Photo: The Canadian Press

TORONTO — Royal Bank of Canada raised its dividend Wednesday as it reported a rise in fourth-quarter profits from last year, though it said earnings were hit by lower margins in part from low interest rates and heightened competition.

The bank said it will now pay a quarterly dividend of $1.20 per share, up 11% from $1.08 per share, after the federal banking regulator lifted the restrictions it imposed on banks and insurers at the start of the pandemic on increasing payouts. RBC said it also plans to buy back up to 45 million shares, representing about 3% of existing stock.

Mortgage activity reached new heights in the quarter, with RBC boosting its total residential mortgage loans to $330 billion in the quarter ending Oct. 31, up 2.5% from the previous quarter, 12.5% from a year earlier, and up 25% from the last quarter of 2019.

Net interest margin, a measure of profitability, was down nine basis points from the previous quarter in Canadian banking because of several issues, including a lower spread on mortgage loans.

“You saw the momentum in the quarter-over-quarter numbers, which positions us well,” said David McKay, chief executive of RBC on an analyst call Wednesday. “Our disappointment also was that we didn’t drive as much to the bottom line as we would normally with that type of volume.”

Neil McLaughlin, group head of personal and commercial banking at RBC, said there was exceptionally strong mortgage volume across the industry for a record amount of originations, which has created price pressure in the mortgage business.

“With that really strong market and all that demand, you know, increased price pressure from competition. So it’s been a very tight market.”

The bank’s earnings were also hit by a narrower interest margin in its U.S. business, with a 20-basis-point drop at its City National Bank in part because of fees related to the federal Paycheck Protection Program, as well as from the overall asset mix.

Going forward, the bank expects to benefit from higher interest rates as central banks respond to inflationary pressures.

McKay noted that lower interest rates have reduced the bank’s revenue by about $1 billion a year for the past two years, mostly in Canadian banking and U.S. wealth management, while Nadine Ahn, chief financial officer at the bank, said that a 25 basis point increase in interest rates could boost revenue by $250 million over 12 months across those two divisions.