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* Earmarks 30 bln shillings for SME loans
* H1 pretax profit up 5 pct, lags rivals
* Shares slip 1 percent (Adds company, analyst comments, detail, background, shares)
By Duncan Miriri and Edith Honan
NAIROBI, Aug 13 (Reuters) - Barclays Bank of Kenya has earmarked 30 billion shillings ($295 million) for lending tosmall and mid-sized business as it seeks to catch up with profitgrowth at rivals.
Foreign funds have been investing in Kenyan lenders inrecent years, attracted by growing trade flows and the rise ofmobile-phone banking which is helping to win new customers.
But results from Barclays Kenya, a unit of Barclays Plc, showed on Thursday it is lagging local rivals, withpretax profits up 5 percent in the first half of the year.
Equity Bank and KCB Group, Kenya'sbiggest lenders by depositors and assets respectively, recordeddouble-digit profit growth for the period, helped by theirstrength in the small and medium-sized enterprise (SME) sector.
Jeremy Awori, chief executive of Barclays Kenya, said it hadcreated a dedicated SME business unit to step up the challengein a sector that makes the largest contribution to economicactivity in Kenya.
"We've laid down the gauntlet and we're committed now toSME," he told Reuters after an investor briefing.
Bank executives say the fast-growing SME market offershigher returns than lending to larger corporates, in partbecause it is perceived as more risky.
Barclays Kenya has relaxed lending requirements, such as acopy of audited accounts, for SMEs seeking to borrow less than15 million shillings, it said.
The lender, which enjoyed a huge market share a decade agobefore it was challenged by home-grown lenders, made afirst-half pretax profit of 6.43 billion shillings as revenuegrew 6 percent.
Analysts said the lender was paying a price for being tooconservative in its lending practices.
"The first half loan growth was very anaemic and far behindits peer group. It speaks to a very defensive game. DiamondTrust Bank has now overtaken Barclays in terms of loan booksize," said Aly Khan Satchu, an independent trader and analyst.
Diamond Trust, which also has operations in Uganda,Tanzania and Burundi, grew its first-half pretax profit by 14percent after its net interest income grew by a similar margin.
In contrast, Barclays Kenya's net interest income grew 4percent, though its non-interest income rose 12 percent, buoyedby new products such as insurance.
Shares in Barclays Kenya edged down 1 percent to trade at14.70 shillings.
Kenya is Barclays Plc's second largest market in Africa,behind South Africa.
($1=101.5000 Kenyan shillings) (Writing by Duncan Miriri; Editing by Mark Potter)
