refer to the Enterprise risk
management – Risk governance section.
Roles and responsibilities related to E&S risk management are governed by the Enterprise Risk Management Framework and
the three lines of defence governance model. Business segments and functional areas are responsible for incorporating E&S risk
management requirements within their own operations, while GRM is responsible for defining E&S risk management
requirements, including establishing policies, and performing effective oversight in relation to E&S risk.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
111
Risk management
We seek to integrate E&S risk considerations into our risk management approach. We manage E&S risk by leveraging existing
policies and processes which govern our principal risks. Our Enterprise Policy on Environmental and Social Risk (E&S Risk
Policy)
1
supports these policies and processes by outlining our principles for E&S risk management and setting out standards for
how E&S risks arising from our activities are identified, assessed, measured, managed, mitigated, monitored and reported.
As a signatory to the Equator Principles (EP) framework, we also have a procedure that outlines our governance for
managing E&S risks related to certain project finance-related transactions. We also have policy guidelines
2
in place for sensitive
sectors and activities, which address our financing activities to clients and projects operating in the coal-fired power generation
and coal mining sectors, the Arctic ecosystem, the Arctic National Wildlife Refuge, and United Nations Educational, Scientific and
Cultural Organization (UNESCO) World Heritage Sites.
We continue to evolve our approach to E&S risk by leveraging existing risk management capabilities, and building new
capabilities where required, including for purposes of incorporating regulatory guidance, industry best practices and improved
data analytics to identify, assess, measure, manage, monitor and report on potential E&S impacts on clients, portfolios, and our
operations. We recognize that the integration and maturity of our E&S risk management capabilities will continue to evolve, and
that achieving a mature level of E&S risk management will be iterative and take time.
Climate risk
Climate risk is the risk related to the global transition to a net-zero economy (transition risk) and the physical impacts of climate
change (physical risk), which includes both chronic (longer-term) risks (e.g., rising sea levels and increases in average
temperatures) and acute (event driven) risks (e.g., wildfires and floods). Both we and our clients may be exposed to climate-
related transition risk, including through emerging regulatory and legal requirements, changing business and consumer
sentiment towards products and services, technological developments, and changes in stakeholder expectations. Additionally,
we and our clients may be vulnerable to climate-related physical risk through disruptions to operations and services.
We continue to make progress in our climate risk management capabilities by integrating climate risk considerations in our
risk management processes. We are taking steps to leverage scenario analysis as a tool to provide forward-looking assessments
of climate risks and opportunities impacting our business model and strategy. In an effort to ensure that the bank is adequately
capitalized against unexpected events resulting from climate change, we integrate select climate risk scenario considerations,
which includes physical and transition climate related risk, into our existing Enterprise-Wide Stress Testing program to measure
its impact across various portfolios and risk types (e.g., credit risk and operational risk). We continue to advance our
understanding of how climate risks can be included in scenario analysis in the future in line with the evolving strategic and
regulatory importance of climate scenario analysis.
Our continued development of our climate risk measurement capabilities is expected to inform the enhancements to our
climate risk management practices and advance the integration of climate risks into our policies and procedures.
Human rights and codes of conduct
Our approach to identifying, assessing, managing and mitigating social issues such as human rights issues, is set out in our E&S
Risk Policy, and is supported by additional policies and position statements that reflect our approach to managing our
businesses in a responsible manner.
RBC is committed to respecting human rights, including those of any clients, employees, third parties we conduct business
with or who may be affected by our business activities – either directly or indirectly – and to taking the actions set out in RBC’s
Human Rights Position Statement (Statement) to meet the responsibility of businesses like ours to respect human rights as set
out in the United Nations Guiding Principles on Business and Human Rights. Our Statement is adopted at the highest levels of our
organization and is published on our website.
Our Statement Regarding Modern Slavery is published annually and sets out the steps we take to prevent and reduce the risk
that modern slavery is used in our business and in our supply chains.
Our Code of Conduct establishes standards of desired behaviour that apply to all directors, employees, and contract
workers of the bank and its subsidiaries. In addition, our principles-based Supplier Code of Conduct articulates our expectations
with respect to a supplier’s business integrity, responsible business practices and responsible treatment of individuals and the
environment.
1
The E&S Risk Policy is not inclusive of the activities of, and assets under management by, RBC Global Asset Management (RBC GAM). RBC GAM has developed its own
policy with respect to these matters. RBC GAM includes, but is not limited to, the following wholly owned indirect subsidiaries of the Bank: RBC Global Asset Management
Inc. (including Phillips, Hager & North Investment Management), RBC Global Asset Management (U.S.) Inc., RBC Global Asset Management (UK) Limited, RBC Global Asset
Management (Asia) Limited and BlueBay Asset Management LLP.
2
See RBC’s Policy Guidelines for Sensitive Sectors and Activities which address our lending activities.
112
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Framework and commitments
We are a participant or signatory to various industry principles and initiatives that are designed to help mitigate E&S risk within
our business activities or advance responsible business practices, including but not limited to the following:
•
RBC is a member of the Net-Zero Banking Alliance (NZBA), which is a global industry-led initiative to accelerate and support
efforts to address climate change by aligning member banks’ lending and investment portfolios with net-zero emissions by
2050
3
. As a member of the NZBA, we made a commitment to setting and disclosing interim emissions reduction targets for
key high-emitting sectors to which we lend. In October 2022, we published our initial interim emission reduction targets in
our lending activities for the oil and gas, power generation and automotive sectors
3
.
•
RBC is a member of the Partnership for Carbon Accounting Financials (PCAF), which is an industry-led partnership to
facilitate transparency and enable financial institutions to assess and disclose greenhouse gas emissions of loans and
investments.
•
RBC is a signatory to the Equator Principles (EP), which is a benchmark for determining, assessing and managing E&S risks
for project finance. We report annually on projects assessed according to the EP framework.
•
RBC GAM and Brewin Dolphin Holdings Limited are signatories to the United Nations Principles for Responsible Investment
(UN PRI) and report on their responsible investment activities to the UN PRI.
We may be exposed to legal, regulatory or reputation risk for participating in these frameworks, making these or other
E&S-related commitments or not fully implementing these frameworks or meeting these or other E&S-related commitments,
goals or targets, either as a result of our own actions or due to external factors, which could cause our actual results to differ
materially from our expectations expressed in such commitments, goals and targets. More specifically, our ability to achieve our
E&S-related commitments, goals and targets, including those discussed above, will depend on the collective efforts and actions
across a wide range of stakeholders outside of our control, and there can be no assurance that they will be achieved
4
. In
addition, our E&S-related commitments, goals and targets are aspirational and may need to be changed or recalibrated as data
improves and as climate science, transition pathways and market practices regarding standards, methodologies, metrics and
measurements evolve, which may result in us withdrawing from or modifying our membership in certain frameworks, principles
and initiatives. Finally, RBC provides financing to support the growth of low-carbon energy, while also providing financing to meet
current energy needs, including traditional sources of energy such as oil and gas. RBC is focused on playing our role in helping
our clients in the transition to a net-zero economy, including supporting clients in high-emitting, hard-to-abate sectors in their
efforts to decarbonize.
Legal and regulatory developments
Applicable environmental and social-related laws, regulations, frameworks, and guidance continue to rapidly evolve. As such,
new or heightened requirements could result in increased regulatory, compliance or other costs or higher capital requirements,
and may subject us to different and potentially conflicting requirements in the various jurisdictions in which we operate. As
regulatory requirements evolve, we will continue to monitor such developments and update our risk management practices and
disclosures as necessary. See the Legal and regulatory environment risk section for further details.
3
Our NZBA commitments to achieving net-zero emissions in our lending by 2050 and to our initial 2030 interim emissions reduction targets for lending in three key sectors
(oil and gas, power generation and automotive) are not inclusive of the activities of, and the assets under management by, RBC GAM and RBC Wealth Management (RBC
WM). RBC WM includes, but is not limited to, the following affiliates: (a) RBC Dominion Securities Inc. (Member–Canadian Investor Protection Fund), RBC Direct Investing
Inc. (Member–Canadian Investor Protection Fund), Royal Mutual Funds Inc., RBC Wealth Management Financial Services Inc., Royal Trust Corporation of Canada and The
Royal Trust Company, which are separate but affiliated subsidiaries of us; and (b) Brewin Dolphin Holdings PLC and its subsidiaries.
4
External factors that could cause our actual results to differ materially from our expectations expressed in such commitments, goals and targets include the need for
more and better climate data and standardization of climate-related measurement methodologies, our ability to gather and verify data, our ability to successfully
implement various initiatives throughout our enterprise under expected time frames, the risk that eligible transactions or related initiatives will not be completed within
any specified period or at all or with the results or outcome as originally expected or anticipated by us, our ability to track transactions and report on them in connection
with our performance against our E&S-related commitments, the compliance of various third parties with our policies and procedures and their commitment to us, the
need for active and continuing participation and action of various stakeholders, technological advancements, the evolution of consumer behaviour, varying
decarbonization efforts across economies, the need for thoughtful climate policies around the world, the challenges of balancing emission reduction targets with an
orderly, just and inclusive transition and geopolitical factors that impact global energy needs, the legal and regulatory environment, and regulatory compliance
considerations. Our E&S-related commitments, goals and targets are aspirational and may need to be changed or recalibrated as data improve and as climate science,
transition pathways and market practices regarding standards, methodologies, metrics and measurements evolve.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
113
Capital management
We actively manage our capital to maintain strong capital ratios and high ratings while providing strong returns to our
shareholders. In addition to the regulatory requirements, we consider the expectations of credit rating agencies, depositors and
shareholders, as well as our business plans, stress tests, peer comparisons and our internal capital ratio targets. Our goal is to
optimize our capital usage and structure, and to provide support for our business segments and clients. We also aim to generate
optimal returns for our shareholders, while protecting depositors and creditors.
Capital management framework
Our capital management framework establishes policies and processes for defining, measuring, raising and investing all forms of
capital in a coordinated and consistent manner. It sets our overall approach to capital management, including guiding principles
and roles and responsibilities relating to capital adequacy and transactions, dividends, solo capital, and management of RWA,
leverage ratio exposures, TLAC capital and TLAC leverage ratios. We manage and monitor capital from several perspectives,
including regulatory capital, solo capital and TLAC.
Our capital planning process is dynamic and involves various teams including Finance, Corporate Treasury, GRM, Economics
and our businesses, and covers internal capital ratio targets, potential capital transactions as well as projected dividend payouts
and share repurchases. This process considers our business operating plans, enterprise-wide stress testing and ICAAP,
regulatory capital changes and supervisory requirements, accounting changes, internal capital requirements, rating agency
metrics and solo capital.
Our capital plan is established on an annual basis and is aligned with the management actions included in the annual
business operating plan, which includes forecast growth in assets and earnings taking into account our business strategies, the
projected market and economic environment, and peer positioning. This includes incorporating potential capital transactions
based on our projected internal capital generation, business forecasts, market conditions and other developments, such as
accounting and regulatory changes that may impact capital requirements. All of the components in the capital plan are
monitored throughout the year and are revised as deemed appropriate.
Total capital requirements
Capital available and target
capital ratios
Capital impacts of
stress scenarios
Enterprise-wide
Stress Testing
ICAAP
Capital Plan and
Business
Operating Plan
Capital impacts of stress scenarios
Our enterprise-wide stress testing and annual ICAAP processes provide key inputs for capital planning, including setting
internal capital ratio targets. The stress scenarios are evaluated across the organization, and results are integrated to develop
an enterprise-wide view of financial impacts and capital requirements, which in turn facilitate the planning of mitigating actions
to absorb adverse events. ICAAP assesses capital adequacy and requirements covering all material risks, with a cushion for
plausible contingencies. In accordance with OSFI guidelines, major components of our ICAAP process include comprehensive risk
assessment, stress testing, capital assessment and planning, Board and senior management oversight, monitoring and reporting
and internal control review.
Our internal capital targets are established to maintain robust capital positions in excess of OSFI’s Basel III regulatory
targets. The results of our enterprise-wide stress testing and ICAAP processes are incorporated into the OSFI Capital Buffers,
Domestic Systemically Important Banks (D-SIB)/Globally Systemically Important Banks (G-SIB) surcharge, and Domestic Stability
Buffer (DSB), with a view to ensure that the bank has adequate capital to underpin risks and absorb losses under all plausible
stress scenarios given our risk profile and appetite. In addition, we include a discretionary cushion on top of OSFI’s regulatory
targets to reflect our risk appetite, our forecasts of potential negative downturns and to maintain our capital strength for
forthcoming regulatory and accounting changes, peer comparatives, rating agencies sensitivities, future acquisitions and solo
capital level.
The Board is responsible for the ultimate oversight of capital management, including the annual review and approval of the
capital plan. ALCO and GE share responsibility for capital management and receive regular reports detailing our compliance with
approved limits and guidelines. The Audit and Risk Committees jointly approve the ICAAP process.
Basel III
Our consolidated regulatory capital requirements are determined by OSFI’s Capital Adequacy Requirements (CAR) guidelines,
which are based on the minimum Basel III capital ratio requirements adopted by the BCBS.
Under Basel III, banks select from two main approaches, the Standardized Approach (SA) or the IRB Approach, to calculate
their minimum regulatory capital required to support credit, market and operational risks. We apply the IRB approach to credit
risk to determine minimum regulatory capital requirements for the majority of our portfolios, including most of the exposures
acquired from the HSBC Canada transaction. Certain credit risk portfolios are subject to SA, primarily in Wealth Management
including our City National wholesale portfolio, our Caribbean Banking operations and certain non-mortgage retail portfolios
acquired through the HSBC Canada transaction. For consolidated regulatory reporting of market risk capital and operational risk
capital, we use the revised SA based on OSFI rules as further noted below.
114
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
All federally regulated banks with a Basel III leverage ratio total exposure exceeding
€
200 billion at their financial year-end
are required, at a minimum, to publicly disclose in the first quarter following their year-end, the thirteen indicators used in the
annual G-SIB assessment methodology, with the goal of enhancing the transparency of the relative scale of banks’ potential
global systemic importance and data quality. The FSB publishes an updated list of G-SIBs annually. On November 26, 2024, we
were re-designated as a G-SIB by the FSB. This designation requires us to maintain a higher loss absorbency requirement
(common equity as a percentage of RWA) of 1% consistent with the D-SIB requirement. In addition to the Basel III targets, OSFI
established a Domestic Stability Buffer (DSB) applicable to all Canadian D-SIBs to further ensure the financial stability of the
Canadian financial system. The current OSFI requirement for the DSB is set at 3.5% of total RWA as reaffirmed by OSFI on June 18,
2024.
Under OSFI’s TLAC guideline, D-SIBs are required to maintain a risk-based TLAC ratio, which builds on the risk-based capital
ratios described in the CAR guideline, and a TLAC leverage ratio, which builds on the leverage ratio described in OSFI’s LR
guideline. The TLAC requirement is intended to address the sufficiency of a D-SIB’s loss absorbing capacity in supporting its
recapitalization in the event of its failure. TLAC is defined as the aggregate of Tier 1 capital, Tier 2 capital and external TLAC
instruments, which allow conversion in whole or in part into common shares under the CDIC Act and meet all of the eligibility
criteria under the TLAC guideline.
In Q2 2023, we implemented OSFI’s first phase of the adoption of the final BCBS Basel III reforms consisting of revised
capital, leverage and disclosure guidelines. The second phase of OSFI’s implementation of the final BCBS Basel III reforms
relating to the revised credit valuation adjustment (CVA) and market risk chapters of the CAR guideline came into effect in
Q1 2024. The adoption of the revised CVA and market risk rules reflects adoption of a revised SA framework for CVA and a revised
SA for market risk, as well as the discontinuation of our existing internal models-based approach used for market risk RWA
determination. The revised Pillar 3 disclosure requirements effective upon adoption of these revised rules were reflected in our
Q1 2024 standalone Pillar 3 Report with further additional updated disclosure requirements reflected in our Q4 2024 Pillar 3
Report. In addition, as prescribed by the CAR guidelines, effective Q1 2024 our regulatory capital floor transitioned to a new
regulatory capital floor of 67.5% of RWA for fiscal 2024 from 65% of RWA in fiscal 2023. On July 5, 2024, OSFI announced a
one-year delay to the increase in the capital floor factor, maintaining the current 67.5% of RWA (as calculated using only SA for
credit, market and operational risk) factor throughout 2024 and 2025, and delaying the 70% factor implementation from 2025 to
2026, and the 72.5% factor implementation from 2026 to 2027.
The following table provides a summary of OSFI’s current regulatory target ratios under Basel III and Pillar 2 requirements. We
are in compliance with all current capital, leverage and TLAC requirements imposed by OSFI:
Basel III – OSFI regulatory targets
Table 64
Basel III
capital,
leverage and TLAC
ratios
OSFI regulatory target requirements
for large banks under Basel III
Domestic
Stability
Buffer
(3)
Minimum
including
Capital
Buffers,
D-SIB/G-SIB
surcharge and
Domestic
Stability
Buffer as at
October 31,
2024
(4)
RBC capital,
leverage
and TLAC
ratios
as at
October 31,
2024
Minimum
Capital
Buffers
Minimum
including
Capital
Buffers
D-SIB/G-SIB
surcharge
(1)
Minimum
including
Capital
Buffers and
D-SIB/G-SIB
surcharge
(1), (2)
Common Equity Tier 1
4.5%
2.6%
7.1%
1.0%
8.1%
3.5%
11.6%
13.2%
Tier 1 capital
6.0%
2.6%
8.6%
1.0%
9.6%
3.5%
13.1%
14.6%
Total capital
8.0%
2.6%
10.6%
1.0%
11.6%
3.5%
15.1%
16.4%
Leverage ratio
3.0%
n.a.
3.0%
0.5%
3.5%
n.a.
3.5%
4.2%
TLAC ratio
21.6%
n.a.
21.6%
n.a.
21.6%
3.5%
25.1%
29.3%
TLAC leverage ratio
7.25%
n.a.
7.25%
n.a.
7.25%
n.a.
7.25%
8.4%
(1)
A capital surcharge, equal to the higher of our D-SIB surcharge and the BCBS’s G-SIB surcharge, is applicable to risk-weighted capital. For leverage ratio, only 50% of our
D-SIB surcharge for capital is the required surcharge.
(2)
The capital buffers include the capital conservation buffer of 2.5% and the countercyclical capital buffer (CCyB) as prescribed by OSFI. The CCyB, calculated in
accordance with OSFI’s CAR guidelines, was 0.08% as at October 31, 2024 (October 31, 2023 – 0.06%).
(3)
The DSB can range from 0% to 4% of total RWA and is currently set at 3.5%.
(4)
Minimum target requirements reflect CCyB requirements as at October 31, 2024 which are subject to change based on exposures held at the reporting date.
n.a.
not applicable
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
115
Regulatory capital, TLAC available, RWA, capital and TLAC ratios
Under Basel III, capital consists of CET1, Additional Tier 1, Tier 2 capital and external TLAC instruments.
CET1 capital comprises the highest quality of capital. Regulatory adjustments under Basel III include full deductions of
certain items and additional capital components that are subject to threshold deductions as prescribed in the CAR guidelines.
Tier 1 capital comprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares and
limited recourse capital notes (LRCNs) that meet certain criteria. Tier 2 capital primarily includes subordinated debentures that
meet certain criteria and certain loan loss allowances. Total capital is defined as the sum of Tier 1 and Tier 2 capital. Preferred
shares, LRCNs, and subordinated debentures issued after January 1, 2013 require Non-viability contingent capital (NVCC) features
to be included into regulatory capital. NVCC requirements ensure that non-common regulatory capital instruments bear losses
before banks seek government funding.
TLAC available is defined as the sum of Total capital and external TLAC instruments. External TLAC instruments comprise
predominantly senior bail-in debt, which includes eligible senior unsecured debt with an original term to maturity of greater than
400 days and remaining term to maturity of greater than 365 days.
Capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by total RWA.
The following chart provides a summary of the major components of CET1, Additional Tier 1, Tier 2 capital and external TLAC
instruments.
Common Equity
Tier 1 (CET1)
Additional Tier 1 Capital
Tier 2 Capital
External TLAC
Instruments
+
+
+
Tier 1 Capital
TLAC Available
Total Capital
Deductions
Non-significant investments in
Tier 1 instruments of financial
institutions
(2)
Significant investments in
other financial institutions’
and insurance subsidiaries’
Tier 1 instruments
Preferred shares
Limited recourse capital notes
Non-controlling interests in
subsidiaries’ Tier 1 instruments
Subordinated debentures less
amortization
Senior bail-in debt
Amortized portion of
subordinated debentures
Investments in own TLAC
instruments
Certain loan loss allowances
Non-controlling interests in
subsidiaries’ Tier 2 instruments
Non-significant investments in
Tier 2 and TLAC instruments
of financial institutions
(2)
Significant investments in
other financial institutions’
and insurance subsidiaries’
Tier 2 and TLAC instruments
Goodwill and other intangibles
Deferred tax assets on loss
carryforwards
Defined benefit pension fund
assets
Non-significant investments
in CET1 instruments of financial
institutions
(2)
Shortfall of provisions to
expected losses
Prudential valuation
adjustments
Prepaid portfolio insurance
assets
Non payment and non delivery
of trades
Equity investment in funds
subject to the fall-back
approach
Threshold
Deductions
(1)
Higher quality
capital
Lower quality
capital
Significant investments in
Insurance subsidiaries and
CET1 instruments in other
financial institutions
Mortgage servicing rights
Deferred tax assets relating
to temporary differences
Common shares
Retained earnings
Other components of equity
Non-controlling interests in
subsidiaries’ CET1 instruments
Net Contractual Service
Margins under IFRS 17
(1)
First level: The amount by which each of the items exceeds a 10% threshold of CET1 capital (after all deductions but before threshold deductions) will be
deducted from CET1 capital. Second level: The aggregate amount of the three items not deducted from the first level above and in excess of 15% of CET1 capital
after regulatory adjustments will be deducted from capital, and the remaining balance not deducted will be risk-weighted at 250%.
(2)
Non-significant investments are subject to certain CAR criteria that drive the amount eligible for deduction.
116
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
The following tables provide details on our regulatory capital, TLAC available, RWA, and on ratios for capital, leverage and TLAC.
Our capital position remains strong and our capital, leverage and TLAC ratios remain well above OSFI regulatory targets:
Regulatory capital, TLAC available, RWA and capital, leverage and TLAC ratios
Table 65
As at
(Millions of Canadian dollars, except percentage amounts and as otherwise noted)
October 31
2024
October 31
2023
Capital
(1), (2)
CET1 capital
$
88,936
$
86,611
Tier 1 capital
97,952
93,904
Total capital
110,487
104,952
Risk-weighted assets (RWA) used in calculation of capital ratios
(1), (2)
Credit risk
$
548,809
$
475,842
Market risk
33,930
40,498
Operational risk
89,543
79,883
Total RWA
$
672,282
$
596,223
Capital ratios and Leverage ratio
(1), (2)
CET1 ratio
13.2%
14.5%
Tier 1 capital ratio
14.6%
15.7%
Total capital ratio
16.4%
17.6%
Leverage ratio
4.2%
4.3%
Leverage ratio exposure
$ 2,344,228
$ 2,179,590
TLAC available and ratios
(1), (3)
TLAC available
$
196,659
$
184,916
TLAC ratio
29.3%
31.0%
TLAC leverage ratio
8.4%
8.5%
(1)
As prior period restatements are not required by OSFI, there was no impact from the adoption of IFRS 17 on regulatory capital, RWA,
capital ratios, leverage ratio, TLAC available and TLAC ratios for periods prior to November 1, 2023.
(2)
Capital, RWA, and capital ratios are calculated using OSFI’s CAR guideline and the Leverage ratio is calculated using OSFI’s LR guideline.
Both the CAR guideline and LR guideline are based on the Basel III framework. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in the second quarter of 2023, as further updated on October 20, 2023
as part of OSFI’s implementation of the Basel III reforms. The results for the year ended October 31, 2024 also reflect our adoption of the
revised market risk and CVA frameworks that came into effect on November 1, 2023.
(3)
TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level
which for us is deemed to be Royal Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called a
resolution group. The TLAC ratio and TLAC leverage ratio are calculated using the TLAC available as a percentage of total RWA and
leverage exposure, respectively.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
117
Regulatory capital and TLAC available
Table 66
As at
(Millions of Canadian dollars)
October 31
2024
October 31
2023
CET1 capital: instruments and reserves and regulatory adjustments
(1)
Directly issued qualifying common share capital (and equivalent for non-joint
stock companies) plus related stock surplus
$
21,243
$
19,365
Retained earnings
88,317
84,130
Contractual service margins regulatory adjustment
1,526
n.a.
Accumulated other comprehensive income (and other reserves)
8,498
6,852
Common share capital issued by subsidiaries and held by third parties
(amount allowed in group CET1)
11
11
Regulatory adjustments applied to CET1 under Basel III
(30,659)
(23,747)
Common Equity Tier 1 capital (CET1)
$
88,936
$
86,611
Additional Tier 1 capital: instruments and regulatory adjustments
(1)
Directly issued qualifying Additional Tier 1 instruments plus related stock
surplus
$
9,014
$
7,291
Additional Tier 1 instruments issued by subsidiaries and held by third parties
(amount allowed in group AT1)
2
2
Additional Tier 1 capital (AT1)
$
9,016
$
7,293
Tier 1 capital (T1 = CET1 + AT1)
$
97,952
$
93,904
Tier 2 capital: instruments and provisions and regulatory adjustments
(1)
Directly issued qualifying Tier 2 instruments plus related stock surplus
$
11,412
$
9,683
Tier 2 instruments issued by subsidiaries and held by third parties (amount
allowed in group Tier 2)
3
3
Collective allowance
1,120
1,362
Tier 2 capital (T2)
$
12,535
$
11,048
Total capital (T1 + T2)
$
110,487
$
104,952
External TLAC: instruments and regulatory adjustments
(1)
External TLAC instruments
$
85,008
$
78,952
Amortised portion of T2 instruments where remaining maturity > 1 year
1,670
1,248
Regulatory adjustments applied to TLAC under Basel III
(506)
(236)
TLAC available (Total capital + External TLAC)
$
196,659
$
184,916
(1)
As prior period restatements are not required by OSFI, there was no impact from the adoption of IFRS 17 on regulatory capital, RWA,
capital ratios, leverage ratio, TLAC available and TLAC ratios for periods prior to November 1, 2023.
118
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
2024 vs. 2023
(138) bps
Dividends
(3)
RWA Growth
(excluding
FX)
(6)
(77) bps
24 bps
DRIP
(5)
13 bps
Other
(7), (8)
289 bps
Net income
(Excluding the
impact of the
items, as noted
below)
(3), (4)
(240) bps
HSBC Canada
transaction
(2)
October 31,
2023
(1)
13.2%
14.5%
October 31,
2024
(1)
(1)
Represents rounded figures.
(2)
Includes capital deductions for goodwill and intangible assets of (139) bps, initial PCL on the purchased performing loans of (2) bps and RWA resulting from
the HSBC Canada transaction of (99) bps.
(3)
Represents net internal capital generation of $9 billion or 151 bps consisting of Net income available to shareholders excluding the impact of specified items,
less common and preferred share dividends and distributions on other equity instruments.
(4)
Excludes specified items for transaction and integration costs relating to the HSBC Canada transaction and the management of closing capital volatility
related to the HSBC Canada transaction.
(5)
For further details about the Dividend reinvestment plan (DRIP), refer to Note 19 of our 2024 Annual Consolidated Financial Statements.
(6)
Excludes the impact of the HSBC Canada transaction.
(7)
Includes an unfavourable impact from the adoption of IFRS 17 of 13 bps, partially offset by a favourable impact of 11 bps from the second phase of OSFI’s
adoption of the Basel III reforms discussed above.
(8)
Includes the impact of the specified items noted above.
Our CET1 ratio was 13.2%, down 130 bps from last year, primarily reflecting the impact of the HSBC Canada transaction and RWA
growth (excluding FX), partially offset by net internal capital generation and share issuances under the DRIP.
Our Tier 1 capital ratio of 14.6% was down 110 bps, mainly reflecting the factors noted under the CET1 ratio, partially offset by
the net issuance of preferred shares and limited recourse capital notes (LRCNs).
Our Total capital ratio of 16.4% was down 120 bps, mainly reflecting the factors noted above under the Tier 1 capital ratio,
partially offset by the net issuance of subordinated debentures.
Our Leverage ratio of 4.2% was down 10 bps, primarily due to the impact of the HSBC Canada transaction and higher business-
driven growth in leverage exposures. These factors were partially offset by net internal capital generation and share issuances
under the DRIP and the net issuance of preferred shares and LRCNs.
Leverage exposures increased by $165 billion, driven by the $116 billion impact of the HSBC Canada transaction, as well as
business growth primarily in wholesale and retail lending.
Our TLAC ratio of 29.3% was down 170 bps, reflecting the factors noted above under the Total capital ratio, partially offset by a
favourable impact from a net increase in eligible external TLAC instruments.
Our TLAC leverage ratio of 8.4% was down 10 bps, reflecting the factors noted above in the Leverage ratio, partially offset by
a favourable impact from a net increase in eligible external TLAC instruments.
External TLAC instruments include long-term debt subject to conversion under the Bail-in regime. For further details, refer to
Deposit and funding profile in the Liquidity and funding risk section.
Basel III RWA
OSFI requires banks to meet minimum risk-based capital requirements for exposures to credit risk, operational risk, and where
they have significant trading activity, market risk. RWA is calculated for each of these risk types and added together to determine
total RWA. In addition, a minimum capital floor requirement must be maintained as prescribed under OSFI’s CAR guidelines which
is currently set to 67.5% of RWA as calculated under current Basel III standardized credit risk and market risk approaches as
defined in the CAR guidelines. If the capital requirement is less than the required threshold, a floor adjustment to RWA must be
applied to the reported RWA as prescribed by OSFI’s CAR guidelines.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
119
Total capital risk-weighted assets
Table 67
2024
2023
Average
of risk-
weights
(2)
Risk-weighted assets All-in Basis
As at October 31 (Millions of Canadian dollars,
except percentage amounts)
Exposure
(1)
Standardized
approach
Advanced
approach
(A-IRB)
Foundation
approach
(F-IRB)
Other
Total
Total
Credit risk
Lending-related and other
Residential mortgages
$
622,788
8%
$
4,396
$
47,532
$
–
$
–
$
51,928
$
44,864
Other retail (personal, credit
cards and small business
treated as retail)
204,317
31%
7,245
55,434
–
–
62,679
61,714
Business (corporate,
commercial, medium-sized
enterprises and non-bank
financial institutions)
560,902
50%
67,873
123,905
90,817
–
282,595
238,565
Sovereign (government)
368,089
4%
2,568
11,548
–
–
14,116
14,018
Bank
45,522
42%
10,558
–
8,673
–
19,231
14,339
Total lending-related and other
$ 1,801,618
24%
$
92,640
$ 238,419
$
99,490
$
–
$ 430,549
$
373,500
Trading-related
Repo-style transactions
$ 1,316,003
1%
$
264
$
322
$
7,821
$
121
$
8,528
$
7,792
Derivatives – including CVA
139,874
26%
1,044
2,405
14,438
18,817
36,704
32,995
Total trading-related
$ 1,455,877
3%
$
1,308
$
2,727
$
22,259
$
18,938
$
45,232
$
40,787
Total lending-related and other
and trading-related
$ 3,257,495
15%
$
93,948
$ 241,146
$ 121,749
$
18,938
$ 475,781
$
414,287
Bank book equities
6,118
197%
12,079
–
–
–
12,079
10,074
Securitization exposures
76,219
20%
6,356
8,825
–
–
15,181
11,510
Other assets
34,310
133%
n.a.
n.a.
n.a.
45,768
45,768
39,971
Total credit risk
$ 3,374,142
16%
$ 112,383
$ 249,971
$ 121,749
$
64,706
$ 548,809
$
475,842
Market risk
(3)
Interest rate
$
1,956
$
1,956
Equity
3,656
3,656
Foreign exchange
2,787
2,787
Commodities
1,787
1,787
Credit
8,374
8,374
Default risk charge
10,898
10,898
Other
(4)
4,472
4,472
Total market risk
$
33,930
$
33,930
$
40,498
Operational risk
$
89,543
$
89,543
$
79,883
Total risk-weighted assets
$ 3,374,142
$ 235,856
$ 249,971
$ 121,749
$
64,706
$ 672,282
$
596,223
(1)
Total exposure represents exposure at default (EAD) which is the expected gross exposure upon the default of an obligor. This amount excludes any allowance against
impaired loans or partial write-offs and does not reflect the impact of credit risk mitigation.
(2)
Represents the average of counterparty risk weights within a particular category.
(3)
Balances as at October 31, 2024 reflect our adoption of the revised market risk framework that came into effect on November 1, 2023 as part of OSFI’s implementation of
the Basel III reforms.
(4)
Represents the market risk RWA for the residual risk add-on charge under the standardized approach and the capital surcharge for movements between the trading book
and banking book.
n.a.
not applicable
2024 vs. 2023
Total RWA was up $76 billion from last year, driven by the $44 billion impact of the HSBC Canada transaction, which was
primarily reflected in credit and operational risk. Business growth primarily reflected in retail and commercial lending in Canada,
and in operational risk as well as the impact of net credit migration also contributed to the increase. These factors were partially
offset by the net impact of regulatory updates. In our CET1 ratio, the impact of foreign exchange translation on RWA is largely
mitigated with economic hedges.
120
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Selected capital management activity
Selected capital management activity
Table 68
For the year ended October 31, 2024
(Millions of Canadian dollars, except number of shares)
Issuance or
redemption date
Number of
shares
(000s)
Amount
Tier 1 capital
Common shares activity
Issued in connection with share-based
compensation plans
(1)
1,746
$
168
Issued under the DRIP
(2)
11,850
1,460
Purchased for cancellation
(2)
(889)
(13)
Redemption of preferred shares, Series C-2
(2)
November 7, 2023
(15)
(23)
Issuance of preferred shares, Series BU
(2), (3)
January 25, 2024
750
750
Issuance of LRCNs Series 4
(2), (3), (4)
April 24, 2024
1,000
1,370
Redemption of preferred shares, Series AZ
(2), (3)
May 24, 2024
(20,000)
(500)
Issuance of preferred shares, Series BW
(2), (3)
July 24, 2024
600
600
Redemption of preferred shares, Series BB
(2), (3)
August 24, 2024
(20,000)
(500)
Tier 2 capital
Issuance of April 3, 2034 subordinated
debentures
(3), (5)
April 2, 2024
$ 2,000
Redemption of July 25, 2029 subordinated
debentures
(3), (5)
July 25, 2024
(1,500)
Issuance of August 8, 2034 subordinated
debentures
(3), (5)
July 29, 2024
1,250
(1)
Amounts include cash received for stock options exercised during the period and fair value adjustments to stock options.
(2)
For further details, refer to Note 19 of our 2024 Annual Consolidated Financial Statements.
(3)
Non-Viability Contingent Capital (NVCC) instruments.
(4)
For the LRCNs, the number of shares represents the number of notes issued.
(5)
For further details, refer to Note 18 of our 2024 Annual Consolidated Financial Statements.
On June 10, 2024, we announced a normal course issuer bid (NCIB) to purchase up to 30 million of our common shares,
commencing on June 12, 2024 and continuing until June 11, 2025, or such earlier date as we complete the repurchase of all shares
permitted under the bid. Since the inception of this NCIB, the total number of common shares repurchased and cancelled was
approximately 889 thousand, at a cost of approximately $140 million.
We determine the amount and timing of purchases under the NCIB, subject to prior consultation with OSFI. Purchases may
be made through the TSX, the NYSE and other designated exchanges and alternative Canadian trading systems. The price paid
for repurchased shares is the prevailing market price at the time of acquisition.
On November 7, 2023, we redeemed all 15 thousand of our issued and outstanding Non-Cumulative First Preferred Shares
Series C-2 at a redemption price of US$1,000 per share. Concurrently, we redeemed all 615 thousand Series C-2 depositary shares,
each of which represents a one-fortieth interest in a Series C-2 share.
On January 25, 2024, we issued 750 thousand Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BU
(NVCC) to certain institutional investors at a price of $1,000 per share.
On April 2, 2024, we issued $2,000 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of 5.096%
per annum until April 3, 2029, and at the Daily Compounded Canadian Overnight Repo Rate Average plus 1.56% thereafter until
their maturity on April 3, 2034.
On April 24, 2024, we issued US$1,000 million of LRCN Series 4 at a price of US$1,000 per note. The LRCN Series 4 bear
interest at a fixed rate of 7.5% per annum until May 2, 2029. Thereafter, the interest rate on the LRCN Series 4 will reset every five
years at a rate per annum equal to the prevailing 5-Year U.S. Treasury Rate plus 2.887% until their maturity on May 2, 2084.
On May 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred
Shares Series AZ at a redemption price of $25 per share.
On July 24, 2024, we issued 600 thousand Non-Cumulative 5-Year Fixed Rate Reset First Preferred Shares Series BW (NVCC)
to certain institutional investors at a price of $1,000 per share.
On July 25, 2024, we redeemed all $1,500 million of our outstanding NVCC 2.74% subordinated debentures due July 25, 2029 for
100% of their principal amount plus accrued interest to, but excluding, the redemption date.
On July 29, 2024, we issued $1,250 million of NVCC subordinated debentures. The notes bear interest at a fixed rate of 4.829%
per annum until August 8, 2029, and at the Daily Compounded Canadian Overnight Repo Rate Average plus 1.55% thereafter until
their maturity on August 8, 2034.
On August 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First
Preferred Shares Series BB at a redemption price of $25 per share.
On November 1, 2024, we issued US$1,000 million of LRCN Series 5 at a price of US$1,000 per note. The LRCN Series 5 bear
interest at a fixed rate of 6.350% per annum until November 24, 2034. Thereafter, the interest rate on the LRCN Series 5 will reset
every five years at a rate per annum equal to the prevailing 5-Year U.S. Treasury Rate plus 2.257% until their maturity on
November 24, 2084.
On November 5, 2024, we also announced our intention to redeem all outstanding NVCC 2.88% subordinated debentures
due on December 23, 2029 for 100% of their principal amount plus accrued interest to, but excluding, the redemption date, on
December 23, 2024.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
121
Dividends
Our common share dividend policy reflects our earnings outlook, payout ratio objective and the need to maintain adequate
levels of capital to support business plans. In 2024, our dividend payout ratio was 50%. Common share dividends paid during the
year were $8 billion.
Selected share data
(1)
Table 69
2024
2023
(Millions of Canadian dollars, except number of shares
and as otherwise noted)
Number of
shares
(000s)
Amount
Dividends
declared
per share
Number of
shares (000s)
Amount
Dividends
declared
per share
Common shares issued
1,415,080
$ 21,013
$
5.60
1,402,373
$ 19,398
$
5.34
Treasury shares – common shares
(2)
(576)
(61)
(1,862)
(231)
Common shares outstanding
1,414,504
$ 20,952
1,400,511
$ 19,167
Stock options and awards
Outstanding
7,375
7,793
Exercisable
3,212
3,830
Available for grant
2,291
3,693
First preferred shares issued
Non-cumulative Series AZ
(3), (4), (5)
–
$
–
$
0.69
20,000
$
500
$
0.93
Non-cumulative Series BB
(3), (4), (6)
–
–
0.68
20,000
500
0.91
Non-cumulative Series BD
(3), (4)
24,000
600
0.80
24,000
600
0.80
Non-cumulative Series BF
(3), (4)
12,000
300
0.75
12,000
300
0.75
Non-cumulative Series BH
(4)
6,000
150
1.23
6,000
150
1.23
Non-cumulative Series BI
(4)
6,000
150
1.23
6,000
150
1.23
Non-cumulative Series BO
(3), (4)
14,000
350
1.40
14,000
350
1.20
Non-cumulative Series BT
(3), (4), (7)
750
750
4.20%
750
750
4.20%
Non-cumulative Series BU
(3), (4), (7)
750
750
7.408%
–
–
–
Non-cumulative Series BW
(3), (4), (7)
600
600
6.698%
–
–
–
Non-cumulative Series C-2
(8)
–
–
US$
–
15
23
US$ 67.50
Other equity instruments issued
Limited recourse capital notes
Series 1
(3), (4), (9), (10)
1,750
1,750
4.50%
1,750
1,750
4.50%
Limited recourse capital notes
Series 2
(3), (4), (9), (10)
1,250
1,250
4.00%
1,250
1,250
4.00%
Limited recourse capital notes
Series 3
(3), (4), (9), (10)
1,000
1,000
3.65%
1,000
1,000
3.65%
Limited recourse capital notes
Series 4
(3), (4), (9), (10)
1,000
1,370
7.50%
–
–
–
Preferred shares and other equity
instruments issued
69,100
$
9,020
106,765
$
7,323
Treasury instruments – preferred shares
and other equity instruments
(2)
13
11
(9)
(9)
Preferred shares and other equity
instruments outstanding
69,113
$
9,031
106,756
$
7,314
Dividends on common shares
$
7,916
$
7,443
Dividends on preferred shares and
distributions on other equity
instruments
(11)
322
236
(1)
For further details about our capital management activity, refer to Note 19 of our 2024 Annual Consolidated Financial Statements.
(2)
Positive amounts represent a short position and negative amounts represent a long position.
(3)
Dividend rate will reset every five years.
(4)
NVCC instruments.
(5)
On May 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AZ at a redemption price of
$25 per share.
(6)
On August 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BB at a redemption price
of $25 per share.
(7)
The dividends declared per share represent the per annum dividend rate applicable to the shares issued as at the reporting date.
(8)
Represents 615,400 depositary shares relating to preferred shares Series C-2. Each depositary share represents one-fortieth interest in a share of Series C-2. On
November 7, 2023, we redeemed all 15 thousand of our issued and outstanding Non-Cumulative First Preferred Shares Series C-2 at a redemption price of US$1,000 per
share. Concurrently, we redeemed all 615 thousand Series C-2 depositary shares, each of which represents a one-fortieth interest in a Series C-2 share.
(9)
For LRCN Series, the number of shares represent the number of notes issued and the dividends declared per share represent the annual interest rate percentage
applicable to the notes issued as at the reporting date.
(10)
In connection with the issuance of LRCN Series 1, on July 28, 2020, we issued $1,750 million of First Preferred Shares Series BQ (Series BQ); in connection with the issuance
of LRCN Series 2, on November 2, 2020, we issued $1,250 million of First Preferred Shares Series BR (Series BR); in connection with the issuance of LRCN Series 3, on
June 8, 2021, we issued $1,000 million of First Preferred Shares Series BS (Series BS); and in connection with the issuance of LRCN Series 4 on April 24, 2024, we issued
US$1,000 million of First Preferred Shares Series BV (Series BV). The Series BQ, BR and BS preferred shares were issued at a price of $1,000 per share and the Series BV
preferred shares were issued at a price of US$1,000 per share. The Series BQ, BR, BS and BV preferred shares were issued to a consolidated trust to be held as trust
assets in connection with the LRCN series. For further details, refer to Note 19 of our 2024 Annual Consolidated Financial Statements.
(11)
Excludes distributions to non-controlling interests.
122
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
As at November 29, 2024, the number of outstanding common shares was 1,415,000,013, net of treasury shares held of 80,286, and
the number of stock options and awards was 7,375,359.
NVCC provisions require the conversion of the capital instrument into a variable number of common shares in the event that
OSFI deems a bank to be non-viable or a federal or provincial government in Canada publicly announces that a bank has
accepted or agreed to accept a capital injection. If a NVCC trigger event were to occur, our NVCC capital instruments as at
October 31, 2024, which were the preferred shares Series BD, BF, BH, BI, BO, BT, BU, BW, LRCN Series 1, LRCN Series 2, LRCN
Series 3, LRCN Series 4 and subordinated debentures due on January 27, 2026, December 23, 2029, June 30, 2030, January 28, 2033,
November 3, 2031, May 3, 2032, February 1, 2033, April 3, 2034 and August 8, 2034 would be converted into common shares
pursuant to an automatic conversion formula with a conversion price based on the greater of: (i) a contractual floor price of
$5.00 (subject to adjustment in certain circumstances), and (ii) the current market price of our common shares at the time of the
trigger event (10-day volume weighted average). Based on a floor price of $5.00 and including an estimate for accrued dividends
and interest, these NVCC capital instruments would convert into a maximum of approximately 6 billion common shares, in
aggregate, which would represent a dilution impact of 80.7% based on the number of common shares outstanding as at
October 31, 2024.
Attributed capital
Our methodology for allocating capital to our business segments is based on the Basel III regulatory capital requirements, with
the exception of Insurance. Effective November 1, 2023, our attributed capital methodology incorporates leverage requirements
to allocate capital to our business segments. Our Insurance platform continues to be allocated capital based on fully diversified
economic capital. Risk-based capital attribution provides a uniform base for performance measurement among business
segments, which compares to our overall corporate return objective and facilitates management decisions in resource allocation
in conjunction with other factors.
The calculation and attribution of capital involves a number of assumptions and judgments by management which are
monitored to ensure that the regulatory capital framework remains comprehensive and consistent. The models are benchmarked
to leading industry practices via participation in surveys, reviews of methodologies and ongoing interaction with external risk
management industry professionals.
For additional information on the risks highlighted below, refer to the Risk management section.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
123
Royal Bank of
Canada
Attributed capital
(1)
Credit
49%
Market
4
Operational
8
Leverage
ratio
exposure
15
Goodwill
and other
intangibles
20
Other
(2)
4
Personal Banking
RWA (C$ millions)
(1)
Credit
$115,903
Market
173
Operational
28,987
$145,063
RWA
(C$ millions)
(1)
Credit
$122,071
Market
9
Operational
10,830
$132,910
RWA
(C$ millions)
(1)
Credit
$92,989
Market
1,031
Operational
29,922
$123,942
RWA
(C$ millions)
(1), (3)
Credit
$15,732
Market
0
Operational
0
$15,732
RWA
(C$ millions)
(1)
Credit
$187,280
Market
32,279
Operational
19,222
$238,781
Commercial
Banking
Insurance
Capital Markets
Wealth
Management
Attributed capital
(1)
Credit
42
%
Market
0
Operational
10
Leverage
ratio
exposure
15
Goodwill
and other
intangibles
28
Other
(2)
5
Attributed capital
(1)
Credit
66%
Market
0
Operational
6
Leverage
ratio
exposure
7
Goodwill
and other
intangibles
19
Other
(2)
2
Attributed capital
(1)
Credit
36%
Market
1
Operational
11
Leverage
ratio
exposure
5
Goodwill
and other
intangibles
41
Other
(2)
6
Attributed capital
(1)
Based on Economic
Capital:
Other
(2)
100%
Attributed capital
(1)
Credit
51%
Market
9
Operational
6
Leverage
ratio
exposure
25
Goodwill
and other
intangibles
7
Other
(2)
2
RWA (C$ millions)
(1)
Credit
$548,809
Market
33,930
Operational
89,543
$672,282
Leverage
ratio
exposure
(C$ million)
(1)
$2,344,228
(1)
RWA and Leverage ratio exposure amount represents period-end spot balances. Attributed Capital represents average balances.
(2)
Other includes (a) non-Insurance segments: equity required to underpin Basel III regulatory capital deductions other than Goodwill and other intangibles and
(b) Insurance segment: equity required to underpin risks associated with the business.
(3)
Insurance RWA represents our investments in the insurance subsidiaries capitalized at the regulatory prescribed rate as required under the OSFI CAR guideline.
Other considerations affecting capital
Capital treatment for equity investments in other entities is determined by a combination of accounting and regulatory
guidelines based on the size or nature of the investment. Three broad approaches apply as follows:
•
Consolidation: entities which we control are consolidated on our Consolidated Balance Sheets.
•
Deduction: certain holdings are deducted from our regulatory capital. These include all unconsolidated “substantial
investments”, as defined by the
Bank Act
(Canada) in the capital of financial institutions, as well as all investments in
insurance subsidiaries and certain equity investments in funds.
•
Risk-weighting: equity investments that are not deducted from capital are risk-weighted at a prescribed rate for
determination of capital charges.
Regulatory capital approach for securitization exposures
Our securitization regulatory capital approach reflects Chapter 6 of OSFI’s CAR guidelines. For our securitization exposures, we
use an internal assessment approach (IAA) for exposures related to our ABCP business, and as per regulatory guidelines for
other securitization exposures we use a combination of approaches including an external ratings-based approach, an IRB
approach and a standardized approach.
While our IAA rating methodologies are based in large part on criteria that are published by External Credit Assessment
Institutions (ECAIs) such as S&P and therefore are similar to the methodologies used by these institutions, they are not identical.
Our ratings process includes a comparison of the available credit enhancement in a securitization structure to a stressed level of
projected losses. The stress level used is determined by the desired risk profile of the transaction. As a result, we stress the cash
flows of a given transaction at a higher level in order to achieve a higher rating. Conversely, transactions that only pass lower
stress levels achieve lower ratings.
124
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Many of the other securitization exposures (non-ABCP) carry external ratings and we use the external ratings-based
approach, otherwise will follow the SA, for determining the proper capital allocation for these positions. We periodically compare
our own ratings to ECAIs ratings to ensure that the ratings provided by ECAIs are reasonable.
GRM is responsible for providing risk assessments for capital purposes in respect of all our banking book exposures. GRM is
independent of the business originating the securitization exposures and performs its own analysis, sometimes in conjunction
with but always independent of the applicable business. GRM has developed asset class specific criteria guidelines which
provide the rating methodologies for each asset class. The guidelines are reviewed periodically and are subject to the ratings
replication process mandated by Pillar I of the Basel rules.
Regulatory developments
On November 1, 2023, we adopted OSFI’s Parental Stand-Alone (Solo) Total Loss Absorbing Capacity (TLAC) Framework for
D-SIBs, which establishes a risk-based measure intended to ensure a non-viable D-SIB has sufficient loss absorbing capacity on a
stand-alone, legal entity basis to support its resolution. D-SIBs must maintain a minimum Solo TLAC ratio of 21.5%, and we are
compliant with the requirements set out in this new framework.
Accounting and control matters
Critical accounting policies and estimates
Application of critical accounting policies, judgments, estimates and assumptions
Our material accounting policies are described in Note 2 of our 2024 Annual Consolidated Financial Statements. Certain of these
policies and related estimates are recognized as critical because they require us to make particularly subjective or complex
judgments about matters that are inherently uncertain and significantly different amounts could be reported under different
conditions or using different assumptions. Our critical accounting judgments, estimates and assumptions relate to the fair value
of financial instruments, ACL, goodwill and other intangible assets, employee benefits, consolidation of structured entities,
derecognition of financial assets, application of the effective interest method, provisions, insurance and reinsurance contracts,
and income taxes. Our critical accounting policies and estimates have been reviewed and approved by our Audit Committee, in
consultation with management, as part of their review and approval of our material accounting policies, judgments, estimates
and assumptions.
Changes in accounting policies
During the first quarter of 2024, we adopted IFRS 17
Insurance Contracts
(IFRS 17), replacing IFRS 4
Insurance Contracts
(IFRS 4).
Our updated critical accounting policies and estimates for insurance and reinsurance contracts are described below. We have
applied IFRS 17 retrospectively and restated comparative period results beginning November 1, 2022. Adjustments to the carrying
amounts of insurance and reinsurance contracts at the transition date of November 1, 2022 were recognized in Retained
earnings. The comparative period information for insurance and reinsurance contracts prior to November 1, 2022 is presented in
accordance with our previous accounting policies.
As permitted by the transition provisions of IFRS 17, we reclassified certain financial assets between fair value classification
categories at the date of initial application of IFRS 17. The reclassifications resulted in no adjustments to the carrying amounts of
financial assets as at November 1, 2023. Retained earnings and Other components of equity as at November 1, 2023 were adjusted
as a result with no net impact to total equity. As permitted, we elected not to restate comparative period results for these
changes and accordingly, comparative period information for the impacted financial assets prior to November 1, 2023 is
presented in accordance with our previous classifications.
Refer to Note 2 of our 2024 Annual Consolidated Financial Statements for details of these changes.
Fair value of financial instruments
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. We determine fair value by incorporating factors that
market participants would consider in setting a price, including commonly accepted valuation approaches.
We give priority to third-party pricing services and valuation techniques with the highest and most consistent accuracy. The
level of accuracy is determined over time by comparing third-party price values to traders’ or system values, other pricing
service values and, when available, actual trade data. Other valuation techniques are used when a price or quote is not available.
Some valuation processes use models to determine fair value. We have a systematic and consistent approach to control the use
of models.
In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). Determination of fair value based on this hierarchy requires the use of observable
market data whenever available. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities
that we have the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model inputs that are
either observable, or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs include one or more inputs that are unobservable and significant to the fair value of the asset or liability.
Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement
date. The availability of inputs for valuation may affect the selection of valuation techniques. The classification of a financial
instrument in the fair value hierarchy for disclosure purposes is based upon the lowest level of input that is significant to the
measurement of fair value.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
125
Where observable prices or inputs are not available, management judgment is required to determine fair values by
assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through
extrapolation and interpolation techniques. For more complex or illiquid instruments, significant judgment is required in the
determination of the model used, the selection of model inputs, and in some cases, the application of valuation adjustments to
the model value or quoted price for inactively traded financial instruments. The selection of model inputs may be subjective and
the inputs may be unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available from
which to determine the level at which the transaction would occur under normal business circumstances. Appropriate parameter
uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all
such instances.
Valuation adjustments may be subjective as they require significant judgment in the input selection, such as implied PD and
recovery rate, and are intended to arrive at a fair value that is determined based on assumptions that market participants would
use in pricing the financial instrument. The ultimate realized price for a transaction may differ from its recorded fair value
estimated using management judgment.
For further information on the fair value of financial instruments, refer to Notes 2 and 3 of our 2024 Annual Consolidated
Financial Statements.
Allowance for credit losses
An allowance for credit losses (ACL) is established for all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment
assessment include loans, debt securities, interest-bearing deposits with banks, customers’ liability under acceptances, accounts
and accrued interest receivable, and finance and operating lease receivables. Off-balance sheet items subject to impairment
assessment include financial guarantees and undrawn loan commitments.
We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:
•
Performing financial assets
•
Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant
increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses
expected to result from defaults occurring over the 12 months following the reporting date.
•
Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss
allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.
•
Impaired financial assets
•
Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit
losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying
amount of the asset, net of the loss allowance, rather than on its gross carrying amount.
The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant
time horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn
over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required under
the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the cash
flows used in measuring the lease receivable.
The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.
Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the three
stages, the inclusion of forward looking information and the application of expert credit judgment. The underlying assumptions
and estimates may result in changes to the provisions from period to period that significantly affect our results of operations.
For further information on ACL, refer to Notes 2, 4 and 5 of our 2024 Annual Consolidated Financial Statements.
Goodwill and other intangible assets
We allocate goodwill to groups of cash-generating units (CGU). Goodwill is not amortized and is tested for impairment on an
annual basis, or more frequently if there are objective indications of impairment. We test for impairment by comparing the
recoverable amount of a CGU with its carrying amount.
We estimate the value in use and fair value less costs of disposal of our CGUs primarily using a discounted cash flow method
which incorporates each CGU’s internal forecasts of revenues and expenses. Significant management judgment is applied in the
determination of expected future cash flows (uncertainty in timing and amount), discount rates (based on CGU-specific risks)
and terminal growth rates. CGU-specific risks include country risk, business/operational risk, geographic risk (including political
risk, devaluation risk and government regulation), currency risk and price risk (including product pricing risk and inflation). If the
future cash flows and other assumptions in future periods deviate significantly from the current amounts used in our impairment
testing, the value of our goodwill could become impaired.
We assess for indicators of impairment of our other intangible assets at each reporting period. If there is an indication that
an asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to its
recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the
recoverable amount of the CGU to which the asset belongs. Significant judgment is applied in estimating the useful lives and
recoverable amounts of our intangible assets and assessing whether certain events or circumstances constitute objective
evidence of impairment.
For further details, refer to Notes 2 and 11 of our 2024 Annual Consolidated Financial Statements.
126
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Employee benefits
We sponsor a number of benefit programs for eligible employees, including registered pension plans, supplemental pension
plans, health, dental, disability and life insurance plans.
The calculation of defined benefit expenses and obligations depends on various assumptions such as discount rates,
healthcare cost trend rates, projected salary increases, retirement age, and mortality and termination rates. Discount rates are
determined using a yield curve based on spot rates from high quality corporate bonds. All other assumptions are determined by
us and are reviewed by the actuaries. Actual experience that differs from the actuarial assumptions will affect the amounts of
benefit obligations and remeasurements that we recognize. The weighted average assumptions used and the sensitivity of key
assumptions are presented in Note 16 of our 2024 Annual Consolidated Financial Statements.
Consolidation of structured entities
Subsidiaries are those entities, including structured entities, over which we have control. We control an entity when we are
exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns
through our power over the investee. We have power over an entity when we have existing rights that give us the current ability
to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on the
basis of voting rights or, in the case of structured entities, other contractual arrangements.
We are not deemed to control an entity when we exercise power over an entity as the agent of a third party or parties. In
determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties
to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by other
parties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.
The determination of control is based on the current facts and circumstances and is continuously assessed. In some
circumstances, different factors and conditions may indicate that various parties control an entity depending on whether those
factors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control
an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether we
are exercising our power as a principal or an agent.
We consolidate all subsidiaries from the date we obtain control, and cease consolidation when an entity is no longer
controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and expenses
reported in our Consolidated Financial Statements.
For further details, refer to Note 8 of our 2024 Annual Consolidated Financial Statements.
Derecognition of financial assets
We periodically enter into transactions in which we transfer financial assets such as loans or MBS to structured entities or trusts
that issue securities to investors. We derecognize the assets when our contractual rights to the cash flows from the assets have
expired; when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those cash flows to a
third party subject to certain pass-through requirements; or when we transfer our contractual rights to receive the cash flows
and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially all of the risks
and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated Balance Sheets and
are accounted for as secured financing transactions. When we neither retain nor transfer substantially all risks and rewards of
ownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain control over the
transferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement. Management
judgment is applied in determining whether we have transferred or retained substantially all risk and rewards of ownership of the
transferred financial asset.
The majority of assets transferred under repurchase agreements, securities lending agreements, to our mortgage fund and in
our Canadian residential mortgage securitization transactions do not qualify for derecognition. As a result, we continue to record
the associated transferred assets on our Consolidated Balance Sheets and no gains or losses are recognized for those
securitization activities. Otherwise, a gain or loss is recognized on securitization by comparing the carrying amount of the
transferred asset with its fair value at the date of the transfer. For further information on derecognition of financial assets, refer
to Notes 2 and 7 of our 2024 Annual Consolidated Financial Statements.
Application of the effective interest method
Interest income and interest expense are generally recognized for all interest-bearing financial instruments using the effective
interest method. The effective interest rate is the rate that discounts estimated future cash flows over the expected life of the
financial asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in determining the
effective interest rate due to uncertainty in the timing and amounts of future cash flows.
Provisions
Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the consideration
required to settle the present obligation at the reporting date. Significant judgment is required in determining whether a present
obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions related to litigation,
asset retirement obligations and other items.
The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting the timing
and amount of future cash flows. We record our provisions on the basis of all available information at the end of the reporting
period and make adjustments on a quarterly basis to reflect current expectations. Should actual results differ from our
expectations, we may incur expenses in excess of the provisions recognized.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
127
Insurance and reinsurance contracts
For insurance and reinsurance contracts measured using the general measurement method or variable fee approach, the
carrying amount of a group of contracts is measured as the sum of the fulfilment cash flows and CSM. The fulfilment cash flows
consist of the present value of future cash flows and a risk adjustment for non-financial risk, discounted using the current rates
as at the reporting date determined using the discount rate methodologies below. The estimates of future cash flows consider
probability-weighted scenarios and include all future cash flows that are within the contract boundary. The risk adjustment for
non-financial risk is estimated using the margin approach and represents the compensation that we require for bearing the
uncertainty about the amount and timing of cash flows that arise from non-financial risk as the insurance contract is fulfilled. The
measurement of the group of contracts requires the use of judgment in setting methodologies and assumptions for morbidity,
mortality, longevity, policy lapses and other policyholder behaviour, discount rates, policy dividends, and directly attributable
expenses, including acquisition expenses allocated using a systematic and rational method. Changes to the underlying
assumptions and estimates may have a significant effect on Non-interest income – Insurance service result and Insurance
investment result.
Discount rates used reflect the time value of money and are based on the characteristics of the insurance and reinsurance
contracts. Cash flows that vary based on the returns on underlying items are discounted at rates reflecting that variability. For
cash flows that do not vary based on the returns on underlying items, we predominantly apply the top-down approach in
determining discount rates. Under this approach, the discount rates for the observable periods are determined using yield curves
implied from a reference portfolio of assets adjusted to eliminate factors (market and credit risk of the financial assets) that are
not relevant to the insurance contracts. For unobservable periods, the discount rates are interpolated using the last observable
point and the ultimate discount rate that is composed of a risk-free rate and illiquidity premium. For a selected portfolio, the
bottom-up approach is applied in determining the discount rate, which uses a risk-free rate plus an illiquidity premium to reflect
the characteristics of the contracts. Management judgment is required in estimating the market and credit risk factors and
illiquidity premiums in determining the discount rates.
For insurance contracts, the CSM represents the unearned profit (net inflows) for providing insurance coverage. For
reinsurance contracts held, the CSM represents the net cost or net gain of purchasing reinsurance. The CSM for insurance and
reinsurance contacts are released into income based on coverage units, which represent the quantity of service (insurance
coverage as well as investment-return and investment-related services) provided by a group of contracts and are determined by
considering the quantity of benefits provided under each contract and the expected coverage duration.
Refer to Note 2 of our 2024 Annual Consolidated Financial Statements for further information.
Income taxes
We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially subject to
different interpretations by us and the relevant taxation authority. Management judgment is applied in interpreting the relevant
tax laws, in assessing the probability of acceptance of our tax positions by the relevant tax authorities and in estimating the
expected timing and amount of the provision for current and deferred income taxes. A deferred tax asset or liability is determined
for each temporary difference based on the tax rates that are expected to be in effect in the period that the asset is realized or
the liability is settled, except for earnings related to our subsidiaries, branches, associates and interests in joint ventures where
the temporary differences will not reverse in the foreseeable future and we have the ability to control the timing of reversal.
On a quarterly basis, we review whether it is probable that the benefits associated with our deferred tax assets will be
realized, using both positive and negative evidence. Refer to Note 21 of our 2024 Annual Consolidated Financial Statements for
further information.
Future changes in accounting policy and disclosure
Amendments to the Classification and Measurement of Financial Instruments
In May 2024, the IASB issued
Amendments to the Classification and Measurement of Financial Instruments
which amends IFRS 9
Financial Instruments
and IFRS 7
Financial Instruments: Disclosures
(the Amendments). The Amendments clarify classification
guidance for financial assets with environmental, social and governance-linked features and introduce additional related
disclosure requirements. The Amendments will be effective for us on November 1, 2026. We are currently assessing the impact of
adopting the Amendments on our Consolidated Financial Statements.
IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18)
In April 2024, the IASB issued IFRS 18, which sets out requirements for the presentation and disclosure of information in the
financial statements. IFRS 18 will replace IAS 1 Presentation of Financial Statements and accompanies limited amendments to
other standards which will be effective upon the adoption of the new standard. The standard introduces new defined subtotals to
be presented in the Consolidated Statements of Income, disclosure of management-defined performance measures and
requirements for grouping of information. This standard will be effective for us on November 1, 2027. We are currently assessing
the impact of adopting this standard on our Consolidated Financial Statements.
128
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Controls and procedures
Disclosure controls and procedures
Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed
by us in reports filed or submitted under Canadian and U.S. securities laws is recorded, processed, summarized and reported
within the time periods specified under those laws and include controls and procedures that are designed to ensure that
information is accumulated and communicated to management, including the President and Chief Executive Officer, and the
Chief Financial Officer, to allow timely decisions regarding required disclosure.
As of October 31, 2024, management evaluated, under the supervision of and with the participation of the President and Chief
Executive Officer and the Chief Financial Officer, the effectiveness of our disclosure controls and procedures as defined under
rules adopted by the Canadian securities regulatory authorities and the U.S. SEC. Based on that evaluation, the President and
Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of
October 31, 2024.
Internal control over financial reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with IFRS. However, because of its inherent limitations,
internal control over financial reporting may not prevent or detect misstatements on a timely basis. See Management’s Report on
Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm.
There were no changes in our internal control over financial reporting during the year ended October 31, 2024 that have
materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. While we
implemented and modified certain internal controls over financial reporting as a result of the HSBC Canada transaction and the
November 1, 2023 adoption of the IFRS 17 standard, these changes did not have a material impact on our internal control over
financial reporting.
Related party transactions
In the ordinary course of business, we provide normal banking services and operational services, and enter into other
transactions with associated and other related corporations, including our joint venture entities, on terms similar to those
offered to non-related parties. We grant loans to directors, officers and other employees at rates normally accorded to preferred
clients. In addition, we offer deferred share and other plans to non-employee directors, executives and certain other key
employees. For further information, refer to Notes 12 and 25 of our 2024 Annual Consolidated Financial Statements.
Supplementary information
Selected annual information
Table 70
(Millions of Canadian dollars, except per share amounts)
2024
2023
(1)
2022
(1)
Total revenue
$
57,344
$
51,464
$
48,985
Net income attributable to:
Shareholders
16,230
14,605
15,794
Non-controlling interest
10
7
13
$
16,240
$
14,612
$
15,807
Basic earnings per share
$
11.27
$
10.33
$
11.08
Diluted earnings per share
11.25
10.32
11.06
Dividends declared per common shares
5.60
5.34
4.96
Total assets
$ 2,171,582
$ 2,006,531
$ 1,917,219
Deposits
1,409,531
1,231,687
1,208,814
(1)
Effective November 1, 2023, we adopted IFRS 17
Insurance Contracts
retrospectively and restated the period ended October 31, 2023. Results for the period ended
October 31, 2022 are reported in accordance with IFRS 4
Insurance Contracts
in this 2024 Annual Report. Refer to Note 2 of our 2024 Annual Consolidated Financial
Statements for further details on these changes.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
129
Net interest income on average assets and liabilities
Table 71
Average balances
Interest
Average rate
(Millions of Canadian dollars, except for percentage amounts)
2024
2023
(1)
2024
2023
(1)
2024
2023
(1)
Assets
Deposits with other banks
Canada
$
13,170
$
13,607
$
1,468
$
1,698
11.15%
12.48%
U.S.
74,409
88,774
3,906
3,963
5.25
4.46
Other International
7,527
15,402
748
1,191
9.94
7.73
95,106
117,783
6,122
6,852
6.44
5.82
Securities
Trading
176,632
154,741
7,927
7,465
4.49
4.82
Investment, net of applicable allowance
226,256
180,174
9,741
7,047
4.31
3.91
402,888
334,915
17,668
14,512
4.39
4.33
Asset purchased under reverse repurchase agreements and securities
borrowed
396,552
383,246
27,121
22,164
6.84
5.78
Loans
(2)
Canada
Retail
541,468
502,459
29,663
23,862
5.48
4.75
Wholesale
165,911
120,047
12,295
8,878
7.41
7.40
707,379
622,506
41,958
32,740
5.93
5.26
U.S.
159,046
158,443
8,362
6,891
5.26
4.35
Other International
51,263
50,782
3,720
3,832
7.26
7.55
917,688
831,731
54,040
43,463
5.89
5.23
Total interest-earning assets
1,812,234
1,667,675
104,951
86,991
5.79
5.22
Non-interest-bearing deposits with other banks
60,220
71,959
–
–
–
–
Customers’ liability under acceptances
9,094
19,912
–
–
–
–
Other assets
226,909
244,880
–
–
–
–
Total assets
$ 2,108,457
$ 2,004,426
$ 104,951
$ 86,991
4.98%
4.34%
Liabilities and shareholders’ equity
Deposits
(3)
Canada
$
892,275
$
770,309
$
36,999
$ 27,627
4.15%
3.59%
U.S.
155,928
153,838
6,377
5,383
4.09
3.50
Other International
83,069
93,658
3,880
3,669
4.67
3.92
1,131,272
1,017,805
47,256
36,679
4.18
3.60
Obligations related to securities sold short
35,826
36,365
2,766
2,933
7.72
8.07
Obligations related to assets sold under repurchase agreements and
securities loaned
374,099
352,282
25,479
20,433
6.81
5.80
Subordinated debentures
12,641
11,036
775
666
6.13
6.03
Other interest-bearing liabilities
25,166
37,639
722
1,151
2.87
3.06
Total interest-bearing liabilities
1,579,004
1,455,127
76,998
61,862
4.88
4.25
Non-interest-bearing deposits
185,758
193,815
–
–
–
–
Acceptances
9,138
19,954
–
–
–
–
Other liabilities
215,342
227,143
–
–
–
–
Total liabilities
$ 1,989,242
$ 1,896,039
$
76,998
$ 61,862
3.87%
3.26%
Equity
$
119,215
$
108,387
n.a.
n.a.
n.a.
n.a.
Total liabilities and shareholders’ equity
$ 2,108,457
$ 2,004,426
$
76,998
$ 61,862
3.65%
3.09%
Net interest income and margin
$ 2,108,457
$ 2,004,426
$
27,953
$ 25,129
1.33%
1.25%
Net interest income and margin (average earning assets, net)
(4)
Canada
$ 1,088,773
$
970,243
$
22,281
$ 18,752
2.05%
1.93%
U.S.
526,059
497,556
4,268
5,065
0.81
1.02
Other International
197,401
208,221
1,404
1,312
0.71
0.63
Total
$ 1,812,233
$ 1,676,020
$
27,953
$ 25,129
1.54%
1.50%
(1)
Amounts have been restated from those previously presented as part of the adoption of IFRS 17, effective November 1, 2023. Refer to Note 2 of our 2024 Annual
Consolidated Financial Statements for further details on these changes.
(2)
Interest income includes loan fees of $1,165 million (2023 – $1,149 million; 2022 – $1,033 million).
(3)
Deposits include personal chequing and savings deposits with average balances of $254 billion (2023 – $250 billion; 2022 – $279 billion), interest expense of $3,580 million
(2023 – $2,840 million; 2022 – $712 million) and average rates of 1.41% (2023 – 1.14%; 2022 – 0.26%). Deposits also include term deposits with average balances of
$701 billion (2023 – $624 billion; 2022 – $500 billion), interest expense of $31,520 million (2023 – $24,260 million; 2022 – $7,323 million) and average rates of 4.50%
(2023 – 3.89%; 2022 – 1.46%).
(4)
Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.
n.a.
not applicable
130
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Change in net interest income
Table 72
2024 vs. 2023
2023 vs. 2022
Increase (decrease) due to
changes in
Increase (decrease) due to
changes in
(Millions of Canadian dollars)
Average
volume
(1)
Average
rate
(1)
Net change
Average
volume (1)
Average
rate (1)
Net change
Assets
Deposits with other banks
Canada
(2)
$
(55)
$
(175)
$
(230)
$
22
$
1,094
$
1,116
U.S.
(2)
(641)
583
(58)
76
2,976
3,052
Other international
(2)
(609)
166
(443)
(66)
1,053
987
Securities
Trading
1,056
(594)
462
690
2,021
2,711
Investment, net of applicable allowance
1,802
892
2,694
457
4,282
4,739
Asset purchased under reverse repurchase
agreements and securities borrowed
770
4,187
4,957
351
16,366
16,717
Loans
Canada
(2)
Retail
(2)
1,853
3,948
5,801
752
7,964
8,716
Wholesale
(2)
3,392
25
3,417
882
2,652
3,534
U.S.
(2)
26
1,445
1,471
634
2,220
2,854
Other international
(2)
36
(148)
(112)
47
1,747
1,794
Total interest income
$
7,630
$
10,329
$ 17,959
$
3,845
$
42,375
$
46,220
Liabilities
Deposits
Canada
(2)
4,374
4,997
9,371
1,086
17,881
18,967
U.S.
(2)
73
921
994
5
4,334
4,339
Other international
(2)
(415)
626
211
(77)
2,699
2,622
Obligations related to securities sold short
(43)
(124)
(167)
(167)
691
524
Obligations related to assets sold under
repurchase agreements and securities loaned
1,265
3,781
5,046
502
15,580
16,082
Subordinated debentures
97
12
109
26
352
378
Other interest-bearing liabilities
(381)
(48)
(429)
114
782
896
Total interest expense
$
4,970
$
10,165
$ 15,135
$
1,489
$
42,319
$
43,808
Net interest income
$
2,660
$
164
$
2,824
$
2,356
$
56
$
2,412
(1)
Volume/rate variance is allocated on the percentage relationships of changes in balances and changes in rates to the total net change in net interest income.
(2)
Geographic classification for selected assets and liabilities is based on the domicile of the booking point of the subject assets and liabilities.
Loans and acceptances by geography
Table 73
As at October 31 (Millions of Canadian dollars)
2024
2023
Canada
(1)
Residential mortgages
$ 441,191
$
397,605
Personal
86,977
79,705
Credit cards
24,619
22,140
Small business
15,531
13,681
Retail
568,318
513,131
Wholesale
189,413
143,475
$ 757,731
$
656,606
U.S.
(1)
Retail
51,893
50,058
Wholesale
119,231
119,068
171,124
169,126
Other International
(1)
Retail
6,767
6,762
Wholesale
51,830
47,028
58,597
53,790
Total loans and acceptances
$ 987,452
$
879,522
Total allowance for credit losses
(6,037)
(5,054)
Total loans and acceptances, net of allowance for credit losses
$ 981,415
$
874,468
(1)
Geographic information is based on residence of borrower.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
131
Loans and acceptances by portfolio and sector
Table 74
As at October 31 (Millions of Canadian dollars)
2024
2023
Residential mortgages
$ 477,544
$
434,501
Personal
108,338
98,734
Credit cards
25,565
23,035
Small business
15,531
13,681
Retail
$ 626,978
$
569,951
Agriculture
13,065
11,026
Automotive
14,386
11,503
Banking
8,829
7,146
Consumer discretionary
23,670
17,546
Consumer staples
9,885
8,463
Oil and gas
6,362
6,421
Financial services
40,997
38,029
Financing products
18,161
13,683
Forest products
2,200
1,428
Governments
5,816
5,767
Industrial products
15,347
11,057
Information technology
5,788
5,096
Investments
21,454
18,212
Mining and metals
2,757
1,858
Public works and infrastructure
3,325
2,970
Real estate and related
102,885
90,981
Other services
31,758
27,048
Telecommunication and media
7,745
8,507
Transportation
10,450
8,038
Utilities
14,484
13,978
Other sectors
1,110
814
Wholesale
$ 360,474
$
309,571
Total loans and acceptances
$ 987,452
$
879,522
Total allowance for credit losses
(6,037)
(5,054)
Total loans and acceptances, net of allowance for credit losses
$ 981,415
$
874,468
132
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Gross impaired loans by portfolio and geography
Table 75
As at October 31 (Millions of Canadian dollars, except for percentage amounts)
2024
2023
Residential mortgages
$
1,233
$
682
Personal
408
280
Small business
321
244
Retail
1,962
1,206
Agriculture
$
127
$
36
Automotive
263
26
Banking
54
3
Consumer discretionary
401
315
Consumer staples
138
148
Oil and gas
9
17
Financial services
120
85
Financing products
228
–
Forest products
147
9
Governments
12
16
Industrial products
235
147
Information technology
74
26
Investments
82
96
Mining and metals
3
1
Public works and infrastructure
11
15
Real estate and related
1,404
1,109
Other services
263
180
Telecommunication and media
105
186
Transportation
172
59
Utilities
30
–
Other sectors
27
24
Wholesale
(1)
3,905
2,498
Total GIL
(2)
$
5,867
$
3,704
Canada
(3)
Residential mortgages
$
1,007
$
481
Personal
354
247
Small business
321
244
Retail
1,682
972
Agriculture
126
16
Automotive
238
24
Banking
54
3
Consumer discretionary
298
195
Consumer staples
67
55
Oil and gas
9
17
Financial services
24
–
Financing products
228
–
Forest products
147
9
Governments
10
13
Industrial products
137
42
Information technology
38
8
Investments
21
20
Mining and metals
3
1
Public works and infrastructure
6
10
Real estate and related
750
168
Other services
140
72
Telecommunication and media
15
4
Transportation
139
27
Utilities
–
–
Other sectors
1
1
Wholesale
2,451
685
Total
$
4,133
$
1,657
U.S.
(3)
Retail
$
125
$
53
Wholesale
1,165
1,469
Total
$
1,290
$
1,522
Other International
(3)
Retail
$
155
$
181
Wholesale
289
344
Total
$
444
$
525
Total GIL
$
5,867
$
3,704
Allowance on impaired loans
(1,516)
(1,148)
Net impaired loans
$
4,351
$
2,556
GIL as a % of loans and acceptances
Residential mortgages
0.26%
0.16%
Personal
0.38%
0.28%
Small business
2.07%
1.78%
Retail
0.31%
0.21%
Wholesale
1.08%
0.81%
Total
0.59%
0.42%
Allowance on impaired loans as a % of GIL
25.85%
31.00%
(1)
Includes $109 million of purchased credit-impaired loans acquired in the HSBC Canada transaction.
(2)
Past due loans greater than 90 days not included in impaired loans were $267 million in 2024
(2023 – $257 million). For further details, refer to Note 5 of our 2024 Annual
Consolidated Financial Statements.
(3)
Geographic information is based on residence of borrower.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
133
Provision for credit losses by portfolio and geography
Table 76
For the year ended October 31 (Millions of Canadian dollars, except for percentage amounts)
2024
2023
Residential mortgages
$
86
$
63
Personal
680
467
Credit cards
670
460
Small business
150
61
Retail
1,586
1,051
Agriculture
$
24
$
20
Automotive
115
8
Banking
33
–
Consumer discretionary
97
143
Consumer staples
59
51
Oil and gas
(51)
11
Financial services
19
10
Financing products
40
–
Forest products
48
5
Governments
2
(1)
Industrial products
68
56
Information technology
21
12
Investments
3
15
Mining and metals
(1)
(1)
Public works and infrastructure
(6)
(3)
Real estate and related
403
222
Other services
40
72
Telecommunication and media
42
85
Transportation
63
74
Utilities
3
–
Other sectors
12
6
Wholesale
1,034
785
Total PCL on impaired loans
$
2,620
$
1,836
Canada
(1)
Residential mortgages
$
96
$
61
Personal
672
463
Credit cards
653
449
Small business
150
61
Retail
1,571
1,034
Agriculture
24
4
Automotive
114
7
Banking
36
–
Consumer discretionary
86
101
Consumer staples
33
34
Oil and gas
(4)
(2)
Financial services
11
1
Financing products
40
–
Forest products
48
5
Governments
2
(1)
Industrial products
61
16
Information technology
18
2
Investments
1
8
Mining and metals
(1)
–
Public works and infrastructure
(6)
2
Real estate and related
116
41
Other services
32
12
Telecommunication and media
8
1
Transportation
44
9
Utilities
–
–
Other sectors
–
(1)
Wholesale
663
239
Total
$
2,234
$
1,273
U.S.
(1)
Retail
$
33
$
17
Wholesale
366
509
Total
$
399
$
526
Other International
(1)
Retail
$
(19)
$
–
Wholesale
6
37
Total
$
(13)
$
37
Total PCL on impaired loans
$
2,620
$
1,836
Total PCL on performing loans
627
660
Total PCL on other financial assets
(15)
(28)
Total PCL
$
3,232
$
2,468
PCL on loans as a % of average net loans and acceptances
0.35%
0.29%
PCL on impaired loans as a % of average net loans and acceptances
(1)
0.26%
0.21%
(1)
Geographic information is based on residence of borrower.
134
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Allowance on loans by portfolio and geography
(1)
Table 77
As at and for the year ended October 31 (Millions of Canadian dollars, except percentage amounts)
2024
2023
Allowance against impaired loans
Canada
(2)
Residential mortgages
$
163
$
86
Personal
185
138
Small business
105
58
Retail
$
453
$
282
Agriculture
$
26
$
4
Automotive
104
5
Banking
34
1
Consumer discretionary
54
85
Consumer staples
40
30
Oil and gas
1
4
Financial services
11
1
Financing products
39
–
Forest products
45
3
Governments
1
–
Industrial products
57
18
Information technology
15
2
Investments
7
7
Mining and metals
1
1
Public works and infrastructure
5
5
Real estate and related
127
41
Other services
26
5
Telecommunication and media
6
1
Transportation
44
8
Utilities
–
–
Other sectors
–
–
Wholesale
$
643
$
221
Total
$
1,096
$
503
U.S.
(2)
Retail
$
19
$
7
Wholesale
237
445
Total
$
256
$
452
Other International
(2)
Retail
$
76
$
92
Wholesale
88
101
Total
$
164
$
193
Total allowance on impaired loans
$
1,516
$
1,148
Allowance on performing loans
Residential mortgages
$
341
$
313
Personal
1,272
1,073
Credit cards
1,232
1,069
Small business
166
136
Retail
$
3,011
$
2,591
Wholesale
$
1,825
$
1,609
Total allowance on performing loans
$
4,836
$
4,200
Total allowance on loans
$
6,352
$
5,348
Key ratios
Allowance on loans as a % of loans and acceptances
0.64%
0.61%
Net write-offs as a % of average net loans and acceptances
0.22%
0.14%
(1)
Includes loans, acceptances, and commitments.
(2)
Geographic information is based on residence of borrower.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
135
Credit quality information by Canadian province
(1)
Table 78
As at and for the year ended October 31 (Millions of Canadian dollars)
2024
2023
Loans and acceptances
Atlantic provinces
(2)
$
35,501
$
32,513
Quebec
86,426
76,204
Ontario
369,949
321,139
Alberta
82,860
76,018
Other Prairie provinces
(3)
38,766
36,076
B.C. and territories
(4)
144,229
114,656
Total loans and acceptances in Canada
$
757,731
$
656,606
Gross impaired loans
Atlantic provinces
(2)
$
148
$
122
Quebec
366
275
Ontario
2,219
689
Alberta
666
260
Other Prairie provinces
(3)
181
137
B.C. and territories
(4)
553
174
Total GIL in Canada
$
4,133
$
1,657
PCL on impaired loans
Atlantic provinces
(2)
$
46
$
52
Quebec
168
81
Ontario
1,510
901
Alberta
217
99
Other Prairie provinces
(3)
80
55
B.C. and territories
(4)
213
85
Total PCL on impaired loans in Canada
$
2,234
$
1,273
(1)
Geographic information is based on residence of borrower.
(2)
Comprises Newfoundland and Labrador, Prince Edward Island, Nova Scotia and New Brunswick.
(3)
Comprises Manitoba and Saskatchewan.
(4)
Comprises British Columbia, Nunavut, Northwest Territories and Yukon.
136
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Glossary
Adjusted Results and Measures
We believe that providing adjusted results as
well as certain measures and ratios enhances
comparability with prior periods and enables
readers to better assess trends in the
underlying businesses. For further details,
including a reconciliation, refer to the Key
performance and non-GAAP measures section.
•
Adjusted effective income tax rate
–
calculated as effective income tax rate
excluding the impact of specified items
and amortization of acquisition-related
intangibles.
•
Adjusted income before income taxes
–
calculated as income before income
taxes excluding the impact of specified
items and amortization of acquisition-
related intangibles.
•
Adjusted income taxes
– calculated as
income taxes excluding the impact of
specified items and amortization of
acquisition-related intangibles.
•
Adjusted net income
– calculated as net
income excluding the impact of specified
items and amortization of acquisition-
related intangibles.
•
Adjusted net income available to
common shareholders
– calculated as net
income available to common
shareholders excluding the impact of
specified items and amortization of
acquisition-related intangibles.
•
Adjusted non-interest expense
–
calculated as non-interest expense
excluding the impact of specified items
and amortization of acquisition-related
intangibles.
•
Adjusted total revenue
– calculated as
total revenue excluding the impact of
specified items.
Acceptances
A bill of exchange or negotiable instrument
drawn by the borrower for payment at
maturity and accepted by a bank. The
acceptance constitutes a guarantee of
payment by the bank and can be traded in the
money market. The bank earns a “stamping
fee” for providing this guarantee.
Allowance for credit losses (ACL)
The amount deemed adequate by
management to absorb expected credit losses
as at the balance sheet date. The allowance is
established for all financial assets subject to
impairment assessment, including certain
loans, debt securities, customers’ liability
under acceptances, financial guarantees, and
undrawn loan commitments. The allowance is
changed by the amount of provision for credit
losses recorded, which is charged to income,
and decreased by the amount of write-offs net
of recoveries in the period.
ACL on loans ratio
ACL on loans ratio is calculated as ACL on
loans as a percentage of total loans and
acceptances.
Asset-backed securities (ABS)
Securities created through the securitization
of a pool of assets, for example auto loans or
credit card loans.
Assets under administration (AUA)
Assets administered by us, which are
beneficially owned by clients, unless otherwise
noted. Services provided in respect of assets
under administration are of an administrative
nature, including safekeeping, collecting
investment income, settling purchase and sale
transactions, and record keeping.
Assets under management (AUM)
Assets managed by us, which are beneficially
owned by clients, unless otherwise noted.
Services provided in respect of assets under
management include the selection of
investments and the provision of investment
advice. We have assets under management
that are also administered by us and included
in assets under administration.
Attributed capital
Attributed capital to our business segments is
based on the Basel III regulatory capital and
leverage requirements other than for our
insurance segment for which we attribute
capital based only on economic capital.
Auction rate securities (ARS)
Debt securities whose interest rates are
regularly reset through an auction process.
Average earning assets, net
Average earning assets include interest-
bearing deposits with other banks, securities,
net of applicable allowance, assets purchased
under reverse repurchase agreements and
securities borrowed, loans, net of allowance,
cash collateral and margin deposits. Insurance
assets, and all other assets not specified are
excluded. The averages are based on the daily
balances for the period.
Basis point (bp)
One one-hundredth of a percentage point
(.01%).
Collateral
Assets pledged as security for a loan or other
obligation. Collateral can take many forms,
such as cash, highly rated securities, property,
inventory, equipment and receivables.
Collateralized debt obligation (CDO)
Securities with multiple tranches that are
issued by structured entities and
collateralized by debt obligations including
bonds and loans. Each tranche offers a varying
degree of risk and return so as to meet
investor demand.
Commercial mortgage-backed securities
(CMBS)
Securities created through the securitization
of commercial mortgages.
Commitments to extend credit
Unutilized amount of credit facilities available
to clients either in the form of loans, bankers’
acceptances and other on-balance sheet
financing, or through off-balance sheet
products such as guarantees and letters of
credit.
Common Equity Tier 1 (CET1) capital
A regulatory Basel III capital measure
comprised mainly of common shareholders’
equity less regulatory deductions and
adjustments for goodwill and intangibles,
defined benefit pension fund assets, shortfall
in allowances and other specified items. The
CET1 capital is calculated in accordance with
OSFI’s CAR guideline. For more details, refer to
the Capital management section.
Common Equity Tier 1 capital ratio
A risk-based capital measure calculated as
CET1 capital divided by risk-weighted assets.
The CET1 ratio is calculated in accordance with
OSFI’s CAR guideline.
Contractual service margin (CSM)
For insurance contracts, the CSM represents
the unearned profit (net inflows) for providing
insurance coverage. For reinsurance contracts
held, the CSM represents the net cost or net
gain of purchasing reinsurance.
Covered bonds
Full recourse on-balance sheet obligations
issued by banks and credit institutions that
are fully collateralized by assets over which
investors enjoy a priority claim in the event of
an issuer’s insolvency.
Credit default swaps (CDS)
A derivative contract that provides the
purchaser with a one-time payment should the
referenced entity/entities default (or a similar
triggering event occur).
Derivative
A contract between two parties, which
requires little or no initial investment and
where payments between the parties are
dependent upon the movements in price of an
underlying instrument, index or financial rate.
Examples of derivatives include swaps,
options, forward rate agreements and futures.
The notional amount of the derivative is the
contract amount used as a reference point to
calculate the payments to be exchanged
between the two parties, and the notional
amount itself is generally not exchanged by
the parties.
Dividend payout ratio
Common dividends as a percentage of net
income available to common shareholders.
Dividend yield
Dividends per common share divided by the
average of the high and low share price in the
relevant period.
Earnings per share (EPS), basic
Calculated as net income available to common
shareholders divided by the average number
of shares outstanding. Adjusted EPS, basic is
calculated in the same manner, using adjusted
net income available to common
shareholders.
Earnings per share (EPS), diluted
Calculated as net income available to common
shareholders divided by the average number
of shares outstanding adjusted for the dilutive
effects of stock options and other convertible
securities. Adjusted EPS, diluted is calculated
in the same manner, using adjusted net
income available to common shareholders.
Efficiency ratio
Non-interest expense as a percentage of total
revenue. Adjusted efficiency ratio is calculated
in the same manner, using adjusted
non-interest expense and adjusted total
revenue.
Expected credit losses
The difference between the contractual cash
flows due to us in accordance with the
relevant contractual terms and the cash flows
that we expect to receive, discounted to the
balance sheet date.
Fair value
Fair value of a financial instrument is the price
that would be received to sell an asset or paid
to transfer a liability in an orderly transaction
between market participants at the
measurement date.
Funding valuation adjustment
Funding valuation adjustments are calculated
to incorporate cost and benefit of funding in
the valuation of uncollateralized and under-
collateralized OTC derivatives. Future expected
cash flows of these derivatives are discounted
to reflect the cost and benefit of funding the
derivatives by using a funding curve, implied
volatilities and correlations as inputs.
Guarantees and standby letters of credit
These primarily represent irrevocable
assurances that a bank will make payments in
the event that its client cannot meet its
financial obligations to third parties. Certain
other guarantees, such as bid and performance
bonds, represent non-financial undertakings.
Hedge
A risk management technique used to mitigate
exposure from market, interest rate or foreign
currency exchange risk arising from normal
banking operations. The elimination or
reduction of such exposure is accomplished by
establishing offsetting positions. For example,
assets denominated in foreign currencies can
be offset with liabilities in the same currencies
or through the use of foreign exchange
hedging instruments such as futures, options
or foreign exchange contracts.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
137
Hedge funds
A type of investment fund, marketed to
accredited high net worth investors, that is
subject to limited regulation and restrictions
on its investments compared to retail mutual
funds, and that often utilize aggressive
strategies such as selling short, leverage,
program trading, swaps, arbitrage and
derivatives.
High-quality liquid assets (HQLA)
HQLA are cash or assets that can be converted
into cash quickly through sales (or by being
pledged as collateral) with no significant loss
of value.
Impaired loans
Loans are classified as impaired when there
has been a deterioration of credit quality to
the extent that management no longer has
reasonable assurance of timely collection of
the full amount of principal and interest in
accordance with the contractual terms of the
loan agreement. Credit card balances are not
classified as impaired as they are directly
written off after payments are 180 days past
due.
Insurance contracts
Contracts under which we accept significant
insurance risk from a policyholder by agreeing
to compensate the policyholder if a specified
uncertain future event adversely affects the
policyholder. Insurance contracts also include
reinsurance contracts issued by us to
compensate another company for claims
arising from underlying insurance contracts
issued by that other company.
Insurance investment result
Calculated as Net investment income from the
Insurance segment, Insurance finance income
(expense) from insurance contracts and
Reinsurance finance income (expense) from
reinsurance contracts held.
Insurance service result
Calculated as Insurance revenue less
Insurance service expense from insurance
contracts and Net income (expense) from
reinsurance contracts held.
International Financial Reporting Standards
(IFRS)
IFRS are principles-based standards,
interpretations and the framework adopted by
the International Accounting Standards Board.
Leverage ratio
A Basel III regulatory measure, the ratio
divides Tier 1 capital by the leverage exposure
measure. The leverage ratio is a non-risk
based measure and is calculated in
accordance with OSFI’s LR guideline.
Leverage ratio exposure
The leverage ratio exposure is calculated in
accordance with OSFI’s LR guideline and is
defined as the sum of total assets plus
off-balance sheet items after certain
adjustments.
Liquidity Coverage Ratio (LCR)
The LCR is a Basel III standard that aims to
ensure that an institution has an adequate
stock of unencumbered HQLA that consists of
cash or assets that can be converted into cash
at little or no loss of value in private markets,
to meet its liquidity needs for a 30 calendar
day liquidity stress scenario. The LCR is
calculated in accordance with OSFI’s LAR
guideline.
Loan-to-value (LTV) ratio
Calculated based on the total facility amount
for the residential mortgage and RBC
Homeline Plan product divided by the value of
the related residential property.
Master netting agreement
An agreement between us and a counterparty
designed to reduce the credit risk of multiple
derivative transactions through the creation of
a legal right of offset of exposure in the event
of a default.
Net interest income
The difference between what is earned on
assets such as loans and securities and what
is paid on liabilities such as deposits and
subordinated debentures.
Net interest margin (NIM) on average
earning assets, net
Calculated as net interest income divided by
average earning assets, net.
Net Stable Funding Ratio (NSFR)
The NSFR is a Basel III standard that requires
institutions to maintain a stable funding
profile defined as available amount of stable
funding (ASF) in relation to the composition of
their assets and off-balance sheet activities
defined as required amount of stable funding
(RSF). The ratio should be at least equal to
100% on an ongoing basis. The NSFR is
calculated in accordance with OSFI’s LAR
guideline.
Normal course issuer bid (NCIB)
A program for the repurchase of our own
shares for cancellation through a stock
exchange that is subject to the various rules of
the relevant stock exchange and securities
commission.
Notional amount
The contract amount used as a reference point
to calculate payments for derivatives.
Off-balance sheet financial instruments
A variety of arrangements offered to clients,
which include credit derivatives, written put
options, backstop liquidity facilities, stable
value products, financial standby letters of
credit, performance guarantees, credit
enhancements, commitments to extend credit,
securities lending, documentary and
commercial letters of credit, sponsor member
guarantees, securities lending
indemnifications and indemnifications.
Office of the Superintendent of Financial
Institutions Canada (OSFI)
The primary regulator of federally chartered
financial institutions and federally
administered pension plans in Canada. OSFI’s
mission is to safeguard policyholders,
depositors and pension plan members from
undue loss.
Operating leverage
The difference between our revenue growth
rate and non-interest expense growth rate.
Options
A contract or a provision of a contract that
gives one party (the option holder) the right,
but not the obligation, to perform a specified
transaction with another party (the option
issuer or option writer) according to specified
terms.
Provision for credit losses (PCL)
The amount charged to income necessary to
bring the allowance for credit losses to a level
determined appropriate by management. This
includes provisions on performing and
impaired financial assets.
PCL on loans ratio
PCL on loans ratio is calculated using PCL on
loans as a percentage of average net loans
and acceptances.
RBC Homeline Plan products
This is comprised of residential mortgages and
secured personal loans whereby the borrower
pledges real estate as collateral.
Reinsurance contracts held
Contracts under which we transfer significant
insurance risk to a reinsurer that compensates
us for claims relating to underlying insurance
contracts issued by us and are accounted for
separately from the underlying insurance
contracts to which they relate.
Repurchase agreements
These involve the sale of securities for cash
and the simultaneous repurchase of the
securities for value at a later date. These
transactions normally do not constitute
economic sales and therefore are treated as
collateralized financing transactions.
Return on common equity (ROE)
Net income available to common
shareholders, expressed as a percentage of
average common equity. ROE is based on
actual balances of average common equity
before rounding. Adjusted ROE is calculated in
the same manner, using adjusted net income
available to common shareholders.
Reverse repurchase agreements
These involve the purchase of securities for
cash and the simultaneous sale of the
securities for value at a later date. These
transactions normally do not constitute
economic sales and therefore are treated as
collateralized financing transactions.
Risk-weighted assets (RWA)
Assets adjusted by a regulatory risk-weight
factor to reflect the riskiness of on- and
off-balance sheet exposures. Certain assets
are not risk-weighted, but deducted from
capital. The calculation is defined by OSFI’s
CAR guideline. For more details, refer to the
Capital management section.
Securities lending
Transactions in which the owner of securities
agrees to lend it under the terms of a
prearranged contract to a borrower for a fee.
Collateral for the loan consists of either high
quality securities or cash and collateral value
must be at least equal to the market value of
the loaned securities. Borrowers pay a
negotiated fee for loans collateralized by
securities, whereas for cash collateral lenders
pay borrowers interest at a negotiated rate
and reinvest the cash collateral to earn a
return. An intermediary such as a bank often
acts as agent lender for the owner of the
security in return for a share of the revenue
earned by the owner from lending securities.
Most often, agent lenders indemnify the owner
against the risk of the borrower’s failure to
redeliver the loaned securities – counterparty
credit risk if a borrower defaults and market
risk if the value of the non-cash collateral
declines. The agent lender does not indemnify
against the investment risk of re-investing
cash collateral which is borne by the owner.
Securities sold short
A transaction in which the seller sells
securities and then borrows the securities in
order to deliver them to the purchaser upon
settlement. At a later date, the seller buys
identical securities in the market to replace
the borrowed securities.
Securitization
The process by which various financial assets
are packaged into newly issued securities
backed by these assets.
Standardized Approach (SA) for credit risk
Risk weights prescribed by OSFI are used to
calculate RWA for the credit risk exposures.
Credit assessments by OSFI-recognized
external credit rating agencies of Standard &
Poor’s Financial Services LLP; Moody’s
Investors Service; Fitch Ratings, Inc.; DBRS
and Kroll Bond Rating Agency, Inc. are used to
risk-weight our Sovereign and Bank exposures
based on the standards and guidelines issued
by OSFI.
Structured entities
A structured entity is an entity in which voting
or similar rights are not the dominant factor in
deciding who controls the entity, such as when
the activities that significantly affect the
entity’s returns are directed by means of
contractual arrangements. Structured entities
often have restricted activities, narrow and
well defined objectives, insufficient equity to
finance their activities, and financing in the
form of multiple contractually-linked
instruments.
138
Royal Bank of Canada: Annual Report 2024
Management’s Discussion and Analysis
Taxable equivalent basis (teb)
Income from certain specified tax advantaged
sources (U.S. tax credit investment business
as well as eligible Canadian taxable corporate
dividends received on or before December 31,
2023) is increased to a level that would make it
comparable to income from taxable sources.
There is an offsetting adjustment in the tax
provision, thereby generating the same
after-tax net income.
Tier 1 capital and Tier 1 capital ratio
Tier 1 capital comprises predominantly of CET1
capital, with additional Tier 1 items such as
preferred shares, limited recourse capital
notes and non-controlling interests in
subsidiaries Tier 1 instruments. The Tier 1
capital ratio is calculated in accordance with
OSFI’s CAR guideline by dividing Tier 1 capital
by risk-weighted assets.
Tier 2 capital
Tier 2 capital consists mainly of subordinated
debentures that meet certain criteria, certain
loan loss allowances and non-controlling
interests in subsidiaries’ Tier 2 instruments.
Total loss absorbing capacity (TLAC)
The aggregate of Tier 1 capital, Tier 2 capital,
and external TLAC instruments which allow
conversion in whole or in part into common
shares under the Canada Deposit Insurance
Corporation Act and meet all of the eligibility
criteria under the guideline.
TLAC ratio
The risk-based TLAC ratio is defined as TLAC
divided by total risk-weighted assets. The TLAC
ratio is calculated in accordance with OSFI’s
TLAC guideline.
TLAC leverage ratio
The TLAC leverage ratio is defined as TLAC
divided by the leverage ratio exposure. The
TLAC leverage ratio is calculated in
accordance with OSFI’s TLAC guideline.
Total capital and total capital ratio
Total capital is defined as the total of Tier 1
and Tier 2 capital. The total capital ratio is
calculated in accordance with OSFI’s CAR
guideline by dividing total capital by risk-
weighted assets.
Tranche
A security class created whereby the risks and
returns associated with a pool of assets are
packaged into several classes of securities
offering different risk and return profiles from
those of the underlying asset pool. Tranches
are typically rated by ratings agencies, and
reflect both the credit quality of underlying
collateral as well as the level of protection
based on the tranches’ relative subordination.
Unattributed capital
Unattributed capital represents common
equity in excess of common equity attributed
to our business segments and is reported in
the Corporate Support segment.
Value-at-Risk (VaR)
A generally accepted risk-measurement
concept that uses statistical models based on
historical information to estimate within a
given level of confidence the maximum loss in
market value we would experience in our
financial portfolio from an adverse one-day
movement in market rates and prices.
Management’s Discussion and Analysis
Royal Bank of Canada: Annual Report 2024
139
EDTF recommendations index
We aim to present transparent, high-quality risk disclosures by providing disclosures in this 2024 Annual Report and
Supplementary Financial Information package (SFI), and Pillar 3 Report, in accordance with recommendations from the FSB’s
Enhanced Disclosure Task Force (EDTF). Information within the SFI and Pillar 3 Report is not and should not be considered
incorporated by reference into this 2024 Annual Report.
The following index summarizes our disclosure by EDTF recommendation:
Location of disclosure
Type of Risk
Recommendation
Disclosure
Annual Report page
SFI page
General
1
Table of contents for EDTF risk disclosure
140
1
2
Define risk terminology and measures
69-75, 137-139
–
3
Top and emerging risks
66-69
–
4
New regulatory ratios
114-120
–
Risk governance,
risk management
and business
model
5
Risk management organization
69-75
–
6
Risk culture
69-75
–
7
Risk in the context of our business activities
124
–
8
Stress testing
73, 85
–
Capital adequacy
and risk-weighted
assets (RWA)
9
Minimum Basel III capital ratios and
Domestic systemically important bank
surcharge
114-120
–
10
Composition of capital and reconciliation of
the accounting balance sheet to the
regulatory balance sheet
–
*
11
Flow statement of the movements in
regulatory capital
–
19
12
Capital strategic planning
114-120
–
13
RWA by business segments
–
20
14
Analysis of capital requirement, and related
measurement model information
75-79
*
15
RWA credit risk and related risk
measurements
–
*
16
Movement of RWA by risk type
–
20
17
Basel back-testing
72, 75-77
31
Liquidity
18
Quantitative and qualitative analysis of our
liquidity reserve
92-93, 98-99
–
Funding
19
Encumbered and unencumbered assets by
balance sheet category, and contractual
obligations for rating downgrades
94, 97
–
20
Maturity analysis of consolidated total
assets, liabilities and off-balance sheet
commitments analyzed by remaining
contractual maturity at the balance sheet
date
101-102
–
21
Sources of funding and funding strategy
94-96
–
Market risk
22
Relationship between the market risk
measures for trading and non-trading
portfolios and the balance sheet
89-90
–
23
Decomposition of market risk factors
85-90
–
24
Market risk validation and back-testing
85
–
25
Primary risk management techniques
beyond reported risk measures and
parameters
85-88
–
Credit risk
26
Bank’s credit risk profile
75-85, 187-194
21-31*
Quantitative summary of aggregate credit
risk exposures that reconciles to the
balance sheet
131-136
*
27
Policies for identifying impaired loans
77-79, 126, 157-160
–
28
Reconciliation of the opening and closing
balances of impaired loans and
impairment allowances during the year
–
23, 28
29
Quantification of gross notional exposure
for OTC derivatives or exchange-traded
derivatives
80
32
30
Credit risk mitigation, including collateral
held for all sources of credit risk
78-79
*
Other
31
Other risk types
104-113
–
32
Publicly known risk events
108-109, 236-237
–
*
These disclosure requirements are satisfied or partially satisfied by disclosures provided in our Pillar 3 Report for the quarter ended October 31, 2024 and for the year
ended October 31, 2023.
140
Royal Bank of Canada: Annual Report 2024
Index for Enhanced Disclosure Task Force recommendations
REPORTS AND CONSOLIDATED FINANCIAL STATEMENTS
Reports
142
Management’s Responsibility for Financial Reporting
142
Management’s Report on Internal Control over
Financial Reporting
143
Independent Auditor’s Report
146
Report of Independent Registered Public Accounting
Firm (PCAOB ID 271)
Consolidated Financial Statements
148
Consolidated Balance Sheets
149
Consolidated Statements of Income
150
Consolidated Statements of Comprehensive Income
151
Consolidated Statements of Changes in Equity
152
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
153
Note 1
General information
153
Note 2
Summary of material accounting policies,
estimates and judgments
170
Note 3
Fair value of financial instruments
183
Note 4
Securities
187
Note 5
Loans and allowance for credit losses
194
Note 6
Significant acquisition and disposition
195
Note 7
Derecognition of financial assets
196
Note 8
Structured entities
200
Note 9
Derivative financial instruments and
hedging activities
210
Note 10
Premises and equipment
211
Note 11
Goodwill and other intangible assets
214
Note 12
Joint ventures and associated companies
214
Note 13
Other assets
214
Note 14
Deposits
215
Note 15
Insurance and reinsurance
220
Note 16
Employee benefits – Pension and other
post-employment benefits
225
Note 17
Other liabilities
225
Note 18
Subordinated debentures
226
Note 19
Equity
229
Note 20
Share-based compensation
231
Note 21
Income taxes
233
Note 22
Earnings per share
234
Note 23
Guarantees, commitments, pledged
assets and contingencies
236
Note 24
Legal and regulatory matters
238
Note 25
Related party transactions
239
Note 26
Results by business segment
241
Note 27
Nature and extent of risks arising from
financial instruments
241
Note 28
Capital management
242
Note 29
Offsetting financial assets and financial
liabilities
244
Note 30
Recovery and settlement of on-balance
sheet assets and liabilities
245
Note 31
Parent company information
247
Note 32
Principal subsidiaries
247
Note 33
Subsequent events
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
141
Management’s Responsibility for Financial Reporting
The accompanying consolidated financial statements of Royal Bank of Canada were prepared by management, which is responsible
for the integrity and fairness of the information presented, including the many amounts that must of necessity be based on estimates
and judgments. These consolidated financial statements were prepared in accordance with the
Bank Act
(Canada) and International
Financial Reporting Standards as issued by the International Accounting Standards Board. Financial information appearing
throughout our Management’s Discussion and Analysis is consistent with these consolidated financial statements.
Our internal controls are designed to provide reasonable assurance that transactions are authorized, assets are
safeguarded and proper records are maintained. These controls include quality standards in hiring and training of employees,
policies and procedures manuals, a corporate code of conduct and accountability for performance within appropriate and
well-defined areas of responsibility.
The system of internal controls is further supported by a compliance function, which is designed to ensure that we and our
employees comply with securities legislation and conflict of interest rules, and by an internal audit staff, which conducts periodic
audits of all aspects of our operations.
The Board of Directors oversees management’s responsibilities for financial reporting through an Audit Committee, which is
composed entirely of independent directors. This Committee reviews our consolidated financial statements and recommends
them to the Board for approval. Other key responsibilities of the Audit Committee include reviewing our existing internal control
procedures and planned revisions to those procedures, and advising the directors on auditing matters and financial reporting
issues. Our Chief Compliance Officer and Chief Internal Auditor have full and unrestricted access to the Audit Committee.
The Office of the Superintendent of Financial Institutions Canada (OSFI) examines and inquires into our business and affairs
as deemed necessary to determine whether the provisions of the
Bank Act
are being complied with, and that we are in sound
financial condition. In carrying out its mandate, OSFI strives to protect the rights and interests of our depositors and creditors.
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm appointed by our shareholders upon the
recommendation of the Audit Committee and Board, has performed an independent audit of the consolidated financial
statements in accordance with Canadian generally accepted auditing standards and the standards of the Public Company
Accounting Oversight Board (United States) as stated in their Independent Auditor’s Report and Report of Independent
Registered Public Accounting Firm, respectively. The auditors have full and unrestricted access to the Audit Committee to discuss
their audit and related findings.
David I. McKay
President and Chief Executive Officer
Katherine Gibson
Chief Financial Officer
Toronto, December 3, 2024
Management’s Report on Internal Control over Financial Reporting
Management of Royal Bank of Canada is responsible for establishing and maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the President and Chief
Executive Officer and Chief Financial Officer and effected by the Board of Directors, management and other personnel to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with International Financial Reporting Standards as issued by the International Accounting Standards
Board. It includes those policies and procedures that:
•
Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions related to and
dispositions of our assets;
•
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and our receipts and expenditures are made only in accordance
with authorizations of our management and directors; and
•
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our
assets that could have a material effect on our financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely
basis. Also, projections of any evaluation of the effectiveness of internal control over financial reporting to future periods are
subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management evaluated, under the supervision of and with the participation of the President and Chief Executive Officer and
Chief Financial Officer, the effectiveness of our internal control over financial reporting as of October 31, 2024, based on the
criteria set forth in
Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the
Treadway Commission. Based on that evaluation, management concluded that, as of October 31, 2024, internal control over
financial reporting was effective based on the criteria established in the
Internal Control – Integrated Framework (2013).
The effectiveness of our internal control over financial reporting as of October 31, 2024, has been audited by
PricewaterhouseCoopers LLP, Independent Registered Public Accounting Firm, as stated in their Report of Independent
Registered Public Accounting Firm, which appears herein.
David I. McKay
President and Chief Executive Officer
Katherine Gibson
Chief Financial Officer
Toronto, December 3, 2024
142
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Independent Auditor’s Report
To the Shareholders and Board of Directors of Royal Bank of Canada
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the financial position
of Royal Bank of Canada and its subsidiaries (together, the Bank) as of October 31, 2024 and 2023, and its financial performance
and its cash flows for the years then ended in accordance with International Financial Reporting Standards as issued by the
International Accounting Standards Board (IFRS Accounting Standards).
What we have audited
The Bank’s consolidated financial statements comprise:
•
the consolidated balance sheets as of October 31, 2024 and 2023;
•
the consolidated statements of income for the years then ended;
•
the consolidated statements of comprehensive income for the years then ended;
•
the consolidated statements of changes in equity for the years then ended;
•
the consolidated statements of cash flows for the years then ended; and
•
the notes to the consolidated financial statements, comprising material accounting policy information and other
explanatory information.
Certain required disclosures have been presented elsewhere in the Management’s Discussion and Analysis, rather than in the
notes to the consolidated financial statements. These disclosures are cross-referenced from the consolidated financial
statements and are identified as audited.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our responsibilities under those
standards are further described in the
Auditor’s responsibilities for the audit of the consolidated financial statements
section of
our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of the consolidated
financial statements in Canada. We have fulfilled our other ethical responsibilities in accordance with these requirements.
Emphasis of matter – Change in Accounting Principle
We draw attention to note 2 to the consolidated financial statements, which describes that the Bank has changed its method of
accounting for insurance contracts in 2024. Our opinion is not modified in respect of this matter.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated
financial statements for the year ended October 31, 2024. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on
these matters.
Key audit matter
How our audit addressed the key audit matter
Allowance for Credit Losses on Loans Categorized as Stage 1
and Stage 2 (Stage 1 and Stage 2 ACL)
Refer to Note 2 – Summary of material accounting policies,
estimates and judgments and Note 5 – Loans and allowance for
credit losses to the consolidated financial statements.
The Bank’s allowance for credit losses on loans was
$6,352 million as of October 31, 2024 and represents
management’s estimate of expected credit losses on loans as
of the balance sheet date, of which a significant portion relates
to loans categorized as Stage 1 and Stage 2. Performing loans
are categorized as Stage 1 from initial recognition to the date
on which the loan has experienced a significant increase in
credit risk relative to its initial recognition. Performing loans
transfer into Stage 2 following a significant increase in credit
risk relative to the initial recognition. Loans are categorized as
Stage 3 when considered to be credit-impaired. As disclosed by
management, the measurement of expected credit losses on
loans is a complex calculation that involves a significant
number of interrelated inputs and assumptions such as
borrower risk ratings, forward-looking macroeconomic
conditions, scenario design and the weight assigned to each
scenario. The probability of default, loss given default and
exposure at default inputs are modelled based on the
macroeconomic variables that are most closely correlated with
credit losses.
Management’s estimation of expected credit losses on loans
categorized as Stage 1 and Stage 2 considers five distinct
Our approach to addressing the matter included the following
procedures, among others:
•
Testing the effectiveness of controls relating to the
estimation of the Stage 1 and Stage 2 ACL, including
controls over:
O
The probability of default, loss given default and
exposure at default models.
O
The design of future macroeconomic scenarios, the
forecasting of certain macroeconomic variables, and
the probability-weighting of these scenarios.
O
The assignment of borrower risk ratings.
O
The completeness and accuracy of certain data
inputs underlying the Stage 1 and Stage 2 ACL
calculation.
•
Testing management’s process for estimating the Stage 1
and Stage 2 ACL, which consisted of:
O
Testing the completeness and accuracy of certain
underlying data used in the estimation of the Stage 1
and Stage 2 ACL.
O
Using professionals with specialized skill and
knowledge to assist in evaluating:
•
The appropriateness of the probability of default,
loss given default and exposure at default
models used in the estimation of the Stage 1 and
Stage 2 ACL.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
143
Key audit matter
How our audit addressed the key audit matter
future macroeconomic scenarios, each of which includes a
forecast of relevant macroeconomic variables, designed to
capture a wide range of possible outcomes and which are
probability-weighted according to management’s expectation
of the relative likelihood of the range of outcomes that each
scenario represents at the reporting date. Significant
management judgment is required in making assumptions and
estimations when calculating the Stage 1 and Stage 2 ACL.
We considered this a key audit matter due to:
•
The significant judgment required by management when
estimating the Stage 1 and Stage 2 ACL.
•
A high degree of auditor judgment and subjectivity in
performing procedures related to management’s
assumptions for:
O
Designing future macroeconomic scenarios.
O
Forecasting certain macroeconomic variables.
O
Probability-weighting scenarios.
O
Assigning borrower risk ratings.
•
The significant audit effort necessary to evaluate audit
evidence as the estimation of the Stage 1 and Stage 2 ACL is a
complex calculation that involves a large volume of data,
interrelated inputs and assumptions, some of which are
model-based.
•
The audit effort involved the use of professionals with
specialized skill and knowledge.
•
The reasonableness of significant inputs and
assumptions used in the estimation of the Stage 1
and Stage 2 ACL related to:
•
The design of future macroeconomic
scenarios.
•
Certain forecasted macroeconomic
variables.
•
The probability-weights assigned to these
scenarios.
•
The assignment of borrower risk ratings for
samples of loans.
Uncertain Tax Positions
Refer to Note 2 – Summary of material accounting policies,
estimates and judgments and Note 21 – Income taxes to the
consolidated financial statements.
The Bank is subject to income tax laws in various jurisdictions
where it operates and the complex tax laws are potentially
subject to different interpretations by management and the
relevant taxation authorities. As disclosed by management,
significant judgment is required in the interpretation of the
relevant tax laws, and in assessing the probability of
acceptance of the Bank’s tax positions to determine tax
provisions, which includes management’s estimate of
uncertain tax positions that are under audit or appeal by the
relevant taxation authorities. Management performs a review
on a quarterly basis to incorporate its assessment based on
information available, but additional liability and income tax
expense could result based on the acceptance of the Bank’s tax
positions by the relevant taxation authorities.
In some cases, the Bank has received reassessments denying
the tax deductibility of dividends from certain transactions
including those with Tax Indifferent Investors.
We considered this a key audit matter due to:
•
The significant judgment required by management, including
a high degree of estimation uncertainty, when:
O
Interpreting the relevant tax laws.
O
Assessing the probability of acceptance of the Bank’s
tax positions, which includes management’s estimate
of uncertain tax positions that are under audit or
appeal by the relevant taxation authorities.
•
A high degree of auditor judgment and subjectivity in
evaluating the uncertain tax positions.
•
The audit effort involved the use of professionals with
specialized skill and knowledge.
Our approach to addressing the matter included the following
procedures, among others:
•
Testing the effectiveness of controls relating to the
evaluation of uncertain tax positions and the impact on tax
provisions.
•
Testing management’s process for (i) assessing the
probability of acceptance of the Bank’s tax positions; and
(ii) estimating provisions relating to uncertain tax positions,
if applicable, which reflects management’s estimate of
uncertain tax positions that are under audit or appeal by
the relevant taxation authorities. This consisted of:
O
Reviewing correspondence with relevant taxation
authorities.
O
Evaluating the appropriateness of the methods used.
O
Testing the completeness and accuracy of underlying
data used in the estimate.
O
Making inquiries of the Bank’s internal and external
legal counsel.
O
Evaluating, with the assistance of professionals with
specialized skill and knowledge:
•
Application of relevant tax laws.
•
The reasonableness of management’s
assessment of whether it is probable that the
relevant taxation authorities will accept the
Bank’s tax positions.
•
Evidence used by management.
Other information
Management is responsible for the other information. The other information comprises the Management’s Discussion and
Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the
annual report.
Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of
assurance conclusion thereon.
144
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
In connection with our audit of the consolidated financial statements, our responsibility is to read the other information
identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated
financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance
with IFRS Accounting Standards, and for such internal control as management determines is necessary to enable the preparation
of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting
unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Bank’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Canadian generally
accepted auditing standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or
error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise professional judgment and
maintain professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or
error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
•
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in
the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control.
•
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by management.
•
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on
the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s
report. However, future events or conditions may cause the Bank to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,
and whether the consolidated financial statements represent the underlying transactions and events in a manner that
achieves fair presentation.
•
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within
the Bank to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision
We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit
and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant ethical requirements
regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to
bear on our independence, and where applicable, related safeguards.
From the matters communicated with those charged with governance, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters.
We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when,
in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Lona Mathis.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
December 3, 2024
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
145
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Royal Bank of Canada
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Royal Bank of Canada and its subsidiaries (together, the
Bank) as of October 31, 2024 and 2023, and the related consolidated statements of income, comprehensive income, changes in
equity and cash flows for the years then ended, including the related notes (collectively referred to as the consolidated financial
statements). We also have audited the Bank’s internal control over financial reporting as of October 31, 2024, based on criteria
established in
Internal Control – Integrated Framework
(2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Bank as of October 31, 2024 and 2023, and its financial performance and its cash flows for the years then ended in
conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board. Also in
our opinion, the Bank maintained, in all material respects, effective internal control over financial reporting as of October 31, 2024,
based on criteria established in
Internal Control – Integrated Framework
(2013) issued by the COSO.
Change in Accounting Principle
As discussed in note 2 to the consolidated financial statements, the Bank has changed its method of accounting for insurance
contracts in 2024.
Basis for Opinions
The Bank’s management is responsible for these consolidated financial statements, for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on
the Bank’s consolidated financial statements and on the Bank’s internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Bank in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement,
whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material
respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement
of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.
Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the
risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
An entity’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. An entity’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of the entity; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the
entity are being made only in accordance with authorizations of management and directors of the entity; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the entity’s
assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated
financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Allowance for Credit Losses on Loans Categorized as Stage 1 and Stage 2 (Stage 1 and Stage 2 ACL)
As described in Notes 2 and 5 to the consolidated financial statements, the Bank’s allowance for credit losses on loans was
$6,352 million as of October 31, 2024 and represents management’s estimate of expected credit losses on loans as of the balance
sheet date, of which a significant portion relates to loans categorized as Stage 1 and Stage 2. Performing loans are categorized as
146
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Stage 1 from initial recognition to the date on which the loan has experienced a significant increase in credit risk relative to its
initial recognition. Performing loans transfer into Stage 2 following a significant increase in credit risk relative to the initial
recognition. Loans are categorized as Stage 3 when considered to be credit-impaired. As disclosed by management, the
measurement of expected credit losses on loans is a complex calculation that involves a significant number of interrelated inputs
and assumptions such as borrower risk ratings, forward-looking macroeconomic conditions, scenario design and the weight
assigned to each scenario. The probability of default, loss given default and exposure at default inputs are modelled based on
the macroeconomic variables that are most closely correlated with credit losses. Management’s estimation of expected credit
losses on loans categorized as Stage 1 and Stage 2 considers five distinct future macroeconomic scenarios, each of which
includes a forecast of relevant macroeconomic variables, designed to capture a wide range of possible outcomes and which are
probability-weighted according to management’s expectation of the relative likelihood of the range of outcomes that each
scenario represents at the reporting date. Significant management judgment is required in making assumptions and estimations
when calculating the Stage 1 and Stage 2 ACL.
The principal considerations for our determination that performing procedures relating to the Stage 1 and Stage 2 ACL is a critical
audit matter are (i) the significant judgment required by management when estimating the Stage 1 and Stage 2 ACL; (ii) a high
degree of auditor judgment and subjectivity in performing procedures related to management’s assumptions for (a) designing
future macroeconomic scenarios, (b) forecasting certain macroeconomic variables, (c) probability-weighting scenarios, and
(d) assigning borrower risk ratings; (iii) the significant audit effort necessary to evaluate audit evidence as the estimation of the
Stage 1 and Stage 2 ACL is a complex calculation that involves a large volume of data, interrelated inputs and assumptions, some
of which are model-based; and (iv) the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
estimation of the Stage 1 and Stage 2 ACL, including controls over (i) the probability of default, loss given default and exposure at
default models; (ii) the design of future macroeconomic scenarios, the forecasting of certain macroeconomic variables, and the
probability-weighting of these scenarios; (iii) the assignment of borrower risk ratings; and (iv) the completeness and accuracy of
certain data inputs underlying the Stage 1 and Stage 2 ACL calculation. These procedures also included, among others, testing
management’s process for estimating the Stage 1 and Stage 2 ACL. This consisted of (i) testing the completeness and accuracy of
certain underlying data used in the estimation of the Stage 1 and Stage 2 ACL; and (ii) with the assistance of professionals with
specialized skill and knowledge, evaluating (a) the appropriateness of the probability of default, loss given default and exposure
at default models used in the estimation of the Stage 1 and Stage 2 ACL, and (b) the reasonableness of significant inputs and
assumptions used in the estimation of the Stage 1 and Stage 2 ACL related to (1) the design of future macroeconomic scenarios,
(2) certain forecasted macroeconomic variables, (3) the probability-weights assigned to these scenarios, and (4) the assignment
of borrower risk ratings for samples of loans.
Uncertain Tax Positions
As described in Note 2 to the consolidated financial statements, the Bank is subject to income tax laws in various jurisdictions
where it operates and the complex tax laws are potentially subject to different interpretations by management and the relevant
taxation authorities. As disclosed by management, significant judgment is required in the interpretation of the relevant tax laws,
and in assessing the probability of acceptance of the Bank’s tax positions to determine tax provisions, which includes
management’s estimate of uncertain tax positions that are under audit or appeal by the relevant taxation authorities.
Management performs a review on a quarterly basis to incorporate its assessment based on information available, but
additional liability and income tax expense could result based on the acceptance of the Bank’s tax positions by the relevant
taxation authorities. In some cases, as described in Note 21 to the consolidated financial statements, the Bank has received
reassessments denying the tax deductibility of dividends from certain transactions including those with Tax Indifferent Investors.
The principal considerations for our determination that performing procedures relating to uncertain tax positions is a critical
audit matter are (i) the significant judgment required by management, including a high degree of estimation uncertainty, when
(a) interpreting the relevant tax laws, and (b) assessing the probability of acceptance of the Bank’s tax positions, which includes
management’s estimate of uncertain tax positions that are under audit or appeal by the relevant taxation authorities; (ii) a high
degree of auditor judgment and subjectivity in evaluating the uncertain tax positions; and (iii) the audit effort involved the use of
professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall
opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the
evaluation of uncertain tax positions and the impact on tax provisions. These procedures also included, among others, testing
management’s process for (i) assessing the probability of acceptance of the Bank’s tax positions; and (ii) estimating provisions
relating to uncertain tax positions, if applicable, which reflects management’s estimate of uncertain tax positions that are under
audit or appeal by the relevant taxation authorities. This consisted of (i) reviewing correspondence with relevant taxation
authorities; (ii) evaluating the appropriateness of the methods used; (iii) testing the completeness and accuracy of underlying
data used in the estimate; (iv) making inquiries of the Bank’s internal and external legal counsel; and (v) evaluating, with the
assistance of professionals with specialized skill and knowledge, the application of relevant tax laws, the reasonableness of
management’s assessment of whether it is probable that the relevant taxation authorities will accept the Bank’s tax positions,
and evidence used by management.
/s/ PricewaterhouseCoopers LLP
Chartered Professional Accountants, Licensed Public Accountants
Toronto, Canada
December 3, 2024
We have served as the Bank’s auditor since 2016.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
147
Consolidated Balance Sheets
As at
(Millions of Canadian dollars)
October 31
2024
October 31
2023
(Restated – Note 2)
Assets
Cash and due from banks
$
$
Interest-bearing deposits with banks
Securities
(Note 4)
Trading
Investment, net of applicable allowance
Assets purchased under reverse repurchase agreements and securities borrowed
Loans
(Note 5)
Retail
Wholesale
Allowance for loan losses
(Note 5)
(6,037 )
(5,004 )
Other
Customers’ liability under acceptances
Derivatives
(Note 9)
Premises and equipment
(Note 10)
Goodwill
(Note 11)
Other intangibles
(Note 11)
Other assets
(Note 13)
Total assets
$
$
Liabilities and equity
Deposits
(Note 14)
Personal
$
$
Business and government
Bank
Other
Acceptances
Obligations related to securities sold short
Obligations related to assets sold under repurchase agreements and securities loaned
Derivatives
(Note 9)
Insurance contract liabilities
(Note 15)
Other liabilities
(Note 17)
Subordinated debentures
(Note 18)
Total liabilities
Equity attributable to shareholders
Preferred shares and other equity instruments
(Note 19)
Common shares
(Note 19)
Retained earnings
Other components of equity
Non-controlling interests
Total equity
Total liabilities and equity
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
David I. McKay
Frank Vettese
President and Chief Executive Officer
Director
148
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Consolidated Statements of Income
For the year ended
(Millions of Canadian dollars, except per share amounts)
October 31
2024
October 31
2023
(Restated – Note 2)
Interest and dividend income
(Note 3)
Loans
$
$
Securities
Assets purchased under reverse repurchase agreements and securities borrowed
Deposits and other
Interest expense
(Note 3)
Deposits and other
Other liabilities
Subordinated debentures
Net interest income
Non-interest income
Insurance service result
(Note 15)
Insurance investment result
(Note 15)
Trading revenue
Investment management and custodial fees
Mutual fund revenue
Securities brokerage commissions
Service charges
Underwriting and other advisory fees
Foreign exchange revenue, other than trading
Card service revenue
Credit fees
Net gains on investment securities
Income (loss) from joint ventures and associates
(Note 12)
(16 )
(219 )
Other
Total revenue
Provision for credit losses
(Notes 4 and 5)
Non-interest expense
Human resources
(Notes 16 and 20)
Equipment
Occupancy
Communications
Professional fees
Amortization of other intangibles
(Note 11)
Other
Income before income taxes
Income taxes
(Note 21)
Net income
$
$
Net income attributable to:
Shareholders
$
$
Non-controlling interests
$
$
Basic earnings per share
(in dollars) (Note 22)
$
$
Diluted earnings per share
(in dollars) (Note 22)
Dividends per common share
(in dollars)
The accompanying notes are an integral part of these Consolidated Financial Statements.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
149
Consolidated Statements of Comprehensive Income
For the year ended
(Millions of Canadian dollars)
October 31
2024
October 31
2023
(Restated – Note 2)
Net income
$
$
Other comprehensive income (loss), net of taxes
(Note 21)
Items that will be reclassified subsequently to income:
Net change in unrealized gains (losses) on debt securities and loans at fair value
through other comprehensive income
Net unrealized gains (losses) on debt securities and loans at fair value through other
comprehensive income
(14 )
Provision for credit losses recognized in income
(1 )
(14 )
Reclassification of net losses (gains) on debt securities and loans at fair value through
other comprehensive income to income
(140 )
(131 )
(159 )
Foreign currency translation adjustments
Unrealized foreign currency translation gains (losses)
Net foreign currency translation gains (losses) from hedging activities
(514 )
(1,208 )
Reclassification of losses (gains) on foreign currency translation to income
(160 )
Reclassification of losses (gains) on net investment hedging activities to income
Net change in cash flow hedges
Net gains (losses) on derivatives designated as cash flow hedges
Reclassification of losses (gains) on derivatives designated as cash flow hedges to
income
(827 )
(489 )
Items that will not be reclassified subsequently to income:
Remeasurement gains (losses) on employee benefit plans
(Note 16)
(344 )
Net gains (losses) from fair value changes due to credit risk on financial liabilities
designated at fair value through profit or loss
(1,041 )
(576 )
Net gains (losses) on equity securities designated at fair value through other
comprehensive income
(393 )
(876 )
Total other comprehensive income (loss), net of taxes
Total comprehensive income (loss)
$
$
Total comprehensive income attributable to:
Shareholders
$
$
Non-controlling interests
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
150
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Consolidated Statements of Changes in Equity
For the year ended October 31, 2024
Other components of equity
(Millions of Canadian dollars)
Preferred
shares and
other equity
instruments
Common
shares
Treasury –
preferred
shares and
other equity
instruments
Treasury –
common
shares
Retained
earnings
FVOCI
securities
and loans
Foreign
currency
translation
Cash flow
hedges
Total other
components
of equity
Equity
attributable to
shareholders
Non-controlling
interests
Total
equity
Balance at beginning of period
$
$ 19,398
$
(9 )
$
(231 )
$ 81,715
$
(2,516 )
$
$
$
$
$
$ 115,147
Transition adjustment (Note 2)
(656 )
Restated balance at beginning of period
$
$ 19,398
$
(9 )
$
(231 )
$ 81,059
$
(1,860 )
$
$
$
$
$
$ 115,147
Changes in equity
Issues of share capital and other equity instruments
(18 )
Common shares purchased for cancellation
(13 )
(127 )
(140 )
(140 )
Redemption of preferred shares and other equity instruments
(1,023 )
(1,021 )
(1,021 )
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
(1,225 )
(5,302 )
(6,527 )
(6,527 )
Share-based compensation awards
Dividends on common shares
(7,916 )
(7,916 )
(7,916 )
Dividends on preferred shares and distributions on other
equity instruments
(322 )
(322 )
(6 )
(328 )
Other
Net income
Total other comprehensive income (loss), net of taxes
(393 )
(489 )
Balance at end of period
$
$ 21,013
$
$
(61 )
$ 88,608
$
(897 )
$
$
$
$
$
$ 127,192
For the year ended October 31, 2023 (Restated – Note 2)
Other components of equity
(Millions of Canadian dollars)
Preferred
shares and
other equity
instruments
Common
shares
Treasury –
preferred
shares and
other equity
instruments
Treasury –
common
shares
Retained
earnings
FVOCI
securities
and loans
Foreign
currency
translation
Cash flow
hedges
Total other
components
of equity
Equity
attributable to
shareholders
Non-controlling
interests
Total
equity
Balance at beginning of period
$
$
$
(5 )
$
(334 )
$
$
(2,357 )
$
$
$
$
$
$
Transition adjustment (Note 2)
(2,359 )
(2,359 )
(2,359 )
Restated balance at beginning of period
$
$
$
(5 )
$
(334 )
$
$
(2,357 )
$
$
$
$
$
$
Changes in equity
Issues of share capital and other equity instruments
Common shares purchased for cancellation
Redemption of preferred shares and other equity instruments
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
(519 )
(3,556 )
(4,075 )
(4,075 )
Share-based compensation awards
Dividends on common shares
(7,443 )
(7,443 )
(7,443 )
Dividends on preferred shares and distributions on other
equity instruments
(236 )
(236 )
(21 )
(257 )
Other
(18 )
(18 )
(18 )
Net income
Total other comprehensive income (loss), net of taxes
(876 )
(159 )
Restated balance at end of period
$
$
$
(9 )
$
(231 )
$
$
(2,516 )
$
$
$
$
$
$
The accompanying notes are an integral part of these Consolidated Financial Statements.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
151
Consolidated Statements of Cash Flows
For the year ended
(Millions of Canadian dollars)
October 31
2024
October 31
2023
(Restated – Note 2)
Cash flows from operating activities
Net income
$
$
Adjustments for non-cash items and others
Provision for credit losses
Depreciation
Deferred income taxes
(1,529 )
(1,018 )
Amortization and impairment of other intangibles
Net changes in investments in joint ventures and associates
Losses (Gains) on investment securities
(170 )
(193 )
Losses (Gains) on disposition of business
(92 )
Adjustments for net changes in operating assets and liabilities
Insurance contract liabilities
Net change in accrued interest receivable and payable
Current income taxes
(1,008 )
Derivative assets
(4,797 )
Derivative liabilities
(10,452 )
Trading securities
(41,946 )
Loans, net of securitizations
(55,007 )
(34,688 )
Assets purchased under reverse repurchase agreements and securities borrowed
(10,168 )
(22,346 )
Obligations related to assets sold under repurchase agreements and securities loaned
(35,581 )
Obligations related to securities sold short
(1,860 )
Deposits, net of securitizations
Brokers and dealers receivable and payable
(304 )
(2,444 )
Other
(16,429 )
Net cash from (used in) operating activities
Cash flows from investing activities
Change in interest-bearing deposits with banks
Proceeds from sales and maturities of investment securities
Purchases of investment securities
(193,307 )
(202,456 )
Net acquisitions of premises and equipment and other intangibles
(2,280 )
(2,730 )
Net proceeds from (cash transferred for) dispositions
Cash used in acquisitions, net of cash acquired
(12,716 )
Net cash from (used in) investing activities
(20,887 )
(28,265 )
Cash flows from financing activities
Issuance of subordinated debentures
Repayment of subordinated debentures
(1,500 )
(170 )
Issue of common shares, net of issuance costs
Common shares purchased for cancellation
(140 )
Issue of preferred shares and other equity instruments, net of issuance costs
Redemption of preferred shares and other equity instruments
(1,021 )
Sales of treasury shares and other equity instruments
Purchases of treasury shares and other equity instruments
(6,527 )
(4,075 )
Dividends paid on shares and distributions paid on other equity instruments
(6,637 )
(5,549 )
Dividends/distributions paid to non-controlling interests
(6 )
(21 )
Change in short-term borrowings of subsidiaries
(4,507 )
(5,102 )
Repayment of lease liabilities
(636 )
(655 )
Net cash from (used in) financing activities
(8,146 )
(9,833 )
Effect of exchange rate changes on cash and due from banks
Net change in cash and due from banks
(5,266 )
(10,408 )
Cash and due from banks at beginning of period
(1)
Cash and due from banks at end of period
(1)
$
$
Cash flows from operating activities include:
Amount of interest paid
$
$
Amount of interest received
Amount of dividends received
Amount of income taxes paid
(1)
We are required to maintain balances due to regulatory requirements or contractual restrictions from central banks, other regulatory authorities, and other
counterparties. The total balances were $2 billion as at October 31, 2024 (October 31, 2023 – $3 billion; October 31, 2022 – $2 billion).
The accompanying notes are an integral part of these Consolidated Financial Statements.
152
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
153
General information
Commercial Banking, Wealth Management, Insurance and Capital Markets products and services on a global basis. Refer to
The parent bank, Royal Bank of Canada Schedule I Bank under the
Bank Act
office is located at 1 Place Ville-Marie, Montreal, Quebec, Canada . Our common shares are listed on the Toronto Stock Exchange
and New York Stock Exchange with the ticker symbol RY.
in Canadian dollars. Tabular information is stated in millions of dollars, except as noted. These Consolidated Financial
Statements also comply with Subsection 308 of the
Bank Act
(Canada), which states that, except as otherwise specified by the
Office of the Superintendent of Financial Institutions Canada (OSFI), our Consolidated Financial Statements are to be prepared in
accordance with IFRS. The accounting policies outlined in Note 2 have been consistently applied to all periods presented.
Summary of material accounting policies, estimates and judgments
requirements prescribed by OSFI, are summarized below. These accounting policies conform, in all material respects, to IFRS.
In preparing our Consolidated Financial Statements, management is required to make subjective estimates and assumptions that
affect the reported amount of assets, liabilities, net income and related disclosures. Estimates made by management are based
on historical experience and other assumptions that are believed to be reasonable. Key sources of estimation uncertainty
include: determination of fair value of financial instruments, allowance for credit losses, insurance and reinsurance contracts,
pensions and other post-employment benefits, income taxes, goodwill and other intangible assets, and provisions. Accordingly,
actual results may differ from these and other estimates thereby impacting our future Consolidated Financial Statements. Refer
Significant judgments
In preparation of these Consolidated Financial Statements, management is required to make significant judgments that affect
the carrying amounts of certain assets and liabilities, and the reported amounts of revenues and expenses recorded during the
period. Significant judgments have been made in the following areas and discussed as noted in the Consolidated Financial
Statements:
Consolidation of structured entities | Note 2 | Goodwill and other intangibles | Note 2 |
Note 8 | Note 11 | ||
Fair value of financial instruments | Note 2 | Application of the effective interest method | Note 2 |
Note 3 | |||
Allowance for credit losses | Note 2 | Derecognition of financial assets | Note 2 |
Note 4 | Note 7 | ||
Note 5 | |||
Insurance and reinsurance contracts | Note 2 | Income taxes | Note 2 |
Note 15 | Note 21 | ||
Employee benefits | Note 2 | Provisions | Note 2 |
Note 16 | Note 23 | ||
Note 24 |
Our Consolidated Financial Statements include the assets and liabilities and results of operations of the parent company, Royal
Bank of Canada, and its subsidiaries including certain structured entities, after elimination of intercompany transactions,
balances, revenues and expenses.
Consolidation
exposed, or have rights, to variable returns from our involvement with the entity and have the ability to affect those returns
through our power over the investee. We have power over an entity when we have existing rights that give us the current ability
to direct the activities that most significantly affect the entity’s returns (relevant activities). Power may be determined on the
basis of voting rights or, in the case of structured entities, other contractual arrangements.
We are not deemed to control an entity when we exercise power over an entity as the agent of a third party or parties. In
determining whether we are acting as an agent, we consider the overall relationship between us, the investee and other parties
to the arrangement with respect to the following factors: (i) the scope of our decision-making power; (ii) the rights held by other
parties; (iii) the remuneration to which we are entitled; and (iv) our exposure to variability of returns.
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
154
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The determination of control is based on the current facts and circumstances and is continuously assessed. In some
circumstances, different factors and conditions may indicate that various parties control an entity depending on whether those
factors and conditions are assessed in isolation or in totality. Significant judgment is applied in determining whether we control
an entity, specifically, assessing whether we have substantive decision-making rights over the relevant activities and whether we
are exercising our power as a principal or an agent.
We consolidate all subsidiaries from the date we obtain control and cease consolidation when an entity is no longer
controlled by us. Our consolidation conclusions affect the classification and amount of assets, liabilities, revenues and expenses
reported in our Consolidated Financial Statements.
component of equity which is distinct from equity attributable to our shareholders. The net income attributable to
Our investments in associated corporations and limited partnerships over which we have significant influence are accounted for
using the equity method. The equity method is also applied to our interests in joint ventures over which we have joint control.
Under the equity method of accounting, investments are initially recorded at cost, and the carrying amount is increased or
decreased to recognize our share of the investee’s net profit or loss, including our proportionate share of the investee’s Other
Non-current assets (and disposal groups) are classified as held for sale if their carrying amounts will be recovered principally
through a sale transaction rather than through continuing use. This condition is satisfied when the asset is available for
immediate sale in its present condition, management is committed to the sale, and it is highly probable to occur within one year.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount
and fair value less costs to sell and if significant, are presented separately from other assets on our Consolidated Balance
Sheets.
A disposal group is classified as a discontinued operation if it meets the following conditions: (i) it is a component that can
be distinguished operationally and financially from the rest of our operations and (ii) it represents either a separate major line of
business or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of
operations. Disposal groups classified as discontinued operations are presented separately from our continuing operations in
Financial assets are measured at initial recognition at fair value, and are classified and subsequently measured at fair value
through profit or loss (FVTPL), fair value through other comprehensive income (FVOCI) or amortized cost based on our business
model for managing the financial instruments and the contractual cash flow characteristics of the instrument.
Debt instruments are measured at amortized cost if both of the following conditions are met and the asset is not designated
as FVTPL: (a) the asset is held within a business model that is Held-to-Collect (HTC) as described below, and (b) the contractual
terms of the instrument give rise to cash flows that are solely payments of principal and interest on the principal amount
outstanding (SPPI).
Debt instruments are measured at FVOCI if both of the following conditions are met and the asset is not designated as
FVTPL: (a) the asset is held within a business model that is Held-to-Collect-and-Sell (HTC&S) as described below, and (b) the
contractual terms of the instrument give rise, on specified dates, to cash flows that are SPPI.
All other debt instruments are measured at FVTPL.
Equity instruments are measured at FVTPL, unless the asset is not held for trading purposes and we make an irrevocable
election to designate the asset as FVOCI. This election is made on an instrument-by-instrument basis.
Business model assessment
We determine our business models at the level that best reflects how we manage portfolios of financial assets to achieve our
business objectives. Judgment is used in determining our business models, which is supported by relevant, objective evidence
including:
•
How the economic activities of our businesses generate benefits, for example through trading revenue, enhancing yields
or hedging funding or other costs and how such economic activities are evaluated and reported to key management
personnel;
•
The significant risks affecting the performance of our businesses, for example, market risk, credit risk, or other risks as
described in the Risk Management section of the MD&A, and the activities undertaken to manage those risks;
•
Historical and future expectations of sales of the loans or securities portfolios managed as part of a business model;
and
•
The compensation structures for managers of our businesses, to the extent that these are directly linked to the
economic performance of the business model.
Our business models fall into three categories, which are indicative of the key strategies used to generate returns:
•
HTC: The objective of this business model is to hold loans and securities to collect contractual principal and interest
cash flows. Sales are incidental to this objective and are expected to be insignificant or infrequent.
•
HTC&S: Both collecting contractual cash flows and sales are integral to achieving the objective of the business model.
•
Other fair value business models: These business models are neither HTC nor HTC&S, and primarily represent business
models where assets are held-for-trading or managed on a fair value basis.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
155
SPPI assessment
Instruments held within a HTC or HTC&S business model are assessed to evaluate if their contractual cash flows are comprised
of solely payments of principal and interest. SPPI payments are those which would typically be expected from basic lending
arrangements. Principal amounts include par repayments from lending and financing arrangements, and interest primarily
relates to basic lending returns, including compensation for credit risk and the time value of money associated with the principal
amount outstanding over a period of time. Interest can also include other basic lending risks and costs (for example, liquidity
risk, servicing or administrative costs) associated with holding the financial asset for a period of time, and a profit margin.
Where the contractual terms introduce exposure to risk or variability of cash flows that are inconsistent with a basic lending
Trading securities include all securities that are classified as FVTPL by nature and securities designated as FVTPL. Obligations to
deliver trading securities sold but not yet purchased are recorded as liabilities and carried at fair value. Realized and unrealized
gains and losses on these securities are generally recorded in Non-interest income – Trading revenue or Non-interest income –
Other except for amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment
result. Dividends and interest income accruing on Trading securities are recorded in Interest and dividend income except for
amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result. Interest
and dividends accrued on securities sold short are recorded in Interest expense.
Investment securities include all securities classified as FVOCI and amortized cost. All investment securities are initially
recorded at fair value and subsequently measured according to the respective classification.
Investment securities carried at amortized cost are measured using the effective interest method, and are presented net of
any allowance for credit losses, calculated in accordance with our policy for Allowance for credit losses, as described below.
Interest income, including the amortization of premiums and discounts on securities measured at amortized cost are recorded in
Interest and dividend income. Impairment gains or losses recognized on amortized cost securities are recorded in Provision for
credit losses (PCL). When a debt instrument measured at amortized cost is sold, the difference between the sale proceeds and
the amortized cost of the security at the time of the sale is recorded as Net gains on investment securities in Non-interest
income.
Debt securities carried at FVOCI are measured at fair value with unrealized gains and losses arising from changes in fair
value included in Other components of equity. Impairment gains and losses are included in PCL and correspondingly reduce the
accumulated changes in fair value included in Other components of equity. When a debt instrument measured at FVOCI is sold,
the cumulative gain or loss is reclassified from Other components of equity to Non-interest income – Net gains on investment
securities, or Non-interest income – Insurance investment result if relating to the Insurance segment.
Equity securities carried at FVOCI are measured at fair value. Unrealized gains and losses arising from changes in fair value
are recorded in Other components of equity and not subsequently reclassified to profit or loss when realized. Dividends from
FVOCI equity securities are recognized in Interest and dividend income except for amounts relating to the Insurance segment,
which are recorded in Non-interest income – Insurance investment result.
We account for all of our securities using settlement date accounting and changes in fair value between the trade date and
settlement date are reflected in income for securities measured at FVTPL, and changes in the fair value of securities measured at
FVOCI between the trade and settlement dates are recorded in OCI except for changes in foreign exchange rates on debt
A financial instrument with a reliably measurable fair value can be designated as FVTPL (the fair value option) on its initial
recognition even if the financial instrument was not acquired or incurred principally for the purpose of selling or repurchasing.
The fair value option can be used for financial assets if it eliminates or significantly reduces a measurement or recognition
inconsistency that would otherwise arise from measuring assets or liabilities, or recognizing related gains and losses on a
different basis (an accounting mismatch). The fair value option can be elected for financial liabilities if: (i) the election eliminates
an accounting mismatch; (ii) the financial liability is part of a portfolio that is managed on a fair value basis, in accordance with a
documented risk management or investment strategy; or (iii) there is an embedded derivative in the financial or non-financial
host contract and the derivative is not closely related to the host contract. These instruments cannot be reclassified out of the
FVTPL category while they are held or issued.
Financial assets designated as FVTPL are recorded at fair value and any unrealized gain or loss arising due to changes in fair
value is included in Non-interest income – Trading revenue or Non-interest income – Other, depending on our business purpose
for holding the financial asset.
Financial liabilities designated as FVTPL are recorded at fair value and fair value changes attributable to changes in our own
credit risk are recorded in OCI. Own credit risk amounts recognized in OCI will not be reclassified subsequently to net income.
The remaining fair value changes not attributable to changes in our own credit risk are recorded in Non-interest income – Trading
revenue or Non-interest income – Other, depending on our business purpose for holding the financial liability, except for amounts
relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result. Upon initial
recognition, if we determine that presenting the effects of own credit risk changes in OCI would create or enlarge an accounting
mismatch in net income, the full fair value change in our debt designated as FVTPL is recognized in net income. To make that
determination, we assess whether we expect that the effects of changes in the liability’s credit risk will be offset in profit or loss
by a change in the fair value of another financial instrument measured at FVTPL. Such an expectation is based on an economic
relationship between the characteristics of the liability and the characteristics of the other financial instrument. The
determination is made at initial recognition and is not reassessed. To determine the fair value adjustments on our debt
instruments designated as FVTPL, we calculate the present value of the instruments based on the contractual cash flows over the
The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. We determine fair value by incorporating factors that
market participants would consider in setting a price, including commonly accepted valuation approaches.
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
156
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The Board of Directors provides oversight on valuation of financial instruments, primarily through the Audit Committee and
Risk Committee. The Audit Committee reviews the presentation and disclosure of financial instruments that are measured at fair
value, while the Risk Committee assesses the adequacy of governance structures and control processes for the valuation of
these instruments.
We have established policies, procedures and controls for valuation methodologies and techniques to ensure that fair value
is reasonably estimated. Major valuation processes and controls include, but are not limited to, profit and loss decomposition,
independent price verification (IPV) and model validation standards. These control processes are managed by either Finance or
Group Risk Management and are independent of the relevant businesses and their trading functions. Profit and loss
decomposition is a process to explain the fair value changes of certain positions and is performed daily for trading portfolios. All
fair value instruments are subject to IPV, a process whereby trading function valuations are verified against external market
prices and other relevant market data. Market data sources include traded prices, brokers and price vendors. We give priority to
those third-party pricing services and prices having the highest and most consistent accuracy. The level of accuracy is
determined over time by comparing third-party price values to traders’ or system values, other pricing service values and, when
available, actual trade data. Quoted prices for identical instruments from pricing services or brokers are generally not adjusted
unless there are issues such as stale prices. If multiple quotes for identical instruments are received, fair value is based on an
average of the prices received or the quote from the most reliable vendor, after the outlier prices that fall outside of the pricing
range are removed. Other valuation techniques are used when a price or quote is not available. Some valuation processes use
models to determine fair value. We have a systematic and consistent approach to control the use of models. Valuation models
are approved for use within our model risk management framework. The framework addresses, among other things, model
development standards, validation processes and procedures and approval authorities. Model validation ensures that a model is
suitable for its intended use and sets parameters for its use. All models are revalidated regularly by qualified personnel who are
independent of the model design and development. Annually, our model risk profile is reported to the Board of Directors.
IFRS 13
Fair Value Measurement
permits an exception, through an accounting policy choice, to measure the fair value of a
portfolio of financial instruments on a net open risk position basis when certain criteria are met. We have elected to use this
policy choice to determine the fair value of certain portfolios of financial instruments, primarily derivatives, based on a net
exposure to market or credit risk.
We record valuation adjustments to appropriately reflect counterparty credit quality of our derivative portfolio, differences
between the actual counterparty collateral discount curve and standard overnight index swap (OIS) discounting for
collateralized derivatives, funding valuation adjustments (FVA) for uncollateralized and under-collateralized over-the-counter
(OTC) derivatives, unrealized gains or losses at inception of the transaction, bid-offer spreads, unobservable parameters and
model limitations. These adjustments may be subjective as they require significant judgment in the input selection, such as
implied probability of default (PD) and recovery rate, and are intended to arrive at a fair value that is determined based on
assumptions that market participants would use in pricing the financial instrument. The ultimate realized price for a transaction
may differ from its fair recorded value previously estimated using management judgment.
Valuation adjustments are recorded for the credit risk of our derivative portfolios in order to arrive at their fair values. Credit
valuation adjustments (CVA) take into account our counterparties’ creditworthiness, the current and potential future
mark-to-market of transactions and the effects of credit mitigants such as master netting and collateral agreements. CVA
amounts are derived from estimates of exposure at default (EAD), PD, recovery rates on a counterparty basis and market and
credit factor correlations. EAD is the value of expected derivative related assets and liabilities at the time of default, estimated
through modelling using underlying risk factors. PD is implied from the market prices for credit protection and the credit ratings
of the counterparty. When market data is unavailable, it is estimated by incorporating assumptions and adjustments that market
participants would use for determining fair value using these inputs. Correlation is the statistical measure of how credit and
market factors may move in relation to one another. Correlation is estimated using historical data. CVA is calculated daily and
changes are recorded in Non-interest income – Trading revenue.
FVA is also calculated to incorporate the cost and benefit of funding in the valuation of uncollateralized and under-
collateralized OTC derivatives. Future expected cash flows of these derivatives are discounted to reflect the cost and benefit of
funding the derivatives by using a funding curve, implied volatilities and correlations as inputs.
Where required, a valuation adjustment is made to reflect the unrealized gain or loss at inception of a financial instrument
contract where the fair value of that financial instrument is not obtained from a quoted market price or cannot be evidenced by
other observable market transactions based on a valuation technique incorporating observable market data.
A bid-offer valuation adjustment is required when a financial instrument is valued at the mid-market price, instead of the bid
or offer price for asset or liability positions, respectively. The valuation adjustment takes into account the spread from the
mid-market price to either the bid or offer price.
Some valuation models require parameter calibration from such factors as market observable option prices. The calibration
of parameters may be sensitive to factors such as the choice of instruments or optimization methodology. A valuation
adjustment is also estimated to mitigate the uncertainties of parameter calibration and model limitations.
In determining fair value, a hierarchy is used which prioritizes the inputs to valuation techniques. The fair value hierarchy
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). Determination of fair value based on this hierarchy requires the use of observable
market data whenever available. Level 1 inputs are unadjusted quoted prices in active markets for identical assets or liabilities
that we have the ability to access at the measurement date. Level 2 inputs include quoted prices for similar assets or liabilities in
active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and model inputs that are
either observable, or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 inputs include one or more inputs that are unobservable and significant to the fair value of the asset or liability.
Unobservable inputs are used to measure fair value to the extent that observable inputs are not available at the measurement
date. The availability of inputs for valuation may affect the selection of valuation techniques. The classification of a financial
instrument in the fair value hierarchy for disclosure purposes is based upon the lowest level of input that is significant to the
measurement of fair value.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
157
Where observable prices or inputs are not available, management judgment is required to determine fair values by
assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through
extrapolation and interpolation techniques. For more complex or illiquid instruments, significant judgment is required in the
determination of the model used, the selection of model inputs, and in some cases, the application of valuation adjustments to
the model value or quoted price for inactively traded financial instruments. The selection of model inputs may be subjective and
the inputs may be unobservable. Unobservable inputs are inherently uncertain as there is little or no market data available from
which to determine the level at which the transaction would occur under normal business circumstances. Appropriate parameter
uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all
Loans are debt instruments recognized initially at fair value and are subsequently measured in accordance with the
Classification of financial assets policy provided above. The majority of our loans are carried at amortized cost using the
effective interest method, which represents the gross carrying amount less allowance for credit losses.
Interest on loans is recognized using the effective interest method and recorded in Interest income except for amounts
relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment. The estimated future cash
flows used in this calculation include those determined by the contractual term of the asset and all fees that are considered to be
integral to the effective interest rate. Also included in this amount are transaction costs and all other premiums or discounts.
Fees that relate to activities such as originating, restructuring or renegotiating loans are deferred and recognized as Interest
income over the expected term of such loans using the effective interest method. Where there is a reasonable expectation that a
loan will be originated, commitment and standby fees are also recognized as interest income over the expected term of the
resulting loans using the effective interest method. Otherwise, such fees are recorded as other liabilities and amortized into
Non-interest income over the commitment or standby period. Future prepayment fees on mortgage loans are not included as part
of the effective interest rate at origination. If prepayment fees are received on a renewal of a mortgage loan before maturity, the
fee is included as part of the effective interest rate, and if not renewed, the prepayment fee is recognized in interest income at
the prepayment date.
For loans carried at amortized cost or FVOCI, impairment losses are recognized at each balance sheet date in accordance
An allowance for credit losses (ACL) is established for all financial assets, except for financial assets classified or designated as
FVTPL and equity securities designated as FVOCI, which are not subject to impairment assessment. Assets subject to impairment
assessment include loans, debt securities, interest-bearing deposits with banks, customers’ liability under acceptances, accounts
and accrued interest receivable, and finance and operating lease receivables. ACL on loans measured at amortized cost is
presented in Allowance for loan losses. ACL on debt securities measured at FVOCI is presented in Other components of equity.
Other financial assets carried at amortized cost are presented net of ACL on our Consolidated Balance Sheets.
Off-balance sheet items subject to impairment assessment include financial guarantees and undrawn loan commitments.
ACL on off-balance sheet items is separately calculated and included in Other Liabilities – Provisions.
We measure the ACL on each balance sheet date according to a three-stage expected credit loss impairment model:
•
Performing financial assets
•
Stage 1 – From initial recognition of a financial asset to the date on which the asset has experienced a significant
increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses
expected to result from defaults occurring over the 12 months following the reporting date.
•
Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss
allowance is recognized equal to the credit losses expected over the remaining lifetime of the asset.
•
Impaired financial assets
•
Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance is recognized equal to credit
losses expected over the remaining lifetime of the asset. Interest income is calculated based on the carrying
amount of the asset, net of the loss allowance, rather than on its gross carrying amount.
The ACL is a discounted probability-weighted estimate of the cash shortfalls expected to result from defaults over the relevant
time horizon. For loan commitments, credit loss estimates consider the portion of the commitment that is expected to be drawn
over the relevant time period. For financial guarantees, credit loss estimates are based on the expected payments required under
the guarantee contract. For finance lease receivables, credit loss estimates are based on cash flows consistent with the cash
flows used in measuring the lease receivable.
Increases or decreases in the required ACL attributable to model changes and new originations, sales or maturities, and
changes in risk, parameters and exposures due to changes in loss expectations or stage transfers are recorded in PCL. Write-offs
and recoveries of amounts previously written off are recorded against ACL.
The ACL represents an unbiased estimate of expected credit losses on our financial assets as at the balance sheet date.
Judgment is required in making assumptions and estimations when calculating the ACL, including movements between the three
stages and the application of forward-looking information. The underlying assumptions and estimates may result in changes to
the provisions from period to period that significantly affect our results of operations.
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
158
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Measurement of expected credit losses
Expected credit losses are based on a range of possible outcomes and consider all available reasonable and supportable
information, including internal and external ratings, historical credit loss experience and expectations about future cash flows.
The measurement of expected credit losses is based primarily on the product of the instrument’s PD, loss given default (LGD),
and EAD discounted to the reporting date. The main difference between Stage 1 and Stage 2 expected credit losses for performing
financial assets is the respective calculation horizon. Stage 1 estimates project PD, LGD and EAD over a maximum period of
12 months while Stage 2 estimates project PD, LGD and EAD over the remaining lifetime of the instrument.
An expected credit loss estimate is produced for each individual exposure. Relevant parameters are modelled on a collective
basis using portfolio segmentation that allows for appropriate incorporation of forward-looking information. To reflect other
characteristics that are not already considered through modelling, expert credit judgment is exercised in determining the final
expected credit losses.
For a small percentage of our portfolios which lack detailed historical information and/or loss experience, we apply
simplified measurement approaches that may differ from what is described above. These approaches have been designed to
maximize the available information that is reliable and supportable for each portfolio and may be collective in nature.
Expected credit losses are discounted to the reporting period date using the effective interest rate.
Expected life
For instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected remaining lifetime of the
instrument. For most instruments, the expected life is limited to the remaining contractual life.
An exemption is provided for certain instruments with the following characteristics: (a) the instrument includes both a loan
and undrawn commitment component; (b) we have the contractual ability to demand repayment and cancel the undrawn
commitment; and (c) our exposure to credit losses is not limited to the contractual notice period. For products in scope of this
exemption, the expected life may exceed the remaining contractual life and is the period over which our exposure to credit losses
is not mitigated by our normal credit risk management actions. This period varies by product and risk category and is estimated
based on our historical experience with similar exposures and consideration of credit risk management actions taken as part of
our regular credit review cycle. Products in scope of this exemption include credit cards, overdraft balances and certain revolving
lines of credit. Judgment is required in determining the instruments in scope for this exemption and estimating the appropriate
remaining life based on our historical experience and credit risk mitigation practices.
Assessment of significant increase in credit risk
The assessment of significant increase in credit risk requires significant judgment. Movements between Stage 1 and Stage 2 are
based on whether an instrument’s credit risk as at the reporting date has increased significantly relative to the date it was
initially recognized. For the purposes of this assessment, credit risk is based on an instrument’s lifetime PD, not the losses we
expect to incur. The assessment is generally performed at the instrument level.
Our assessment of significant increases in credit risk is performed at least quarterly based on three factors. If any of the
following factors indicates that a significant increase in credit risk has occurred, the instrument is moved from Stage 1 to Stage 2:
(1)
We have established thresholds for significant increases in credit risk based on both a percentage and absolute change
in lifetime PD relative to initial recognition. For our wholesale portfolio, a decrease in the borrower’s risk rating is also
required to determine that credit risk has increased significantly.
(2)
Additional qualitative reviews may be performed, as necessary, to assess the staging results, which may lead to
adjustments to better reflect the positions whose credit risk has increased significantly. These reviews are completed at
both the individual borrower levels and the portfolio level and may result in an instrument, a portfolio or a portion of a
portfolio moving from Stage 1 to Stage 2.
(3)
Instruments which are 30 days past due are generally considered to have experienced a significant increase in credit
risk, even if our other metrics do not indicate that a significant increase in credit risk has occurred.
The thresholds for movement between Stage 1 and Stage 2 are symmetrical. After a financial asset has transferred to Stage 2, if
its credit risk is no longer considered to have significantly increased relative to its initial recognition, the financial asset will
move back to Stage 1.
For certain instruments with low credit risk as at the reporting date, it is presumed that credit risk has not increased
significantly relative to initial recognition. Credit risk is considered to be low if the instrument has a low risk of default, and the
borrower has the ability to fulfill their contractual obligations both in the near term and in the longer term, including periods of
adverse changes in the economic or business environment. Certain interest-bearing deposits with banks, assets purchased under
reverse repurchase agreements, insurance policy loans, and liquidity facilities extended to our multi-seller conduits have been
identified as having low credit risk.
Use of forward-looking information
The measurement of expected credit losses for each stage and the assessment of significant increase in credit risk considers
information about past events and current conditions as well as reasonable and supportable projections of future events and
economic conditions. The estimation and application of forward-looking information requires significant judgment.
The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on the
macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the
relevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in our models for a five-year period, subsequently reverting to long-run averages.
Macroeconomic variables used in our expected credit loss models include, but are not limited to, unemployment rates, gross
domestic product growth rates, equity return indices, commodity prices, and Canadian housing prices. Depending on their usage
in the models, macroeconomic variables may be projected at a country, province/state or more granular level.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
159
Our estimation of expected credit losses in Stage 1 and Stage 2 is a discounted probability-weighted estimate that considers
a minimum of three future macroeconomic scenarios. Our base case scenario is based on macroeconomic forecasts published
by our internal economics group. The published forecasts are developed from models based on historical macroeconomic data,
derived from public sources and financial markets. Upside and downside scenarios vary relative to our base case scenario based
on reasonably possible alternative macroeconomic conditions. Additional and more severe downside scenarios are designed to
capture a broader range of potential credit losses in certain sectors. Scenario design, including the identification of additional
downside scenarios, occurs at least on an annual basis and more frequently if conditions warrant.
Scenarios are designed to capture a wide range of possible outcomes and weighted according to our best estimate of the
relative likelihood of the range of outcomes that each scenario represents. Scenario weights take into account historical
frequency, current trends, and forward-looking conditions and are updated on a quarterly basis. All scenarios considered are
applied to all portfolios subject to expected credit losses with the same probabilities.
Our assessment of significant increases in credit risk is based on changes in probability-weighted forward-looking lifetime
PDs as at the reporting date, using the same macroeconomic scenarios as the calculation of expected credit losses.
Definition of default
The definition of default used in the measurement of expected credit losses is consistent with the definition of default used for
our internal credit risk management purposes. Our definition of default may differ across products and consider both
quantitative and qualitative factors, such as the terms of financial covenants and days past due. For retail and wholesale
borrowers, except as detailed below, default occurs when the borrower is more than 90 days past due on any material obligation
to us, and/or we consider the borrower unlikely to make their payments in full without recourse action on our part, such as taking
formal possession of any collateral held. For certain credit card balances, default occurs when payments are 180 days past due.
For these balances, the use of a period in excess of 90 days past due is reasonable and supported by observable data on write-off
and recovery rates experienced on historical credit card portfolios. The definition of default used is applied consistently from
period to period and to all financial instruments unless it can be demonstrated that circumstances have changed such that
another definition of default is more appropriate.
Credit-impaired financial assets (Stage 3)
Financial assets are assessed for credit-impairment at each balance sheet date and more frequently when circumstances
warrant further assessment. Evidence of credit-impairment may include indications that the borrower is experiencing significant
financial difficulty, probability of bankruptcy or other financial reorganization, as well as a measurable decrease in the estimated
future cash flows evidenced by the adverse changes in the payments status of the borrower or economic conditions that
correlate with defaults.
An asset that is in Stage 3 will move back to Stage 2 when, as at the reporting date, it is no longer
considered to be credit-impaired. The asset will transfer back to Stage 1 when its credit risk at the reporting date is no longer
considered to have increased significantly from initial recognition, which could occur during the same reporting period as the
transfer from Stage 3 to Stage 2.
When a financial asset has been identified as credit-impaired, expected credit losses are measured as the difference
between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the instrument’s
original effective interest rate. For impaired financial assets with drawn and undrawn components, expected credit losses also
reflect any credit losses related to the portion of the loan commitment that is expected to be drawn down over the remaining life
of the instrument.
When a financial asset is credit-impaired, interest ceases to be recognized on the regular accrual basis, which accrues
income based on the gross carrying amount of the asset. Rather, interest income is calculated by applying the original effective
interest rate to the amortized cost of the asset, which is the gross carrying amount less the related ACL.
ACL for credit-impaired loans in Stage 3 are established at the borrower level, where losses related to impaired loans are
identified on individually significant loans, or collectively assessed and determined through the use of portfolio-based rates,
without reference to particular loans.
Individually assessed loans (Stage 3)
When individually significant loans are identified as impaired, we reduce the carrying value of the loans to their estimated
realizable value by recording an individually assessed ACL to cover identified credit losses. The individually assessed ACL
reflects the expected amount of principal and interest calculated under the terms of the original loan agreement that will not be
recovered, and the impact of time delays in collecting principal and/or interest (time value of money). The estimated realizable
value for each individually significant loan is the present value of expected future cash flows discounted using the original
effective interest rate for each loan. When the amounts and timing of future cash flows cannot be estimated with reasonable
reliability, the estimated realizable amount may be determined using observable market prices for comparable loans, the fair
value of collateral underlying the loans, and other reasonable and supported methods based on management judgment.
Individually-assessed allowances are established in consideration of a range of possible outcomes, which may include
macroeconomic or non-macroeconomic scenarios, to the extent relevant to the circumstances of the specific borrower being
assessed. Assumptions used in estimating expected future cash flows reflect current and expected future economic conditions
and are generally consistent with those used in Stage 1 and Stage 2 measurement.
Significant judgment is required in assessing evidence of credit-impairment and estimation of the amount and timing of
future cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a direct
impact on PCL and may result in a change in the ACL.
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
160
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Collectively assessed loans (Stage 3)
Loans that are collectively assessed are grouped on the basis of similar risk characteristics, taking into account loan type,
industry, geographic location, collateral type, past due status and other relevant factors.
The collectively-assessed ACL reflects: (i) the expected amount of principal and interest calculated under the terms of the
original loan agreement that will not be recovered, and (ii) the impact of time delays in collecting principal and/or interest (time
value of money).
The expected principal and interest collection is estimated on a portfolio basis and references historical loss experience of
comparable portfolios with similar credit risk characteristics, adjusted for the current environment and expected future
conditions. A portfolio specific coverage ratio is applied against the impaired loan balance in determining the collectively-
assessed ACL. The time value of money component is calculated by using the discount factors applied to groups of loans sharing
common characteristics. The discount factors represent the expected recovery pattern of the comparable group of loans, and
reflect the historical experience of these groups adjusted for current and expected future economic conditions and/or industry
factors. Significant judgment is required in assessing evidence of credit-impairment and estimation of the amount and timing of
future cash flows when determining expected credit losses. Changes in the amount expected to be recovered would have a direct
impact on PCL and may result in a change in the ACL.
Write-off of loans
Loans and the related ACL are written off, either partially or in full, when there is no realistic prospect of recovery. Where loans
are secured, they are generally written off after receipt of any proceeds from the realization of collateral. In circumstances where
the net realizable value of any collateral has been determined and there is no reasonable expectation of further recovery, write
off may be earlier. For credit cards, the balances and related ACL are generally written off when payment is 180 days past due.
Personal loans are generally written off at 150 days past due.
Modifications
The original terms of a financial asset may be renegotiated or otherwise modified, resulting in changes to the contractual terms
of the financial asset that affect the contractual cash flows. The treatment of such modifications is primarily based on the
process undertaken to execute the renegotiation and the nature and extent of the expected changes. In the normal course of
business, modifications which are performed for credit reasons, primarily related to troubled debt restructurings, are generally
treated as modifications of the original financial asset. Modifications which are performed for other than credit reasons are
generally considered to be an expiry of the original cash flows; accordingly, such renegotiations are treated as a derecognition of
the original financial asset and recognition of a new financial asset.
If a modification of terms does not result in derecognition of the financial asset, the carrying amount of the financial asset is
recalculated as the present value of the renegotiated or modified contractual cash flows, discounted at the original effective
interest rate and a gain or loss is recognized. The financial asset continues to be subject to the same assessments for significant
increase in credit risk relative to initial recognition and credit-impairment, as described above. A modified financial asset will
transfer out of Stage 3 if the conditions that led to it being identified as credit-impaired are no longer present and relate
objectively to an event occurring after the original credit-impairment was recognized. A modified financial asset will transfer out
of Stage 2 when it no longer satisfies the relative thresholds set to identify significant increases in credit risk, which are based on
changes in its lifetime PD, days past due and other qualitative considerations. The financial asset continues to be monitored for
significant increases in credit risk and credit-impairment.
If a modification of terms results in derecognition of the original financial asset and recognition of the new financial asset,
the new financial asset will generally be recorded in Stage 1, unless it is determined to be credit-impaired at the time of the
renegotiation. For the purposes of assessing for significant increases in credit risk, the date of initial recognition for the new
When derivatives are embedded in other financial instruments or host contracts, such combinations are known as hybrid
instruments. If the host contract is a financial asset within the scope of IFRS 9
Financial Instruments
(IFRS 9), the classification
and measurement criteria are applied to the entire hybrid instrument as described in the Classification of financial assets
section of Note 2. If the host contract is a financial liability or an asset that is not within the scope of IFRS 9, embedded
derivatives are separately recognized if the economic characteristics and risks of the embedded derivative are not clearly and
closely related to the host contract, unless an election has been made to elect the fair value option, as described above. The host
contract is accounted for in accordance with the relevant standards. Embedded derivatives are presented on a combined basis
with the host contracts.
All derivative instruments are recorded on our Consolidated Balance Sheets at fair value, inclusive of valuation adjustments.
When derivatives are used in trading activities, the realized and unrealized gains and losses on these derivatives are recognized
in Non-interest income – Trading revenue. When derivatives are used to manage our own exposures, we determine for each
derivative whether hedge accounting can be applied, as discussed in the Hedge accounting section below. For derivatives used
to manage our own exposures where we do not apply hedge accounting, the realized and unrealized gains and losses are
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
161
Financial assets are derecognized from our Consolidated Balance Sheets when our contractual rights to the cash flows from the
assets have expired, when we retain the rights to receive the cash flows of the assets but assume an obligation to pay those cash
flows to a third party subject to certain pass-through requirements or when we transfer our contractual rights to receive the cash
flows and substantially all of the risks and rewards of the assets have been transferred. When we retain substantially all of the
risks and rewards of the transferred assets, the transferred assets are not derecognized from our Consolidated Balance Sheets
and are accounted for as secured financing transactions. When we neither retain nor transfer substantially all risks and rewards
of ownership of the assets, we derecognize the assets if control over the assets is relinquished. If we retain control over the
transferred assets, we continue to recognize the transferred assets to the extent of our continuing involvement.
Management judgment is applied in determining whether the contractual rights to the cash flows from the transferred assets
have expired or whether we retain the rights to receive cash flows on the assets but assume an obligation to pay for those cash
flows. We derecognize transferred financial assets if we transfer substantially all the risks and rewards of the ownership in the
assets. When assessing whether we have transferred substantially all of the risk and rewards of the transferred assets,
management considers the Bank’s exposure before and after the transfer with the variability in the amount and timing of the net
cash flows of the transferred assets. In transfers in which we retain the servicing rights, management has applied judgment in
assessing the benefits of servicing against market expectations. When the benefits of servicing are greater than fair value, a
servicing asset is recognized in Other assets in our Consolidated Balance Sheets. When the benefits of servicing are less than fair
value, a servicing liability is recognized in Other liabilities in our Consolidated Balance Sheets.
Derecognition of financial liabilities
We derecognize a financial liability from our Consolidated Balance Sheets when our obligation specified in the contract expires,
or is discharged or cancelled. We recognize the difference between the carrying amount of a financial liability transferred and the
Interest is recognized in Interest income and Interest expense in the Consolidated Statements of Income for all interest-bearing
financial instruments except for amounts relating to the Insurance segment, which are recorded in Non-interest income –
Insurance investment result. The effective interest rate is the rate that discounts estimated future cash flows over the expected
life of the financial asset or liability to the net carrying amount upon initial recognition. Significant judgment is applied in
Dividend income is recognized when the right to receive payment is established and is recorded in Dividend income except for
amounts relating to the Insurance segment, which are recorded in Non-interest income – Insurance investment result. This is the
ex-dividend date for listed equity securities, and usually the date when shareholders have approved the dividend for unlisted
Transaction costs are expensed as incurred for financial instruments classified or designated as FVTPL. For other financial
instruments, transaction costs are capitalized on initial recognition. For financial assets and financial liabilities measured at
amortized cost and debt financial assets measured at FVOCI, capitalized transaction costs are amortized through net income
Financial assets and financial liabilities are offset on the Consolidated Balance Sheets when there exists both a legally
enforceable right to offset the recognized amounts and an intention to settle on a net basis, or realize the asset and settle the
We purchase securities under agreements to resell (reverse repurchase agreements) and take possession of these securities. We
monitor the market value of the securities purchased and additional collateral is obtained when appropriate. We have the right
to liquidate the collateral held in the event of counterparty default. Reverse repurchase agreements are treated as collateralized
lending transactions. We also sell securities under agreements to repurchase (repurchase agreements), which are treated as
collateralized borrowing transactions. The securities received under reverse repurchase agreements and securities delivered
under repurchase agreements are not recognized on, or derecognized from, our Consolidated Balance Sheets, respectively,
unless the risks and rewards of ownership are obtained or relinquished.
Reverse repurchase agreements and repurchase agreements are carried on our Consolidated Balance Sheets at the
amounts at which the securities were initially acquired or sold, except when they are classified or designated as FVTPL and are
recorded at fair value. Interest earned on reverse repurchase agreements is included in Interest income, and interest incurred on
repurchase agreements is included in Interest expense in our Consolidated Statements of Income while changes in fair value for
reverse repurchase agreements and repurchase agreements classified or designated as FVTPL are included in Trading revenue or
Other in Non-interest income except for amounts relating to the Insurance segment, which are recorded in Non-interest income –
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
162
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
We have elected to continue to apply the hedge accounting principles under IAS 39 instead of those under IFRS 9.
We use derivatives and non-derivatives in our hedging strategies to manage our exposure to interest rate, currency, credit
and other market risks. Our hedging strategies include the use of fair value hedges, cash flow hedges and net investment hedges.
Derivatives used in hedging relationships are recorded in Other Assets – Derivatives or Other Liabilities – Derivatives on our
Consolidated Balance Sheets. Foreign currency-denominated liabilities used in net investment hedging relationships are
recorded in Deposits – Business and Government and Subordinated debentures on our Consolidated Balance Sheets. We assess,
both at the inception of the hedge and on an ongoing basis, whether the hedging instruments are ‘highly effective’ in offsetting
changes in the fair value or cash flows of the hedged items. A hedge is regarded as highly effective only if the following criteria
are met: (i) at inception of the hedge and throughout its life, the hedge is expected to be highly effective in achieving offsetting
changes in fair value or cash flows attributable to the hedged risk, and (ii) actual results of the hedge are within a pre-determined
range. We perform effectiveness testing to demonstrate that the relationship has been and is expected to be effective over the
remaining term of the hedge. In the case of hedging a forecast transaction, the transaction must have a high probability of
occurring and must present an exposure to variations in cash flows that could ultimately affect the reported net profit or loss.
Hedge accounting is discontinued when it is determined that the hedging instrument is no longer effective as a hedge, the
hedging instrument or hedged item is terminated or sold, or the forecast transaction is no longer deemed highly probable. Refer
to Note 9 for the fair value of derivatives and non-derivative instruments categorized by their hedging relationships, as well as
derivatives that are not designated in hedging relationships.
Until the hedging relationships impacted by the Interest rate benchmark reform (the Reform) fully transitioned to alternative
benchmark rates (ABRs), our prospective effectiveness testing was based on existing hedged cash flows or hedged risks and any
ineffectiveness arising from retrospective testing did not result in a discontinuation of the hedge. Additionally, effectiveness
testing is applied separately to hedged items referencing ABRs and hedged items referencing interbank offered rates (IBORs),
which include USD London Interbank Offered Rate (USD LIBOR) and Canadian Dollar Offered Rate (CDOR), in accordance with
the Phase 2 amendments to IFRS 9
Financial Instruments
, IAS 39
Financial Instruments: Recognition and Measurement
, IFRS 7
Financial Instruments: Disclosures
, IFRS 4
Insurance contracts
, and IFRS 16
Leases
(the Amendments). Subsequently, when these
relationships fully transitioned to ABRs, and provided qualifying criteria were met, we amended the related hedge documentation
for the ABR risk, including consequential changes to the description of the hedging instrument(s), the hedged item(s), and the
Fair value hedges
In a fair value hedging relationship, the carrying value of the hedged item is adjusted for changes in fair value attributable to the
hedged risk and recognized in Non-interest income – Other. Changes in fair value of the hedged item, to the extent that the
hedging relationship is effective, are offset by changes in the fair value of the hedging derivative, which are also recognized in
Non-interest income – Other. When hedge accounting is discontinued, the carrying value of the hedged item is no longer adjusted
and the cumulative fair value adjustments to the carrying value of the hedged items are amortized to Non-interest income –
Other over the expected remaining life of the hedged items.
We predominantly use interest rate swaps to hedge our exposure to changes in a fixed interest rate instrument’s fair value
caused by changes in interest rates. Until the hedging relationships impacted by the Reform fully transitioned to ABRs, we
applied hedge accounting to IBOR rates which may not have been contractually specified if that rate was separately identifiable
and reliably measurable at the inception of the hedge relationship.
Cash flow hedges
In a cash flow hedging relationship, the effective portion of the change in the fair value of the hedging derivative, net of taxes, is
recognized in OCI and reclassified to profit or loss as the associated hedged forecast transaction occurs, while the ineffective
portion is recognized in Non-interest income – Other. When hedge accounting is discontinued, the cumulative amounts
previously recognized in OCI are reclassified to Net interest income during the periods when the variability in the cash flows of
the hedged item affects Net interest income. Unrealized gains and losses on derivatives are reclassified immediately to
Non-interest income – Other when the hedged item is sold or terminated early, or when the forecast transaction is no longer
expected to occur.
We predominantly use interest rate swaps to hedge the variability in cash flows related to a variable-rate asset or liability.
Until the hedging relationships impacted by the Reform fully transitioned to ABRs, we treated the highly probable hedged IBORs
based cash flows of groups of similar assets or liabilities with similar risk characteristics as unchanged as a result of the Reform.
In addition, associated cash flow hedge reserves were not recycled into net income solely due to changes related to the
transition from IBORs to ABRs. Subsequently, when some items in the group transitioned to ABRs before other items, the
individual hedged items were allocated to subgroups based on the benchmark interest rate being hedged. We tested hedge
effectiveness based on the defined subgroups, in accordance with the Amendments, if eligibility requirements were met. If a
subgroup failed the eligibility requirements, we would have discontinued hedge accounting prospectively for the hedging
relationship in its entirety.
Net investment hedges
In hedging our foreign currency exposure to a net investment in a foreign operation, the effective portion of foreign exchange
gains and losses on the hedging instruments, net of applicable taxes, is recognized in OCI and the ineffective portion is
recognized in Non-interest income – Other. The amounts, or a portion thereof, previously recognized in Other components of
equity are recognized in Net income on the disposal, or partial disposal, of the foreign operation.
We use foreign exchange contracts and foreign currency-denominated liabilities to manage our foreign currency exposures
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Royal Bank of Canada: Annual Report 2024
163
Financial guarantee contracts are contracts that contingently require us to make specified payments (in cash, other assets, our
own shares or provision of services) to reimburse the holder for a loss it incurs because a specified debtor fails to make payment
when due in accordance with the original or modified terms of a debt instrument. Liabilities are recognized on our Consolidated
Balance Sheets at the inception of a guarantee for the fair value of the obligation undertaken in issuing the guarantee. Financial
guarantees are subsequently remeasured at the higher of (i) the amount of expected credit losses and (ii) the amount initially
recognized less, when appropriate, the cumulative amount of income recognized.
If the financial guarantee contract meets the definition of a derivative, it is measured at fair value at each balance sheet
Changes in accounting policies
During the first quarter of 2024, we adopted IFRS 17
Insurance Contracts
(IFRS 17), replacing IFRS 4
Insurance Contracts
(IFRS 4).
Our updated accounting policies for insurance and reinsurance contracts are described below. We have applied IFRS 17
retrospectively and restated comparative period results beginning November 1, 2022, where applicable. Adjustments to the
carrying amounts of insurance and reinsurance contracts at the transition date of November 1, 2022 were recognized in Retained
earnings.
As permitted by the transition provisions of IFRS 17, we reclassified certain financial assets between fair value classification
categories at the date of initial application of IFRS 17 as described below. The reclassifications resulted in no adjustments to
carrying amounts of financial assets as at November 1, 2023. Retained earnings and Other components of equity as at
November 1, 2023 were adjusted as a result with no net impact to total equity. We elected not to restate comparative period
results for these changes and accordingly, comparative period information for the impacted financial assets prior to November 1,
2023 is presented in accordance with our previous classifications.
Updated accounting policies
Contracts under which we accept significant insurance risk from a policyholder by agreeing to compensate the policyholder if a
specified uncertain future event adversely affects the policyholder are insurance contracts, which includes reinsurance
contracts issued. Contracts under which we transfer significant insurance risk to a reinsurer that compensates us for claims
relating to underlying insurance contracts issued by us are reinsurance contracts held, and are accounted for separately from
the underlying insurance contracts to which they relate. Embedded derivatives, investment components and promises to provide
non-insurance services are separated from the insurance or reinsurance contract provided specific criteria are met. Insurance
and reinsurance contracts are aggregated into portfolios that are subject to similar risks and are managed together, and then
divided into groups based on the period of issuance and expected profitability. Groups are separately recognized and measured
using one of three measurement models depending on the characteristics of the contracts:
•
For insurance contracts with direct participating features (applicable primarily to our segregated fund insurance
contracts), the variable fee approach (VFA) is applied.
•
For insurance contracts and reinsurance contracts held with a short duration of one year or less (applicable primarily to
our creditor reinsurance contracts issued, group life and health insurance contracts and travel insurance contracts), the
premium allocation approach (PAA) is applied.
•
The general measurement method (GMM) is applied to all remaining contracts.
Under the GMM and VFA, the carrying amount of a group of insurance or reinsurance contracts is measured as the sum of
the fulfilment cash flows and the contractual service margin (CSM). The carrying amount is also the sum of the liability for
remaining coverage and the liability for incurred claims. The liability for remaining coverage comprises the fulfilment cash flows
that relate to services that will be provided under the contracts in future periods and any remaining CSM at that date. The
liability for incurred claims includes the fulfilment cash flows for incurred claims and expenses that have not yet been paid,
including claims that have been incurred but not yet reported. The fulfilment cash flows consist of the present value of future
cash flows and a risk adjustment for non-financial risk, discounted using the current rates as at the reporting date determined
using the discount rate methodology disclosed in Note 15. The estimates of future cash flows consider probability-weighted
scenarios and include all future cash flows that are within the contract boundary. The risk adjustment for non-financial risk
represents the compensation that we require for bearing the uncertainty about the amount and timing of cash flows that arise
from non-financial risk as the insurance contract is fulfilled and is estimated using the margin approach disclosed in Note 15. The
measurement of the groups of contracts requires the use of judgment in setting methodologies and assumptions for morbidity,
mortality, longevity, policy lapses and other policyholder behaviour, policy dividends and directly attributable expenses,
including acquisition costs allocated using a systematic and rational method. Changes to the underlying assumptions and
estimates may have a significant effect on Non-interest income – Insurance service result and Insurance investment result.
Subsequent changes in fulfilment cash flows related to future services adjust the CSM, unless the group is onerous in which case
such changes are recognized in Non-interest income – Insurance service result along with changes related to past or current
services.
For insurance contracts, the CSM represents the unearned profit (net inflows) for providing insurance coverage. If there is a
net outflow at the initial recognition of the group, the group is onerous and the net outflow is recognized in Non-interest income –
Insurance service result immediately. For reinsurance contracts held, the CSM represents the net cost or net gain of purchasing
reinsurance. The CSM for insurance and reinsurance contacts are released into income based on coverage units, which represent
the quantity of service (insurance coverage as well as investment-return and investment-related services) provided by a group of
contracts and are determined by considering the quantity of benefits provided under each contract and the expected coverage
duration. Under the GMM, the CSM is adjusted for interest accretion using the discount rates that were locked-in at initial
recognition of the groups or the discount rates that were locked-in at the transition date for groups where the fair value
approach was applied. Under the VFA, the CSM is adjusted for changes in the amount of our share of the fair value of the
underlying items, while the changes to the fair value of the underlying items, reflecting changes in the obligation to pay the
policyholder, are recognized in Non-interest income – Insurance investment result.
Under the PAA, the liability for remaining coverage for each group is measured as the premiums received less insurance
revenue recognized for services provided, while the liability for incurred claims is measured as the fulfillment cash flows for
incurred claims.
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
164
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Losses from the recognition of onerous groups of insurance contracts, regardless of the measurement model applied, are
recognized in Non-interest income – Insurance service result immediately. Any losses recognized relating to future service can be
reversed in subsequent periods if the group of contracts is no longer onerous.
The insurance and reinsurance contract balances are remeasured at the end of each reporting period. We have elected to
update the accounting estimates made in the previous interim period when remeasuring the insurance and reinsurance
contracts in subsequent interim and annual reporting periods.
An insurance or reinsurance contract is derecognized when it is extinguished or modified such that the modification results
in a change in the measurement model, a substantially different contract boundary or a change in the scope of the applicable
standard for measuring a component of the contract.
Insurance service result comprises Insurance revenue less Insurance service expense and Net income (expense) from
reinsurance contracts held.
•
Insurance revenue is recognized as we provide insurance contract services under the groups of insurance contracts. For
contracts measured using the PAA, the insurance revenue is generally recognized based on allocating expected
premium receipts over the passage of time. For contracts measured using the GMM and VFA, insurance revenue
represents the amount of consideration we expect to be entitled to in exchange for services in the period, which
includes expected claims and expenses directly attributable to fulfilling insurance contracts (excluding any investment
components), release of the risk adjustment for the period, CSM amortization to reflect services provided in the period,
an allocation of premiums that relates to recovering insurance acquisition expenses and experience adjustments for
premium receipts relating to current or past services.
•
Insurance service expense arising from insurance contracts includes incurred claims and other directly attributable
expenses in the current period (excluding investment components), amortization and impairment losses relating to
insurance acquisition cash flows where applicable, changes relating to past or current services and changes in loss
components of onerous groups of contracts.
•
Net income (expense) from reinsurance contracts held represents the amounts recovered from the reinsurers less the
allocation of premiums paid on reinsurance contracts held.
Insurance investment result comprises Net investment income, Net insurance finance income (expense) and Net reinsurance
finance income (expense) from reinsurance contracts held.
•
Net investment income primarily comprises interest and dividend income and net gains (losses) on financial
instruments, including segregated fund assets, and derivatives relating to the Insurance segment. Financial assets
supporting the Insurance segment are primarily measured at FVTPL and FVOCI.
•
Insurance and reinsurance finance income (expense) represents the net effect of and changes in the time value of
money (including the time value of money relating to risk adjustment on non-financial risks) and financial risks on
insurance contracts and reinsurance contracts held, respectively.
Impact of IFRS 17 transition excluding the impact of reclassifications of financial assets
Upon the adoption of IFRS 17, we applied IFRS 17 retrospectively by adjusting our Consolidated Balance Sheets as at November 1, 2022
and restating the comparative information for the year ended October 31, 2023. The full retrospective approach was applied for all
insurance and reinsurance contracts unless it was impracticable to do so. The full retrospective approach was applied to all contracts
measured using the PAA and all new contracts issued on and after November 1, 2022 measured using the GMM and VFA as if IFRS 17
had always been applied. Due to data availability and the inability to use hindsight, the fair value approach was applied to contracts
issued before November 1, 2022 that were measured under the GMM and VFA. Under the fair value approach, each portfolio comprises
only one group, and the CSM was calculated as the difference between the fair value of a group of contracts and the fulfilment cash
flows using reasonable and supportable information available at the transition date. To determine the fair value of a group of
contracts, the requirements of IFRS 13 Fair Value Measurement were applied. The adjusted fulfillment cash flows approach was used
to calculate the fair value of groups of insurance contracts at the transition date. This valuation technique adjusts the future cash
flows for changes in the cost of capital to reflect what a market participant would require for accepting such contract obligations. Key
assumptions involve the weighted average cost of capital, required capital targets and underlying insurance assumptions from a
market participant’s perspective. The fulfilment cash flows and discount rates were determined as at the transition using the policies
noted above.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
165
The adoption of IFRS 17 resulted in a reduction in Retained earnings of $2.4 billion, net of taxes, as at November 1, 2022. This
is attributable to the establishment of the CSM and other remeasurement changes to insurance and reinsurance contracts and
related tax effects. The CSM of all insurance contracts net of reinsurance contracts held as at November 1, 2022 was $1.8 billion.
The following details the selected balances and totals impacted on our Consolidated Balance Sheets as at November 1, 2022:
As at | As at | ||
November 1, 2022 | Transition | November 1, 2022 | |
(Millions of Canadian dollars) | before transition | adjustments | after transition |
Assets | |||
Segregated fund net assets (1) | $ 2,638 | $ (2,638) | $ – |
Other | |||
Other assets (2) | 80,300 | 4,261 | 84,561 |
Total assets | $ 1,917,219 | $ 1,623 | $ 1,918,842 |
Liabilities | |||
Segregated fund net liabilities (3) | $ 2,638 | $ (2,638) | $ – |
Other | |||
Insurance claims and policy benefit liabilities (4) | 11,511 | (11,511) | – |
Insurance contract liabilities (4) | – | 18,226 | 18,226 |
Other liabilities (5) | 95,235 | (95) | 95,140 |
Total liabilities | $ 1,809,044 | $ 3,982 | $ 1,813,026 |
Total equity | 108,175 | (2,359) | 105,816 |
Total liabilities and equity | $ 1,917,219 | $ 1,623 | $ 1,918,842 |
(1)
Segregated fund net assets are now presented within Other assets.
(2)
The increase is primarily attributable to the inclusion of segregated fund net assets, the increases in insurance contract assets and reinsurance contracts held assets,
and the tax effects of the IFRS 17 transition adjustment.
(3)
Segregated fund insurance contracts are now presented within Insurance contract liabilities.
(4)
Insurance claims and policy benefit liabilities measured under IFRS 4 is replaced with Insurance contract liabilities measured under IFRS 17. The increase in these
balances is attributable to presentation changes and remeasurement impacts including the establishment of the CSM for in-force contracts at transition.
(5)
Certain liabilities that were previously presented in Other liabilities are now included in the measurement of insurance contracts or reinsurance contracts held.
Impact of reclassifications of financial assets from IFRS 17 transition
As permitted by IFRS 17, we reclassified certain eligible financial assets held in respect of activities that relate to insurance
contracts upon the adoption of IFRS 17. The changes were primarily a result of changes to the business models based on facts
and circumstances that existed as at November 1, 2023, the date of the initial application of IFRS 17. We have applied these
changes retrospectively by adjusting our Consolidated Balance Sheet as at November 1, 2023 with no restatement of comparative
information. The following were reclassified as at November 1, 2023:
•
$8.3 billion of securities and $2.0 billion of loans from designated as FVTPL to classified as FVTPL;
•
$0.5 billion of securities and $0.3 billion of loans from designated as FVTPL to classified as FVOCI;
•
$1.7 billion of securities from classified as FVOCI to classified as FVTPL; and
•
$0.3 billion of securities from classified as FVTPL to designated as FVOCI.
The impacts of the reclassifications resulted in an increase in Other components of equity by $656 million, net of taxes, and a
decrease in Retained earnings by the same amount, with no net impact to our total equity nor the carrying amounts of those
Our defined benefit pension expense, which is included in Non-interest expense – Human resources, consists of the cost of
employee pension benefits for the current year’s service, net interest on the net defined benefit liability (asset), past service cost
and gains or losses on settlement. Remeasurements of the net defined benefit obligation, which comprise actuarial gains and
losses and return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized
immediately in OCI in the period in which they occur. Actuarial gains and losses comprise experience adjustments (the effects of
differences between the previous actuarial assumptions and what has actually occurred), as well as the effects of changes in
actuarial assumptions. Amounts recognized in OCI will not be reclassified subsequently to net income. Past service cost is the
change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment and is charged
immediately to income.
For each defined benefit pension plan, we recognize the present value of our defined benefit obligations less the fair value of
the plan assets as a defined benefit liability reported in Other liabilities on our Consolidated Balance Sheets. For plans where
there is a net defined benefit asset, the amount is reported as an asset in Other assets on our Consolidated Balance sheets.
The calculation of defined benefit expenses and obligations requires significant judgment as the recognition is dependent on
discount rates and various actuarial assumptions such as healthcare cost trend rates, projected salary increases, retirement age
and mortality and termination rates. Due to the long-term nature of these plans, such estimates and assumptions are subject to
inherent risks and uncertainties. For our pension and other post-employment benefit plans, the discount rate is determined by
reference to market yields on high quality corporate bonds. Since the discount rate is based on currently available yields, and
involves management’s assessment of market liquidity, it is only a proxy for future yields. Actuarial assumptions, set in
accordance with current practices in the respective countries of our plans, may differ from actual experience as country specific
statistics are only estimates of future employee behaviour. These assumptions are determined by management and are reviewed
by actuaries at least annually. Changes to any of the above assumptions may affect the amounts of benefits obligations,
expenses and remeasurements that we recognize.
Our contributions to defined contribution pension plans are expensed when employees have rendered services in exchange
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
166
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
We offer share-based compensation plans to certain key employees and to our non-employee directors.
To account for stock options granted to employees, compensation expense is recognized over the applicable vesting period
with a corresponding increase in equity. Fair value is determined by using option valuation models, which take into account the
exercise price of the option, the current share price, the risk free interest rate, the expected volatility of the share price over the
life of the option and other relevant factors. When the options are exercised, the exercise price proceeds together with the
amount initially recorded in equity are credited to common shares. Our other share-based compensation plans include
performance deferred share plans and deferred share unit plans for key employees (the Plans). The obligations for the Plans are
accrued over their vesting periods. The Plans are generally settled in cash.
For cash-settled awards, our accrued obligations are adjusted to their fair value at each balance sheet date. For share-
settled awards, our expected obligations recognized in equity are based on the fair value of our common shares at the date of
grant. Changes in our obligations, net of related hedges, are recorded as Non-interest expense – Human resources in our
Consolidated Statements of Income with a corresponding increase in Other liabilities for cash-settled awards and in Retained
earnings for share-settled awards. Compensation expense is recognized in the year the awards are earned by plan participants
based on the vesting schedule of the relevant plans, net of estimated forfeitures.
The compensation cost attributable to options and awards granted to employees who are eligible to retire or will become
eligible to retire during the vesting period, is recognized immediately if the employee is eligible to retire on the grant date or over
the period between the grant date and the date the employee becomes eligible to retire.
Income tax comprises current tax and deferred tax and is recognized in our Consolidated Statements of Income except to the
extent that it relates to items recognized directly in equity, in which case it is recognized in equity.
Current income tax payable on profits is recognized as an expense based on the applicable tax laws in each jurisdiction in
the period in which profits arise, calculated using tax rates enacted or substantively enacted by the balance sheet date. Deferred
tax is recognized on temporary differences between the carrying amounts of assets and liabilities for accounting and tax
purposes. A deferred income tax asset or liability is determined for each temporary difference, except for earnings related to our
subsidiaries, branches, associates and interests in joint ventures where the temporary differences will not reverse in the
foreseeable future and we have the ability to control the timing of reversal. Deferred tax assets and liabilities are determined
based on the tax rates that are expected to be in effect in the period that the asset is realized or the liability is settled, based on
tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Current tax assets and
liabilities are offset when they are levied by the same taxation authority on either the same taxable entity or different taxable
entities within the same tax reporting group (which intends to settle on a net basis), and when there is a legal right to offset.
Deferred tax assets and liabilities are offset when the same conditions are satisfied. Our Consolidated Statements of Income
include items that are non-taxable or non-deductible for income tax purposes and, accordingly, this causes the income tax
provision to be different from what it would be if based on statutory rates.
assets and Other liabilities. On a quarterly basis, we review our deferred income tax assets to determine whether it is probable
that the benefits associated with these assets will be realized; this review involves evaluating both positive and negative
We are subject to income tax laws in various jurisdictions where we operate, and the complex tax laws are potentially
subject to different interpretations by us and the relevant taxation authorities. Significant judgment is required in the
interpretation of the relevant tax laws and in assessing the probability of acceptance of our tax positions to determine our tax
provision, which includes our best estimate of uncertain tax positions that are under audit or appeal by the relevant tax
authorities. We perform a review on a quarterly basis to incorporate our best assessment based on information available, but
additional liability and income tax expense could result based on the acceptance of our tax positions by the relevant tax
authorities.
The determination of our deferred tax asset or liability also requires significant management judgment as the recognition is
dependent on our projection of future taxable profits and tax rates that are expected to be in effect in the period the asset is
realized or the liability is settled. Any changes in our projection will result in changes in deferred tax assets or liabilities on our
Consolidated Balance Sheets, and also deferred tax expense on our Consolidated Statements of Income.
The IASB issued amendments to IAS 12
Income Taxes (IAS 12)
in May 2023 to address the
Pillar Two Model Rules
for
International Tax Reform
, including a global 15% minimum tax. The amendments introduced, with immediate effect, a temporary
recognition exception in relation to accounting and disclosure for deferred taxes arising from the implementation of the
All business combinations are accounted for using the acquisition method. Non-controlling interests, if any, are recognized at
their proportionate share of the fair value of identifiable assets and liabilities, unless otherwise indicated. Identifiable intangible
assets are recognized separately from goodwill and included in Other intangibles. Goodwill represents the excess of the price
Goodwill is allocated to cash-generating units or groups of cash-generating units for the purpose of impairment testing, which is
undertaken at the lowest level at which goodwill is monitored for internal management purposes. Impairment testing is
performed annually as at August 1, or more frequently if there are objective indicators of impairment, by comparing the
recoverable amount of a cash-generating unit (CGU) with its carrying amount. The recoverable amount of a CGU is the higher of
its value in use (VIU) and its fair value less costs of disposal (FVLCD). The fair value of a CGU is estimated using valuation
techniques such as a discounted cash flow method, adjusted to reflect the considerations of a prospective third-party buyer.
External evidence such as binding sale agreements or recent transactions for similar businesses within the same industry is
considered to the extent that it is available.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
167
Significant judgment is involved in estimating the model inputs used to determine the recoverable amount of our CGUs, in
particular future cash flows, discount rates and terminal growth rates, due to the uncertainty in the timing and amount of cash
flows and the forward-looking nature of these inputs. Future cash flows are based on financial plans agreed by management
which are estimated based on forecast results, business initiatives, planned capital investments and returns to shareholders.
Discount rates are based on the bank-wide cost of capital, adjusted for CGU-specific risks and currency exposure as reflected by
differences in expected inflation. Bank-wide cost of capital is based on the Capital Asset Pricing Model, the Dividend Growth
Model and peer analysis. CGU-specific risks include country risk, business/operational risk, geographic risk (including political
risk, devaluation risk and government regulation), currency risk and price risk (including product pricing risk and inflation).
Terminal growth rates are based on the long-term steady state growth expectations in the countries within which the CGU
operates. If the future cash flows and other assumptions in future periods deviate significantly from the current amounts used in
our impairment testing, the value of our goodwill could become impaired, with any such impairment loss recognized in
Non-interest expense.
The carrying amount of a CGU includes the carrying amount of assets, liabilities and goodwill allocated to the CGU. If the
recoverable amount is less than the carrying value, the impairment loss is allocated first to reduce the carrying amount of any
goodwill allocated to the CGU and then to the other non-financial assets of the CGU proportionately based on the carrying
amount of each asset. Any impairment loss is charged to income in the period in which the impairment is identified. Goodwill is
stated at cost less accumulated impairment losses. Subsequent reversals of goodwill impairment are prohibited.
Upon disposal of a portion of a CGU, the carrying amount of goodwill related to the portion of the CGU sold is included in the
determination of gains or losses on disposal. The carrying amount is determined based on the relative fair value of the disposed
Intangible assets represent identifiable non-monetary assets and are acquired either separately or through a business
combination, or generated internally. Intangible assets acquired through a business combination are recognized separately from
goodwill when they are separable or arise from contractual or other legal rights, and their fair value can be measured reliably.
The cost of a separately acquired intangible asset includes its purchase price and directly attributable costs of preparing the
asset for its intended use. In respect of internally generated intangible assets, cost includes all directly attributable costs
necessary to create, produce and prepare the asset to be capable of operating in the manner intended by management. Research
and development costs that are not eligible for capitalization are expensed. After initial recognition, an intangible asset is carried
at its cost less any accumulated amortization and accumulated impairment losses, if any. Intangible assets with a finite-life are
amortized on a straight-line basis over their estimated useful lives as follows: computer software – 3 to 10 years; and customer
list and relationships – 7 to 20 years. Intangible assets with indefinite useful lives represent mutual fund management contracts.
Intangible assets are assessed for indicators of impairment at each reporting period. If there is an indication that an
intangible asset may be impaired, an impairment test is performed by comparing the carrying amount of the intangible asset to
its recoverable amount. Where it is not possible to estimate the recoverable amount of an individual asset, we estimate the
recoverable amount of the CGU to which the asset belongs. If the recoverable amount of the asset (or CGU) is less than its
carrying amount, the carrying amount of the intangible asset is written down to its recoverable amount as an impairment loss.
An impairment loss recognized previously is reversed if there is a change in the estimates used to determine the recoverable
amount of the asset (or CGU) since the last impairment loss was recognized. If an impairment loss is subsequently reversed, the
carrying amount of the asset (or CGU) is revised to the lower of its recoverable amount and the carrying amount that would have
been determined (net of amortization) had there been no prior impairment.
Due to the subjective nature of these estimates, significant judgment is required in determining the useful lives and
recoverable amounts of our intangible assets, and assessing whether certain events or circumstances constitute objective
evidence of impairment. Estimates of the recoverable amounts of our intangible assets rely on certain key inputs, including
future cash flows and discount rates. Future cash flows are based on sales projections and allocated costs which are estimated
based on forecast results and business initiatives. Discount rates are based on the bank-wide cost of capital, adjusted for asset-
Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currencies are translated into Canadian dollars at rates prevailing at the
balance sheet date. Foreign exchange gains and losses resulting from the translation and settlement of these items are
recognized in Non-interest income in the Consolidated Statements of Income.
Non-monetary assets and liabilities that are measured at historical cost are translated into Canadian dollars at historical
rates.
Assets and liabilities of our foreign operations with functional currencies other than Canadian dollars are translated into
Canadian dollars at rates prevailing at the balance sheet date, and income and expenses of these foreign operations are
translated at average rates of exchange for the reporting period.
Unrealized gains or losses arising as a result of the translation of our foreign operations along with the effective portion of
related hedges are reported in Other components of equity on an after-tax basis. Upon disposal or partial disposal of a foreign
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
168
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Premises and equipment includes land, buildings, leasehold improvements, computer equipment, furniture, fixtures and other
equipment, and are stated at cost less accumulated depreciation, except for land which is not depreciated, and accumulated
impairment losses. Cost comprises the purchase price, any costs directly attributable to bringing the asset to the location and
condition necessary for its intended use, and the initial estimate of any disposal costs. Depreciation is recorded principally on a
straight–line basis over the estimated useful lives of the assets, which are 25 to 50 years for buildings, 3 to 10 years for computer
equipment, and 5 to 10 years for furniture, fixtures and other equipment. The amortization period for leasehold improvements is
the lesser of the useful life of the leasehold improvements or the lease term plus the first renewal period, if reasonably assured
of renewal. Depreciation methods, useful lives, and residual values are reassessed at each reporting period and adjusted as
Premises and equipment are assessed for indicators of impairment at each reporting period. If there is an indication that an
asset may be impaired, an impairment test is performed by comparing the asset’s carrying amount to its recoverable amount.
After the recognition of impairment, the depreciation charge is adjusted in future periods to reflect the asset’s revised
carrying amount. If an impairment is later reversed, the carrying amount of the asset is revised to the lower of the asset’s
recoverable amount and the carrying amount that would have been determined (net of depreciation) had there been no prior
impairment loss. The depreciation charge in future periods is adjusted to reflect the revised carrying amount.
At inception of a contract, we assess whether a contract is or contains a lease. A contract is, or contains, a lease if the contract
conveys the right to obtain substantially all of the economic benefits from, and direct the use of, an identified asset for a period
of time in return for consideration.
When we are the lessee in a lease arrangement, we initially record a right-of-use asset and corresponding lease liability,
except for short-term leases and leases of low-value assets. Short-term leases are leases with a lease term of 12 months or less.
Low-value assets are unspecialized, common, technologically unsophisticated, widely available and widely used
non-infrastructure assets. For short-term leases and leases of low-value assets, we record the lease payments as an operating
expense on a straight-line basis over the lease term.
Where we are reasonably certain to exercise extension and termination options, they are included in the lease term.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date, discounted at our incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the
effective interest method, recorded in Interest expense.
The right-of-use asset is initially measured based on the initial amount of the lease liability, adjusted for lease payments
made on or before the commencement date, initial direct costs incurred, and an estimate of costs to dismantle, remove, or
restore the asset, less any lease incentives received. Costs related to dismantling and removing leasehold improvements are
capitalized as part of the leasehold improvement asset (rather than the right-of-use asset of the lease) when the leasehold
improvements are separately capitalized.
The right-of-use asset is depreciated to the earlier of the lease term and the useful life, unless ownership will transfer to RBC
or we are reasonably certain to exercise a purchase option, in which case the useful life of the right-of-use asset is used. We
apply IAS 36
Impairment of assets
to determine whether a right-of-use asset is impaired and account for any identified
Provisions are liabilities of uncertain timing or amount and are recognized when we have a present legal or constructive
obligation as a result of a past event, it is probable that an outflow of resources will be required to settle the obligation, and a
reliable estimate can be made of the amount of the obligation. Provisions are measured as the best estimate of the consideration
required to settle the present obligation at the reporting date. Significant judgment is required in determining whether a present
obligation exists and in estimating the probability, timing and amount of any outflows. We record provisions related to litigation,
asset retirement obligations and other items.
We are required to estimate the results of ongoing legal proceedings, and expenses to be incurred to dispose of capital
assets. The forward-looking nature of these estimates requires us to use a significant amount of judgment in projecting the
timing and amount of future cash flows. We record our provisions on the basis of all available information at the end of the
reporting period and make adjustments on a quarterly basis to reflect current expectations. It may not be possible to predict the
resolution of these matters or the timing of their ultimate resolution. Should actual results differ from our expectations, we may
incur expenses in excess of the provisions recognized. Where appropriate, we apply judgment in limiting the extent of our
provisions-related disclosures as not to prejudice our positions in matters of dispute.
When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party,
Commissions and fees primarily relate to Investment management and custodial fees, Mutual fund revenue, Securities brokerage
commissions, Services charges, Underwriting and other advisory fees, Card service revenue and Credit fees, and are recognized
based on the applicable service contracts with clients.
Investment management and custodial fees and Mutual fund revenue are generally calculated as a percentage of daily or
period-end net asset values (NAV) based on the terms of the contract with clients and are received monthly, quarterly,
semiannually or annually, depending on the terms of the contract. Investment management and custodial fees are generally
derived from assets under management (AUM) when our clients solicit the investment capabilities of an investment manager or
from assets under administration (AUA) where the investment strategy is directed by the client or a designated third-party
manager. Mutual fund revenue is generally derived from the daily NAV of the mutual funds. Investment management and
custodial fees and Mutual fund revenue are recognized over time when the service is provided to the client, provided that it is
highly probable that a significant reversal in the amount of revenue recognized will not occur.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
169
Commissions earned on Securities brokerage services and Service charges that are related to the provision of specific
transaction-type services are recognized when the service is fulfilled. Where services are provided over time, revenue is
recognized as the services are provided.
Underwriting and other advisory fees primarily relate to underwriting of new issuances of debt or equity and various
advisory services. Underwriting fees are generally expressed as a percentage of the funds raised through issuance and are
recognized when the service has been completed. Advisory fees vary depending on the scope and type of engagement and can be
fixed in nature or contingent on a future event. Advisory fees are recognized over the period in which the service is provided and
are recognized only to the extent that it is highly probable that a significant reversal in the amount of revenue will not occur.
Card service revenue primarily includes interchange revenue and annual card fees. Interchange revenue is calculated as a
fixed percentage of the transaction amount and recognized when the card transaction is settled. Annual card fees are fixed fees
and are recognized over a 12 month period.
Credit fees are primarily earned for arranging syndicated loans and making credit available on undrawn facilities. The timing
of the recognition of credit fees varies based on the nature of the services provided.
When service fees and other costs are incurred in relation to commissions and fees earned, we record these costs on a gross
basis in either Non-interest expense – Other or Non-interest expense – Human resources based on our assessment of whether we
have primary responsibility to fulfill the contract with the client and have discretion in establishing the price for the commissions
Earnings per share is computed by dividing Net income available to common shareholders by the weighted average number of
common shares outstanding for the period. Net income available to common shareholders is determined after deducting
dividend entitlements of preferred shareholders and distributions on other equity instruments, any gains (losses) on redemption
of preferred shares and other equity instruments net of related income taxes and the net income attributable to non-controlling
interests.
Diluted earnings per share reflects the potential dilution that could occur if additional common shares are assumed to be
issued under securities or contracts that entitle their holders to obtain common shares in the future, to the extent such
entitlement is not subject to unresolved contingencies. For contracts that may be settled in cash or in common shares at our
option, diluted earnings per share is calculated based on the assumption that such contracts will be settled in shares. Income
and expenses associated with these types of contracts are excluded from the Net income available to common shareholders, and
the additional number of shares that would be issued is included in the diluted earnings per share calculation. For stock options
whose exercise price is less than the average market price of our common shares, using the treasury stock method, they are
assumed to be exercised and the proceeds are used to repurchase common shares at the average market price for the period.
The incremental number of common shares issued under stock options and repurchased from proceeds is included in the
We classify a financial instrument that we issue as a financial asset, financial liability or an equity instrument in accordance with
the substance of the contractual arrangement.
Our common shares held by us are classified as treasury shares in equity and accounted for at weighted average cost. Upon
the sale of treasury shares, the difference between the sale proceeds and the cost of the shares is recognized in Retained
earnings. Financial instruments issued by us are classified as equity instruments when there is no contractual obligation to
transfer cash or other financial assets. Incremental costs directly attributable to the issue of equity instruments are included in
equity as a deduction from the proceeds, net of tax. Financial instruments that will be settled by a variable number of our
common shares upon their conversion by the holders as well as the related accrued distributions are classified as liabilities on
our Consolidated Balance Sheets. Dividends and yield distributions on these instruments are classified as Interest expense in our
Consolidated Statements of Income. For compound instruments comprised of both liability and equity components, the liability
In May 2024, the IASB issued
Amendments to the Classification and Measurement of Financial Instruments
which amends IFRS 9
Financial Instruments
and IFRS 7
Financial Instruments: Disclosures
(the Amendments). The Amendments clarify classification
guidance for financial assets with environmental, social and governance-linked features and introduce additional related
disclosure requirements. The Amendments will be effective for us on November 1, 2026. We are currently assessing the impact of
adopting the Amendments on our Consolidated Financial Statements.
IFRS 18 Presentation and Disclosure in Financial Statements (IFRS 18)
In April 2024, the IASB issued IFRS 18, which sets out requirements for the presentation and disclosure of information in the
financial statements. IFRS 18 will replace IAS 1 Presentation of Financial Statements and accompanies limited amendments to
other standards which will be effective upon the adoption of the new standard. The standard introduces new defined subtotals to
be presented in the Consolidated Statements of Income, disclosure of management-defined performance measures and
requirements for grouping of information. This standard will be effective for us on November 1, 2027. We are currently assessing
(continued)
Note 2
Summary of material accounting policies, estimates and judgments
170
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Updates related to interest rate benchmark reform
To manage our transition to ABRs, we implemented a comprehensive enterprise-wide program and governance structure that
addresses the key areas of impact including contract remediation, funding and liquidity planning, risk management, financial
reporting and valuation, systems, processes and client education and communication. Our remaining transition activities were
focused on two broad streams of work: (i) developing new ABR linked products, and (ii) conversion of existing CDOR based
contracts to ABRs.
On June 28, 2024, the publication of all remaining Canadian Dollar Offered Rate (CDOR) settings was ceased and relatedly we
have ceased our Bankers’ Acceptance-based lending. Consistent with our transition plan, our exposure to non-derivative
financial assets, non-derivative financial liabilities, derivative notional and undrawn balances of loan commitments referencing
CDOR and interest rates substantially similar to CDOR is no longer material to our financial statements (October 31, 2023 –
$29.5 billion, $24.7 billion, $2,154.3 billion, and $40.0 billion, respectively).
We continue to manage significant exposures to benchmarks that have no announced plans for cessation or further reform,
Fair value of financial instruments
Carrying value and fair value of financial instruments
The following tables provide a comparison of the carrying and fair values for each classification of financial instruments.
Embedded derivatives are presented on a combined basis with the host contracts. For measurement purposes, they are carried
at fair value when conditions requiring separation are met.
| As at October 31, 2024 | ||||||||||||||||
| Carrying value and fair value | Carrying value | Fair value | ||||||||||||||
| Financial | Financial | Financial | Financial | Financial | Financial | |||||||||||
instruments | instruments | instruments | instruments | instruments | instruments | Total | ||||||||||
classified as | designated as | classified as | designated as | measured at | measured at | carrying | Total | |||||||||
(Millions of Canadian dollars) | FVTPL | FVTPL | FVOCI | FVOCI | amortized cost | amortized cost | amount | fair value | ||||||||
Financial assets | ||||||||||||||||
Interest-bearing deposits with banks | $ | – | $ | 53,996 | $ | – | $ | – | $ | 12,024 | $ | 12,024 | $ | 66,020 | $ | 66,020 |
Securities | ||||||||||||||||
Trading | 182,346 | 954 | – | – | – | – | 183,300 | 183,300 | ||||||||
Investment, net of applicable allowance | – | – | 155,118 | 1,242 | 100,258 | 96,336 | 256,618 | 252,696 | ||||||||
182,346 | 954 | 155,118 | 1,242 | 100,258 | 96,336 | 439,918 | 435,996 | |||||||||
Assets purchased under reverse repurchase | ||||||||||||||||
agreements and securities borrowed | 284,311 | – | – | – | 66,492 | 66,492 | 350,803 | 350,803 | ||||||||
Loans, net of applicable allowance | ||||||||||||||||
Retail | 915 | – | 580 | – | 622,098 | 619,320 | 623,593 | 620,815 | ||||||||
Wholesale | 6,177 | 2,030 | 1,003 | – | 348,577 | 345,561 | 357,787 | 354,771 | ||||||||
7,092 | 2,030 | 1,583 | – | 970,675 | 964,881 | 981,380 | 975,586 | |||||||||
Other | ||||||||||||||||
Derivatives | 150,612 | – | – | – | – | – | 150,612 | 150,612 | ||||||||
Other assets (1) | 11,770 | – | – | – | 50,093 | 50,093 | 61,863 | 61,863 | ||||||||
Financial liabilities | ||||||||||||||||
Deposits | ||||||||||||||||
Personal | $ | 508 | $ | 33,799 | $ | 487,832 | $ | 490,170 | $ | 522,139 | $ | 524,477 | ||||
Business and government (2) | 191 | 156,238 | 683,241 | 684,748 | 839,670 | 841,177 | ||||||||||
Bank (3) | – | 10,530 | 37,192 | 37,183 | 47,722 | 47,713 | ||||||||||
699 | 200,567 | 1,208,265 | 1,212,101 | 1,409,531 | 1,413,367 | |||||||||||
Other | ||||||||||||||||
Obligations related to securities sold short | 35,286 | – | – | – | 35,286 | 35,286 | ||||||||||
Obligations related to assets sold under | ||||||||||||||||
repurchase agreements and securities | ||||||||||||||||
loaned | – | 270,663 | 34,658 | 34,658 | 305,321 | 305,321 | ||||||||||
Derivatives | 163,763 | – | – | – | 163,763 | 163,763 | ||||||||||
Other liabilities (4) | (1,407) | – | 69,597 | 69,850 | 68,190 | 68,443 | ||||||||||
Subordinated debentures | – | – | 13,546 | 13,602 | 13,546 | 13,602 | ||||||||||
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
171
| As at October 31, 2023 (Restated – Note 2) | |||||||||||||||||
| Carrying value and fair value | Carrying value | Fair value | |||||||||||||||
| Financial | Financial | Financial | Financial | Financial | Financial | ||||||||||||
instruments | instruments | instruments | instruments | instruments | instruments | Total | |||||||||||
classified as | designated as | classified as | designated as | measured at | measured at | carrying | Total | ||||||||||
(Millions of Canadian dollars) | FVTPL | FVTPL | FVOCI | FVOCI | amortized cost | amortized cost | amount | fair value | |||||||||
Financial assets | |||||||||||||||||
Interest-bearing deposits with banks | $ | – | $ | 60,856 | $ | – | $ | – | $ | 10,230 | $ | 10,230 | $ | 71,086 | $ | 71,086 | |
Securities | |||||||||||||||||
Trading | 180,651 | 9,500 | – | – | – | – | 190,151 | 190,151 | |||||||||
Investment, net of applicable allowance | – | – | 127,624 | 842 | 91,113 | 83,667 | 219,579 | 212,133 | |||||||||
180,651 | 9,500 | 127,624 | 842 | 91,113 | 83,667 | 409,730 | 402,284 | ||||||||||
Assets purchased under reverse repurchase | |||||||||||||||||
agreements and securities borrowed | 285,869 | – | – | – | 54,322 | 54,322 | 340,191 | 340,191 | |||||||||
Loans, net of applicable allowance | |||||||||||||||||
Retail | 114 | 362 | 280 | – | 566,376 | 542,480 | 567,132 | 543,236 | |||||||||
Wholesale | 5,629 | 3,619 | 597 | – | 275,796 | 268,843 | 285,641 | 278,688 | |||||||||
5,743 | 3,981 | 877 | – | 842,172 | 811,323 | 852,773 | 821,924 | ||||||||||
Other | |||||||||||||||||
Derivatives | 142,450 | – | – | – | – | – | 142,450 | 142,450 | |||||||||
Other assets (1) | 7,579 | 5 | – | – | 68,450 | 68,450 | 76,034 | 76,034 | |||||||||
Financial liabilities | |||||||||||||||||
Deposits | |||||||||||||||||
Personal | $ | 109 | $ | 26,702 | $ | 415,135 | $ | 412,886 | $ | 441,946 | $ | 439,697 | |||||
Business and government (2) | 174 | 137,454 | 607,447 | 605,260 | 745,075 | 742,888 | |||||||||||
Bank (3) | – | 11,462 | 33,204 | 33,160 | 44,666 | 44,622 | |||||||||||
283 | 175,618 | 1,055,786 | 1,051,306 | 1,231,687 | 1,227,207 | ||||||||||||
Other | |||||||||||||||||
Obligations related to securities sold short | 33,651 | – | – | – | 33,651 | 33,651 | |||||||||||
Obligations related to assets sold under | |||||||||||||||||
repurchase agreements and securities | |||||||||||||||||
loaned | – | 298,679 | 36,559 | 36,559 | 335,238 | 335,238 | |||||||||||
Derivatives | 142,629 | – | – | – | 142,629 | 142,629 | |||||||||||
Other liabilities (4) | (937) | 11 | 92,539 | 92,441 | 91,613 | 91,515 | |||||||||||
Subordinated debentures | – | – | 11,386 | 11,213 | 11,386 | 11,213 | |||||||||||
(1)
Includes Customers’ liability under acceptances and financial instruments recognized in Other assets.
(2)
Business and government deposits include deposits from regulated deposit-taking institutions other than banks.
(3)
Bank deposits refer to deposits from regulated banks and central banks.
(4)
Includes Acceptances and financial instruments recognized in Other liabilities.
For our financial assets designated as FVTPL, we measure the change in fair value attributable to changes in credit risk as the
difference between the total change in the fair value of the instrument during the period and the change in fair value calculated
using the appropriate risk-free yield curves. For the year ended October 31, 2024, the change in fair value during the period
attributable to changes in credit risk for positions still held was a gain of $45 million and the cumulative change in fair value
attributable to changes in credit risk for positions still held was a loss of $9 million. For the year ended October 31, 2023, the
change in fair value during the period attributable to changes in credit risk for positions still held was a gain of $360 million and
the cumulative change in fair value attributable to changes in credit risk for positions still held was a loss of $102 million. As at
October 31, 2024, the extent to which credit derivatives or similar instruments mitigate the maximum exposure to credit risk was
$954 million (October 31, 2023 – $692 million).
Financial liabilities designated as fair value through profit or loss
For our financial liabilities designated as FVTPL, we take into account changes in our own credit spread and the expected
duration of the instrument to measure the change in fair value attributable to changes in credit risk.
| As at or for the year ended October 31, 2024 (1) | |||||
| Difference | |||||
between | Changes in fair value attributable | ||||
Contractual | carrying value | to changes in credit risk included | |||
maturity | and contractual | in OCI for positions still held | |||
(Millions of Canadian dollars) | amount | Carrying value | maturity amount | During the period | Cumulative (2) |
Term deposits | |||||
Personal | $ 33,552 | $ 33,799 | $ 247 | $ 221 | $ 163 |
Business and government (3) | 162,648 | 156,238 | (6,410) | 1,204 | 177 |
Bank (4) | 10,520 | 10,530 | 10 | – | – |
206,720 | 200,567 | (6,153) | 1,425 | 340 | |
Obligations related to assets sold under | |||||
repurchase agreements and securities loaned | 270,625 | 270,663 | 38 | – | – |
Other liabilities | – | – | – | – | – |
$ 477,345 | $ 471,230 | $ (6,115) | $ 1,425 | $ 340 | |
(continued)
Note 3
Fair value of financial instruments
172
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
| As at or for the year ended October 31, 2023 (1) | ||||||||||
| Difference | ||||||||||
between | Changes in fair value attributable | |||||||||
carrying value | to changes in credit risk included | |||||||||
Contractual maturity | and contractual | in OCI for positions still held | ||||||||
(Millions of Canadian dollars) | amount | Carrying value | maturity amount | During the period | Cumulative (2) | |||||
Term deposits | ||||||||||
Personal | $ | 27,131 | $ | 26,702 | $ | (429) | $ | 112 | $ | (57) |
Business and government (3) | 147,844 | 137,454 | (10,390) | 683 | (1,030) | |||||
Bank (4) | 11,485 | 11,462 | (23) | – | – | |||||
186,460 | 175,618 | (10,842) | 795 | (1,087) | ||||||
Obligations related to assets sold under | ||||||||||
repurchase agreements and securities loaned | 298,734 | 298,679 | (55) | 3 | 4 | |||||
Other liabilities | 11 | 11 | – | – | – | |||||
$ | 485,205 | $ | 474,308 | $ | (10,897) | $ | 798 | $ | (1,083) | |
(1)
$1 million in changes in fair value attributable to changes in credit risk were recognized in income for the year ended October 31, 2024, and $9 million in cumulative
changes in credit risk were included in income for positions still held life-to-date (October 31, 2023 – $29 million and $17 million, respectively).
(2)
The cumulative change is measured from the initial designation of the liabilities as FVTPL. For the year ended October 31, 2024, $15 million of fair value gains previously
included in OCI relate to financial liabilities derecognized during the year (October 31, 2023 – $2 million of fair value gains).
(3)
Business and government term deposits include amounts from regulated deposit-taking institutions other than regulated banks.
(4)
Bank term deposits refer to amounts from regulated banks and central banks.
Net gains (losses) from financial instruments classified and designated as fair value through profit or loss
Financial instruments classified as FVTPL, which includes mainly trading securities, derivatives, trading liabilities, and financial
assets and liabilities designated as FVTPL are measured at fair value with realized and unrealized gains and losses recognized in
Non-interest income.
For the year ended | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Net gains (losses) (1) | ||||
Classified as fair value through profit or loss (2) | $ | 8,996 | $ | 1,998 |
Designated as fair value through profit or loss (3) | (5,847) | 1,499 | ||
$ | 3,149 | $ | 3,497 | |
By product line (1) | ||||
Interest rate and credit (4) | $ | 2,580 | $ | 3,515 |
Equities | 389 | (510) | ||
Foreign exchange and commodities | 180 | 492 | ||
$ | 3,149 | $ | 3,497 | |
(1)
Excludes net gains from financial instruments classified as FVTPL of $2,251 million (October 31, 2023 – net losses of $107 million for financial instruments classified or
designated as FVTPL) presented in Insurance investment result in the Consolidated Statements of Income.
(2)
Excludes derivatives designated in a hedging relationship. Refer to Note 9 for net gains (losses) on these derivatives.
(3)
For the year ended October 31, 2024, $5,838 million of net fair value losses on financial liabilities designated as FVTPL, other than those attributable to changes in our own
credit risk, were included in Non-interest income (October 31, 2023 – gains of $1,524 million).
(4)
Interest and dividend income arising from financial assets and financial liabilities and the associated costs of funding are
reported in Net interest income.
For the year ended | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Interest and dividend income (1), (2) | ||||
Financial instruments measured at fair value through profit or loss | $ | 35,550 | $ | 31,464 |
Financial instruments measured at fair value through other comprehensive income | 7,109 | 5,127 | ||
Financial instruments measured at amortized cost | 62,292 | 50,400 | ||
104,951 | 86,991 | |||
Interest expense (1) | ||||
Financial instruments measured at fair value through profit or loss | $ | 34,150 | $ | 28,446 |
Financial instruments measured at amortized cost | 42,848 | 33,416 | ||
76,998 | 61,862 | |||
Net interest income | $ | 27,953 | $ | 25,129 |
(1)
Excludes interest and dividend income of $958 million (October 31, 2023 – $677 million) and interest expense of $120 million (October 31, 2023 – $191 million) presented in
Insurance investment result in the Consolidated Statements of Income.
(2)
Includes dividend income for the year ended October 31, 2024 of $3,319 million (October 31, 2023 – $3,215 million), which is presented in Interest and dividend income in
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
173
Fee income arising from financial instruments
For the year ended October 31, 2024, we earned $6,347 million in fees from banking services (October 31, 2023 – $6,112 million). For
the year ended October 31, 2024, we also earned $17,467 million in fees from investment management, trust, custodial,
underwriting, brokerage and other similar fiduciary services to retail and institutional clients (October 31, 2023 – $15,319 million).
These fees are included in Non-interest income.
| As at | |||||||||||||||||||
| October 31, 2024 | October 31, 2023 (Restated – Note 2) | ||||||||||||||||||
| Fair value | Fair value | ||||||||||||||||||
| measurements using | measurements using | ||||||||||||||||||
| Netting | Netting | ||||||||||||||||||
(Millions of Canadian dollars) | Level 1 | Level 2 | Level 3 | adjustments | Fair value | Level 1 | Level 2 | Level 3 | adjustments | Fair value | |||||||||
Financial assets | |||||||||||||||||||
Interest-bearing deposits with banks | $ | – | $ | 53,996 | $ | – | $ | $ | 53,996 | $ | – | $ 60,856 | $ | – | $ | $ | 60,856 | ||
Securities | |||||||||||||||||||
Trading | |||||||||||||||||||
Debt issued or guaranteed by: | |||||||||||||||||||
Canadian government (1) | |||||||||||||||||||
Federal | 11,611 | 2,173 | – | 13,784 | 26,675 | 2,581 | – | 29,256 | |||||||||||
Provincial and municipal | – | 16,588 | – | 16,588 | – | 16,389 | – | 16,389 | |||||||||||
U.S. federal, state, municipal and agencies (1), (2) | 1,852 | 29,136 | – | 30,988 | 2,249 | 50,439 | – | 52,688 | |||||||||||
Other OECD government (3) | 2,481 | 2,153 | – | 4,634 | 2,055 | 2,577 | – | 4,632 | |||||||||||
Mortgage-backed securities (1) | – | 3 | – | 3 | – | 2 | – | 2 | |||||||||||
Asset-backed securities | – | 1,434 | – | 1,434 | – | 1,245 | – | 1,245 | |||||||||||
Corporate debt and other debt | – | 26,195 | – | 26,195 | – | 22,615 | – | 22,615 | |||||||||||
Equities | 84,814 | 2,316 | 2,544 | 89,674 | 58,826 | 2,232 | 2,266 | 63,324 | |||||||||||
100,758 | 79,998 | 2,544 | 183,300 | 89,805 | 98,080 | 2,266 | 190,151 | ||||||||||||
Investment | |||||||||||||||||||
Debt issued or guaranteed by: | |||||||||||||||||||
Canadian government (1) | |||||||||||||||||||
Federal | 4,623 | 8,546 | – | 13,169 | 2,731 | 3,528 | – | 6,259 | |||||||||||
Provincial and municipal | – | 7,554 | – | 7,554 | – | 2,748 | – | 2,748 | |||||||||||
U.S. federal, state, municipal and agencies (1) | 42 | 80,224 | – | 80,266 | 275 | 73,020 | – | 73,295 | |||||||||||
Other OECD government | 2,370 | 7,786 | – | 10,156 | – | 6,192 | – | 6,192 | |||||||||||
Mortgage-backed securities (1) | – | 2,603 | 31 | 2,634 | – | 2,672 | 29 | 2,701 | |||||||||||
Asset-backed securities | – | 9,357 | – | 9,357 | – | 8,706 | – | 8,706 | |||||||||||
Corporate debt and other debt | – | 31,839 | 143 | 31,982 | – | 27,574 | 149 | 27,723 | |||||||||||
Equities | 432 | 304 | 506 | 1,242 | 38 | 338 | 466 | 842 | |||||||||||
7,467 | 148,213 | 680 | 156,360 | 3,044 | 124,778 | 644 | 128,466 | ||||||||||||
Assets purchased under reverse repurchase agreements and | |||||||||||||||||||
securities borrowed | – | 284,311 | – | 284,311 | – | 285,869 | – | 285,869 | |||||||||||
Loans | – | 8,924 | 1,781 | 10,705 | – | 8,742 | 1,859 | 10,601 | |||||||||||
Other | |||||||||||||||||||
Derivatives | |||||||||||||||||||
Interest rate contracts | – | 27,719 | 354 | 28,073 | – | 39,243 | 290 | 39,533 | |||||||||||
Foreign exchange contracts | – | 98,480 | 3 | 98,483 | – | 89,644 | 4 | 89,648 | |||||||||||
Credit derivatives | – | 273 | – | 273 | – | 224 | – | 224 | |||||||||||
Other contracts | 2,553 | 23,830 | 21 | 26,404 | 2,352 | 13,927 | 111 | 16,390 | |||||||||||
Valuation adjustments | – | (1,067) | 14 | (1,053) | – | (1,805) | 4 | (1,801) | |||||||||||
Total gross derivatives | 2,553 | 149,235 | 392 | 152,180 | 2,352 | 141,233 | 409 | 143,994 | |||||||||||
Netting adjustments | (1,568) | (1,568) | (1,544) | (1,544) | |||||||||||||||
Total derivatives | 150,612 | 142,450 | |||||||||||||||||
Other assets | 5,291 | 6,472 | 7 | 11,770 | 4,152 | 3,421 | 11 | 7,584 | |||||||||||
$116,069 | $ 731,149 | $ 5,404 | $ | (1,568) | $ 851,054 | $99,353 | $722,979 | $ | 5,189 | $ | (1,544) | $ 825,977 | |||||||
Financial liabilities | |||||||||||||||||||
Deposits | |||||||||||||||||||
Personal | $ | – | $ | 33,829 | $ | 478 | $ | $ | 34,307 | $ | – | $ 26,428 | $ | 383 | $ | $ | 26,811 | ||
Business and government | – | 156,429 | – | 156,429 | – | 137,628 | – | 137,628 | |||||||||||
Bank | – | 10,530 | – | 10,530 | – | 11,462 | – | 11,462 | |||||||||||
Other | |||||||||||||||||||
Obligations related to securities sold short | 15,172 | 20,114 | – | 35,286 | 14,391 | 19,260 | – | 33,651 | |||||||||||
Obligations related to assets sold under repurchase agreements and | |||||||||||||||||||
securities loaned | – | 270,663 | – | 270,663 | – | 298,679 | – | 298,679 | |||||||||||
Derivatives | |||||||||||||||||||
Interest rate contracts | – | 24,852 | 847 | 25,699 | – | 41,249 | 952 | 42,201 | |||||||||||
Foreign exchange contracts | – | 93,164 | 54 | 93,218 | – | 81,750 | 53 | 81,803 | |||||||||||
Credit derivatives | – | 218 | – | 218 | – | 176 | – | 176 | |||||||||||
Other contracts | 3,212 | 42,961 | 324 | 46,497 | 3,119 | 17,306 | 549 | 20,974 | |||||||||||
Valuation adjustments | – | (297) | (4) | (301) | – | (982) | 1 | (981) | |||||||||||
Total gross derivatives | 3,212 | 160,898 | 1,221 | 165,331 | 3,119 | 139,499 | 1,555 | 144,173 | |||||||||||
Netting adjustments | (1,568) | (1,568) | (1,544) | (1,544) | |||||||||||||||
Total derivatives | 163,763 | 142,629 | |||||||||||||||||
Other liabilities | 287 | (1,694) | – | (1,407) | 370 | (1,296) | – | (926) | |||||||||||
$ 18,671 | $ 650,769 | $ 1,699 | $ | (1,568) | $ 669,571 | $17,880 | $631,660 | $ | 1,938 | $ | (1,544) | $ 649,934 | |||||||
(1)
As at October 31, 2024, residential and commercial mortgage-backed securities (MBS) included in all fair value levels of trading securities were $17,154 million and $nil
(October 31, 2023 – $14,345 million and $nil), respectively, and in all fair value levels of Investment securities were $27,048 million and $2,568 million (October 31, 2023 –
$24,365 million and $2,618 million), respectively.
(2)
United States (U.S.).
(3)
Organisation for Economic Co-operation and Development (OECD).
(continued)
Note 3
Fair value of financial instruments
174
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Fair values of our significant assets and liabilities measured on a recurring basis are determined and classified in the fair value
hierarchy table using the following valuation techniques and inputs.
Interest-bearing deposits with banks
The majority of our Interest-bearing deposits with banks are designated as FVTPL. These FVTPL deposits are composed of short-
dated deposits placed with banks, and are included in Interest-bearing deposits with banks in the fair value hierarchy table. The
fair values of these instruments are determined using the discounted cash flow method. The inputs to the valuation models
include interest rate swap curves and credit spreads, where applicable. They are classified as Level 2 instruments in the
hierarchy as the inputs are observable.
Government bonds (Canadian, U.S. and other OECD governments)
Government bonds are included in Canadian government debt, U.S. federal, state, municipal and agencies debt, Other OECD
government debt and Obligations related to securities sold short in the fair value hierarchy table. The fair values of government
issued or guaranteed debt securities in active markets are determined by reference to recent transaction prices, broker quotes,
or third-party vendor prices and are classified as Level 1 in the hierarchy. The fair values of securities that are not traded in
active markets are based on either security prices, or valuation techniques using implied yields and risk spreads derived from
prices of actively traded and similar government securities. Securities with observable prices or rate inputs as compared to
transaction prices, dealer quotes or vendor prices are classified as Level 2 in the hierarchy. Securities where inputs are
unobservable are classified as Level 3 in the hierarchy.
Corporate and U.S. municipal bonds
The fair values of corporate and U.S. municipal bonds, which are included in Corporate debt and other debt, U.S. federal, state,
municipal and agencies debt and Obligations related to securities sold short in the fair value hierarchy table, are determined
using either recently executed transaction prices, broker quotes, pricing services, or in certain instances, the discounted cash
flow method using rate inputs such as benchmark yields (CDOR, Secured Overnight Financing Rate (SOFR) and other similar
reference rates) and risk spreads of comparable securities. Securities with observable prices or rate inputs are classified as
Level 2 in the hierarchy. Securities where inputs are unobservable are classified as Level 3 in the hierarchy.
Asset-backed securities and Mortgage-backed securities
Asset-backed securities (ABS) and MBS are included in Asset-backed securities, Mortgage-backed securities, Canadian
government debt, U.S. federal, state, municipal and agencies debt, and Obligations related to securities sold short in the fair
value hierarchy table. Inputs for valuation of ABS and MBS are, when available, traded prices, dealer or lead manager quotes,
broker quotes and vendor prices of the identical securities. When prices of the identical securities are not readily available, we
use industry standard models with inputs such as discount margins, yields, default, prepayment and loss severity rates that are
implied from transaction prices, dealer quotes or vendor prices of comparable instruments. Where security prices and inputs are
observable, ABS and MBS are classified as Level 2 in the hierarchy. Otherwise, they are classified as Level 3 in the hierarchy.
Equities
Equities consist of listed and unlisted common shares, private equities, mutual funds and hedge funds with certain redemption
restrictions and are included in equities and obligations for securities sold short. The fair values of common shares are based on
quoted prices in active markets, where available, and are classified as Level 1 in the hierarchy. Where quoted prices in active
markets are not readily available, fair value is determined based on quoted market prices for similar securities or through
valuation techniques, such as multiples of earnings and the discounted cash flow method with forecasted cash flows and
discount rate as inputs. Private equities are classified as Level 3 in the hierarchy as their inputs are not observable. Hedge funds
are valued using Net Asset Values (NAV). If we can redeem a hedge fund at NAV prior to the next quarter end, the fund is
classified as Level 2 in the hierarchy. Otherwise, it is classified as Level 3 in the hierarchy.
Loans
Loans include base metal loans, corporate loans, banker acceptances and asset-backed financing loans. Fair values are
determined based on market prices, if available, or discounted cash flow method using the following inputs: market interest
rates, base metal commodity prices, market based spreads of assets with similar credit ratings and terms to maturity, LGD,
expected default frequency implied from credit derivative prices, if available, and relevant pricing information such as
contractual rate, origination and maturity dates, redemption price, coupon payment frequency and day count convention. Loans
with market prices or observable inputs are classified as Level 2 in the hierarchy and loans with unobservable inputs that have
significant impacts on the fair values are classified as Level 3 in the hierarchy.
Derivatives
The fair values of exchange-traded derivatives, such as interest rate and equity options and futures, are based on quoted market
prices and are typically classified as Level 1 in the hierarchy. OTC derivatives primarily consist of interest rate contracts, foreign
exchange contracts, commodity derivatives, equity derivatives and credit derivatives. The exchange-traded or OTC interest rate,
foreign exchange and commodity and equity derivatives are included in Interest rate contracts, Foreign exchange contracts and
Other contracts, respectively, in the fair value hierarchy table. The fair values of OTC derivatives are determined using valuation
models when quoted market prices or third-party consensus pricing information are not available. The valuation models, such as
discounted cash flow method or Black-Scholes option model, incorporate observable or unobservable inputs for interest and
foreign exchange rates, equity and commodity prices (including indices), credit spreads, corresponding market volatility levels,
and other market-based pricing factors. Other adjustments to fair value include bid-offer, CVA, FVA, OIS, parameter and model
uncertainties, and unrealized gain or loss at inception of a transaction. A derivative instrument is classified as Level 2 in the
hierarchy if observable market inputs are available or the unobservable inputs are not significant to the fair value. Otherwise, it
is classified as Level 3 in the hierarchy.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
175
Securities borrowed or purchased under resale agreements and securities loaned or sold under repurchase agreements
In the fair value hierarchy table, these instruments are included in Assets purchased under reverse repurchase agreements and
securities borrowed, and Obligations related to assets sold under repurchase agreements and securities loaned. The fair values
of these contracts are determined using valuation techniques such as the discounted cash flow method using interest rate
curves as inputs. They are classified as Level 2 instruments in the hierarchy as the inputs are observable.
Deposits
A majority of our deposits are measured at amortized cost but certain deposits are designated as FVTPL. These FVTPL deposits
include deposits taken from clients, issuances of certificates of deposits and promissory notes, and interest rate and equity
linked notes. The fair values of these instruments are determined using the discounted cash flow method and derivative option
valuation models. The inputs to the valuation models include benchmark yield curves, credit spreads, interest rates, equity and
interest rate volatility, dividends and correlation, where applicable. They are classified as Level 2 or 3 instruments in the
hierarchy, depending on the significance of the unobservable credit spreads, volatility, dividend and correlation rates.
The following table presents fair values of our significant Level 3 financial instruments, valuation techniques used to determine
their fair values, ranges and weighted averages of unobservable inputs.
As at October 31, 2024 (Millions of Canadian dollars, except for prices, percentages and ratios)
| Fair value | Range of input values (1), (2) | ||||||||||||
Weighted | |||||||||||||
Significant | average / | ||||||||||||
Reporting line in the fair value | Valuation | unobservable | Inputs | ||||||||||
Products | hierarchy table | Assets | Liabilities | techniques | inputs (3) | Low | High | distribution | |||||
Corporate debt and related | Price-based | Prices | $ | 64.67 | $ 116.25 | $ | 92.07 | ||||||
derivatives | Corporate debt and other debt | $ | – | Discounted cash flows | Credit spread | 1.45% | 10.90% | 6.17% | |||||
Loans | 1,781 | Credit enhancement | 11.70% | 15.60% | 13.00% | ||||||||
Derivative related liabilities | $ | 2 | |||||||||||
Government debt and | |||||||||||||
municipal bonds | Corporate debt and other debt | 143 | Discounted cash flows | Yields | 6.54% | 9.55% | 7.54% | ||||||
Private equities, hedge fund | Market comparable | EV/EBITDA multiples | 3.20X | 17.20X | 7.94X | ||||||||
investments and related | Equities | 3,050 | Price-based | P/E multiples | 7.30X | 22.60X | 11.27X | ||||||
equity derivatives | Derivative related liabilities | – | Discounted cash flows | EV/Rev multiples | 0.70X | 5.72X | 2.59X | ||||||
Liquidity discounts (4) | 10.00% | 40.00% | 10.40% | ||||||||||
Discount rate | 8.50% | 8.50% | 8.50% | ||||||||||
NAV / prices (5) | n.a. | n.a. | n.a. | ||||||||||
Interest rate derivatives and | Discounted cash flows | Interest rates | 1.89% | 4.59% | Even | ||||||||
interest-rate-linked | Derivative related assets | 355 | Option pricing model | CPI swap rates | 1.84% | 1.96% | Even | ||||||
structured notes (6), (7) | Derivative related liabilities | 900 | IR-IR correlations | 48.00% | 86.00% | Even | |||||||
FX-IR correlations | (76.00)% | 66.00% | Even | ||||||||||
FX-FX correlations | (74.00)% | 61.00% | Even | ||||||||||
Equity derivatives and equity- | |||||||||||||
linked structured | Discounted cash flows | Dividend yields | 0.00% | 10.60% | Lower | ||||||||
notes (6), (7) | Derivative related assets | 21 | Option pricing model | Equity (EQ)-EQ correlations | 6.30% | 95.85% | Middle | ||||||
Deposits | 478 | EQ-FX correlations | (77.11)% | 50.38% | Middle | ||||||||
Derivative related liabilities | 283 | EQ volatilities | 6.00% | 146.87% | Lower | ||||||||
Other (8) | |||||||||||||
Derivative related assets | 16 | ||||||||||||
Other assets | 7 | ||||||||||||
Mortgage-backed securities | 31 | ||||||||||||
Derivative related liabilities | 36 | ||||||||||||
Total | $ 5,404 | $ | 1,699 | ||||||||||
(continued)
Note 3
Fair value of financial instruments
176
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
As at October 31, 2023 (Millions of Canadian dollars, except for prices, percentages and ratios)
| Fair value | Range of input values (1), (2) | |||||||||||
Weighted | ||||||||||||
Significant | average / | |||||||||||
Reporting line in the fair value | Valuation | unobservable | Inputs | |||||||||
Products | hierarchy table | Assets | Liabilities | techniques | inputs (3) | Low | High | distribution | ||||
Corporate debt and related | Price-based | Prices | $ | 9.88 | $ 107.13 | $ | 87.66 | |||||
derivatives | Corporate debt and other debt | $ | – | Discounted cash flows | Credit spread | 1.89% | 9.96% | 5.93% | ||||
Loans | 1,859 | Credit enhancement | 11.70% | 15.60% | 13.00% | |||||||
Derivative related liabilities | $ | 2 | ||||||||||
Government debt and | ||||||||||||
municipal bonds | Corporate debt and other debt | 149 | Discounted cash flows | Yields | 7.73% | 10.38% | 8.60% | |||||
Private equities, hedge fund | Market comparable | EV/EBITDA multiples | 4.16X | 14.90X | 6.93X | |||||||
investments and related | Equities | 2,732 | Price-based | P/E multiples | 6.60X | 22.60X | 8.60X | |||||
equity derivatives | Derivative related liabilities | – | Discounted cash flows | EV/Rev multiples | 1.00X | 5.00X | 3.00X | |||||
Liquidity discounts (4) | 10.00% | 40.00% | 16.91% | |||||||||
Discount rate | 8.50% | 13.30% | 10.70% | |||||||||
NAV / prices (5) | n.a. | n.a. | n.a. | |||||||||
Interest rate derivatives and | Discounted cash flows | Interest rates | 2.39% | 5.18% | High | |||||||
interest-rate-linked | Derivative related assets | 293 | Option pricing model | CPI swap rates | 1.84% | 2.35% | Even | |||||
structured notes (6), (7) | Derivative related liabilities | 995 | IR-IR correlations | 19.00% | 67.00% | Even | ||||||
FX-IR correlations | 29.00% | 56.00% | Even | |||||||||
FX-FX correlations | 68.00% | 68.00% | Even | |||||||||
Equity derivatives and equity- | ||||||||||||
linked structured | Discounted cash flows | Dividend yields | 0.14% | 10.71% | Lower | |||||||
notes (6), (7) | Derivative related assets | 111 | Option pricing model | Equity (EQ)-EQ correlations | 32.50% | 96.49% | Middle | |||||
Deposits | 383 | EQ-FX correlations | (83.15)% | 38.44% | Middle | |||||||
Derivative related liabilities | 485 | EQ volatilities | 6.70% | 110.72% | Lower | |||||||
Other (8) | ||||||||||||
Derivative related assets | 5 | |||||||||||
Other assets | 11 | |||||||||||
Mortgage-backed securities | 29 | |||||||||||
Derivative related liabilities | 73 | |||||||||||
Total | $ | 5,189 | $ 1,938 | |||||||||
(1)
The low and high input values represent the actual highest and lowest level inputs used to value a group of financial instruments in a particular product category. These
input ranges do not reflect the level of input uncertainty, but are affected by the different underlying instruments within the product category. The input ranges will
therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. Where provided, the weighted average
of the input values is calculated based on the relative fair values of the instruments within the product category. The weighted averages for derivatives are not presented
in the table as they would not provide a comparable metric; instead, distribution of significant unobservable inputs within the range for each product category is
indicated in the table.
(2)
Price-based inputs are significant for certain debt securities and are based on external benchmarks, comparable proxy instruments or pre-quarter-end trade data. For
these instruments, the price input is expressed in dollars for each $100 par value. For example, with an input price of $105, an instrument is valued at a premium over its
par value.
(3)
The significant unobservable inputs include the following: (i) Enterprise Value (EV); (ii) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA);
(iii) Price / Earnings (P/E); (iv) Revenue (Rev); (v) Consumer Price Index (CPI); (vi) Interest Rate (IR); (vii) Foreign Exchange (FX); and (viii) Equity (EQ).
(4)
Fair value of securities with liquidity discount inputs totalled $541 million (October 31, 2023 – $483 million).
(5)
NAV of a hedge fund is total fair value of assets less liabilities divided by the number of fund units. Private equities are valued based on NAV or valuation techniques. The
range for NAV per unit or price per share has not been disclosed for the hedge funds or private equities due to the dispersion of prices given the diverse nature of the
investments.
(6)
The level of aggregation and diversity within each derivative instrument category may result in certain ranges of inputs being wide and inputs being unevenly distributed
across the range. In the table, we indicated whether the majority of the inputs are concentrated toward the upper, middle, or lower end of the range, or evenly distributed
throughout the range.
(7)
The structured notes contain embedded equity or interest rate derivatives with unobservable inputs that are similar to those of the equity or interest rate derivatives.
(8)
Other primarily includes certain insignificant instruments such as auction rate securities, commodity derivatives, foreign exchange derivatives, contingent
considerations, bank-owned life insurance and retractable shares.
n.a.
not applicable
Sensitivity to unobservable inputs and interrelationships between unobservable inputs
Yield, credit spreads/discount margins
A financial instrument’s yield is the interest rate used to discount future cash flows in a valuation model. An increase in the yield,
in isolation, would result in a decrease in a fair value measurement and vice versa. A credit spread/discount margin is the
difference between a debt instrument’s yield and a benchmark instrument’s yield. Benchmark instruments have high credit
quality ratings, similar maturities and are often government bonds. The credit spread/discount margin therefore represents the
discount rate used to determine the present value of future cash flows of an asset to reflect the market return required for
uncertainty in the estimated cash flows. The credit spread/discount margin for an instrument forms part of the yield used in a
discounted cash flow method.
Funding spread
Funding spreads are credit spreads specific to funding or deposit rates. A decrease in funding spreads, on its own, will increase
the fair value of our liabilities, and vice versa.
Default rates
A default rate is the rate at which borrowers fail to make scheduled loan payments. A decrease in the default rate will typically
increase the fair value of the loan, and vice versa. This effect will be significantly more pronounced for a non-government
guaranteed loan than a government guaranteed loan.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
177
A prepayment rate is the rate at which a loan will be repaid in advance of its expected amortization schedule. Prepayments
change the future cash flows of a loan. An increase in the prepayment rate in isolation will result in an increase in fair value when
the loan interest rate is lower than the current reinvestment rate, and a decrease in the prepayment rate in isolation will result in
a decrease in fair value when the loan interest rate is lower than the current reinvestment rate. Prepayment rates are generally
Recovery and loss severity rates
A recovery rate is an estimation of the amount that can be collected in a loan default scenario. The recovery rate is the recovered
amount divided by the loan balance due, expressed as a percentage. The inverse concept of recovery is loss severity. Loss
severity rate is an estimation of the loan amount not collected when a loan defaults. The loss severity rate is the loss amount
divided by the loan balance due, expressed as a percentage. Generally, an increase in the recovery rate or a decrease in the loss
severity rate will increase the loan fair value, and vice versa.
Volatility rates
Volatility measures the potential variability of future prices and is often measured as the standard deviation of price movements.
Volatility is an input to option pricing models used to value derivatives and issued structured notes. Volatility is used in valuing
equity, interest rate, commodity and foreign exchange options. A higher volatility rate means that the underlying price or rate
movements are more likely to occur. Higher volatility rates may increase or decrease an option’s fair value depending on the
option’s terms. The determination of volatility rates is dependent on various factors, including but not limited to, the underlying’s
market price, the strike price and maturity.
Dividend yields
A dividend yield is the underlying equity’s expected dividends expressed as an annual percentage of its price. Dividend yield is
used as an input for forward equity price and option models. Higher dividend yields will decrease the forward price, and vice
versa. A higher dividend yield will increase or decrease an option’s value, depending on the option’s terms.
Correlation rates
Correlation is the linear relationship between the movements in two different variables. Correlation is an input to the valuation of
derivative contracts and issued structured notes when an instrument’s payout is determined by correlated variables. When
variables are positively correlated, an increase in one variable will result in an increase in the other variable. When variables are
negatively correlated, an increase in one variable will result in a decrease in the other variable. The referenced variables can be
within a single asset class or market (equity, interest rate, commodities, credit and foreign exchange) or between variables in
different asset classes (equity to foreign exchange, or interest rate to foreign exchange). Changes in correlation will either
increase or decrease a financial instrument’s fair value depending on the terms of the instrument.
Interest rates
An interest rate is the percentage amount charged on a principal or notional amount. Increasing interest rates will decrease the
discounted cash flow value of a financial instrument, and vice versa.
Consumer Price Index swap rates
A CPI swap rate is expressed as a percentage of an increase in the average price of a basket of consumer goods and services,
such as transportation, food and medical care. An increase in the CPI swap rate will cause inflation swap payments to be larger,
and vice versa.
EV/EBITDA multiples, P/E multiples, EV/Rev multiples, and liquidity discounts
Private equity valuation inputs include EV/EBITDA multiples, P/E multiples and EV/Rev multiples. These are used to calculate
either enterprise value or share value of a company based on a multiple of earnings or revenue estimates. Higher multiples
equate to higher fair values for all multiple types, and vice versa. A liquidity discount may be applied when few or no transactions
exist to support the valuations.
Credit Enhancement
Credit enhancement is an input to the valuation of securitized transactions and is the amount of loan loss protection for a senior
tranche. Credit enhancement is expressed as a percentage of the transaction sizes. An increase in credit enhancement will cause
the credit spread to decrease and the tranche fair value to increase, and vice versa.
Interrelationships between unobservable inputs
Unobservable inputs, including the above discount margin, default rate, prepayment rate, and recovery and loss severity rates,
may not be independent of each other. For example, the discount margin can be affected by a change in default rate, prepayment
rate, or recovery and loss severity rates. Discount margins will generally decrease when default rates decline or when recovery
rates increase.
(continued)
Note 3
Fair value of financial instruments
178
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
| For the year ended October 31, 2024 | |||||||||||||||||||
| Gains | Gains | Gains | |||||||||||||||||
Fair value | (losses) | (losses) | Settlement | Transfers | Transfers | Fair value | (losses) included | ||||||||||||
at beginning | included in | included | Purchases | (sales) and | into | out of | at end of | in earnings for | |||||||||||
(Millions of Canadian dollars) | of period | earnings | in OCI (1) | (issuances) | other (2) | Level 3 | Level 3 | period | positions still held | ||||||||||
Assets | |||||||||||||||||||
Securities | |||||||||||||||||||
Trading | |||||||||||||||||||
Debt issued or guaranteed by: | |||||||||||||||||||
U.S. state, municipal and agencies | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | $ | – | |
Asset-backed securities | – | – | – | – | – | – | – | – | – | ||||||||||
Corporate debt and other debt | – | – | – | – | – | – | – | – | – | ||||||||||
Equities | 2,266 | (195) | 5 | 577 | (88) | 1 | (22) | 2,544 | (128) | ||||||||||
2,266 | (195) | 5 | 577 | (88) | 1 | (22) | 2,544 | (128) | |||||||||||
Investment | |||||||||||||||||||
Mortgage-backed securities | 29 | – | 2 | – | – | – | – | 31 | n.a. | ||||||||||
Corporate debt and other debt | 149 | – | 11 | – | (17) | – | – | 143 | n.a. | ||||||||||
Equities | 466 | – | 35 | 6 | (3) | 2 | – | 506 | n.a. | ||||||||||
644 | – | 48 | 6 | (20) | 2 | – | 680 | n.a. | |||||||||||
Loans | 1,859 | (25) | 37 | 513 | (445) | 70 | (228) | 1,781 | 63 | ||||||||||
Other | |||||||||||||||||||
Net derivative balances (3) | |||||||||||||||||||
Interest rate contracts | (662) | 46 | 1 | (47) | 145 | 30 | (6) | (493) | 51 | ||||||||||
Foreign exchange contracts | (49) | (15) | 7 | 14 | 3 | 3 | (14) | (51) | (9) | ||||||||||
Other contracts | (438) | (139) | 2 | (106) | 8 | (330) | 700 | (303) | 31 | ||||||||||
Valuation adjustments | 3 | – | – | (4) | 19 | – | – | 18 | – | ||||||||||
Other assets | 11 | – | – | – | (4) | – | – | 7 | – | ||||||||||
$ 3,634 | $ (328) | $ | 100 | $ | 953 | $ (382) | $ (224) | $ | 430 | $ 4,183 | $ | 8 | |||||||
Liabilities | |||||||||||||||||||
Deposits | $ | (383) | $ (119) | $ | – | $ | (583) | $ | 165 | $ (120) | $ | 562 | $ | (478) | $ (40) | ||||
$ | (383) | $ (119) | $ | – | $ | (583) | $ | 165 | $ (120) | $ | 562 | $ | (478) | $ (40) | |||||
| For the year ended October 31, 2023 | ||||||||||||||||||
| Gains | Gains | Gains | ||||||||||||||||
Fair value | (losses) | (losses) | Settlement | Transfers | Transfers | Fair value | (losses) included | |||||||||||
at beginning | included in | included | Purchases | (sales) and | into | out of | at end of | in earnings for | ||||||||||
(Millions of Canadian dollars) | of period | earnings | in OCI (1) | (issuances) | other (2) | Level 3 | Level 3 | period | positions still held | |||||||||
Assets | ||||||||||||||||||
Securities | ||||||||||||||||||
Trading | ||||||||||||||||||
Debt issued or guaranteed by: | ||||||||||||||||||
U.S. state, municipal and agencies | $ | 4 | $ | – | $ | – | $ | – | $ | (4) | $ | – | $ | – | $ | – | $ | – |
Asset-backed securities | 2 | – | – | – | (2) | – | – | – | – | |||||||||
Corporate debt and other debt | 7 | – | – | 2 | (16) | 17 | (10) | – | – | |||||||||
Equities | 1,874 | (196) | 21 | 586 | (67) | 48 | – | 2,266 | (154) | |||||||||
1,887 | (196) | 21 | 588 | (89) | 65 | (10) | 2,266 | (154) | ||||||||||
Investment | ||||||||||||||||||
Mortgage-backed securities | 28 | – | – | 1 | – | – | – | 29 | n.a. | |||||||||
Corporate debt and other debt | 151 | – | 9 | – | (11) | – | – | 149 | n.a. | |||||||||
Equities | 397 | – | 70 | 1 | (2) | – | – | 466 | n.a. | |||||||||
576 | – | 79 | 2 | (13) | – | – | 644 | n.a. | ||||||||||
Loans | 1,692 | (95) | 33 | 1,443 | (868) | 30 | (376) | 1,859 | (44) | |||||||||
Other | ||||||||||||||||||
Net derivative balances (3) | ||||||||||||||||||
Interest rate contracts | (859) | (63) | 5 | (48) | 235 | 42 | 26 | (662) | (43) | |||||||||
Foreign exchange contracts | (132) | 10 | 10 | (14) | 44 | – | 33 | (49) | 8 | |||||||||
Other contracts | (785) | 83 | 4 | (143) | 78 | (159) | 484 | (438) | 152 | |||||||||
Valuation adjustments | 53 | – | – | – | (50) | – | – | 3 | – | |||||||||
Other assets | 15 | – | 1 | – | (5) | – | – | 11 | – | |||||||||
$ 2,447 | $ (261) | $ | 153 | $ | 1,828 | $ (668) | $ | (22) | $ | 157 | $ 3,634 | $ (81) | ||||||
Liabilities | ||||||||||||||||||
Deposits | $ | (241) | $ | 5 | $ | – | $ | (260) | $ | 23 | $ (134) | $ | 224 | $ | (383) | $ | 24 | |
$ | (241) | $ | 5 | $ | – | $ | (260) | $ | 23 | $ (134) | $ | 224 | $ | (383) | $ | 24 | ||
(1)
These amounts include the foreign currency translation gains or losses arising on consolidation of foreign subsidiaries relating to the Level 3 instruments, where
applicable. The unrealized gains on Investment securities recognized in OCI were $38 million for the year ended October 31, 2024 (October 31, 2023 – gains of $65 million)
excluding the translation gains or losses arising on consolidation.
(2)
Other includes amortization of premiums or discounts recognized in net income.
(3)
Net derivatives as at October 31, 2024 included derivative assets of $392 million (October 31, 2023 – $409 million) and derivative liabilities of $1,221 million
(October 31, 2023 – $1,555 million).
n.a.
not applicable
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
179
Transfers between fair value hierarchy levels for instruments carried at fair value on a recurring basis
Transfers between Level 1 and Level 2, and transfers into and out of Level 3 are assumed to occur at the end of the period. For an
asset or a liability that transfers into Level 3 during the period, the entire change in fair value for the period is excluded from the
Gains (losses) included in earnings for positions still held column of the above reconciliation, whereas for transfers out of Level 3
during the period, the entire change in fair value for the period is included in the same column of the above reconciliation.
Transfers between Level 1 and 2 are dependent on whether fair value is obtained on the basis of quoted market prices in active
markets (Level 1).
During the year ended October 31, 2024, transfers out of Level 1 to Level 2 included Investment U.S. federal, state, municipal
and agencies debt of $1,038 million and Trading U.S. federal, state, municipal and agencies debt of $822 million. During the year
ended October 31, 2023, transfers out of Level 1 to Level 2 included Trading U.S. federal, state, municipal and agencies debt of
$763 million, Investment U.S. federal, state, municipal and agencies debt of $435 million and Obligations related to securities sold
short of $151 million.
During the years ended October 31, 2024 and October 31, 2023, there were no significant transfers out of Level 2 to Level 1.
Transfers between Level 2 and Level 3 are primarily due to either a change in the market observability for an input, or a change in
an unobservable input’s significance to a financial instrument’s fair value.
During the year ended October 31, 2024, transfers out of Level 2 to Level 3 included Other contracts and Deposits due to
changes in the significance of unobservable inputs and changes in the market observability of inputs. During the year ended
October 31, 2023, transfers out of Level 2 to Level 3 included Other contracts and Deposits due to changes in the significance of
unobservable inputs and changes in the market observability of inputs.
During the year ended October 31, 2024, transfers out of Level 3 to Level 2 included Other contracts, Deposits and Loans due
to changes in the significance of unobservable inputs and changes in the market observability of inputs. During the year ended
October 31, 2023, transfers out of Level 3 to Level 2 included Other contracts, Loans and Deposits due to changes in the market
observability of inputs and changes in the significance of unobservable inputs.
Positive and negative fair value movements of Level 3 financial instruments from using reasonably possible alternative
assumptions
A financial instrument is classified as Level 3 in the fair value hierarchy if one or more of its unobservable inputs may
significantly affect the measurement of its fair value. In preparing the financial statements, appropriate levels for these
unobservable input parameters are chosen so that they are consistent with prevailing market evidence or management
judgment. Due to the unobservable nature of the prices or rates, there may be uncertainty about the valuation of these Level 3
financial instruments.
The following table summarizes the impacts to fair values of Level 3 financial instruments using reasonably possible
alternative assumptions. This sensitivity disclosure is intended to illustrate the potential impact of the relative uncertainty in the
fair value of Level 3 financial instruments. In reporting the sensitivities below, we offset balances in instances where: (i) the move
in valuation factors cause an offsetting positive and negative fair value movement, (ii) both offsetting instruments are in Level 3,
and (iii) exposures are managed and reported on a net basis. With respect to overall sensitivity, it is unlikely in practice that all
reasonably possible alternative assumptions would simultaneously be realized.
| As at | ||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||
Positive fair value | Negative fair value | Positive fair value | Negative fair value | |||||||||
movement from | movement from | movement from | movement from | |||||||||
using reasonably | using reasonably | using reasonably | using reasonably | |||||||||
Level 3 | possible | possible | Level 3 | possible | possible | |||||||
(Millions of Canadian dollars) | fair value | alternatives | alternatives | fair value | alternatives | alternatives | ||||||
Securities | ||||||||||||
Trading | ||||||||||||
Equities | $ | 2,544 | $ | 50 | $ | (46) | $ | 2,266 | $ | 50 | $ | (43) |
Investment | ||||||||||||
Mortgage-backed securities | 31 | 4 | (4) | 29 | 4 | (4) | ||||||
Corporate debt and other debt | 143 | 9 | (8) | 149 | 11 | (10) | ||||||
Equities | 506 | 45 | (44) | 466 | 48 | (47) | ||||||
Loans | 1,781 | 19 | (20) | 1,859 | 33 | (37) | ||||||
Derivatives | 392 | 5 | (4) | 409 | 10 | (7) | ||||||
Other assets | 7 | – | – | 11 | – | – | ||||||
$ | 5,404 | $ | 132 | $ | (126) | $ | 5,189 | $ | 156 | $ | (148) | |
Deposits | $ | (478) | $ | 15 | $ | (15) | $ | (383) | $ | 26 | $ | (26) |
Derivatives | (1,221) | 54 | (57) | (1,555) | 59 | (66) | ||||||
$ (1,699) | $ | 69 | $ | (72) | $ (1,938) | $ | 85 | $ | (92) | |||
Sensitivity results
As at October 31, 2024, the effects of applying other reasonably possible alternative assumptions to the Level 3 asset positions
would be an increase of $132 million and a reduction of $126 million in fair value, of which $58 million and $56 million would be
recorded in Other components of equity, respectively. The effects of applying these assumptions to the Level 3 liability positions
would result in a decrease of $69 million and an increase of $72 million in fair value.
(continued)
Note 3
Fair value of financial instruments
180
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Level 3 valuation inputs and approaches to developing reasonably possible alternative assumptions
The following is a summary of the unobservable inputs used in the valuation of the Level 3 instruments and our approaches to
developing reasonably possible alternative assumptions used to determine sensitivity.
Financial assets or | Sensitivity methodology |
liabilities | |
Asset-backed securities, | Sensitivities are determined based on adjusting, plus or minus one standard deviation, the |
corporate debt, government | bid-offer spreads or input prices if a sufficient number of prices are received, adjusting input |
debt, municipal bonds and | parameters such as credit spreads or using high and low vendor prices as reasonably possible |
loans | alternative assumptions. |
Private equities, hedge fund | Sensitivity of direct private equity investments is determined by (i) adjusting the discount rate |
investments and related | by 2% when the discounted cash flow method is used to determine fair value, (ii) adjusting the |
equity derivatives | price multiples based on the range of multiples of comparable companies when price-multiples- |
based models are used, or (iii) using an alternative valuation approach. The private equity fund, | |
hedge fund and related equity derivative NAVs are provided by the fund managers, and as a | |
result, there are no other reasonably possible alternative assumptions for these investments. | |
Interest rate derivatives | Sensitivities of interest rate and cross currency swaps are derived using plus or minus one |
standard deviation of the inputs, and an amount representing model and parameter uncertainty, | |
where applicable. | |
Equity derivatives | Sensitivity of the Level 3 position is determined by shifting the unobservable model inputs by |
plus or minus one standard deviation of the pricing service market data including volatility, | |
dividends or correlations, as applicable. | |
Bank funding and deposits | Sensitivities of deposits are calculated by shifting the funding curve by plus or minus certain |
basis points. | |
Structured notes | Sensitivities for interest-rate-linked and equity-linked structured notes are derived by adjusting |
inputs by plus or minus one standard deviation, and for other deposits, by estimating a | |
reasonable move in the funding curve by plus or minus certain basis points. |
| As at October 31, 2024 | ||||||||||||
Fair value may not approximate carrying value | ||||||||||||
| Fair value | ||||||||||||
approximates | Fair value measurements using | Total | ||||||||||
(Millions of Canadian dollars) | carrying value (1) | Level 1 | Level 2 | Level 3 | Total | fair value | ||||||
Interest-bearing deposits with banks | $ | 12,024 | $ | – | $ | – | $ | – | $ | – | $ | 12,024 |
Amortized cost securities (2) | – | 68 | 96,268 | – | 96,336 | 96,336 | ||||||
Assets purchased under reverse | ||||||||||||
repurchase agreements and | ||||||||||||
securities borrowed | 54,331 | – | 12,161 | – | 12,161 | 66,492 | ||||||
Loans | ||||||||||||
Retail | 79,960 | – | 533,708 | 5,652 | 539,360 | 619,320 | ||||||
Wholesale | 16,022 | – | 321,684 | 7,855 | 329,539 | 345,561 | ||||||
95,982 | – | 855,392 | 13,507 | 868,899 | 964,881 | |||||||
Other assets | 49,414 | – | 412 | 267 | 679 | 50,093 | ||||||
211,751 | 68 | 964,233 | 13,774 | 978,075 | 1,189,826 | |||||||
Deposits | ||||||||||||
Personal | 273,228 | – | 216,675 | 267 | 216,942 | 490,170 | ||||||
Business and government | 443,077 | – | 241,204 | 467 | 241,671 | 684,748 | ||||||
Bank | 23,942 | – | 13,241 | – | 13,241 | 37,183 | ||||||
740,247 | – | 471,120 | 734 | 471,854 | 1,212,101 | |||||||
Obligations related to assets sold | ||||||||||||
under repurchase agreements and | ||||||||||||
securities loaned | 34,658 | – | – | – | – | 34,658 | ||||||
Other liabilities | 51,561 | – | 1,983 | 16,306 | 18,289 | 69,850 | ||||||
Subordinated debentures | – | – | 13,602 | – | 13,602 | 13,602 | ||||||
$ 826,466 | $ | – | $ 486,705 | $ 17,040 | $ 503,745 | $ 1,330,211 | ||||||
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
181
| As at October 31, 2023 (Restated – Note 2) | ||||||||||||
Fair value may not approximate carrying value | ||||||||||||
| Fair value | ||||||||||||
approximates | Fair value measurements using | Total | ||||||||||
(Millions of Canadian dollars) | carrying value (1) | Level 1 | Level 2 | Level 3 | Total | fair value | ||||||
Interest-bearing deposits with banks | $ | 10,230 | $ | – | $ | – | $ | – | $ | – | $ | 10,230 |
Amortized cost securities (2) | – | 34 | 83,633 | – | 83,667 | 83,667 | ||||||
Assets purchased under reverse | ||||||||||||
repurchase agreements and | ||||||||||||
securities borrowed | 39,528 | – | 14,794 | – | 14,794 | 54,322 | ||||||
Loans | ||||||||||||
Retail | 70,606 | – | 466,962 | 4,912 | 471,874 | 542,480 | ||||||
Wholesale | 8,231 | – | 254,342 | 6,270 | 260,612 | 268,843 | ||||||
78,837 | – | 721,304 | 11,182 | 732,486 | 811,323 | |||||||
Other assets | 67,313 | – | 914 | 223 | 1,137 | 68,450 | ||||||
195,908 | 34 | 820,645 | 11,405 | 832,084 | 1,027,992 | |||||||
Deposits | ||||||||||||
Personal | 252,779 | – | 159,669 | 438 | 160,107 | 412,886 | ||||||
Business and government | 385,727 | – | 218,761 | 772 | 219,533 | 605,260 | ||||||
Bank | 16,902 | – | 16,251 | 7 | 16,258 | 33,160 | ||||||
655,408 | – | 394,681 | 1,217 | 395,898 | 1,051,306 | |||||||
Obligations related to assets sold | ||||||||||||
under repurchase agreements and | ||||||||||||
securities loaned | 36,559 | – | – | – | – | 36,559 | ||||||
Other liabilities | 77,021 | – | 1,856 | 13,564 | 15,420 | 92,441 | ||||||
Subordinated debentures | – | – | 11,213 | – | 11,213 | 11,213 | ||||||
$ | 768,988 | $ | – | $ | 407,750 | $ 14,781 | $ | 422,531 | $ 1,191,519 | |||
(1)
Certain financial instruments have not been assigned to a level as the carrying amount approximates their fair values.
(2)
Included in Securities – Investment, net of applicable allowance on the Consolidated Balance Sheets.
Fair values of financial assets and liabilities carried at amortized cost and disclosed in the table above are determined using the
following valuation techniques and inputs.
Amortized cost securities
Fair values of government bonds, corporate bonds, and ABS are based on quoted prices. Fair values of certain Non-OECD
government bonds are based on vendor prices or the discounted cash flow method with yield curves of other countries’
government bonds as inputs. For ABS, where market prices are not available, the fair value is determined using the discounted
cash flow method. The inputs to the valuation model generally include market interest rates, spreads and yields derived from
comparable securities, prepayment, and LGD.
under repurchase agreements and securities loaned
Valuation methods used for the long-term instruments are described in the Fair value of assets and liabilities measured on a
recurring basis and classified using the fair value hierarchy section of this note. The carrying values of short-term instruments
Loans – Retail
Retail loans include residential mortgages, personal and small business loans and credit cards. For residential mortgages, and
personal and small business loans, we segregate the portfolio based on certain attributes such as product type, contractual
interest rate, term to maturity and credit scores, if applicable. Fair values of these loans are determined by the discounted cash
flow method using applicable inputs such as prevailing interest rates, contractual and posted client rates, client discounts, credit
spreads, prepayment rates and loan-to-value (LTV) ratios. Fair values of credit card receivables are also calculated based on a
discounted cash flow method with portfolio yields, write-offs and monthly payment rates as inputs. The carrying values of short-
term and variable rate loans generally approximate their fair values.
Loans – Wholesale
Where market prices are available, wholesale loans are valued based on market prices. Otherwise, fair value is determined by
the discounted cash flow method using the following inputs: market interest rates and market based spreads of assets with
similar credit ratings and terms to maturity, LGD, expected default frequency implied from credit default swap prices, if available,
and relevant pricing information such as contractual rate, origination and maturity dates, redemption price, coupon payment
frequency and date convention.
(continued)
Note 3
Fair value of financial instruments
182
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Deposits
Deposits are comprised of demand, notice, and term deposits which include senior deposit notes we have issued to provide us
with long-term funding. Fair values of term deposits are determined by one of several valuation techniques: (i) for term deposits
and similar instruments, we segregate the portfolio based on term to maturity. Fair values of these instruments are determined
by the discounted cash flow method using inputs such as client rates for new sales of the corresponding terms; and (ii) for senior
deposit notes, we use actual traded prices, vendor prices or the discounted cash flow method using a market interest rate curve
and our funding spreads as inputs. The carrying values of demand, notice, and short-term term deposits generally approximate
their fair values.
Other assets and Other liabilities
Other assets and Other liabilities include receivables and payables relating to certain commodities. Fair values of the commodity
receivables and payables are calculated by the discounted cash flow method using applicable inputs such as market interest
rates, counterparties’ credit spreads, our funding spreads, commodity forward prices and spot prices.
Subordinated debentures
Fair values of Subordinated debentures are based on market prices, dealer quotes or vendor prices when available. Where prices
cannot be observed, fair value is determined using the discounted cash flow method, with applicable inputs such as market
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
183
Securities
Carrying value of securities
| As at October 31, 2024 | ||||||||||||
| Term to maturity (1) | ||||||||||||
| With no | ||||||||||||
Within | 3 months | 1 year to 5 | 5 years to | Over | specific | |||||||
(Millions of Canadian dollars) | 3 months | to 1 year | years | 10 years | 10 years | maturity | Total | |||||
Trading (2) | ||||||||||||
Debt issued or guaranteed by: | ||||||||||||
Canadian government | $ | 2,026 | $ | 8,712 | $ | 6,054 | $ | 3,509 | $ 10,071 | $ | – | $ 30,372 |
U.S. federal, state, municipal | ||||||||||||
and agencies | 2,599 | 1,423 | 13,648 | 4,336 | 8,982 | – | 30,988 | |||||
Other OECD government | 710 | 246 | 1,578 | 972 | 1,128 | – | 4,634 | |||||
Mortgage-backed securities | – | – | – | – | 3 | – | 3 | |||||
Asset-backed securities | 289 | 213 | 387 | 406 | 139 | – | 1,434 | |||||
Corporate debt and other debt | ||||||||||||
Bankers’ acceptances | 4 | – | – | – | – | – | 4 | |||||
Other (3) | 2,026 | 3,178 | 8,170 | 4,200 | 8,617 | – | 26,191 | |||||
Equities | 89,674 | 89,674 | ||||||||||
7,654 | 13,772 | 29,837 | 13,423 | 28,940 | 89,674 | 183,300 | ||||||
Fair value through other | ||||||||||||
comprehensive income (2) | ||||||||||||
Debt issued or guaranteed by: | ||||||||||||
Canadian government | ||||||||||||
Federal | ||||||||||||
Amortized cost | 2,068 | 2,810 | 7,893 | 394 | – | – | 13,165 | |||||
Fair value | 2,068 | 2,803 | 7,904 | 394 | – | – | 13,169 | |||||
Yield (4) | 3.2% | 2.4% | 2.9% | 2.9% | – | – | 2.9% | |||||
Provincial and municipal | ||||||||||||
Amortized cost | 154 | 2,768 | 3,827 | 334 | 480 | – | 7,563 | |||||
Fair value | 154 | 2,767 | 3,833 | 333 | 467 | – | 7,554 | |||||
Yield (4) | 3.6% | 2.2% | 3.3% | 2.7% | 4.3% | – | 3.0% | |||||
U.S. federal, state, municipal | ||||||||||||
and agencies | ||||||||||||
Amortized cost | 1,154 | 1,198 | 30,773 | 33,906 | 14,601 | – | 81,632 | |||||
Fair value | 1,182 | 1,196 | 30,797 | 33,831 | 13,260 | – | 80,266 | |||||
Yield (4) | 5.6% | 2.1% | 3.1% | 3.9% | 3.3% | – | 3.5% | |||||
Other OECD government | ||||||||||||
Amortized cost | 300 | 1,510 | 8,389 | – | – | – | 10,199 | |||||
Fair value | 300 | 1,511 | 8,345 | – | – | – | 10,156 | |||||
Yield (4) | 1.2% | 3.6% | 3.5% | – | – | – | 3.4% | |||||
Mortgage-backed securities | ||||||||||||
Amortized cost | – | – | – | 58 | 2,588 | – | 2,646 | |||||
Fair value | – | – | – | 56 | 2,578 | – | 2,634 | |||||
Yield (4) | – | – | – | 6.1% | 5.9% | – | 5.9% | |||||
Asset-backed securities | ||||||||||||
Amortized cost | – | – | – | 4,258 | 5,085 | – | 9,343 | |||||
Fair value | – | – | – | 4,263 | 5,094 | – | 9,357 | |||||
Yield (4) | – | – | – | 6.2% | 6.4% | – | 6.3% | |||||
Corporate debt and other debt | ||||||||||||
Amortized cost | 7,028 | 2,703 | 20,830 | 991 | 380 | – | 31,932 | |||||
Fair value | 7,027 | 2,707 | 20,858 | 1,010 | 380 | – | 31,982 | |||||
Yield (4) | 3.2% | 3.8% | 4.0% | 5.0% | 5.3% | – | 3.9% | |||||
Equities | ||||||||||||
Cost | 728 | 728 | ||||||||||
Fair value (5) | 1,242 | 1,242 | ||||||||||
Amortized cost | 10,704 | 10,989 | 71,712 | 39,941 | 23,134 | 728 | 157,208 | |||||
Fair value | 10,731 | 10,984 | 71,737 | 39,887 | 21,779 | 1,242 | 156,360 | |||||
Amortized cost (2) | ||||||||||||
Debt issued or guaranteed by: | ||||||||||||
Canadian government | 216 | 7,516 | 17,571 | 6,160 | – | – | 31,463 | |||||
Yield (4) | 2.4% | 1.7% | 3.0% | 2.0% | – | – | 2.4% | |||||
U.S. federal, state, municipal | ||||||||||||
and agencies | 2,029 | 5,659 | 13,197 | 4,882 | 20,221 | – | 45,988 | |||||
Yield (4) | 2.5% | 3.6% | 3.4% | 3.2% | 2.6% | – | 3.0% | |||||
Other OECD government | 61 | 1,133 | 5,169 | 202 | – | – | 6,565 | |||||
Yield (4) | 0.9% | 2.3% | 3.2% | 3.3% | – | – | 3.0% | |||||
Asset-backed securities | – | – | 2 | 32 | – | – | 34 | |||||
Yield (4) | – | – | 0.3% | 5.6% | – | – | 5.2% | |||||
Corporate debt and other debt | 526 | 3,677 | 11,724 | 259 | 22 | – | 16,208 | |||||
Yield (4) | 2.9% | 3.1% | 3.6% | 3.5% | 5.3% | – | 3.5% | |||||
Amortized cost, net of allowance | 2,832 | 17,985 | 47,663 | 11,535 | 20,243 | – | 100,258 | |||||
Fair value | 2,826 | 17,855 | 47,481 | 10,701 | 17,473 | – | 96,336 | |||||
Total carrying value of securities | $ 21,217 | $ 42,741 | $ 149,237 | $ | 64,845 | $ 70,962 | $ 90,916 | $ 439,918 | ||||
(continued)
Note 4
Securities
184
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
| As at October 31, 2023 | ||||||||||||||
| Term to maturity (1) | ||||||||||||||
With no | ||||||||||||||
Within | 3 months | 1 year to | 5 years to | Over | specific | |||||||||
(Millions of Canadian dollars) | 3 months | to 1 year | 5 years | 10 years | 10 years | maturity | Total | |||||||
Trading (2) | ||||||||||||||
Debt issued or guaranteed by: | ||||||||||||||
Canadian government | $ | 9,867 | $ 17,244 | $ | 8,687 | $ | 2,932 | $ | 6,915 | $ | – | $ | 45,645 | |
U.S. federal, state, municipal | ||||||||||||||
and agencies | 15,507 | 8,136 | 15,864 | 4,375 | 8,806 | – | 52,688 | |||||||
Other OECD government | 566 | 1,117 | 815 | 1,040 | 1,094 | – | 4,632 | |||||||
Mortgage-backed securities | – | – | – | – | 2 | – | 2 | |||||||
Asset-backed securities | 452 | 151 | 234 | 307 | 101 | – | 1,245 | |||||||
Corporate debt and other debt | ||||||||||||||
Bankers’ acceptances | 143 | – | – | – | – | – | 143 | |||||||
Other (3) | 1,207 | 2,219 | 6,681 | 3,656 | 8,709 | – | 22,472 | |||||||
Equities | 63,324 | 63,324 | ||||||||||||
27,742 | 28,867 | 32,281 | 12,310 | 25,627 | 63,324 | 190,151 | ||||||||
Fair value through other | ||||||||||||||
comprehensive income (2) | ||||||||||||||
Debt issued or guaranteed by: | ||||||||||||||
Canadian government | ||||||||||||||
Federal | ||||||||||||||
Amortized cost | 2,479 | 1,247 | 1,726 | 640 | 517 | – | 6,609 | |||||||
Fair value | 2,479 | 1,242 | 1,707 | 515 | 316 | – | 6,259 | |||||||
Yield (4) | 4.5% | 3.2% | 2.6% | 1.2% | 3.4% | – | 3.4% | |||||||
Provincial and municipal | ||||||||||||||
Amortized cost | 469 | 8 | 1,159 | 52 | 1,708 | – | 3,396 | |||||||
Fair value | 469 | 8 | 1,158 | 52 | 1,061 | – | 2,748 | |||||||
Yield (4) | 4.9% | 3.7% | 2.8% | 4.5% | 4.4% | – | 3.8% | |||||||
U.S. federal, state, municipal | ||||||||||||||
and agencies | ||||||||||||||
Amortized cost | 846 | 8,595 | 33,044 | 16,355 | 16,486 | – | 75,326 | |||||||
Fair value | 856 | 8,572 | 33,050 | 16,193 | 14,624 | – | 73,295 | |||||||
Yield (4) | 7.4% | 2.1% | 2.7% | 4.0% | 3.6% | – | 3.2% | |||||||
Other OECD government | ||||||||||||||
Amortized cost | 160 | 1,009 | 5,030 | 1 | – | – | 6,200 | |||||||
Fair value | 160 | 1,009 | 5,022 | 1 | – | – | 6,192 | |||||||
Yield (4) | 6.3% | 4.0% | 3.0% | 4.6% | – | – | 3.3% | |||||||
Mortgage-backed securities | ||||||||||||||
Amortized cost | – | – | 32 | 28 | 2,702 | – | 2,762 | |||||||
Fair value | – | – | 31 | 25 | 2,645 | – | 2,701 | |||||||
Yield (4) | – | – | 7.5% | 6.7% | 6.8% | – | 6.8% | |||||||
Asset-backed securities | ||||||||||||||
Amortized cost | – | – | 16 | 7,542 | 1,194 | – | 8,752 | |||||||
Fair value | – | – | 17 | 7,503 | 1,186 | – | 8,706 | |||||||
Yield (4) | – | – | 6.4% | 6.9% | 7.0% | – | 6.9% | |||||||
Corporate debt and other debt | ||||||||||||||
Amortized cost | 4,928 | 1,759 | 18,798 | 2,248 | 41 | – | 27,774 | |||||||
Fair value | 4,928 | 1,755 | 18,761 | 2,243 | 36 | – | 27,723 | |||||||
Yield (4) | 3.9% | 4.2% | 3.9% | 5.4% | 4.7% | – | 4.1% | |||||||
Equities | ||||||||||||||
Cost | 493 | 493 | ||||||||||||
Fair value (5) | 842 | 842 | ||||||||||||
Amortized cost | 8,882 | 12,618 | 59,805 | 26,866 | 22,648 | 493 | 131,312 | |||||||
Fair value | 8,892 | 12,586 | 59,746 | 26,532 | 19,868 | 842 | 128,466 | |||||||
Amortized cost (2) | ||||||||||||||
Debt issued or guaranteed by: | ||||||||||||||
Canadian government | 997 | 1,931 | 17,448 | 6,468 | – | – | 26,844 | |||||||
Yield (4) | 2.8% | 3.0% | 2.1% | 2.0% | – | – | 2.2% | |||||||
U.S. federal, state, municipal | ||||||||||||||
and agencies | 424 | 1,427 | 14,536 | 5,156 | 23,025 | – | 44,568 | |||||||
Yield (4) | 5.0% | 4.1% | 3.3% | 2.9% | 2.5% | – | 2.9% | |||||||
Other OECD government | 375 | 723 | 4,362 | 66 | – | – | 5,526 | |||||||
Yield (4) | 2.0% | 0.8% | 2.9% | 1.1% | – | – | 2.5% | |||||||
Asset-backed securities | – | – | 424 | – | 1 | – | 425 | |||||||
Yield (4) | – | – | 4.9% | – | 1.4% | – | 4.9% | |||||||
Corporate debt and other debt | 838 | 1,443 | 11,256 | 190 | 23 | – | 13,750 | |||||||
Yield (4) | 2.3% | 2.9% | 3.4% | 3.1% | 5.6% | – | 3.3% | |||||||
Amortized cost, net of allowance | 2,634 | 5,524 | 48,026 | 11,880 | 23,049 | – | 91,113 | |||||||
Fair value | 2,627 | 5,447 | 46,258 | 10,276 | 19,059 | – | 83,667 | |||||||
Total carrying value of securities | $ 39,268 | $ 46,977 | $ 140,053 | $ 50,722 | $ 68,544 | $ 64,166 | $ 409,730 | |||||||
(1)
Actual maturities may differ from contractual maturities shown above as borrowers may have the right to extend or prepay obligations with or without penalties.
(2)
Trading securities and FVOCI securities are recorded at fair value. Amortized cost securities, included in Investment securities, are recorded at amortized cost and
presented net of allowance for credit losses.
(3)
Primarily composed of corporate debt, supra-national debt, and commercial paper.
(4)
The weighted average yield is derived using the contractual interest rate and the carrying value at the end of the year for the respective securities.
(5)
Certain equity securities that are not held-for-trading purposes are designated as FVOCI.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
185
Unrealized gains and losses on securities at FVOCI
(1), (2)
| As at | ||||||||||||||||
| October 31, 2024 (3) | October 31, 2023 | |||||||||||||||
Cost/ | Gross | Gross | Cost/ | Gross | Gross | |||||||||||
Amortized | unrealized | unrealized | Amortized | unrealized | unrealized | |||||||||||
(Millions of Canadian dollars) | cost | gains | losses | Fair value | cost | gains | losses | Fair value | ||||||||
Debt issued or guaranteed by: | ||||||||||||||||
Canadian government | ||||||||||||||||
Federal | $ | 13,165 | $ | 31 | $ | (27) | $ | 13,169 | $ | 6,609 | $ | 1 | $ | (351) | $ | 6,259 |
Provincial and municipal | 7,563 | 27 | (36) | 7,554 | 3,396 | 2 | (650) | 2,748 | ||||||||
U.S. federal, state, municipal and | ||||||||||||||||
agencies | 81,632 | 333 | (1,699) | 80,266 | 75,326 | 343 | (2,374) | 73,295 | ||||||||
Other OECD government | 10,199 | 6 | (49) | 10,156 | 6,200 | 1 | (9) | 6,192 | ||||||||
Mortgage-backed securities | 2,646 | 3 | (15) | 2,634 | 2,762 | – | (61) | 2,701 | ||||||||
Asset-backed securities | 9,343 | 17 | (3) | 9,357 | 8,752 | 5 | (51) | 8,706 | ||||||||
Corporate debt and other debt | 31,932 | 101 | (51) | 31,982 | 27,774 | 44 | (95) | 27,723 | ||||||||
Equities | 728 | 519 | (5) | 1,242 | 493 | 357 | (8) | 842 | ||||||||
$ 157,208 | $ | 1,037 | $ | (1,885) | $ 156,360 | $ 131,312 | $ | 753 | $ | (3,599) | $ 128,466 | |||||
(1)
Excludes $100,258 million of held-to-collect securities as at October 31, 2024 that are carried at amortized cost, net of allowance for credit losses (October 31, 2023 –
$91,113 million).
(2)
Gross unrealized gains and losses includes $(35) million of allowance for credit losses on debt securities at FVOCI as at October 31, 2024 (October 31, 2023 – $(33) million)
recognized in income and Other components of equity.
(3)
These amounts reflect certain reclassifications made upon the adoption of IFRS 17 as at November 1, 2023 with no restatement of comparative information. Refer to
Note 2 for further details.
The following tables reconcile the opening and closing allowance for debt securities at FVOCI and amortized cost by stage.
Reconciling items include the following:
•
Transfers between stages, which are presumed to occur before any corresponding remeasurement of the allowance.
•
Purchases, which reflect the allowance related to assets newly recognized during the period, including those assets that
were derecognized following a modification of terms.
•
Sales and maturities, which reflect the allowance related to assets derecognized during the period without a credit loss
being incurred, including those assets that were derecognized following a modification of terms.
•
Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, including
changes in forward-looking macroeconomic conditions; partial repayments; changes in the measurement following a
transfer between stages; and unwinding of the time value discount due to the passage of time.
Allowance for credit losses – securities at FVOCI
(1)
| For the year ended | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
| Performing | Impaired | Performing | Impaired | |||||||||||||
(Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 (2) | Total | Stage 1 | Stage 2 | Stage 3 (2) | Total | ||||||||
Balance at beginning of period | $ | 4 | $ | – | $ | (37) | $ | (33) | $ | 3 | $ | 1 | $ | (23) | $ | (19) |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | – | – | – | – | 1 | (1) | – | – | ||||||||
Transfers to stage 2 | – | – | – | – | – | – | – | – | ||||||||
Transfers to stage 3 | – | – | – | – | – | – | – | – | ||||||||
Purchases | 10 | – | – | 10 | 7 | – | – | 7 | ||||||||
Sales and maturities | (4) | – | – | (4) | (2) | – | – | (2) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (4) | – | (8) | (12) | (5) | – | (17) | (22) | ||||||||
Exchange rate and other | – | – | 4 | 4 | – | – | 3 | 3 | ||||||||
Balance at end of period | $ | 6 | $ | – | $ | (41) | $ | (35) | $ | 4 | $ | – | $ | (37) | $ | (33) |
(1)
Expected credit losses on debt securities at FVOCI are not separately recognized on the Consolidated Balance Sheets as the related securities are recorded at fair value.
The cumulative amount of credit losses recognized in income is presented in Other components of equity.
(2)
Reflects changes in the allowance for purchased credit impaired securities.
(continued)
Note 4
Securities
186
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Allowance for credit losses – securities at amortized cost
| For the year ended | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
| Performing | Impaired | Performing | Impaired | |||||||||||||
(Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Balance at beginning of period | $ | 8 | $ | 15 | $ | – | $ | 23 | $ | 8 | $ | 14 | $ | – | $ | 22 |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | – | – | – | – | – | – | – | – | ||||||||
Transfers to stage 2 | – | – | – | – | – | – | – | – | ||||||||
Transfers to stage 3 | – | – | – | – | – | – | – | – | ||||||||
Purchases | 7 | – | – | 7 | 10 | – | – | 10 | ||||||||
Sales and maturities | (2) | – | – | (2) | (1) | – | – | (1) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (8) | (6) | – | (14) | (9) | – | – | (9) | ||||||||
Exchange rate and other | 1 | (1) | – | – | – | 1 | – | 1 | ||||||||
Balance at end of period | $ | 6 | $ | 8 | $ | – | $ | 14 | $ | 8 | $ | 15 | $ | – | $ | 23 |
Credit risk exposure by internal risk rating
The following table presents the fair value of debt securities at FVOCI and gross carrying amount of securities at amortized cost.
Risk ratings are based on internal ratings used in the measurement of expected credit losses, as at the reporting date, as outlined
in the internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
| As at | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
| Performing | Impaired | Performing | Impaired | |||||||||||||
(Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 (1) | Total | Stage 1 | Stage 2 | Stage 3 (1) | Total | ||||||||
Investment securities | ||||||||||||||||
Securities at FVOCI | ||||||||||||||||
Investment grade | $ 154,100 | $ | – | $ | – | $ 154,100 | $ 126,732 | $ | 1 | $ | – | $ 126,733 | ||||
Non-investment grade | 875 | – | – | 875 | 742 | – | – | 742 | ||||||||
Impaired | – | – | 143 | 143 | – | – | 149 | 149 | ||||||||
154,975 | – | 143 | 155,118 | 127,474 | 1 | 149 | 127,624 | |||||||||
Items not subject to impairment (2) | 1,242 | 842 | ||||||||||||||
$ 156,360 | $ 128,466 | |||||||||||||||
Securities at amortized cost | ||||||||||||||||
Investment grade | $ | 99,224 | $ | – | $ | – | $ | 99,224 | $ | 89,947 | $ | – | $ | – | $ | 89,947 |
Non-investment grade | 856 | 192 | – | 1,048 | 990 | 199 | – | 1,189 | ||||||||
100,080 | 192 | – | 100,272 | 90,937 | 199 | – | 91,136 | |||||||||
Allowance for credit losses | 6 | 8 | – | 14 | 8 | 15 | – | 23 | ||||||||
$ 100,074 | $ | 184 | $ | – | $ 100,258 | $ | 90,929 | $ | 184 | $ | – | $ 91,113 | ||||
(1)
Reflects $143 million of purchased credit impaired securities (October 31, 2023 – $149 million).
(2)
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
187
Loans and allowance for credit losses
Loans by geography and portfolio net of allowance
| As at October 31, 2024 | ||||||||||
United | Other | Allowance for | Total net | |||||||
(Millions of Canadian dollars) | Canada | States | International | Total | loan losses (1) | of allowance | ||||
Retail (2) | ||||||||||
Residential mortgages | $ 441,191 | $ | 33,092 | $ | 3,261 | $ 477,544 | $ | (572) | $ | 476,972 |
Personal | 86,977 | 18,148 | 3,213 | 108,338 | (1,389) | 106,949 | ||||
Credit cards (3) | 24,619 | 653 | 293 | 25,565 | (1,164) | 24,401 | ||||
Small business (4) | 15,531 | – | – | 15,531 | (258) | 15,273 | ||||
Wholesale (2), (5) | 189,378 | 119,231 | 51,830 | 360,439 | (2,654) | 357,785 | ||||
Total loans | $ 757,696 | $ 171,124 | $ | 58,597 | $ 987,417 | $ | (6,037) | $ | 981,380 | |
Undrawn loan commitments – Retail | 300,071 | 5,099 | 4,100 | 309,270 | (172) | |||||
Undrawn loan commitments – Wholesale | 180,687 | 264,309 | 88,787 | 533,783 | (139) | |||||
| As at October 31, 2023 | ||||||||||
United | Other | Allowance for | Total net of | |||||||
(Millions of Canadian dollars) | Canada | States | International | Total | loan losses (1) | allowance | ||||
Retail (2) | ||||||||||
Residential mortgages | $ 397,605 | $ | 33,683 | $ | 3,213 | $ 434,501 | $ | (481) | $ | 434,020 |
Personal | 79,705 | 15,751 | 3,278 | 98,734 | (1,145) | 97,589 | ||||
Credit cards (3) | 22,140 | 624 | 271 | 23,035 | (1,013) | 22,022 | ||||
Small business (4) | 13,681 | – | – | 13,681 | (180) | 13,501 | ||||
Wholesale (2), (5) | 121,762 | 119,067 | 46,997 | 287,826 | (2,185) | 285,641 | ||||
Total loans | $ 634,893 | $ 169,125 | $ | 53,759 | $ 857,777 | $ | (5,004) | $ | 852,773 | |
Undrawn loan commitments – Retail | 277,863 | 5,054 | 3,173 | 286,090 | (152) | |||||
Undrawn loan commitments – Wholesale | 128,967 | 247,881 | 84,633 | 461,481 | (136) | |||||
(1)
Excludes allowance for loans measured at FVOCI of $4 million (October 31, 2023 – $6 million).
(2)
Geographic information is based on residence of the borrower.
(3)
The credit cards business is managed as a single portfolio and includes both consumer and business cards.
(4)
Includes small business exposure managed on a pooled basis.
(5)
Includes small business exposure managed on an individual client basis.
Loans maturity and rate sensitivity
| As at October 31, 2024 | |||||||||
| Maturity term (1) | Rate sensitivity | ||||||||
Under | 1 to 5 | Over 5 | Fixed | Non-rate- | |||||
(Millions of Canadian dollars) | 1 year (2) | years | years | Total | Floating | Rate | sensitive | Total | |
Retail | $ 342,552 | $ 240,995 | $ 43,431 | $ 626,978 | $ 211,027 | $ 407,455 | $ | 8,496 | $ 626,978 |
Wholesale | 302,024 | 44,977 | 13,438 | 360,439 | 80,385 | 277,599 | 2,455 | 360,439 | |
Total loans | $ 644,576 | $ 285,972 | $ 56,869 | $ 987,417 | $ 291,412 | $ 685,054 | $ 10,951 | $ 987,417 | |
Allowance for loan losses | (6,037) | (6,037) | |||||||
Total loans net of allowance for loan losses | $ 644,576 | $ 285,972 | $ 50,832 | $ 981,380 | $ 291,412 | $ 685,054 | $ | 4,914 | $ 981,380 |
| As at October 31, 2023 | |||||||||
| Maturity term (1) | Rate sensitivity | ||||||||
Under | 1 to 5 | Over 5 | Fixed | Non-rate- | |||||
(Millions of Canadian dollars) | 1 year (2) | years | years | Total | Floating | Rate | sensitive | Total | |
Retail | $ 276,720 | $ 249,210 | $ 44,021 | $ 569,951 | $ 183,604 | $ 378,656 | $ | 7,691 | $ 569,951 |
Wholesale | 236,126 | 39,358 | 12,342 | 287,826 | 53,655 | 232,024 | 2,147 | 287,826 | |
Total loans | $ 512,846 | $ 288,568 | $ 56,363 | $ 857,777 | $ 237,259 | $ 610,680 | $ | 9,838 | $ 857,777 |
Allowance for loan losses | (5,004) | (5,004) | |||||||
Total loans net of allowance for loan losses | $ 852,773 | $ 852,773 | |||||||
(1)
Generally, based on the earlier of contractual repricing or maturity date.
(2)
Includes variable rate loans that can be repriced at the clients’ discretion without penalty.
(continued)
Note 5
Loans and allowance for credit losses
188
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Allowance for credit losses
| For the year ended | ||||||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||||||
Balance at | Provision | Exchange | Balance | Balance at | Provision | Exchange | Balance | |||||||||||||
beginning | for credit | Net | rate and | at end | beginning | for credit | Net | rate and | at end | |||||||||||
(Millions of Canadian dollars) | of period | losses | write-offs (1) | other | of period | of period | losses | write-offs (1) | other | of period | ||||||||||
Retail | ||||||||||||||||||||
Residential mortgages | $ | 481 | $ | 114 | $ | (10) | $ | (13) | $ | 572 | $ | 432 | $ | 74 | $ | (17) | $ | (8) | $ | 481 |
Personal | 1,228 | 877 | (616) | (7) | 1,482 | 1,043 | 593 | (404) | (4) | 1,228 | ||||||||||
Credit cards | 1,069 | 831 | (669) | 2 | 1,233 | 893 | 636 | (460) | – | 1,069 | ||||||||||
Small business | 194 | 178 | (84) | (16) | 272 | 194 | 43 | (39) | (4) | 194 | ||||||||||
Wholesale | 2,326 | 1,297 | (700) | (130) | 2,793 | 1,574 | 1,145 | (293) | (100) | 2,326 | ||||||||||
Customers’ liability under | ||||||||||||||||||||
acceptances | 50 | (50) | – | – | – | 45 | 5 | – | – | 50 | ||||||||||
$ 5,348 | $ 3,247 | $ | (2,079) | $ | (164) | $ 6,352 | $ 4,181 | $ 2,496 | $ | (1,213) | $ | (116) | $ 5,348 | |||||||
Presented as: | ||||||||||||||||||||
Allowance for loan losses | $ 5,004 | $ 6,037 | $ 3,753 | $ 5,004 | ||||||||||||||||
Other liabilities – Provisions | 288 | 311 | 378 | 288 | ||||||||||||||||
Customers’ liability under | ||||||||||||||||||||
acceptances | 50 | – | 45 | 50 | ||||||||||||||||
Other components of equity | 6 | 4 | 5 | 6 | ||||||||||||||||
(1)
Loans written-off are generally subject to continued collection efforts for a period of time following write-off. The contractual amount outstanding on loans written-off
during the year ended October 31, 2024 that are no longer subject to enforcement activity was $359 million (October 31, 2023 – $139 million).
The following table reconciles the opening and closing allowance for each major product of loans and commitments as
determined by our modelled, scenario-weighted allowance and the application of expert credit judgment as applicable.
Reconciling items include the following:
•
Model changes, which generally comprise the impact of significant changes to the quantitative models used to estimate
expected credit losses and any staging impacts that may arise.
•
Transfers between stages, which are presumed to occur before any corresponding remeasurements of the allowance.
•
Originations, which reflect the allowance related to assets newly recognized during the period, including those assets that
were derecognized following a modification of terms.
•
Maturities, which reflect the allowance related to assets derecognized during the period without a credit loss being incurred,
including those assets that were derecognized following a modification of terms.
•
Changes in risk, parameters and exposures, which comprise the impact of changes in model inputs or assumptions, including
changes in forward-looking macroeconomic conditions; partial repayments and additional draws on existing facilities;
changes in the measurement following a transfer between stages; and unwinding of the time value discount due to the
passage of time in Stage 1 and Stage 2.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
189
Allowance for credit losses – Retail and wholesale loans
| For the year ended | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
| Performing | Impaired | Performing | Impaired | |||||||||||||
(Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 | Total | Stage 1 | Stage 2 | Stage 3 | Total | ||||||||
Residential mortgages | ||||||||||||||||
Balance at beginning of period | $ | 223 | $ | 90 | $ | 168 | $ | 481 | $ | 235 | $ | 65 | $ | 132 | $ | 432 |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | 99 | (97) | (2) | – | 95 | (95) | – | – | ||||||||
Transfers to stage 2 | (23) | 36 | (13) | – | (26) | 38 | (12) | – | ||||||||
Transfers to stage 3 | (5) | (42) | 47 | – | (2) | (13) | 15 | – | ||||||||
Originations | 94 | – | – | 94 | 89 | – | – | 89 | ||||||||
Maturities | (19) | (17) | – | (36) | (17) | (9) | – | (26) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (155) | 157 | 54 | 56 | (152) | 103 | 60 | 11 | ||||||||
Write-offs | – | – | (23) | (23) | – | – | (30) | (30) | ||||||||
Recoveries | – | – | 13 | 13 | – | – | 13 | 13 | ||||||||
Exchange rate and other | 1 | (1) | (13) | (13) | 1 | 1 | (10) | (8) | ||||||||
Balance at end of period | $ | 215 | $ | 126 | $ | 231 | $ | 572 | $ | 223 | $ | 90 | $ | 168 | $ | 481 |
Personal | ||||||||||||||||
Balance at beginning of period | $ | 280 | $ | 793 | $ | 155 | $ | 1,228 | $ | 285 | $ | 661 | $ | 97 | $ | 1,043 |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | 537 | (537) | – | – | 696 | (695) | (1) | – | ||||||||
Transfers to stage 2 | (75) | 78 | (3) | – | (88) | 90 | (2) | – | ||||||||
Transfers to stage 3 | (3) | (130) | 133 | – | (1) | (57) | 58 | – | ||||||||
Originations | 116 | – | – | 116 | 103 | – | – | 103 | ||||||||
Maturities | (51) | (186) | – | (237) | (45) | (112) | – | (157) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (499) | 947 | 550 | 998 | (671) | 906 | 412 | 647 | ||||||||
Write-offs | – | – | (745) | (745) | – | – | (518) | (518) | ||||||||
Recoveries | – | – | 129 | 129 | – | – | 114 | 114 | ||||||||
Exchange rate and other | – | 1 | (8) | (7) | 1 | – | (5) | (4) | ||||||||
Balance at end of period | $ | 305 | $ | 966 | $ | 211 | $ | 1,482 | $ | 280 | $ | 793 | $ | 155 | $ | 1,228 |
Credit cards | ||||||||||||||||
Balance at beginning of period | $ | 203 $ | 866 | $ | – | $ | 1,069 | $ | 177 | $ | 716 | $ | – | $ | 893 | |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | 559 | (559) | – | – | 539 | (539) | – | – | ||||||||
Transfers to stage 2 | (111) | 111 | – | – | (101) | 101 | – | – | ||||||||
Transfers to stage 3 | (2) | (483) | 485 | – | (2) | (394) | 396 | – | ||||||||
Originations | 25 | – | – | 25 | 13 | – | – | 13 | ||||||||
Maturities | (5) | (48) | – | (53) | (6) | (33) | – | (39) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (465) | 1,139 | 185 | 859 | (417) | 1,015 | 64 | 662 | ||||||||
Write-offs | – | – | (892) | (892) | – | – | (650) | (650) | ||||||||
Recoveries | – | – | 223 | 223 | – | – | 190 | 190 | ||||||||
Exchange rate and other | 3 | – | (1) | 2 | – | – | – | – | ||||||||
Balance at end of period | $ | 207 $ | 1,026 | $ | – | $ | 1,233 | $ | 203 | $ | 866 | $ | – | $ | 1,069 | |
Small business | ||||||||||||||||
Balance at beginning of period | $ | 70 | $ | 66 | $ | 58 | $ | 194 | $ | 73 | $ | 73 | $ | 48 | $ | 194 |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | 35 | (35) | – | – | 39 | (39) | – | – | ||||||||
Transfers to stage 2 | (20) | 20 | – | – | (14) | 14 | – | – | ||||||||
Transfers to stage 3 | (1) | (10) | 11 | – | (1) | (10) | 11 | – | ||||||||
Originations | 43 | – | – | 43 | 36 | – | – | 36 | ||||||||
Maturities | (17) | (21) | – | (38) | (18) | (21) | – | (39) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (31) | 65 | 139 | 173 | (48) | 44 | 50 | 46 | ||||||||
Write-offs | – | – | (98) | (98) | – | – | (50) | (50) | ||||||||
Recoveries | – | – | 14 | 14 | – | – | 11 | 11 | ||||||||
Exchange rate and other | 1 | 1 | (18) | (16) | 3 | 5 | (12) | (4) | ||||||||
Balance at end of period | $ | 80 | $ | 86 | $ | 106 | $ | 272 | $ | 70 | $ | 66 | $ | 58 | $ | 194 |
Wholesale | ||||||||||||||||
Balance at beginning of period | $ | 774 | $ | 785 | $ | 767 | $ | 2,326 | $ | 597 | $ | 585 | $ | 392 | $ | 1,574 |
Provision for credit losses | ||||||||||||||||
Transfers to stage 1 | 284 | (282) | (2) | – | 216 | (215) | (1) | – | ||||||||
Transfers to stage 2 | (152) | 159 | (7) | – | (87) | 89 | (2) | – | ||||||||
Transfers to stage 3 | (9) | (77) | 86 | – | (10) | (60) | 70 | – | ||||||||
Originations | 737 | – | – | 737 | 651 | – | – | 651 | ||||||||
Maturities | (438) | (379) | – | (817) | (448) | (270) | – | (718) | ||||||||
Changes in risk, parameters and | ||||||||||||||||
exposures | (407) | 827 | 957 | 1,377 | (153) | 647 | 718 | 1,212 | ||||||||
Write-offs | – | – | (763) | (763) | – | – | (324) | (324) | ||||||||
Recoveries | – | – | 63 | 63 | – | – | 31 | 31 | ||||||||
Exchange rate and other | (2) | 5 | (133) | (130) | 8 | 9 | (117) | (100) | ||||||||
Balance at end of period | $ | 787 | $ | 1,038 | $ | 968 | $ | 2,793 | $ | 774 | $ | 785 | $ | 767 | $ | 2,326 |
(continued)
Note 5
Loans and allowance for credit losses
190
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Key inputs and assumptions
The measurement of expected credit losses is a complex calculation that involves a significant number of interrelated inputs and
assumptions and the allowance is not sensitive to any one single factor. The key drivers of changes in expected credit losses
include the following:
•
Changes in the credit quality of the borrower or instrument, primarily reflected in changes in internal risk ratings;
•
Changes in forward-looking macroeconomic conditions, specifically the macroeconomic variables to which our models are
calibrated, which are those most closely correlated with credit losses in the relevant portfolio;
•
Changes in scenario design and the weight assigned to each scenario; and
•
Transfers between stages, which can be triggered by changes to any of the above inputs.
To reflect relevant risk factors not captured in our modelled results, we applied expert credit judgment in determining the
measurement of our weighted allowance for credit losses. The measurement of expected credit losses, including scenario design
and weightings, determining significant increases in credit risk since origination and application of expert credit judgment, is
overseen by a senior management committee that includes representation from Finance, Group Risk Management and
Economics.
Internal risk ratings
Internal risk ratings are assigned according to the risk management framework outlined under the headings Wholesale credit risk
and Retail credit risk of the Credit risk section of Management’s Discussion and Analysis. Changes in internal risk ratings are
primarily reflected in the PD parameters, which are estimated based on our historical loss experience at the relevant risk
segment or risk rating level, adjusted for forward-looking information.
Scenario design and weightings
Our estimation of expected credit losses in Stage 1 and Stage 2 considers five distinct future macroeconomic scenarios.
Scenarios are designed to capture a wide range of possible outcomes and are weighted according to our expectation of the
relative likelihood of the range of outcomes that each scenario represents at the reporting date. We weight each scenario to take
into account historical frequency, current trends, and forward-looking conditions which will change over time. Scenario
weightings take into consideration the extent to which the base case scenario includes both favourable and unfavourable
economic expectations, and upside and downside risks to the base scenario materializing in the future. The base case scenario is
based on forecasts of the expected rate, value, or yield for each relevant macroeconomic variable. The upside and downside
scenarios are set by adjusting our base projections to construct reasonably possible scenarios and weightings that are more
optimistic and pessimistic, respectively, than the base case. Two additional downside scenarios capture the non-linear nature of
potential credit losses across our portfolios. When the economy is at or near equilibrium, the severity of the downside scenario
generally reflects an adverse event typical for a business cycle and both the non-linear downside scenarios reflect an outcome
that is materially more adverse than the downside scenario.
The impact of each of our five scenarios varies across our portfolios given the portfolios have different sensitivities to
movements in each macroeconomic variable.
The impact of weighting these multiple scenarios increased our ACL on performing loans, relative to our base scenario, by
$945 million as at October 31, 2024 (October 31, 2023 – $868 million).
Forward looking macroeconomic variables
The PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 credit loss allowances are modelled based on the
macroeconomic variables (or changes in macroeconomic variables) that are most closely correlated with credit losses in the
relevant portfolio. Each macroeconomic scenario used in our expected credit loss calculation includes a projection of all
relevant macroeconomic variables used in our models for a five-year horizon, reverting to long-run averages generally within the
2 to 5 year period. Depending on their usage in the models, macroeconomic variables are projected at a country, province/state
or more granular level. These include one or more of the variables described below, which differ by portfolio and region.
Our allowance for credit losses reflects our economic outlook as at October 31, 2024. Subsequent changes to this forecast and
related estimates will be reflected in our allowance for credit losses in future periods.
Our base scenario reflects rising unemployment rates in the near-term in Canada and the U.S. Central bank policy interest
rate cuts are expected to continue as inflation declines. Central bank policy interest rate cuts in Canada are expected to be larger
than in other regions due to slower economic growth and higher unemployment rates.
Downside scenarios, including two additional and more severe downside scenarios designed for the real estate and energy
sectors, reflect the possibility of a more severe macroeconomic shock beginning in calendar Q1 2025 relative to our base
scenario. In these scenarios, conditions are expected to deteriorate from calendar Q4 2024 levels for up to 18 months, followed
by a recovery for the remainder of the period. These scenarios assume monetary policy responses that return the economy to a
long-run, sustainable growth rate within the forecast period.
The upside scenario reflects slightly stronger economic growth than the base scenario, without prompting a further
offsetting monetary policy response as compared to our base scenario, followed by a return to a long-run sustainable growth
rate within the forecast period.
We reduced weight to our downside scenarios relative to October 31, 2023, in order to reflect the reduced likelihood of
recessions as reflected in our downside scenarios.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
191
The following provides additional detail about our calendar quarter forecasts for certain key macroeconomic variables used in
the models to estimate ACL:
•
Unemployment
– In our base forecast, we expect the Canadian unemployment rate to rise to 6.9% in calendar Q4 2024,
peaking at 7.0% in calendar Q1 2025, then returning to its long run equilibrium by calendar Q2 2027. The U.S. unemployment
rate is expected to rise to 4.2% in calendar Q4 2024, then increase to its long run equilibrium level by calendar Q2 2025.
4
5
6
7
8
11
9
Range of alternative scenarios (October 31, 2024)
Q4-2027
Q1-2028
Q2-2028
Q3-2028
Q4-2028
Q1-2029
Q2-2029
Q3-2029
Q4-2023
Q1-2024
Q2-2024
Q3-2024
Q4-2024
Q1-2025
Q2-2025
Q3-2025
Q4-2025
Q1-2026
Q2-2026
Q3-2026
Q4-2026
Q1-2027
Q2-2027
Q3-2027
Base scenario (October 31, 2024)
Base scenario (October 31, 2023)
%
Canada Unemployment Rate
(1)
(1)
Represents the average quarterly unemployment level over the calendar quarters presented.
10
2
4
3
6
5
7
9
8
Range of alternative scenarios (October 31, 2024)
Base scenario (October 31, 2023)
Base scenario (October 31, 2024)
%
U.S. Unemployment Rate
(1)
(1)
Represents the average quarterly unemployment level over the calendar quarters presented.
Q4-2023
Q1-2024
Q2-2024
Q3-2024
Q4-2024
Q1-2025
Q2-2025
Q3-2025
Q4-2025
Q1-2026
Q2-2026
Q3-2026
Q4-2026
Q1-2027
Q2-2027
Q3-2027
Q4-2027
Q1-2028
Q2-2028
Q3-2028
Q4-2028
Q1-2029
Q2-2029
Q3-2029
•
Gross Domestic Product (GDP)
– In our base forecast, we expect both Canadian and U.S. GDP to continuously grow in
calendar Q4 2024 and thereafter. GDP in calendar Q4 2025 is expected to be 1.4% and 1.3% above Q4 2024 levels in Canada
and the U.S., respectively.
2.2
2.3
2.4
2.5
2.6
2.7
Range of alternative scenarios (October 31, 2024)
Base scenario (October 31, 2024)
Base scenario (October 31, 2023)
Trillions of Canadian dollars
Canada Real GDP
(1)
(1)
Represents the seasonally adjusted annual rate indexed to 2017 Canadian dollars over the calendar
quarters presented.
Q4-2023
Q1-2024
Q2-2024
Q3-2024
Q4-2024
Q1-2025
Q2-2025
Q3-2025
Q4-2025
Q1-2026
Q2-2026
Q3-2026
Q4-2026
Q1-2027
Q2-2027
Q3-2027
Q4-2027
Q1-2028
Q2-2028
Q3-2028
Q4-2028
Q1-2029
Q2-2029
Q3-2029
21.0
25.0
24.0
23.0
22.0
26.0
Range of alternative scenarios (October 31, 2024)
Base scenario (October 31, 2024)
Base scenario (October 31, 2023)
(1)
Represents the seasonally adjusted annual rate indexed to 2017 U.S. dollars over the calendar
quarters presented.
Q4-2023
Q1-2024
Q2-2024
Q3-2024
Q4-2024
Q1-2025
Q2-2025
Q3-2025
Q4-2025
Q1-2026
Q2-2026
Q3-2026
Q4-2026
Q1-2027
Q2-2027
Q3-2027
Q4-2027
Q1-2028
Q2-2028
Q3-2028
Q4-2028
Q1-2029
Q2-2029
Q3-2029
Trillions of U.S. dollars
U.S. Real GDP
(1)
•
Canadian housing price
index
– In our base forecast, we expect housing prices to increase by 0.7% over the next 12 months
from calendar Q4 2024, with a compound annual growth rate of 3.0% for the following 2 to 5 years. The range of annual
housing price growth (contraction) in our alternative real estate downside and upside scenarios is (30.0)% to 10.9% over the
next 12 months and 4.2% to 9.6% for the following 2 to 5 years. As at October 31, 2023, our base forecast included housing
price growth of 1.6% from calendar Q4 2023 for the next 12 months and housing price growth of 5.0% for the following 2 to
5 years.
•
Oil price (West Texas Intermediate in US$)
– In our base forecast, we expect oil prices to average $69 per barrel over the
next 12 months from calendar Q4 2024 and $66 per barrel in the following 2 to 5 years. The range of average prices in our
alternative downside and upside scenarios is $27 to $89 per barrel for the next 12 months and $42 to $71 per barrel for the
following 2 to 5 years. As at October 31, 2023, our base forecast included an average price of $81 per barrel for the next
12 months and $67 per barrel for the following 2 to 5 years.
(continued)
Note 5
Loans and allowance for credit losses
192
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The primary variables driving credit losses in our retail portfolios are Canadian unemployment rates, Canadian housing price
index and Canadian GDP. The Canadian overnight interest rate also impacts our retail portfolios. Our wholesale portfolios are
affected by all of the variables discussed above; however, the specific variables differ by sector. Other variables also impact our
wholesale portfolios including, but not limited to, Canadian and U.S. 10 year BBB corporate bond credit spreads, Canadian and
U.S. 10 year government bond yields, U.S. 10 year BBB corporate bond yield, Canadian consumer confidence index, Canadian and
U.S. commercial real estate price indices, U.S. housing price index, and natural gas prices (Henry Hub).
Increases in the following macroeconomic variables will generally correlate with higher expected credit losses: Canadian
and U.S. unemployment rates, Canadian overnight interest rates, Canadian and U.S. 10 year BBB corporate bond credit spreads,
Canadian and U.S. 10 year government bond yields, and U.S. 10 year BBB corporate bond yield.
Increases in the following macroeconomic variables will generally correlate with lower expected credit losses: Canadian and
U.S. housing price indices, Canadian and U.S. GDP, Canadian consumer confidence index, Canadian and U.S. commercial real
estate price indices, and oil and natural gas prices.
Transfers between stages
Transfers between Stage 1 and Stage 2 are based on the assessment of significant increases in credit risk relative to initial
recognition, as described in Note 2. The impact of moving from 12 months expected credit losses to lifetime expected credit
losses, or vice versa, varies by product and is dependent on the expected remaining life at the date of the transfer. Stage
transfers may result in significant fluctuations in expected credit losses.
The following table illustrates the impact of staging on our ACL by comparing our allowance if all performing loans were in
Stage 1 to the actual ACL recorded on these assets.
| As at | ||||||
| October 31, 2024 | October 31, 2023 | |||||
ACL – All performing | Impact of | Stage 1 and 2 | ACL – All performing | Impact of | Stage 1 and 2 | |
(Millions of Canadian dollars) | loans in Stage 1 | staging | ACL | loans in Stage 1 | staging | ACL |
Performing loans (1) | $ 3,313 | $ 1,523 | $ 4,836 | $ 2,893 | $ 1,257 | $ 4,150 |
(1)
Represents loans and commitments in Stage 1 and Stage 2.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
193
Credit risk exposure by internal risk rating
The following table presents the gross carrying amount of loans measured at amortized cost, and the full contractual amount of
undrawn loan commitments subject to the impairment requirements of IFRS 9. Risk ratings are based on internal ratings used in
the measurement of expected credit losses as at the reporting date, as outlined in the internal ratings maps for Wholesale and
Retail facilities in the Credit risk section of Management’s Discussion and Analysis.
| As at | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
(Millions of Canadian dollars) | Stage 1 | Stage 2 | Stage 3 (1), (2) | Total | Stage 1 | Stage 2 | Stage 3 (1), (2) | Total | ||||||||
Retail | ||||||||||||||||
Loans outstanding –Residential | ||||||||||||||||
mortgages | ||||||||||||||||
Low risk | $ 388,742 | $ 1,354 | $ | – | $ 390,096 | $ 349,001 | $ | 1,630 | $ | – | $ 350,631 | |||||
Medium risk | 18,419 | 4,479 | – | 22,898 | 19,126 | 1,610 | – | 20,736 | ||||||||
High risk | 1,761 | 6,593 | – | 8,354 | 1,582 | 4,927 | – | 6,509 | ||||||||
Not rated (3) | 52,569 | 1,479 | – | 54,048 | 54,247 | 1,220 | – | 55,467 | ||||||||
Impaired | – | – | 1,233 | 1,233 | – | – | 682 | 682 | ||||||||
461,491 | 13,905 | 1,233 | 476,629 | 423,956 | 9,387 | 682 | 434,025 | |||||||||
Items not subject to impairment (4) | 915 | 476 | ||||||||||||||
Total | $ 477,544 | $ 434,501 | ||||||||||||||
Loans outstanding –Personal | ||||||||||||||||
Low risk | $ | 82,904 | $ 1,680 | $ | – | $ | 84,584 | $ | 75,572 | $ | 1,676 | $ | – | $ | 77,248 | |
Medium risk | 5,525 | 3,063 | – | 8,588 | 5,587 | 2,915 | – | 8,502 | ||||||||
High risk | 592 | 2,365 | – | 2,957 | 477 | 2,088 | – | 2,565 | ||||||||
Not rated (3) | 11,303 | 498 | – | 11,801 | 9,982 | 157 | – | 10,139 | ||||||||
Impaired | – | – | 408 | 408 | – | – | 280 | 280 | ||||||||
Total | $ 100,324 | $ 7,606 | $ | 408 | $ 108,338 | $ | 91,618 | $ | 6,836 | $ | 280 | $ | 98,734 | |||
Loans outstanding – Credit cards | ||||||||||||||||
Low risk | $ | 17,363 | $ | 177 | $ | – | $ | 17,540 | $ | 16,331 | $ | 135 | $ | – | $ | 16,466 |
Medium risk | 1,999 | 2,436 | – | 4,435 | 1,771 | 2,132 | – | 3,903 | ||||||||
High risk | 75 | 2,289 | – | 2,364 | 41 | 1,734 | – | 1,775 | ||||||||
Not rated (3) | 1,173 | 53 | – | 1,226 | 856 | 35 | – | 891 | ||||||||
Total | $ 20,610 | $ 4,955 | $ | – | $ | 25,565 | $ | 18,999 | $ | 4,036 | $ | – | $ | 23,035 | ||
Loans outstanding – Small business | ||||||||||||||||
Low risk | $ | 9,428 | $ | 773 | $ | – | $ | 10,201 | $ | 8,641 | $ | 920 | $ | – | $ | 9,561 |
Medium risk | 2,740 | 962 | – | 3,702 | 2,238 | 936 | – | 3,174 | ||||||||
High risk | 214 | 1,086 | – | 1,300 | 99 | 592 | – | 691 | ||||||||
Not rated (3) | 7 | – | – | 7 | 11 | – | – | 11 | ||||||||
Impaired | – | – | 321 | 321 | – | – | 244 | 244 | ||||||||
Total | $ | 12,389 | $ 2,821 | $ | 321 | $ | 15,531 | $ 10,989 | $ | 2,448 | $ | 244 | $ | 13,681 | ||
Undrawn loan commitments – | ||||||||||||||||
Retail | ||||||||||||||||
Low risk | $ 284,036 | $ | 592 | $ | – | $ 284,628 | $ 266,209 | $ | 610 | $ | – | $ 266,819 | ||||
Medium risk | 12,110 | 381 | – | 12,491 | 10,759 | 298 | – | 11,057 | ||||||||
High risk | 746 | 602 | – | 1,348 | 956 | 434 | – | 1,390 | ||||||||
Not rated (3) | 10,715 | 88 | – | 10,803 | 6,686 | 138 | – | 6,824 | ||||||||
Total | $ 307,607 | $ 1,663 | $ | – | $ 309,270 | $ 284,610 | $ | 1,480 | $ | – | $ 286,090 | |||||
Wholesale – Loans outstanding | ||||||||||||||||
Investment grade | $ 116,549 | $ 1,471 | $ | – | $ 118,020 | $ | 89,037 | $ | 416 | $ | – | $ | 89,453 | |||
Non-investment grade | 189,889 | 26,826 | – | 216,715 | 156,211 | 19,210 | – | 175,421 | ||||||||
Not rated (3) | 12,871 | 721 | – | 13,592 | 10,968 | 238 | – | 11,206 | ||||||||
Impaired | – | – | 3,905 | 3,905 | – | – | 2,498 | 2,498 | ||||||||
319,309 | 29,018 | 3,905 | 352,232 | 256,216 | 19,864 | 2,498 | 278,578 | |||||||||
Items not subject to impairment (4) | 8,207 | 9,248 | ||||||||||||||
Total | $ 360,439 | $ 287,826 | ||||||||||||||
Undrawn loan commitments – | ||||||||||||||||
Wholesale | ||||||||||||||||
Investment grade | $ 345,236 | $ | 516 | $ | – | $ 345,752 | $ 312,178 | $ | 186 | $ | – | $ 312,364 | ||||
Non-investment grade | 170,212 | 14,512 | – | 184,724 | 130,994 | 13,947 | – | 144,941 | ||||||||
Not rated (3) | 3,290 | 17 | – | 3,307 | 4,176 | – | – | 4,176 | ||||||||
Total | $ 518,738 | $15,045 | $ | – | $ 533,783 | $ 447,348 | $ 14,133 | $ | – | $ 461,481 | ||||||
(1)
As at October 31, 2024, 88% of credit-impaired loans were either fully or partially collateralized (October 31, 2023 – 88%). For details on the types of collateral held against
credit-impaired assets and our policies on collateral, refer to the Credit risk mitigation section of Management’s Discussion and Analysis.
(2)
Includes $109 million of purchased credit-impaired loans acquired in the HSBC Canada transaction.
(3)
In certain cases where an internal risk rating is not assigned, we use other approved credit risk assessments or rating methodologies, policies and tools to manage our
credit risk.
(4)
Items not subject to impairment are loans held at FVTPL.
(continued)
Note 5
Loans and allowance for credit losses
194
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Loans past due but not impaired
(1), (2)
| As at | |||||||||||
| October 31, 2024 | October 31, 2023 | ||||||||||
90 days | 90 days | ||||||||||
(Millions of Canadian dollars) | 30 to 89 days | and greater | Total | 30 to 89 days | and greater | Total | |||||
Retail | $ | 2,542 | $ | 263 | $ 2,805 | $ | 1,840 | $ | 208 | $ 2,048 | |
Wholesale | 1,454 | 4 | 1,458 | 1,823 | 49 | 1,872 | |||||
$ | 3,996 | $ | 267 | $ 4,263 | $ | 3,663 | $ | 257 | $ 3,920 | ||
(1)
Excludes loans less than 30 days past due as they are not generally representative of the borrowers’ ability to meet their payment obligations.
(2)
Amounts presented may include loans past due as a result of administrative processes, such as mortgage loans on which payments are restrained pending payout due to
Significant acquisition and disposition
HSBC Bank Canada
On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada). The acquisition of HSBC Canada (the
HSBC Canada transaction) gives us the opportunity to enhance our existing businesses in line with our strategic goals and better
positions us to be the bank of choice for commercial clients with international needs, newcomers to Canada and globally
connected clients. HSBC Canada results have been consolidated from the closing date and are included in our Personal Banking,
Commercial Banking, Wealth Management and Capital Markets segments.
Total consideration of $15.5 billion in cash included $13.5 billion for 100% of the common shares of HSBC Canada, $2.1 billion
for the preferred shares and subordinated debt held directly or indirectly by HSBC Holdings plc, $(0.5) billion for the settlement of
pre-existing relationships with HSBC Canada and $0.4 billion for an additional amount that accrued from August 30, 2023 to the
closing date. This additional amount was calculated based on the $13.5 billion all-cash purchase price for the common shares of
HSBC Canada and the Canadian Overnight Repo Rate Average. Relatedly, under a locked box mechanism, HSBC Canada’s
earnings from June 30, 2022 to the closing date accrued to RBC and were reflected in the acquired net assets on closing.
During the fourth quarter of 2024, we finalized our purchase price allocation and recognized an increase in goodwill of
$98 million. Our purchase price allocation assigned $108.1 billion to assets and $99.1 billion to liabilities on the acquisition date.
Goodwill of $6.5 billion reflects the expected expense synergies from our Personal Banking, Commercial Banking, Wealth
Management and Capital Markets operations, expected growth of the platforms, and the ability to cross-sell products between
segments. Goodwill is not deductible for tax purposes.
The following table presents the estimated fair value of the assets acquired and liabilities assumed as at the acquisition date. As
a result of the finalization of the purchase price allocation, certain amounts have been revised from those previously presented.
(Millions of Canadian dollars, except percentage amounts) | ||
Percentage of shares acquired | 100% | |
Purchase consideration | $ | 15,488 |
Fair value of identifiable assets acquired | ||
Cash and due from banks | $ | 2,772 |
Securities | ||
Trading | 1,110 | |
Investment | 21,305 | |
Loans (1) | ||
Retail (2) | 35,351 | |
Wholesale | 39,282 | |
Derivatives | 3,365 | |
Intangible assets (3) | 2,342 | |
Other (4) | 2,570 | |
Total fair value of identifiable assets acquired | $ 108,097 | |
Fair value of identifiable liabilities assumed | ||
Deposits | ||
Personal | 42,037 | |
Business and government (2) | 44,211 | |
Obligations related to assets sold under repurchase agreements and securities loaned | 5,664 | |
Derivatives | 3,541 | |
Other (5) | 3,692 | |
Total fair value of identifiable liabilities assumed | $ | 99,145 |
Fair value of identifiable net assets acquired | $ | 8,952 |
Goodwill | 6,536 | |
Total purchase consideration | $ | 15,488 |
(1)
The fair value of loans reflects estimates of incurred and expected future credit losses as at the acquisition date and interest rate premiums or discounts relative to
prevailing market rates. As at March 28, 2024, the gross contractual value of the loans was $75,752 million. The estimate of contractual cash flows not expected to be
collected was $575 million, of which $135 million related to purchased credit-impaired loans.
(2)
Loans – Retail includes $1.7 billion of Canadian residential mortgages sold with recourse to a mutual fund that do not qualify for derecognition, and Deposits – Business
and government includes $1.7 billion of the related secured borrowing liability.
(3)
Intangible assets include $1,972 million of core deposit intangibles and $111 million of customer relationships, which are amortized on a straight-line basis over estimated
useful lives of 7 years, and $259 million of mutual fund management contracts with indefinite useful lives.
(4)
Includes Assets purchased under reverse repurchase agreements and securities borrowed, Customers’ liability under acceptances, and Other assets.
(5)
Includes Acceptances, Obligations related to securities sold short, and Other liabilities.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
195
Since the acquisition date, the HSBC Canada transaction contributed revenue of $1,716 million and net income of $453 million to
RBC’s consolidated results. The net income of $453 million includes initial PCL on purchased performing financial assets of
$200 million ($145 million after-tax).
Assuming we acquired HSBC Canada on November 1, 2023, using the same fair value estimates and not reflecting any
potential synergies, we estimate that RBC’s consolidated revenue and net income for the year ended October 31, 2024 would be
$58.6 billion and $16.6 billion, respectively.
RBC’s consolidated results include transaction and integration costs of $960 million for the year ended October 31, 2024,
Disposition
Wealth Management
On July 3, 2023, we completed the sale of the European asset servicing activities of RBC Investor Services
®
and its associated
Malaysian centre of excellence to CACEIS, the asset servicing banking group of Crédit Agricole S.A. and Banco Santander, S.A. As
a result of the transaction, we recorded a pre-tax gain on disposal of $69 million in Non-Interest income within the Wealth
Management segment ($77 million after-tax).
On December 1, 2023, we completed the sale of the RBC Investor Services business in Jersey to CACEIS. On March 25, 2024,
we completed the sale of the business of the U.K. branch of RBC Investor Services Trust to CACEIS. The transactions did not have
Derecognition of financial assets
We enter into transactions in which we transfer financial assets such as loans or securities to structured entities or other third
parties. The majority of assets transferred under repurchase agreements, securities lending agreements, and in our Canadian
residential mortgage securitization transactions do not qualify for derecognition as we continue to be exposed to substantially
all of the risks and rewards of the transferred assets, such as prepayment, credit, price, interest rate and foreign exchange risks.
Transferred financial assets not derecognized
Securitization of Canadian residential mortgage loans
We periodically securitize insured single and multi-family Canadian residential mortgage loans through the creation of MBS pools
under the National Housing Act MBS (NHA MBS) program. All loans securitized under the NHA MBS program are required to be
insured by the Canadian Mortgage and Housing Corporation (CMHC) or a third-party insurer. We require the borrower to pay for
mortgage insurance when the loan amount is greater than 80% of the original appraised value of the property (LTV ratio). For
residential mortgage loans securitized under this program with LTV ratios less than 80%, we are required to insure the mortgages
at our own expense. Under the NHA MBS program, we are responsible for making all payments due on our issued MBS, regardless
of whether we collect the necessary funds from the mortgagor or the insurer. When a borrower defaults on a mortgage, we submit
a claim to the insurer if the amount recovered from the collection or foreclosure process is lower than the sum of the principal
balance, accrued interest and collection costs on the outstanding loan. The insurance claim process is managed by the insurance
provider in accordance with the insurer’s policies and covers the entire unpaid loan balance plus generally up to 12 months of
interest, selling costs and other eligible expenses.
We sell the NHA MBS pools primarily to Canada Housing Trust (CHT), a government-sponsored structured entity under the
Canada Mortgage Bond (CMB) program. The entity periodically issues CMBs, which are guaranteed by the government, and sells
them to third-party investors. Proceeds of the CMB issuances are used by the entity to purchase the NHA MBS pools from eligible
NHA MBS issuers who participate in the issuance of a particular CMB series. Our continuing involvement includes servicing the
underlying residential mortgage loans we have securitized, either ourselves or through a third-party servicer. We also act as
counterparty in interest rate swap agreements where we pay the entity the interest due to CMB investors and receive the interest
on the underlying MBS and reinvested assets. As part of the swaps, we are also required to maintain a principal reinvestment
account for principal payments received on the underlying mortgage loans to meet the repayment obligation upon maturity of
the CMB. We reinvest the collected principal payments in permitted investments as outlined in the swap agreements.
We have determined that certain of the NHA MBS program loans transferred to CHT do not qualify for derecognition as we
have not transferred substantially all of the risks and rewards of ownership. As a result, these transferred MBS continue to be
classified as residential mortgage loans and recognized on our Consolidated Balance Sheets. The cash received for these
transferred MBS is treated as a secured borrowing and a corresponding liability is recorded in Deposits – Business and
government on our Consolidated Balance Sheets.
We have determined that certain of the NHA MBS program loan transfers qualify for derecognition as we have transferred
substantially all of the risks and rewards of ownership. During the year ended October 31, 2024, we transferred $122 million
(October 31, 2023 – $nil) of NHA MBS program loans that qualified for derecognition.
Canadian residential mortgages sold with recourse
We periodically transfer conventional uninsured mortgages into the RBC Indigo Mortgage Fund in accordance with its investment
parameters. We have determined that these mortgages, which are sold with recourse, do not qualify for derecognition. As a result,
these transferred mortgages continue to be classified as residential mortgage loans and recognized on our Consolidated Balance
Sheets. The cash received for these transferred mortgages is treated as a secured borrowing and a corresponding liability is
recorded in Deposits – Business and government on our Consolidated Balance Sheets. We also provide a liquidity arrangement
whereby we will either repurchase or facilitate the sale of mortgages to third parties if deemed necessary to satisfy liquidity
requirements of the fund.
Securities sold under repurchase agreements and securities loaned
We also enter into transactions such as repurchase agreements and securities lending agreements where we transfer assets under
agreements to repurchase them at a future date and retain substantially all of the risks and rewards associated with the assets. These
transferred assets remain on our Consolidated Balance Sheets and are accounted for as collateralized borrowing transactions.
(continued)
Note 7
Derecognition of financial assets
196
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The following table provides information on the carrying amount and fair value of the transferred assets that did not qualify for
derecognition, and their associated liabilities.
| As at | ||||||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||||||
Canadian | Securities | Canadian | Securities | |||||||||||||
residential | sold under | residential | sold under | |||||||||||||
mortgage | repurchase | Securities | mortgage | repurchase | Securities | |||||||||||
(Millions of Canadian dollars) | loans (1), (2) | agreements (3) | loaned (3) | Total | loans (1), (2) | agreements (3) | loaned (3) | Total | ||||||||
Carrying amount of transferred | ||||||||||||||||
assets that do not qualify for | ||||||||||||||||
derecognition | $ 33,101 | $ | 291,543 | $ 13,778 | $ 338,422 | $ 28,312 | $ | 313,558 | $ 21,680 | $ 363,550 | ||||||
Carrying amount of associated | ||||||||||||||||
liabilities | 31,522 | 291,543 | 13,778 | 336,843 | 28,007 | 313,558 | 21,680 | 363,245 | ||||||||
Fair value of transferred assets | $ 31,760 | $ | 291,543 | $ 13,778 | $ 337,081 | $ 26,472 | $ | 313,558 | $ 21,680 | $ 361,710 | ||||||
Fair value of associated | ||||||||||||||||
liabilities | 31,445 | 291,543 | 13,778 | 336,766 | 26,780 | 313,558 | 21,680 | 362,018 | ||||||||
Fair value of net position | $ | 315 | $ | – | $ | – | $ | 315 | $ | (308) | $ | – | $ | – | $ | (308) |
(1)
Includes Canadian residential mortgage loans transferred primarily to Canada Housing Trust at the initial securitization and other permitted investments used for
funding requirements after the initial securitization as well as Canadian residential mortgages transferred into the RBC Indigo Mortgage Fund.
(2)
CMB investors have legal recourse only to the transferred assets, and do not have recourse to our general assets.
(3)
Structured entities
In the normal course of business, we engage in a variety of financial transactions with structured entities to support our
financing and investing needs as well as those of our clients. A structured entity is an entity in which voting or similar rights are
not the dominant factor in deciding control. Structured entities are generally created to achieve a narrow and well defined
objective with restrictions around their ongoing activities. We consolidate a structured entity when we control the entity in
accordance with our accounting policy as described in Note 2. In other cases, we may sponsor or have an interest in such an
entity but may not consolidate it.
Consolidated structured entities
We consolidate the following structured entities, whose assets and liabilities are recorded on our Consolidated Balance Sheets.
Third-party investors in these structured entities generally have recourse only to the assets of the related entity and do not have
recourse to our general assets unless we breach our contractual obligations to those entities. In the ordinary course of business,
the assets of each consolidated structured entity can generally only be used to settle the obligations of that entity.
Multi-seller conduits
We generally do not maintain ownership in the multi-seller conduits that we administer and generally do not have rights to, or
control of, their assets. However, we issue asset-backed commercial paper (ABCP) through a multi-seller conduit that does not
have an expected loss investor with substantive power to direct the significant operating activities of the conduit. This conduit is
consolidated because we have exposure to variability of returns from performance in the multi-seller arrangements through
providing transaction-specific and program-wide liquidity, credit and loan facilities to the conduit and have decision-making
power over the relevant activities. As of October 31, 2024, $1,718 million of financial assets held by the conduit were included in
Loans (October 31, 2023 – $1,316 million) and $1,600 million of ABCP issued by the conduit was included in Deposits
(October 31, 2023 – $1,194 million) on our Consolidated Balance Sheets.
Credit card securitization vehicle
We securitize a portion of our credit card receivables through a structured entity on a revolving basis. The entity purchases
co-ownership interests in a pool of credit card receivables and issues senior and subordinated term notes collateralized by that
co-ownership interest in the underlying pool of credit card receivables. Investors who purchase the term notes have recourse
only to that co-ownership interest in the underlying pool of credit card receivables.
We continue to service the credit card receivables and perform an administrative role for the entity. We also retain risk in
the underlying pool of credit card receivables through our retained interest in the transferred assets, the cash reserve balance
we fund from time to time, and also through certain subordinated notes which we retain. Additionally, we may own some senior
notes as investments or for market-making activities and we act as counterparty to interest rate and cross currency swap
agreements which hedge the entity’s interest rate and currency risk exposure.
We consolidate the structured entity because we have decision-making power over the timing and size of future issuances
and other relevant activities which were predetermined by us at inception. We also obtain significant funding benefits and are
exposed to variability from the performance of the underlying credit card receivables through our retained interest. As at
October 31, 2024, $6 billion of notes issued by our credit card securitization vehicle were included in Deposits on our
Consolidated Balance Sheets (October 31, 2023 – $7 billion).
We established a funding vehicle that provides loans to us and finances those loans by issuing commercial paper to third-party
investors. The structured entity’s commercial paper carries an equivalent credit rating to RBC because we are obligated to
advance funds to the entity in the event there are insufficient funds from other sources to settle maturing commercial paper. We
pledge collateral to secure the loans and are exposed to the market and credit risks of the pledged securities.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
197
We consolidate the structured entity because we have decision-making power over the relevant activities, are the sole
borrower from the structure, and are exposed to a majority of the residual ownership risks through the credit support provided.
As at October 31, 2024, $18 billion of commercial paper issued by the vehicle was included in Deposits on our Consolidated
Covered bonds
We periodically transfer mortgages to RBC Covered Bond Guarantor Limited Partnership (the Guarantor LP) to support funding
activities and asset coverage requirements under our covered bonds program. The Guarantor LP was created to guarantee
interest and principal payments under the covered bond program. The covered bonds guaranteed by the Guarantor LP are direct,
unsecured and unconditional obligations of RBC; therefore, investors have a claim against the Bank which will continue if the
covered bonds are not paid by the Bank and the mortgage assets in the Guarantor LP are insufficient to satisfy the obligations
owing on the covered bonds. We act as general partner, limited partner, swap counterparty, lender and liquidity provider to the
Guarantor LP, servicer for the underlying mortgages as well as the registered issuer of the covered bonds.
We consolidate the Guarantor LP as we have the decision-making power over the relevant activities through our role as
general partner and are exposed to variability from the performance of the underlying mortgages. As at October 31, 2024, the
total amount of mortgages transferred and outstanding was $107 billion (October 31, 2023 – $100 billion) and $58 billion of
covered bonds were recorded as Deposits on our Consolidated Balance Sheets (October 31, 2023 – $50 billion).
Structured finance
We sell taxable and tax-exempt municipal bonds into Tender Option Bond (TOB) structures, which consist of a bond that is credit
enhanced by us and purchased by a TOB trust. The TOB trust finances the purchase from us by issuing floating-rate certificates to
short-term investors and a residual certificate that is purchased by us. We are the remarketing agent for the floating-rate
certificates and provide a liquidity facility to the short-term investors which requires us to purchase any certificates tendered but
not successfully remarketed. We credit enhance the bond purchased by the TOB trust with a letter of credit under which we are
required to extend funding if there are any losses on the underlying bonds. We earn interest on the residual certificate and
receive market-based fees for acting as remarketing agent and providing the liquidity facility and letter of credit.
We consolidate the TOB trust when we are the holder of the residual certificate as we have decision-making power over the
relevant activities, including the selection of the underlying municipal bonds and the ability to terminate the structure, and are
exposed to variability from the performance of the underlying municipal bonds. As at October 31, 2024, $5 billion of municipal
bonds were included in Securities related to consolidated TOB structures (October 31, 2023 – $5 billion) and a corresponding
$5 billion of floating-rate certificates were included in Deposits on our Consolidated Balance Sheets (October 31, 2023 –
$5 billion).
We establish structured entities to acquire loans for the purposes of issuing term collateralized loan obligation (CLO)
transactions and act as collateral manager. During the warehouse phase, we provide subordinated financing and, for certain
term CLO transactions, act as the arranger and placement agent, and may provide senior warehouse financing. Proceeds from
the sale of the term CLO are used to repay our warehouse financing. During the term CLO phase, we continue to provide
subordinated financing, which serves as the first loss tranche that absorbs losses prior to the senior tranches, and may also
directly invest in the other tranches.
We consolidate these CLO structures as we have decision-making power over the relevant activities of the entity, which
include the initial selection and subsequent management of the underlying debt portfolio, and when our interests, including
direct investment plus collateral management fees, indicate that we are acting as a principal. As at October 31, 2024, $194 million
of Cash and due from banks and $2,030 million of Loans related to consolidated CLO structures (October 31, 2023 – $493 million
and $1,675 million, respectively) and $1,143 million of Deposits representing the subordinated and senior tranches held by third
parties (October 31, 2023 – $1,706 million) were recorded on our Consolidated Balance Sheets.
RBC managed investment funds
We are sponsors and investment managers of mutual and pooled funds, which give us the ability to direct the investment
decisions of the funds. We consolidate those mutual and pooled funds in which our interests, which include direct investment in
seed capital plus management or performance fees, indicate that we are acting as a principal. As at October 31, 2024, $799 million
of Trading securities held in the consolidated funds (October 31, 2023 – $400 million) and $377 million of Other liabilities
representing the fund units held by third parties (October 31, 2023 – $331 million) were recorded on our Consolidated Balance
Sheets.
Unconsolidated structured entities
We have interests in certain structured entities that we do not consolidate but have recorded assets and liabilities on our
Consolidated Balance Sheets related to our transactions and involvement with these entities.
(continued)
Note 8
Structured entities
198
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The following table presents the assets and liabilities recorded on our Consolidated Balance Sheets and our maximum
exposure to loss related to our interests in unconsolidated structured entities. It also presents the size of each class of
unconsolidated structured entity, as measured by the total assets of the entities in which we have an interest.
| As at October 31, 2024 | |||||||||||||
Non-RBC | |||||||||||||
managed | Third-party | ||||||||||||
| Multi-seller | Structured | investment | securitization | ||||||||||
(Millions of Canadian dollars) | conduits (1) | finance | funds | vehicles | Other | Total | |||||||
On-balance sheet assets | |||||||||||||
Securities | $ | 1 | $ | – | $ | 2,541 | $ | – | $ | 1,384 | $ | 3,926 | |
Loans | 236 | 6,688 | – | 12,788 | 1,805 | 21,517 | |||||||
Derivatives | 32 | – | – | – | 98 | 130 | |||||||
Other assets | – | – | – | – | 455 | 455 | |||||||
$ | 269 | $ | 6,688 | $ | 2,541 | $ | 12,788 | $ | 3,742 | $ | 26,028 | ||
On-balance sheet liabilities | |||||||||||||
Deposits | $ | – | $ | – | $ | – | $ | – | $ | 167 | $ | 167 | |
Derivatives | 115 | – | 3 | – | 4 | 122 | |||||||
Other liabilities | – | – | – | – | 7 | 7 | |||||||
$ | 115 | $ | – | $ | 3 | $ | – | $ | 178 | $ | 296 | ||
Maximum exposure to loss (2) | $ | 56,779 | $ 12,963 | $ | 3,487 | $ | 21,195 | $ | 6,248 | $ | 100,672 | ||
Total assets of unconsolidated structured entities | $ | 55,639 | $ 45,315 | $ 459,976 | $ 119,766 | $ 798,228 | $ | 1,478,924 | |||||
| As at October 31, 2023 | ||||||||||||
Non-RBC | ||||||||||||
managed | Third-party | |||||||||||
Multi-seller | Structured | investment | securitization | |||||||||
(Millions of Canadian dollars) | conduits (1) | finance | funds | vehicles | Other | Total | ||||||
On-balance sheet assets | ||||||||||||
Securities | $ | 4 | $ | – | $ | 2,411 | $ | – | $ | 743 | $ | 3,158 |
Loans | – | 5,790 | – | 8,451 | 2,403 | 16,644 | ||||||
Derivatives | 2 | – | 26 | – | 91 | 119 | ||||||
Other assets | – | – | – | – | 365 | 365 | ||||||
$ | 6 | $ | 5,790 | $ | 2,437 | $ | 8,451 | $ | 3,602 | $ | 20,286 | |
On-balance sheet liabilities | ||||||||||||
Deposits | $ | – | $ | – | $ | – | $ | – | $ | 166 | $ | 166 |
Derivatives | 245 | – | 1 | – | – | 246 | ||||||
Other liabilities | – | – | – | – | 7 | 7 | ||||||
$ | 245 | $ | – | $ | 1 | $ | – | $ | 173 | $ | 419 | |
Maximum exposure to loss (2) | $ | 54,715 | $ | 10,580 | $ | 3,068 | $ | 14,863 | $ | 5,595 | $ | 88,821 |
Total assets of unconsolidated structured entities | $ | 53,641 | $ | 31,037 | $ | 440,924 | $ | 81,028 | $ | 461,919 | $ | 1,068,549 |
(1)
Total assets of unconsolidated structured entities represent the maximum assets that may have to be purchased by the conduits under purchase commitments
outstanding. Of the purchase commitments outstanding, the conduits have purchased financial assets totalling $37 billion as at October 31, 2024 (October 31, 2023 –
$37 billion).
(2)
The maximum exposure to loss resulting from our interests in these entities consists mostly of investments, loans, fair value of derivatives, liquidity and credit
enhancement facilities. The maximum exposure to loss of the multi-seller conduits is higher than the on-balance sheet assets primarily because of the notional amounts
of the backstop liquidity and credit enhancement facilities. Refer to Note 23 for further details.
Below is a description of our involvement with each significant class of unconsolidated structured entity.
Multi-seller conduits
We administer multi-seller ABCP conduit programs. Multi-seller conduits primarily purchase financial assets from clients and
finance those purchases by issuing ABCP.
In certain multi-seller conduit arrangements, we do not maintain any ownership of the multi-seller conduits that we
administer and have no rights to, or control of, its assets. As the administrative agent, we earn a residual fee for providing
services such as coordinating funding activities, transaction structuring, documentation, execution and monitoring. The ABCP
issued by each multi-seller conduit is in the conduit’s own name with recourse to the financial assets owned by the multi-seller
conduit, and is non-recourse to us except through our participation in liquidity and/or credit enhancement facilities.
We provide transaction-specific and program-wide liquidity facilities to the multi-seller conduits. In addition, we provide
program-wide credit enhancement to the multi-seller conduits which obligate us to purchase assets or advance funds in the
event the multi-seller conduit does not otherwise have funds from other sources, such as from the liquidity facilities, to settle
maturing ABCP. In some cases, we or another third party may provide transaction-specific credit enhancement which can take
various forms. We receive market-based fees for providing these liquidity and credit facilities.
For certain transactions, we act as counterparty to various hedging contracts to facilitate our clients’ securitization of fixed
rate and/or foreign currency denominated assets through the conduits. These may take the form of forward contracts, interest
rate swaps or cross currency swaps. These derivatives expose us to foreign exchange and interest rate risks that are centrally
managed by our foreign exchange trading and swap desks, respectively, and credit risk on the underlying assets that is mitigated
by the credit enhancement described below.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
199
Each transaction is structured with transaction-specific first loss protection provided by the third-party seller. This
enhancement can take various forms, including but not limited to overcollateralization, excess spread, subordinated classes of
financial assets, guarantees or letters of credit. The amount of this enhancement varies but is generally designed to cover a
multiple of historical losses.
An unrelated third party (expected loss investor) absorbs losses, up to a maximum contractual amount, that may occur in
the future on the assets in the multi-seller conduits before the multi-seller conduits’ debt holders and us. In return for assuming
this multi-seller conduit first-loss position, each multi-seller conduit pays the expected loss investor a return commensurate with
its risk position. The expected loss investor has substantive power to direct the majority of the activities which significantly
impact the conduit’s economic performance, including initial selection and approval of the asset purchase commitments and
liquidity facilities, approval of renewal and amendment of these transactions and facilities, sale or transfer of assets, ongoing
monitoring of asset performance, mitigation of losses, and management of the ABCP liabilities.
We do not consolidate these multi-seller conduits as we do not control the conduits as noted above.
Structured finance
We participate in certain municipal bond TOB structures that we do not consolidate. These structures are similar to those
consolidated municipal bond TOB structures described above; however, the residual certificates are held by third parties. We
provide liquidity facilities for the benefit of floating-rate certificate holders which may be drawn if certificates are tendered but
not able to be remarketed. For a portion of these trusts, we also provide a letter of credit for the underlying bonds held in the
trust. We do not have decision-making power over the relevant activities of the structures; therefore, we do not consolidate these
structures.
We provide senior warehouse financing to unaffiliated structured entities that are established by third parties to acquire
loans for the purposes of issuing a term CLO transaction. Subordinated financing is provided during the warehouse phase by
either the collateral manager or third-party investors. Subordinated financing serves as the first loss tranche which absorbs
losses prior to ourselves as the senior lender. We act as the arranger and placement agent for the term CLO transaction.
Proceeds from the sale of the term CLO are used to repay our senior warehouse financing, at which point we have no further
involvement with the transaction. We do not consolidate these CLO structures as we do not have decision-making power over the
relevant activities of the entity, which include the initial selection and subsequent management of the underlying debt portfolio.
We provide senior financing to unaffiliated structured entities that are established by third parties to acquire loans.
Subordinated financing is provided by either the collateral manager or third-party investors. Subordinated financing serves as
the first loss tranche which absorbs losses prior to ourselves as the senior lender. These facilities tend to be longer in term than
the CLO warehouse facilities and benefit from credit enhancement generally designed to cover a multiple of historical losses. We
do not consolidate these structures as we do not have decision-making power over the relevant activities of the entity, which
include the initial selection and subsequent management of the underlying debt portfolio.
Non-RBC managed investment funds
We enter into fee-based equity derivative transactions with third parties including mutual funds, unit investment trusts and other
investment funds. These transactions provide their investors with the desired exposure to reference funds, and we economically
hedge our exposure to these derivatives by investing in those reference funds. We also act as custodian for several funds. We do
not consolidate those reference funds that are managed by third parties as we do not have power to direct their investing
activities.
We provide liquidity facilities to certain third-party investment funds. The funds issue unsecured variable-rate preferred
shares and invest in portfolios of tax-exempt municipal bonds. Undrawn liquidity commitments expose us to the liquidity risk of
the preferred shares and drawn commitments expose us to the credit risk of the underlying municipal bonds. We do not
consolidate these third-party managed funds as we do not have power to direct their investing activities.
Third-party securitization vehicles
We hold interests in securitization vehicles that provide funding to certain third parties on whose behalf the entities were
created. The activities of these entities are limited to the purchase and sale of specified financial assets from the sponsor. We, as
well as other financial institutions, are obligated to provide funding up to our maximum commitment level and are exposed to
credit losses on the underlying assets after various credit enhancements. Enhancements can take various forms, including but
not limited to overcollateralization, excess spread, subordinated classes of financial assets, guarantees or letters of credit. The
amount of this enhancement varies but is generally designed to cover a multiple of historical losses. We do not consolidate these
entities as we do not have decision-making power over the relevant activities, including the entities’ investing and financing
activities.
(continued)
Note 8
Structured entities
200
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Other
Other unconsolidated structured entities include managed investment funds, arrangements to pass credit risk to third parties,
credit investment products and tax credit funds.
We are sponsors and investment managers of mutual and pooled funds, which gives us the ability to direct the investment
decisions of the funds. We do not consolidate those mutual and pooled funds if we exercise our decision-making power as an
agent on behalf of other unit holders.
We use structured entities to generally transform credit derivatives into cash instruments, to distribute credit risk and to
create customized credit products to meet investors’ specific requirements. We enter into derivative contracts, including credit
derivatives, to purchase protection from these entities (credit protection) and convert various risk factors such as yield, currency
or credit risk of underlying assets to meet the needs of the investors. We act as sole arranger and swap provider for certain
entities and, in some cases, fulfill other administrative functions for the entities. We do not consolidate these credit investment
product entities as we do not have decision-making power over the relevant activities, which include selection of the collateral
and reference portfolio, and are not exposed to a majority of the benefits or risks of the entities.
We created certain funds to pass through tax credits received from underlying low-income housing, historic rehabilitation
real estate projects to third parties, new market tax credits or renewable energy tax credits to third parties (tax credit funds). We
are sponsors of the tax credit funds as a result of our responsibility to manage the funds, arrange the financing, and perform the
administrative duties of these tax credit funds. We do not consolidate the tax credit funds as the third-party investors in these
funds have the decision-making power to select the underlying investments and are exposed to the majority of the residual
ownership and tax risks of the funds.
We also purchase passive interests in renewable energy tax credit entities created and controlled by third parties. We do not
consolidate these third-party funds as we do not have decision-making power over the relevant activities and our investments
are managed as part of larger portfolios which are held for trading purposes.
Other interests in unconsolidated structured entities
In the normal course of business, we buy and sell passive interests in certain third-party structured entities, including mutual
funds, exchange traded funds, and government-sponsored ABS vehicles. Our investments in these entities are managed as part of
larger portfolios which are held for trading, liquidity or hedging purposes. We did not create or sponsor these entities and do not
have any decision-making power over their ongoing activities. Our maximum exposure to loss is limited to our on-balance sheet
investments in these entities, which are not included in the table above. As at October 31, 2024 and 2023, our investments in these
entities were included in Trading and Investment securities on our Consolidated Balance Sheets. Refer to Note 3 and Note 4 for
further details on our Trading and Investment securities.
Sponsored entities
We are a sponsor of certain structured entities in which we have interests but do not consolidate. In determining whether we are
a sponsor of a structured entity, we consider both qualitative and quantitative factors, including the purpose and nature of the
entity, our initial and continuing involvement and whether we hold subordinated interests in the entity. We are considered to be
the sponsor of certain credit investment products, tax credit entities, RBC managed mutual funds and a commercial mortgage
securitization vehicle. During the year ended October 31, 2024, we did not transfer any commercial mortgages (October 31, 2023 –
$nil) to a sponsored securitization vehicle in which we did not have any interests as at the end of the reporting period.
Financial support provided to structured entities
During the years ended October 31, 2024 and 2023, we have not provided any financial or non-financial support to any
consolidated or unconsolidated structured entities when we were not contractually obligated to do so. Furthermore, we have no
Derivative financial instruments and hedging activities
Derivative instruments are categorized as either financial or non-financial derivatives. Financial derivatives are financial
contracts whose value is derived from an underlying interest rate, foreign exchange rate, credit risk, and equity or equity index.
Non-financial derivatives are contracts whose value is derived from a precious metal, commodity instrument or index. The
notional amount of derivatives represents the contract amount used as a reference point to calculate payments. Notional
amounts are generally not exchanged by counterparties, and do not reflect our EAD.
Financial derivatives
Forwards and futures
Forward contracts are non-standardized agreements that are transacted between counterparties in the OTC market, whereas
futures are standardized contracts with respect to amounts and settlement dates, and are traded on regular futures exchanges.
Examples of forwards and futures are described below.
Interest rate forwards (forward rate agreements) and futures are contractual obligations to buy or sell an interest-rate
sensitive financial instrument on a predetermined future date at a specified price.
Foreign exchange forwards and futures are contractual obligations to exchange one currency for another at a specified price
for settlement at a predetermined future date.
Equity forwards and futures are contractual obligations to buy or sell at a fixed value (the specified price) of an equity index,
a basket of stocks or a single stock at a predetermined future date.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
201
Swaps
Swaps are OTC contracts in which two counterparties exchange a series of cash flows based on agreed upon rates applied to a
notional amount. Examples of swap agreements are described below.
Interest rate swaps are agreements where two counterparties exchange a series of payments based on different interest rates
applied to a notional amount in a single currency. Certain interest rate swaps are transacted and settled through clearing houses
which act as central counterparties. Cross currency swaps involve the exchange of fixed payments in one currency for the receipt
of fixed payments in another currency. Cross currency interest rate swaps involve the exchange of both interest and notional
amounts in two different currencies.
Equity swaps are contracts in which one counterparty agrees to pay or receive from the other cash flows based on changes
in the value of an equity index, a basket of stocks or a single stock.
Options
Options are contractual agreements under which the seller (writer) grants the purchaser the right, but not the obligation, either
to buy (call option) or sell (put option) a security, exchange rate, interest rate, or other financial instrument or commodity at a
specified price, at or by a predetermined future date. The seller (writer) of an option can also settle the contract by paying the
cash settlement value of the purchaser’s right. The seller (writer) receives a premium from the purchaser for this right. The
various option agreements that we enter into include but are not limited to interest rate options, foreign currency options, equity
options and index options.
Credit derivatives
Credit derivatives are OTC contracts that transfer credit risk related to an underlying financial instrument (referenced asset)
from one counterparty to another. Certain credit default swaps are transacted and settled through clearing houses which act as
central counterparties. Credit derivatives include credit default swaps, credit default baskets and total return swaps.
Credit default swaps provide protection against the decline in the value of the referenced asset as a result of specified credit
events such as default or bankruptcy. They are similar in structure to an option, whereby the purchaser pays a premium to the
seller of the credit default swap in return for payment contingent on a credit event affecting the referenced asset.
Credit default baskets are similar to credit default swaps except that the underlying referenced financial instrument is a
group of assets instead of a single asset.
Total return swaps are contracts where one counterparty agrees to pay or receive from the other cash amounts based on
changes in the value of a referenced asset or group of assets, including any returns such as interest earned on these assets, in
exchange for amounts that are based on prevailing market funding rates.
Other derivative products
Other derivative products include stable value derivatives.
Non-financial derivatives
Other contracts also include non-financial derivative products such as precious metal and commodity derivative contracts in
both the OTC and exchange markets.
Most of our derivative transactions relate to client-driven sales and trading activities, and associated market risk hedging. Sales
activities include the structuring and marketing of derivative products to clients, enabling them to modify or reduce risks. Trading
involves market-making, positioning and arbitrage activities. Market-making involves quoting bid and offer prices to other market
participants with the intention of generating revenue based on spread and volume. Positioning involves the active management of
derivative transactions with the expectation of profiting from favourable movements in prices, rates, or indices. Arbitrage activities
Derivatives issued for other-than-trading purposes
We also use derivatives for purposes other than trading, primarily for hedging, in conjunction with the management of interest rate,
credit, equity and foreign exchange risk related to our funding, lending, investment activities and asset/liability management.
Interest rate swaps are used to manage our exposure to interest rate risk by modifying the repricing or maturity
characteristics of existing and/or forecasted assets and liabilities, including funding and investment activities. Purchased options
are used to hedge redeemable deposits and other options embedded in consumer products. We manage our exposure to foreign
currency risk with cross currency swaps and foreign exchange forward contracts. We predominantly use credit derivatives to
manage our credit exposures. We mitigate industry sector concentrations and single-name exposures related to our credit
portfolio by purchasing credit derivatives to transfer credit risk to third parties.
Certain derivatives and cash instruments are specifically designated and qualify for hedge accounting. We also enter into derivative
transactions to economically hedge certain exposures that do not otherwise qualify for hedge accounting, or where hedge accounting is
not considered economically feasible to implement.
(continued)
Note 9
Derivative financial instruments and hedging activities
202
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Notional amount of derivatives by term to maturity (absolute amounts)
(1)
| As at October 31, 2024 | ||||||||||||
| Term to maturity | ||||||||||||
Within | 1 through | Over | Other than | |||||||||
(Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | Trading | Trading | ||||||
Over-the-counter contracts | ||||||||||||
Interest rate contracts | ||||||||||||
Forward rate agreements | $ | 1,097,367 | $ | 672,436 | $ | 7,017 | $ | 1,776,820 | $ | 1,776,820 | $ | – |
Swaps | 6,181,369 | 8,714,891 | 5,597,447 | 20,493,707 | 19,291,405 | 1,202,302 | ||||||
Options purchased | 206,649 | 407,730 | 155,843 | 770,222 | 770,181 | 41 | ||||||
Options written | 217,379 | 384,448 | 179,408 | 781,235 | 781,113 | 122 | ||||||
Foreign exchange contracts | ||||||||||||
Forward contracts | 2,939,019 | 136,442 | 7,465 | 3,082,926 | 2,966,914 | 116,012 | ||||||
Cross currency swaps | 23,204 | 108,912 | 75,843 | 207,959 | 199,481 | 8,478 | ||||||
Cross currency interest rate swaps | 1,298,173 | 2,544,878 | 1,380,858 | 5,223,909 | 5,168,677 | 55,232 | ||||||
Options purchased | 475,980 | 75,804 | 2,015 | 553,799 | 553,799 | – | ||||||
Options written | 488,878 | 66,828 | 983 | 556,689 | 556,689 | – | ||||||
Credit derivatives (2) | 4,055 | 135,505 | 118,732 | 258,292 | 257,333 | 959 | ||||||
Other contracts (3) | 389,424 | 149,475 | 10,122 | 549,021 | 538,604 | 10,417 | ||||||
Exchange-traded contracts | ||||||||||||
Interest rate contracts | ||||||||||||
Futures – long positions | 93,985 | 45,015 | 56 | 139,056 | 139,056 | – | ||||||
Futures – short positions | 114,425 | 64,759 | 301 | 179,485 | 179,244 | 241 | ||||||
Options purchased | 7,075 | 991 | – | 8,066 | 8,066 | – | ||||||
Options written | 2,262 | 14 | – | 2,276 | 2,276 | – | ||||||
Foreign exchange contracts | ||||||||||||
Futures – long positions | 1 | – | – | 1 | 1 | – | ||||||
Other contracts | 367,023 | 68,132 | 2,574 | 437,729 | 437,729 | – | ||||||
$ | 13,906,268 | $ 13,576,260 | $ 7,538,664 | $ 35,021,192 | $ 33,627,388 | $ 1,393,804 | ||||||
| As at October 31, 2023 | ||||||||||||
| Term to maturity | ||||||||||||
Within | 1 through | Over | Other than | |||||||||
(Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | Trading | Trading | ||||||
Over-the-counter contracts | ||||||||||||
Interest rate contracts | ||||||||||||
Forward rate agreements | $ | 1,008,978 | $ | 691,397 | $ | 358 | $ | 1,700,733 | $ | 1,700,733 | $ | – |
Swaps | 4,220,675 | 6,651,849 | 4,418,165 | 15,290,689 | 14,169,938 | 1,120,751 | ||||||
Options purchased | 162,845 | 420,341 | 166,275 | 749,461 | 749,257 | 204 | ||||||
Options written | 144,138 | 412,239 | 179,532 | 735,909 | 735,562 | 347 | ||||||
Foreign exchange contracts | ||||||||||||
Forward contracts | 2,336,565 | 106,069 | 4,082 | 2,446,716 | 2,363,796 | 82,920 | ||||||
Cross currency swaps | 30,098 | 88,625 | 74,538 | 193,261 | 189,100 | 4,161 | ||||||
Cross currency interest rate swaps | 972,658 | 2,055,058 | 1,141,295 | 4,169,011 | 4,107,125 | 61,886 | ||||||
Options purchased | 244,721 | 73,407 | 2,663 | 320,791 | 320,791 | – | ||||||
Options written | 254,534 | 71,039 | 2,305 | 327,878 | 327,878 | – | ||||||
Credit derivatives (2) | 11,709 | 108,637 | 114,463 | 234,809 | 234,066 | 743 | ||||||
Other contracts (3) | 261,528 | 140,225 | 13,088 | 414,841 | 401,373 | 13,468 | ||||||
Exchange-traded contracts | ||||||||||||
Interest rate contracts | ||||||||||||
Futures – long positions | 103,195 | 24,283 | 1 | 127,479 | 126,879 | 600 | ||||||
Futures – short positions | 99,792 | 54,817 | 1 | 154,610 | 154,445 | 165 | ||||||
Options purchased | 12,801 | 3 | – | 12,804 | 12,804 | – | ||||||
Options written | 11,206 | 1,468 | – | 12,674 | 12,674 | – | ||||||
Foreign exchange contracts | ||||||||||||
Futures – long positions | 124 | – | – | 124 | 124 | – | ||||||
Other contracts | 571,970 | 154,677 | 4,586 | 731,233 | 731,233 | – | ||||||
$ | 10,447,537 | $ | 11,054,134 | $ | 6,121,352 | $ | 27,623,023 | $ | 26,337,778 | $ | 1,285,245 | |
(1)
The derivative notional amounts are determined using the standardized approach for measuring counterparty credit risk (SA-CCR) in accordance with the Capital
Adequacy Requirements (CAR).
(2)
Credit derivatives with a notional value of $1 billion (October 31, 2023 – $1 billion) are economic hedges. Trading credit derivatives comprise protection purchased of
$135 billion (October 31, 2023 – $119 billion) and protection sold of $122 billion (October 31, 2023 – $115 billion).
(3)
Other contracts exclude loan underwriting commitments of $3 billion (October 31, 2023 – $2 billion), which are not classified as derivatives under CAR guidelines.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
203
Fair value of derivative instruments
(1)
| As at | ||||||||
October 31, 2024 | October 31, 2023 | |||||||
(Millions of Canadian dollars) | Positive | Negative | Positive | Negative | ||||
Held or issued for trading purposes | ||||||||
Interest rate contracts | ||||||||
Forward rate agreements | $ | 147 | $ | 68 | $ | 76 | $ | 24 |
Swaps | 21,155 | 16,482 | 26,320 | 22,965 | ||||
Options purchased | 5,556 | – | 11,230 | – | ||||
Options written | – | 6,049 | – | 11,776 | ||||
26,858 | 22,599 | 37,626 | 34,765 | |||||
Foreign exchange contracts | ||||||||
Forward contracts | 26,339 | 23,758 | 22,972 | 22,655 | ||||
Cross currency swaps | 7,316 | 4,912 | 7,370 | 5,815 | ||||
Cross currency interest rate swaps | 60,105 | 59,733 | 55,268 | 46,550 | ||||
Options purchased | 2,407 | – | 2,623 | – | ||||
Options written | – | 1,800 | – | 1,790 | ||||
96,167 | 90,203 | 88,233 | 76,810 | |||||
Credit derivatives | 270 | 216 | 175 | 176 | ||||
Other contracts | 26,325 | 46,420 | 16,319 | 20,865 | ||||
149,620 | 159,438 | 142,353 | 132,616 | |||||
Held or issued for other-than-trading purposes | ||||||||
Interest rate contracts | ||||||||
Swaps | 1,215 | 3,100 | 1,907 | 7,436 | ||||
1,215 | 3,100 | 1,907 | 7,436 | |||||
Foreign exchange contracts | ||||||||
Forward contracts | 1,235 | 682 | 860 | 509 | ||||
Cross currency swaps | 207 | 46 | – | – | ||||
Cross currency interest rate swaps | 874 | 2,287 | 555 | 4,484 | ||||
2,316 | 3,015 | 1,415 | 4,993 | |||||
Credit derivatives | 3 | 2 | 49 | – | ||||
Other contracts | 79 | 77 | 71 | 109 | ||||
3,613 | 6,194 | 3,442 | 12,538 | |||||
Total gross fair values before: | 153,233 | 165,632 | 145,795 | 145,154 | ||||
Valuation adjustments determined on a pooled basis | (1,053) | (301) | (1,801) | (981) | ||||
Impact of netting agreements that qualify for balance sheet offset | (1,568) | (1,568) | (1,544) | (1,544) | ||||
$ 150,612 | $ 163,763 | $ 142,450 | $ 142,629 | |||||
(1)
The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
Fair value of derivative instruments by term to maturity
(1)
| As at | ||||||||
| October 31, 2024 | October 31, 2023 | |||||||
Less than | 1 through | Over | Less than | 1 through | Over | |||
(Millions of Canadian dollars) | 1 year | 5 years | 5 years | Total | 1 year | 5 years | 5 years | Total |
Derivative assets | $ 54,660 | 48,765 | 47,187 | $ 150,612 | $ 46,148 | 52,165 | 44,137 | $ 142,450 |
Derivative liabilities | 67,886 | 51,170 | 44,707 | 163,763 | 47,707 | 51,690 | 43,232 | 142,629 |
(1)
The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
Interest rate benchmark reform
We use interest rate contracts in fair value hedges and cash flow hedges to manage our exposure to interest rate risk from our
existing and/or forecast assets and liabilities. We also use foreign denominated deposit liabilities in net investment hedges to
manage the foreign exchange risk arising from our investments in foreign operations. The hedging instruments designated to
manage these risks referenced IBORs in multiple jurisdictions and were affected by the Reform as the markets transitioned to
ABRs as discussed in Note 2.
The notional amounts of our interest rate contracts and total return swaps which referenced IBORs and were affected by the
Reform are no longer material to our financial statements (October 31, 2023 – $115 billion and $1 billion, respectively).
(continued)
Note 9
Derivative financial instruments and hedging activities
204
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Derivative-related credit risk
Credit risk from derivative transactions is generated by the potential for the counterparty to default on its contractual
obligations when one or more transactions have a positive market value to us. Therefore, derivative-related credit risk is
represented by the positive fair value of the instrument and is normally a small fraction of the contract’s notional amount.
We subject our derivative transactions to the same credit approval, limit and monitoring standards that we use for managing
other transactions that create credit exposure. This includes evaluating the creditworthiness of counterparties, and managing
the size, diversification and maturity structure of the portfolio. Credit utilization for all products is compared with established
limits on a continual basis and is subject to a standard exception reporting process. We use a single internal rating system for all
credit risk exposure, as outlined in the internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
Offsetting is a technique that can reduce credit exposure from derivatives and is generally facilitated through the use of
master netting agreements and achieved when specific criteria are met in accordance with our accounting policy in Note 2. A
master netting agreement provides for a single net settlement of all financial instruments covered by the agreement in the event
of default. However, credit risk is reduced only to the extent that our financial obligations to the same counterparty can be set off
against obligations of the counterparty to us. We maximize the use of master netting agreements to reduce derivative-related
credit exposure. Our overall exposure to credit risk that is reduced through master netting agreements may change substantially
following the reporting date as the exposure is affected by each transaction subject to the agreement as well as by changes in
underlying market rates. Measurement of our credit exposure arising out of derivative transactions is reduced to reflect the
effects of netting in cases where the enforceability of that netting is supported by appropriate legal analysis as documented in
our trading credit risk policies.
The use of collateral is another significant credit mitigation technique for managing derivative-related counterparty credit
risk. Mark-to-market provisions in our agreements with some counterparties, typically in the form of a Credit Support Annex,
provide us with the right to request that the counterparty collateralize the current market value of its derivatives positions when
the value exceeds a specified threshold amount.
Replacement cost and credit equivalent amounts are determined using SA-CCR in accordance with the OSFI CAR guidelines.
The replacement cost represents the total fair value of all outstanding contracts in a gain position after factoring in the master
netting agreements and applicable margins. The credit equivalent amount is defined as the replacement cost plus an additional
amount for potential future credit exposure, scaled by a regulatory factor. The risk-weighted equivalent is determined by
applying appropriate risk-weights to the credit equivalent amount, including those risk weights reflective of model approval
under the internal ratings based approach.
Derivative-related credit risk
(1)
| As at | ||||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||||
Credit | Credit | |||||||||||
Replacement | equivalent | Risk-weighted | Replacement | equivalent | Risk-weighted | |||||||
(Millions of Canadian dollars) | cost | amount | equivalent (2), (3) | cost | amount | equivalent (2) | ||||||
Over-the-counter contracts | ||||||||||||
Interest rate contracts | ||||||||||||
Forward rate agreements | $ | 8 | $ | 231 | $ | 43 | $ | 58 | $ | 94 | $ | 6 |
Swaps | 6,926 | 17,760 | 2,747 | 9,613 | 24,448 | 3,721 | ||||||
Options purchased | 317 | 859 | 135 | 610 | 1,547 | 353 | ||||||
Options written | 49 | 398 | 104 | 123 | 564 | 152 | ||||||
Foreign exchange contracts | ||||||||||||
Forward contracts | 8,077 | 33,908 | 6,693 | 5,655 | 27,862 | 5,611 | ||||||
Swaps | 3,915 | 21,709 | 2,703 | 4,261 | 21,483 | 4,274 | ||||||
Options purchased | 877 | 2,315 | 587 | 841 | 1,742 | 383 | ||||||
Options written | 117 | 476 | 98 | 95 | 441 | 109 | ||||||
Credit derivatives | 608 | 2,336 | 191 | 356 | 1,834 | 219 | ||||||
Other contracts | 1,773 | 20,981 | 4,756 | 1,933 | 16,002 | 4,929 | ||||||
Exchange-traded contracts | 10,084 | 19,023 | 380 | 7,186 | 16,191 | 324 | ||||||
$ 32,751 | $ 119,996 | $ 18,437 | $ 30,731 | $ 112,208 | $ 20,081 | |||||||
(1)
The amounts presented are net of master netting agreements in accordance with CAR guidelines.
(2)
The risk-weighted balances are calculated in accordance with CAR guidelines and exclude CVA of $18 billion (October 31, 2023 – $13 billion).
(3)
The amounts presented reflect our adoption of the revised market risk and CVA frameworks that came into effect on November 1, 2023.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
205
Replacement cost of derivative instruments by risk rating and by counterparty type
| As at October 31, 2024 | ||||||||||||||||
| Risk rating (1) | Counterparty type (2) | |||||||||||||||
OECD | ||||||||||||||||
(Millions of Canadian dollars) | AAA, AA | A | BBB | BB or lower | Total | Banks | governments | Other | Total | |||||||
Gross positive fair values | $ 31,561 | $ 77,933 | $ 25,206 | $ 18,533 | $ 153,233 | $ 75,119 | $ 24,655 | $ 53,459 | $ 153,233 | |||||||
Impact of master netting agreements and | ||||||||||||||||
applicable margins | 18,644 | 67,995 | 19,046 | 14,797 | 120,482 | 73,763 | 24,289 | 22,430 | 120,482 | |||||||
Replacement cost (after netting agreements) | $ 12,917 | $ | 9,938 | $ | 6,160 | $ | 3,736 | $ | 32,751 | $ | 1,356 | $ | 366 | $ 31,029 | $ | 32,751 |
| As at October 31, 2023 | ||||||||||||||||
| Risk rating (1) | Counterparty type (2) | |||||||||||||||
OECD | ||||||||||||||||
(Millions of Canadian dollars) | AAA, AA | A | BBB | BB or lower | Total | Banks | governments | Other | Total | |||||||
Gross positive fair values | $ 36,224 | $ 70,010 | $ 28,956 | $ 10,605 | $ 145,795 | $ 69,841 | $ 20,268 | $ 55,686 | $ 145,795 | |||||||
Impact of master netting agreements and | ||||||||||||||||
applicable margins | 24,025 | 60,556 | 22,765 | 7,718 | 115,064 | 68,151 | 20,237 | 26,676 | 115,064 | |||||||
Replacement cost (after netting agreements) | $ 12,199 | $ | 9,454 | $ | 6,191 | $ | 2,887 | $ | 30,731 | $ | 1,690 | $ | 31 | $ 29,010 | $ | 30,731 |
(1)
Our internal risk ratings of AAA, AA, A and BBB represent investment grade ratings and ratings of BB or lower represent non-investment grade ratings, as outlined in the
internal ratings maps in the Credit risk section of Management’s Discussion and Analysis.
(2)
Counterparty type is defined in accordance with CAR guidelines.
Derivatives in hedging relationships
We apply hedge accounting to minimize volatility in earnings and capital caused by changes in interest rates or foreign exchange
rates. Interest rate and currency fluctuations will either cause assets and liabilities to appreciate or depreciate in market value
or cause variability in forecasted cash flows. When a hedging relationship is effective, gains, losses, revenue and expenses of the
hedging instrument will offset the gains, losses, revenue and expenses of the hedged item. Refer to Note 2 for our policies on
hedge accounting including presentation of hedge effectiveness and ineffectiveness amounts.
We assess and measure the effectiveness of a hedging relationship based on the change in the fair value or cash flows of the
derivative hedging instrument relative to the change in the fair value or cash flows of the hedged item attributable to the hedged
risk. When cash instruments are designated as hedges of foreign exchange risks, only changes in their value due to foreign
exchange risk are included in the assessment and measurement of hedge effectiveness.
Potential sources of ineffectiveness can be attributed to differences between hedging instruments and hedged items:
•
Mismatches in the terms of hedged items and hedging instruments, for example the frequency and timing of when
interest rates are reset and frequency of payment.
•
Difference in the discounting factors between the hedged item and the hedging instrument, taking into consideration the
different reset frequency of the hedged item and hedging instrument.
•
Hedging derivatives with a non-zero fair value at inception date of the hedging relationship, resulting in mismatch in
terms with the hedged item.
Below is a description of our risk management strategy for each risk exposure that we decide to hedge:
Interest rate risk
We use interest rate contracts to manage our exposure to interest rate risk by modifying the repricing characteristics of existing
and/or forecasted assets and liabilities, including funding and investment activities. The swaps are designated in either a fair
value hedge or a cash flow hedge. Certain swaps were affected by the Reform as the market transitioned from referencing IBORs
to ABRs.
For fair value hedges, we use interest rate contracts to manage the fair value movements of our fixed rate instruments due
to changes in benchmark interest. The interest rate swaps are entered into on a one-to-one basis to manage the benchmark
interest rate risk, and its terms are critically matched to the specified fixed rate instruments.
We also use interest rate swaps in fair value hedges to manage interest rate risk from residential mortgage assets and
funding liabilities. Our exposure from this portfolio changes with the origination of new loans, repayments of existing loans and
sale of securitized mortgages. Accordingly, we have adopted dynamic hedging for that portfolio, in which the hedge relationship
is rebalanced on a more frequent basis, such as on a bi-weekly or on a monthly basis.
For cash flow hedges, we use interest rate contracts to manage the exposure to cash flow variability of our variable rate
instruments as a result of changes in benchmark interest rates. The variable rate instruments and forecast transactions that
referenced certain IBORs were affected by the Reform. Whilst some of the interest rate swaps are entered into on a one-to-one
basis to manage a specific exposure, other interest rate swaps may be entered into for managing interest rate risks of a portfolio
of assets and liabilities.
We manage our exposure to foreign currency risk with cross currency swaps in a cash flow hedge, and foreign exchange forward
contracts in a net investment hedge. Certain cash instruments may also be designated in a net investment hedge, where
applicable.
For cash flow hedges, we use cross currency swaps and forward contracts to manage the cash flow variability arising from
fluctuations in foreign exchange rates on our issued foreign denominated fixed rate liabilities and highly probable forecasted
transactions. The maturity profile and repayment terms of these swaps are matched to those of our foreign denominated
exposures to limit our cash flow volatility from changes in foreign exchange rates.
(continued)
Note 9
Derivative financial instruments and hedging activities
206
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
For net investment hedges, we use a combination of foreign exchange forwards and cash instruments, such as foreign
denominated deposit liabilities, to manage our foreign exchange risk arising from our investments in foreign operations. Our
most significant exposures include USD, GBP and Euro. When hedging net investments in foreign operations using foreign
exchange forwards, only the undiscounted spot element of the foreign exchange forward is designated as the hedging
instrument. Accordingly, changes in the fair value of the hedging instrument as a result of changes in forward rates and the
effects of discounting are not included in the hedging effectiveness assessment. Foreign operations are only hedged to the extent
of the principal of the foreign denominated deposit liabilities or notional amount of the derivative; we generally do not expect to
Equity price risk
We use total return swaps in cash flow hedges to mitigate the cash flow variability of the expected payment associated with our
cash settled share-based compensation plan for certain key employees by exchanging interest payments for indexed RBC share
price change and dividend returns.
Credit risk
We predominantly use credit derivatives to economically hedge our credit exposures. We mitigate industry sector concentrations
and single-name exposures related to our credit portfolio by purchasing credit derivatives to transfer credit risk to third parties.
Derivative instruments designated in hedging relationships
(1)
The following table presents the fair values of the derivative instruments and the principal amounts of the non-derivative
liabilities, categorized by their hedging relationships, as well as derivatives that are not designated in hedging relationships.
| As at | ||||||||
| October 31, 2024 | October 31, 2023 | |||||||
Designated as hedging instruments | Designated as hedging instruments | |||||||
| in hedging relationships | in hedging relationships | |||||||
Not designated | Not designated | |||||||
Net | in a hedging | Net | in a hedging | |||||
(Millions of Canadian dollars) | Fair value | Cash flow | investment | relationship | Fair value | Cash flow | investment | relationship |
Assets | ||||||||
Derivative instruments | $ 18 | $ 298 | $ 4 | $ 150,292 | $ 156 | $ 19 | $ 13 | $ 142,262 |
Liabilities | ||||||||
Derivative instruments | 59 | 27 | 433 | 163,244 | 50 | 100 | 409 | 142,070 |
Non-derivative instruments | – | – | 37,833 | n.a. | – | – | 25,427 | n.a. |
(1)
The fair value reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
n.a.
not applicable
The following tables provide the remaining term to maturity analysis of the notional amounts and the weighted average rates of
the hedging instruments and their carrying amounts by types of hedging relationships:
Fair value hedges
| As at October 31, 2024 | ||||||
| Notional amounts | Carrying amount (1) | |||||
Within | 1 through | Over | ||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities |
Interest rate risk | ||||||
Interest rate contracts | ||||||
Hedge of fixed rate assets | $ 11,396 | $ 68,563 | $ 38,343 | $ 118,302 | $ 10 | $ 55 |
Hedge of fixed rate liabilities | 32,496 | 71,668 | 17,267 | 121,431 | 8 | 4 |
Weighted average fixed interest rate | ||||||
Hedge of fixed rate assets | 3.8% | 3.8% | 3.5% | 3.7% | ||
Hedge of fixed rate liabilities | 2.9% | 2.8% | 3.1% | 2.8% | ||
| As at October 31, 2023 | |||||||
| Notional amounts | Carrying amount (1) | ||||||
Within | 1 through | Over | |||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities | |
Interest rate risk | |||||||
Interest rate contracts | |||||||
Hedge of fixed rate assets | $ | 8,853 | $ 62,948 | $ 21,702 | $ 93,503 | $ 156 | $ – |
Hedge of fixed rate liabilities | 23,592 | 75,130 | 10,236 | 108,958 | – | 50 | |
Weighted average fixed interest rate | |||||||
Hedge of fixed rate assets | 4.3% | 3.6% | 3.2% | 3.6% | |||
Hedge of fixed rate liabilities | 2.1% | 2.4% | 2.6% | 2.3% | |||
(1)
The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
207
Cash flow hedges
| As at October 31, 2024 | ||||||||||||
| Notional amounts | Carrying amount (1) | |||||||||||
Within | 1 through | Over | ||||||||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities | ||||||
Interest rate risk | ||||||||||||
Interest rate contracts | ||||||||||||
Hedge of variable rate assets | $ 91,698 | $ 133,684 | $ | 6,831 | $ 232,213 | $ | – | $ | – | |||
Hedge of variable rate liabilities | 46,390 | 101,339 | 33,845 | 181,574 | – | – | ||||||
Weighted average fixed interest rate | ||||||||||||
Hedge of variable rate assets | 4.1% | 3.5% | 3.5% | 3.7% | ||||||||
Hedge of variable rate liabilities | 4.1% | 3.6% | 2.9% | 3.6% | ||||||||
Foreign exchange risk | ||||||||||||
Cross currency swaps | ||||||||||||
Hedge of fixed rate assets | $ | – | $ | 936 | $ | – | $ | 936 | $ | 9 | $ | 21 |
Hedge of fixed rate liabilities | – | 4,163 | – | 4,163 | 198 | 6 | ||||||
Weighted average CAD-EUR exchange rate | n.a. | 1.43 | n.a. | 1.43 | ||||||||
Weighted average CAD-USD exchange rate | n.a. | 1.34 | n.a. | 1.34 | ||||||||
| As at October 31, 2023 | ||||||||||||
| Notional amounts | Carrying amount (1) | |||||||||||
Within | 1 through | Over | ||||||||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities | ||||||
Interest rate risk | ||||||||||||
Interest rate contracts | ||||||||||||
Hedge of variable rate assets | $ | 63,927 | $ | 68,470 | $ | 1,097 | $ | 133,494 | $ | – | $ | – |
Hedge of variable rate liabilities | 16,696 | 63,527 | 32,802 | 113,025 | – | – | ||||||
Weighted average fixed interest rate | ||||||||||||
Hedge of variable rate assets | 4.5% | 3.4% | 3.7% | 4.0% | ||||||||
Hedge of variable rate liabilities | 4.9% | 3.8% | 2.8% | 3.7% | ||||||||
Foreign exchange risk | ||||||||||||
Cross currency swaps | ||||||||||||
Hedge of fixed rate assets | $ | 63 | $ | 916 | $ | – | $ | 979 | $ | 19 | $ | 14 |
Weighted average CAD-EUR exchange rate | 1.48 | 1.44 | n.a. | 1.45 | ||||||||
Weighted average CAD-USD exchange rate | n.a. | 1.34 | n.a. | 1.34 | ||||||||
(1)
The carrying amount reflects the impact of characterizing the daily variation margin as settlement of the related derivative fair values as permitted by certain central
counterparties.
n.a.
not applicable
Net investment hedges
| As at October 31, 2024 | ||||||||||||
| Notional/Principal | Carrying amount | |||||||||||
Within | 1 through | Over | ||||||||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities | ||||||
Foreign exchange risk | ||||||||||||
Foreign currency liabilities | $ | 4,540 | $ | 27,649 | $ | 6,505 | $ | 38,694 | n.a. | $ 37,833 | ||
Weighted average CAD-USD exchange rate | 1.33 | 1.34 | 1.34 | 1.34 | ||||||||
Weighted average CAD-EUR exchange rate | n.a. | n.a. | n.a. | n.a. | ||||||||
Weighted average CAD-GBP exchange rate | 1.71 | 1.76 | n.a. | 1.73 | ||||||||
Forward contracts | $ 19,926 | $ | – | $ | – | $ 19,926 | $ | 4 | $ | 433 | ||
Weighted average CAD-USD exchange rate | 1.36 | n.a. | n.a. | 1.36 | ||||||||
Weighted average CAD-EUR exchange rate | 1.50 | n.a. | n.a. | 1.50 | ||||||||
Weighted average CAD-GBP exchange rate | 1.79 | n.a. | n.a. | 1.79 | ||||||||
| As at October 31, 2023 | ||||||||||||
| Notional/Principal | Carrying amount | |||||||||||
Within | 1 through | Over | ||||||||||
(Millions of Canadian dollars, except average rates) | 1 year | 5 years | 5 years | Total | Assets | Liabilities | ||||||
Foreign exchange risk | ||||||||||||
Foreign currency liabilities | $ | 6,061 | $ | 14,653 | $ | 6,413 | $ | 27,127 | n.a. | $ 25,427 | ||
Weighted average CAD-USD exchange rate | 1.28 | 1.29 | 1.33 | 1.30 | ||||||||
Weighted average CAD-EUR exchange rate | n.a. | n.a. | n.a. | n.a. | ||||||||
Weighted average CAD-GBP exchange rate | n.a. | 1.71 | n.a. | 1.71 | ||||||||
Forward contracts | $ | 18,920 | $ | – | $ | – | $ | 18,920 | $ | 13 | $ | 409 |
Weighted average CAD-USD exchange rate | 1.36 | n.a. | n.a. | 1.36 | ||||||||
Weighted average CAD-EUR exchange rate | 1.45 | n.a. | n.a. | 1.45 | ||||||||
Weighted average CAD-GBP exchange rate | 1.68 | n.a. | n.a. | 1.68 | ||||||||
n.a.
not applicable
(continued)
Note 9
Derivative financial instruments and hedging activities
208
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The following tables present the details of the hedged items categorized by their hedging relationships:
Fair value hedges – Assets and liabilities designated as hedged items
| As at and for the year ended October 31, 2024 | ||||||
Accumulated amount of fair | ||||||
value adjustments on the | ||||||
hedged item included in the | ||||||
Carrying amount | carrying amount | |||||
Changes in fair | ||||||
values used for | ||||||
calculating hedge | ||||||
(Millions of Canadian dollars) | Assets | Liabilities | Assets | Liabilities | Consolidated Balance Sheet items: | ineffectiveness |
Interest rate risk | ||||||
Fixed rate assets (1) | Securities – Investment, net of | |||||
applicable allowance; Loans – Retail; | ||||||
$ 114,354 | $ – | $ (666) | $ – | Loans – Wholesale | $ 2,702 | |
Fixed rate liabilities (1) | Deposits – Personal; | |||||
Deposits – Business and government; | ||||||
Subordinated debentures; | ||||||
– | 118,116 | – | (2,312) | Deposits – Bank | (3,963) | |
| As at and for the year ended October 31, 2023 | ||||||
Accumulated amount of fair | ||||||
value adjustments on the | ||||||
hedged item included in the | ||||||
Carrying amount | carrying amount | |||||
Changes in fair | ||||||
values used for | ||||||
calculating hedge | ||||||
(Millions of Canadian dollars) | Assets | Liabilities | Assets | Liabilities | Consolidated Balance Sheet items: | ineffectiveness |
Interest rate risk | ||||||
Fixed rate assets (1) | Securities – Investment, net of | |||||
applicable allowance; Loans – Retail; | ||||||
$ 86,734 | $ – | $ (3,911) | $ – | Loans – Wholesale | $ (1,445) | |
Fixed rate liabilities (1) | Deposits – Business and government; | |||||
Subordinated debentures; | ||||||
– | 102,535 | – | (6,340) | Deposits – Bank | 276 | |
(1)
As at October 31, 2024, the accumulated amount of fair value hedge adjustments remaining on our Consolidated Balance Sheets for hedged items that have ceased to be
adjusted for hedging gains and losses is a loss of $238 million for fixed rate assets and a gain of $118 million for fixed rate liabilities (October 31, 2023 – loss of $539 million
and gain of $259 million, respectively).
Cash flow and net investment hedges – Assets and liabilities designated as hedged items
As at and for the year ended October 31, 2024 | ||||
| Changes in fair | Cash flow hedge/foreign | |||
values used for | currency translation reserve | |||
calculating hedge | Continuing | Discontinued | ||
(Millions of Canadian dollars) | Consolidated Balance Sheet items: | ineffectiveness | hedges | hedges |
Cash flow hedges | ||||
Interest rate risk | ||||
Variable rate assets | Securities – Investment, net of | |||
applicable allowance; Loans – Retail; | ||||
Loans – Wholesale; | $ (4,415) | $ 2,645 | $ (2,216) | |
Interest bearing deposits with banks; | ||||
Assets purchased under reverse | ||||
repurchase agreements and securities borrowed | ||||
Variable rate liabilities | Deposits – Business and government; | 4,437 | (1,801) | 4,557 |
Deposits – Personal; | ||||
Obligations related to assets sold under | ||||
repurchase agreements and securities loaned | ||||
Foreign exchange risk | ||||
Fixed rate assets | Securities – Investment, net of | |||
applicable allowance | 7 | 13 | – | |
Fixed rate liabilities | Deposits – Business and government | (106) | (52) | – |
Net investment hedges | ||||
Foreign exchange risk | ||||
Foreign subsidiaries | n.a. | 710 | (8,005) | (382) |
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
209
As at and for the year ended October 31, 2023 | ||||
| Changes in fair | Cash flow hedge/foreign | |||
values used for | currency translation reserve | |||
calculating hedge | Continuing | Discontinued | ||
(Millions of Canadian dollars) | Consolidated Balance Sheet items: | ineffectiveness | hedges | hedges |
Cash flow hedges | ||||
Interest rate risk | ||||
Variable rate assets | Securities – Investment, net of | $ 2,248 | $ (2,115) | $ (3,126) |
applicable allowance; Loans – Retail; | ||||
Interest bearing deposits with banks; | ||||
Assets purchased under reverse | ||||
repurchase agreements and securities borrowed | ||||
Variable rate liabilities | Deposits – Business and government; | (2,558) | 3,535 | 5,607 |
Deposits – Personal; | ||||
Obligations related to assets sold under | ||||
repurchase agreements and securities loaned | ||||
Foreign exchange risk | ||||
Fixed rate assets | Securities – Investment, net of | |||
applicable allowance | 50 | – | – | |
Net investment hedges | ||||
Foreign exchange risk | ||||
Foreign subsidiaries | n.a. | 1,513 | (7,297) | (382) |
n.a.
not applicable
Effectiveness of designated hedging relationships
| For the year ended October 31, 2024 | ||||
Hedge | ||||
Change in fair value | ineffectiveness | Changes in the value of | Amount reclassified | |
of hedging | recognized in | the hedging instrument | from hedge reserves | |
(Millions of Canadian dollars) | instrument | income (1) | recognized in OCI | to income |
Fair value hedges | ||||
Interest rate risk | ||||
Interest rate contracts – fixed rate assets | $ (2,761) | $ (59) | n.a. | n.a. |
Interest rate contracts – fixed rate liabilities | 3,961 | (2) | n.a. | n.a. |
Cash flow hedges | ||||
Interest rate risk | ||||
Interest rate contracts – variable rate assets | 4,416 | 15 | $ 2,559 | $ (3,195) |
Interest rate contracts – variable rate liabilities | (4,325) | (19) | (2,600) | 3,872 |
Foreign exchange risk | ||||
Cross currency swap – fixed rate assets | (6) | – | 1 | (12) |
Cross currency swap – fixed rate liabilities | 107 | 2 | 70 | 122 |
Net investment hedges | ||||
Foreign exchange risk | ||||
Foreign currency liabilities | (455) | – | (455) | – |
Forward contracts | (255) | – | (254) | (1) |
| For the year ended October 31, 2023 | ||||
Hedge | ||||
Change in fair value | ineffectiveness | Changes in the value of | Amount reclassified | |
of hedging | recognized in | the hedging instrument | from hedge reserves | |
(Millions of Canadian dollars) | instrument | income (1) | recognized in OCI | to income |
Fair value hedges | ||||
Interest rate risk | ||||
Interest rate contracts – fixed rate assets | $ 1,385 | $ (60) | n.a. | n.a. |
Interest rate contracts – fixed rate liabilities | (205) | 71 | n.a. | n.a. |
Cash flow hedges | ||||
Interest rate risk | ||||
Interest rate contracts – variable rate assets | (2,232) | 7 | $ (3,930) | $ (3,121) |
Interest rate contracts – variable rate liabilities | 2,416 | (11) | 4,498 | 3,045 |
Foreign exchange risk | ||||
Cross currency swap – fixed rate assets | (50) | – | (44) | (37) |
Net investment hedges | ||||
Foreign exchange risk | ||||
Foreign currency liabilities | (684) | – | (684) | – |
Forward contracts | (828) | – | (828) | (191) |
(1)
Hedge ineffectiveness recognized in income included losses of $50 million that are excluded from the assessment of hedge effectiveness and are offset by economic
hedges (October 31, 2023 – gains of $3 million).
n.a.
not applicable
(continued)
Note 9
Derivative financial instruments and hedging activities
210
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Reconciliation of components of equity
The following table provides a reconciliation by risk category of each component of equity and an analysis of other
comprehensive income relating to hedge accounting:
For the year ended October 31, 2024 | For the year ended October 31, 2023 | |||
Cash flow hedge | Foreign currency | Cash flow hedge | Foreign currency | |
(Millions of Canadian dollars) | reserve | translation reserve | reserve | translation reserve |
Balance at the beginning of the year | $ 2,756 | $ 6,612 | $ 2,394 | $ 5,688 |
Cash flow hedges | ||||
Effective portion of changes in fair value: | ||||
Interest rate risk | (40) | 568 | ||
Foreign exchange risk | 71 | (44) | ||
Equity price risk | 413 | (119) | ||
Net amount reclassified to profit or loss: | ||||
Ongoing hedges: | ||||
Interest rate risk | 134 | (377) | ||
Foreign exchange risk | (110) | 37 | ||
Equity price risk | (350) | 93 | ||
De-designated hedges: | ||||
Interest rate risk | (811) | 453 | ||
Hedges of net investment in foreign operations | ||||
Foreign exchange denominated debt | (455) | (684) | ||
Forward foreign exchange contracts | (254) | (828) | ||
Foreign currency translation differences for foreign | ||||
operations | 1,018 | 2,164 | ||
Reclassification of losses (gains) on foreign currency | ||||
translation to income | – | (160) | ||
Reclassification of losses (gains) on net investment | ||||
hedging activities to income | 1 | 191 | ||
Tax on movements on reserves during the period | 204 | 206 | (249) | 241 |
Balance at the end of the year | $ 2,267 | $ 7,128 | $ 2,756 | $ 6,612 |
Premises and equipment
| For the year ended October 31, 2024 | |||||||||||
| Owned by the Bank (1) | Right-of-use lease assets | ||||||||||
Furniture, | |||||||||||
fixtures | |||||||||||
Computer | and other | Leasehold | Work in | ||||||||
(Millions of Canadian dollars) | Land | Buildings | equipment | equipment | improvements | process | Buildings | Equipment | Total (2) | ||
Cost | |||||||||||
Balance at beginning of period | $ 140 | $ 1,251 | $ 1,283 | $ 835 | $ 3,007 | $ 108 | $ 5,893 | $ 317 | $ 12,834 | ||
Additions | 103 | 77 | 21 | 11 | 50 | 522 | 526 | 2 | 1,312 | ||
Acquisition through business | |||||||||||
combination | – | – | – | 13 | 59 | – | 226 | – | 298 | ||
Transfers from work in process | – | 5 | 240 | 132 | 102 | (479) | – | – | – | ||
Disposals | – | (6) | (140) | (82) | (29) | – | (165) | – | (422) | ||
Foreign exchange translation | 1 | 2 | 10 | 3 | 19 | – | 61 | – | 96 | ||
Other | – | (4) | (3) | (12) | (39) | (22) | (109) | – | (189) | ||
Balance at end of period | $ 244 | $ 1,325 | $ 1,411 | $ 900 | $ 3,169 | $ 129 | $ 6,432 | $ 319 | $ 13,929 | ||
Accumulated depreciation | |||||||||||
Balance at beginning of period | $ – | $ 646 | $ 723 | $ 550 | $ 1,863 | $ – | $ 2,149 | $ 154 | $ 6,085 | ||
Depreciation | – | 59 | 249 | 73 | 279 | – | 620 | 84 | 1,364 | ||
Disposals | – | (6) | (140) | (82) | (25) | – | (54) | – | (307) | ||
Foreign exchange translation | – | 1 | 8 | 2 | 7 | – | 21 | – | 39 | ||
Other | – | (6) | (6) | 11 | (52) | – | (51) | – | (104) | ||
Balance at end of period | $ – | $ 694 | $ 834 | $ 554 | $ 2,072 | $ – | $ 2,685 | $ 238 | $ 7,077 | ||
Net carrying amount at end of | |||||||||||
period | $ 244 | $ 631 | $ 577 | $ 346 | $ 1,097 | $ 129 | $ 3,747 | $ 81 | $ 6,852 | ||
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
211
| For the year ended October 31, 2023 | |||||||||
| Owned by the Bank (1) | Right-of-use lease assets | ||||||||
Furniture, | |||||||||
fixtures | |||||||||
Computer | and other | Leasehold | Work in | ||||||
(Millions of Canadian dollars) | Land | Buildings | equipment | equipment | improvements | process | Buildings | Equipment | Total |
Cost | |||||||||
Balance at beginning of period | $ 141 | $ 1,261 | $ 1,169 | $ 836 | $ 2,845 | $ 120 | $ 5,748 | $ 299 | $ 12,419 |
Additions | – | – | 32 | 12 | 29 | 511 | 385 | 80 | 1,049 |
Acquisition through business | |||||||||
combination | – | – | – | – | – | – | – | – | – |
Transfers from work in process | – | 19 | 246 | 62 | 187 | (514) | – | – | – |
Disposals | – | (53) | (216) | (96) | (78) | (2) | (331) | (31) | (807) |
Foreign exchange translation | 1 | 6 | 22 | 9 | 32 | 1 | 103 | – | 174 |
Other | (2) | 18 | 30 | 12 | (8) | (8) | (12) | (31) | (1) |
Balance at end of period | $ 140 | $ 1,251 | $ 1,283 | $ 835 | $ 3,007 | $ 108 | $ 5,893 | $ 317 | $ 12,834 |
Accumulated depreciation | |||||||||
Balance at beginning of period | $ – | $ 627 | $ 640 | $ 525 | $ 1,656 | $ – | $ 1,643 | $ 114 | $ 5,205 |
Depreciation | – | 51 | 247 | 91 | 235 | – | 559 | 92 | 1,275 |
Disposals | – | (50) | (216) | (88) | (70) | – | (112) | (31) | (567) |
Foreign exchange translation | – | 3 | 16 | 6 | 16 | – | 31 | – | 72 |
Other | – | 15 | 36 | 16 | 26 | – | 28 | (21) | 100 |
Balance at end of period | $ – | $ 646 | $ 723 | $ 550 | $ 1,863 | $ – | $ 2,149 | $ 154 | $ 6,085 |
Net carrying amount at end of | |||||||||
period | $ 140 | $ 605 | $ 560 | $ 285 | $ 1,144 | $ 108 | $ 3,744 | $ 163 | $ 6,749 |
(1)
As at October 31, 2024, we had total contractual commitments of $137 million to purchase premises and equipment (October 31, 2023 – $120 million).
(2)
Includes investment properties with a cost of $186 million (October 31, 2023 – $nil) which are subject to operating leases and carried at cost less accumulated
amortization. The fair value, determined by a combination of internal investment professionals and external independent property appraisers with the relevant
professional qualifications and experience, is $188 million (October 31, 2023 – $nil).
Total lease payments for the year ended October 31, 2024 were $1,440 million
,
of which $708 million or 49% relates to variable
payments and $732 million or 51% relates to fixed payments. Total lease payments for the year ended October 31, 2023 were
$1,326 million
,
of which $655 million or 49% relates to variable payments and $671 million or 51% relates to fixed payments.
Total variable lease payments not included in the measurement of lease liabilities were $697 million for the year ended
Goodwill and other intangible assets
| For the year ended October 31, 2024 | |||||||||||
U.S. Wealth | |||||||||||
Personal | Canadian | Management | International | ||||||||
(Millions of | Banking – | Caribbean | Commercial | Wealth | Global Asset | (including | Wealth | Investor | Capital | ||
Canadian dollars) | Canada | Banking | Banking | Management | Management | City National) | Management | Services | Insurance | Markets | Total |
Balance at beginning | |||||||||||
of period | $ 1,851 | $ 1,791 | $ 793 | $ 593 | $ 2,016 | $ 3,080 | $ 1,124 | $ 29 | $ 112 | $ 1,205 | $ 12,594 |
Acquisitions | 3,159 | – | 3,022 | 283 | 72 | – | – | – | – | – | 6,536 |
Dispositions | – | – | – | – | – | – | – | – | – | – | – |
Currency translations | |||||||||||
and other | (16) | 7 | – | 1 | 76 | 11 | 74 | – | – | 3 | 156 |
Balance at end | |||||||||||
of period | $ 4,994 | $ 1,798 | $ 3,815 | $ 877 | $ 2,164 | $ 3,091 | $ 1,198 | $ 29 | $ 112 | $ 1,208 | $ 19,286 |
| For the year ended October 31, 2023 | |||||||||||
U.S. Wealth | |||||||||||
Personal | Canadian | Management | International | ||||||||
(Millions of | Banking – | Caribbean | Commercial | Wealth | Global Asset | (including | Wealth | Investor | Capital | ||
Canadian dollars) | Canada (1) | Banking | Banking (1) | Management | Management | City National) | Management | Services | Insurance | Markets | Total |
Balance at beginning | |||||||||||
of period | $ 1,802 | $ 1,759 | $ 772 | $ 589 | $ 1,928 | $ 3,027 | $ 1,042 | $ 59 | $ 112 | $ 1,187 | $ 12,277 |
Acquisitions | 49 | – | 21 | – | – | – | – | – | – | – | 70 |
Dispositions | – | – | – | – | – | – | – | (30) | – | – | (30) |
Currency translations | |||||||||||
and other | – | 32 | – | 4 | 88 | 53 | 82 | – | – | 18 | 277 |
Balance at end | |||||||||||
of period | $ 1,851 | $ 1,791 | $ 793 | $ 593 | $ 2,016 | $ 3,080 | $ 1,124 | $ 29 | $ 112 $ 1,205 | $ 12,594 | |
(1)
Amounts have been revised from those previously presented to conform to our new basis of segment presentation. Refer to Note 26 for further details of our business
segments.
(continued)
Note 11
Goodwill and other intangible assets
212
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Effective the fourth quarter of 2024, the Personal & Commercial Banking segment became two standalone business segments:
Personal Banking and Commercial Banking. As a result, the previous Canadian Banking CGU became two CGUs: Personal Banking –
Canada and Commercial Banking. Canadian Banking goodwill was allocated to these new CGUs. Comparative results have been
revised to conform to our new basis of segment presentation. Refer to Note 26 for further details of our business segments.
We perform our annual impairment test by comparing the carrying amount of each CGU to its recoverable amount. The
recoverable amount of a CGU is represented by its VIU, except in circumstances where the carrying amount of a CGU exceeds its
VIU. In such cases, the greater of the CGU’s FVLCD and its VIU is the recoverable amount. Our annual impairment test is
performed as at August 1.
In our 2024 and 2023 annual impairment tests, the recoverable amount of our Caribbean Banking CGU was based on its
FVLCD and the recoverable amounts of all other CGUs tested were based on their VIU.
Value in use
We calculate VIU using a five-year discounted cash flow method, with the exception of our International Wealth Management
CGU where cash flow projections covering a seven-year period were used, which more closely aligns with the strategic growth
plan resulting from the acquisition of RBC Brewin Dolphin. Future cash flows are based on financial plans agreed by
management, estimated based on forecast results, business initiatives, capital required to support future cash flows and returns
to shareholders. Key drivers of future cash flows include net interest margins and average interest-earning assets. The values
assigned to these drivers over the forecast period are based on past experience, external and internal economic forecasts, and
management’s expectations of the impact of economic conditions on our financial results. Beyond the initial cash flow projection
period, cash flows are assumed to increase at a constant rate using a nominal long-term growth rate (terminal growth rate).
Terminal growth rates are based on the long-term steady state growth expectations in the countries within which the CGU
operates. The discount rates used to determine the present value of each CGU’s projected future cash flows are based on the
bank-wide cost of capital, adjusted for the risks to which each CGU is exposed. CGU-specific risks include: country risk, business/
operational risk, geographic risk (including political risk, devaluation risk, and government regulation), currency risk, and price
risk (including product pricing risk and inflation).
The estimation of VIU involves significant judgment in the determination of inputs to the discounted cash flow model and is
most sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the
forecast period. The sensitivity of the VIU to key inputs and assumptions used was tested by recalculating the recoverable
amount using reasonably possible changes to those parameters. As at August 1, 2024, no reasonably possible change in an
individual key input or assumption, as described, would result in a CGU’s carrying amount exceeding its recoverable amount
based on VIU.
The terminal growth rates and pre-tax discount rates used in our discounted cash flow models are summarized below.
| As at | ||||
August 1, 2024 | August 1, 2023 | |||
Terminal | Terminal | |||
Discount | growth | Discount | growth | |
rate (1) | rate | rate (1) | rate | |
Group of cash generating units | ||||
Personal Banking – Canada (2) | 11.7% | 3.0% | 11.7% | 3.0% |
Caribbean Banking | 13.7 | 3.5 | 12.9 | 3.5 |
Commercial Banking (2) | 11.7 | 3.0 | 11.7 | 3.0 |
Canadian Wealth Management | 12.5 | 3.0 | 12.5 | 3.0 |
Global Asset Management | 12.4 | 3.0 | 12.5 | 3.0 |
U.S. Wealth Management (including City National) | 12.6 | 3.0 | 12.5 | 3.0 |
International Wealth Management | 12.3 | 3.0 | 12.5 | 3.0 |
Investor Services | 12.5 | 3.0 | 12.4 | 3.0 |
Insurance | 12.5 | 3.0 | 12.4 | 3.0 |
Capital Markets | 12.7 | 3.0 | 12.7 | 3.0 |
(1)
Pre-tax discount rates are determined implicitly based on post-tax discount rates.
(2)
Represent assumptions relating to the previous Canadian Banking CGU, which became the Personal Banking – Canada and Commercial Banking CGUs effective the
fourth quarter of 2024.
Fair value less costs of disposal – Caribbean Banking
We calculated FVLCD using a discounted cash flow method that projects future cash flows over a 5-year period. Cash flows are
based on management forecasts, adjusted to approximate the considerations of a prospective third-party buyer. Cash flows
beyond the initial 5-year period are assumed to increase at a constant rate using a nominal long-term growth rate. Future cash
flows, terminal growth rates, and discount rates are based on the same factors noted above. This fair value measurement is
categorized as level 3 in the fair value hierarchy as certain significant inputs are not observable.
The estimation of FVLCD involves significant judgment in the determination of inputs to the discounted cash flow model and
is most sensitive to changes in future cash flows, discount rates and terminal growth rates applied to cash flows beyond the
forecast period. The sensitivity of the FVLCD to key inputs and assumptions was tested by recalculating the recoverable amount
using reasonably possible changes to those parameters. As at August 1, 2024, no reasonably possible change in an individual key
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
213
| For the year ended October 31, 2024 | |||||||
Internally | Core | Customer | |||||
generated | Other | deposit | list and | In process | |||
(Millions of Canadian dollars) | software | software | intangibles | relationships (1) | software | Total | |
Gross carrying amount | |||||||
Balance at beginning of period | $ 5,595 | $ 1,097 | $ 1,658 | $ 2,456 | $ 1,527 | $ 12,333 | |
Additions | 31 | 4 | – | 9 | 1,090 | 1,134 | |
Acquisition through business combination | – | – | 1,972 | 370 | – | 2,342 | |
Transfers | 1,204 | 42 | – | – | (1,246) | – | |
Dispositions | (1,204) | (67) | – | (9) | (1) | (1,281) | |
Impairment losses | (37) | (18) | – | – | (30) | (85) | |
Currency translations | 32 | 17 | 7 | 115 | 3 | 174 | |
Other changes | (47) | (1) | – | – | 14 | (34) | |
Balance at end of period | $ 5,574 | $ 1,074 | $ 3,637 | $ 2,941 | $ 1,357 | $ 14,583 | |
Accumulated amortization | |||||||
Balance at beginning of period | $ (3,596) | $ (658) | $ (1,330) | $ (846) | $ – | $ (6,430) | |
Amortization charge for the year | (986) | (102) | (325) | (136) | – | (1,549) | |
Dispositions | 1,204 | 66 | – | 7 | – | 1,277 | |
Impairment losses | 12 | 5 | – | – | – | 17 | |
Currency translations | (21) | (7) | (8) | (31) | – | (67) | |
Other changes | – | (33) | – | – | – | (33) | |
Balance at end of period | $ (3,387) | $ (729) | $ (1,663) | $ (1,006) | $ – | $ (6,785) | |
Net balance at end of period | $ 2,187 | $ 345 | $ 1,974 | $ 1,935 | $ 1,357 | $ 7,798 | |
| For the year ended October 31, 2023 (Restated – Note 2) | ||||||
| Internally | Core | Customer | ||||
generated | Other | deposit | list and | In process | ||
(Millions of Canadian dollars) | software | software | intangibles | relationships | software | Total |
Gross carrying amount | ||||||
Balance at beginning of period | $ 5,076 | $ 908 | $ 1,630 | $ 2,472 | $ 1,535 | $ 11,621 |
Additions | 81 | 179 | – | – | 1,134 | 1,394 |
Acquisition through business combination | – | 31 | – | – | – | 31 |
Transfers | 1,067 | 78 | – | – | (1,145) | – |
Dispositions | (509) | (145) | – | (160) | 8 | (806) |
Impairment losses | (73) | – | – | (9) | (5) | (87) |
Currency translations | 68 | 17 | 28 | 144 | 38 | 295 |
Other changes | (115) | 29 | – | 9 | (38) | (115) |
Balance at end of period | $ 5,595 | $ 1,097 | $ 1,658 | $ 2,456 | $ 1,527 | $ 12,333 |
Accumulated amortization | ||||||
Balance at beginning of period | $ (3,031) | $ (612) | $ (1,146) | $ (749) | $ – | $ (5,538) |
Amortization charge for the year | (993) | (146) | (160) | (172) | – | (1,471) |
Dispositions | 506 | 157 | – | 114 | – | 777 |
Impairment losses | (19) | – | – | – | – | (19) |
Currency translations | (37) | (13) | (24) | (33) | – | (107) |
Other changes | (22) | (44) | – | (6) | – | (72) |
Balance at end of period | $ (3,596) | $ (658) | $ (1,330) | $ (846) | $ – | $ (6,430) |
Net balance at end of period | $ 1,999 | $ 439 | $ 328 | $ 1,610 | $ 1,527 | $ 5,903 |
(1)
214
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Joint ventures and associated companies
We do not have any joint ventures or associated companies that are individually material to our financial results. The following
table summarizes the carrying value of our interests in joint ventures and associated companies accounted for under the equity
method as well as our share of the income of those entities.
Joint ventures | Associated companies | |||
| As at and for the year ended | ||||
October 31 | October 31 | October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 |
Carrying amount | $ 542 | $ 215 | $ 293 | $ 286 |
Share of: | ||||
Net income (1) | $ 64 | $ 18 | $ (41) | $ 5 |
(1)
Excludes impairment losses recognized on our interests in joint ventures and associated companies. During the year ended October 31, 2024, we recognized impairment
losses of $38 million in Non-interest income – Income (loss) from joint ventures and associates with respect to our interest in an associated company in our Wealth
Other assets
As at | ||
October 31 | October 31 | |
2024 | 2023 | |
(Millions of Canadian dollars) | (Restated – Note 2) | |
Accounts receivable and prepaids | $ 4,389 | $ 4,299 |
Accrued interest receivable | 7,904 | 7,774 |
Cash collateral | 20,475 | 20,104 |
Commodity trading receivables | 9,834 | 5,979 |
Deferred income tax asset | 4,328 | 3,116 |
Employee benefit assets | 3,630 | 2,826 |
Held-for-sale assets | – | 2,562 |
Insurance-related assets | ||
Insurance contract assets | 588 | 681 |
Reinsurance contracts held assets | 1,758 | 1,582 |
Segregated fund net assets (Note 15) | 3,378 | 2,708 |
Collateral loans and other | 517 | 529 |
Investments in joint ventures and associates | 835 | 501 |
Margin deposits | 11,108 | 8,849 |
Precious metals | 6,018 | 2,753 |
Receivable from brokers, dealers and clients | 3,343 | 2,834 |
Taxes receivable | 7,418 | 8,908 |
Other | 6,632 | 5,366 |
$ 92,155 | $ 81,371 | |
Deposits
| As at | ||||||||
| October 31, 2024 | October 31, 2023 | |||||||
(Millions of Canadian dollars) | Demand (1) | Notice (2) | Term (3) | Total | Demand (1) | Notice (2) | Term (3) | Total |
Personal | $ 205,714 | $ 62,845 | $ 253,580 | $ 522,139 | $ 186,530 | $ 57,614 | $ 197,802 | $ 441,946 |
Business and government | 369,943 | 20,157 | 449,570 | 839,670 | 316,200 | 19,056 | 409,819 | 745,075 |
Bank | 9,675 | 641 | 37,406 | 47,722 | 7,996 | 769 | 35,901 | 44,666 |
$ 585,332 | $ 83,643 | $ 740,556 | $ 1,409,531 | $ 510,726 | $ 77,439 | $ 643,522 | $ 1,231,687 | |
Non-interest-bearing (4) | ||||||||
Canada | $ 144,712 | $ 7,164 | $ 203 | $ 152,079 | $ 132,994 | $ 6,107 | $ 168 | $ 139,269 |
United States | 38,520 | – | – | 38,520 | 40,646 | – | – | 40,646 |
Europe (5) | 11 | – | – | 11 | 17 | – | – | 17 |
Other International | 7,758 | – | – | 7,758 | 7,265 | – | – | 7,265 |
Interest-bearing (4) | ||||||||
Canada | 355,221 | 14,468 | 594,066 | 963,755 | 302,746 | 14,641 | 493,347 | 810,734 |
United States | 28,389 | 61,087 | 75,933 | 165,409 | 16,210 | 55,895 | 78,837 | 150,942 |
Europe (5) | 5,013 | 851 | 53,295 | 59,159 | 5,353 | 726 | 51,812 | 57,891 |
Other International | 5,708 | 73 | 17,059 | 22,840 | 5,495 | 70 | 19,358 | 24,923 |
$ 585,332 | $ 83,643 | $ 740,556 | $ 1,409,531 | $ 510,726 | $ 77,439 | $ 643,522 | $ 1,231,687 | |
(1)
Demand deposits are deposits for which we do not have the right to require notice of withdrawal, which include both savings and chequing accounts.
(2)
Notice deposits are deposits for which we can legally require notice of withdrawal. These deposits are primarily savings accounts.
(3)
Term deposits are deposits payable on a fixed date, and include term deposits, guaranteed investment certificates and similar instruments.
(4)
The geographical splits of the deposits are based on the point of origin of the deposits and where the revenue is recognized. As at October 31, 2024, deposits
denominated in U.S. dollars, British pounds, Euro and other foreign currencies were $511 billion, $34 billion, $53 billion and $29 billion, respectively (October 31, 2023 –
$445 billion, $34 billion, $49 billion and $32 billion, respectively).
(5)
Europe includes the United Kingdom and the Channel Islands.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
215
Contractual maturities of term deposits
(1)
As at | ||
October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 |
Within 1 year: | ||
less than 3 months | $ 207,698 | $ 182,373 |
3 to 6 months | 94,585 | 69,868 |
6 to 12 months | 173,603 | 151,079 |
1 to 2 years | 79,777 | 76,232 |
2 to 3 years | 61,175 | 49,965 |
3 to 4 years | 45,767 | 36,774 |
4 to 5 years | 20,692 | 36,506 |
Over 5 years | 57,259 | 40,725 |
$ 740,556 | $ 643,522 | |
(1)
The aggregate amount of term deposits in denominations of one hundred thousand dollars or more is $670 billion (October 31, 2023: $586 billion).
Average deposit balances and average rates of interest
| For the year ended | ||||
October 31, 2024 | October 31, 2023 | |||
Average | Average | Average | Average | |
(Millions of Canadian dollars, except for percentage amounts) | balances | rates | balances | rates |
Canada | $ 1,035,064 | 3.57% | $ 913,669 | 3.02% |
United States | 191,257 | 3.33 | 196,490 | 2.74 |
Europe | 58,693 | 5.26 | 70,426 | 4.22 |
Other International | 32,016 | 2.48 | 31,035 | 2.26 |
$ 1,317,030 | 3.59% | $ 1,211,620 | 3.03% | |
Insurance and reinsurance
Our insurance contracts issued include life, health, travel, annuity and segregated fund insurance products provided to
individuals and businesses across Canada. Outside Canada, we have reinsurance and retrocession contracts issued with respect
to longevity reinsurance, life retrocession and reinsurance for creditor life, disability and critical illness. Reinsurance contracts
issued are presented within insurance contract balances on the Consolidated Balance Sheets.
In the normal course of business, we also enter into reinsurance contracts held to reinsure risks to other insurance and
reinsurance companies in order to lower our risk profile, limit loss exposure to large risks, and provide additional capacity for
future growth. The reinsurance contracts held do not relieve our obligations from the direct insurance contracts issued. We
evaluate the financial condition of the reinsurers and monitor our concentrations of credit risks to minimize our exposure to
losses from reinsurer insolvency. The carrying amounts of reinsurance contract held assets as disclosed in Note 13 represents
our maximum exposure to credit risk at the reporting date.
The insurance and reinsurance contracts are presented on a portfolio basis such that portfolios of contracts that are in an
asset position are presented separately from those that are in a liability position.
(continued)
Note 15
Insurance and reinsurance
216
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Insurance service and insurance investment results
The following table provides the composition of Insurance service result and Insurance investment result for insurance contracts
issued and reinsurance contracts held.
For the year ended | ||
October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 (1) |
Insurance revenue | ||
Amounts recognized for contracts using the GMM and VFA: | ||
Relating to changes in liabilities for remaining coverage: | ||
Expected incurred claims and other insurance services expenses | $ 2,970 | $ 2,688 |
Release of risk adjustment for non-financial risk and other | 191 | 179 |
CSM recognized for services provided | 255 | 303 |
Recovery of insurance acquisition cash flows | 81 | 78 |
3,497 | 3,248 | |
Amounts recognized for contracts using the PAA | 1,576 | 1,422 |
5,073 | 4,670 | |
Insurance service expense (2) | ||
Incurred claims and other expenses | (3,901) | (3,522) |
Losses on onerous contracts and reversals of such losses (future service) | (246) | (154) |
Adjustments to liability for incurred claims (past service) | (2) | 5 |
Amortization of insurance acquisition cash flows | (81) | (78) |
(4,230) | (3,749) | |
Net income (expense) from reinsurance contracts held | (66) | (218) |
Insurance service result | $ 777 | $ 703 |
Net investment income (3) | $ 3,259 | $ 565 |
Insurance finance income (expense) | ||
Interest accreted | (126) | (135) |
Effect of changes in discount rates and other financial assumptions | (1,754) | 259 |
Effect of changes in fulfilment cash flows at current rates when the corresponding effect through | ||
CSM is at locked-in rates | (412) | (258) |
Changes in fair value of underlying items for contracts using the VFA | (746) | (107) |
Other | (93) | (180) |
(3,131) | (421) | |
Reinsurance finance income (expense) | 166 | 12 |
Insurance investment result | $ 294 | $ 156 |
Insurance service and insurance investment results | $ 1,071 | $ 859 |
(1)
The 2023 amounts may not be fully comparable to the current period as we were not managing our asset and liability portfolios under IFRS 17 and Net investment income
was not restated for the reclassifications of certain eligible financial assets. Refer to Note 2 for further details.
(2)
Includes Insurance service expense of $948 million (October 31, 2023 – $840 million) relating to insurance contracts measured using the PAA.
(3)
Refer to Note 3 for amounts of interest, dividend and net gains (losses) from FVTPL financial instruments relating to the Insurance segment.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
217
The following table shows the changes in net liabilities for insurance contracts for remaining coverage and incurred claims for short
duration insurance contracts measured using the PAA and long duration insurance contracts measured using the GMM and VFA.
As at or for the year ended | ||||||
October 31, 2024 | October 31, 2023 | |||||
Liabilities for | Liabilities for | Liabilities for | Liabilities for | |||
remaining | incurred | remaining | incurred | |||
(Millions of Canadian dollars) | coverage (1) | claims (2) | Total | coverage (1) | claims (2) | Total |
Balance at beginning of period: | ||||||
Insurance contract assets | $ 1,531 | $ (850) | $ 681 | $ 1,191 | $ (704) | $ 487 |
Insurance contract liabilities | (17,858) | (1,168) | (19,026) | (17,227) | (999) | (18,226) |
Net insurance contract liabilities | $ (16,327) | $ (2,018) | $ (18,345) | $ (16,036) | $ (1,703) | $ (17,739) |
Insurance revenue | $ 5,073 | $ – | $ 5,073 | $ 4,670 $ | – | $ 4,670 |
Insurance service expense | (358) | (3,872) | (4,230) | (250) | (3,499) | (3,749) |
Insurance finance income (expense) | (2,974) | (157) | (3,131) | (388) | (33) | (421) |
Investment components | 705 | (705) | – | 660 | (660) | – |
Cash flows: | ||||||
Premiums received | (5,940) | – | (5,940) | (5,739) | – | (5,739) |
Claims and other insurance service | ||||||
expenses paid | – | 4,388 | 4,388 | – | 4,196 | 4,196 |
Insurance acquisition cash flows | ||||||
and other | 417 | – | 417 | 378 | – | 378 |
Total cash flows | $ (5,523) | $ 4,388 | $ (1,135) | $ (5,361) | $ 4,196 | $ (1,165) |
Other movements | 343 | (218) | 125 | 378 | (319) | 59 |
Balance at end of period: | ||||||
Insurance contract assets | $ 1,805 | $ (1,217) | $ 588 | $ 1,531 | $ (850) | $ 681 |
Insurance contract liabilities | (20,866) | (1,365) | (22,231) | (17,858) | (1,168) | (19,026) |
Net insurance contract liabilities | $ (19,061) | $ (2,582) | $ (21,643) | $ (16,327) | $ (2,018) | $ (18,345) |
(1)
The ending liabilities for remaining coverage include loss component amounts of $366 million (October 31, 2023 – $122 million).
(2)
Insurance contracts by measurement components using the GMM or VFA
The following table shows the changes in the measurement components of net liabilities for insurance contracts measured using
the GMM and VFA by estimates of present value of future cash flows, risk adjustment for non-financial risk and CSM.
| As at or for the year ended | ||||||||
| October 31, 2024 | October 31, 2023 | |||||||
Estimates of | Risk | Estimates of | Risk | |||||
present value | adjustment | present value | adjustment | |||||
| of future | for non- | of future | for non- | |||||
(Millions of Canadian dollars) | cash flows | financial risk | CSM (1) | Total | cash flows | financial risk | CSM (1) | Total |
Balance at beginning of | ||||||||
period: | ||||||||
Insurance contract assets | $ 1,591 | $ (544) | $ (565) | $ 482 | $ 1,370 | $ (508) | $ (428) | $ 434 |
Insurance contract | ||||||||
liabilities | (14,079) | (1,759) | (2,195) | (18,033) | (13,446) | (1,726) | (2,312) | (17,484) |
Net insurance contract | ||||||||
liabilities | $ (12,488) | $ (2,303) | $ (2,760) | $ (17,551) | $ (12,076) | $ (2,234) | $ (2,740) | $ (17,050) |
Insurance service result | $ 33 | $ 13 | $ 176 | $ 222 | $ 92 | $ 30 | $ 217 | $ 339 |
Insurance finance expense | ||||||||
(income) | (2,504) | (324) | (128) | (2,956) | 127 | (55) | (312) | (240) |
Cash flows: | ||||||||
Premiums received | (4,443) | – | – | (4,443) | (4,128) | – | – | (4,128) |
Claims and other | ||||||||
insurance service | ||||||||
expenses paid | 3,487 | – | – | 3,487 | 3,084 | – | – | 3,084 |
Insurance acquisition | ||||||||
cash flows and other | 373 | – | – | 373 | 367 | – | – | 367 |
Total cash flows | $ (583) | $ – | $ – | $ (583) | $ (677) | $ – | $ – | $ (677) |
Other movements | 91 | 60 | (79) | 72 | 46 | (44) | 75 | 77 |
Balance at end of period: | ||||||||
Insurance contract assets | $ 1,824 | $ (568) | $ (719) | $ 537 | $ 1,591 | $ (544) | $ (565) | $ 482 |
Insurance contract | ||||||||
liabilities (2), (3) | (17,275) | (1,986) | (2,072) | (21,333) | (14,079) | (1,759) | (2,195) | (18,033) |
Net insurance contract | ||||||||
liabilities | $ (15,451) | $ (2,554) | $ (2,791) | $ (20,796) | $ (12,488) | $ (2,303) | $ (2,760) | $ (17,551) |
(1)
The ending balance for CSM includes $2.6 billion (October 31, 2023 – $2.7 billion) relating to groups of insurance contracts initially recognized at transition date using the
fair value approach. For the year ended October 31, 2024, CSM from contracts initially recognized was $89 million (October 31, 2023 – $109 million).
(2)
Includes segregated fund insurance contract liabilities of $3,375 million (October 31, 2023 – $2,632 million) measured using the VFA. The fair value of the underlying items
for segregated fund insurance contracts amount to $3,378 million (October 31, 2023 – $2,708 million), which are substantially investments in mutual funds.
(3)
Certain comparative amounts have been revised from those previously presented.
(continued)
Note 15
Insurance and reinsurance
218
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Expected recognition of contractual service margin
The following table presents the expected timing of CSM amortization into Non-interest income – Insurance service result
applicable for insurance contracts issued and reinsurance contracts held measured using the GMM and VFA.
| As at | ||||||||||
| October 31, 2024 | October 31, 2023 | |||||||||
(Millions of Canadian | Within 1 | 1 to 5 | 5 to 10 | Within 1 | 1 to 5 | 5 to 10 | ||||
dollars) | year | years | years | Thereafter | Total | year | years | years | Thereafter | Total |
Insurance contracts | ||||||||||
issued | $ (243) | $ (894) | $ (705) | $ (949) | $ (2,791) | $ (245) | $ (1,011) | $ (655) | $ (849) | $ (2,760) |
Reinsurance | ||||||||||
contracts held | 66 | 208 | 163 | 217 | 654 | 89 | 192 | 232 | 291 | 804 |
Total | $ (177) | $ (686) | $ (542) | $ (732) | $ (2,137) | $ (156) | $ (819) | $ (423) | $ (558) | $ (1,956) |
Insurance risk is the risk of loss due to actual experience emerging differently than that we assumed at the time of underwriting.
Our main insurance risks include morbidity, mortality, longevity, policyholder behaviour (lapse) and travel risk. We developed an
insurance risk management framework that is designed to identify, assess, manage, mitigate and report the insurance risks
associated with our insurance businesses. In addition, we are subject to expense risk, which is the exposure to the variability in
future expenses that are expected to be incurred in servicing insurance contracts. Our insurance risks are managed through the
implementation of robust policies and controls over product design, pricing, underwriting and claim adjudication as well as
reinsurance arrangements. Regular reviews are conducted on valuation models, experience studies for key actuarial
We are exposed to market risk, which is the risk that the carrying value or future cash flows of insurance and reinsurance
contract balances or financial assets fluctuate because of changes or volatility in market prices. Market risk includes equity,
interest rate and spread, foreign currency and inflation risks. Our exposure to market risk is managed through our asset/liability
management activities, developed to achieve long-term investment returns in excess of our obligations under insurance
Methods and assumptions
The measurement of insurance and reinsurance contract balances requires various estimates and assumptions. The following
summarizes the significant estimates and assumptions used which should be read in conjunction with the accounting policies for
insurance and reinsurance contracts disclosed in Note 2.
Estimates of future cash flows
The significant non-financial assumptions used to determine the estimates of future cash flows for insurance and reinsurance
contract balances are as follows:
•
Mortality, longevity and morbidity
– Mortality estimates for life insurance contracts are based on standard industry insured
mortality tables, adjusted where appropriate to reflect our own experience. Longevity estimates for annuity insurance
contracts are developed based on industry longevity experience for pensioners, adjusted where appropriate to reflect our
own experience. Morbidity assumptions are made with respect to the rates of claim incidence and claim termination for
health insurance contracts and are based on a combination of industry and our own experience.
•
Policyholder behaviour
– Under certain policies, the policyholder has a contractual right to change benefits and premiums,
as well as convert policies to permanent forms of insurance. All policyholders have the right to terminate their policies
through lapse. Lapses represent the termination of policies due to non-payment of premiums. Lapse assumptions are
primarily based on our recent experience adjusted for emerging industry experience where applicable.
•
Expense
– Directly attributable future expense and directly attributable acquisition expense assumptions are derived from
internal cost studies and established allocation methodologies, with inflation as a financial assumption reflected in the
estimate of future expenses.
Discount rates
Discount rates used to present value future cash flows reflect the time value of money, currency of the cash flows, and the
characteristics of the insurance and reinsurance contracts. Cash flows that vary based on the returns on underlying items are
discounted at rates reflecting that variability. For cash flows that do not vary based on the returns on underlying items, we
predominantly apply the top-down approach in determining the discount rates. Under this approach, the discount rates for the
observable periods are determined using yield curves implied from a reference portfolio of assets adjusted to eliminate factors
(credit and market risk of the financial assets) that are not relevant to the insurance contracts. For unobservable periods, the
discount rates are interpolated using the last observable point and the ultimate discount rate, composed of a risk-free rate and
illiquidity premium. For a selected portfolio, the bottom-up approach is applied in determining the discount rate, which uses a
risk-free rate plus an illiquidity premium to reflect the characteristics of the contracts. Management judgment is required in
estimating the market and credit risk factors and illiquidity premiums in determining the discount rates.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
219
The following table provides the current discount yields relating to the Canadian dollar that are primarily used to present
value cash flows that do not vary based on returns on underlying items for insurance and reinsurance contracts.
5 year | 10 year | 20 year | 30 year | Ultimate | |
October 31, 2024 | 4.2% | 5.6% | 6.0% | 4.2% | 4.1% |
October 31, 2023 | 5.6% | 6.4% | 6.1% | 4.8% | 4.1% |
Risk adjustment
The risk adjustment for non-financial risk represents the compensation that we require for bearing the uncertainty about the
amount and timing of cash flows that arises from non-financial risks as we fulfil the insurance contracts. Non-financial risks are
insurance risks such as mortality, morbidity, and other risks such as lapse and expense. We used a margin approach to set the
risk adjustment by applying a margin to non-financial assumptions and discounting the resulting margin cash flows at the same
discount rates used to present value future cash flows. The risk adjustment for insurance and reinsurance contracts corresponds
to a confidence level of approximately 85% overall as at October 31, 2024 (October 31, 2023 – 85%). The confidence level
represents the probability that the variability in the actual cash flows will be lower than our risk adjustment for non-financial risk.
The following table demonstrates the effects on net income, total equity and balance sheet CSM of reasonably possible changes
in key market and non-financial assumptions in the measurement of our insurance contracts on a net of reinsurance contracts
held basis, which do not differ materially from the sensitivities on a gross basis. The impact of changing non-financial
assumptions is primarily absorbed in the CSM recorded on the Consolidated Balance Sheets, unless contracts are onerous in
which case the effects are reflected in net income. The effects on net income reflect the impact of changes to market
assumptions and the impact of changes to the CSM that is released to income for the year. The percentage change in each
variable is applied to a range of existing actuarial modelling assumptions to derive the possible impact on net income and total
equity, as well as CSM recorded on the Consolidated Balance Sheets. The analyses are performed where a single assumption is
changed while holding other assumptions constant, which is unlikely to occur in practice. Combining the effects presented in the
table may not reflect the total actual effects of changing multiple assumptions at the same time. Actual results can differ
materially from these estimates.
| As at and for the year ended | |||||
October 31, 2024 | October 31, 2023 | ||||
Increase | Increase | ||||
(decrease) to | Increase | (decrease) to | Increase | ||
net income and | (decrease) to | net income and | (decrease) to | ||
(Millions of Canadian dollars) | total equity | CSM | total equity | CSM | |
Market variables: | |||||
1% increase in market interest rates (1) | $ 3 | $ – | $ (85) | $ – | |
1% decrease in market interest rates (1) | (2) | – | 104 | – | |
10% increase in equity market values (2) | – | 16 | – | 14 | |
10% decrease in equity market values (2) | – | (18) | – | (19) | |
Non-financial variables: | |||||
2% adverse change in life mortality rates | (45) | (17) | (40) | (18) | |
2% adverse change in annuitant mortality rates | (1) | (151) | (4) | (135) | |
5% adverse change in morbidity rates | (57) | (179) | (41) | (186) | |
10% adverse change in lapse rates | (16) | (334) | (7) | (334) | |
5% increase in expenses | (5) | (52) | (3) | (49) | |
(1)
Interest rate sensitivities assume a parallel shift of 100 basis points across the entire yield curves as at the reporting date with no change to the ultimate risk-free rate.
The impacts are net of the changes in fair value of financial assets held in respect of insurance activities. The 2023 amounts are not comparable to the current period as
we were not managing our asset and liability portfolios under IFRS 17 and the 2023 amounts were not adjusted to reflect the reclassifications of certain financial assets
that came into effect as of November 1, 2023. See Note 2 for further details.
(2)
Equity market value sensitivities assume a 10% change across all equity markets as at the reporting date reflecting the changes in fair value of the underlying financial
220
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Employee benefits – Pension and other post-employment benefits
Plan characteristics
We sponsor a number of programs that provide pension and post-employment benefits to eligible employees. The majority of
beneficiaries of the pension plans are located in Canada and other beneficiaries of the pension plans are primarily located in the
U.S., the U.K. and the Caribbean. The pension arrangements including investment, plan benefits and funding decisions are
governed by local pension committees or trustees, who are legally segregated from the Bank, or management. Significant plan
changes require the approval of the Board of Directors.
Our defined benefit pension plans provide pension benefits based on years of service, contributions and average earnings at
retirement. Our primary defined benefit pension plans are closed to new members. New employees are generally eligible to join
defined contribution pension plans. The specific features of these plans vary by location. We also provide supplemental non-
registered (non-qualified) pension plans for certain executives and senior management that are typically unfunded or partially
funded.
Our defined contribution pension plans provide pension benefits based on accumulated employee and Bank contributions.
The Bank contributions are based on a percentage of an employee’s annual earnings and a portion of the Bank contribution may
be dependent on the amount being contributed by the employee and their years of service.
Our primary other post-employment benefit plans provide health, dental, disability and life insurance coverage and cover a
number of current and retired employees who are mainly located in Canada. These plans are unfunded unless required by
legislation.
We measure our benefit obligations and pension assets as at October 31 each year. All plans are valued using the projected
unit-credit method. We fund our registered defined benefit pension plans in accordance with actuarially determined amounts
required to satisfy employee benefit obligations under current pension regulations. For our principal pension plan, the most
recent funding actuarial valuation was completed on January 1, 2023, and the next valuation is required no later than
January 1, 2026.
For the year ended October 31, 2024, total contributions to our pension plans (defined benefit and defined contribution
plans) and other post-employment benefit plans were $455 million and $91 million (October 31, 2023 – $346 million and
$80 million), respectively. For 2025, total contributions to our pension plans and other post-employment benefit plans are
expected to be $508 million and $93 million, respectively.
Risks
By their design, the defined benefit pension and other post-employment benefit plans expose the Bank to various risks such as
investment performance, reductions in discount rates used to value the obligations, increased longevity of plan members, future
inflation levels impacting future salary increases as well as future increases in healthcare costs. These risks will reduce over time
due to the membership closure of our primary defined benefit pension plans and migration to defined contribution pension plans.
The following table presents the financial position related to all of our material pension and other post-employment benefit plans
worldwide, including executive retirement arrangements.
| As at | ||||
| October 31, 2024 | October 31, 2023 | |||
Other post- | Other post- | |||
Defined benefit | employment | Defined benefit | employment | |
(Millions of Canadian dollars) | pension plans | benefit plans | pension plans | benefit plans |
Canada | ||||
Fair value of plan assets | $ 16,421 | $ – | $ 13,704 | $ – |
Present value of defined benefit obligation | 13,142 | 1,563 | 11,142 | 1,348 |
Net surplus (deficit) | $ 3,279 | $ (1,563) | $ 2,562 | $ (1,348) |
International | ||||
Fair value of plan assets | $ 741 | $ – | $ 664 | $ – |
Present value of defined benefit obligation | 638 | 76 | 585 | 69 |
Net surplus (deficit) | $ 103 | $ (76) | $ 79 | $ (69) |
Total | ||||
Fair value of plan assets | $ 17,162 | $ – | $ 14,368 | $ – |
Present value of defined benefit obligation | 13,780 | 1,639 | 11,727 | 1,417 |
Total net surplus (deficit) | $ 3,382 | $ (1,639) | $ 2,641 | $ (1,417) |
Effect of asset ceiling | (37) | – | (9) | – |
Total net surplus (deficit), net of effect of asset ceiling | $ 3,345 | $ (1,639) | $ 2,632 | $ (1,417) |
Amounts recognized in our Consolidated Balance | ||||
Sheets | ||||
Employee benefit assets | $ 3,630 | $ – | $ 2,826 | $ – |
Employee benefit liabilities | (285) | (1,639) | (194) | (1,417) |
Total net surplus (deficit), net of effect of asset ceiling | $ 3,345 | $ (1,639) | $ 2,632 | $ (1,417) |
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
221
The following table presents an analysis of the movement in the financial position related to all of our material pension and other
post-employment benefit plans worldwide, including executive retirement arrangements.
As at or for the year ended | ||||
October 31, 2024 | October 31, 2023 | |||
Other post- | Other post- | |||
Defined benefit | employment | Defined benefit | employment | |
(Millions of Canadian dollars) | pension plans (1) | benefit plans | pension plans (1) | benefit plans |
Fair value of plan assets at beginning of period | $ 14,368 | $ – | $ 15,026 | $ – |
Interest income | 818 | – | 786 | – |
Remeasurements | ||||
Return on plan assets (excluding interest income) | 1,991 | – | (895) | – |
Change in foreign currency exchange rate | 46 | – | 55 | – |
Contributions – Employer | 29 | 91 | 23 | 80 |
Contributions – Plan participant | 42 | 24 | 44 | 22 |
Payments | (675) | (115) | (645) | (102) |
Business combinations/Disposals | 561 | – | (17) | – |
Other | (18) | – | (9) | – |
Fair value of plan assets at end of period | $ 17,162 | $ – | $ 14,368 | $ – |
Benefit obligation at beginning of period | $ 11,727 | $ 1,417 | $ 11,893 | $ 1,462 |
Current service costs | 188 | 34 | 195 | 33 |
Past service costs | – | (6) | – | (2) |
Interest expense | 668 | 81 | 624 | 77 |
Remeasurements | ||||
Actuarial losses (gains) from demographic | ||||
assumptions | (167) | (60) | (2) | (24) |
Actuarial losses (gains) from financial | ||||
assumptions | 1,337 | 132 | (480) | (46) |
Actuarial losses (gains) from experience | ||||
adjustments | 2 | 8 | 70 | (1) |
Change in foreign currency exchange rate | 37 | 3 | 45 | 1 |
Contributions – Plan participant | 42 | 24 | 44 | 22 |
Payments | (675) | (115) | (645) | (102) |
Business combinations/Disposals | 621 | 121 | (17) | (3) |
Benefit obligation at end of period | $ 13,780 | $ 1,639 | $ 11,727 | $ 1,417 |
Unfunded obligation | $ 83 | $ 1,639 | $ 18 | $ 1,417 |
Wholly or partly funded obligation | 13,697 | – | 11,709 | – |
Total benefit obligation | $ 13,780 | $ 1,639 | $ 11,727 | $ 1,417 |
(1)
For pension plans with funding deficits, the benefit obligations and fair value of plan assets as at October 31, 2024 were $929 million and $665 million, respectively
(October 31, 2023 – $300 million and $106 million, respectively).
Pension and other post-employment benefit expense
The following table presents the composition of our pension and other post-employment benefit expense related to our material
pension and other post-employment benefit plans worldwide.
| For the year ended | ||||
Other post-employment | ||||
Pension plans | benefit plans | |||
October 31 | October 31 | October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 |
Current service costs | $ 188 | $ 195 | $ 34 | $ 33 |
Past service costs | – | – | (6) | (2) |
Net interest expense (income) | (150) | (162) | 81 | 77 |
Remeasurements of other long-term benefits | – | – | 3 | (1) |
Administrative expense | 18 | 9 | – | – |
Defined benefit pension expense | $ 56 | $ 42 | $ 112 | $ 107 |
Defined contribution pension expense | 426 | 323 | – | – |
$ 482 | $ 365 | $ 112 | $ 107 | |
Service costs for the year ended October 31, 2024 totalled $186 million (October 31, 2023 – $193 million) for pension plans in
Canada and $2 million (October 31, 2023 – $2 million) for International plans. Net interest expense (income) for the year ended
October 31, 2024 totalled $(145) million (October 31, 2023 – $(157) million) for pension plans in Canada and $(5) million
(October 31, 2023 – $(5) million) for International plans.
(continued)
Note 16
Employee benefits – Pension and other post-employment benefits
222
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Pension and other post-employment benefit remeasurements
The following table presents the composition of our remeasurements recorded in OCI related to our material pension and other
post-employment benefit plans worldwide.
| For the year ended | ||||
Defined benefit pension | Other post-employment | |||
plans | benefit plans | |||
October 31 | October 31 | October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 |
Actuarial (gains) losses: | ||||
Changes in demographic assumptions | $ (167) | $ (2) | $ (50) | $ (27) |
Changes in financial assumptions | 1,337 | (480) | 122 | (45) |
Experience adjustments | 2 | 70 | 5 | 2 |
Return on plan assets (excluding interest based on discount rate) | (1,991) | 895 | – | – |
Change in asset ceiling (excluding interest income) | (4) | 1 | – | – |
$ (823) | $ 484 | $ 77 | $ (70) | |
Remeasurements recorded in OCI for the year ended October 31, 2024 were gains of $818 million (October 31, 2023 – losses of
$440 million) for pension plans in Canada and gains of $5 million (October 31, 2023 – losses of $44 million) for International plans.
Investment policy and strategies
Defined benefit pension plan assets are invested prudently in order to meet our longer term pension obligations. The pension
plans’ investment strategy is to hold a diversified mix of investments by asset class and geographic location in order to reduce
investment-specific risk to the funded status while maximizing the expected returns to meet pension obligations. Investment of
the plan’s assets follows an asset/liability framework as investment is conducted with careful consideration of the pension
obligation’s sensitivity to interest rates and credit spreads which are key risk factors impacting the obligation’s value. Factors
taken into consideration in developing our asset mix include but are not limited to the following:
•
the nature of the underlying benefit obligations, including the duration and term profile of the liabilities;
•
the member demographics, including expectations for normal retirements, terminations, and deaths;
•
the financial position of the pension plans;
•
the diversification benefits obtained by the inclusion of multiple asset classes; and
•
expected asset returns, including asset and liability correlations, along with liquidity requirements of the plan.
To implement our asset mix policy, we may invest in debt securities, equity securities and alternative investments. Our holdings
in certain investments, including common shares, debt securities rated lower than BBB and residential and commercial
mortgages, cannot exceed a defined percentage of the market value of our defined benefit pension plan assets. We may use
derivative instruments as either a synthetic investment to more efficiently replicate the performance of an underlying security, or
as a hedge against financial risks within the plan. To manage our credit risk exposure, where derivative instruments are not
centrally cleared, counterparties are required to meet minimum credit ratings and enter into collateral agreements.
Our defined benefit pension plan assets are primarily comprised of debt and equity securities and alternative investments.
Our equity securities generally have unadjusted quoted market prices in an active market (Level 1) and our debt securities
generally have quoted market prices for similar assets in an active market (Level 2). Alternative investments and other includes
cash, hedge funds, and private fund investments including infrastructure equity, real estate, private debt and private equity. In
the case of private fund investments, no quoted market prices are usually available (Level 2 or Level 3). These fund assets are
either valued by an independent valuator or priced using observable market inputs.
During the year ended October 31, 2024, the management of defined benefit pension investments focused on increased
allocation to risk reducing investments and strategies, improving diversification, while striving to maintain expected investment
return. Over time, an increasing allocation to debt securities is being used to reduce asset/liability duration mismatch and hence
variability of the plan’s funded status due to interest rate movement. Longer maturity debt securities, given their price sensitivity
to movements in interest rates, are considered to be a good economic hedge to risk associated with the plan’s liabilities, which
are discounted using predominantly long maturity bond interest rates as inputs.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
223
Asset allocation of defined benefit pension plans
(1), (2)
| As at | ||||||
| October 31, 2024 | October 31, 2023 | |||||
Percentage | Quoted | Percentage | Quoted | |||
of total | in active | of total | in active | |||
(Millions of Canadian dollars, except percentages) | Fair value | plan assets | market (3) | Fair value | plan assets | market (3) |
Equity securities | ||||||
Domestic | $ 926 | 5% | 100% | $ 723 | 5% | 100% |
Foreign | 2,306 | 13 | 100 | 1,726 | 12 | 100 |
Debt securities | ||||||
Domestic government bonds (4) | 5,608 | 33 | – | 4,343 | 30 | – |
Foreign government bonds | 145 | 1 | – | 128 | 1 | – |
Corporate and other bonds | 3,788 | 22 | – | 3,296 | 23 | – |
Alternative investments and other | 4,389 | 26 | 8 | 4,152 | 29 | 6 |
$ 17,162 | 100% | 21% | $ 14,368 | 100% | 19% | |
(1)
The asset allocation is based on the underlying investments held directly and indirectly through the funds as this is how we manage our investment policy and strategies.
(2)
Represents the total plan assets held in our Canadian and International pension plans.
(3)
If our assessment of whether or not an asset was quoted in an active market was based on direct investments, 25% of our total plan assets would be classified as quoted
in an active market (October 31, 2023 – 22%).
(4)
Amounts are net of securities sold under repurchase agreements.
As at October 31, 2024, the plan assets include 0.4 million (October 31, 2023 – 0.3 million) of our common shares with a fair
value of $66 million (October 31, 2023 – $37 million) and $74 million (October 31, 2023 – $62 million) of our debt securities. For the
year ended October 31, 2024, dividends received on our common shares held in the plan assets were $2 million (October 31, 2023 –
$3 million).
Maturity profile
The following table presents the maturity profile of our defined benefit pension plan obligation.
(Millions of Canadian dollars, except participants and years)
| As at October 31, 2024 | |||
Canada | International | Total | |
Number of plan participants | 70,000 | 5,889 | 75,889 |
Actual benefit payments 2024 | $ 638 | $ 37 | $ 675 |
Benefits expected to be paid 2025 | 715 | 40 | 755 |
Benefits expected to be paid 2026 | 735 | 40 | 775 |
Benefits expected to be paid 2027 | 755 | 40 | 795 |
Benefits expected to be paid 2028 | 777 | 41 | 818 |
Benefits expected to be paid 2029 | 796 | 43 | 839 |
Benefits expected to be paid 2030-2034 | 4,202 | 242 | 4,444 |
Weighted average duration of defined benefit payments | 13.2 years | 14.5 years | 13.3 years |
Significant assumptions
Our methodologies to determine significant assumptions used in calculating the defined benefit pension and other post-
employment benefit expense are as follows:
Discount rate
For the Canadian pension and other post-employment benefit plans, all future expected benefit payments at each measurement
date are discounted at spot rates from a derived Canadian AA corporate bond yield curve. The derived curve is based on actual
short and mid-maturity corporate AA rates and extrapolated longer term rates. The extrapolated corporate AA rates are derived
from observed corporate A, corporate AA and provincial AA yields. For the International pension and other post-employment
benefit plans, all future expected benefit payments at each measurement date are discounted at spot rates from a local AA
corporate bond yield curve. Spot rates beyond 30 years are set to equal the 30-year spot rate. The discount rate is the equivalent
single rate that produces the same discounted value as that determined using the entire discount curve. This valuation
methodology does not rely on assumptions regarding reinvestment returns.
Rate of increase in future compensation
The assumptions for increases in future compensation are developed separately for each plan, where relevant. Each assumption
is set based on the price inflation assumption and compensation policies in each market, as well as relevant local statutory and
plan-specific requirements.
Healthcare cost trend rates
Healthcare cost calculations are based on both short and long-term trend assumptions established using the plan’s recent
experience as well as market expectations.
(continued)
Note 16
Employee benefits – Pension and other post-employment benefits
224
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Weighted average assumptions to determine benefit obligation
| As at | ||||
Defined benefit pension | Other post-employment | |||
plans | benefit plans | |||
October 31 | October 31 | October 31 | October 31 | |
2024 | 2023 | 2024 | 2023 | |
Discount rate | 4.8% | 5.7% | 4.9% | 5.8% |
Rate of increase in future compensation | 3.0% | 3.0% | n.a. | n.a. |
Healthcare cost trend rates (1) | ||||
– Medical | n.a. | n.a. | 3.5% | 3.4% |
– Dental | n.a. | n.a. | 3.5% | 3.1% |
(1)
For our other post-employment benefit plans, the assumed trend rates used to measure the expected benefit costs of the defined benefit obligations are also the
ultimate trend rates.
n.a.
not applicable
Mortality assumptions
Mortality assumptions are significant in measuring our obligations under the defined benefit pension plans. These assumptions
have been set based on country specific statistics. Future longevity improvements have been considered and included where
appropriate. The following table summarizes the mortality assumptions used for material plans.
| As at | ||||||||
| October 31, 2024 | October 31, 2023 | |||||||
Life expectancy at 65 for a member currently at | Life expectancy at 65 for a member currently at | |||||||
Age 65 | Age 45 | Age 65 | Age 45 | |||||
(In years) | Male | Female | Male | Female | Male | Female | Male | Female |
Country | ||||||||
Canada | 23.2 | 24.4 | 24.2 | 25.3 | 23.9 | 24.3 | 24.8 | 25.2 |
United Kingdom | 22.1 | 24.4 | 23.4 | 25.7 | 23.5 | 25.4 | 24.7 | 26.8 |
Sensitivity analysis
Assumptions adopted can have a significant effect on the value of the obligations for defined benefit pension and other post-
employment benefit plans and are based on historical experience and market inputs. The increase (decrease) in obligation in the
following table has been determined for key assumptions assuming all other assumptions are held constant. In practice, this is
unlikely to occur, as changes in some of the assumptions may be correlated. The following table presents the sensitivity analysis
of key assumptions for 2024.
Increase (decrease) | ||
in obligation | ||
Other post- | ||
Defined benefit | employment | |
(Millions of Canadian dollars) | pension plans | benefit plans |
Discount rate | ||
Impact of 100 bps increase in discount rate | $ (1,572) | $ (178) |
Impact of 100 bps decrease in discount rate | 1,941 | 220 |
Rate of increase in future compensation | ||
Impact of 50 bps increase in rate of increase in future compensation | 35 | – |
Impact of 50 bps decrease in rate of increase in future compensation | (38) | – |
Mortality rate | ||
Impact of an increase in longevity by one additional year | 329 | 22 |
Healthcare cost trend rate | ||
Impact of 100 bps increase in healthcare cost trend rate | n.a. | 49 |
Impact of 100 bps decrease in healthcare cost trend rate | n.a. | (41) |
n.a.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
225
Other liabilities
As at | ||
October 31 | October 31 | |
2024 | 2023 | |
(Millions of Canadian dollars) | (Restated – Note 2) | |
Accounts payable and accrued expenses | $ 1,475 | $ 1,580 |
Accrued interest payable | 13,226 | 10,936 |
Cash collateral | 19,582 | 23,365 |
Commodity liabilities | 13,996 | 11,716 |
Deferred income | 4,149 | 3,830 |
Deferred income taxes | 542 | 426 |
Dividends payable | 2,123 | 1,975 |
Employee benefit liabilities | 1,924 | 1,611 |
Held-for-sale liabilities | – | 2,560 |
Insurance-related liabilities | 36 | 194 |
Lease liabilities | 4,673 | 4,764 |
Negotiable instruments | 1,702 | 1,684 |
Payable to brokers, dealers and clients | 8,270 | 8,065 |
Payroll and related compensation | 11,781 | 9,089 |
Precious metals certificates | 743 | 775 |
Provisions | 793 | 644 |
Short-term borrowings of subsidiaries | – | 4,507 |
Taxes payable | 2,398 | 2,962 |
Other | 7,264 | 5,339 |
$ 94,677 | $ 96,022 |
Subordinated debentures
The debentures are unsecured obligations and are subordinated in right of payment to the claims of depositors and certain other
creditors. The amounts presented below are net of our own holdings in these debentures, and include the impact of fair value
hedges used for managing interest rate risk.
(Millions of Canadian dollars, except percentage and foreign currency) | As at | ||||
Denominated in | |||||
Earliest par value | Interest | foreign currency | October 31 | October 31 | |
Maturity | redemption date | rate | (millions) | 2024 | 2023 |
January 27, 2026 (1) | 4.65% | US$ 1,500 | $ 2,026 | $ 1,939 | |
July 25, 2029 (1), (2) | July 25, 2024 | 2.74% | – | 1,459 | |
December 23, 2029 (1) | December 23, 2024 | 2.88% (3) | 1,495 | 1,442 | |
February 1, 2033 (1) | February 1, 2028 | 5.01% (4) | 1,461 | 1,418 | |
June 30, 2030 (1) | June 30, 2025 | 2.09% (5) | 1,219 | 1,249 | |
November 3, 2031 (1) | November 3, 2026 | 2.14% (6) | 1,708 | 1,637 | |
May 3, 2032 (1) | May 3, 2027 | 2.94% (7) | 955 | 919 | |
January 28, 2033 (1) | January 28, 2028 | 1.67% (8) | 935 | 868 | |
April 3, 2034 (1) | April 3, 2029 | 5.10% (9) | 2,020 | – | |
August 8, 2034 (1) | August 8, 2029 | 4.83% (10) | 1,263 | – | |
October 1, 2083 | Any interest payment date | (11) | 224 | 224 | |
November 1, 2083 | Any interest payment date | (12) | 9 | – | |
June 29, 2085 | Any interest payment date | (13) | US$ 174 | 241 | 241 |
$ 13,556 | $ 11,396 | ||||
Deferred financing costs | (10) | (10) | |||
$ 13,546 | $ 11,386 | ||||
(1)
The notes include non-viability contingent capital (NVCC) provisions, necessary for the notes to qualify as Tier 2 regulatory capital under Basel III. NVCC provisions
require the conversion of the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial
government in Canada publicly announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is convertible into common
shares pursuant to an automatic conversion formula with a multiplier of 1.5 and a conversion price based on the greater of: (i) a floor price of $5.00 (subject to
adjustment in certain circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading price of our common
shares on the Toronto Stock Exchange. The number of shares issued is determined by multiplying the par value of the note (including accrued and unpaid interest on
such note) by the multiplier and then dividing the total by the conversion price.
(2)
On July 25, 2024, we redeemed all $1,500 million of our outstanding 2.74% subordinated debentures due July 25, 2029 for 100% of their principal amount plus interest
accrued to, but excluding, the redemption date.
(3)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.89% above the 3-month CDOR, subject to transition to an ABR due to
the interest rate benchmark reform.
(4)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 2.12% above the Daily Compounded CORRA.
(5)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.31% above the 3-month CDOR, subject to transition to an ABR due to
the interest rate benchmark reform.
(6)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.61% above the 3-month CDOR, subject to transition to an ABR due to
the interest rate benchmark reform.
(7)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.76% above the 3-month CDOR, subject to transition to an ABR due to
the interest rate benchmark reform.
(8)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 0.55% above the 3-month CDOR, subject to transition to an ABR due to
the interest rate benchmark reform.
(9)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.56% above the Daily Compounded CORRA.
(10)
Interest at stated interest rate until earliest par value redemption date, and thereafter at a rate of 1.55% above the Daily Compounded CORRA.
(11)
Interest at a rate of 0.50% plus the average of mid-market quotations for Government of Canada Treasury Bills maturing in or about 30 days from the date of quotation.
(12)
Interest at a rate of 0.75% plus the average of mid-market quotations for Government of Canada Treasury Bills maturing in or about 30 days from the date of quotation.
(13)
Interest at a rate of 0.25% above the U.S. dollar 3-month London Interbank Mean Rate (LIMEAN) under a synthetic methodology, subject to transition to 0.44911% plus
compounded SOFR for interest period commencing December 30, 2024 due to the interest rate benchmark reform. In the event of a reduction of the annual dividend we
declare on our common shares, the interest payable on the debentures is reduced pro rata to the dividend reduction and the interest reduction is payable with the
proceeds from the sale of newly issued common shares.
(continued)
Note 18
Subordinated debentures
226
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
All redemptions, cancellations and exchanges of subordinated debentures are subject to the consent and approval of OSFI.
Maturity schedule
The aggregate maturities of subordinated debentures, based on the maturity dates under the terms of issue, are as follows:
As at | |
October 31 | |
(Millions of Canadian dollars) | 2024 |
Within 1 year | $ – |
1 to 5 years | 2,026 |
5 to 10 years | 11,056 |
Thereafter | 474 |
$ 13,556 |
Equity
Authorized share capital
Preferred – An unlimited number of First Preferred Shares and Second Preferred Shares without nominal or par value, issuable in
series; provided that the maximum aggregate consideration for all First Preferred Shares outstanding at any time may not exceed
$30 billion, and for all Second Preferred Shares that may be issued may not exceed $5 billion.
Common – An unlimited number of shares without nominal or par value may be issued.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
227
Outstanding share capital
The following table details our common and preferred shares and other equity instruments outstanding.
| As at and for the year ended | |||||||
| October 31, 2024 | October 31, 2023 | ||||||
Number of | Dividends | Number of | Dividends | ||||
(Millions of Canadian dollars, except the number | shares | declared | shares | declared | |||
of shares and as otherwise noted) | (thousands) | Amount | per share | (thousands) | Amount | per share | |
Common shares issued | |||||||
Balance at beginning of period | 1,402,373 | $ 19,398 | 1,385,591 | $ 17,318 | |||
Issued in connection with share-based | |||||||
compensation plans (1) | 1,746 | 168 | 740 | 68 | |||
Issued in connection with dividend | |||||||
reinvestment plan | 11,850 | 1,460 | 16,042 | 2,012 | |||
Purchased for cancellation (2) | (889) | (13) | – | – | |||
Balance at end of period | 1,415,080 | $ | $ | 1,402,373 | $ | $ | |
Treasury – common shares | |||||||
Balance at beginning of period (3) | (1,862) | $ (231) | (2,680) | $ (334) | |||
Purchases | (43,995) | (5,302) | (30,195) | (3,556) | |||
Sales | 45,281 | 5,472 | 31,013 | 3,659 | |||
Balance at end of period (3) | (576) | $ (61) | (1,862) | $ (231) | |||
Common shares outstanding | 1,414,504 | $ 20,952 | 1,400,511 | $ 19,167 | |||
Preferred shares and other equity | |||||||
instruments issued | |||||||
First preferred (4) | |||||||
Non-cumulative, fixed rate | |||||||
Series BH | 6,000 | $ 150 | $ 1.23 | 6,000 | $ 150 | $ 1.23 | |
Series BI | 6,000 | 150 | 1.23 | 6,000 | 150 | 1.23 | |
Non-cumulative, 5-Year Rate Reset | |||||||
Series AZ (5) | – | – | 0.69 | 20,000 | 500 | 0.93 | |
Series BB (6) | – | – | 0.68 | 20,000 | 500 | 0.91 | |
Series BD | 24,000 | 600 | 0.80 | 24,000 | 600 | 0.80 | |
Series BF | 12,000 | 300 | 0.75 | 12,000 | 300 | 0.75 | |
Series BO | 14,000 | 350 | 1.40 | 14,000 | 350 | 1.20 | |
Series BT | 750 | 750 | 4.20% | 750 | 750 | 4.20% | |
Series BU (7) | 750 | 750 | 7.408% | – | – | – | |
Series BW (8) | 600 | 600 | 6.698% | – | – | – | |
Non-cumulative, fixed rate/floating rate | |||||||
Series C-2 (9) | – | – | US$ – | 15 | 23 | US$ 67.50 | |
Other equity instruments | |||||||
Limited recourse capital notes (LRCNs) (10) | |||||||
Series 1 (11) | 1,750 | 1,750 | 4.50% | 1,750 | 1,750 | 4.50% | |
Series 2 (11) | 1,250 | 1,250 | 4.00% | 1,250 | 1,250 | 4.00% | |
Series 3 (11) | 1,000 | 1,000 | 3.65% | 1,000 | 1,000 | 3.65% | |
Series 4 (11) | 1,000 | 1,370 | 7.50% | – | – | – | |
69,100 | $ 9,020 | 106,765 | $ 7,323 | ||||
Treasury – preferred shares and other | |||||||
equity instruments | |||||||
Balance at beginning of period (3) | (9) | $ (9) | (12) | $ (5) | |||
Purchases | (1,921) | (1,225) | (1,924) | (519) | |||
Sales | 1,943 | 1,245 | 1,927 | 515 | |||
Balance at end of period (3) | 13 | $ 11 | (9) | $ (9) | |||
Preferred shares and other equity | |||||||
instruments outstanding | 69,113 | $ 9,031 | 106,756 | $ 7,314 | |||
(1)
Includes fair value adjustments to stock options of $10 million (October 31, 2023 – $6 million).
(2)
On June 10, 2024, we announced a normal course issuer bid (NCIB) to purchase up to 30 million of our common shares, commencing on June 12, 2024 and continuing until
June 11, 2025, or such earlier date as we complete the repurchase of all shares permitted under the bid. During the year ended October 31, 2024, under the NCIB we
purchased for cancellation common shares at a total fair value of $140 million (average cost of $157.74 per share), with a book value of $13 million (book value of
$14.83 per share). As at October 31, 2023, we did not have an active NCIB. During the year ended October 31, 2023, we did not purchase for cancellation any common shares.
(3)
Positive amounts represent a short position and negative amounts represent a long position.
(4)
First Preferred Shares were issued at $25 per share with the exception of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BT (Series BT), Non-Cumulative
5-Year Rate Reset First Preferred Share Series BU (Series BU) and Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BW (Series BW) which were issued at
$1,000 per share, and Non-Cumulative Fixed Rate/Floating Rate First Preferred Shares Series C-2 (Series C-2) which were issued at US$1,000 per share (equivalent to
US$25 per depositary share).
(5)
On May 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series AZ at a redemption price of
$25.00 per share.
(6)
On August 24, 2024, we redeemed all 20 million of our issued and outstanding Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BB at a redemption price of
$25.00 per share.
(7)
On January 25, 2024, we issued 750 thousand Series BU to certain institutional investors, at a price of $1,000 per share, for total gross proceeds of $750 million.
(8)
On July 24, 2024, we issued 600 thousand Series BW to certain institutional investors, at a price of $1,000 per share, for total gross proceeds of $600 million.
(9)
On November 7, 2023, we redeemed all of our issued and outstanding Series C-2 for cash at a redemption price of US$1,000 per share (equivalent to US$25 per depositary
share). Concurrently, we redeemed all 615 thousand Series C-2 depositary shares, each of which represents a one-fortieth interest in a C-2 share.
(10)
Each series of LRCNs (LRCN Series) were issued at a $1,000 per note, with the exception of LRCN Series 4 which were issued at US$1,000 per note. The number of shares represent
the number of notes issued and the dividends declared per share represent the annual interest rate percentage applicable to the notes issued as at the reporting date.
(11)
In connection with the issuance of LRCN Series 1, we issued $1,750 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BQ (Series BQ); in
connection with the issuance of LRCN Series 2, we issued $1,250 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BR (Series BR); in connection
with the issuance of LRCN Series 3, we issued $1,000 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BS (Series BS); in connection with the
issuance of LRCN Series 4, we issued US$1,000 million of Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BV (Series BV). The Series BQ, BR and BS
preferred shares were issued at a price of $1,000 per share and the Series BV preferred shares were issued at a price of US$1,000 per share. These preferred shares were
issued to a consolidated trust to be held as trust assets in connection with each respective LRCN Series.
(continued)
Note 19
Equity
228
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Significant terms and conditions of preferred shares and other equity instruments
Current | Earliest | |||||
Current | dividend | redemption | Redemption | |||
As at October 31, 2024 | annual yield | Premium | per share (1) | date (2) | Issue date | price (2), (3) |
Preferred shares | ||||||
First preferred | ||||||
Non-cumulative, fixed rate | ||||||
Series BH (4) | 4.90% | $ .306250 | November 24, 2020 | June 5, 2015 | $ 26.00 | |
Series BI (4) | 4.90% | .306250 | November 24, 2020 | July 22, 2015 | 26.00 | |
Non-cumulative, 5-Year | ||||||
Rate Reset (5) | ||||||
Series BD (4) | 3.20% | 2.74% | .200000 | May 24, 2020 | January 30, 2015 | 25.00 |
Series BF (4) | 3.00% | 2.62% | .187500 | November 24, 2020 | March 13, 2015 | 25.00 |
Series BO (4) | 5.885% | 2.38% | .367813 | February 24, 2024 | November 2, 2018 | 25.00 |
Series BT (4) | 4.20% | 2.71% | 21.000000 | January 24, 2027 | November 5, 2021 | 1,000.00 |
Series BU (4) | 7.408% | 3.90% | 37.040000 | January 25, 2029 | January 25, 2024 | 1,000.00 |
Series BW (4) | 6.698% | 3.40% | 33.490000 | October 24, 2029 | July 24, 2024 | 1,000.00 |
Other equity instruments | ||||||
Limited recourse capital | ||||||
notes (6) | ||||||
Series 1 (7) | 4.50% | 4.137% | n.a. | October 24, 2025 | July 28, 2020 | $1,000.00 |
Series 2 (8) | 4.00% | 3.617% | n.a. | January 24, 2026 | November 2, 2020 | 1,000.00 |
Series 3 (9) | 3.65% | 2.665% | n.a. | October 24, 2026 | June 8, 2021 | 1,000.00 |
Series 4 (10) | 7.50% | 2.887% | n.a. | May 2, 2029 | April 24, 2024 | US$1,000.00 |
(1)
With the exception of Series BT, BU and BW, non-cumulative preferential dividends of each Series are payable quarterly, as and when declared by the Board of Directors,
on or about the 24th day of February, May, August and November. In the case of Series BT, BU and BW, non-cumulative preferential dividends are payable semi-annually,
as and when declared by the Board of Directors.
(2)
Subject to the consent of OSFI and the requirements of the
Bank Act
(Canada), we may, on or after the dates specified above, redeem First Preferred Shares. In the case
of Series BD, BF, and BO, these may be redeemed for cash at a price per share of $25 if redeemed on the earliest redemption date and on the same date every fifth year
thereafter. In the case of Series BH and BI, these may be redeemed for cash at a price per share of $26 if redeemed during the 12 months commencing on the earliest
redemption date and decreasing by $0.25 each 12-month period thereafter to a price per share of $25 if redeemed four years from the earliest redemption date or
thereafter. In the case of Series BT and BW, these may be redeemed for cash at a price of $1,000 if redeemed during the earliest redemption period of January 24, 2027
to February 24, 2027 and October 24, 2029 to November 24, 2029, respectively, and during the same redemption period every fifth year thereafter. In the case of Series BU,
these may be redeemed for cash at a price of $1,000 if redeemed during the earliest redemption period from January 25, 2029 to February 24, 2029 and during the period
from January 24 to and including February 24 every fifth year thereafter.
(3)
Subject to the consent of OSFI and the requirements of the
Bank Act
(Canada), we may purchase the First Preferred Shares of each Series for cancellation at the lowest
price or prices at which, in the opinion of the Board of Directors, such shares are obtainable.
(4)
The preferred shares include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversion of
the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly
announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each preferred share is convertible into common shares pursuant to an
automatic conversion formula with a multiplier of 1 and with a conversion price based on the greater of: (i) a floor price of $5 (subject to adjustment in certain
circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading price of our common shares on the Toronto Stock
Exchange. The number of shares issued is determined by dividing the preferred share value by the conversion price.
(5)
The dividend rate will reset on the earliest redemption date or on the last day of the redemption period, as applicable, and every fifth year thereafter at a rate equal to
the 5-year Government of Canada bond yield plus the premium indicated. The holders of Series BD, BF and BO shares have the option to convert their shares into non-
cumulative floating rate First Preferred Shares subject to certain conditions on the earliest redemption date and every fifth year thereafter at a rate equal to the three-
month Government of Canada Treasury Bill rate plus the premium indicated.
(6)
The current annual yield on each LRCN Series represents the annual interest rate applicable to the notes issued as at the reporting date. The payments of interest and
principal in cash on the LRCN Series are made at our discretion, and non-payment of interest and principal in cash does not constitute an event of default. In the event of
(i) non-payment of interest on any interest payment date, (ii) non-payment of the redemption price in case of a redemption of a LRCN Series, (iii) non-payment of
principal at the maturity of a LRCN Series, or (iv) an event of default on a LRCN Series, holders of such LRCN Series will have recourse only to the assets (Trust Assets)
held by a third-party trustee in a consolidated trust in respect of such LRCN Series and each such noteholder will be entitled to receive its pro rata share of the Trust
Assets. In such an event, the delivery of the Trust Assets for each LRCN Series will represent the full and complete extinguishment of our obligations under the related
LRCN Series. The LRCNs include NVCC provisions, necessary for the shares to qualify as Tier 1 regulatory capital under Basel III. NVCC provisions require the conversion
of the instrument into a variable number of common shares in the event that OSFI deems the Bank non-viable or a federal or provincial government in Canada publicly
announces that the Bank has accepted or agreed to accept a capital injection. In such an event, each note is automatically redeemed and the redemption price will be
satisfied by the delivery of Trust Assets, which will consist of common shares pursuant to an automatic conversion of the series of preferred shares that were issued
concurrently with the related LRCN Series. Each series of preferred shares include an automatic conversion formula with a conversion price based on the greater of: (i) a
floor price of $5 (subject to adjustment in certain circumstances), and (ii) the current market price of our common shares based on the volume weighted average trading
price of our common shares on the Toronto Stock Exchange. The number of common shares issued in respect of each series of preferred shares will be determined by
dividing the preferred share value ($1,000 plus declared and unpaid dividends) by the conversion price. The number of common shares delivered to each noteholder will
be based on such noteholder’s pro rata interest in the Trust Assets. Subject to the consent of OSFI, we may purchase LRCNs for cancellation at such price or prices and
upon such terms and conditions as we in our absolute discretion may determine, subject to any applicable law restricting the purchase of notes.
(7)
LRCN Series 1 bear interest at a fixed rate of 4.5% per annum until November 24, 2025, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 4.137% until maturity on November 24, 2080. The interest is paid semi-annually on or about the 24
th
day of May and November. LRCN
Series 1 is redeemable during the period from October 24 to and including November 24, commencing in 2025 and every fifth year thereafter to the extent we redeem
Series BQ pursuant to their terms and subject to the consent of OSFI and requirements of the
Bank Act
(Canada).
(8)
LRCN Series 2 bear interest at a fixed rate of 4.0% per annum until February 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 3.617% until maturity on February 24, 2081. The interest is paid semi-annually on or about the 24th day of February and August. LRCN
Series 2 is redeemable during the period from January 24 to and including February 24, commencing in 2026 and every fifth year thereafter to the extent we redeem
Series BR pursuant to their terms and subject to the consent of OSFI and requirements of the
Bank Act
(Canada).
(9)
LRCN Series 3 bear interest at a fixed rate of 3.65% per annum until November 24, 2026, and thereafter at a rate per annum, reset every fifth year, equal to the 5-Year
Government of Canada Yield plus 2.665% until maturity on November 24, 2081. The interest is paid semi-annually on or about the 24th day of May and November. LRCN
Series 3 is redeemable during the period from October 24 to and including November 24, commencing in 2026 and every fifth year thereafter to the extent we redeem
Series BS pursuant to their terms and subject to the consent of OSFI and requirements of the
Bank Act
(Canada).
(10)
LRCN Series 4 bear interest at a fixed rate of 7.5% per annum until May 2, 2029, and thereafter at a rate per annum, reset every fifth year, equal to the U.S. Treasury Rate
plus 2.887% until maturity on May 2, 2084. The interest is paid quarterly on or about the 2nd day of February, May, August and November. LRCN Series 4 is redeemable on
May 2, 2029 and on each 2nd day of February, May, August and November thereafter to the extent we redeem Series BV pursuant to their terms and subject to the consent
of OSFI and requirements of the
Bank Act
(Canada).
n.a.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
229
Restrictions on the payment of dividends
We are prohibited by the
Bank Act
(Canada) from declaring any dividends on our preferred or common shares when we are, or
would be placed as a result of the declaration, in contravention of the capital adequacy and liquidity regulations or any
regulatory directives issued under the Act. We may not pay dividends on our common shares at any time unless all dividends to
which preferred shareholders are then entitled have been declared and paid or set apart for payment.
Currently, these limitations do not restrict the payment of dividends on our preferred or common shares.
Dividend reinvestment plan
Our dividend reinvestment plan (DRIP) provides common and preferred shareholders with a means to receive additional
common shares rather than cash dividends. The plan is only open to shareholders residing in Canada or the U.S. The
requirements of our DRIP are satisfied through either open market share purchases or shares issued from treasury. During the
third and fourth quarters of 2024 and the first quarter of the year ended October 31, 2023, the requirements of our DRIP were
satisfied through open market share purchases. During the first and second quarters of 2024 and the second, third and fourth
quarters of the year ended October 31, 2023, the requirements of our DRIP were satisfied through shares issued from treasury at a
Shares available for future issuances
As at October 31, 2024, 14.6 million common shares are available for future issue relating to our DRIP and potential exercise of
stock options and awards outstanding. In addition, we may issue up to 38.9 million common shares from treasury under the
Share-based compensation
Stock option plans
We have stock option plans for certain key employees. Under the plans, options are periodically granted to purchase common
shares. The exercise price for the majority of the grants is determined as the higher of the volume-weighted average of the
trading prices per board lot (100 shares) of our common shares on the Toronto Stock Exchange (i) on the day preceding the day
of grant; and (ii) the five consecutive trading days immediately preceding the day of grant. The exercise price for the remaining
grants is the closing market share price of our common shares on the New York Stock Exchange on the date of grant. All options
vest over a four-year period, and are exercisable for a period not exceeding 10 years from the grant date.
The compensation expense recorded for the year ended October 31, 2024, in respect of the stock option plans was $16 million
(October 31, 2023 – $11 million). The compensation expense related to non-vested options was $9 million at October 31, 2024
(October 31, 2023 – $5 million), to be recognized over the weighted average period of 2.0 years (October 31, 2023 – 1.9 years).
Analysis of the movement in the number and weighted average exercise price of options is set out below:
A summary of our stock option activity and related information
| For the year ended | ||||
| October 31, 2024 | October 31, 2023 | |||
Number of | Weighted | Number of | Weighted | |
options | average | options | average | |
(Canadian dollars per share except share amounts) | (thousands) | exercise price (1) | (thousands) | exercise price (1) |
Outstanding at beginning of period | 7,767 | $ 106.01 | 7,509 | $ 100.07 |
Granted | 1,666 | 125.37 | 1,088 | 131.64 |
Exercised (2), (3) | (1,720) | 91.03 | (740) | 84.76 |
Forfeited in the period | (338) | 124.64 | (90) | 113.55 |
Outstanding at end of period | 7,375 | $ 113.00 | 7,767 | $ 106.01 |
Exercisable at end of period | 3,212 | $ 97.02 | 3,830 | $ 91.84 |
(1)
The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rates as of October 31, 2024 and October 31, 2023.
For foreign currency-denominated options exercised during the year, the weighted average exercise prices are translated using exchange rates as at the settlement date.
(2)
Cash received for options exercised during the year was $157 million (October 31, 2023 – $63 million) and the weighted average share price at the date of exercise was
$144.69 (October 31, 2023 – $130.94).
(3)
New shares were issued for all stock options exercised in 2024 and 2023.
Options outstanding as at October 31, 2024 by range of exercise price
| Options outstanding | Options exercisable | ||||
Weighted | |||||
average | |||||
Number | Weighted | remaining | Number | Weighted | |
(Canadian dollars per share except | outstanding | average | contractual | exercisable | average |
share amounts and years) | (thousands) | exercise price (1) | life (years) | (thousands) | exercise price (1) |
$73.14 – $90.23 | 932 | $ 83.87 | 1.64 | 932 | $ 83.87 |
$96.55 – $102.33 | 994 | 98.76 | 3.55 | 994 | 98.76 |
$104.70 – $106.00 | 1,862 | 105.44 | 5.69 | 1,286 | 105.19 |
$125.37 – $125.37 | 1,553 | 125.37 | 9.12 | – | – |
$129.99 – $131.64 | 2,034 | 130.77 | 7.59 | – | – |
7,375 | $ 113.00 | 6.14 | 3,212 | $ 97.02 | |
(1)
The weighted average exercise prices reflect the conversion of foreign currency-denominated options at the exchange rate as of October 31, 2024.
(continued)
Note 20
Share-based compensation
230
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The weighted average fair value of options granted during the year ended October 31, 2024 was estimated at $13.60 (October 31,
2023 – $11.51). This was determined by applying the Black-Scholes model on the date of grant, taking into account the specific
terms and conditions under which the options are granted, such as the vesting period and expected share price volatility
estimated by considering the historic average share price volatility over a historical period corresponding to the expected option
life. The following assumptions were used to determine the fair value of options granted:
Weighted average assumptions
For the year ended | ||
October 31 | October 31 | |
(Canadian dollars per share except percentages and years) | 2024 | 2023 |
Share price at grant date | $ 128.62 | $ 130.16 |
Risk-free interest rate | 3.29% | 2.89% |
Expected dividend yield | 4.20% | 3.79% |
Expected share price volatility | 16% | 14% |
Expected life of option | 6 Years | 6 Years |
Employee savings and share ownership plans
We offer many employees an opportunity to own our common shares through savings and share ownership plans. Under these
plans, the employees can generally contribute between 1% and 10% of their annual salary or benefit base for commission-based
employees. For each contribution between 1% and 6%, we will match 50% of the employee contributions in our common shares.
For the RBC Dominion Securities Savings Plan, our maximum annual contribution is $4,500 per employee. For the RBC U.K. Share
Incentive Plan, our maximum annual contribution is £1,500 per employee. For the year ended October 31, 2024, we contributed
$154 million (October 31, 2023 – $139 million), under the terms of these plans, towards the purchase of our common shares. As at
October 31, 2024, an aggregate of 35 million common shares were held under these plans (October 31, 2023 – 36 million common
shares).
Deferred share and other plans
We offer deferred share unit plans to executives, certain key employees and non-employee directors of the Bank. Under these
plans, participants may choose to receive all or a percentage of their annual variable short-term incentive bonus, commission, or
directors’ fee in the form of deferred share units (DSUs). The participants must elect to participate in the plan prior to the
beginning of the year. DSUs earn dividend equivalents in the form of additional DSUs at the same rate as dividends on common
shares. The participant is not allowed to convert the DSUs until retirement or termination of employment/directorship. The cash
value of the DSUs is equivalent to the market value of common shares when conversion takes place.
We also offer unit awards for certain key employees within Capital Markets. The bonus is invested as RBC share units and a
specified percentage vests on a specified number of anniversary dates each year. Each vested amount is paid in cash and is
based on the original number of share units granted plus accumulated dividends, valued using the average closing price of RBC
common shares during the five trading days immediately preceding the vesting date.
We offer performance deferred share award plans to certain key employees, all of which vest at the end of three years. Upon
vesting, the award is generally paid in cash and is based on the original number of RBC share units granted plus accumulated
dividends valued using the average closing price of RBC common shares during the five trading days immediately preceding the
vesting date. A portion of the award under certain plans may be increased or decreased up to 25%, depending on our total
shareholder return compared to a defined peer group of global financial institutions.
We maintain non-qualified deferred compensation plans for certain key employees in the U.S. These plans allow eligible
employees to defer a portion of their annual income and a variety of productivity and recruitment bonuses and allocate the
deferrals among specified fund choices, including a RBC Share Account fund that tracks the value of our common shares.
The following table presents the units granted under the deferred share and other plans for the year.
Units granted under deferred share and other plans
| For the year ended | ||||
October 31, 2024 | October 31, 2023 | |||
Weighted | Weighted | |||
Units | average | Units | average | |
granted | fair value | granted | fair value | |
(Units and per unit amounts) | (thousands) | per unit | (thousands) | per unit |
Deferred share unit plans | 550 | $ 134.64 | 466 | $ 130.61 |
Capital Markets compensation plan unit awards | 3,053 | 167.79 | 4,231 | 110.32 |
Performance deferred share award plans | 2,848 | 123.83 | 2,362 | 131.41 |
Deferred compensation plans | 86 | 132.99 | 103 | 126.81 |
Other share-based plans | 1,108 | 129.38 | 1,506 | 130.12 |
7,645 | $ 143.07 | 8,668 | $ 120.79 | |
Our liabilities for the awards granted under the deferred share and other plans are measured at fair value, determined based on
the quoted market price of our common shares and specified fund choices as applicable. Annually, our obligation is increased by
additional units earned by plan participants, and is reduced by forfeitures, cancellations, and the settlement of vested units. In
addition, our obligation is impacted by fluctuations in the market price of our common shares and specified fund units. For
performance deferred share award plans, the estimated outcome of meeting the performance conditions also impacts our
obligation.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
231
The following tables present the units that have been earned by the participants, our obligations for these earned units
under the deferred share and other plans, and the related compensation expenses (recoveries) recognized for the year.
Obligations under deferred share and other plans
| As at | ||||
October 31, 2024 | October 31, 2023 | |||
Units | Carrying | Units | Carrying | |
(Millions of Canadian dollars except units) | (thousands) | amount | (thousands) | amount |
Deferred share unit plans | 6,243 | $ 1,051 | 5,786 | $ 641 |
Capital Markets compensation plan unit awards | 9,593 | 1,603 | 9,934 | 1,098 |
Performance deferred share award plans | 6,068 | 1,022 | 5,808 | 643 |
Deferred compensation plans (1) | 2,109 | 355 | 2,654 | 294 |
Other share-based plans | 2,394 | 363 | 2,135 | 234 |
26,407 | $ 4,394 | 26,317 | $ 2,910 | |
(1)
Excludes obligations not determined based on the quoted market price of our common shares.
Compensation expenses recognized under deferred share and other plans
For the year ended | ||
October 31 | October 31 | |
(Millions of Canadian dollars) | 2024 | 2023 |
Deferred share unit plans | $ 395 | $ (51) |
Capital Markets compensation plan unit awards | 643 | 126 |
Performance deferred share award plans | 685 | 216 |
Deferred compensation plans | 797 | 213 |
Other share-based plans | 276 | 104 |
$ 2,796 | $ 608 | |
Income taxes
Components of tax expense
For the year ended | ||
October 31 | October 31 | |
2024 | 2023 | |
(Millions of Canadian dollars) | (Restated – Note 2) | |
Income taxes (recoveries) in Consolidated Statements of Income | ||
Current tax | ||
Tax expense for current year | $ 4,829 | $ 4,074 |
Adjustments for prior years | 298 | 851 |
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of | ||
a prior period | (4) | (100) |
5,123 | 4,825 | |
Deferred tax | ||
Origination and reversal of temporary difference | (1,118) | (1,308) |
Effects of changes in tax rates | – | (47) |
Adjustments for prior years | (383) | 125 |
Recoveries arising from previously unrecognized tax loss, tax credit or temporary difference of | ||
a prior period, net | – | (24) |
(1,501) | (1,254) | |
3,622 | 3,571 | |
Income taxes (recoveries) in Consolidated Statements of Comprehensive Income and Changes | ||
in Equity | ||
Other comprehensive income | ||
Net unrealized gains (losses) on debt securities and loans at fair value through other | ||
comprehensive income | 302 | (10) |
Provision for credit losses recognized in income | (3) | – |
Reclassification of net losses (gains) on debt securities and loans at fair value through other | ||
comprehensive income to income | (39) | (39) |
Unrealized foreign currency translation gains (losses) | (11) | 20 |
Net foreign currency translation gains (losses) from hedging activities | (195) | (306) |
Reclassification of losses (gains) on net investment hedging activities to income | – | 45 |
Net gains (losses) on derivatives designated as cash flow hedges | 105 | 190 |
Reclassification of losses (gains) on derivatives designated as cash flow hedges to income | (309) | 59 |
Remeasurement gains (losses) on employee benefit plans | 202 | (68) |
Net gains (losses) from fair value change due to credit risk on financial liabilities designated at | ||
fair value through profit or loss | (399) | (222) |
Net gains (losses) on equity securities designated at fair value through other comprehensive | ||
income | 43 | 24 |
Share-based compensation awards | (12) | 2 |
Distributions on other equity instruments and issuance costs | (69) | (59) |
(385) | (364) | |
Total income taxes | $ 3,237 | $ 3,207 |
(continued)
Note 21
Income taxes
232
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
The following is an analysis of the differences between the income tax expense reflected in the Consolidated Statements of
Income and the amounts calculated at the Canadian statutory tax rate.
Reconciliation to statutory tax rate
| For the year ended | ||||||
(Millions of Canadian dollars, except for percentage amounts) | October 31, 2024 | October 31, 2023 (Restated – Note 2) | ||||
Income taxes at Canadian statutory tax rate | $ | 5,502 | 27.7% | $ | 5,037 | 27.7% |
Increase (decrease) in income taxes resulting from: | ||||||
Lower average tax rate applicable to subsidiaries | (1,971) | (9.9) | (2,081) | (11.4) | ||
Tax-exempt income from securities | (52) | (0.3) | (337) | (1.9) | ||
Tax rate change | – | – | 1,050 | 5.8 | ||
Other | 143 | 0.7 | (98) | (0.6) | ||
Income taxes in Consolidated Statements of Income / effective tax rate | $ | 3,622 | 18.2% | $ | 3,571 | 19.6% |
The effective income tax rate of 18.2% decreased 140 bps, primarily due to the impact of the Canada Recovery Dividend (CRD) in
the prior year. The CRD is a one-time 15% tax for 2022 determined based on the average taxable income above $1 billion for
taxation years 2020 and 2021 and payable in equal installments over five years. The CRD impact was partially offset by the impact
of lower average tax rate applicable to subsidiaries and lower tax-exempt income from securities.
Deferred tax assets and liabilities result from tax loss and tax credit carryforwards and temporary differences between the tax
basis of assets and liabilities and their carrying amounts on our Consolidated Balance Sheets.
| As at and for the year ended October 31, 2024 | ||||||||||
Net asset | Change | Change | Exchange | Net asset | ||||||
beginning of | through | through | rate | Acquisitions/ | end of | |||||
(Millions of Canadian dollars) | period (1) | equity | profit or loss | differences | disposals | period | ||||
Net deferred tax asset/(liability) | ||||||||||
Allowance for credit losses | $ 1,174 | $ | 4 | $ | 217 | $ | (1) | $ | – | $ 1,394 |
Deferred compensation | 1,522 | 12 | 614 | 19 | – | 2,167 | ||||
Business realignment charges | 23 | – | 16 | – | 4 | 43 | ||||
Tax loss and tax credit carryforwards | 261 | – | 71 | (1) | – | 331 | ||||
Deferred (income) expense | 651 | 4 | 641 | 2 | 20 | 1,318 | ||||
Financial instruments measured at fair value | ||||||||||
through other comprehensive income | (321) | 164 | (1) | – | – | (158) | ||||
Premises and equipment and intangibles | (967) | – | 136 | (22) | (623) | (1,476) | ||||
Pension and post-employment related | (333) | (206) | 20 | (1) | 57 | (463) | ||||
Other | 680 | – | (213) | – | 163 | 630 | ||||
$ 2,690 | $ | (22) | $ 1,501 | $ | (4) | $ (379) | $ 3,786 | |||
Comprising | ||||||||||
Deferred tax assets | $ 3,116 | $ 4,328 | ||||||||
Deferred tax liabilities | (426) | (542) | ||||||||
$ 2,690 | $ 3,786 | |||||||||
| As at and for the year ended October 31, 2023 | ||||||||||||
Net asset | Change | Change | Exchange | Net asset | ||||||||
beginning of | through | through | rate | Acquisitions/ | end of | |||||||
(Millions of Canadian dollars) | period (1) | equity | profit or loss (1) | differences | disposals | period | ||||||
Net deferred tax asset/(liability) | ||||||||||||
Allowance for credit losses | $ | 987 | $ | – | $ | 185 | $ | 2 | $ | – | $ | 1,174 |
Deferred compensation | 1,504 | (2) | (2) | 22 | – | 1,522 | ||||||
Business realignment charges | 12 | – | 11 | – | – | 23 | ||||||
Tax loss and tax credit carryforwards | 322 | – | (57) | 1 | (5) | 261 | ||||||
Deferred (income) expense | 6 | (3) | 661 | (11) | (2) | 651 | ||||||
Financial instruments measured at fair value | ||||||||||||
through other comprehensive income | (16) | (330) | – | 25 | – | (321) | ||||||
Premises and equipment and intangibles | (1,234) | – | 302 | (27) | (8) | (967) | ||||||
Pension and post-employment related | (435) | 68 | 37 | 1 | (4) | (333) | ||||||
Other | 535 | 4 | 117 | 24 | – | 680 | ||||||
| $ | 1,681 | $ | (263) | $ | 1,254 | $ | 37 | $ | (19) | $ | 2,690 | |
Comprising | ||||||||||||
Deferred tax assets | $ | 2,120 | $ | 3,116 | ||||||||
Deferred tax liabilities | (439) | (426) | ||||||||||
| $ | 1,681 | $ | 2,690 | |||||||||
(1)
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
233
The tax loss and tax credit carryforwards amount of deferred tax assets primarily relates to losses and tax credits in our
Canadian, U.S., and Caribbean operations. Deferred tax assets of $331 million were recognized at October 31, 2024 (October 31,
2023 – $261 million) in respect of tax losses and tax credits incurred in current or preceding years for which recognition is
dependent on the projection of future taxable profits. Management’s forecasts support the assumption that it is probable that
the results of future operations will generate sufficient taxable income to utilize the deferred tax assets. The forecasts rely on
continued liquidity and capital support to our business operations, including tax planning strategies implemented in relation to
such support.
As at October 31, 2024, unused tax losses and tax credits of $412 million and $18 million (October 31, 2023 – $417 million and
$18 million) available to be offset against potential tax adjustments or future taxable income were not recognized as deferred tax
assets. There are no unused tax losses that will expire within one year (October 31, 2023 – $nil), or in two to four years (October 31,
2023 – $nil) and there are $412 million of unused tax losses that will expire after four years (October 31, 2023 – $417 million). There
are no tax credits that will expire in one year (October 31, 2023 – $nil), or in two to four years (October 31, 2023 – $nil) and there are
$18 million that will expire after four years (October 31, 2023 – $18 million).
The amount of temporary differences associated with investments in subsidiaries, branches and associates and interests in
joint ventures for which deferred tax liabilities have not been recognized in the parent bank is $30 billion as at October 31, 2024
(October 31, 2023 – $22 billion).
Pillar Two legislation
The Budget Implementation Act, 2024, No. 1 (the BIA), introduced as Bill C-69 and tabled by the Government of Canada, received
Royal Assent and was enacted on June 20, 2024. The BIA included the Global Minimum Tax Act (the GMTA) which implemented
into Canadian law certain measures relating to the Organisation for Economic Co-operation and Development’s two-pillar plan to
combat tax base erosion and profit shifting, including a 15% global minimum corporate tax on certain multinational enterprises
(Pillar Two). A number of other countries in which RBC operates have also enacted Pillar Two legislation. The GMTA and
corresponding foreign Pillar Two legislation will be effective for our fiscal year beginning November 1, 2024.
Pillar Two income taxes may arise in or in relation to jurisdictions where the operations of RBC have an effective tax rate below
15%. This is anticipated to occur mainly in certain Caribbean and European jurisdictions. Had Pillar Two legislation in all relevant
jurisdictions applied to the fiscal year ended October 31, 2024, RBC’s effective tax rate would have increased by an estimated 1% to
2%. We continue to actively monitor the legislative developments in this area for each jurisdiction in which RBC operates.
Tax examinations and assessments
During the year, we received a reassessment from the Canada Revenue Agency (CRA) in respect of the 2019 taxation year, which
suggested that Royal Bank of Canada owes additional taxes of approximately $277 million as the CRA denied the deductibility of
certain dividends. The reassessment received is consistent with the reassessments received for taxation years 2012 to 2018 of
approximately $1,856 million of additional income taxes and the reassessments received for taxation years 2009 to 2011 of
approximately $434 million of additional income taxes and interest in respect of the same matter. These amounts represent the
maximum additional taxes owing for those years.
Legislative amendments introduced in the 2015 Canadian Federal Budget resulted in disallowed deduction of dividends from
transactions with Taxable Canadian Corporations including those hedged with Tax Indifferent Investors, namely pension funds
and non-resident entities with prospective application effective May 1, 2017. The dividends to which the reassessments relate
include both dividends in transactions similar to those which are the target of the 2015 legislative amendments and dividends
which are unrelated to the legislative amendments.
It is possible that the CRA will reassess us for significant additional income tax for subsequent years on the same basis. In all
Earnings per share
For the year ended | ||||
October 31 | October 31 | |||
2024 | 2023 | |||
(Millions of Canadian dollars, except share and per share amounts) | (Restated – Note 2) | |||
Basic earnings per share | ||||
Net income | $ | 16,240 | $ | 14,612 |
Dividends on preferred shares and distributions on other equity instruments | (322) | (236) | ||
Net income attributable to non-controlling interests | (10) | (7) | ||
Net income available to common shareholders | $ | 15,908 | $ | 14,369 |
Weighted average number of common shares (in thousands) | 1,411,903 | 1,391,020 | ||
Basic earnings per share (in dollars) | $ | 11.27 | $ | 10.33 |
Diluted earnings per share | ||||
Net income available to common shareholders | $ | 15,908 | $ | 14,369 |
Weighted average number of common shares (in thousands) | 1,411,903 | 1,391,020 | ||
Stock options (1) | 1,833 | 1,483 | ||
Issuable under other share-based compensation plans | 19 | 26 | ||
Average number of diluted common shares (in thousands) | 1,413,755 | 1,392,529 | ||
Diluted earnings per share (in dollars) | $ | 11.25 | $ | 10.32 |
(1)
The dilutive effect of stock options was calculated using the treasury stock method. When the exercise price of options outstanding is greater than the average market
price of our common shares, the options are excluded from the calculation of diluted earnings per share. For the year ended October 31, 2024, no outstanding options
were excluded from the calculation of diluted earnings per share. For the year ended October 31, 2023, an average of 2,119,045 outstanding options with an average
234
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Guarantees, commitments, pledged assets and contingencies
Guarantees and commitments
We use guarantees and other off-balance sheet credit instruments to meet the financing needs of our clients.
The table below summarizes our maximum exposure to credit losses related to our guarantees and commitments provided
to third parties. The maximum exposure to credit risk relating to a guarantee is the maximum risk of loss if there was a total
default by the guaranteed parties, without consideration of possible recoveries under recourse provisions, insurance policies or
from collateral held or pledged. The maximum exposure to credit risk relating to a commitment to extend credit is the full amount
of the commitment. In both cases, the maximum risk exposure is significantly greater than the amount recognized as a liability in
our Consolidated Balance Sheets.
Maximum exposure | ||||
to credit losses | ||||
As at | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Financial guarantees | ||||
Financial standby letters of credit | $ | 27,222 | $ | 23,314 |
Commitments to extend credit | ||||
Backstop liquidity facilities | 53,090 | 51,544 | ||
Credit enhancements | 3,482 | 3,226 | ||
Documentary and commercial letters of credit | 559 | 291 | ||
Other commitments to extend credit | 321,836 | 301,132 | ||
Other credit-related commitments | ||||
Securities lending indemnifications | 81,347 | 95,055 | ||
Performance guarantees | 12,283 | 7,503 | ||
Sponsored member guarantees | 50,241 | 14,043 | ||
Other | 446 | 203 | ||
Our credit review process, our policy for requiring collateral security, and the types of collateral security held are generally the
same for guarantees and commitments as for loans. Our clients generally have the right to request settlement of, or draw on, our
guarantees and commitments within one year. However, certain guarantees can only be drawn if specified conditions are met.
These conditions, along with collateral requirements, are described below. We believe that it is highly unlikely that all or
substantially all of the guarantees and commitments will be drawn or settled within one year, and contracts may expire without
being drawn or settled.
Financial guarantees
Financial standby letters of credit
Financial standby letters of credit represent irrevocable assurances that we will make payments in the event that a client cannot
meet its payment obligations to the third party. For certain guarantees, the guaranteed party can request payment from us even
though the client has not defaulted on its obligations. These guarantees generally have a term of five to seven years.
Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is
generally the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to
the risk of the borrower and the specifics of the transaction. Collateral security may include cash, securities and other assets
pledged.
Commitments to extend credit
Backstop liquidity facilities
Backstop liquidity facilities are provided to ABCP conduit programs administered by us and third parties as an alternative source
of financing in the event that such programs are unable to access commercial paper markets, or in limited circumstances, when
predetermined performance measures of the financial assets acquired or financed by these programs are not met. We also
provide backstop liquidity facilities to certain third-party commercial mortgage securitization vehicles. The average remaining
term of these liquidity facilities is approximately four years.
The terms of the backstop liquidity facilities do not require us to advance money to these programs in the event of
bankruptcy or insolvency and generally do not require us to purchase non-performing or defaulted assets.
Credit enhancements
We provide partial credit enhancement to multi-seller ABCP programs administered by us to protect commercial paper investors
in the event that the collections on the underlying assets together with the transaction-specific credit enhancements or the
liquidity facilities prove to be insufficient to pay for maturing commercial paper. Each of the asset pools is structured to achieve
a high investment grade credit profile through credit enhancements required to be provided by the third-party sellers related to
each transaction. The average remaining term of the credit facilities provided by RBC is approximately three years.
Documentary and commercial letters of credit
Documentary and commercial letters of credit, which are written undertakings by us on behalf of a client authorizing a third party
to draw drafts on us up to a stipulated amount under specific terms and conditions, where some are collateralized based on the
underlying agreement with the client and others are collateralized by cash deposits or other assets of the client.
Other commitments to extend credit
Commitments to extend credit represent unused portions of authorizations to extend credit in the form of loans, reverse
repurchase agreements, bankers’ acceptances or letters of credit where we do not have the ability to unilaterally withdraw the
credit extended to the borrower.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
235
Other credit-related commitments
Securities lending indemnifications
In securities lending transactions, we act as an agent for the owner of a security, who agrees to lend the security to a borrower
for a fee, under the terms of a pre-arranged contract. The borrower must fully collateralize the security loaned at all times. As
part of this custodial business, an indemnification may be provided to securities lending customers to ensure that the fair value
of securities loaned will be returned in the event that the borrower fails to return the borrowed securities and the collateral held
is insufficient to cover the fair value of those securities. These indemnifications normally terminate without being drawn upon.
The term of these indemnifications varies, as the securities loaned are recallable on demand. Collateral held for our securities
lending transactions typically includes cash, securities that are issued or guaranteed by the Canadian government, U.S.
government or other OECD countries or high quality debt or equity instruments.
Performance guarantees
Performance guarantees represent irrevocable assurances that we will make payments to third-party beneficiaries in the event
that a client fails to perform under a specified non-financial contractual obligation. Such obligations typically include works and
service contracts, performance bonds, and warranties related to international trade. The term of these guarantees can range up
to three to seven years.
Our policy for requiring collateral security with respect to these instruments and the types of collateral security held is
generally the same as for loans. When collateral security is taken, it is determined on an account-by-account basis according to
the risk of the borrower and the specifics of the transaction. Collateral security may include cash, securities and other assets
pledged.
Sponsored member guarantees
For certain overnight repurchase and reverse repurchase transactions, we act as a sponsoring member to eligible clients to clear
transactions through the Fixed Income Clearing Corporation (FICC). We also provide a guarantee to FICC for the prompt and full
payment and performance of our sponsored member clients’ respective obligations under the FICC rules. The guarantees are
fully collateralized by cash and securities issued or guaranteed by the U.S. government.
Indemnifications
In the normal course of our operations, we provide indemnifications which are often standard contractual terms to
counterparties in transactions such as purchase and sale contracts, fiduciary, agency, licensing, custodial and service
agreements, clearing system arrangements, participation as a member of exchanges, director/officer contracts and leasing
transactions. These indemnification agreements may require us to compensate the counterparties for costs incurred as a result
of changes in laws and regulations (including tax legislation) or as a result of litigation claims or statutory sanctions that may be
suffered by the counterparty as a consequence of the transaction. The terms of these indemnification agreements vary based on
the contract. The nature of the indemnification agreements prevents us from making a reasonable estimate of the maximum
potential amount we could be required to pay to counterparties. Historically, we have not made any significant payments under
such indemnifications.
Uncommitted amounts
Uncommitted amounts represent undrawn credit facilities for which we have the ability to unilaterally withdraw the credit
extended to the borrower at any time. These include both retail and commercial commitments. As at October 31, 2024, the total
balance of uncommitted amounts was $470 billion (October 31, 2023 – $398 billion).
Other commitments
We invest in private companies, directly or through third-party investment funds, including venture capital funds, private equity
funds, Small Business Investment Companies, real estate funds and Low Income Housing Tax Credit funds. These funds are
generally structured as closed-end limited partnerships wherein we hold a limited partner interest. For the year ended
October 31, 2024, we have unfunded commitments of $1,922 million (October 31, 2023 – $1,832 million) representing the aggregate
amount of cash we are obligated to contribute as capital to these partnerships under the terms of the relevant contracts.
In the ordinary course of business, we pledge assets and enter into collateral agreements with terms and conditions that are
usual and customary to our regular lending, borrowing and trading activities recorded on our Consolidated Balance Sheets. The
following are examples of our general terms and conditions on pledged assets and collateral:
•
The risks and rewards of the pledged assets reside with the pledgor.
•
The pledged asset is returned to the pledgor when the necessary conditions have been satisfied.
•
The right of the pledgee to sell or re-pledge the asset is dependent on the specific agreement under which the collateral
is pledged.
•
If there is no default, the pledgee must return the comparable asset to the pledgor upon satisfaction of the obligation.
We are also required to provide intraday pledges to the Bank of Canada when we use a real-time electronic wire transfer system
that continuously processes all Canadian dollar large-value or time-critical payments throughout the day. The pledged assets
earmarked for our Canadian dollar large-value or time-critical payments are normally released back to us at the end of the
settlement cycle each day. Therefore, the pledged assets amount is not included in the following table. For the year ended
October 31, 2024, we had on average $1 billion of assets pledged intraday to the Bank of Canada on a daily basis (October 31, 2023 –
$1 billion). There are infrequent occasions where we are required to take an overnight advance from the Bank of Canada to cover a
settlement requirement, in which case an equivalent value of the pledged assets would be used to secure the advance. There were
no overnight advances taken on October 31, 2024 and October 31, 2023.
(continued)
Note 23
Guarantees, commitments, pledged assets and contingencies
236
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Assets pledged against liabilities and collateral assets held or re-pledged
As at | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Sources of pledged assets and collateral | ||||
Bank assets | ||||
Loans | $ | 105,577 | $ | 102,944 |
Securities | 105,061 | 107,122 | ||
Other assets | 31,583 | 28,953 | ||
242,221 | 239,019 | |||
Client assets (1) | ||||
Collateral received and available for sale or re-pledging | 539,630 | 502,109 | ||
Less: not sold or re-pledged | (30,767) | (6,876) | ||
508,863 | 495,233 | |||
$ | 751,084 | $ | 734,252 | |
Uses of pledged assets and collateral | ||||
Securities borrowing and lending | $ | 198,887 | $ | 168,681 |
Obligations related to securities sold short | 46,088 | 46,260 | ||
Obligations related to securities loaned or sold under repurchase agreements | 305,788 | 331,784 | ||
Securitization | 39,769 | 38,686 | ||
Covered bonds | 71,307 | 69,802 | ||
Derivative transactions | 50,100 | 40,352 | ||
Foreign governments and central banks | 8,469 | 9,111 | ||
Clearing systems, payment systems and depositories | 11,261 | 10,709 | ||
Other | 19,415 | 18,867 | ||
$ | 751,084 | $ | 734,252 | |
(1)
Legal and regulatory matters
We are a large global institution that is subject to many different complex legal and regulatory requirements that continue to
evolve. We are and have been subject to a variety of legal proceedings, including civil claims and lawsuits, regulatory
examinations, investigations, audits and requests for information by various governmental regulatory agencies and law
enforcement authorities in various jurisdictions. Some of these matters may involve novel legal theories and interpretations and
may be advanced under criminal as well as civil statutes, and some proceedings could result in the imposition of civil, regulatory
enforcement or criminal penalties. We review the status of all proceedings on an ongoing basis and will exercise judgment in
resolving them in such manner as we believe to be in our best interest. In many proceedings, it is inherently difficult to determine
whether any loss is probable or to reliably estimate the amount of any loss. This is an area of significant judgment and
uncertainty and the extent of our financial and other exposure to these proceedings after taking into account current provisions
could be material to our results of operations in any particular period though we do not believe that the ultimate resolution of
any such matter will have a material effect on our consolidated financial condition. The following is a description of our
significant legal proceedings. Based on the facts currently known, except as may otherwise be noted, it is not possible at this
time for us to predict the ultimate outcome of these proceedings or the timing of their resolution.
London interbank offered rate (LIBOR) litigation
Royal Bank of Canada and other U.S. dollar panel banks have been named as defendants in private lawsuits filed in the U.S. with
respect to the setting of U.S. dollar LIBOR including a number of class action lawsuits which have been consolidated before the
U.S. District Court for the Southern District of New York. The complaints in those private lawsuits assert claims against us and
other panel banks under various U.S. laws, including U.S. antitrust laws, the U.S. Commodity Exchange Act, and state law. On
December 30, 2021, the U.S. Court of Appeals for the Second Circuit issued an opinion affirming in part and reversing in part
certain district court rulings that had dismissed a substantial portion of the consolidated class action on jurisdictional grounds
and lack of standing. The Second Circuit remanded the matter to the district court for further proceedings consistent with its
decision.
On July 21, 2023, Royal Bank of Canada and several other defendants executed a settlement agreement resolving the LIBOR
class action brought on behalf of certain plaintiffs that purchased U.S. dollar LIBOR-based instruments. The settlement was
granted final court approval on December 12, 2023.
In mid-2024, Royal Bank of Canada and several other defendants executed settlement agreements resolving the two
remaining LIBOR putative class actions in which Royal Bank of Canada was a defendant. These class actions were brought on
behalf of certain plaintiffs who transacted in Eurodollar futures contracts and/or related options on exchanges (the Exchange
Action), and certain plaintiffs who originated or purchased LIBOR-linked loans (the Lender Action). The settlements in both the
Exchange Action and Lender Action were granted final court approval on September 5, 2024 and October 17, 2024, respectively.
Royal Bank of Canada remains a defendant in certain LIBOR-related individual actions.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
237
Royal Bank of Canada Trust Company (Bahamas) Limited proceedings
On April 13, 2015, a French investigating judge notified Royal Bank of Canada Trust Company (Bahamas) Limited (RBC Bahamas)
of the issuance of an
ordonnance de renvoi
referring RBC Bahamas and other unrelated persons to the French
tribunal
correctionnel
to face the charge of complicity in estate tax fraud relating to actions taken relating to a trust for which RBC
Bahamas serves as trustee. RBC Bahamas contested the charge in the French court. On January 12, 2017, the French court
acquitted all parties including RBC Bahamas and on June 29, 2018, the French appellate court affirmed the acquittals. The
acquittals were appealed and on January 6, 2021, the French Supreme Court issued a judgment reversing the decision of the
French Court of Appeal and sent the case back to the French Court of Appeal for rehearing. The retrial before the Court of Appeal
commenced on September 18, 2023 and on March 5, 2024, the Court of Appeal rendered a judgment of conviction (the Conviction)
against RBC Bahamas and the other parties. RBC Bahamas was ordered by the Court of Appeal to pay a fine of
€
5,000 in
connection with the Conviction. In addition, the Court of Appeal ordered that certain of those convicted of complicity in the
matter, including RBC Bahamas, are jointly liable for the allegedly unpaid inheritance taxes owing, plus penalties and interest
(such aggregate amount will be determined in separate proceedings before the tax courts, to which RBC Bahamas is not a party).
RBC Bahamas believes that its actions did not violate French law and has appealed the Conviction to the French Supreme Court.
Under French law, upon the filing of an appeal by RBC Bahamas, the Conviction, as well as its effects (fine and joint liability) were
stayed pending the outcome of the appeal.
On October 28, 2016, Royal Bank of Canada was granted an exemption by the U.S. Department of Labor that allows Royal
Bank of Canada and its current and future affiliates to continue to qualify for the Qualified Professional Asset Manager (QPAM)
exemption under the Employee Retirement Income Security Act despite any potential conviction of RBC Bahamas in the French
proceeding for a temporary one-year period from the date of conviction. On December 11, 2023, the U.S. Department of Labor
published a technical correction to the prior one-year exemption reflecting the fact that the pending French Court of Appeal’s
decision would be rendered by an appellate court, and not the district court. As a result of the Conviction, the temporary
one-year period commenced on March 5, 2024. Royal Bank of Canada is seeking longer term relief from the Department of Labor.
In addition, the Department of Labor has proposed amendments to the QPAM exemption. If the amendments are finalized as
proposed, it is unclear how they would affect Royal Bank of Canada’s ability to obtain relief beyond the one-year temporary
exemption period.
RBC Bahamas continues to review the trustee’s and the trust’s legal obligations, including liabilities and potential liabilities
under applicable tax and other laws.
U.S. communications recordkeeping inquiry
In October 2022, our subsidiary RBC Capital Markets, LLC received a request for information and documents from the Securities
and Exchange Commission (SEC) concerning compliance with records preservation requirements relating to business
communications exchanged on electronic channels that have not been approved by RBC Capital Markets, LLC. RBC Capital
Markets, LLC is cooperating with the SEC’s inquiry. As has been publicly reported, the SEC is conducting similar inquiries into
recordkeeping practices at multiple other financial institutions. On August 14, 2024, the SEC entered into a settlement with RBC
Capital Markets, LLC, pursuant to which RBC Capital Markets, LLC paid a US$45 million civil penalty.
U.K. Competition and Markets Authority investigation
In November 2018, the U.K. Competition and Markets Authority (CMA) started an investigation of Royal Bank of Canada and RBC
Europe Limited relating to alleged anti-competitive conduct between 2009 and 2013, involving U.K. government bonds and related
derivatives. In May 2023, the CMA issued a statement of objections to Royal Bank of Canada and RBC Europe Limited, and certain
other financial institutions. Royal Bank of Canada and RBC Europe Limited are contesting the CMA’s case.
In June 2023, RBC Europe Limited and RBC Capital Markets, LLC, among other financial institutions, were named as
defendants in a putative class action filed in the U.S. by plaintiffs alleging anti-competitive conduct in the U.K. government bonds
market. In September 2023, the defendants filed a motion to dismiss the complaint which motion was granted, without prejudice,
in September 2024. Subsequently, on October 31, 2024, RBC Europe Limited, RBC Capital Markets, LLC and certain of the other
defendants executed an agreement to dismiss the action, with prejudice, against those defendants. The settlement agreement
remains subject to court approval.
Vacation pay class action
On December 29, 2022, the Ontario Superior Court of Justice certified a class in an action against RBC Dominion Securities
Limited and RBC Dominion Securities Inc. (together, RBC DS). The action commenced in July 2020, asserting claims relating to
statutory vacation pay and public holiday pay for investment advisors, associates and assistants in our Canadian Wealth
Management business, with the exception of those employed in Alberta and British Columbia.
Other matters
We are a defendant in a number of other actions alleging that certain of our practices and actions were improper. The lawsuits
involve a variety of complex issues and the timing of their resolution is varied and uncertain. Management believes that we will
ultimately be successful in resolving these lawsuits, to the extent that we are able to assess them, without material financial
impact to the Bank. This is, however, an area of significant judgment and the potential liability resulting from these lawsuits
could be material to our results of operations in any particular period.
Various other legal proceedings are pending that challenge certain of our other practices or actions. While this is an area of
significant judgment and some matters are currently inestimable, we consider that the aggregate liability, to the extent that we
are able to assess it, resulting from these other proceedings will not be material to our consolidated financial position or results
238
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Related party transactions
Related parties
Related parties include associated companies over which we have direct or indirect control or have significant influence and
post-employment benefit plans for the benefit of our employees. Related parties also include key management personnel (KMP),
the Board of Directors (Directors), close family members of KMP and Directors, and entities which are, directly or indirectly,
controlled by or jointly controlled by KMP, Directors or their close family members.
KMP are defined as those persons having authority and responsibility for planning, directing and controlling our activities,
directly or indirectly. They include the senior members of our organization called the Group Executive (GE). The GE is comprised
of the President and Chief Executive Officer, and the Chief Officers and Group Heads, who report directly to him. The Directors do
not plan, direct, or control the activities of the entity; they oversee the management of the business and provide stewardship.
Compensation of Key management personnel and Directors
For the year ended | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 (1) | 2023 | ||
Salaries and other short-term employee benefits (2) | $ | 31 | $ | 23 |
Post-employment benefits (3) | 3 | 2 | ||
Share-based payments | 67 | 39 | ||
$ | 101 | $ | 64 | |
(1)
During the year ended October 31, 2024, certain executives, who were members of the Bank’s GE as at October 31, 2023, left the Bank and therefore were no longer part of
KMP. Compensation for the year ended October 31, 2024, attributable to the former executives, including benefits and share-based payments relating to awards granted
in prior years was $13 million.
(2)
Includes the portion of the annual variable short-term incentive bonus that certain executives elected to receive in the form of DSUs. Refer to Note 20 for further details.
Directors receive retainers but do not receive salaries and other short-term employee benefits.
(3)
Directors do not receive post-employment benefits.
Stock options, share-based awards and shares held by Key management personnel, Directors and their close family
members
| As at | ||||||
October 31, 2024 (1) | October 31, 2023 (2) | |||||
No. of | No. of | |||||
(Millions of Canadian dollars, except number of units) | units held | Value | units held | Value | ||
Stock options (3) | 2,891,158 | $ | 161 | 2,805,471 | $ | 26 |
Other non-option share-based awards (3) | 1,108,143 | 185 | 991,909 | 110 | ||
RBC common and preferred shares | 208,721 | 35 | 181,648 | 20 | ||
4,208,022 | $ | 381 | 3,979,028 | $ | 156 | |
(1)
During the year ended October 31, 2024, certain executives, who were members of the Bank’s GE as at October 31, 2023, left the Bank and therefore were no longer part of
KMP. Total shareholdings held upon their departure was 79,445 units with a value of $12 million.
(2)
During the year ended October 31, 2023, certain directors, who were members of the Board of Directors as at October 31, 2022, retired. Total shareholdings and options
held upon their departure was 32,958 units with a value of $4 million.
(3)
Directors do not receive stock options or any other non-option share-based awards.
Transactions, arrangements and agreements involving Key management personnel, Directors and their close family
members
In the normal course of business, we provide certain banking services to KMP, Directors and their close family members. These
transactions were made on substantially the same terms, including interest rates and security, as for comparable transactions
with persons of a similar standing and did not involve more than the normal risk of repayment or present other unfavourable
features.
As at October 31, 2024, total loans to KMP, Directors and their close family members were $16 million (October 31, 2023 –
$18 million). We have no Stage 3 allowance or provision for credit losses relating to these loans as at and for the years ended
October 31, 2024 and October 31, 2023. No guarantees, pledges or commitments have been given to KMP, Directors or their close
Joint ventures and associates
In the normal course of business, we provide certain banking and financial services to our joint ventures and associates,
including loans, interest and non-interest bearing deposits. These transactions meet the definition of related party transactions
and were made on substantially the same terms as for comparable transactions with third parties.
As at October 31, 2024, loans to joint ventures and associates were $184 million (October 31, 2023 – $217 million) and deposits
from joint ventures and associates were $58 million (October 31, 2023 – $77 million). We have no stage 3 allowance or provision
for credit losses relating to loans to joint ventures and associates as at and for the years ended October 31, 2024 and October 31,
2023. $1 million of guarantees have been given to joint ventures and associates for the year ended October 31, 2024 (October 31,
2023 – $1 million).
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
239
Other transactions, arrangements or agreements involving joint ventures and associates
As at or for the year ended | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars) | 2024 | 2023 | ||
Commitments and other contingencies | $ | 1,226 | $ | 1,089 |
Other fees received for services rendered | 73 | 55 | ||
Other fees paid for services received | 119 | 108 | ||
Results by business segment
For management purposes, based on the products and services offered, we are organized into five business segments: Personal
Banking, Commercial Banking, Wealth Management, Insurance and Capital Markets. Effective the fourth quarter of 2024, the
Personal & Commercial Banking segment became two standalone business segments: Personal Banking and Commercial
Banking. With this change, RBC Direct Investing moved from the previous Personal Banking segment to the Wealth Management
segment. From a reporting perspective, there were no changes to our Capital Markets and Insurance segments. Comparative
results have been revised to conform to our new basis of segment presentation.
Personal Banking provides a broad suite of financial products and services to retail clients for their day-to-day banking, investing
and financing needs through three geographies: Canada, the Caribbean and the U.S. In Canada, we provide a broad suite of
financial products and services through our large branch network, ATMs, and mobile sales network. In the Caribbean and the
U.S., we offer a broad range of financial products and services in targeted markets. Non-interest income in Personal Banking
mainly comprises Mutual fund revenue, Service charges and Card service revenue.
Commercial Banking offers a wide range of lending, deposit and transaction banking products and services to Canadian
companies and foreign businesses in Canada at every stage of their business lifecycle through digital solutions, customized
banking advice and services by experienced advisors, relationship managers and our broad team of specialists. Non-interest
income in Commercial Banking mainly comprises Service charges, Credit fees, and Foreign exchange revenue, other than trading.
Wealth Management primarily serves high net worth and ultra-high net worth individual and institutional clients with a
comprehensive suite of advice-based solutions and investment strategies, as well as personalized banking relationships and
self-directed investment service through our lines of businesses in Canada, the U.S., the U.K., Europe and Asia, including
Canadian Wealth Management, U.S. Wealth Management (including City National), Global Asset Management, International
Wealth Management, and Investor Services. Non-interest income in Wealth Management mainly comprises Investment
management and custodial fees, Mutual fund revenue and Securities brokerage commissions.
Insurance has operations in Canada and globally providing a wide range of advice and solutions for individual and business
clients including life, health, wealth, property & casualty, travel, group benefits, annuities, and reinsurance. We offer our
products and services through a wide variety of channels, comprised of mobile advisors, advice centres, RBC Insurance
®
stores
and digital platforms, as well as through independent brokers and partners. We also operate in reinsurance and retrocession
markets globally offering life, critical illness, disability and longevity reinsurance products. Non-interest income in Insurance
primarily comprises Insurance service result and Insurance investment result.
Capital Markets provides expertise in advisory & origination, sales & trading, lending & financing and transaction banking to
corporations, institutional clients, asset managers, private equity firms and governments globally in our two main business lines:
Corporate & Investment Banking and Global Markets. In North America, we offer a full suite of products and services which
include equity and debt origination and distribution, advisory services, and sales & trading. Outside North America, we have a
targeted strategic presence in the U.K. & Europe, Australia, Asia & other markets aligned to our global expertise. In the U.K. &
Europe, we offer a diversified set of capabilities in key industry sectors of focus. In Australia and Asia, we compete with global
and regional investment banks in targeted areas aligned to our global expertise, including fixed income distribution and
currencies trading, secured financing, as well as corporate and investment banking. Non-interest income in Capital Markets
mainly includes Underwriting and other advisory fees, Trading revenue and Credit fees.
All other enterprise level activities that are not allocated to these five business segments, such as certain treasury and liquidity
management activities, including amounts associated with unattributed capital, and consolidation adjustments, including the
elimination of the taxable equivalent basis (teb) gross-up amounts, are included in Corporate Support. Teb adjustments gross up
income from certain tax-advantaged sources from Canadian taxable corporate dividends received on or before December 31,
2023 and U.S. tax credit investments recorded in Capital Markets to their effective tax equivalent value with the corresponding
offset recorded in the provision for income taxes. Management believes that these teb adjustments are necessary for Capital
Markets to reflect how it is managed and enhances the comparability of revenue across our taxable and tax-advantaged sources.
Our use of teb adjustments may not be comparable to similarly adjusted amounts at other financial institutions. The teb
adjustment for the year ended October 31, 2024 was $294 million (October 31, 2023 – $559 million). Gains (losses) on economic
hedges of our U.S. Wealth Management (including City National) share-based compensation plans, which are reflected in
revenue, and related variability in share-based compensation expense driven by changes in the fair value of liabilities relating to
these plans are also included in Corporate Support as this presentation more closely aligns with how we view business
For geographic reporting, our segments are grouped into Canada, the U.S. and Other International. Transactions are primarily
recorded in the location that best reflects the risk due to negative changes in economic conditions and prospects for growth due
to positive economic changes. This location frequently corresponds with the location of the legal entity through which the
business is conducted and the location of our clients. Transactions are recorded in the local currency and are subject to foreign
(continued)
Note 26
Results by business segment
240
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Management reporting framework
Our management reporting framework is intended to measure the performance of each business segment as if it were a stand-
alone business and reflects the way that the business segment is managed. This approach is intended to ensure that our
business segments’ results include all applicable revenue and expenses associated with the conduct of their business and
depicts how management views those results. We regularly monitor these segment results for the purpose of making decisions
about resource allocation and performance assessment. These items do not impact our consolidated results.
The expenses in each business segment may include costs or services directly incurred or provided on their behalf at the
enterprise level. For other costs not directly attributable to one of our business segments, we use a management reporting
framework that uses assumptions and methodologies for allocating overhead costs and indirect expenses to our business
segments and that assists in the attribution of capital and the transfer pricing of funds to our business segments in a manner that
consistently measures and aligns the economic costs with the underlying benefits and risks of that specific business segment.
Activities and business conducted between our business segments are generally at market rates. All other enterprise level
activities that are not allocated to our five business segments are reported under Corporate Support.
Our assumptions and methodologies used in our management reporting framework are periodically reviewed by us to ensure
that they remain valid. The capital attribution methodologies involve a number of assumptions that are revised periodically.
| For the year ended October 31, 2024 | ||||||||||||||||||||
Personal | Commercial | Wealth | Capital | Corporate | United | Other | ||||||||||||||
(Millions of Canadian dollars) | Banking (1) | Banking (1) | Management (1) | Insurance | Markets (1), (2) | Support (2) | Total | Canada | States | International | ||||||||||
Net interest income (3) | $ 12,438 | $ | 6,061 | $ | 4,979 | $ | – | $ | 3,183 | $ | 1,292 | $ | 27,953 | $ | 22,281 | $ | 4,268 | $ | 1,404 | |
Non-interest income | 4,904 | 1,321 | 14,647 | 1,224 | 8,829 | (1,534) | 29,391 | 13,566 | 10,766 | 5,059 | ||||||||||
Total revenue | 17,342 | 7,382 | 19,626 | 1,224 | 12,012 | (242) | 57,344 | 35,847 | 15,034 | 6,463 | ||||||||||
Provision for credit losses | 1,802 | 975 | 29 | 2 | 424 | – | 3,232 | 2,876 | 276 | 80 | ||||||||||
Non-interest expense | 7,485 | 2,512 | 15,312 | 285 | 7,016 | 1,640 | 34,250 | 17,321 | 12,553 | 4,376 | ||||||||||
Net income (loss) before | ||||||||||||||||||||
income taxes | 8,055 | 3,895 | 4,285 | 937 | 4,572 | (1,882) | 19,862 | 15,650 | 2,205 | 2,007 | ||||||||||
Income taxes (recoveries) | 2,134 | 1,077 | 863 | 208 | (1) | (659) | 3,622 | 4,384 | (675) | (87) | ||||||||||
Net income | $ | 5,921 | $ | 2,818 | $ | 3,422 | $ | 729 | $ | 4,573 | $ | (1,223) | $ | 16,240 | $ 11,266 | $ | 2,880 | $ | 2,094 | |
Non-interest expense | ||||||||||||||||||||
includes: | ||||||||||||||||||||
Depreciation and | ||||||||||||||||||||
amortization | $ | 1,105 | $ | 62 | $ | 1,223 | $ | 6 | $ | 528 | $ | (11) | $ | 2,913 | $ | 1,747 | $ | 846 | $ | 320 |
Impairment of other | ||||||||||||||||||||
intangibles | 21 | – | 23 | 2 | 22 | – | 68 | 44 | 22 | 2 | ||||||||||
Total assets | $ 555,029 | $ 187,142 | $ | 184,503 | $ 29,288 | $ 1,127,661 | $ 87,959 | $2,171,582 | $1,205,561 | $ 615,747 | $ | 350,274 | ||||||||
Total assets include: | ||||||||||||||||||||
Additions to premises and | ||||||||||||||||||||
equipment and | ||||||||||||||||||||
intangibles | $ 2,274 | $ | 740 | $ | 887 | $ | 11 | $ | 494 | $ | 680 | $ 5,086 | $ | 4,005 | $ | 769 | $ | 312 | ||
Total liabilities | $ 554,970 | $ 187,135 | $ | 183,055 | $ 29,158 | $ | 1,127,564 | $ (37,492) | $2,044,390 | |||||||||||
| For the year ended October 31, 2023 (Restated – Note 2) | ||||||||||||||||||||
Personal Commercial | Wealth | Capital | Corporate | United | Other | |||||||||||||||
(Millions of Canadian dollars) | Banking (4) | Banking (4) | Management (4) | Insurance | Markets (2) | Support (2) | Total | Canada | States | International | ||||||||||
Net interest income (3) | $ | 10,945 | $ | 4,771 | $ | 4,853 | $ | – | $ | 3,379 | $ | 1,181 | $ | 25,129 | $ | 18,752 | $ | 5,065 | $ | 1,312 |
Non-interest income | 4,526 | 1,261 | 13,308 | 1,010 | 7,672 | (1,442) | 26,335 | 12,241 | 8,563 | 5,531 | ||||||||||
Total revenue | 15,471 | 6,032 | 18,161 | 1,010 | 11,051 | (261) | 51,464 | 30,993 | 13,628 | 6,843 | ||||||||||
Provision for credit losses | 1,264 | 315 | 328 | – | 561 | – | 2,468 | 1,648 | 784 | 36 | ||||||||||
Non-interest expense | 6,813 | 2,143 | 14,387 | 293 | 6,509 | 668 | 30,813 | 14,972 | 11,177 | 4,664 | ||||||||||
Net income (loss) before | ||||||||||||||||||||
income taxes | 7,394 | 3,574 | 3,446 | 717 | 3,981 | (929) | 18,183 | 14,373 | 1,667 | 2,143 | ||||||||||
Income taxes (recoveries) | 1,976 | 992 | 753 | 168 | (158) | (160) | 3,571 | 4,707 | (1,103) | (33) | ||||||||||
Net income | $ | 5,418 | $ | 2,582 | $ | 2,693 | $ | 549 | $ | 4,139 | $ | (769) | $ | 14,612 | $ | 9,666 | $ | 2,770 | $ | 2,176 |
Non-interest expense | ||||||||||||||||||||
includes: | ||||||||||||||||||||
Depreciation and | ||||||||||||||||||||
amortization | $ | 951 | $ | 4 | $ | 1,240 | $ | 42 | $ | 509 | $ | – | $ | 2,746 | $ | 1,554 | $ | 836 | $ | 356 |
Impairment of other | ||||||||||||||||||||
intangibles | 13 | – | 81 | 1 | 2 | 11 | 108 | 28 | 65 | 15 | ||||||||||
Total assets | $ 498,533 | $ | 135,959 | $ | 180,781 | $ | 24,130 | $ | 1,100,172 | $ | 66,956 | $ 2,006,531 | $ 1,043,737 | $ 639,296 | $ | 323,498 | ||||
Total assets include: | ||||||||||||||||||||
Additions to premises and | ||||||||||||||||||||
equipment and | ||||||||||||||||||||
intangibles | $ | 463 | $ | – | $ | 1,008 | $ | 53 | $ | 311 | $ | 639 | $ | 2,474 | $ | 1,334 | $ | 700 | $ | 440 |
Total liabilities | $ 498,442 | $ | 135,956 | $ | 178,943 | $ | 24,895 | $ | 1,099,893 | $ (46,745) | $ 1,891,384 | |||||||||
(1)
On March 28, 2024, we completed the HSBC Canada transaction. HSBC Canada results have been consolidated from the closing date, and are included in our Personal
Banking, Commercial Banking, Wealth Management and Capital Markets segments. For further details, refer to Note 6
(2)
Taxable equivalent basis.
(3)
Interest revenue is reported net of interest expense as we rely primarily on net interest income as a performance measure.
(4)
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
241
Nature and extent of risks arising from financial instruments
We are exposed to credit, market and liquidity and funding risks as a result of holding financial instruments. Our risk
measurement and objectives, policies and methodologies for managing these risks are disclosed in the shaded text along with
those tables specifically marked with an asterisk (*) in the Credit risk section of Management’s Discussion and Analysis. These
shaded text and tables are an integral part of these Consolidated Financial Statements.
Concentrations of credit risk exist if a number of our counterparties are engaged in similar activities, are located in the same
geographic region or have comparable economic characteristics such that their ability to meet contractual obligations would be
similarly affected by changes in economic, political or other conditions.
Concentrations of credit risk indicate the relative sensitivity of our performance to developments affecting a particular
industry or geographic location. The amounts of credit exposure associated with certain of our on- and off-balance sheet
financial instruments are summarized in the following tables.
| As at October 31, 2024 | ||||||||||||
(Millions of Canadian dollars, | United | Other | ||||||||||
except percentage amounts) | Canada | % | States | % | Europe | % | International | % | Total | |||
On-balance sheet assets other than | ||||||||||||
derivatives (1) | $ 897,614 | 67% | $ 297,335 | 22% | $ | 88,394 | 7% | $ | 54,912 | 4% | $ 1,338,255 | |
Derivatives before master netting | ||||||||||||
agreements (2), (3) | 21,555 | 14% | 47,204 | 31% | 71,198 | 46% | 13,276 | 9% | 153,233 | |||
$ 919,169 | 61% | $ 344,539 | 23% | $ 159,592 | 11% | $ | 68,188 | 5% | $ 1,491,488 | |||
Off-balance sheet credit | ||||||||||||
instruments (4) | ||||||||||||
Committed and uncommitted (5) | $ 487,142 | 57% | $ 282,907 | 34% | $ | 51,516 | 6% | $ | 27,615 | 3% | $ | 849,180 |
Other | 82,910 | 48% | 67,322 | 39% | 18,162 | 11% | 3,145 | 2% | 171,539 | |||
$ 570,052 | 56% | $ 350,229 | 34% | $ | 69,678 | 7% | $ | 30,760 | 3% | $ 1,020,719 | ||
| As at October 31, 2023 | |||||||||||||
(Millions of Canadian dollars, | United | Other | |||||||||||
except percentage amounts) | Canada | % | States | % | Europe | % | International | % | Total | ||||
On-balance sheet assets other than | |||||||||||||
derivatives (1) | $ 798,259 | 66% | $ 294,670 | 24% | $ | 76,637 | 6% | $ | 50,147 | 4% | $ 1,219,713 | ||
Derivatives before master netting | |||||||||||||
agreements (2), (3) | 27,221 | 19% | 36,698 | 25% | 67,406 | 46% | 14,470 | 10% | 145,795 | ||||
$ 825,480 | 60% | $ 331,368 | 24% | $ 144,043 | 11% | $ | 64,617 | 5% | $ 1,365,508 | ||||
Off-balance sheet credit | |||||||||||||
instruments (4) | |||||||||||||
Committed and uncommitted (5) | $ 427,849 | 56% | $ 252,071 | 33% | $ | 51,393 | 8% | $ | 23,183 | 3% | $ | 754,496 | |
Other | 85,222 | 61% | 30,737 | 22% | 21,428 | 15% | 2,731 | 2% | 140,118 | ||||
$ 513,071 | 57% | $ 282,808 | 32% | $ | 72,821 | 8% | $ | 25,914 | 3% | $ | 894,614 | ||
(1)
Includes Assets purchased under reverse repurchase agreements and securities borrowed, Loans and Customers’ liability under acceptances. The largest concentrations
in Canada are Ontario at 57% (October 31, 2023 – 57%), Alberta, Saskatchewan and Manitoba at 13% (October 31, 2023 – 15%), British Columbia and the territories at 16%
(October 31, 2023 – 14%) and Quebec at 10% (October 31, 2023 – 10%). No industry accounts for more than 20% (October 31, 2023 – 20%) of total on-balance sheet credit
instruments, with the exception of Banking, which accounted for 24% (October 31, 2023 – 25%), and Government, which accounted for 28% (October 31, 2023 – 28%). The
classification of our sectors aligns with our view of credit risk by industry.
(2)
A further breakdown of our derivative exposures by risk rating and counterparty type is provided in Note 9.
(3)
Excludes valuation adjustments determined on a pooled basis.
(4)
Balances presented are contractual amounts representing our maximum exposure to credit risk.
(5)
Represents our maximum exposure to credit risk. Retail and wholesale commitments respectively comprise 40% and 60% of our total commitments (October 31, 2023 –
44% and 56%). The largest concentrations in the wholesale portfolio relate to Financial services at 14% (October 31, 2023 – 15%), Real estate and related at 12%
(October 31, 2023 – 12%), Investments at 10% (October 31, 2023 – 6%), Utilities at 10% (October 31, 2023 – 11%), and Other services at 7% (October 31, 2023 – 8%). The
Capital management
Regulatory capital and capital ratios
OSFI formally establishes risk-based capital and leverage minimums and Total Loss Absorbing Capacity (TLAC) ratios for deposit-
taking institutions in Canada. We are required to calculate our capital ratios using the Basel III framework. Under Basel III,
regulatory capital includes Common Equity Tier 1 (CET1), Tier 1 and Tier 2 capital. CET1 capital mainly consists of common shares,
retained earnings and other components of equity. Regulatory adjustments under Basel III include deductions of goodwill and
other intangibles, certain deferred tax assets, defined benefit pension fund assets, investments in banking, financial and
insurance entities, the shortfall of provisions to expected losses, prudential valuation adjustments, prepaid portfolio insurance
assets, non payment and non delivery of trades and equity investment in funds subject to the fall-back approach. Tier 1 capital
comprises predominantly CET1 and Additional Tier 1 items including non-cumulative preferred shares and LRCNs that meet
certain criteria. Tier 2 capital includes subordinated debentures that meet certain criteria, certain loan loss allowances and
non-controlling interests in subsidiaries’ Tier 2 instruments. Total capital is the sum of Tier 1 and Tier 2 capital. TLAC available is
defined as the sum of Total capital and external TLAC instruments. External TLAC instruments comprise predominantly senior
bail-in debt, which includes eligible senior unsecured debt with an original term to maturity of greater than 400 days and
remaining term to maturity of greater than 365 days.
(continued)
Note 28
Capital management
242
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Regulatory capital ratios are calculated by dividing CET1, Tier 1, Total capital and TLAC available by risk-weighted assets. The
leverage ratio is calculated by dividing Tier 1 capital by an exposure measure. The exposure measure consists of total assets
(excluding items deducted from Tier 1 capital) and certain off-balance sheet items converted into credit exposure equivalents.
Adjustments are also made to derivatives and secured financing transactions to reflect credit and other risks. The TLAC leverage
ratio is calculated by dividing TLAC available by the leverage ratio exposure.
During 2024 and 2023, we complied with all applicable capital, leverage and TLAC requirements, including the domestic stability
buffer, imposed by OSFI.
As at | ||||
October 31 | October 31 | |||
(Millions of Canadian dollars, except percentage amounts and as otherwise noted) | 2024 | 2023 | ||
Capital (1), (2) | ||||
CET1 capital | $ | 88,936 | $ | 86,611 |
Tier 1 capital | 97,952 | 93,904 | ||
Total capital | 110,487 | 104,952 | ||
Risk-weighted assets (RWA) used in calculation of capital ratios (1), (2) | ||||
Credit risk | $ 548,809 | $ 475,842 | ||
Market risk | 33,930 | 40,498 | ||
Operational risk | 89,543 | 79,883 | ||
Total RWA | $ | 672,282 | $ | 596,223 |
Capital ratios and Leverage ratio (1), (2) | ||||
CET1 ratio | 13.2% | 14.5% | ||
Tier 1 capital ratio | 14.6% | 15.7% | ||
Total capital ratio | 16.4% | 17.6% | ||
Leverage ratio | 4.2% | 4.3% | ||
Leverage ratio exposure | $ 2,344,228 | $ 2,179,590 | ||
TLAC available and ratios (1), (3) | ||||
TLAC available | $ | 196,659 | $ | 184,916 |
TLAC ratio | 29.3% | 31.0% | ||
TLAC leverage ratio | 8.4% | 8.5% | ||
(1)
As prior period restatements are not required by OSFI, there was no impact from the adoption of IFRS 17 on regulatory capital, RWA, capital ratios, leverage ratio, TLAC
available and TLAC ratios for periods prior to November 1, 2023.
(2)
Capital, RWA, and capital ratios are calculated using OSFI’s Capital Adequacy Requirements (CAR) guideline and the Leverage ratio is calculated using OSFI’s Leverage
Requirements (LR) guideline. Both the CAR guideline and LR guideline are based on the Basel III framework. The results for the year ended October 31, 2023 reflect our
adoption of the revised CAR and LR guidelines that came into effect in the second quarter of 2023, as further updated on October 20, 2023 as part of OSFI’s
implementation of the Basel III reforms. The results for the year ended October 31, 2024 also reflect our adoption of the revised market risk and CVA frameworks that
came into effect on November 1, 2023.
(3)
TLAC available and TLAC ratios are calculated using OSFI’s TLAC guideline. The TLAC standard is applied at the resolution entity level which for us is deemed to be
Royal Bank of Canada and its subsidiaries. A resolution entity and its subsidiaries are collectively called a resolution group. The TLAC ratio and TLAC leverage ratio are
Offsetting financial assets and financial liabilities
Offsetting within our Consolidated Balance Sheets may be achieved where financial assets and liabilities are subject to master
netting arrangements that provide the currently enforceable right of offset and where there is an intention to settle on a net
basis, or realize the assets and settle the liabilities simultaneously. For derivative contracts and repurchase and reverse
repurchase arrangements, this is generally achieved when there is a market mechanism for settlement (e.g., central counterparty
exchange or clearing house) which provides daily net settlement of cash flows arising from these contracts. Margin receivables
and margin payables are generally offset as they settle simultaneously through a market settlement mechanism.
Amounts that do not qualify for offsetting include master netting arrangements that only permit outstanding transactions
with the same counterparty to be offset in an event of default or occurrence of other predetermined events. Such master netting
arrangements include the International Swaps and Derivatives Association Master Agreement or certain derivative exchange or
clearing counterparty agreements for derivative contracts, global master repurchase agreements and global master securities
lending agreements for repurchase, reverse repurchase and other similar secured lending and borrowing arrangements.
The amount of financial collateral received or pledged subject to master netting arrangements or similar agreements that do
not qualify for offsetting refers to the collateral received or pledged to cover the net exposure between counterparties by
enabling the collateral to be realized in an event of default or the occurrence of other predetermined events. Certain amounts of
collateral are restricted from being sold or re-pledged unless there is an event of default or the occurrence of other
predetermined events.
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
243
The following tables provide the financial instrument amounts that have been offset on the Consolidated Balance Sheets and
the amounts that do not qualify for offsetting but are subject to enforceable master netting arrangements or similar agreements.
The amounts presented are not intended to represent our actual exposure to credit risk.
Financial instruments subject to enforceable master netting arrangements or similar agreements
| As at October 31, 2024 | |||||||||||||||
| Amounts subject to enforceable netting arrangements | |||||||||||||||
| Related amounts not | |||||||||||||||
| offset on the Consolidated | |||||||||||||||
| Balance Sheets (1) | |||||||||||||||
Amounts not | Net amounts | ||||||||||||||
Gross amounts | Gross amounts | Net amounts | Impact of | subject to | presented | ||||||||||
of recognized | offset on the | presented in the | master | enforceable | on the | ||||||||||
financial | Consolidated | Consolidated | netting | Financial | netting | Consolidated | |||||||||
(Millions of Canadian dollars) | instruments | Balance Sheets | Balance Sheets | agreements | collateral (2) | Net amounts | arrangements | Balance Sheets | |||||||
Financial assets | |||||||||||||||
Assets purchased under reverse | |||||||||||||||
repurchase agreements and | |||||||||||||||
securities borrowed | $ | 495,881 | $ | 145,078 | $ | 350,803 | $ | 112 | $ 349,044 | $ | 1,647 | $ | – | $ | 350,803 |
Derivative assets | 145,420 | 1,568 | 143,852 | 105,433 | 16,806 | 21,613 | 6,760 | 150,612 | |||||||
Other financial assets | 2,940 | 527 | 2,413 | 58 | 288 | 2,067 | – | 2,413 | |||||||
$ | 644,241 | $ | 147,173 | $ | 497,068 | $ | 105,603 | $ 366,138 | $ | 25,327 | $ | 6,760 | $ | 503,828 | |
Financial liabilities | |||||||||||||||
Obligations related to assets sold | |||||||||||||||
under repurchase agreements | |||||||||||||||
and securities loaned | $ | 450,399 | $ | 145,078 | $ | 305,321 | $ | 112 | $ 302,779 | $ | 2,430 $ | – | $ | 305,321 | |
Derivative liabilities | 151,564 | 1,568 | 149,996 | 105,433 | 17,727 | 26,836 | 13,767 | 163,763 | |||||||
Other financial liabilities | 1,941 | 527 | 1,414 | 58 | – | 1,356 | – | 1,414 | |||||||
$ | 603,904 | $ | 147,173 | $ | 456,731 | $ | 105,603 | $ 320,506 | $ | 30,622 | $ | 13,767 | $ | 470,498 | |
| As at October 31, 2023 | ||||||||||||||||
| Amounts subject to enforceable netting arrangements | ||||||||||||||||
| Related amounts not | ||||||||||||||||
| offset on the Consolidated | ||||||||||||||||
| Balance Sheets (1) | ||||||||||||||||
Amounts not | Net amounts | |||||||||||||||
Gross amounts | Gross amounts | Net amounts | Impact of | subject to | presented | |||||||||||
of recognized | offset on the | presented in the | master | enforceable | on the | |||||||||||
financial | Consolidated | Consolidated | netting | Financial | netting | Consolidated | ||||||||||
(Millions of Canadian dollars) | instruments | Balance Sheets | Balance Sheets | agreements | collateral (2) | Net amounts | arrangements | Balance Sheets | ||||||||
Financial assets | ||||||||||||||||
Assets purchased under reverse repurchase agreements and securities borrowed | ||||||||||||||||
$ | 436,617 | $ | 96,676 | $ | 339,941 | $ | 201 | $ | 336,112 | $ | 3,628 | $ | 250 | $ | 340,191 | |
Derivative assets | 138,318 | 1,544 | 136,774 | 89,889 | 22,310 | 24,575 | 5,676 | 142,450 | ||||||||
Other financial assets | 3,306 | 443 | 2,863 | 19 | 421 | 2,423 | – | 2,863 | ||||||||
$ | 578,241 | $ | 98,663 | $ | 479,578 | $ | 90,109 | $ | 358,843 | $ | 30,626 | $ | 5,926 | $ | 485,504 | |
Financial liabilities | ||||||||||||||||
Obligations related to assets sold | ||||||||||||||||
under repurchase agreements | ||||||||||||||||
and securities loaned | $ | 427,330 | $ | 96,676 | $ | 330,654 | $ | 201 | $ | 325,674 | $ | 4,779 | $ | 4,584 | $ | 335,238 |
Derivative liabilities | 132,770 | 1,544 | 131,226 | 89,889 | 17,340 | 23,997 | 11,403 | 142,629 | ||||||||
Other financial liabilities | 1,475 | 443 | 1,032 | 19 | – | 1,013 | – | 1,032 | ||||||||
$ | 561,575 | $ | 98,663 | $ | 462,912 | $ | 90,109 | $ | 343,014 | $ | 29,789 | $ | 15,987 | $ | 478,899 | |
(1)
Financial collateral is reflected at fair value. The financial instrument amounts and financial collateral disclosed are limited to the net balance sheet exposure, and any
over-collateralization is excluded from the table.
(2)
Includes cash collateral of $14 billion (October 31, 2023 – $17 billion) and non-cash collateral of $352 billion (October 31, 2023 – $342 billion) received for financial assets
244
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Note 30
Recovery and settlement of on-balance sheet assets and liabilities
The table below presents an analysis of assets and liabilities recorded on our Consolidated Balance Sheets by amounts to be
recovered or settled within one year and after one year, as at the balance sheet date, based on contractual maturities and
certain other assumptions outlined in the footnotes below. As warranted, we manage the liquidity risk of various products based
on historical behavioural patterns that are often not aligned with contractual maturities. Amounts to be recovered or settled
within one year, as presented below, may not be reflective of our long-term view of the liquidity profile of certain balance sheet
categories.
| As at | ||||||||||||
| October 31, 2024 | October 31, 2023 (Restated – Note 2) | |||||||||||
Within one | After one | Within one | After one | |||||||||
(Millions of Canadian dollars) | year | year | Total | year | year | Total | ||||||
Assets | ||||||||||||
Cash and due from banks (1) | $ | 55,003 | $ | 1,720 | $ | 56,723 | $ | 59,793 | $ | 2,196 | $ | 61,989 |
Interest-bearing deposits with | ||||||||||||
banks | 66,020 | – | 66,020 | 71,086 | – | 71,086 | ||||||
Securities | ||||||||||||
Trading (2) | 170,460 | 12,840 | 183,300 | 180,929 | 9,222 | 190,151 | ||||||
Investment, net of applicable | ||||||||||||
allowance | 45,418 | 211,200 | 256,618 | 33,363 | 186,216 | 219,579 | ||||||
Assets purchased under reverse | ||||||||||||
repurchase agreements and | ||||||||||||
securities borrowed | 350,622 | 181 | 350,803 | 336,437 | 3,754 | 340,191 | ||||||
Loans | ||||||||||||
Retail | 174,761 | 452,217 | 626,978 | 120,247 | 449,704 | 569,951 | ||||||
Wholesale | 89,492 | 270,947 | 360,439 | 76,249 | 211,577 | 287,826 | ||||||
Allowance for loan losses | (6,037) | (5,004) | ||||||||||
Other | ||||||||||||
Customers’ liability under | ||||||||||||
acceptances | 24 | 11 | 35 | 21,690 | 5 | 21,695 | ||||||
Derivatives (2) | 148,605 | 2,007 | 150,612 | 140,261 | 2,189 | 142,450 | ||||||
Premises and equipment | 156 | 6,696 | 6,852 | 65 | 6,684 | 6,749 | ||||||
Goodwill | – | 19,286 | 19,286 | – | 12,594 | 12,594 | ||||||
Other intangibles | – | 7,798 | 7,798 | – | 5,903 | 5,903 | ||||||
Other assets | 69,263 | 22,892 | 92,155 | 61,346 | 20,025 | 81,371 | ||||||
$ 1,169,824 | $ 1,007,795 | $ 2,171,582 | $ 1,101,466 | $ | 910,069 | $ 2,006,531 | ||||||
Liabilities | ||||||||||||
Deposits (3) | $ 1,144,860 | $ 264,671 | $ 1,409,531 | $ | 991,484 | $ | 240,203 | $ 1,231,687 | ||||
Other | ||||||||||||
Acceptances | 24 | 11 | 35 | 21,740 | 5 | 21,745 | ||||||
Obligations related to securities | ||||||||||||
sold short | 32,824 | 2,462 | 35,286 | 32,602 | 1,049 | 33,651 | ||||||
Obligations related to assets sold | ||||||||||||
under repurchase agreements | ||||||||||||
and securities loaned | 304,855 | 466 | 305,321 | 334,959 | 279 | 335,238 | ||||||
Derivatives (2) | 158,622 | 5,141 | 163,763 | 131,352 | 11,277 | 142,629 | ||||||
Insurance contract liabilities (4) | 459 | 21,772 | 22,231 | 395 | 18,631 | 19,026 | ||||||
Other liabilities | 70,475 | 24,202 | 94,677 | 69,187 | 26,835 | 96,022 | ||||||
Subordinated debentures | – | 13,546 | 13,546 | – | 11,386 | 11,386 | ||||||
$ 1,712,119 | $ | 332,271 | $ 2,044,390 | $ 1,581,719 | $ | 309,665 | $ 1,891,384 | |||||
(1)
Cash and due from banks are assumed to be recovered within one year, except for cash balances not available for use by the Bank beyond one year.
(2)
Trading securities classified as FVTPL and trading derivatives are presented as within one year as this best represents in most instances the short-term nature of our
trading activities, except for debt securities relating to the Insurance segment which are presented based on contractual maturity. Trading securities designated as
FVTPL are generally presented based on contractual maturity. Non-trading derivatives are presented according to the recovery or settlement of the hedging transaction.
(3)
Demand deposits of $585 billion (October 31, 2023 – $511 billion) are presented as within one year due to their being repayable on demand or at short notice on a
contractual basis. In practice, these deposits relate to a broad range of individuals and customer-types which form a stable base for our operations and liquidity needs.
(4)
The amounts reflect the estimated timing of when settlement of those amounts are expected to occur. The amounts payable on demand relating to policyholders’ cash
and/or account values for insurance contract liabilities, including segregated fund insurance contract liabilities, is $8 billion (October 31, 2023 – $7 billion).
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
245
Parent company information
The following table presents information regarding the legal entity of Royal Bank of Canada with its subsidiaries presented on an
equity accounted basis.
Condensed Balance Sheets
As at | ||||
October 31 | October 31 | |||
2024 | 2023 | |||
(Millions of Canadian dollars) | (Restated – Note 2) | |||
Assets | ||||
Cash and due from banks | $ | 40,944 | $ | 41,770 |
Interest-bearing deposits with banks | 54,009 | 61,256 | ||
Securities | 233,376 | 217,490 | ||
Investments in bank subsidiaries and associated companies (1) | 57,926 | 55,082 | ||
Investments in other subsidiaries and associated companies | 117,362 | 102,457 | ||
Assets purchased under reverse repurchase agreements and securities borrowed | 174,131 | 150,207 | ||
Loans, net of allowance for loan losses | 839,424 | 709,635 | ||
Net balances due from bank subsidiaries (1) | 97 | – | ||
Other assets | 216,003 | 214,145 | ||
$ | 1,733,272 | $ | 1,552,042 | |
Liabilities and shareholders’ equity | ||||
Deposits | $ | 1,168,765 | $ | 1,006,284 |
Net balances due to bank subsidiaries (1) | – | 10,132 | ||
Net balances due to other subsidiaries | 17,840 | 6,866 | ||
Other liabilities | 406,032 | 402,326 | ||
1,592,637 | 1,425,608 | |||
Subordinated debentures | 13,546 | 11,386 | ||
Shareholders’ equity | 127,089 | 115,048 | ||
$ | 1,733,272 | $ | 1,552,042 | |
(1)
Bank refers primarily to regulated deposit-taking institutions and securities firms.
Condensed Statements of Income and Comprehensive Income
For the year ended | ||||
October 31 | October 31 | |||
2024 | 2023 | |||
(Millions of Canadian dollars) | (Restated – Note 2) | |||
Interest and dividend income (1) | $ | 70,603 | $ | 56,495 |
Interest expense | 57,094 | 44,174 | ||
Net interest income | 13,509 | 12,321 | ||
Non-interest income (2) | 5,080 | 5,390 | ||
Total revenue | 18,589 | 17,711 | ||
Provision for credit losses | 2,964 | 2,002 | ||
Non-interest expense | 13,543 | 11,780 | ||
Income before income taxes | 2,082 | 3,929 | ||
Income taxes | 1,031 | 1,874 | ||
Net income before equity in undistributed income of subsidiaries | 1,051 | 2,055 | ||
Equity in undistributed income of subsidiaries | 15,179 | 12,550 | ||
Net income | $ | 16,230 | $ | 14,605 |
Other comprehensive income (loss), net of taxes | 597 | 251 | ||
Total comprehensive income | $ | 16,827 | $ | 14,856 |
(1)
Includes dividend income from investments in subsidiaries and associated companies of $9 million (October 31, 2023 – $25 million).
(2)
Includes a nominal share of income (loss) from associated companies (October 31, 2023 – nominal).
(continued)
Note 31
Parent company information
246
Royal Bank of Canada: Annual Report 2024
Consolidated Financial Statements
Condensed Statements of Cash Flows
For the year ended | ||||
October 31 | October 31 | |||
2024 | 2023 | |||
(Millions of Canadian dollars) | (Restated – Note 2) | |||
Cash flows from operating activities | ||||
Net income | $ | 16,230 | $ | 14,605 |
Adjustments to determine net cash from operating activities: | ||||
Change in undistributed earnings of subsidiaries | (15,179) | (12,550) | ||
Change in deposits, net of securitizations | 77,327 | 50,306 | ||
Change in loans, net of securitizations | (56,572) | (30,055) | ||
Change in trading securities | 3,162 | (12,832) | ||
Change in obligations related to assets sold under repurchase agreements and securities | ||||
loaned | (2,860) | 21,954 | ||
Change in assets purchased under reverse repurchase agreements and securities borrowed | (24,203) | (17,378) | ||
Change in obligations related to securities sold short | (1,721) | (819) | ||
Other operating activities, net | (2,565) | 5,000 | ||
Net cash from (used in) operating activities | (6,381) | 18,231 | ||
Cash flows from investing activities | ||||
Change in interest-bearing deposits with banks | 7,247 | 23,424 | ||
Proceeds from sales and maturities of investment securities | 167,772 | 127,965 | ||
Purchases of investment securities | (152,935) | (153,099) | ||
Net acquisitions of premises and equipment and other intangibles | (1,277) | (2,075) | ||
Cash used in an acquisition, net of cash acquired | (12,872) | – | ||
Change in cash invested in subsidiaries | 1,252 | (3,802) | ||
Change in net funding provided to subsidiaries | (166) | (12,531) | ||
Net cash from (used in) investing activities | 9,021 | (20,118) | ||
Cash flows from financing activities | ||||
Issuance of subordinated debentures | 3,239 | 1,500 | ||
Repayment of subordinated debentures | (1,500) | (110) | ||
Issue of common shares, net of issuance costs | 159 | 65 | ||
Common shares purchased for cancellation | (140) | – | ||
Issue of preferred shares and other equity instruments, net of issuance costs | 2,702 | – | ||
Redemption of preferred shares and other equity instruments | (1,021) | – | ||
Dividends paid on shares and distributions paid on other equity instruments | (6,637) | (5,549) | ||
Repayment of lease liabilities | (268) | (311) | ||
Net cash from (used in) financing activities | (3,466) | (4,405) | ||
Net change in cash and due from banks | (826) | (6,292) | ||
Cash and due from banks at beginning of year | 41,770 | 48,062 | ||
Cash and due from banks at end of year | $ | 40,944 | $ | 41,770 |
Supplemental disclosure of cash flow information | ||||
Amount of interest paid | $ | 55,119 | $ | 35,104 |
Amount of interest received | 67,857 | 49,098 | ||
Amount of dividends received | 2,869 | 2,628 | ||
Amount of income taxes paid | 504 | 2,604 | ||
Consolidated Financial Statements
Royal Bank of Canada: Annual Report 2024
247
Principal subsidiaries
(Millions of Canadian dollars) | As at October 31, 2024 | ||
Carrying value of | |||
voting shares owned | |||
Principal subsidiaries (1) | Principal office address (2) | by the Bank (3) | |
Royal Bank Holding Inc. | Toronto, Ontario, Canada | $ | 93,533 |
RBC Direct Investing Inc. | Toronto, Ontario, Canada | ||
RBC Insurance Holdings Inc. | Mississauga, Ontario, Canada | ||
RBC Life Insurance Company | Mississauga, Ontario, Canada | ||
Investment Holdings (Cayman) Limited | George Town, Grand Cayman, Cayman Islands | ||
RBC (Cayman) Funding Ltd. | George Town, Grand Cayman, Cayman Islands | ||
Capital Funding Alberta Limited | Calgary, Alberta, Canada | ||
RBC Global Asset Management Inc. | Toronto, Ontario, Canada | ||
RBC Investor Services Trust | Toronto, Ontario, Canada | ||
RBC (Barbados) Trading Bank Corporation | St. James, Barbados | ||
RBC US Group Holdings LLC (2) | Toronto, Ontario, Canada | 34,826 | |
RBC USA Holdco Corporation | New York, New York, U.S. | ||
RBC Capital Markets, LLC | New York, New York, U.S. | ||
City National Bank | Los Angeles, California, U.S. | ||
RBC Dominion Securities Limited | Toronto, Ontario, Canada | 17,243 | |
RBC Dominion Securities Inc. | Toronto, Ontario, Canada | ||
Royal Bank Mortgage Corporation | Toronto, Ontario, Canada | 6,932 | |
RBC Europe Limited | London, England | 3,170 | |
The Royal Trust Company | Montreal, Quebec, Canada | 1,587 | |
Royal Trust Corporation of Canada | Toronto, Ontario, Canada | 681 |
(1)
The Bank directly or indirectly controls each subsidiary.
(2)
Each subsidiary is incorporated or organized under the laws of the state, province or country in which the principal office is situated, except for RBC US Group Holdings
LLC and RBC USA Holdco Corporation which are incorporated under the laws of the State of Delaware, U.S., RBC Capital Markets, LLC, which is organized under the laws
of the State of Minnesota, U.S., and City National Bank which is a national bank, chartered under the laws of the United States of America.
(3)
The carrying value of voting shares is stated as the Bank’s equity in such investments.
Certain of our subsidiaries, joint ventures and associates are subject to regulatory requirements of the jurisdictions in which they
operate. When these subsidiaries, joint ventures and associates are subject to such requirements, they may be restricted from
transferring to us our share of their assets in the form of cash dividends, loans or advances. As at October 31, 2024, restricted net
Subsequent events
On November 1, 2024, we issued US$1,000 million of LRCN Series 5, at a price per note of US$1,000, with recourse limited to assets
held by a third party trustee in a consolidated trust. The trust assets in respect of LRCN Series 5 consist of US$1,000 million of our
Non-Cumulative 5-Year Rate Reset First Preferred Shares Series BX (Series BX) issued concurrently with LRCN Series 5 at a price
of US$1,000 per Series BX. LRCN Series 5 bear interest at a fixed rate of 6.35% per annum until November 24, 2034, and thereafter
at a rate per annum, reset every fifth year, equal to the 5-year U.S. Treasury Rate plus 2.257% until maturity on November 24,
Ten-year statistical review
Condensed Balance Sheets
(Millions of Canadian dollars) (1)
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
Assets
Cash and due from banks
$
56,723
$
61,989
$
72,397
$
113,846
$
118,888
$
26,310
$
30,209
$
28,407
$
14,929
$
12,452
Interest-bearing deposits with banks
66,020
71,086
108,011
79,638
39,013
38,345
36,471
32,662
27,851
22,690
Securities, net of applicable allowance (2)
439,918
409,730
318,223
284,724
275,814
249,004
222,866
218,379
236,093
215,508
Assets purchased under reverse repurchase
agreements and securities borrowed
350,803
340,191
317,845
307,903
313,015
306,961
294,602
220,977
186,302
174,723
Loans, net of allowance
981,380
852,773
819,965
717,575
660,992
618,856
576,818
542,617
521,604
472,223
Other
276,738
270,762
280,778
202,637
216,826
189,459
173,768
169,811
193,479
176,612
Total assets
$2,171,582
$2,006,531
$1,917,219
$1,706,323
$1,624,548
$1,428,935
$1,334,734
$1,212,853
$1,180,258
$1,074,208
Liabilities
Deposits (3)
$1,409,531
$1,231,687
$1,208,814
$1,100,831
$1,011,885
$
886,005
$
836,197
$
789,036
$
757,589
$
697,227
Other (3)
621,313
648,311
590,205
497,137
516,029
449,490
409,451
340,124
341,295
305,675
Subordinated debentures
13,546
11,386
10,025
9,593
9,867
9,815
9,131
9,265
9,762
7,362
Total liabilities
$2,044,390
$1,891,384
$1,809,044
$1,607,561
$1,537,781
$1,345,310
$1,254,779
$1,138,425
$1,108,646
$1,010,264
Equity attributable to shareholders
127,089
115,048
108,064
98,667
86,664
83,523
79,861
73,829
71,017
62,146
Non-controlling interest
103
99
111
95
103
102
94
599
595
1,798
Total equity
127,192
115,147
108,175
98,762
86,767
83,625
79,955
74,428
71,612
63,944
Total liabilities and equity
$2,171,582
$2,006,531
$1,917,219
$1,706,323
$1,624,548
$1,428,935
$1,334,734
$1,212,853
$1,180,258
$1,074,208
Condensed Income Statements
(Millions of Canadian dollars) (1)
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
Net interest income (3)
$
27,953
$
25,129
$
22,717
$
20,002
$
20,835
$
19,749
$
17,952
$
16,926
$
16,531
$
14,771
Non-interest income (3)
29,391
26,335
26,268
29,691
26,346
26,253
24,624
23,743
22,264
20,932
Total revenue
57,344
51,464
48,985
49,693
47,181
46,002
42,576
40,669
38,795
35,703
Provision for credit losses (4)
3,232
2,468
484
(753)
4,351
1,864
1,307
1,150
1,546
1,097
Insurance policyholder benefits, claims and
acquisition expense
n.a.
n.a.
1,783
3,891
3,683
4,085
2,676
3,053
3,424
2,963
Non-interest expense
34,250
30,813
26,609
25,924
24,758
24,139
22,833
21,794
20,526
19,020
Net income
$
16,240
$
14,612
$
15,807
$
16,050
$
11,437
$
12,871
$
12,431
$
11,469
$
10,458
$
10,026
Other Statistics – reported
(Millions of Canadian dollars, except
percentages and per share amounts) (1)
2024
2023
2022
2021
2020
2019
2018
2017
2016
2015
PROFITABILITY MEASURES
Earnings per shares – basic
$
11.27
$
10.33
$
11.08
$
11.08
$
7.84
$
8.78
$
8.39
$
7.59
$
6.80
$
6.75
– diluted
$
11.25
$
10.32
$
11.06
$
11.06
$
7.82
$
8.75
$
8.36
$
7.56
$
6.78
$
6.73
Return on common equity (5)
14.4%
14.3%
16.4%
18.6%
14.2%
16.8%
17.6%
17.0%
16.3%
18.6%
Return on risk-weighted assets
2.52%
2.44%
2.68%
2.90%
2.10%
2.52%
2.55%
2.49%
2.34%
2.45%
Efficiency ratio
59.7%
59.9%
54.3%
52.2%
52.5%
52.5%
53.6%
53.6%
52.9%
53.3%
KEY RATIOS
PCL on impaired loans as a % of average
net loans and acceptances (6)
0.28%
0.21%
0.10%
0.10%
0.24%
0.27%
0.20%
0.21%
0.28%
0.24%
Net interest margin
(average earning assets, net) (3), (7)
1.54%
1.50%
1.48%
1.48%
1.55%
1.61%
1.64%
1.69%
1.70%
1.71%
SHARE INFORMATION
Common shares outstanding (000s) –
end of period
1,414,504
1,400,511
1,382,911
1,424,525
1,422,473
1,430,096
1,438,794
1,452,535
1,484,235
1,443,955
Dividends declared per common share
$
5.60
$
5.34
$
4.96
$
4.32
$
4.29
$
4.07
$
3.77
$
3.48
$
3.24
$
3.08
Dividend yield (8)
3.9%
4.3%
3.7%
3.8%
4.7%
4.1%
3.7%
3.8%
4.3%
4.1%
Dividend payout ratio
50%
52%
45%
39%
55%
46%
45%
46%
48%
46%
Book value per share (9)
$
83.46
$
76.92
$
72.85
$
64.57
$
56.75
$
54.41
$
51.12
$
46.41
$
43.32
$
39.51
Common share price (RY on TSX) (10)
$
168.39
$
110.76
$
126.05
$
128.82
$
93.16
$
106.24
$
95.92
$
100.87
$
83.80
$
74.77
Market capitalization (TSX) (10)
238,188
155,121
174,316
183,507
132,518
151,933
138,009
146,554
124,476
107,925
Market price to book value
2.02
1.44
1.73
2.00
1.64
1.95
1.88
2.17
1.93
1.89
CAPITAL MEASURES – CONSOLIDATED
(11)
Common Equity Tier 1 capital ratio
13.2%
14.5%
12.6%
13.7%
12.5%
12.1%
11.5%
10.9%
10.8%
10.6%
Tier 1 capital ratio
14.6%
15.7%
13.8%
14.9%
13.5%
13.2%
12.8%
12.3%
12.3%
12.2%
Total capital ratio
16.4%
17.6%
15.4%
16.7%
15.5%
15.2%
14.6%
14.2%
14.4%
14.0%
Leverage ratio
4.2%
4.3%
4.4%
4.9%
4.8%
4.3%
4.4%
4.4%
4.4%
4.3%
TLAC ratio
29.3%
31.0%
26.4%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
TLAC leverage ratio
8.4%
8.5%
8.5%
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
n.a.
(1)
On March 28, 2024, we completed the acquisition of HSBC Bank Canada (HSBC Canada). HSBC Canada results have been consolidated from the closing date. Effective
November 1, 2023, we adopted IFRS 17
Insurance Contracts
retrospectively and restated the period ended October 31, 2023. Results from periods prior to November 1, 2022
are reported in accordance with IFRS 4
Insurance Contracts
in this 2024 Annual Report. Effective November 1, 2019, we adopted IFRS 16
Leases
. Results from periods prior
to November 1, 2019 are reported in accordance with IAS 17
Leases
in this 2024 Annual Report. Effective November 1, 2018, we adopted IFRS 15
Revenue from Contracts with
Customers
. Results from periods prior to November 1, 2018 are reported in accordance with IAS 18
Revenue
in this 2024 Annual Report. Effective November 1, 2017, we
adopted IFRS 9
Financial Instruments
(IFRS 9). Results from periods prior to November 1, 2017 are reported in accordance with IAS 39
Financial Instruments: Recognition
and Measurement
(IAS 39) in this 2024 Annual Report.
(2)
Securities are comprised of trading and investment securities. Under IFRS 9, investment securities represent debt and equity securities at FVOCI and debt securities at
amortized cost, net of the applicable allowance. Under IAS 39, investment securities represented available-for-sale securities and held-to-maturity securities.
(3)
Commencing the fourth quarter of 2019, the interest component and the accrued interest payable recorded on certain deposits carried at FVTPL previously presented in
trading revenue and deposits, respectively are presented in net interest income and other liabilities respectively. As at November 1, 2016, comparative amounts have
been reclassified to conform with this presentation.
(4)
Under IFRS 9, PCL relates primarily to loans, acceptances, and commitments, and also applies to all financial assets except for those classified or designated as FVTPL
and equity securities designated as FVOCI. Prior to the adoption of IFRS 9, PCL related only to loans, acceptances, and commitments. PCL on loans, acceptances, and
commitments is comprised of PCL on impaired loans (Stage 3 PCL under IFRS 9 and PCL on impaired loans under IAS 39) and PCL on performing loans (Stage 1 and
Stage 2 PCL under IFRS 9 and PCL on loans not yet identified as impaired under IAS 39).
(5)
This measure may not have a standardized meaning under generally accepted accounting principles (GAAP) and may not be comparable to similar measures disclosed
by other financial institutions. For further details, refer to the Key performance and non-GAAP measures section of the MD&A.
(6)
PCL on impaired loans represents Stage 3 PCL under IFRS 9 and PCL on impaired loans under IAS 39. Stage 3 PCL under IFRS 9 is comprised of lifetime credit losses of
credit-impaired loans, acceptances and commitments.
(7)
Average amounts are calculated using methods intended to approximate the average of the daily balances for the period.
(8)
Defined as dividends per common share divided by the average of the high and low share price in the relevant period.
(9)
Calculated as common equity divided by the number of common shares outstanding at the end of the period.
(10)
Based on TSX closing market price at the end of the period.
(11)
Capital ratios are calculated using OSFI’s CAR guideline, the Leverage ratio is calculated using OSFI’s LR guideline, and both the TLAC and TLAC leverage ratios are
calculated using OSFI’s TLAC guideline. The results for the year ended October 31, 2023 reflect our adoption of the revised CAR and LR guidelines that came into effect in
the second quarter of 2023, as further updated on October 20, 2023 as part of OSFI’s implementation of the Basel III reforms. The results for the year ended October 31,
2024 also reflect our adoption of the revised market risk and CVA frameworks that came into effect on November 1, 2023. As prior period restatements are not required by
OSFI, there was no impact from the adoption of IFRS 17 on capital ratios, leverage ratio and TLAC ratios for periods prior to November 1, 2023. For further details, refer to
the Capital management section of the MD&A.
n.a.
not applicable
248
Royal Bank of Canada: Annual Report 2024
Ten-year statistical review
Shareholder Information
Corporate headquarters
Street address:
Royal Bank of Canada
200 Bay Street
Toronto, Ontario M5J 2J5
Canada
Tel: 1-888-212-5533
Mailing address:
P.O. Box 1
Royal Bank Plaza
Toronto, Ontario M5J 2J5
Canada
website: rbc.com
Transfer Agent and Registrar
Main Agent:
Computershare Trust Company of
Canada
100 University Avenue North Tower,
8th Floor
Toronto, Ontario M5J 2Y1 Canada
Tel: 1-866-586-7635 (Canada and the
U.S.) or 514-982-7555
(International)
Fax: 1-888-453-0330 (Canada and
the U.S.) or 416-263-9394
(International)
website: computershare.com/rbc
email: service@computershare.com
Co-Transfer Agent (U.S.):
Computershare Trust
Company, N.A.
150 Royall Street, Suite 101
Canton, Massachusetts 02021
U.S.A.
Co-Transfer Agent (U.K.):
Computershare Investor
Services PLC
Securities Services – Registrars
P.O. Box 82, The Pavilions,
Bridgwater Road,
Bristol BS99 6ZZ
U.K.
Stock exchange listings
(Symbol: RY)
Common shares are listed on:
Canada – Toronto Stock
Exchange (TSX)
U.S. – New York Stock Exchange
(NYSE)
Preferred shares BD, BF, BH, BI and
BO are listed on the TSX.
Valuation day price
For Canadian income tax purposes,
Royal Bank of Canada’s common
stock was quoted at $29.52 per share
on the Valuation Day (December 22,
1971). This is equivalent to $7.38 per
share after adjusting for the two-for-
one stock split of March 1981 and the
two-for-one stock split of February
1990. The one-for-one stock dividends
in October 2000 and April 2006 did not
affect the Valuation Day amount for
our common shares.
Shareholder contacts
For dividend information, change in
share registration or address,
lost stock certificates, tax forms,
estate transfers, direct registration or
dividend reinvestment, please
contact: Computershare Trust
Company of Canada
100 University Avenue North Tower,
8th Floor Toronto, Ontario M5J 2Y1
Canada
Tel: 1-866-586-7635 (Canada and the
U.S.) or 514-982-7555 (International)
Fax: 1-888-453-0330 (Canada and the
U.S.) or 416-263-9394 (International)
email: service@computershare.com
Financial analysts, portfolio
managers, institutional investors
For financial information inquiries,
please contact: Investor Relations
Royal Bank of Canada
200 Bay Street
South Tower
Toronto, Ontario M5J 2J5
Canada
email: invesrel@rbc.com
or visit our website at
rbc.com/investorrelations
Direct deposit service
Shareholders in Canada and the U.S.
may have their common share
dividends deposited directly to their
bank account by electronic funds
transfer. To arrange for this service,
please contact our Transfer Agent and
Registrar, Computershare Trust
Company of Canada.
International shareholders (other than
holders in the U.S. or Canada) may be
able to receive their dividend and/or
distribution payments in the currency
of their choice. Computershare offers
an International Currency Exchange
service that enables RBC’s
international shareholders to receive
their dividend and/or distribution
payments in the currency of their
choice. Please refer to
investorcentre.com/rbc.
Eligible dividend designation
For purposes of the
Income Tax
Act
(Canada) and any
corresponding provincial and
territorial tax legislation, all
dividends (and deemed
dividends) paid by RBC to
Canadian residents on both its
common and preferred shares,
are designated as “eligible
dividends”, unless stated
otherwise.
Common share repurchases
We are engaged in a normal
course issuer bid (NCIB) which
allows us to repurchase for
cancellation up to 30 million
common shares during the
period spanning from June 12,
2024 to June 11, 2025, when the
bid expires or such earlier date
as we may complete the
purchases pursuant to our
notice of intention filed with the
TSX.
We determine the amount and
timing of the purchases under the
NCIB, subject to prior consultation
with the Office of the
Superintendent of Financial
Institutions Canada. For further
details, refer to the Capital
management section.
A copy of our notice of intention to
file a NCIB may be obtained,
without charge, by contacting our
Corporate Secretary at our
Toronto mailing address.
2025 Quarterly earnings release
dates
First quarter
February 27
Second quarter
May 29
Third quarter
August 27
Fourth quarter
December 3
2025 Annual Meeting
The Annual Meeting of Common
Shareholders will be held on
Thursday, April 10, 2025.
Dividend dates for 2025
Subject to approval by the Board of Directors
Record
dates
Payment
dates
Common and preferred shares
series BD, BF, BH, BI and BO
January 27
April 24
July 24
October 27
February 24
May 23
August 22
November 24
Preferred shares series BT
February 17
August 15
February 24
August 22
Preferred shares series BU
February 17
August 15
February 24
August 22
Preferred shares series BW
May 16
November 17
May 23
November 24
Governance
Summaries of the significant ways in which corporate governance
practices followed by RBC differ from corporate governance practices
required to be followed by U.S. domestic companies under the NYSE
listing standards are available on our website at rbc.com/governance.
Information contained in or otherwise accessible through the websites mentioned in this report to shareholders does not form a part of this report. All references
to websites are inactive textual references and are for your information only.
®
/
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Trademarks of Royal Bank of Canada. ‡ All other trademarks are the property of their respective owner(s).
Shareholder Information
Royal Bank of Canada: Annual Report 2024
249
rbc.com/ar2024
81104 (12/2024)