By Duncan Miriri NAIROBI (Reuters) - One of Kenya's most successful banks, Equity, expects pretax profit to rise 30-40 percent this year, slower than last year's 111 percent growth due to investments in expansion, its chief executive said. James Mwangi, whose bank specialises in rural customers and holds more than half of accounts in east Africa's largest economy, told Reuters on Thursday that, because of the tough global conditions and drought at home, he did not expect the market to be disappointed by the forecast. "It is not that the bank is not generating ... The top line is growing beyond 100 percent, but we decided to create future business whereby we have focused on investing and creating a new earning platform," he said. Mwangi said in the last year Equity had expanded operations in Kenya with another 62 branches, an investment bank, a shares custodial service at the bourse and an insurance agency. "This is a period of investing." BANK BID Mwangi said the bank's shareholders had resolved to buy into National Bank of Kenya, a rival that is being put up for sale by the government in an 8 billion shilling privatisation programme. "We are waiting for them (the privatisation commission) to give out the terms. Equity would be going for a controlling stake ... a subsidiary status would even be better. All the decisions will hedge on what the term sheet will look like." Over the past year, Equity also ploughed 3.5 billion shillings into Uganda after it acquired Uganda Microfinance Limited through a share swap, made a $15 million initial investment in a South Sudan subsidiary and raised its stake in mortgage firm Housing Finance to 25 percent. "If you reduced the cost of all those investments, our cost to income ratio would be going down about 10 percent, showing how profitable the bank would have become," Mwangi said. The ratio stood at 66 percent in the first quarter. All the new investments will start making a positive contribution to Equity's bottom line in two years, in the worst case scenario, the chief executive said. "By the end of this year, we will start seeing a positive contribution of these investments," he said, citing new Kenyan branches that are seen breaking even in the fourth quarter. Mwangi also said the bank is considering launching operations in neighbouring Tanzania and Rwanda markets. "We are ever searching for opportunities in those markets," he said. Started as a small building society in rural central Kenya, Equity has risen to the top five of Kenyan banks through a focus on the poorer sections of the population who had hitherto had no access to banking services. It now has slightly over half of Kenya's 6.3 million bank accounts. The bank is 34 percent held by private equity and mutual funds. It also has a diverse base of local shareholders who total 15,000. This year, shareholders voted to split its shares into 10 for every one held, to make it more affordable to Kenyans. | 
