Meezan Bank Ltd - 2004
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BALANCE SHEET AS AT DECEMBER 31, 2004
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                                                                    Note      2004        2003
                                                                                Rupees in '000
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ASSETS
Cash and balances with treasury banks                                7   2,623,588   1,042,285
Balances with other banks                                            8   1,751,083     683,596
Due from financial institutions                                                  -           -
Investments                                                          9   1,429,053   1,211,667
Financings                                                          10  12,339,745   7,397,078
Other assets                                                        11   1,349,184     689,226
Operating fixed assets                                              12     204,737      78,537
Deferred taxation                                                                -           -
                                                                        19,697,390  11,102,389
LIABILITIES
Bills payable                                                       13     196,145     169,062
Due to financial institutions                                       14   2,862,139     988,964
Deposits and other accounts                                         15  13,769,807   7,756,862
Sub-ordinated loan                                                               -           -
Liabilities against assets subject to finance leases                             -           -
Other liabilities                                                   16     770,631     429,790
Deferred taxation                                                   17         286       9,236
                                                                        17,599,008   9,353,914
NET ASSETS                                                               2,098,382   1,748,475
REPRESENTED BY
Share capital                                                       18   1,346,017   1,064,045
Capital reserves                                                    19     256,578     351,444
Revenue reserves                                                    20     258,325     221,073
                                                                         1,860,920   1,636,562
Advances against issue of right shares                          18.1.1     192,312           -
Surplus on revaluation of investments                               21      45,150     111,913
                                                                         2,098,382   1,748,475
CONTINGENCIES AND COMMITMENTS                                       22
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PROFIT AND LOSS ACCOUNT FOR THE YEAR ended  December 31, 2004
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                                                                   Notes      2004        2003
                                                                                Rupees in '000
==============================================================================================
Profit/return on financings, investments
and placements earned                                               23     534,400     375,567
Return on deposits and other dues expensed                          24     250,393     182,354
Net spread earned                                                          284,007     193,213
Provision / (reversal) of provision against non-performing
financings (net)                                                  10.7      16,991    (17,769)
Provision for diminution in value of investments                   9.2       1,750       1,995
Bad debts written off directly                                    10.8           -           -
                                                                            18,741    (15,774)
Net spread after provisions                                                265,266     208,987
OTHER INCOME
Fee, commission and brokerage income                                       100,739      53,869
Capital gain on sale of investments                                         81,223     105,339
Dividend income                                                            108,592     114,625
Unrealised gain on held for trading investments                             42,081           -
Income from dealing in foreign currencies                                   26,830       5,215
Other income                                                        25       5,628       8,262
Total other income                                                         365,093     287,310
                                                                           630,359     496,297
OTHER EXPENSES
Administrative expenses                                             26     409,296     255,449
Other provisions / write offs                                        -           -
Other charges                                                       27         185          20
Total other expenses                                                       409,481     255,469
                                                                           220,878     240,828
Extraordinary / unusual items                                                    -           -
PROFIT BEFORE TAXATION                                                     220,878     240,828
Taxation - for the year                                             28       5,470       5,731
      - deferred                                                    28     (8,950)      21,284
                                                                           (3,480)      27,015
PROFIT AFTER TAXATION                                                      224,358     213,813
Unappropriated profit brought forward                                       12,073         630
                                                                           236,431     214,443
APPROPRIATIONS AND TRANSFERS
Transferred to
Statutory reserve                                                         (44,872)    (42,763)
Reserve for issue of bonus shares                                                -   (106,405)
Revenue reserves                                                                 -           -
Proposed final cash dividend (2003: Rs. 0.50) per share on
134,601,710 (2003: Rs. 106,404,514) ordinary shares                              -    (53,202)
                                                                          (44,872)   (202,370)
Unappropriated profit                                                      191,559      12,073
Basic earnings per share - (Rupees)                                 29        1.67        1.59
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CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER  31, 2004
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                                                                  Note        2004        2003
                                                                                Rupees in '000
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Profit before taxation                                                     220,878     240,828
Dividend income                                                          (108,592)   (114,625)
                                                                           112,286     126,203
Adjustments for non-cash charges
Provision / (reversal) of provision against non-
performing financings (net)                                                 16,991    (17,769)
Provision for diminution in value of investments                             1,750       1,995
Unrealised gain on held for trading investments                           (42,081)           -
Gain on sale of shares in a subsidiary company                               (450)           -
Gain on sale of property, equipment and others                               (704)     (1,391)
Depreciation                                                                43,707      19,066
Amoritsation                                                                 1,093         533
                                                                            20,306       2,434
                                                                           132,592     128,637
(Increase) / decrease in operating assets
Net investments in held for trading securities                             244,474   (147,393)
Financings                                                             (4,959,658) (3,847,121)
Other assets                                                             (656,842)     204,228
                                                                       (5,372,026) (3,790,286)
Increase in operating liabilities
Bills payable                                                               27,083     122,220
Due to financial institutions                                            1,873,175     977,133
Deposits and other accounts                                              6,012,945   2,677,384
Other liabilities                                                          393,288     179,186
                                                                         8,306,491   3,955,923
                                                                         3,067,057     294,274
Income tax paid                                                            (7,112)   (106,736)
NET CASH FLOW FROM OPERATING
ACTIVITIES                                                               3,059,945     187,538
CASH FLOW FROM INVESTING ACTIVITIES
Net investments in
- held to maturity securities                                            (120,893)    (20,263)
- available for sale securities                                           (90,329)       (345)
- unquoted subsidiary company                                                    -    (67,900)
- quoted associated undertakings                                             4,080   (132,939)
- unquoted associated undertakings                                       (286,000)      12,900
Sale proceeds on disposal of shares in an unquoted
subsidiary company                                                           5,300           -
Dividends received                                                         107,118     140,257
Investments in operating fixed assets                                    (172,613)    (63,379)
Sale proceeds on disposal of property, equipment and others                  2,317       2,576
Net cash outflow from investing activities                               (551,020)   (129,093)
CASH FLOW FROM FINANCING ACTIVITIES
Amount received against issue of right shares                              192,312           -
Dividend paid                                                             (52,447)    (49,987)
Net cash flow from financing activities                                    139,865    (49,987)
Net increase in cash and cash equivalents                                2,648,790       8,458
Cash and cash equivalents as at January 1                          30    1,725,881   1,717,423
Cash and cash equivalents as at December 31                        30    4,374,671   1,725,881
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STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2004
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                                                                       Capital reserves                         Revenue  reserves
                                               Share             Share      Statutory     Reserve     General   Unappro     Total
                                               capital            premium    reserve     for issue    reserve  -priated
                                                                  account                of bonus               profit
                                                                                           shares
                                                                                    (Rupees '000)
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Balance as at January 1, 2003                1,001,454              33,333    168,943      62,591    209,000        630 1,475,951
Issue of bonus shares                           62,591                   -          -    (62,591)          -          -         -
Net profit after taxation for the yea                -                   -          -           -          -    213,813   213,813
Transfer to statutory reserve                        -                   -     42,763           -          -   (42,763)         -
Transfer to reserve for issue of
     bonus shares                                    -                   -          -     106,405          -  (106,405)         -
Proposed dividend                                    -                   -          -           -          -   (53,202)  (53,202)
Balance as at December 31, 2003              1,064,045              33,333    211,706     106,405    209,000     12,073 1,636,562
Issue of bonus shares                          281,972            (33,333)          -   (106,405)  (142,234)          -         -
Net profit after taxation for the yea                -                   -          -           -          -    224,358   224,358
Transfer to statutory reserve                        -                   -     44,872           -          -   (44,872)         -
Balance as at December 31, 2004              1,346,017                   -    256,578           -     66,766    191,559 1,860,920
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NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2004
1. LEGAL STATUS AND NATURE OF BUSINESS

The Bank was incorporated in Pakistan on January 27, 1997 as a public limited company under the Companies Ordinance, 1984 and its shares are quoted on the Karachi Stock Exchange.

The Bank was registered as an 'Investment Finance Company' on August 8, 1997 and carried on the business of investment banking as permitted under SRO 585(I)/87 dated July 13, 1987 in accordance and in conformity with the principles of Islamic Shariah. A 'certificate of commencement of business' was issued to the Bank on September 29, 1997.

The Bank was granted a 'Scheduled Islamic Commercial Bank' licence on January 31, 2002 and formally commenced operations as a scheduled Islamic commercial bank with effect from March 20, 2002 on receiving notification in this regard from the State Bank of Pakistan (SBP) under section 37 of the State bank of Pakistan Act, 1956.

Currently, the Bank is engaged in commercial, consumer and investment banking activities. The Bank was operating through sixteen branches as at December 31, 2004 (2003: ten). Its registered office is at 3rd Floor, PNSC Building, Moulvi Tamizuddin Khan Road, Karachi.
2. BASIS OF PRESENTATION

The Bank provides financing mainly through murabaha, ijarah, musharika and export refinance under Islamic export refinance scheme. Under murabaha the goods are purchased and are then sold to the customers on credit.

The purchases and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of profit thereon.

The income on such financings is recognised in accordance with the principles of Islamic Shariah, however income, if any, received which does not comply with the principles of Islamic Shariah is recognised as charity payable if so directed by the Executive Committee of the Shariah Supervisory Board.
3. STATEMENT OF COMPLIANCE

3.1. The financial statements have been prepared in accordance with the requirements of the Companies Ordinance, 1984 (the Ordinance), the Banking Companies Ordinance, 1962 (the Ordinance), the directives issued by the SBP including format for financial statements of Bank issued by SBP through BSD Circular No. 36 dated October 10, 2001, and the International Accounting Standards (IASs) issued by the International Accounting Standards Committee (IASC) and interpretations issued by Standing Interpretation Committee of IASC (the interpretations), as adopted in Pakistan.

However, the requirements of these Ordinances and the directives of the SBP have been followed in case where their requirements are not consistent with the requirements of the IASs and the interpretations.

3.2. The SBP through its BSD Circular letter No. 10 dated August 26, 2002 has deferred the implementation of IAS 39, 'Financial Instruments: Recognition and Measurement' and IAS 40, 'Investment Property' for banks in Pakistan. Accordingly, the requirements of those IASs have not been considered in preparation of these financial statements.
4. BASIS OF MEASUREMENT

These financial statements have been prepared under the historical cost convention except that investments are valued at market rates in accordance with the requirements of SBP's BSD Circular No. 10 dated July 13, 2004 as amended through BSD Circular No. 11 dated August 4, 2004 and BSD Circular No. 14 dated September 13, 2004.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

5.1. CASH AND CASH EQUIVALENTS

Cash and cash equivalents comprise of cash and balances with treasury banks and balances with other banks in current and deposit accounts.

5.2. REVENUE RECOGNITION

(i) Dividend income is recognised when the Bank's right to receive payment is established.

(ii) Purchase and sale of investments are recorded on the dates of contract. Gains and losses on sale of investments are also recorded on those dates.

(iii) The Bank follows the finance method in recognising income on ijarah contracts. Under this method the unearned income i.e. the excess of aggregate ijarah rentals over the cost of the asset under ijarah facility is deferred and then amortised over the term of the ijarah, so as to produce a constant rate of return on net investment in the ijarah. Gains/losses on termination of ijarah contracts, documentation charges, front-end fees and other ijarah income are recognised as income on a receipt basis. Consistent with prior years, income on ijarah is recognised from the date of delivery of the respective assets to the mustajir.

(iv) l basis, except the profit required to be suspended in compliance with the prudential regulations issued by the SBP which is recorded on receipt basis. Consistent with prior years, profit on murabaha is recognised on delivery of goods to the customer.

(v) Commission on letters of credit, acceptances and guarantees is recognised on receipt basis, except for commission on guarantees in excess of Rs. 50,000 which is recognised over the period of the guarantee.

5.3. FINANCINGS

Financings are stated net of specific and general provisions against non-performing financings, if any, which are charged to the profit and loss account. The Bank determined provisions against financings on a prudent basis in accordance with the prudential regulations issued by the SBP.

Financings are written off when it is considered that there is no realistic prospect of recovery.

5.4. INVESTMENTS

5.4.1. THE BANK CLASSIFIES ITS INVESTMENTS AS FOLLOWS

- Held for trading

These are investments acquired principally for the purpose of generating profit from short-term fluctuations in price.

- Held to maturity

These are investments with fixed or determinable payments and fixed maturity and the Bank has positive intent and ability to hold to maturity.

- Available for sale

These are investments which do not fall under the 'held for trading' or 'held to maturity' categories.

The Bank has reclassified its investment in the aforementioned categories on September 30, 2004 to comply with the requirements of BSD Circular No. 11 dated August 4, 2004.

5.4.2. To comply with the requirements contained in BSD Circulars 10, 11 and 14 dated July 13, August 4 and September 24, 2004 respectively the Bank values its investments as follows:

- Quoted securities, excluding investments categorised as 'held to maturity' securities and investments in subsidiaries and associates, are stated at revalued amounts.

- Unquoted securities including investments in associates and subsidiaries continue to be stated at cost less provision for impairment, if any.

- Investments in quoted associates are carried at cost. Previously, these investments were stated at revalued amounts in accordance with BSD Circular No. 20 dated August 4, 2000. The reason and effect of the aforementioned change in accounting policy is stated in note 6.1.

- Investments in securities categorised as 'held to maturity' are carried at amortised cost. Previously such quoted investments were stated at revalued amount and the unquoted investments were stated at cost. This change in accounting policy has not resulted in any change in the profit for the current year.

5.4.3. Any surplus/deficit arising as a result of revaluation of quoted securities categorised as 'available for sale' is presented below the shareholders' equity in the balance sheet.

5.4.4. During the year the Bank has changed its accounting policy in respect of accounting for unrealised surplus/deficit arising on revaluation of 'held for trading' investments portfolio.

According to the revised policy, surplus/deficit arising on revaluation of 'held for trading' securities is credited / charged to the profit and loss account. Previously any surplus / deficit arising as a result of revaluation of investments was presented below shareholders' equity in the balance sheet in accordance with BSD Circular No. 20 dated August 4, 2000. The reason and effect of change in this accounting policy is stated in note 6.1.

5.4.5. The Bank has also changed its accounting policy in respect of accounting for unrealised surplus / deficit arising on revaluation of 'held to maturity' investments portfolio.

'Held to maturity' investments are now carried at amortised cost. Previously any surplus / deficit arising as a result of revaluation of investments was presented below shareholders' equity in the balance sheet in accordance with BSD Circular No. 20 dated August 4, 2000. This change in accounting policy has no effect on these financial statements.

5.4.6. Cost of investment is determined on a moving average basis. The cost of acquisition 'dealing securities' (i.e. quoted securities purchased and sold on the same day) is not considered for calculating the 'moving average cost' of other quoted securities (i.e. quoted securities sold after the date of purchase).

5.4.7. Impairment loss is recognised whenever the carrying amount of an investment exceeds its expected recoverable amount. An impairment loss is recognised in income currently.

5.5. OPERATING FIXED ASSETS

5.5.1. TANGIBLE ASSETS

Operating fixed assets are stated at cost less accumulated depreciation. Depreciation is charged to the profit and loss account applying the straight line method whereby the cost of an asset is written off over its estimated service life.

The full annual rate of depreciation is applied on the cost of additions while no depreciation is charged on assets deleted during the year. Capital work in progress is stated at cost.

Items of fixed assets costing Rs. 10,000 or less are not capitalised and are charged off in the year of purchase. When the carrying amount of an asset is greater than its estimated recoverable amount it is written down immediately to its recoverable amount.

Maintenance and normal repairs are charged to income as and when incurred.

Profit or loss on disposals of fixed assets is included in income currently.

5.5.2. INTANGIBLE ASSETS

Intangible assets comprise of computer software. Accounting for such assets is on the same basis as for tangible fixed assets owned by the Bank.

5.6. CURRENT

The charge for taxation is based on expected taxable income for the year at current rates of taxation, and any adjustments to tax payable in respect of previous years, after taking into consideration available tax credits, rebates and tax losses etc.

DEFERRED

The Bank accounts for deferred taxation using the balance sheet liability method on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available and the credits will be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

5.7. STAFF RETIREMENT BENEFITS

DEFINED BENEFIT PLAN

The Bank operates a funded gratuity scheme for all its permanent employees who have completed the minimum qualifying eligible service of one year. The scheme was approved by the tax authorities in April 2000 and the last actuarial valuation was conducted as at December 31, 2004. The projected unit credit method was used for actuarial valuation.

Actuarial gains or losses are recognised in accordance with the actuary's recommendation.

DEFINED CONTRIBUTION PLAN

The Bank operates a recognised contributory provident fund for all permanent employees. Equal monthly contributions are made, both by the Bank and the employees, to the fund at a rate of 10% of basic salary.

5.8. FOREIGN CURRENCIES

Foreign currency transactions are recorded in rupees at exchange rates prevailing on the date of transaction. Assets, liabilities and contingencies and commitments in foreign currencies except forward contract other than contracts with the SBP at the year end are reported in rupees at exchange rates prevalent on the balance sheet date.

Forward contracts other than contracts with the SBP relating to the foreign currency deposits are valued at forward rates applicable to the respective maturities of the relevant foreign exchange contract.

Forward contracts with the SBP relating to foreign currency deposits are valued at spot rate prevailing at the balance sheet date. Exchange gains and losses are included in income currently.

5.9. PROVISIONS AND CONTINGENT ASSETS AND LIABILITIES

Provisions are recognised when the Bank has a present legal or constructive obligation arising as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made.

Contingent assets are not recognised, and are also not disclosed unless an inflow of economic benefits is probable and contingent liabilities are not recognised, and are disclosed unless the probability of an outflow of resources embodying economic benefits is remote.

Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be settled simultaneously with the reimbursement from the customers. Acceptances are accounted for as off-balance sheet transactions and are disclosed as contingent liabilities and commitments.

5.10. RELATED PARTY TRANSACTIONS

Transactions between the Bank and its related parties are carried out on arm's length basis substantiated in a manner set out in the note 40.2.

5.11. OFFSETTING

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

5.12. COMPENSATED ABSENCES

The Bank recognises liability in respect of employees compensated absences in the period in which these are earned upto the balance sheet date.
6. REASON AND EFFECT OF CHANGES IN ACCOUNTING POLICY

6.1.

Effective September 30, 2004 the Bank has changed its accounting policy in respect of matters stated in notes 5.4.2 and 5.4.4 above.

These changes have been made to comply with the requirements stated in BSD Circulars 10, 11 and 14 dated July 13, August 4 and September 24, 2004 respectively issued by SBP. The effects of respective changes are presented below separately.

- Had the accounting policy not been changed with respect to valuation of investments in quoted associates, the investment in quoted associates and the unrealised surplus on revaluation of investments, as presented below the shareholders equity in the balance sheet, would have been higher by Rs. 128.484 million.

- Had the accounting policy not been changed with respect to accounting for unrealise surplus arising on revaluation of investments categorised as 'held-for-trading', the profit for the year ended December 31, 2004 would have been lower by Rs. 42.081 million and surplus on revaluation of investments would have been higher by the same amount.

In accordance with the allowed alternative treatment specified in International Accounting Standards (IAS) 8 'Net Profit or Loss for the Period, Fundamental Errors and Changes in Accounting Policies' the effects of the aforementioned changes in accounting policy have been recognised in the current period.

As the Bank has reclassified its portfolio on September 30, 2004 in accordance with the requirements of BSD Circular No. 11 dated August 4, 2004 therefore it is not practical to state the 'held for trading' portfolio on the same basis for the years ended December 31, 2002 and 2003.

However, for the purpose of disclosure, the 'held for trading' securities portfolio as at December 31, 2002 and December 31, 2003 has been considered as 'held for trading' portfolio as required by the SBP's aforementioned Circulars. The restated proforma information as required by the aforementioned IAS has been presented in notes 6.2 and 6.3 below.

6.2. EXTRACT OF PROFIT AND LOSS ACCOUNT
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                                                                       Proforma
                                          2004      2003        2004       2003
                                                                 Rupees in '000
===============================================================================
Profit after taxation for the
period before incorporating
the effects of changes in
accounting policy                      182,277   213,813     182,277    213,813
Cumulative effects of changes
 in accounting policy as stated above   42,081         -       2,358      (295)
Profit after taxation for the
year as restated                       224,358   213,813     184,635    213,518
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6.3. EXTRACT OF STATEMENT OF UNAPPROPRIATED PROFIT
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                                                                       Proforma
                                          2004      2003        2004       2003
                                                                 Rupees in '000
===============================================================================
Opening balance of
unappropriated profit as
previously reported                     12,073       630      12,073        630
Effects of changes in
accounting policy
as stated above                              -         -      39,723     40,018
statutory reserve                            -         -     (7,945)    (8,004)
Opening balance of
unappropriated profit as
restated                                12,073       630      43,851     32,644
Profit after taxation for the year     224,358   213,813     184,635    213,518
                                       236,431   214,443     228,486    246,162
Transfer to statutory reserve         (44,872)   (42,763)   (36,927)   (42,704)
Transfer to reserves for issue
of bonus shares                              -   (106,405)         -  (106,405)
Proposed dividend                            -   (53,202)          -   (53,202)
Unappropriated profit                  191,559    12,073     191,559     43,851
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7. CASH AND BALANCES WITH TREASURY BANKS
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                                                     2004               2003
                                        Notes                 Rupees in '000
============================================================================
In hand
- local currency                                  266,600             95,870
- foreign currency                                 59,858             47,870
With the SBP in
- local currency current accounts        7.1    2,199,745            812,868
- foreign currency deposit accounts      7.1       97,000             85,292
With National Bank of Pakistan in
- a local currency current account                    385                385
                                                2,623,588          1,042,285
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7.1. These represent local and foreign currency amounts required to be maintained by the Bank with the SBP as stipulated by it (the SBP).
8. BALANCES WITH OTHER BANKS
============================================================================
                                                     2004               2003
                                      Notes                   Rupees in '000
============================================================================
In Pakistan
- on current accounts                              21,818             13,335
- on deposit accounts                  8.1        164,716            388,549
Outside Pakistan
- on current accounts                             817,793             73,198
- on deposit accounts                             746,756            208,514
                                                1,751,083            683,596
============================================================================
8.1. It includes Rs 4.715 million (2003: Rs 188.549 million) held in a deposit account with an associated undertaking. The depositee has undertaken to utilise such funds in accordance with the principles of Islamic Shariah.
9. INVESTMENTS
==================================================================================================================================
                                                         2004                                                                 2003
                                                        Held by       Given as        Total      Held by      Given as       Total
                                                       the Bank      collateral                 the Bank   collateral
                                         NOTES                                                                       Rupees in'000
==================================================================================================================================
Investments by types
Held for trading securities
                                         9.3           178,817              -       178,817        423,291           -     423,291
Held to maturity securities
                                         9.4           178,290              -       178,290         57,397           -      57,397
Available for sale securities
                                         9.5           221,244              -       221,244        130,915           -     130,915
In related parties
Subsidiary (unquoted)
                                         9.6            63,050              -        63,050         67,900           -      67,900
Associates (quoted)
                                         9.7           351,746              -       351,746        355,826           -     355,826
Associates (unquoted)
                                         9.8           103,000              -       103,000         69,000           -      69,000
Advance against issue of
certificates by an associate                           180,000              -       180,000              -           -           -
Advance against issue of
preference shares of Falcon
Greenwood (Private) Limited
(an associate)                                          72,000              -        72,000              -           -           -
                                                     1,348,147              -     1,348,147      1,104,329           -   1,104,329
Add: Surplus on revaluation of
   Investments
   - 'Held for trading' taken
to profit and loss
account                                                 42,081              -        42,081              -           -           -
   -'Held for trading' taken
to surplus shown
below equity                                                 -              -             -         39,723           -      39,723
   -'Available for sale'                                45,150              -        45,150         72,190           -      72,190
                                                     1,435,378              -     1,435,378      1,216,242           -   1,216,242
Less: Provision for diminution
in value of investments -
                                         9.2             6,325              -         6,325          4,575           -       4,575
                                                     1,429,053              -     1,429,053      1,211,667           -   1,211,667
==================================================================================================================================
9.1. INVESTMENTS BY SEGMENTS
===========================================================================
                                                        2004           2003
                                            Note             Rupees in '000
===========================================================================
Fully paid up ordinary shares
- Listed companies                                   596,207        754,432
- Unlisted companies                                 166,050        136,900
Musharika term finance certificates                   30,600         30,600
Bonds                                        9.4     178,290         57,397
Units of an open end fund                            125,000        125,000
Advance against issue of certificates        9.1     180,000              -
Advance against issue of preference shares            72,000              -
                                                   1,348,147      1,104,329
Add: Surplus on revaluation of investments
- 'Held B15for trading' taken to profit and loss
account                                               42,081              -
-'Held for trading' taken to surplus shown
below equity                                               -         39,723
-'Available for sale'                                 45,150         72,190
                                                   1,435,378      1,216,242
Less: Provision for diminution in value of
investments                                  9.2       6,325          4,575
                                                   1,429,053      1,211,667
===========================================================================
9.1.1. This represents advance against issue of certificates in a closed end fund. These certificates were subsequently quoted on the Karachi Stock Exchange.

9.2. PARTICULARS OF PROVISION
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Opening balance                                        4,575          2,580
Charge for the year                                    1,750          1,995
Reversals                                                  -              -
                                                       1,750          1,995
Closing balance                                        6,325          4,575
===========================================================================
9.2.1. This provision is against investment in an unquoted associated undertaking.

9.3. HELD FOR TRADING SECURITIES

The Bank holds investments in ordinary shares of Rs 10 each, unless stated otherwise, in the following listed investee companies:
========================================================================================================================
Name of the investee company                                     2004             2003              2004            2003
                                                                                                                    Cost
                                                                   Number of shares                       Rupees in '000
========================================================================================================================
Textile composite
Nishat (Chunian) Limited                                       50,000                -             3,910               -
Legler Nafees Denim Mills Limited                                   -          500,000                 -           6,250
Cement
DG Khan Cement Limited                                         60,000                -             2,870               -
Lucky Cement Limited                                                -          100,000                 -           2,481
Refinery
National Refinery Limited                                      26,000           26,000             4,160           3,524
Power generation and distribution
Hub Power Company Limited                                      94,500        1,240,000             3,357          46,913
Southern Electric Power Company Limited                             -          100,000                 -           2,091
Oil and gas marketing
Pakistan State Oil Company Limited                            129,500          406,900            35,018         112,928
Sui Northern Gas Pipelines Limited                                  -          969,012                 -          36,932
Shell Pakistan Limited                                          8,000           17,500             3,354           7,337
Sui Southern Gas Company Limited                               39,712          310,212             1,168           8,543
Oil and gas exploration
Pakistan Oilfields Limited                                     55,000           97,500            11,818          21,215
Oil and Gas Development Company Limited                             -          451,987                 -          14,468
Automobile assembler
Agriautos Industries Limited                                  180,000                -             8,865               -
Technology and communication
Pakistan Telecommunication Company Limited (A)                953,500          840,000            38,466          29,461
World Call Payphone Limited                                         -          105,375                 -           1,621
Fertilizer
Engro Chemical Pakistan Limited                                     -          522,001                 -          45,145
Fauji Fertilizer Bin Qasim Company Limited                          -          100,000                 -           1,765
Fauji Fertilizer Company Limited                              546,365          481,300            53,854          41,926
Chemical
ICI Pakistan Limited                                                -           25,000                 -           2,130
Paper and board
Packages Limited                                               81,712           56,712            11,026           5,387
Food and personal care products
Unilever Pakistan Limited - note 9.3.1                            980           24,475               874          29,432
Miscellaneous
Tri-Pack Films Limited                                            900           44,000                77           3,742
                                                                                                 178,817         423,291
========================================================================================================================
9.3.1. THE NOMINAL VALUE OF THESE SHARES IS Rs 50 EACH

9.4. HELD TO MATURITY SECURITIES
===================================================================================================
 Name of the investee entity                           2004             2003        2004       2003
                                                                                               Cost
                                         NOTES           Number of bonds             Rupees in '000
===================================================================================================
Bonds
Qatar Global Sukuk Bonds (Sukuk - Qatar) 9.4.1    1,000,000         1,000,000     59,430     57,397
Dubai Sukuk Bonds (Sukuk - Dubai)        9.4.2    2,000,000                 -    118,860          -
                                                                                 178,290     57,397
===================================================================================================
9.4.1. The paid up value of Sukuk - Qatar is US$ 1 per bond. The return on Sukuk - Qatar is on the basis of London inter-bank offered rate plus a fixed credit spread of forty basis points. These bonds will mature in 2010.

9.4.2. The paid up value of Sukuk - Dubai is US$ 1 per bond. The return on Sukuk - Dubai is on the basis of London inter-bank offered rate plus a fixed credit spread of forty-five basis points. These bonds will mature in 2009.

9.5. AVAILABLE FOR SALE SECURITIES

The Bank holds investments in ordinary shares and musharika term finance certificates (MTFCs) of a nominal value of Rs 10 each, unless stated otherwise, in the following listed investee companies:
==============================================================================================================
Name of the investee company                                   2004               2003         2004       2003
                                                         Number of shares/                                Cost
                                         Notes             certificates                         Rupees in '000
==============================================================================================================
Ordinary shares
Auto Assembler
Agriautos Industries Limited                                120,000                  -        5,929          -
Powr generation and distribution
Hub Power Company Limited                                 1,500,000          1,500,000       49,000     54,194
Oil and gas marketing
Pakistan State Oil Company Limited                          100,280                280       27,401         33
Shell Pakistan Limited                                       45,000             45,000       15,305     15,305
Sui Southern Gas Company Limited                          1,100,000                  -       30,107          -
Oil and gas exploration
Pakistan Oilfields Limited                                  100,000                  -       21,488          -
Technology and communication
Pakistan Telecommunication Company Limited (A)              476,500            160,000       15,555      4,323
Fertilizer
Fauji Fertilizer Company Limited                            172,500             50,000       11,537      2,733
Paper and Board
Packages Limited                                             30,000             30,000        1,829      1,829
Food and personal care products
Unilever Pakistan Limited                 9.3.1              14,000             24,540       12,493     21,898
MTFCs
Sitara Chemicals Limited                  9.5.1               6,120              6,120       30,600     30,600
                                                                                            221,244    130,915
==============================================================================================================
9.5.1. The paid up value of MTFCs is Rs 5,000 per certificate. The return on MTFCs is on Musharika basis and will mature in 2007.

9.6. SUBSIDIARY (UNQUOTED)
=============================================================================================================================================================
Particulars                                            2004               2003      2004      2003      Percentage      Break up       Latest         Name of
                                                                                                         of equity     value per     available      the chief
                                                                                                           holding        share      financial      executive
                                                                                                                                   statements
                      NOTES                            Number of shares           Rupees in '000                %         Rupees
=============================================================================================================================================================
Al-Meezan Investment                                                                                                                    December          Mr.
Management Limited                                  650,000            700,000    63,050    67,900              65         258.09      31, 2004*     Muhammad
(ordinary shares)    9.6.1 & 9.6.2                                                                                                                     Shoaib
Total                                                                             63,050    67,900
* Half yearly unaudited financial statements.
=============================================================================================================================================================
9.6.1. THE NOMINAL VALUE OF THESE SHARES IS Rs 100 EACH

9.6.2. During the year the Bank has disposed off 5% holding in the investee company reducing its holding to 65% in that investee company.

9.7. ASSOCIATES (QUOTED)

The Bank holds investments in ordinary shares / units of Rs 10 each, unless stated otherwise, in the following listed investee entities:
================================================================================================
Name of the investee entity                 2004        2003       Percentage      2004     2003
                                                                   of direct
                                                                      equity
                                                                     holding
                                           Number of shares/               %      Rupees in '000
                          Note            certificates / units
================================================================================================
Ordinary shares
Closed end mutual fund
Al-Meezan Mutual Fund Limited          1,784,800   1,965,500            2.00    12,150    16,230
Modaraba
Fayzan Manufacturing Modaraba         21,457,500   21,457,500          23.84   214,596   214,596
Units of an open-end fund
Meezan Islamic Fund        9.7.1       2,841,095   2,500,000             N/A   125,000   125,000
                                                                               351,746   355,826
================================================================================================
9.7.1. The nominal value of these units is Rs 50 each.

9.7.2. Investments in quoted associates have a market value of Rs 480.230 million (2003: Rs 400.178 million).

9.8. ASSOCIATES (UNQUOTED)

The Bank holds investments in ordinary shares of Rs 10 each, unless stated otherwise, in the following unlisted investee companies:
======================================================================================================================================
Particulars                      2004              2003       2004       2003   Percentage   Break up   Latest available       Name of
                                                                                 of equity   value per       financial       the chief
                                                                                   holding     shares       statements       executive
                    NOTES         Number of shares/           Rupees in'000              %     Rupees
======================================================================================================================================
Plexus (Private)
Limited                     1,499,980         1,499,980     15,000     15,000           50       5.78     December 31,       Mr. Arif-
                                                                                                                 2004*        ul-Islam
Faysal Management
Services (Private)
Limited             9.8.1     540,000           540,000     54,000     54,000           30     132.67            2004*     S. Tirmizey
Blue Water (Private)                                                                                      December 31,      Mr. Shuja-
Limited             9.8.1      90,000                 -      9,000          -           30        100            2004*         ul-Mulk
Falcon Greenwood
(Private) Limited -           250,000                 -     25,000          -           25        100     December 31,       Mr. Abbas
                    9.8.1                                                                                        2004*            Khan
Total                                                      103,000     69,000
*Unaudited
======================================================================================================================================
9.8.1. THE NOMINAL VALUE OF THESE SHARES IS Rs 100 EACH
10. FINANCINGS
===============================================================================
                                                            2004           2003
                                          NOTES                  Rupees in '000
===============================================================================
In Pakistan
- Murabaha financings                                  4,856,083      4,678,811
- Net investment in ijarah                10.2         3,221,480      1,440,353
- Export refinance under Islamic scheme - (Istisna)    2,705,274        988,964
- Financings against bills                               270,945        145,564
- Loans, cash credit, running finances, etc.
                             10.3, 10.4 & 10.5           115,667        101,498
- Musharika financings                                   571,769         95,700
- House financings                                       677,349          8,380
Total financing                           10.6        12,418,567      7,459,270
Less: Provision against non-performing
financings                                10.7            78,822         62,192
                                                      12,339,745      7,397,078
===============================================================================
10.1. PARTICULARS OF FINANCINGS

10.1.1.
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
- In local currency                               12,132,123      6,841,848
- In foreign currencies                              207,622        555,230
                                                  12,339,745      7,397,078
===========================================================================
10.1.2.
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Short-term (for up to one year)                     8,583,182     6,290,711
Long-term (for over one year)                       3,756,563     1,106,367
                                                   12,339,745     7,397,078
===========================================================================
10.2. NET INVESTMENT IN IJARAH
=======================================================================================================================================
                                                               2004                                                                2003
                                        Not later      Later than     Over       Total       Not later  Later than      Over      Total
                                        than one      one and less    five                   than one   one and less    five
                                        year           than five     years                   year       than five      years
                                                        years                                             years
                                                                              Rupees in '000
=======================================================================================================================================
Ijarah rentals receivable                950,976      2,332,991      9,697   3,293,664     600,299      946,778           -   1,547,077
Residual value                            14,650        452,418        395     467,463      25,546      140,105           -     165,651
Minimum ijarah payments                  965,626      2,785,409     10,092   3,761,127     625,845    1,086,883           -   1,712,728
Profits for future periods               223,969        313,486      2,192     539,647     132,249      140,126           -     272,375
Present value of minimum ijarah
 payments                                741,657      2,471,923      7,900   3,221,480     493,596      946,757           -   1,440,353
=======================================================================================================================================
10.3. During the year a revised scheme of arrangement was sanctioned by the High Court of Sindh in respect of Pakland Cement Limited (PCL). Under the revised scheme of arrangement:

� TFCs having a face value of Rs 40.589 million were issued; and

� the Bank has waived mark up aggregating Rs 36.347 million (note 10.8.3) which represents Rs 23.286 million in respect of accrued mark up from January 1, 2001 to May 31, 2004 and Rs 13.061 million in respect of TFC Series B.

These TFCs have been issued by PCL in two series, series 'A' represents the principal amount and will carry a yield of 6 months ask KIBOR + 2.5 percent whereas series 'B' has been issued for accrued mark up and carries no yield.

The TFCs will be redeemed between the period January 15, 2005 to July 15, 2013. The transfer of these TFCs can only be effected among the creditors of PCL and transfer to third party (other than a creditor) will require prior written consent of the issuer. The outstanding amount of the original loan is fully provided.

10.4. This includes Rs 56.691 million representing mark-up free loans to staff advanced under the Bank's human resource policies. Included therein are loans to executives and directors as shown in note 10.4.1 below.

10.4.1. LOANS TO EXECUTIVES AND DIRECTORS
========================================================================
                                         Executives             Director
                                      2004       2003      2004     2003
                                                          Rupees in '000
========================================================================
Opening balance                     23,329     15,929     1,093    1,226
Loans disbursed during the year     14,495      8,835         -        -
Loans repaid during the year       (3,761)    (1,435)     (133)    (133)
Closing balance                     34,063     23,329       960    1,093
========================================================================
10.5. PARTICULARS OF LOANS AND FINACINGS TO DIRECTORS, ASSOCIATED COMPANIES ETC
===============================================================================
                                                  Balance as at   Maximum total
                                                  December 31,        amount of
                                                  2004               financings
                                                                      including
                                                                      temporary
                                                                     financings
                                                                 granted during
                                                                      the year*
                                                                 Rupees in '000
===============================================================================
Debts due by directors, executives or officers of the
Bank or any of them either severally or jointly
with any other persons                                   56,691          56,691
Debts due by companies or firms in which the
directors of the Bank are interested as directors,
partners or in the case of private companies as
members - note 10.5.1                                   146,917         146,917
Debts due by subsidiary companies, controlled
firms, managed modarabas and other related
parties - note 10.5.2                                       474             474
                                                        204,082         204,082
===============================================================================
* The maximum amount has been calculated by reference to month end balances.

10.5.1. This represents a musharika facility outstanding from Blue Water (Private) Limited (an associated company) amounting to Rs 94.500 million and ijaraha facilities outstanding from The General Tyre and Rubber Company Limited (an associated company) amounting to Rs 52.417 million.

The musharika facility is secured against equitable mortgage over property whereas the ijaraha facility is secured against the respective assets.

10.5.2. This represents an ijaraha facility outstanding from Al-Meezan Investment Management Limited (a subsidiary company). The ijaraha facility is secured against the respective assets.

10.6. Financings include Rs 59.971 million (2003: Rs 62.192 million) which have been placed under non-performing status as detailed below:
=====================================================================================================
Category of classification                  Domestic     Overseas       Total    Provision  Provision
                                                                                  required       held
                                                                                       Rupees in '000
=====================================================================================================
Other assets especially mentioned                  -             -          -            -          -
Substandard                                        -             -          -            -          -
Doubtful                                           -             -          -            -          -
Loss                                          59,971             -     59,971       59,971     59,971
                                              59,971             -     59,971       59,971     59,971
=====================================================================================================
10.7. PARTICULARS OF PROVISION AGAINST NON-PERFORMING FINANCINGS
====================================================================================
                                       2004                          2003
                         Specific   General     Total  Specific   General      Total
                                                                    Rupees in '000 -
====================================================================================
Opening balance            62,192         -    62,192   175,257         -    175,257
Charge for the year         2,620    18,851    21,471         -         -          -
Reversals                 (4,480)         -   (4,480)   (17,769)        -   (17,769)
                          (1,860)    18,851    16,991   (17,769)        -   (17,769)
Amouns written off
- note 10.8.1               (361)         -     (361)   (95,296)        -   (95,296)
Closing balance            59,971    18,851    78,822    62,192         -     62,192
====================================================================================
10.7.1. The Bank has maintained a general reserve (provision) in accordance with the applicable requirements of the prudential regulations for consumer financing issued by the State Bank of Pakistan.

10.8. PARTICULARS OF WRITE OFFs

10.8.1. AGAINST PROVISION - REFER NOTE 10.7.
=============================================================
                                              2004       2003
                                               Rupees in '000
=============================================================
                                               361     95,296
Directly charged to profit and loss account      -          -
                                               361     95,296
=============================================================
10.8.2.
=============================================================
                                              2004       2003
                                               Rupees in '000
=============================================================
Write offs of Rs 500,000 and above               -     95,296
Write offs below Rs 500,000                    361          -
                                               361     95,296
=============================================================
10.8.3. Details of loan write off of Rs 500,000 and above.

In terms of sub-section (3) of section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written off loans or any other financial relief of five hundred thousand rupees or above allowed to any person during the year ended December 31, 2004 is as follows:
======================================================================================================================================================
Name and        Name of directors*   Father's name*   Outstanding liabilities at the date of write off  Principal   Mark-up Others               Total
address of      (with NIC number)                     Principal  Mark-up  Other   Total               written off   waived  financial relief
the borrowers                                                                                                               provided
                                                                                         Rupees in '000
======================================================================================================================================================
1. Pakland      Syed Moonis          Syed Riaz uddin  30,959      16,134      -  47,093**                       -        -    36,347            36,347
Cement          Abdullah Alvi        Alvi Esq.
Limited         Esq.
Dewan Centre,   42201-6886191-3
3-A, Lalazar
Beach Hotel     Mr. Muhammad         Mr. Ghulam Nabi
Road, Karachi   Khubaib
                42301-5462662-3

                Mr. Aziz ul-         Mr. Noor-ul-
                Haque                Haque
                42301-8514003-5

                Mr. Farrukh          Mr. Muhammad
                Viqaruddin           Viqaruddin
                Junaidy              Junaidy
                42301-7518478-7

                Mr. Zaheer           Mr. Ahmed Jaleel
                Mustafa Jaleel       Siddiqui
                420007-245886-7

                Mr. Khursheed        Mr. Muhammad
                Anwer Jamal          Yaqoob
                42201-0763190-5

                Mr. Muhammad         Mr. Muhammad
                Shabbir Alem         Mobin
                516-73-164873
                (Nominee director
                on behalf of NIT)

                Mr. Wajahat A.       Mr. Tasleem
                Baqai                Uddin Baqai
                ***
                (Nominee director
                on behalf of
                creditors)

                Mr. Wasif            ***
                Mustafa Khan
                ***
                (Nominee director
                on behalf of
                creditors)
======================================================================================================================================================
* Information as available in the records of the Bank

** In addition to the above amounts aggregating Rs 50.797 million were recoverable as markup, however, as a matter of prudence the Bank had not recognised this balance in its books. Out of this balance the Bank has waived mark up aggregating Rs 36.347 million.

*** Information not available in the records of the Bank.
11. OTHER ASSETS
=====================================================================
                                                    2004         2003
                                           NOTE        Rupees in '000
=====================================================================
Profit / return accrued in local currency        106,650       66,690
Profit / return accrued in foreign currency        1,945        2,451
Advances, deposits, advance rent and other
prepayments                                      150,044       30,837
Advance taxation (payments less provisions)      187,719      186,077
Receivables on account of sale of securities     318,524       31,339
Dividends receivable                               3,716        2,242
Stamps                                             1,494          879
Advance against future murabaha                  325,046      298,921
Advances against future ijarah                   247,632       67,020
Security deposits                                  5,928        2,594
Prepaid exchange risk fee                             42          129
Other                                      11.1      444           47
                                               1,349,184      689,226
=====================================================================
11.1. This represents amount recoverable from the SBP upon encashment of various instruments on behalf of the SBP by the Bank.
12. OPERATING FIXED ASSETS
============================================================
                                               2004     2003
                                 Notes        Rupees in '000
============================================================
Tangible assets
- Capital work-in-progress        12.1       12,830    9,268
- Property, equipment and others    12      182,767   64,636
                                            195,597   73,904
Intangible assets                 12.3        9,140    4,633
                                            204,737   78,537
============================================================
12.1. CAPITAL WORK-IN-PROGRESS
============================================================
                                               2004     2003
                                              Rupees in '000
============================================================
- Advances to suppliers and contractors for
building renovation                           4,792    6,708
- Advances for purchase of vehicles           8,038    2,560
                                             12,830    9,268
============================================================
12.2. PROPERTY, EQUIPMENT AND OTHERS
====================================================================================================================================
                                                  COST                                        DEPRECIATION
                                    As at     Additions/     As at      As at        Charge/         As at     Net book      Rate of
                                  January    (disposals)    December   January   (on disposals)    December        value       depre
                                  1, 2004                   31, 2004   1, 2004                    31, 2004        as at     -ciation
                                                                                                               December            %
                                                                                                               31, 2004
                                                                                 Rupees in '000
====================================================================================================================================
Land and buildings
- note 12.2.1                           -        55,329       55,329              -         2,766        2,766       52,563       5%
Leasehold
improvements                       26,534        34,487       61,021          3,298         6,102        9,400       51,621      10%
Furniture and fixtures              6,155         6,298       12,453          1,121         1,245        2,366       10,087      10%
Electrical, office and
computer equipment                 32,971        43,695       75,999         16,894        23,213       39,852       36,147      33%
                                                  (667)                                     (255)
Vehicles                           32,313        23,642       53,214         12,024        10,381       20,865       32,349      20%
                                                (2,741)                                   (1,540)
2004                               97,973       163,451      258,016         33,337        43,707       75,249      182,767
                                                (3,408)                                   (1,795)
2003                               43,143        58,476       97,973         16,732        19,066       33,337       64,636
                                                (3,646)                                   (2,461)
====================================================================================================================================
12.2.1. The break-up of cost of land and buildings between the two separate categories has not been disclosed as the subject purchase was made for an overall price.

12.2. Included in cost of property, equipment and others are fully depreciated items still in use aggregating Rs 6.986 million (2003: Rs 6.721 million).

12.2.3. DETAILS OF DISPOSAL OF FIXED ASSETS TO EXECUTIVES AND OTHER PERSONS ARE AS FOLLOWS:
=================================================================================================================================
Description               Cost     Accum          Net book          Sale      Made of     Particulars of                Addresses
                                  -ulated           value         proceeds    disposal    purchaser
                                  depreci
                                  -ation
                                                                                                                   Rupees in '000
=================================================================================================================================
Electrical,
  office and
  computer
  equipment
Generator               550       181               369             250    Negotiation Base Ten                  Suit # 1007, Pak
                                                                                       International          Avenue, 10th Floor,
                                                                                                                    Block 6, 24-A
                                                                                                                 P.E.C.H.S., Main
                                                                                                                Shahrah-e-Faisal,
                                                                                                                    Karachi 75400

Toshiba
  photocopier             -         -                 -              29    Negotiation General Traders        1st Floor, Al-Falah
                                                                                       (Private) Limited  Courts, I.I. Chundrigar
                                                                                                                    Road, Karachi
Mobile                   12         4                 8               5    Insurance   Adamjee                 6th Floor, Adamjee
                                                                           claim       Insurance           House, I.I. Chundrigar
                                                                                       Company                 Rod, Karachi 74000
                                                                                       Limited

Laptop                  104        68                36              36    Bank        Emad-ul-Hasan              B-53, Block 4-A
                                                                           policy      (Ex-employee)             Gulshan-e-Iqbal,
                                                                                                                         Karachi.

Vehicles

Honda Civic           1,241       497               744             915    Bank        Chaudhry               161-M Lahore Cantt.
                                                                           policy      Naseem Yasin           Cooperative Housing
                                                                                       (Ex-employee)              Society, Lahore
Honda City              735       662                73             159    Bank        Sohail Khan          A-228, Block D, North
                                                                           policy      (Employee)              Nazimabad, Karachi
Honda City              766       383               383             383    Bank        Emad-ul-Hassan            B-53, Block 4-A,
                                                                           policy      (Ex-Employee)             Gulshan-e-Iqbal,
                                                                                                                          Karachi

Honda Civic               -         -                 -             465    Negotiation Nadeem Ahmed           House No. 66 Muslim
                                                                                       (Individual)              Town, Faisalabad
Honda Civic               -         -                 -              75    Bank        Saleem Khan             Appartment No.701,
                                                                           policy      (Employee)           Margalla Towers, F-10
                                                                                                                        Islamabad
                      3,408     1,795             1,613           2,317
=================================================================================================================================
12.3. INTANGIBLE ASSETS
====================================================================================================================
                                COST                                                                    AMORTISATION
               As at        Additions       As at      As at         Charge         As at     Net book       Rate of
             January                     December    January                    December         value     amortisa-
             1, 2004                     31, 2004    1, 2004                     31, 2004        as at          tion
                                                                                             December              %
                                                                                              31, 2004
                                                                Rupees in '000
====================================================================================================================
Computer
  software     5,328            5,600      10,928        695          1,093         1,788        9,140           10%
2003           1,621            3,707       5,328        162            533           695        4,633
====================================================================================================================
13. BILLS PAYABLE
=========================================================================
                                                          2004       2003
                                                           Rupees in '000
=========================================================================
In Pakistan                                            196,145    163,008
Outside Pakistan                                             -      6,054
                                                       196,145    169,062
=========================================================================
14. DUE TO FINANCIAL INSTITUTIONS
=========================================================================
                                                          2004       2003
                                                           Rupees in '000
=========================================================================
In Pakistan                                          2,862,139    988,964
Outside Pakistan                                             -          -
                                                     2,862,139    988,964
=========================================================================
14.1. PARTICULARS OF DUE TO FINANCIAL INSTITUTIONS
=========================================================================
                                                          2004       2003
                                                           Rupees in '000
=========================================================================
In local currency                                    2,835,274    988,964
In foreign currencies                                   26,865          -
                                                     2,862,139    988,964
=========================================================================
14.2. DETAILS OF DUE TO FINANCIAL INSTITUTIONS
=========================================================================
                                                          2004       2003
                                        Note               Rupees in '000
=========================================================================
Secured
Under Islamic export refinance scheme    14.2.1      2,665,274    988,964
Unsecured
Call borrowing                                         170,000          -
Others                                                  26,865          -
                                                     2,862,139    988,964
=========================================================================
14.2.1. These borrowings are on a profit and loss sharing basis maturing between January 17 to June 30, 2005 and are secured against demand promissory notes executed in favour of the SBP.

A limit of Rs 3,000 million has been allocated to the Bank by the SBP under Islamic export refinance scheme for the financial year ending June 30, 2005.
15. DEPOSITS AND OTHER ACCOUNTS
===============================================================================
                                                               2004        2003
                                                                 Rupees in '000
===============================================================================
 Customers
-Fixed deposits schemes                                   4,628,446   3,102,645
-Savings deposits                                         5,113,127   3,566,193
-Current accounts - remunerative                                  -           -
-Current accounts - non-remunerative                      3,134,172     601,349
-Margin                                                      90,675      11,496
                                                         12,966,420   7,281,683
 Financial institutions
-Remuneration deposits                                      784,038     474,712
-Non-remuneration deposits                                   19,349         467
                                                            803,387     475,179
                                                         13,769,807   7,756,862
===============================================================================
15.1. PARTICULARS OF DEPOSITS
===============================================================================
                                                               2004        2003
                                                                 Rupees in '000
===============================================================================
In
-local currency                                          12,914,624   6,982,937
-foreign currencies                                         855,183     773,925
                                                         13,769,807   7,756,862
===============================================================================
16. OTHER LIABILITIES
===============================================================================
                                                               2004        2003
                                                Notes            Rupees in '000
===============================================================================
 Return on deposits and other dues
-payable in local currency                       16.1        76,211      40,764
-payable in foreign currency                                    818         526
 Unearned commission                                          7,803       7,159
 Accrued expenses                                            23,260      15,494
 Advance payments                                            10,879       2,493
 Unclaimed dividends                                            862         107
 Unrealised loss (net) on forward foreign exchange contr      1,184         386
 Payable to defined benefit plan                 32.3         6,530       2,889
 Provision against
off-balance sheet obligations                    16.2         1,600       1,600
 Security deposits against ijarah                           480,863     188,401
 Payable on account of purchase of securities                64,449      23,917
 Other staff benefits                                        64,373      64,605
 Proposed dividend                                                -      53,202
 Others                                   16.3 & 16.4        31,799      28,247
                                                            770,631     429,790
===============================================================================
16.1. It includes Rs. 10.357 million (2003: Rs. 3.143 million) in respect of return accrued on borrowings from the SBP under the Islamic export refinance scheme.

16.2. PROVISION AGAINST OFF-BALANCE SHEET OBLIGATIONS
===============================================================================
                                                                  2004     2003
                                                Note             Rupees in '000
===============================================================================
Opening balance                                  16.2.1           1,600   1,600
Charge for the year                                                   -       -
Reversals                                                             -       -
Amount written off                                                    -       -
Closing balance                                                   1,600   1,600
===============================================================================
16.2.1. This represents provision made against a bail bond issued on behalf of former employees of Societe Generale, The French and International Bank in a suit pending before a court.

16.3. It includes charity payable aggregating Rs. 2.889 million (2003: Rs. 2.773 million). Charities amounting to Rs. 0.200 million and Rs. 0.350 million during the year ended December 31, 2004 were paid to Memon Hospital and Sindh Institute of Urology and Transplantation respectively.

None of the other individuals received charity in excess of Rs. 100,000 each. Charity was not paid to any individual / organisation in which a director or his spouse had any interest at any time during the year.

16.4. It includes an aggregate amount of Rs 7.200 million which the Bank had earned from murabaha financings and which has not been recognised as income on the directive of the Shariah Supervisory Board that pending a detailed review of the underlying transactions the related income may not be in accordance with the principles of Islamic Shariah.
17. DEFERRED TAXATION
===================================================================
                                                  2004         2003
                                                     Rupees in '000
===================================================================
 (Debit)/credit balances arising on account of:
Excess of tax written down values over
 accounting net book values of owned asset       1,397      (1,314)
Other staff benefits                          (24,461)     (26,488)
Excess of ijarah financings over tax written
 down values of ijarah assets                  113,504       67,063
Carried forward unassessed tax loses          (86,284)     (28,149)
Excess of tax written down values over
 accounting net book values of investments     (2,404)      (1,876)
Provision against non-performing financing       (858)            -
Others                                           (608)            -
                                                   286        9,236
===================================================================
17.1. The Bank has an aggregate amount of Rs. 227.062 million available as carried forward unassessed tax losses as at December 31, 2004.

The management is confident that sufficient taxable profits will be available in the future against which these tax losses shall be offset. Accordingly, the full amount of carried forward tax losses has been considered in calculating the deferred tax balance.
18. SHARE CAPITAL

18.1. AUTHORISED, ISSUED, SUBSCRIBED AND PAID-UP CAPITAL

A SUMMARY OF THE MOVEMENT ON ORDINARY SHARE CAPITAL IS GIVEN BELOW:
===================================================================
                                                Number       Amount
                                                           Rs '000'
===================================================================
Authorised capital
As at January 1, 2004                      150,000,000    1,500,000
Increase during the year                    50,000,000      500,000
As at December 31, 2004                    200,000,000    2,000,000
Issued capital
As at January 1, 2003                      100,145,425    1,001,454
Ordinary shares of Rs. 10 each issued as
 bonus shares                                6,259,089       62,591
As at December 31, 2003                    106,404,514    1,064,045
Ordinary shares of Rs. 10 each issued as
 bonus shares                               28,197,195      281,972
Right issue at Rs. 10 each                  35,113,489      351,135
As at December 31, 2004                    169,715,198    1,697,152
Subscribed and paid-up capital
As at January 1, 2003                      100,145,425    1,004,454
Issue of bonus shares                        6,259,089       62,591
As at December 31, 2003                    106,404,514    1,064,045
Issue of bonus shares                       28,197,195      281,972
As at December 31, 2004                    134,601,709    1,346,017
===================================================================
18.1.1. In accordance with the directive of the State Bank of Pakistan, all banks were required to increase their paid up capital to Rs. 1.5 billion by December 31, 2004. To comply with that requirement, the Bank has issued 35,113,489 right shares having a paid up value of Rs. 351.135 million as at December 31, 2004.

The Bank had received an aggregate amount of Rs. 192.312 million against such right issue upto December 31, 2004. A further amount of Rs. 120.585 million has been received upto February 9, 2005, the last date of renunciation of the rights. The remaining amount was received by March 3, 2005.

18.2. The Bank intends to issue 9.9 million ordinary shares of Rs. 10 each having a face value of Rs. 99 million under an employee stock opinion plan.

18.3. SHARES OF THE BANK HELD BY A SUBSIDIARY
==================================================================
                                                 As at       As at
                                               December   December
                                               31, 2004   31, 2003
==================================================================
                                                  Number of shares
Subsidiary
- Al-Meezan Investment Management Limited            -      20,904
==================================================================
19. CAPITAL RESERVES
==================================================================
                                                  2004        2003
                                     NOTE           Rupees in '000
==================================================================
Share premium account                                -      33,333
Statutory reserve                    19.1      256,578     211,706
Reserve for issue of bonus shares                    -     106,405
                                               256,578     351,444
==================================================================
19.1. Under section 21 of the Banking Companies Ordinance, 1962 an amount not less than 20% of the profit is to be transferred to create a reserve fund till such time the reserve fund and the share premium account equal the amount of the paid up capital.
20. REVENUE RESERVES
==================================================================
                                                  2004        2003
                                                    Rupees in '000
==================================================================
General reserve                                 66,766     209,000
Unappropriated profit                          191,559      12,073
                                               258,325     221,073
==================================================================
21. SURPLUS ON REVALUATION OF INVESTMENTS
==================================================================
                                                   2004       2003
                                                    Rupees in '000
==================================================================
Quoted shares                                   40,866     111,270
Other securities (Quoted MTFCs)                  4,284         643
                                                45,150     111,913
==================================================================
22. CONTINGENCIES AND COMMITMENTS

22.1. DIRECT CREDIT SUBSTITUTES
==================================================================
                                                   2004       2003
                                                    Rupees in '000
==================================================================
Government                                      66,587      62,587
==================================================================
22.2. TRANSACTIONS RELATED CONTINGENT LIABILITIES
==================================================================
                                                   2004       2003
                                                    Rupees in '000
==================================================================
Guarantees favouring
- Government                                 2,188,156   1,976,350
- Banks                                         32,717       9,634
- Others                                       714,812     372,420
                                             2,935,685   2,358,404
==================================================================
22.3. TRADE RELATED CONTINGENT LIABILITIES
==================================================================
                                                   2004       2003
                                                    Rupees in '000
==================================================================
Import letters of credit                       2,880,866 1,487,620
Acceptances                                    1,236,296   666,632
                                               4,177,162 2,154,252
==================================================================
22.4. While financing the assessment of the Bank for the income year ended June 30, 2001 (assessment year 2001-2002) the assessing officer has subjected to tax the gain on foreign currency deposits claimed as exempt in the return of income.

The matter has been set aside by the Commissioner of Income Tax, Appeals for reexamination by the assessing officer, recognising the fact that the State Bank of Pakistan through its letter No. 6226/Sec-296-2001 dated October 3, 2001 has confirmed that the assessee's deposits in its opinion were covered under the Protection of Economics Reforms Act, 1992.

The amount of tax levied by the assessing officer on such gain aggregating Rs. 141.689 million, whereas the net tax liability for the aforesaid assessment year and other relevant assessment years after considering relief for the related expenditure amounts to approximately Rs. 41 million.

The management is confident that the ultimate outcome of the fresh assessment would be in favour of the Bank and accordingly no provision has been recognised in the financial statements in this regard.

22.5. COMMITMENTS IN RESPECT OF
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Financings                                        10,754,024      5,954,993
===========================================================================
22.6. COMMITMENTS IN RESPECT OF FORWARD EXCHANGE CONTRACTS
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Purchases                                            573,145        279,873
Sales                                              1,808,208        483,936
===========================================================================
22.7. OTHER COMMITMENTS
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Bills for collection (inland)                         32,249          8,052
Bills for collection (foreign)                       934,538        489,177
                                                     966,787        497,229
===========================================================================
23. PROFIT/RETURN ON FINANCINGS, INVESTMENTS AND PLACEMENTS EARNED
===========================================================================
                                                        2004           2003
                                       Notes                 Rupees in '000
===========================================================================
On financings to:
- Customers                             23.1         513,397        347,713
-                                                          -              -
On investments in
- 'Held for maturity' securities        23.2           1,639            212
- 'Available for sale' securities                      5,327          5,129
On deposits with financial institutions               14,037         22,513
                                                     534,400        375,567
===========================================================================
23.1. It includes return aggregating Rs. 18.757 million (2003: Rs. 0.600 million) on financing under musharika arrangements.

23.2. It represents return on investments made in Qatar and Dubai Global Sukuk Bonds.
24. RETURN ON DEPOSITS AND OTHER DUES EXPENSED
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Deposits                                             195,549        176,244
Other short term borrowings                           54,844          6,110
                                                     250,393        182,354
===========================================================================
25. OTHER INCOME
===========================================================================
                                                        2004           2003
                                               NOTE          Rupees in '000
===========================================================================
Gain on sale of shares in s subsidiary company           450              -
Gain on sale of property, equipments and others          704          1,391
Gain on termination in ijarah financings               3,897            792
Others                                         25.1      577          6,079
                                                       5,628          8,262
===========================================================================
25.1. It includes reversal of provision amounting to Rs. Nil (2003: Rs. 5 million) for the proposed small business support fund.
26. ADMINISTRATIVE EXPENSES
===========================================================================
                                                        2004           2003
                                         Notes               Rupees in '000
===========================================================================
Salaries, allowances, etc.                           160,338        108,547
Charge for defined benefit plan           32.4         3,641          2,889
Contribution to defined contribution plan              4,606          3,985
Directors' fees                           33           8,824          9,596
Rent, taxes, insurance, electricity, etc.             62,440         34,491
Legal and professional charges                         5,345          5,367
Communication                                         19,753         13,327
Repairs and maintenance                                3,435          3,010
Stationery and printing                               13,646          6,758
Advertisement and publicity                           21,816          9,164
Auditors' remuneration                    26.1         4,925          2,527
Depreciation                              12.2        43,707         19,066
Amortisation                              12.3         1,093            533
Travelling                                             5,785          3,911
Entertainment                                          2,689          1,212
Local transportation and car running                   8,162          4,616
Clearing charges and subscription fees                 7,128          1,134
Security charges                                       3,646          2,356
Office supplies                                        1,754            871
Service charges                           33.2        13,734         13,812
Brokerage and commission                               4,655          2,210
Hardware and software maintenance                      2,760          1,986
Others                                                 5,414          4,081
                                                     409,296        255,449
===========================================================================
26.1. AUDITORS' REMUNERATION
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Audit fee                                                850            750
Fee for audit of employees' funds                         75             75
Special certifications and sundry advisory service     2,566          1,518
Tax services                                           1,304             89
Out of pocket expenses                                   130             95
                                                       4,925          2,527
===========================================================================
27. OTHER CHARGES
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Penalties imposed by the SBP                             185             20
                                                         185             20
===========================================================================
28. TAXATION
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
- Current                                              5,470          5,731
- Deferred                                           (8,950)         21,284
                                                     (3,480)         27,015
===========================================================================
28.1. As the provision for current taxation for the year ended December 31, 2004 has been made on the basis of presumptive tax therefore a relationship between the tax expense and the accounting profit has not been disclosed.
29. BASIC EARNINGS PER SHARE
===========================================================================
                                                        2004           2003
                              NOTE                           Rupees in '000
===========================================================================
Profit for the year (Rupees in '000)                 224,358        213,813
Weighted average number of ordinary shares       134,301,709    134,601,709
Basic earnings per share      29.1           (Rupees)   1.67           1.59
===========================================================================
29.1. The number of ordinary shares as at December 31, 2003 has been adjusted for issue of bonus shares.

29.2. There were no convertible dilutive potential ordinary shares outstanding on December 31, 2004 and 2003.
30. CASH AND CASH EQUIVALENTS
===========================================================================
                                                        2004           2003
                                           NOTE              Rupees in '000
===========================================================================
Cash and balances with treasury banks      7       2,623,588      1,042,285
Balances with other banks                  8       1,751,083        683,596
                                                   4,374,671      1,725,881
===========================================================================
31. STAFF STRENGTH
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Total number of employees, including 73 (2003:
63) contracted employees at the end of the year          511            238
===========================================================================
32. DEFINED BENEFIT PLAN

32.1. PRINCIPAL ACTUARIAL ASSUMPTIONS
===========================================================================
                                                        2004           2003
===========================================================================
Discount rate                                         9% p.a        7% p.a.
Expected rate of increase in salaries                 9% p.a        7% p.a.
Expected rate of return on investments                9% p.a        7% p.a.
Normal retirement age                               60 years       60 years
===========================================================================
32.2. RECONCILIATION OF AMOUNT PAYABLE TO DEFINED BENEFIT PLAN
===========================================================================
                                                        2004           2003
                                         NOTE                Rupees in '000
===========================================================================
Present value of defined benefit obligations          10,972          7,332
Fair value of plan assets                32.6        (1,956)        (1,931)
Net actuarial losses not recognised                  (2,486)        (2,512)
                                                       6,530          2,889
===========================================================================
32.3. MOVEMENT IN PAYABLE TO DEFINED BENEFIT PLAN
===========================================================================
                                                        2004           2003
                                          NOTE               Rupees in '000
===========================================================================
Opening balance                                        2,889          1,113
Charge for the year                       32.4         3,641          2,889
Contribution made during the year                          -        (1,113)
Closing balance                                        6,530          2,889
===========================================================================
32.4. CHARGE FOR DEFINED BENEFIT PLAN
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
Current service cost                                   3,126          2,450
Interest cost                                            513            354
Expected return on plan assets                         (135)           (63)
Actuarial losses                                         137            148
                                                       3,641          2,889
===========================================================================
32.5. ACTUAL RETURN ON PLAN ASSETS
===========================================================================
                                                        2004           2003
                                                             Rupees in '000
===========================================================================
                                                         473            315
===========================================================================
32.6. It includes a balance of Rs. 1.223 million (2003: Rs. 1.636 million) kept in a savings account with the Bank.
33. REMUNERATION OF THE PRESIDENT AND CHIEF EXECUTIVE, DIRECTORS AND EXECUTIVES

The amounts charged in these financial statements are as follows:
========================================================================================
                                  President and
                                 Chief Executive              Directors       Executives
                                  2004      2003           2004     2003    2004    2003
                                               Rupees in '000
========================================================================================
Fees                               899       899         7,925*   8,697       -        -
Managerial remuneration          8,945     7,931         12,116  10,568  27,673   25,494
Charge for defined
 benefit plan                        -         -            513     440   1,327    1,308
Contribution to defined
 contribution plan                   -         -            615     528   1,517    1,523
House rent                           -         -            135       -   2,601       85
Utilities                            -         -            615     528   1,816    1,675
Medical                             69       113            723     332   2,059    1,575
Conveyance                         506       233            259       -       -        -
Leave fare assistance                -         -            138       -
Others                             218        56            128     515     788    1,953
                                10,637     9,232         23,167  21,608  37,781   33,613
Number of persons                    1         1             10      12      20       18
========================================================================================
* This includes amounts charged in these financial statements as fees to nine (2003: eleven) non-executive directors.

33.1. Certain executives are provided with free use of the Bank cars and certain items of household furniture and fixtures in accordance with their entitlements.

33.2. In addition to the above, service charges (note 26) include Rs. 12.997 million (2003: Rs. 11.489 million) in respect of reimbursement, to a related party, of salary and other benefits paid by that related party to the chief executive as he is on secondment from that related party.
34. MATURITIES OF ASSETS AND LIABILITIES
=========================================================================================================
                                                                         2004
Category of classification                       Total   Upto three   Over three  Over one year Over five
                                                         months          months    to five years    years
                                                                      to one year
                                                                     Rupees in '000
=========================================================================================================
Assets
Cash and balances with treasury banks        2,623,588    2,623,588            -            -          -
Balances with other banks                    1,751,083    1,591,083      160,000            -          -
Investments                                  1,429,053      220,898      231,510       34,884    941,761
Financings                                  12,339,745    6,056,861    2,526,321    2,711,480  1,045,083
Other assets                                 1,349,184    1,343,256            -            -      5,928
Operating fixed assets                         204,737            -            -            -    204,737
                                            19,697,390   11,835,686    2,917,831    2,746,364  2,197,509
Liabilities
Bills payable                                  196,145      196,145            -            -          -
Due to financial institutions                2,862,139    2,045,339      816,800            -          -
Deposits and other accounts - note 34.1     13,769,807   10,227,140    1,825,937    1,716,730          -
Other liabilities                              770,631      223,754      139,486      406,212      1,179
Deferred taxation                                  286            -            -          286          -
                                            17,599,008   12,692,378    2,782,223    2,123,228      1,179
Net assets                                   2,098,382    (856,692)      135,608      623,136  2,196,330
Share capital                                1,346,017
Capital reserves                               256,578
Revenue reserves                               258,325
Advance against issue of right shares          192,312
Surplus on revaluation of investments           45,150
                                             2,098,382
=========================================================================================================
34.1. Current and savings deposits have been classified under maturity upto three months as these do not have any contracted maturity. Further, the Bank estimates that these deposits are a core part of its liquid resources and will not fall below the current year's level.
35. YIELD/PROFIT RATE RISK

Yield/profit rate sensitivity position for on-balance sheet instruments is based on the earlier of contractual repricing or maturity date and for off-balance sheet instruments is based on settlement date.
=====================================================================================================================================
                                                                             2004
                                        Effective    Total           Exposed to yield / profit rate risk                  Not exposed
                                        yield/               Upto                        Over three Over one  Over five     to yield/
                                        profit               three                       months to  year to    years           profit
                                        rate                 months                      one year   five years              rate risk
                                                                                         (Rupees in '000)
=====================================================================================================================================
On-balance sheet financial
   instruments
Assets
Cash and balances with treasury banks         -   2,623,588                           -          -          -         -     2,623,588
Balances with other banks                  1.77   1,751,083                     751,472    160,000          -         -       839,611
Investments                                4.10   1,429,053                           -          -     34,884   178,290     1,215,879
Financings                                 6.04  12,339,745                   6,055,322  2,522,198  2,693,135 1,012,399        56,691
Other assets                                  -   1,009,885                           -          -          -         -     1,009,885
                                                 19,153,354                   6,806,794  2,682,198  2,728,019 1,190,689     5,745,654
Liabilities
Bills payable                                 -     196,145                           -          -          -         -       196,145
Due to financial institutions              2.78   2,862,139                   2,045,339    816,800          -         -             -
Deposits and other accounts                2.80  13,769,807                   6,982,944  1,825,937  1,716,730         -     3,244,196
Other liabilities                             -     264,556                           -          -          -         -       264,556
                                                 17,092,647                   9,028,283  2,642,737  1,716,730         -     3,704,897
On-balance sheet gap                              2,060,707                  (2,221,489)    39,461  1,011,289 1,190,689     2,040,757
Non-financial assets                                544,036
Non-financial liability                           (506,361)
Total net assets                                  2,098,382
Off-balance sheet financial
Instruments
Forward lendings                                         -                            -          -          -         -             -
Forward borrowings                                       -                            -          -          -         -             -
Off-balance sheet gap                                    -                            -          -          -         -             -
Total yield/profit risk sensitivity gap                                     (2,221,489)     39,461  1,011,289 1,190,689
Cumulative yield/profit risk sensitivity gap                                (2,221,489) (2,182,028)(1,170,739)   19,950
=====================================================================================================================================
Yield risk is the risk of decline in earnings due to adverse movement of the yield curve.

Profit rate risk is the risk that the value of the financial instruments will fluctuate due to changes in the market profit rates.
36. CURRENCY RISK
=================================================================================
                                                   2004
                          Assets    Liabilities  Off-balance          Net foreign
                                                 sheet items    currency exposure
                                        Rupees in '000
=================================================================================
Pakistan rupees       17,045,248   16,209,781    1,235,063              2,070,530
United States dollars  2,001,045      799,105   (1,242,450)              (40,510)
Great Britain pounds      26,716       40,231         (685)              (14,200)
Japanese yen               1,797            -       (1,571)                   226
Euro                      75,338       43,530        9,643                 41,451
Singapore dollars            632            -            -                    632
Australian dollars         1,152            -            -                  1,152
Canadian dollars             872            -            -                    872
Swiss francs                 554            -            -                    554
                      19,153,354   17,092,647            -              2,060,707
=================================================================================
The currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank does not take any currency exposure except to the extent of statutory net open position prescribe by the SBP.

Foreign exchange open and mismatch positions are controlled through internal limits and are marked to market on a daily basis to contain forward exposures.
37. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of investments in listed securities, except investments categorised as 'held to maturity' securities and investments in subsidiaries and associates is based on quoted market prices. The value of unquoted equity investments is reduced, if required, on the basis of break-up value of those investments based on the latest available financial statements as disclosed in notes 9.6 and 9.8.

The fair value of advances, other assets, other liabilities and deposits and other accounts cannot be calculated with sufficient reliability due to absence of current and active market for such assets and liabilities and reliable data regarding market rates for similar instruments.

The provision for impairment of financings has been calculated in accordance with the Bank's accounting policy as stated in note 5.3. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values as these assets and liabilities are either short term in nature or in the case of advances and deposits are frequently repriced.
38. CONCENTRATON OF CREDIT AND DEPOSITS

Credit risk represents the accounting loss that would be recognised at the reporting date if counter parties failed completely to perform as contracted. However, the Bank does not believe that it is exposed to major concentration of credit risk.

The Bank manages its exposure to credit risk by portfolio diversification and adequate collateral, wherever applicable.

The Bank has well-defined credit structure duly approved by the Board of Directors, under which delegated authorities at various levels are operating which critically scrutinise and sanction financings.

The emphasis is to provide short to medium term trade related financing to reputable names, which are self-liquidating and Shariah compatible. The risk appraisal system of the Bank has enable it to build a sound portfolio.

The Bank has developed a system to monitor problem accounts so that instant instructions based on early warming signals are passed on to units to deal with potential problem accounts.

38.1. SEGMENT BY CLASS OF BUSINESS
=============================================================================================================
                                                                    2004
                                                                                            Contingencies and
                                         Financings                      Deposits                 Commitments
=============================================================================================================
                                    Rupees     Percent              Rupees    Percent      Rupees     Percent
                                   in '000                         in 000'                in 000'
=============================================================================================================
Chemical and pharmaceuticals       430,552       3.49%             202,821      1.47%   1,105,579       5.20%
Agribusiness                             -           -              19,730      0.14%     193,278       0.91%
Textile                          4,787,252      38.80%             391,921      2.85%   6,452,318      30.35%
Cement                                   -           -             201,063      1.46%           -           -
Sugar                              228,290       1.85%              50,676      0.37%     693,090       3.26%
Shoes and lather garments          622,576       5.05%              39,071      0.28%     670,562       3.15%
Automobile and transportation
equipment                          666,544       5.40%             311,360      2.26%     756,381       3.56%
Financial                           55,000       0.45%             803,387      5.83%   3,623,130      17.04%
Insurance                                -           -               9,626      0.07%           -           -
Electronics and 
 electrical appliances             173,374       1.40%              60,756      0.44%     602,276       2.83%
Production and transmission of
energy                             148,200       1.20%           1,235,953      8.98%     100,000       0.47%
Individuals                      1,259,375      10.20%           6,630,929     48.16%      30,724       0.14%
Others                           3,968,582      32.16%           3,812,514     27.69%   7,035,260      33.09%
                                12.339,745        100%          13,769,807       100%   21,262,598       100%
=============================================================================================================
38.2. SEGMENT BY SECTOR
=============================================================================================================
                                                                    2004
                                                                                            Contingencies and
                                         Financings                      Deposits                 Commitments
=============================================================================================================
                                    Rupees     Percent              Rupees    Percent      Rupees     Percent
                                   in '000                         in 000'                in 000'
=============================================================================================================
Public/Government                        -           -                   -          -           -           -
Private                         12,339,745        100%          13,769,807       100%   21,262,598       100%
                                12,339,745        100%          13,769,807       100%   21,262,598       100%
=============================================================================================================
39. GEOGRAPHICAL SEGMENT ANALYSIS
==========================================================================================
                                                            2004
                                   Profit before Total assets Net assets Contingencies and
                                        taxation    employed    employed       commitments
                                                                            Rupees in '000
==========================================================================================
Pakistan                                  220,878   19,697,390  2,098,382       21,262,598
Asia Pacific (including South Asia)             -           -           -                -
Europe                                          -           -           -                -
United States of America and Canada             -           -           -                -
Middle East                                     -           -           -                -
Others                                          -           -           -                -
                                          220,878   19,697,390  2,098,382       21,262,598
==========================================================================================
40. RELATED PARTY TRANSACTIONS

40.1. Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions and include a subsidiary company, associated companies with or without common directors, retirement benefit funds, directors, and key management personnel.

40.2. A number of banking transactions are entered into with related parties in the normal course of business. These include loans, deposits and foreign currency transactions.

These transactions were carried out on commercial terms and at market rates. The services charges relating to secondment are on actual basis.

40.3. NAMES AND NATURE OF RELATED PARTY RELATIONSHIP

SUBSIDIARY COMPANY

- Al-Meezan Investment Management Limited

Associated companies / related parties

- Al-Meezan Mutual Fund Limited

- Faysal Management Services (Private) Limited

- Faysal Bank Limited

- Fayzan Manufacturing Modaraba

- Pakistan Kuwait Investment Company (Private) Limited

- Plexus (Private) Limited
- The General Tyre and Rubber Company of Pakistan Limited

- Al-Meezan Investment Bank Limited Staff Provident Fund

- Al Meezan Investment Bank Limited Staff Gratuity Fund Limited

- Meezan Islamic Fund

- Meezan Balanced Fund

- Falcon Greenwood (Private) Limited

- Blue Water (Private) Limited

40.4. KEY MANAGEMENT PERSONNEL

- Mr. Irfan Siddiqui (President and Chief Executive Officer)

- Mr. Ariful Islam (Chief Operating Officer)

40.5. The volumes of related party transactions, outstanding balances at the year end, and related expense and income for the year are as follows:
============================================================
                                            2004        2003
                                              Rupees in '000
============================================================
Financing
At January 01,                           100,000      25,000
Disbursed during the year                246,579     150,000
Repaid during the year                 (198,310)    (75,000)
At December 31,                          148,269     100,000
Deposits
At January 01,                           452,650     213,447
Deposited during the year             24,057,966   3,005,483
Repaid during the year              (23,251,297) (2,766,280)
At December 31,                        1,259,319     452,650
Bank balance                               4,715     188,549
Profit receivable
 on murabaha financing                       503         181
Service charges payable by the Bank           75         208
Acceptances                               57,714      25,351
Letters of credit (unfunded)             180,890      31,518
Profit earned on murabaha financing        2,599         854
Profit earned on a bank account            5,560      12,472
Return on deposits expensed               15,841       5,115
Dividend income earned                    44,747      50,810
Service charges incurred                  13,734      13,977
Fees and commission earned                 5,722           -
Commission earned on letters of credit       892         269
Dividend paid                             31,295      30,443
============================================================
Transactions with retirement benefit funds - See notes 16, 26 and 32

Remuneration to directors and key management personnel - See note 33
41. DATE OF AUTHORISATION

These financial statements were authorised for issue on March 03, 2005 by the Board of Directors of the Bank.

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