RBC CEO Dave McKay Highlights Credit Risks Amid Trade War Tensions

Royal Bank of Canada (RBC) recently announced a robust profit of $6 billion for Q3 2026, reflecting an 11% year-over-year increase. However, during the earnings call, CEO Dave McKay expressed significant concerns regarding the escalating trade war between the US and Canada, which he believes could inject uncertainty into credit markets.

To prepare for potential defaults amid worsening tariff conditions, RBC has increased its loan-loss provisions by over 50%. McKay pointed out that while the effective tariff rate on Canadian goods is around 6%, over 80% of exports to the US remain duty-free. Nevertheless, the recent imposition of 50% tariffs on approximately $20 billion worth of Canadian goods by the US, following the collapse of trade negotiations, has raised alarms.

Canadian economists predict these tariffs could reduce GDP growth by 0.3 to 0.6 percentage points and jeopardize between 100,000 and 130,000 jobs in Canada. Other banks, including TD Bank and CIBC, are also adjusting their strategies in response to these trade risks. TD Bank has allocated around $500 million for potential policy and trade risks, while CIBC noted minimal direct exposure to tariff impacts.

McKay emphasized that real estate and consumer goods sectors are particularly vulnerable, but he remains confident that the Canadian economy can withstand the current level of tariff shocks. RBC's diversified strategy across various financial services aims to mitigate risks associated with the trade war.

The implications of these GDP forecasts are critical, as a decline in growth could significantly affect the economy already facing higher interest rates and a cooling housing market. RBC's proactive approach, combining strong earnings with increased provisions, reflects a strategy to navigate the turbulent trade landscape.