UPDATE 2-Kenya's KCB may issue bond to raise funds for mortgages after strong H1

Thu Jul 31, 2014 8:25am EDT

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By Duncan Miriri

NAIROBI, July 31 (Reuters) - KCB Bank, Kenya's largest lender by assets, plans to raise funds from international debt markets for lending to the real estate sector, its CEO said after announcing a 16 percent jump in first-half profit.

Kenya successfully issued its first sovereign bond, worth $2 billion, last month, setting a benchmark for local companies that may wish to tap debt markets abroad.

"We are very keen to take the bank into the international debt market to raise funds for long-term investment for our mortgage businesses," Joshua Oigara told an investor briefing. KCB will get an international credit rating this year, he said.

The bank, which also operates in Tanzania, Rwanda, Uganda, South Sudan and Burundi, has a target of writing 1 million new mortgages, in a country where annual demand for housing outstrips supply by about 100,000 units, Oigara said.

Fees, commissions and foreign exchange trading income helped KCB post a 16 percent rise in first-half pretax profit to 11.67 billion shillings ($133 million).

Bad debts were more than targeted, at 8.8 percent of the portfolio, the chief executive said, but he said the outlook was brighter after the Kenyan government paid contractors, who were having difficulties repaying loans following earlier delays.

The full-year target for its non-performing loans (NPL) ratio was 6 percent, but Oigara said he hoped the level could be brought even lower. "The internal target is 4.5 percent for the NPL ratio," he told an investor briefing.

Fees and commissions income rose 13 percent to 5.67 billion shillings, while income from foreign exchange trading jumped 25 percent to 2.22 billion. Net interest income rose by 7 percent to 17.13 billion shillings.

The bank's newly launched insurance business was growing at about 1,000 percent on an annual basis, Oigara said, adding it had the potential to contribute 15 percent revenue to the group in the next three to five years.

KCB was studying the possibility of entering new markets like the Democratic Republic of Congo, Mozambique, Somalia and Zambia, Oigara said.

The bank has opened two new branches in South Sudan's capital Juba this year. It already had 21 outlets in the country, pointing to sustained confidence in a market dominated by KCB, but one that was hit by an eruption of violence last December.

Provisions for bad debts in South Sudan jumped during the fighting, Oigara said. KCB derives 40 percent of its business in South Sudan from transaction services and another 30 percent from foreign exchange trading, he said.

Shares in KCB rose by close to a percentage point after the results to trade at 54.50 shillings on Thursday afternoon.

"We retain our 'hold' recommendation. We expect minimal adjustment to our fair value of 52.80 shillings," Standard Investment Bank said in a research note after the results.

($1 = 87.7500 Kenyan shillings) (Editing by James Macharia and Susan Fenton)

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