UPDATE 1-Morocco's BMCE Bank reports 18 pct rise in first-half profit

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RABAT, Sept 26 (Reuters) - Morocco’s BMCE Bank reported on Monday an 18 percent rise in first-half net profit to 1.25 billion dirhams ($129 million) on higher margins in its domestic market.

Consolidated net banking income rose 13 percent to 6.7 billion dirhams, thanks to interest rate cuts that improved margins in the bond market and financial intermediation activity, BMCE said in a statement.

Morocco’s central bank has cut interest rates three times in less than two years in an effort to boost growth that was hit by the worst drought in decades.

Return on equity (ROE) rose to 15.5 percent from 13.9 percent at the end of 2015. Total assets rose 8 percent to 281.5 billion dirhams.

The bank said 64 percent of its profit came from Morocco, its main market, 27 percent from elsewhere in Africa and 9 percent from Europe.

Along with other Moroccan lenders, the bank has in the last few years faced a rise in bad loans in its domestic market and in Sub-Saharan Africa.

BMCE said total risk costs rose to 1.05 billion dirhams from 807 million dirhams in the first six months of 2015 and provisions covered 74 percent of bad loans, up from 67 percent at the end of 2015.

BMCE reported 8.4 billion dirhams in bad debts, up from 7.3 billion at the end of 2015.

In 2013, it became the first private financial institution from North Africa to issue bonds on international capital markets, raising $300 million.

BMCE is preparing to launch an Islamic subsidiary with Bahrain-based Al Baraka Banking Group after the Moroccan parliament approved a bill regulating Islamic banks and sukuk issues.

$1 = 9.6845 Moroccan dirham Reporting by Aziz El Yaakoubi; Editing by Jason Neely and Mark Potter