* FY pretax profit down 7 pct to 907.6 mln shillings
* Jump in total income cushions earnings per share
* Interest expenses double to 3.12 billion shillings
* Interest income rises 47 percent to 5.07 billion
* Earnings per share 3.22 shillings vs 2.70 (Adds analyst comments, background)
By Kevin Mwanza
NAIROBI, Feb 19 (Reuters) - Kenya's second-largest mortgage lender Housing Finance Ltd said full-year pretax profit dipped 7 percent, hit by rising interest expenses, but the decline was cushioned by higher total interest income.
Pretax profit fell to 907.6 million shillings ($10.4 million), the group said on Tuesday, after interest expenses doubled to 3.12 billion from 1.56 billion in full-year 2011.
Its total interest income, however, rose 47 percent to 5.07 billion shillings, which helped the firm's earnings per share rise to 3.22 shillings from 2.70 shillings.
The high cost of funding in the first half of the year led to an increase in interest rates for mortgage borrowers, pushing gross non-performing loans up 48 percent to 2.33 billion shillings.
Commercial lending rates leapt to about 25 percent in late 2011 from 15 percent after the central bank raised its policy rate by more than 11 percentage points to 18 percent to fight inflation and a slump in the currency.
The regulator has since July 2012 eased its key rate by 850 basis points to 9.50 percent, giving some relief to house buyers struggling to finance their loans.
"With general stability in interest rates and (the group) ... mobilising deposits through their new current accounts, they should be able to recover this year," said Faith Atiti, an analyst at NIC Securities.
Housing Finance introduced current account services in March last year in a move to drive down its cost of deposits.