There are a number of key questions hovering around investors considering Royal Bank of Canada (TSX:RY)(NYSE:RY) stock at these levels. The true economic impacts of the COVID-19 pandemic will only be known in hindsight. Expectations of the negative impact of this economic shock continue to vary widely.
As the largest Canadian bank by market capitalization at the time of writing, Royal Bank is still a stock I want on my watch list.
The bank’s mortgage and credit card defaults domestically are indeed a concern for many investors, myself included. That said, like many of its peers, Royal Bank has applied a relatively high level of provisions for loan losses to its books – a number which many analysts believe is likely to cover defaults due to the historic track record Canadians have with meeting their loan obligations. This aggressive approach could mean better quarters are on the horizon for Canada’s largest bank.
Additionally, while unemployment remains high and mortgage defaults are likely to increase, the reality is most of the loans on RBC’s books are insured by Canada Mortgage and Housing Corporation, providing investors with some coverage on losses.
The overall loan to value of the company’s mortgage portfolio is also low, mitigating some of the concern. Overall, I think Royal Bank is an interesting stock to watch, and potentially nibble at, as we see how this pandemic shakes out domestically and globally.
Invest wisely, my friends.
