WARSAW: Polish lender Pekao is aiming to increase net profit this year after record low interest rates and high risk costs hit earnings in 2020, its acting chief executive told Reuters.

Polish banks have suffered from the low borrowing costs introduced by the central bank to combat the economic fallout from the COVID-19 pandemic, and Pekao's recently announced plan to take over troubled Idea Bank has added to investors' concerns about the bank's future profits.

"This operation has attracted attention, but this is not something that would change the bank (Pekao)," Leszek Skiba said in an interview.

He said the biggest challenges this year for the sector remained a drop in demand for loans, low interest rates, and Swiss franc loans portfolios. Still, Pekao may increase its net profit after a 40% slump in 2020.

"Our ambition is to improve it compared to 2020," Skiba said.

Pekao is working on a strategy for 2021-23 and if rates remain unchanged in that period its return on equity will not return to its pre-pandemic level of around 9%, Skiba said.

But he hopes Pekao will pay a dividend in the second half of this year, after the financial market regulator asked banks to refrain from dividends in the first six months of the year.

"We want to remain a dividend bank," he added.

Pekao will focus on growing its current business without acquisitions, Skiba said, adding there were no signs of consolidation in the sector as banks that would potentially be for sale have significant Swiss franc loan portfolios, which make them "unsellable".

The financial market regulator recently proposed that banks shift their Swiss franc mortgages' portfolios into Polish zlotys instead of facing many years of lawsuits from customers, who face higher costs after a surge in the value of the franc.

Skiba said banks were generally interested in the proposal.