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Web Bank Alfalah Limited Annual Report 1999

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AUDITORS' REPORT TO THE MEMBERS We have audited the annexed balance sheet of BANK ALFALAH LIMITED as at December 31, 1999 and the related profit and loss account and the cash flow statement, together with the notes forming part thereof for the year then ended, in which were incorporated the unaudited certified returns from branches except three branches which have been audited by us and we state that we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. and after due verification thereof, found them satisfactory and, we report that: (a) in our opinion, proper books of account have been kept by the bank as required by the Companies Ordinance, 1984, and the returns referred to above received from branches have been found adequate for the purposes of our audit; (b) in our opinion (i) the balance sheet and profit and loss account, together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984 and are in agreement with the books of account and are further in accordance with accounting policies consistently applied except for the change in an accounting policy as explained in note 3.6 with which we concur, (ii) the expenditure incurred during the year was for the purpose of the bank's business; and (iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the Bank and the transactions of the Bank which have come to our notice have been within the powers of the bank; (c) in our opinion and to the best of our information and according to the explanations given to us, the

balance sheet, profit and loss account and cash flow statement, together with the notes forming part thereof give the information required by the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984 in the manner so required and give a true and fair view of the state of the bank's affairs as at December 31, 1999 and its true balance of the profit and cash flows for the year then ended; and (d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was deducted by the bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance. Karachi Dated: 7 March, 2000 Chartered Accountants A.F. FERGUSON & CO

BALANCE SHEET AS AT DECEMBER 31, 1999 1999 1998 (Rupees in thousand)

ASSETS Cash Balances with other banks Money at call and short notice Investments Advances - net of provision Operating fixed assets Other assets

4 5 6 7 8 9

1,687,256 721,285 1,161,434 386,211 100,000 248,000 4,993,035 3,406,514 10,327,324 7,757,708 1,153,607 263,760 1,596,952 1,537,629 -------------------- -------------------21,019,608 14,321,107 15,820,473 2,972,240 120,868 11,878,221 1,348,313 51,737

LIABILITIES Deposits and other accounts Borrowings from other banks, agents etc. Bills payable Other liabilities Deferred liability - staff retirement gratuity

10 11 12

NET ASSETS REPRESENTED BY Share capital Reserve fund and other reserves Unappropriated profits Shareholders' equity

372,855 176,630 6,892 7,400 -------------------- -------------------19,293,328 13,462,301 -------------------- -------------------1,726,280 858,806 =========== =========== = = 600,000 286,399 8,931 895,330 600,000 255,094 3,712 858,806

13 14

Surplus on revaluation of fixed assets

15

830,950 --------------------- -------------------1,726,280 858,806 =========== =========== = = 1,986,830 1,193,386 1,759,691 963,260

MEMORANDUM ITEMS Bills for collection Acceptances, endorsements and other obligations Contingent liabilities and commitments

16 17

The annexed notes form an integral part of these accounts. MOHAMMAD SALEEM AKHTAR Chief Executive ABDULLA NASEER HAWAILEEL Director ABDULLAH AL-MUTAWA Director H.H. SHEIKH NAHAYAN MABARAK AL-NAHAYAN Director

PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1999 Note 1999 1998 (Rupees in thousand) 1,905,808 1,625,352 1,474,343 1,313,564 -------------------- -------------------431,465 311,788 58,043 100 13,692 39,438 3,345 --

Mark up/interest and discount an(J/or return earned Less: Cost/return on deposits, borrowings etc.

Fees, commissions and brokerage Profit from investment securities Profit from dealing securities Other operating income - income from dealing in foreign currencies

77,925 121,754 -------------------- -------------------149,760 164,537 -------------------- -------------------581,225 476,325 18 402,559 337,447

Operating expenses: Administrative expenses Provision against nonperforming

advances - net Bad debts written off directly

7.2

Other income: Profit before taxation Taxation - current - deferred

19

20

Profit after taxation Unappropriated profit brought forward Profit available for appropriation Appropriatio ns: Transfer to statutory reserve Transfer to general reserve Proposed dividend at Rs. 2 (1998: nil) per share

(136,076) 94,756 175 --------------------- -------------------266,658 432,203 -------------------- -------------------314,567 44,122 39,848 23,614 -------------------- -------------------354,415 67,736 (161,337) (405,141) (36,554) 482,770 -------------------- -------------------(197,891) 77,629 -------------------- -------------------156,524 145,365 3,712 2,420 -------------------- -------------------160,236 147,785

Unappropriated profit carried forward

(31,305) (29,073) -(115,000) (120,000) --------------------- -------------------(151,305) (144,073) -------------------- -------------------8,931 3,712 =========== =========== = =

The annexed notes form an integral part of these accounts. MOHAMMAD SALEEM AKHTAR Chief Executive ABDULLA NASEER HAWAILEEL Director ABDULLAH AL-MUTAWA Director H.H. SHEIKH NAHAYAN MABARAK AL-NAHAYAN Director

CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1999 1999 1998 (Rupees in thousand) CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Adjustment for non-cash charges Depreciation Provision against non-performing advances - net Profit on sale of fixed assets Provision for gratuity

354,415 26,668 -(3,523) 7,824

67,736

15,274 94,756 (265) 15,751 ------------------------------------- -30,969 125,516 ------------------------------------- -385,384 193,252 (1,526,857) (2,569,616) (112,829) 82,888 (3,002,811 ) (32,510) ------------------------------------- -(4,209,302) (2,952,433) 3,942,252 69,131 79,535 2,859,444 (12,754)

Increase/(Decrease) in operating assets Government securities Advances Other assets

Increase/(Decrease) in operating liabilities Deposits and other accounts Bills payable Other liabilities

(5,449) ------------------------------------- -4,090,918 2,841,241 ------------------------------------- -267,000 (11,642) (144,385) 82,060 (3,158)

Cash flow before gratuity and tax Gratuity paid Income tax paid Net cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Purchase of investments other than government securities Net proceeds from the redemption of term finance certificates Fixed capital expenditure

(206,824) ------------------------------------- -110,973 (127,922)

(123,887) 64,223 (86,355)

(147,500) 6,845 (107,057)

Sale proceeds of fixed assets Net cash flow from investing activities CASH FLOW FROM FINANCING ACTIVITIES Borrowings from other banks, agents etc. Net cash flow from financing activities Increase in cash and cash equivalents during the year Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year Cash and cash equivalents Cash Balances with other banks Money at cell and short notice

4,313

3,685 ------------------------------------- -(141,706) (244,027)

1,623,9'27

795,271 ------------------------------------- -1,623,927 795,271 ------------------------------------- -1,593,194 1,355,496 423,322 932,174 ------------------------------------- -2,948,690 1,355,496 =========== =========== = = 1,687,256 1,161,434 100,000 721,285 386,211 248,000 ------------------------------------- -2,948,690 1,355,496 =========== =========== = =

The annexed notes form an integral part of these accounts. MOHAMMAD SALEEM AKHTAR Chief Executive ABDULLA NASEER HAWAILEEL Director ABDULLAH AL-MUTAWA Director H.H. SHEIKH NAHAYAN MABARAK AL-NAHAYAN Director

NOTES TO THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1999 1. STATUS AND NATURE OF BUSINESS Bank Alfalah Limited was incorporated on June 21, 1992 as a public limited company under the Companies Ordinance, 1984 and commenced banking operations from November 1, 1992. It is engaged in commercial banking and related services as defined in the Banking Companies Ordinance. 1962. 2. BASIS OF PRESENTATION In accordance with the directives of the Federal Government regarding the shifting of the banking system

to Islamic modes, the State Bank of Pakistan has issued various circulars from time .to time Permissible forms of trade related modes of financing include purchase of goods by the banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchase and sale arising under these arrangements are not reflected in these accounts as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. 3. SIGNIFICANT ACCOUNTING POLICIES 3.1 Accounting Convention These accounts have been prepared under the historical cost convention, except that certain fixed assets have been included at revalued amounts referred to in note 3.5 below. 3.2 Advances These are stated net of provision for had and doubtful debts. The provision for bad and doubtful balances is made in accordance with the prudential regulations of the State Bank of Pakistan. 3.3 Investments Investments are stated at cost less provisions for any diminution in value. Gains or losses on disposals during the year are taken to profit and loss account. Premium/discount on purchase of investments are amortised over the term of such investments. 3.4 Foreign Currencies Assets and liabilities in foreign currencies are translated into Pak rupees at the rates of exchange approximating those prevailing at the balance sheet date. From the current year the bank translated outstanding forward exchange contracts on a market to market basis. Until last year outstanding forward exchange contracts were translated into Pak Rupees at the contracted rates. The policy has been changed to comply with the requirements of State Bank of Pakistan FE Circular No. 2 dated March 24, 1999. Had the policy for translating outstanding forward exchange contracts remained unchanged, other operating income and profit before tax would have been higher by Rs. 1.26 million. Commitments for letters of credit and acceptances are translated at the contracted rates. Exchange gains or losses are included in the profit and loss account. 3.5 Operating Fixed Assets and Depreciation Office premises have been revalued from December 28, 1999 to December 30, 1999 by independent valuers and are shown at revalued amount less accumulated depreciation. All other assets are stated at cost less accumulated depreciation. Previously all assets were stated at cost less accumulated depreciation. Depreciation is charged to income applying the straight line method. Maintenance and normal repairs are charged to income as and when incurred. Major renewals and improvements are capitalised. Gains or losses on disposal of fixed assets are taken to the profit and loss account.

3.6 Taxation Taxation charge in the accounts is based on the taxable income at the current rates of taxation. The bank accounts for deferred taxation on timing differences using the liability method. 3.7 Staff Retirement Benefits The bank operates an unapproved unfunded gratuity scheme for its clerical staff who have completed the qualifying period of service under scheme. The bank also operates an approved funded gratuity scheme for officers and executives. Contributions are made on the basis of actuarial valuation. The actuarial valuation of the scheme has been carded out as at January 1, 1999 in accordance with IAS-19. (revised) using the projected unit credit method which disclosed the fair value of fund's assets and liabilities of Rs. 15.00 million and Rs. 28.88 million respectively. The transitional obligation Of Rs, 13,88 million is to be recognised by the bank over a period of five years commencing 1999 on a straight line basis, The following significant assumptions are used for valuation of the scheme: Expected rate of increase in salary level 10 percent per annum compound. Expected rate of interest on investment 12 percent per annum. 3.8 Deferred Costs These are amortised over a maximum period of five years commencing from the year in which these are incurred. 3.9 Revenue Recognition Mark-up/return on advances and investments are recognised on accrual basis. Fee, commission and brokerage except income from guarantees are accounted for on receipt basis. 1999 4. CASH In hand - local currency - foreign currencies 1998 (Rupees in thousand)

165,748 82,503

In transit - foreign currency With State Bank of Pakistan - Current account - Foreign currency placements

89,281 89,239 ------------------------------------- -248,251 178,520 -65,734 800,642 638,363 477,031 -------------------------------------- -1,687,256 721,285 =========== ===========

5. BALANCES WITH OTHER BANKS In Pakistan - on current accounts

500

8,248

Outside Pakistan - on current accounts - on deposit accounts

232,107 928,827

107,668 270,295 ------------------------------------- -1,161,434 386,211 =========== ===========

6. INVESTMENTS Investment securities Federal and Provincial Government Securities Central Government Loans Provincial Government Loans Federal Investment Bonds Treasury Bills Government Bonds Prize Bonds

308,800 -2,241,362 2,115,203 85,341 9,207

320,000 18,350 1,375,000 1,425,158 85,341 195 ------------------------------------- -4,759,913 3,224,044 200,610 32,512 147,500

Others Term Finance Certificates- Unquoted Term Finance Certificates Quoted

34,970 ------------------------------------- -4,993,035 3,406,514 =========== ===========

Market value of quoted investments Rs. 33.332 million (1998: Rs. 35.739 million) Book value of unquoted investments Rs. 4.961 billion (1998: Rs. 3.372 billion) 7. ADVANCES Loans, cash credits, overdrafts etc. In Pakistan Bills discounted and purchased Payable in Pakistan Payable outside Pakistan

10,352,512 306,228 909,947

8,264,486

Specific provision for non-performing advances - note 7.2

403,742 505,898 ------------------------------------- -1,216,175 909,640 ------------------------------------- -11,568,687 9,174,126 (1,241,363) (1,416,418) ------------------------------------- -10,327,324 7,757,708 =========== ===========

Advances include Rs. 1.716 billion which have been placed on non-performing status. However, the provision has been made thereagainst in accordance with requirements of prudential regulations issued by the State Bank of Pakistan. 7.1 Particulars of advances - In local currency Debts considered good in respect of which the bank is fully secured Debts considered good for which the bank holds no other security than the debtors' personal security Debts considered good secured by the personal liabilities of one or more parties in addition to the personal security of the debtors Debts considered bad or doubtful not provided for

10,327,324 7,757,708 =========== =========== 10,321,191 7,752,369

6,133

5,339

---

--

-------------------------------------- -10,327,324 7,757,708 =========== =========== Balance outstanding at December 31, 1999 Maximum total

amount of advances including temporary advances granted during the year (Rupees in thousand) 1,354

Debts due by directors or executives of the bank or any of them either severally or jointly with any other persons Debts due by companies or firms in which the directors of the bank are interested as directors, partners or in case of private companies, as members Debts due by the subsidiary companies, controlled firms, managed modarabas and other associated undertakings

1,248

--

--

-1999

-1998 (Rupees in thousand)

7.2 Particulars of provision against non-performing advances Specific Opening balance Charge for the year Amounts recovered being written back 1,416,418 -(136,076) 1,334,532 200,000 (105,244) ------------------------------------- -(136,076) 94,756 (38,979) (12,870) ------------------------------------- -1,241,383 1,416,418 =========== =========== -1,241,363 -1,416,418 ------------------------------------- -1,241,363 1,416,418 =========== ===========

Amounts written off - note 7.3 Closing balance Provision against - advances to banks - advances to others

7.3 Statement showing written off advances or any other financial reliefs of five hundred thousand rupees or above provided during the year ended December 31, 1999. S. No Name and address Name of individuals/ Father's Name Partners/Director of the person* s NIC # * Outstanding liabilities on the opening day of the year 6,988 Amount written off Other financial Total reliefs provided

1.

Farm Services Sy R.B. Avari B. Avari Sasi Arcade, Roo NIC # 510-13-062172 4th Floor, Blook-7 Kehkashan, Scheme No, 5, Main Clifton Road, Karachi. Agriculture Enter Fretan Square, M B.R. Avari NIC # 510-43-0621 R.B. Avari

5,488

--

5,488

2.

7,000

5,000

--

5,000

Road, Daryabad, Karachi 3. Farmech Internati Atiq Qureshi 17, Luxmi Building M.A. Jinnah Road, Karachi, United Wood Wo Kalimullah Khan Allied Industries Mariam Khan 235, Sobrub Katra Sakina Bibi Saddar, Karachi. MFMY Industries 4th Floor, Imperial Dr. Ziauddin Ahm Karachi. Mohammad Usma Not available 578 320 258 578

4.

Not available Not available Not available

1,021

475

546

1,021

5.

Haji Mohammad

84,239

24,212

--

24,212

NIC # 516-18-0450 Yahya Zafar Usman M. Usman Yahya NIC # 516-92-045095 Jamil Usman M. Usman Yahya NIC # 516-39-045089 Aziz Usman M. Usman Yahya NIC # 516-45-045096 Obaid Sattar Abdul Sattar NIC # 516-57-176100 Amina Begum M. Usman Yahya NIC # 516-44-045094 Hajra Bi W/o M. Usman Yahya NIC # 516-20-045092 Mohammad Bashi Jan Mohammad NIC # 517-40-044994 Abdul Rashid Jan Jan Mohammad N IC # 517-59-280982 Zohra Bashir W/o M. Bashir NIC # 517-40-124355 Abdul Sattar H. Suleman Shakila M. Basheer Shakira M. Basheer N IC # 517-93-418520 Not available 672 672 -672 30,465 1,456 1,383 2,839

6.

Shakoo (Pvt.) Ltd. 401, Uni Tower, I.I. Chundrigar Ro Karachi.

7.

Anglo Universal M. Saleem Khan Shop-1 Kulsoom Terrace Kharadar, Karachi

* As available in the records of the bank.

8. OPERATING FIXED ASSETS Cost at Description January 1, 1999 Additions/ (disposals)/ adjustment* Revaluation Net book Cost/Revalua- Accumulated Depreciation Accumulated value at tion at depreciation December at change for the depreciation at December January 1, year/(Accumula December 31, 31, 1999 1999 ted 1999 31, 1999 depreciation on disposals)/ Adjustments* Rate of depreciation % per annum

(Rupees in thousand)

Office premises Furniture fixtures and office equipment Vehicles

280,981

28,772

830,950

1,140,703

62,366

8,742

71,108

1,089,595

2.5

175,245 (4,541) 31,601

42,983

--

213,687

141,513 (4,059) 20,188

12,601

150,055

63,632

10-25

14,600 (5,148) 1,534 *

--

42,587

5,325 (4,840) 1,534 *

22,207

20,380

25

1999

-----------------------------------------487,827 86,355 (9,689) 1,534* ============ ============ 403,403 107,057 (12,693) (9,940)* ============ ============

---------------------830,950

1998

============ --

============

-------------------- ------------------------------------------1,396,977 224,067 26,668 (8,899) 1,534* =========== =========== = = ============ 487,827 228,006 15,274 (9,273) (9,940)* =========== =========== = = ============

----------------------------------------- -243,370 1,153,607

============ ============ 224,067 263,760

============ ============

8.1 Office premises have been revalued from December 28, 1999 to December 30, 1999 on the basis of market value by Razzaque Umerani & Co., engineers, surveyors, inspectors, valuers, loss assessors. The details of office premises revalued are as follows: (Rupees in thousand) Original cost 293,057 ============ Book value 22,293.50 Revalued amount 1,053,885 ---------------------830,950

============ 8.2 Details of disposal of fixed assets having cost more than Rs. 1,000,000 or net book value of 100,000 or above. Description Cost Accumulated depreciation (Rupees in thousands) Vehicles Vehicles Furniture & fixtur 449 308 250 440 -131 -308 119 45 282 119 Bank policy Negotiation Bank policy Mr. S.T.H. Haqqie (Ex-employee) Cantt. State Motors, Sialkot. Mr. S.T.H. Haqqie (Ex-employee) Net book value Sale proceeds Mode of disposal Particulars of purchaser

1999

1998 (Rupees in thousand)

9. OTHER ASSETS Stationery and stamps on hand Income/mark-up accrued on advances and investments Other income receivable Prepaid exchange risk fee Other advances, deposits, advance rent and other prepayments - note 9.1 Taxation - payments less provision Deferred taxation Deferred cost - note 9.2 Branch adjustment account Exchange difference on revaluation of liabilities under forward exchange contracts

4,561 265,498 17,608 89,102 271,553 288,480 446,216 23,968 7,376

4,122 165,232 36,481 130,256 251,115 305,432 482,770 31,958 118,714

182,590 11,549 -------------------- ---------------------1,596,952 1,537,629 =========== =========== = =

9.1 This includes the decretal amount of Rs. 168 million deposited with the Honourable Lahore High Court as per order of the Honourable Supreme Court of Pakistan in respect of a suit filed by a borrower against the stay order obtained by the bank from Lahore High Court. The stay order obtained by the bank was against the Civil Court's decision to refund the amount adjusted by the bank against the

foreign currency account of the borrower, which was under lien with the bank. The bank has filed appeals with the Honourable Lahore High Court against the decision of the Civil Court. The management of the bank and legal advisor are of the opinion that the bank should eventually be able to recover the above mentioned amount. 9.2 This represents unamortised portion of Voluntary Severance Scheme payments which will be amortised over a period of five years from the year in which these were paid. 1999 1998 (Rupees in thousand) 10. DEPOSITS AND OTHER ACCOUNTS Fixed deposits Savings deposits Current accounts Margin, call and sundry deposits Deposits of Federal Government

4,038,133 8,734,265 1,499,657 158,708

4,109,625 5,715,281 1,316,022 497,370

1,389,710 239,923 -------------------- ---------------------15,820,473 11,878,221 =========== =========== = = 8,829,008 3,994,462 6,991,465 7,883,759 -------------------- ---------------------15,820,473 11,878,221 =========== =========== = =

10.1 Particulars of deposits and other accounts - In local currency - In foreign currencies

11. BORROWINGS FROM OTHER BANKS, AGENTS ETC. In Pakistan Outside Pakistan

2,921,606

1,314,210

50,634 34,103 -------------------- ---------------------2,972,240 1,348,313 =========== =========== = =

11.1 Particulars of borrowings from other banks, agents etc. - In local currency - In foreign currencies

2,921,606 1,314,210 50,634 34,103 -------------------- ----------------------