RBC's gross impaired loans for the oil-and-gas sector shot up to C$183 million, compared with C$5 million in the same period last year. They were C$46 million in the second quarter.

About 8 percent of the company's total gross impaired loans in the quarter came from the oil-and-gas industry. The oil-and-gas portfolio forms about 1.5 percent of RBC’s total loan book.

However, strength in personal and commercial banking helped the country's biggest lender top profit expectations. RBC also increased its quarterly dividend by 3 percent.

“In terms of our overall enterprise, the exposure is pretty manageable,” said Chief Financial Officer Janice Fukakusa, who noted that the lender was closely monitoring struggling clients.

RBC is working with energy companies to restructure loan facilities and stretch time frames, she said in an interview.

“It's really working within what's possible and not trying to be draconian about what's not possible.”

RBC shares recovered later in the session to close down 0.4 percent at C$72.10.

The data come a day after Bank of Montreal reported a big rise in bad loans in the energy sector and suggest that the Canadian banks are not insulated from the plunge in the oil price, which is near 6-1/2 year lows.

“What we're seeing is the beginnings of the issues within the oil patch. We do expect some measured deterioration to continue,” Barclays analyst John Aiken said.

The price of U.S. crude oil dropped on Wednesday, extending a recent selloff fueled by concerns about China’s economic growth. [O/R]

“If the price of oil stays at current levels, we could see an uptick in wholesale provisions,” RBC Chief Risk Officer Mark Hughes said on a conference call with analysts.

Net income for the third-quarter ended July 31 was C$2.48 billion, or C$1.66 per share, compared with C$2.38 billion, or C$1.59 per share, a year ago.

Excluding items, cash earnings were C$1.68 per share, beating average analyst expectations by a penny.

Profit in the personal and commercial banking segment climbed 13 percent, and wealth management earnings were flat. Net income for capital markets, which was affected by weaker fixed income and equity trading, fell about 15 percent.

(Reporting by John Tilak; Editing by Jason Neely, W Simon and Alan Crosby)

By John Tilak