UPDATE 2-PKO to forgo dividend to boost takeover funds

(Adds PKO statement)

By Wojciech Zurawski

TARNOW, Poland, Dec 1 (Reuters) - State-controlled PKO BP PKOB.WA, Poland's second-largest bank by assets, said on Monday it would propose no dividend payout from its 2008 earnings.

Earlier on Monday, Treasury Minister Aleksander Grad said the bank should forego a 2008 dividend. He said the treasury was studying a capital increase to boost the state-controlled lender's war-chest for potential takeovers.

"The management board of PKO BP ... intends to turn to shareholders with a motion to suspend dividend from 2008 profit," the bank said.

PKO 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 about 40 percent of earnings to shareholders.

"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 at Tarnow, southern Poland.

"We are working on raising the capital of the bank and there are different ways to do it ... 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 OTPB.BU, 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 (C.N) Polish unit CitiBank Handlowy BAHA.WA if it were put up for sale.

By 1743 GMT, shares in PKO BP were down 3.13 percent, while Warsaw's blue-chip WIG20 .WIG20 index was down 2.06 percent.

(Additional reporting by Karolina Slowikowska (Writing Piotr Skolimowski and Patryk Wasilewski)