UPDATE 4-Australia banks face tight timeline on global capital rules

* Regulator proposes banks reach minimum Basel III rules by 2013

* Means banks will have to meet rules 2-3 years ahead of time

* Rules not seen pushing banks to raise capital immediately

* Change in dividend treatment to boost capital position-analysts

* Bank body seeks maximum time to meet new rules (Adds Australian Bankers Association comments)

By Narayanan Somasundaram and Ed Davies

SYDNEY, Sept 6 (Reuters) - Australian banks will need to meet new global capital rules ahead of the internationally agreed timetable under proposals made on Tuesday, although the move is unlikely to force any to raise any new equity immediately.

The new Basel III rules, aimed at preventing another global banking crisis, require lenders to hold more capital aside in the form of equity, reserves and retained earnings in case of a sharp economic downturn.

Australia joins a handful of other countries including Switzerland, China and Singapore in outlining how they would implement the new capital rules, ahead of most of their peers in Europe and the United States.

The Australian Prudential Regulation Authority (APRA) said in a discussion paper that banks should meet the Basel minimum capital requirements by January 2013, two years ahead of the 2015 deadline set by global regulators.

Australian banks should then have a capital buffer in place by January 2016, three years ahead of the Basel timeline.

Basel rules call for a minimum core, or Tier 1, capital ratio of 4.5 percent, with a 2.5 percent capital buffer on top of that.

"ADI (Authorised deposit-taking institutions) in Australia are well placed to meet the new minimum capital requirements and APRA is therefore proposing to accelerate aspects of the Basel Committee's timetable," APRA said in a statement.

Australia's top four banks -- National Australia Bank , Commonwealth Bank of Australia , Westpac and Australia and New Zealand Banking group -- have a core tier I capital ratio, including a capital buffer, of just under 7 percent now.

"What this does is puts to rest any fears that capital raising is needed for the big four banks. The change in dividend treatment is a big boost," said RBS banking analyst John Buonaccorsi, referring to proposed rules that call for dividends to be deducted from capital only after they have been declared.

Currently APRA asks banks to deduct expected dividend payouts but is proposing to bring Australian banks inline with global rules. The change is expected to add 40-60 basis points to the capital ratio for each major bank.

"The only worry is a likely capital surcharge for domestic systematically important banks, but the Australian banks are now well placed to absorb this surcharge," Buonaccorsi said.

PROFITABLE BANKS

Australia's highly profitable banks are adding up to 50 basis points to capital annually, allowing them to glide through new rules easily.

APRA said it would also amend its current bank regulation policies in a number of areas, taking a stricter approach than at present in some but a less conservative approach in others.

While the top four banks said they were still studying the proposals, the Australian Bankers Association, an industry body that represents the big banks, regional lenders and some foreign banks operating in Australia, said it wanted more time to meet the new rules.

"There are a number of departures in the paper from the Basel standards released in December 2010, in relation to matters such as transition times and phase-in arrangements," Steven Munchenberg, chief executive of the industry body said.

"We think that banks should be given the maximum time to transition to the new regime and we will be putting this view forward to APRA."

APRA has sought submissions from interested parties and will undertake a second consultation in early 2012 on the detailed prudential and reporting requirements.

The regulator has already set strict rules relating to the Basel requirements for banks' liquidity. In February, APRA ruled that no assets aside from cash, domestic government securities and central bank reserves can be counted for meeting the Basel Committee's classification of "highly liquid".

Given Australia has a relatively shallow government debt market, it means banks may be forced to tap a liquidity facility provided by the central bank in order to comply with the strict new rules.

Shares in Australia's banks fell between 0.2 and 1.5 percent on Tuesday, in line with a 1.2 percent decline in the broader index .

Only a handful of countries have already announced how they plan to implement Basel III, including Singapore which is also pushing its banks to meet the new rules several years ahead of time. .

Switzerland and China have also set out their plans although most European and American regulators have yet to unveil their new rules.

Switzerland has said it wants to set a much higher capital buffer for its two biggest banks, Credit Suisse Group AG and UBS AG , which are facing an overall common equity requirement of 10.0 percent. (Additional reporting by Rachel Armstrong in SINGAPORE; Editing by Vinu Pilakkott and Lincoln Feast)