There’s still significant uncertainty in the economy, says the head of Canada’s largest bank after it beat analysts’ earnings estimates and posted a 29 per cent jump in quarterly profits on Wednesday.

The economy has started to grow, but there’s still “hesitancy,”

Royal Bank of Canada

 chief executive Dave McKay said on a call with analysts, because Canada has yet to resolve its trade issues linked to the

Canada-United States-Mexico Agreement (CUSMA)

, which has been shielding the country from the worst of U.S. President Donald Trump’s tariffs.

“You’re starting to see a little bit of growth there because some businesses just need to replace machinery that’s wearing out or, as a necessity, they have to move forward,” he said. “You’re seeing pretty severe sectoral impacts that are leading to job losses and Ontario is most acutely impacted by that.”

RBC is the second of Canada’s Big Six banks to release its fourth-quarter earnings, after the Bank of Nova Scotia did so on Tuesday, and their results help provide key insights into how the economy is doing.

RBC posted higher profits in each of its business segments, except insurance, with its net income for the three months ending Oct. 31 coming in at $5.4 billion, up 29 per cent from the same period a year ago, resulting in net earnings per share of $3.76.

Its adjusted net income — which removes the impact of non-recurring items — was $5.5 billion, up 25 per cent year over year, resulting in adjusted earnings per share of $3.85, which topped analysts’ expectations of about $3.55 per share.

For its fiscal year ending Oct. 31, RBC had net income of $20.4 billion, up 25 per cent compared to fiscal 2024. Its adjusted net income was $20.9 billion, up 20 per cent year over year.

As a result of the positive performance, RBC increased its return-on-equity (ROE) target to more than 17 per cent, as opposed to more than 16 per cent. It also raised its quarterly dividend by 10 cents to $1.64 per share.

Still, McKay said the bank was being a “little conservative” in terms of its outlook next year.

“Not a deterioration, but we are struggling to see a significant acceleration yet in either mortgages or commercial activity,” he said.

McKay said the economy was “increasingly polarizing,” with “more affluent consumers” investing in growing markets, while “less affluent consumers struggle with affordability over the medium term.”

He said he expects the federal government’s latest nation-building-project announcements to stimulate growth and attract foreign investment, but the “challenge” is in getting these projects approved in a “timely and efficient way.”

“I am cautiously optimistic about the outlook in Canada,” he said.

The economic uncertainty, however, may be why RBC’s provisions for credit losses (PCLs), or the money lenders set aside to address potentially problematic loans, were about $1 billion in the fourth quarter, which is 20 per cent higher than a year ago and 14 per cent higher than in the third quarter, due to higher provisions in its commercial banking, capital markets and personal banking segments.

Analysts closely monitor PCLs because they are a key metric for measuring the health of a bank’s loan book as well as the ability of households and businesses to pay their debts.

If CUSMA is favourably renegotiated for Canada, that could allow RBC to release some of the reserves, chief risk officer Graeme Hepworth said.

“If it plays out unsatisfactorily, then I would say we have prefunded in part … if the uncertainty doesn’t sort itself out in 2026 and drags on, I would say we’d probably continue with those reserves in place,“ he said on the call with analysts. “Right now, we don’t know how that’s going to play out, and that’s the uncertainty that Dave’s referencing.”

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RBC reported fourth-quarter net income of $1.88 billion in its personal banking segment, up 20 per cent from a year ago. Its net income in the wealth management and capital markets segments increased by 33 per cent and 45 per cent, respectively, year over year, but its net income in insurance — $98 million — decreased by $64 million, or 40 per cent.

John Aiken, an analyst at Jefferies Inc., said RBC reported a “strong quarter with both capital markets and wealth management coming in well ahead” of expectations.

“The strong beat, a dividend increase and a lift to ROE guidance should be more than sufficient to garner market support,” he said in a note on Wednesday.

• Email: nkarim@postmedia.com