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TORONTO (Reuters) - Three of Canada's top banks raised their dividends after reporting stronger-than-expected third-quarter profits on Thursday as Canadians continued to be robust borrowers despite high debt levels and fears of a cooling housing market.
While year-over-year gains in trading revenue padded gains at some of the banks, it was traditional personal and business lending that carried the country's top lenders to a blockbuster quarter, defying analysts' predictions for an accelerating slowdown in loan growth.
"The (Canadian) household hasn't started deleveraging," National Bank Financial analyst Peter Routledge said.
"You generally saw better loan growth than what we thought. That doesn't necessarily mean that's going to continue."
The dividend increases by Royal Bank of Canada (RY.TO), Toronto-Dominion Bank (TD.TO) and Canadian Imperial Bank of Commerce (CM.TO) come on the heels of similar moves by Bank of Montreal (BMO.TO) and Bank of Nova Scotia (BNS.TO) earlier this week, meaning Canada's top five banks have all lifted payouts this quarter.
Analysts had expected at least two dividend increases from the group, but few expected more than three.
RBC, the country's largest bank, unexpectedly lifted its payout by 5 percent to 60 Canadian cents.
That came on the back of a 73 percent rise in net profit at RBC that, along with a 42 percent profit gain at CIBC, had some observers shaking their heads, given the results came in what's considered a challenging environment.
"These headlines are just out of sight," said John Kinsey, a portfolio manager at Caldwell Securities in Toronto.
Excluding one-time items and discontinued operations, RBC's profit rose a more modest 18 percent to C$2.0 billion ($2.01 billion) against a weak quarter a year earlier, while adjusted profit was C$1.31 a share, topping analysts' estimates of C$1.18 a share.
TD, Canada's No. 2 bank, posted a 14 percent rise in net income to C$1.7 billion, and an adjusted profit of C$1.91 a share, ahead of estimates of C$1.84 a share.
No. 5 lender CIBC said quarterly profit jumped 42 percent to C$841 million, while No. 6 National Bank of Canada (NA.TO) said after markets that its net income rose 13 percent on a combination of loan growth and trading income. Both results topped analysts' estimates.
Results in the early quarters this year had shown that domestic loan growth was beginning to slow, likely due to government moves to calm Canada's hot housing market and more cautious borrowing in general by heavily indebted Canadians.
But the banks largely bucked the trend this quarter as RBC's Canadian banking income rose 24 percent to a record C$1.1 billion from C$888 million a year earlier. CIBC's climbed a steady 8 percent to C$594 million.
On the wholesale banking side, both RBC and TD showed strong year-over-year gains, as bond trading rebounded from weakness a year earlier.
However, the results didn't translate into major stock gains on Thursday. While RBC shares rose 1.6 percent in early trading, by the close they had settled to finish up just 0.7 percent at C$54.96.
TD shares ended down 1.1 percent, while CIBC fell 1.4 percent. Barclays Capital analyst John Aiken said those falls were likely due to the fact that expectations for the banks had been lifted following the strong results reported by BMO and Scotiabank earlier in the week.
As well, analysts noted that strong trading profits, which are typically due to market gyrations outside of a banks' control, are rarely rewarded by investors.
Aiken also warned not to read too much into the robust loan growth during the quarter.
"Extrapolating this quarter going forward is going to be difficult, given the expected slowdown on the mortgage side that we're likely to see domestically," he said.
Speaking on a conference call, Dave McKay, RBC's group head of Canadian banking, said the spring mortgage season had been very robust, but played down expectations that the strength will continue.
"As far as the mortgage business, you have to expect some slowdown," he said.
A weak spot for both RBC and TD were wealth management profits, particularly RBC, which had a 18.8 percent drop in year-over-year profits, and TD, where profit climbed a meager 5.5 percent. CIBC was steadier with an 8.6 percent gain.
Both CIBC and TD had been expected to raise their dividends, but TD's 7 percent payout increase was more than expected, and the bank also raised its target payout ratio - the amount of profit it sets aside to pay out as dividends - to a range of 40-50 percent from 35-45 percent.
TD Chief Financial Officer Colleen Johnston said the decision to raise the ratio was prompted by feedback from investors.
"I think dividend yield is really highly valued in this low interest rate environment, and that was certainly an impetus for us to increase the payout range," she said in an interview.
CIBC boosted its dividend by 4 percent to 94 Canadian cents per share.
The bank also said it had agreed to acquire Houston-based energy advisory firm Griffis & Small for an undisclosed price.
Reporting By Cameron French; Editing by Peter Galloway