Asset Quality Score
Bankrate uses this test to determine the impact of troubled assets, such as unpaid loans, on the bank's loan loss reserves and overall capitalization.
Having a large number of these kinds of assets could eventually force a bank to use capital to absorb losses, reducing its equity cushion. It also means that there are likely to be many assets that are in non-accrual status and no longer earning interest for the bank, resulting in reduced earnings and potentially more risk of a future failure.
On Bankrate's test of asset quality, Royal Bank scored 40 out of a possible 40 points, above the national average of 37.49 points.
A helpful indicator of asset quality is the percentage of problem assets a bank holds compared to its total assets. As of December 31, 2017, 0.60 percent of Royal Bank's loans were noncurrent, meaning they were more than 90 days past due or were in non-accrual status. That's below the national average of 1.01 percent.
Banks maintain a reserve known as an "allowance for loan and lease losses" to deal with problem assets . The size of that reserve can be a handy indicator when evaluating a bank's ability to manage problem assets, especially when compared to the total amount of problematic loans. Unfortunately, the FDIC did not provide information on Royal Bank's loan loss allowance in its most recent filings.