Editing Royal Bank of Canada (section)

== Risks ==

=== Interest Rate Risks ===

* Arguably, the biggest factor affecting the banking sector is the high interest rate environments. Central banks of developed countries have gone through a process of aggressive rate hikes over the past year to combat persistent inflation. However, it is expected that the central banks are approaching the end of their current cycle of rate increases, for example, even though the Fed raised the interest rates to 5.5%in the recent meeting, it is expected that this is the last rate hike. 
* The lagged effects of aggressive rate hikes are beginning to show, with easing inflation but mild recessions expected in some of the large global economies.
* We have already seen a rise in the provisions for Gross Impaired Loans, Allowances for Credit Losses and Write-Offs in Credit Cards and Personal Loans

=== Canadian Housing and Household Indebtness ===

* Canadian housing and household indebtedness risks remain heightened in the current rising interest rate environment. Concerns related to elevated levels of mortgage-related Canadian household debt, which accelerated during the COVID-19 pandemic, could escalate if the BoC continues to increase interest rates, if the current period of elevated inflation is prolonged or if unemployment increases, potentially resulting in, among other things, higher credit losses.

=== Credit Risk ===

* Credit risk includes retail credit risk, wholesale credit risk and wrong-way risk. Total credit risk exposure increased by CAD179 billion or 10% from FY21, primarily due to the impact of foreign exchange translation, volume growth in loans, higher derivative exposure and an increase in securities.

=== Market Risk ===

* Market risk includes potential changes to the PnL based on current market conditions such as such as interest rates, credit spreads, equity prices, commodity prices, foreign exchange rates and implied volatilities.
* RBC uses Value-at-Risk to monitor market risk. Average VaR continued to decline from its peak in October 2022, with a small increase in March arising from heightened volatility. VaR continued to reduce through the end of the quarter. 

=== Foreign Exchange Risk ===

* RBC is exposed to foreign exchange risk as it conducts operations globally and has a large impact on the income statement.