Feb. 21 (Bloomberg) -- Royal Bank of Canada, Toronto- Dominion Bank and two other Canadian lenders may forego dividend increases this quarter as profits decline, National Bank Financial analyst Robert Sedran said.

Canadian banks typically raise dividends twice a year, meaning Bank of Montreal, Canadian Imperial Bank of Commerce, Royal Bank and Toronto-Dominion are due to boost their payouts, Sedran said. They may postpone increases because average profits before one-time items will probably drop 1.4 percent, he said.

``They are loathe to break that trend, but at the same time the environment has clearly softened,'' Sedran said in an interview today. ``We are assuming they'll take a pause this quarter and would view any increases as a bullish sign.''

Canadian banks, which report fiscal first-quarter earnings starting next week, face slumping profits because a sluggish economy is boosting loan defaults. Writedowns on debt securities linked to the U.S. subprime mortgage market will also erode earnings, he said.

Toronto-Dominion may not raise its dividend because of an ``uncertain environment and a stretched balance sheet'' after taking its TD Banknorth unit in the U.S. private and agreeing to buy Commerce Bancorp Inc., the largest bank based in New Jersey.

A dividend increase isn't likely for Canadian Imperial, which may add more costs to the ``massive writedowns'' already announced for the quarter ended Jan. 31, he said. Canadian Imperial said in January it'll take $2.46 billion in pretax writedowns on investments tied to U.S. subprime mortgages.

``These are not normal times for the bank,'' Sedran said.

Bank of Nova Scotia, the third-biggest bank by assets, and National Bank of Canada, the No. 6 bank, raised dividends in the fourth quarter and aren't expected to raise them this period.

Even if Canada's banks take a pause on dividend increases, they can still meet their targets for payouts this year, Sedran said in a Feb. 13 research note.

To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

Last Updated: February 21, 2008 11:07 EST