* CFO says bank on track to hit mortgage sales target
* Retail head expects mortgage slowdown in second half
* Q3 EPS C$2.14 vs forecast C$2.11 (Recasts, adds comments from conference call, interview)
By Matt Scuffham
TORONTO, Aug 22 (Reuters) - Royal Bank of Canada expects its mortgage sales growth to slow in the second half as tougher lending rules introduced by Canada's banking regulator take effect, the country's biggest lender said on Wednesday.
The Office of the Superintendent of Financial Institutions (OSFI) introduced the measures to cut out risky lending, named "B-20", at the start of the year, requiring borrowers to be tested on their ability to repay loans at 200 basis points above their current rate.
RBC's retail banking head Neil McLaughlin said mortgage sales had held up well in the year to date, benefiting in part from the completion of sales agreed as borrowers rushed to take loans before the rules were introduced, but would decline.
"We're benefiting right now from this pull-forward effect," he told analysts on a conference call. "We do believe there will be a modest slowing, partly due to "B-20", and in the back half of the year, we will see slowing growth."
In an interview, Chief Financial Officer Rod Bolger said that, even factoring in a slowdown, the bank remained on track to achieve its target of mid-single digit mortgage sales growth for the year.
"Through three quarters we're north of 6 percent," Bolger said in an interview. "If it continues to lag down, we'll still be above 5 percent for the full year."
Bolger said the bank was benefiting from an increased renewal rate, partly due to sales through an online app it launched to simplify the renewal process for existing customers.
The new mortgage lending rules are part of a number of measures introduced by Canadian authorities to cool rampant housing markets in the cities of Toronto and Vancouver.
"I think it's been healthy," said Bolger.
RBC said earnings per share rose by 14 percent to C$2.10 in the quarter ended July 31. Excluding one-off items, earnings per share were C$2.14, ahead of the average forecast earnings of C$2.11 per share, according to Thomson Reuters I/B/E/S.
Shares in RBC were up 0.6 percent at 11:10 a.m. ET (1510 GMT).
Net income increased by 11 percent from a year ago to C$3.1 billion. That included an 8 percent rise in net income at the Canadian retail business to C$1.51 billion, which the bank said was driven by improved margins due to higher Canadian interest rates. Canadian banks have benefited from four interest rate hikes by the Bank of Canada since July 2017. (Reporting by Matt Scuffham Editing by Edmund Blair, David Evans and David Gregorio)