* 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 few quarters.
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 regulator said.
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 basis.
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)