* Bank holds annual meeting in Montreal on Wednesday
* Oil price slump raises concerns about profitability
* RBC is major lender to oil firms, Alberta consumers
By Matt Scuffham
TORONTO, April 6 (Reuters) - Royal Bank of Canada RY.TO ,
Canada's biggest lender, faces shareholders at its annual
meeting in Montreal on Wednesday amid concerns over its oil and
gas exposure following an increase in bad loans in the first
quarter.
RBC is one of the biggest lenders to oil and gas firms in
Canada and has a sizeable consumer loan book in the
oil-producing province of Alberta, which has been hit by
thousands of job losses.
The bank said in February that impaired loans to companies
in the oil and gas sector had almost doubled from the previous
quarter to C$310 million and it had set aside C$106 million to
cover bad loans to the energy sector.
That warning, along with increased provisions by other
lenders, raised concerns the impact on Canadian banks could
worsen in the remainder of the year.
"The longer we go with these low oil prices the more
pressure is going to come on the banks, so it's going to get
worse. I think it's going to have some impact on earnings,
especially for RBC, which has a big chunk of its business in
capital markets," said Dan Werner, an analyst at Morningstar.
Canada's banking regulator said last month that the
country's biggest banks needed to review their accounting
practices to ensure they have sufficient reserves to withstand
the impact of the commodity-price collapse on the economy.
As well as direct loans to oil and gas firms, Canadian banks
are affected by secondary exposure to consumers with credit
cards and home loans whose personal circumstances may have been
impacted. Edward Jones analyst Jim Shanahan said he believed
that was a bigger concern for RBC than direct exposure.
"RBC has a fair bit of exposure to residential mortgage
loans in Alberta and the Prairies. We're a little bit more
concerned about uninsured mortgages and uninsured home equity
loans," he said.
RBC's capital strength weakened following its $5 billion
acquisition of Los Angeles-based City National Corp in November
which reduced its core tier 1 ratio by 70 basis
points to 9.9 percent. However, analysts do not expect it will
need to raise capital in the foreseeable future.
Another headache for RBC's management was the bank being
named in leaked documents from a Panamanian law firm that appear
to show some of the firm's clients evaded tax and laundered
money. RBC said on Monday that it had controls in place to
prevent illegal activities. by Matthew Lewis)