ROYAL BANK OF CANADA Annual Report - How They Did This Year

Keeping Things Stable: Regulatory Requirements

The bank needs to keep certain amounts of money aside as required by financial regulators. This year, these required balances increased to $3 billion as of October 31, 2025. That's up from $2 billion last year (October 31, 2024), bringing it back to the $3 billion level they had in 2023. This shows they're meeting their obligations to keep the financial system sound.

Smart Debt Management

RBC has been actively managing its borrowing. They paid off a significant chunk of their debt, specifically:

• $1.5 billion of their 2.88% subordinated debentures in December 2024.
• $1.25 billion of their 2.088% subordinated debentures in June 2025. By paying off these debts, the bank can reduce its future interest payments, which is good for its financial health.

A Safety Net for Debt Holders: NVCC Provisions

Some of the bank's debt, particularly certain subordinated debentures, comes with a special clause called "Non-Viability Contingent Capital" (NVCC). This is a regulatory feature designed to protect the bank in extreme situations. If the bank were ever deemed to be in severe financial trouble, these specific debts could automatically convert into common shares of the bank. While this is a safety measure for the bank's overall stability, it's an important detail for those holding these particular debt instruments.

Looking Ahead: What Could Affect RBC's Future?

RBC is keeping an eye on several key factors that could influence its future performance:

• Economic Ups and Downs: The overall economy and market conditions, both in Canada and globally.
• Canadian Housing & Debt: The Canadian housing market and household debt levels.
• Tech & Cyber Risks: Protecting against cyber threats, keeping customer data safe, and managing risks and opportunities from new tech like Artificial Intelligence (AI) and cloud computing.
• Global Events: Geopolitical uncertainty and environmental and social (E&S) concerns.
• Rules & Regulations: Changes in government rules and regulations.
• Core Banking Risks: Credit risk (people not paying back loans), market fluctuations, and ensuring enough cash on hand.

These are all factors that could influence the bank's performance, and it's good to know they're actively thinking about them.

Key Takeaways

• RBC increased its required regulatory balances to $3 billion by October 31, 2025, up from $2 billion last year, returning to 2023 levels.
• The bank actively managed its debt by paying off $1.5 billion of 2.88% subordinated debentures in December 2024 and $1.25 billion of 2.088% subordinated debentures in June 2025, aiming to reduce future interest payments.
• Certain subordinated debentures include Non-Viability Contingent Capital (NVCC) provisions, allowing conversion to common shares in severe financial distress, acting as a safety measure for the bank's stability.
• RBC is monitoring various potential risks, including economic conditions, the Canadian housing market, technological advancements (like AI and cyber threats), global events, regulatory changes, and core banking risks such as credit and market fluctuations.