UPDATE 1-PKO to forgo dividend to boost takeover funds

(Adds more detail, analyst comment, background)

By Wojciech Zurawski

TARNOW, Poland, Dec 1 (Reuters) - PKO BP will forgo a 2008 dividend as Poland studies a capital increase to boost the state-controlled lender's war-chest for potential takeovers, the country's treasury minister said on Monday.

"I've decided that PKO BP will not pay a dividend from 2008 (profit) to give it additional funds for mergers and acquisitions in the banking sector," Grad told reporters in Tarnow, southern Poland.

PKO, Poland's second-largest bank by assets, paid 1.1 billion zlotys ($361.6 million), or 38 percent of last year's profit, as dividend. In previous years the bank usually returned around 40 percent of annual earnings to shareholders.

"We are working on raising the capital of the bank and there are different ways to do it," Grad said.

"It will not be because PKO is in difficult financial conditions, but to more effectively take advantage of potential opportunities for takeovers."

The statement echoed the treasury's earlier comments that PKO, in which the state holds a 51.5-percent stake, should look for local and foreign takeover targets after the global financial crisis cut the price of its rivals.

The ministry's officials have also said PKO will have to sell new shares to finance its growth, allowing the government stake in the lender to fall below 50 percent.

CONSOLIDATION

"The government is trying to force through its plans for PKO BP to lead consolidation in the region," said Marek Juras, the head of research at BZ WBK brokerage in Warsaw. "Forgoing this year's dividend will not be enough to buy something large."

The bank had a net profit of 2.7 billion zlotys in the first nine months of this year.

Media speculated earlier this year about tie-up plans between the PKO and Hungary's OTP, Eastern Europe's second and third largest listed lenders.

The bank was also rumoured to be interested in bidding for the Polish unit of AIG after the troubled U.S. insurer said it would unload non-core assets.

PKO BP's previous chief executive was also quoted as saying he would be interested in buying Citigroup's Polish unit CitiBank Handlowy if it were put up for sale.

By 1233 GMT, shares in PKO BP were down 2 percent, in line with Warsaw's blue-chip WIG20 index, and unchanged compared with levels before the treasury minister's comments.

(Writing Piotr Skolimowski and Patryk Wasilewski; Editing by Jon Loades-Carter)