London-based United Bank of Kuwait (UBK) saw its net profits fall 28.6 per cent to £8.0 million ($12 million) in 1995 as competition in the hitherto rewarding markets of UK housing association and aviation financing pushed down profit margins.

In an interview with MEED on 18 March UBK general manager Christopher Keen said the bank misjudged the extent to which competitors' interest revived during 1995 in the two markets, where UBK had previously been able to lend with profit margins well over 1 per cent.

'We were wrong-footed by the way margins were competed down.' Keen said. UBK's net profits rose 10 per cent in 1994, partly because of healthy profits in its commercial division from social housing and aviation finance.

The UBK group's total assets fell by £3 million ($4.5 million) to £1,840 million ($2,760 million). Shareholders are receiving a 1995 dividend of 6.5 pence (9.75 cents) per share, down from 9 pence (13.5 cents). Shareholders' equity rose slightly to £132.1 million ($198.1 million).

Loans and advances to customers dropped to £716.6 million ($1.074.9 million) from £758.9 million ($1138.4 million). 'We decided to live with lower volumes rather than follow margins down,' Keen said, adding that other businesses, such as commercial property finance, had done well in 1995.

UBK is now shifting resources from social housing to lending under the UK government's Private Finance Initiative (PFI) and in particular to the private financing of new hospitals. In aviation finance, the bank has broadened the range of aircraft types it will consider, notably by looking at freight aircraft.

'(The 1995 results) lead us to the conclusion that we should push harder in the areas where we're active,' Keen said, noting that Islamic investment and private banking could be growth areas in 1996. The value of funds invested in UBK's various Islamic investment vehicles rose by about $100 million during 1995 to $400 million.

UBK launched a securitisation of £109 million ($163.5 million) of commercial real estate mortgages in 1995. (MEED 31:3:95). The short-term cost of this was a fall in the bank's net interest income in 1995 - another factor behind the fall in profits, Keen noted.

'We hope to do another securitisation this year, which we hope will be significantly more profitable,' he said. 'We aim to securitise a block of commercial property loans in mid-year, in the £100 million to £150 million ($150 million to $225 million) range.'

UBK has set up an Arab Capital Markets department to provide regional investment management and advice to the bank's customers. The department will manage investors' funds on a pool or an individual basis and charge advice fees. Keen said the department's research pointed to Egypt as 'remarkably attractive' for regional investors in the wake of privatisation with some opportunities in Morocco and the Gulf, though in the latter there were issues of access.