August 1, 2019 / 1:33 PM / 24 days ago

UPDATE 2-Kenya's Equity boosted by loan growth, sees rate cap removed

* H1 pretax profit up 10% to 17 billion shillings

* Loans to customers up 17% vs target 10-15%

* CEO confident lending rate cap will be removed (Adds comments on interest rate cap)

By George Obulutsa

NAIROBI, Aug 1 (Reuters) - A surge in lending drove a 10% rise in first half pretax profit at Kenya’s Equity Group and its chief executive said he was confident the government would remove a cap on lending rates, further boosting demand.

The cap, introduced in 2016 to curb high interest rates on loans, prevents banks from charging more than four percentage points above the central bank’s benchmark lending rate, currently 9%.

The move has resulted in borrowers perceived as too risky being locked out of the market, squeezing economic growth, Equity’s CEO James Mwangi told investors on Thursday.

“We are very optimistic (it will be removed). The pains of this interest capping have been a big challenge,” Mwangi said.

“The interest cap has done its last breath.”

The finance ministry proposed removing the cap in June, saying it had starved small businesses of credit. However, some lawmakers have vowed to block the repeal.

Equity, which also operates in Uganda, Tanzania, South Sudan, Democratic Republic of Congo and Rwanda, made a first half pretax profit of 17 billion Kenyan shillings ($165 million), with interest income up 9% to 27.7 billion shillings.

Net loans to customers rose 17% to 320.9 billion shillings, topping the group’s target of 10 to 15%, Mwangi said.

He attributed the growth to new distribution channels, including mobile phone lending apps.

Equity’s banking business in Kenya, where it is the biggest lender by customers, provides the bulk of profits. Regional businesses contributed 18% to the first half total, unchanged from the same period last year.

The net interest margin dipped to 8.0% from 8.2% the year before, while the bad debt ratio rose to 8.6% from 8.4%, but held well below the Kenyan industry average of 12.7%, Equity said.

Customer deposits jumped to 458.6 billion shillings from 393.69 billion the year before, while total assets rose to 638.7 billion shillings from 542.02 billion.

In April, Equity said it was in talks with London-listed financial services firm Atlas Mara Limited about acquiring stakes in banks in Rwanda, Zambia, Mozambique and Tanzania.

“We are at the tail end of negotiations,” Mwangi said.

$1 = 103.1500 Kenyan shillings Editing by Duncan Miriri and Mark Potter

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