| Faysal Bank Ltd - 2006 |
|
BALANCE SHEET Aa AT DECEMBER 31, 2006
==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
ASSETS
Cash and balances with treasury banks 8 7,207,998 6,696,714
Balances with other banks 9 2,883,040 2,045,887
Lendings to financial institutions 10 4,608,205 10,742,841
Investments 11 22,525,358 24,411,644
Financing 12 74,468,644 62,323,508
Operating fixed assets 13 2,239,392 1,726,086
Deferred tax assets - net -Other asset 14 1,537,764 2,334,577
-
115,470,401 110,281,257
LIABILITIES
Bills payable 15 4,516,125 1,193,309
Borrowings from financial institutions 16 14,965,037 15,295,730
Deposits and other accounts 17 74,413,641 74,736,717
Sub-ordinated loans - -
Liabilities against assets
subject to finance lease 18 14,664 22,549
Deferred tax liabilities - net 19 1,839,860 1,268,307
Other liabilities 20 5,924,440 3,504,206
101,673,767 96,020,818
NET ASSETS 13,796,634 14,260,439
REPRESENTED BY
Share capital 21 4,237,157 3,684,484
Reserves 22 3,079,527 2,516,211
Unappropriated profit 1,815,643 1,911,246
9,132,327 8,111,941
Surplus on revaluation of assets 23 4,664,307 6,148,498
13,796,634 14,260,439
CONTINGENCIES AND COMMITMENTS 24
==================================================================================PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2006==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Mark-up/ return earned 26 9,728,046 6,338,051
Mark-up / return expensed 27 6,089,255 3,311,567
Net mark-up income 3,638,791 3,026,484
Provision / (Reversal) against
non-performing financing 12.5 517,027 (19,026)
Provision for consumer financing - general 12.6 105,305 28,082
Provision / (Reversal) for diminution
in the value of investments 11.3 - (318,897)
Bad debts written off directly 12.7 67 -
622,399 (309,841)
Net mark-up income after provisions 3,016,392 3,336,325
Non mark-up income
Fee, commission and brokerage income 603,667 581,854
Dividend income 1,249,522 776,914
Income from dealing in foreign currencies 120,992 95,451
Gain on sale of investments 28 330,853 609,119
Unrealized gain/ (loss) on revaluation of
securities classified as held for trading 647 (1,024)
Other income 29 447,708 947
Total non mark-up income 2,753,389 2,063,261
5,769,781 5,399,586
Non mark-up expenses
Administrative expenses 30 1,866,584 11,428,499
Other provisions - -
Other charges 31 32,857 2,220
Total non mark-up expenses 1,899,441 1,430,719
3,870,340 3,968,867
Extraordinary items / unusual items - -
Profit before taxation 3,870,340 3,968,867
Taxation - Current 32 383,442 689,204
- Prior years 93,118 (923,159)
- Deferred 577,208 1,133,365
1,053,768 899,410
Profit after taxation 2,816,572 3,069,457
Unappropriated profit brought forward 1,911,246 1,079,492
Profit available for appropriation 4,727,818 4,148,949
Basic and diluted earnings per share - Rupee 33 6.65 7.24
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation 3,870,340 3,968,867
Less: Dividend income (1,249,522) (776,914)
Less: Profit on available for sale securities (1,631,964) (522,080)
988,854 2,669,873
Adjustments for:
Depreciation/Amortisation 193,784 146,082
Provision against non-performing financing 517,027 (19,026)
Provision for consumer financing - general 105,305 28,082
Reversal of provision for diminution
in value of investments - (318,897)
Provision for other assets . - -
Bad debts written off directly 67 -
Unrealised (gain) / loss on revaluation of held
for-trading financial instruments (647) 1,024
(Gain) / loss on disposal of fixed assets (320,295) 2,204
Finance charges on leased assets 1,529 2,385
Exchange (gain) / loss (220,005) 55,027
276,765 (103,119)
1,265,619 2,566,754
(Increase) / Decrease in operating assets
Lendings to financial institutions 6,134,636 (6,325,463)
Held-for-trading securities J (26,960) 47,644
Financing (12,767,535) (11,790,398)
Other assets (excluding advance taxation) (67,957) (524,754)
(6,727,816) (18,592,971)
Increase / (Decrease) in operating liabilities
Bills payable 3,322,816 287,672
Borrowings from financial institutions (330,693) 6,817,682
Deposits (323,076) 18,276,388
Other liabilities 1,843,831 1,203,230
4,512,878 26,584,972
(949,319) 10,558,755
Income tax refund received / (paid) 961,051 (87,948)
Net cash flow from operating activities 11,732 10,470,807
CASH FLOW FROM INVESTING ACTIVITIES
Net investments in available-for-sale securities 424,046 (9,653,729)
Dividends received 1,244,903 766,064
Profit received on available for sale securities 1,625,564 518,962
Fixed capital expenditure (836,216) (755,161)
Sale proceeds from disposal of fixed assets 449,422 39,196
Net cash flow from investing activities 2,907,719 (9,084,668)
CASH FLOW FROM FINANCING ACTIVITIES
(Payments) /Receipts of lease obligations (9,414) 1,730
Dividends paid (1,781,605) (1,202,666)
Net cash used in financing activities (1,791,019) (1,200,936)
Increase / (Decrease) in 1,128,432 185,203
cash and cash equivalents
Cash and cash equivalents at beginning
of the year as previously reported 8,742,601 8,612,425
Effects of exchange rate changes
on cash and cash equivalents 220,005 (55,027)
Cash and cash equivalents at beginning
of the year as restated 8,962,606 8,557,398
Cash and cash equivalents at end of the year 34 10,091,038 8,742,601
==================================================================================
=============================================================================================================================
Reserves
=============================================================================================================================
Capital Revenue
Share Share Reserve Statutory Capital Unappro- Total
capital premium for issue reserve market priated
of bonus reserve profit
shares
=============================================================================================================================
Rupees '000
=============================================================================================================================
Balance as at December 31, 2004 2,912,635 417,694 - 1,545,862 295,545 1,079,492 6,251,228
Changes in equity for 2005:
Final dividend for the year
ended December 31,
2004 at Rs. 2.50 per share approved
subsequent to the year end - - - - - (728,159) (728,159)
Transfer to reserve for issue of
bonus shares @ 10%
approved subsequent to
the year end (i.e. December 31, 200 - (291,264) 291,264 - - - -
Bonus shares issued 291,264 - (291,264) - - - -
Profit after tax for the year - - - - - 3,069,457 3,069,457
ended December 31, 2005
Transfer to reserve for - (126,430) 480,585 - - (354,155) -
interim bonus issue
Interim cash dividend - - - - - (480,585) (480,585)
@ Rs. 1.50 per share
Interim issue of bonus shares - 200 480,585 - (480,585) - - - -
Transfer to statutory reserve - - - 613,892 - (613,892) -
Transfer to capital market reserve - - - - 60,912 (60,912) -
Balance as at December 31, 2005 3,684,484 - - 2,159,754 356,457 1,911,246 8,111,941
Changes in equity for 2006:
Final dividend for the year
ended December 31,
2005 at Rs. 2.00 per share approved - - - - - (736,897) (736,897)
subsequent to the year end
Transfer to reserve for issue
of bonus shares
@ 15% approved subsequent to
the year end (i.e. December 31, 200 - - 552,673 - - (552,673) -
Bonus shares issued - 2005 552,673 - (552,673) - - - -
Profit after tax for the year - . - - - 2,816,572 2,816,572
ended December 31, 2006
Interim cash dividend - - - - - (1,059,289) (1,058,289)
@ Rs. 2.50 per share
Transfer to statutory reserve - - - 563,316 - (563,316) -
Balance as at December 31, 2006 4,237,157 - - 2,723,070 356,457 1,815,643 9,132,327
=============================================================================================================================NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 20061. STATUS AND NATURE OF BUSINESS Faysal Bank Limited was incorporated in Pakistan on October 3, 1994 as a public limited company under the Companies Ordinance, 1984. Its shares are listed on Karachi and Lahore Stock Exchanges. The bank is engaged in Commercial, Consumer and Investment banking activities. The bank has a branch network of 75 (2005: 56) branches. During the current year, the bank shifted its Registered Office (Head Office) from Trade Centre, I.I.. Chundrigar Road, Karachi to the state of the art Faysal House located at Shahra-e-Faisal, Karachi. Effective August 15, 2006, Ithmaar Bank B.S.C., an Investment Bank listed in Bahrain, has replaced DMI Trust as the ultimate holding company of Faysal Bank Limited. Ithmaar Bank is an associate of DMI Trust and holds indirectly through subsidiaries 66.9% control of Faysal Bank Limited. 2. BASIS OF PRESENTATION In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. Permissible forms of trade related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are nor reflected in these financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon. 3. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan and the requirements of the Banking Companies Ordinance, 1962, the Companies Ordinance, 1984, and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP). Approved accounting standards comprise of such International Accounting Standards (lASs) and International Financial Reporting Standards (IFRSs) as notified under the provisions of the Companies Ordinance, 1984. Wherever the requirements of the Banking Companies Ordinance, 1962, the Companies Ordinance, 1984, or directives issued by the Securities and Exchange Commission of Pakistan and the State Bank of Pakistan differ with the requirements of these standards, the requirements of the Banking Companies Ordinance, 1962, Companies Ordinance, 1984 or the requirements of the said directives rake precedence. The State Bank of Pakistan as per BSD Circular No. 10 dated August 26, 2002 has deferred the applicability of International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39) and International Accounting Standard 40, Investment Property (IAS 40). Accordingly, the requirements of these standards have not been considered in the preparation of these financial statements. However, the investments have been classified in accordance with the categories prescribed by the State Bank of Pakistan. 4. BASIS OF MEASUREMENT These financial statements have been prepared under the historical cost convention, except for the following financial instruments: -- Derivative financial instruments are measured at fair value; and -- Investments classified as held for trading and available for sale are also measured at fair value. 5. FUNCTIONAL AND PRESENTATION CURRENCY These financial statements have been presented in Pakistani Rupee, which is the bank's functional currency. 6. USE OF ESTIMATES AND JUDGEMENTS The preparation of financial statements in accordance with approved accounting standards requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses in the current and future reporting periods. The actual results may differ from these estimates. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including reasonable expectations of future events. Revisions to accounting estimates (other than adjusting events) are recognized prospectively commencing from the period of revision. Judgements made by the management that have significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 40 to these financial statements. 7. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 7.1. Financial assets and liabilities The bank initially recognises financial assets and liabilities on the date at which they are originated except investments which are recognised on the trade date. Financial assets are derecognised when the contractual rights to the cash flows from the asset expire or are transferred. The bank also enters into transactions whereby it transfers assets recognised on its balance sheet, but retains either all or part of the risks and rewards of the transferred assets. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the balance sheet. Financial liabilities are derecognised when the contractual obligations expire, or are discharged or cancelled. 7.2. Cash and cash equivalents For the purpose of the cash flow statement, cash and cash equivalents comprise cash, money at call and balances with treasury and other banks. 7.3. Lendings to / borrowings from financial institutions The bank enters into transactions of repos and reverse repos at contracted rates for a specified period of time. These are recorded as under: (a) Sale under repurchase obligation Securities sold subject to a re-purchase agreement (repo) are retained in the financial statements as investments and the counter party liability is included in borrowings. The differential in sale and repurchase value is accrued over the period of the contract and recorded as an expense. (b) Purchase under resale obligation Securities purchased under agreement to resell (reverse repo) are included in lendings to financial institutions or financing as appropriate. However, the underlying security is not recognised as a separate asset in the financial statements. The difference between the contracted price and resale price is amortised over the period of the contract and recorded as income. (c) Other borrowings These are recorded at the proceeds received. Mark-up paid on such borrowings is charged to the profit and loss account over the period of borrowings on accrual basis. 7.4. Investments Investments in securities, other than investments in subsidiaries and associates are classified as follows: (a) Held for trading These represent securities, which are either acquired for the purpose of generating profit from short-term fluctuations in prices or dealer's margin or are securities included in the portfolio in which a pattern of short-term profit making exists. (b) Held to maturity These are securities with fixed or determinable payments and maturity in respect of which the bank has the positive intent and ability to hold to maturity. (c) Available for sale These represent securities, which do not fall under the held for trading or held to maturity categories. Investments other than those classified as held for trading and investments in subsidiaries or associates, are initially recognised at fair value including transaction costs associated with such investments. Investments classified as held for trading are initially recognised at fair value. Investments in subsidiaries and associates are stated at cost less impairment loss (if any). All purchase and sale of investments that require delivery within the time frame established by regulation or market convention are recognised at the trade date, which is the date the bank commits to purchase or sell the investment. Premium or discount on acquisition of investments is amortised through the profit and loss account over the remaining period till maturity. Held to maturity investments are carried at amortised cost as per the requirements laid down in BSD Circular No. 14 dated September 24, 2004, issued by the State Bank of Pakistan. Unquoted equity securities are valued at the lower of cost and break-up value. Subsequent increase or decrease in the carrying value is credited / charged to income. Break-up value of equity securities is calculated with reference to the net assets of the investee company as per the latest audited financial statements. In accordance with the requirements of the State Bank of Pakistan, quoted securities other than those classified as held to maturity and investments in subsidiaries or associates are stated at market value where ready quotes are available. As per SBP directives, the surplus / deficit arising on revaluation is taken to the profit and loss account for trading securities, while for available for sale securities, it is reported below equity. Provision for diminution in the value of securities (except term finance certificates) is made for permanent impairment, if any. Provision for diminution in value of term finance certificates is made as per the aging criteria prescribed by the Prudential Regulations issued by the State Bank of Pakistan. 7.5. Financing Morabaha and ijara are stated net of specific and general provision. Specific provision is made for non-performing financing in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan. The bank also maintains general provision in accordance with the requirements of the Prudential Regulations and for present potential losses on performing morabaha, ijara financing and consumer financing portfolio. Finance leases where the bank transfers substantially all the risks and rewards incidental to ownership of an asset, are classified as ijaras. Ijara financing is recognized at an amount equal to the present value of the minimum lease payment including any guaranteed residual value. Non-performing financing is written off only when all possible courses of action to achieve recovery have proved unsuccessful. 7.6. Operating fixed assets Owned Items of property and equipment are stated at cost less accumulated depreciation and impairment (if any) except freehold and leasehold land which are stated at cost. When parts of an item of property and equipment have different useful lives, they are accounted for as separate items of property and equipment. During the current year, the bank has revised its accounting estimate regarding depreciation on leasehold land, whereby, no depreciation is being charged on such land. Previously, such land was being depreciated on a straight line basis over the lease term. The change in estimate has been applied prospectively. The impact of the change in estimate is immaterial. Capital work-in-progress is stated at cost. Assets subject to finance lease Leases in terms of which the bank assumes substantially all the risks and rewards of ownership are classified as assets subject to finance lease. These are stated at amounts equal to the lower of their fair value and the present value of minimum lease payments at inception of the lease, less accumulated depreciation and impairment losses (if any). Financial charges are allocated over the period of the lease term so as to provide a constant periodic rate of financial charge on the outstanding liability. Intangibles Intangible assets with definite useful lives are stated at cost less accumulated amortisation and impairment losses (if any). Intangible assets with indefinite useful lives are stated at cost less impairment losses (if any). Subsequent costs Renewals and improvements are included in an asset's carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the bank and the cost of the item can be measured reliably. All other expenses are charged to income during the financial period in which they are incurred. Depreciation and amortisation Depreciation on property and equipment other than freehold and leasehold land, and amortisation on intangibles is charged to income using the straight-line method so as to write off the depreciable amount of an asset over its estimated useful life at the rates given in notes 13.2 and 13.3. The residual value is assessed annually. During the current year, the bank has reassessed the estimated residual value of vehicles. The impact of the revision in this estimate is immaterial. A full month's depreciation / amortisation is charged in the month of addition and no depreciation / amortisation is charged in the month of disposal. Impairment of operating fixed assets The carrying amounts of the bank's operating fixed assets are regularly reviewed to determine whether there is any indication of impairment. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. Such losses are recognised directly in the profit and loss account. An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. Such reversals are only made to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined if no impairment loss had been recognised. 7.7. Operating leases Lease payments under operating leases are charged to income on straight line basis over the lease term. 7.8. Taxation Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the profit and loss account, except to the extent that it relates to items recognised directly in equity or below equity, in which case it is recognised in equity or below equity. Current Provision for current taxation is based on the taxable income for the year determined in accordance with the prevailing laws for taxation on income. The charge for the current tax is calculated using tax rates enacted or substantively enacted at the balance sheet date. The charge for current tax also includes adjustments, where considered necessary relating to prior years. Deferred Deferred tax is recognised using the balance sheet method on all temporary differences arising between tax base of assets and liabilities and their carrying amounts appearing in the financial statements. No deferred tax is provided on the initial recognition of assets and liabilities that affect neither accounting nor taxable profits. A deferred tax asset is recognised only to the extent it is probable that future taxable profits will be available against which the assets can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the balance sheet date. 7.9. Deposits Deposits are initially recorded at the amount of Proceeds received, Mark-up accrued on deposits is recognised separately as part of other liabilities and is charged to the profit and loss account over the period. 7.10. Provisions and Impairment Provisions are recognised when the Bank has a legal or constructive ohligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a. reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet dare and are adjusted to reflect the current best estimate. The carrying amount of the bank's assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, an impairment loss is recognised in the profit and loss account. 7.11. Staff retirement benefits The bank operates: /hjs4 a) an approved funded gratuity scheme for all its permanent employees. Contributions are made to cover the obligations under the scheme on the basis of actuarial valuation and are charged to income. Cumulative net unrecognised actuarial gains and losses at the end of the previous year are charged or credited to income over the expected average remaining working lives of the employees. b) an approved funded contributory provident fund for all its permanent employees to which equal monthly contributions are made both by the bank and the employees at the rate of 10 percent of basic salary. Staff retirement benefits are payable to staff on completion of prescribed qualifying period of service under these schemes. 7.12. Revenue recognition a) Profit and return on regular financing and investments is recognised on accrual basis. Profit on classified financing and investments is recognised on receipt basis. Gains and losses on termination and documentation charges are recognised on receipt basis. b) Fee, commission and brokerage income is recognised when earned. c) Dividend income from investments is recognised when the bank's right to receive the dividend is established. d) Gains and losses on sale of investments and operating fixed assets are recognised in the profit and loss account. /ha4 e) All exchange differences are recognised in income. 7.13. Dividends and appropriation to reserves Dividend and appropriation to reserves, except appropriations required by the law after the balance sheet date, are recognised in the year in which these are approved. 7.14. Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value is recognised in the profit and loss account. 7.15. Foreign currencies All monetary assets, liabilities and commitments for letters of credit, acceptances and guarantees in foreign currencies are translated at rates of exchange approximating those prevailing at the balance sheet date. Foreign currency transactions are recorded at the rates prevailing on the transaction date. Foreign bills purchased and forward contracts and swaps are valued at forward rates applicable to the respective maturities of the relevant contracts. 7.16. Off Setting Financial assets and liabilities are set off and the net amount is reported in the balance sheet when and only when, the bank has a legal right to set off the amounts and it intends either to settle on a net basis or to realise the asset and to settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted by the approved accounting standards, or for gains and losses arising from a group of similar transactions. 7.17. Segment Reporting A segment is a distinguishable component of the bank that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the bank's functional structure and the guidance of State Bank of Pakistan. The bank comprises of the following main business segments: 7.17.1. Business Segments Corporate finance This includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitisation, Initial Public Offers (IPOs) and secondary private placements. Trading and Sales This segment undertakes the bank's treasury, money market and capital market activities. Retail banking Retail banking provides services to small borrowers i.e consumers, small and medium enterprises (SMEs) and borrowers' agriculture sector. It includes loans, deposits and other transactions with retail customers. Commercial banking This includes loans, deposits and other transactions with corporate customers. 7.17.2. Geographical segment The bank conducts all its operations in Pakistan. 8. CASH AND BALANCES WITH TREASURY BANKS ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
In hand
-- local currency 607,804 653,196
-- foreign currency 121,752 146,760
With State Bank of Pakistan in
-- local currency current account 8.1 4,854,587 3,880,789
-- foreign currency current account 8.2 386,701 434,742
-- foreign currency deposit account 8.3 1,192,336 1,484,603
With National Bank of Pakistan in
-- local currency current account 44,288 69,012
-- local currency deposit account 530 27,612
7,207,998 6,696,714
==================================================================================8.1. This represents current account maintained with SBP under the requirements of section 22 (Cash Reserve Requirement) of the Banking Companies Ordinance, 1962.8.2. This represents cash reserve of 5% on FE 25 deposits, maintained with SBP under the requirements of BSD Circular No. 18 dated March 31, 2001. 8.3. This represents special cash reserve maintained with SBP under the requirements of BSD Circular No. 18 dated March 31, 2001. Profit rates are fixed on monthly basis by SBP. Profit ranging between 3.39% to 4.39% per annum (2005: 1.40% to 3.29% per annum) was earned during the year. It also includes SBP Local USD Clearing account maintained to facilitate USD cheque clearing, which is remunerated at the same rates. 9. BALANCES WITH OTHER BANKS ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
In Pakistan
Current accounts 223,720 18,230
Deposit accounts 9.1 43 8,934
Outside Pakistan
Current accounts 2,367,734 314,574
Deposit accounts 9.2 291,543 1,704,149
2,883,040 2,045,887
==================================================================================9.1. These represent deposits payable on demand and carry return at approximately 1.0% per annum (2005: 1.0% per annum).9.2. This includes term placement of USD 1.75 million (2005: USD 13.1 million, ECU 3.0 million and GBP 1.6 million) with associated company @ 5.75% (2005 : 2.5% to 5.0%) per annum with maturity in January 2007. 10. LENDINGS TO FINANCIAL INSTITUTIONS ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Repurchase agreement lendings 10.2 3,808,205 6,742,841
Certificates of investment 10.3 800,000 4,000,000
4,608,205 10,742,841
==================================================================================10.1. Particulars of lending==================================================================================
2006 2005
Rupees '000
==================================================================================
In local currency 4,608,205 10,742,841
In foreign currencies - -
4,608,205 10,742,841
==================================================================================10.2. Securities held as collateral against lendings to financial institutions===============================================================================================================
2006 2005
===============================================================================================================
Held by Further Total Held by Further Total
bank given as bank given as
collateral collateral
===============================================================================================================
Rupees ;000
===============================================================================================================
Market Treasury Bills - note 10.2.1 3,208,205 - 3,208,205 4,987,841 - 4,987,841
Pakistan Investment Bonds - note 10.2.2 600,000 - 600,000 1,755,000 - 1,755,000
3,808,205 - 3,808,205 6,742,841 - 6,742,841
===============================================================================================================10.2.1. Market Treasury Bills have been purchased under resale agreements at rates ranging from 8.68% to 9.40% (2005: 8.25% to 8.55% per annum) with maturities up to February 2007.10.2.2. Pakistan Investment Bonds have been purchased under resale agreements at the rates ranging from 8.95% to 9.25% per annum (2005: 8.4% to 8.5% per annum) with maturities up to March 2007. 10.3. These represent placements with banks and financial institutions at rates ranging from 12.6% to 13.5% per annum (2005: 11.8% to 13.0% per annum) with maturities up to March 2007. 11. INVESTMENTS Investments by type and segment are given below while the detailed break down is contained in Annexure I to these financial statements. 11.1. Investments by type ====================================================================================================================
2006 2005
Held by Given as Held by Given as
bank collateral Total bank collateral Total
====================================================================================================================
Held for trading securities Rupees '000
Fully paid up ordinary shares 26,960 26,960 - - -
Available-for-sale securities
Market Treasury Bills 7,003,298 348,375 7,351,673 1,889,640 6,031,028 7,920,668
Pakistan Investment Bonds 1,192,927 - 1,192,927 1,210,280 - 1,210,280
Units of open ended mutual funds
-- National Investment
(Unit) Trust - note 11.2.4 2,895,623 - 2,895,623 2,667,253 - 2,667,253
-- Pakistan Income Fund 7,928 - 7,928 7,928 - 7,928
-- Faysal Balanced Growth Fund 152,638 - 152,638 200,000 - 200,000
-- NAFA Cash Fund 50,000 - 50,000 - - -
-- KASB Liquid Fund 15,002 - 15,002 - - -
Fully paid up ordinary shares /
modaraba certificates / units of
closed end mutual funds 2,383,318 - 2,383,318 2,043,816 - 2,043,816
Fully paid up preference shares 485,427 - 485,427 467,942 - 467,942
Term finance certificates and bon 3,086,067 - 3,086,067 3,096,338 - 3,096,338
17,272,228 348,375 17,620,603 11,583,197 6,031,028 17,614,225
Subsidiaries
Shares of Faysal Management
Services (Private) Ltd. 108,000 - 108,000 108,000 - 108,000
Certificates of Fayzan Manufacturing
Modaraba - note 11.2.5 - - - 430,425 -430,425
108,000 - 108,000 538,425 - 538,425
Associates
Shares / Units of - - - - - -
-- Faysal Asset Management Ltd. 15,000 - 15,000 15,000 - 15,000
-- Faysal Income & Growth Fund 250,000 - 250,000 250,000 - 250,000
265,000 - 265,000 265,000 - 265,000
17,672,188 348,375 18,020,563 12,386,622 6,031,028 18,417,650
Provision for diminution in the value of
investments - note 13.3 (74,030) - (74,030) (74,030) - (74,030)
Investments (net of provision) 17,598,158 348,375 17,946,533 12,312,592 6,031,028 18,343,620
Surplus on revaluation of available for
sale securities (net) - note 23 4,580,614 1,195 4,581,809 6,071,536 119 6,071,655
Deficit on revaluation of held for
trading financial instruments (2,984) - (2,984) (3,631) - (3,631)
Total investments at market value 22,175,788 349,570 22,525,358 18,380,497 6,031,147 24,411,644
====================================================================================================================11.1.1. Strategic Investments Available-for-sale securities - Listed==================================================================================
2006 2005
Rupees '000
==================================================================================
Fully paid up ordinary shares / modaraha
certificates /units of closed end mutual funds 335,890 -
Units of open ended mutual funds - 2,667,253
Available-for-sale securities - Unlisted
Fully paid up ordinary shares 966,936 873,186
Subsidiaries 108,000 538,425
Associates 15,000 15,000
1,425,826 4,093,864
Surplus on revaluation of investments 69,261 6,016,632
1,495,087 10,110,496
==================================================================================Strategic investments are those which the bank makes with the intention of holding them for a long term duration and are marked as such at the time of investment. Disposals of such investments can only be made subject to fulfillment of criteria prescribed by the SBP in this regard. The overall exposure limit for equity investments prescribed by the SBP does not apply to these investments. Further, as per SBP instructions, investments earmarked as strategic have a minimum retention period of 5 years from the original purchase date, except with the prior permission of the State Bank of Pakistan.11.2. Investments by segment ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Federal Government Securities
-- Market Treasury Bills 11.2.1 7,351,673 7,920,668
-- Pakistan Investment Bonds 11.2.2 1,192,927 1,210,280
Fully Paid up Ordinary Shares /
Modaraba Certificates /
Closed end Mutual Fund Units
-- Listed companies/ modarabas/ mutual funds 1,441,555 1,599,268
-- Unlisted companies 1,091,723 997,973
Fully Paid up Preference Shares
-- Listed companies 366,427 373,942
-- Unlisted companies 119,000 94,000
Term Finance Certificates and Bond
-- Listed TFCs 1,987,313 1,979,255
-- Unlisted TFCs 11.2.3 1,098,754 1,117,083
Open ended Mutual Fund Units 3,371,191 3,125,181
18,020,563 18,417,650
Provision for diminution in 11.3 (74,030) (74,030)
the value of investments
Investments (net of provision) 17,946,533 18,343,620
Surplus / (deficit) on revaluation of
available for sale securities 23 4,581,809 6,071,655
Surplus / (deficit) on revaluation of held
for trading financial instruments (2,984) (3,631)
Total investments at market value 22,525,358 24,411,644
==================================================================================11.2.1. Market Treasury Bills have a tenor of one year. Bank's yield on these instruments is 8.8% per annum (2005: 7.6% to 8.1% per annum) with maturities up to March 2007.11.2.2. Pakistan Investment Bonds are for periods of 10 years. Bank's yield ranges from 4.6% to 6.3% per annum (2005: 4.6% to 6.3% per annum) with maturities from June 30, 2013 to December 31, 2013. 11.2.3. This represents unlisted Term Finance Certificates (TFCs) of Rs 1.098 billion (2005: Rs 1.117 billion) which have been issued by Dewan Cement Limited (formerly Pakland Cement Limited) and Dewan Hattar Cement Limited (formerly Saadi Cement Limited). The exposure of various financial institutions against the above customers was restructured under a scheme of arrangement sanctioned by the High Court of Sindh. The State Bank of Pakistan (SBP) vide their letter No. BPD/PU22/22.03/X/2005/1836 dated February 15, 2005 allowed that the above restructuring would constitute fresh facility by treating the existing amounts as paid-off. SBP has also granted certain specific exemptions to this facility from the requirements of the Prudential Regulations. According to the directives issued by the State Bank of Pakistan (SBP) vide letter no. BPD/PU-22/22.03/15749/2005/8720 dated July 14, 2005, the above TFCs are classified as investments. Hs311.2.4. This includes 166,964,780 NIT Units (2005:166,964,780 NIT units) covered under letter of comfort (LOC) dated December 22, 2006. Under the terms of the above letter of comfort, Government of Pakistan (GoP) would require NIT to ensure that any inflow received from sale of major block deals has to he used in redemption of LOC so that the liability is reduced to that extent. Further, the LOC intends to ensure that sufficient measures are taken by the relevant quarters for settlement of LOC upto the present extension in the date of expiry of LOC i.e. June 30, 2007. Subsequent to the year end, NIT vide letter no. MDNIT/188/2006 dated February 10, 2007 intimated to the bank that the Federal Government has authorised two representatives to conduct negotiations with the LOC holders giving them the following options namely: a) LOC holders may exercise their option of acquiring the right to manage their funds at the same terms as determined by a competitive bidding process for auction of the non-LOC management rights with no discount. b) In the event the above option is not acceptable, the LOC holders may either choose: i) to enter into agreement with NIT for a staggered redemption spread over a period of several years with an initial payment from proceeds of sale of PICIC and PSO shares; or ii) exercise the redemption option before the expiry of current LOC date with immediate payment at a discount of 10% over and above the normal procedure. NIT would raise the requisite financing from normal banking channels. The above matter is under consideration by the bank. 11.2.5. The term of Fayzan Manufacturing Modaraba ended on September 27, 2006. The investment of the bank was reparid and the Modaraba is in the processs of liquidation. 11.3. Particulars of provision for diminution in the value of investments ==================================================================================
2006 2005
Rupees '000
==================================================================================
Opening balance 74,030 392,927
Charge for the year - 18,754
Reversals - (337,651)
- (318,897)
Closing balance 74,030 74,030
==================================================================================11.3.1. Particulars of Provision in respect of Type and Segment Available-for-sale securities==================================================================================
2006 2005
Rupees '000
==================================================================================
Fully Paid up Ordinary Shares / Modaraba
Certificates / Closed end Mutual Fund Units
-- Listed companies / modarabas / mutual funds 72,252 72,252
-- Unlisted companies 1,778 1,778
74,030 74,030
==================================================================================11.4. Quality of Available for Sale SecuritiesThe details regarding the quality of available-for-sale securities is contained in Annexure 1, which forms an integral part of these financial statements. 11.5. Unrealised Gain / (Loss) on revaluation of investments classified as held-for-trading ==================================================================================
2006 2005
Rupees '000
==================================================================================
Fully paid up ordinary shares (2,984) (3,631)
(2,984) (3,631)
==================================================================================12. FINANCING==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Morabaha and Term Finance
Certificates - In Pakistan 57,978,082 46,452,938
Ijara financing - In Pakistan 12.2 13,840,587 10,849,945
71,818,669 57,302,883
Bills discounted and purchased
(excluding government treasury bills)
Payable in Pakistan 12.3 648,577 671,105
Payable outside Pakistan 479,450 326,081
1,128,027 997,186
72,946,696 58,300,069
Margin financing / reverse repo transactions 3,337,322 5,216,481
Provision for non-performing financing 12.5 (1,568,291) (1,051,264)
Provision for consumer financing - general 12.6 (247,083) (141,778)
74,468,644 62,323,508
==================================================================================12.1. Particulars of financing12.1.1. ==================================================================================
2006 2005
Rupees '000
==================================================================================
In local currency 73,798,985 61,674,199
In foreign currency 669,659 649,309
74,468,644 62,323,508
==================================================================================12.1.2.==================================================================================
2006 2005
Rupees '000
==================================================================================
Short term (for upto one year) 45,478,028 38,380,852
Long term (for over one year) 28,990,616 23,942,656
74,468,644 62,323,508
==================================================================================12.2. Ijara financing====================================================================================================================================================
2006 2005
Not later than Later than one Over five Total Not later than Later than one Over five Total
one year and less than years one year and less than years
five years five years
Rupees '000
====================================================================================================================================================
Lease rentals receivable 3,554,752 10,664,256 - 14,219,008 4,970,904 7,009,171 6,794 11,986,869
Residual value 750,052 2,250,157 - 3,000,209 955,905 1,185,869 153 2,141,927
Minimum lease payments 4,304,804 12,914,413 - 17,219,217 5,926,809 8,195,040 6,947 14,128,796
Return for future periods (1,381,720) (1,996,910) - (3,378,630) (1,415,328) (1,863,257) (266) (3,278,851)
Present value of minimum
lease payments 2,923,084 10,917,503 - 13,840,587 4,511,481 6,331,783 6,681 10,849,945
====================================================================================================================================================12.3. This includes receivable of a customer discounted by the bank. The balance outstanding at December 31, 2006 amounts to Rs. 89.223 million (2005: Rs. 127.96 million). The amount is receivable from National Bank of Pakistan.12.4. Financing includes Rs. 3.535 billion (2005: Rs. 2.488 billion) which have been placed under non-performing status as detailed below: ===================================================================================================================================================
Classified Financing Provision required Provision held
===================================================================================================================================================
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
===================================================================================================================================================
Category of classification Rupees '000
===================================================================================================================================================
Other assets especially
mentioned (agri) 24,970 - 24,970 - - - - - -
Substandard 347,936 - 347,936 49,964 - 49,964 49,964 - 49,964
Doubtful 396,415 - 396,415 98,135 - 98,135 98,135 - 98,135
Loss 2,765,872 - 2,765,872 1,156,240 - 1,156,240 1,156,240 - 1,156,240
===================================================================================================================================================
3,535,193 - 3,535,193 1,304,339 - 1,304,339 1,304,339 - 1,304,339
===================================================================================================================================================
Classified Financing Provision required Provision held
Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
===================================================================================================================================================
Category of classification Rupees '000
===================================================================================================================================================
Other assets especially
===================================================================================================================================================
mentioned - - - - - - - - -
Substandard 307,616 - 307,616 78,143 - 78,143 78,143 - 78,143
Doubtful 779,120 - 779,120 123,018 - 123,018 123,018 - 123,018
===================================================================================================================================================
Loss 1,401,458 - 1,401,458 800,103 - 800,103 800,103 - 800,103
===================================================================================================================================================
2,488,194 - 2,488,194 1,001,264 - 1,001,264 1,001,264 - 1,001,264
===================================================================================================================================================12.4.1. In accordance with the revision in the Prudential Regulations issued by the State Bank of Pakistan, the group has not considered the benefit of forced sale valuations in respect of finances where the principal outstanding is less than Rs. 10 million. As at December 31, 2005, this limit was set at Rs. 5 million. This change has resulted in an additional charge of Rs. 57.55 million.12.5. Particulars of provision for non-performing financing - in local currency =============================================================================================================
2006 2005
Specific General Total Specific General Total
Rupees '000
=============================================================================================================
Opening balance 1,001,264 50,000 1,051,264 867,345 202,958 1,070,303
Charge for the year 574,486 263,952 838,438 264,832 50,000 314,832
Reversals (271,411) (50,000) (321,411) (130,900) (202,958) (333,858)
303,075 213,952 517,027 133,932 (152,958) (19,026)
Amounts written off-note 12.7 - - - (13) - (13)
Closing balance 1,304,339 263,952 1,568,291 1,001,264 50,000 1,051,264
=============================================================================================================General provision includes an amount of Rs. 173.952 million provided for as per the instructions of the State Bank of Pakistan.12.5.1. Particulars of provision for non-performing financing: ======================================================================================================
2006 2005
Specific General Total Specific General Total
Rupees '000
======================================================================================================
In local currency 1,304,339 263,952 1,568,291 1,001,264 50,000 1,051,264
In foreign currencies - - - - - -
1,304,339 263,952 1,568,291 1,001,264 50,000 1,051,264
======================================================================================================12.5.2. General provision represents provision made for potential losses and has been determined (in the basis of management's best estimate.12.6. Particulars of provision for consumer financing - general - in local currency ==================================================================================
2006 2005
Rupees '000
==================================================================================
Opening balance 141,778 113,696
Charge for the year 105,305 28,082
Reversals - -
247,083 141,778
==================================================================================12.6.1. General provision against consumer financing has been determined in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan (i.e 1.5% of secured financing and 5% of unsecured financing).12.7. Particulars of write-off 12.7.1. ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Against provisions 12.5 - 13
Directly charged to profit and loss account 67 -
==================================================================================12.7.2.==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Write offs of Rs. 500,000 and above 67 13
- -
Write offs below Rs. 500,000 12 67 13
==================================================================================12.8.==================================================================================
2006 2005
Rupees '000
==================================================================================
Details of financing written 67 13
off of Rs. 500,000 and above
==================================================================================During the year no write-offs or any other financial relief of five hundred thousand rupees or above were made. Therefore, the statement in terms of sub-section (3) of section 33A of the Banking Companies Ordinance, 1962 is not required and has not been included as part of these financial statements.12.9. Particulars of financing to directors, associated companies, etc. Financing dlue by directors, executives or officers of the bank or any of them either severally or jointly with any other persons ==================================================================================
2006 2005
Rupees '000
==================================================================================
Balance at beginning of year 278,320 269,740
Finances granted during the year 156,244 121,383
Repayments (70,815) (112,803)
Balance at end of year 363,749 278,320
==================================================================================Financing due by companies or firms in which the directors of the bank arc interested as directors, partners or in the case of private companies as members==================================================================================
2006 2005
Rupees '000
==================================================================================
Balance at beginning of year - -
Finances granted during the year - -
Repayments - -
Balance at end of year - -
Financing due by other related parties
Balance at beginning of year 1,018,603 285,783
Finances granted during the year 618,252 788,208
Repayments (661,795) (55,388)
Balance at end of year 975,060 1,018,603
1,338,809 1,296,923
==================================================================================12.9.1. Maximum total amount of financing including temporary financing granted during the year==================================================================================
2006 2005
Rupees '000
==================================================================================
Financing due by directors, executives
or officers of the bank or
any of them either severally or 222,514 184,359
jointly with any other persons
Financing due by companies or
firms in which the directors of
the hank are interested as directors, partners
or in the case of private companies as membe - -
Financing due by subsidiaries, controlled firms,
managed modarabas and other related parties 1,026,298 1,073,991
1,248,812 1,258,350
==================================================================================13. OPERATING FIXED ASSETS==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Capital work-in-progress 13.1 323,596 526,324
Property and equipment 13.2 1,895,000 1,178,559
Intangible assets 13.3 20,796 21,203
2,239,392 1,726,086
==================================================================================13.1. Capital work-in-progress==================================================================================
2006 2005
Rupees '000
==================================================================================
Civil works 50,752 311,238
Advances to suppliers and contractors 272,844 215,086
323,596 526,324
==================================================================================13.2. Property and equipment=============================================================================================================================================================================================================
COST DEPRECIATION BOOK VALUE
=============================================================================================================================================================================================================
As at Additions As at Additions As at As at Charge/(on As at Charge/(on As at As at As at Depreciation
January 1, (deletions)/ January 1, (deletions)/ December 31, January 1, deletions)/ January 1, deletions)/ December 31, December 31, December 31, % per annum
2005 Adjustment* 2006 Adjustment* 2006 2005 Adjustment* 2006 Adjustment* 2006 2006 2005
Owned Rupees '000
=============================================================================================================================================================================================================
Freehold land 30,497 42,044 72,541 9,687 40,184 - - - - - 40,184 72,541 -
(42,044)
Leasehold land -13.2.2 344,866 25,440 370,306 11,345 381,651 13,250 5,956 19,206 - 19,206 362,445 351,100 -
Building on freehold land 41,648 4,428 46,076 - 41,648 10,197 914 11,111 862 11,862 29,786 34,965 2
=============================================================================================================================================================================================================
(4,428) (111)
=============================================================================================================================================================================================================
Leasehold property
and improvement 425,882 80,962 498,563 531,976 993,393 62,274 23,235 83,712 35,434 106,236 887,157 414,851 2 to 20
=============================================================================================================================================================================================================
(7,856) (37,146) (1,648) (12,910)
(425)* (l49)*
=============================================================================================================================================================================================================
Office furniture,
=============================================================================================================================================================================================================
fixtures, equipments
and computers 446,339 96,618 535,866 414,769 889,274 291,493 81,668 368,563 115,671 463,472 425,802 167,303 20 to 33.33
(7,516) (61,361) (4,747) (20,762)
425* 149*
Vehicles 112,325 87,157 164,607 67,055 199,330 33,478 26,562 47,524 32,768 62,365 136,965 117,083 20
(34,875) (32,332) (12,516) (17,927)
1,401,557 336,649 1,687,959 1,034,832 2,545,480 410,692 138,335 530,116 184,735 663,141 1,882,339 1,157,843
(50,247) (177,311) (18,911) (51,710)
Assets subject to
finance lease
Vehicles 23,389 19,300 27,079 - 21,410 5,670 6,239 6,363 4,529 8,749 12,661 20,716 20
(15,610) (5,669) (5,546) (2,143)
=============================================================================================================================================================================================================
1,424,946 355,949 1,715,038 1,034,832 2,566,890 416,362 144,574 536,479 189,264 671,890 1,895,000 1,178,559
(65,857) (182,980) (24,457) (53,853)
=============================================================================================================================================================================================================13.2.1. Included in cost of property and equipment are fully depreciated items still in use having cost of Rs. 290.162 million (2005: Rs. 224.94 million).13.2.2. During the current year, the bank has revised its accounting estimate regarding depreciation on leasehold land. No depreciation is now being charged on such land. Previously, such assets were being depreciated at a rate of 2% per annum. The change in accounting estimate has been applied prospectively. 13.2.3. One of these properties is encumbered to the extent of Rs. 34 million on account of a claim by a local bank in settlement of its second charge. Intangible assets ====================================================================================================================================================================================================
COST DEPRECIATION
====================================================================================================================================================================================================
Rate of
As at Additions As at Additions As at As at Charge/(on As at Charge/(on As at As at As at Amortisation
January 1, (deletions)/ January 1, (deletions)/ December 31, January 1, deletions)/ January 1, deletions)/ December 31, December 31, December 31, % per annum
2005 Adjustment* 2006 Adjustment* 2006 2005 Adjustment* 2006 Adjustment* 2006 2006 2005
Rupees '000
====================================================================================================================================================================================================
Computer Software - 22,711 22,711 4,113 26,824 - 1,508 1,508 4,520 6,028 20,796 21,203 20 to 33.33
====================================================================================================================================================================================================13.4. Details of disposal of fixed assets to executives, and other persons having cost more than Rs. 1 million or net book value Rs. 250,000 or above are as follows:-==================================================================================================================================
Cost Accumulated Book Sale Mode of Particulars of purchaser
depreciation value proceeds disposal
Rupees '000
==================================================================================================================================
Owned-Leasehold property
and improvement
37,145 9,226 27,919 130,000 Tender BRR Modaraha
46,473 111 46,362 260,000 Tender Ali & Co. (5-S, CCA DHA
Lahore Cantt. Pakistan)
3,368 3,237 131 - Tender Decent Furniture (Pvt) Ltd.
GT Road, Gujrat, Pakistan
Owned - Furniture and Fixtures
7,810 7,703 107 107 Tender BRR Modaraba
Owned - Office Equipment
4,477 4,043 434 434 Tender BRR Modaraba
Owned Vehicles
983 295 688 878 Tender Mr. Javed lqbal (Ex-executive)
499 241 258 361 Policy Mr. Qamar Abbas
B-40/627, Jaffer Tayyar Society,
Karachi
774 400 374 636 Tender Mr. Malik Ahdul Khaliq
A-19/1, North Nazimahad, Karachi
849 354 495 790 Tender Mr. Riaz Ahmed
Ittehad Motors, Karachi
793 370 423 600 Tender Mr. Saleem Aziz
A-12/1-A, Khudadad Colony,
Karachi
Cost Accumulated Book Sale Mode of Particulars of purchaser
depreciation value proceeds disposal
Rupees '000
Owned Vehicles 774 439 335 626 Tender Mr. Yousuf Jameel (Ex. Employee)
FL-16/14, Block-13/A,
Gulshan-e-lqbal, Karachi
560 84 476 601 Tender Mr. Riaz Ahmed
Ittehad Motors, Karachi
770 359 411 622 Tender Mr. Noman Hassan Khan
A-908/12, Gulberg,
F.B. Area, Karachi
849 354 495 509 Policy Mr. Irfan Khan (Executive)
849 354 495 488 Policy Mr. Arif Karim (Executive)
849 382 467 509 Policy Mr. Ajaz Rahim (Executive)
535 133 402 426 Tender Mr. Ayub Khan (Employee)
4,504 4,504 - 1,800 Tender Mr. Tahir Naqsh
(Mustchkon Construction)
35, Street-35, F-10/4,
Islamabad, Pakistan
849 466 383 435 Policy Mr. Ahmed Kamran (Executive)
1,245 726 519 461 Policy Mr. Ahmed Kamran (Executive)
635 148 487 474 Policy Mr. Sameen Siddiqui (Employee)
849 396 453 425 Policy Mr. Liaqat Ali Khan (Executive)
Muslim Park, House # 153,
Peoples Colony # 2,
Block-B, Faisalabad
560 280 280 294 Policy Mr. Muhammad Rafique (Employee)
469 195 274 472 Policy Mr. Abrar E. Khawaja (Ex Employee)
505 160 345 350 Policy Mr. Asim Seth (Executive)
1,000 250 750 950 Insurance Policy
Policy Adamjee Insurance Co.
849 425 424 456 Policy Mr. Umer Kitchlew (Executive)
469 211 258 264 Policy Mr. Muhammad Aslam (Employee)
748 424 324 626 Tender Mr. Riaz Ahmed
Ittehad Motors, Karachi
534 - 534 563 Negotiation Mr. Siddique Shahid (Employee)
560 289 271 315 Policy Ms. Lubna Agha Khan (Employee)
464 116 348 449 Policy Mr. M Khalid Bhatti (Employee)
505 185 320 323 Policy Mr. Anjum Zahoor (Executive)
469 203 266 281 Policy Mr. Aamir Ahmed (Employee)
849 226 623 600 Policy Ms. Farah Naz (Executive)
392 85 307 418 Policy Mr. Akhlaq A Khan (Ex-Employee)
411 89 322 301 Policy Mr. Imran Rasool (Executive)
560 252 308 308 Policy Mr. Muhammad Amer (Executive)
1,070 410 660 671 Policy Mr. Nadeemuddin Ahmed (Executive)
Assets subject to
finance lease-Vehicles
4,500 1,500 3,000 3,351 Tender Martin Dow Pharmaceutical Co.
1 l-M, Block-6, PECHS, Karachi
1,169 643 526 322 Policy Mr. Hassan Imam (Ex-Executive)
==================================================================================================================================14. OTHER ASSETS==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Income/mark-up accrued in local currency 1,267,788 1,024,262
Income/mark-up accrued in foreign currency 3,998 9,800
Advances, deposits, advance rent
and other prepayments 127,029 81,298
Taxation (payments less provisions) - 875,789
Non-banking assets acquired in
satisfaction of claim 14.1 60,895 35,000
Stationery and stamps on hand 4,945 4,480
Branch adjustment account 42,418 34,675
Receivable from brokers - secured 14.2 87 11,811
Others 35,712 262,570
1,542,872 2,339,685
Less: Provision held against other assets 14.3 (5,108) (5,108)
1,537,764 2,334,577
==================================================================================14.1.==================================================================================
2006 2005
Rupees '000
==================================================================================
Market value of non-banking assets acquired in satisfaction of
claim - determined by professional valuer 165,043 133,000
==================================================================================14.2. This represents amount receivable from brokers against sale of shares.14.3. Provision against other assets ==================================================================================
2006 2005
Rupees '000
==================================================================================
Opening balance 5,108 5,108
Charge for the year - -
Reversals - -
Closing balance 5,108 5,108
==================================================================================15. BILLS PAYABLE==================================================================================
2006 2005
Rupees '000
==================================================================================
In Pakistan 4,505,590 1,183,252
Outside Pakistan 10,535 10,057
4,516,125 1,193 309
==================================================================================16. BORROWINGS FROM FINANCIAL INSTITUTIONS==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
In Pakistan 16.2 14,924,721 14,808,030
Outside Pakistan 16.2 40,316 487,700
14,965,037 15,295,730
==================================================================================16.1. Particulars of borrowings from financial institutions==================================================================================
2006 2005
Rupees '000
==================================================================================
In local currency 14,852,353 14,628,888
In foreign currencies 112,684 666,842
14,965,037 15,295,730
==================================================================================16.2. Details of borrowings from financial institutions==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Secured
Borrowings from State Bank of Pakistan
-- Under Export Refinance
Scheme - Part I and II 16.3 5,575,514 4,687,223
-- Under Locally Manufactured
Machinery (LMM) scheme - -
-- Under scheme for Long Term
Financing of Export
Projects - (LTF-EOP) 16.4 2,294,233 113,067
Repurchase agreement borrowings 16.5 347,290 6,028,598
8,217,037 10,828,888
Unsecured
Interbank borrowings 16.6 6,707,684 3,979,142
Overdrawn nostro accounts 40,316 487,700
6,748,000 4,466,842
14,965,037 15,295,730
==================================================================================16.3. These represent borrowings from SBP under export refinance scheme at rates ranging from 6.50% to 7.50% per annum (2005: 3.50% to 7.50% per annum) maturing within six months up to June 2007. As per the terms of the agreement, the bank has granted SBP a right to recover the outstanding amount from the bank at the date of maturity of finances by directly debting the current account of the bank maintained with SBP.16.4. These represent borrowings from SBP under scheme for long term financing of export oriented projects at rates ranging from 4.0% to 5.0% per annum (2005: 4.0% to 5.0% per annum), and have varying long term maturities stipulated by SBP. As per the terms of the agreement, the bank has granted SBP a right to recover the outstanding amount from the bank at the respective date of maturity of finances by directly debting the current accounting of the bank maintained with SBP. 16.5. This represents collateralized borrowing against market treasury bills at rates ranging from 8.25% to 8.75% (2005: 7.25% to 8.25%) maturing upto January 2007. 16.6. These borrowings are from various institutions in the interbank market, made at rates ranging from 5.0% to 11.0% per annum (2005: 4.1% to 9.75% per annum) maturing upto March 2007. 17. DEPOSITS AND OTHER ACCOUNTS ==================================================================================
2006 2005
Rupees '000
==================================================================================
Customers
Term deposits 36,063,308 33,255,340
Savings deposits 19,125,304 23,637,401
Current accounts
-- Remunerative - -
Current accounts
-- Non-remunerative 14,460,797 10,915,184
Margin accounts 2,279,896 1,162,523
71,929,305 68,970,448
Financial Institutions
Remunerative deposits 2,463,541 5,762,503
Non-remunerative deposits 20,795 3,766
2,484,336 5,766,269
74,413,641 74,736,717
==================================================================================17.1. Particulars of deposits==================================================================================
2006 2005
Rupees '000
==================================================================================
In local currency 66,820,856 64,929,541
In foreign currencies 7,592,785 9,807,176
74,413,641 74,736,717
==================================================================================17.2. The above includes deposits of related parties amounting to Rs. 541.84 million (2005: Rs. 1,263.28 million).18. LIABILITIES AGAINST ASSETS SUBJECT TO FINANCE LEASE =================================================================================================================================================
2006 2005
Minimum Financial Principal Minimum Financial Principal
lease charges for future outstanding lease charges for future outstanding
payments periods payments periods
=================================================================================================================================================
Rupees '000
=================================================================================================================================================
Not later than one year 6,476 735 5,741 7,797 1,478 6,319
Later than one year and not later than five years 9,287 364 8,923 17,460 1,230 16,230
15,763 1,099 14,664 25,257 2,708 22,549
=================================================================================================================================================18.1. The bank has entered into agreements with a modaraba for lease of vehicles on commercial terms. Lease rentals are payable periodically and include finance charges ranging between 7.5% to 14.0% per annum (2005: 7.5% to 14.0% per annum) which have been used as respective discounting factors. There are no financial restrictions in the lease agreements.19. DEFERRED TAX LIABILITIES ===============================================================================================
2006
Opening Recognised Recognised Closing
Balance in profit in surplus on Balance
and loss revaluation
===============================================================================================
Deferred credit arising in respect of: Rupees '000
-- Ijara operations 1,277,728 501,434 - 1,779,162
-- Accelerated depreciation allowance 80,051 78,693 - 158,744
Deferred debits arising in respect of:
-- Provision against non-performing finance (12,629) (2,919) - (15,548)
-- Deficit on revaluation of
federal government securities (76,843) - (5,655) (82,498)
1,268,307 577,208 (5,655) 1,839,860
===============================================================================================19. DEFERRED TAX LIABILITIES (CONTINUED)===============================================================================================
2005
===============================================================================================
Opening Recognised Recognised Closing
Balance in profit in surplus on Balance
and loss revaluation
===============================================================================================
Deferred credits arising in respect of: Rupees '000
===============================================================================================
-- Ijara operations 450,980 826,748 - 1,277,728
-- Accelerated depreciation allowance 90,690 (10,639) - 80,051
Deferred debits arising in respect of:
-- Provision against non-performing finance (329,886) 317,257 - (12,629)
-- Deficit on revaluation of (45,342) - (31,501) (76,843)
federal government securities
===============================================================================================
166,442 1,133,366 (31,501) 1,268,307
===============================================================================================20. OTHER LIABILITIES==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Mark-up/ return payable in local currency 1,169,925 1,005,644
Mark-up / return payable in foreign currency 5,733 2,770
Unearned commission 42,743 33,090
Accrued expenses 115,824 120,330
Current taxation (provisions less payments) 561,822 -
Unclaimed dividends 40,844 26,263
Branch adjustment account - -
Exchange difference on revaluation of
forward foreign exchange contracts 8,421 33,304
Pre-IPO subscription against
Term Finance Certificates 20.1 750,000 -
Withholding tax payable 12,658 5,325
Central Excise Duty payable 4,088 2,910
Security deposits against Ijara 2,797,385 1,965,939
Payable to brokers 20.2 31,404 19,633
Provision against off-balance sheet obligations - -
Others 383,593 288,998
5,924,440 3,504,206
==================================================================================20.1. The bank is in the process of issuance of listed, rated and un-secured Term Finance Certificates (TFCs) to the extent of Rs. 1,250 million.Approval from the State Bank of Pakistan (SBP) for raising Tier II Capital has been accorded vide letter No.BSD/SU-16/608/2551/2006 dated May 24, 2006. The Pre-IPO subscription of the issue, amounting to Rs. 750 million has been received while the approvals from the Securities and Exchange Commisssion of Pakistan (SECP), and the Karachi Stock Exchange (KSE) for initial Public Offering (IPO) are in process. The amount of Pre-IPO subscription received has accordingly been classified as part of other liabilities and not as sub-ordinated debt, as at the balance sheet date. 20.2. This represents amounts payable to brokers against purchase of shares. 21. SHARE CAPITAL 21.1. Authorised capital ==================================================================================================
2006 2005 2006 2005
==================================================================================================
Number of Shares Rupees '000
==================================================================================================
600,000,000 600,000,000 Ordinary shares of Rs. 10 each 6,000,000 6,000,000
==================================================================================================21.2. Issued, subscribed and paid-up capital==================================================================================================
2006 2005 Ordinary shares
==================================================================================================
Number of Shares
==================================================================================================
201,451,420 201,451,420 Fully paid in cash 2,014,514 2,014,514
206,604,257 151,336,908 Issued as bonus shares 2,066,043 1,513,370
15,660,000 15,660,000 Issued for consideration other than cash 156,600 156,600
423,715,677 368,448,328 4,237,157 3,684,484
==================================================================================================As at December 31, 2006, Ithmaar Bank through its subsidiaries and nominees held 283,646,932 ordinary shares of Rs. 10 each. In 2005, Daar Al-Maal Al-Islami (DMI) Trust, Bahamas, which was the ultimate holding company of the bank upto August 15, 2006, through its subsidiaries and nominees held 248,119,380 ordinary shares of Rs. 10 each22. RESERVES ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Statutory reserve 22.1 2,723,070 2,159,754
Capital market reserve 22.2 356,457 356,457
3,079,527 2,516,211
==================================================================================22.1. Appropriations are made to statutory reserve as required by section 21 of the Banking Companies Ordinance, 1962, @ 20% of profit after tax for the year.22.2. This represents reserve created to meet unforeseen future contingencies in the capital market. 23. SURPLUS / (DEFICIT) ON REVALUATION OF ASSETS - BY TYPE AND SEGMENT ==================================================================================
2006 2005
Rupees '000
==================================================================================
Federal Government Securities
-- Market Treasury Bills (6,325) (390)
-- Pakistan Investment Bonds (229,385) (219,162)
==================================================================================Fully Paid up Ordinary Shares / Modarba Certificates / Closed end Mutual Fund Units==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
-- Listed companies/ modarabas/ mutual funds (27,865) 300,003
-- Unlisted companies - -
Fully Paid up Preference Shares
--Listed companies (18,940) (34,717)
-- Unlisted companies - -
Term Finance Certificates and Bond
-- Listed TFCs (41,938) 5,767
-- Unlisted TFCs - -
Open ended Mutual Fund Units 4,906,262 6,020,154
4,581,809 6,071,655
Add: Deferred tax asset on 23.1 82,498 76,843
federal government securities
4,664,307 6,148,498
==================================================================================23.1. This represents deferred tax computed on surplus on revaluation of federal government securities. Deferred tax liability on surplus on revaluation of quoted securities has not been recognised in the financial statements as the government has announced extension in exemption of capital gains arising on disposal of listed securities beyond tax year 2007. The official notification to this effect is expected to be issued by the Central Board of Revenue.24. CONTINGENCIES AND COMMITMENTS 24.1. Direct credit substitutes Contingent liability in respect of guarantees favouring: ==================================================================================
2006 2005
Rupees '000
==================================================================================
i) Government - -
ii) Banking companies and 350,617 332,051
other financial institutions
iii) Others - -
350,617 332,051
==================================================================================24.2. Transaction-related contingent liabilitiesContingent liability in respect of performance bonds, hid bonds, shipping guarantees and standby letters of credit etc. favouring ==================================================================================
2006 2005
Rupees '000
==================================================================================
i) Government 6,449,648 4,231,225
ii) Banking companies and 1,234,113 398,336
other financial institutions
iii) Others 3,658,761 1,546,052
11,342,522 6,175,613
==================================================================================24.3. Trade-related contingent liabilities==================================================================================
2006 2005
Rupees '000
==================================================================================
Letters of credit 13,165,424 9,098,999
Acceptances 3,488,463 1,432,280
16,653,887 10,531,279
==================================================================================24.4. Other Contingencies==================================================================================
2006 2005
Rupees '000
==================================================================================
i) Suit filed by a customer for recovery of alleged
losses suffered which is pending in the
High Court of Sindh; bank's legal
advisors are confident that the
group has a strong case 2,500,000 2,500,000
ii) Indemnity issued favouring
the High Court in above case 457,543 457,543
iii) Claims against the bank
not acknowledged as debt 839,454 839,454
==================================================================================24.5. Commitments in respect of forward lending / purchase==================================================================================
2006 2005
Rupees '000
==================================================================================
Commitment to extend
credit - Morahaha financing 176,408 1,000,000
Commitment to extend credit - Ijara financing - 640,000
Commitment to invest in securities 1,219,830 1,057,500
==================================================================================24.6. Commitments in respect of forward exchange contracts==================================================================================
2006 2005
Rupees '000
==================================================================================
Purchase
-- Customers 733,920 505,901
-- Banks 9,622,488 11,230,389
10,356,408 11,736,290
Sale
-- Customers 619,141 971,578
-- Banks 6,320,422 4,763,117
6,939,563 5,734,695
==================================================================================24.7. Commitments in respect of lease rentals==================================================================================
2006 2005
Rupees '000
==================================================================================
Not later than one year - 152
Later than one year and not later than five years - -
- 152
==================================================================================24.8.==================================================================================
2006 2005
Rupees '000
==================================================================================
Commitments for acquisition 145,622 361,383
of operating fixed assets
==================================================================================24.9. Commitments in respect of repo transactions==================================================================================
2006 2005
Rupees '000
==================================================================================
Repurchase 6,765,761 6,037,987
Resale 7,239,038 12,155,960
==================================================================================25. DERIVATIVE INSTRUMENTSA derivative financial instrument is a financial contract between two parties where payments are dependent upon movement in prices of one or more underlying financial instruments, reference rates or indices. The principal derivatives used by the bank are forward foreign exchange contracts and equity futures. The bank at this stage does not engage in interest Rate Swaps, Forward Rate Agreements and FX Options. A forward foreign exchange contract is an agreement to buy or sell a specified amount of foreign currency on a specified future date at an agreed rate. Equity futures are exchange traded contractual agreements to either buy or sell a specified security at a specific price and date in the future. The Bank enters into these contracts, primarily for the purposes of squaring currency positions. All derivatives are recognised at their fair value. Fair values are obtained from quoted market prices in active markets. Derivatives are carried in the balance sheet as assets when their fair value is positive and as liabilities when their fair value is negative. Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractual obligations. The principal amount of the derivative contract does not represent real exposure to credit risk, which is limited to the positive fair value of instruments. The details of commitments under forward foreign exchange contracts outstanding at year-end have been given in note 24. There was no equity futures position at the year end. 26. MARK-UP/ RETURN EARNED ==================================================================================
2006 2005
Rupees '000
==================================================================================
a) On financing to:
i) customers 6,636,517 4,645,054
ii) financial institutions 115,722 120,418
b) On investments in:
i) held for trading securities - -
ii available for sale securities 1,631,964 522,080
c) On deposits with treasury banks
and financial institutions 435,332 141,576
d) On securities purchased under resale agreements 908,511 908,923
9,728,046 6,338,051
==================================================================================27. MARK-UP/ RETURN EXPENSED==================================================================================
2006 2005
Rupees '000
==================================================================================
Deposits 4,699,154 2,670,892
Securities sold under repurchase agreements 464,119 36,332
Other short term borrowings 902,684 604,343
Pre-IPO subscription against
Term Finance Certificates 23,298 -
6,089,255 3,311,567
==================================================================================28. GAIN / (LOSS) ON SALE OF SECURITIES ==================================================================================
2006 2005
Rupees '000
==================================================================================
Gain on sale of shares - listed 330,853 609,119
330,853 609,119
==================================================================================29. OTHER INCOME==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Gain on disposal of fixed assets 320,295 -
Compensation on delayed tax refund 29.1 117,203 -
Rentonproperty 8,178 947
Maintenance charges on property rented 2,032 -
447,708 947
==================================================================================29.1. This represents amount acknowledged by the assessing officer of the Central Board of Revenue as compensation on delayed tax refunds through orders dated June 30, 2006, passed under section 171 of the Income Tax Ordinance, 2001. The refunds pertain to assessment years 1997-98 to 2002-03. Compensation has been calculated at the rates of 15% and 6% per annum on the determined refund amount for the period commencing at the end of three months of the refund becoming due to the bank upto the date of payment / adjustment by the income tax authorities.30. ADMINISTRATIVE EXPENSES ==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Salaries, allowances and
other employee benefits 874,238 682,092
Charge for defined benefit plan 20,263 16,186
Contribution to defined contribution plan 26,675 19,920
Rent, taxes, insurance, electricity, etc. 194,162 128,160
Legal and professional charges 16,230 11,450
Communications 35,271 21,242
Repairs and maintenance 44,018 30,420
Lease rentals 7,909 12,819
Donations 30.1 - 12,500
Finance charge on leased assets 1,529 2,385
Stationery and printing 50,307 39,312
Advertisement and publicity 74,968 32,614
License and technical fee 50,011 88,041
Auditors' remuneration 30.2 3,600 2,800
Depreciation 13.2 189,264 144,574
Amortisation 13.3 4,520 1,508
Travelling, conveyance and entertainment 38,380 21,731
Vehicle running expenses 39,592 36,774
Books, periodicals and subscription 14,729 9,851
Brokerage and commission 40,645 18,922
Others 140,273 95,198
1,866,584 1,428,499
==================================================================================30.1. Donations were made in the year 2005 for the aid of victims of the earthquake disaster:==================================================================================
2006 2005
Rupees '000
==================================================================================
Donee
The President's Earthquake Disaster Relief Fund - 10,000
Waqf Faisal (Trust) - This is a charitable
public welfare project
(The President and CEO of the bank
is the Managing Trustee of the Trust) - 2,500
- 12,500
==================================================================================30.2. Auditors' remuneration==================================================================================
2006 2005
Rupees '000
==================================================================================
Audit fee 1,375 1,250
Review of half yearly financial statements 275 250
Special certifications and sundry advisory services 1,800 1,000
Out-of-pocket expenses 150 300
3,600 2,800
==================================================================================31. OTHER CHARGES==================================================================================
2006 2005
Rupees '000
==================================================================================
Penalties imposed by the State Bank of Pakistan 32,857 265
Penalties reversed by the State Bank of Pakistan - (249)
Loss on disposal of fixed assets - 2,204
32,857 2,220
==================================================================================32. TAXATION==================================================================================
2006 2005
Rupees '000
==================================================================================
For the year
Current 383,442 689,204
Deferred 533,906 333,045
917,348 1,022,249
For prior year
Current 93,118 (923,159)
Deferred 43,302 800,320
136,420 (122,839)
1,053,768 899,410
==================================================================================32.1. Relationship between tax expense and accounting profit==================================================================================
2006 2005
Rupees '000
==================================================================================
Profit before taxation 3,870,340 3,968,867
Tax calculated at the
rate of 35% (2005: 38%) -- --
Effect of: 1,354,619 1,508,169
permanent differences 41,783 (99,073)
income chargeable to tax at reduced rate (82,734) (256,382)
income exempt from tax (396,320) (130,465)
prior year charge 136,420 (122,839)
Tax charge for the year 1,053,768 899,410
==================================================================================32.2. Applicable tax rate is changed in accordance with the requirements of Income Tax Ordinance, 2001.32.3. Income tax assessments of the bank have been finalised upto the tax year 2005 (Accounting year 2004). Return filed for tax year 2006 (Accounting year 2005) is also deemed to have been assessed as per tax law, unless selected for detailed audit. 33. BASIC AND DILUTED EARNINGS PER SHARE ==================================================================================
2006 2005
Rupees '000
==================================================================================
Profit for the year 2,816,572 3,069,457
==================================================================================
In thousands
==================================================================================
Number of ordinary shares 423,716 423,716
==================================================================================
Rupees
==================================================================================
Basic and diluted earnings per share 6.65 7.24
==================================================================================34. CASH AND CASH EQUIVALENTS==================================================================================
2006 2005
Rupees '000
==================================================================================
Cash and balances with treasury banks 7,207,998 6,696,714
Balances with other banks 2,883,040 2,045,887
10,091,038 8,742,601
==================================================================================35. STAFF STRENGTH==================================================================================
2006 2005
Rupees '000
In Numbers
==================================================================================
Permanent 1,109 799
Temporary/on contractual basis 354 269
Bank's own staff strength at the end of the year 1,463 1,068
Outsourced 37.1 606 462
Total Staff Strength 2,069 1,530
==================================================================================35.1. Outsourced represent employees hired by an outside contractorgency and posted in the bank to perform various tasksctivities of the bank.36. DEFINED BENEFIT PLAN 36.1. Principal actuarial assumptions The latest actuarial valuation of the bank's defined benefit plan based on Projected Unit Credit Actuarial Cost Method was carried out as at December 31, 2006. Following are the significant assumptions used in the valuation: ==================================================================================
2006 2005
==================================================================================
Discount factor used (%age per annum) 10 9
Expected long term rate of return on
plan assets (%age per annum) 10 9
Salary increase (%age per annum) 10 9
Normal retirement age (Years) 60 60
==================================================================================36.2. Reconciliation of payable to defined benefit plan==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Present value of defined benefit obligation 36.3 118,509 93,553
Fair value of plan assets 36.4 (97,253) (79,599)
Net actuarial gain/(loss) not recognised (21,256) (13,954)
- -
==================================================================================36.3. Movement in present value of defined benefit obligation==================================================================================
2006 2005
Rupees '000
==================================================================================
Opening balance 93,553 79,512
Current service cost 17,846 13,782
Interest cost 8,293 6,017
(Gain) / Loss on defined benefit obligation 4,231 (581)
Actual benefits paid during the year (5,414) (5,177)
Closing balance 118,509 93,553
==================================================================================36.4. Movement in fair value of plan assets==================================================================================
2006 2005
Rupees '000
==================================================================================
Opening balance 79,599 64,070
Expected return on plan assets 6,949 4,801
Contribution made 20,263 16,186
Benefits paid by the fund (5,414) (5,177)
Gain / (Loss) on plan assets (4,144) (281)
Closing balance 97,253 79,599
==================================================================================36.4.1. Plan assets consist of the following:==================================================================================
2006 2005
Rupees '000
==================================================================================
Balances with banks and financial institutions 62,931 47,976
Certificates of investment 8,000 -
Units of open ended mutual funds 10,000 10,000
Term finance certificates 16,322 21,623
97,253 79,599
==================================================================================36.5. Movement in payable to defined benefit plan==================================================================================
Note 2006 2005
Rupees '000
==================================================================================
Opening balance 465 -
Charge for the year 36.6 20,263 16,186
Contribution to fund made during the year (20,263) (15,721)
Closing balance 465 465
==================================================================================36.6. Charge for defined benefit plan==================================================================================
2006 2005
Rupees '000
==================================================================================
Current service cost 17,846 13,782
Interest cost 8,293 6,017
Expected return on plan assets (6,949) (4,801)
Amortisation of transitional obligation - -
Amortisation of loss 1,073 1,188
20,263 16,186
==================================================================================36.7.==================================================================================
2006 2005
Rupees '000
==================================================================================
Actual return on plan assets 7,837 5,568
==================================================================================36.8. Historical information==============================================================================================================
2006 2005 2004 2003 2002
Rupees '000
==============================================================================================================
Defined Benefit Obligation (118,509) (93,553) (79,512) (56,912) (49,602)
Fair value of plan assets 97,253 79,599 64,070 60,376 52,412
Surplus/ (Deficit) (21,256) (13,954) (15,442) 3,464 2,810
==============================================================================================================
Experience adjustments on plan liabilities (4,231) 581 (17,557) 1,386 3,746
==============================================================================================================
Experience adjustments on plan assets 888 767 397 508 252
==============================================================================================================37. DEFINED CONTRIBUTION PLANThe bank operates an approved funded contributory provident fund for all its permanent employees to which equal monthly contributions are made both by the bank and the employees at the rate of 10 % of basic salary. The financial statements of the fund are separately prepared and audited and are not included as part of these financial statements. 38. REMUNERATION OF DIRECTORS AND EXECUTIVES ==========================================================================================
Chief Executives Officer Executives
2006 2005 2006 2005
Rupees '000
==========================================================================================
Managerial remuneration 61,865 35,609 214,570 86,376
Charge for defined benefit plan 1,863 1,741 6,330 5,194
Contribution to defined contribution plan 2,236 2,090 7,599 6,236
Rent and house maintenance 1,744 10,718 33,813 28,166
Utilities 2,236 3,135 7,599 6,236
Medical 84 84 6,021 3,854
Leave fare assistance 2,236 2,321 12,476 10,955
Others 317 825 24,338 20,071
72,581 56,523 312,746 167,088
==========================================================================================
Number of persons 1 1 69 56
==========================================================================================38.1. In addition to the above, the Chief Executive and Key Executives are provided with free use of bank's maintained cars and security services.39. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of traded investments is based on quoted market price. Fair value of unquoted equity investments is determined on the basis of break-up value of these investments as per the latest financial statements. Fair value of fixed term financing, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of financing has been calculated in accordance with bank's accounting policy as stated in note 7.5 of these financial statements. The maturity and repricing profile and effective rates are stated in note 45.6.1 and 45.5 respectively. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer financing and deposits, are regularly repriced. 40. ACCOUNTING ESTIMATES AND JUDGEMENTS The bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Some of the critical accounting estimates and judgements are as follows: 40.1. Provision against financing portfolio The bank reviews its financing portfolio to assess amount of non performing financing and provision required there against on a quarterly basis. The provision is made in accordance with Prudential Regulations issued by the State Bank of Pakistan. The forced sale values are estimated by independent valuations of the assets mortgaged/pledged. General provision in respect of unidentified financing losses is made based on historical experience for assets with credit risk characteristics. Further, impact of revision in accounting estimate due to the State Bank of Pakistan directives are disclosed in 12.4.1. 40.2. Income taxes In making the estimates for income taxes currently payable by the bank, the management looks at the current income tax law and the decisions of appellate authorities on disputed issues in the past. However, the bank has made adequate provision in this respect. Therefore, no amount is shown as a contingent liability of the bank. 40.3. Impairment in respect of listed securities The bank determines that listed available for sale securities are impaired when there has been a significant or prolonged decline in fair value below its cost. In making this judgement, the bank evaluates among other factors volatility in share prices in normal course. If the bank considers that a deficit is temporary, it is classified as a revaluation loss / (deficit) and if the impairment is considered of a permanent nature, it is treated as provision for diminution in value of investments. 40.4. Gratuity The bank has adopted certain actuarial assumptions as disclosed in note 36.1 to the financial statements for determining present value of defined benefit obligation and fair value of plan assets, based on actuarial advice. Any change in the assumptions from actual results would change the amount of unrecognised gains and losses. 40.5. Operating fixed assets The bank has revised the estimate regarding the residual values of all fixed assets and useful life of leasehold land as referred to in note 7.6 to these financial statements. 40.6. Segmentation As per the requirements of the new format of financial statements issued by State Bank of Pakistan, the management has divided the bank into four functional segments. The basis of segmentation and related assumptions are disclosed in note 7.17. 41. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES For management purposes the bank is organised into four major business segments Corporate Finance; Trading and Sales; Retail Banking; and Commercial Banking. All assets, liabilities, off balances sheet items, and items of income and expense are distributed in accordance with the core functions performed by the business groups. =============================================================================================
Corporate Trading & Retail Commercial
Finance Sales Banking Banking
Rupees '000
=============================================================================================
2006
=============================================================================================
Total income 1,088,999 2,072,331 3,890,309 5,429,796
Total expenses (331,179) (1,355,573) (2,582,599) (4,341,744)
Net income (loss) 757,820 716,758 1,307,710 1,088,052
Segment assets (Gross) 8,285,864 13,359,981 38,554,126 57,085,804
Segment non-performing financing - - 894,108 2,641,085
Segment provision required - - (410,040) (1,405,334)
Segment liabilities (1,063,043) (7,088,218) (34,740,061) (58,782,445)
Segment return on assets (ROA) (%) * 13.14 15.51 10.09 9.51
Segment cost of funds (%) * 3.51 14.13 5.58 5.00
=============================================================================================
2005
=============================================================================================
Total income 1,204,011 1,342,445 2,272,813 3,582,044
Total expenses (330,716) (427,907) (1,291,959) (2,381,864)
Net income (loss) 873,295 914,538 980,854 1,200,180
Segment assets (Gross) 9,559,791 24,940,334 27,727,330 49,246,847
Segment non-performing financing - - 502,971 1,985,223
Segment provision required - - (281,632) (911,413)
Segment liabilities (830,420) (15,871,284) (28,963,354) (50,355,760)
Segment return on assets (ROA) (%) * 12.59 5.38 8.20 7.45
Segment cost of funds (%) * 2.00 1.92 3.24 3.87
============================================================================================= * These percentages have been computed based on closing assets / liability figure instead of average balances. Note : The above table is based on best estimates / assumptions.42. TRUST ACTIVITIES The bank is not engaged in any significant trust activities. However, it acts as security agent for some of the Term Finance Certificates it arranges and distributes on behalf of its customers. 43. RELATED PARTY TRANSACTIONS The bank has related party relations with its associated undertakings, subsidiary companies (refer note 11.1), group companies, employee benefit plans (refer note 7.11) and its directors and executive officers (including their associates). Transactions with key management personnel and entities in which the bank has a strategic investments are also disclosed as part of related party transactions. Banking transactions with the related parties are executed substantially on the same terms, except transaction with directors and executive officers that are as per their terms of employment, including mark-up rates and collateral, as those prevailing at the time of comparable transactions with unrelated parties and do not involve more than a normal risk. Details of financing to the companies or firms in which the directors of the Bank are interested as directors, partners or in case of private companies as members are given in note 12.9 to these financial statements. Contributions to and accruals in respect of staff retirements and other benefit plans are made in accordance with the actuarial valuations / terms of contribution plan (refer note 7.11 and note 36 to these financial statements for the details of the plans). Remuneration of key management personnel, including salaries and other short-term employee benefits and post-employee benefits is given below. Remuneration to executives (including key management personnel) of the bank is disclosed in note 38 to these financial statements. Such remuneration is determined in accordance with the terms of their appointment. ====================================================================================================================
2006
====================================================================================================================
Key Group Strategic
Directors Management Companies Associates Subsidiaries Investments
Personnel
Deposits Rupees '000
====================================================================================================================
Balance at the beginning of
the year 3,697 21,349 304,609 347,385 141,182 445,054
Placements during the year 163,951 468,021 593,217 5,583,776 2,118,857 4,258,249
Withdrawals during the year (165,227) (420 705) (896;639) (5,925,874) (2,019,349) (4,479,714)
Balance at end of the year 2,421 68,665 1,187 5,287 240,690 223,589
====================================================================================================================
=========================================================================================================================
2006
Key Group Strategic
Directors Management Companies Associates Subsidiaries Investments
=========================================================================================================================
Personnel
=========================================================================================================================
Financing Rupees '000
Balance at the beginning of the year 35,800 14,709 - 320,000 285,599 413,004
Disbursement during the year - - - - - 618,252
Repayment during the year (20,000) (5,020) - (320,000) (285,599) (56,196)
Balance at the end of the year 15,800 9,689 - - - 975,060
=========================================================================================================================
2005
=========================================================================================================================
Key Group Strategic
Directors Management Companies Associates Subsidiaries Investments
Personnel
=========================================================================================================================
Rupees '000
=========================================================================================================================
Deposits
=========================================================================================================================
Balance at the beginning of the year 3,614 14,424 7,294 401,639 98,373 196
Placements during the year 223,559 348,632 958,826 5,882,297 598,566 5,425,408
Withdrawals during the year (223,476) (341,707) (661,511) (5,936,551) (555,757) (4,980,550)
Balance at end of the year 3,697 21,349 304,609 347,385 141,182 445,054
Financing
Balance at the beginning of the year 15,800 12,968 - - 285,783 -
Disbursement during the year 20,000 - - 320,000 - 468,208
Repayment during the year - (2,235) - - (184) (55,204)
Balance at the end of the year 35,800 10,733 - 320,000 285,599 413,004
=========================================================================================================================
==================================================================================
2006 2005
Rupees '000
==================================================================================
Foreign Currency Placement of funds /
Nostro balances with associates 128,229 1,160,578
Transactions involving Sale / Purchase
of investments with related parties
Shares / Units purchased during the year 93,755 253,920
Shares / Term Finance Certificates
sold during the year 477,792 87,466
Guarantee given on behalf of a subsidiary - 5,000
Income on foreign currency placement of funds 28,961 17,881
Profit paid/ accrued 10,934 11,631
Profit return/ earned 26,730 37,086
Technical Fee paid 49,497 82,165
Underwriting Commission received related
to strategic investments - 602
Underwriting Fee received related to
strategic investment - net of tax - 570
Dividend income from associates 128,891 52,110
Dividend paid to holding company and associates 1,210,856 826,783
Commission charged on 40 80
guarantee given to a subsidiary
Remuneration of key management personnel
- Salaries and other short-term employee benefits 168,075 78,905
- Post-employment benefits 7,613 7,215
Contribution to staff retirement benefits 46,938 35,641
==================================================================================Disposal of vehicles to key management personnel and other executives is disclosed in note 13.4 to these consolidated financial statements.44. CAPITAL ADEQUACY 44.1. The capital to risk weighted assets ratio, calculated in accordance with the State Bank's guidelines on capital adequacy was as follows: ==================================================================================
Note 2006 2005
Rupees '000
Audited Unaudited
==================================================================================
Regulatory Capital Base
Tier I Capital
Shareholders' capital 4,237,157 3,684,484
Reserves 3,079,527 2,516,211
Unappropriated profits
(net of proposed cash dividend) 756,354 1,174,349
8,073,038 7,375,044
Adjustments
Investments in equity of subsidiary
companies engaged in banking
and financial activities (Incl. Insurance)
not consolidated in the balance sheet 44.1.1 (108,000) -
Total Tier I Capital 7,965,038 7,375,044
Tier II Capital
General provisions subject to 1.25%
of total risk weighted assets 337,083 50,000
Revaluation reserve (upto 50%) 2,429,727 3,142,720
Total Tier II Capital 2,766,810 3,192,720
Eligible Tier III Capital - -
Total Regulatory Capital (a) 10,731,848 10,567,764
==================================================================================
=========================================================================================
2006 2005
=========================================================================================
Rupees '000
=========================================================================================
Risk-Weighted Exposures Book Value Risk Adjusted Book Value Risk Adjusted
Value Value
=========================================================================================
Credit Risk
Balance Sheet Items
Cash and other liquid assets 10,091,038 585,572 8,742,602 428,503
Lendings to financial institutions 4,608,205 400,000 10,742,841 880,000
Investments 22,501,382 10,089,478 24,415,275 11,200,667
Financing 70,755,755 64,499,184 59,005,029 52,396,296
Fixed assets 2,239,392 2,239,392 1,726,086 1,726,086
Other assets 1,586,998 1,575,595 2,387,130 1,499,955
111,782,770 79,389,221 107,018,963 68,131,507
Off Balance Sheet items
Loan repayment guarantees 3,775,480 3,688,940 1,774,863 1,699,043
Purchase and resale agreements - - 5,284,139 -
Performance bonds etc 10,012,493 4,690,138 5,958,994 2,719,098
Revolving underwriting commitments - - - -
Standby letters of credit 12,264,921 5,960,873 8,593,973 4,167,883
Outstanding foreign exchange contracts
- Purchase 2,922,902 19,304 10,988,432 59,442
- Sale 3,804,387 25,126 5,574,573 30,156
32,780,183 14,384,381 38,174,974 8,675,622
Credit risk-weighted exposures (b) 93,773,602 76,807,129
=========================================================================================
=========================================================================================
2006 2005
Rupees '000
Market Risk Risk Adjusted Risk Adjusted
=========================================================================================
Value Value
General market risk 3,432 34,581
Specific market risk 11,481 37,346
Market risk-weighted exposures (c) 14,913 71,927
Market risk-weighted (d) 186,413 899,088
Assets (c) above x 12.5
Total risk-weighted assets (b+d) (e) 93,960,015 77,706,217
Capital Adequacy Ratio 11.44 13.76
credit risk [(a) / (b) x (100)]
Total Capital Adequacy Ratio [(a) / (e) x (100)] 11.42 13.60
=========================================================================================44.1.1. Due to the applicability of IFRIC - 4 during the current year, the investment in the subsidiary has been deducted from equity for the purposes of capital adequacy ratio.44.1.2. Book values reported are net of cash margin held. 45. RISK MANAGEMENT The principal risks associated with the banking business are credit risk, market risk, liquidity risk and operational risk. The bank has a risk management framework in place for managing these risks which are constantly evolving as the business activities change in response to credit, market, product and other developments. 45.1. Credit Risk Credit risk is the risk that if one party to a financial instrument fails to discharge an obligation, it will cause the other party to incur a financial loss. Concentration of credit risk arises when a number of counter parties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. The bank has a well-defined credit structure duly approved by the Board of Directors under which credit committees comprising of senior officers with required credit background are operating which critically scrutinize and sanction financing. Bank's exposure to credit is measured on an individual counterparty basis, as well as by groups of counterparties that share similar attributes. To reduce the potential for risk concentration, credit limits are established and monitored in light of changing counterparty and market conditions. Bank's strategy is to provide short to medium term trade related financing to reputable names, which are self-liquidating. Besides financial, industry and transaction analysis, the credit evaluation also includes risk-rating system which gauges risk rating of all customers having numeric value assigned to each one. The risk appraisal system of the bank has enabled it to build a sound portfolio. The bank has developed a system to monitor problem accounts so that instant instructions based on an early warning signal are passed on to units to deal with potential problem accounts. Out of the total financial assets of Rs. 113.043 billion, the financial assets which were subject to credit risk amounted to Rs. 105.836 billion. Investments in Federal Government Securities amounting to Rs. 8.54 billion are guaranteed by the Government of Pakistan (GoP). Also guaranteed through a letter of comfort issued by GoP is investment to the extent of Rs. 2.29 billion in NIT Units, as referred to in note 11.2.4 to the financial statements. The bank's major credit risk is concentrated in textile sector. To manage credit risk, the bank grants credit limits to its customers and obtains adequate collaterals against financing. 45.1.1. Segment by class of business. Portfolio management is an integral part of the bank's credit process. Risk concentration may arise where total exposure to a particular group or industry is high in relation to shareholders' equity. The bank has set up a portfolio strategy and planning function with an aim to monitor the overall risk and to avoid high exposure to a single group or industry. Segmental information in respect of the class of business and geographical distribution of financing, deposits, and contingencies and commitments is given below: ==================================================================================================================
2006 Contin-
gencies
Financing Deposits and
Commitments
Rupees '000 Percent Rupees '000 Percent Rupees '000 Percent
==================================================================================================================
Chemical and Pharmaceuticals 2,514,898 3.38 1,266,470 1.70 3,802,283 13.20
Agribusiness 1,140,932 1.53 1,715,704 2.31 432,243 1.50
Textile 13,829,068 18.57 2,347,914 3.16 4,040,577 14.03
Cement 2,448,434 3.29 480,286 0.65 908,165 3.15
Sugar 1,441,312 1.94 502,966 0.68 9,894 0.03
Construction 1,742,574 2.34 2,065,756 2.78 1,675,880 5.82
Ready made garments 1,911,772 2.57 349,456 0.47 69,801 0.24
Shoes and leather garments 986,902 1.33 173,734 0.23 43,865 0.15
Automobile and transportation equipment 202,206 0.27 2,447,997 3.29 251,809 0.87
Financial 5,010,156 6.73 2,106,681 2.83 1,114,776 3.87
Oil Refining / Marketing 901,250 1.21 14,276,176 19.18 7,026,691 24.39
Distribution / Trading 5,127,944 6.89 4,288,879 5.76 118,864 0.41
Electronics and electrical appliances 1,734,323 2.33 325,862 0.44 780,756 2.71
Production and transmission of energy 3,728,271 5.01 193,148 0.26 2,653,701 9.21
Iron and Steel 437,141 0.59 365,442 0.49 479,920 1.67
Synthetic and Rayon - - 102,934 0.14 96,707 0.34
Food Industries 4,029,362 5.41 1,209,182 1.62 216,437 0.75
Paper and Board 556,506 0.72 913,328 1.23 711,868 2.47
Individuals 13,863,876 18.62 16,553,223 22.24 180,167 0.63
Others 12,861,717 17.27 22,728,503 30.54 4,190,165 14.56
74,468,644 100.00 74,413,641 100.00 28,804,569 100.00
==================================================================================================================
==================================================================================================================
Contin-
gencies
2005 and
Financing Deposits Commitments
Rupees '000 Percent Rupees '000 Percent Rupees '000 Percent
==================================================================================================================
Chemical and Pharmaceuticals 2,483,357 3.98 1,754,967 2.35 477,256 2.73
Agribusiness 670,337 1.08 829,867 1.11 533,702 3.05
Textile 18,170,092 29.15 2,024,749 2.71 2,103,549 12.03
Petroleum 1,149,700 1.81 9,146,011 12.26 - -
Cement 442,865 0.71 129,203 0.17 607,934 3.48
Sugar 829,670 1.33 44,185 0.06 75,567 0.43
Construction 1,944,974 3.12 1,130,677 1.51 1,047,866 5.99
Shoes and leather garments 738,986 1.19 268,549 0.36 256,351 1.47
Automobile and transportation equipment 832,423 1.34 2,526,565 3.38 110,602 0.63
Financial 4,277,052 6.86 2,335,878 3.13 894,126 5.11
Oil Refining! Marketing 1,542,537 2.48 9,012,430 12.06 4,619,008 26.40
Distribution/Trading 2,931,788 4.70 4,243,431 5.69 363,911 2.08
Electronics and electrical appliances 1,363,551 2.19 202,474 0.27 923,775 5.28
Production and transmission of energy 1,781,930 2.86 2,231,855 2.99 1,538,605 8.79
Iron and Steel 303,159 0.49 186,890 0.25 848,290 4.85
Food Industries 2,045,991 3.28 813,612 1.09 404,073 2.31
Paper and Board 521,343 0.84 52,755 0.07 57,158 0.33
Individuals 9,321,060 14.96 15,380,398 20.58 1,207,872 6.90
Telecommunications 1,780,283 2.86 2,476,745 3.31 - -
Others 9,192,410 14.77 19,945,476 26.65 1,426,841 8.14
62,323,508 100.00 74,736,717 100.00 17,496,486 100.00
==================================================================================================================45.1.2. Segment by sector==================================================================================================================
Contin-
2006 gencies
and
Financing Deposits commitments
Rupees '000 Percent Rupees '000 Percent Rupees '000 Percent
==================================================================================================================
Public / Government 1,006,806 1.35 16,838,717 22.63 9,940,888 34.51
Private 73,461,838 98.65 57,574,924 77.37 18,863,681 65.49
74,468,644 100.00 74,413,641 100.00 28,804,569 100.00
==================================================================================================================
Contin-
2005 gencies
Financing Deposits and
commitments
Rupees '000 Percent Rupees '000 Percent Rupees '000 Percent
==================================================================================================================
Public/Government 1,410,144 2.26 17,799,082 23.82 2,763,477 15.79
Private 60,913,364 97.74 56,937,635 76.18 14,733,009 84.21
62,323,508 100.00 74,736,717 100.00 17,496,486 100.00
==================================================================================================================45.1.3. Details of non-performing financing and specific provisions by class of business segment=========================================================================================
2006 2005
Specific Specific
Classified Provision Classified Provision
Financing Held Financing Held
=========================================================================================
Rupees '000
=========================================================================================
Chemical and Pharmaceuticals 687,237 215,505 714,098 223,735
Agribusiness 25,019 50 590 138
Textile 962,201 570,799 680,760 341,213
Transportation 199,768 69,349 125,183 40,162
Construction 25,136 9,973 13,930 3,345
Ready Made Garments 5,835 2,158 1,335 1,033
Shoes and leather garments 1,925 963 -
Automobile and transportation equipment 67,026 20,656 40,759 1,285
Financial 7,750 1,938 -
Distribution / Trading 28,143 14,619 17,057 4,255
Electronics and electrical appliances 8,471 3,218 -
Production and transmission of energy 393,887 138,903 393,887 133,599
Iron & Steel 675 531 675 531
Food Industries 297,426 134,142 280,543 200,198
Individuals 214,647 55,396 103,572 40,431
Others (including manufacturing 610,047 66,139 115,805 11,339
and real estate)
3,535,193 1,304,339 2,488,194 1,001,264
=========================================================================================45.1.4. Details of non-performing financing and specific provisions by sector=========================================================================================
2006 2005
Specific Specific
Classified Provision Classified Provision
Financing Held Financing Held
=========================================================================================
Rupees '000
=========================================================================================
Public/ Government - - - -
Private 3,535,193 1,304,339 2,488,194 1,001,264
3,535,193 1,304,339 2,488,194 1,001,264
=========================================================================================45.1.5. Geographical segment analysis=========================================================================================
2006
Profit Total Net assets Contin-
before assets employed gencies
taxation &
Rupees '000 commitments
=========================================================================================
Pakistan 3,870,340 115,470,401 13,796,634 28,804,569
Asia Pacific (including South Asia) - - - -
Europe - - - -
United States of America and Canada - - - -
Middle East - - - -
Others - - - -
3,870,340 115,470,401 13,796,634 28,804,569
=========================================================================================
2005
=========================================================================================
Profit Total Net assets Contin-
before assets employed gencies
taxation &
commitments
=========================================================================================
Rupees '000
=========================================================================================
Pakistan 3,968,867 110,281,257 14,260,439 17,496,486
Asia Pacific (including South Asia) - - - -
Europe - - - -
United States of America and Canada - - - -
Middle East - - - -
Others - - - -
3,968,867 110,281,257 14,260,439 17,491,486
=========================================================================================Total assets employed shown above mean total assets shown on the balance sheet and intra group items. Net assets employed mean net assets shown on the balance sheet.45.2. Market Risk Market risk is the risk of loss in earnings and capital due to adverse changes in interest rates (Interest rate risk), foreign exchange rates (Foreign exchange risk), equity prices and market conditions (Equity position risk). The level of market risk is influenced by the volatility and the liquidity in the markets in which financial instruments operate. The bank seeks to mitigate market risk by employing strategies that correlate rate, price, and spread movements of its earning assets, liabilities and trading activities. The most significant market risks the bank faces are interest rate, credit spread, foreign exchange and equity price risks. The details of market risk faced by the bank are discussed in following notes. 45.3. Foreign Exchange Risk / Currency Risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Changes in currency rates affect the value of assets and liabilities denominated in foreign currencies and may affect revenues from foreign exchange dealing. The bank does not take any currency exposure except to the extent of statutory Net Open Position limit prescribed by 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. Counterparty and stop loss limits are also in place in accordance with the bank's approved Standard Operating Procedures to limit risk and concentration. 45.3.1. Currency Risk ======================================================================================
2006
======================================================================================
Liabilities
Assets and share Off-balance Net currency
holders' equit sheet items exposure
Rupees 000
======================================================================================
Pakistan rupee 110,420,316 107,712,980 (2,889,089) (88,444)
United States dollar 4,218,827 6,321,645 2,166,779 63,961
Great Britain pound 540,298 1,323,676 763,983 (19,396)
Japanese yen 49,571 2 2,368 51,938
Euro 239,419 205,299 (42,734) (8,615)
Other currencies 1,970 107 (1,307) 556
115,470,401 115,563,709 - -
======================================================================================
======================================================================================
2005
======================================================================================
Liabilities
Assets and share Off-balance Net currency
and share sheet items exposure
holders' equity
======================================================================================
Rupees 000
======================================================================================
Pakistan rupee 105,539,576 99,658,784 (5,966,383) (85,591)
United States dollar 3,629,198 9,554,545 5,991,867 66,520
Great Britain pound 793,965 795,144 2,534 1,355
Japanese yen 11,582 86 (4,840) 6,656
Euro 304,500 272,000 (22,042) 10,458
Other currencies 2,436 698 (1,136) 602
======================================================================================
110,281,257 110,281,257 - -
======================================================================================45.4. Equity position riskEquity position risk is the risk arising from taking long or short positions, in the trading book, in the equities and all instruments that exhibit market behavior similar to equities. This results from the possibility that equity security prices will fluctuate, affecting the value of equity securities and other instruments that derive their value from a particular stock or a defined basket of stocks. The bank's equity position is governed by SBP limits for overall investment and per scrip exposure. In addition, there are internal limits set for trading positions as well as stop loss limits. At times, the bank also deals in equity future contracts. 45.5. Mismatch of Interest Rate Sensitive Assets and Liabilities / Yield / Interest Rate Risk ==========================================================================================================================================================================================================
2006
Exposed to Yield / interest risk
Effective Total Upto one Over one Over three Over six Over one Over two Over three Over five Non-interest
Yield/ month month to months to months to year to years to years to years to bearing
interest three six one two three five ten Over ten financial
rate months months year years years years years years instruments
On-balance sheet financial instruments Rupees '00
==========================================================================================================================================================================================================
Assets
Cash and balances with
treasury banks 4.35 7,207,998 685,014 276,440 i77,597 53,449 110 111 143 - - 6,015,i34
Balances with other banks 10.00 2,883,040 291,586 - - - - - - - - 2,591,454
Lending to financial institutions 9.49 4,608,205 1,309,293 3,298,912 - - - - - - - -
Investments 8.73 22,525,358 3,499,428 3,995,256 55,991 2,6i7,678 24,567 16,901 16,901 1,126,297 - 11,172,339
Financing 11.64 74,468,644 9,994,778 15,410,735 9,324,835 26,863,204 3,869,960 3,623,807 2,749,851 785,515 126,140 1,719,819
Other assets 1,349,840 - - - - - - - - - 1,349,840
113,043,085 15,780,099 22,981,343 9,558,423 29,534,331 3,894,637 3,640,819 2,766,895 1,911,812 126,140 22,848,586
Liabilities
Bills payable 4,516,125 - - - - - - - - - 4,516,125
Borrowings from financial
institutions 8.90 14,965,037 4,161,556 7,046,340 1,796,923 24,938 36,733 866,638 494,542 497,051 - 40,316
Deposits and other accounts 5.90 74,413,641 28,505,446 12,157,746 6,539,038 7,143,152 1,516,860 1,089,309 699,771 - - 16,762,319
Sub-ordinated loans - - - - - - - - - - -
Liabilities against assets
subject to finance lease 8.00 14,664 97 1,257 1,382 3,005 4,516 4,407 - - - -
Other liabilities 12.10 5,303,129 - - 750.000 - - - - - - 4,553.129
99,212,596 32,667,099 19,205,343 9,087,343 7,171,095 1,558,109 1,960,354 1,194,313 497,051 - 25,871,889
On-balance sheet gap 13,830,489 (16,887,000) 3,776,000 471,080 22,363,236 2,336,528 1,680,465 1,572,582 1,414,761 126,140 (3,023,303)
Off-balance sheet financial instruments
Forward Lending
(including call lending,
repurchase agreement lending,
commitments to extend credit, etc.) (1,396,238) (33,330) - (1,336,500) (26,408) - - - - -
Forward borrowings
(including call borrowing,
repurchase agreement
borrowing, etc.) - - - - - - - - - -
Off-balance sheet gap (1,396,238) (33,330) - (1,336,500) (26,408) - - - - - -
Total Yield/Interest (16,920,330) 3,776,000 (865,420) 22,336,828 2,336,528 1,680,465 1,572,582 1,414,761 126,140
Risk Sensitivity Gap
Cumulative Yield/Interest (16,920,330) (13,144,330) (14,009,750) 8,327,078 10,663,606 12,344,071 13,916,653 15,331,414 15,457,554
Risk Sensitivity Gap
==========================================================================================================================================================================================================
==========================================================================================================================================================================================================
2005
Exposed to Yield/Interest risk
Effective Total Over one Over three Over six Over one Over two Over three Over five Non-interest
Yield/ month to months to months to year to years to years to years to bearing
interest Upto one three six one two three five ten Over ten financial
rate month months months year years years years years years instruments
==========================================================================================================================================================================================================
On-balance sheet financial instruments Rupees '000
Assets
Cash and balances with
treasury banks 3.29 6,696,714 1,376,563 96,358 16,852 14,190 8,032 94 126 - - 5,184,499
Balances with other banks 4.25 2,045,887 1,704,149 - - - - - - - - 341,738
Lending to financial institutions 9.77 10,742,841 3,920,658 5,592,183 1,230,000 - - - - 341,899 253,847 -
Investments 8.93 24,411,644 20,529 1,191,420 560,666 9,176,970 14,427 24,567 1,024,921 - - 12,398,144
Financing 11.12 62,323,508 10,625,395 13,303,823 6,511,956 24,684,190 2,310,088 1,630,405 1,366,753 341,899 253,847 1,295,152
Other assets 1,342,491 - - - - - - - - - 1,342,491
107,563,085 17,647,294 20,183,784 8,319,474 33,875,350 2,332,547 1,655,066 2,391,800 341,899 253,847 20,562,024
Liabilities
Bills payable 1,193,309 - - - - - - - - - 1,193,309
Borrowings from
financial institutions 8.00 15,295,730 11,550,674 1,920,210 1,268,089 69,057 - - - - - 487,700
Deposits and other accounts 5.47 74,736,717 32,763,771 9,941,625 5,299,975 4,727,032 1,674,617 1,909,123 576,598 - - 17,843,976
Sub-ordinated loans - - - - - - - - - - -
Liabilities against assets
subject to finance lease 9.02 22,549 192 1,367 1,590 3,169 7,128 9,103 - - - -
Other liabilities 3,462,881 - - - - - - - - - 3,462,881
94,711,186 44,314,637 11,863,202 6,569,654 4,799,258 1,681,745 1,918,226 576,598 - - 22,987,866
On-balance sheet gap 12,851,899 (26,667,343) 8,320,582 1,749,820 29,076,092 650,802 (263,160) 1,815,202 341,899 253,847 (2,425,842)
Off-balance sheet financial instruments
Forward Lending
(including call lending,
repurchase agreement lending,
commitments to extend credit, etc.) (2,697,500) - (1,952,500) (95,000) - (650,000) - - - - -
Forward borrowings
(including call borrowing,
repurchase agreement
borrowing, etc.) - - - - - - - - . - -
Off-balance sheet gap (2,697,500) - (1,952,500) (95,000) - (650,000) - - - - -
Total Yield/Interest (26,667,343) 6,368,082 1,654,820 29,076,092 802 (263,160) 1,815,202 341,899 253,847
Risk Sensitivity Gap
Cumulative Yield/Interest (26,667,343) (20,299,261) (18,644,441) 10,431,651 10,432,453 10,169,293 11,984,495 12,326,394 12,580,241
Risk Sensitivity Gap
==========================================================================================================================================================================================================45.5.1. Yield risk is the risk of decline in earnings due to adverse movement of the yield curve.45.5.2. Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. 45.5.3. The interest rate exposure taken by the bank arises from investing in corporate, small medium enterprises, consumer financing, investment banking and interbank activities where variation in market interest rates may affect the profitability of the bank. This risk is addressed by an Asset and Liability Management Committee which reviews the interest rate dynamics at regular intervals and decides repricing of assets and liabilities ensuring that the spread of the bank remains at an acceptable level. 45.5.4. The finances and deposits of the bank are repriced on a periodic basis based on interest rates scenario. 45.5.5. Operating fixed assets and deferred tax assets and prepayments are non financial assets. Similarly, provision for taxation, deferred tax liability and prepayments are non-financial liabilities. These are not considered in the yield / interest risk sensitivity gap. The difference between the total assets and financial assets and total liabilities and financial liabilities is Rs. 2.427 million and Rs 2.461 million respectively. 45.6. Liquidity Risk Liquidity Risk is the potential for loss to the bank arising from either its inability to meet its obligations or to fund increase in assets as they fall due without incurring unacceptable cost or losses. The bank's Asset and Liability Management Committee manages the liquidity position on a continuous basis. The Committee monitors the maintenance of balance sheet liquidity ratios, depositors' concentration both in terms of overall funding mix and avoidance of undue reliance on large individual deposits and liquidity contingency plans. Moreover, the shareholders' equity and core retail deposits, (current accounts and savings accounts) form a considerable part of bank's overall funding, therefore, significant importance is attached to their stability and growth. 45.6.1. Maturities of Assets and Liabilities ==============================================================================================================================================================================
2006
Over one Over three Over six Over one Over two Over three Over five
Total month to month to month to year to years to years to years to
upto one three six one two three five ten Over ten
month months months year year year year year years
Rupees '000
==============================================================================================================================================================================
Assets
==============================================================================================================================================================================
Cash and balances
with treasury banks* 7,207,998 4,538,116 1,091,797 614,251 554,636 137,805 138,221 127,625 5,488 59
Balances with other banks 2,883,040 2,883,040 - - - - - - - -
Lending to financial
institutions 4,608,205 1,309,293 3,298,912 - - - - - - -
Investments 22,525,358 3,523,405 3,995,256 2,951,614 3,165,463 402,509 5,733,302 886,709 1,867,100 -
Financing 74,468,644 11,888,548 15,410,735 9,324,836 8,853,910 8,818,183 7,459,839 6,061,832 2,381,987 4,268,775
Operating fixed assets 2,239,392 16,147 48,446 48,446 96,892 193,784 239,637 412,844 968,920 214,276
Deferred tax assets - net - - - - - - - - - -
Other assets 1,537,764 79,020 98,990 38,980 1.294.718 161 25.895 - - -
115,470,401 24,237,569 23,944,136 12,978,127 13,965,619 9,552,442 13,596,894 7,489,010 5,223,495 4,483,110
Liabilities
Bills payable 4,516,125 4,516,125 - - - - - - - -
Borrowings from financial
institutions 14,965,037 4,201,873 7,046,339 1,796,923 24,938 36,733 866,638 494,542 497,051 -
Deposits and other accounts** 74,413,641 45,267,766 12,157,745 6,539,038 7,143,152 1,516,860 1,089,309 699,771 - -
Sub-ordinated loans - - - - - - - - - -
Liabilities against assets
subject to finance lease 14,664 96 1,258 1,382 3,005 4,516 4,407 - - -
Deferred tax liabilities - net 1,839,860 - - - - - - 1,839,860 - -
Other liabilities 5,924,440 636,263 249,239 141,600 1,033,000 456,235 889,749 1,688,873 828,635 846
101,673,767 54,622,123 19,454,581 8,478,943 8,204,095 2,014,344 2,850,103 4,723,046 1,325,686 846
Net assets 13,796,990 (30,384,554) 4,489,555 4,499,184 5,761,524 7,538,098 10,746,791 2,765,964 3,897,809 4,482,264
Share capital 4,237,157
Reserves 3,079,527
Unappropriated profit 1,815,643
Surplus on revaluation of assets 4,664,307
13,796,634
============================================================================================================================================================================== * Included in cash and balances with treasury banks are the current and deposit accounts with the State Bank of Pakistan which are maintained to meet the Statutory Liquidity Reserve Requirements (SLR). Thus these are classified in the categories based on the maturity of deposits and other accounts with the hank.** As per SBP's requirement, the entire balance held in saving deposit accounts is classified under the maturity band of upto one month. However, it is expected that these deposits will be maintained over a longer period without withdrawal. ==============================================================================================================================================================================
2005
==============================================================================================================================================================================
Upto one Over one Over three Over six Over one Over two Over three Over five Over ten
Toed month month to month to month to year to years to years to years to years
three six one two three five ten
months months year year year year year
Rupees '000
==============================================================================================================================================================================
Assets
Cash and balances
with treasury banks 6,696,714 5,087,683 655,504 319,356 287,649 120,581 139,325 85,876 710 29
Balances with other banks 2,045,887 2,045,887 - - - - - - - -
Lending to financial
institutions 10,742,841 3,920,658 5,592,183 1,230,000 - - - - - -
Investments 24,411,644 10,773 1,191,420 560,666 11,088,929 232,741 9,551,544 1,775,570 - -
Financing 62,323,508 11,920,547 13,303,823 6,511,956 5,839,169 8,925,381 5,844,615 8,039,468 1,642,832 295,717
Opening fixed assets 1,726,086 12,173 36,520 36,520 73,041 146,082 147,260 324,154 730,408 219,928
Other assets - - - - - - - - - -
2,334,577 304,424 28,137 43,713 1,082,353 161 - 875,789 - -
==============================================================================================================================================================================
110,281,257 23,302,145 20,807,587 8,702,211 18,371,141 9,424,946 15,682,744 11,100,857 2,373,950 515,674
==============================================================================================================================================================================
Liabilities
==============================================================================================================================================================================
Bills payable 1,193,309 1,193,309 - - - - - - - -
Borrowings from financial
institutions 15,295,730 12,038,375 1,920,210 1,268,089 69,056 - - - - -
Deposits and other accounts 74,736,717 50,607,747 9,941,625 5,299,975 4,727,032 1,674,617 1,909,123 576,598 - -
==============================================================================================================================================================================
Sub-ordinated loans - - - - - - - - - -
==============================================================================================================================================================================
Liabilities against assets
subject to finance lease 22,549 192 1,367 1,590 3,169 7,128 9,103 - -
Other liabilities 1,268,307 - - - - - 1,268,307 - - -
==============================================================================================================================================================================
3,50,206 650,042 116.572 195.934 759,359 314,920 535,511 918,877 12,473 518
96,020,818 64,489,665 11,979,774 6,765,588 5,558,616 1,996,665 3,722,044 1,495,475 12,473 518
==============================================================================================================================================================================
Net assets 14,260,439 (41,187,520) 8,827,813 1,936,623 12,812,525 7,428,281 11,960,700 9,605,382 2,361,477 515,156
==============================================================================================================================================================================
Share capital 3,684,484
Reserves 2,516,211
Unappropriated profit 1,911,246
Surplus on revaluation of assets 6,148,498
14,260,439
==============================================================================================================================================================================45.7. Operational RiskOperational Risk is the risk of direct or indirect losses resulting from inadequate or failed internal processes or systems, human factors, or from external events. The bank's businesses are dependent on the ability to process a large number of transactions efficiently and accurately. Operational risks and losses originate from operational process reliability, IT security, natural disasters, dependence on key suppliers, fraud, error, customer service quality, regulatory compliance, retention of staff, and social and environmental impacts. The bank has implemented risk controls and loss mitigation actions for curtailing operational risk. Each division has processes and systems in place to address operational risks within their area. These include key controls and the provision of business continuity plans to protect against major disruptions. 46. DATE OF AUTHORISATION FOR ISSUE These financial statements were authorised for issue on February 25th, 2007 by the Board of Directors of the bank. 47. NON-ADJUSTING EVENTS AFTER THE BALANCE SHEET DATE The Board of Directors in its meeting held on February 25th, 2007 has proposed a cash dividend of Rs 2.5 per share (2005: Rs 2.0 per share) and a transfer of Rs 33.085 million to Capital Market Reserve. These appropriations will be approved in the forthcoming Annual General Meeting. The financial statements for the year ended December 31, 2006 do not include the effect of these appropriations which will be accounted for in the financial statements for the year ending December 31, 2007. 48. GENERAL 48.1. Revised forms of annual financial statements These financial statements have been prepared using the revised format of financial statements prescribed through BSD circular No. 04 dated February 17, 2006 issued by the State Bank of Pakistan. The revised format for presentation of financial statements is applicable for annual financial statements for periods commencing from January 01, 2006. The significant changes in the revised format for presentation of financial statements include the introduction of disclosures in respect of segment details with respect of business activities and capital adequacy and expanded disclosures in respect of derivative instruments and risk management. 48.2. Amendments to published standards and new interpretations effective in 2006 IAS 19 (Amendments) - Employee benefits, is mandatory for the bank's accounting periods beginning on or after January 01, 2006. It introduces the option of an alternative recognition approach for actuarial gains and losses. It also adds new disclosures requirements. As the bank does not intend to change the accounting policy adopted for recognition of actuarial gains and losses, adoption of this amendment only impacts the format and extent of disclosure and presentation in the financial statements. Other new standards, amendments and interpretations that are mandatory for accounting periods beginning on or after January 01, 2006 which are not considered relevant nor have any significant effect on the bank's operations have not been considered in these financial statements. 48.3. Standards, interpretations and amendments published / approved, effective future periods The following standards, amendments and interpretation of approved accounting standards, effective for accounting periods beginning on or after January 01, 2007 are either not relevant to bank's operations or are not expected to have significant impact on the bank's financial statements other than certain increased disclosure in certain cases: ==================================================================================================================================
IAS 1 - Presentation of financial statements - effective from accounting period beginning on or after January 01, 2007
amendments relating to capital disclosures
IFRS 2 - Share based payment effective from accounting period beginning on or after January 01, 2007
IFRS 3 - Business combinations effective from accounting period beginning on or after January 01, 2007
IFRS 5 - Non current assets held for sale and
discontinued operations effective from accounting period beginning on or after January 01, 2007
IFRS 6 - Exploration for and evaluation
of mineral resources effective from accounting period beginning on or after January 01, 2007
IFRIC 8 - Scope of IFRS 2 - Share based payment effective from accounting period beginning on or after May 01, 2007
IFRIC 9 - Reassessment of embedded derivative effective from accounting period beginning on or after June 01, 2007
IFRIC 10 - Interim financial reporting
and impairment effective from accounting period beginning on or after November 01, 2007
IFRIC 11 - Group and treasury share transactions effective from accounting period beginning on or after March 01, 2007
IFRIC 12 - Services concession arrangements effective from accounting period beginning on or after January 01, 2007
==================================================================================================================================48.4. ComparativesPrevious year's figures have been rearranged wherever necessary for the purposes of comparison. 48.5. Figure have been rounded off to the nearest thousand rupees unless other wise stated. 48.6. Captions as prescribed in BSD circular No. 4 dated February 17, 2006 issued by the State Bank of Pakistan in respect of which no amounts are outstanding have not been reproduced in these financial statements except for in the balance sheet and the profit and loss account. |