The Royal Bank of Canada headquarters in Toronto. The RBC has more than doubled lending to its largest corporate clients since 2011, giving the firm an edge in winning other business such as arranging stock sales and helping counter a slowdown in domestic banking.

Bloomberg/Toronto


Royal Bank of Canada (RBC) has more than doubled lending to its largest corporate clients since 2011, giving the firm an edge in winning other business such as arranging stock sales and helping counter a slowdown in domestic banking.
Canada’s five biggest banks collectively increased corporate loan balances to C$244.2bn ($199bn) in their capital markets units in the second quarter, up from C$124.5bn four years earlier, according to financial statements. Royal Bank holds almost a third of those balances, while Bank of Nova Scotia has about 29%.
“The robust growth rate in corporate loan volumes has strengthened the relationship with their wholesale clients, helping capital-markets activity,” Sumit Malhotra, a Scotia Capital analyst, said in an interview. “And the increase in corporate balances has provided a timely offset when residential mortgage growth has been decelerating.”
The jump in the loans, which help companies bolster balance sheets, expand operations and finance takeovers, comes as Canadian mortgage growth has hovered around 5% for the past two years.
That’s the slowest year-over-year pace since 2002 and down from 13.1% in May 2008, according to Bank of Canada data.
Business credit growth increased this year at its fastest pace since 2008, touching 8.7% year-over-year in March, the data show.
Canada’s benchmark Standard & Poor’s/TSX Composite Index has climbed 1.8% since December 31, after rising 7.4% last year and 9.6% in 2013. Canadian corporate bonds returned 1.6% this year, according to Bank of America Merrill Lynch data.
Royal Bank’s RBC Capital Markets unit had C$77.7bn of corporate loans at the end of April, up 22% from a year earlier and 5.1% from the previous quarter, according to the Toronto-based bank’s financial statements. That compares with C$27.8bn in loans four years ago.
“It’s not so much about growing the balances of our clients, it’s growing the number of clients and the relationships we have,” Chief Financial Officer Janice Fukakusa said in a May 28 interview, noting that foreign-exchange effects accounted for part of the recent growth.
Still, the growth has led to additional business in other areas, including more mandates for arranging stock sales and advising on acquisitions, which bolster investment-banking fees and help fuel profit. RBC has the biggest investment-banking platform among Canada’s lenders. Royal Bank is the top arranger of Canadian equity financing this year and three of the last five years, excluding self-led deals, according to data compiled by Bloomberg. The firm has ranked number one in arranging corporate debt sales since at least 1999, the data show.
Cenovus Energy chose RBC to help lead the offering when the Calgary-based oil-sands producer sold C$1.5bn of shares in February.
The sale was one of several deals RBC has done for Cenovus since helping advise on its 2009 split from Encana Corp The bank made an early impression with top Cenovus executives, helping provide C$5.4bn in loans and arranging $3.5bn of bond financing that year.
“They’ve earned our confidence,” Cenovus CFO Ivor Ruste said in a June 5 interview from Calgary. “They’re viewed as No 1 in our banking relationship.”
RBC Capital Markets’ US loans more than doubled in the past four years, while Canadian loans climbed 38%, according to company presentations. About half of the unit’s wholesale loan book is from the US, up from about 43% in 2011.
“Management at Royal has been quite candid about their willingness to use the corporate-loan book as a way to open the door with new clients,” Scotia Capital’s Malhotra said.
Scotiabank, with the second-highest corporate-loan balances among Canada’s banks, also has leveraged lending relationships to deepen customer ties and win business in other areas.
“When you are are extending your balance sheets you are partnering with that customer to help them do all their financings,” CFO Sean McGuckin said in a May 29 phone interview.
“If they also need some foreign exchange or cash management or are going to issue some debt or equity, having the corporate-lending relationship goes a long way in cementing some of those other opportunities.”
Scotiabank’s capital-markets unit had C$70.7bn of business and government loans in the second quarter, up 6.5% from a year earlier and 8.8% from the previous period, according to financial statements. Balances have risen 21% over two years.
“We’re seeing a bit more economic activity out there driving many of our customers wanting to borrow money,” McGuckin said. “If it continues, it’ll play out well for the second half of the year.”
Banks arranged a record $223bn of company loans in Canada last year, the fifth straight year of growth and almost four times the $57.2bn of loans in 2009, according to data compiled by Bloomberg.
Toronto-Dominion Bank, Canada’s second largest, has seen its corporate-lending portfolio rise 36% to C$30.6bn from a year earlier, the fastest pace among the five banks. Balances rose 79% since 2011. Bank of Montreal, the fourth-largest lender, had about C$36.1bn of corporate loans at its BMO Capital Markets unit, up 19% from a year earlier and 70% in four years, disclosures show.
“Continuing to grow our corporate loan book is a strategic priority for us,” said Perry Hoffmeister, global head of investment and corporate banking at BMO Capital Markets.
Canadian Imperial Bank of Commerce had C$29.2bn of loans, a 17% increase from a year earlier and about double the amount in 2011 for the highest four-year growth among the banks after RBC, filings show.
“Our loan portfolio has experienced broad-based growth across industries and geographies over the past several years,” said Gary Brown, CIBC’s global head of corporate banking. “This is a result of our continued focus on our clients as shown in our growing commitments, leadership in Canadian loan syndication and market share gains.”