2020 vs. 2019
Total assets increased $196 billion or 14% from last year. Foreign exchange translation increased total assets by $15 billion.
Cash and due from banks was up $93 billion, mainly due to higher deposits with central banks, reflecting our short term cash and liquidity management activities.
Securities, net of applicable allowance, were up $27 billion or 11%, primarily due to higher government debt securities largely driven by our liquidity management activities.
Assets purchased under reverse repurchase agreements (reverse repos) and securities borrowed increased $6 billion or 2%, driven by client activity and lower financial netting, partially offset by lower liquidity management activities.
Loans (net of Allowance for loan losses) were up $42 billion or 7%, largely due to volume growth in residential mortgages. Higher wholesale loans, in part to support our clients during this unprecedented time, also contributed to the increase.
Derivative assets were up $12 billion or 12%, mainly attributable to higher fair values on interest rate contracts and equity contracts. The impact of foreign exchange translation also contributed to the increase. These factors were partially offset by lower fair values on foreign exchange contracts.
Other assets were up $15 billion or 18%, largely reflecting an increase in premises and equipment as a result of adopting IFRS 16. Higher margin requirements and an increase in both cash collateral and our precious metals inventory also contributed to the increase.
Total liabilities increased $192 billion or 14% from last year. Foreign exchange translation increased total liabilities by $15 billion.
Deposits increased $126 billion or 14%, mainly as a result of higher business and retail deposits driven by both lower client spending and our clients’ preference for the safety of higher cash balances amidst the COVID-19 pandemic. Higher bank deposits and the impact of foreign exchange translation also contributed to the increase.
Derivative liabilities were up $11 billion or 12%, mainly attributable to higher fair values on interest rate contracts and equity contracts, partially offset by lower fair values on foreign exchange contracts.
Other liabilities increased $55 billion or 16%, mainly attributable to higher obligations related to repurchase agreements reflecting increased funding activities and lower financial netting.
Total equity increased $3 billion or 4% reflecting earnings, net of dividends and share repurchases, and the issuance of limited recourse capital notes partially offset by both redemptions of preferred shares and the impact of lower interest rates on cash flow hedges.
|
Off-balance sheet arrangements |
In the normal course of business, we engage in a variety of financial transactions that, for accounting purposes, are not recorded on our Consolidated Balance Sheets. Off-balance sheet transactions are generally undertaken for risk, capital and funding management purposes which benefit us and our clients. These include transactions with structured entities and may also include the issuance of guarantees. These transactions give rise to, among other risks, varying degrees of market, credit, liquidity and funding risk, which are discussed in the Risk management section.
We use structured entities to securitize our financial assets as well as assist our clients in securitizing their financial assets. These entities are not operating entities, typically have no employees, and may or may not be recorded on our Consolidated Balance Sheets.
In the normal course of business, we engage in a variety of financial transactions that may qualify for derecognition. We apply the derecognition rules to determine whether we have transferred substantially all the risks and rewards or control associated with the financial assets to a third party. If the transaction meets specific criteria, it may qualify for full or partial derecognition from our Consolidated Balance Sheets.
Securitizations of our financial assets
We periodically securitize our credit card receivables and residential and commercial mortgage loans primarily to diversify our funding sources, enhance our liquidity position and for capital purposes. We also securitize residential and commercial mortgage loans as part of our sales and trading activities.
We securitize our credit card receivables, on a revolving basis, through a consolidated structured entity. We securitize single and multiple-family residential mortgages through the National Housing Act Mortgage-Backed Securities (NHA MBS) program. The majority of our securitization activities are recorded on our Consolidated Balance Sheets as we do not meet the derecognition criteria. During 2020 and 2019, we did not derecognize any mortgages securitized through the NHA MBS program. For further details, refer to Note 6 and Note 7 of our 2020 Annual Consolidated Financial Statements.
We also periodically securitize commercial mortgage loans by selling them in collateral pools, which meet certain diversification, leverage and debt coverage criteria, to structured entities, one of which is sponsored by us. Securitized commercial mortgage loans are derecognized from our Consolidated Balance Sheets as we have transferred substantially all of the risks and rewards of ownership of the securitized assets. During the year ended October 31, 2020, we securitized $469 million of commercial mortgages (October 31, 2019 – $696 million). Our continuing involvement with the transferred assets is limited to servicing certain of the underlying commercial mortgages sold. As at October 31, 2020, there was $2.0 billion of commercial mortgages outstanding that we continue to service related to these securitization activities (October 31, 2019 – $1.9 billion).
Involvement with unconsolidated structured entities
In the normal course of business, we engage in a variety of financial transactions with structured entities to support our customers’ financing and investing needs, including securitization of our clients’ financial assets, creation of investment products, and other types of structured financing.
We have the ability to use credit mitigation tools such as third-party guarantees, credit default swaps, and collateral to mitigate risks assumed through securitization and re-securitization exposures. The process in place to monitor the credit quality of our securitization and re-securitization exposures involves, among other things, reviewing the performance data of the underlying assets. We affirm our ratings each quarter and formally confirm or assign a new rating at least annually. For further details on our activities to manage risks, refer to the Risk management section.
Management’s Discussion and Analysis Royal Bank of Canada: Annual Report 2020 51
