* Sees launch of telecoms arm in May
* Loan book growth boosts pretax profit
* South Sudan operations profitable despite unrest (Adds telecoms service)
By George Obulutsa
NAIROBI, April 17 Equity Bank of Kenya will launch a telecoms services arm in a bid to grow its market share in the fast-growing mobile phone-based financial services market, it said on Thursday.
Equity, which is Kenya's biggest lender by depositors, said pretax profit for the first quarter of this year rose by 21 percent to 5.4 billion shillings ($62.14 million), lifted by growth in its loan book.
The bank, which operates in Uganda, Tanzania, Rwanda and South Sudan, said its net loans and advances to customers rose 28 percent to 179.3 billion shillings during the period.
James Mwangi, the bank's chief executive, said the company planned to launch a telecoms arm in mid-May, as part of plans to expand its services.
"In the not too distant future we will be inviting you to launch a telecom company," Mwangi told an investor briefing.
He declined to give more details, but telecoms regulator Communications Commission on Kenya said earlier this month it had licensed three mobile virtual network operators.
Mobile virtual network operators offer mobile phone services using the transmission infrastructure of existing telecoms operators at a fee.
Equity's planned service will build on its existing mobile banking customers, who number 2.91 million, up from 2.36 million in March 2013.
"It will be a very good story," Mwangi told reporters after an investor briefing.
Mobile phone-based financial services have spread in Kenya since telecoms operator Safaricom launched its M-Pesa service in 2007, helping the country raise the number of people with access to formal financial services.
One service run by Commercial Bank of Africa Safaricom - dubbed M-Shwari - had mobilised over 24 billion shillings in deposits and lent 7.8 billion shillings by February this year after it was launched in 2012.
Equity said that despite unrest in neighbouring Sudan, its operations there managed to return a profit. The ongoing fighting in the country was however still a concern.
"The first quarter made more profit than the whole of last year, suggesting that the country is not as bad as people see it," Mwangi said.
The bank's cost-to-income ratio fell to 48.7 percent in the first quarter from 50 percent in the same period a year before. Mwangi said the bank plans to cut the ratio further to 46 percent by the year end.
Its customer deposits rose 18 percent to 206.6 billion shillings, while gross non performing loans rose to 7.77 billion shillings from 7.41 billion shillings in the same period in 2013.
At 0916 GMT, Equity Bank's shares were up 2.3 percent at 33 shillings.
"The loan book growth was faster than expected. That was the biggest story," Kuria Kamau, research analyst at Kestrel Capital, said.
Kamau said Equity was right to pursue a bigger share of the mobile phone based financial services sector.
"It's a very big opportunity for them, and if well executed, it will be a game-changer," he said.
($1 = 86.9000 Kenyan Shillings) (Reporting by George Obulutsa, editing by David Evans)