* New Basel rules to be phased in by 2019
* Banks below standards told to be cautious
* Analyst says top three banks lagging in capital
TORONTO, Feb 1 Canada's banks are on track to
meet tough new global capital guidelines, the country's
financial regulator said on Tuesday, although it warned the
lenders to be cautious in raising dividends, buying back
shares, or making large acquisitions.
In a paper, the Office of the Superintendent of Financial
Institutions said banks whose Tier 1 common equity ratios are
below the 7 percent standard set out under the new rules,
should "maintain prudent earnings retention policies and avoid
actions that weaken their capital position".
The warning could throw some cold water on expectations for
acquisitions and future dividend hikes by Canadian banks.
Canada's banks have embarked on a recent spree of
acquisitions -- including Bank of Nova Scotia's (BNS.TO)
acquisition of DundeeWealth (DW.TO), which closed on Tuesday --
and some are expected to resume dividend hikes over the next
The country's top six banks have said they will meet the
standards -- set out by the Basel Committee of global
regulators -- by 2013, and the regulator agreed the banks
should be able to meet the standards well ahead of the eventual
implementation deadline of 2019.
"It is expected that the combination of sound capital
management and the international guidance on prudent earnings
retention will result in (banks) meeting the 2019 Basel III
capital requirements early in the transition period," the
While it's unclear exactly how close the banks currently
are to meeting the requirements, analyst Mario Mendonca of
Canaccord Genuity said in a note that some of Canada's banks
still have some work to do.
In a note, Mendonca said Royal Bank of Canada (RY.TO) ,
Toronto-Dominion Bank (TD.TO) and Scotiabank, the country's
three largest banks, may not have an easy time reaching the 7
percent level by 2013.
The analyst believes Bank of Montreal (BMO.TO), National
Bank of Canada (NA.TO) and Canadian Imperial Bank of Commerce
[CM.TO] are in a much stronger position capital-wise.
Mendonca estimates that Bank of Montreal and National Bank
are currently above 7 percent Tier 1 on a pro forma Basel III
National became the first large Canadian bank to resume
dividend hikes last quarter, and TD Bank is widely expected to
follow suit when the banks report their first-quarter results
in about a month.
(Reporting by Cameron French; editing by Peter Galloway)