| MCB Bank (Muslim Commercial Bank Ltd) - 2007 |
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Balance Sheet as at December 31, 2007
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Note 2007 2006
(Rupees in '000)
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Assets
Cash and balances
with treasury banks 6 39,683,883 32,465,976
Balances with other banks 7 3,807,519 6,577,017
Lendings to financial institutions 8 1,051,372 21,081,800
Investments- net 9 113,089,261 63,486,316
Advances - net 10 218,960,598 198,239,135
Operating fixed assets 11 6,024,123 9,054,156
Deferred tax assets - net 12 - 172,373
Other assets - net 13 17,868,761 11,031,450
410,485,517 342,108,243
Liabilities
Bills payable 15 10,479,058 7,089,679
Borrowings 16 39,406,831 23,943,476
Deposits and other accounts 17 292,098,066 257,461,838
Sub-ordinated loan 18 479,232 1,597,440
Liabilities against assets
subject to finance lease- - -
Deferred tax liabilities - net 12 1,180,162 -
Other liabilities 19 11,722,493 11,171,496
355,365,842 301,263,929
Net assets 55,119,675 40,844,314
Represented by:
Share capital 20 6,282,768 5,463,276
Reserves 21 34,000,638 24,662,426
Unappropriated profit 5,130,750 5,530,973
45,414,156 35,656,675
Surplus on revaluation of assets
- net of tax 22 9,705,519 5,187,639
55,119,675 40,844,314
Contingencies and commitments 23
======================================================================================Profit and Loss Account for the year ended December 31, 2007======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Mark-up / return / interest earned 25 31,786,595 25,778,061
Mark-up / return / interest expensed 26 7,865,533 4,525,359
Net mark-up / interest income 23,921,062 21,252,702
Provision for diminution in
the value of investments 9.3 105,269 121,197
Provision against loans and advances 10.4.2 2,959,583 1,014,540
Bad debts written off directly 10.5.1 199 47,000
3,065,051 1,182,737
Net mark-up/interest income
after provisions 20,856,011 20,069,965
Non-mark-up / interest income
Fee, commission and
brokerage income 2,634,610 2,311,235
Dividend income 632,300 811,801
Income from dealing
in foreign currencies 693,408 692,010
Gain on sale of securities - net 27 1,500,865 605,865
Unrealized loss on revaluation
of investments
classified as held for trading 9.5 (13,105) -
Other income - net 28 563,213 570,505
Total non-mark-up / interest income 6,011,291 4,991,416
26,867,302 25,061,381
Non-mark-up / interest expenses
Administrative expenses 29 5,022,416 6,482,592
(Reversal) / other provision - net 13.2 (3,743) 11,411
Other charges 30 540,594 66,706
Total non-mark-up / interest expenses 5,559,267 6,560,711
Extra ordinary / unusual item - -
Profit before taxation 21,308,035 18,500,670
Taxation - Current year 6,442,356 5,701,443
- Prior years (1,294,473) 593,497
- Deferred 894,590 63,332
31 6,042,473 6,358,272
Profit after taxation 15,265,562 12,142,398
Unappropriated profit brought forward 5,530,793 4,990,260
Transfer from surplus on revaluation
of fixed assets - net of tax 11,855 32,166
5,542,828 5,022,426
Profit available for appropriation 20,808,390 17,1 64,824
Basic and diluted earnings per share - after 34 24.30 19.33
======================================================================================Cash Flow Statement for the year ended December 31, 2007======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Cash flows from operating activities
Profit before taxation 21,308,035 18,500,670
Less: Dividend income (632,300) (811,801)
20,675,735 17,688,869
Adjustments for non-cash charges
Depreciation 11.2 599,196 555,292
Amortisation 11.3 191,201 121,285
Provision against loans and advances 10.4.2 2,959,583 1,014,540
Provision for diminution in the
value of investments 9.3 105,269 121,197
(Reversal)/Provision for diminution in
the value of other assets 13.2 (3,743) 11,411
Bad debts written off directly 10.5.1 199 47,000
Operating fixed assets written off 30 12,102 60,452
Gain on disposal of fixed assets - net 28 (13,032) (24,903)
Deficit on revaluation of 'held
for trading' securities 9.5 13,105 1,634
3,863,880 1,907,908
24,539,615 19,596,777
(Increase)/decrease in operating assets
Lendings to financial institutions 20,030,428 (11,082,972)
Net investments in 'held for trading' securities (230,752) 66,056
Advances - net (23,681,225) (18,977,942)
Other assets - net (6,847,748) (5,522,561)
(10,729,297) (35,51 7,419)
Increase / (decrease)
in operating liabilities
Bills payable 3,389,379 (1,446,995)
Borrowings 15,463,355 (3,434,026)
Deposits 34,636,228 28,119,948
Other liabilities 770,163 1,100,295
54,259,125 24,339,222
68,069,443 8,418,580
Income tax paid (6,1 70,144) (4,877,358)
Net cash flows from
operating activities 61,899,299 3,541,222
Cash flows from investing activity
Net investments in 'available
for sale' securities (52,951,926) (13,324,991)
Net investments in 'held
to maturity' securities 3,564,123 19,336,261
Dividends received 646,480 792,100
Investments in operating fixed assets (2,947,438) (1,830,790)
Investment in subsidiary company (20,000) (299,980)
Sale proceeds of property
and equipment disposed off 92,919 82,597
Net cash flows from investing activities (51,615,842) 4,755,197
Cash flows from financing activities
Redemption of subordinated loan (1,118,208) (640)
Proceeds from issue of Global
Depository Receipts (net of expenses) - 8,739,218
Dividend paid (4,728,496) (3,122,510)
Net cash flows from financing activities (5,846,704) 5,616,068
Exchange differences on translation of
the net investment in foreign branches 11,656 (1,088)
Increase in cash and cash equivalents 4,448,409 13,911,399
Cash and cash equivalents
at beginning of the year 39,347,647 25,198,236
Effects of exchange rate changes
on cash and cash equivalents (304,654) (66,642)
39,042,993 25,131,594
Cash and cash equivalents at end of the year 35 43,491,402 39,042,993
======================================================================================Statement of Changes in Equity for the year ended December 31, 2007=======================================================================================================================================================
Share Capital Reserves Revenue Reserves Total
capital Share Reserve Exchange Statutory General Unappropriated
premium for issue translation reserve reserve profit
of bonus reserve
shares (Rupees in '000)
=======================================================================================================================================================
Balance as at December 31, 2005 4,265,327 1,308,194 - (52,549) 3,999,295 3,800,000 4,990,260 18,310,527
Transferred to reserve for issuance
of bonus shares - - 853,065 - - - (853,065) -
Issuance of bonus shares 853,065 (853,065) - - - - -
Changes in equity for 2006
Profit after taxation for the year
ended December 31, 2006 - - - - - - 12,142,398 12,142,398
- - - - - - 32,166 32,166
- - - (1,088) - - - (1,088)
Net income recognised directly in equity - - - (1,088) - - 32,166 31,078
Total recognised income and expense
for the year ended December 31, 2006 - - - (1,088) - - 12,174,564 12,173,476
Transferred to general reserve - - - - - 6,000,000 (6,000,000) -
Transferred to statutory reserve - - - - 1,214,240 - (1,214,240) -
Final cash dividend - December 2005 - - - - - - (426,533) (426,533)
interim cash dividend - March 2006 - - - - - - (1,023,679) (1,023,679)
Interim cash dividend-June 2006 - - - - - - (1,023,679) (1,023,679)
Interim cash dividend - September 2006 - - - - - - (1,092,655) (1,092,655)
Issuance of Global Depository
Receipts (GDRs)- note 20.3 344,884 8,760,054 - - - - - 9,104,938
GDRs issuance expense - (365,720) - - - - - (365,720)
Balance as at December 31, 2006 5,463,276 9,702,528 - (53,637) 5,213,535 9,800,000 5,530,973 35,656,675
Changes in equity for 2007
Profit after taxation for the year
ended December 31, 2007 - - - - - - 15,265,562 15,265,562
Transferred from surplus on
revaluation of fixed assets
to unapproproated profit-net of tax net of tax
Net income recognised directly in equity - - - - - - 11,656 11,855
- - - 11,656 - - 11,656
- - - 11,656 - - 11,855 23,511
Total recognised income and expense
for the year ended December 31, 2007 - - - 11,656 - - 15,277,417 15,289,073
Transferred to statutory reserve - - - - 1,526,556 - (1,526,556) -
Transferred to general reserve - - - - - 7,800,000 (7,800,000) -
Issue of bonus shares 819,492 - - - - - (819,492) -
- Final December 31, 2006
Final cash dividend - December 2006 - - - - - - (819,492) (819,492)
Interim cash dividend- March 2007 - - - - - - (1,570,692) (1,570,692)
Interim cash dividend -June 2007 - - - - - - (1,570,704) (1,570,704)
Interim cash dividend- September 2007 - - - - - - (1,570,704) (1,570,704)
Balance as at December 31, 2007 6,282,768 9,702,528 - (41,981) 6,740,091 17,600,000 5,130,750 45,414,156
=======================================================================================================================================================Notes to the Financial Statements for the year ended December 31, 20071. STATUS AND NATURE OF BUSINESS MCB Bank Limited (the 'Bank') is a banking company incorporated in Pakistan and is engaged in commercial banking and related services. The Bank's ordinary shares are listed on all the stock exchanges in Pakistan whereas its Global Depository Receipts (GDRs) (representing four ordinary shares) are traded on the International Order Book (IOB) system of the London Stock Exchange. The Bank's registered office and principal office are situated at MCB Building, Jinnah Avenue, Islamabad and MCB 15-Main, Gulberg, Lahore respectively. The Bank operates 1020 branches including 8 Islamic banking branches (2006: 988 branches including 6 Islamic banking branches) within Pakistan and 6 (2006: 6) branches outside the country (including the Karachi Export Processing Zone branch). 2. BASIS OF PRESENTATION. 2.1. These financial statements represent separate financial statements of MCB Bank Limited. The consolidated financial statements of the Group are being issued separately. 2.2. 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 not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. 2.3. The financial results of the Islamic Banking branches have been-consolidated in these financial statements for reporting purposes, after eliminating material inter-branch transactions / balances. Key financial figures of the Islamic Banking branches are disclosed in Annexure II to these financial statements. 2.4. For the purpose of translation to US Dollar, the rates of Rs. 62.000 and Rs. 60.910 per US Dollar and Rs. 0.5708 and Rs 0.5669 per SLR have been used for December 31, 2007 and December 31, 2006 respectively. 3. STATEMENT OF COMPLIANCE 3.1. These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved Accounting Standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions of and directives issued under the Companies Ordinance, 1984 and Banking Companies Ordinance, 1962. In case requirements differ, the provisions of directives given in Companies Ordinance, 1984 and Banking Companies Ordinance, 1962 shall prevail. The State Bank of Pakistan has deferred the applicability of International Accounting Standard (IAS) 39, 'Financial Instruments: Recognition and Measurement' and International Accounting Standard (IAS) 40, 'Investment Property' for Banking Companies through BSD Circular No. 10 dated August 26, 2002. Accordingly, the requirements of these standards have not been considered in the preparation of these financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars. 3.2. Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards effective for accounting period beginning on or after January 01, 2008 or later periods are either not relevant to the Bank's operations or are not expected to have significant impact on the Bank's financial statements other than certain increased disclosures in certain cases: IFAS - 2 Ijarah IFRS - 6 Exploration for and Evaluation of Mineral Resources IAS - 1 Presentation of financial statements IAS - 23 Borrowing cost (Revised) IFRIC - 11 Group and Treasury Share Transactions IFRIC - 12 Services Concession Arrangements IFRIC - 13 Customer Loyalty Program IFRIC - 14, IAS-19 The limit on Defined Benefit Asset, Minimum Funding Requirements and their interaction. Adoption of IFAS-2 will result in following changes: - Assets underlying ijarah financing will be recorded as operating fixed assets separately from the assets in Bank's own use. These assets will be carried at cost less accumulated depreciation and impairment, if any. - Rentals receivable from ijarah financing during the year will be taken to profit and loss account. Adoption of Revised IAS 1 - Presentation of financial statements may only impact the presentation and extent of disclosures in financial statements. 4. BASIS OF MEASUREMENT 4.1. These financial statements have been prepared under the historical cost convention except that certain fixed assets are stated at revalued amounts and certain investments, commitments in respect of certain forward exchange contracts and derivative financial instruments have been marked to market and are carried at fair value. 4.2. The financial statements are presented in Pakistan Rupees, which is the Bank's functional and presentation currency. The amounts are rounded to nearest thousand. 4.3. Critical accounting estimates and judgments The preparatory of financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires the management to exercise its judgment in the process of applying the Bank's accounting policies. Estimates and judgments are continually evaluated and are based on historical experiences, including expectations of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Bank's financial statements or where judgment was exercised in the application of accounting policies are as follows: a) Classification of investments - In classifying investments as 'held for trading', the Bank has determined securities which are acquired with an intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days. - In classifying investments as 'held to maturity', the Bank follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investment to maturity. - The investments which are not classified as 'held for trading' or 'held to maturity' are classified as 'available for sale'. b) Provision against advances The Bank reviews its loan portfolio to assess amount of non-performing advances and provision required there against on regular basis. While assessing this requirement various factors including the delinquency in the account, financial position of the borrowers and the requirements of the Prudential Regulations are considered. The amount of general provision is determined in accordance with the relevant regulations and management's judgment as explained in notes 10.4.3 and 10.4.4. c) Impairment of 'available for sale' equity investments The Bank determines that 'available for sale' equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition the impairment may be appropriate when there is an evidence of deterioration in the financial health of the invested industry and sector performance, changes in technology and operational financial cash flows. d) Taxation In making the estimates for income taxes currently payable by the Bank, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. e) Fair value of derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant interest rates at the balance sheet date and the rates contracted. f) Depreciation, amortisation and revaluation of operating fixed assets In making estimates of the depreciation / amortization method, the management uses the method which reflects the pattern in which economic benefits are expected to be consumed by the Bank. The method applied is reviewed at each financial year end and if there is a change in the expected pattern of consumption of the future economic benefits embodied in the assets, the method is changed to reflect the changed pattern. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard (IAS) 8 "Accounting Policies, Changes in Accounting Estimates and Errors". Further, the Bank estimates the revalued amount of land and buildings on a regular basis. The estimates are based on valuations carried out by independent professional valuers under the market conditions. g) Staff retirement benefits Certain actuarial assumptions have been adopted as disclosed in these financial statements (note 37) for the actuarial valuation of staff retirement benefit plans. Actuarial assumptions are entity's best estimates of the variables that will determine the ultimate cost of providing post employment benefits. Changes in these assumptions in future years may effect the liability / asset under these plans in those years. 5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 5.1. Investments The Bank classifies its investments as follows: a) Held for trading These are securities, which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealer's margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. b) Held to maturity These are securities with fixed or determinable payments and fixed maturity in respect of which the Bank has the positive intent and ability to hold to maturity. c) Available for sale These are investments, other than those in subsidiaries and associates, that do not fall under the 'held for trading' or 'held to maturity' categories. Investments are initially recognised at cost which in case of investments other than 'held for trading' include transaction costs associated with the investment. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognised at the trade date. Trade date is the date on which the Bank commits to purchase or sell the investment. In accordance with the requirements of the State Bank of Pakistan, quoted securities, other than those classified as 'held to maturity', investments in subsidiaries and investments in associates are subsequently re-measured to market value. Surplus / (deficit) arising on revaluation of quoted securities which are classified as 'available for sale', is taken to a separate account which is shown in the balance sheet below equity. Surplus / (deficit) arising on revaluation of quoted securities which are classified as 'held for trading', is taken to the profit and loss account currently. Unquoted equity securities are valued at the lower of cost and break-up value. Break-up value of equity securities is calculated with reference to the net assets of the investee company as per the latest available audited financial statements. Investments classified as 'held to maturity' are carried at amortised cost. Investments in subsidiaries and investments in associates are carried at cost less impairment, if any. Provision for impairment in the values of securities (except debentures, participation term certificates and term finance certificates) is made currently. Provisions for impairment in value of debentures, participation term certificates and term finance certificates are made as per the requirements of the Prudential Regulations issued by the State Bank of Pakistan. 5.2. Sale and repurchase agreements Securities sold subject to a repurchase agreement (report) are retained in the financial statements as investments and the counter party liability is included in borrowings. Securities purchased under an agreement to resell (reverse report) are not recognised in the financial statements as investments and the amount extended to the counter party is included in lendings to financial institutions. The difference between the purchase / sale and re-sale / re-purchase price is recognised as mark-up income / expense on a time proportion basis, as the case may be. 5.3. Advances Advances are stated net of specific and general provisions. Specific provision is determined on the basis of the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions comprise of provisions against identified losses and provisions against unidentified losses. Provisions against unidentified losses include general provision against consumer loans made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical, loss experience on advances. These provisions are maintained on a consistent basis. Advances are written off when there is no realistic prospect of recovery. Leases where the Bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as financial leases. A receivable is recognised at an amount equal to the present value of the lease payments including any guaranteed residual value. Finance lease receivables are included in advances to the customers. 5.4. Operating fixed assets and depreciation Property and equipment, other than land carrying value of which is not amortised, are stated at cost or revalued amounts less accumulated depreciation and accumulated impairment losses (if any). Land is carried at revalued amount. Capital work-in-progress is stated at cost. - Cost of property and equipment of foreign operations includes exchange differences arising on currency translation at year-end rates. Depreciation on all operating fixed assets is charged using the diminishing balance method expect for vehicles, computers, carpets and buildings which are depreciated using the straight line method in accordance with the rates specified in note 11.2 to these financial statements and after taking into account residual value, if any. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each balance sheet date. Depreciation on additions is charged from the month the assets are available for use while no depreciation is charged in the month in which the assets are disposed off. Surplus on revaluation of land and building is credited to the surplus on revaluation account. Revaluation is carried out with sufficient regularity to ensure that the carrying amount of assets does not differ materially from the fair value. To the extent of the incremental depreciation charged on the revalued assets, the related surplus on revaluation of land and building (net of deferred taxation) is transferred directly to unappropriated profit. Gains / losses on sale of property and equipment are credited / charged to the profit and loss account currently, except that the related surplus on revaluation of land and building (net of deferred taxation) is transferred directly to unappropriated profit. Subsequent cost are included in the 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 repairs and maintenance are charged to the profit and loss account. 5.5. Intangible assets Intangible assets are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Intangible assets are amortised from the month when these assets are available for use, using the straight-line method, whereby the cost of the intangible assets are amortised over its estimated useful lives over which economic benefits are expected to flow to the Bank. The useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. 5.6. Impairment The carrying amount of assets are reviewed at each balance sheet date for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists, and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amounts. The resulting impairment loss is taken to the profit and loss account except for impairment loss on revalued assets, which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the surplus on revaluation of that asset. 5.7. Staff retirement benefits. The Bank operates the following staff retirement benefits for its employees: a) For clerical / non-clerical staff who did not opt for the new scheme, the Bank operates the following: - an approved contributory provident fund; - an approved gratuity scheme; and - a contributory benevolent scheme b) For clerical non-clerical staff who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1975, the Bank operates the following: - an approved non-contributory provident fund introduced in lieu of the contributory provident fund; - an approved pension fund; and - contributory benevolent scheme c) For officers who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1977, the Bank operates the following: - an approved non-contributory provident fund introduced in lieu of the contributory provident fund; and - an approved pension fund. However, the management has replaced the pension benefits for employees in the officer category with a contributory provident fund for services rendered after December 31, 2003. d) For executives and officers who joined the Bank on or after January 01, 2000 the Bank operates an approved contributory provident fund. e) Post retirement medical benefits to entitled employees. Annual contributions towards the defined benefit plans and schemes are made on the basis of actuarial advice using the projected unit credit method. The above benefits are payable to staff at the time of separation from the Bank's services subject to the completion of qualifying period of service. The net cumulative actuarial gains / losses at each balance sheet date are recognized equally over a period of three years or the expected remaining average working lives of employees, whichever is lower. Past service cost resulting from changes to defined benefit plans to the extent the benefits are already vested is recognized immediately and the remaining unrecognized past service cost is recognized as an expense on a straight line basis over the average period until the benefits become vested. 5.8. Employees' compensated absences Liability in respect of employees' compensated absences is accounted for in the year in which these are earned on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains or losses if any, are recognised immediately. 5.9 Taxation Current Provision for current taxation is based on taxable income at the current rates of taxation after taking into consideration available tax credits and rebates. The charge for current tax also includes adjustments where considered necessary, relating to prior years which arise from assessments framed / finalised during the year. Deferred Deferred tax is recognised using the balance sheet liability method on all major temporary differences between the amounts attributed to assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The Bank records deferred tax assets / liabilities using the tax rates, enacted or substantially enacted at the balance sheet date expected to be applicable at the time of its reversal. Deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. The Bank also recognises deferred tax asset / liability on deficit / surplus on revaluation of securities and deferred tax liability on surplus on revaluation of fixed assets which is adjusted against the related deficit / surplus in accordance with the requirements of International Accounting Standard (IAS) 12, 'Income Taxes'. Deferred tax liability is not recognised in respect of taxable temporary differences associated with exchange translation reserves of foreign operations, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 5.10. Provisions Provisions are recognised when the Bank has a legal or constructive obligation as a result of past events and it is probable that an out how 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 date and are adjusted to reflect the current best estimates. 5.11. Foreign currencies 5.11.1. Foreign currency transactions Transactions in foreign currencies (other than the results of operations of foreign operations discussed in note 5.11.2) are translated to Rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in Rupees terms at the rates of exchange prevailing at the balance sheet date. Foreign bills purchased and forward foreign exchange contracts other than those relating to foreign currency deposits are valued at the rates applicable to their respective maturates. 5.11.2. Foreign operations The assets and liabilities of foreign branches are translated to Rupees at exchange rates prevailing at the balance sheet date. The results of foreign operations are translated to Rupees at the average rate of exchange for the year. 5.11.3. Translation gains and losses Translation gains and losses are included in the profit and loss account, except those arising on the translation of the Bank's net investment in foreign branches, which are taken to the capital reserve (exchange translation reserve). 5.11.4. Commitments Commitments for outstanding forward foreign exchange contracts are disclosed in these financial statements at committed amounts. Contingent liabilities / commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in Rupee terms at the rates of exchange ruling on the balance sheet date. 5.12. Revenue recognition - Mark-up / interest on advances and returns on investments are recognised on a time proportion basis using the effective interest method except that mark-up / interest on non-performing advances and investments is recognised on a receipt basis, in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan (SBP) or as permitted by the regulations of the overseas regulatory authorities of the countries where the branches operate. - Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Gains / losses on termination of lease contracts are recognised as income when these are realised. - Unrealised lease income is held in suspense account, where necessary, in accordance with the requirements of SBP or overseas regulatory authorities of the country where the foreign branches of the Bank operate. - Premium on foreign currency options and commission income is recognised on a time proportion basis. - Dividend income is recognised when the Bank's right to receive dividend is established. - Profit / loss on sale of investments is credited / charged to profit and loss account currently. 5.13. Operating leases Operating lease rentals are recorded in profit and loss account on a time proportion basis over the term of the lease arrangements. 5.14. Cash and cash equivalents Cash and cash equivalents include cash and balances with treasury banks and balances with other banks in current and deposit accounts. 5.15. Financial instruments 5.15.1. Financial assets and financial liabilities Financial instruments carried on the balance sheet include cash and balances with treasury banks, balances with other banks, lendings to financial institutions, investments (excluding investment in associates and subsidiaries) advances, other assets, bills payable, borrowings, deposits, sub-ordinated loan and other payables. The particular recognition methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with these assets and liabilities. 5.15.2. Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value using valuation techniques. All derivative financial instruments are carried as assets when the fair value is positive and liability when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account currently. 5.15.3. Offsetting Financial assets and financial liabilities are set off and the net amount is reported in the financial statements when there is a legally enforceable right to-set off and the Bank intends either to settle on a net basis, or to realise the assets and settle the liabilities, simultaneously. 5.16. Share issuance cost. Share issuance cost directly attributable to issuance of shares, is recognized as deduction from the share premium account. 5.17. Segment reporting A segment is a distinguishable component of the Bank that is engaged in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Bank's primary format of reporting is based on business segments. 5.17.1. Business segment Corporate Finance Corporate Finance includes underwriting, securitisation, investment banking, syndication's, IPO related activities (excluding investments) and secondary private placements. Trading and Sales It includes fixed income, equity, foreign exchanges commodities, lendings to financial institutions, repots and brokerage debt. Retail and Consumer Banking It includes retail lending and deposits, banking services, private lending and deposits, banking services and retail offered to its retail customers and small and medium enterprises. Commercial Banking - It includes project finance, export finance, trade finance, leasing, lending, guarantees and bills of exchange relating to its corporate customers. 5.17.2. Geographical segments The Bank operates in three geographic regions being: - Pakistan - Asia Pacific (including South Asia) - Middle East 5.18. Dividend distribution and appropriation Dividends (including bonus dividend) and other appropriations (except appropriations which are required by law) are recognized in the period in which these are approved. 6. CASH AND BALANCES WITH TREASURY BANKS ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
In hand - local currency 6.1 9,351,207 6,654,824
In hand - foreign currencies 962,498 733,261
In transit - local currency 1,148,109 559,178
With State Bank of Pakistan (SBP) in: 6.2
Local currency current account 23,204,296 19,907,420
Foreign currency deposit account 6.3 1,068,318 1,893,759
With other central banks in foreign currency
current account 6.2 244,441 69,212
With National Bank of
Pakistan in local currency
current account 3,705,014 2,648,322
39,683,883 32,465,976
======================================================================================6.1. This includes national prize bonds amounting to Rs. 91.885 million (2006: Rs. 54.164 million).6.2. Deposits with SBP are maintained to comply with their requirements issued from time to time. Deposits with other central banks are maintained to meet their minimum cash reserves and capital requirements pertaining to the foreign branches of the Bank. 6.3. These include balance of Rs. 534.159 million (2006: Rs. 1,420.32 million) which carry interest rate of 4.24 % per annum (2006: 4.35% per annum). 7. BALANCES WITH OTHER BANKS ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Inside Pakistan - current account 1,263 -
Outside Pakistan
- current account 3,234,443 4,046,021
- deposit account 7.1 571,813 2,530,996
3,807,519 6,577,017
======================================================================================7.1. Balances with other banks outside Pakistan in deposit account carry interest rates ranging from 4.24% to 6.67% per annum (2006: 5.31% to 6.11% per annum).8. LENDINGS TO FINANCIAL INSTITUTIONS ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
In local currency
Call money lendings 8.1 1,051,372 9,050,000
Repurchase agreement endings 8.2 - 12,031,800
1,051,372 21,081,800
======================================================================================8.1. These carry mark-up rates ranging from 9.65% to 12.19% per annum (2006: 10% to 12% per annum).8.2. Securities held as collateral against lendings to financial institutions ==================================================================================================
2007 2006
Held by Further Given Total Held by Further Given Total
bank as collateral bank as collateral
(Rupees in '000)
==================================================================================================
Market Treasury Bills - - - 5,396,800 - 5,396,800
Pakistan Investment Bonds - - - 6,635,000 - 6,635,000
- - - 12,031,800 - 12,031,800
==================================================================================================Market value of securities held as collateral against lendings to financial institutions as at December 31, 2007 amounted to Rs. Nil (2006: Rs. 12,456 million).These carry markup at the rate of Nil per annum (2006: 8.30% to 9.60% per annum). 9. INVESTMENTS - NET 9.1. Investments by types =====================================================================================================================================================
2007 2006
Note / Held by Given as Total Held by Given as Total
Annexure - bank collateral bank collateral
(Rupees in '000)
=====================================================================================================================================================
Held for trading securities
- Shares in listed companies 9.5 & Annexure I (note 2) 230,752 - 230,752 - -
Available for sale securities
- Market Treasury Bills 9.6 58,268,118 26,996,870 85,264,988 25,574,416 11,298,388 36,872,804
- Pakistan Investment Bonds 9.6 2,726,418 - 2,726,418 1,352,350 - 1,352,350
- Shares in listed companies Annexure I (note 1) 7,388,550 - 7,388,550 5,810,827 - 5,810,827
- Units in open ended mutual Fund Annexure I (note 1) 1,662,063 - 1,662,063 118,595 - 118,595
- Shares in unlisted companies 9.7 & Annexure I (note 3) 515,333 - 515,333 537,012 - 537,012
- NIT units 5,253 - 5,253 5,253 - 5,253
Sukuk Bonds - Annexure I (note 4) 400,000 - 400,000 - - -
- Listed Term Finance
Certificates -(TFCs) Annexure I (note 4) 1,136,821 - 1,136,821 1,450,659 - 1,450,659
72,102,556 26,996,870 99,099,426 34,849,112 11,298,388 46,147,500
Held to maturity securities
-Market Treasury Bills 9.6 216,881 - 216,881 - -
-Pakistan Investment Bonds 9.6 2,377,654 - 2,377,654 2,439,089 - 2,439,089
- Federal Government Securities Annexure I (note 5) 704,928 - 704,928 825,719 - 825,719
-Provincial Government Securities 118 - 118 118 - 118
- Government Compensation Bonds Annexure I (note 5) 870,771 - 870,771 870,771 - 870,771
- Sukuk Bonds Annexure I (note 5) 1,785,475 - 1,785,475 1,573,478 - 1,573,478
- Euro Bonds Annexure I (note 5) 3,299,630 - 3,299,630 3,019,135 - 3,019,135
- Term Finance Certificates (TFCs),
Debentures, Bonds and Participation
Term Certificates (PTCs) Annexure I (note 4) 1,346,566 - 1,346,566 2,387,836 - 2,387,836
- Certificates of Investment Annexure I (note 6) 500,000 - 500,000 3,550,000 - 3,550,000
11,102,023 - 11,102,023 14,666,146 - 14,666,146
Subsidiaries Annexure I (note 7)
MNET Services (Private) Limited 49,975 - 49,975 49,975 49,975
MCB Trade Services Limited 77 - 77 77 - 77
MCB Asset Management Company Limited 299,980 - 299,980 299,980 - 299,980
Muslim Commercial Financial Services
(Private) Limited 27,500 - 27,500 7,500 - 7,500
377,532 - 377,532 357,532 - 357,532
Associates Annexure I (note 8)
Adamjee Insurance Company Limited 9.8 943,600 - 943,600 943,600 - 943,600
First Women Bank Limited 63,300 - 63,300 63,300 - 63,300
1,006,900 - 1,006,900 1,006,900 - 1,006,900
Investments at cost 84,819,763 26,996,870 111,816,633 50,879,690 11,298,388 62,178,078
Less: Provision for diminution
a in value of investments 9.3 (468,288) - (468,288) (363,019) - (363,019)
Investments (net of provisions) 84,351,475 26,996,870 111,348,345 50,516,671 11,298,388 61,815,059
Surplus I (deficit) on revaluation of
available for sale securities- net 22.2 1,790,011 (35,990) 1,754,021 1,686,295 (15,038) 1,671,257
Deficit on revaluation of 'held for
trading' securities-net 9.5 (13,105) - (13,105) . . .
Investments at revalued amounts-net of provisions 86,128,381 26,960,880 113,089,261 52,202,966 11,283,350 63,486,316
=====================================================================================================================================================9.2. Investments by segments Federal Government Securities: -==============================================================================================
Note / 2007 2006
Annexure (Rupees in '000)
==============================================================================================
- Market Treasury Bills 9.6 85,481,869 36,872,804
- Pakistan Investment Bonds 9.6 5,104,072 3,791,439
- Federal Government Securities Annexure I (note 5) 704,928 825,719
- Government Compensation Bonds Annexure I (note 5) 870,771 870,771
- Euro Bonds Annexure I (note 5) 3,299,630 3,019,135
- Sukuk Bonds Annexure I (note 4 & 5) 1,585,475 1,573,478
Provincial Government Securities 118 11 8
Subsidiaries and
Associated Undertakings 9.8 & Annexure I (note 7 & 8) 1,384,432 1,364,432
Fully Paid-up Ordinary
Shares / Certificates / Units
- Listed companies /
mutual funds / modarabas Annexure I (note 1 & 2) 7,557,700 5,749,225
- Unlisted companies / funds 9.7 & Annexure I (note 3) 415,333 437,012
Units of Open Ended Mutual Funds Annexure I (note 1) 1,662,063 11 8,595
Fully Paid-up Preference Shares:
- Listed Companies Annexure I (note 1) 61,602 61,602
- Unlisted Companies Annexure I (note 3) 100,000 100,000
Term Finance Certificates, Debentures,
Bonds and Participation Term Certificates:
- Listed Term Finance Certificates Annexure I (note 4) 1,136,821 1,450,659
- Unlisted Term Finance Certificates Annexure I (note 4) 1,223,068 1,946,344
- Debentures, Bonds and
Participation Term Certificates (PTCs) Annexure I (note 4) 123,498 441,492
- Certificates of Investment Annexure I (note 6) 500,000 3,550,000
Other Investments:
- Sukuk Bonds Annexure I (note 5) 600,000 -
- NIT Units 5,253 5,253
Total investments at cost 111,816,633 62,178,078
Less: Provision for diminution
in the value of investments 9.3 (468,288) (363,019)
Investments (net of provisions) 111,348,345 61,815,059
Add: Surplus on revaluation of
available for sale securities - net 22.2 1,754,021 1,671,257
Deficit on revaluation of held
for trading securities - net 9.5 (13,105) -
Investments at revalued
amounts - net of provisions 11 3,089,261 63,486,316
==============================================================================================9.3. Particulars of provision======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Opening balance 363,019 547,424
Charge during the year 138,046 298,199
Reversal made during the year (32,777) (176,922)
105,269 121,197
Investment written off against provision - (305,602)
Closing balance 468,288 363,019
======================================================================================9.3.1. Particulars of provision in respect of Type and Segment======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Available for sale securities
Listed shares / Certificates / Units 197,496 96,747
Unlisted shares - 70,477 65,957
267,973 162,704
Held to maturity securities
TFCs, Debentures, Bonds and
Participation Term Certificates 200,315 200,315
468,288 363,019
======================================================================================9.4. Quality of 'available for sale' securities=======================================================================================================================================================
2007 2006
Market value/ Credit rating Rated by Market / Credit Rating Rated by
carrying Long Short carrying Long Short
value for Term Term value for Term Term
unlisted unlisted
investments investments
(Rupees in '000) (Rupees in '000)
=======================================================================================================================================================
Market Treasury Bills 85,071,912 (Unrated-Government Securities) 36,832,900 (Unrated - Government Securities)
Pakistan Investment Bonds 2,711,499 (Unrated-Government Securities) 1,350,985 (Unrated - Government Securities)
Listed Term Finance Certificates
Askari Bank Limited (Formerly: Askari
Commercial Bank Limited) 203,717 AA- (Unrated) PACRA 201,799 AA Unrated PACRA
Azgard Nine Limited - - 99,960 A+ Unrated JCRVIS
Bank Al-Habib Limited 99,880 AA- (Unrated PACRA 99,920 AA- Unrated PACRA
Bank Alfalah Limited 248,390 AA- (Unrated PACRA 248,486 AA- Unrated PACRA
United Bank Limited 307,704 AA (Unrated JCRVIS 284,890 AA- Unrated JCRVIS
Allied Bank Limited - - 117,020 A Unrated JCRVIS
First Dawood Investment Bank Limited - - - 34,374 AA- Unrated PACRA
Hira Textile Mills Limited - - 49,910 A Unrated JCRVIS
Jahangir Siddiqui & Company Limited 49,940 AA+ Unrated PACRA 149,764 AA+ Unrated PACRA
Pakistan Services Limited 4,520 A Unrated JCRVIS 8,870 A Unrated JCRVIS
Soneri Bank Limited 149,850 A+ Unrated PACRA 149,910 A+ Unrated PACRA
Pak Arab Fertilizers Limited 100,000 AA Unrated JCRVIS - - -
Sui Southern Gas Company Limited - - - 12,567 AA Unrated PACRA
1,164,001 1,457,470
Shares in Listed Companies
Abbott Laboratories Pakistan Limited 26,291 Not available - - -
Al-Ghazi Tractors Limited - - 14,683 Not available
Allied Bank Limited 94,137 A Al- JCRVIS 47,311 A+ A1+ JCRVIS
Al-Meezan Mutual Fund - - 14,090 5 Star (Unrated) PACRA
Arif Habib Bank Limited 190 A- A2 PACRA - Not available
Arif Habib Securities Limited 41,568 Not available - Not available
Askari Bank Limited (Formerly: Askari
Commercial Bank Limited) 323,753 AA A1+ PACRA 136,487 AA+ A1+ PACRA
Atlas Bank Limited 30,107 A- A2 PACRA - - -
Azgard Nine Limited - preference shares 9,572 A� Al PACRA 8,122 A Al PACRA
Azgard Nine Limited - ordinary shares 5,656 A+ Al PACRA - - -
Baig Spinning Mills Limited - - 1,385 Not available
Bank Alfalah Limited 153,265 AA Al+ PACRA 8,012 AA Al+ PACRA
BankAl-Habib Limited 206,743 AA Al+ PACRA 32,191 AA Al+ PACRA
Bank Islami Pakistan Limited 2,430 A- A2 PACRA - - -
Bawany Sugar Mills Limited - - 76 Not available
BOC Pakistan Limited - - 3,163 Not available
Brothers Textile Mills Limited - - 211 Not available
BSJS Balanced Fund Limited - - 6,170 4 Star (Unrated) PACRA
Century Papers and Board Mills Limited 33,389 Not available 16,741 Not available
Cherat Cement Company Limited 1,143 Not available - -
Colony Mills Limited - - 2 Not available
Crescent Commercial Bank Limited 2,095 A A- JCRVIS - -
EFU General Insurance Company Limited 329,596 AA (Unrated) JCRVIS 175,943 AA (Unrated) JCRVIS
EFU Life Assurance Company Limited 3,123 A+ (Unrated) JCRVIS 3,894 Not available
Engro Chemical Pakistan Limited 242,631 AA Al+ PACRA 76,565 AA Al+ PACRA
Escorts Investment Bank Limited - - 1,146 A Al JCRVIS
Fauji Cement Company Limited - - 395 Not available
Fauji Fertilizer Bin Qasim Company Limit 150,946 Not available 2,856 Not available
Fauji Fertilizer Company Limited 809,675 Not available 719,673 Not available
Faysal Bank Limited - - 7,295 AA A1+ PACRA
First Al - Noor Modaraba 24,157 BBB A3 JCRVIS 22,891 BBB A3 JCRVIS
First Investec Modaraba - - 27 Not available
Glaxo Smithkline Pakistan Limited 83,631 Not available 19,860 Not available
Habib Bank Limited 127,315 AA+ Al+ ICRVIS - -
Habib Metropolitan Bank Limited 29,078 AA+ A1+ PACRA 5,227 AA+ Al+ PACRA
Honda Atlas Cars Limited - - 9,192 Not available
Balance carried forward 2,730,491 1,333,608
Balance brought forward 2,730,491 1,333,608
Hub Power Company Limited 831,260 Not available 735,869 Not available
IGI Insurance Limited 59,643 AA (Unrated) PACRA 3,728 AA (Unrated) PACRA
Indus Motors Company Limited 20,748 Not available 55,575 Not available
International Industries Limited 35,694 Not available - -
JS Bank Limited 24,035 Not available - -
Khurshid Spinning Mills Limited - 33 Not available
Kohinoor Energy Limited 1,749 Not available 1,382 Not available
Kohinoor Industries Limited - 604 Not available
Kot Addu Power Company Limited 211,261 Not available 127,163 Not available
Lucky Cement Limited 12,233 Not available 2,199 Not available
Masood Textile Mills Limited 50,000 Not available 50,000 Not available
- preference shares
Meezan Balanced Fund - - 8,600 5 Star (Unrated) PACRA
Mehr Dastagir Textile Mills Limited 9,701 Not available 8,893 Not available
Millat Tractors Limited 84,283 - Not available 186,256 Not available
Mirza Sugars Limited - 77 Not available
Mohammad Farooq Textile Mills Limited - - 1 38 Not available
National Bank of Pakistan 237,372 AA Al+ JCRIVS 161,066 AAA A1+ JRVIS
NIB Bank Limited 7,101 A+ Al PACRA - - -
Oil & Gas Development Company Limited 268,782 AAA Al + JCRVIS 54,352 Not available
Orix Leasing Pakistan Limited 5,995 AA+ A1+ PACRA 5,410 AA+ Al + PACRA
Pace Pakistan Limited 10,051 Not available
Packages Limited 9,383 AA Al+ PACRA 43,102 AA A1+ PACRA
Pak Suzuki Motor Company Limited 8,109 Not available
Pakistan Cables Limited 13,709 Not available - -
Pakistan Cement Company Limited 1,140 Not available - -
Pakistan Oilfields Limited 101,992 Not available 323,924 Not available
Pakistan PTA Limited - 216 Not available
The Bank of Punjab 70,656 AA Al+ PACRA
Pakistan Capital Market Fund - - 379 5 Star (Unrated) PACRA
Pakistan Petroleum Limited 280,602 Not available 76,908 Not available
Pakistan Premier Fund - - 1,058 S Star (Urirated) PACRA
Pakistan Reinsurance Company Limited - - 12,870 Not available
Pakistan State Oil Company Limited 29,275 AA Al+ PACRA 254,782 AAA Al+ PACRA
Pakistan Synthetics Limited - 100 Not available
Pakistan Telecommunication 253,256 Not available 137,983 Not available
Company Limited
Pakistan Tobacco Company Limited 21,568 Not available -
PICIC Commercial Bank Limited 11,825 A+ Al JCRVIS 905 A+ Al JCRIVS
PICIC Growth Fund - 12,371 MER (Unrated) JCRVIS
PICIC Investment Fund - 1,192 4 STAR Not available
Prime Commercial Bank Limited - - 1,725 A+ Al PACRA
Redco Textiles Limited - 350 Not available
Rupali Polyester Limited 26,671 Not available 22,423 Not available
Sakrand Sugar Limited - 187 Not available
Saudi Pak Commercial Bank Limited - - 217 A- A-2 JCRVIS
Shell Pakistan Limited 26,531 Not available - -
Soneri Bank Limited 96,292 AA- Al + PACRA - -
Standard Chartered Modaraba - - 3,599 AA+ Al+ PACRA
** Sui Northern Gas Pipelines Limited 3,128,624 AA Al � 3,1 26,238 AA- Al + PACRA
Taj Textile Mills Limited 1 Not available PACRA 1 Not available
ThaI Limited 3,327 Not available 49,350 Not available
Tripack Films Limited - - - 404 A+ Al PACRA
* Trust Securities & Brokerage Limited 2,550 Not available 1,680 Not available
Unilever Pakistan Limited 75,880 Not available 45,600 Not available
United Bank Limited 304,339 AA Al+ JCRVIS 389,875 AA Al+ JCRVIS
UTP Growth Fund - 1,843 Not available
UTP Large Capital Fund (ABAMCO
Composite fund) - 26,000 Not available
Balance carried forward 8,995,673 7,340,891
Balance brought forward 8,995,673 7,340,891
World Call Telecom Limited - - 30 A+ Al PACRA
Yousuf Weaving Mills Limited - 75 Not available
Zulfiqar Industries Limited 3,533 Not available -
8,999,206 7,340,996
Open Ended Muiual Fund
AKD Opportunity Fund - 4,765 Not available
Atlas Income Fund - - 64,179 4 Star (Unrated) PACRA
Atlas Islamic Fund 10,613 Not available 10,000 Not available
Atlas Stock Market Fund - 15,314 4 Star (Unrated) PACRA
HBL Income Fund 30,000 Not available -
IGI Income Fund 30,009 Not available -
MCB Dynamic Cash Fund 1,272,334 Not available -
MCB Dynamic Stock Fund 323,366 Not available -
Meezan Islamic Fund - 29,705 MFR (Unrated) JCRVIS
5 STAR
NAFA Cash Fund 10,003 MFR 5 STAR (Unrated) -
Unit Trust of Pakistan 92,054 5 Star (Unrated) PACRA 73,724 5 Star (Unrated) PACRA
1,768,379 197,687
Shares in Un-listed Companies
Khushhali Bank Limited 300,000 A- A-1 JCRVIS 300,000 A- A-l JCRVIS
Equity Participation Fund 1,500 Not available 1,500 Not available
Investment Corporation of Pakistan - - 22,824 AA Al+ PACRA
National Investment Trust Limited 100 Not available 100 Not available
Pakistan Agricultural Storage and
Services Corporation 2,500 Not available 2,500 Not available
SME Bank Limited 10,106 BBB A2 JCRVIS 10,106 BBB A2 JCRVIS
First Capital Investment (Private) Limit 2,500 AM4+ (Unrated) PACRA 2,500 AM4+ (Unrated) PACRA
Musarrat Textile Mills Limited (de-liste 36,045 Not available - -
Pak Asian Fund 11,500 Not available 11,500 Not available
Ayaz Textiles Mills Limited 2,253 Not available - -
Arabian Sea Country Club 5,000 Not available 4,920 Not available
Central Depository Company Limited 10,000 Not available 10,000 Not available
National Institutional Facilitation
Technologies
(Private) Limited 1,527 Not available 1,527 Not available
Society for Worldwide Inter
Fund Transfer (SWIFT) 2,993 Not available 2,993 Not available
Al-Ameen Textile Mills Limited 197 Not available -
Custodian Management Services 1,000 Not available -
Sadiqabad Textile Mills Limited 26,383 Not available -
Fazal Cloth Mills Limited
preference share 100,000 Not available 100,000 Not available
Lanka Clearing (Private) Limited 570 Not available 567 Not available
Lanka Financial Services Bureau Limited 1,142 Not available -
Credit Information Bureau of Srilanka 17 Not available 17 Not available
515,333 471,055
Other Investment
Sukuk Bonds 419,000 (Unrated - Government Securities) - - - -
NIT. Units 6,620 4 Star (Unrated) PACRA 4,960 4 Star (Unrated) PACRA
100,655,950 47,656,052
======================================================================================================================================================* These are the strategic investments of the Bank.** This includes 32.287 million shares valuing Rs. 2,116.414 million (2006: 32.287 million shares valuing Rs. 2,171.300 million) which are held as strategic investment by the Bank. 9.5. Unrealised loss on revaluation of investments classified as 'held for trading' ===================================================================================
Unrealised loss as on December 31, Cost as at December 31,
Investee Company 2007 2006 2007 2006
(Rupees in '000)
===================================================================================
Arif Habib Securities Limited 1,453 - 32,421 -
Attock Refinery Limited 3,421 - 51,972 -
Bank Al-Habib Limited 48 - 1,978 -
Bosicar Pakistan Limited 305 - 6,710 -
Engro Chemical Pakistan Limited 1,122 - 24,482 -
Fauji Cement Company Limited 145 - 1,635 -
Glaxo Smithkline Pakistan Limited 168 - 2,631 -
J.O.V & Company Limited 413 - 8,583 -
KASB Bank Limited 25 - 1,035 -
Lucky Cement Limited 142 - 3,054 -
National Bank of Pakistan 331 - 6,065 -
National Refinery Limited 525 - 9,369 -
PACE Pakistan Limited 223 - 8,099 -
Pakistan Cement Company Limited 195 - 1,335 -
Pakistan Oilfields Limited 2,418 - 30,842 -
Pakistan Petroleum Limited 983 - 19,362 -
Pakistan State Oil Company Limited 216 - 4,282 -
ThaI Limited . 59 - 1,624 -
TRG Pakistan Limited 31 - 1,424 -
United Bank Limited 882 - 13,849 -
13,105 - 230,752 -
===================================================================================9.6. "Available for sale" Market Treasury Bills and Pakistan Investment Bonds are eligible for rediscounting with the State Bank of Pakistan (SBP). The market value of Pakistan Investment Bonds and Market Treasury Bills classified as 'held to maturity' as at December 31, 2007 amounted to Rs. 1,990.67 million and Rs. 237.70 million (2006: Market Treasury Bills Rs. Nil and Pakistan Investment Bonds Rs. 1,978.22 million) respectively.9.7. This includes the Bank's subscription towards the paid-up capital of Khushhali Bank Limited amounting to Rs. 300 million (2006: Rs. 300 million). Pursuant to section 10 of the Khushhali Bank Ordinance, 2000 strategic investors including the Bank cannot sell or transfer their investment before a period of five years due on October 10, 2005, from the date of subscription. Thereafter, such sale / transfer would be subject to the prior approval of the SBP. In addition, profit of Khushhali Bank Limited cannot be distributed as dividend under clause 35i of Khushhali Bank Ordinance 2000. However, Khshhali Bank Ordinance is in process of amendment under which the restriction on the dividend payment is expected to be deleted. Moreover, the Board of Directors of Khushhali Bank Limited has approved the conversion of Khushhali Bank under the Micro Finance Institutions Ordinance 2001 which does not restrict the distribution of dividend to members. 9.8. Investment of the Bank in Adamjee Insurance Company Limited is carried at cost amounting to Rs. 943.600 million (2006: Rs. 943.600 million) as at December 31, 2007 in accordance with the treatment specified in International Accounting Standard (lAS) 28 "Accounting for Investments in Associates". The market value of the investment in Adamjee Insurance Company Limited as at December 31, 2007 amounted to Rs. 10,671.631 million (2006: Rs. 4,481.877 million). 9.9. At December 31, 2007 market value of quoted investments was Rs. 113,041.129 million (2006: Rs. 53,852.405 million) while the book value of unquoted investments was Rs. 9,391.098 million (2006: Rs. 12,711.323 million). 9.10. Investments include Pakistan Investment Bonds amounting to Rs. 232.60 million (2006: Rs. 232.60 million) ear-marked by the SBP and National Bank of Pakistan against IT/ DD discounting facilities and demand note facilities sanctioned to the Bank. In addition, Pakistan Investment Bonds amounting to Rs. 5 million (2006: Rs. 5 million) have been pledged with the Controller of Military Accounts on account of Regimental Fund account. Further Euro Bonds issued by Government of Pakistan amounting to US Dollar 29 million (2006: US Dollar 29 million) / Rs. 1,798.00 million (2006: Rs. 1,766.39 million) (face value) are earmarked by Mashriq Bank PSC against the Bank's borrowings. 9.11. Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. 10. ADVANCES-NET ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Loans, cash credits, running finances, etc.
In Pakistan 208,587,014 189,472,034
Outside Pakistan 6,989,947 5,172,803
215,576,961 194,644,837
Net investment in finance lease 10.2
In Pakistan 6,904,399 6,082,806
Outside Pakistan 67,710 85,865
6,972,109 6,168,671
Bills discounted and
purchased (excluding treasury bills)
Payable in Pakistan 2,949,228 1,761,803
Payable outside Pakistan 4,234,574 4,272,188
7,183,802 6,033,991
Advances - gross 229,732,872 206,847,499
Provision against advances 10.4
Specific provision (7,326,953) (5,953,234)
General provision 10.4.3 (2,749,815) (2,277,467)
General provision against consumer loans 10.4.4 (688,665) (373,823)
General provision for potential
lease losses (in Srilanka operations) (6,841) (3,820)
(10,772,274) (8,608,344)
Advances - net of provision 218,960,598 198,239,155
======================================================================================10.1. Particulars of advances (Gross)10.1.1. ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
In local currency 212,239,278 193,486,349
In foreign currencies 17,493,594 13,361,150
229,732,872 206,847,499
======================================================================================10.1.2. ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Short-term 153,980,682 144,595,484
Long-term 75,752,190 62,252,015
229,732,872 206,847,499
======================================================================================10.2. Net investment in finance lease==========================================================================================================================================================
2007 2006
Not later than Later than Over five Total Not later than Later than Over five Total
one year one and less years one year one and less years
than five years than five years
(Rupees in '000)
==========================================================================================================================================================
Lease rentals receivable 2,245,023 4,516,185 7,229 6,768,437 2,207,825 3,872,902 55,599 6,136,326
Guaranteed residual value 300,233 1,160,175 648 1,461,056 874,230 389,307 5,014 1,268,551
Minimum lease payments 2,545,256 5,676,360 7,877 8,229,493 3,082,055 4,262,209 60,613 7,404,877
Finance charge for future
periods (521,489) (735,127) (768) (1,257,384) (380,207) (840,305) (15,694) (1,236,206)
Present value of minimum
lease payments 2,023,767 4,941,233 7,109 6,972,109 2,701,848 3,421,904 44,919 6,168,671
==========================================================================================================================================================10.3. Advances include Rs. 10,725.308 million (2006: Rs. 8,570.813 million) which have been placed under the non-performing status as detailed below:===========================================================================================================================================================================================
2007
Category of Note Classified Advances Specific Provision Required Specific Provision Held
Classification Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
(Rupees in '000)
===========================================================================================================================================================================================
Other Assets Especially
Mentioned (OAEM) 10.3.1 101,910 - 101,910 - - - - - -
Substandard 842,804 11,438 854,242 202,432 2,859 205,291 202,432 2,859 205,291
Doubtful 1,691,207 8,373 1,699,580 832,623 4,186 836,809 832,623 4,186 836,809
Loss 5,374,166 2,695,410 8,069,576 5,319,633 965,220 6,284,853 5,319,633 965,220 6,284,853
8,010,087 2,715,221 10,725,308 6,354,688 972,265 7,326,953 6,354,688 972,265 7,326,953
===========================================================================================================================================================================================
2006
===========================================================================================================================================================================================
Category of Classified Advances Specific Provision Required Specific Provision Held
Classification Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total
(Rupees in '000)
===========================================================================================================================================================================================
Other Assets Especially
Mentioned (OAEM) 10.3.1 87,699 - 87,699 - - - - - -
Substandard 487,306 6,927 494,233 108,247 1,731 109,978 108,247 1,731 109,978
Doubtful 475,072 - 475,072 231,032 - 231,032 231,032 - 231,032
Loss 4,837,290 2,676,519 7,513,809 4,665,896 946,328 5,612,224 4,665,896 946,328 5,612,224
5,887,367 2,683,446 8,570,813 5,005,175 948,059 5,953,234 5,005,175 948,059 5,953,234
===========================================================================================================================================================================================10.3.1. This represents non-performing portfolio of agricultural financing classified as OAEM as per the requirements of the Prudential Regulation for Agricultural Financing issued by the State Bank of Pakistan.10.4. Particulars of provision against advances ======================================================================================================================
2007
----------------------------------------------------------------------------------------------------------------------
Note Specific General General
provision Leasing Total
against (general)
consumer
loans
----------------------------------------------------------------------------------------------------------------------
(Rupees in '000)
======================================================================================================================
Opening balance 5,953,234 2,277,467 373,823 3,820 8,608,344
Exchange adjustments (1 7,680) - - (53) (17,733)
Provision made during the year 10.4.2 2,169,319 472,348 314,842 3,074 2,959,583
Amounts written off 10.5.1 (777,920) - - - (777,920)
Closing balance 7,326,953 2,749,815 688,665 6,841 10,772,274
----------------------------------------------------------------------------------------------------------------------
2006
----------------------------------------------------------------------------------------------------------------------
Specific General General Leasing Total
provision (general)
against
consumer
loans
----------------------------------------------------------------------------------------------------------------------
(Rupees in '000)
======================================================================================================================
Opening balance 5,534,376 2,098,053 180,554 3,941 7,816,924
Exchange adjustments 17,278 - - (121) 17,157
Provision made during the year 10.4.2 641,857 179,414 193,269 - 1,014,540
Amounts written off 10.5.1 (240,277) - - - (240,277)
Closing balance 5,953,234 2,277,467 373,823 3,820 8,608,344
======================================================================================================================10.4.1. Particulars of provisions against advances======================================================================================================================
2007 2006
Specific General Total Specific General Total
(total) (total)
(Rupees in '000)
======================================================================================================================
In local currency 6,274,466 3,438,480 9,712,946 5,033,470 2,651,290 7,684,760
In foreign currencies 1,052,487 6,841 1,059,328 919,764 3,820 923,584
7,326,953 3,445,321 10,772,274 5,953,234 2,655,110 8,608,344
======================================================================================================================10.4.2. The following amounts have been charged to the profit and loss account:======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Specific provision 10.4 2,169,319 641,857
General provision 10.4.3 472,348 179,414
General provision against consumer loans 10.4.4 314,842 193,269
General provision for potential
lease losses (in Srilanka operations) 3,074 -
2,959,583 1,014,540
======================================================================================10.4.3. General provision against advances represents provision maintained at around 1% of gross advances.10.4.4. General provision against consumer loans represents provision maintained at an amount equal to 1.5% of the fully secured performing portfolio and 5% of the unsecured performing portfolio as required by the Prudential Regulations issued by the SBP. 10.5. Particulars of write offs: 10.5.1. ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Against provisions 10.4 777,920 240,277
Directly charged to the profit and loss accounts 199 47,000
778,119 287,277
======================================================================================10.5.2.======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Write offs of Rs. 500,000 and above 10.5.3 750,520 282,61 3
Write offs of below Rs. 500,000 27,599 4,664
778,119 287,277
======================================================================================10.5.3. Details of loan write offs of Rs. 500,000 and aboveIn terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written-off loans or any other financial relief of five hundred thousand Rupees or above allowed to a person(s) during the year ended December 31, 2007 is given at Annexure- II. However, this write off does not affect the Bank's right to recover the debts from these customers. 10.6. Particulars of advances to directors, executives, associated companies, etc. ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Debts due by executives or
officers of the Bank or any of
them either severally or jointly
with any other persons
Balance at beginning of the year 3,149,550 3,083,682
Loans granted during the year 976,231 659,589
Repayments (897,297) (593,721)
Balance at end of the year 3,228,484 3,149,550
Debts due by subsidiary
companies, controlled
firms, managed modarabas
and other related parties
Balance at beginning of the year 2,242,511 1,297,320
Loans granted during the year 1,442,020 2,065,270
Repayments (2,020,546) (1,120,079)
Balance at end of the year 1,663,985 2,242,511
4,892,469 5,392,061
======================================================================================11. OPERATING FIXED ASSETS======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Capital work-in-progress 11.1 233,390 951,525
Property and equipment 11.2 15,607,660 7,730,633
Intangible asset 11.3 183,073 371,998
16,024,123 9,054,156
======================================================================================11.1. Capital work-in-progress======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Civil works 92,308 418,328
Equipment - 133,757
Advances against purchase of property 5,900 102,727
Advances to suppliers and contractors 71,094 182,747
Others 64,088 113,966
233,390 951,525
======================================================================================11.2. Property and equipment======================================================================================================================================================================================================================================
2007
======================================================================================================================================================================================================================================
Cost/ Revalued amount Accumulated depreciation
Net book Annual rate of
Description Al January Additions Wnte off/ Revaluation Adjustment At December At January Charge for Write-off / Revaluation Transfer in/ At Value at depreciation/
01, 2007 (disposals) reversal due surplus /transfer 31, 2007 01, 2007 the year/ reversal due surplus (transfer out) December December estimated
to revaluation out (depreciation) to revaluation 31, 2007 31, 2007 useful life
(on disposals)
======================================================================================================================================================================================================================================
(Rupees in '000)
======================================================================================================================================================================================================================================
Land -Freehold 3,896,428 1,426,790 - 4,085,199 - 9,408,417 - - - - - - 9,408,417 -
Land - Leasehold 57,430 - - - - 57,430 - - - - - - 57,430 -
Buildings on tree hold land 2,260,750 1,054,952 (224,068) 819,716 43,423 3,923,373 136,813 88,051 (224,068) - - - 3,923,373 50 years
- (31,400) - - - - - (796) - - - - - -
Buildings on leasehold land 57,536 8,031 - . . 65,567 17,995 2,087 - - - 20,082 45,485 10 to 50 years
Furniture and fixtures 549,565 106,820 (12,739) - . 630,510 270,559 32,646 (3,772) - - 288,231 342,279 10% to 33%
- (13,136) - - - - - (11,202) - - - - - -
Electrical, Computers and 3,053,439 838,723 (13,329) - (43,423) 3,717,177 2,038,503 414,705 (10,194) - - 2,346,635 1,370,542 20% to 33%
office Equipments - (118,233) - - - - - (96,379) - - - - - -
Vehicles 586,376 218,957 - - - 721,166 267,021 61,707 - - (9,024) 261,032 460,134 20%
- (84,167) - - - - (58,672) - - - - - - -
======================================================================================================================================================================================================================================
10,461,524 3,654,273 (250,136) 4,904,915 - 18,523,640 2,730,891 599,196 (238,034) - (9,024) 2,915,980 15,607,660 -
(246,936) (167,049)
======================================================================================================================================================================================================================================
============================================================================================================================================================================================================
2006
============================================================================================================================================================================================================
Cost/ Revalued amount Accumulated depreciation Net book Annual rate of
Description At January Additions Write-off Adjustment At December At January Charge for Write-off Adjustment At Value at depreciation
01, 2006 (disposals) /transfer 31, 2006 01, 2006 the year /transfer December December estimated
out (depreciation out 31, 2006 31, 2006 useful life
on disposals)
============================================================================================================================================================================================================
(Rupees in '000)
============================================================================================================================================================================================================
- Land - Freehold 3,858,796 110,316 - **(70,454) 3,896,428 - - - - - 3,896,428 -
(2,230)
and - Leasehold 57,430 - - - 57,430 - - - - - 57,430 -
Buildings on freehold
land 2,137,700 305,386 (49,779) **(88,363) 2,260,750 80,420 59,013 - (411) 136,813 2,123,937 50 years
- (40,269) - (3,925) - - (2,013) - (196) - - -
Buildings on leasehold
land 56,521 1,015 - - 57,536 16,518 1,477 - - 17,995 3 9,541 10 to 50 years
Furniture and fixtures 1,087,369 59,367 (47,925) *(519,849) 549,565 823,170 28,922 (37,374) *(519,849) 270,559 279,006 10% to 33%
- (29,397) - - - - (24,310) - - - - -
Electrical, Computers and 2,535,880 517,559 - - 3,053,439 1,662,161 376,342 - - 2,038,503 1,014,936 20% to 33%
Office Equipments
Vehicles 513,773 211,636 (122) '(20,931) 586,376 302,043 89,538 - *(20,931) 267,021 319,355 20%
(117,980) (103,629)
============================================================================================================================================================================================================
10,247,469 1,205,279 (97,826) (699,597) 10,461,524 2,884,312 555,292 (37,374) (541,191) 2,730,891 7,730,633
(187,646) (6,155) (129,952) (196)
============================================================================================================================================================================================================* In the previous years, the management had initiated a detailed exercise to centralize the fixed assets records of the Bank. Based on this exercise bully depreciated fixed assets (which are not in the Bank's use), have been adjusted. There was no net effect in the profit and loss account** This includes reversal of revaluation surplus of Rs. 152,709 million to write down the related assets to their expected realisable value. There was no net effect in the profit and loss account. 11.2.1. 'The land and buildings of the Bank have been revalued in December 2007 by independent valuers (Pee Dee Associates & Arche-Decon), valuation and engineering consultants, on the basis of market value. The impact of valuation has been incorporated as at December 31, 2007 and has resulted in surplus of Rs. 4,904.915 million over the written down value of Rs. 8,529.790 million of these assets (total revalued amount being Rs. 13,434.705 million - refer Annexure V for the details of locations). The details of revalued amounts are as follows: ======================================================================================
(Rupees in '000)
======================================================================================
Total revalued amount of land 9,465,847
Total revalued amount of buildings 3,968,858
======================================================================================Had the land and buildings not been revalued, the total carrying amounts as at December 31, 2007 would have been as follows:======================================================================================
(Rupees in '000)
======================================================================================
Land 2,228,488
Buildings 2,629,098
======================================================================================11.2.2. The gross carrying amount of fully depreciated assets that are still in use are as follows:======================================================================================
(Rupees in '000)
======================================================================================
Furniture and fixtures 1,015
Electrical, computer and office equipment 257,123
Vehicles 51,016
======================================================================================11.2.3. The carrying amount of properties held for disposal are as follows:======================================================================================
(Rupees in '000)
======================================================================================
Property at Empress Market, Karachi 36
Property at MCHS Military Road, Sukkur 5,979
Property at New Garden Town, Lahore 4,007
Property at Peshawar Cantt. Peshawar 20,461
======================================================================================These properties are disclosed as held for disposal in accordance with the BSD circular no. 4 dated February 26, 2006.11.2.4. Details of disposal of operating fixed assets The information relating to disposal of operating fixed assets required to be disclosed as part of the financial statements by the State Bank of Pakistan is given in Annexure IV and is an integral part of these financial statements. 11.3. Intangible asset ===========================================================================================================================================
2007
===========================================================================================================================================
Cost Accumulated amortisation Net book Annual rate
Description At January Additions At December At January Amortisation At December Value at of
01, 2007 31, 2007 01, 2007 for the year 31, 2007 December amortisation
31, 2007%
(Rupees in '000)
===========================================================================================================================================
Computer software 553,396 2,276 555,672 181,398 191,201 372,599 183,073 33.33 to 50
553,396 2,276 555,672 181,398 191,201 372,599 183,073
2006
Cost Accumulated amortisation Net book Annual rate
Description At January Additions At December At January Amortisation At December Value at of
01, 2007 31, 2007 01, 2007 for the year 31, 2007 December amortisation
31, 2007 %
(Rupees in '000)
Computer software 309,151 244,245 553,396 60,113 121,285 181,398 371,998 33.33 to 50
309,151 244,245 553,396 60,113 121,285 181,398 371,998
===========================================================================================================================================12. DEFERRED TAX (LIABILITY) / ASSET - NET12.1. The details of the tax effect of taxable and deductible temporary differences are as follows: ======================================================================================
Note 2007 2006
(Rupees in 000)
======================================================================================
Taxable temporary differences on:
Surplus on revaluation
of operating fixed assets 22.1 (468,916) (188,398)
Accelerated tax depreciation (561,852) (89,023)
Net investment in finance lease receivable (599,174) (167,406)
Surplus on revaluation of securities 22.2 (156,700) -
Others (1,524) -
(1,788,166) (444,827)
Deductible temporary differences on:
Deficit on revaluation of securities - 14,343
Provision for contributory
benevolent scheme 98,706 92,589
Provision for employees'
compensated absences - 5,060
Provision for post retirement
medical benefits 509,298 505,208
608,004 617,200
(1,180,162) 172,373
======================================================================================12.2. Through Finance Act 2007, a new section 100A read with a schedule (the '7th Schedule') was inserted in the Income Tax Ordinance 2001 for the taxation of banking companies. The Schedule seeks to simplify the taxation of these banking companies and is applicable from the income year ending on December 31, 2008. Deferred tax up to December 31, 2007 is being maintained by the Bank and it is confident that transitory provisions will be made where a mechanism will be set to claim the benefit of these disallowances. 13. OTHER ASSETS - NET ======================================================================================
Note 2007 2006
(Rupees in 000)
======================================================================================
Income / mark-up accrued on advances and
investments - local currency 13.4 4,749,314 4,017,257
Income / mark-up accrued on advances and
investments - foreign currencies 233,133 221,999
Advances, deposits, advance rent
and other prepayments 1,000,134 767,249
Compensation for delayed income tax refunds 44,802 44,802
Branch Adjustment Account 208,737 238,096
Unrealised gain on derivative
financial instruments 13.3 453,802 75,403
Non-banking assets acquired
in satisfaction of claims 13.1 486,471 492,431
Stationery and stamps on hand 48,676 52,610
Prepaid exchange risk fee 139 139
Receivable from the pension fund 37.3 10,651,047 4,881,483
Others . 498,492 755,671
18,374,747 11,547,140
Less: Provision held against other assets 13.2 505,986 515,690
17,868,761 11,031,450
======================================================================================13.1. The market value of non-banking assets with carrying value of Rs. 363.862 million (net of provision) as per the valuation report dated December 31, 2007 amounted to Rs. 442.271 million (2006: Based on valuation as of December 31, 2006 Rs. 386.835 million).13.2. Provision held against other assets ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Opening balance 515,690 504,279
Charge for the year 17,257 15,410
Reversal during the year (21,000) (3,999)
(3,743) 11,411
Write off during the year (5,961) -
Closing balance 505,986 515,690
======================================================================================13.3. Derivative financial instruments==================================================================================
Contract / Notional amount Unrealised gain
2007 2006 2007 2006
(Rupees in '000)
==================================================================================
Unrealised gain on:
Interest rate swaps 250,000 1,772,750 11,297 24,794
Forward exchange contracts 67,789,886 49,214,776 442,505 50,609
68,039,886 50,987,526 453,802 75,403
==================================================================================13.4. This includes mark-up receivable from the pension fund and provident fund amounting to Rs. 37.636 million and Rs. Nil (2006: Rs. 55.695 million and Rs. 11.580 million) respectively.14. CONTINGENT ASSETS There were no contingent assets of the Bank as at December 31, 2007 and December 31, 2006. 15. BILLS PAYABLE ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
In Pakistan 10,447,928 7,075,421
Outside Pakistan 31,130 14,258
10,479,058 7,089,679
======================================================================================16. BORROWINGS======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
In Pakistan 35,497,881 20,304,629
Outside Pakistan - 3,908,950 3,638,847
39,406,831 23,943,476
======================================================================================16.1. Particulars of borrowings with respect to currencies======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
In local currency 35,497,881 20,304,629
In foreign currencies 3,908,950 3,638,847
39,406,831 23,943,476
======================================================================================16.2. Details of borrowings (secured / unsecured)======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Secured Borrowings from
State Bank of Pakistan
Export refinance scheme 16.3 & 16.5 5,593,462 6,727,670
Long term financing -
export oriented products scheme 16.4 & 16.5 2,473,077 2,313,030
8,066,539 9,040,700
Borrowings from other
financial institution 16.6 2,932,600 2,932,817
Repurchase agreement borrowings 16.7 26,931,342 11,263,929
37,930,481 23,237,446
Unsecured
Overdrawn nostro accounts 976,350 617,027
Call borrowings 16.8 500,000 89,003
1,476,350 706,030
39,406,831 23,943,476
======================================================================================16.3. The Bank has entered into agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP.16.4. The amount is due to SBP and have been obtained for providing long term finance to customers for export oriented products. As per the agreements with SBP,. the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. 16.5. Borrowings from SBP under the export refinance and long term financing for export oriented product schemes are secured against the Bank's cash and security balances held by the SBP. 16.6. This represents short term loans by an overseas branch of the Bank and carry mark-up rates ranging between 5.88% to 5.95% per annum (2006: 5.50% to 6.00% per annum), maturing during 2008. These are secured against Euro bonds of Rs. 1,798.00 million (2006: Rs. 1,766.39 million). 16.7. These carry mark-up rates ranging between 9.2 % to 10 % per annum (2006: 8.0% to 9.4% per annum) and are secured against Government securities of carrying value of Rs. 26,996.870 million (2006: Rs. 11,298.39 million). These are repayable by January, 2008. 16.8. These carry mark-up at the rate of 9.75%. These are repayable by January, 2008. 17. DEPOSITS AND OTHER ACCOUNTS ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Customers
Fixed deposits. 32,202,230 33,297,203
Savings deposits 151,555,718 136,872,384
Current accounts
- non remunerative 95,966,877 81,658,304
Margin accounts 2,589,309 2,447,944
Others 4,288 4,336
282,318,422 254,280,171
Financial institutions
Remunerative deposits 9,233,602 249,506
Non-remunerative deposits 546,042 2,932,161
9,779,644 3,181,667
292,098,066 257,461,838
======================================================================================17.1. Particulars of deposits======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
In local currency 278,068,722 243,494,049
In foreign currencies 14,029,344 13,967,789
292,098,066 257,461,838
======================================================================================17.2. Deposits include deposits from related parties amounting to Rs. 51 3.241 million (2006: Rs. 1,1 35.514 million).18. SUB-ORDINATED LOAN -UNSECURED (NON-PARTICIPATORY) ========================================================================================================
Mark-up Mark-up Mark-up 2007 2006
payable payment not yet due
period (Rupees in '000)
========================================================================================================
Listed Term Finance Certificates Semi-annual 2003-2008 5,846 479,232 1,597,440
========================================================================================================The above liability is subordinated as to the payment of principal and profit to all other indebtedness of MCB Bank Limited (including deposits) and is not redeemable before maturity without prior approval of the State Bank of Pakistan. Rate of mark up on the liability is based on the cut-off yield of 5 year Pakistan Investment Bonds auctioned on the last working day before the beginning of each semi-annual redemption period plus 1.5 % subject to floor and cap of 11.75% and 15.75% per annum respectively. The subordinated loan will be fully redeemed in February, 2008.19. OTHER LIABILITIES ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Mark-up / return/interest payable
in local currency 1,550,832 1,887,635
Mark-up/return / interest payable
in foreign currencies 76,656 122,854
Accrued expenses 784,759 591,403
Unclaimed dividend 1,313,371 510,275
Staff welfare fund 76,876 87,054
Unrealised loss on derivative
financial instruments 19.1 541,962 31,137
Provision for employees'
compensated absences 37.3 974,464 1,023,683
Provision for post retirement
medical benefits 37.3 1,455,135 1,443,450
Provision for employees'
contributory benevolent scheme 37.3 282,019 264,542
Security deposits received
in respect of finance lease 1,468,077 1,273,642
Taxation (provision less payments) 1,345,312 2,367,574
Retention money 40,999 24,774
Insurance payable against consumer assets 391,729 368,511
Others 1,420,302 1,174,962
11,722,493 11,171,496
======================================================================================19.1. Derivative financial instruments===================================================================================
Contract / Notional amount Unrealised loss
2007 2006 2007 2006
(Rupees in '000)
===================================================================================
Unrealised loss on:
Interest rate swaps 2,471,698 1,450,735 14,635 26,777
Forward exchange contracts 63,649,869 42,495,024 527,327 4,360
66,121,567 43,945,759 541,962 31,137
===================================================================================20.1. Authorised Capital=====================================================================================
2007 2006 Note 2007 2006
(Number of shares) (Rupees in '000)
=====================================================================================
1,000,000,000 650,000,000 Ordinary shares 20.1.1 10,000,000 6,500,000
of Rs. 10 each
=====================================================================================The Bank vide a special resolution dated March 28, 2007 increased its Authorised Share Capital from Rs.6,500 million to Rs. 10,000 million.20.2. Issued, subscribed and paid-up capital ===============================================================================================================================
2007 2006
(Rupees in '000)
===============================================================================================================================
2007 2006
Issued Issued as Total Issued Issued as Total
for cash bonus shares for cash bonus shares
===============================================================================================================================
(Number of shares)
===============================================================================================================================
197,253,795 349,073,895 546,327,690 162,765,395 263,767,347 426,532,742 Opening balance 5,463,276 4,265,327
Shares issued
- 81,949,153 81,949,153 34,488,400 85,306,548 119,794,948 during the year 819,492 1,197,949
197,253,795 431,023,048 628,276,843 197,253,795 349,073,895 546,327,690 Closing balance 6,282,768 5,463,276
===============================================================================================================================20.3. During the year 2006, the Bank was admitted to the Official List of the UK Listing Authority and to the London Stock Exchange Professional Securities Market for trading of Global Depositary Receipts (GDRs) issued by the Bank. The GDRs constitute an offering in the United States only to qualified institutional buyers in reliance on Rule 144A under the U.S Securities Act of 1933 and an offering Outside the United States in reliance on Regulation S. The Bank had issued 8,622,100 GDRs each representing four ordinary equity shares at an offer price of US$ 17.3970 per GDR (total receipt being US$ 149.999 million). Accordingly, based on an exchange rate of Rs. 60.70 = US$ 1.00 (which was the exchange rate on the date of the final offering circular relating to the GDR issue made by the Bank), 34,488,400 ordinary equity shares of nominal value of Rs. 10 each of the Bank were issued at a premium of Rs. 254 per ordinary equity share (total premium amount being Rs. 8,760.054 million).Holders of GDRs are entitled, subject to the provisions of the Deposit Agreement, to receive dividend, if any and rank pari passu with other equity shareholders in respect of dividend. However, the holder of GDR have no voting rights or other direct rights of shareholders with respect to the equity shares underlying such GDRs. Subject to the terms and restrictions set out in the offering circular dated October 11, 2006, the deposited equity shares in respect of which the GDRs were issued may be withdrawn from the depository facility. Upon withdraw, the holders will rank pari passu with other equity shareholders in respect of dividend, voting and other direct rights of shareholders. The GDRs are now fully fungible. The bank has obtained all required regulatory approvals for "Two Way Fundability". Two way convertibility of GDRs would be limited to number of GDRs issued at the time of issuance i.e. 8.622 million, subject to availability of headroom and adjusted for subsequent corporate actions i.e. bonus shares, right issue and stock splits. As at December 31, 2007, 9.1 million (2006: 4.9 million) of the deposited equity shares had been withdrawn from the depository facility. 20.4. Number of shares held by the related parties as at December 31, are as follows: ======================================================================================
2007 2006
(Number of shares)
======================================================================================
Siddiqsons Denim Mills Limited 28,675,082 24,934,855
Din Leather (Private) Limited 3,915,381 3,404,680
Adamjee Insurance Company Limited 17,011,379 10,944,360
MCB Bank Limited Pension Fund 50,588,856 44,290,310
MCB Bank Limited Provident
Fund (Pakistan staff) 26,602,295 23,132,431
126,792,993 106,706,636
======================================================================================21. RESERVES======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Share premium 9,702,528 9,702,528
Exchange translation reserve (41,981) (53,637)
Statutory reserve 21.1 6,740,091 5,213,535
General reserve 1 7,600,000 9,800,000
34,000,638 24,662,426
======================================================================================21.1. Statutory reserve represents amount set aside as per the requirements of section 21 of the Banking Companies Ordinance 1962.22. SURPLUS ON REVALUATION OF ASSETS - NET OF TAX ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Surplus arising on revaluation (net of tax) of:
- Fixed assets 22.1 8,108,198 3,502,039
- Available for sale securities 22.2 1,597,321 1,685,600
9,705,519 5,187,639
======================================================================================22.1. Surplus on revaluation of fixed assets-net of tax======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Surplus on revaluation of
fixed assets as at January 01 3,690,437 3,892,779
Surplus on revaluation
during the year 4,904,915 -
Reversal of revaluation
surplus during the year - (152,709)
Surplus realised on disposal
of revalued properties - net
of deferred tax - (23,000)
Related deferred tax liability - (12,532)
- (35,532)
Transferred to unappropriated
profit in respect of
incremental depreciation
charged during the
year - net of deferred tax (11,855) (9,166)
Related deferred tax liability (6,383) (4,935)
(18,238) (14,101)
Surplus on revaluation of
fixed assets as at December 31 8,577,114 3,690,437
Less: Related deferred tax liability on:
Revaluation as at January 01 188,398 238,881
Change / (reversal) of deferred tax liability 286,901 (33,016)
Disposal of revalued properties
during the year
transferred to profit and loss account - (12,532)
Incremental depreciation
charged during the year
transferred to profit and loss account (6,383) (4,935)
468,916 188,398
8,108,198 3,502,039
======================================================================================22.2. Surplus / (deficit) on revaluation of available for sale securities - net of tax -======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Federal Government Securities
- Market Treasury Bills (193,077) (39,904)
- Pakistan Investment Bonds (14,919) (1,365)
Listed Securities
- Shares / Certificates / Units 1,809,520 1,626,245
- Open Ended Mutual Funds 106,317 79,470
- Term Finance Certificates 27,180 6,811
1,943,017 1,712,526
Sukuk Bonds 19,000 -
1,75,4021 1,671,257
Add: Related deferred tax (liability) / asse 12.1 (156,700) 14,343
1,597,321 1,685,600
======================================================================================23. CONTINGENCIES AND COMMITMENTS23.1. Transaction-related contingent liabilities ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Guarantees in favour of:
Government 5,283,799 3,810,101
Banks and financial institutions 376,773 13,441
Others 7,247,043 2,570,648
Suppliers' credit / payee guarantee 1,809,117 1,605,942
14,716,732 8,000,132
======================================================================================23.2.======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Trade-related contingent liabilities 61,677,285 42,035,977
======================================================================================23.3. Other contingencies======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Claims against the Bank not acknowledged as debts 134,079 197,848
====================================================================================== Commitments to-extend credit.The Bank makes commitments to extend credit in the normal course of its business but these being revocable commitments do not attract any significant penalty or expense if the facility is unilaterally withdrawn. 23.5. Commitments in respect of forward foreign exchange contracts ======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Purchase 62,077,338 41,288,941
Sale 69,362,417 50,420,861
======================================================================================23.6. Commitments in respect of forward lending======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Forward lending - 1,853,461
======================================================================================23.7.======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Commitments for the
acquisition of fixed assets 78,670 1,366,761
======================================================================================23.8. Other commitments======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Cross currency swaps (notional amount) 24.1 & 24.2 1,845,484 95,000
Fx Options (notional amount) 24.1
-Purchase 351,702 155,641
-Sale 351,702 155,641
Interest rate swaps - (notional amount) 24.1 2,721,698 3,223,485
Forward outright sale of
Government Securities - 5,107,030
Outright purchase of
Government Securities from SBP - 6,942,230
======================================================================================23.9 TaxationThe income tax assessments of the Bank have been finalised upto and-including the Tax Year 2007. For the Tax Years 2003 to 2007, the department has amended the assessments on certain issues against which the Bank has filed appeal before the Commissioner (Appeals). In respect of the Tax Year 2003 to 2006, the Commissioner of Income Tax Appeals vide his orders has decided the matter in favour of the Bank against which the department has filed appeal before the Income Tax Appellate Tribunal (ITAT). The management and Bank's legal counsel are of the view that the issues will be decided in the Bank's favour as and when these are taken up by the appellate authorities. For Tax Year 2007, the department has amended the assessment on similar issues resulting in additional tax liability of Rs. 716.713 million against which the Bank has filed appeal before Commissioner of Income Tax (Appeals). Total disallowances for the assessment years 1994-95 to 1997-98 on account of interest in suspense amounted to Rs. 722.682 million Out of which an amount of Rs. 317.289 million has been allowed in the assessment years 1998-1999 to 2000-2001. It is expected that the pending appeals in this regard in the Honourable Sindh High Court shall be decided in favour of the Bank as allowed in as 5 essment years 1992-1993 and 1993-1994. Subsequent to the favourable order of the Honourable Sindh High Court, the management considers that provision is not necessary for the remaining tax liability for interest in suspense of Rs. 244.781 million as the Bank has been subjected to tax far exceeding its normal tax liability and is hopeful of favourable decisions in appeals. Accordingly, no provision has been made in these financial statements for the above amount. 24. DERIVATIVE INSTRUMENTS Most corporates (counter parties) have either interest rate exposures arising from debt financing or excess liquidity or currency exposures arising. out of commercial and business transactions. In the event of a shift in interest or foreign exchange (FX) rates, these corporates may incur higher-borrowing costs or higher cash outflows that wilt adversely affect profitability. The Bank is providing solutions to this conundrum through derivatives. Through this, counter parties will be hedging exposure to adverse price movements in a security, typically when the counter party has a concentrated position in the security and is acutely exposed to movements in the underlying risk factors. The Bank is in a better position to hedge that risk, and is thus able to provide cost efficient hedging solutions to the counter parties enabling them to concentrate on their business risk. Other Objectives include: - contribution to the development of Pakistani financial markets. - provision of financial solutions to the counter parties. In light of the above the Bank is actively marketing interest rate risk and FX risk management tools: - Interest Rate Swaps - Third Currency FX options - Currency Swaps. Risk management is performed at: a) Strategic level: By senior management Assets and Liabilities Management Committee (ALCO), Risk Management Committee (RMC) and the Board of Directors to institute a risk management framework and to ensure provision of all resources and support required for effective risk management on Bank-wide basis. b) Macro Level: By Financial Institution Public Sector (FIPS) & Market Risk Management (MRM) Division, responsible for policy formulation, procedure development & implementation, monitoring and reporting. c) Micro Level: Treasury Derivatives & Structured Product Desk and Treasury Operations, where risks are actually created. FIPS & MRM Division is responsible for coordinating for risk management of derivatives. The risk management system generates marked to market risk numbers (i.e. VaR PVBP, duration, etc.) of Interest rate derivative portfolio. These numbers are reported to senior management on a daily basis. As per the State Bank of Pakistan's (SBP) regulations, currency options are hedged back to back and thus the risk associated with such transactions are minimal. However, the risk management system is capable of generating risk numbers for options (i.e. Delta, Gamma, Vega, Theta and Rho). Risk Limits Before initiating any new derivative transaction, Treasury Division requests the FIPS & MRM Division for risk limits. Limit requests are approved by the appropriate level of authority. Presently the Bank has notional limits (both for the portfolio and the counterparty). 24.1. Product Analysis ===============================================================================================
2007
===============================================================================================
Counter parties Cross Currency Swaps Interest Rate Swaps FX Options
No. of Notional No. of Notional No. of Notional
Contracts Principal Contracts Principal Contracts Principal *
(Rupees (Rupees (Rupees
in '000) in '000) in '000)
===============================================================================================
With Banks for
Hedging 6 922,742 2 1,800,000 13 351,702
Market Making - - - - -
With other entities for
Hedging - - - - - -
Market Making 6 922,742 5 921,698 13 351,702
Total
Hedging 6 922,742 2 1,800,000 13 351,702
Market Making 6 922,742 5 921,698 13 351,702
===============================================================================================
2006
===============================================================================================
Counter parties Cross Currency Swaps Interest Rate Swaps FX Options
No. of Notional No. of Notional No. of Notional
Contracts Principal Contracts Principal Contracts Principal *
(Rupees (Rupees (Rupees
in '000) in '000) in '000)
===============================================================================================
With Banks for
Hedging 1 95,000 2 1,772,750 7 155,641
Market Making - - - - - -
With other entities for - - - - - -
hedging Market Making 1 95,000 6 1,450,735 7 155,641
Total
Hedging 1 95,000 2 1,772,750 7 155,641
Market Making 1 95,000 6 1,450,735 7 155,641
===============================================================================================* At the exchange rate prevailing at the end of the reporting period.24.2. Maturity Analysis ===================================================================================
2007 Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
Interest Rate Swaps
Upto 1 month 1 18,182 - - -
3 to 6 month 1 53,516 (286) - (286)
6 month to 1 year 1 300,000 (2,129) - (2,129)
1 to 2 Year 2 1,850,000 (5,206) - (5,206)
2 to 3 Years 2 500,000 (7,014) 11,297 4,283
3 to 5 Years - - - - -
===================================================================================
2006 Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
Interest Rate Swaps
1 to 2 Year 4 800,735 (11,222) - (11,222)
2 to 3 Years 2 1,922,750 (4,711) 7,490 2,779
3 to 5 Years 2 500,000 (10,844) 17,305 6,461
===================================================================================
2007
===================================================================================
Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
Cross currency swaps
1 to 2 Years 2 588,660 - - -
2 to 3 Years 2 240,000 - - -
3 to 5 Years 8 1,016,824 - - -
===================================================================================
2006
===================================================================================
Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
Cross currency swaps -
1 to 2 Years - - - - -
2 to 3 Years - - - - -
3 to 5 Years 2 190,000 - - -
===================================================================================
2007
===================================================================================
Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
FX-Options
Upto 1 month 2 206,007 - - -
1 to 3 month 22 456,321 - - -
3 to 6 month 2 41,076 - - -
===================================================================================
2006
===================================================================================
Mark to
Remaining Maturity No. of Notional Market
Contracts Principal Negative Positive Net
===================================================================================
(Rupees in '000)
===================================================================================
FX-Options
Upto l month 14 311,282 - - -
===================================================================================25. MARK-UP / RETURN / INTEREST EARNED======================================================================================
2007 2006
(Rupees in 000)
======================================================================================
On loans and advances to:
Customers 21,952,387 19,144,743
Financial institutions 141,613 86,455
22,094,000 19,231,198
On investments in:
Available for sale securities 7,519,820 3,911,514
Held to maturity securities 856,023 1,025,963
8,375,843 4,937,477
On deposits with financial institutions 133,972 82,445
On securities purchased
under resale agreements 548,202 689,962
On money at call 291,940 589,536
Others 342,638 247,443
31,786,595 25,778,061
======================================================================================26. MARK-UP / RETURN / INTEREST EXPENSED======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Deposits 5,910,072 2,907,121
Securities sold under
repurchase agreements 641,080 555,542
Other short-term borrowings 812,410 518,534
Sub-ordinated loan 98,135 187,726
Discount, commission and brokerage 319,427 297,010
Others 84,409 59,426
7,865,533 4,525,359
======================================================================================27. GAIN ON SALE OF SECURITIES - NET======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Federal Government Securities
- Market Treasury Bills 1,228 686
- Pakistan Investment Bonds 2,709 6,089
- Other Federal Government Securities - 2,350
Shares / certificates / units
- Listed 1,496,928 560,381
- Un-Listed - 36,009
Term Finance Certificates - 350
1,500,865 605,865
======================================================================================28. OTHER INCOME - NET======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Rent on property / lockers 51,999 53,435
Net profit on sale of property and equipment 13,032 24,903
Exchange income on import/
export bills purchased / negotiated 64,161 60,732
Bad debts recovered 28,135 51,872
Compensation for delayed income tax refunds - 44,802
Others 405,886 334,761
563,213 570,505
======================================================================================29. ADMINISTRATIVE EXPENSES======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Salaries and allowances 5,747,483 4,641,863
Charge / (reversal) for defined
benefit plans and other benefits:
- Approved pension fund 37.8 (5,769,564) (2,907,485)
- Post retirement medical benefits 37.8 145,388 471,812
- Employees' contributory benevolent scheme 37.8 60,094 142,896
- Employees' compensated absences 37.8 100,729 373,913
(5,463,353) (1,918,864)
Contributions to defined
contribution plan - provident fund 109,778 98,789
Non-executive directors' fees 720 140
Rent, taxes, insurance, electricity 875,143 698,721
Legal and professional charges 305,790 151,389
Communications 360,055 199,010
Repairs and maintenance 376,937 336,027
Stationery and printing 265,442 223,362
Advertisement and publicity 363,090 164,981
Cash transportation charges 221,774 166,394
Instrument clearing charges 101,716 84,631
Donations 29.1 8,102 -
Auditors' remuneration 29.2 11,786 10,905
Depreciation 11.2 599,196 555,292
Amortization of intangible asset 11.3 191,201 121,285
Travelling, conveyance and fuel 320,957 317,536
Subscription 16,485 18,608 -
Entertainment 50,206 43,211
Staff retrenchment cost - 443,655
Training Expenses 65,495 29,890
Petty Capital items 208,705 8,125
Credit Card Related Expenses 67,755 1 7,745
Others 21 7,953 69,897
5,022,416 6,482,592
======================================================================================29.1. During the year, donation amounting to Rs. 6.077 million, Rs. 2.00 million and Rs. 0.025 million were paid to Pakistan Development Market Place (PDM) for 'Fund for the Circulation of People with Disabilities', 'President's Flood Relief Fund-2007' and 'Friends of Literacy and Mass Communication (FLAME)' respectively. Donation was not made to any donee in which the Bank or any of its directors or their spouses had any interest. )29.2. Auditors' remuneration ========================================================================================================
2007 2006
KPMG Riaz Total KPMG Riaz Total
Taseer Hadi Ahmad Taseer Hadi Ahmad
& Co. & Co. & Co. & Co.
========================================================================================================
(Rupees in '000)
========================================================================================================
Annual Audit fee 1,733 1,733 3,466 1,650 1,650 3,300
Fee for the audit of branches 1,410 1,410 2,820 1,400 1,350 2,750
Fee for audit of overseas branch - - 1,500 - - 1,039
Fee for half year review 809 809 1,618 770 770 1,540
Special certifications, etc. 441 441 882 410 410 820
Out-of-pocket expenses 750 750 1,500 695 761 1,456
5,143 5,143 11,786 4,925 4,941 10,905
========================================================================================================30. OTHER CHARGES======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
(Reveal)/provision against fraud and forgeries (440) 3,748
Fixed assets written off 12,102 60,452
Penalties of State Bank of Pakistan 41 3,004 2,048
Damages to premises 115,928 -
Others 460 -
540,594 66,708
======================================================================================31. TAXATION======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
For the year
Current 6,442,356 5,701,443
Deferred 894,590 44,246
7,336,946 5,745,689
Prior years
Current (1,294,473) 593,497
Deferred - 19,086
(1,294,473) 612,583
6,042,473 6,358,272
======================================================================================31.1. Relationship between tax expense and accounting profit======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Accounting profit for the year 21,308,035 18,500,670
Tax rate 35% 35%
Tax on income 7,457,812 6,475,235
Tax effect on separate block
of income (taxable at reduced rate) (154,445) (244,993)
Tax effect of permanent differences 39,962 (479,618)
Tax effect of prior years
provisions / reversals (1,294,473) 612,583
Reversal of deferred tax liability
on incremental depreciation (6,383) (4,935)
Tax charge for-the year 6,042,473 6,358,272
======================================================================================32. CREDIT RATINGPACRA through its notification in June 2007, has assigned long term credit rating of AA� [double A plus) and short-term credit rating of Al + [A one plus) to the Bank (2006: through its notification in May 2006, AA+ [double A plus) for long term and A1+ [A one plus) for short term rating). 33. BASIC AND DILUTED EARNINGS PER SHARE PRE TAX ======================================================================================
2007 2006
======================================================================================
Profit before taxation
21,308,035 18,500,670
======================================================================================
(Number of shares)
======================================================================================
Weighted average number of shares
outstanding during the year 628,276,843 628,276,843
======================================================================================
(Rupees)
======================================================================================
Basic and diluted earnings per share - pre tax 33.92 29.45
======================================================================================34. BASIC AND DILUTED EARNINGS PER SHARE AFTER TAX======================================================================================
(Rupees in '000)
======================================================================================
Profit after taxation 15,265,562 12,142,398
======================================================================================
(Number of shares)
======================================================================================
Weighted average number of shares
outstanding during the year 628,276,843 628,276,843
======================================================================================
(Rupees)
======================================================================================
Basic and diluted earnings per share-after tax 24.30 19.33
======================================================================================35. CASH AND CASH EQUIVALENTS======================================================================================
Note (Rupees in '000)
======================================================================================
Cash and balances with treasury banks 6 39,683,883 32,465,976
Balances with other banks 7 3,807,519 6,577,017
43,491,402 39,042,993
======================================================================================
(Number)
======================================================================================36. STAFF STRENGTH======================================================================================
2007 2006
(Rupees in '000)
======================================================================================
Permanent 9,721 9,011
Temporary/on contractual basis 39 168
Bank's own staff strength
at the end of the year 9,760 9,179 -
Outsourced 7,360 5,751
Total staff strength 17,120 14,930
======================================================================================37. DEFINED BENEFIT PLANS AND OTHER BENEFITS37.1. General description The Bank operates the following retirement benefits for its employees: - Pension fund (final salary plan) - funded - Benevolent scheme - funded - Post retirement medical benefits - unfunded - Employees compensated absence - unfunded 37.2. Principal actuarial assumptions The latest actuarial valuations of the approved pension fund, employees' contributory benevolent scheme, post retirement medical benefits and employee's compensated absences were carried out at as at December 31, 2007. The principal actuarial assumptions used are as follows: ===================================================================================================================
Approved pension fund Employees' contributor Post retirement Employees' compensated
benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(%) (%) (%) (%) (%) (%) (%) (%)
===================================================================================================================
Valuation discount rate 10 9 10 9 10 9 - 9
Expected rate of return on
plan assets 10 9 10 9 - - - -
Salary increase rate 7 7 7 7 7 7 - 7
Indication in pension - - - - - - - -
Medical cost inflation rate - - - - 5 5 - -
Exposure inflation rate - - - - 3 3 - -
===================================================================================================================The expected return on plan assets is based on the market expectations and depends on the asset portfolio of the Bank, at the beginning of the period, for returns over the entire life of the related obligation.37.3. (Receivable from) / payable to defined benefit plans and other benefits ==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
Note benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in 000)
==============================================================================================================================================
Present value of defined
benefit obligations 37.5 4,747,389 4,752,693 355,340 332,677 1,422,918 1,345,357 974,464 1,023,683
Fair value of plan assets 37.6 (25,095,113) (14,810,557) - (20,650) -
Net actuarial gains / (losses)
not recognised 9,696,677 5,176,381 (73,321) (47,485) (51,753) (36,737) - -
Unrecognised negative past
service cost - - - - 101,123 134,830 - -
Unrecognised transitional liabilities - - - - - - -
Unrecognised past service cost - - - - (17,153) -
Net (receivable) / payable
recognised as at the year-end (10,651,047) (4,881,483) 282,019 264,542 1,455,135 1,443,450 974,464 1,023,683
==============================================================================================================================================The effect of increase of one percentage point and the effect of a decrease of one percentage point in the medical trend rates on the present value of medial obligation at December 31, 2007 would be Rs. 67.690 million (2006: Rs. 84.922 million) and Rs. 56.567 million (2006: Rs. 62.202 million) respectively.37.4. Movement in balance (receivable)/payable ==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
Note benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in 000)
==============================================================================================================================================
(4,881,483) (1,973,998) 264,542 307,216 1,443,450 1,300,336 1,023,683 856,213
Expense recognised 37.8 (5,769,564) (2,907,485) 60,094 142,896 145,388 471,812 100,729 373,913
Refunds / (contributions)
during the year
- Employees' contribution - - - 15,141 - - - -
- Bank's contribution/
benefits paid - - (42,617) (200,711) (133,703) (328,698) (149,948) (206,443)
Closing balance of
(reveivable)/ payable (10,651,047) (4,881,483) 282,019 264,542 1,455,135 1,443,450 974,464 1,023,683
==============================================================================================================================================37.5. Reconciliation of the present value of the defined benefit obligations==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in 000)
==============================================================================================================================================
Present value of obligation
as at January 01, 4,752,693 5,503,819 332,677 407,569 1,345,357 1,456,392 1,023,683 856,213
Current service cost 45,266 53,091 9,698 14,638 20,580 20,715 - 373,913
Intersects 348,810 261,339 29,941 36,681 121,082 131,076
Benefits paid (725,229) (1,231,616) (77,944) (200,712) (133,703) (328,698) (149,948) (206,443)
Past service cost - vested - - . 11,556 -
Past service cost - non-vested . - - - 17,153 - -
Retrenchment loss - - 220,380 - 84,683 - 102,025 -
Curtailment gain - - - - - - -
Actuarial (gains) /flosses 325,849 (54,320) 60,968 (10,182) 40,893 (36,153) 100,729
Present value of obligation
as at December 31, 4,747,389 4,752,693 355,340 332,677 1,422,918 1,345,357 974,464 1,023,683
==============================================================================================================================================37.6. Changes in fair values of plan assets==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in '000)
==============================================================================================================================================
Net assets as at January 01, 14,810,557 10,554,024 20,650 18,976 - - - -
Expected return on plan assets 1,508,469 1,066,621 1,859 1,708 - - - -
Interest on borrowing from MCB + - - - - -
Bank Limited - Main Branch (193,167) (212,517) - - - - - -
Contributions-Bank - - 42,617 185,571 - - - -
Contributions-Employees - - 14,347 15,141 - - - -
Benefits paid (725,229) (1,231,616) (77,944) (200,712) - - - -
Actuarial gain / (loss) 9,694,483 4,634,045 (1,529) (34) - - - -
Net assets as at December 31, 37.10 25,095,113 14,810,557 - 20,650 - - - -
==============================================================================================================================================37.7. Fair value of the Bank's shares held by the Pension Fund as at December 31, 2007 amounted to Rs. 20,233.013 million (2006: Rs. 10,899.845 million).37.8. Charge for defined benefit plans and other benefits The following amounts have been charged to the profit and loss account in respect of defined benefit plans and other benefits: ==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in 000)
==============================================================================================================================================
Current service cost 45,266 53,091 9,698 14,638 20,580 20,715 - 373,913
Interest cost 348,810 261,339 29,941 36,681 121,082 131,076 - -
Expected return on plan assets (1,508,469) (1,066,621) (1,859) (1,708) - - - -
Interest on borrowing from MCB
Bank Limited Main Branch 193,167 212,517 - - - - - -
Net actuarial (gain) /loss recognition (4,848,338) (2,588,191) 36,661 23,743 25,877 18,369 - 100,729
Contributions employees - - (14,347) (15,141) - - - -
Retrenchment loss recognised - 220,380 - 84,683 - 102,025 - -
Amortisation of transitional liabilities - - - - - 160,575 - -
Recognised past service cost - - - - 11,556 91,269 - -
Recognised negative past service charges - - - - (33,707) (52,217) - -
Recognised transitional liability
-Curtailment gain
(5,769,564) (2,907,485) 60,094 142,896 145,388 471,812 100,729 373,913
==============================================================================================================================================The effect of increase of one percentage point and the effect of a decrease of one percentage point in the medical trend rates on the aggregate of the current service cost and interest cost components of net period post - employment medical costs would be Rs. 7.578 million (2006: Rs. 11.712 million) and Rs. 6.276 million (2006: Rs. 7.282 million) respectively.37.9. Actual return on plan assets ==============================================================================================================================================
Approved pension fund Employees' contributory Post retirement Employees' compensated
benevolent scheme medical benefits absences
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in '000)
==============================================================================================================================================
Actual return on plan assets 11,202,952 5,700,666 330 1,674 - - - -
===========================================================================================================================================================================37.10. Composition of fair value of plan assets========================================================================================================================================================
Approved Pension Fund Employees' contributory benevolent scheme
2007 2006 2007 2006
Fair value Percentage Fair value Percentage Fair value Percentage Fair value Percentage
(Rupees (%) (Rupees (%) (Rupees (%) (Rupees (%)
in '000) in '000) in '000) in '000)
========================================================================================================================================================
Defence saving certificates 4,810,576 17.98 5,164,914 30.82 - - 20,650 100
Listed equity shares 21,778,377 81.39 11,563,955 68.99 - - - -
Open ended mutual funds units 119,872 0.45 - - - - - -
Cash and bank balances 48,157 0.18 31,899 0.19 - - -
Fair value of plan total assets 26,756,982 100 16,760,768 100 - - 20,650 100
Borrowing (1,661,869) - (1,950,211) - - - - -
Fair value of plan net assets 25,095,113 - 14,810,557 - - - 20,650 -
========================================================================================================================================================37.11. Other relevant details of above funds are as follows:37.11.1. Pension Fund ================================================================================================================
2007 2006 2005 2004 2003
(Rupees in '000)
================================================================================================================
Present value of defined 4,747,389 4,752,693 5,503,819 6,542,624 6,190,017
benefit obligation
Fair value of plan assets (25,095,113) (14,810,557) (10,554,024) (7,034,175) (6,996,518)
(Surplus) / deficit (20,347,724) (10,057,864) (5,050,205) (491,551) (806,501)
Actuarial gain / (loss) on obligation
Experience adjustment (325,849) 54,320 (304,748) (141,338) 40,950
Assumptions gain / (loss) - - 1 72,866 - (194,418)
(325,849) 54,320 (131,882) (141,338) (153,468)
Actuarial gain / (loss) on assets
Experience adjustment 9,694,483 4,634,045 5,268,939 (254,840) 729,547
Assumptions gain / (loss) - - (1 38,502) - 208,192
9,694,483 4,634,045 5,130,437 (254,840) 937,739
================================================================================================================37.11.2. Employees' Contributory Benevolent Scheme================================================================================================================
2007 2006 2005 2004 2003
(Rupees in '000)
================================================================================================================
Present value of defined benefit obligation 355,340 332,677 407,569 362,104 355,177
Fair value of plan assets - (20,650) (18,976) (18,126) (16,938)
355,340 312,027 388,593 343,978 338,239
Actuarial gain / (loss) on obligation
Experience adjustment (60,968) 10,182 (228,823) (22,609) 49,270
Assumptions gain / (loss) - - 107,003 - -
(60,968) 10,182 (121,820) (22,609) 49,270
Actuarial gain / (loss) on assets
- Experience adjustment (1,529) (34) (1) 2 (14,972)
Assumptions gain / (loss) - - (418) - -
(1,529) (34) (419) 2 (14,972)
================================================================================================================37.11.3. Post Retirement Medical Benefits================================================================================================================
2007 2006 2005 2004 2003
(Rupees in '000)
================================================================================================================
Present value of defined benefit obligation 1,422,918 1,345,357 1,456,392 1,121,548 1,108,068
Fair value of plan assets - - - - -
1,422,918 1,345,357 1,456,392 1,121,548 1,108,068
Actuarial gain / (loss) on obligation
Experience adjustment (40,893) 36,153 8,743 - 27,994
Assumptions gain / (loss) - - (21,846) - -
(40,893) 36,153 (13,103) - 27,994
================================================================================================================37.11.4. Compensated absences================================================================================================================
2007 2006 2005 2004 2003
(Rupees in '000)
================================================================================================================
Present value of defined benefit obligation 974,464 1,023,683 856,213 603,624 607,314
Fair value of plan assets - - - - -
974,464 1,023,683 856,213 603,624 607,314
Actuarial gain / (loss) on obligation (100,729) - - - -
================================================================================================================37.12. No contribution to the pension fund is expected in the next future year. 38. DEFINED CONTRIBUTION PLAN The Bank operates an approved contributory provident fund for 6,201 (2006: 4,977) employees where contributions are made by the Bank and employees at 8.33% per annum (2006: 8.33% per annum) of the basic salary. During the year, the Bank contributed Rs. 109.775 million (2006: Rs. 98.789 million) in respect of this fund. The Bank also operates an approved non-contributory provident fund for 2,875 (2006: 2,876) employees who have opted for the new scheme, where contributions are made by the employees at 12% per annum (2006: 12% per annum) of the basic salary. 39. COMPENSATION OF DIRECTORS AND EXECUTIVES The aggregate amount charged in the financial statements for compensation, including all benefits, to the Chief Executive, Directors and Executives of the Bank was as follows: ==============================================================================================================
President/Chief Executive Directors Executives
Note 2007 2006 2007 2006 2007 2006
==============================================================================================================
(Rupees in '000)
==============================================================================================================
Fees - - 720 140 - -
Managerial remuneration 15,117 8,028 1,524 1,434 392,219 351,351
Bonus and others 63,212 7,845 - 323,811 258,072
Retirement benefits 1,259 669 - 32,672 29,267
Rent and house maintenance 6,803 3,852 - 176,499 158,108
Utilities 1,512 803 - 40,286 35,135
Medical 260 356 - 19,544 18,774
Conveyance 413 497 - 64,545 63,861
39.1 88,576 22,050 2,244 1,574 1,049,576 914,568
Number of persons 2 1 10 9 489 429
==============================================================================================================39.1. This includes remuneration of ex-president and current president.The Chief Executive and certain executives are provided with free use of the Bank's maintained cars and household equipments in accordance with the terms of their employment. 40. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of traded investments is based on quoted market prices, except for tradable-securities classified by the Bank as 'held to maturity'. These securities are being carried at amortised cost in order to comply with the requirements of BSD Circular 14 dated September 24, 2004. The fair value of these investments amounts to Rs. 2,228 million (2006: Rs. 1,978 million). Fair value of unquoted equity investments is determined on the basis of break up value of these investments as per the latest available audited financial statements. Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for such assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of loans and advances has been calculated in accordance with the Bank's accounting policy as stated in note 5.3 these financial statements. The maturity and repricing profile and effective rates are stated in notes 44.4.1 and 44.2 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 loans and deposits are frequently re-priced. 41. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES The segment analysis with respect to business activity is as follows: =====================================================================================================================
Corporate Trading Retail & Commercial Eliminations Total
Finance and Consumer Banking
Sales Banking
=====================================================================================================================
2007 (Rupees in '000)
=====================================================================================================================
Total income 204,985 11,414,516 16,165,038 9,838,320 175,027 37,797,886
Total expenses (9,355) (1,544,111) (13,762,373) (998,985) (175,027) (16,489,851)
Income tax expense - - - - (6,042,473)
Net income 195,630 9,870,405 2,402,665 8,839,335 - 15,265,562
Segment assets
- (Gross of NPL's provision)- - 124,228,781 159,928,244 133,655,445 - 417,812,470
Deferred tax assets - - - - - -
Total assets - 124,228,781 159,928,244 133,655,445 - 417,812,470
Segment non performing loans - - 5,567,247 5,1 58,061 - 1 0,725,308
Segment specific provision required - - 3,803,244 3,523,709 - 7,326,953
Segment liabilities - 109,512,112 127,089,636 116,238,620 - 352,840,368
Provision for taxation - - - - - 1,345,312
Deferred tax liability - - - - 1,180,162
Total liabilities - net - 109,512,112 127,089,636 116,238,620 - 355,365,842
Segment return on net
assets (ROA) (%) - 7.95% 1.54% 6.79% - 3.72%
Segment cost of fund (%) - 5.38% 2.11% 2.77% - 2.24%
---------------------------------------------------------------------------------------------------------------------
2006
---------------------------------------------------------------------------------------------------------------------
Total income 122,341 8,282,364 12,861,157 9,819,292 (315,676) 30,769,478
Total expenses (30,235) (1,542,942) (10,192,053) (819,254) 315,676 (12,268,808)
Income tax expense - - - - - (6,358,272)
Net income 92,106 6,739,422 2,669,104 9,000,038 - 12,142,398
Segment assets
- (Gross of NPL's provision) 133 95,1 75,652 139,469,250 113,244,069 - 347,889,104
Deferred tax assets - - - - - 1 72,373
Total assets 133 95,175,652 139,469,250 113,244,069 - 347,889,104
Segment non performing loans - - 5,711,301 2,859,512 - 8,570,813
Segment specific provision required - - 4,911,425 1,041,809 - 5,953,234
Segment liabilities 29 3,649,058 274,023,262 21,224,006 - 298,896,355
Provision for taxation - - - - - 2,367,574
Total liabilities - net 29 3,649,058 274,023,262 21,224,006 - 301,263,929
Segment return on net assets (ROA) - 7.08% 1.98% 8.02% - 3.55%
Segment cost of fund (%) - 7.71% 1.42% 7.46% - 1.47%
=====================================================================================================================42. RELATED PARTY TRANSACTIONS AND BALANCESThe Bank has related party relationship with its associated undertakings, subsidiary companies, employee benefit plans and its key management personnel (including their associates) and companies with common directors. The detail of investment in subsidiary companies and associated undertakings are stated in Annexure I to these financial statements. Transactions between the bank and its related parties are carried out at an arm's length basis under the comparable uncontrolled price method. However, the transactions between the bank and one of its subsidiary MNET Services (Private) Limited are carried out on 'cost plus' method. Details of loans and advances 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 10.6 to these financial statements. There are no transactions with key management personnel other than under their terms of employment. Contributions to and accruals in respect of staff retirement and other benefit plans are made in accordance with the actuarial valuation / terms of the contribution plan as disclosed in notes 37 and 38. Remuneration to the executives and disposals of vehicles are disclosed in noted 39 and Annexure IV to these financial statements. A. Balances ================================================================================================================================================
Directors Associated companies Subsidiary companies Other related parties
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in '000) A. Balances
================================================================================================================================================
Deposits
Deposits at beginning of the year 19,099 61,996 522,641 785,634 279,729 5,311 314,045 214,191
Deposits received during the year 447,772 572,767 124,757,792 33,568,048 699,420 653,980 14,776,866 17,714,493
Deposits repaid during the year (448,891) (615,664) (125,004,607) (33,831,041) (969,430) (379,562) (14,881,195) (17,614,639)
Deposits at end of the year 17,980 19,099 275,826 522,641 9,719 279,729 209,716 314,045
Mark-up expense on deposits 1 16 42,703 35,684 10,091 11,638 - 121
================================================================================================================================================Mark-up rates on deposits range from 0.1% to 6.75% (2006: 0.1% to 6.75%) per annum.================================================================================================================================================
Directors Associated companies Subsidiary companies Other related parties
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in '000) A. Balances
================================================================================================================================================
Advances (secured)
Balance at beginning of the year - - - - 2,473 - 2,240,038 1,297,320
Loans granted during the year - - - - - 2,810 1,442,020 2,062,460
Repayments received during the year - - - - (357) (337) (2,020,189) (1,119,742)
Balance at end of the year - - - - 2,116 2,473 1,661,869 2,240,038
Income on advances 193,167 257,354
================================================================================================================================================Profit rates on advances to pension fund at 6 month KIBOR + 0.3% and to the provident fund at 6 month KIBOR + 0.3% with floor of 9%. At December 31, 2007, interest receivable from the above funds amounted to Rs. 37.636 million.B. Other transactions (including profit and loss related transactions) =========================================================================================================================================
Directors Associated companies Subsidiary companies Other related parties
2007 2006 2007 2006 2007 2006 2007 2006
(Rupees in '000)
=========================================================================================================================================
Associates
-Adamjee Insurance Company Limited
- Insurance premium paid - net of refund - - 67,866 71,673 - - - -
- Insurance claim settled - - 65,260 23,664 - - - -
- Rent income received - - 2,147 2,197 - - - -
- Dividend received - - 98,274 62,568 - - - -
Subsidiary Companies
MNET Services (Private) Limited
- Outsourcing service charges - - - - 74,785 31,223 - -
- Networking service charges - - - - 5,977 5,681 - -
Muslim Commercial Financial
Services (Private) Limited
- Capital injection - - - - 20,000 - - -
- Custodian charges received - - - - 3 - - -
- Dividend received - - - - - 1,875 - -
- Accrued expenses - - - - 1,254 - - -
- Rent receivable - - - - 1,254 - - -
MCB Asset Management Company Limited
- Capital injection - - - - - 299,980 - -
- Markup paid - - - - 15,869 - - -
- Proceeds from sale of premises - - - - 31,215 - - -
-Gain on sale of premises - - - - 612
- Sale of car - - - - 1,544 - - -
- Gain on sale of car - - - - 58 - - -
- Markup payable - - - - 456 - - -
- Others - - - - 740 - - -
MCB Trade Services Limited
- Dividend received - - - - - 2,288 - -
- Markup paid - - - - 54 - - -
Other related parties
-MCB Employees Security System
and Services (Private) Limited
- Security guard expenses - - - - - - 115,718 87,767
MCB Employees Foundation
-Stationary expenses - - - - - - 140,009 98,486
- Service expenses - - - - - - 19,641 15,488
- Cash sorting expenses - - - - - - 16,603 6,465
- Cash in transit expenses - - - - - - 3,474 3,452
- Proceeds from sale of car - - - - - - 611 -
- Gain on sale of car - - - - - - 4 -
Others - - - - - - -
Dividend income - - - - - - 182,664 102,220
Proceeds from sale of vehicles to - - - - - - - -
key management personnel - - - - - - 5,987 1,678
Gain on sale of vehicles to - - - - - - -
key management personnel - - - - - - 583 898
Remuneration of key management - - - - - - -
personnel (other than directors) - - - - - - 136,276 145,674
Contribution! (expense) to provident fun - - - - - - 109,778 98,789
- Other miscellaneous expenses - - - - - - 69,263 58,609
- Non-executive directors' fee 720 140 - - - - - -
=========================================================================================================================================The details of director's compensations are given in note 39 to these financial statements.43. CAPITAL ADEQUACY 43.1. Capital Management Objectives and goals of managing capital The objectives and goals of managing capital of the Bank are as follows: - to be an appropriately capitalized institution, as defined by regulatory authorities and comparable to the peers; - maintain strong ratings and to protect the Bank against unexpected events; - availability of adequate capital (including the quantum) at a reasonable cost so as to enable the Bank to expand; and achieve low overall cost of capital with appropriate mix of capital elements. Statutory minimum capital requirement and management of capital The State Bank of Pakistan through its BSD Circular No. 6 dated October 28, 2006 requires the minimum paid up capital (net of losses) for banks / development finance institutions to be raised to Rs. 6 billion by the year ending December 31, 2009. The raise is to be achieved in a phased manner requiring Rs. 4 billion paid up capital (net of losses) by the end of the financial year 2004. The paid up capital of the Bank for the year ended December 31, 2007 stands at Rs. 6.2 billion and is in compliance with the SBP requirement for the said year. In addition the banks are also required to maintain a minimum capital adequacy ratio (CAR) of 8 % of the risk weighted exposure. The Bank's CAR as at December 31, 2007 was 17.88 % of its risk weighted exposure. Bank's regulatory capital is analysed into two tiers. - Tier 1 capital, which includes fully paid up capital (including the bonus shares), balance in share premium account, general reserves as per the financial statements and net un-appropriated profits, etc after deductions for investments in the equity of subsidiary companies engaged in banking and financial activities, deficit on revaluation of available for sale investments. Tier 2 capital, which includes general provisions for loan losses (up to a maximum of 1 .25 % risk weighted assets), reserves on the revaluation of fixed assets and equity investments (up to a maximum of 50 % the balance in the related revaluation reserves), foreign exchange translation reserves, etc. Tier 3 capital has also been prescribed by the State Bank of Pakistan. However the Bank is not eligible for the Tier 3 capital. The Capital of the Bank is managed keeping in view the minimum "Capital Adequacy Ratio" required by SBP through BSD Circular No. 6 dated October 28, 2006. The adequacy of the capital is tested with reference to the risk-weighted assets of the Bank. The required capital adequacy ratio (8% of the risk-weighted assets) is achieved by the Bank through improvement in the asset quality at the existing volume level, ensuring better recovery management and striking compromise proposal and settlement and composition of asset mix with low risk. Banking operations are categorized as either trading book or banking book and risk-weighted assets are determined according to specified requirements of the State Bank of Pakistan that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. The total risk-weighted exposures comprise the credit risk and market risk. The calculation of Capital Adequacy enables the Bank to assess the long-term soundness. As the bank carry on the business on a wide area network basis, it is critical that it is able to continuously monitor the exposure across the entire organisation and aggregate the risks so as to take an integrated approach/view. Maximization of the return on risk-adjusted capital is the principal basis to be used in determining how capital is allocated within the Bank to particular operations or activities. It is not the sole basis used for decision making viz-a-viz development taken place on Base II regulatory framework which will be applicable with effect from January 01, 2009. The Bank has complied with all externally imposed capital requirements through out the period. Further there has been no material change in the Bank's management of capital during the period. 43.2. Capital adequacy ratio The risk weighted assets to capital ratio, calculated in accordance with the State Bank's guidelines on capital adequacy was as follows: ======================================================================================
Note 2007 2006
(Rupees in '000)
======================================================================================
Regulatory Capital Base
Tier I Capital
Shareholders capital 6,282,768 5,463,276
Reserves (excluding
exchange translation reserve) 34,042,619 24,716,063
Unappropriated profits 5,1 30,750 5,530,972
45,456,137 35,710,311
Less: Adjustments 43.2.9 (735,904) (334,407)
Total Tier I Capital 44,720,233 35,375,904
Tier II Capital
Subordinated debt
(up to 50% of total Tier I Capital) 43.2.1 - 95,846
General provisions subject to
1.25% of total risk weighted assets 3,445,321 2,655,110
Foreign exchange translation reserves (41,981) (53,637) I
Revaluation reserve (up to 50%) 5,346,654 2,593,820
Total Tier II Capital 8,749,994 5,291,139
Eligible Tier III Capital - -
Total Regulatory Capital (a) 53,470,227 40,667,043
====================================================================================== Risk-Weighted Exposures=========================================================================================================
2007 2006
Note Book Value Risk Book Value Risk
Adjusted Adjusted
=========================================================================================================
Credit Risk (Rupees in '000)
=========================================================================================================
Balance Sheet Items:
Cash and other liquid assets 43.2.2 43,491,402 1,502,506 39,042,993 1,845,070
Money at call 1,051,372 210,274 21,081,800 1,810,000
Investments 43.2.3 112,858,509 12,746,477 63,486,316 13,765,510
Loans and advances 43.2.4 211,805,755 179,881,292 189,059,791 151,249,812
Fixed assets 16,024,123 16,024,123 9,054,156 9,054,156
Other assets 43.2.5 17,868,761 17,656,938 11,203,823 11,006,803
403,099,922 228,021,610 332,928,879 188,731,351
Off Balance Sheet items:
Loan repayment guarantees 43.2.6 15,375,233 15,190,831 8,217,622 6,857,274
Stand by Fetters of credit 43.2.7 58,809,106 29,404,554 39,997,162 119,998,580
Outstanding foreign exchange
contracts - market related 43.2.8 131,239,366 876,345 86,499,132 421,430
205,423,705 45,471,730 134,713,916 27,277,284
Credit risk-weighted exposures 273,493,340 216,008,635
Market Risk
General market risk 1,184,281 143,425
Specific market risk 757,421 -
Foreign exchange risk 108,364 20,875
Total capital charge on market risk 2,050,066 164,300
Market risk-weighted exposures
(total capital charge x 12.5) 25,625,831 2,053,750
Total Risk-Weighted exposures (b) 299,119,171 218,062,385
Capital Adequacy Ratio [(a) / (b) x 100)] 17.88% 18.65%
=========================================================================================================43.2.1. The liability against term finance certificates amounting to Rs. 479.232 million is subordinated as to the payment of principal and profit to all other debit ness of the Bank (including deposits). These will be fully redeemed in February 2008.For the purpose of inclusion of subordinated loan in supplementary capital, a discount of 100% has been applied on the amount that will be redeemed in 1 year time. 43.2.2. Balances with other banks includes balances with National Bank of Pakistan in local currency current account amounting to Rs. 3, 705.014 million (2006: Rs. 2,548.255 million) classified under cash and balances with treasury banks in these financial statements. 43.2.3. Investments exclude investment in held-for- trading portfolio amounting to Rs. 230.752 million (2006: Rs. NIL). 43.2.4. Advances secured against government securities/own deposits / cash margin amounting to Rs. 10,600.164 million (2006: Rs. 11,834.474 million) have been deducted from gross advances. Advances are gross of general provision amounting to Rs. 3,445.321 million. 43.2.5. Other assets include deferred tax asset - net amounting to Rs. NIL (2006: Rs. 1 72.373 million). 43.2.6. Cash-margin amounting to Rs. 948.147 million (2006: Rs. 813.378 million) have been deducted from loan repayment guarantees. 43.2.7. Cash margin amounting to Rs. 508.791 million (2006: Rs. 858.262 million) have been deducted from standby letters of credit. 43.2.8. Forward foreign exchange contracts with maturity of less than or equal to 14 days from the original maturity amounting to Rs. 2,692.471 million (2006: Rs. 8,624.154 million) have been excluded from the above. 43.2.9. The adjustments to Tier I capital represents net deductions for investments in subsidiary companies and deficit on revaluation of -available for sale securities (net of deferred tax). 44. RISK MANAGEMENT The wide variety of Bank's businesses necessitates a risk management system to identify, measure, monitor and manage risks effectively. Bank's risk management framework is based on three pillars; risk principles, organizational structures and prudent risk measurement and monitoring processes which are closely aligned with the activities of the Bank so as to ensure that risks are kept within an acceptable level. Risk Management Organization The Bank risk management function is independent of the business areas. Based on the State Bank of Pakistan's (SBP) guidelines and Bank for International Settlement's Frameworks, the bank has constituted a Risk Management Committee (RMC), developed an elaborate risk identification measurement and management framework and has also reorganized risk management function broadly based on the following: - Setting up of separate risk areas (as detailed below) - Engaging the advisory services of an international consultant for the overall risk management function. The head of risk management is a member of risk management & management committees of the Bank and is responsible for credit, market and operational risk management activities within the Bank in close coordination with respective business areas. To ensure independence, head of risk management is directly reporting to the RMC. For each risk, i.e. credit, operational and market, a specific department has been established with the mandate to: - Identify, measure, monitor and mitigate risk while ensuring that risk / reward relationship is maintained at an optimal level. - Ensure that the business conducted is consistent with the risk appetite of the Bank. - Formulate and implement risk policies, procedures and methodology in coordination with business areas. - Conduct periodic reviews to ensure that the risks are within acceptable parameters, and - Develop & implement risk management infrastructure & systems that are appropriate for each area and flexible to cater risk emanating from changing banking environment. - The most important risk that Bank management assumes are specific banking risks and risks arising from the general business environment. The Bank's risk management process distinguishes among various kinds of specific banking risks and mainly comprises of credit risk, liquidity risk, operational risk and market risk. The policies and procedures for managing risks are outlined below: 44.1. Credit risk Credit risk makes up the largest part of the Bank's risk exposures. The bank measures and manages its credit risk by adopting the following policies: - Consistent standards are applied for credit decision processes. - The approval of credit limits for counter parties and the management of individual credit exposures are subject to pre-fact credit review. - Every extension of credit or material change to a credit facility (such as tenor of facility, collateral structure or major covenants) requires credit approval and independent pre-fact review at the appropriate levels. - The bank assigns credit approval and credit review authorities to individuals according to their qualifications, experience and training and the management reviews these powers periodically. - The approval process is checked through independent pre-fact review by Risk Management Group (RMG) and post-fact by internal audit function. In addition, the below listed initiatives have been initiated by the Bank for enhancement of risk management capabilities: The Risk Management Group has reviewed and updated the existing Policy documents in order to comply with the requirements of SBP prescribed policy framework. Jn this regard following policies have been reviewed and updated in line with best practices: - Risk Management Policy - Credit Policy - Market Risk Limits Policy - Investment Policy - Credit Handbook - Operational Risk Framework - Country Risk Policy Development and implementation of risk based credit MIS (CRMIS). Credit handbook has been updated and rolled out which would provide comprehensive guidelines for credit process and to adopt latest developments and best practices in the area of credit risk. Portfolio Management function has been initiated. Credit Administration role has been revitalized and Credit Risk Control roll out plan has been implemented. Concentration of credit and deposits Out of the total financial assets of Rs. 380,637 million (2006: Rs. 325,641 million) the financial assets which are subject to credit risk amounting to Rs. 369,175 million (2006: Rs. 317,694 million). To manage credit risk the bank applies credit limits to its customers and obtains adequate collaterals. Investments accounting to Rs. 97,047 million (2006: Rs. 46,953 million) are guaranteed by the Government of Pakistan. In addition, an amount of Rs. 24,517 million (2006: Rs. 21,870 million) are held by the Bank with the State Bank of Pakistan and central banks of other countries. 44.1.1. Segmental information Segmental Information is presented in respect of the class of business and geographical distribution of advances (gross), deposits, contingencies and commitments. 44.1.1.1. Segments by class of business ==============================================================================================================================
2007 Contingencies and Advances
(Gross) Deposits Commitments
(Rupees Percent (Rupees Percent (Rupees Percent
==============================================================================================================================
in 000) (%) in 000) (%) in 000) (%)
==============================================================================================================================
Agriculture, forestry,
hunting and fishing 2,023,407 0.88 33,955,983 11.62 1,785,793 0.84
Mining and quarrying 256,233 0.11 232,217 0.08 66,491 0.03
Textile 35,741,728 15.56 1,331,384 0.46 7,250,420 3.40
Chemical and pharmaceuticals 8,061,429 3.51 787,584 0.27 3,448,972 1.62
Cement 5,310,127 2.31 152,889 0.05 1,090,783 0.51
Sugar 5,936,493 2.58 439,663 0.15 23,717 0.01
Footwear and leather garments 2,063,300 0.90 324,337 0.11 974,005 0.46
Automobile and transportation equipment 480,156 0.21 130,494 0.04 583,265 0.27
Electronics and electrical appliances 1,681,402 0.73 78,700 0.03 - -
Construction - - - - 1,219,191 0.57
Power (electricity), gas, water, sanitary 14,837,745 6.46 1,992,295 0.68 1,672,359 0.78
Wholesale and Retail Trade 22,838,333 9.94 37,318,876 12.78 7,015,754 3.29
Exports/imports 183,913 0.08 - - - -
Transport, storage and communication 11,370,208 4.95 2,420,960 0.83 1,158,025 0.54
Financial 15,369,157 6.69 8,691,403 2.98 154,620,283 72.48
Insurance 200,000 0.09 1,847,660 0.63 - -
Services 3,796,219 1.65 4,136,923 1.42 - -
Individuals 31,855,010 13.87 136,928,992 46.88 - -
Others 67,817,877 29.48 61,327,706 21.00 32,408,049 15.19
229,732,872 100.00 292,098,066 100.00 213,317,107 100.00
==============================================================================================================================
2006
==============================================================================================================================
Advances Contingencies and
(Gross) Deposits Commitments
(Rupees Percent (Rupees Percent (Rupees Percent
==============================================================================================================================
in 000) (%) in 000) (%) in 000) (%)
==============================================================================================================================
Agriculture, forestry, hunting and fishing 1,889,845 0.91 32,900,524 12.78 2,228,461 1.39
Mining and quarrying 389,106 0.19 348,899 0.14 112,220 0.07
Textile 28,932,854 13.99 1,989,420 0.77 8,668,281 5.39
Chemical and pharmaceuticals 4,993,570 2.41 1,353,387 0.53 5,938,173 3.69
Cement 6,609,300 3.20 228,468 0.09 3,310,583 2.06
Sugar 6,054,687 2.93 407,092 0.16 21,317 0.01
Footwear and leather garments 1,561,433 0.75 240,342 0.09 635,504 0.40
Automobile and transportation equipment 738,737 0.36 286,083 0.11 837,143 0.52
Electronics and electrical appliances 2,330,500 1.13 48,081 0.02 - -
Power (electricity), gas, water, sanitary 3,153,770 1.52 1,444,291 0.56 4,029,755 2.51
Exports/imports 21,419,484 10.36 34,013,464 13.21 6,121,691 3.81
Transport, storage and communication 17,293,669 8.36 1,969,668 0.77 5,892,594 3.66
Financial 15,160,198 7.33 1,670,441 0.65 117,338,576 72.95
Insurance 204,077 0.10 487 0.00 - -
Services 4,508,695 2.18 3,168,557 1.23 - -
Individuals 20,767,887 10.04 121,616,467 47.24 - -
Others 70,839,687 34.25 55,776,167 21.66 5,708,710 3.55
206,847,499 100.00 257,461,838 100.00 160,843,008 100.00
==============================================================================================================================44.1.1.2. Segments by sector==============================================================================================================================
2007
Contingencies and
Advances Deposits Commitments
(Rupees Percent (Rupees Percent (Rupees Percent
in '000) (%) in '000) (%) in '000) (%)
==============================================================================================================================
Public/Government 27,213,253 11.85 14,793,604 5.06 35,552,582 16.67
Private 202,519,619 88.15 277,304,462 94.94 177,764,525 83.33
229,732,872 100.00 292,098,066 100.00 213,317,107 100.00
==============================================================================================================================
2006
==============================================================================================================================
Contingencies and
Advances Deposits Commitments
(Rupees Percent (Rupees Percent (Rupees Percent
in '000) (%) in '000) (%) in '000) (%)
==============================================================================================================================
Public / Government 27,704,174 13.39 7,264,482 2.82 41,788,324 25.98
Private 179,143,325 86.61 250,197,356 97.18 119,054,684 74.02
206,847,499 100.00 257,461,838 100.00 160,843,008 100.00
==============================================================================================================================44.1.1.3. Details of non-performing advances and specific provisions by class of business segment================================================================================================
2007 2006
Classified Specific Classified Specific
Advances Provision Advances Provision
Held Held
(Rupees in '000)
================================================================================================
Agriculture, forestry, hunting and fishing 267,996 58,282 319,684 118,003
Mining and quarrying 17,741 15,988 4,238 4,238
Textile 1,279,026 970,589 1,087,981 1,020,228
Chemical and pharmaceuticals 21,800 21,676 32,720 32,720
Cement 750 750 750 750
Sugar 20,572 20,572 36,398 36,398
Footwear and leather garments 71,301 61,381 92,500 87,629
Automobile and transportation equipment 3,461 1,881 44,903 43,405
Electronics and electrical appliances 132,910 132,910 303,162 275,670
Construction 85,057 74,338 159,747 154,601
Power (electricity), gas, water, sanitary 1,884 1,884 1,935 1,839
Wholesale and retail trade 4,823,241 2,712,213 3,949,587 2,012,221
Exports/imports 354,637 341,318 421,130 369,771
Transport, storage and communication 34,967 21,662 27,408 25,913
Financial 53,159 53,159 65,243 65,243
Insurance - - - -
Services 288,365 214,851 167,651 89,656
Individuals 783,526 479,321 261,553 179,773
Others 2,484,915 2,144,178 1,594,223 1,435,176
10,725,308 7,326,953 8,570,813 5,953,234
================================================================================================44.1.1.4. Details of non-performing advances and specific provisions by sector================================================================================================
2007 2006
Classified Specific Classified Specific
Advances Provision Advances Provision
Held Held
(Rupees in '000)
================================================================================================
Public/ Government - - 52,633 -
Private 10,725,308 7,326,953 8,518,180 5,953,234
1 0,725,308 7,326,953 8,570,813 5,953,234
================================================================================================44.1.1.5. Geographical segment analysis==================================================================================
2007
Profit before Total assets Net assets Contingencies
taxation employed employed and
Commitments
==================================================================================
(Rupees in '000)
==================================================================================
Pakistan 21,138,395 399,926,878 54,949,917 209,721,347
Asia Pacific
(including South Asia) 113,260 3,414,763 112,855 2,045,760
Middle East 56,380 7,143,876 56,903 1,550,000
21,308,035 410,485,517 55,119,675 213,317,107
==================================================================================
2006
==================================================================================
Profit before Total assets Net assets Contingencies
taxation employed employed and
Commitments
==================================================================================
(Rupees in '000)
==================================================================================
Pakistan 18,239,074 333,949,788 40,582,718 160,150,678
Asia Pacific
(including South Asia) 103,834 2,949,729 103,834 692,330
Middle East 157,762 5,208,726 157,762 -
18,500,670 342,108,243 40,844,314 160,843,008
==================================================================================Total assets employed include intra group items of Rs. NIL (2006: Rs. NIL).44.2. Market Risk Management The Bank is exposed to interest rate risk, foreign exchange risk and equity price risk. The Bank is using in-house and vendor based solutions for calculating mark to market value of its positions and generating VaR (value at risk) and sensitivity numbers. Besides conventional methods, the Bank is using VaR for market risk assessment of assets booked by treasury and capital market groups. The Bank is using variance co-variance approach of VaR measure for conventional products and Monte Carlo simulation approach for derivative and structured products. Further stress testing of both banking and trading books are performed in line with SBP guidelines. The Bank is exposed to interest rate risk both in trading and banking books. Presently the market risk reporting system is generating risk numbers of government securities held by the Bank's treasury. The risk management system generates daily reports based upon the marked to market of these assets. These reports provide risk numbers i.e. duration, PVBP, and VaR on individual security basis. The system also generates summarized reports on portfolio basis. These reports are presented to the senior management for review on a daily basis. 44.2.1. Foreign Exchange Risk Management The core objective of foreign exchange risk management is to ensure the foreign exchange exposure of the Bank remain within defined risk appetite (10% of paid up capital). Daily reports are generated to evaluate the exposure in different currencies. Further risk management system generates VaR and PVBP numbers for foreign exchange portfolio to estimate the potential loss under normal conditions. Stress testing of foreign exchange portfolio is also performed and reported to senior management. All these activities are performed on a daily basis. ===================================================================================
2007
===================================================================================
Assets Liabilities Off-balance Net foreign
sheet items currency
exposure
===================================================================================
(Rupees in '000)
===================================================================================
Pakistan Rupee 391,981,415 344,616,818 7,291,655 54,656,252
United States Dollar 16,508,535 8,051,231 (8,154,730) 302,574
Pound Sterling 228,698 1,073,197 901,837 57,338
Japanese Yen 129,669 173 (130,985) (1,489)
Euro 1,540,000 1,624,423 100,924 16,501
Other currencies 97,200 - (8,701) 88,499
410,485,517 355,365,842 - 55,119,675
===================================================================================
2006
===================================================================================
Assets Liabilities Off-balance Net foreign
sheet items currency
exposure
===================================================================================
(Rupees in '000)
===================================================================================
Pakistan Rupee 315,967,111 284,618,641 6,086,875 37,435,345
United States Dollar 23,199,011 13,634,488 (7,191,418) 2,373,105
Pound Sterling 555,830 1,197,433 17,304 (624,299)
Japanese Yen 23,809 120,878 113,102 16,033
Euro 617,960 1,014,993 (54,068) (451,101)
Other currencies 1,744,522 677,496 1,028,205 2,095,231
342,108,243 301,263,929 - 40,844,314
===================================================================================44.2.2. Equity Price RiskEquity price risk is managed by applying trading limit, scrip-wise and portfolio wise nominal limits. VaR numbers generation and stress testing of the equity portfolio are also performed and reported to senior management on daily basis. 44.3. Mismatch of Interest Rate Sensitive Assets and Liabilities Yield / interest rate sensitivity position for on-balance sheet instruments is based on the earlier ol contractual re-pricing or maturity date and for off/balance sheet instruments is based on settlement date. =======================================================================================================================================================================================================
2007
=======================================================================================================================================================================================================
Effective Total Exposed to Yield Interest risk Not exposed
Yield/ Upto Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above to Yield/
Interest 1 month to 3 to 6 months to to 2 to 3 to 5 to l0 10 years Interest
rate months months 1 year years years years years Risk
=======================================================================================================================================================================================================
On-balance sheet financial instruments (Rupees in '000)
=======================================================================================================================================================================================================
-Assets
cash and balances with treasury banks 4.24% 39,683,883 534,159 - - - - - - - - 39,149,724
Balances with other banks 6.18% 3,807,519 571,813 - - - - - - - - 3,235,706
Lendings to financial institutions 11.20% 1,051,372 51,372 1,000,000 - - - - - - - -
Investments-net 9.78% 111,704,827 20,916,251 13,498,301 19,123,566 33,051,162 4,033,023 1,267,859 2,345,401 4,179,487 1,939,961 11,349,816
Advances-net 10.89% 218,960,598 5,965,111 27,227,275 49,538,582 61,024,392 17,891,332 17,891,332 35,782,665 1,455,964 2,183,945 -
Other assets-net 5,428,894 - - - - - - - - 5,428,894 -
380,637,093 28,038,706 41,125,576 68,662,148 94,075,554 21,924,355 19,159,191 38,128,066 5,635,451 4,123,906 59,164,140
Liabilities
Bills payable 10,479,058 - - - - - - - - - 10,479,058
Borrowings 6.56% 39,406,831 33,027,113 3,300,305 606,336 - - - 2,473,077 - - -
Deposits and other accounts 2.02% 292,098,066 161,711,194 4,555,291 3,410,892 12,850,476 2,283,975 1,974,594 4,354,242 1,842,888 - 99,106,514
Sub-ordinated loan 11.75% to 15.75% 479,232 - 479,232 - - - - - - - -
Other liabilities 7,708,567 - - - - - - - - - 7,708,567
350,171,754 194,738,307 8,334,828 4,025,228 12,850,476 2,283,975 1,974,594 6,827,319 1,842,888 - 117,294,139
On-balance sheet gap 30,465,339 (166,699,601) 33,390,748 64,636,920 81,225,078 19,640,380 17,184,597 31,300,747 3,792,563 4,123,906 (58,129,999)
=======================================================================================================================================================================================================
Off-balance sheet financial instruments
=======================================================================================================================================================================================================
Forward lendings - - - - - - - - - - -
Outright purchase-Govt securities - - - - - - - - - - -
Foreign exchange contracts: - - - - - - - - - - -
-Purchase 62,017,338 16,646,098 18,595,351 17,000,385 9,835,504 - - - - - -
Interestrateswaps 2,721,698 18,182 - 53,516 300,000 1,850,000 500,000 - - - -
Crosscurrencys waps 1,845,484 - - . - 588,660 240,000 1,016,824 - - -
66,644,520 16,664,280 18,595,351 17,053,901 10,135,504 2,438,660 - 740,000 1,016,824 - - -
=======================================================================================================================================================================================================
Foreign exchange contracts:
=======================================================================================================================================================================================================
-Sale 69,362,417 23,865,234 18,208,526 8,633,379 18,655,278 - - - - - -
69,362,417 23,865,234 18,208,526 8,633,379 18,655,278 - - - - - -
Off-balance sheet gap (2,717,897) (7,200,954) 386,825 8,420,522 (8,519,774) 2,438,660 740,000 1,016,824 - - -
Total yield/interest risk sensitivity gap (173,900,555) 33,7/7,573 73,057,442 72,705,304 22,079,040 17,924,597 32,317,571 3,792,563 4,123,906 -
Cumulative yield/interest risk sensitivity gap (173,900,555) (140,122,982)(6,065,540) 5,639,764 27,718,804 45,643,401 77,960,972 81,753,535 85,877,441 -
=======================================================================================================================================================================================================
2006
=======================================================================================================================================================================================================
Effective Total Exposed to Yield! Interest risk Not exposed
Yield/ Up to Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above to Yield/
Interest 1 month to3 to 6 months to to 2 to 3 to 5 to 10 10 years Interest
Rate months months 1 year years years years years Risk
=======================================================================================================================================================================================================
(Rupees in '000)
=======================================================================================================================================================================================================
On-balance sheet financial instruments
Assets -
Cash and balances with treasury banks 4.35% 32,465,976 1,420,319 - - - - - - - - 31,045,657
Balances with other banks 5.77% 6,577,011 2,409,176 - - 121,820 - - - - - 4,046,021
Lendings to financial institutions 9.13% 21,081,800 11,396,800 7,905,000 1,700,000 - - - - - - -
Investments-net 9.22% 62,121,885 7,636,492 1,791,960 11,713,325 19,433,349 178,700 499,162 7,652,449 4,216,642 113,816 8,085,990
Advances-net 1010% 198,239,155 3,025,175 40,581,531 31,723,015 60,657,360 35,631,318 13,810,935 10,921,950 1,864,789 23,022 -
Other assets - net - 5,155,639 - - - - - - - - - 5,155,639
- . - - 325,641,472 25,887,962 50,358,491 45,136,400 80,212,529 35,010,018 14,310,097 18,514,399 6,081,431 136,838 49,133,307
Bills Payable - 7,089,679 - - - - - - - - - 7,089,679
Borrowings 5.56% 23,943,476 14,880,574 4,440,262 2,130,468 179,142 - - - 2,313,030 - -
Deposits and other accounts 1.17% 257,461,838 138,302,691 7,950,363 6,229,354 7,688,296 2,840,110 1,333,264 4,286,583 1,188,431 - 87,042,146
Sub-ordinated loan 11.75% to 15.75% 1,591,440 - 637,440 - 480,000 480,000 - - -
Other liabilities - 6,072,247 - - - - - - - - - 6,072,247
296,164,680 153,183,265 13,028,065 8,359,822 8,347,438 3,320,110 1,333,264 4,286,583 4,101,461 - 100,204,672
On-balance sheet gap 29,476,792 (127,295,303) 37,330,426 36,7716,578 71,865,091 32,409,908 12,976,833 14,287,816 1,979,970 136,838 (51,071,365)
Off-balance sheet financial instruments
Forward Lendings 1,853,461 1,853,461 - - - - - - - - -
Outright purchase-Govt. securities - 6,942,230 - - - - - - - - - 6,942,230
Foreign exchange contracts:
-Purchase - 41,288,941 16,883,524 21,223,894 2,160,021 1,021,502 - - - - - -
Interest rate swaps - 3,223,485 - - - - 800,735 1,922,758 500,000 - - -
- 53,308,117 18,736,985 21,223,894 2,160,021 1,021,502 800,735 1,922,750 500,000 - - 6,942,230
Foreign exchange contracts:
-Sale - 50,420,861 13,876,815 9,573,115 20,298,836 6,672,035 - - - - - -
Outright sale - Govt. securities - 5,107,030 - . - - - - - - - 5,107,030
- 55,527,891 13,876,815 9,573,175 20,298,836 6,672,035 - - - - - 5,101,030
0ff-balance sheet gap (2,219,774) 4,868,170 11,650,719 (18,138,815) (5,650,533) 800,735 1,922,750 500,000 - - 1,835,200
Total yield / interest risk sensitivity gap (122,435,l33) 48,981,145 18,637,163 66,214,558 33,290,643 14,899,583 14,787,816 1,979,970 136,838
Cumulative yield/interest risk sensitivity gap (122,435,133) (73,453,988) (54,816,225) 11,398,333 44,688,976 59,588,559 14,376,375 16,356,345 76,493,183
=======================================================================================================================================================================================================Yield risk is the risk of decline in earnings due to adverse movement of the yield curve.Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. ===========================================================================================================================
Reconciliation to total assets 2007 2006 Reconciliation to total liabilities 2007 2006
===========================================================================================================================
(Rupees in '000) (Rupees in '000)
===========================================================================================================================
Balance as per balance sheet 410,485,517 342,108,243 Balance as per balance sheet 355,365,842 301,263,929
Less: Non financial assets Less: Non financial liabilities
Investments 1,384,434 1,364,431 Other liabilities 4,013,926 5,099,249
Operating fixed assets 116,024,123 9,054,156 Deferred tax liability 1,180,162 -
Deferred tax asset - 172,373 - -
Other assets 12,439,867 5,875,811 5,194,088 5,099,249
29,848,424 16,466,771
Total financial assets 380,637,093 325,641,472 Total financial liabilities 350,171,754 296,164,680
===========================================================================================================================44.4. Liquidity RiskIt is the policy of the Bank to maintain adequate liquidity at all times, in all geographical locations and for all currencies and hence to be in a position, in the normal course of business, to meet all our obligations, to repay depositors, to fulfill commitments to lend and to meet any other commitments made. The Bank manages liquidity risk in three stages: - Balance sheet management; - Liquidity management; and - Intraday liquidity management. Balance sheet management Balance sheet management is the practice of reviewing the actual and planned strategic growth of business and its impact from a balance sheet integrity and sustainability perspective. As such the goal is to identify any risks arising from structural imbalances and concentrations, and seek to alter plans in order to avoid these developing into a liquidity problem. Liquidity management Liquidity management is the day to day practice of ensuring that the Bank is able to meet all its payment obligations as they fall due without having to sell assets or borrow funds at short notice at adverse market prices. While primarily focused on the management of cash-flows, MCB maintains a portfolio of marketable securities that can either be sold outright or sold through a repurchase agreement to generate cash-flow for meeting liquidity requirements. Another precautionary measure is the active maintenance of borrowing relationships to ensure the continued access to diverse market of funding sources. Intraday liquidity management Intraday liquidity is the practice of ensuring that the Bank has sufficient cash during the day to make payments through the local payment system. In this respect, MCB maintains cash balances from which payments are made or generate a cash balances through the receipt of payments due or from borrowing or the outright sale or pledging of qualifying securities with the State Bank of Pakistan. 44.4.1. Maturities of Assets and Liabilities - Based on contractual maturity of the assets and liabilities of the Bank ==================================================================================================================================================================================
2007
Total Up to 1 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above
month to 3 to 6 months to to 2 to 3 to 5 to 10 10 years
months months 1 year years years years years
==================================================================================================================================================================================
(Rupees in '000)
==================================================================================================================================================================================
Assets
Cash and balances with treasury banks 39,683,803 39,683,883 - - - - - - - -
Balances with other banks 3,807,519 3,807,519 - - - - - - - -
Lendings to financial institutions 1,051,372 51,372 1,000,000 - - - - - - -
Investments -net 113,089,261 24,269,921 14,302,761 20,917,643 37,450,361 4,620,702 1,267,859 2,756,134 5,563,919 1,939,961
Advances-net 218,960,598 5,965,111 27,227,275 49,538,582 61,024,392 17,891,332 17,891,332 35,782,665 1,455,964 2,183,945
Operating fixed assets 16,024,123 55,169 8,199 165,501 331,003 853,421 662,005 824,106 392,654 12,732,065
Deferred tax assets 608,004 - - - 354 119,129 178,517 297,646 1,773 10,585
Other assets - net 17,868,761 2,414,006 1,259,203 957,612 2,100,422 2,130,209 3,681,185 5,325,524 - -
411,093,521 76,246,981 43,797,438 71,579,338 100,906,532 25,614,793 23,681,498 44,986,075 7,414,310 16,866,556
Liabilities
BiIs payable 10,479,058 10,479,058 - - - - - - - -
Borrowings 39,406,831 33,027,113 3,300,305 606,336 - - - 2,473,077 - -
Deposits and other account 292,098,066 260,817,708 4,555,291 3,418,892 12,850,476 2,283,975 1,974,594 4,354,242 1,842,888 -
Sub-ordinated loan 479,232 - 479,232 - - - - - - -
Delerred tax liabilities 1,788,166 4,165 8,333 12,498 82,665 49,996 49,996 99,991 192,325 1,288,197
Other liabilities 11,722,493 2,225,627 2,084,452 2,031,494 2,217,241 868,314 868,314 868,249 558,808 -
355,973,846 306,553,665 10,427,613 6,069,220 15,150,382 3,202,285 2,892,904 7,795,559 2,594,021 1,288,197
Net assets 55,119,675 (230,306,684) 33,369,825 65,510,118 85,756,150 22,412,508 20,788,594 37,190,516 4,820,289 15,578,359
Share capital 6,282,768
Reserves 34,000,638
Unappropriated profit 5,130,750
Surplus on revaluation of assets
- net of tax 9,705,519
55,119,675
==================================================================================================================================================================================The above maturity profile has been prepared in accordance with International Accounting Standard (lAS) 30: Disclosure in the financial statements of banks and similar financial institutions based on contractual maturities.The maturity profile disclosed in note 44.4.2 includes maturities of current and saving deposits determined by the Assets and Liabilities Management Committee (ALCO) keeping in view the historical withdrawal pattern of these deposits. 44.4.1. Maturities of Assets and Liabilities - Based on contractual maturity of the assets and liabilities of the Bank ==================================================================================================================================================================================
2006
Total Up to 1 Over 1 Over 3 Over6 Over 1 Over 2 Over 3 Over 5 Above
month to 3 to 6 months to to 2 to 3 to 5 to 10 10 years
months months 1 year year years years years
==================================================================================================================================================================================
Assets (Rupees in '000)
==================================================================================================================================================================================
Cash and balances with treasury banks 32,465,976 32,465,976 - - - -
Balances with other banks 6,577,017 6,455,197 - - 121,820 - - - -
Lendings to financial institutions 21,081,800 11,396,800 7,985,000 1,700,000 - - - - -
Investments-net 63,486,316 8,311,286 7,053,609 11,727,876 19,453,516 619,665 795,144 10,752,156 4,640,755 132,309
Advances-net 198,239,155 3,025,175 40,581,531 31,723,075 60,657,360 35,631,318 13,810,935 10,921,950 1,864,789 23,022
Operating fixed assets 9,054,156 75,944 159,497 307,593 - 1,091,204 739,757 501,313 229,566 436,846 5,512,436
Deferred tax assets 617,200 - - - 359 120,931 181,217 302,148 1,800 10,745
Other assets-net 11,031,450 5,720,961 664,312 450,562 44,802 630,000 3,490,813 -
342,553,070 67,451,339 56,443,949 45,939,106 81,369,061 37,741,671 18,779,422 22,205,820 6,944,190 5,678,512
Liabilities bills payable 7,089,679 7,089,679 - - - - -
Borrowings 23,943,476 14,880,574 4,440,262 2,130,468 179,142 - - 2,313,030 -
Deposits and other accounts 257,461,838 225,345437 7,950,363 6,229,354 7,688,296 2,840,110 1,333,264 4,286,583 1,788,431
Sub-Ordinated loan 1,597,440 - 637,440 - 480,000 480,000 - - - -
Deterred tax liabilities 444,827 1,036 2,073 3,109 20,564 12,437 12,437 24,874 47,843 320,454
Other liabilities 11,171,496 3,369,864 623,301 460,994 2,878,406 498,190 501,349 1,023,194 954,932 861,266
301,708,756 250,686,590 13,653,439 8,823,925 11,246,408 3,830,737 1,847,050 5,334,651 5,104,236 1,181,720
Net assets 40,844,314 (183,235,251) 42,790,510 37,115,181 70,122,653 33,910,934 16,932,372 16,871,169 1,839,954 4,496,792
Share capital 5,463,276
Reserves 24,662,426
Unappropriated profit 5,530,973
Surplus on revaluation of assets
-net of tax 5,187,639
40,844,314
==================================================================================================================================================================================The above maturity profile has been prepared in accordance with International Accounting Standard (lAS) 30: Disclosure in the financial statements ol banks and similar financial institutions based on contractual maturities. The maturity profile disclosed in note 44.4.2 includes maturities of current and saving deposits determined by the Assets and Liabilities Management Committee (ALCO) keeping in view the historical withdrawal pattern of these deposits.44.4.2. Maturities of Assets and Liabilities - Based on the working prepared by the Assets and Liabilities Management Committee (ALCO) of the Bank ==================================================================================================================================================================================
2007
Total Up to 1 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above
month to 3 to 6 months to to 2 to 3 to 5 to 10 10 years
months months 1 year years years years years
==================================================================================================================================================================================
(Rupees in '000)
==================================================================================================================================================================================
Assets
Cash and balances with treasury banks 39,683,883 39,683,883 - - - - - - - -
Balances with other banks 3,807,519 3,807,519 - - - - - - - -
Lendings to financial institutions 1,051,372 51,372 1,000,000 - - - - - - -
Investments - net 113,089,261 24,269,921 14,302,761 20,917,643 37,450,361 4,620,702 1,267,859 2,756,134 5,563,919 1,939,961
Advances - net 218,960,598 5,965,111 27,227,275 49,538,582 61,024,392 17,891,332 17,891,332 35,782,665 1,455,964 2,183,945
Operating fixed assets 16,024,123 55,169 8,199 165,501 331,003 853,421 662,005 824,106 392,654 12,732,065
Deferred tax assets 608,004 - - - - 354 119,129 178,517 297,646 1,773 10,585
Other assets-net 17,868,761 2,414,006 1,259,203 957,612 2,100,422 2,130,209 3,681,785 5,325,524 - -
411,093,521 76,246,981 43,797,438 71,579,338 100,906,532 25,614,793 23,681,498 44,986,075 7,414,310 16,866,556
Liabilities
Bills payable 10,479,058 10,479,058 - - - - - - - -
Borrowings 39,406,831 33,027,113 3,300,305 606,336 - - - 2,473,077 - -
Deposits and other accounts 292,098,066 29,996,252 33,628,921 76,432,222 85,863,528 21,973,538 16,579,245 15,741,140 6,927,894 4,955,326
Sub-ordinated loan 479,232 - 479,232 - - - - - - -
Deferred tax liabilities 1,788,166 4,165 8,333 12,498 82,665 49,996 49,996 99,991 192,325 1,288,197
Other liabilities 11,722,493 2,225,621 2,084,452 2,031,494 2,217,241 868,314 868,314 868,249 558,808 -
355,973,846 75,732,209 39,501,243 79,082,550 88,163,434 22,891,848 17,497,555 19,182,457 7,679,027 6,243,523
Net assets 55,119,675 514,771 4,296,195 (7,503,212) 12,743,098 2,722,945 6,183,943 25,803,618 (264,717) 10,623,033
Share capital - 6,282,768
Reserves 34,000,638
Unappropriated profit 5,130,750
Surplus on revaluation of assets
- net of tax 9,705,519
55,119,675
==================================================================================================================================================================================Refer the sub-note to note 44.4.1 also. Current and saving deposits do not have any contractual maturity. Therefore, current deposits and saving accounts have been classified between all nine maturities. Further, it has been assumed that on a going concern basis, these deposits are not expected to fall below the current year's level.44.4.2. Maturities of Assets and Liabilities - Based on the working prepared by the Assets and Liabilities Management Committee (ALCO) of the Bank ==================================================================================================================================================================================
2006
Total Up to 1 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above
month to 3 to 6 months to to 2 to 3 to 5 to 10 10 years
months months 1 year years years years years
==================================================================================================================================================================================
(Rupees in '000)
==================================================================================================================================================================================
Assets
Cash and balances with treasury banks 32,465,976 32,465,976 - - - - - - - -
Balances with other banks 6,577,017 6,455,197 - - 121,820 - - - - -
Lendings to financial institutions 21,081,800 11,396,800 7,985,000 1,700,000 - - - - - -
Investments- net 63,486,316 8,311,286 7,053,609 11,727,876 19,453,516 619,665 795,144 10,752,156 4,640,755 132,309
Advances-net 198,239,155 3,025,175 40,581,531 31,723,075 60,657,360 35,631,318 13,810,935 10,921,950 1,864,789 23,022
Operating fixed assets 9,054,156 75,944 159,497 307,593 1,091,204 739,757 501,313 229,566 436,846 5,512,436
Deferred tax assets 617,200 - - - 359 120,931 181,217 302,148 1,800 10,745
Other assets-net 11,031,450 5,720,961 664,312 480,562 44,802 630,000 3,490,813 - -
342,553,070 67,451,339 56,443,949 45,939,106 81,369,061 37,741,671 18,779,422 22,205,820 6,944,190 5,678,512
Liabilities
Bills payable 7,089,679 7,089,679 - - - - - - - -
Borrowings 23,943,476 14,880,574 4,440,262 2,130,468 179,142 - - - 2,313,030 -
Deposits and other accounts 257,461,838 26,101,223 32,870,784 69,126,607 70,585,549 20,010,179 14,028,581 14,123,596 6,263,182 4,352,137
Sub-ordinated loan 1,597,440 - 637,440 - 480,000 480,000 - - - -
Deferred tax liabilities 444,827 1,036 2,073 3,109 20,564 12,437 12,437 24,874 47,843 320,454
Other liabilities 11,171,496 3,369,864 623,301 460,994 2,878,406 498,190 501,349 1,023,194 954,932 861,266
301,708,756 51,442,376 38,573,860 71,721,178 74,143,661 21,000,806 14,542,367 15,171,664 9,578,987 5,533,857
Net assets 40,844,314 16,008,963 17,870,089 (25,782,072) 7,225,400 16,740,865 4,237,055 7,034,156 (2,634,797) 144,655
Share capital 5,463,276
Reserves - 24,662,426
Unappropriated profit 5,530,973
Surplus on revaluation of assets
-net of tax 5,187,639
40,844,314
==================================================================================================================================================================================Refer sub-note to note 44.4.1 also. Current and saving deposits do not have any contractual maturity. Therefore, current deposits and saving accounts have been classified between all nine maturities. Further, it has been assumed that on a going concern basis, these deposits are not expected to fall below the current years level.44.5. Operational Risk Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people, and systems, or from external events. This definition includes legal risk, but excludes strategic and reputational risks. It is one-of the three risk areas addressed by Basel II guidelines. The Operational Risk Management Division (ORMD) is primarily responsible for the management of operational risk across the bank. Although individual business units and support functions are risk owners, ORMD assists them in identification, assessment, and mitigation of operational risks. A comprehensive Operational Risk Framework has been developed and was approved by the President in May 2007. Furthermore, the Risk Management Policy, which addresses operational risk issues at the policy level, was also reviewed and revised during the year. The strategy for mitigating operational risks is to first better understand the Bank's internal risk and control profile, and then prioritize processes for managing operational risk. Major processes for operational risk management include, but are not limited to, a Risk & Control Self Assessment exercise, regular reporting of operational losses and control breaches through ORMD to senior management, setting and monitoring of tolerance limits, and improving awareness of, and adherence to, operational risk aspects across the Bank. Key mitigating tools have been developed in the form of Business Continuity Planning, Outsourcing and Insurance policies. Being a relatively new area of focus for risk management, operational risk is still in a stage of evolution. However, the Bank has ensured that best business practices are incorporated as much as possible. 45. NON-ADJUSTING EVENT The Board of Directors in its meeting held on February 15, 2008 has announced a final cash dividend in respect of the year ended December 31, 2007 of Rs. 5 per share (2006: Rs. 1.50 per share) and bonus shares Nil (2006: 15%). These financial statements for the year ended December 31, 2007 do not include the effect of these appropriations which will be accounted for subsequent to the year-end. 46. DATE OF AUTHORISATION FOR ISSUE These financial statements were authorised for issue by the Board of Directors of the Bank in their meeting held on February 15, 2008. |