UPDATE 1-UniCredit's Polish arm Pekao Q3 net profit down 18
* Q3 net profit down 18 pct, slightly better than expected
* Hurt by record-low interest rates
* Retail loans rise 13 pct from previous three months (Adds details on loans)
WARSAW, Nov 8 (Reuters) - Bank Pekao, the Polish arm of Italy's UniCredit, reported on Friday an 18-percent net profit drop in the third quarter as record-low interest rates and a sluggish economy took a bite out of its income.
Pekao, Poland's No. 2 lender, said it earned 655 million zlotys ($210 million), slightly more than the 643 million zlotys predicted by analysts polled by Reuters.
Polish lenders have seen a drop in their net interest income, or the difference between what they earn on loans and have to pay depositors, after the central bank nearly halved interest rates to help boost the flagging economy.
Like many of its rivals, Pekao has turned to high-margin retail loans - which rose 13 percent from the previous quarter - to help make up for the low interest rates.
($1 = 3.1252 Polish zlotys) (Reporting by Chris Borowski; Editing by Mark Potter)