The head of Royal Bank of Canada, Canada's largest bank, said on Wednesday the bank's operating environment is recovering and its strong capital base could allow it to acquire assets as other banks shrink.

Chief Executive Gord Nixon said he sees significant acquisition opportunities in coming years, particularly outside of Canada. He also said the bank would err on the side of caution in deploying capital.

We find ourselves in a position where arguably we have low levels of leverage and high levels of capital, so that we think that there will be a continued ability for us to not only invest ... but to get paid from extending our balance sheet as other banks around the world are continually under pressure to reduce the leverage on their balance sheet, Nixon told a financial summit hosted by Scotia Capital in Toronto.

Nixon said the bank had looked at a lot of alternatives on the U.S. retail acquisition side.

In reporting its third quarter profit last month, the bank said it continued to build capital, with its Tier I capital ratio climbing to 12.9 percent, above most Canadian competitors and far beyond that of global rivals.

In August, Canada's largest bank posted a record third-quarter profit of C$1.56 billion ($1.46 billion) as a big jump in trading revenue more than offset higher loan-loss provisions

Nixon said on Wednesday the bank would use excess capital for repatriation -- share buybacks, or dividend increases -- or for investment.

($1=$1.07 Canadian)

(Reporting by Andrea Hopkins and Pav Jordan; editing by Peter Galloway)