NAIROBI - Kenya's I&M Holdings, operator of the country's sixth-largest bank by assets, is looking for acquisitions in Ethiopia, Zambia and Democratic Republic of Congo, a senior executive told Reuters.

Lenders in East Africa's biggest economy are scrambling to cover new markets, in order to help clients trade across the region more effectively and spur their own growth.

"We are interested to expand our business because that is where our customers are, and we want to follow our customers and give them a complete regional offering," Chris Low, I&M's regional director, told Reuters in an interview on Thursday.

Ethiopia is still closed off to foreign banks, he said, but there are expectations that it will eventually be opened.

I&M will use internally generated cash to fund the potential acquisitions, Low said, adding that it also had financing lines with other institutions, including the International Finance Corporation, the private arm of the World Bank.

"We tend to have a prudent dividend distribution policy. We rarely distribute more than around 30%, so for internal resources we are in a strong position where funds are needed," he said.

The lender, which already operates in Rwanda, Uganda, Tanzania and Mauritius, prefers acquisitions in new markets because greenfield operations are harder to scale up, Low said, but cautioned that potential targets must be a good fit.

"It is not just 'let's go out and plant a flag', it has got to be seen as real value because at the end of the day integration is not an easy thing to achieve," said Low.

I&M, which started life as a community bank in 1974, has grown to the first tier of banks by focusing on corporate clients, who account for about three quarters of lending.

But it now wants to reduce the share of lending to corporate firms, by targeting the small and medium enterprise (SME) clients, who account for 15-20% of the loan book, Low said.

"We would like much better balance because we see the SME segment as the economic driver," he said.

(Reporting by Duncan Miriri; Editing by Simon Cameron-Moore)