UPDATE 2-National Bank of Kenya sees dividend in 2010, H1 up

* To clear back losses by year end

* H1 boosted by jump in interest income

(Recasts with dividend)

By Duncan Miriri

NAIROBI, Aug 3 (Reuters) - National Bank of Kenya (NBK.NR) expects to start paying its shareholders a dividend next year after clearing losses that were accumulated in the past, its managing director said on Monday.

Despite an 11 percent jump in profit before tax to 1 billion Shillings ($13 million) in this year's first half, the bank that is slated for privatisation, did not declare a dividend, as the law requires it to cover past losses first.

National Bank made losses, amounting to 6 billion shillings, in the late 1990s and early 2000s before swinging into profitability in 2002.

"That deficit was so big that it required all this time to clear," Reuben Marambii said at a news conference.

National Bank has now reduced those past losses to under 700 million shillings that it expects to cover in this second half, enabling it to start paying dividends next year, subject to board approval, Marambii added.

The bank that derives about half of its business from government agencies, attributed the rise in profit to a steady increase in interest income, which grew by 10 percent to 2.1 billion shillings from 1.9 billion at the same time last year.

"The sector that has been growing faster is personal lending, especially unsecured personal lending to salaried individuals," the managing director said.

The underlying reason for this growth was a 43 percent rise in loans and advances to 10.6 billion during the first half compared with 7.4 billion shillings last year, the bank said.

Marambii said the bank would continue to pursue a path of steady asset growth through diversification of business.

National Bank was founded as a bank for the government and its agencies. It provides banking services to several important government agencies including the Kenya Revenue Authority.

"This bank would not survive if it did business with the government only," Marambii said.

Ranked the 10th biggest bank by assets in east Africa's biggest economy, the bank opened two new branches during the first half, and extended banking hours in other branches.

The government, which has a 22.5 percent direct stake in the bank and 48.05 percent through the state pension fund, has engaged a consultant to determine the best mode of selling the shares.

Rival Equity Bank (EQTY.NR) has expressed an interest in acquiring a controlling stake when the terms of its sale are unveiled. [ID:nLS595560] ($1=76.60 Kenyan Shilling) (Editing by Andy Bruce)