London-based ratings agency IBCA has upgraded The United Bank of Kuwait (UBK) for the second time in three years. UBK's individual credit rating is now B/C, an improvement on its previous rating of C. UBK's short- term rating remains A2.

The upgrade reflects factors including UBK's strong total capital ratio of 15.9 per cent, its ready access to Gulf funds and IBCA's confidence that the London-based bank's heavy property portfolio is under control. The bank reported a £10.2 million ($15.9 million) profit in 1993 (MEED 8:4:94).

IBCA says raising fee income is an important element in UBK's strategy: 'After a period in which UBK moved from being primarily a trading bank to one which in 1990 generated 80 per cent of its revenues from lending activities, the bank has in the last three years successfully developed fee income business.'

Fee income accounted for about 40 per cent of revenues in 1993 and derives mainly from Gulf-based banking activities. Asset management and servicing Kuwaiti clients remain core fee business, but loan origination and sell- down activities are accounting for increased business, IBCA says.

Results from UBK's syndicated loan book have been satisfactory, IBCA says, but no significant growth is expected. UBK is trying to develop specialist lending activities such as aircraft leasing and loans to housing associations, but its exposure in these sectors remains limited.

Provisions were considerably reduced in 1993 - to £8 million ($12.5 million) from £11.4 million ($17.8 million) - and UBK envisages a further fall in 1994. The most striking feature of its balance sheet is the very rapid growth in property lending, IBCA says: 'Given the current state of the property market this might seem worrying but it should be noted that the vast majority of such loans are on completed, fully let buildings.'

There have been five years of rapid growth in property investment, but development loans make up only 6 per cent of the portfolio and UBK reports that the property loan book has stabilised. The bank plans to accommodate further growth by selling down participations.