European banks need to be able to attract fresh capital and investors, in turn, need clarity on banks' future dividend payments following a temporary freeze triggered by COVID-19, the head of Italy's top bank UniCredit said.

UniCredit CEO Jean Pierre Mustier, speaking during a panel discussion at the Frankfurt Finance Summit on Monday, said banks across different jurisdictions competed for investors' cash.

Mustier, who chairs the European Banking Federation, said U.S. authorities were aware of this issue and paid close attention to U.S. banks' profitability. But in Europe, Mustier said, the focus was more on banks' capital.

"If Covid can bring us something it's ... to make sure that the regulator ... thinks also of how to position banks to attract more capital," he said.

"We need to have this shift towards the issue of how to make banks profitable ... so that they can finance the European economy," he added.

Mustier said the pandemic would drive an increase in corporate debt and higher loan-loss provisions for banks and that both companies and banks needed to be able to raise equity.

The euro zone banking index's dividend yield hit a record low after the European Central Bank told banks to skip payouts and use profits as a temporary additional capital buffer.

Euro zone banks trade at 40% of their book value, significantly behind their U.S. peers, which are trading on a ratio of 1.

Mustier, who had to put on hold his strategy for UniCredit focused on dividends and share buybacks, said the ECB's move had been wise but it was important to make sure the banking industry remained a "truly investible sector."

"International investors (must) have visibility on how European banks will be able to pay dividends in the future ... under which constraints," he said.

"We need to show investors that European banks can be a good investment."

(Reporting by Valentina Za, editing by Sabina Suzzi and Jane Merriman)