2 weeks ago
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Royal Bank of Canada just turned in a quarter that most CEOs would frame and hang on the wall. Then Dave McKay spent much of the earnings call talking about all the things that could go wrong.
RBC’s Q3 2026 profit hit $6 billion, or $4.23 per share, marking an 11% jump year-over-year. Commercial banking posted record results. Loan delinquencies remained stable. And yet McKay’s message to analysts was decidedly cautious: the escalating trade war between the US and Canada is injecting real uncertainty into credit markets, and RBC is positioning accordingly.
Good numbers, guarded tone
RBC increased its loan-loss provisions by more than 50% earlier in 2026, a preemptive move to absorb potential defaults if the tariff situation deteriorates further. That’s a bank that beat estimates while simultaneously building a bigger cushion for bad times.
McKay pointed to a few reasons for cautious optimism. The effective tariff rate on Canadian goods sits at roughly 6%, and over 80% of US-bound exports remain duty-free.
The tariff escalation
Following the collapse of trade negotiations between Washington and Ottawa, the US imposed 50% tariffs on approximately $20 billion worth of Canadian goods under Section 338. Canada responded with retaliatory measures of its own.
Canadian economists project these tariffs could shave between 0.3 and 0.6 percentage points off GDP growth. Forecasts suggest the tariffs could put 100,000 to 130,000 Canadian jobs at risk.
RBC isn’t the only bank reading the room. TD Bank has set aside roughly $500 million in provisions specifically for policy and trade risks tied to tariffs. CIBC, for its part, noted that less than 1% of its total loan portfolio carries direct exposure to tariff impacts. All three banks managed to beat analyst estimates this quarter.
Sector-specific pressure points
Real estate and consumer goods have been flagged as particularly vulnerable sectors. McKay and his executive team expressed confidence during the call that the Canadian economy can absorb the current level of tariff shocks. RBC’s strategy leans heavily on diversification across wealth management, capital markets, insurance, and personal banking across multiple geographies.
What this means for markets
The GDP forecasts deserve close attention. A 0.3 to 0.6 percentage point drag on growth, for an economy already navigating higher interest rates and cooling housing markets, could represent the difference between a soft landing and a mild contraction.
RBC’s positioning, strong earnings paired with aggressive provisioning, reflects a bet that the trade war will get bumpy but ultimately manageable. If McKay is right, the bank emerges from this period with excess reserves it can release back into earnings. If he’s wrong, those provisions were the smartest money RBC spent all year.
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