* Earnings up 14 pct, net interest income up 10 pct
* Credit impairments shrink 21 pct
* Dividend up 20 pct, shares gain 4 pct
By Helen Nyambura-Mwaura
JOHANNESBURG, Feb 11 (Reuters) - Barclays Africa Group reported a 14 percent rise in full-year earnings on Tuesday partly due to sharp fall in bad debt charges that showed the bank's tighter lending policy is starting to pay off.
The African subsidiary of Britain's Barclays reduced its exposure to personal lending over the past three years and increased bad debt provisions in response to a downturn in the country's economy after the financial crisis.
"There is no denying that our business has been through a tough period," Chief Executive Maria Ramos said.
"We've been very prudent over the last few years with our lending policy and we were ahead of the market with that and that will remain our policy," Ramos said.
The bank, the first of South Africa's main four banks to publish earnings this season, reported a 21 percent drop in bad debt charges.
Barclays Africa is remaining cautious even though South Africa's economy is showing signs of picking up and could grow by as much as 2.8 percent this year, according to the central bank, from an estimated 1.9 percent in 2013.
Unemployment has fallen and the jobless rate slowed to 24.1 percent in the fourth quarter of 2013, the lowest in seven quarters.
Manufacturing is also starting to look up with output rising 2.5 percent year-on-year in volume terms in December, compared with the 1.4 percent economists polled by Reuters had expected.
But an expected rise in interest rates could squeeze consumers, many of which are already over-indebted.
The country's central bank raised interest rates by 50 basis points last month, the first increase in about six years, to dampen spiralling inflation caused by a weakening local currency. More increases are expected in 2014, the same year that South Africans vote in a general election.
Chief financial officer David Hodnett said Barclays expected slow loan growth in South Africa, its biggest market, in 2014. "With South Africa interest rates likely to rise further and consumers under pressure, we expect mid single digit loan growth in South Africa this year."
Barclays' results are the first since the group was formed by combining Absa Group Limited and Barclays' African operations in July last year to create Africa's third-biggest banking group by market value.
"The caution, the tight lending they showed in the last couple of years is putting them in a position to be a little more aggressive now late in the cycle," Matthew Warren, head of financials at First Avenue Investment Management, said.
"I expect their earnings to hold up as we enter this down cycle in banking that is ahead of us," he said, adding that credit losses are generally rising in other banks.
Barclays shares rose 4 percent to 129.19 rand by 1140 GMT.
The bank plans to expand its operations outside South Africa so they make up 20-25 percent of total revenue from about 15-19 percent currently.
Barclays is also aiming to be among top three banks by revenue in Kenya, Ghana, Botswana and Zambia, its four biggest markets outside South Africa.
Barclays' credit impairments fell 21 percent to 7 billion rand ($628 million). The lender said diluted headline earnings per share totalled 1,396.6 cents from 1,227.6 cents a year earlier. Headline EPS, which excludes certain items, is the main measure of profit in South Africa.
Net interest income, or profit made from lending, rose 10 percent to 32.35 billion rand. Revenue from charges such as fees and commissions grew 5 percent to 27.1 billion rand. It also raised dividends by 20 percent to 820 cents per share.
Barclays shares are down 2 percent this year, compared with rivals such as No. 2 lender FirstRand, which has dropped 12 percent, and Standard Group, which has lost nearly 10 percent.