Royal Bank of Canada Q2 2025: Navigating Contradictions in Tariffs, Loan Impairments, and Capital Strategy

Impact of tariffs on loans, reserve build and loan impairment, NII growth expectations, trade disruption scenario and PCL expectations, capital allocation and strategic focus are the key contradictions discussed in Royal Bank of Canada's latest 2025Q2 earnings call.



Strong Financial Performance:
- Royal Bank of Canada reported second quarter earnings of $4.4 billion, with adjusted earnings at $4.5 billion.
- Revenue growth was 11% year-over-year, underpinned by strong average volume growth in Personal and Commercial Banking.
- The growth was driven by a diversified business model and strong client engagement amidst evolving market conditions.

Risk Management and Reserve Build:
- Royal Bank increased allowances on performing loans by $568 million or 23 basis points this quarter.
- The reserve build reflects a prudent approach to managing economic uncertainty due to changes in long-standing U.S. and international trade policies.
- The bank's robust risk culture and strategic capital advantage helped navigate uncertainties, with provisions informed by multiple downside scenarios.

Impact of Tariffs and Trade Uncertainty:
- Market volatility was evident with movements in credit spreads and bond market volatility indices.
- The modifications in reciprocal tariffs narrowed market volatility, though economic risks and trade uncertainties persist.
- Despite the volatility, Royal Bank's strong balance sheet and diversified earnings stream positioned it to navigate uncertainty.

Earnings from Acquisitions:
- Earnings included $260 million from the acquisition of HSBC Bank Canada, contributing to a strong quarter.
- The acquisition expanded capabilities and allowed for the completion of cost synergy initiatives.
- Integration efforts are on track, leading to confidence in achieving targeted annualized cost synergies by the next quarter.