By Duncan Miriri NAIROBI (Reuters) - National Bank of Kenya's (NBK) expansion plan could be delayed by at least three years after its failure to win approval for a rights issue, the bank's chief executive said. NBK, Kenya's eleventh-largest lender by assets at the end of last year, had planned to double customer numbers, expand in neighbouring states and roll out new products by 2017. The schedule hinged on a proposal for a 13 billion shilling ($130 million) rights issue in July 2014. But the government, which has a 70 percent stake in the bank, failed to back the plan. Chief Executive Munir Ahmed said the bank is revising its targets, although it had not scrapped the cash call plan. "If that (rights issue) doesn't happen and therefore we have to grow the bank organically, you can add another three years roughly, to arrive at the same destination," he told Reuters. The lender, which has assets of 123 billion shillings, retained its 2014 earnings and sold 12 properties for 1.2 billion shillings to meet new capital requirements. It is set to exceed the minimum requirement of 14.5 percent of assets by three percentage points after the sale of the properties, giving it more room to boost lending, Ahmed said. Ahmed, who moved from Standard Chartered in 2012, said the rights issue delay undermined plans to expand to South Sudan, Rwanda, Tanzania and Uganda, where other Kenyan banks operate. "We should by now be in South Sudan and probably in Rwanda. That was the initial plan," he said, adding it cost $10 million to $15 million to set up a new subsidiary. The government has proposed merging National with two smaller lenders, Consolidated Bank and Development Bank of Kenya, both controlled by the state. "So far it has been a proposal. I haven't seen any concrete move on the execution side of it," Ahmed said. Analysts have said mergers could offer efficiencies in Kenya's crowded market with 44 licensed banks. NBK aims to cut non-performing loans to 7.5 percent of its portfolio in 2015 from 9 percent, mainly by recovering more bad debts. The sector average was 5.6 percent in December. It has cut its cost-to-income ratio by 10 percentage points in the past two years to 65 percent. "We have to hit our ambition of 50 percent by 2017," he said, adding it could be achieved earlier. National's shares have lost 25 percent this year to trade around 19.00 shillings, compared to the benchmark index which is down 5 percent. ($1 = 99.4500 Kenyan shillings)