Fitch confirms Royal Bank of Canada’s ’AA-’ rating, stable outlook

Investing.com -- Fitch Ratings has affirmed the creditworthiness of the Royal Bank of Canada (RBC) and its New York branch, maintaining their Long- and Short-Term Issuer Default Ratings (IDRs) at ’AA-’ and ’F1+’, respectively, on June 3, 2025. The rating agency has also upgraded the Long-Term IDR of RBC’s subsidiary, City National Bank (CNB), to ’AA-’ from ’A+’, while keeping its Short-Term IDR at ’F1+’. The outlook for all these ratings is stable.

The ’AA-’ Long-Term IDR of RBC is influenced by its Viability Rating (VR) or Standalone Credit Profile (SCP). Factors such as RBC’s robust market positions, conservative risk profile, resilient asset quality, above-average profitability, effective capital management, and diversified funding profile contribute to its VR.

RBC, the largest Canadian bank with CAD 2.2 trillion in total assets, has a business profile score of ’aa-’, which is higher than its implied score of ’a’. The bank’s reputation, extensive distribution network, and leading market shares are reflected in this score. RBC is also the largest investment dealer in Canada, with a strong presence in capital markets and wealth management in the U.S. and Europe.

RBC’s conservative risk profile is supported by its robust risk management frameworks and conservative risk appetite. The bank has a relatively high concentration in residential mortgages, making up 48% of its total loan book. Despite a rise in the Gross impaired loans ratio to 88 bps in 2Q25 from 55 bps a year prior due to Canada’s economic slowdown, Fitch anticipates that strict B-20 stress tests, low loan-to-value ratios, mandatory mortgage insurance for loans over 80% loan-to-value, and a structural undersupply of housing in Canada will continue to support low loss severity in the portfolio.

RBC’s ’aa-’ profitability score, higher than its implied ’a’ score, reflects its strong earnings stability and diversification. The bank’s focus on increasing product penetration for existing clients, particularly in wealth management, and growing deposit-rich transaction banking is expected to generate improved margins over the medium term.

RBC’s common equity Tier 1 (CET1) ratio increased to 13.2% at 2Q25 from 12.8% in 2Q24, following the acquisition of HSBC Canada. Fitch expects RBC’s CET1 to stay around 13% by the end of FY 2025, given the evolving risks posed by trade policy uncertainty.

As the largest bank in Canada, RBC has a solid deposit base supported by an expansive deposit gathering network. The bank also complements its deposit base with diversified wholesale funding and excellent access to capital markets. RBC’s loan-to-customer deposit ratio was 94.5% at 2Q25, in line with Canadian peers.

Fitch does not foresee any credit factors that could improve RBC’s Long-Term IDR in the immediate term. Negative ratings pressure could occur if RBC’s CET1 ratio falls below 12% without a credible plan to rebuild over the rating horizon, or if there is a sustained structural deterioration in asset quality and profitability. Other potential triggers for negative ratings pressure include large trading losses, a significant acquisition that materially impacts capital without a sound plan to rebuild, or any large cybersecurity or operational incidents.

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