Royal Bank Of Canada (NYSE:RY) CEO Dave McKay struck an optimistic tone on Canada’s medium- to long-term outlook during a fireside chat at the 2026 RBC Canadian Bank CEO Conference, outlining what he described as a constructive operating backdrop, multiple growth levers to lift returns, and a continued focus on disciplined capital management and risk appetite.
Conference backdrop: valuations high, expectations higher
Conference host and bank analyst Darko Mihelic opened by describing 2025 as a year in which the Canadian economy was “far from a recession” despite not being particularly strong. He said credit losses stabilized in 2025 and that Canadian banks’ outlooks generally point to stable provisions for credit losses (PCLs) in 2026 with potential declines into 2027.
McKay: “risk-on” foreign capital and a more ambitious Canadian investment cycle
McKay said he has seen a shift in investor sentiment toward Canada, calling it “the first time in my tenure we’ve seen a general risk-on theme from foreign investors on Canada.” He tied that to what he described as major infrastructure and investment opportunities, citing “CAD 60 billion of defense spend” and “CAD 150 billion of infrastructure,” including energy, mining and minerals, transportation, and efforts to rebuild a more diversified economy.
Looking at current conditions, McKay said the Canadian consumer has remained resilient. He noted consumers are “not buying homes the way they used to,” with “very little activity in presale,” which has weighed on construction financing. However, he said consumers have redirected cash flow toward consumption—particularly services—helping support job creation and unemployment stability.
McKay also pointed to strong activity in parts of RBC’s businesses, including what he described as high single-digit growth in commercial lending, strong deposit growth, constructive advisory markets with more IPOs and equity raises, and robust trading results amid higher volatility in areas such as credit trading, macro trading, and FX.
Capital and ROE: maintaining a CET1 band and targeting higher returns
Mihelic asked McKay about RBC’s framework for lifting return on equity (ROE), including the bank’s stated approach to capital levels. McKay reiterated RBC’s intention to operate within a 12.5% to 13.5% common equity tier one (CET1) ratio range, with capital above 13.5% directed to buybacks.
McKay said the range reflects balancing capital efficiency and growth. He said RBC could potentially run at “18% plus” ROE in some scenarios but would have to “sacrifice growth” to do so, and that the bank believes it has identified an optimal balance. He also said RBC’s capital levels may move within the band depending on volatility and stress-test scenarios, and he highlighted the bank’s organic capital generation, stating RBC can produce “80 basis points net of dividends” given its current earnings stream. That, he said, provides flexibility to quickly accumulate capital for potential strategic opportunities without carrying excess capital continuously.
Mihelic also asked about RBC’s return-on-assets (ROA) target of 100 basis points. McKay said improving ROA toward that level would be supported by multiple drivers, including:
- Improving returns in RBC’s U.S. platform, including City National, which he said has been a drag on ROE but could become “ROE enhancing” as it improves.
- Continued execution related to HSBC (which he referenced in the context of having delivered on cost targets and pursuing revenue opportunities, including “over CAD 200 million plus of opportunity”).
- Contribution from what he described as RBC’s “money-in-motion” franchise, including mutual funds, direct investing, and PH&N.
- Mortgage margin expansion and cost reduction after what he called the “most significant margin compression” in RBC’s mortgage business history; he cited the scale of a roughly “CAD 450 billion” mortgage book and the impact of “5-10 basis points” of margin expansion.
- Ongoing strength in advisory and capital markets.
McKay framed the path to higher ROE as roughly “a third” from net interest income growth, “a third” from other income growth, and “a third” from other factors including efficiency. While Mihelic said he did not plan to focus on themes like AI, McKay said AI is “one of the most significant forces of change” and described RBC as a market leader in deploying it. He said RBC has been building models for a decade, employs “over 100 PhDs in AI,” and has identified “nine large projects” discussed at its Investor Day, with additional work underway.
Risk and headwinds: credit, cyber, and higher taxes
Asked whether RBC is increasing risk to drive higher ROE, McKay said the bank is “not changing our risk appetite,” emphasizing a goal of “premium growth” with “lower volatility.” He identified two primary risks: credit and cyber.
On credit, he cited unresolved issues around CUSMA and quota systems affecting sectors such as steel, softwood lumber, and dairy, saying there could be “volatility” and “a little bit of spiking” in affected sectors. He also discussed a “K-shaped economy” with growing disparity between higher- and lower-income households, noting that many renters are “struggling to make ends meet” even as most are still making payments.
On cyber risk, McKay said heightened geopolitical tensions increase both commercial and nation-state threats. He said RBC spends “hundreds and hundreds, if not billion dollars” on defense and framed security and trust as a core value proposition.
McKay also addressed a notable credit issue from the prior year, describing it as a case involving a “highly rated external utility” and a bridge loan that RBC held at “the upper end” of its appetite. He said the bank’s learning is to “moderate some of the absolute hold levels” even for highly rated counterparties, adding that the situation may still resolve over coming months.
On headwinds, McKay pointed to the amortization impact related to the HSBC acquisition (which he said had been a tailwind to consumer NII that will be “fully” earned through) and to taxes tied to “Pillar Two” implementation, which he said will increase RBC’s overall tax burden within guidance provided by the CFO. He also said he is concerned about government debt levels—particularly U.S. fiscal deficits—though he characterized current deficits as a “floor under the economy” that cannot persist indefinitely at current levels.
M&A stance: selective, focused on earn-back to ROE target
In an audience Q&A, McKay said he would consider a transformational strategic acquisition but stressed that an “earn back to that 17% plus” ROE would be critical. He said he has “passed on so many acquisitions” that were not accretive enough and expressed skepticism about the ability to create shareholder value through M&A in a market with significant capital and strong seller leverage. He added that there may be “a couple of opportunities in the wealth space” in the U.S. that could be transformational, though he described such opportunities as “few and far between.”
In closing remarks, McKay reiterated confidence in a balanced but constructive environment, pointing to growth opportunities in the U.S. across City National, wealth, and capital markets, and saying RBC continues to take share in Canada. He highlighted RBC’s deposit franchise as “critical to driving ROEs,” and cited growth in RBC Clear, saying the bank has raised “$23 billion of funding and of deposits in U.S. senior markets from scratch” over roughly three years and believes it can reach “$50 billion plus.” He said that capability could expand strategic flexibility over time, including potentially improving the economics of certain U.S. opportunities.
About Royal Bank Of Canada (NYSE:RY)
Royal Bank of Canada (NYSE: RY) is a diversified financial services company and one of Canada’s largest banks. Founded in 1864 in Halifax, Nova Scotia, the firm is now headquartered in Toronto, Ontario. It provides a broad range of banking and financial services to individuals, businesses, and institutional clients through a network of branches, digital platforms and international offices.
RBC operates across several principal business segments including personal and commercial banking, wealth management, insurance, investor and treasury services, capital markets, and global asset management.
