Royal Bank of Canada (RY) TD Financial Services & Fintech Summit summary

Key risk themes

• Macroeconomic environment, integration/execution risk, and non-financial risks like cyber and third-party dependencies are top concerns for 2024-2025.

• Interest rate changes alone do not drive credit risk; unemployment, house prices, and GDP are also critical factors.

• Non-financial risks, including cyber threats and financial crime, remain prominent.

Mortgage and retail credit trends

• Variable rate mortgage delinquencies are concentrated among clients most sensitive to payment shocks, but overall portfolio resilience is strong.

• Most mortgage clients face manageable payment increases at renewal, with only a small segment exposed to significant shocks.

• Rising mortgage payments are expected to impact broader economic activity as households redirect cash flow.

• Unsecured lending products are expected to drive loan loss provisions through 2024 and early 2025.

Unsecured and personal lending

• Unsecured personal loans, including credit cards and auto loans, comprise about 10-12% of the Canadian balance sheet and are seeing rising loss rates.

• Loan losses in unsecured products are closely tied to changes in unemployment, which is forecasted to peak around Q3 2024.

• Insolvencies, often triggered by job loss, are increasing and expected to further impact unsecured products.