Bank of Nova Scotia (TSX:BNS) chief executive Rick Waugh says Canadian banks could be weakened by stricter international regulations that change the way financial institutions handle loans.

The head of Canada’s most international bank told shareholders at a meeting in St. John’s, N.L. on Thursday that proposed international lending rules are a threat to the foundation that helped strengthen the domestic banking sector in the face of the global credit crisis.

“There is a real danger that Canada will perhaps — inadvertently — be significantly weakened by these reforms,” he said.

“It is the more prescriptive rules based under what is now called Basel lll, that threatens Canadian banks’ ability to achieve growth — and our ability to provide customers with mortgages, credit cards and business loans.”

Waugh is the latest Canadian banking executive to voice concern over new regulations proposed by the Basel Committee, an international body based in Switzerland. One of the proposals would require each bank to set aside more cash to back up mortgages in case of default, because they would no longer receive enough credit to be considered liquid assets.

Waugh said the new rules could actually force the Canadian banks to securitize and sell off mortgages, even though they were “a key factor” in helping Scotia “manoeuvre through the crisis.”

Canadian banks were praised for their caution even before the credit crisis emerged. The conservative approach helped them, and the country as a whole, emerge relatively unscathed from the global crisis that started in late 2008 with the collapse of the U.S. financial sector.

“Our model has worked well and we should make sure it does not damage us as others try to cover the failures of their own financial sectors,” Waugh said.

“Focus must be on ensuring better capital and risk management, proper compensation and global integration of markets — rather than prescriptive global rules which work, when you get into the details, against Canada’s well-functioning banking industry.”

Waugh called on government leaders, policy-makers and regulators to continue pushing for Canada’s banking interests at the upcoming G20 summit in Toronto, as well as at future financial stability board and Basel meetings.

“We have a responsibility to make Canada’s voice heard to ensure a level playing field for everyone, and yet not compromise and give away the very strengths that have made our system work,” he said.

Last month, TD Bank (TSX:TD) chief executive Ed Clark said that the proposed Basel regulations could push Canadian banks to abandon their conservative approach and invest in more high-risk assets.

He said riskier assets could have bigger potential returns compared with lower-risk holdings, such as mortgages, but that the shift could increase the risk of another catastrophic financial downturn.

After Scotiabank’s annual meeting, Waugh told reporters that banks around the world are assessing the potential effects of those proposed rules and will present expected results to regulators by the end of April.

More finalized rules are expected from the G20 by the end of this year for implementation “no sooner than 2012,” Waugh said.

“But that could even change because these are very, very significant (concerns),” he stressed. “We don’t want them unintentionally… to slow down growth of the global economies, and that’s what it looks like they’re going to do.”

After the meeting, Waugh said the cost of home ownership — for buyers and banks — is going up, which he said will mitigate some of the recent economic growth.

“We do want housing prices to continue to grow, but I think we have to be careful that we don’t create the bubbles,” he said.

“We in the banking sector have got to have prudent risk management and yet it’s such an important product for our customers. We’re going to have to be there for them — which we will — but it’s going to cost a little bit more as we go forward on the cost of servicing the mortgages.”

Waugh took some heat from shareholders who questioned whether he, or any executive, is worth his pay package of almost $10 million a year.

Still, a non-binding “say on pay” vote to give shareholders at least symbolic input on executive compensation passed Thursday by 96%.

“I totally realize that’s a large amount, but you have to put it in context,” Waugh told reporters after the meeting.

Executive salaries must be competitive to attract and keep talent that is in demand around the world, he said.