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WRAPUP 2-Canada's Royal Bank, National Bank profits beat estimates on provisions, loans

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(Adds share prices, comments from Royal Bank's analyst call)

By Nichola Saminather

TORONTO, Aug 25 (Reuters) - Royal Bank of Canada and National Bank of Canada both beat analysts' expectations for third-quarter profit on Wednesday, driven primarily by the release of provisions set aside to cover bad loans.

Earnings excluding the impact of provisions for both banks rose from a year ago, but Royal Bank's performance was viewed more positively by analysts as it was driven by higher fee income and lower expenses. At National Bank, lower net interest income and increased expenses somewhat eroded the benefit of higher fees.

Both banks benefited from revenue growth in their personal and commercial banking divisions, as a pick-up in lending offset margin challenges. The more modest performances in their wealth management and capital markets businesses were largely expected, although National Bank's disappointed more than Royal Bank's.

On Tuesday, Bank of Montreal and Bank of Nova Scotia both beat estimates, with the former also posting strong pre-tax pre-provision (PTPP) earnings growth, while the latter's performance was driven almost entirely by lower provisions for credit losses (PCL).

Royal Bank shares rose 1.2% to C$133.60 in morning trading in Toronto, on track for a record close, while National Bank's fell 0.7% to C$99.05. The Toronto stock benchmark was flat.

The outsized positive impact on earnings of the releases of reserves previously set aside to cover bad loans is expected to fade in coming quarters, and markets are focused on loan growth and fee revenues to determine the future health of Canadian banks.

PTPP earnings at Royal Bank, Canada's biggest lender by market value, rose 6% from a year ago but fell 1% from the prior quarter. PTPP earnings at National Bank, the smallest of the country's Big Six lenders, were 15% higher than a year earlier but flat on the previous quarter.

Analysts expected PTPP earnings across the country's biggest lenders would fall about 1% from the second quarter.

While both banks released loan-loss reserves as impairments remained low, Royal Bank's came with some caution.

"While pandemic-related uncertainty has declined... uncertainty does remain elevated due to a rise in cases of the COVID-19 delta variant," Royal Bank's Chief Risk Officer Graeme Hepworth said on an analyst call.

He added that impaired loan provisions are expected to trend above the bank's long-term average in 2022 as a result, but that this is expected to be offset by releases on performing loans.

Royal Bank reported adjusted earnings of C$3 a share, up from C$2.23 a year earlier, beating analysts' estimates of C$2.71.

National Bank had adjusted income of C$2.36 per share, versus C$1.66 a year earlier. Analysts had expected C$2.13. (Reporting by Noor Zainab Hussain in Bengaluru and Nichola Saminather in Toronto; Editing by Amy Caren Daniel, Steve Orlofsky and Jonathan Oatis)