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MCB Bank Limited: Annual Report 2019

IM Insights
By IM Insights
4 years ago
MCB Bank Limited: Annual Report 2019

Arif, Halal, Infaq, Islamic banking, Mudaraba, Mudarib, Mufti, Murabaha, Musharakah, Riba, Salam, Shariah, Sukuk, Takaful, Wakalah, Zakat, Credit Risk, Mark-Up, Net Assets, Participation, Provision, Receivables, Reserves, Sales, Specific Provision

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  1. BANK FOR GENERATIONS ANNUAL REPORT 2019
  4. 2 Unconsolidated Financial Statements
  5. Annual Report 2019 BANK FOR GENERATIONS When we talk about an institution like MCB Bank , we are talking about the provenance of Pakistan its, about the legacy of generations and about the legacy we leave behind for generations to come. With reverence to the past and our proud heritage, this year’s Annual Report is all about looking towards the brightest future we can hold. Annual Report 2019 3
  6. CONTENTS TABLE OF 4 Unconsolidated Financial Statements 7Vision 7Mission 9 Strategic Objectives 17 Core Values 18Awards Organizational Overview 21 34 36 38 46 48 50 52 53 55 57 Products and Services Corporate Information Board of Directors Profile of the Board of Directors Organizational Structure Management Committee Other Senior Management Entity Credit Rating Corporate Profile of the Bank Performance & Position Chairman’s Review President’s Review 59 Highlights 2019 60 Financial Performance 2009 - 2019 61 Forward Looking Statement 65 Graphical Presentation of Financial Statements 66 Analyses of Financial Performance 67 Analyses of Non Financial Performance 69 Maturities of Assets and Liabilities 69 Key Interest Bearing Assets and Liabilities 70 Deposits & Advances 71 Non Performing Loans 72Investments 73 Capital Structure 74 Quarterly Performance - 2019 & 2018 75 Quarterly Performance Analysis - 2019 & 2018 76 Six Years’ - Financial Performance / Financial Ratios 2014 - 2019 78 Six Years’ - Non-Financial Performance 2014 - 2019 79 Six Years’ - Performance Commentary 82 Six Years’ - Graphical Summary of Ratios 83 Six Years’ - Concentration of Advances, NPLs and Off Balance Sheet Items 84 Six Years’ - Maturities of Assets & Liabilities 85 DuPont Analysis 86 Summary of Cash Flows 86 Free Cash Flows 87 Cash Flow Statement Direct Method 88 Markup & Non Markup Income 89 Operating Expenses
  7. Annual Report 2019 90 90 91 92 93 95 97 98 99 99 100 101 101 101 103 Economic Value Added Statement Capital Expenditure Six Years ’ - Vertical Analysis Six Years’ - Horizontal Analysis Commentary on Six Years’ Horizontal & Vertical Analysis Segment Analysis Statement of Charity and Donation Market Statistics of MCB’s Share Share Price Sensitivity Analysis MCB Calendar of Major Events during 2019 Strategy & Resource Allocation Strategic Objectives Strategies in Place Methods and Assumptions in Compiling Indicators Change in Indicators & Performance Measures Resource Allocation Plan Risk and Opportunities 104 107 114 121 Risk Management Framework Risk and Opportunity Report Corporate Governance 132 136 141 154 156 Board Composition Board Committees Management Committee Directors Report Groups Review 157 158 164 172 IT Governance Adoption & Statement of Adherence with the International Integrated Reporting Framework Profile of Shari’ah Advisor Board Report of Shari’ah Board Sustainability & Corporate Social Responsibility Green Banking Initiative Stakeholders Relationship & Engagement 174 Stakeholders Engagement Process and Frequency Investor Relation Section on Corporate Website Steps to Encourage Minority Shareholders Participation in AGM Summary of Analyst Briefing Issues Raised in Last AGM Statement of Value Added 176 176 177 178 179 180 184 185 187 188 Code of Conduct Statement on Internal Controls Statement of Compliance with the Code of Corporate Governance Review Report to the Members on Statement of Compliance with the Code of Corporate Governance Report of the Audit Committee Unconsolidated Financial Statements 192 Auditors’ Report to the Members 196 Statement of Financial Position 197 Profit and Loss Account 198 Statement of Comprehensive Income 199 Statement of Changes in Equity 200 Cash Flow Statement 201 Notes to the Unconsolidated Financial Statements 276Annexure Consolidated Financial Statements 302 Directors’ Report on Consolidated Financial Statements 304 Auditors’ Report to the Members 308 Consolidated Statement of Financial Position 309 Consolidated Profit and Loss Account 310 Consolidated Statement of Comprehensive Income 311 Consolidated Statement of Changes in Equity 312 Consolidated Cash Flow Statement 313 Notes to the Consolidated Financial Statements 394Annexure 406 Branch Network 409 Pattern of Shareholding 409 Categories of Shareholders 413 Notice of 72nd Annual General Meeting 421 Glossary of Terms 423 Form of Proxy Investors’ Awareness Annual Report 2019 5
  8. 6 Unconsolidated Financial Statements
  9. Annual Report 2019 VISION To be the leading financial services provider , partnering with our customers for a more prosperous and secure future. MISSION We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us. Annual Report 2019 7
  10. 8 Unconsolidated Financial Statements
  11. Annual Report 2019 STRATEGIC OBJECTIVES Delivering remarkable returns to stakeholders , sustainable performance, exceeding market and shareholder expectations Providing value added services through operational expansion, geography and upgraded system Building a corporate culture of equality, trust and team spirit as we remain dedicated to being a socially responsible organization Annual Report 2019 9
  12. 10 Unconsolidated Financial Statements
  13. Annual Report 2019 LIGHT FROM LIGHT S ure diamonds are forever , but the values we hold in our culture, our families and in our hearts are timeless, passed on from generation to generation. Annual Report 2019 11
  14. JOURNEY TO DESTINATION W hen there is a will there is a way , and when there is passion there is excellence waiting to be uncovered. Our journey is a proud legacy that has been part of Pakistan, from age to age. 12 Unconsolidated Financial Statements
  15. Annual Report 2019 Annual Report 2019 13
  16. TIME AFTER TIME W ho says time waits for no one ? In fact it does for those who know the value of it and almost becomes unstoppable for those with a higher purpose in life. 14 Unconsolidated Financial Statements
  17. Annual Report 2019 Annual Report 2019 15
  18. 16 Unconsolidated Financial Statements
  19. Annual Report 2019 Core Values Integrity We are the trustees of public funds and serve our community with integrity . We believe in being the best at always doing the right thing. We deliver on our responsibilities and commitments to our customers as well as our colleagues. Innovation We encourage and reward people who challenge the status quo and think beyond the boundaries of the conventional. Our teams work together for the smooth and efficient implementation of ideas and initiatives. Excellence We take personal responsibility for our role as leaders in the pursuit of excellence. We are a performance driven, result oriented organization where merit is the only criterion for reward. Customer Centricity Our customers are at the heart of everything we do. We thrive on the challenge of understanding their needs and aspirations, both realized and unrealized. We make every effort to exceed customer expectations through superior services and solutions. Respect We respect our customers’ values, beliefs, culture and history. We value the equality of gender and diversity of experience and education that our employees bring with them. We create an environment where each individual is enabled to succeed. Annual Report 2019 17
  20. Awards 2019 Asset Triple A Infrastructure Awards 2019 Asset Triple A Infrastructure Awards 2019 Asian Banking & Finance Corporate & Investment Banking Awards 2019 Asian Banking & Finance Corporate & Investment Banking Awards 2019 Asiamoney 2019 FinanceAsia 2019 ICAP and ICMAP 2019 SAFA Awards Transport Deal of the Year Utility Deal of the Year Equity Deal of the Year – Pakistan Mergers and Acquisitions Deal of the Year – Pakistan Most Outstanding Company in Pakistan – Financial Sector FinanceAsia Country Awards – Best Bank Pakistan Best Corporate Report Award 2018 – Winner Certificate of Merit 2018 – Private Bank Category 2018 Asset Triple A Islamic Finance Awards 2018 Asset Triple A Infrastructure Awards 2018 Asset Triple A Infrastructure Awards Best Islamic Loan Adviser, Pakistan Project Finance House of the Year, Pakistan Renewable Energy Deal of the Year – Solar, Pakistan to MCB Bank Limited, MCB Bahrain & MCB Dubai Oil and Gas Deal of the Year, Pakistan Telecom Deal of the Year, Pakistan Best Domestic Bank Best Bank in Pakistan Best Corporate Report Award 2017 - Winner 2018 Asset Triple A Infrastructure Awards 2018 Asset Triple A Infrastructure Awards 2018 Asiamoney Best Bank Awards 2018 FinanceAsia Country Awards for Achievement 2018 ICAP & ICMAP 2017 Euromoney Awards 2017 ICAP and ICMAP 2017 Assets AAA Islamic Finance Awards 2017 Assets AAA Infrastructure Awards 2017 Assets AAA Infrastructure Awards 2017 Assets AAA Infrastructure Awards 2017 Asiamoney Silk Road Finance Awards 2017 Asiamoney Silk Road Finance Awards 2017 Asian Banker Awards 2017 FinanceAsia Achievement Awards 2017 Assets AAA Country Awards 2017 CFA 14th Excellence Awards 2017 SAFA Awards 2017 SAFA Awards 18 Unconsolidated Financial Statements Best Investment Bank in Pakistan Best Corporate Report Award 2016 - Winner Best Project Finance House in Pakistan Project Finance House of the Year in Pakistan Renewable Energy Deal of the Year Transport Deal of the Tear Best Regional Bank in South Asia for Belt & Road Initiative (BRI) Best Bank in South Asia for Belt & Road Initiative (BRI) Strongest Bank in Pakistan Best Pakistan Deal, IPO of Pakistan Stock Exchange Best Equity Pakistan IPO of Pakistan Stock Exchange Runner Up - Corporate Finance House of the Year Certificate of Merit Best Presented Accounts 2016 - Banking Sector Certificate of Merit SAARC Anniversary Awards for Corporate Governance
  21. Annual Report 2019 2016 Euromoney Awards 2016 1st Pakistan Banking Awards 2016 Finance Asia Country Awards 2016 ICAP and ICMAP 2016 First Global Awards 2016 Assets AAA Country Awards 2016 SAFA Awards 2016 SAFA Awards Best Bank in Pakistan 2016 Best Bank for Corporate Finance & Capital Market Development Best Bank in Pakistan 2016 Best Corporate Report Award 2015 - Winner Most Innovative Investment Bank for Islamic Finance Best Micro Finance Deal for National Rural Support Programme Certificate of Merit Best Presented Accounts 2015 - Banking Sector Certificate of Merit SAARC Anniversary Awards for Corporate Governance 2015 CFA 12th Excellence Awards 2015 Finance Asia Country Awards 2015 ICAP and ICMAP 2015 SAFA Awards Most Stable Bank of the Year 2014 Best Bank in Pakistan 2015 Best Corporate Report Award 2014 - Winner Winner of Best Presented Annual Accounts 2014 - Banking Sector 2014 The Asset Triple A 2014 The Asset Triple A 2014 CFA 11th Excellence Awards 2014 CFA 11th Excellence Awards 2014 Asiamoney Awards 2014 The Asian Banker (USA) 2014 ICAP and ICMAP 2014 SAFA Awards Best Bank - Pakistan Best Domestic Bank - Pakistan Best Bank of the Year 2013 – Large Bank Most Stable Bank of the Year 2013 Best of the Best Domestic Bank Strongest Bank in Pakistan 2014 Best Corporate Report Award 2013 - Winner 1st Runner up Best Presented Annual Accounts 2013 - Banking Sector 2013 The Asset Triple A 2013 The Asset Triple A 2013 ICAP and ICMAP 2013 LK Domain Registry Sri Lanka 2013 Lanka Clear Pvt. Limited 2013 SAFA Awards Best Domestic Bank - Pakistan Best Islamic Deal Best Corporate Report Award 2012 - Winner Best Website Award T+1 Cheque Clearing Award Certificate of Merit Best Presented Annual Accounts 2012 - Banking Sector 2012 The Asset Triple A 2012 Euromoney 2012 NFEH 2012 ICAP and ICMAP 2012 World Finance 2012 Pakistan Centre for Philanthropy 2012 SAFA Awards Best Domestic Bank - Pakistan Best Bank in Pakistan CSR Business Excellence Award “Best Media Coverage” 2nd Best Corporate Report Award 2011 - Banking Sector Best Commercial Bank - Pakistan PCP Corporate Philanthropy Award 2nd Runner up Best Presented Annual Accounts 2011 - Banking Sector 2011 CFA Association Pakistan 2011 CFA Association Pakistan 2011 Euromoney 2011 ICAP / ICMAP 2011 SAFA Awards Most Stable Bank of the Year Best Bank of the Year Best Bank in Pakistan Best Corporate Report Award 2010 - Winner Joint 2nd Runner up Best Presented Annual Accounts 2010 - Banking Sector 2010 The Asian Banker 2010 The Asian Banker 2010 MMT 2010 ICAP / ICMAP 2010 SAFA Awards Strongest Bank in Pakistan Leadership Achievement Award Best Bank Led MMT Service Best Corporate Report Award 2009 - Winner Certificate of Merit Best Presented Annual Accounts 2009 - Banking Sector 2009 Asiamoney 2009 The Asset Best Domestic Bank in Pakistan Best Domestic Bank in Pakistan 2008 Euromoney 2008 Euromoney 2008 Asiamoney Best Bank in Asia Best Bank in Pakistan Best Domestic Bank in Pakistan 2006 Asiamoney 2006 Euromoney Best Domestic Bank in Pakistan Best Bank in Pakistan 2005 Asiamoney 2005 Euromoney Best Domestic Bank in Pakistan Best Bank in Pakistan 2004 Euromoney 2004 Asiamoney Best Bank in Pakistan Best Domestic Bank in Pakistan 2003 Euromoney Best Bank in Pakistan 2001 Euromoney Best Bank in Pakistan 2000 Euromoney Best Bank in Pakistan Annual Report 2019 19
  22. 20 Unconsolidated Financial Statements
  23. Annual Report 2019 Products & Services MCB Liability Products MCB Bank offers a wide range of products and services hence ensuring ease and freedom for the customer to bank from any of the 1350+, branches across the country and a wide array of digital channels. Details pertaining to the Bank’s key liability products are shared below: MCB Current Deposit Products For complete day-to-day banking needs, MCB Current Deposit menu is offered in local and foreign currency and is designed to provide valued customers with transactional convenience and flexibility for all their financial dealings. MCB Savings Deposit Products MCB Bank offers a wide array of local and foreign currency savings products that cater to short term investment and transactional needs. The Savings Deposit menu offers attractive profit rates on various savings products with multiple profit payment options. MCB Term Deposit Products MCB Term Deposits offer attractive short and medium to long term investment options with flexibility, convenience and security. With various tenor and multiple currency options, customers can choose the one that best suits their needs. This is combined with multiple profit pay-out options and the added facility of being able to avail credit facility against their deposits. In order to meet the needs of MCB Bank’s diverse clientele, the Bank is offering a plethora of products perfectly suited for each segment’s needs: MCB Smart Business Account: A business account variant offering free services & transaction facilities at almost negligible average balance requirement. The account is targeted towards business entities in a more segmented and focused manner. Annual Report 2019 21
  24. • MCB Salary Club Account: A unique product offering targeted towards organizations to manage payroll by getting employee accounts opened with MCB Bank. MCB Salary Club Account has both Current and Savings variants on which employees can avail various free benefits & discounts on different services. • MCB Ladies Account: MCB Ladies Account is targeted specifically towards ladies with the main objective to create a niche for females of Pakistan and give them the freedom of managing their own finances with a sense of security and independence. This product offers various benefits including free Insurance with a unique blend of health, accident, critical illness and death coverage along with attractive discounts on other services. MCB Ladies Account holders also have an option to choose from 5 unique and colorful debit card designs with higher transaction limits, along with an exclusive Cheque Book. • MCB Current Life Account: A current account which offers Free Life insurance coverage of up to PKR 1 million, giving customers peace of mind by ensuring the security of their loved ones in case of an unforeseen event. • MCB Asaan Remittance Account is another initiative by the SBP under the financial inclusion program to provide secure home remittance inflows. The account is available in the Current variant only and is targeted towards unbanked/under-banked remittance beneficiaries of Pakistan, with simplified account opening requirements. This product not only increases the Bank’s product portfolio but also fulfills its fiduciary responsibility of documenting the economy and inculcating a saving habit in its customers. MCB E-Statements MCB Bank’s E-Statement initiative adds an additional layer of convenience for our digital savvy customers. Now there is no need to wait for postal deliveries as E-Statements are sent directly to your inbox making it easier to access your banking information when needed. They’re safer, more secure & faster than traditional mailings and, of course, they’re free! • MCB Senior Citizens Account: MCB Senior Citizens Account comes in both Current and Savings variants and aims to provide exclusive privileges in order for our elderly customers to take care of their financial needs with ease, while providing discounts on a wide array of services. MCB Privilege Banking • MCB Pensioners Account: MCB Pensioners Account comes in both Current and Savings variants and allows account holders to live their lives to the fullest and face the future with confidence. This account is designed especially to cater to the financial needs of Pensioners and goes the extra mile to ensure peace of mind at this stage in their life. In addition, 50% discount on numerous services can be availed by opening up a MCB Pensioners Account. Privilege Banking takes pleasure in taking you on a journey of superior high-end customer services, a rewarding inbranch experience, a wider assortment of deposits and lending & wealth of products that are suited to meet your highest financial expectations. MCB Privilege customers experience unparalleled advantages that put them ahead of others. MCB Bank has eight dedicated Privilege Centers waiting to welcome you in Karachi, Lahore, Islamabad, Faisalabad, Rawalpindi and Multan with plans to expand to even more locations. • MCB Asaan Account: A current deposit account with simplified account opening requirements is designed to extend benefits of financial services to unbanked segments of society. This product aims to improve economic growth of potential customers under the financial inclusion initiative. • MCB 365 Savings Gold Account: This account enables customers to enjoy attractive returns on their deposits on a monthly basis along with making use of various self-service channels such as Internet Banking & Mobile Banking. 22 • MCB Burqraftaar Remittance Account is a promising product to serve home remittance consumers with security, convenience, and accessibility from a trusted medium. This account also provides a secure remittance inflow medium which will help the customer and the remitter with a unique withholding tax exemption on cash withdrawal. The account is targeted towards Remittance Beneficiaries, who are resident Pakistanis and rely on different mediums to receive funds with different risk associated mediums. Unconsolidated Financial Statements MCB State of the Art Up Mall Branches MCB Bank’s State of the Art Up Mall branches are open every day of the week and operate from Monday to Sunday with extended business hours at Emporium and Packages Malls in Lahore. The initiative has been taken to cater to the financial needs of customers and provides an avenue for customers to enjoy banking services at their convenience.
  25. Annual Report 2019 MCB Agri Financing Products Agriculture finance business of the Bank has embraced a new & progressive outlook as a result of various initiatives. The bank has strengthened its Agri financing structure in terms of required delegation of approving authority and deployment of dedicated human resources at the branch level. A well-equipped, trained & experienced team of agriculture marketing officers has been put in place to facilitate farmers on their door steps, for completion of documents and revenue related formalities, alongwith providing them awareness on banking facilities, products and financial management. The health and size of the Bank’s Agri portfolio is gradually expanding with a focus on encouraging mechanized farming. Moreover, insurance arrangements are in place to provide risk coverage to crops/tractors & equipment. Farmers are availing credit facilities to meet input needs for poultry, dairy and fish farms apart from crops. All credit proposals are processed as per standard guidelines of credit policy of the bank and approved on merit. MCB Bank fully supports all Government and State Bank of Pakistan initiatives for promotion and steady flow of credit to the farmers. This lends support to the national cause of food security for the people of Pakistan and to exploit the potential of agriculture sector. Efforts are made to enhance outreach to growers through innovative lending including value chains, processing units. MCB Bank will continue to support agriculture sector as a matter of its policy by remaining an active partner supporting progressive farmers by providing credit for all types of farm and non-farm activities. The microcredit needs of small farmers are met through extending credit lines to NGOs supported through digital services, thus serving the cause of financial inclusion. The Agri financing products offered cover requirements of both production and development needs of farm & nonfarm activities. The farmers may need long term finance to undertake development projects or there may be working capital requirements. Long term financing needs are met through Term Finance whereas working capital requirements are met by production finance. Shadabi Plan: Covers agriculture loan products for the production requirements of farm & non-farm activities of the farming community. Financing products extended under this category are Agriculture Running FinanceRevolving (ARF-R), Agriculture Production Finance (APF) and Agriculture Production Finance-Growers (APF-G). All working capital needs of nonfarm are also covered under Shahdabi Plan through APF/ARF. Khushali Plan: Agri Development Finance (ADF) caters to the credit needs of farmers, generally long term, pertaining to the development projects related to both farm & non-farm sectors. Under Khushali Plan, different products are offered to cater to sector specific credit needs. The products offered are ADF (Tractor Finance), ADF (Aabiari Finance), ADF (Dairy & Meat finance), ADF (Murghbani Finance), ADF (Baghbani Finance), ADF (Mahigeri Finance) and ADF (Zari Technology Finance). The amount of finance sanctioned depends upon the genuine credit requirement of the farmer and collateral. Non-farm credit (poultry, dairy, fisheries & others) and financing for land leveling/development, heavy equipment, agriculture machinery, vehicles/transport for Agriculture purpose are covered under this plan. High Efficiency Irrigation System (HEIS): The Financing Product for “High Efficiency Irrigation System (HEIS)” facilitates farmers in availing the subsidy provided under the provincial government schemes aimed at conservation of water and avoiding wastage of the precious resource. Drip and sprinkler irrigation systems are referred to as High Efficiency Irrigation Systems, (HEIS) which enable timely application of water and other inputs i.e. fertilizers, nutrients etc. as per plant requirements at various stages of growth. The HEISs are versatile in their applicability and provide complete control in irrigation operations. HEISs can be practiced on a variety of soil conditions e.g. uneven topography, odd field configurations, rolling sandy areas, etc. and are best suited for variety of crops such as orchards, vegetables, cotton, maize, sugarcane wheat, fodder, gram etc. Governments of Punjab and Sindh are subsidizing these high efficiency irrigation systems to farmers by contributing 60% of the total project cost and remaining 40% cost sharing by the farmers. Under HEIS Financing, MCB will provide financing to the extent of 80% of farmer’s share towards installation of HEIS. The purpose of HEIS financing scheme is to facilitate farmers in adoption of high efficiency irrigation system, which in turn would help them in efficient utilization of water & other resources to improve per acre yield. Digital Access to record of Punjab Land Record Authority (PLRA): MCB has signed a Service Level Agreement with Punjab Land Record Authority (PLRA) to provide online access to data for a defined scope of services under the SLA. Digital access is aimed at enabling the fast track provision of documents/information related to land record of farmers for quick decision making and sanctioning of financing facilities. The scope of services covers issuance of Fard, charge creation and redemption. The branches are being equipped with necessary infrastructure/equipment Annual Report 2019 23
  26. in a phased manner for availability of online access to PLRA records . The initiative has been implemented and branches have started providing services to farmers. As a result of this initiative, the dream of a strong digitalized platform for dedicated support to famers of Punjab Province for quick access to banking facilities is close to realization. MCB Bank is one of the leading banks which has started offering services to the farmers under the digitalized access to PLRA record. There may be other development projects proposed by the farmers falling within the ambit of agriculture financing. MCB is fully committed to meet all type of genuine credit needs of the farmers as a strong financial institution concerned for and aligned with the national cause of supporting Agriculture Sector of Pakistan. MCB Rupee Travellers Cheque MCB Rupee Travellers Cheques are the best and safest alternate way of carrying cash. It can be used by travelers, businessmen or by the general public in meeting their day-to-day cash requirements while on the go. It is a safe and secure way to make payments, because it gives the purchaser security that even if the cheque is lost, it can be refunded. Unlike other types of funds/remittance transfers, which can only be drawn at a particular branch and can be encashed only at that branch, MCB Rupee Travellers Cheques can be encashed at any of our branches across the country. MCB Consumer Lending Products MCB Consumer Banking offers a full suite of consumer lending products to its valued customers. The Bank’s current product portfolio consists of credit cards, auto loans, home loans, personal loans, secured personal loans, unsecured overdraft facility and student personal loan (for LUMS MBA students). At MCB Bank, the ideology behind our innovative Consumer financing products focuses on meeting three of our client’s objectives simultaneously, i.e. Affordability, Convenience and Lifestyle. MCB Consumer Finance products enhance the overall life experience of our customers. MCB Bank works to collaborate with targeted brands and organizations to ensure that we provide premium value added services to our clients. MCB Consumer Banking is ably assisted by strong back office support which includes Operations, Service Quality, Internal Audit, Compliance and a Legal Team that work together to ensure that the Bank operates efficiently and in the best interest of its customers under the regulatory framework. MCB Car4U The Bank’s auto financing product, MCB Car4U, provides a one-stop financing solution to help our customers obtain the automobile of their dreams. Customers are free to choose between used and new vehicles, both locally 24 Unconsolidated Financial Statements manufactured and imported. MCB Car4U also allows customers to finance up to three cars simultaneously from MCB Bank in line with their unique needs and requirements. Both loan and lease variants are offered under Car4U financing. MCB Car4U offers auto loans to customers in 1350+ of our branches across 85 cities. Both self-employed and salaried customers can apply for a MCB Car4U Loan with ease. The Bank offers a competitive markup rate to all customers and also offers a discounted markup rate to its existing Branch Customers. Over the years, the Bank has formed a strong network of auto-dealers, engaged in sale of both new/used and imported cars enabling us to facilitate our customers evolving needs. MCB Bank values its credible and expansive dealer network as one of the key pillars of its success in the auto finance business. MCB Home Loan Owning a home is a dream for many. At MCB Bank, we aim to help our customers fulfill this lifelong ambition and turn their dream into reality. MCB Home Loans provides financing solutions for the purchase of a home as well as for a plot and construction thereon. Customers also have an opportunity to transfer their existing loan from any other bank to MCB through a balance transfer facility. To assist our customers at every stage of decision making and financing, we have placed teams of skilled professionals at multiple locations in the country. MCB Credit Cards MCB Credit Cards are secured with Chip & Pin functionality and carry world class features that provide transactional & payment convenience to our customers across the globe. The instant SMS and E-Alert facility enables our customers to monitor credit card transactions and avoid any misuse of their credit card. The cards are available in three different ranges i.e. Classic, Gold and Platinum to cater to the diverse needs of our distinguished customers. Besides transactional convenience, these cards also offer payment flexibility / financial convenience to the customer, such as 0% service fee on Installment Plans, transfer balances on a lower rate or even request for a Banker’s Cheque in the customer’s own name. Credit Card Bill payments are made more convenient for customers, who can now make their credit card bill payments through Cash, MCB cheque, Other Bank cheques over the MCB Branch counters. They can also make payments through MCB and Other Bank’s Internet, Mobile Banking & ATMs.
  27. Annual Report 2019 MCB Digital Banking Products and Services MCB Debit Card With global acceptance at more than 20 million merchants and 1 .5 million ATMs worldwide; MCB Debit Cards is a way forward into the changing future of payments. MCB Bank is proud to have the latest dynamic chip-based Debit Cards which allow customers to have unmatched convenience, enhanced security and round-the-clock accessibility to their funds. MCB Debit Cards are accepted at 12,000+ ATMs and 45,000+ merchants nationwide, with promotional discount schemes designed to reward our users for shopping, dining, fuel and lodging, etc. With an MCB Debit Card, one can forget the need to carry cash. The product proposition has been further enhanced with the launch of card variants like Visa Platinum, Gold, Gold Local and supplementary cards across multiple international and local payment schemes which include Visa, MasterCard and Paypak fulfilling various customer segment needs. MCB Bank is one of the handful of banks in Pakistan who have ventured to comply themselves with the PCI DSS which is considered to be the international benchmark for card data security thus improving the overall product value proposition. MCB ATMs MCB Bank has one of the largest ATM networks in the country with 1350+ ATMs which includes more than 140+ off-site ATMs placed at commercial locations like malls, workplaces and hospitals etc., for consumers’ convenience. The network covers 400+ cities across the country and is steadily growing. MCB Bank has one of the best ATM uptime rates across the industry, ensured by the presence of ATM monitoring teams working 24/7, periodic system health checks and timely hardware replacements. We take pride in the fact that our entire ATM network is equipped with antiskimming and anti-malware solutions which helps in safeguarding customers. MCB ATMs provide our customers with 24-hours of convenience to withdraw cash, view mini-statement, utility bill payments, mobile top-ups, funds transfer and much more. MCB CDMs MCB Bank is one of the few select banks in Pakistan which offers the service of Cash Deposit Machines (CDMs). They are an easy and time saving alternative to standing in queues for making deposits. All of our CDMs are available 24 hours a day and offer instant credit to your account. At MCB CDMs customers can make deposits, withdraw cash (up to their daily limit), transfer funds, utility bill payments, and credit card payments (for MCB Credit Cards only), get mini-statements and much more. MCB Mobile With the proposition “banking anywhere, anytime” MCB Mobile has proven and positioned itself as one of the most successful and highly sought after mobile banking services within a short span of time. MCB Mobile is an easy and secure way to transfer money, carry out balance inquiry, check mini-statements, buy top-ups, pay bills and much more. With a cumulative number of 500,000+ App downloads from both Apple’s App Store and Google’s Play Store the business is geared up to explore new possibilities across different verticals. So stay tuned for more! MCB Internet Banking MCB Internet Banking is a state-of-the-art online banking platform for our customers, with enhanced transactional limits, multi-layered security, self-registration, friendly user interface and a host of functionalities/services. MCB Internet Banking has enabled the bank to deepen its Digital Banking footprint while allowing millions of its customers to manage and control their bank accounts; whenever and wherever they want. MCB Lite MCB Bank received its branchless banking license 8 years ago, and formally started its branchless journey with the launch of MCB Lite in 2014. MCB Lite mobile wallet allows customers to handle their daily transactions and payments in an efficient and real time manner from one’s mobile phone. Moreover, to support foreign remittances, the enablement of Lite Remit feature has allowed customers to receive money directly into their Lite mobile wallet from anywhere in the world. MCB Lite is all set to explore new fronts and expand its overall footprint across the branchless banking arena. MCB Card Discounts Caring for and giving back to our esteemed customers is what MCB Card Discounts is all about. MCB Bank is proud to have the best discount offers for our prized MCB (Debit, Credit, Prepaid and Lite) card holders. MCB offers a wide variety of discounts across all top retail merchants and brands ranging from dining, shopping and lodging. MCB Bank’s motto i.e. ‘Bank for Life’ is truly personified through our MCB Card Discounts program. The year 2019 saw the bank partnering with around 30 top of the line discount partners for multiple strategic and long term discount deals. MCB Alerts MCB Bank is proud to offer its valued customers with alerts services that comprise of SMS alerts. This service allows customers to keep track of all of their banking transactions through SMS notifications. By applying to this service, customers receive real time updates whenever they conduct a transaction on any of their MCB bank accounts. It is a great way of staying updated about transactions conducted on one’s account(s). Annual Report 2019 25
  28. Card Acquiring (POS) MCB Bank has a strong Network of approximately 3,000+ POS terminals at key locations across Pakistan. Our Point of Sale (POS) network is fully compliant with EMV & UICC (international safety & quality standards) and accepts Visa, MasterCard, UPI, JCB and Paypak enabled cards from all over the world. The POS Acquiring business continues to grow due to deepening of merchant relationships, round the clock support, increased POS productivity and quality of deployments. Internet Acquiring (MCB eGate) MCB eGate is a world class online payment gateway, formed as a result of our partnership with MasterCard International. MCB eGate equips online businesses to accept payments reliably and securely from both credit and debit cards and currently facilitates more than 600 online merchants, directly and indirectly. The online card acquisition footprint has grown and continues to grow substantially worldwide and MCB Bank is playing an integral part in developing the e-commerce market in the country. Further, to improve online shopping and merchant experience for e-commerce, MCB eGate payment system has now been upgraded from Mastercard Internet Gateway Service (MiGS) to Mastercard Payment Gateway Services (MPGS) which is fast, reliable and supports multiple payment modes. It also comes with the range of other value added features including real time fraud prevention and supports Mobile Commerce. MCB Call Center The human voice is still valued as the most trusted and relevant form of communication medium by a majority of our clients. This has inspired us to constantly improve our service and upgrade our MCB Call Center to the world’s best CISCO Platform. This proactive upgrade has enabled us to enhance service delivery across multiple channels while allowing us to address specific needs of our esteemed customers. MCB Call Center is equipped with 200+ trained professionals who offer a wide array of financial and non-financial services in multiple regional languages around the clock. The customers are further facilitated through self-services modes like Interactive Voice Response (IVR) and Telephonic Personal Identification Number (TPIN). The Call Center not only serves MCB Bank’s existing customers but also crosssells and up-sells a number of products and services as well. WBG Products and Services MCB Bank’s Home Remittance brand, MCB Burqraftaar was amongst the largest remittance payout brands of Pakistan in 2019. Our contribution through MCB Burqraftaar is not only limited to the bank’s growth but we are also proud to be one of the biggest contributors towards the national interest of the country by promoting 26 Unconsolidated Financial Statements remittances through legal channels. MCB has managed to build an extensive network of partners across the globe to ensure overseas Pakistanis can send money to their families back home. • MCB Burqraftaar Cash (Cash in Hand) is available via MCB’s entire branch network. Payments can be made from any of MCB’s 1350+ branches to walk in customers. • MCB Burqraftaar Transfer (Straight to Account) enables overseas Pakistanis to send their remittances to their loved ones in Pakistan through our hassle free straight to account credit service. • MCB Motherland Account: MCB offers Overseas Pakistanis the facility to open and operate an account in their home country while still residing abroad. It is designed to allow transferring of funds to their families with the convenience of their own personal account. • MCB Lite Remit allows beneficiaries to receive money from their loved ones directly into their Mobile Wallet, from our global network of remittance partners. Money can be conveniently withdrawn from MCB Lite Card through MCB branches, MCB ATM’s, 1Link ATMs, or use the funds through the MCB Lite mobile App and POS terminals. • MCB Asaan Remittance Account is targeted towards unbanked / under-banked Remittance Beneficiaries of Pakistan with simplified / relaxed account opening requirements and procedures. • MCB Burqraftaar Remittance Account is targeted towards inward Remittance Beneficiaries in Pakistan with a unique feature of exemption on withholding tax on all cash withdrawal transactions of any amount via cheques from all MCB Bank Branches & Country-wide ATMs. MCB Home Remittance is continuously working to design new products and facilities for the ease and convenience of remitters and beneficiaries. MCB Transaction Banking: Transaction Banking provides a wide range of value-added collection and payment services to large corporations through the Bank’s vast network of real time branches. TBD provides structured and customized collection products enabling customers to realize their sales proceeds swiftly from across the country, supported by real-time MIS reports.
  29. Annual Report 2019 Corporate Collection and Payment • CollectPlus: Collection through deposit of cash, same branch and local clearing instruments in designated MCB Branches • RemitPlus: Collection through a confirmed and secured receipt, without the involvement of clearing process • SIDA: Collection through direct debit of dealer’s account maintained at the branch. • DebitPlus: Collection through direct debit of dealer’s account maintained at the branch by TBD via a onetime instruction from the dealer/distributor and email instruction from the customer. • PayPlus: Payment by IFT/IBFT/Bankers cheques/ RTGS by emailing the relevant file/instructions to TBD • TBD - FI Cash Management: We offer unique cash management solutions to our local Correspondent Banks and Non-Bank Financial Institutions to meet their particular requirements for fund collection, payment, reconciliation and reporting. • Online Fund Transfer (OFT): This web based electronic fund transfer facility has been designed to enable large network of franchises / dealers / distributors to conduct real time branchless transactions through secured MCB website. • Dividend Warrant Management: The Bank provides a complete and comprehensive dividend solution to customers through Electronic Transfers to Shareholders Accounts & processing of Warrants through MCB branches, followed by complete reconciliation. Foreign dividends are also managed end to end by TBD. • Tejarat Card: Tejarat card is a closed loop debit card designed for cash-less electronic transactions empowering businesses to conduct branchless transactions through Point of Sale (POS) terminal. • Sub Clearing Arrangement: Micro finance banks that do not have operating licenses for clearing can now rely on MCB to act as their sub-clearing agent for processing transactions through NIFT. • Payment Station: Corporate Payment Station “Pay Direct” offers a real-time comprehensive payment and transfer mechanism for corporate and large business entities. This allows our customers to virtually execute A2A, Cash Payments, Bankers Cheque, IBFT, RTGS and Report Printing. cash carrying and also allows the dealers/distributors to conduct transactions even after banking hours i.e. 24/7. It ensures smooth flow of regular transactions and provides the bank with higher profits and lower operational expenses and transaction costs. The addition of this channel has also helped us in reducing our cash handling cost and will subsequently encourage dealers to open accounts with MCB. • Tax & Duties Payments to FBR: Now MCB Customers can pay their FBR Tax and Duties securely and conveniently through MCB Transaction Banking “Over-the-Counter” at any MCB branch as well as through “TBD PayPlus” by sending us their tax payment details on a secured file. Our Corporate customers can also pay their taxes and duties through “TBDPayDirect” 24x7 and from anywhere in the world. Under FBR payments, MCB offers real-time integration with 1-Link and CBS with complete security and a two-step authorization process. Complete transaction details are ensured through computer processed receipt, instant SMS alert and detailed MIS for the branch / back office. Banker to the Issue for IPO/SPOs & Right Shares: We provide efficient & effective processing for both IPO/ SPOs & Right Share Mandates. Our branches are welltrained in handling collections for both these products. Information mentioned in the forms is matched with funds collected and after reconciliation these are transferred to the respective company. MCB’s TBD team works jointly with Investment Banking Team on various IPO/SPOs & Rights Shares to facilitate clients. Our Corporate Banking team works in conjunction with Transaction Banking to facilitate customer requirements for collections, payments, dealer finance, electronic dividends and bulk salary processing. MCB Corporate Banking Finance: MCB Corporate Banking Finance provides access to diversified financing options, including working capital loans, term loans, trade based finance services (bank guarantees, Import Letter of Credits, import and export services, bill discounting / negotiation, Export finance both in USD and PKR, State Bank of Pakistan export refinance and Long Term Finance, Import finance both in USD and PKR), dollar based loans, financing under SBP schemes and furthermore, depository options are also offered under various schemes. Our Corporate Banking team works in close liaison with our Investment Banking team to facilitate clients with advisory and arrangement services for equity, debt and project finance offered through our Investment Banking division. Similarly our Corporate Banking team works in conjunction with Transaction Banking to facilitate their requirements for collections, payments, dealer finance, electronic dividends and bulk salary processing. • Corporate IVR for Collections: MCB introduced a new platform to Dealers, Distributors and Franchisees to conduct transactions without the need to visit MCB branches, by using our existing CRM and IVR channel. The product provides security in terms of MCB Investment Banking: MCB Investment Banking offers full suite of Investment Banking services ranging from equity & advisory, syndications and debt capital markets to Project and structured finance. MCB Investment Banking works in close coordination with Annual Report 2019 27
  30. Corporate and Retail Banking to facilitate their clients with its services . MCB Project and Structured Finance: MCB Project and Structured Finance is a ‘Non-recourse’ or ‘Limited Recourse’ financing, where the lenders base their credit decision primarily on the cash flows of the project, with respect to repayment of the project debts. Risks are carefully allocated amongst various stakeholders. MCB Syndicated Loans and Debt Capital Markets: MCB Syndicated Loans and Debt Capital Markets involve arrangement, underwriting and placement services for debt financing requirements by large corporate and institutional clients to other financial institutions or through the debt capital markets. MCB Quasi Equity / Hybrid Instruments: MCB Quasi Equity/Hybrid Instruments are structured and tailor-made products incorporating specific customer requirements based on debt and/or equity components including unsecured nature instruments, subordinated nature types, cumulative/noncumulative dividend payments types, equity play component instruments etc. MCB Equity Capital Raising: MCB Equity Capital Raising relates to raising capital for our clients by offering common or preferred equity to public or private investors, through initial public offers, offers for sale, rights issues and private equity placements and underwriting of equity issues in the Capital Market. MCB Advisory Services: Financial and Capital Raising Advisory provides our clients with financial advisory services for mergers and acquisitions, privatization, project finance, commercial structuring support and access to capital resources to assist companies successfully finance their business / project. Strategic Investments and Acquisitions division evaluates potential investments, both minority and majority stakes in different financial institutions and then proceeds with execution on advice of Board of Directors. An example is the acquisition and amalgamation of NIB Bank into MCB Bank Ltd. Strategic acquisitions also evaluate operations of different subsidiaries/businesses and with Board of Directors consent can proceed with divestments of businesses which are deemed non-core businesses. This Division also maintains relationships with strategic investors. 28 Unconsolidated Financial Statements MCB Sri Lanka - Products and Services Current Account - Take account of things that matter! MCB Bank Current account allows our customers to distinguish themselves in the financial market with secure and faster cheque clearing process, allowing them to carry out their transactions with a greater level of confidence. Privilege Current Account – Feel prioritized and privileged! MCB Bank Privilege Current Account offers a range of personal and business banking solutions that are specially tailored to meet our customers’ emerging needs, with a whole array of value additions coupled with our unparalleled customer services. Savings Account - The smarter your savings, the higher your returns! MCB Savings Account is designed to encourage customers to maintain a healthy account balance, which keeps growing day by day. Tier based interest rates enable customers to enjoy an attractive return on their funds. Customers have the freedom to utilize their funds to meet their day to day financial needs with no restrictions to the number of transactions they perform. Fixed Deposits -The safe way to save! Fixed Deposit Accounts are designed to suit the diversified investment requirements of our customers. Starting from 7 Days Call Deposits, our product range extends to Term Deposits that can be fixed up to 4 Years. Further, we offer the option of obtaining the interest at maturity or specific interim periods (monthly/quarterly) depending on the customer’s requirement for funds. MCB Kidz Club - Pave the future for your child! Children are the wealth of our nation. We offer ample encouragement and incentives to assure them of a future that’s secure. MCB Kidz Club Account offers an attractive interest rate coupled with a wonderful gift scheme based on the account balance. This encourages parents and children to grow their account balance in order to enjoy the financial return, as well as to collect gift items on reaching specific account balances. Foreign Currency Accounts - When you need financial diversity! MCB customers can save in any designated foreign currency and enjoy attractive returns. Further we offer a wide range of account types for personal and business clients under special schemes approved by the Department of Foreign Exchange of Central Bank of Sri Lanka.
  31. Annual Report 2019 MCB Debit Card – Introducing more convenience! MCB has been providing financial services to its valued customers since 1994. To further enhance this relationship, MCB signed up with the partnership of Lanka Pay and JCB for the introduction of Debit Card, providing our valuable customers the facility to shop with convenience. Debit Card also provides access to customer accounts through a shared network of over 4500 ATMs Island wide. Virtual Banking –Smart & secure access 24/7! Virtual Banking helps customers stay updated on their account activities from wherever they are, and carry out their banking transactions at a time that is convenient for them, instead of restricting themselves to standard banking hours. Safe Deposit Lockers - Where safety is a promise! We pride ourselves in offering our customers ease of mind and this is yet another service that highlights our commitment in providing everything necessary to accommodate their needs. We offer various types of lockers depending on customer requirement to protect their documents, jewelry or any other valuables. Home Remittance – Transferring happiness to your Homeland! MCB Home Remittance is a simple and dependable way of sending money to your loved ones in Sri Lanka from anywhere in the world. With a wide network of worldwide remittance partners (including the partners of MCB Bank Pakistan), we ensure the fastest and safest money transfer. Trade Services – Trading becomes convenient & faster! MCB Trade Services empower individuals and businesses to reach their highest potential by streamlining and customizing processes and product portfolio. We ensure that a comprehensive range of trade products and services will enable you to do your business successfully. SME & Corporate Banking We offer diversified finance options for Small/Medium Entrepreneurs and Corporate customers to achieve success in their business. These financing options range from Overdrafts, Leasing for vehicle and machinery, Working Capital Loans, Term Loans, Trade Finance and Structured Project Financing in order to cater to the evolving needs of our Business Banking customers. A wide range of Treasury products including Forward Contracts, Repurchase Agreements, Spot Contracts and Treasury Bills are also offered under investment options. MCB Hajj & Umrah Remittance – Stress free & hassle free pilgrimage! MCB was the first bank to offer Islamic Banking services in Sri Lanka in 2006. Being the pioneer in the market, Islamic Banking Division has extended its operations with a fully-fledged portfolio of Shari’ah compliant products and services. MCB Islamic Banking Division has been able to sign-up with Hajj Operators Association as the first bank to offer regularized remittance services to Hajj & Umrah pilgrims. UAE - Products and Services MCB UAE has an array of customized business products for its wholesale customers that include Business Accounts, Finance & Trade products. These services are aimed at fulfilling the day to day needs of the businesses at competitive yet flexible prices. MCB Current Deposit Account It is designed to provide our wholesale customers with transactional convenience and flexibility. Choices of local (AED) and International currencies (USD/GBP/EUR) are available at attractive options for our business customers with low minimum balance. 365 Savings Business Gold Account Transactional flexibility in a Savings account, 365 days Gold Account provides choice of local (AED) and International currencies (USD/GBP/EUR). This account will grow savings at an attractive interest rate for 365 days, while giving the flexibility to use these funds for business transactional needs as well. An attractive option for business customers with a high balance and with requirements of transactional flexibility. Term Deposit Term Deposit products are available in choice of local (AED) and International currencies (USD/GBP/EUR). Tenor options can be chosen between 1, 3, 6 and 12 months. It is an attractive option for our business customers with short to mid-term investment opportunities. Demand Finance It is financing for a fixed period repayable either in periodic installments or in a lump sum, at a future date. An attractive option for business customers that require financing against fixed assets such as Plant and Machinery, Land, Building etc. Overdraft Overdraft facility allows businesses to access additional funds for day to day business expenses. The overdraft facility will charge interest only on daily outstanding balance from the Current Account in excess of the credit amount available. Annual Report 2019 29
  32. Bills Discounting Our discounting solution is for clients who are looking to fund their working capital requirements . While discounting, the bank buys the bill (i.e. bill of exchange or promissory note) before it is due. The transaction is practically an advance against the security of the bill and the discount represents the interest on the bill from the date of purchase of the bill until it is due for payment. Post-dated Cheque Discount Facility Cheque Purchase Discount Facility from MCB Bank takes away the hassle of waiting for post-dated cheques (30120 days) to clear while letting businesses concentrate on completing their transactions. Finance against Trust Receipts (FATR) Financing against Trust Receipts enable our customers to honor payments to their suppliers by letting the bank pay on their behalf without reducing customer’s credibility. The customer simply has to submit a Trust Receipt (TR) Letter which contains a statement of receiving goods on Bank’s behalf and promising to pay the Bank on deferred basis. Financing against Receivables Financing against Receivables is available in the form of Invoice discounting. Invoice Discounting is a form of asset based finance which enables a business with evidence to release cash tied up in an invoice to its debtors/buyers. • Discounting of Export Bills for Collection – A borrowing mechanism available to raise finances for an agreed specific tenor. Where bank buys the export bill at discounted price, the exporter gets amount from bank while submitting export documents. • Discounting of Bills under Export LC - A borrowing mechanism available to raise finances against documents drawn on buyers for an agreed specific tenor. Discounting of Bills under Export LC is available for customers who wish to sell such bills to the bank at a discount rate under the condition of not claiming anything from customers (Without Recourse). 30 Border Funds Transfer at anytime from anywhere in the world simply by logging on to www.online.mcbae.com Bahrain – Products and Services MCB-Bahrain is engaged in various activities. MCB Current Account MCB-Bahrain’s Current Account is designed to provide our customers with transactional convenience and flexibility. Accounts are opened in international currencies (USD/GBP/EUR) with low minimum balance. MCB Savings Account MCB-Bahrain offers Saving Accounts in international currencies (USD/GBP/EUR) to customers and offers attractive interest rates on deposits while giving the flexibility to use the funds for transactional needs as well. This is an attractive option for customers with high balances who require transactional flexibility. Term Deposit Term Deposits are available in international currencies (USD/GBP/EUR). Customers can choose a tenor based on their needs. It is an attractive option for customers who wish to take advantage of short to mid-term investment opportunities. Syndicated Transactions MCB-Bahrain has the capability to participate in both Islamic and conventional syndicated transactions. Participation is done in various regional transactions for corporates, financial institutions and sovereign entities. Moreover, the bank is engaged in risk sharing transactions with other reputable banks for confirmation/discounting of trade instruments. Loans and Advances MCB-Bahrain provides loans and trade facilities to its bilateral clients. MCB-Bahrain finances for short term or long term funded facilities to its own clients and is providing project specific financing in the region. Guarantees The Bank stands as a guarantor for its client ensuring that the liabilities of a debtor will be met. Generally a Guarantee is issued on the basis of cash collateral or against some security as collateral. Trade Finance MCB-Bahrain provides all types of funded & non funded trade finance facilities to its clients. This includes opening of all types of L/Cs, advising, confirmation, discounting of L/Cs, documentary collection, bill discounting and issuance of bank guarantees. Internet Banking MCB Bank has implemented Oracle’s Flex Cube Direct Banking which comes with enhanced securities, a user friendly interface and a host of functionalities/services. Our state of the art Internet Banking that allows clients, through a maker checker concept, the convenience of conducting Inter Bank Funds Transfer as well as Cross LC Reimbursement & Remittances MCB-Bahrain also acts as a reimbursement agent on behalf of MCB Bank’s branches in Pakistan, Dubai and Sri Lanka to make payments to various banks/beneficiaries all across the world against their respective L/Cs / remittances. Unconsolidated Financial Statements
  33. Annual Report 2019 Correspondent Banking MCB-Bahrain can initiate and develop business relationships with various banks within and outside Bahrain . The branch maintains its Nostro/accounts with various reputed banks in many countries. • Avalization (Import): A product which facilitates delivery of import documents (and goods) against importer’s acceptance under contracts (without opening of LC) hence offers savings associated with fees and commissions. Treasury MCB-Bahrain has been an active treasury which has been investing in various fixed income securities. The branch has the capability to invest in both Islamic and conventional instruments. Our portfolio, in different points in time, traded sovereign Euro Bonds, International Sukuk and Treasury bills. The branch is fully equipped to provide plain vanilla FX solutions to its trade clients. Quote for other liquidity instruments such as SWAPS, short term borrowing/placements as well as forwards can be inquired from the treasury front office. • China LC Confirmation Programme: Under this program the branches of MCB’s partner bank located in Hong Kong and China add “Confirmation” to MCB LCs on “Free of Cost” basis thus increasing acceptability of MCB’s Import LCs and facilitate import customers. MCB Trade Products MCB Islamic Bank Limited Trade Products provide a wide range of standard as well as tailor-made products and solutions to trade customers from all walks of life. Despite having an inventory of standard to market products in refined shape, specific new-to-market products include: Products and Services: MCB Islamic Bank Limited offers a wide array of Halal and RIBA free Islamic Banking products and services to meet the requirements of individuals and businesses alike. • Quick-LC: A simple and easy to use mechanism, internal design of desktop application, allowing customers to type-in, e-mail and print out an LC application form, reducing cost and hassle while improving TAT and input accuracy. • X-Flex: A solution which facilitates external export business for customers in cases where transport documents (Bill of Lading) are not available at the counters of MCB’s discounting / financing branch on the date of extending financing. • TRIMS: Facilitates the financing of inland trade through the involvement of MCB Bank at both ends thereby allowing an exporter to get receivables discounted on non-recourse basis, i.e. the exporter receives payment in a given time (in less than 48 hours) after performing obligations. • Econ-LC: A product program which allows drafts/bills of exchange to be waived as a requirement under LCs available by negotiation resulting in reduction in overall transaction cost for importers. • Avalization (Export): A global product designed to facilitate the financing of export by allowing an Exporter (Seller) to discount the receivables under credit granted to a counter party, i.e. Importer (Buyer), without taking payment risk on the Importer (Buyer) under a contract (non-LC transactions). • Europe LC Routing Program: Under this program the branches of MCB’s partner bank located in UK will be handling LC transaction originated by MCB under special arrangements which includes advising, confirmations, bill discounting and UPAS transactions. Deposit Products: MCB Islamic Bank offers a wide variety of Saving, Current and Term Deposit accounts such as the following: MIB Hidayat Current Account MIB Basic Banking Account MIB Imaan Saving Account MIB Barkat Saving Plus Account MIB Barkat Super Saving Account MIB Imaan Foreign Currency Saving Account MIB Na’mat Plus Term Deposit MIB Aasoodgi Term Deposit MIB Financial Institutions Term Deposit MIB Asaan Current Account MIB Hidayat Foreign Currency Account MIB Barkat Saving Account MIB Barkat Saving Premium Account MIB Asaan Saving Account MIB Atfaal Saving Account MIB Na’mat Plus Foreign Currency Term MIB Na’mat Term Deposit Digital Banking: In order to meet growing needs of the customers, MCB Islamic Bank offers following Digital Banking products and services: MIB Qadar Cards MIB Internet Banking SMS Notification Service MIB Electronic Funds Transfer MIB Phone Banking MIB Mobile App MIB ATMs network Annual Report 2019 31
  34. Consumer Finance : MCB Islamic Bank offers Halal and RIBA Free Housing Finance (Rihayesh Finance) & Car Finance (MiCar) products to provide Shari’ah compliant housing and vehicle financing solutions to Individuals. Commercial Financing is catering to financing needs of its customers in the following different manners: SME Banking: MCB Islamic Bank offers Shari’ah Compliant Financial solutions for Small and Medium sized enterprises. These products have been designed by industry professionals in close consultation and working with a team of Shari’ah experts. These products addresses, Murabaha Financing, Finished Goods Murabaha, Musharakah Export Finance – Foreign, Istisna Financing, Islamic Export Re-finance Scheme, Finished Goods Musawamah & Commodity Salam. Corporate Banking: MIB Corporate Banking team is focused on providing a range of diverse financial services (including tailor made solutions) to corporate clients (including multinational and public entities) by partnering with them and build longterm sustainable relationships. MCB Islamic Bank offer following SME Banking services: • Short Term or Working Capital requirement facilities • Long Term or Fixed Assets based facilities • Trade or Guarantee facilities • State Bank of Pakistan Refinancing Scheme Microfinance: For fulfilling the needs of growing small / micro businesses in both Urban and Rural areas of Pakistan, MCB Islamic Bank Limited offers Murabaha Microfinance for Businessmen and women operating in a diversity of sectors. Through this financing facility, they can avail financing of up to PKR 500,000. Wealth Management: With increasing uncertainties, it is important to start planning for your future – whether it is preparing yourself for any emergencies, planning for your future financial stability, buying a house or simply preparing for your children’s higher education or marriage. MCB Islamic Bank not only provides you the best financial consultancy but also gives you access to highly customized Shari’ah complaint investment avenues assuring that while you go on with your life your savings grow exponentially. Commercial Banking: Commercial Financing segment focuses on building strong & long-lasting relationships with its customers by delivering satisfactory Shari’ah compliant solutions. To deliver excellent services, commercial financing segment facilitates its valued customers by synergizing its specialized team’s effort with bank’s outreach across the country. 32 Unconsolidated Financial Statements • • • Trade Services Working Capital Finance Medium & Long Term Finance Our dedicated teams within Corporate Banking are situated in offices located in Karachi, Lahore, Islamabad, Multan and Faisalabad. Our in-house expertise of product specialists and Shari’ah scholars are well versed in providing Shari’ah-compliant financing solutions to meet our customer’s credit, trade, foreign exchange, investment banking and various other business requirements in a hassle free, effective and efficient manner across a diverse range of industries. Our Corporate Banking relationship teams also liaison with Treasury, Cash Management, Trade, Investment Banking and Consumer Banking departments to develop and deliver offerings that are used across diverse businesses. MIB offers a complete range / array of Shari’ah compliant products for both Corporate and Commercial banking sectors which can be classified as follow: • Working Capital Finance A complete product suite for extending Shari’ah Compliant products for working Capital Finance including Murabaha, Istisna, Finished Goods Murabaha, Commodity Salam, Finished Goods Musawamah, and Musharakah Running Finance for catering to balance sheet needs of Corporates / Commercials / MNCs for managing their day-to-day funding needs. • Long-Term Finance For catering to Balance Sheet requirements under long-term financing, MIB has an array of medium to long term financing products which includes Corporate Ijarah & Corporate Diminishing Musharakah.
  35. Annual Report 2019 • Trade Services MIB also offers a range of import and export services to effectively manage customer’s local and global supply chain needs and provides them a competitive edge. These facilities extend for both raw materials to fixed assets. Services that are offered include: o Export Services o Bills for Collection under Export o L/C Advising & Confirmation services o Currency Salam (alternate for Export Discounting) o Pre-Shipment and Post-Shipment financing on Islamic modes of financing o Import Services o Letter of Credit o Import Financing o Bank Guarantees Cash Management Services: MIB has a significantly enhanced capability of receiving collections on behalf of Bank’s customers, whereby we can support diverse requirements of our clients for receiving payments from their payers throughout the bank’s branch network. This product encompasses the entire paper-based accounts receivable function. Other Services: MCB Islamic Bank Ltd. also offers various services to meet growing needs of its customers, some of which are as follows: • MIB Remittance Service • Cash Management • FX Services • PRISM Services • Utility Bills Payment •Lockers Annual Report 2019 33
  36. CORPORATE INFORMATION Board of Directors Mian Mohammad Mansha Mr . S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mrs. Iqraa Hassan Mansha Mr. Muhammad Ali Zeb Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Masood Ahmed Puri Mr. Shahzad Hussain Mr. Shariffuddin bin Khalid Mr. Imran Maqbool Chairman Vice-Chairman Director Director Director Director Director Director Director Director Director Director President & CEO Audit Committee: Mr. Shahzad Hussain Mian Umer Mansha Mr. Muhammad Ali Zeb Mr. Shariffuddin bin Khalid Chairman Member Member Member Chief Financial Officer: Mr. Hammad Khalid Company Secretary: Mr. Fida Ali Mirza Auditors: M/s. KPMG Taseer Hadi & Co. Chartered Accountants Legal Advisors: M/s. Khalid Anwer & Co. Advocates & Legal Consultants Registered /Principal Office: MCB Building, 15-Main Gulberg, Jail Road, Lahore, Pakistan. Contact us: UAN: + 92 42 111 000 622 E-mail: investor.relations@mcb.com.pk Visit us: www.mcb.com.pk Registrar’s and Share Registration Office(s): 34 Head Office: M/s. THK Associates (Pvt.) Limited 1st Floor, 40-C, Block 6, P.E.C.H.S., Karachi, Pakistan. Branch Office: M/s. THK Associates (Pvt.) Limited Siddique Trade Centre, Office No. PL-29, PL Floor, 72 Main Boulevard Gulberg -2, Lahore, Pakistan. Unconsolidated Financial Statements
  37. Annual Report 2019 Annual Report 2019 35
  38. Board of Directors 36 Unconsolidated Financial Statements
  39. Annual Report 2019 Annual Report 2019 37
  40. Mian Mohammad Mansha Chairman Mian Mohammad Mansha started his career at the age of 24 as the CEO for Nishat Mills Ltd . At present, the business group is one of the leading and most diversified in South East Asia, having presence in Textile, Cement, Insurance, Banking, Financial Services, Power Generation, Hotel & Hospitality, Dairy, Paper Products, Retail Commerce, Real Estate, Agriculture, Aviation and Automotive sectors. It operates in various countries across the globe including Sri Lanka, Azerbaijan, UAE, USA, Hong Kong and Bahrain. The Nishat Group is one of the largest private sector employers, exporters and tax contributors in Pakistan. Mr. Mansha has served as Chairman of MCB Bank, after its privatization, from 1991 to mid-1995 and then from 1997 till date. Presently, he is also a member of the Board’s Human Resource & Remuneration Committee, Committee on Physical Planning & Contingency Arrangements and Business Strategy & Development Committee at MCB Bank Limited. Previously, he was associated with Punjab Mineral Company (Pvt) Limited, Civil Aviation Authority, Pakistan International Airlines, Board of Investment, Punjab Board of Investment & Trade, Pakistan Industrial Development Corporation (Pvt) Limited, Commonwealth Business Council UK, Int’l Advisory Board Babson College USA, National Management Foundation, Textile College Faisalabad and Government College of Faisalabad. He has also served as the Chairman for All Pakistan Textile Mills Association (APTMA) and APTMA, Punjab. 38 Unconsolidated Financial Statements Mr. Mansha is also a committed philanthropist and provides regular support to numerous Pakistani charities and social causes. He has made significant contributions to the Shahzad Saleem Memorial Trust Hospital and to Children’s Hospital, Lahore for the upgrade of their pediatric cardiac surgery facilities. In the past he has lent personal support to Shaukat Khanum Memorial Trust, Lahore Hospital Welfare Society, Mind Organization, Human Rights Society of Pakistan, Kidney Care Centre, The Citizens Foundation, Friends of Pakistan Institute of Cardiology Trust, Care Foundation, SOS Village, Lahore Model School Sant Nagar, Aziz Jahan Trust for the Blind and Altaf Mehmood Foundation among many others. He was presented with Pakistan’s Civil Award, the Sitarae-Imtiaz, for his contributions to industrial development, in 2004. Other Directorships: • MCB-Arif Habib Savings and Investments Limited • MCB Non-Bank Credit Organization, CJSC, Azerbaijan
  41. Annual Report 2019 S . M. Muneer Vice Chairman With experience in sectors ranging from tanneries, textiles and banking, Mr. Muneer is a consummate industrialist. He has been awarded with The Best Export Performance trophy by the Federation of Pakistan Chamber of Commerce & Industry (FPCCI), the Gold Medallion Award from the International Export Association, UK and Best Businessman of the Year Award from FPCCI. in the same year in the City of Markham (Canada) by the Mayor Mr. Frank Scarpitti in the presence of members of parliament. Recently, he has been awarded Who’s Who recognition of Achievement Award in the field of Trade Politics by the National Council of Who’s Who Pakistan in Karachi on December 29, 2018. Other Directorships: In addition, he has received the ‘Sitara-e-Isaar’ and the ‘Sitara-e-Imtiaz’ in 2006 and 2007 respectively by the President of Pakistan in recognition of his outstanding public services for the cause of humanity. His contributions and achievements go beyond the economic sphere into the education sector as well. He was awarded an Honorary PhD degree (doctorate of philosophy) in January, 2009 by the Governor of Sindh. He is former President of Federation of Pakistan Chamber of Commerce & Industry (FPCCI), Member of the Board of Governors of IoBM and Greenwich College, Karachi. He is on the Board of Shaukat Khannum Cancer Hospital, Lahore, The Kidney Centre Post Graduate Training Institute. He is Patron-inChief, Korangi Association of Trade and Industry (KATI), Kashif Iqbal Thalassemia Care Centre, Trust (KITCC). Mr. S. M. Muneer is the Chairman of Chiniot Anjuman Islamia running many hospitals, maternity homes, schools & colleges in Karachi, Faisalabad and Chiniot. Mr. S. M. Muneer was awarded “Life Time Achievement Award” by the President of Pakistan, in the President House in 2012, and also awarded Life Time Achievement Award • Din Textile Mills Limited • Din Leather (Pvt.) Limited • Din Farm Products (Pvt.) Limited • Din Industries Limited • Arabian Sea Country Club Annual Report 2019 39
  42. Muhammad Tariq Rafi Director Mian Umer Mansha Director Tariq Rafi is the Chairman of Siddiqsons Group and is a recipient of the coveted Civil Award Sitara-e-Imtiaz . He was awarded the prestigious Best Businessman award for the year 1999 and 2012, Best Export Trophies between years 1980 to 2005. Mr. Tariq Rafi has recently been awarded the Privilege Card by the Prime Minister of Islamic Republic of Pakistan for being one of the top tax payers. He is also the Honorary Consul General of Republic of Serbia. Mian Umer Mansha was elected as a Director on the Board of MCB Bank in November 1997 and served till September 2007. He was re-elected as a Director in the Bank’s 61st AGM held on March 27, 2009. He is on the board of MCB Bank since its privatization and presently is the member of Write-off & Waiver Committee. Other Directorships: • Siddiqsons Limited • Siddiqsons Tin Plate Limited • Central Depository Co. of Pakistan Limited • Triple Tree (Pvt) Limited (Ocean Tower) • Siddiqsons Energy Limited 40 Unconsolidated Financial Statements Presently, at MCB Bank he is the Chairman of the Board’s Business Strategy & Development Committee, Information Technology Committee, Committee on Physical Planning & Contingency Arrangements and Write-off & Waiver Committee and is also a member of Audit Committee and Risk Management & Portfolio Review Committee. In addition, he has been serving on the board of various other businesses. Mr. Umer received his Bachelors degree from Babson College, Boston, USA. Other Directorships: • Nishat Mills Limited • Adamjee Insurance Company Limited • Adamjee Life Assurance Company Limited • Nishat Hotels & Properties Limited • Nishat Developers (Pvt.) Limited • Nishat (Raiwind) Hotels and Properties Limited • Nishat Dairy (Pvt.) Limited • Nishat Agriculture Farming (Pvt.) Limited • Hyundai Nishat Motor (Pvt) Limited • Nishat Agrotech (Pvt) Limited • Nishat Sutas Dairy Limited
  43. Annual Report 2019 Iqraa Hassan Mansha Director Muhammad Ali Zeb Director Mrs . Iqraa Hassan Mansha has more than 8 years diversified professional experience in Hotels Industry. She received her B.Sc Degree in International Politics from London School of Economics and M.Sc degree in International relations from the University of London School of Oriental and African Studies. Mr. Muhammad Ali Zeb is currently the CEO and Managing Director of Adamjee Insurance Company Limited. He a fellow member of the Institute of Chartered Accountants of Pakistan and has over 21 years of diversified professional experience in the fields of Finance, Insurance & Manufacturing. He also served as council member of Insurance Association of Pakistan and Pakistan Insurance Institute. Insurance Association of Pakistan elected him as the Chairman for the year 2014 in terms of its Constitution. She is serving in the capacity of Chief Executive Officer Nishat Real Estates Development Company (Pvt.) Limited. She is also acting as Director on the Board of the following companies: Other Directorships: • Nishat Hotels and Properties Limited • Nishat (Gulberg) Hotels and Properties Limited • Nishat (Raiwind) Hotels and Properties Limited • Emporium Properties (Pvt.) Limited He was co-opted as a Director on the Board of MCB Bank in June 2013. At MCB Bank, presently he is the Chairman of the Board’s Risk Management & Portfolio Review Committee and member of Board’s Audit Committee, Human Resource & Remuneration Committee, Compliance Review & Monitoring Committee, Committee on Physical Planning & Contingency Arrangements and Write Off & Waiver Committee. Other Directorships: • Adamjee Insurance Co. Limited • Adamjee Life Assurance Company Limited • Nishat (Chunian) Limited • Nishat Sutas Dairy Limited Annual Report 2019 41
  44. Yahya Saleem Director Salman Khalid Butt Director After graduating from the Lahore University of Management Sciences (LUMS), Mr. Yahya joined the family business as director of the Nishat Chunian Group with setting up a spinning mill in 1990. The company has since diversified into weaving, home textile, power generation and entertainment sectors. Today with a turnover of PKR 39.337 billion, NCL ranks amongst the top 5 textile companies in Pakistan. Mr. Salman Butt is an accomplished international business executive and ex-banker. He is currently a Dubai, U.A.E. based Entrepreneur. The group ventured into the power business in 2007 with a 200 MW Independent Power Plant (IPP), Nishat Chunian Power Ltd. With a turnover of PKR 15.021 billion in 2019, the IPP provides electricity to the national grid. Both the companies are listed on Pakistan Stock Exchange. Together with his family, he has set up a Trust which is in memory of Sheikh Mohammad Saleem and has initiated setting up of a 200 bed tertiary care not-for-profit hospital in Lahore. The hospital will be built to state of the art international standards and will provide subsidized health care to the under privileged section of the city. In 2015 he started a company by the name of NC Trading USA that is a Cotton trading company based in USA and actively sells US cotton in Pakistan. In 2017 NC Trading USA sold cotton worth USD 50 million to the leading textile mills in Pakistan. In 2019, he was appointed as CEO and Director of NC Entertainment Private Limited which owns two Multiplexes, widely known as “Universal Cinemas”, including largest multiplex in Pakistan. 42 Unconsolidated Financial Statements Mr. Salman Butt started his career with Citibank N.A. in 1985 and worked for 20 years as an international banker with Citibank N.A. and Samba Financial Group, holding several senior positions in Corporate and Investment Banking in Pakistan, Hong Kong, UK, Egypt and Saudi Arabia. Mr. Salman Butt joined Orascom Construction Industries, Egypt (OCI Egypt) as Group CFO in 2005. OCI Egypt was a leading Egyptian multinational listed on Cairo Stock Exchange and involved in Construction, Fertilizers and Cement operations. In 2013, OCI Egypt was re-domiciled as OCI N.V. Netherlands and listed on Amsterdam Stock Exchange, where he continued as Executive Director and Group CFO from 2013 to 2017. Mr. Salman Butt has a Masters of Business Administration degree from the University of Texas at Austin, Texas, U.S. and a B.Sc. Industrial Engineering degree from Middle East Technical University, Ankara, Turkey.
  45. Annual Report 2019 Mohd Suhail Amar Suresh Director Mr . Suhail has over 30 years of global experience in IT architecture, systems and application development, regional implementation and business development, across multiple industries; from Telecommunications to Financial services. His passion in technology drives him to effectively utilize technology as a competitive advantage for enhanced customer experience. Mr. Suhail is currently the Group Chief Technology Officer (GCTO) for Maybank, the largest Financial Services Institution in Malaysia and 4th in ASEAN with USD 195.3 billion total assets. He formulates technology strategies and leads the execution of the digital transformation, in line with the Group’s overall business aspirations. Committee for Information Technology of Maybank Ageas Holding Berhad, a Director of 3 entities; Maybank Shared Services Sdn Bhd, MBB Labs Pvt. Ltd. and Technology Park Malaysia Corporation, Sdn. Bhd. Mr. Suhail is a Fellow of the Malaysian Institute of Management and Associate of the Asian Institute of Chartered Bankers Association (formerly known as Institute of Bankers Malaysia- IBBM). He holds a Master in Business Administration from Charles Sturt University, Australia and is a Chartered Banker from the Asian Institute of Chartered Banker. Mr. Suhail also holds an Advanced Management Program from Harvard Business School. Prior to Maybank, Mr. Suhail was the Managing Director of Malaysian Electronic Clearing Corporation Sdn Bhd (MyClear), a wholly owned subsidiary of Bank Negara Malaysia and was also the Group Managing Director of Malaysian Electronic Payment System Sdn Bhd (MEPS). For his leadership in Maybank, Mr. Suhail was awarded the CIO Excellence Award 2016 by PIKOM, Bank Technology Leadership Achievement in Asia Pacific for outstanding technology leadership by The Asian Banker, 2017 and named as one of the top financial services CIOs in Southeast Asia by International Data Group (IDG), CIO. com 2018 Presently, Mr. Suhail is a Director on the Board of MCB Bank Limited and a member of the Board’s Business Strategy & Development Committee, Risk Management & Portfolio Review Committee and Information Technology Committee. He is also a member of Board Oversight Annual Report 2019 43
  46. Shahzad Hussain Director Masood Ahmed Puri Director After passing the final exam of England Institute of Chartered Accountants , i.e., The Institute of Chartered Accountants in England and Wales (ICAEW), Mr. Shahzad Hussain returned to Pakistan from UK, in early 1980s. In Pakistan, he became a member of the Institute of Chartered Accountants of Pakistan i.e. ICAP. Later, he was elected as a member of its Council for a term of four years and also served as Vice President (North), where he chaired the ICAP’s Discipline Committee, reporting to the Council. Mr. Masood Ahmed Puri has been working as an executive and then as CEO and owner of different conglomerates in the field of Logistics, Shipping, Supply Chain, Restaurants and Textile within the GCC region for the last 43 years. He started his career with Vegetable Ghee Industry in Pakistan but later on switched to logistics and shipping in the year 1976. He was hired as General Manager Finance in a Logistics Company in Saudi Arabia from where he achieved significant success and managed the overall operations of the Company. One after another, he kept on developing new businesses in the same field as well as diversified into textiles and restaurants all within the GCC region. He carries immense experience and exposure in the field of Finance, Corporate Strategy, Management, Operations and most importantly on business start-ups. He has successfully established six companies and a chain of “A” class restaurants throughout the GCC during his professional life. In 1980, after serving briefly in SNGPL, he joined A. F. Ferguson and Co., a network firm of Price Waterhouse Coopers (PwC). In early 1990’s he was admitted to partnership and served the firm in Audit, Tax and consultancy. In 2003, he was made Partner In-Charge of Lahore Office, where he served until his retirement in 2015. He has vast experience in Audit, Tax practice and in consultancy. He headed many assignments, including Asian Development Bank funded assignment for Punjab Government Resource Mobilization, where he gained considerable experience in Provincial Government organization structures and procedures in various fields. 44 Unconsolidated Financial Statements
  47. Annual Report 2019 Shariffuddin bin Khalid Director Imran Maqbool President & CEO Mr. Shariffuddin Khalid was appointed as an Independent Non-Executive Director of Maybank on June 14, 2018. He also serves as Chairman of the Audit Committee of the Board and member of the Compliance Committee of the Board. Mr. Imran Maqbool serves as President & Chief Executive Officer of MCB Bank Limited. He is a seasoned professional with over three decades of diverse, international banking experience. Prior to his current role, he was the Head of Commercial Branch Banking Group, where he successfully managed the largest group of the Bank in terms of market diversity, size of the workforce, number of branches, on a countrywide basis and diversified spectrum of products. His earlier, multi-faceted Group Head assignments included heading Wholesale Banking Group–North, Special Assets Management and Islamic Banking. He was also posted as Country Head, MCB Sri Lanka. He is a Fellow Member of the Chartered Institute of Management Accountants, United Kingdom. He has over 30 years’ experience in the banking and corporate sector. He had served in key positions in the corporate services, business development, corporate communications and human resource functions. He was part of the pioneer management team tasked with the establishment of Pengurusan Danaharta Nasional Berhad (“Danaharta”) during the 1998 Asian financial crisis. He served as General Manager, Communications and Human Resource, Danaharta, from its establishment in 1998 until 2005. He joined Bank Nagara Malaysia (“BNM”) in 2008 as pioneer Director of the Malaysia International Islamic Finance Center. He has served BNM for nearly 10 years and the last position he held was Director, Strategic Communications. His portfolio under this position covered all media relations, official publications, Parliamentary responses as well as e-communications and design. His current directorship within the Maybank Group includes Maybank (Cambodia) Plc and Maybank Islamic Bhd. Currently, he also sits on the Board of Marine & General Berhad, a public company listed on the Main Market of Bursa Malaysia, as well as its subsidiaries. Before joining MCB Bank in 2002, Mr. Maqbool was associated with local banking operations of Bank of America and Citibank for over seventeen years, where he worked in various senior management roles in the respective banks. Mr. Maqbool holds an MBA degree from the Institute of Business Administration (IBA-Karachi) as well as an MS in Management from the renowned Sloan School of Management (Massachusetts Institute of Technology) in the USA. Other Directorships: • Adamjee Insurance Company Limited • MCB Financial Services Limited • MCB Employees Foundation • Adamjee Life Assurance Company Limited Annual Report 2019 45
  48. Organizational Structure Chairman / Board of Directors Audit Committee President Corporate Affairs Division Audit & RAR Group Treasury & Forex Group Whole Sale Banking Group Compliance & Controls Group Financial Control Group Information Technology Group Human Resources Management Group Assets Rehabilitation Group Consumer Banking Group Legal Affairs Group Operations Group Risk Management Group Security & Marketing Group Retail Banking North Retail Banking South International Banking Capital Markets - - - - Administrative Reporting ––––– Functional Reporting 46 Unconsolidated Financial Statements
  49. Annual Report 2019 Annual Report 2019 47
  50. Management Committee Standing (L to R) – Salman Y. Zaidi, Muhammad Haris Hasan, Shoaib Mumtaz , Azfar Alam Nomani Sitting (L to R) - Nadeem Afzal, Hammad Khalid, Imran Maqbool 48 Unconsolidated Financial Statements
  51. Annual Report 2019 Standing (L to R) – Farid Ahmad, Kamran Zaffar Muggo, Mohammed Nauman Chughtai, Usman Hassan Sitting (L to R) - Syed Mudassar Hussain Naqvi, Zargham Khan Durrani, Nabeela Waheed, Hassan Nawaz Tarar Annual Report 2019 49
  52. OTHER SENIOR MANAGEMENT 50 Unconsolidated Financial Statements
  53. Annual Report 2019 Fida Ali Mirza Company Secretary Aamir Khanzada Country Manager Bahrain Muhammad Farooq Wasi Chief Internal Auditor Malik Abdul Waheed Aali Shafi Country General Manager Sri Lanka Omair Safdar Head Capital Markets Division Annual Report 2019 51
  54. ENTITY CREDIT RATING LONG TERM SHORT TERM 52 Unconsolidated Financial Statements
  55. Annual Report 2019 CORPORATE PROFILE OF THE BANK MCB Bank is one of the oldest banks of Pakistan , incorporated in private sector in 1947. It was nationalized in 1974 and privatized in 1991. MCB Bank’s major shareholding is owned by Nishat Group a prominent business conglomerate, having diversified interests in Textiles, Cement, Banking, Insurance, Power Generation, Hotel Business, Agriculture, Dairy, Auto Manufacturing and Paper Products. To enter in international capital markets, the Bank launched its Global Depositary Receipts (GDRs) in 2006. It was the first Pakistani Bank that got its GDRs listed on the London Stock Exchange. In 2008, the Bank entered into a strategic partnership with Maybank, Malaysia, which owns 18.78% stake in MCB through Maybank International Trust (Labuan) Berhad. In 2017, Fullerton Financial Holdings (International) of Singapore through Bugis Investments (Mauritius) Pte Ltd acquired 5.49% stake in MCB under merger scheme of NIB Bank with and into MCB Bank Limited. MCB is the first Pakistani Bank which incorporated a wholly owned Islamic Banking subsidiary, MCB Islamic Bank Limited, to meet requirements of a significant segment of society for financial solutions that conform to Shari’ah rulings and demonstrate our confidence in the potential of the Islamic Banking industry in the country. The Bank operates a strong and vast network of over 1400 Branches and over 1350 ATMs in Pakistan and 11 branches overseas with a footprint in UAE, Bahrain and Sri Lanka. With a customer base of over 7 million, MCB leads the banking & financial services sector in Pakistan and customers across the globe have 24/7 access to MCB Bank via our World Class Internet Banking. The Bank on consolidated basis is operating the 2nd largest network of more than 1,550 branches in Pakistan. The Bank enjoys highest local credit ratings of AAA / A1+ categories for long term and short term respectively, based on PACRA notification dated June 27, 2019. Subsidiaries MCB Financial Services Limited Financial & Management Services Pvt. Limited Holding: 100% Profile: To act as Trustee of investment trust schemes, voluntary pension schemes, and real estate investment trust schemes, to provide custodian services and to act as transfer agent/share registrar of securities of listed and unlisted companies and mutual Company’s etc. Holding: 95.90% Profile: The Company is in dormant status and transferred to MCB from Ex. NIB under merger scheme. The Bank’s investment in the company is fully provided. MCB Islamic Bank Limited Holding: 100% Profile: Objective of the Bank is to carry on Islamic Banking Business in Pakistan in accordance and in conformity with the principles of Islamic Shari'ah and in accordance with regulations and guidelines of the State Bank of Pakistan. MCB - Arif Habib Savings & Investments Limited Holding: 51.33% Profile: Asset management, investment advisory, portfolio management, equity research and underwriting. With reference to significant holding, the following entities are associates of the Bank: Adamjee Insurance Company Limited Holding: 20% Profile: The Company is engaged in the general insurance business. Euronet Pakistan (Private) Limited Holding: 30% Profile: To provide outsourcing services to banks and financial institutions for Automated Teller Machine (ATM) network and managed services for Point of Sales (POS) terminal networks MCB Non-Bank Credit Organization “Closed Joint Stock Company" Holding: 99.94% Profile: It leases various types of industrial equipment, public transports, real estate and retail auto. Annual Report 2019 53
  56. 54 Unconsolidated Financial Statements
  57. Annual Report 2019 Chairman ’s Review I am pleased to present this report to the shareholders of MCB Bank Limited on the overall performance of the Board and effectiveness of the role played by the Board in achieving the Bank’s objectives. For the process of Board evaluation, in line with regulator’s guidelines and international best practices, a wide-ranging set of criteria is deployed. During 2019, the Board engaged the services of M/s Pakistan Institute of Corporate Governance (“PICG”) as an external independent evaluator to conduct the performance evaluation of the Board as a whole, its Committees and individual Board Members for the year 2018. As per PICG evaluation results; the Strategic Performance Index of the Bank has been calculated as 88% securing one of the highest figure in the banking industry. The Board has played a significant role in the strategic review of policy matters having long-term implications and in maintaining a balance between regulatory obligations and the Bank’s operational requirements. As part of this effort, sub-committees are in place with each one having a defined scope of work assigned to ensure optimal performance of their functions as per requirement, mandate and terms of reference. The Board has always focused on the preservation of the interests of Bank’s shareholders. With an excellent corporate governance structure, the Board has strengthened internal control, risk management and audit functions. It has ensured that the Bank’s strategy is completely aligned with the vision, mission and core values of the Bank. Despite a challenging macroeconomic environment and a tough business climate, MCB Bank has continued to excel. It has consolidated and developed avenues for growth and efficiency. The Bank has demonstrated an impressive 25 percent increase in pre-tax profitability in 2019. The Bank has declared the highest dividend per share in Pakistan’s banking industry. This is testament to the way the bank has persevered and witnessed growth and thereby rewarded the confidence in it by the esteemed investors. Undoubtedly, this would not have been possible without the commitment and integrity of our employees. It is notable that the Bank has groomed and cultivated talent within the organization and several members of the senior management committee have ascended from the ranks through their hard work and dedication to a shared vision. We proudly acknowledge their accomplishments and their valuable contributory role in helping us achieve new heights in the banking industry. As one of Pakistan’s foremost financial institutions, MCB Bank Limited acts in a responsible and ethical manner. Given the sensitivity attached by international regulatory bodies to promoting a culture of compliance with AML & KYC requirements/procedures in the Pakistani banking sector, we are putting added emphasis and focusing on enhancing capacity with regards to oversight and monitoring. In addition to enhanced regulatory requirements, we feel that 2020 will be another challenging year ahead but we are determined to conduct our business in a responsible and pragmatic manner. The GDP growth rate remains stubbornly low and in order to turn this trend around, the Government going forward needs to implement prudent economic and fiscal policies and take concrete measures to ensure economic stability and growth in key economic sectors. The government must continue to build upon progress in the ease of doing business which has recently shown a marked improvement in international rankings. Privatisation of State Owned Enterprises (SOEs), reforms in power sector, upgradation of value creating capacity of youth are imperatives for the government for boosting economic prosperity. Government efforts to boost the economy can be better supported by the banking sector if they are saved from financial hemorrhage due to piling up of bad debts on account of weak and ineffective laws and processes. Continuation of CPEC programme, will also help further address infrastructure deficit particularly in the area of railways. It will also promote development of various economic zones and investment in developing new industry. We are a major consumer market, have abundant labour and resources allied to a great strategic location. If the Government provides the right support, Pakistan could emerge as a regional manufacturing hub. We have no doubt that the best is yet to come for MCB Bank as we welcome another decade of this millennium. With our excellent service quality, our emphasis on product innovation and value creation, the MCB team remains steadfast in its determination to thrive and flourish. Mian Mohammad Mansha Chairman MCB Bank Limited Annual Report 2019 55
  58. 56 Unconsolidated Financial Statements
  59. Annual Report 2019 President ’s Review The journey of MCB Bank is narrated by its legacy of sustainable and steady support towards the growth of Pakistan’s economy for more than 72 years. With our strong financial position, secure digital banking services, constant focus on financial inclusion and employment of highly-qualified human capital, we have been there to serve you according to your needs and changing dynamics of the industry. Your trust has been instrumental to our success and we ensure that we repay this trust with even greater returns and a strong commitment that your faith in us is well protected, secure and is being strategized into a mutually beneficial relationship. With great success comes even greater responsibility and we realize just how important your trust and investment is for us. We grow and nurture your investment carefully through our prudent banking approach backed by a strong equity position. Being a risk averse bank, keeping prudence as our core priority, we are persistently engaged in the fight against financial crime, money laundering and other illegal acts of trade and activities leading to terrorism. While maintaining a strong risk management culture, we continue to prudently manage risk throughout the Bank. Our commitment to improve our conduct and controls is factored into every strategic and operational decision we make and is the key to our perseverance, steadfastness and success in the industry. I’m honoured and grateful to share our story of our sterling performance during 2019 – a year in which MCB Bank continued to focus on creating value for our clients, communities and shareholders. MCB Bank’s profit before tax rose to Rs. 40.10 billion reflecting a tremendous growth of 25% over 2018. It has been achieved in a difficult and challenging operating environment. The Bank’s profit after tax increased to Rs. 23.98 billion (+12%) enabling a significant return on capital to our shareholders in the form of dividends, which totaled Rs. 20.15 billion, the highest in the industry by any benchmark. The assets of the Bank grew by 1.1% to Rs.1.5 trillion over the year. In comparison with 2018, net interest income grew to Rs. 59.6 billion registering a splendid growth of 30%, with Return on Assets (ROA) and Return on Equity (ROE) improving to 1.59% and 16.84%, respectively. This incredible financial performance demonstrates how MCB Bank is building a long-term client franchise whilst delivering premium return on its equity. Our phenomenal growth also illustrates the strength of our diversified business model and our disciplined approach to controlling costs, deploying capital and managing risk through the cycle. Our efforts in retaining customer loyalty are demonstrated through our best in the industry 90.4% deposit concentration in CASA. Our capital and liquidity ratios remained at industry-leading levels and were significantly above regulatory requirements. Globally, the rise in notorious and tech prone cyber-crime has elevated end-user fears of loss of data and money. MCB Bank makes no compromise on customer data security and the Bank keeps engaged in raising awareness about cybersecurity and malicious online activities. We also enforced and ensured compliance screenings of every customer, vendor and counterpart to safeguard our business. The challenges of current macroeconomic structure; rising interest rates, intense pressure on volumes and cyber-attacks on cards and accounts did not hold us back from playing our due role in the economic development of the country. Our strategic focus on fast paced and reliable customer service, regulatory compliance and security, helped increase customer confidence as MCB Home Remittances surged to a volume of PKR 456 billion, registering a tremendous growth of 22% over last year while trade volumes increased to PKR 920 billion with a remarkable growth of 17% over 2018. We are determined to provide high quality products and services that are best suited to the diverse needs of our customers. In 2019, MCB Bancassurance businesses recorded new premium of Rs. 3.2 billion, an exponential growth of 29% over 2018. In addition, our focus on consumer financing resulted in a 9.7% growth in issuance of credit cards, as 16,907 new credit cards were issued during 2019. Our technology infrastructure is propping us to superior business outcomes, improved operational efficiencies and exceptional client experiences. With a well framed infrastructure in place, we improvise and constantly upgrade innovative digital solutions in our banking products and services for enhanced user experience. Supported by our robust and efficient IT-enabled platforms, cash management volumes generated by the Bank rose to Rs. 1.88 trillion during 2019. With a strong and vast network of over 1,400 Branches, including 11 branches overseas, over 1,350 ATMs across Pakistan and a customer base of over 7 million (8.2 million accounts), MCB continues to be one of the leading institutions in the banking & financial services sector in Pakistan. Customers across the globe have 24/7 access to MCB Bank via our World Class Internet Banking services. Resultantly, in 2019, the share of our digital channel customers who Annual Report 2019 57
  60. perform their banking transactions using MCB Mobile banking , MCB Internet Banking & MCB Lite channels, increased considerably as compared to 2018. The Bank on a consolidated basis is operating the 2nd largest network of more than 1,550 branches in Pakistan. At MCB Bank we maintain an ethical and diverse culture because we have leaders who set a clear compelling direction and committed employees who work hard for the organization. This ethical and performance based culture is ensured through a systematic hierarchy that enables two way communications and recognizes high performers. Through our extensive and well-designed training programs, we develop and turn our staff into Champions and Champions into Leaders. Our strong financial position was reinforced by a long and short term credit rating of AAA [Triple A] and A1+ [A one plus], respectively, by PACRA. Our performance and customer focus earned us external recognition in many ways during 2019. “Finance Asia” and “The Asset Triple A Country Awards 2019” declared MCB as the Best Bank in Pakistan 2019 whereas “Asiamoney” awarded us the title of Most Outstanding Company in Pakistan. For the seventh consecutive year, the joint committee of Institute of Chartered Accountants of Pakistan & Institute of Cost and Management Accountants of Pakistan (ICAP/ICMAP) awarded the “Best Corporate Report” award in Financial Sector category to MCB Bank’s Annual Report for 2018. Our results demonstrate that we pursue the right strategies and maintain a phenomenal talent pool which translates every strategy into consistent value addition for our stakeholders. I would like to acknowledge the hard work and dedication of all staff members of MCB Bank, whose contributions have enabled the Bank to cement its place as an industry leader with outstanding results. I am grateful to our shareholders who show their trust by investing in us and recognize us as a well reputed financial services provider. We remain committed to maintaining this trust in years to come with stellar financial performance and by building an even stronger foundation of compliance to ethical and regulatory standards. MCB Bank is very fortunate to have a richly experienced and diverse Board of Directors that led by our distinguished Chairman provides independent oversight, support and guidance to the management and for that I extend my sincere appreciation to each member of our august Board. We are a strong Bank as we abide by the law, pay our taxes, value our customers, take care of our investors and shareholders, invest in secure and advanced solutions and most importantly, truly operate as “One Bank One Team”. With this unity, discipline and determination I am confident that we will continue to rise above all challenges and will register ourselves as an even stronger and reputable Bank in years to come. Imran Maqbool President & CEO MCB Bank Limited 58 Unconsolidated Financial Statements
  61. Annual Report 2019 Highlights 2019 PBT PKR 40 .10 billion (+25%) Assets PAT PKR 23.98 billion (+12%) PKR 1,515 billion Deposits (+1%) PKR 1,145 billion (+9%) ROA Most Outstanding Company in Pakistan 1.59% Market Capitalization (Financial Sector) Award by Asiamoney PKR 243 billion (December 31, 2019) Best Bank in Pakistan Net-Markup Income PKR 59.62 billion (+30%) Cost to Income Ratio 43.40% FinanceAsia Country Awards Winner of BCR - 2018 by ICAP/ICMAP (Banking Sector) Annual Report 2019 59
  62. Financial Performance 2009 - 2019 10 Years Trend - Rupees in Billion Total Assets Deposits CAGR 12 % 1,600 CAGR 12% 1,500 1,515.2 1,498.1 1,400 1,343.2 1,144.8 1,200 1,072.4 1,000 1,049.0 934.6 815.5 800 968.5 1,000 1,004.4 781.4 767.1 696.8 688.3 632.3 653.2 600 545.1 567.6 509.2 400 500 491.2 431.4 367.6 200 0 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 0 2009 Gross Advances 540.0 2018 2017 2015 2014 2013 2012 2011 2010 546.8 515.1 748.8 749.4 700 500 657.0 600 555.9 565.7 511.1 367.7 322.5 500 322.3 300 268.2 262.4 249.9 274.1 269.7 449.0 402.1 400 316.7 300 200 213.1 200 100 0 167.1 100 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 0 Fund Based Income 2019 2018 20 59.6 43.8 2014 2013 2012 2011 2010 2009 17.2 16.2 16.6 15 49.3 42.7 2015 18.1 16.7 46.0 2016 CAGR 11% 70 50 2017 Non Markup Income CAGR 5% 60 2009 CAGR 16% 800 400 2016 Investments CAGR 7% 600 2019 12.9 44.5 43.5 37.9 40 40.9 36.8 11.2 35.8 9.2 10 8.1 30 6.3 20 5.6 5 10 0 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 0 Profit Before Tax 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 Profit After Tax CAGR 6% CAGR 4% 30 50 42.3 40.1 25 40 36.7 36.1 32.1 21.4 32.3 31.0 25.5 .24.0 31.6 24.3 21.9 21.5 20.7 20 31.5 30 22.5 19.4 16.9 26.3 23.2 15.5 15 20 10 10 0 60 5 2019 2018 2017 2016 2015 2014 Unconsolidated Financial Statements 2013 2012 2011 2010 2009 0 2019 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009
  63. Annual Report 2019 Forward Looking Statement The Annual Report-2019 of MCB Bank Limited carries forward looking statements in its different sections . Since there are uncertainties related to occurrence of the future events, those should be read in conjunction for decision making by the users of the Annual Report. Forward looking statements contain words such as expect’, ‘anticipate, believe, seek, will, may, would, presume, assure, hope, so on and so forth. A forward-looking statement naturally addresses matters that are, to certain degrees, uncertain and may not happen. In most cases, a forward-looking statement is made in respect of Bank’s expected income, earnings, business growth, horizontal expansion, cost structure, capital structure, dividends etc. Such a statement is made based on some assumptions about future events which may or may not happen. Pakistan Economy Future Outlook In spite of the improvement appearing on the macroeconomic front during the second half of the calendar year and the country moving towards stabilization, 2020 is expected to be challenging for Pakistan. The main issue that the country currently faces is of inflation, stemming from increase in food and regulatory prices, which needs to be curtailed to boost the market sentiment. On the external front, Pakistan must focus on enhancing the competitiveness of its exports to bring long term improvement in its current account balance while working on import contraction. Moreover, although the pressure on foreign exchange reserves has decreased slightly, the State Bank’s reserves are barely adequate to provide a three months import cover. However, if the country keeps on attracting inflows in its debt instruments under SCRA, it would prove to be positive for the economy. On the fiscal side, the challenge for the government remains to bring in structural reforms and achieve the required growth in tax revenue without further burdening the masses. MCB Future Outlook Pakistani banking sector will continue to face headwinds in 2020, on the back of rising interest rates impacting quality of assets and slowing economic growth; irrespective of these facts, the Bank is committed to deliver remarkable results to its investors in 2020. Our strategic agenda for 2020 is guided by the Bank’s five year Plan which is centered on strategic pillars including customer centricity, geographical expansion, technology and cyber security and people development (among others) which are aimed at building a competitive and future fit. We are committed in expanding our network of branches to meet our valuable customers’ expectations with parallel investment on the digital infrastructure. We would continue to improve our asset quality, increasing low cost deposit base, deploying cost efficient techniques and increasing contribution from non-markup segment. We will exceedingly focus in increasing Current Account base to increment our net interest margins. Annual Report 2019 61
  64. On credit side the Bank is geared up to continue with its growth strategy in 2020 , with continued focus on book building, albeit with cautious approach, given overall slowdown in the economy which is expected to continue into 2020; while proactively monitoring watch listed portfolio of the bank to minimize any further infection, while ensuring that recoveries are made in line with agreements. We will also continue to focus on cross sell initiatives with corporate clients for additional business opportunities to augment fee income. On investment side, the Bank is committed on strategic profiling of the investments based on the interest rate calls which will be a gradual shift from shorter to longer term investments. Recovery from infected portfolio would remain one of the key targets in 2020. We would continue adding products and services to our menu and anticipate significant growth in our non-fund based income. The Bank will continue to invest in developing workforce for the ‘Digital Banking Age’ to align ourselves with the ever changing business dynamics. Driving customer centricity will again be a key area of focus in next year; we will direct investments towards empowering employees to drive a pleasant customer experience across all our touch points. Also, in all our capacity and skills enhancement programmes to the employees, we will continue emphasizing the fact that, It is undoubtedly our ability to delight customers that is key to retaining our position as the most sought after bank in the industry. To sum up, employees’ development and trainings would remain our foremost priority as committed and professional team is our strategic advantage. We would acutely remain conscious in retaining and attracting the best talent. We are committed in maintaining our status of one of the leading banks operating in Pakistan through enriched service quality, financially viable tailored products to meet requirements of our esteemed customer and translating the underlying financial strength of the entity into profits. Uncertainties that could affect the Bank’s Resource, Revenues and Operations All forward-looking statements are, by nature, subject to risks and uncertainties, many of which are beyond control. Major factors that can affect the Bank’s resource, revenues and operations are given below: Discount rate / Monetary Policy: Based on different assessment parameters, the State Bank of Pakistan can change the monetary policy rate. Any decrease in the discount rate will result in lower net interest income and reduce the profitability of the Bank. Impact of 1% change in interest rate is around Rs. 2.1 billion on profit and loss account of the Bank. Inflation: Inflation is considered as a key determinant of policy rate change. Any uptick in the inflation statistics will have a material impact on the monetary policy rate along with other drivers. With higher discount rates, the Banks will be able to invest in high yielding assets, thus resulting in increased profitability. Political Stability & Law and order situation: Political stability and controlled law & order situation is a pre-requisite for any economic development. This, in turn, reposes investor confidence in the soils of Pakistan, making our corporates a potential investment opportunity. However, any act of terrorism or political instability can negatively impact the economy /equity market, thus resulting in decreased profitability. Corporate Tax rate: Any increase in corporate tax rate or will adversely impact the profitability of the Bank. Economic, technological, political, regulatory & social risks are detailed in risks and opportunities section of this report. 62 Unconsolidated Financial Statements
  65. Annual Report 2019 Status of Projects Disclosed in the Forward-Looking Statement of Previous Year : Detail of last year projects Status Implementation of new ATM controller and Card Hosting system Completed Internal/external branding of MCB branches Completed Workflow Automation & Document Management Solution for Account Opening Completed Real time watch list screening & e-name filtering Completed Home Remittance Solution for Sri Lanka Completed Loan Originating System In process Issuance of Dual Interface Card In process Reuters Integration with Treasury system In process e-kyc application update In process Performance of the Bank Against Forward-Looking Disclosure of 2019 as Presented in Annual Report 2018 Forward-looking disclosure for 2019 as presented in Performance of the Bank in 2019 against forwardannual report 2018 looking disclosure Despite fragile economic conditions resulting in subdued business activity, the Bank is committed to deliver exceptional results to its shareholders in 2019. We are committed in expanding our network of branches to meet our valuable customers’ expectations with parallel investment on the digital infrastructure. We would continue to improve our asset quality, increasing low cost deposit base, deploying cost efficient techniques and increasing contribution from non-markup segment. We are exceedingly focused in increasing low cost CASA base to increment our net interest margins. Credit appetite being a mainstream business line of the Bank, instigate us to avail all righteous opportunities that fall within the risk appetite defined by the institution. We would remain dynamic and persistent in retail banking, corporate banking, SME financing and agricultural credit. We are deepening the consumer market penetration through increased focus on consumer product lending. Recovery from infected portfolio would remain one of the key targets in 2019. We would continue adding products and services to our menu and anticipate significant growth in our non-fund based income. Our special emphasis is on increasing our digital banking range to align ourselves with the ever changing business dynamics. Our dedicated team of professionals would take every possible opportunity to serve our esteemed customers. We are committed in maintaining our status of one of the leading banks operating in Pakistan through enriched service quality, financially viable tailored products to meet requirements of our esteemed customer and translating the underlying financial strength of the entity into profits. MCB’s profit before tax grew to Rs. 40.10 billion which reflects a tremendous growth of 25% over 2018, despite the tough operating environment. The key highlights were impressive increase in net interest margins through gradual shift in the maturity profiling of investment base along with a more refined cost structure. The strategic profiling of the investments based on the interest rate calls resulted in a gradual shift from shorter to longer term investments, thereby capitalizing on the significant interest rate movement during the year. Net interest income rose to Rs. 59.62 billion, 30% higher than the last year on account of effective asset deployment of the low cost deposits. Analysis of the interest earning assets highlights that income on advances increased by Rs. 20.37 billion, primarily on account of increase in yield of 398bps. On the investment side, gross markup income increased by Rs. 30.76 billion, due to increased average volume by Rs. 66.61 billion and yield of 391bps. On the interest bearing liabilities side, the cost of deposits increased by 278bps over last year. The non-markup income block of the Bank was reported at Rs. 16.68 billion with major contributions coming in from fee commission and foreign exchange income. In 2019 the Bank booked fresh auto loan disbursement of over PKR 7 billion and was able to maintain its position as one of the top players in auto finance business. Credit card business has exhibited significant growth with closing the book at PKR 2.7 billion with an average growth of 11% over the last three years. Bancassurance business set its highest sales record since inception and ended the year with the ever-highest net sales number of PKR 3.16 billion with a growth of 29% from 2018. Annual Report 2019 63
  66. Forward-looking disclosure for 2019 as presented in Performance of the Bank in 2019 against forwardannual report 2018 looking disclosure Our employees are undoubtedly the core asset of our Bank and we acknowledge their hard work and dedication in elevating our Bank . Employees’ development and trainings would remain our foremost priority as committed and professional team is our strategic advantage. We would acutely remain conscious in retaining and attracting the best talent. A well-outlined business strategy is essential for the success and sustainability of any business venture. Without one, organizations can lack direction, efficiency and profitability. MCB has the right strategy in place to deliver superior returns to our shareholders. We would remain aligned with our strategic objectives in order to meet our valuable stakeholders’ expectations. MCB Home Remittances surged to a volume of PKR 456 billion, registering a tremendous growth of 22% over last year while trade volumes increased to PKR 920 billion with a remarkable growth of 17% over 2018. Cash management volumes generated by the Bank rose to Rs. 1.88 trillion during 2019. Despite the inflationary surge during the year, growth in the operational network and constant investment in digital, cyber security and information technology related platforms, the operating expense growth was contained to an impressive 5%, as efficient cost management remains one of the key strengths for MCB Bank Limited. On the provision side, the Bank surpassed all previous records of recovery by achieving the highest ever figure of Rs.3.047 Billion and registered a growth of 7% over the last year. While the Bank continued its journey to mark historical recovery figure on the board, it settled / resolved a large number of chronic and willful defaulters where classification was more than five years old. On the liabilities side, the deposit base of the Bank registered a significant increase of Rs. 95.73 billion (+9%) over December 2018. Return on Assets and Return on Equity were reported at 1.59% and 16.84% respectively, whereas book value per share was reported at Rs. 122.54. The Bank has declared the highest dividend per share (Rs. 17 per share) in Pakistan’s banking industry. MCB remained active throughout Pakistan, UAE and Sri Lanka through diverse network of 1,422 branches (including 12 sub-branches) and more than 1,350 ATMs. To enhance the knowledge and skillset of its work force, a number of trainings were held during the year. Participants from all over the country were trained through different programs including in-house, ex-house, mobile, and E-learning training programs. A segment comprising senior management was engaged through a Management Development Program as part of the Talent Management Scheme of the Bank. Detailed analysis covering performance and achievements of respective groups against their targets for 2018 is included in the Groups’ review section of this annual report. 64 Unconsolidated Financial Statements
  67. Annual Report 2019 Graphical Presentation of Financial Statements Statement of Financial Position (Rupees in Million) 168,915 Variance from 2018 1,515,152 1,346,237 Net Assets 13.15% Liabilities -0.19 Assets 1.14% -3 Liabilities Net Assets 0 3 6 9 12 15 Assets Profit & Loss Account (Rupees in Million) 23,977 Variance from 2018 59,616 PAT 12% PBT Provision 40,102 25% -242% Operating Expenses 2% Non Markup Income 2,484 16,679 Net Markup Income 30% -300 33,709 PBT PAT Net Markup income Non Markup income Operating Expenses Provision Cash Flows 2019 -3% -225 -150 Cash Flows 2018 (Rupees in Million) -75 0 50 (Rupees in Million) (20,092) (24,157) 6,681 (118,767) 143,221 48,192 Operating Investing Financing Operating Investing Financing Annual Report 2019 65
  68. Analyses of Financial Performance The Bank reported an increase of Rs . 54.973 billion over last year in markup income. Income on advances increased by Rs. 20.37 billion, primarily on account of improved average advances volume of Rs. 11.36 billion coupled with increased yield of 398 bps; whereas, markup income on investments increased by Rs. 30.8 billion, due to increased in average volume of Rs. 66.612 billion and 391 bps increase in yield. (Rs in million) 2019 (Rupees in Million) 131 2,153 1,658 515 1,775 Variance Mark-Up/Return/ Interest Earned 2019 2018 Amount % age Loans and advances Investments Lendings to financial institutions Balances with banks 57,330 75,481 4,982 499 36,964 44,719 1,390 246 20,366 30,762 3,592 253 55% 69% 258% 103% 138,292 83,31954,973 66% 3,066 1,990 Trade & Guarantee Others Cash Management/Home Remittance Branch Banking Banca & Investment Banking Advances Related The Bank reported an increase of Rs. 41.37 billion over last year in markup expense. Mark up expense on deposits increased by Rs. 33.26 billion; whereas, markup expenses on borrowings increased by 4.72 billion. The cost of deposits increased by 278 bps over last year. 2018 Cards related (Rupees in Million) 178 2,811 1,311 (Rs in million) Variance Mark-Up/Return/Interest Expensed Deposits Borrowings Subordinated debt Cost of foreign currency swaps Unwinding cost of liability against right-of-use assets 2019 2018 Amount % age 65,344 32,08133,262 104% 8,977 4,2534,724 111% 214 308 (94) -31% 3,009 663 2,346 354% 1,132 – 1,132 1,582 2,580 100% 1,827 78,676 37,30541,371 111% The non-markup income block of the Bank was reported at Rs. 16.68 billion with major contributions coming in from fee commission and foreign exchange income. One of the major revenue lines supplementing the fee growth was commission from Bancassurance, with MCB Bank Limited leading the new business generation in percentage terms. Gain on securities is decreased due to volatility in capital market. (Rs in million) Variance Non Mark-Up / Interest Income 2019 2018 Amount % age Fee and commission income Dividend income Foreign exchange income Income from derivatives Gain on securities Other income 11,288 1,377 2,895 15 833 272 10,731 1,280 3,420 12 1,293 462 558 97 (526) 3 (460) (191) 5% 8% -15% 23% -36% -41% Total non-markup / interest Income16,679 17,198 (519) -3% Despite the inflationary surge during the year, growth in the operational network and constant investment in digital, cyber security and information technology related platforms, the operating expense growth was contained to an impressive 5%, as efficient cost management remains one of the key strengths for MCB Bank Limited. 66 422 Unconsolidated Financial Statements Trade & Guarantee Others Cash Management/Home Remittance Branch Banking Banca & Investment Banking Advances Related Cards related Explanation of negative change in the performance against prior year During the year, capital gains decreased over last year due to weak performance of Pakistan Stock exchange and lower capital gain from money market. Furthermore, the Bank has also recorded net charge of Rs. 2.8 billion on equity portfolio in 2019.
  69. Annual Report 2019 Analyses of Non Financial Performance Non-Financial Highlights Number of Branches - 1 ,410 Number of ATMs - 1,360 (Absolute) Number of accounts - 8,223,038 (Absolute) Training days - 30,255 (Absolute) (Absolute) Human Resources - 13,596 (Absolute) Training Participant - 30,442 (Absolute) CSR Investments - 16,265 Rs. in mln Annual Report 2019 67
  70. Analysis of Non-Financial Information Human capital Intellectual capital Total number Investment in Total days New of permanent training of Training Recruitments employees (Rs. in Mln) 13,59657.23030,255 2,235 Promotions 1,978 Our employees, numbering 13,596 receive well remunerated, secure and satisfying employment with generous retirement benefits. Our strategy is to align what is best for the employees with what is best for the Bank. Our performance management system has been designed to motivate employees to pursue goals that will enable the Bank to achieve its strategic objectives. Our development and training activities also contribute to the same objective in the longer term. Thus, we have built a performancebased culture that will support both short term and longterm value creation. Whatever the assets the Bank possesses in the form of intellectual and manufactured capital, our human resources remain the key asset to our success and growth which is evident from the below mentioned analysis. Cumulative service experience of more than 72 years Strong Governance One of the most valuable brand Intangibles associated with the Bank – culture, ethics, values, organizational knowledge, systems, procedures and brand value. These intangibles, while not reflected in the balance sheet, are indeed the real assets of the Bank. They permeate the Bank’s operations at all levels – whether it is high level decision-making or day-to-day functions. In 2019, we have focused on following points to enhance of our intellectual capital: • Explore customers’ views and expectations with regard to selected Deposit products on features, processes and service delivery • Evaluate customer satisfaction to understand the service level of the Bank • Explore the new trends in consumer banking to ascertain future banking preferences 2019 2018 During the year, the total investment on intangible assets is Rs. 625.800 million as compared to Rs. 221.949 million Absolute13,59613,438 Staff strength - permanent New recruitments Absolute2,2352,038 in FY18. Average number of employees Absolute13,56812,868 Social and Relationship Capital Promotions Absolute1,9781,767 No. of accounts Dividends to CSR funds Investment in training Rs. in Mln57.230 51.038 Number of training participants Absolute30,44230,373 shareholders (Rs. in Mln) ( Rs. In Mln) Training days Absolute30,25533,245 8,223,038 Manufactured Capital Capital expenditures Branches ATMs on physical and excluding digital infrastructure sub-branches 5,022 1,410 1,360 Internet Banking customers Mobile Banking customers 180,326 1,909,712 Manufactured capital consists of our physical branch network and other tangible and intangible items that support our operations outreach such as equipment, IT systems and network. During the year, Bank has expanded its network by 23 branches. In 2019, customer base of the Bank expanded to 8.2 million accounts. The banking model is in gradual transformation from traditional traditional banking to digital era. Hence, to cater to the growing segment of millennials among our customers, the Bank has been continuously investing on the digital banking platforms. We are increasing our digital touch points on a gradual pace, providing our customers transactional convenience while ensuring financial security. 2019 2018 Capital expenditure Branches ATMs Internet Banking Mobile Banking 68 Rs. in Mln Absolute Absolute Absolute Absolute Unconsolidated Financial Statements 5,0224,261 1,4101,387 1,3601,321 180,326176,210 1,909,7121,363,304 20,146 16,265 The Pakistan banking industry is more competitive than it has ever been, and factors such as customer service and convenience are distinguishing features that customers look for. With a strong network of branches across the Country, MCB maintains strength in geographic reach that few can match. Analysis of social and relationship capital as compared to prior year is as follows: 2019 2018 No. of accounts Dividends to shareholders Absolute CSR funds Rs. in Mln Rs. in Mln 8,223,0387,854,928 20,146 18,961 Education Allowance Staff Capacity Building & Trainings Employee Hajj Expense Contribution to National Exchequer Contribution To Staff Welfare Fund Donation Plantation 38 60 13 16,125 5 - 24 28 51 8 10,704 5 1 23 Total 16,26510,820
  71. Annual Report 2019 Maturities of Assets and Liabilities (Rs. in Million) Upto 3M to 1Y to 3Y to 5Y & 20193M1Y 3Y5Y above Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Fixed assets Intangible assets Deferred tax assets Other assets - net 132,705 12,542 1,090 748,765 496,679 58,271 957 1,725 64,143 132,705 12,542 1,090 222,430 146,055 915 154 430 44,000 – – – 225,356 97,875 3,129 463 1,295 6,675 – – – 126,644 129,166 5,399 340 – 3,356 – – – 64,891 74,936 5,552 – – 10,111 – – – 109,444 48,647 43,276 – – – Liabilities 1,516,877 560,321 334,793 264,905 155,490 201,367 Bills payable Borrowings Deposits and other accounts Deferred tax liabilities Other liabilities 11,822 89,506 1,144,763 7,576 94,296 11,822 64,858 121,985 (85) 51,881 – 8,653 111,194 66 17,935 – 4,315 548,373 864 5,846 – 3,573 272,726 2,832 13,757 – 8,106 90,485 3,899 4,877 1,347,963 250,461 137,848 559,398 292,888 107,367 *Based on expected maturities Key Interest Bearing Assets and Liabilities 20192018 Avg. Vol Effective Interst Avg. Vol Effective Interst (Mln)interest (Mln) (Mln)interest (Mln) rate % rate % Interest Earning Assets Lendings to Financial Institutions Gross Advances (excluding NPLs) Gross Investments (excluding equity investments) Interest Bearing Liabilities 45,660 489,960 658,232 10.91 11.70 11.47 4,982 57,330 75,481 20,204 478,600 591,619 6.88 7.72 7.56 1,390 36,964 44,719 Deposits (excl. current deposits) Borrowings Subordinated loan 693,156 114,512 – 9.43 7.84 – 65,344 8,977 – 623,707 88,332 3,892 5.14 4.81 7.91 32,081 4,253 308 14.00% 13.76% 12.76% 12.00% 11.00% 10.00% 13.65% 13.08% 12.86% 13.00% 11.00% 13.84% 10.55% 10.00% 10.50% 10.25% 10.59% 13.25% 13.25% 13.25% 13.25% 13.36% 13.25% 13.24% 13.25% 12.25% 12.25% 10.85% 10.75% 10.75% Mar - 19 Apr - 19 10.25% 9.00% Dec - 18 Jan - 19 Feb - 19 May - 19 Jun - 19 KIBOR - 6 Month Jul - 19 Aug - 19 Sep - 19 Oct - 19 Nov - 19 Dec - 19 SBP Policy Rate Annual Report 2019 69
  72. Deposits & Advances (Rs. in Billion) Groupwise Deposits Variance 2019 2018 1,034.2 969.4 64.7 Corporate 55.5 41.4 Overseas 55.0 Commercial & Consumer Variance 2019 2018 6.68% 119.3 139.0 -19.7 -14.17% 14.1 34.07% 355.2 349.6 5.6 1.60% 38.2 16.8 43.98% 33.4 28.6 4.7 16.50% - - - - 32.1 29.6 2.6 8.86% 1,144.7 1,049.0 95.6 9.12% 540.0 546.8 -6.8 -1.24% Others Total Groupwise Advances Amount % CASA Mix Amount % Weighted Average Cost of Deposits 95.00 7.00 94.13% 93.39% 6.00 92.86% 91.02% 90.96% 5.96% 5.00 4.59% 90.42% 90.00 4.00 3.37% 3.18% 3.00 2.53% 2.48% 2017 2016 2.00 85.00 2019 2018 2017 2016 2015 2014 1.00 2019 2018 2015 2014 Weekly Trend of MCB Deposits and Advances - 2019 Weekly Trend of MCB Deposits and Advances-2019 (Rs. in Billion) 675 1,130 1,100 630 585 1,040 1,010 540 Deposits Advances 1,070 980 495 950 920 450 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Weekly Deposits Weekly Advances MCB's Industry share in Deposits and Advances - 2019 MCB's Industry share in Deposits and Advances - 2019 8.10% 8.10% 7.70% 7.50% 6.90% 6.50% 7.20% 6.10% 6.90% 5.70% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Deposit Share of MCB 2019 70 Unconsolidated Financial Statements Advances Share of MCB 2019 Deposits Advances 7.80% 7.30%
  73. Annual Report 2019 Non Performing Loans (Rs. in Million) 2019 NPLs 2018 Provision NPLs Variance Provision NPLs 2019 Provision Coverage Categorywise OAEM 124 4 49 3 151.3% 17.7% 2.9% Substandard 616 153 1,528 375 -59.7% -59.2% 24.8% 2,702 1,351 1,742 871 55.1% 55.2% 50.0% Loss 45,982 40,427 45,637 40,696 0.8% -0.7% 87.9% Total 49,424 41,934 48,956 41,945 1.0% 0.0% 84.8% Doubtful Non Performing Loans (2014-2019) (Rupees in Billion) 60 49.4 50 49.0 48.8 40 30 21.7 20.4 21.9 20 10 0 2019 2018 2017 2016 2015 2014 87.32% 87.63% 9.47% 5.90% 6.30% 6.80% 2017 2016 2015 2014 Infection and Coverage Ratios (2014-2019) 100% 90% 84.85% 85.68% 9.15% 8.95% 2019 2018 91.46% 82.84% 80% 70% 60% 50% 40% 30% 20% 10% 0 Coverage Ratio Infection Ratio Annual Report 2019 71
  74. Investments Top 10 Listed Equity Holdings as on December 31 , 2019 Company Name Total Shares (number) Book Value (Rs. Mln) Market Value (Rs. Mln) 10,815,535 15,662,000 10,094,000 4,926,702 43,482,858 8,936,000 6,264,200 847,400 568,350 72,277 1,787 1,344 1,162 746 744 718 676 659 592 588 1,539 494 1,024 676 497 656 599 363 400 524 Holding Company Name Associates Total Shares (numbers) Book Value (Rs. Mln) 20.00% 30.00% 70,000,000 52,521 647.88 52.52 51.33% 100.00% 100.00% 99.94% 95.90% 36,956,768 2,750,000 1,155,000,000 4,281,105 88,850 320.12 27.50 11,550.00 448.19 – Oil & Gas Development Company Limited Kot Addu Power Company Fauji Fertilizer Company Ltd. Pakistan Petroleum Limited HBL Growth Fund Engro Fertilizers Limited Allied Bank Limited Lucky Cement Millat Tractors Limited Rafhan Maize Products Limited Investment in Associates and Subsidiaries Adamjee Insurance Company Limited Euronet Pakistan (Pvt.) Limited Subsidiaries MCB - Arif Habib Savings & Investments Limited MCB Financial Services Limited MCB Islamic Bank Limited MCB Non-Bank Credit Organization “Closed Joint Stock Company" Financial and Management Services (Pvt.) Limited Category of Investments (2014-2019) (Rupees in Billion) 700 578 600 500 402 384 400 329 297 293 300 223 200 280 227 200 142 128 100 20 0 25 16 2019 26 12 2018 T-Bills 25 12 2017 PIBs 22 11 2016 Debt Securities 17 11 2015 12 2014 Equity Securities (excluding subsidiaries & associates) Investments to Deposits Ratio (2014-2019) Investments to Total Assets (2014-2019) 58.00 100.0% 71.4% 65.4% 67.8% 74.3% 71.1% 56.3% 56.25 81.2% 80.0% 54.7% 54.50 52.75 60.0% 51.8% 51.00 40.0% 49.25 49.4% 50.0% 48.9% 47.50 20.0% 45.75 0 72 2019 2018 2017 Unconsolidated Financial Statements 2016 2015 2014 44.00 2019 2018 2017 2016 2015 2014
  75. Annual Report 2019 Capital Structure 20192018 (Rupees in Million) Capital Structure Tier 1 Capital Shareholders equity /assigned capital Share premium Reserves Unappropriated profits 11,851 23,751 50,257 55,777 11,851 23,751 47,859 53,532 Deductions: Book value of intangible and advances given for intangible Defined benefit pension fund assets - net Other deductions 141,636 136,993 958 2,343 2,078 631 2,480 4,882 5,379 7,993 Total Tier 1 capital 136,257 128,999 Tier 2 Capital Qualifying Tier 2 capital instruments General provisions subject to 1.25% of total risk weighted assets Revaluation reserves Foreign exchange translation reserves – 1,424 23,255 2,675 2,335 1,267 12,193 1,630 Deductions: Other deductions 27,354 17,424 – 436 Total Tier 2 Capital 27,354 16,988 Total Regulatory Capital Base 163,611 145,987 Risk Weighted Assets Credit Risk Market Risk Operational Risk 638,493 108,276 120,887 637,481 54,814 112,882 Total RWA 867,656 805,177 Capital Adequacy Ratio Total eligible regulatory capital held Total Risk Weighted Assets Capital Adequacy Ratio 163,611 145,987 867,656 805,177 18.86%18.13% Capital Adequacy Ratio (2014-2019) 638,493 637,481 633,998 20.41% 19.43% 19.33% 452,949 18.86% 412,494 18.13% 365.816 16.44% 108,276 120,887 112,882 144,786 116,631 107,443 103,803 107,704 102,125 115.509 94.337 54,814 2019 2018 Credit RWA - Rs. in Million 2017 Market RWA - Rs. in Million 2016 Operational RWA - Rs. in Million 2015 2014 CAR - % Annual Report 2019 73
  76. Quarterly Performance - 2019 & 2018 (Rupees in Million) 20192018 Profit & Loss Account Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total Income Non-mark-up expenses Profit before provisions Provisions & write off Profit before taxation Taxation 4th 3rd 2nd 1st 4th 3rd 2nd 1st QuarterQuarterQuarterQuarterQuarterQuarter QuarterQuarter 39,842 (23,220) 16,622 5,226 21,849 (8,385) 13,464 867 12,596 (4,906) 39,317 (24,123) 15,194 3,493 18,688 (8,574) 10,114 856 9,257 (3,646) 31,751 (17,430) 14,321 4,445 18,766 (8,353) 10,413 1,244 9,169 (3,574) 27,382 (13,903) 13,479 3,514 16,993 (8,398) 8,595 (484) 9,079 (3,999) 24,393 (12,305) 12,088 5,089 17,177 (7,163) 10,014 1,266 8,748 (1,700) 21,211 (9,903) 11,308 3,679 14,987 (8,228) 6,759 (557) 7,315 (2,768) 19,501 (7,914) 11,587 4,051 15,638 (7,926) 7,712 (981) 8,693 (3,707) 18,214 (7,182) 11,032 4,379 15,411 (9,585) 5,826 (1,481) 7,306 (2,529) 7,690 5,612 5,595 5,080 7,049 4,548 4,986 4,777 132,705 12,542 1,090 748,765 496,679 58,271 958 64,143 106,039 13,882 6,102 864,430 490,255 47,614 912 52,259 136,930 15,521 4,307 793,510 514,143 47,489 627 60,870 107,291 11,889 201,883 450,253 500,205 41,779 677 51,086 103,175 11,879 35,106 749,369 503,581 40,812 630 53,578 129,587 7,292 142,153 454,190 487,501 40,006 504 49,421 120,975 8,244 8,122 689,109 510,735 40,072 547 43,919 105,032 6,773 32,766 601,192 468,508 39,533 529 39,136 Profit after taxation Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 1,515,152 1,581,493 1,573,398 1,365,064 1,498,130 1,310,653 1,421,724 1,293,468 Liabilities Bills payable 11,822 9,315 10,514 10,378 15,699 12,273 12,190 12,337 Borrowings 89,506 200,398 183,982 70,235 216,019 55,837 192,480 73,494 Deposits and other accounts 1,144,763 1,145,140 1,148,631 1,066,013 1,049,038 1,032,649 1,018,740 1,005,027 Sub-ordinated loan - - - 3,891 3,891 3,892 3,892 3,893 Deferred tax liabilities 5,851 2,327 820 2,203 1,532 2,138 3,097 4,063 Other liabilities 94,296 70,627 79,072 61,905 62,673 55,221 40,624 41,692 1,346,237 1,427,807 1,423,018 1,214,626 1,348,852 1,162,010 1,271,023 1,140,506 Net assets Represented by: Share capital Reserves Unappropriated profit Surplus on revaluation of assets - net of tax Quarterly PBT 168,915 153,686 150,380 150,438 149,278 148,643 150,701 152,962 11,851 77,591 55,777 23,695 11,851 76,968 53,486 11,382 11,851 76,833 53,162 8,534 11,851 74,984 53,377 10,227 11,851 74,148 53,532 9,747 11,851 72,823 51,895 12,074 11,851 72,472 52,430 13,948 11,851 71,631 53,215 16,265 168,915 153,686 150,380 150,438 149,278 148,643 150,701 152,962 Quarterly NIM (Rupees in Billion) 15 (Rupees in Billion) 20 12.6 16.6 15 10 9.2 9.1 8.7 7.3 9.3 8.7 7.3 15.2 14.3 13.5 11.0 11.6 11.3 12.1 10 5 5 0 Q1 Q2 2019 74 Unconsolidated Financial Statements Q3 2018 Q4 0 Q1 Q2 2019 Q3 2018 Q4
  77. Annual Report 2019 Quarterly Performance Analysis - 2019 & 2018 Quarter Net Interest Income Non Interest Income Operating Expenses Profit before Tax 1st Quarter During the 1st quarter of 2019, Net Interest income of the bank is reported to be 13.5 billion for the quarter where gross markup income was concentrated by Mark up from Investments amounting to Rs. 13.6 billion and income from advances amounting to Rs. 12.4 billion. Markup income on advances is increased by 62% on the same period last year mainly due to increase in markup rate on advances. On markup expense side Rs. 12.6 billion was incurred for mark up expense on deposits. This was higher by 103% over 1st quarter of last year due to change in policy rate by SBP. Markup Income on Lending to FIs is also increase in 1st quarter of 2019 as compared to 1st quarter of 2018. Non Mark up Income for the 1st quarter is reported to be Rs. 3.5 billion decrease of 20% over same period last year. Decrease is mainly due to higher gains on securities recorded in 1st quarter of 2018. Rs. 780 million gain was recorded in 2018 as compared to Rs. 11 million recorded in 2018. Non Markup expense excluding pension cost of Rs. 8.5 billion has been increased by 12% in 1st quarter as compare to Rs. 7.6 billion recorded in 1st quarter of 2018 due to increase in operating expense. Profit before Tax up by 24% in 1st quarter-2019 as compared to 1st quarter-2018. This is mainly due to higher net interest income in 2019 and recording of one off pension cost in 1st quarter-2018 amounting to Rs. 2.0 billion as per Supreme Court decision. 2nd Quarter Net Interest Income during the 2nd quarter was reported at RS. 14.3 billion. Higher by 24% as compared to same quarter of 2018. Gross markup income has been increased by 63% whereas Mark up expense has been also increased by 120%. Increase in markup income on advances & Investments was primarily due to higher mark up rates in 2019 as compared to 2018. Increase in Markup expense was increased by 115% due to change in MDR during 2019. Non Mark up Income for the 2nd quarter is reported to be Rs. 4.4 billion 10 % higher than the corresponding quarter last year. This is mainly due to the recording of higher dividend and foreign exchange income amounting to Rs. 520 million and Rs. 1.2 billion (Q2 2018: 394 million and 619 million) respectively which is offset by recording of loss on securities amounting to Rs. 129 million as compare to gain of Rs. 361 million in the corresponding quarter resulting in net increase of 10%. Slight increase of 2.7% has been observed in non markup expenses. Profit before Tax of the 2nd quarter is reported at Rs. 9.2 billion as compared to Rs. 8.7 for the 2nd quarter of 2018. PBT is higher by 6% mainly due to the increase in the net interest income and not interest income which is offset by the recording of higher provision on investments amounting to Rs. 1.6 billion resulting in net increase of 6% in PBT. 3rd Quarter Net Interest Income during the 3rd quarter was reported at Rs. 15.2 billion as compared to Rs. 11.3 in 3rd quarter of 2018 i.e. higher than 34 % as compare to same quarter of 2018. On gross markup income side, income on advances is higher by 52% due to increase in mark up rate. Mark up expense on Deposits is also increased by 125% due to adjustment of MDR by regulator. Non Mark up Income is 5% lower than non mark up income reported in 3rd quarter of 2018. Mainly due to lower dividend income and FX Income in 3rd quarter of 2019. Non Markup Expense in 3rd quarter-2019 has increased by 5.5 % as compared to 3rd quarter-2018 due to increase in operating expense. Profit before Tax has increased to Rs. 9.2 billion as compared to Rs. 7.3 billion in 3rd quarter of 2018. The significant factors of higher profit in 3rd quarter-2018 were increase in Net interest income which is slightly offset by the recording of provision on investment and advances amounting to Rs .656 million and of Rs. 241 million respectively resulting in net increase of 27%. 4th Quarter Net Interest Income during the 4th quarter is 38% higher than the net markup income in 4th quarter of 2018. Increase in net mark up income is due to upward revision in discount rate by SBP as compared to last quarter of 2018. Gross markup income was higher by 63% and mark up expense was higher by 89%. Non Mark up Income has slightly been increased in 4th quarter - 2019 as compare to corresponding quarter. Higher capital gains were observed in last quarter of 2019 as compared to last quarter of 2018. Higher capital gains were off set by lower FX income in last quarter of 2019. Total of 3 % increase has been observed in non interest income. Non Markup Expense in 4th quarter is slightly higher than corresponding quarter. During the last quarter of 2019 bank has made the highest ever quarterly profit of Rs. 12.6 billion. Profit before tax is greater than the record 44% as compared to last quarter of 2018. This record increase is primarily due to the increase of net interest income. Non Markup Expense 10 Non Markup Income (Rupees in Billion) 9.6 8.4 6 8.6 8.4 7.9 8 (Rupees in Billion) 8.2 5.2 8.4 4.4 7.2 4.1 4 6 5.1 4.4 3.5 3.5 3.7 4 2 2 0 Q1 Q2 2019 Q3 2018 Q4 0 Q1 Q2 2019 Q3 Q4 2018 Annual Report 2019 75
  78. Six Years ’ Financial Performance / Financial Ratios 2014 - 2019 201920182017 20162015 2014 Profit and Loss Account Mark-up/ return earned Rs. Mln 138,292 83,319 74,091 67,400 80,393 77,269 Mark-up/ return expensed " " 78,676 37,305 31,429 23,586 31,077 33,757 Fund based income " " 59,616 46,014 42,662 43,814 49,316 43,512 Fee, Commission, brokerage & FX income " " 14,469 14,625 11,435 9,040 10,871 10,235 Dividend and capital gains " " 2,210 2,573 6,682 7,135 5,695 2,709 Total income " " 76,295 63,212 60,780 59,989 65,882 56,456 Operating expenses " " 33,709 32,902 28,721 22,989 22,895 21,591 Operating profit before tax and provision " " 42,586 30,310 32,059 36,999 42,987 34,865 Provisions / write-offs " " 2,484 (1,753) 1,045 925 659 (1,864) Profit before tax " " 40,102 32,064 31,014 36,075 42,329 36,729 Profit after tax " " 23,977 21,360 22,459 21,891 25,546 24,325 Cash Dividends* " " 20,146 18,961 18,673 17,808 17,808 15,582 Statement of Financial Position Authorised capital " " 15,000 15,000 15,000 15,000 15,000 15,000 Paid up capital " " 11,851 11,851 11,851 11,130 11,130 11,130 Reserves " " 77,591 74,148 70,866 53,347 51,309 48,830 Unappropriated Profit " " 55,777 53,532 53,776 53,469 50,747 46,948 Shareholder's equity " " 145,219 139,531 136,493 117,946 113,186 106,908 Surplus on revaluation of assets - net of tax " " 23,695 9,747 17,073 23,680 24,616 23,196 Net Assets " " 168,915 149,278 153,566 141,627 137,802 130,104 Total Assets " " 1,515,152 1,498,130 1,343,238 1,072,365 1,004,410 934,631 Earning Assets " " 1,294,096 1,343,378 1,175,352 911,163 872,594 818,676 Gross Advances " " 540,037 546,792 515,058 367,678 322,529 322,318 Advances - net of provisions " " 496,679 503,581 469,356 348,117 304,122 303,559 Non-Performing Loans (NPLs) " " 49,424 48,956 48,753 21,688 20,368 21,908 Investments " " 748,765 749,369 656,964 555,929 565,696 511,137 Total Liabilities " " 1,346,237 1,348,852 1,189,672 930,739 866,608 804,527 Deposits & other accounts " " 1,144,763 1,049,038 968,483 781,430 696,805 688,330 Current & Saving Deposits (CASA) " " 1,035,063 954,813 899,364 735,550 650,739 626,112 Borrowings " " 89,506 216,019 133,070 74,515 118,040 59,543 Interest bearing Liabilities " " 809,717 867,048 728,361 557,913 557,056 511,446 Contingencies and Commitments " " 851,147 584,434 448,135 307,566 320,888 226,554 Profitability ratios Profit before tax ratio % 29.00% 38.48% 41.86% 53.52% 52.65% 47.53% Gross Yield on Average Earning Assets " " 10.49% 6.41% 7.10% 7.56% 9.51% 10.05% Gross Yield on Avg. Earning Assets (incl. dividend & capital gains) " " 10.65% 6.61% 7.74% 8.36% 10.18% 10.40% Gross Spread " " 43.11%55.23%57.58% 65.01%61.34% 56.31% Non interest income to total income " " 21.86% 27.21% 29.81% 26.96% 25.14% 22.93% Return on average equity (ROE) " " 16.84% 15.48% 17.65% 18.94% 23.21% 23.83% Return on average assets (ROA) " " 1.59% 1.50% 1.86% 2.16% 2.63% 2.78% Return on Capital Employed (ROCE) " " 16.84% 15.48% 17.65% 18.94% 23.21% 23.83% Cost to income ratio " " 43.40% 49.75% 46.94% 36.80% 33.34% 36.51% Cost to income ratio (excluding pf reversal) " " 43.99% 48.73% 47.88% 37.66% 34.52% 37.98% Admin Exp to Profit before Tax " " 82.58% 98.07% 91.99% 61.19% 51.90% 56.12% Investment ratios\Market Ratios Earnings per share (after tax) Rs. 20.23 18.02 19.56 19.67 22.95 21.85 Earnings per share (before tax) " " 33.84 27.06 27.02 32.41 38.03 33.00 Breakup value per share - without surplus on revaluation of fixed assets & investments " " 122.54 117.74 115.18 105.97 101.69 96.05 - without surplus on revaluation of fixed assets " " 126.47 115.68 119.17 116.10 114.09 106.79 - with surplus on revaluation of fixed assets & investments " " 142.54 125.97 129.59 127.24 123.81 116.89 - with surplus on revaluation of fixed assets & investments & investment in related party at fair / market value" " " 144.89 128.41 132.90 132.90 128.63 121.05 Cash Dividend % 170%160%160% 160%160% 140% Dividend Yield ratio (based on cash dividend) " " 8.30% 8.27% 7.54% 6.73% 7.38% 4.58% Dividend Payout ratio " " 84.02% 88.77% 83.14% 81.35% 69.71% 64.06% Price to book value ratio Times 1.67 1.64 1.84 2.24 2.14 3.18 Price to earning ratio " " 10.13 10.74 10.85 12.09 9.45 13.99 Dividend cover ratio " " 1.19 1.13 1.18 1.23 1.43 1.56 *Includes proposed final cash dividend announced subsequent to the year end. 76 Unconsolidated Financial Statements
  79. Annual Report 2019 Six Years ’ Financial Performance / Financial Ratios 2014 - 2019 201920182017 20162015 2014 Share Information Market value per share - Dec 31 Rs. 204.94 193.57 212.32 237.82 216.85 305.65 High - during the year " " 216.20 236.56 267.00 244.82 338.82 311.00 Low - during the year " " 154.04 177.16 182.21 190.20 205.34 234.51 Market Capitalisation Rs. Mln 242,866 229,392 251,612 264,701 241,361 340,198 Asset Quality and Liquidity ratios Gross Advances to deposits ratio % 47.17% 52.12% 53.18% 47.07% 46.29% 46.83% Net Advances to deposits ratio " " 43.39% 48.00% 48.46% 44.55% 43.65% 44.10% Investments to deposits ratio " " 65.41% 71.43% 67.83% 71.14% 81.18% 74.26% Weighted Average Cost of Deposits " " 5.96% 3.18% 2.53% 2.48% 3.37% 4.59% CASA to total deposits " " 90.42% 91.02% 92.86% 94.13% 93.39% 90.96% NPLs to Gross advances ratio " " 9.15% 8.95% 9.47% 5.90% 6.32% 6.80% NPLs to Shareholders Equity " " 34.03% 35.09% 35.72% 18.39% 18.00% 20.49% Coverage Ratio (specific provision/ NPLs) " " 84.85% 85.68% 91.46% 87.32% 87.63% 82.84% Coverage Ratio (total provision/ NPLs) " " 87.73% 88.26% 93.74% 90.82% 90.37% 85.62% Earning assets to total assets ratio " " 85.41% 89.67% 87.50% 84.98% 86.88% 87.59% Investments to total assets ratio " " 49.42% 50.02% 48.91% 51.84% 56.32% 54.69% Cash & Cash Equvilants to Total Assets " " 9.59% 7.55% 8.16% 7.31% 6.34% 5.29% Cash to Current Liabilities " " 5.39% 3.44% 5.07% 7.78% 5.96% 5.16% Earning assets to interest bearing Liabilities Times 1.60 1.55 1.61 1.63 1.57 1.60 Deposits to shareholder equity " " 7.88 7.52 7.10 6.63 6.16 6.44 Assets to Equity " " 10.43 10.74 9.84 9.09 8.87 8.74 Current / Quick Ratio " " 2.29 1.91 2.01 3.05 2.44 1.51 Risk Adequacy Tier I Capital Rs. Mln 136,257 128,999 129,130 111,999 107,067 104,083 Total Eligible Capital "" 163,611 145,987 147,227 128,968 120,930 117,489 Risk Weighted Assets (RWA) "" 867,478 805,177 895,415 667,195 622,323 575,663 Tier I to RWA % 15.71% 16.02% 14.42% 16.79% 17.20% 18.08% RWA to total assets " " 57.25% 53.75% 66.66% 62.22% 61.96% 61.59% Capital Adequacy Ratio " " 18.86% 18.13% 16.44% 19.33% 19.43% 20.41% Net Return on Average RWA " " 2.87% 2.51% 2.87% 3.40% 4.26% 4.72% Duo Pont Analysis Net Operating Margin % 31.43%33.79%36.95% 36.49%38.78% 43.09% Asset Utilization % 5.06%4.45%5.03% 5.78%6.80% 6.45% Leverage Ratio / Equity Multiplier Times 10.58 10.29 9.49 8.99 8.81 8.57 Industry Share Deposits % 7.82%7.86%7.83% 6.98%7.20% 8.25% Advances " " 6.62%6.93%7.89% 6.60%6.58% 7.23% Market Capitalisation " " 16.87%17.17%17.85% 14.86%17.91% 21.44% * based on economic data released by State Bank of Pakistan Consolidated Total Assets Rs. Mln 1,612,215 1,585,210 1,389,492 1,097,281 1,020,980 941,606 Shareholders' Equity " " 145,854 140,196 138,100 120,152 115,253 110,095 Net Assets " " 171,347 151,323 156,543 145,960 142,177 136,269 Profit before tax " " 40,154 30,806 30,614 36,721 42,789 37,354 Profit after tax " " 23,947 20,415 22,048 22,174 25,035 24,774 Return on Average Assets % 1.50% 1.37% 1.77% 2.14% 2.55% 2.81% Return on Average Equity " " 16.66% 14.60% 16.98% 19.18% 22.12% 23.45% Earnings per share Rs. 20.14 17.17 19.13 19.82 22.38 22.15 Breakup value per share " " 144.59 127.69 132.10 131.14 127.74 122.43 Capital Adequacy Ratio % 17.84%17.02%16.34% 19.68%20.07% 20.41% Per Branch Gross Advances Rs. Mln 383.01 394.23 356.69 297.10 263.72 261.62 Deposits " " 811.89 756.34 670.69 631.20 569.75 558.71 CASA " " 734.09 688.40 622.83 594.14 532.08 508.21 PBT " " 28.44 23.12 21.48 29.14 34.61 29.81 Annual Report 2019 77
  80. Six Years ’ Non-Financial Performance 2014 - 2019 201920182017 20162015 2014 No. of accounts No. of branches No. of permanent employees Absolute " " 8,223,038 1,410 13,596 7,854,928 1,387 12,860 7,607,277 1,444 13,155 6,549,452 1,238 11,088 6,074,103 1,223 10,532 5,648,460 1,232 10,737 Digital Banking No. of ATMs Absolute 1,360 1,321 1,377 1,191 1,073 937 No. of Debit cards/smart cards issued during the year " 652,440 783,233 772,314 666,999 642,649 488,706 Internet Banking No. of customers " 180,326 176,210 163,273 No. of transactions " 479,278 481,137 509,569 Volume of transactions Rs. Mln 18,452 14,859 12,306 144,069 450,333 7,971 125,621 358,547 6,149 104,889 250,412 3,356 Mobile Banking No. of customers Absolute 1,909,712 1,363,304 1,232,258 931,965 656,485 566,846 No. of transactions - financial " 2,074,367 2,354,765 1,689,324 1,487,899 1,377,762 1,139,634 No. of transactions - non-financial " 6,255,699 6,081,206 3,908,141 3,390,035 3,365,913 3,097,579 Volume of transactions Rs. Mln 50,261 48,623 24,597 15,018 14,842 12,258 Credit Cards No. of new issuance Absolute 16,907 15,245 13,006 11,060 10,647 7,505 No. of customers " 83,07077,19070,246 64,07559,343 55,180 Total spend (transaction volume) Rs. Mln 8,927 7,597 7,054 5,967 5,079 4,843 Auto Loan No. of Loans disbursed Absolute 5,999 8,266 8,977 6,751 5,565 Outstanding Volume Rs. Mln 17,929 18,134 16,416 10,811 8,256 Home Loan No. of Loans disbursed Absolute 62 108 64 44 21 Outstanding Volume Rs. Mln 4,110 4,116 2,909 1,887 1,710 3,775 6,062 8 1,508 Personal Loan No. of Loans disbursed Absolute 2,435 2,766 1,313 316 231 133 Outstanding Volume Rs. Mln 2,262 2,707 2,630 531 518 507 Bancassurance No. of customers Absolute 196,633 152,145 119,474 95,434 72,553 55,411 No. of new customers " 44,021 32,671 24,040 22,881 17,142 15,695 No. of policies " 44,20833,11026,590 23,22317,189 16,223 Bancassurance Premium Rs. Mln 8,9277,0606,133 4,9534,193 3,411 Bancassurance - New Premium " 3,160 2,441 2,046 1,679 1,406 1,218 Trade Imports - volume Rs. Mln 563,914 483,932 416,489 371,233 359,860 414,941 Exports - volume " 356,549302,500220,912 162,899170,032 171,072 Home Remittance Volume of home remittance USD Mln 3,051 3,064 2,281 2,220 2,096  1,819 Volume of home remittance Rs. Mln 455,862 374,431 240,478 232,340 213,755  184,130 Home Remittance MCB Market Share % 13.74% 14.54% 11.64% 11.30% 10.90% 10.68% Cash Management Volume of cash collection Rs. Mln 1,884,135 1,673,812 1,500,553 1,210,303 78 Unconsolidated Financial Statements 1,024,595 963,217
  81. Annual Report 2019 Six Years ’ - Performance Commentary Statement of Financial Position Total Assets: The asset base of the Bank has registered a remarkable compound annual growth rate (CAGR) of 10.88% over the last 6 years growing to Rs. 1,515 billion as at December 31, 2019. Prime contributors to the said increase have been advances and investments, with investments growing annually by approximately 8.90% while advances grew by 12.25%. The earning asset mix of the Bank has been prudently managed to ensure maximization of returns to stakeholders. In 2017, based on the strategic move, NIB Bank was merged with and into MCB Bank Limited resulting in a significant increase in assets of 25%. Furthermore in 2018, 90 branches of the Bank were transferred to a wholly owned subsidiary of the Bank i.e. MCB Islamic Bank Limited. In 2019 the Bank recorded a net growth of Rs .17 billion (1.14%) over 2018. Advances: The changing macro-economic factors made the operating environment more challenging with discount rate registering a sheer increase of 750 bps in the last two years. Growing concerns on the asset quality coupled with limited credit opportunities falling within the defined risk appetite has resulted in a moderate growth in gross advances base. However, over the past three years, merger of NIB Bank and decent growth on the private sector credit appetite has reflected in the growth numbers for MCB. Gross advances have grown at a CAGR of 12.25 % over the last 6 years. ADR ratio of the Bank improved considerably over the last few years i-e 42.41% in 2013 to 47.17% in 2019. 1,400 1,145 1,200 1,049 Rs. in Billions 53.18% 52.12% 1,000 968 781 800 697 47.17% 600 547 540 515 688 323 322 200 0 2018 Gross advances 2017 93.74% 90.82% 50 49.42 87.73% 48.96 88.26% 43.21 43.36 90.37% 48.75 45.70 85.62% 40 30 21.69 20 19.70 20.37 21.91 18.41 18.76 10 0 2019 2018 NPLs 2017 Provisions 2016 2015 2014 Coverage ratio Investments: During the past few years, the lack of credit opportunities resulted in banking sector money being deployed in Government Papers as Government’s borrowing appetite has continued to grow. With an average annual growth rate of 8.90% over the last six years, the investment base of the Bank has grown from Rs. 511 billion as at December 31, 2014 to Rs. 748 billion as at December 31, 2019. In 2019, the strategic profiling of the investments based on the interest rate calls resulted in a gradual shift from shorter to longer term investments, thereby capitalizing on the significant interest rate movement during the year. 47.05% 46.29% 2019 60 46.83% 368 400 of 7% over the last year. The infection ratio of the Bank was 8.68% as at December 31, 2013 which improved to 5.90% as at December 31, 2016. However, transfer of NPL stock from NIB Bank i.e. Rs. 29.650 billion has increased the infection ratio to 9.47% as at December 31, 2017. In 2019 infection ratio improved to 9.15% due to substantial recoveries. The quality of asset base has been one of the prime focus areas of the Bank and the significant recoveries posted in the last few years reflect the strategic focus of the Bank. The coverage ratio of the Bank has moved from 85.62% as at December 31, 2014 to 87.73% as at December 31, 2019. NPLs classified in “loss” category constitute more than 93.04% of the NPLs base as at December 31, 2019. This specifies the adequacy of provision held in the books of the Bank. Rs. in Billions In this section, commentary on the six years’ performance of the Bank is being provided, covering key highlights; 2016 Deposits 2015 2014 ADR Non-performing Loans: Strengthened risk management policies coupled with refined appetite has enabled the Bank to keep a check on quality of its assets. Bank posted significant recoveries in past few years. However, in 2019 the Bank surpassed all the previous records of recovery by achieving the highest ever figure of Rs.3.047 Billion and registered a growth Deposits: The deposit base of the Bank has nearly doubled over the last six years, surpassing the landmark of PKR 1 trillion, with absolute numbers increasing from Rs. 688 billion as at December 31, 2014 to Rs. 1,144 billion as at December 31, 2019. CAGR of 10.40% is maintained during the past 6 years. CASA base has registered remarkable increase in last 6 years, increasing from Rs. 626 billion as at December 31, 2014 to Rs. 1,035 billion as at December 31, 2019. This has been strategically achieved through service excellence, strategically placed touch points for the customer and transactional convenience provided through a variety of products. Annual Report 2019 79
  82. 1 ,400 1,200 94.13% 90.42% 92.86% 93.39% 90.96% 1,145 1,035 1,049 955 1,000 Rs. in Billions 91.02% 968 899 781 800 736 697 651 688 626 600 400 200 0 2019 2018 Deposits 2017 2016 CASA 2015 2014 CASA Ratio Equity and Dividends • The paid-up capital of the Bank has grown from Rs. 11.1 billion as at December 2014 to Rs. 11.8 billion as at December 31, 2019, meeting the statutory capital requirements set by the Central Bank. • In 2008, most affluent strategic partnership occurred in Pakistan where the largest Bank of Malaysia, Maybank Berhad, acquired 20% holding in MCB Bank Limited (Current holding 18.78%. Dilution due issue of share under merger scheme). In 2017, Fullerton Financial Holdings (International) of Singapore through Bugis Investments (Mauritius) Pte Ltd acquired 5.49% stake in MCB under merger scheme of NIB Bank with and into MCB Bank Limited. • The equity base of the Bank is reflective of the outstanding financial results achieved through consistent performance over years. The capital base of the Bank is rated as strong which is substantiated by the reported CAR of 18.86% as at December 31, 2019 against the statutory requirement of 12.50%. The Shareholders’ equity has grown significantly from Rs. 97 billion as at December 31, 2013 to Rs. 145 billion as at December 31, 2019. • The Bank has the highest cash dividend per share in the industry with regular interim dividends and remains one of the prime stocks preferred in the Pakistani equity markets. • The regulatory revisions covering minimum deposit rate introduced in the earlier years of this six years analysis has adversely affected the Bank’s net interest margin. The said impact was strategically diluted by improving the CASA base over period taking it to over 90.42% as at December 31, 2019. In 2019, owing to the adoption of IFRS 16, the Bank recorded additional expense of Rs. 1.13 billion against unwinding cost of liability against right-ofuse-assets. Furthermore, cost of foreign currency SWAPs was increased by Rs. 2.35 billion over 2018 due to fluctuation in exchange rate. Non-Markup Income • During last six years, fee, commission income and capital gains have been the major drivers behind non-fund income growth. Fee, commission income has grown on the back of new products and services added to the menu coupled with remote banking and branchless initiatives taken by the Bank. The product development teams of the Bank have been tapping the unbanked segment of the population and offering them tailored products to meet their specific financial requirements. Different types of products have been offered in order to meet the needs of the time like credit card, mobile banking, visa debit card, MCB Lite, prepaid cards, IBFT etc. • The fee, commission and brokerage block of the Bank has been constantly increasing over the years with major contributions coming from commission earned on card business, bancassurance business, and remittances and intercity / intra-city cash transfers. • The equity investment base of the Bank has been providing outstanding dividend yields with dividend income proving to be one of the major contributors to non-markup income. During the past 6 years, above Rs. 27 billion has been realized by way of capital gains and dividend income. 80 Unconsolidated Financial Statements 7,225 5,679 1,061 1,443 1,648 1,267 946 912 1,941 1,636 3,420 1,280 1,293 1,377 2,896 4,000 4,429 4,741 6,000 2,000 7,842 7,640 8,000 833 The composition of markup income has seen a shift in the last six years on the back of concentration shift in the earning asset base of the Bank. The contribution from markup income earned on advances has increased from 37.34% in 2014 to 41.46% in 2019 while markup income from investments is decreased to 54.58% as compared 61.91% in 2014. Investment to total asset ratio is decreased from 55% (FY 2014) to 49% (FY 2019); whereas, advances to total asset ratio is improved by 2% from 2014 to 1019. Gross yield on average assets is also improved over the years and closed at 10.49% in 2019. 1,456 10,000 • 9,741 Net Interest Margin 10,731 Profit and Loss account 1,145 Rs. in Millions 12,000 0 2019 2018 2017 2016 2015 2014 Fee & commission income Foreign exchange income Dividend income Gain on securities
  83. Annual Report 2019 Provisions and write offs • • Owing to the strengthened risk management framework, the provision charge on advances of the Bank has been on a declining trend over years. However for the last two years the Bank has recorded net charge of Rs. 4.8 billion against equity portfolio due to market volatility. The provision and write-off reversal was reported at Rs. 1.86 billion for the year 2014 followed by extensive recovery efforts and reversals in subsequent years. To explain further, the Bank also carries an unencumbered general provision of around 0.1% of gross advances and has not taken the benefit of FSV in provision calculation for the year 2019. • In 2008, the Bank launched Bancassurance which was a unique cross functional service to the customers of the Bank. With only 131 policies and 129 customers in 2008, MCB Bank issues 44,208 policies with new premium amount of more than Rs. 3.1 billion. • MCB Bank launched mobile banking in 2009 with approximately 53K customers reported by the end of the 2009. As of 2019, the mobile customers have grown to 1.91 million and above with transaction volume of over Rs. 50 billion. • During the year 2019, this is the 7th consecutive year where MCBs Annual Report has been adjudged winner for best corporate report award in financial sector category. MCB Bank has been awarded as winner by ICAP and ICMAP for Best Corporate Report Award 9 times in past 10 years. Operating expense: • The growth in administrative block of the bank has been nominal considering the inflationary patterns followed over the period of six years. The management has been able to introduce cost effective techniques / methods to exercise control over the administrative expenses. Centralization of various expense heads and imposition of annual capping have been few of the key initiatives undertaken in this respect. This has enabled the Bank to maintain one of the lowest cost to income ratios in the industry. Profit before tax and Profit after tax: • MCB Bank has been able to post outstanding profitability numbers over the period of last six years as substantiated by the highest EPS and remarkable return on asset ratio. CAGR over the last six years is 3.68%. The post-tax profitability numbers were Rs. 24.32 billion for 2014 and now it stands at Rs. 23.97 billion for 2019. The aggregate profit after tax for the last six years has crossed Rs. 135 billion. • Profitability ratios have been one of the best in the banking industry which are reflective of the effective management of the affairs and adoption of prudent strategies. Other statistics • The Bank has added almost 3 million bank accounts to its base during the past 6 years with the current statistics highlighting bank accounts over 8 million. • With active participation in trade, MCB Bank has been able to improve trade volume in last 6 years which has increased to Rs. 564 billion for imports and Rs. 357 billion for exports. The Bank has been able to increase its market share in the remittance business growing from Rs. 184 billion as at December 31, 2014 to the volume of Rs. 456 billion as at December 31, 2019. • In 2015, MCB Annual Report has been honored to receive 1st place by South Asian Federation of Accountant (SAFA) for best presented Annual Accounts 2014. MCB was the 1st Pakistani bank to receive this accolade. In the past years, we have been awarded merit certificate and runner up awards for the same. • In 2016, Bank was awarded Best Bank in Corporate Finance and Investment Banking by EuroMoney Awards while in 2016 bank was awarded as best bank by EuroMoney. We have also been awarded for Country Awards for Achievement in recent past years by FinanceAsia. • In 2019, Bank was declared Most Outstanding Company in Pakistan in Financial Sector category by Asiamoney. • China-Pakistan Economic Corridor (‘CPEC’) is beginning to show greater momentum with several energy and infrastructure projects in the pipeline, which will fuel growth in the medium term. Bank is continuously focusing on CPEC related infrastructure projects and bank has been able to achieve various awards on outstanding performance under CPEC arrangements. In this regard bank received award for Best Regional Bank in South Asia for BRI (Belt & Road Initiative) - Asiamoney New Silk Road Finance Awards 2017. Annual Report 2019 81
  84. Six Years ’ - Graphical Summary of Ratios 23.21% 17.65% 2018 56.12% 56.31% 51.90% 47.53% 5% 36.51% 36.80% 2017 Gross spread 2016 Cost to income ratio 2015 Admin exp to profit before tax 25 2014 Return on average equity (ROE) 4.0% 22.95 20.23 20 19.56 19.67 21.85 3.5% 2.78% 2.63% 18.02 3.0% 2.5% 15 2.16% 2.0% 1.86% 1.59% 1.5% 1.50% 1.0% 5 0 0.5% 0% 2019 2018 2017 Earnings per Share 99% 91% 91.02% 90.42% 71.43% 75% 65.41% 59% 51% 52.12% 47.17% 2016 2015 2014 Return on Assests (ROA) 92.86% 83% 67% 94.13% 93.39% 71.14% 81.18% 90.96% 74.26% 67.83% 53.18% 47.07% 46.26% 46.83% 2016 2015 2014 43% 35% 2019 2018 Gross advances to depoits ratio 82 10% 0 2019 Profit before tax ratio 10 61.34% 65.01% 53.52% 57.24% 46.94% 41.86% 55.23% 38.48% 29.00% 35 43.40% 43.11% 45 49.75% 55 15 15% 15.48% 33.34% 65 52.65% 16.84% 20% 18.94% 61.19% 75 82.58% 85 91.99% 98.07% 95 25 25% 23.83% 105 Unconsolidated Financial Statements 2017 Investments to deposits ratio CASA to total depoits
  85. Annual Report 2019 Six Years ’ - Concentration of Advances, NPLs and Off Balance Sheet Items (2014-2019) Gross Advances 100 80 60 40 20 0 2019 2018 2017 2016 2015 2014 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Classified Advances 100 80 60 40 20 0 2019 2018 2017 2016 2015 2014 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Off Balance Sheet Item 100 80 60 40 20 0 2019 2018 2017 2016 2015 2014 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Annual Report 2019 83
  86. Six Years ’ - Maturities of Assets & Liabilities Maturities of Assets 1,000 908 Rs. in Billions 800 600 699 560 545 454 400 335 296 265 200 155 0 252 223 201 148 2019 152 103 119 2018 Upto 3M 139 144 104 85 2017 3M to 1Y 231 215 192 199 79 2016 1Y to 3Y 164 54 96 2015 3Y to 5Y 147 90 2014 5Y & Above Maturities of Liabilites 600 559 Rs. in Billions 500 469 457 409 392 400 355 293 300 250 245 235 205 204 200 160 138 107 100 326 280 87 176 176 150 143 78 75 72 68 62 163 85 56 0 2019 2018 Upto 3M * Based on expected maturities 84 Unconsolidated Financial Statements 2017 3M to 1Y 2016 1Y to 3Y 2015 3Y to 5Y 2014 5Y & Above
  87. Annual Report 2019 DuPont Analysis 201920182017201620152014 Net Operating Margin PAT / Total Income A 31.43%33.79%36.95%36.49%38.78%43.09% Asset Utilization Total Income / Average Assets B 5.06%4.45%5.03%5.78%6.80%6.45% Return on Assets C = A x B 1.59%1.50%1.86%2.11%2.63%2.78% Leverage Ratio / Equity Multiplier Average Assets / Average Equity D 10.5810.299.498.998.818.57 Return on Equity C X D 16.84%15.48%17.65%18.94%23.21%23.83% Following are the main DuPont analysis highlights: 1) Net operating margin measure in term of profit margins showing increasing trend in 2014 due to improved nonmarkup income, cost control measures and reversal in provisions. 2) Asset utilization in terms of total income has shown decreasing trend due to decrease in discount rate while corresponding upward revision in minimum deposits rate by regulator. 3) Equity Multiplier showing increasing trend since 2014 due to higher profits. 50% 30% 45% 43.09% 40% 35% 30% 25% 36.95% 33.79% 31.43% 16.84 % 20% 25% 38.78% 36.49% 23.21% 23.83% 18.94% 17.65% 15% 15.48% 10% 15% 10% 5% 20% 5.06% 5.78% 5.03% 4.45% 6.80% 6.45% 5% 0 0 2019 2018 2017 Net operating Margin 2016 Asset Utilization 2015 2014 Return on Equity Annual Report 2019 85
  88. Summary of Cash Flows : (Rupees in million) 2019 Cash flows from operating activities Cash flows from / (used in) investing activities 2018 2017 2016 2015 2014 48,192 143,221 121,010 21,593 82,440 53,343 6,681 (118,767) (72,671) 11,043 (50,942) (49,394) Cash flows used in financing activities (24,157) (20,092) (17,203) (17,760) (17,167) (15,175) Cash & cash equivalents at beginning of the year 113,181 109,543 78,407 63,682 49,427 60,857 Cash & cash equivalents at end of the year 143,898 113,181 109,543 78,407 63,682 49,427 Commentary of Cash Flow Statement Cash flows from operating activities depict cash inflows from core business of the Bank i.e. Deposit generation. In 2019, cash flow generated from operating activities was Rs. 48.2 billion which had decreased significantly when compared with Rs. 143.2 billion in 2018. In 2019, deposit growth contributed cash inflow of Rs. 95.73 billion which was mainly utilized to repay the borrowings from financial institutions. In 2019 total of Rs. 126 billion was repaid to other financial institutions. As compared to base year 2004, a slight decrease of Rs. 5 billion is observed. Calendar year 2019 remained a hall mark year in terms of operational activity as the Bank reported highest base on both key performance indicators (i.e. Deposits and Advances). For the year 2019, the increase in the asset base was primarily led by cash and balances with treasury banks. Historically, investments have been the major contributors to the increased asset base. On the investing front, Bank portrayed a significant improvement and reported net cash inflow of Rs. 6.7 billion. During the past 6 years, highest cash outflow was observed in last year i.e. Rs. 118.8 billion due to the payment made on account of demerger of 90 branches which was Rs. 22.2 billion. In 2019, Bank invested Rs. 5 billion in operating fixed and intangible assets; whereas, investments worth of Rs. 8.9 billion were sold. Cash outflow from financing activities reflects payments on account of dividends to shareholders and complete redemption of subordinate debt. Considering that MCB has the highest dividend per share in the financial sector with quarterly payouts, MCB has paid over Rs. 100 billion during the past 6 years. 180 143.2 150 121.0 120 82.4 90 Rs. in Billions 60 53.3 48.2 30 21.6 6.7 11.0 0 -30 (24.2) (17.2) (20.1) -60 (50.9) (49.4) 2015 2014 (72.7) -90 -120 -150 (15.2) (17.2) (17.8) (118.8) 2019 2018 2017 Operating Activities 2016 Investing Activities Financing Activities Free Cash Flows: (Rupees in million) Profit before taxation Adjustment for non-cash items Operating assets/ liabilities changes 86 2019 2018 2017 2016 2015 2014 40,102 32,064 31,014 36,075 42,329 36,729 6,174 264 882 1,525 1,419 (58) 1,916 110,893 89,114 (16,007) 38,692 16,672 Net cash generated from operating activities 48,192 143,221 121,010 21,593 82,440 53,343 Capital expenditure (5,022) (4,483) (4,745) (3,485) (942) (4,757) Free cash flows 43,170 138,738 116,265 18,108 81,498 48,586 Unconsolidated Financial Statements
  89. Annual Report 2019 Cash Flow Statement Direct Method 20192018 (Rupees in Million) Cash flows from operating activities Mark-up / return / interest and commission receipts Mark-up / return / interest payments Payments to employees, suppliers and others 140,715 (67,306) (29,592) 100,579 (31,987) (29,565) 43,817 Decrease / (increase) in operating assets 39,027 Lendings to financial institutions Net investments in 'held for trading' securities Advances - net Other assets (30,708) (9,338) (31,435) (1,713) 34,016 (129) 7,225 (3,554) 37,558 (73,194) (Decrease) / increase in operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities (3,878) (125,990) 95,726 3,266 (5,767) 82,186 102,473 1,795 (30,876) 180,687 50,499 146,520 Income tax paid (2,307) (3,299) Net cash flows from operating activities 48,192 143,221 Cash flows from investing activities Net investments in 'available for sale' securities Net investments in 'held to maturity' securities Investment in a subsidiary company Dividends received Investments in operating fixed assets Investments in intangible assets Sale proceeds of operating fixed assets and intangible assets disposed off Proceeds from sale of non-banking assets acquired in satisfaction of claims Investments in non-banking assets acquired in satisfaction of claims Net cash inflow from amalgamation of a subsidiary Net cash outflow on demerger Proceeds from divestment in an associate Exchange differences on translation of the net investment in foreign branches 8,628 310 (350) 1,395 (4,396) (626) 158 540 (64) 41 – – 1,046 (93,719) (1,451) (1,200) 1,603 (4,261) (222) 574 682 – – (22,214) 295 1,146 Net cash flows from / (used in) investing activities Cash flows from financing activities 6,682 (118,767) (3,891) (18,838) (1,428) (2) (20,091) – Payments of Subordinated debt Dividend paid Payment of lease liability against right-of-use-assets Net cash flows used in financing activities (24,157) Effects of exchange rate changes on cash and cash equivalents 3,553 Cash and cash equivalents transferred to MIB under the scheme of demerger – Increase in cash and cash equivalents 34,270 Cash and cash equivalents at beginning of the year (20,093) 5,575 (723) 9,213 109,628 103,968 Cash and cash equivalents at end of the year 143,898 113,181 Cash flow statement in annual financial statements is required to be prepared in line with the format prescribed by State Bank of Pakistan under BPRD Circular No. 2 dated January 25, 2018, ‘Revised Forms of Annual Financial Statements. Annual Report 2019 87
  90. Markup & Non Markup Income (Rupees in Million) 2019 201820172016 20152014 Markup Income Loans and advances Investments Lendings to Financial Institutions Balance with banks 57,330 75,481 4,982 499 36,964 44,719 1,390 246 26,931 46,876 174 111 22,956 44,226 122 97 26,128 54,010 176 79 28,922 47,835 481 31 138,292 83,319 74,091 67,400 80,393 77,269 Deposits Borrowings Subordinated loan Unwinding cost of liability against right-of-use assets Others 65,344 8,977 214 32,081 4,253 308 22,105 8,837 138 18,313 4,556 - 23,326 7,185 - 30,341 2,790 - - 717 - 566 626 78,676 37,305 31,429 23,586 31,077 33,757 Net Markup Income 59,616 46,014 42,662 43,814 49,316 43,512 Fee & commission Income Dividend Income Foreign exchange income Gain on securities Other Income 11,288 1,377 2,895 833 286 10,731 1,280 3,420 1,293 474 9,741 1,941 1,636 4,741 58 7,640 1,456 912 5,679 488 7,842 1,267 946 4,429 2,083 7,225 1,061 1,443 1,648 1,566 16,679 17,198 18,118 16,175 16,566 12,944 Markup Expense 1,132 3,009 - 663 - 349 Non Markup Income Markup Income from Advances and Investments (2014-2019) 22.93% 56.31% 61.34% 26.96% 57.58% 29.81% 43.11% 55.23% 27.21% 25.14% 2019 2018 2017 Income on Adances to Markup income 88 40 2015 2014 20 20 0 60 21.86% 61.91% 37.43% 32.50% 65.62% 63.27% 34.06% 40 36.35% 53.67% 60 67.18% 80 44.36% 80 54.58% 100 41.46% 100 65.01% Income Composition (2014-2019) Unconsolidated Financial Statements 2016 2015 2014 Income on Investments to Markup income 0 2019 2018 2017 Net Markup Income to Gross Markup 2016 Net Markup Income to Net Revenue
  91. Annual Report 2019 Operating Expenses (Rupees in Million) 2019 201820172016 20152014 14,585 Total compensation expense 14,053 12,301 9,111 8,962 8,834 Property expense Rent & taxes Insurance Utilities cost Fuel Expense Security (including guards) Repair & maintenance (including janitorial charges) Depreciation on right-of-use assets Depreciation 227 21 1,203 534 1,382 812 1,162 504 1,959 26 1,095 514 1,603 945 - 458 1,526 27 911 459 1,392 790 - 383 1,047 24 739 368 1,178 660 - 385 1,044 25 745 545 1,034 516 - 390 Information technology expenses 5,845 6,599 5,487 4,400 4,300 4,049 Software maintenance Hardware maintenance Depreciation Amortization Network charges Insurance 1,188 299 616 301 601 3 1,151 364 721 256 616 4 863 349 690 244 621 5 763 239 644 366 554 6 732 239 706 364 631 5 732 183 585 360 456 5 Other operating expenses 3,009 3,112 2,772 2,572 2,677 2,320 Directors’ fees and allowances Legal & professional charges Outsourced services costs Travelling & conveyance NIFT clearing charges Depreciation Depreciation on non-banking assets Training & development Postage & courier charges Communication Stationery & printing Marketing, advertisement & publicity Donations Auditors Remuneration Cash transportation charges Repair & maintenance Subscription Entertainment Credit Card Related Expenses CNIC verification charges Insurance Others 57 350 690 321 152 797 45 57 303 373 639 625 - 30 799 416 20 232 1,182 207 1,441 493 41 302 1,119 343 146 802 49 51 271 317 704 518 1 34 744 460 24 233 738 138 821 473 39 328 1,167 293 136 656 30 60 323 384 646 531 12 41 631 513 18 235 562 107 254 431 35 265 818 396 126 544 29 51 247 306 543 483 13 24 551 403 27 186 415 76 236 215 Operating expenses excluding compensation 9,232 8,327 7,397 5,991 6,028 5,408 18,086 18,038 15,657 12,963 13,006 11,778 Total operating expenses 32,671 32,091 27,958 22,074 21,968 20,612 Cost to income ratio (excluding pension fund reversal) 60 943 26 747 680 866 416 371 35 212 830 236 138 475 - 45 267 308 609 362 - 39 545 331 16 174 348 62 711 286 34 282 686 238 139 418 35 219 290 561 315 40 34 550 309 18 160 298 60 509 212 Cost to Income Ratio 60 48.73% 50 47.88% 49.75% 50 46.94% 43.40% 43.99% 40 37.66% 37.98% 40 36.80% 36.51% 33.34% 34.52% 30 30 20 20 10 10 0 0 2019 2018 2017 2016 2015 2014 2019 2018 2017 2016 2015 2014 Annual Report 2019 89
  92. Economic Value Added Statement 20192018 ( Rupees in Million) Invested Capital Average shareholders’ equity Add: Cumulative provisions against assets 142,375 56,652 138,012 53,626 199,027 191,638 Return on Invested Capital Profit after taxation 23,977 21,360 Add: Provisions / (reversals) and write offs - net 2,484 (1,753) Total return on invested capital 26,460 19,606 Economic cost 12.89% 9.10% Opportunity cost of invested capital 25,655 17,439 Economic Value Added 806 2,167 (Rupees in Million) Economic Value Added Total Return on Invested Capital 2018 Opportunity Cost of Invested Capital 2019 Invested Capital 0 50,000 100,000 150,000 200,000 250,000 Comments: Decrease in EVA as compare to last year is due to increase in economic cost due to revision in policy rate. Capital Expenditure Capital expenditure during the year: The total capital expenditure during 2019 was Rs. 5.02 billion for business expansion, renovation and improvement of IT infrastructure. Capital expenditures planned for next year: The Bank has budgeted capital expenditure of Rs. 6.2 billion for the next year. This would primarily be invested in increasing our operational outreach, continuous improvement in our Information Technology platforms, safeguarding our existing infrastructure / relationships from growing threats on cyber security front along with normal replacements to ensure smooth operations. 90 Unconsolidated Financial Statements
  93. Annual Report 2019 Six Years ' Vertical Analysis Statement of Financial Position/Profit & Loss Rs. Mln 20192018201720162015 2014 % Rs. Mln % Rs. Mln % Rs. Mln % Rs. Mln % Rs. Mln % Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 132,705 12,542 1,090 748,765 496,679 58,271 958 64,143 9% 103,175 1% 11,879 0% 35,106 49% 749,369 33% 503,581 4% 40,812 0% 630 4% 53,578 7% 106,072 1% 4,579 2% 4,398 50% 656,964 34% 469,356 3% 39,170 0% 404 4% 62,295 8% 74,222 0% 4,344 0% 2,810 49% 555,929 35% 348,117 3% 32,409 0% 343 5% 54,191 7% 60,568 0% 3,611 0% 3,080 52% 565,696 32% 304,122 3% 29,227 0% 723 5% 37,384 6% 46,754 0% 3,016 0% 1,418 56% 511,137 30% 303,559 3% 30,498 0% 694 4% 37,555 5% 0% 0% 55% 32% 3% 0% 4% Liabilities 1,515,152 100% 1,498,130 100% 1,343,238 100% 1,072,365 100% 1,004,410 100% 934,631 100% Bills payable Borrowings Deposits Sub-ordinated loan Deferred tax liabilities Other liabilities 11,822 89,506 1,144,763 - 5,851 94,296 1% 15,699 6% 216,019 76% 1,049,038 0% 3,891 0% 1,532 6% 62,673 1% 22,681 14% 133,070 70% 968,483 0% 3,893 0% 4,625 4% 56,921 2% 12,844 10% 74,515 72% 781,430 0% - 0% 11,260 4% 50,690 1% 11,889 7% 118,040 73% 696,805 - - 1% 11,377 5% 28,498 1% 16,628 12% 59,543 69% 688,330 - - 1% 10,397 3% 29,630 2% 6% 74% 1% 3% 1,346,237 89% 1,348,852 90% 1,189,672 89% 930,739 87% 866,608 86% 804,527 86% 168,915 11% 149,278 10% 153,566 11% 141,627 13% 137,802 14% 130,104 14% Net Assets Represented by Share capital Reserves Surplus on revaluation of assets - net of tax Unappropriated profit 11,851 77,591 23,695 55,777 1% 5% 2% 4% 11,851 74,148 9,747 53,532 1% 5% 1% 4% 11,851 70,866 17,073 53,776 1% 5% 1% 4% 11,130 53,347 23,680 53,469 1% 5% 2% 5% 11,130 51,309 24,616 50,747 1% 5% 2% 5% 11,130 48,830 23,196 46,948 1% 5% 2% 5% Profit & Loss Account 168,915 11% 149,278 10% 153,566 11% 141,627 13% 137,802 14% 130,104 14% Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total income Non-mark-up expenses Profit before provisions Provisions & write off Profit before taxation Taxation 138,292 (78,676) 59,616 16,679 76,295 (33,709) 42,586 (2,484) 40,102 (16,125) 89% 83,319 -51% (37,305) 38% 46,014 11% 17,198 49% 63,212 -22% (32,902) 27% 30,310 -2% 1,753 26% 32,064 -10% (10,704) 83% 74,091 -37% (31,429) 46% 42,662 17% 18,118 63% 60,780 -33% (28,721) 30% 32,059 2% (1,045) 32% 31,014 -11% (8,555) 80% 67,400 -34% (23,586) 46% 43,814 20% 16,175 66% 59,989 -31% (22,989) 35% 36,999 -1% (925) 34% 36,075 -9% (14,184) 81% 80,393 -28% (31,077) 52% 49,316 19% 16,566 72% 65,882 -28% (22,895) 44% 42,987 -1% (659) 43% 42,329 -17% (16,782) 83% 77,269 -32% (33,757) 51% 43,512 17% 12,944 68% 56,456 -24% (21,591) 44% 34,865 -1% 1,864 44% 36,729 -17% (12,405) 86% -37% 48% 14% 63% -24% 39% 2% 41% -14% 15% 21% 24% 26% 26% 27% Profit after taxation 23,977 21,360 22,459 21,891 25,546 24,325 Annual Report 2019 91
  94. Six Years ' Horizontal Analysis Statement of Financial Position/ Profit & Loss 2019 19 Vs 18 Rs. Mln % 2018 18 Vs 17 Rs. Mln % 2017 17 Vs 16 Rs. Mln % 2016 16 Vs 15 Rs. Mln % 2015 15 Vs 14 2014 14 Vs 13 Rs. Mln % Rs. Mln % Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Intangible assets Other assets 132,705 12,542 1,090 748,765 496,679 58,271 958 64,143 29% 103,175 6% 11,879 -97% 35,106 0% 749,369 -1% 503,581 43% 40,812 52% 630 20% 53,578 -3% 106,072 159% 4,579 698% 4,398 14% 656,964 7% 469,356 4% 39,170 56% 404 -14% 62,295 43% 74,222 5% 4,344 57% 2,810 18% 555,929 35% 348,117 21% 32,409 18% 343 15% 54,191 23% 60,568 20% 3,611 -9% 3,080 -2% 565,696 14% 304,122 11% 29,227 -53% 723 45% 37,384 30% 46,754 20% 3,016 117% 1,418 11% 511,137 0% 303,559 -4% 30,498 4% 694 0% 37,555 -22% 96% 16% 14% 22% 9% 18% 39% Liabilities 1,515,152 1% 1,498,130 12% 1,343,238 25% 1,072,365 7% 1,004,410 7% 934,631 15% Bills payable Borrowings Deposits Sub-ordinated loan Deferred tax liabilities Other liabilities 11,822 -25% 15,699 89,506 -59% 216,019 1,144,763 9% 1,049,038 - -100% 3,891 5,851 282% 1,532 94,296 50% 62,673 -31% 22,681 62% 133,070 8% 968,483 0% 3,893 -67% 4,625 10% 56,921 77% 12,844 79% 74,515 24% 781,430 100% - -59% 11,260 12% 50,690 8% 11,889 -37% 118,040 12% 696,805 - - -1% 11,377 78% 28,498 1,346,237 0% 1,348,852 13% 1,189,672 28% 930,739 7% 866,608 8% 804,527 14% 168,915 13% 149,278 -3% 153,566 8% 141,627 3% 137,802 6% 130,104 18% 0% 4% -4% 5% 0% 5% 6% 8% 11,130 48,830 23,196 46,948 10% 5% 79% 16% Net Assets Represented by Share capital Reserves Surplus on revaluation of assets - net of tax Unappropriated profit 0% 5% 143% 4% 11,851 74,148 9,747 53,532 0% 5% -43% 0% 11,851 70,866 17,073 53,776 6% 33% -28% 1% 11,130 53,347 23,680 53,469 11,130 51,309 24,616 50,747 Profit & Loss Account 168,915 13% 149,278 -3% 153,566 8% 141,627 3% 137,802 6% 130,104 18% Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total income Non-mark-up expenses Profit before provisions Provisions & write off Profit before taxation Taxation 138,292 (78,676) 59,616 16,679 76,295 (33,709) 42,586 (2,484) 40,102 (16,125) 66% 83,319 111% (37,305) 30% 46,014 -3% 17,198 21% 63,212 2% (32,902) 40% 30,310 -242% 1,753 25% 32,064 51% (10,704) 12% 74,091 19% (31,429) 8% 42,662 -5% 18,118 4% 60,780 15% (28,721) -5% 32,059 -268% (1,045) 3% 31,014 25% (8,555) 10% 67,400 33% (23,586) -3% 43,814 12% 16,175 1% 59,989 25% (22,989) -13% 36,999 13% (925) -14% 36,075 -40% (14,184) -16% 80,393 -24% (31,077) -11% 49,316 -2% 16,566 -9% 65,882 0% (22,895) -14% 42,987 40% (659) -15% 42,329 -15% (16,782) 4% 77,269 -8% (33,757) 13% 43,512 28% 12,944 17% 56,456 6% (21,591) 23% 34,865 -135% 1,864 15% 36,729 35% (12,405) 19% 24% 15% 16% 15% 10% 19% -35% 14% 15% Profit after taxation 92 11,851 77,591 23,695 55,777 -29% 16,628 64% 98% 59,543 54% 1% 688,330 9% - - 9% 10,397 147% -4% 29,630 48% Unconsolidated Financial Statements 23,977 12% 21,360 -5% 22,459 3% 21,891 -14% 25,546 5% 24,325 13%
  95. Annual Report 2019 Commentary on Six Years ' Horizontal & Vertical Analysis Horizontal Analyses Asset base of the bank has increased considerably over the past 6 years and crossed many milestones i.e. PKR 1 trillion; highest increase in the asset base is observed in 2017 where assets were increased by 25%. This increase also includes assets transferred under merger of NIB Bank into MCB Bank Limited. On an annualized basis, the asset base has recorded an increase of 11% over the last six years. During the past 6 years, highest increase in investment base was reported in 2017 i.e. 18%. Highest growth in advances is observed in 2017 primarily due to portfolio transferred on account of merger of NIB Bank with and into MCB Bank Limited. 45 35% 35 25 22% 18% 15 13% 14% 7% 5 14% 8% 3% 18% 11% 14% the CASA base of the Bank. However, the total markup expense has increased by 19.37% over the six year period under coverage. Non Markup income block has shown enormous growth in recent years and the growth rate in past six years is 6.91%, whereas non- markup expense has grown by an average of 9.42% which is justifiable on account of growing operational infrastructure and inflationary patterns. One of the key strength of the Bank has been its recovery of classified portfolio which is clearly reflected by the reduced / reverse credit charge over the last few years. Provision charge in past 3 years is primarily on account of Provision made against equity portfolio of the bank based on the volatility observed in the equity market while provision against advances have been reversed considerably over the past 6 years. MCB enjoys one of the highest spreads in the banking industry which are duly reflected in the profitability ratios of the Bank. 45 6% 0% -1% -5 40 0% -3% -2% 42.3 36.1 35 32.1 2018 Investments 2017 2016 Advances 2015 2014 Net Assets The deposit base of the Bank has increased considerably over the years growing from Rs. 632 billion to Rs. 1,144 billion in 2019 translating into a CAGR of 10.40% over past 6 years. Highest increase was reported in 2017, primarily on account of splendid growth in deposits coupled with deposits transferred under merger of NIB Bank into MCB Bank Limited. During the year 2018, MCB transferred business of its 90 branches to MCB wholly owned subsidiary i.e. MCB Islamic Bank Limited and deposits amounting to Rs. 21.9 billion have been transferred under de-merger. Despite this transfer deposits have grown by 8% during the year 2018 and 9% growth witnessed in 2019. Equity of the bank has also posted healthy increase due to higher profitability in past 6 years, translating into 7% average growth in past 6 years. On to Profit and Loss side, gross markup earned has posted an average increase of 13.39% over a span of six years. This is due to the increase in mark up earned on investments and loan and advances in last 6 years coupled with the doubling the interest rate in past 2 years. Corresponding to the shift in asset mix, contribution from income on investments has increased over the years. The increase in markup expense on deposits is on account of regulatory revisions in MDR enacted by the Central Bank and volumetric increase in deposit base. Despite the regulatory revisions enacted during the period, the cost of deposit was strategically managed by maintaining Rs. in Billions 2019 25 20 2.16% 1.86% 24.0 22.5 21.4 1.59% 36.7 2.63% 31.0 30 -15 2.78% 40.1 25.5 24.3 2015 2014 21.9 1.50% 15 10 5 0 2019 2018 2017 2016 PAT PBT RoA Vertical Analyses Vertical analysis depicts higher concentration levels of investments and advances in the asset base of the Bank. The advances base of the Bank has posted moderate growth over the last few years due to lack of credit opportunities and intense competition. The concentration level of advances in the total assets stands improved from 32% in 2014 to 33% in 2019. Advances Concentration Level in Assets 36 35% 35 34% 34 33 33% 32% 32 32% 31 30% 30 29 28 27 2019 2018 2017 2016 2015 2014 Annual Report 2019 93
  96. The IDRs of the banking industry registered a huge spike in the year 2014 - 2016 on account of higher yielding longer term bonds being offered . However, based on the call that interest rate cycle has bottomed out, a gradual shift to shorter term securities with increased focus on credit was observed in 2017 and again it has started to surged to upward trajectory during past two years. Resultantly, the concentration levels of investments have decreased from 55% in 2014 to 49% in 2019. Investments Concentration Level 56 55% 54 52 6% 50 49% 48 46 44 2019 Decrease 2014 Corresponding to the technological, infrastructural and operational spend by the Bank, the deposit base has increased over the period of six years. Improved service quality levels and tailored products have earned the loyalty of our customers. This can be substantiated by the fact that the CASA base of the bank has been above 80% over the last many years. During the past 6 six years, CASA base of the bank has remained above 90%, reflecting focus of the management. Markup income growth has been steady over the last 6 years. The contribution from markup income approximates 89% of the total revenue. Markup expense has increased over the last 6 years, based on regulatory revisions in MDR enacted over the period and growth registered in the deposit base. Concentration of Non markup income in total income has increased significantly up to 2017 due to innovative solutions offered to our customers, new products launched, and gain on sale of securities and consequently it has decreasing trend in 2018 and 2019’s total income concentration due increase in discount rate. Non markup expense concentration level has decreased from 24% in 2014 to 22% in 2019 despite of increase in business which is due to various cost control initiatives. 94 Unconsolidated Financial Statements
  97. Annual Report 2019 Segment Analysis 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. Consumer This segment primarily constitutes consumer financing activities with individual customers of the Bank. Product suites offered to these customers include credit cards, auto loans, housing finance and personal loans. (Rupees in Million) 4,000 Retail This includes retail lending and deposits, banking services, cards and branchless banking. 3,500 3,467 3,383 3,000 2,500 2,171 (Rupees in Million) 60,000 2,077 2,000 1,500 55,656 1,000 50,000 500 40,000 37,600 0 33,548 Total Income 30,000 2019 20,000 Profit before tax 2018 16,850 10,000 0 Total Income 2019 Profit before tax 2018 Corporate This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Bank’s corporate and public sector customers. Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making.Treasury (Rupees in Million) 8,000 7,129 6,000 4,895 (Rupees in Million) 4,000 9,000 8,265 2,000 8,000 7,000 7,051 6,792 7,247 6,000 0 -2,000 5,000 (1,468) -4,000 4,000 (4,552) -6,000 3,000 Total Income 2019 2,000 Profit before tax 2018 1,000 0 Total Income 2019 Profit before tax 2018 International This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities by Bank’s overseas operations. (Rupees in Million) 2,500 2,365 2,083 2,000 1,500 1,005 1,010 1,000 500 0 Total Income 2019 Profit before tax 2018 Annual Report 2019 95
  98. Geographical Segment Pakistan (Rupees in Million) 80,000 73,878 70,000 61,090 60,000 50,000 39,069 40,000 31,008 30,000 20,000 10,000 0 Total Income 2019 Profit before tax 2018 South Asia Middle East (Rupees in Million) 1,400 1,217 1,200 1,129 1,000 800 600 451 477 400 200 0 Total Income 2019 Profit before tax 2018 South Asia (Rupees in Million) 1,400 1,200 1,000 1,200 933 800 582 600 579 400 200 0 Total Income 2019 Profit before tax 2018 *Detail segment analysis are presented in note 42 of the unconsolidated annual financial statements. 96 Unconsolidated Financial Statements
  99. Annual Report 2019 Statement of Charity and Donation Statement of charity fund management by MCB Islamic Bank Limited ( Wholly owned subsidiary of MCB Bank Limited) 20192018 (Rupees in '000) Charity Fund Opening balance 25,402 Additions during the year - Received from customers against late payment 45,958 - Dividend purification amount 7,383 - Profit on charity saving account 1,539 25,548 2,133 308 Charity paid during the year 27,989 (8,100) 54,880 (22,500) 5,513 Closing balance 57,782 25,402 Charity was paid to the following institutions: Pink Ribbon Indus Hospital Layton Rehmatullah Benevolent Trust Sindh Institute of Urology & Transplantation (SIUT) Shaukat Khanam Memorial Cancer Hospital The Citizens Foundation Arthiritis Care Aziz Jehan Begum Trust for the Blind Family Welfare Society Fatmid Foundation Infaq Memorial Trust Mind Organization The Patient Behbood Society for AKUH The Lahore Hospital Welfare Society Care Foundation Pakistan Chiniot Anjuman Islamia Fast – NU Chiniot – Faisalabad Campus Rising Sun Education & Welfare Society 5,000 2,000 2,000 2,000 2,000 2,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 500 – – – – – – – 700 1,000 600 – 700 600 700 700 – – 500 700 600 600 700 22,500 8,100 In addition to the above charity, detail of donation by the Bank is given below: 20192018 (Rupees in '000) Murshid Hospital & Health Care Centre 100 – District Head Quarter Hospital, Gawadar – 696 100 696 None of the directors, executives or their spouses had any interest in the donee. Annual Report 2019 97
  100. Market Statistics of MCB ’s Share Share Prices Free Float MCB Scrip (Rs.) 2019 Market Capitalisation Share ('000s) % Capital Value (Mln) (Mln) High Low Closing December 31, 2019 216.20 164.12 204.94 401,261 33.86% 11,851 242,866 September 30, 2019 178.31 154.04 169.57 400,424 33.79% 11,851 200,951 June 30, 2019 195.96 168.62 174.45 388,570 32.79% 11,851 206,734 March 31, 2019 212.51 187.98 196.53 389,775 32.89% 11,851 232,900 December 31, 2018 206.48 177.16 193.57 390,648 32.96% 11,851 229,392 September 30, 2018 213.85 189.90 201.21 392,927 33.16% 11,851 238,446 June 30, 2018 220.31 195.47 197.77 392,332 33.11% 11,851 234,369 March 31, 2018 236.56 205.87 220.13 387,941 32.74% 11,851 260,867 2018 2019 Dividend and Bonus Final cash dividend 2018 Mln % Mln % 5,925 50 4,740 40 3rd interim dividend 4,740 40 4,740 40 2nd interim dividend 4,740 40 4,740 40 1st interim dividend 4,740 40 4,740 40 MCB Turnover 750 48 600 Sector Turnover MCB Turnover 40 32 450 24 300 16 150 8 0 MCB Turnover (Mln) Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov 19 Dec 19 0 Sector Turnover (Mln) KSE 100 Index 47,000 43,500 40,000 36,500 33,000 29,500 KSE 100 Index 98 Unconsolidated Financial Statements Jan 18 Feb 18 Mar 18 Apr 18 May 18 Jun 18 Jul 18 Aug 18 Sep 18 Oct 18 Nov 18 Dec 18 Jan 19 Feb 19 Mar 19 Apr 19 May 19 Jun 19 Jul 19 Aug 19 Sep 19 Oct 19 Nov 19 Dec 19 26,000
  101. Annual Report 2019 Share Price Sensitivity Analysis Factors that can influence the share price of MCB Bank Limited are given below : Discount rate / Monetary Policy Based on different assessment parameters, the State Bank of Pakistan can change the monetary policy rate. Any volatility in the interest rates might impact revenue and profitability of the Bank. Minimum Rate of Return on Deposits/Regulatory Risk Any upward revision in the minimum deposit rate will result in compression in net interest margins earned due to increased cost of deposits. Such revision can negatively impact the earning and correspondingly the share price of the scrip. Inflation Inflation is considered as a key determinant for policy rate change. Any uptick in the inflation statistics will have a corresponding impact on the monetary policy rate. With higher discount rates, the Banks will be able to invest in high yielding investments, thus resulting in increased profitability. This, in turn will have a positive impact on the share price. Political Stability & Law and order situation Political stability and controlled law & order situation is a pre-requisite for any economic development. This in turn reposes investor confidence in the soils of Pakistan, making our corporates a potential investment opportunity. However, any act of terrorism or political instability can negatively impact the equity market and share prices of traded stocks. Sensitivity Analysis of Change in Market Capitalization Share Price as of December 31, 2019 Market Capitalization as of December 31, 2019 Change in Share Price by Rs. 204.94 Rs. 242,866 Millions Change in Market Capitalization +10% Rs. 24,827 Millions -10% Rs. (24,827) Millions Calendar of Major Events During 2019 Annual Results - 2018 approved by Board 71st Annual General Meeting 1st Quarter Results issued on 2nd Quarter Results issued on 3rd Quarter Results issued on Extra Ordinary General Meeting February 20, 2019 March 29, 2019 April 24, 2019 August 07, 2019 October 17, 2019 November 21, 2019 History of Major Events Incorporation1947 Nationalisation1974 Investment in First Women Bank 1989 Privatisation1991 Incorporation of MCB Finanical Services Limited 1992 Incorporation of MNET Services (Private) Limited 2001 Investment in Adamjee Insurance Company Limited 2004 Incorporation of MCB Trade Services Limited 2005 Incorporation of MCB Asset Management Company Limited 2005 Change of name from Muslim Commercial Bank Limited 2005 Issuance and Listing of Global Depository Receipts on London Stock Exchange 2006 Strategic acquisition by Maybank 2008 Incorporation of MCB Leasing Closed Joint Stock Company 2009 Investment in Euronet Pakistan (Private) Limited 2011 Amalgamation of MCB Asset Management Company with Arif Habib Investment Limited 2011 Incorporation of MCB Islamic Banking Limited - a subsidiary company 2014 Merger of NIB Bank with and into MCB Bank Limited 2017 De-merger of 90 branches to its wholly owned subsidiary MCB Islamic Bank Limited 2018 Amalgamation MNET Services (Private) Limited with and into MCB Bank Limited 2019 Annual Report 2019 99
  102. Strategic & Resource Allocation Execution of a well-defined strategy has been the key pillar for our growth momentum over the last many years. Our strategy broadly covers what we want to achieve in the short and long run duly focusing on the challenges posed by the macroeconomic imbalances; Strategic Objectives: Short, medium and long term objectives of the Bank to meet its mission statements are as follows: Short term • Increase focus on digitalization and automation of processes to enhance efficiency, reduce cost and improve customer satisfaction and improve risk/ compliance standards; • To ensure quality asset retention with measures to constantly decrease the NPLs base of the Bank; • To increase the current account concentration levels of the institution by capitalizing on the opportunities presented; Medium term • • • To be a top stakeholder value generator in Pakistan’s banking sector while remaining a socioenvironmentally conscious citizen; The Bank aims to increase its share in the domestic deposit pie; To maintain a strong capital base. Long term • • • Delivering remarkable returns to stakeholders, sustainable performance exceeding market and shareholder expectations; Providing value added services through operational expansion, geography and upgraded system; Building a corporate culture of equality, trust and team spirit as we remain dedicated to being a socially responsible organization. For strategy formulation, the Bank followed a structured approach to map itself in the industry / operating environment, conduct SWOT and finally derive a strategy to capitalize on the opportunities presented and strengths identified; 01 Position assessment | Peer Group Review SWOT | Macro-economic & Thematic review Growth areas ‘scoped’ Business model review Strategic Thrusts identified 03 100 Unconsolidated Financial Statements 02 Deploy Strategy Execution Plan Continuous Implementation monitoring and ‘compass correction’ against milestones
  103. Annual Report 2019 Strategies in place : From customer service standpoint, special focus remains on improving our service quality and service standards levels. We will integrate service standards across all the channels and outlets in the network to provide a uniform customer experience. We will endeavor to meet expectations of our valued customer base. Another important aspect remains credit quality and our refined risk appetite. We will thereby give value to our customers across the entire spectrum retail, corporate and SME while improving our asset quality. Under the Corporate plan, we also intend to expand our geographical boundaries by being open to potential new business models, innovative processes and delivery channels, enabling provision of 24x7 customer services. Today, technology is a major component of the competitive edge of any bank. With millennial being an increasing percentage of our customer base, we have to cater to their expectations and it requires leveraging cutting edge technology. The other side of the coin however, is that technology brings risks with it. We will go the extra mile, to ensure our assets and those of our customers are secure and sensitive information is protected. To ensure efficient and effective operation of the Bank we need systems and processes that operate seamlessly. This is another focus area where we will concentrate on identifying pain points and gaps, and make the necessary modifications. To safeguard the financial stability and the reputation of the Bank, good governance and ethical conduct are imperative. While we already have high standards in these areas, we have set our benchmarks as the best in class practices in the country. We will renew and re-energise our focus on sustainability by ensuring that we continue to maintain a judicious balance between economic, social and environmental objectives. The end result of all the above will be the enhancement of our brand. The brand is a mirror of our image in the eyes of our customers, both legacy and millennials, and the general public. Through the strategies spelt out in our corporate plan we will forge ahead, building our brand, increasing our assets and profitability, while delivering increasing value to all our stakeholders. Method and Assumptions in Compiling Indicators The Bank identifies its indicators which effectively reflect the Bank’s performance. The bank analyses its market positioning, competitors and general market conditions while compiling its indicators. The Bank analyses deposits, advances, capital and risk adequacy ratios, gross profit after tax and EPS on regular basis to gauge its performance. These are basic indicators of Bank’s financial performance and profitability. Market price is the measure of perception of the Bank in the market. The difference between book value and market value shows investor’s confidence on script. The Bank manages its dividend payout in line with the profitability generated during the year while ensuring sufficient capital buffers are available with the institution to meet regulatory requirements. Dividend is the amount allocated out of profit for paying cash to shareholders. The dividend payment is an indicator of how well earnings support the dividends. The Bank takes its decisions of cash or stock dividend based on market conditions, share price and governing laws and regulations. Comparing cash flow from operating activities with profit before tax can give insights into how a Bank generates funds and manage the cash flows. The bank regularly analyses its cash flows and strives to keep it on positive side. Change in Indicators and Performance Measures: Key performance indicators (KPIs) provide understanding of the Bank’s performance in key areas. These indicators are used as a gauge to analyse current standing of the Bank and likely path the Bank would follow. MCB has identified KPIs that are critical to its business. While identifying KPIs, the Bank analysed various indicators, their interpretations and accordingly the extent to which they may correctly and clearly communicate the Bank’s performance. Annual Report 2019 101
  104. Change in important indicators is discussed in performance and position section . Key performance indicators to measure the objectives are as follows: Strategic objectives Strategies for Meeting Objectives KPI Increase focus on digitalization and automation of process to enhance efficiency, reduce cost and improve customer satisfaction and improve risk and compliance standards. Centralization and monitoring of operating Effective and expenses to restrain them within conventional efficient cost limits. control Future relevance The KPI will remain relevant in future. Work on automation of existing manual systems. Gradual investment on unified digital platform for an overwhelming customer experience. To ensure quality asset retention Increased focus on quality asset growth while Asset Quality with measures to constantly maintaining low infection ratio. decrease the NPLs base of the Bank. Focus on recoveries of existing NPL stock. The KPI will remain relevant in future. To maintain a strong capital Healthy equity leading to maintain Strong capital Capital ratios base adequacy ratios. The KPI will remain relevant in future. The Bank aims to increase its Expansion/Increase in deposit base through new Deposit share in the domestic deposit products and markets thereby increasing customer generation base beyond the prevalent organic growth. pie; The KPI will remain relevant in future. Increased focus on current account growth. Delivering remarkable returns Higher profitability to pay higher returns to Shareholder return to stakeholders, sustainable shareholders. performance exceeding market and shareholder expectations. The KPI will remain relevant in future. Providing value added services Lead market position through focused initiatives Improved through operational expansion, targeting new products, new markets, branchless services geography and upgraded banking and effective cost management. system. Rationalize & optimize usage of existing branch network and network strengthening through branch expansion plan. The KPI will remain relevant in future. Service portfolio enhancement of all digital products / channels i.e. call center, internet banking, mobile banking, mobile wallet, SMS alerts, E-statement, ATMs and Debit Cards to increase non markup income. 102 Building a corporate culture of equality, trust and team spirit as we remain dedicated to being a socially responsible organization. Improve governance structure and update existing Corporate policies to as per industry dynamics. culture To be a top stakeholder value generator in Pakistan’s banking sector while remaining a socioenvironmentally conscious citizen. Higher profitability to pay higher returns to Corporate shareholders. social responsibility Introduce socio environmental activities such as green banking to improve the brand name. Unconsolidated Financial Statements Generate economic activity through sustainable focused initiatives. The KPI will remain relevant in future. The KPI will remain relevant in future.
  105. Annual Report 2019 Resource Allocation Plan : The inputs to the Bank’s business processes are capitals, or stores of value, in various forms. Of these capitals, financial, manufactured and intellectual capitals are internal capitals owned by the Bank. The others, human, social and relationship and natural are external to the Bank. Bank has resources to meet the strategic objectives. A transitory resource allocation plan is as follows: Nature of capital Resource allocation plan Human capital • • • Redeploy human capital to enhance productivity through segmentation; Human capital capacity enhancement and capability building by focusing on trainings, talent management and talent retention; Versatile staff that can multitask easily. Manufactured capital • • Branch layout improvement and widening of branch and ATM network; Re-align the business model through segmentation to increase the customer base. Financial Capital • • • Investment on process automation and IT network improvements; Invest on infrastructure including buildings and equipment; Invest in good quality asset base with high yield. Natural capital • Introduce green building concept to branch network by introducing paperless environment and install solar energy equipment in branches; Increase financing to renewable energy projects • Intellectual Capital • • • Social and Relationship Capital • • Reengineering of processes to capture synergies and customer satisfaction; Improvement in governance culture by utilizing over 72 years of institutionalized knowledge; Introduce new products as per customer needs. Invest in a series of initiatives that enhance collaboration and ongoing dialogue with our customers; Enhance brand image through public awareness campaigns. Strategy to overcome liquidity problem: Bank carries a substantial portfolio of marketable securities that can be easily traded and realized in known amounts of cash in the event of liquidity stress. Bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio are well over and above the regulatory requirement. The Bank maintains strong liquidity position which is regularly monitored by the respective units. The liquidity ratios indicate the strong liquidity position of the institution. Liquidity position of the bank is discussed in risk management section. Significant Plans and Decisions • Pursuant to the scheme of arrangement duly approved by the Board of Directors of Mnet Services (Private) Limited (Transferor Company) and MCB Bank Limited (Transferee Company), as required under section 284(2) of the Companies Act, 2017 for the amalgamation of Transferor Company with and into Transferee Company, the Transferor Company stands merged into Transferee Company with effect from April 30, 2019; • During the year, the Bank has exercised the call option under the terms of issuance of TFCs after completing the required regulatory requirements. Accordingly, TFCs amounting Rs. 3.891 billion have been redeemed on June 19, 2019, being the option exercise date; • Shareholders of the Bank in its meeting held on November 21, 2019 authorized the management of the Bank to dispose of its wholly owned subsidiary, namely MCB Financial Services Limited. Except as mentioned above, there is no significant event during the year. Significant changes in objectives and strategies: MCB Bank objectives & strategies are well planned and are persistently implemented. No significant change occurred during the year to affect the objective and business strategies. Annual Report 2019 103
  106. Risk Management Framework The risk management framework and governance structure at MCB helps to mitigate and counter any foreseeable risk in its various lines of business . Risk awareness forms an integral part of strategic and operational activities of risk management. Through its risk management policy the Bank sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Bank's risk management structure is based on the following five guiding principles:      Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing independent and properly resourced risk management function. Promoting open risk culture Adopting international best practices in risk management The Bank executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors at MCB Bank Limited actively drives the risk management framework wherein it provides an active approach in dealing with factors that influence the financial standing of the Bank. With the valuable guidance of BOD, the Bank has a proactive approach to generate recurrent earnings and to maximize shareholder’s value by achieving an appropriate trade-off between risk and returns. An Effective Risk Management Framework along-with Robust Risk Governance Structure, Strong Capital & Liquidity Position and Good Quality of Credit Portfolio, remains a cornerstone to accomplish vision of the Bank. Empowerment and independence are the basic principles in risk management and it is implemented as a fundamental part of BOD’s vision. Independence of areas that are responsible for measuring, analyzing, controlling and monitoring risk from the frontline risk takers (i.e. business soliciting groups) is ensured within the bank. In line with this principle, Group Head-Risk Management functionally reports to the “Risk Management & Portfolio Review Committee” (RM&PRC) which is sub-committee of the Board of Directors. Risk takers and Risk controllers have independent reporting lines, yet work together to increase bank’s value via an efficient utilization of capital. Through a Four Eye Principle for Credit Approval levels for corporate and retail banking, all such exposure related requests are approved with the formal consent of at least two authorized individuals including one from business side having Credit Approval Authority and other from Risk Management side having Credit Review Authority. The Board of Directors and its Risk Management & Portfolio Review Committee have ensured formulation and implementation of a comprehensive Risk Management Framework. Under the Board of Directors’ guidance, the Bank executed an effective risk strategy and continued to undertake controlled risk-taking activities within the risk management framework; combining core policies, procedures and process design with active portfolio management. The Risk Management Framework requires strong integrated risk management practices in key strategic, capital and financial planning processes and day-to-day business processes across the organization, with a goal to ensure that risks are appropriately considered, evaluated and responded to in a timely manner. As a matter of principle, the Bank constantly endeavors to improve its Risk Management Framework in the light of the international best practices and regulatory guidelines. During the year Bank’s Risk Management Policy Framework has been revamped to comprehensively cover the international operations in a unified manner and under single umbrella. The Risk Management & Portfolio Review Committee guides the management on its risk taking activities within the approved policy framework by the Board. Regular meetings of RM&PRC are convened to oversee the risk exposures and their trends as a result of the various initiatives undertaken by the Bank. The committee reviews different aspects of the loan portfolio which, among others, include asset growth, credit quality, credit concentration, lending business trend and cross sectional analysis. Review of various aspects of Country Risk, Liquidity risk, Market risk covering interest rate risk, foreign exchange risk, equity price risk, along with the stress-testing is also a regular feature. Operational risk assessments and key risk indicators pertaining to processes, people, systems and reputation are also regularly reviewed by the committee. The committee also reviews in detail the Bank’s capital levels under Internal Capital Adequacy Assessment Process (ICAAP) and Capital Adequacy Ratio. The Management Credit & Risk Committee is the management platform for discussion and deliberation on key risk issues in the portfolio. Regular meetings of the committee are convened to oversee the risk exposures in the portfolio of the Bank. 104 Unconsolidated Financial Statements
  107. Annual Report 2019 Credit Risk Review ensures to minimize credit risk associated at account and portfolio level . During the year 2019, the Bank continued with the policy to remain selective in disbursing its loan to low risk customers across all the industries & maintains a fairly diversified loan portfolio. Risk Review successfully managed to evaluate and approve increased number of loan requests, within required turnaround time, both for domestic and Overseas Operations. An in-house request tracking & turnaround time monitoring software ensures tracking of proposals and monitoring of turnaround-time of credit proposals routed through Risk Management Group. Bank has also implemented Loan Origination System (LOS) for end to end automation of Credit Approval process. Through this initiative Bank has been able to achieve effective management of Bank’s internal Policies & Controls as well as regulatory requirements. LOS has also contributed towards Bank’s transition to paperless environment under the Green Banking initiative. For risk categorized as sovereign/ government risk, the lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that range from different development related works to utility distribution and production. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. In order to further enhance the credit risk analysis the bank has in place a Probability of Default based Internal Credit Risk Rating (ICRR) system which is based on statistical modeling and validation in line with Basel principles. The ICRR is currently focused on Corporate and Commercial customer categories. Furthermore; another Internal Credit Risk Rating Model is also in place for rating of SE & ME and Agri Customers. A model for Facility Risk Rating has also been implemented which would reflect expected loss rate of a credit facility. In addition to the Credit Risk, like all financial institutions, MCB is also exposed to market risk through its trading and other investment activities. A comprehensive control structure is in place to ensure that the Bank does not exceed its qualitative and quantitative tolerance for market risk. A number of metrics like VaR methodologies complemented by sensitivity measures, notional limits, stop loss triggers at portfolio level/asset class, and stress testing are used to capture and report the multi-dimensional aspects of market risk. As an authorized Derivative Dealer, Bank is an active participant in Derivative Market. Overall limit in derivatives is approved by the Board. Counter party limit structure for derivatives transactions is in place and exposures are monitored and reported on continuous basis. In accordance with the Operational Risk Policy, framework and Operational Risk Management Regulations, a database covering losses, control breaches and near misses is being maintained using state of the art professionally developed software which has enhanced features and better work flow management. This new software will further augment bank’s capacity to capture and report operational risk events and KRIs. This software is also capable of generating periodical regulatory and management reports. Major risk events are analyzed from the control breach perspective and mitigating controls are assessed on design and operating effectiveness. Updates on Operational Risk events are presented to senior management and Risk Management and Portfolio Review Committee of the Board on monthly as well as on quarterly basis. The Bank has developed Information Technology Risk Assessment Framework which enables better management of technology risk properly. The Bank has an internal Operational Risk awareness program which is aimed at building capacity and inculcating risk aware culture in the staff through workshops and on-job awareness. Capital Structure of the Bank The Bank remained a well-capitalized institution with a capital base well above the regulatory limits and capital requirements under BASEL frameworks. The Bank continues with a policy of sufficient profit retention to increase its risk absorption capacity. Bank’s total Capital Adequacy Ratio is 18.86% against the requirement of 12.50% (including capital conservation buffer of 2.50%). Quality of the capital is evident from Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 15.70%against the requirement of 6%. The bank maintained the leverage ratio of 7.07% which is well above the regulatory limit of 3.0%. Liquidity Management and Strategy to Overcome Liquidity Position The Asset Liability Management Committee of the bank has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Annual Report 2019 105
  108. Global Risk Management Policy ), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Banks’ liquidity under normal and stress scenarios. The underlying policies and procedures are reviewed and approved regularly at the senior management and Board of Directors Levels including Global Risk Management Policy, Global Treasury Policy, Investment Policy and Liquidity Strategy including Contingency Funding Plan. Bank’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing, to ensure effective and timely decision making. The liquidity risk management approach at MCB involves intra-day liquidity management, managing funding sources and evaluation of structural imbalances in the balance sheet. A large and stable customer deposits base, along with a strong capital base provides strength and support for maintenance of a strong liquidity position. The Bank also has a substantial portfolio of marketable securities that can be realized in the event of liquidity stress. Further, in line with SBP’s directives, Bank has fully implemented BASEL III required liquidity standards and maintains liquidity ratios. The Bank reported Liquidity Coverage Ratio (LCR) of 197.12% and Net Stable Funding Ratio (NSFR) of 140.67% against requirement of 100%. Sensitivity Analysis due to Foreign Currency Fluctuation The Pak rupee depreciated by around 11.51% in 2019 against US Dollar. Foreign Exchange Risk exposes the bank to changes in the value of exposure denominated in foreign currencies due to the exchange rate fluctuation and volatility. The types of the instruments exposed to this risk are mainly investments in foreign branches, advances and deposits denominated in foreign currency, cash flows in foreign currencies arising from foreign exchange transactions, etc. The core objective of foreign exchange risk management is to ensure that the foreign exchange exposure of the Bank remain within defined risk appetite and insulate bank against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage Foreign exchange risk including Gap limits in different tenors in major currencies are in place to control risk. Bank's Net Open Position and Foreign Exchange Exposure Limit (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR are generated and monitored on daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the Board is a regular feature. Impact of 1% change in foreign exchange rates on Profit and loss account: 2019 2018 Banking Book 106 Unconsolidated Financial Statements Trading Book Banking Book Trading Book (Rs. 000) – 11,864 – 4,199
  109. Annual Report 2019 Risk and Opportunity Report At MCB , a comprehensive Risk Management Framework around an approved risk appetite is in place, mechanisms are defined for every identified risk to ensure that the Bank continuously evaluates the associated risk and ensures presence of operational mitigating controls. The Bank remains committed to explore every possible opportunity to translate it into revenues / returns for the stakeholders, while making sure that the related risk is adequately managed. Risk Governance Model Board of Directors RM&PRC Management Credit and Risk Committee Chief Risk Office Graphical presentation of risk governance structure to is as follows: Three lines of Defence model The Bank has a well-structured Risk Management model which is based on three lines of defense which are independent of each other. Each line of defense is executed by different organizational units. The first line of defense consists of business divisions and support units from whose activities the risks arise. RM&PRC being the second line of defense develops frameworks, policies, procedures and establishes risk appetite. Periodical stress testing and continuous monitoring are also an integral part of the second line of defense. The Third is the Audit and Compliance functions which offer an independent oversight. Annual Report 2019 107
  110. Assessment of the principal risks facing the Bank by the Boards of Directors : The Boards of Directors have carried out a robust assessment of the principal risks facing the Bank, including those that would threaten the business model, future performance, solvency or liquidity. Bank has identified the following risks after analyzing the external and internal factors: Factors Source Risks Economic External Market risks: The risk of loss arising from potential adverse changes in the value of the Bank’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations. External Capital adequacy risk: The risk that the Bank has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions. External Credit risk: The risk of loss to the bank from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations, including the whole and timely payment of principal, interest, collateral and other receivables. External/Internal Liquidity risk: The risk that the bank is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. Internal/ External Technological Risk: Loss of, or disruption to, the Bank’s business processing, arising through impacts on technology systems. Technology/ Systems Technological advancements present opportunities to develop new and innovative ways of doing business across the banking sector; with new solutions being developed by competitors may results in loss of business in future. Operational Risk: The risk of loss to the Bank from inadequate or failed processes or systems, human factors or due to internal/external events (e.g. fraud) where the root cause is not due to credit or market risks. Political External Country risk: Political stability and controlled law & order situation is a pre-requisite for any economic development and reposes investor confidence in the country, providing corporate a potential investment opportunity. However, political instability can negatively impact the economy /equity market, thus resulting in decreased profitability. Regulator Internal/External Regulatory Risk: The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. Key sources of uncertainty include expected regulatory requirements specifically implementation of IFRS 9 in Pakistan, which may have negative impact on the bottom line of the banks. Social Internal/External Reputation risk: The risk that an action, transaction, investment or event will reduce trust in the Bank’s integrity and competence by clients, counter parties, investors, regulators, employees or the public. Materiality Approach Matters are considered to be material if, individually or in aggregate, they are expected to significantly affect the reputation, performance and profitability of the Bank. The materiality process helps to navigate the complex landscape of stakeholder expectations, risks and opportunities. The Board of Directors of the Bank has approved Materiality Policy for the Bank. 108 Unconsolidated Financial Statements
  111. Annual Report 2019 Summarized risks , opportunities and related mitigating factors are documented below:Risk type Materiality Rating Probability of Risk Occurrence Strategy Market Risk High Medium probability Measurement: Bank is exposed to market risk through its trading and other investment activities. Metrics like VaR methodologies complemented by sensitivity measures, notional limits, loss triggers at a detailed portfolio level, and stress testing are used to capture and report the multidimensional aspects of market risk. Monitoring: A comprehensive structure, ensuring the bank does not exceed its qualitative and quantitative tolerance for market risk, is in place. Management: The bank has followed a conservative and balanced approach towards risk taking in the market risk area. The robust risk management architecture ensures that the exposures remain within the defined risk appetite. Furthermore, a comprehensive control structure is in place to ensure that the Bank does not exceed its qualitative and quantitative tolerance for market risk. A number of metrics like VaR methodologies complemented by sensitivity measures, notional limits, stop loss triggers at portfolio level/asset class, and stress testing are used to capture and report the multi-dimensional aspects of market risk. Capital Adequacy Risk High Low probability Measurement: The Bank is a well-capitalized institution with a capital base well above the regulatory limits and Basel-III requirements. Monitoring: The Bank regularly assesses the capital requirements and ensures that the minimum capital requirements specified by the State Bank are adhered to. Internal Capital Adequacy Assessment is a regular activity. Stress levels of major risks are assessed against the minimum capital requirement. Regular assessment of capital enables an evaluation of the amount, type and distribution of capital required to cover these risks. Management: The Bank remained a well-capitalized institution with a capital base well above the regulatory limits and capital requirements under BASEL frameworks. The Bank continues with a policy of sufficient profit retention to increase its risk absorption capacity. Bank’s total Capital Adequacy Ratio is 18.86% against the requirement of 12.50% (including capital conservation buffer of 2.50%). Quality of the capital is evident from Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 15.70% against the requirement of 6%. The bank maintained a leverage ratio of 7.07% which is well above the regulatory limit of 3.0%. Going-concern capital requirements are assessed on a forward-looking basis – including as part of the annual budgeting process. These assessments consider the resilience of capital adequacy and leverage ratios under a range of hypothetical future states. The assessments incorporate assumptions regarding a range of regulatory and accounting aspects such as IFRS 9, taking account of a number of factors including economic variables and impairments. The Bank will continue the policy of sufficient profit retention to increase its risk taking capacity and capitalize opportunities to protect the interests of stakeholders in short, medium and long term. Annual Report 2019 109
  112. Risk type Materiality Rating Probability of Risk Occurrence Risks Credit Risk High Medium probability Measurement : Credit Risk Management function identifies, measures, manages, monitors and mitigates credit risk. Credit Risk is measured and estimated through detailed financial and non-financial analyses, internal and external credit risk ratings, and customers’ behavior analysis. Stress testing of top customers in credit portfolio is also carried out regularly. Monitoring: Credit Risk Management organizational structure ensures pre and post-facto management of credit risk. Credit Review function carries out pre-fact evaluation of counterparties & the credit structures and hindsight reviews, the Credit Risk Control (CRC) function performs post-fact monitoring including security documentation and limits monitoring. Business side continuously keeps in touch with customers to have updated information about the clients. Management: Bank has been selective in taking exposure on good quality borrowers across all industry segments. Multiple factors in bank’s lending structure provide additional comfort and support in mitigating credit risk. These include quality of eligible collateral, pre-disbursement safety measures, post disbursement monitoring, etc. Bank has a fairly diversified loan portfolio. For risk categorized as sovereign/government risk, MCB’s lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that ranges from different development related works to utility distribution and production. Credit Risk Review ensures to minimize credit risk associated at account and portfolio level. During the year, the Bank continued with the policy to remain selective in disbursing its loan to low risk customers across all the industries & maintains a fairly diversified loan portfolio. Risk Review successfully managed to evaluate and approve increased number of loan requests, within required turnaround time, both for domestic and Overseas Operations. An in-house request tracking & turnaround time monitoring software ensures tracking of proposals and monitoring of turnaround-time of credit proposals routed through Risk Management Group. Bank has also implemented Loan Origination System (LOS) for end to end automation of Credit Approval process. Through this initiative Bank has been able to achieve effective management of Bank’s internal Policies & Controls as well as regulatory requirements. LOS has also contributed towards Bank’s transition to paperless environment under the Green Banking initiative. For risk categorized as sovereign/ government risk, the lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that range from different development related works to utility distribution and production. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. 110 Unconsolidated Financial Statements
  113. Annual Report 2019 Risk type Materiality Rating Probability of Risk Occurrence Risks Through a Four Eye Principle for Credit Approval levels for corporate and retail banking , all such exposure related requests are approved with the formal consent of at least two authorized individuals including one from business side having Credit Approval Authority and other from Risk Management side having Credit Review Authority. The Management Credit & Risk Committee is the management platform for discussion and deliberation on key risk issues in the portfolio. Regular meetings of the committee are convened to oversee the risk exposures in the portfolio of the Bank. In order to further enhance the credit risk analysis the Bank has in place a Probability of Default based Internal Credit Risk Rating (ICRR) system which is based on statistical modeling and validation in line with Basel principles. The ICRR is currently focused on Corporate and Commercial customer categories. Furthermore; another Internal Credit Risk Rating Model is also in place for rating of SE & ME and Agri Customers. A model for Facility Risk Rating has also been implemented which would reflect expected loss rate of a credit facility. Liquidity Risk High Medium to Low probability Measurement: MCB regularly performs Liquidity Risk Analysis and liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity risk assessments and stress tests is intended to ensure sufficient liquidity for the Bank under both idiosyncratic and systemic market stress conditions. Monitoring: Liquidity positions are regularly monitored through established Early Warning Indicators and Liquidity Risk Analysis. Liquidity Coverage Ratio and Net Stable Funding Ratios are monitored regularly. Management: MCB’s Liquidity Risk Management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. The Bank’s large and stable base of customer deposits, along with Bank’s strong capital base, indicates strong liquidity position. Bank also has a substantial portfolio of marketable securities that can be realized in the event of liquidity stress. Bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio are well over and above the regulatory requirement. The Asset Liability Management Committee of the bank has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Global Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Banks’ liquidity under normal and stress scenarios. Underlying policies and procedures are reviewed and approved regularly at the senior management and Board of Directors Levels including Global Risk Management Policy, Global Treasury Policy, Investment Policy and Liquidity Strategy. Further, in line with SBP’s directives, Bank has fully implemented BASEL III required liquidity standards and maintains liquidity ratios viz. Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) with a considerable cushion over and above the regulatory requirement to mitigate any liquidity risk. Annual Report 2019 111
  114. Risk type Materiality Rating Probability of Risk Occurrence Risks Technological Risk High Low probability Monitoring & Management: The persistent pursuit to provide clients with simplified banking drives MCB to focus on innovative methods of technology application and solutions to compete with peer banks. We also aim to protect client information, to apply controls and compliance consistently, and to develop new controls. The Bank has developed Information Technology Risk Assessment Framework which enables better management of technology risk properly. Country Risk Low Medium to low probability Measurement: Bank’s Country Risk exposure is assessed against bank’s cross border trade and treasury activities. Monitoring & Management: Monitoring of risk exposure is a regular activity. Country Exposure Limits both for Trade and Treasury exposures are in place, which broadly capture direct exposure on sovereigns and foreign domiciled counterparties. Operational Risk Medium Medium to low probability Measurement: In accordance with the Operational Risk policy and framework, a database covering losses, control breaches, near misses & KRIs is being maintained. Major risk events are analyzed from the control breaches perspective and mitigating controls are assessed on design and operating effectiveness. Monitoring: Monthly/Quarterly updates on Operational Risk events are presented to senior management, Management credit and Risk Committee and the Risk Management and Portfolio Review Committee of the Board. Management: The bank has an internal Operational Risk awareness program which is aimed at building capacity and inculcating risk culture in the staff through workshops and on-job awareness. Banks’ capacity to capture & report operational risk events and KRIs is further enhanced by implementing more professionally developed Operational Risk Management Software. Regulatory Risk Medium Medium probability Measurement: Management of regulatory risk entails early identification and effective management of changes in legislative and regulatory requirements that may affect the Bank. Monitoring: & Management: The Bank reviews key regulatory developments in order to anticipate changes and their potential impact on its performance. Bank endeavors to maintain healthy relationships with regulators and continued compliance with regulatory requirements. Reputation risk Low Low probability Monitoring & Management: Reputational risk is managed on an ongoing basis through a policy framework that details expected behavior of the business and employees. It guides us on the monitoring of employee behavior and specific client responses as well as to society in general. This includes precise and transparent reporting through our integrated annual report, annual financial statements and through other public statements. Our risk mitigation strategy includes: • a centralized policy on media; • an escalation process for complaints; and • clear relationships with stakeholders 112 Unconsolidated Financial Statements
  115. Annual Report 2019 Information about defaults in payment of any debts and reason thereof There is no default by the Bank in payments of any debts during the year . Inadequacy in the Capital structure and plans to address such inadequacy The Bank is not facing any kind of inadequacy in capital structure. Opportunities: Source Opportunity Strategy to Materialize External Building strategic national/international Re-aligning the business model through segmentation and alliances to contribute towards China Pakistan expansion of branch network. Economic Corridor (CPEC) execution. Internal Strong capital base and high Capital Adequacy Explore new markets after performing the feasibility studies. Ratio provides the opportunity of exploring International avenues in emerging/developed markets to expand Bank’s network. Internal Developing and launching new deposit Increase focus on digitalization and automation of process. products to align & strengthen the existing product menu and to capitalize on the growing Introduce new products considering the needs of different branchless and digital Banking opportunities. segments of the population. Internal Increasing Bank’s advances portfolio with Widening the scope of branch network in potential / enhanced focus on agriculture, SME and untapped areas. other segments. Align product expertise with client domicile. Streamline and simplify processes for quick disbursement of advances External Facilitating non-resident Pakistanis to increase Entering into new contracts with foreign agents. the flow of home remittances. Placement of Bank representatives overseas and increase marketing activities. Explore new markets to increase customer base. Annual Report 2019 113
  116. Directors ’ Report We are pleased to present, on behalf of the Board of Directors, the annual report of MCB Bank Limited (MCB) for the year ended December 31, 2019. Economy Review Global Economy: A handful of events drove the global economy in 2019. Firstly, towards the United States, the Federal Reserve cut its policy rate thrice during the year by a cumulative 75 basis points owing to the softening of economic momentum and inflation. Taking the lead from US Federal Reserve, major emerging market central banks slashed their interest rates in an effort to shore up their economies. On the trade front, tensions between the United States and China subsided towards the end of the year as the two nations agreed to the signing of the phase one trade deal in January, 2020. The timeline and the outcome of the trade talks between the two countries will largely dictate the global trends in 2020. Secondly, in UK, Conservative Party leader Boris Johnson introduced a new Brexit Deal after replacing Theresa May as the UK’s Prime Minister. Johnson succeeded in receiving the parliamentary backing, after the general election of December 2019, to pass the legislation required to implement his Withdrawal Agreement by January 31, 2020. The latest events decreased some of the uncertainty surrounding the exit of UK from the European Union. Once the Withdrawal Bill is passed, a new race will begin to secure a trade agreement with the bloc within a year. Thirdly, towards Europe, growth in the Euro-zone remained low while ECB continued with its monetary accommodation measures to boost inflation and demand. In particular, ECB launched a new QE program entailing 20 billion euros of net asset purchases per month to provide support to the ailing economy. All eyes are now focused on the newly appointed president of ECB, Christine Laggard, to see where she takes the monetary policy going forward. Domestic Economy: During the year 2019, Pakistan’s economy struggled as the government and the central bank continued their efforts to combat the issues on the domestic and the external front. The FY19 ended with twin deficits, forcing the government to take stringent policy measures. On the external front, the current account deficit started showing improvement from July, 2019 onwards after clocking-in at 13.83bn USD in FY19. During the first five months of FY20, imports contracted by 21%, exports rose by 4.7% while workers’ remittances showed a marginal improvement. Consequently, current account 114 Unconsolidated Financial Statements deficit declined by 73%. Pressure on the foreign exchange reserves decreased slightly towards the end of the calendar year as current account balance improved and SBP received inflows from ADB and other multilateral sources. During the year, Pakistan also succeeded in securing a bailout package worth 6bn USD from IMF which provided support to the external position. As a result, PKR appreciated by 3.25% against the dollar during the second half of 2019 after touching a high of 164.0557 in June, 2019. For the full year, however, PKR recorded a cumulative depreciation of 11.51% against the dollar. Headline Inflation (Base Year 2015-2016), on the other hand, soared to 9.36% on average in 2019 from 5.33% in 2018, largely owning to an increase in taxes, regulatory prices and food inflation. As a result, SBP increased its policy rate to 13.25% in 2019, recording a cumulative increase of 325 basis points during the year. On the fiscal side, the government introduced various tax measures under the fiscal budget 2019-2020 to achieve a higher tax revenue growth in FY20. During the first quarter of FY20, tax revenue recorded a growth of 17% on a yearon-year basis while fiscal deficit of the country stood at PKR 286 billion as compared to PKR 542 billion during the same period last year.
  117. Annual Report 2019 Profit and Appropriation The profit before and after taxation for the year ended December 31 , 2019 together with appropriations is as under: Rs. in Million Profit before taxation 40,102 Taxation16,125 Profit after taxation 23,977 Un-appropriated profit brought forward Other comprehensive income - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transferred in respect of incremental depreciation from surplus on revaluation of fixed assets to un-appropriated profit - net of tax 53,532 (474) 53,158 Profit available for appropriation 77,135 10 37 53 Appropriations: Statutory reserve Final cash dividend at Rs. 4.0 per share - December 31, 2018 Interim cash dividend at Rs. 4.0 per share - March 31, 2019 Interim cash dividend at Rs. 4.0 per share - June 30, 2019 Interim cash dividend at Rs. 4.0 per share - September 30, 2019 the last year on account of effective asset deployment of the low cost deposits. Analysis of the interest earning assets highlights that income on advances increased by Rs. 20.37 billion, primarily on account of increase in yield of 398bps. On the investment side, gross markup income increased by Rs. 30.76 billion, due to increased average volume by Rs. 66.61 billion and yield of 391bps. On the interest bearing liabilities side, the cost of deposits increased by 278bps over last year. The non-markup income block of the Bank was reported at Rs. 16.68 billion with major contributions coming in from fee commission and foreign exchange income. One of the major revenue line supplementing the fee growth was commission from Bancassurance, with MCB Bank Limited leading the new business generation in percentage terms. Despite the inflationary surge during the year, growth in the operational network and constant investment in digital, cyber security and information technology related platforms, the operating expense growth was contained to an impressive 5%, as efficient cost management remains one of the key strengths for MCB Bank Limited. 2,398 4,740 4,740 On the provision side, the bank reversed provision amounting to Rs. 158 million on advances; whereas, the Bank recorded net charge of Rs. 2.8 billion on equity portfolio in 2019. 4,740 4,740 Total appropriations 21,358 Un-appropriated profit carried forward 55,777 Dividends The Board of Directors declared a final cash dividend of Rs. 5.0 per share for the year ended December 31, 2019, which is in addition to Rs. 12.0 per share interim dividends already paid to shareholders, taking the dividend payout ratio to 84.02%. The effect of the recommendation is not reflected in the above appropriations. Performance Review MCB’s profit before tax grew to Rs. 40.10 billion which reflects a tremendous growth of 25% over 2018, despite the tough operating environment. The key highlights were impressive increase in net interest margins through gradual shift in the maturity profiling of investment base along with a more refined cost structure. The strategic profiling of the investments based on the interest rate calls resulted in a gradual shift from shorter to longer term investments, thereby capitalizing on the significant interest rate movement during the year. Net interest income rose to Rs. 59.62 billion, 30% higher than On the financial position side, the total asset base of the Bank on unconsolidated basis was reported at Rs. 1.52 trillion depicting an increase of 1% over December 2018. Analysis of the asset mix highlights that net investments and advances are reported at Rs. 748.77 and Rs. 496.68 billion respectively. The Non-performing loan base of the Bank recorded a marginal increase of Rs. 469 million and was reported at Rs. 49.42 billion. The coverage and infection ratios of the Bank were reported at 87.73% and 9.15% respectively. On the liabilities side, the deposit base of the Bank registered a significant increase of Rs. 95.73 billion (+9%) over December 2018. Earnings per share (EPS) for the year ended December 31, 2019 was Rs. 20.23 as compared to Rs. 18.02 for 2018. Return on Assets and Return on Equity were reported at 1.59% and 16.84% respectively, whereas book value per share was reported at Rs. 122.54. Risk Management Framework The risk management framework has been separately disclosed in the Annual Report. Annual Report 2019 115
  118. Credit Rating The Bank enjoys highest local credit ratings of AAA / A1+ categories for long term and short term respectively, based on PACRA notification dated June 27, 2019. Statement on Internal Control The Board is pleased to endorse the statement made by management relating to Internal Control over Financial Reporting (ICFR) and overall internal controls. The Management’s Statement on Internal Controls is included in the Annual Report. • • Pattern of Shareholding, complying with the requirements prescribed by the code is annexed with this Annual Report. • Statement of Compliance with Code of Corporate Governance is included in the Annual Report. • Composition of the Board is given in the Statement of Compliance with the Code of Corporate Governance in the corporate governance section of this Annual Report. • Names of the persons who, at any time during the year 2019, were directors of the Bank have been separately disclosed in the corporate governance section of this Annual Report. Statement under Code of Corporate Governance and section 227 of Companies Act 2017: The Board of Directors is committed to ensure that the requirements of Corporate Governance set by the Securities and Exchange Commission of Pakistan and requirements of Section 227 of Companies Act 2017 are fully met. The Bank has adopted good corporate governance practices and the Directors are pleased to report that: • The financial statements, prepared by the management of the Bank, present its state of affairs fairly, the result of its operations, cash flows and changes in equity. • Proper books of account of the Bank have been maintained. •Appropriate accounting policies have been consistently applied in preparation of financial statements except for the change in accounting policy as described in Note 5.1 to the financial statements. Accounting estimates are based on reasonable and prudent judgment. • International Financial Reporting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed and explained in the Annual Accounts. • The Committees of Board of Directors along with their terms of reference/charter have been separately disclosed in the corporate governance section of this Annual Report. • The number of Board and committees’ meetings held during the year and attendance by each Director has been separately disclosed in the corporate governance section of this Annual Report. • The Directors’ Remuneration Policy as formulated by Board’s Human Resource & Remuneration Committee and recommended by the Board of Directors to the Shareholders of the Bank for their approval in Annual General Meeting scheduled to be held on March 19, 2020 is disclosed in the Corporate Governance Section of this Annual Report. • Details of directors’ training programs are given in the statement of compliance with the code of corporate governance; • Detail of remuneration of Chairman, President/CEO and non-executive directors is disclosed in note 40 of the unconsolidated financial statements. • There has been no material departure from the best practices of corporate governance. • There are no significant doubts upon the Bank’s ability to continue as a going concern. • • Profit amounting to Rs. 2.4 billion has been transferred to Statutory Reserve for the year 2019. Corporate Social Responsibility (CSR) • 116 Key operating and financial data of last six years is presented in the stakeholder’s section of this Annual Report. The System of Internal Control is sound in design and has been effectively implemented and monitored. Unconsolidated Financial Statements The principal risks and uncertainties facing the Bank have been disclosed separately in this Annual Report. The Board acknowledges its rightful duty to operate as a highly socially responsible bank. The activities undertaken by the bank with regard to CSR are disclosed in Corporate Sustainability section of this annual report.
  119. Annual Report 2019 Auditors The retiring Auditors M /s KPMG Taseer Hadi & Co. Chartered Accountants, being eligible for the next term have offered themselves for reappointment. Upon recommendation of the Audit Committee, the Board recommends appointment of M/s KPMG Taseer Hadi & Co. Chartered Accountants as the statutory auditors of the Bank for the year 2020 in the forthcoming Annual General Meeting. Appreciation and Acknowledgements The Board of Directors of MCB Bank Limited would like to thank the Government of Pakistan, the State Bank of Pakistan, the Securities & Exchange Commission of Pakistan and other regulatory bodies for their continued support, all shareholders and customers of the Bank for their trust, and our employees for their continuous dedication and commitment. For and on behalf of the Board of Directors, Imran Maqbool Mian Umer Mansha President & CEO Director MCB Bank Limited MCB Bank Limited February 04, 2020 Annual Report 2019 117
  120. 118 Unconsolidated Financial Statements
  121. Annual Report 2019 Annual Report 2019 119
  122. 120 Unconsolidated Financial Statements
  123. Annual Report 2019 Groups Review Wholesale Banking Group The Group remained focused on all business areas during 2019 . WBG businesses of corporate banking, Investment banking, Transaction banking and Financial Institutions had contributed for another profitable year, due to both markup income, as well as fee and commission income; generated from existing and new to bank customers. Net Markup Income improved due to booking new term loans, enhancement in working capital book; along with retention of credit worthy client base. To manage the portfolio on a proactive basis, the group continued to closely monitor concentration of sectors and regions. During the year, a number of strategy papers were issued which included group limit settings for large corporates, limit review exercise and Risk Asset Acceptance Criteria (RAAC). This allowed WBG to set macro level view on sectors, Cross sell of various consumer products such as auto, home, personal loan for employees of Corporate Customers, deepening existing relationships through actively soliciting and obtaining cash management mandates for Corporate clients along with meeting customer investment requirements through Treasury products such as Treasury Bills and Pakistan Investment Bonds, determine financial benchmarks for various industries, identify transactions in pipeline, manage obligor exposures in a systematic way, ensuring growth in advances in a structured manner and maintain a low infection rate in loan book. Further financially stressed relationships were timely exited through settlement without any restructuring due to proactive monitoring of watch listed accounts. The year under review has been fruitful for Investment Banking as it managed to close a number of transactions, despite the economic slowdown and prevailing political landscape Investment Banking remained active during the year and also successfully led and closed one of the largest telecom sector Syndicated Term Finance Facility of PKR 45 billion for Pakistan Mobile Communications Limited. Apart from this, various equity capital market, advisory and debt syndication mandates were originated and successfully closed. In addition, MCB Investment Banking also won the prestigious mandate for the privatization of House Building Finance Corporation for GoP through Privatization Commission. MCB Investment Banking received the following recognitions from international institutions: • Best Loan Adviser in Pakistan – The Asset Triple A Country Awards 2019 • Transport Deal of the Year, Pakistan National Shipping Corporation – The Asset Triple A Infrastructure Awards 2019; • Utility Deal of the Year – Highly Commended, K-Electric Ltd. – The Asset Triple A Infrastructure Awards 2019; • Equity Deal of the Year – Pakistan, Matco Foods Limited – Asian Banking & Finance Corporate & Investment Banking Awards 2019; • Mergers and Acquisitions Deal of the Year – Pakistan, AKT Sugar Mills (Pvt.) Limited – Asian Banking & Finance Corporate & Investment Banking Awards 2019; MCB Cash Management crossed annual volume of PKR 1.8 trillion in 2019 which is the highest ever in the history of the Bank. A number of initiatives enabled the realization of this milestone including Book Building activity, successful disbursement of E-Dividends, integration with 1link with respect to FBR tax payment & Government of Punjab taxes. We also successfully launched Interactive Voice Response (IVR) to facilitate dealers & distributor’s collections through Call Center. In addition to these initiatives, Transaction Banking Division did some major cross-sell initiatives in collaboration with Retail, Consumer Banking and Digital Banking. MCB Home Remittance’s brand, MCB Burqraftaar is amongst the largest remittance payout banks of Pakistan in 2019. Our contribution through MCB Burqraftaar is not only limited to the Bank’s growth but we are also proud to be one of the biggest contributors towards the national interest of the country by promoting remittances through legal channels. MCB has managed to build an extensive network of partners across the globe to ensure overseas Pakistanis can send money to their loved ones back home with ease and convenience. A dedicated team at Financial Institutions Divisions is looking after correspondent banking relationships and ensuring provision of complete banking solutions to our local and foreign correspondent banks around the world. The team through their efforts showed significant growth in revenue, with core business areas being Back to Back Guarantees. WBG team is geared up to continue with its growth strategy in 2020, with continued focus on book building, albeit with cautious approach, given overall slowdown in the economy which is expected to continue into 2020; while proactively monitoring watch listed portfolio of the bank to minimize any further infection, while ensuring that recoveries are made in line with agreements. We will also continue to focus on cross sell initiatives with corporate clients for additional business opportunities to augment fee income. International Banking Group MCB Bank has footprints in International arena which includes Sri Lanka, Bahrain, and United Arab Emirates (UAE). Annual Report 2019 121
  124. Sri Lanka Operations : Bahrain Operations: MCB Bank Ltd commenced its Sri Lankan operations in 1994. Since then, the Bank has steadily grown over the years and currently holds the second largest branch network among foreign banks in the country. The Bank offers a range of financial products & services along with the expertise to serve all three segments of Corporate, SME and Retail banking. Customers also have the access through digital platforms and ATMs Island wide. Despite the challenges posed by uncertainty in the political arena and the unfortunate easter attacks, during the year under review, MCB Sri Lanka remained profitable, and managed to secure [SL] A+ (Stable) by ICRA Lanka Limited. 2019 was a milestone in MCB Sri Lanka operations, completing 25 years of its presence in the country. Sri Lanka team is geared up to continue with its growth strategy for 2020, with renewed focus on book building and service based fee enhancement via growth in CASA composition, Trade Finance, Home Remittance and Hajj & Umrah Remittance business. MCB Bank commenced its operations in the Kingdom of Bahrain in 1995. MCB Wholesale Bank Bahrain’s key focus during the year was to align its books with the dynamic responsiveness that the current markets demand. Excessive risk was deleverage, while maintaining decent balance sheet size more responsive to the risk and return framework envisioned by the Bank’s management. Despite the reduction in overall book size, profitability targets were successfully realized within the new risk framework. UAE Operations: MCB Bank commenced its operations in Dubai, UAE as a wholesale banking branch in 2015. On the brink of Expo 2020, the Emirate of Dubai saw large residential and commercial projects being added to the existing supply in the real estate market, leading towards further decline in property prices. Trade and tourism, kept its momentum, with record number of new visitors coming in to Dubai, but local retail activity seemed muted. In the banking sector, significant new regulatory measures and guidelines were introduced to systematically strengthen domestic financial markets. The franchise’s strategy of diversifying its portfolio on both the liability and asset front resulted in a dynamic portfolio with an ability to adjust as per the markets challenges. Focus on FI and trade based short term liquid assets helped in achieving not only bank’s growth targets but also de-risked the portfolio. MCB UAE was able to generate superior returns, and increased productivity as compared to its peer group (with higher capital and larger workforce) without having any specific provisioning on its books. During 2019, MCB UAE witnessed phenomenal deposits growth, surpassing targets while managing to diversify across industry its liability portfolio. The franchise was able to secure and maintain a CASA base of over 90%. MCB UAE stood fast and firm in its commitment to expanding its outreach and in achieving its objectives while safeguarding the interest of our shareholders through prudent policy and by relying on the Bank’s core strengths. 122 Unconsolidated Financial Statements Focus for the franchise was on developing and implemented various policies and procedures to secure ensure compliance with the new regulations. Specialized models for Stress Testing and Liquidity Management were introduced. MCB Bahrain also remained focused on AML/CFT and compliance areas and developed related policies, procedures and compliance program and ensured regular review of branch operations to ensure adherence to Central Bank regulations. Branch future strategy is to focus on liability and assets growth while reducing liquidity mismatches and mobilizing organic liquidity. Assets Rehabilitation Group During 2019, ARG surpassed all previous records of recovery by achieving the highest ever figure of Rs.3.047 Billion and registered a growth of 7% over the last year. While Group continued its journey to mark historical recovery figure on the board, it settled / resolved a large number of chronic and willful defaulters where classification was more than five years old. On compliance side with policies/procedures, Group continued to maintain its strong Internal Control Environment given all ARG segments attained highest audit rating during the year. These achievements become more noteworthy when we see that the same have been accumulated amidst frail economic conditions, political uncertainty, high interest rates regime and subdued real estate sector & business environment coupled with slothful court room proceedings. Lastly, NPLs of the banking industry were recorded at an alarming level of Rs.758 Billion as of September 30, 2019. With the tightening of macroeconomic conditions, fiscal imbalances, political unrest and skewed repayment capacity of the borrowers, NPLs have been on the rise. Therefore, taking the stock of rising NPLs viz. its impact on economic growth & viability of the financial sector, we believe that remedial management function will continue playing a significant role in near future. With all these challenges, Team ARG is well positioned to live up its
  125. Annual Report 2019 passion and deliver premier results with determination & hard work to maintain MCB's leadership position in the industry. Consumer Banking Group MCB Consumer Banking continues to win confidence and trust for its valued customers for financial solutions of their needs. Consumer products are designed in a way keeping in mind the convenience and hassle free financial solution to match their Lifestyle. MCB consumer banking showed a stable growth and also introduced new product variants to further enhance customer’s confidence. Wealth Management: Wealth Management Business has been maintaining its robust growth trend through 2019 and was the major contributor to the Consumer Banking Group’s profitability. Bancassurance business set its highest sales record since inception and ended the year with the ever-highest net sales number of PKR 3.16 billion with a total growth of 29% from 2018. 2019 was a difficult year for the Investment Services business where it faced an adverse economic environment throughout the year primarily due to muted capital market performance, which led to low/negative returns for investors. With the stock market showing an improved performance during Q4 as the macroeconomic situation begins to stabilize, and interest rates continuing to be at high levels, 2020 should provide for improved environment for Investment Services. However, even though the stock market has rebounded over the past 3 months, the recovery is still fragile as the economy remains vulnerable to external and internal shocks. Consumer Lending: The year 2019 witnessed an increase in CPI resulting in a reduction of buying power of the consumer and increased cost of financing, thus dampening our auto and home loan sales. Despite the same, in 2019 the Bank booked fresh auto loan disbursement of over PKR 7 Billion and was able to maintain its position as one of the top players in auto finance business. Credit card business has exhibited significant growth with closing the book at 2.7 billion with an average growth of 11% over the last three years. The overall asset quality continued to be well managed with low loss rates. During this year, we formed alliances with some auto sector companies to provide value added services and were also able to launch a new product-MCB Unsecured Revolving Overdraft Facility. The Bank also launched two new variants of Home Loan products, Balance Transfer Facility and SBP Low cost Housing Finance. Credit card customers can now enjoy our value added services such as Credit Card Bill Payment through Call Center and bill payment over the branch counter in the form of Cash, MCB and any other Bank cheque. Retail Banking Group The year 2019 was yet another year of continuous success for Retail Banking Group. Upliftment in core revenue streams, ever increasing cross selling volumes, efficient cost management helped us improve our bottom line significantly. Through a smart mix of products, process initiatives, sales support programs, service management activities, robust governance & untiring efforts of our teams “The Best Selling Machine” has enabled RBG to celebrate another triumphant year. The year has been very successful particularly in terms of deposit mobilisation, growth in trade business & sharp focus on prudent lending. We have achieved almost all of our major KPIs. Our Institutional Sales team and Agri Division also gained further strength in 2019. RBG being the biggest deposit and revenue contributor to the overall growth of MCB Bank, has always been instrumental in building “low-cost deposits” with CASA mix standing at over 91%. Growing fee income from cross-sell and branch operations has been instrumental in increasing profitability. Prudent month-on-month budget management starting from branch level ensured revenue maximization and controls over expenses. One of the key achievements of Retail Banking Group (RBG) in 2019 was once again a strong performance and success during Hajj campaign. With dedicated and focused efforts across the network, MCB bank continued to facilitate huge volumes of Hajj applications by becoming a trusted companion in their religious journey. In the final tally MCB emerged as the leading bank in Hajj Applications collection in 2019. Retailization: as part of our retailization drive in the last few years we have added relationship managers in the branches to ensure focus on relationship management, deepening of existing relationships and adding NTBs. Retailization to us has also meant cross-selling more bank products like credit / debit cards, autos, lockers, bancassurance, investment services, etc. to existing customers as well as NTBs to ensure optimization of per customer products sold and revenue generated. “Participation From All” as a referral process is at the core of our Sales Management Process. It has taken roots and has delivered good results. Superior service is the overarching element that ensures premier customer experience and is the only differentiating factor in all initiatives. RBG’s Service Management Program provides standardized framework to all units for excellent service delivery. Annual Report 2019 123
  126. In implementation of branch network optimization strategy , a number of low potential branches were merged, relocated or closed, while under the network expansion plan 29 new branches were opened during the year. Governance: RBG understands its responsibilities to the Regulator and other Stakeholders. Team RBG continued placing special emphasis on managing operational risks and this was reflected in significant improvement in internal audit ratings. Strict implementation of policies and procedures has been embedded for a robust compliance and control culture to maximize operational efficiency and governance. Responding to customer needs, MCB ATMs also recorded ever highest uptimes 98.7% throughout the year. One of the foremost deliverables in 2019 was compliance of “Biometric Verification” of our customers where all RBG teams have proved to be more than up to the task. During the biometric drive, the frontline team exhibited tremendous commitment and all our branches remained open on Saturdays and Sundays during Ramzan and other public holidays to complete this critical project. Consolidation: Consolidation of RBG into single group will allow us to ensure implementation of uniform practices across the board on all fronts including: HR Management, Standardization of branches, regulatory compliance, deposit mobilization, trade growth, cross sell, service delivery, etc. Team RBG is always willing to respond to the customers and colleagues, displaying mutual respect and understanding. We will continue driving “High Performance” on the back of our three essential disciplines: • • • Sales Management Process Service Management Program Operational Excellence Program Our passion and dedication needs to go further up. Our continuous challenge remains maintaining and building upon the momentum we have created & maintained throughout the past few years. Despite adverse economic conditions, RBG will strive for consistent & sustainable business growth at the back of strong current deposit build-up. Team RBG is committed to pull off an even stronger performance in all KPIs exceeding all milestones on their way to December 2020 closing. 124 The index was primarily effected by FATF grey listing, harsh IMF conditions, geo-political tensions, political and economic woes. Moreover, healthy returns offered by government securities kept the investors away from the market. The rally in the market during the second half was mainly due to stabilization achieved by the economic policies of the government which led to improvement in the macro-economic indicators, inversion of yield curve, clearing of first quarterly review under the IMF program and return of the foreign investors. The Capital Markets team operating in a turbulent environment worked hard to ensure that we outperform the market while actively reducing our risk measures. We expect 2020 to be a better year for the market and Capital Markets Division as we continue to serve our bank Treasury and FX Group During the year 2019, Pakistan faced many challenges on the economic and political front. MCB’s Treasury & FX Group, however, efficiently navigated through this turbulence. The Group surpassed its performance targets for the year and made a significant contribution to the Bank’s markup and non-markup revenues. 2019 was a year marked by high interest rate volatility with the policy rate peaking at 13.25% in Jul-2019. The yield curve, however, witnessed a steep inversion as the year progressed, clearly indicating the market’s expectations of a reversal in the uptrend of interest rates. In this high interest rate environment, Treasury continued to increase the Duration of its investment portfolio. 2019 was also a year of significant USDPKR volatility. Once again, Treasury expertly managed its exposures. Hence, 2019 proved to be an outstanding year for MCB’s FX Income. In addition to this, MCB’s Treasury & FX Group ensured that its clients were kept up-to-date with the quickly changing market dynamics. All in all, the interbank desks (both MoneyMarket and FX), despite the market volatility, maintained their status as top market-makers and ensured that MCB remained the choice bank for its clients and its interbankmarket counterparts Capital Market In 2019, MCB continued to play its role in increasing awareness about the use of derivatives to manage various market risks. The derivatives based hedging solutions are offered to our suitable clients based on their skillset and understanding. Our expertise in Derivatives continues to grow that allows us to offer our clients with hedging solutions that are at par with the developed financial markets. 2019 was another choppy year for the market. The market seesawed throughout the year touching a low of 28,765 and then bouncing back hitting a high of 41,768. The market concluded the year on a positive note, closing in green after three years having gained 2,739 points. The market return for the year was 9.9%(-1.6% in Dollar terms). During the year, MCB Treasury Research Desk played a vital role in facilitating the internal and external stakeholders of the bank by providing them with valuable input regarding the state of the domestic economy. Moreover, the Research Desk published Daily Economic Unconsolidated Financial Statements
  127. Annual Report 2019 Snapshot , covering domestic and international data, and released bi-monthly MCB Purchasing Managers’ Index (MCB PMI) to gauge the strength of the manufacturing sector in the economy. In addition, the Research Desk delivered timely projections of foreign exchange rates, interest rate, inflation and other macroeconomic variables to the bank’s valued customers, making sure that they feel fully assisted. Our clients greatly appreciated our efforts and hence, frequently engaged with the Research Desk to enhance their understanding of the trends prevailing in the economy. Information Technology Group Information Technology has transformed the banking industry worldwide for the better and has provided us with the necessary tools to manage the challenges of an ever growing economy. The integration of technology has been the cornerstone of recent financial sector reforms across industry aimed at increasing the productivity and efficiency of financial operations, strengthening the banking sector to meet high consumer expectations and to secure a leadership position amongst peers. However, the most challenging part of the ever changing world of ‘Technology’ is to neutralize the impact of obsolescence and advancements at a strategic level without compromising availability, security and reliability of the ‘Data and Information’. In MCB Bank, the entire management and the board is committed to enrich Information Technology infrastructure at the enterprise level which is clearly evident from the investments the bank chose to make in the recent past. We are committed in our mission “To be a leading bank in the Information Technology sphere, with our focus on digital transformation to enhance customer experience”. The multi-pronged approach comprises of but is not limited to one of the largest footprint of online branches with a centralized core and associated banking systems, strategic acceptance systems at both eCommerce and POS levels, robust Internet Banking and Mobile Banking platforms, revolutionary product and services offered through world class Digital Lounges, highly efficient & scalable Contact Centers, one of its kind state-of-theart Enterprise Data network, established International footprint, proactive controls to combat money laundering and frauds, interoperability with other financial entities and Branchless Banking solutions to facilitate the customers irrespective of their location. Information Technology Group (ITG) at MCB Bank is comprised of a team consisting of thorough professionals having a proven track record of project delivery and IT infrastructure management at an enterprise. The components of the organizational structure of ITG are included with IT Enterprise Infrastructure, IT Operations, IT Software Solutions, IT Support Services, IT Service Management, IT Information Security, IT Business Technology, IT Compliance and Internal Control, IT Business Continuity, IT Project Management, IT Procurement, IT Financial Services and Digital Banking Division who are committed to servicing it’s consumers both internally and externally 24/7. Recently ITG successfully streamlined existing operations across board and recorded the highest ever uptime of core banking along with affiliated applications throughout the year. Nevertheless, the availability of Data Centers and the back-end systems along with all necessary services were remarkably remained at five-nines. In addition to operational achievements by ITG, new benchmarks were achieved to comply with the highlighted recommendations by external and internal audit committees and the SBP. ITG had also closely monitored Bank wide projects and had driven related technology functions with a motive to accomplish the assigned tasks within the agreed timelines. Close coordination and liaison with working groups and vendor relationship management are the key factors in above achievements. Looking forward to 2020, IT Group is more committed towards: • Dynamic Customer Experience with CrossTouchPoints • Revolutionizing payments & Driving Financial Inclusion • Agile & Goal Oriented Product Service Road Map Delivery • Payment Card Industry : Compliance : PCI DSS Certification • Improving Information & Cyber Security ecosystem Apart from above commitments, IT Group shall continue to empower the staff with the requisite trainings and job enrichment plans to impart motivation and job success factors. Digital Banking Surpassing the traditional norms of growth, MCB Bank’s Digital Banking Business has grown to become one of the most comprehensive, secure and flexible payment ecosystems in the country within a short span of time. MCB enjoys a leading position in the industry and is favored by both individual and corporate customers. The Year 2019 concluded with a remarkable top line reflecting substantial financial growth and increase in the overall foot print. This was aided by our focused strategy on expanding our service offering and delivery to the end user while being preemptive about the prevailing industry risks. Annual Report 2019 125
  128. Year 2019 was the year of mega projects being undertaken by MCB including re-carding of the entire card base along with migration to new card management system . MCB Digital Bank was able to record the highest Debit Card POS spend recording a 31% YOY increase and numerous marketing campaigns were successfully executed across various retail friendly industries. Our self-service channels which include both the Mobile and Internet Banking performed exceptionally well with more than 500K App downloads (iOS & Android). ATM Network also witnessed steady progression in terms of reach, reliability and transactional volume. Our network now stands at 1350+ ATMs including 150+ Offsite locations. MCB Bank is one of the largest banks in terms of ATM network reach, with the highest yearly uptime of 98%. This performance is a testament of the robust health-check measures taken by the Bank enabling the ATM channel further to accept PayPak, and UPI scheme cards. Another essential channel completing the Digital Banking equation is the acceptance business which includes the online payment gateway solution (eGate) and the Point of Sale (POS) terminals ensuring MCB Bank’s presence in the digital and physical payment franchises. MCB proudly hosts around 200+ eCommerce merchants and recorded a remarkable growth of 30% in eCommerce transactional volumes. Since 2015 MCB has been a dominating player in domestic eCommerce industry & it continues to maintain its leadership position by being an industry enabler. Merchants connected with MCB’s PF (Payment Facilitator) model along with its direct merchant base comprise of more than 50% of the entire local eCommerce industry merchant base. In parallel MCB continues to take necessary measures to strengthen our procedures, controls and educate our customers on possible cybercrimes prevention. Apart from taking these measures to implement enhanced controls over digital channels, MCB Digital Bank has once again achieved satisfactory rating “I” during Annual Management Audit 2018-19 assuring good governance. Further, 100% regulatory compliance of call center management was achieved including establishing the policy and risk dashboard for contact center. Digital banking achieved 90% overall compliance on internal, external and regulatory audits. Overall MCB Bank undertook major projects to improve internal systems, efficiencies and strengthen product proposition, this included the re-carding of MCB payment cards with new chip & pin enabled feature, shifting of debit card portfolio to internally hosted new card management system InterBlocks and other administrative measures. 126 Unconsolidated Financial Statements Operations Group Operations Group has made tremendous progress in line with the Bank’s aspiration to become the leading financial services provider in all respects. The Group has further improved and standardized existing operational processes through automation and strengthened internal controls while ensuring that needs of our clients are at the center of our operational excellence framework. Operational throughput has been enhanced while ensuring strict compliance with regulatory guidelines and international best practices. Additionally, Operations Group focused on improving process and cost efficiencies through better utilization of technology, centralization of multiple processes and integration of operational units in order to bring agility and flexibility in its operations. On the financial management side, the Group has continued its discipline on costs while facilitating income growth through technology enabled productivity improvement. Operations Group has enabled the Bank to save a healthy amount on account of rental cost due to timely completion of infrastructure projects. Efficiencies were also brought in cash management at cash houses, cash feeding branches and in-transit thus playing its part in the cost optimization drive. The Group also contributed to the income of the Bank by enabling additional fee based incomes through effective process management at Trade Service Centers and Centralized Operations. The Group also led and supported various critical projects that contributed towards overall process efficiency and strengthened control environment. Call Centre operations have been taken under the umbrella of Operations Group to have a dedicated focus on improving operational efficiencies. In addition, centralization of restraint marking owing to regulatory instructions coupled with centralization of bank guarantees resulted in better controls and risk mitigation. The Group also provided vital operational support on the re-carding exercise for different variants of debit cards while setting a record of producing and handling highest number of cards. Moreover, some of the Bank’s standard forms have been made vibrant in order to uplift bank’s image. On the automation front, full-fledged derivative management system has been implemented to assist Treasury Operations while also automating the treasury management system for Sri Lanka operations. Further, to improve the new account opening process and its validation at Central Processing Units, the process has been transformed with a robust system having integration with relevant business applications. In compliance to regulatory instructions, an in-house system based solution has also been designed with built-in operational controls for biometric verification of existing accounts.
  129. Annual Report 2019 Furthermore , various deductions of charges have been automated to facilitate branches in bringing financial discipline. Operations Group has undertaken a large number of new construction and renovation projects including a few major landmark projects to assist Bank in its endeavor of increasing geographical footprint. A new Global Transaction Banking branch has also been opened in Lahore to cater to a large segment of specialized customers. Operations Group has maintained its focus on people management and has conducted significant number of staff trainings on branch banking operations, data cleansing, business continuity and Green Banking. This has been done with an aim to strengthen employee development and inculcate a resilient risk management culture among our staff. Meanwhile, training of Group’s own staff has also been under attention for which staff participation in trainings of vital significance has been ensured. On environmental awareness front, significant focus has remained on promoting Green Banking practices and conservation of resources. International conservation days like World Water Day, Mother Earth Day and Environment Day were celebrated with vigor. Operations Group is enthusiastic about 2020. Group has positioned itself for a stronger and more sustainable growth amidst challenging operating environment and stringent regulatory regime. In addition, Operations Group is committed to improve process centralization and further automate manual products and processes through allinclusive adoption of new technological solutions. The Group looks forward to building on its purpose and further improving its dedicated focus on enhancing operational efficiency and keeping delivery cost optimal while taking proactive measures to safeguard the Bank’s and customer’s interest at all times. Business Continuity Management Business Continuity Management (BCM) is a process that identifies risk, threats and vulnerabilities that could impact Bank’s operations internally or externally. BCM provides a framework for building organizational resilience and capability for an effective response to mitigate the internal and external threats. The Bank endeavors to have sustainable and an effective enterprise wide BCM program to provide seamless services and product reach to its customers and stakeholders. The Board of Directors of the Bank periodically reviews the effectiveness of Business Continuity Policy & Framework to ensure that clear and concise plans are maintained for all critical areas while strong remedial actions are in place to reduce the risk of downtime against any untoward situation. Further to nurture and enhance the confidence on Bank’s system and processes; Business Continuity Plans are tested on regular intervals reducing the risk of downtime and the cost of recovery from any untoward situation. This integration has given a confidence to the Bank that it can live up-to the commitment and expectations of its customers, stakeholders and regulator by ensuring continued functionality of its critical businesses and functions in any circumstances. Compliance and Controls Group The Compliance landscape and environment is becoming increasingly complex and challenging owing to enhanced Global focus on risks associated with Money laundering and Terrorist Financing. Consequently, the Compliance function is continuously striving to keep up with these challenges through a well-integrated and robust risk mitigation framework in the aforesaid areas of our banking operations. As heightened focus continues on tackling these issues, CCG is committed towards investing more in resources, processes and technology to combat these and other risk areas. CCG aims to ensure the highest standards of AML/CFT compliance, which requires management and employees to adhere to these standards by preventing use of Bank’s delivery channels, products and services for money laundering and terrorist financing. The Group provides a structural base to enable all concerned stakeholders to monitor out of pattern transactions to detect possible Money Laundering/ Terrorism Financing activities through Transaction Monitoring Solution (FCCM). It also leads the Management Committee on AML/CFT for oversight of AML/CFT compliance with respect to relevant regulations, policies and procedures and steering of various AML/CFT initiatives in the Bank, to mitigate the risk of such activities, for both domestic and overseas operations. Furthermore, CCG is also challenging all internal stakeholders to strengthen Bank’s monitors with regards to AML/CFT risk emanating from Trade related business activities. Highlights of 2019 include successful implementation of Name Filtering solution for batch screening and its integration with SWIFT terminal; initiation of project on updation of Transaction Monitoring System, acquisition of a new Risk Profiling System and Trade Based Money Laundering System; creation of CFT desk to assess and mitigate the Terrorism Financing/Proliferation Financing risk, creation of AML Compliance Unit and strengthening of Sanctions Screening Support Unit and Transaction Monitoring Units by induction of specialized resources. Further, CCG also ensured the Bank wide training/ awareness programs on AML CFT for bank’s staff all over the country. In addition to the training sessions for the Annual Report 2019 127
  130. Bank ’s staff, dedicated awareness sessions on Terrorism Financing were conducted for Bank’s customers as well. Moreover, CCG developed a structured model to continuously assess its inherent and residual Terrorism Financing risk based on threats and vulnerabilities. This activity also enables the bank to explore opportunities and strengthen its systems and controls to mitigate the residual risk. CCG also oversees adherence to the regulatory requirements through onsite reviews, with specific emphasis on Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (CFT). In order to remain abreast with regulatory requirements, CCG has pursued implementation of various dimensions of Compliance Risk Management (CRM) Guidelines issued by the regulator. In this perspective, CCG aims to inculcate a compliance culture in the bank wherein ongoing regulatory requirements and industry challenges can be managed effectively in all jurisdictions of MCB operations. CCG ensures a professionally cordial working relationship with State Bank of Pakistan (SBP), Law Enforcement Agencies and other regulatory bodies in addition to coordination of SBP’s Inspections. The Fraud Risk Management Department (FRMD) is now completely consolidated on Pan Pakistan basis within FRMD. In addition to the management of Branch related fraud cases, FRMD started Preliminary Investigations of Consumer & Digital banking related frauds, hence adopting a more focused approach towards managing Fraud risk. Further, Implementation of ‘Internal Eye’, a tool for reviewing and monitoring of transactions associated with employee accounts, enabled FRMD to monitor funds trafficking in employees accounts more guardedly. In addition, FRMD is leading Fraud Risk Assessment Exercise Bank wide with an objective to build new controls or reinforcement of existing controls in order to counter the potential frauds and safeguard Bank’s interest. Moreover, FRMD also spearheads the resolution of regulatory observations through a cross functional management committee. In compliance with the Regulatory requirements of Employee Due Diligence, FRMD has designed Know Your Employee (KYE) Program, whereby, it also conducts KYE review exercise on quarterly basis by reviewing credentials of newly hired regular employees. Our Service Quality (SQ) function, which is also part of CCG, continues its enhanced focus and rigor around customer experience through senior management oversight and continuous internal stakeholder engagement. Bank follows a multi-pronged approach to assess the quality of service 128 Unconsolidated Financial Statements standards for its customers. These measures include ongoing evaluation of our branch look & feel, speed of our product and service delivery and efficiency of our digital channels. The bank also seeks customer feedback on the same through its in-house Voice of Customer team. Weak areas identified through these initiatives are then worked upon to improve customer experience. Fair treatment of customers continued to remain a priority agenda item for the bank throughout 2019. During 2019, an exclusive training module on “Fair Treatment of Customers” was introduced for frontline staff dealing with the customers in order to re-iterate the roles and responsibilities of bank’s staff in this regard. This training module will be gaining further momentum during 2020. Service Quality function is also the custodian of customers’ grievance handling and works in collaboration with all businesses / functions of the bank responsible for acknowledging, investigating, tracking, escalating and resolving customer complaints within specified turnaround times. Customer Grievance Handling Bank considers complaints as opportunities for improvement and understands the link between complaint resolution and customer loyalty. We believe that complaints are a primary measure of customer dissatisfaction; thus, they should be taken seriously and staff should be encouraged to bring complaints to the forefront so that gaps can be identified and fixed. Service Quality (SQ) function is the custodian of customers’ grievance handling and works in collaboration with all businesses / functions of the bank responsible for acknowledging, investigating, tracking, escalating and resolving customer complaints within specified turnaround times. A centralized complaint resolution team manages all customer complaints through a Complaint Management System. During 2019, access to this centralized Complaint Management System has been provided to all branches which will further strengthen our complaint capturing capability. Now, all our customer touch points have access to this system so as to ensure that all complaints, whether verbal or written, are immediately captured in the system. Following are the Channels through which complaints are received: • MCB Call Center • MCB Branches • MCB E-mail •Letter/Fax • Customer Service Centers • Banking Mohtasib Secretariat • State Bank of Pakistan • Management Committee (MANCOM)
  131. Annual Report 2019 The Bank makes its best effort to ensure that resolution of complaints is comprehensive , appropriate and quick. The customer is kept informed on the status of their complaint, starting from complaint acknowledgement till its resolution. The escalation matrix for complaint resolution observed and designed in the system is such that a complaint, if not resolved within the specified turnaround time, gets escalated to the next senior level of management and keeps on escalating further till resolved. SQ also performs in-depth qualitative and quantitative complaints analysis followed by suggestions and recommendations in order to eliminate root causes of customer issues and drive continuous improvement. Audit and Risk and Review Group Internal audit function plays a pivotal role in the overall risk and control environment of any organization. The function provides assurance that is critical to the Board and management in assessing overall strength of an organization’s control environment. Furthermore this function also adds value to the aforesaid control environment by virtue of its consultative role. With the zeal and commitment to play an effective role in the Bank’s endeavor for continuous improvement, Audit & RAR Group will persevere for further strengthening of its resources, processes and Framework in 2020. Legal Affairs Group The mission of the Legal Affairs Group is to further the strategic goals and to protect and preserve the legal, ethical and financial integrity and the reputation of MCB Bank. This is accomplished by providing strategic legal advice on contentious and non-contentious matters, thereby ensuring that businesses conduct their activities in accordance with applicable laws and bye laws consistent with the mission, vision, and values of the MCB Bank. Legal compliance is the process or procedure to ensure that an organization follows relevant laws, regulations and business rules. Legal Affairs Group consists of two departments. • • Legal Affairs Department - Advisory Litigation Department Legal Affairs Department - Advisory Audit & Risk Assets Review (Audit & RAR) Group is responsible for the internal audit function within MCB Bank Limited. Chief Internal Auditor functionally reports to the Board’s Audit Committee and administratively to the President. The Group conducts audits/reviews of various areas of the Bank under the globally recognized Risk Based Auditing Methodology whilst complying with the requirements of the International Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (USA) {IIA}. Audit & RAR Group continued to perform its role effectively on both the assurance and consultative fronts during 2019. It played its role in evaluating the efficacy of Bank’s control systems by enhancing visibility of the management and the Board on the risk management and control related matters of the Bank (for Bank’s domestic and overseas operations). The Group also highlighted areas for improvement and worked closely with the management through regular engagement as well as consistent follow-up, monitoring and guidance towards resolution of significant issues. Staff training and development remained a focus area for the Group which helped in enabling the internal audit team in performance of its duties objectively as well as with professional due care. Moreover, quality assessment of internal audit function by external assessors {A.F. Ferguson & Co., Chartered Accountants (a member firm of the PwC network)} was also carried out during 2019 in line with the requirements laid down by the IIA’s Internal Auditing Standards. Based on the assessment, the function was able to achieve general conformance with the IIA Standards. The object of Legal Affairs Department – Advisory is to oversee the identified legal issues in all segments of business and their interrelation, including marketing, sales, distribution, credit, finance, human resources, as well as corporate governance and business policy. This includes but is not limited to consultancy issues and adherence of processes for collateralization of finances. In this context, the Advisory Department analyses and reviews credits’ security documentation of all segments of the Bank, like Corporate, Commercial, Retail and Consumer Banking and provide advice on perfection of documentation to secure Bank’s interest. At the helms of the affairs, diversity of work is exhaustive and apart from the major chunk of advice on securitization of Collaterals, it also includes review of all sorts of Agreements (Finance Agreements, Service Agreements, IT Agreements, Distributions Agreements, Non-disclosure Agreements, Product Agreements, Lease Agreements, E-Commerce Agreements etc.), Bank Guarantees, Advance Payment Guarantees, Mobilization Advance Payment Guarantees, Foreign Bank Guarantees, Financial Guarantees, LCs / Standby LCs, review of Product Manuals and their processes; SLAs are framed and transformed as per vendor’s services across the board. Corporate opinions are drafted and customer’s relationship segments are assisted by review on the status of Corporate bodies, Partnership, Trust, Companies, funds etc. and Foreign Currency matters. Annual Report 2019 129
  132. Advisory Department is also supportive by its quick advice and crisis management for queries by law enforcement agencies and public sector financial organizations like FIA /NAB, Anti-Narcotics, Police, Anti-Corruption, NAB, Customs /Income Tax /Sales Tax Departments/FBR etc. By standardizing different banking documents, the Legal Affairs Group has helped to introduce cemetery of documentation at all levels. Standardized templates have been uploaded on MCB Portal. Further, newly updated templates are uploaded and shared /exchanged with relevant business for implementation as when there is any amendment in relevant law/regulations etc. During 2019, around 23,000 Opinions/Vettings were issued on collateral, security documents and allied legal issues raised by Business/Field, therefore advisory department has contributed in cost saving worth Millions of Rupees. Litigation Department The Litigation Department in coordination with businesses, oversees and handles bank wide litigation of different groups working within Bank and other litigation related proceedings pertaining to its customer or employees; Enlists Lawyers on panel in consultation and on the recommendation of relevant business/Group after conducting a detailed scrutiny via market check etc.; Assigns cases in consultation and recommendation of relevant business/Group; Negotiates Fee with the assigned lawyers in the cases assigned to them; Evaluates lawyers and their performance in cases assigned to them on bi-annual basis through directly monitoring their performance and on the basis of feedback received from the businesses and presents the same to LRC; Follow ups with businesses and updates centralized data of court cases on the basis of feedback received through court coordinators of respective businesses/Groups; Maintains centralized MIS of Litigation data and disseminates information in advance regarding fixation of cases to relevant business groups on daily basis; Reviews drafts of plaints/Appeals/Applications/FIRs and Settlement/ Rescheduling Agreements etc.; Renders opinions on court orders, stay orders, Summons/Warrants etc. as well as notices received from NAB, FIA & other LEAs. This broad role encompasses Crisis Management for all segments of business for contentious and noncontentious matters for litigation and ancillary matters that arise directly or indirectly due to the litigation. Following initiatives were taken by the Litigation Department during 2019: • Retrieval/Compilation of Pan Pakistan Litigation Data/Record & Digitizing/Scanning the same. 130 Unconsolidated Financial Statements • Since Centralization of litigation expenses in June 2014, complete record with respect to litigation expenses is being maintained & shared with respective businesses on periodical basis. • Development of Shadow Filing System which is in data entry phase. Once the same will be fully functional, it would enable litigation department to provide real time updates of court cases. • As many as four meetings of Litigation Review Committee (LRC) were held in the year 2019 and during the said meetings, 38 lawyers were enlisted on Bank’s Approved panel. • The performance of 328 lawyers was evaluated and discussed during LRC meetings on the basis of feedback received from the relevant businesses. • In such meetings, Special attention was given to the cases involving Rs.10 million and above, including execution petitions pending for 3 years and more & way forward was also discussed for expeditious disposal of these execution petitions. • As many as 1,893 (including recovery suits) were filed during 2019 and around 1,475 cases were disposed of/decreed through appointed lawyers and thereby contributed in Bank’s NPLs recovery efforts. To strengthen itself, MCB Legal Affairs Group has shown significant growth in 2019 and is committed to perform up the curve in future to help the Bank to achieve better results. Human Resource MCB Bank follows the philosophy of working as an equal opportunity employer, in true spirit. We believe in initiating steps to foster and maintain a work climate that is conducive to achieving equal employment opportunities while ensuring a workplace free of discrimination and harassment. The bank believes in hiring and retaining talent who can contribute towards the achievement of all defined targets. The Bank adopts a transparent performance management system developed on a defined KPI based scorecard for various business positions. The scorecard helps management define prioritization vis a vis objectives and setting future goals of its employees. The bank has instituted a Talent Management program with a view to identify high potential individuals and to groom them as future leaders. The Bank has a vision to provide career progression opportunities to its employees; for this purpose an initiative was taken by the bank to convert a large number of individuals from an outsourced arrangement to Bank’s Permanent employment pool. The conversion was also a step towards the fulfilling of several regulatory requirements.
  133. Annual Report 2019 To enhance the knowledge and skillset of its work force , a number of trainings were held during the year. Participants from all over the country were trained through different programs including in-house, ex-house, mobile, and E-learning training programs. A segment comprising senior management was engaged through a Management Development Program as part of the Talent Management Scheme of the Bank. Security Security Division effectively ensured the safety and security of the Bank’s physical assets despite numerous challenges during 2019. Through their persistent coordinated efforts, our security team meticulously managed security arrangements, ensured vigilant monitoring and supervision of branches across Pakistan, which translated into smooth and unimpeded branch operations. MCB Bank branches are equipped with modern security equipment and manned by adequately skilled security staff that ensures banking transactions by customers and bank staff at branches are conducted in a safe and secure environment. This year again, the security response rate was commendable, especially during national and other public holidays; all robbery attempts were successfully foiled owing to the robust and efficient security systems deployed at bank branches. As in previous years, Regional Security Officers conducted security awareness training sessions for branch staff and security guards in their respective regions. With a right combination of trained and motivated man power and technology, Security Division is geared towards ensuring the safety of Bank’s customers, assets and staff in the future. Marketing The Marketing Division is geared towards enhancing the positive image of the Bank through its corporate Brand Building, promotion of Bank’s Product & Services on visible optimized mediums, standardization of corporate & brand communications, branch merchandizing, CSR and strong public relations. During 2019, Marketing Division launched its new Corporate TVC, enhanced visibility through extensive Media and Out of Home (OOH) branding campaigns that played a pivotal role in increasing brand presence, awareness and generating leads. Another achievement in the year was the standardization of branch branding at 1300+ branches across the Bank’s network, undertaken for the first time in the Bank’s history. A special set of Branch Branding Guidelines was also developed to reinforce standardization and consistency amongst all branding undertaken internally and externally at MCB branches. The Division also revamped the MCB Bank corporate website, upgrading the technological infrastructure at the back-end and enhancing the front end to provide users with a visually vibrant and easy-to-use interface. Going forward, Marketing Division will continue to focus on enhancing Brand visibility through a combination of available channels, thereby reinforcing brand presence and enhancing the Bank’s image. MCB Islamic Bank Limited MCB Islamic Bank Limited (the “Bank”) is the wholly owned subsidiary of MCB Bank Limited and commenced its operations in 2015 with a nation-wide network of branches. The aim of MCB Islamic Bank Limited is to be the first choice Shari’ah compliant financial services provider for the customers and to carry out business purely in accordance with Shari’ah principles with full conviction and devotion. Alhamdulillah, the Bank currently operates to provide Shari’ah compliant value added and innovative banking solutions for customers under the supervision of a Shari’ah Board chaired by the renowned Islamic scholar Professor Mufti Munib-Ur-Rehman. The Bank focuses on building strong and lasting relationships as well as delivering an experience that satisfies all types of customers across Corporate, Commercial, SME, Consumer, Agriculture and Micro sectors. The Bank offers wide range of Riba Free and Shari’ah compliant products for both personal and business needs. Different services and products offered by the bank are available to customers through a branch network of 185 branches backed by 187 On-Site and Off-Site network of ATMs. The Bank offers EMV enabled Debit Cards, IOS and Android based native Mobile and Internet Banking services. Moreover, the Bank has also developed its suite of Cash Management services, including Payment upon Identification (PUI), Cash & Instrument Collection, Cash in Transit Services (CIT), Corporate Internet Banking by acquiring Oracle Banking Digital Experience (OBDX) and also working on development of product suit for Employee Banking under Cash Management umbrella. The Bank is committed to share in the mutual benefits with the customers, staff and shareholders who participate in our business success under the highly skilled and seasoned management with the prime objective of ensuring our customers’ satisfaction. Annual Report 2019 131
  134. Corporate Governance Corporate Governance at MCB Bank Limited (“MCB” or the “Bank”) refers to rights and responsibilities among different stakeholders of the Bank through a set of rules, policies and practices keeping focus on proper delegation, transparency and accountability in the organization as a whole. The success of the Bank relies on its proven track record in upholding high standards of corporate governance. Board Composition The Bank encourages representation of independent directors, non-executive directors and directors representing minority interests on its board of directors. At present the Board includes: Category Name Independent Directors Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Shahzad Hussain Mr. Masood Ahmed Puri Non-Executive Directors Mian Mohammad Mansha Mr. S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Muhammad Ali Zeb Mr. Shariffuddin bin Khalid Executive Director (President & CEO) Mr. Imran Maqbool Female Director (Non-Executive) Mrs. Iqraa Hassan Mansha Independent Directors and their Independence: The Board has four (04) Independent Directors who meet the criteria of independence under the Companies Act, 2017 and the directives issued by the State Bank of Pakistan (“SBP”). Representation of Female Directors on Board: Mrs. Iqraa Hassan Mansha is representing female Director on the Board. Non-Executive Directors: All the directors on the Board are Non-Executive Directors except for the President & CEO of the Bank. The NonExecutive Directors provide an outside viewpoint to the Board and neither involved in managing the affairs of the Bank nor from among the Executive Management Team of the Bank. Casual Vacancies on to Board of Directors: During the year 2019, the Board of Directors of the Bank appointed two (02) Independent Directors and one (01) NonExecutive Director, as detailed below: Name of Director Appointed In place of Date of Appointment Mr. Shahzad Hussain Mr. Samir Iqbal Saigol May 31, 2019 Mr. Masood Ahmed Puri Mr. Haroun Rashid May 31, 2019 Mr. Shariffuddin bin Khalid Mr. Nor Hizam Bin Hashim July 23, 2019 The Board appreciated the services extended by the outgoing directors as members of the Board of MCB and its various Committees during their tenure. Executive director serving as non-executive directors in other companies President & CEO, the Executive Director is serving in four (04) companies as non-executive director. Detail of Board Meetings held outside Pakistan: During the year 2019, all the Board of Directors meetings were held in Pakistan. 132 Unconsolidated Financial Statements
  135. Annual Report 2019 Process of Appointment and Nomination of directors : As per the provisions of the law, the directors are elected by the shareholders of the Bank, whereas, the casual vacancies on the Board are filled by the directors. Every director has to qualify the assessment criteria of ‘Fit and Proper Test’ as framed by the State Bank of Pakistan. While appointing a director, it is ensured that the Board is comprised of directors who have diversified experience, suitable knowledge, appropriate skill set/expertise and competency considered relevant in the context of the Bank's operations and to make the Board an effective decision making body. It is also ensured that the Board has an appropriate mix of directors including female member(s), diversity, size and well-structured to add value and to provide objective advice and have no material conflicts of interest. Independent Directors play an active role to enhance the overall effectiveness of the Board. While appointing them, the applicable provisions of the laws, rules and regulations are meticulously complied with. Independent Directors are selected to demonstrate the transparency and fairness in their role and also to provide an objective and independent judgment in the best interest of the Bank. Directors' Participation/Attendance in Board and Committee Meetings Held During 2019 Sr. No. Board of Directors Name of Director Board's Committees (BoD) Member Total Meetings Held AC Attended1 Member 5 BS&DC Attended1 Member 5 RM&PRC Attended1 4 Mian Mohammad Mansha 5 – – 2 Mr. S. M. Muneer 2 – – 3 Mr. Muhammad Tariq Rafi 5 – – 4 Mian Umer Mansha 3 5 Mrs. Iqraa Hassan Mansha 3 6 Mr. Muhammad Ali Zeb 4 7 Mr. Mohd Suhail Amar Suresh 4 8 Mr. Nor Hizam Bin Hashim 2 2 – – 9 Mr. Yahya Saleem 4 0 – – 10 Mr. Salman Khalid Butt 5 11 Mr. Shahzad Hussain 3 12 Mr. Masood Ahmed Puri 3 13 Mr. Shariffuddin Bin Khalid 3 14 Mr. Imran Maqbool (President & CEO) 5 Chairman Sr. 0 – 5 – – – 4 – – – – – 3 – – – Member CR&MC Attended1 Member 4 – PP&CA Attended1 Member 4 4 – ITC Attended1 Member 4 – 1 – – – – – – – – – – – – 3 – – – – 4 0 – – 0 – 3 – – – – – 3 3 3 – – – – – – 1 4 – 4 WO&WC Attended1 Member 4 1 4 3 – – 4 – Attended1 4 1 – Member HR&RC Attended1 0 – – – – – 0 – – – – – – 4 – – – – 3 – – – – – – – – – – – – – – – – – 2 – – – – 2 – – 3 – – 4 – – 3 – – – – – – – – – – – – – – – – 2 – – – – – – – – – – – – – – – – – – – – – – – – – 4 – – 4 – – 4 4 4 Member Name of Director Notes No. 1 Meetings of a particular forum attended by the concerned director during his/her tenure. 2 Mr. S. M. Muneer/ Mr. Muhammad Ali Zeb replaced Mr. S. M. Muneer as member of the Board’s Committee on Physical Mr. Muhammad Ali Zeb Planning & Contingency Arrangements w. e. f. May 31, 2019. Mr. Shahzad Hussain/ Mr. Shahzad Hussain joined the Board and replaced Mr. Yahya Saleem as Chairman of the Board’s Audit Mr. Yahya Saleem Committee w.e.f May 31, 2019. Mr. Masood Ahmed Puri Joined the Board and became member of the Board’s Business Strategy & Development Committee w.e.f 3 4 May 31, 2019. 5 6 Mr. Shariffuddin Bin Khalid/ Mr. Shariffuddin Bin Khalid replaced Mr. Nor Hizam Bin Hashim as Board member and member of the Mr. Nor Hizam Bin Hashim Board’s Audit Committee w.e.f July 23, 2019. Mian Mohammad Mansha Member of the Board’s Committee on Physical Planning & Contingency Arrangements and Business Strategy & Development Committee w.e.f November 09, 2019 and December 20, 2019, respectively. 7 Mr. S. M. Muneer SBP has been requested to condone the requirement of Para 8 of Section B of Prudential Regulations G-1 Annual Report 2019 133
  136. Disclosure on Board of Directors Sr . No. Name of Directors Date of Joining/ Leaving the Board Status of Director Member of Board Committees* 1 Mian Mohammad Mansha Apr-91 Non-Executive Director - HR&RC BS&DC PP&CA Number of other Board Memberships along with Name of Companies Number Name of Companies MCB-Arif Habib Savings and Investments Limited 2 MCB Non-Bank Credit Organization, CJSC, Azerbaijan (Formerly: MCB Leasing CJSC, Azerbaijan) Din Textile Mills Limited Din Leather (Pvt.) Limited 2 Mr. S. M. Muneer Apr-91 Non-Executive Director - BS&DC CR&MC 5 Din Farm Products (Pvt.) Limited Arabian Sea Country Club Din Industries Limited Siddiqsons Limited 3 Mr. Muhammad Tariq Rafi Siddiqsons Tin Plate Limited Apr-91 Non-Executive Director - 5 Central Depository Co. of Pakistan Limited Triple Tree Associates Siddiqsons Energy Limited Nishat Mills Limited Adamjee Insurance Company Limited Adamjee Life Assurance Company Limited Nishat Hotels & Properties Limited 4 Mian Umer Mansha 11-Nov-97 Non-Executive Director - AC BS&DC RM&PRC PP&CA ITC WO&WC Nishat Developers (Pvt.) Limited 11 Nishat (Raiwind) Hotels and Properties Limited (Un-listed) Nishat Dairy (Pvt.) Limited Nishat Agriculture Farming (Pvt.) Limited Hyundai Nishat Motor (Pvt.) Limited Nishat Agrotech Farms (Pvt) Limited Nishat Sutas Dariy Limited Nishat Hotels & Properties Limited (Un-listed) 5 Mrs. Iqraa Hassan Mansha Nishat (Gulberg) Hotels and Properties Limited (Un-listed) 03-May-16 Non-Executive Director - HR&RC PP&CA 5 Nishat (Raiwind) Hotels and Properties Limited (Un-listed) Nishat Real Estate Development Company (Private) Limited Emporium Properties (Pvt) Limited 6 7 Mr. Muhammad Ali Zeb 27-Mar-09 Mr. Mohd Suhail Amar Suresh bin Abdullah 24-Feb-14 Mr. Yahya Saleem 27-Mar-18 Non-Executive Director Non-Executive Director - AC RM&PRC HR&RC CR&MC PP&CA WO&WC - RM&PRC BS&DC ITC Adamjee Insurance Company Limited 4 Adamjee Life Assurance Company Limited Nishat Chunian Ltd. Nishat Sutas Dairy Limited Maybank Shared Services Sdn Bhd (a wholly owned subsidiary of Maybank) 3 MBB Labs Pvt Ltd (a subsidiary of Maybank Shared Services) Technology Park Malaysia Corporation Sdn Bhd (TPM) Saleem Memorial Trust Hospital 8 Independent Director - HR&RC ITC 3 NC Entertainment Private Limited NC Trading USA 134 Unconsolidated Financial Statements
  137. Annual Report 2019 Sr . No. Name of Directors Date of Joining/ Leaving the Board Status of Director Member of Board Committees* Number of other Board Memberships along with Name of Companies Number Name of Companies Saleem Memorial Trust Hospital 9 10 Mr. Salman Khalid Butt Mr. Shahzad Hussain 10-Nov-18 Independent Director - BS&DC RM&PRC CR&MC ITC 4 - AC 3 New Heights Management Ltd, a BVI Company New Heights Concepts Ltd, a BVI Company Next Commercial FZ LLC, a Ras El Khaimah (Rakez), U.A.E. Company NAMAL Education Foundation 31-May-19 Independent Director Imran Khan Foundation Punjab Health Care Commission Transarab Trading Services (KSA) 11 Mr. Masood Ahmed Puri 31-May-19 Independent Director - BS&DC 3 Jedex Logistics Pvt. Ltd (Pakistan) Jedex Transport Company LLC (UAE) Malayan Banking Berhad Maybank (Cambodia) Plc (A subsidiary of Maybank) Maybank Islamic Berhad Marine & General Berhad 12 Mr. Shariffuddin Bin Khalid 23-Jul-19 Non-Executive Director - AC 8 M&G Marine Logistics Holdings Sdn. Bhd., (A subsidiary of Marine & General Berhad) M&G Tankers Sdn. Bhd., (A subsidiary of Marine & General Berhad) Jasa Marin (Labuan) Plc (A subsidiary of Marine & General Berhad) M&G Ship Management (L) Pte Limited (A subsidiary of Marine & General Berhad) 13 14 Mr. Nor Hizam Bin Hashim Mr. Imran Maqbool President & CEO 6-Sep2016/ 23-Jul-19 21-Dec-12 Maybank Islamic Berhad Non-Executive Director - AC 3 Malayan Banking Berhad Badan Pengawas Pemegang Saham Minoriti Berhad, Malaysia Executive Director - Adamjee Insurance Company Limited BS&DC RM&PRC CR&MC ITC PP&CA 4 Adamjee Life Assurance Company Limited MCB Financial Services Limited MCB Employees Foundation Audit Committee ITC: Information Technology Committee BS&DC: Business Strategy & Development Committee PP&CA: Committee on Physical Planning & Contingency Arrangements RM&PRC: Risk Management & Portfolio Review Committee CR&MC: Compliance Review & Monitoring Committee HR&RC: Human Resource & Remuneration Committee WO&WC: Write-Off & Waiver Committee AC: Annual Report 2019 135
  138. The names of the persons who , at any time during the financial year, were directors of the Bank Major judgmental areas; • Significant adjustments resulting from the audit; • Mian Mohammad Mansha • Mr. Salman Khalid Butt • The going concern assumption; • Mr. S. M. Muneer • Mr. Shahzad Hussain • Mr. Muhammad Tariq Rafi • Mr. Masood Ahmed Puri • Any changes in accounting policies and practices; • Mian Umer Mansha • Mr. Shariffuddin bin Khalid • Mrs. Iqraa Hassan Mansha • Mr. Nor Hizam bin Hashim • Mr. Muhammad Ali Zeb • Mr. Haroun Rashid* • Mr. Mohd Suhail Amar Suresh bin Abdullah • Mr. Samir Iqbal Saigol *Mr. Haroun Rashid and Mr. Samir Iqbal Saigol were elected as directors of the Bank in its Annual General Meeting held on March 27, 2018, however, State Bank of Pakistan did not clear their Fit and Proper Test as independent directors. Board Committees The Board has formed eight (8) sub-committees as given below: 1. Audit Committee; 2. Business Strategy & Development Committee; 3. Human Resource & Remuneration Committee; 4. Risk Management & Portfolio Review Committee; 5. Committee on Physical Planning & Contingency Arrangements; 6. Information Technology Committee; 7. Compliance Review & Monitoring Committee; and 8. Write-Off & Waiver Committee. Audit Committee Meetings held: 5 Composition: 1. Mr. Shahzad Hussain - (Chairman, Independent Director) 2. Mian Umer Mansha - (Non-Executive Director) 3. Mr. Muhammad Ali Zeb - (Non-Executive Director) 4. Mr. Shariffuddin Director) •Compliance standards; Bin Khalid - (Non-Executive Terms of Reference The main Terms of Reference/ roles & responsibilities of the Committee are: 1. Determination of appropriate measures to safeguard the Bank’s assets; 2. Reviewing annual and interim financial statements of the Bank, prior to their approval by the Board of Directors, focusing on: Unconsolidated Financial Statements with applicable accounting • Compliance with listing regulations, other Statutory and regulatory requirements; and • • Mr. Yahya Saleem. 136 • All related party transactions. 3. Reviewing preliminary announcements of results prior to external communication and publication; 4. Facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary); 5. Reviewing Management Letter issued by external auditors and management’s response thereto; 6. Ensuring coordination of internal auditors with external auditors of the Bank and SBP inspection team(s); 7. Making recommendations to the Board of Directors for the appointment of external auditors, their removal, audit fees, provision of any service permissible to be rendered to the Bank by the external auditors in addition to audit of its financial statements, measures for redressal and rectification of non-compliances with the Regulations. The Board shall give due consideration to the recommendations of the audit committee and where it acts otherwise it shall record the reasons thereof; 8. Reviewing and recommending of the Internal Audit Framework i.e. internal audit function’s policies and manuals (also covering extent and nature of assignments/ engagements that can be provided to the management by internal audit function in its ‘Advisory / Consulting’ role) to the Board for approval. 9.Reviewing, internal audit strategy, reporting framework and procedures developed by Chief Internal Auditor and ensuring its fullest support to the internal audit function and internal auditors enabling them in performing their mandated activities independently and in objective manner; 10.Reviewing and approving scope and extent of internal audit as well as risk based annual audit plan. Furthermore, reviewing the implementation status of the approved audit plan on a quarterly basis. 11. Ensuring that the internal audit function has adequate resources (financial, human, operational, physical and technological), its staff is adequately trained and the function is appropriately placed within the Bank with
  139. Annual Report 2019 access to Bank ’s people, information, processes, properties, records and systems. 12.Ensuring independence of internal audit function, independence & objectivity of internal auditors, optimal utilization of audit resources, effectiveness of the internal audit function in Bank’s overall governance and internal control framework and constructive engagement of internal audit function with senior management and auditee units etc.; 13.Reviewing and recommending budget / resource requirement of Audit & RAR Group to the Board for approval. Further, reviewing, on a quarterly basis, the utilization of Audit & RAR Group’s assigned budget and if required, recommending provision of additional resource(s) to enable the Group in performance of its activities; 14.Formulating ‘Key Performance Indicators’ (KPIs) for the Chief Internal Auditor and evaluate his/her performance against set KPIs on an annual basis; 15.Approving appointment/ re-hiring/ renewal of contract and removal of Chief Internal Auditor along with his/her compensation package/remuneration (including performance based bonus, increments, cash rewards etc.), allied benefits (both financial/ non-financial), promotion/demotion and other terms of employment to the Board through Board’s Human Resources & Remuneration Committee. However, recommendation of Board’s Human Resources & Remuneration Committee may be sought by the Audit Committee/ Board regarding compensation package of Chief Internal Auditor, keeping in view the institution-wide remuneration policy, formulated in terms of BPRD Circular No. 01 of 2017; 16. Consideration of major findings of internal investigations of activities characterized by fraud, corruption and abuse of power and management's response thereto; 17. Reviewing summaries of quarterly report on frauds/ forgeries/ dacoities; 18. Reviewing, on quarterly basis, summary of significant violations/observations, internal control deficiencies, organizational and personal material conflicts of interest etc. to have deep insights into state of internal controls and to set specific, time bound action points/indicators to monitor improvements. Further reviewing the management action plan to ensure that audit observations/ recommendations receive proper and timely attention by senior management; 19. Analyzing and identifying (for necessary action(s)), on a regular basis, ‘root cause(s)’ of control breaches of critical nature that keep on occurring in at-least two audit periods despite implementation of audit recommendations; 20.Obtaining Chief Internal Auditor’s independent annual assessment/opinion on the state of Bank’s internal controls based on the audits conducted over the period; 21.Ascertaining that the internal control systems including financial and operational controls, accounting systems for timely and appropriate recording of purchases and sales, receipts and payments, assets and liabilities and the reporting structure are adequate and effective; 22. Reviewing the Bank’s statement on internal control systems prior to endorsement by the Board of Directors and internal audit reports; 23. Instituting special projects, value for money studies or other investigations on any matter specified by the Board of Directors, in consultation with the Chief Executive Officer (“CEO”) and to consider remittance of any matter to the external auditors or to any other external body. 24. Determination of compliance with relevant statutory requirements; 25.Establishing, maintaining and promoting regular communication with senior management regarding deficiencies in internal controls; review actions taken by management to address identified deficiencies and ascertaining new developments to achieve a uniform organization-wide commitment/ buy-in for implementation of strong and effective internal controls; 26. Reviewing effectiveness of Whistle Blowing procedures for receiving (through internal or external sources) complaints/ concerns regarding business ethics/conduct practices, governance & risk management practices, controls over financial reporting, auditing practices etc. Ensuring that such complaints/ concerns are treated confidentially and that the reporting employee(s) are protected and not penalized in any manner whatsoever. Ensuring that employees remain aware of existence of such procedures including mechanism for utilizing them and are encouraged to be a ‘whistleblower’; 27. Review of arrangement for staff and management to report to Audit Committee in confidence, concerns, if any, about actual or potential improprieties in financial and other matters and recommend instituting remedial and mitigating measures; 28. Reviewing, on a periodic basis, the Internal Controls over Financial Reporting (ICFR) system for its effective implementation and its continuous up gradation. 29. Monitoring compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 and identification of significant violations thereof; 30. Consideration of any other issue or matter as may be assigned by the Board of Directors. Annual Report 2019 137
  140. Business Strategy & Development Committee Terms of Reference Meetings held: 4 The main Terms of Reference of the Committee shall be to ensure that: Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mian Mohammad Mansha - (Non-Executive Director) 3. Mr. S. M. Muneer -(Non-Executive Director) 4. Mr. Mohd Suhail Amar Suresh - (Non-Executive Director) 5. Mr. Salman Khalid Butt - (Independent Director) 6. Mr. Masood Ahmed Puri - (Independent Director) 7. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are to: 1. Review and develop Vision & Mission statements and core values for MCB both from long and short term perspective. 2. Develop Bank’s initiatives relating to business philosophy and acquisition, strategic investment and divestment, capital raising exercise, strategic alliances and brand management. In particular, review the following important matters: a. Policy initiatives; b. Business organization; c. Oversee expansion plans; and d. Contingency planning relating to business realignment. 3. Review and devise medium and long term business plans and policies based on strategy, future direction and milestones set by the Board. 4. Monitor the progress of key strategy initiatives undertaken by the Bank. 5. Keep oversight on Bank’s Overseas Operations. 6. Undertake such other tasks as may be delegated by the Board from time to time. Human Resource & Remuneration Committee Meetings held: 4 Composition: 1. Mr. Yahya Saleem - (Chairman, Independent Director) 2. Mian Mohammad Mansha - (Non-Executive Director) 3. Mrs. Iqraa Hassan Mansha - (Non-Executive Director) 4. Mr. Muhammad Ali Zeb - (Non-Executive Director) 1. The existing policies are reviewed periodically and as necessary, revised and recommended to the Board, in order to attract and retain highly qualified employees. This may include review of remuneration policy and remuneration setting mechanism at least once every three years. Among other factors, the review of remuneration framework shall include, but not limited to: a. The effectiveness of remuneration policy and mechanism i.e., whether it is providing the expected outcomes; b. Any necessary changes required; and c. Any unintended consequences. The findings of review and rectification measures shall be presented to the Board for approval. 2. The latest entry-level procedures are put in place for recruitment of entrants. 3. The existing training facilities for the new entrants as well as for up-gradation of skill level of all employees are reviewed and revised, if required. 4. Proper classification & reclassification of employees’ pay scales, job description and methods of their periodical review are put in place. 5. The Bank-wide remuneration policy takes into account all cadres of employees along with the pay-gap between the highest paid and the lowest paid employees, across various levels as well as across the Bank. The pay-gap shall be based on the total compensation awarded to the employees and should be maintained at reasonable levels without allowing concentration of the benefits of Bank’s performance only to top level or certain class or group of employees. The pay structure for all employees should be fair, competitive and encourage performance and motivation. 6. That the remuneration policy of the Bank provides for reasonable levels of compensation for contractual employees of Bank and commensurate with their assignments. 7. That a separate structure of remuneration for Material Risk Controllers (“MRC”) and Material Risk Takers (“MRTs”) is developed as per remuneration policy. The MRTs should be identified as functions and designations rather than as individuals. The MRTs should have appropriate level of authority and control. 8. An objective criterion for work appraisal/performance is developed and linked with the annual merit increase. 138 Unconsolidated Financial Statements
  141. Annual Report 2019 9 . A review is undertaken of the organizational structure to bring it in line with business strategy & development plan and approve an organizational set up or any revision in the existing set up taking into account the recommendations of the President & CEO. 10. An in-house human resource expertise is developed to undertake market analysis of above policies with a view to developing MCB policies. 11. If so required, the Committee can seek independent external advice/expert opinion for accomplishment of devising an effective and prudent remuneration framework. 12. Effective management information system is developed to monitor the implementation of policies as approved by the Board. 13.Recommendation to the Board for consideration and approval of a policy framework for determining remuneration of directors (both executive and non-executive directors) and members of Senior Management. The definition of senior management will be determined by the Board which shall normally include the first layer of management below the Chief Executive Officer. 14. Selection, evaluation, compensation (including retirement benefits) and succession planning of the CEO, COO, CFO, Company Secretary and Head of Internal Audit and recommendation to the Board. 15. The structure of compensation package of Executive Directors, CEO, Key Executives and any other employee or group of employees Bank-wide is recommended to the Board for its own approval or approval of the shareholders, according to legal and regulatory requirements. 16. The consideration and approval on recommendations of CEO on such matters for key management positions who report directly to CEO. 17.In devising the Remuneration setting policy and mechanism, the Committee can also seek internal inputs from any other Committee of the Board or directly from any department or official of the Bank. Risk Management & Portfolio Review Committee Meetings held: 4 Composition: 1. Mr. Muhammad Ali Zeb - (Chairman, Non-Executive Director) 2. Mian Umer Mansha - (Non-Executive Director) 3. Mr. Mohd Suhail Amar Suresh bin Abdullah- (NonExecutive Director) 4. Mr. Salman Khalid Butt - (Independent Director) 5. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are to: 1. Review the Bank’s Risk Management Framework, in light of internal developments, guidelines issued by the regulators and international best practices, on as and when required basis and recommend to the Board for approval; 2. Ensure Bank’s compliance towards Capital Adequacy and other related Basel/ regulatory requirements on an on-going basis. Review Capital Adequacy Ratio (CAR) in detail on half yearly basis; 3. Review and recommend to Board, Bank’s Risk Appetite Statement on an annual basis 4. Review various reports pertaining to the risk in the Bank’s portfolio prepared by the Risk Management Group. The Committee shall also consider comments of the relevant senior management official/ Committee while reviewing such reports and communicate the planned/executed corrective actions to the Board, if required; Committee on Physical Planning & Contingency Arrangements Meetings held: 4 Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mian Mohammad Mansha – (Non-Executive Director) 3. Mrs. Iqraa Hassan Mansha - (Non-Executive Director) 4. Mr. Muhammad Ali Zeb - (Non-Executive Director) 5. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are: 1. To develop and devise an overall plan for physical infrastructure and contingency arrangements for the Bank; 2. To review and monitor all work in progress, including construction of premises and renovations, which shall, inter alia, be based on physical planning; 3. To review, monitor and recommend to the Board the building plans, master development agreements & contingency arrangements; 4. To review, from time to time, as the Committee deems appropriate, the administrative structures and plans in place to ensure the ongoing health and safety of utilities and physical assets, including land & buildings and recommend, as appropriate, changes in plans arising from this review; 5. To review updates on Bank’s property purchases. Annual Report 2019 139
  142. Information Technology Committee Terms of Reference Meetings held : 4 The main Terms of Reference of the Committee are: Composition: 1. To review six monthly reports, prepared by the Compliance & Controls Group and routed through the President, on overall compliance risk management in the Bank (local as well as overseas operations) including the actions taken on the recommendations and observations of SBP in its Annual/ Thematic Inspection Reports; 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mr. Yahya Saleem - (Independent Director) 3. Mr. Mohd Suhail Amar Suresh - (Non-Executive Director) 4. Mr. Salman Khalid Butt - (Independent Director) 5. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are: 1. To approve an overall plan for IT system for the Bank prepared by the management; 2. To approve the organizational IT and Digital strategic plans to ensure an effective use of information technology and digital initiatives in the Bank by all Departments; 3. To approve and oversee the management’s program to automate the organization’s use of internal information to ensure that data is organized and shared in a manner that adds value and enhances productivity; 4. To approve and oversee a reliable and secure information security infrastructure with the capacity to address future threats; 5. To approve policies that promote development of information technology and Digital resources in an organized, deliberate, secured, and cost effective manner; 6. To review and approve management recommendations for IT standards for ensuring compliance with regulatory requirements and identifying and mitigating significant IT related risks; 7. To review and approve the technology procurements as per the Bank’s approved IT Strategy. The Committee may further delegate the same to the management as and when deemed fit. 8. To undertake any other IT or Digital Banking related work assigned to the Committee by the Board. Compliance Review and Monitoring Committee Meetings held: 4 Composition: 1. Mr. S. M. Muneer - (Chairman, Non-Executive Director) 2. Mr. Muhammad Ali Zeb - (Non-Executive Director) 3. Mr. Salman Khalid Butt - (Independent Director) 4. President & CEO - (Executive Director) 140 Unconsolidated Financial Statements 2. To evaluate the effectiveness of the Bank’s overall management of compliance risk, at least annually; keeping in view the regulatory observations in onsite examinations, regulatory enforcement actions, internal assessments/feedback from internal audit, compliance reviews, as well as interactions with the Chief Compliance Officer (“CCO”); 3. To carry on liaison between the Board and the management and make recommendations to the Board, if necessary, for taking decisions on expedient and appropriate disposal of compliance issues raised through Compliance Committee of Management (“CCM”) and SBP’s inspection reports and other AML/CFT related identified issues; 4. To oversee the effectiveness of Service Quality function of the Bank and to review the Bank’s performance against committed service deliverables. 5. To review/recommend Compliance Risk Strategy/ Policy, Compliance Program and allied policies and oversee its implementation across the Bank in letter and spirit; 6. To recommend appointment of CCO on the advice of the President and ensure that position of CCO does not remain vacant for more than 60 days. Furthermore, to approve any disciplinary action or termination of the CCO; 7. To ensure that CCO has appropriate stature, authority, resources (physical, financial and human), support to fulfill his duties, independence and capacity to offer his objective opinions and advise to senior management and Board on matters of compliance risks; 8. To ensure that Compliance Function (“CCG”) has subject experts on various critical areas such as risk management, credit operations, product compliance, customer service, international trade, outsourcing, corporate governance, financial disclosures, business continuity, information technology, general banking operations, AML/CFT etc. to provide guidance to business areas as and when required. 9. To ensure that CCG being the second line of defence, assists line managers/departments in designing and implementing adequate controls to manage risks of non-compliance and monitors and assesses bank-
  143. Annual Report 2019 wide compliance risk and reports risk profile to Board and Compliance Committee of Management . 10. To engage with the CCO on half yearly basis, for his feedback on issues faced by the CCG in the implementation of board approved compliance program; 11. To review the minutes of CCM meetings to ascertain its effectiveness in managing compliance risk; 12.To review the progress in implementing remedial actions taken with respect to instances of noncompliance or control weakness as identified by Compliance Function through its regular compliance reviews and / or various other sources; 13. To review the compliance risk relevant agenda items as required under SBP regulations/ instructions of overseas jurisdictions, AML/CFT perspective and SBP inspection reports’ observations as per their respective timelines/ frequencies (quarterly, semiannually or annually); 14. To satisfy itself of receiving the accurate as well as comprehensive information required to perform its compliance risk oversight responsibilities, including seeking assurances from Senior Management that the compliance risk controls have been implemented and are working effectively; 15.Any other issue that is deemed necessary and required by the regulations. Write-Off & Waiver Committee Meetings held: None Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 7. 8. 9. 10. 11. 12. 13. 14. 15. Mr. Syed Mudassar Hussain Naqvi Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Ms. Nabeela Waheed Mr. Hassan Nawaz Tarar Mr. Nadeem Afzal Mr. Salman Y Zaidi Mr. Shoaib Mumtaz Mr. Haris Hasan – Acting member Assets & Liabilities Committee 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Mr. Imran Maqbool - Chairman Mr. Hammad Khalid Mr. Mohammed Nauman Chughtai Ms. Nabeela Waheed Mr. Salman Y Zaidi Mr. Kamran Zaffar Muggo Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Mr. Nadeem Afzal Mr. Shoaib Mumtaz Investment Committee 1. 2. 3. 4. 5. 6. Mr. Imran Maqbool - Chairman Mr. Omair Safdar Mr. Salman Y Zaidi Mr. Hammad Khalid Ms. Nabeela Waheed Mr. Mohammed Nauman Chughtai Management Credit & Risk Committee 1. Mr. Imran Maqbool - Chairman 2. Ms. Nabeela Waheed 3. Mr. Rizwan Chughtai – Acting member 2. Mr. Muhammad Tariq Rafi - (Non-Executive Director) Disciplinary Action Committee 3. Mr. Muhammad Ali Zeb - (Non-Executive Director) 1. 2. 3. 4. 5. Mr. Usman Hassan - Chairman Mr. Kamran Zaffar Muggo Mr. Farid Ahmad Mr. Haris Hasan - Acting member Mr. Hassan Nawaz Tarar Purchase & Expense Committee 1. 2. 3. 4. Mr. Kamran Zaffar Muggo Mr. Hammad Khalid Mr. Hassan Nawaz Tarar Mr. Usman Hassan Write Off Committee 1. 2. 3. 4. 5. Mr. Imran Maqbool - Chairman Mr. Hammad Khalid Mr. Mohammed Nauman Chughtai Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Terms of Reference The terms of reference of the Committee are: 1. To review and approve write-off & waiver cases on behalf of the Board of Directors; and 2. To submit cases of write-off & waiver for post facto ratification by the Board. Management Committees Management Committee 1. 2. 3. 4. 5. 6. Mr. Imran Maqbool - Chairman Mr. Hammad Khalid Mr. Kamran Zaffar Muggo Mr. Farid Ahmad Mr. Usman Hassan Mr. Mohammed Nauman Chughtai Annual Report 2019 141
  144. 6 . Mr. Nadeem Afzal 7. Mr. Omair Safdar 8. Ms. Nabeela Waheed Issue Tracking & Monitoring 1. Mr. Farid Ahmad - Chairman 2. Mr. Kamran Zafar Muggo 3. Ms. Nabeela Waheed 142 Information Technology Steering Committee 1. 2. 3. 4. 5. 6. 7. Mr. Imran Maqbool - Chairman Mr. Hammad Khalid Mr. Mohammed Nauman Chughtai Mr. Kamran Zaffar Muggo Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Ms. Nabeela Waheed Litigation Review Committee 1. 2. 3. 4. 5. 6. 7. Mr. Syed Mudassar Hussain Naqvi - Chairman Mr. Haris Hasan - Acting member Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Mr. Usman Hassan Mr. Mansoor Qadir Mr. Amir Nawab Management Sub-Committee for Resolution of Long Outstanding Audit Issues 1. 2. 3. 4. Mr. Kamran Zaffar Muggo - Chairman Mr. Hammad Khalid Mr. Azfar Alam Nomani Mr. Zargham Khan Durrani Management Sub-Committee on AML/CFT 1. 2. 3. 4. 5. 6. 7. Mr. Farid Ahmad - Chairman Mr. Kamran Zaffar Muggo Mr. Azfar Alam Nomani Mr. Zargham Khan Durrani Mr. Mohammed Nauman Chughtai Ms. Nabeela Waheed Mr. Shoaib Mumtaz Overseas Monitoring Committee 1. 2. 3. 4. 5. Mr. Hammad Khalid - Chairman Ms. Nabeela Waheed Mr. Farid Ahmad Mr. Kamran Zaffar Muggo Mr. Shoaib Mumtaz Compliance Committee of Management 1. 2. 3. 4. Mr. Imran Maqbool - Chairman Mr. Farid Ahmad Mr. Kamran Zaffar Muggo Mr. Usman Hassan Unconsolidated Financial Statements 5. 6. 7. 8. 9. 10. 11. Ms. Nabeela Waheed Mr. Syed Mudassar Naqvi Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Mr. Mohammed Nauman Chughtai Mr. Shoaib Mumtaz Mr. Nadeem Afzal Cyber Security Committee 1. 2. 3. 4. 5. 6. 7. 8. Ms. Nabeela Waheed - Chairman Mr. Nadeem Afzal Mr. Farid Ahmad Mr. Mohammed Nauman Chughtai Mr. Kamran Zaffar Muggo Mr. Shoaib Mumtaz Mr. Zargham Khan Durrani Mr. Azfar Alam Nomani Outsourcing Relationship Review Committee 1. Mr. Kamran Zaffar Muggo - Chairman 2. Ms. Nabeela Waheed 3. Mr. Farid Ahmad Performance Evaluation of the Board of Directors, its Committees and Individual Directors: MCB Board conducted the performance evaluation of the Board as a whole, its Committees and Individual Directors through an external independent evaluator in line with the ‘Guidelines on Performance Evaluation of the Board of Directors’ (“SBP Guidelines”) issued by the State Bank of Pakistan (“SBP”) vide its BPRD Circular No. 11, dated August 22, 2016. SBP Guidelines requires that after two years of in house evaluation, the third year evaluation is required to be done by an external independent evaluator. In 2019, the Board engaged the services of M/s Pakistan Institute of Corporate Governance (“PICG”) as an external independent evaluator to conduct the performance evaluation of the Board as a whole, its Committees and individual Board Members for the year 2018. PICG Report on performance evaluation of the Board, its Committees and Individual Directors for the year 2018 narrates that the MCB Board evaluation was carried out in accordance with the SBP Guidelines and the main objective was to help identify areas for improvement to ensure that Bank’s strategy was implemented as effectively as possible. As per PICG evaluation results; the Strategic Performance Index of the Bank has been calculated as 88% securing one of the highest figure in the banking industry. The Strategic Performance Index was a leadership assessment measuring organizational success across the Bank broadly covering the following categories:
  145. Annual Report 2019 Category Category 1 . Strategic Planning 7. Board Committees 2. Board Composition 8. Board Procedures 3. Control Environment 9. Board & CEO Compensation 4. Board and CEO Effectiveness 10. Independent Directors 5. Chairman 11. Board Information 6. CEO 12. Board Interaction MCB Board has put a formal and an effective mechanism for annual performance evaluation of the Board since 2014 as per the requirements of the Code of Corporate Governance. Under SBP Guidelines, the Board has also conducted the performance evaluation of overall Board, its Committees and Individual Directors for the year 2016 and 2017. Criteria for Annual Performance Evaluation of the Board The Board needs to act on a fully informed basis in the best interest of the Bank and its stakeholders. It has overall responsibility to approve and oversee implementation of the Bank’s strategic objectives and to set ‘tone at the top’ in order to promote a sound corporate culture. Under SBP Guidelines, the overall Board’s performance is based on below criteria: • Is the composition of the board appropriate, having the right mix of knowledge, expertise and skills to maximize performance? • How well the board exercises its role ensuring that the organization supports and upholds the vision and mission, core values etc.? • Is the board effective in adherence to the code of conduct? Criteria for Annual Performance Evaluation of the Board Committees: The rationale for the formation of Board Committees is to enhance the efficiency and to share the work load of the Bard. The performance of the Committees may be evaluated on the basis of the Terms of Reference (“TORs”) of the respective committees. Under SBP Guidelines, the performance of the Board’s Committees is based on below criteria: • Are the size, structure and skill set of committees appropriate? • Does each committee have adequate and appropriate written TORs? • Are the committees effectively discharging their functions and duties as per TORs? • Is the frequency of committee meetings adequate? • Are the committee meetings organized properly with appropriate procedures? • Are the committee meetings conducted in a manner that encourages open communication and meaningful participation of its members? • How effectively and proactively committees have followed up with their areas of concern? • Are the suggestions and recommendations of committees effective? Annual Performance Evaluation of the Chairman, Individual and Independent Directors: • Is the board able to make timely strategic decisions ensuring operations are in line with strategies? As per the requirements and criteria given by the SBP Guidelines, the performance evaluation of the Chairman of the Board is performed by the Independent Directors. The performance of Individual Directors may be conducted by the Chairman; however, Independent Directors are evaluated by all other Directors of the Bank excluding the Director being evaluated. • Is the information provided to the board appropriate, accurate, timely and unbiased? Annual Performance Evaluation of the President & CEO of the Bank: • What has been the board’s contribution in ensuring robust and effective risk management? • Has the board ensured that internal control and the audit function are conducted in an effective manner? • Has the board ensured timely and accurate disclosure on all material information? The President & Chief Executive Officer (“CEO”) of the Bank is vested with the responsibility of managing overall affairs of the Bank. The Board, assuming a monitoring role, delegates its authority to the CEO to effectively manage the Bank, implement strategic decisions / policies and align the Bank’s direction with the vision and set objectives. Under SBP Guidelines, the performance evaluation of the President & CEO is based on the following specific questionnaires: • Is the policy framework of bank/DFI developed appropriately? • What has been the board’s contribution towards developing strategies? • Is the board as a whole, up-to-date with latest developments in the regulatory environment? • Are the board procedures conducive to effective performance and flexible enough to deal with all eventualities? • Were the financial/business targets set by the board achieved? Annual Report 2019 143
  146. • Does he possess leadership qualities i.e. correct anticipation of business trends, opportunities and priorities affecting the institution’s prosperity and operations? • Has he developed clear mission statement, policies, and strategic plans that harmoniously balance the needs of all the stakeholders? • Does he ensure that company’s resources and budgets are aligned with the implementation of the organization’s strategic plan? • Does he establish an effective organization structure to ensure management’s focus on key functions? • Does he timely and effectively execute strategies set by the board? • Has he served as an effective representative while communicating with all the stakeholders? The Board of Directors evaluated that the President & CEO managed the affairs of the Bank in accordance with sound business principles and prudent commercial practices. He achieved performance standards and financial/business targets as set by the Board. The effective leadership and team building efforts of the President & CEO helped in achieving maximum performance of the Bank. He ensured that Bank’s resources and budgets are aligned with the implementation of strategic plan as approved by the Board and also conducted the affairs of the Bank in accordance with the best practices and policies approved by the Board, and promoted the highest standards of integrity, probity and good governance within the Bank. Performance Evaluation through External Independent Evaluator: SBP under BPRD Circular No. 11 of 2016 dated August 22, 2016 required that Board evaluation should be undertaken by an external independent evaluator at least once in every three years. The performance evaluation of the Board, its Committees and Individual Directors has been conducted through an external independent evaluator in 2019. Directors’ Remuneration: MCB Board, in line with the SBP directions issued through its BPRD Circular No. 03 of 2019, dated August 17, 2019 has determined the scale of remuneration including additional remuneration to be paid to the NonExecutive Directors including Independent Directors and the Chairman for attending Board Meetings and its Committees meetings of the Bank. The scale of remuneration including additional remuneration which is required to be approved by the Shareholders of the Bank is within the prescribed limits of the SBP Circular. 144 Unconsolidated Financial Statements Directors’ Remuneration Policy: The Directors’ Remuneration Policy (the “Remuneration Policy”) has been formulated by Board’s Human Resource & Remuneration Committee as per the requirements of SBP BPRD Circular No. 03 of 2019, dated August 17, 2019 and recommended by the Board of Directors to the Shareholders of the Bank for their approval in Annual General Meeting scheduled to be held on March 19, 2020. The Remuneration Policy has been prepared in accordance with the provisions of the Prudential Regulations for Corporate and Commercial Banks, issued by the State Bank of Pakistan, the Listed Companies (Code of Corporate Governance) Regulations, 2019, the Companies Act, 2017 and other applicable laws, rules and regulations as amended from time to time. The Remuneration Policy aims to set out the requirements and methodology for the determination of the scale of the remuneration to be paid, from time to time, to the Chairman and other Directors for attending the Board and its Committees meetings. It ensures that the Board Members are fairly rewarded with regard to their respective responsibilities undertaken, and also to attract and retain high-caliber, experienced directors by offering appropriate remuneration levels commensurate with their expertise, skill and experience. The Remuneration Policy has been formulated with clear mandate and charter, keeping in view the ownership structure, governance mechanism, risk profile, scope of operations and performance of the Bank. Payment of Directors’ Remuneration: The detail of remuneration paid to Executive and NonExecutive Directors during the year 2019 has been disclosed in Note No. 40 of the Unconsolidated Financial Statements of the Bank for the year ended December 31, 2019. Remuneration from Nomination on the Board of Other Companies: The Directors have approved the Nomination Policy whereby Bank’s Executives are nominated on the Board of other Companies on behalf of the Bank. Nominee Directors who are employees of the Bank shall, however, have to surrender compensation such as meeting attendance fee to the Bank. Directors’ Orientation: The Board Members are regularly provided with update on new applicable laws, rules and regulations including amendments thereto to apprise them with their powers, duties and responsibilities. At the time of induction of any new director, he/she is given orientation about the operations of the Bank by the Management to acquaint
  147. Annual Report 2019 them with Bank ’s operations in order to enable them to effectively govern the affairs of the Bank on behalf of shareholders. The directors are also provided with the detailed written material in the shape of extracts from relevant laws, rules & regulations on powers, duties & responsibilities of the Board of Directors. During the year 2019, the Bank has also arranged Directors’ Orientation Workshops for Board Members through M/s Pakistan Institute of Corporate Governance (“PICG”). The senior faculty members from PICG provided a detailed update on Regulatory Corporate Governance Framework covering relevant provisions of the following laws, rules and regulations: • The Companies Act, 2017; • The Banking Companies Ordinance, 1962; • Prudential Regulations for Corporate/Commercial Banking issued by the State Bank of Pakistan; • Prudential Regulations for Consumer Financing issued by the State Bank of Pakistan; and • Listed Companies (Code of Corporate Governance) Regulations, 2019. Directors’ Training Program: All the Board Members except one either have minimum education and experience required for exemption from Directors Training Program (“DTP”) or have already completed such training requirements, as narrated in the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the “Regulations”) and Prudential Regulations issued by the SBP. MCB Board is fully adhered to the directors training arrangements under the Regulations. Further, the Bank is also well ahead to the prescribed deadlines of DTP requirements as given by the regulator. Board’s Function and Decision Making: MCB Board plays an effective role and provides entrepreneurial leadership and direction for the Management of the Bank within a framework of prudent and effective controls. It promotes collective vision of the Bank purpose, its culture, its values and also demonstrates ethical leadership. The collective wisdom of the Board is translated into its decisions which form the basis for Management to achieve its targets. The primary role of the Board of Directors of the Bank is to enhance shareholder value. MCB Board is concerned with strategic matters and overseeing the business of the Bank in light of emerging risks and opportunities, on a regular basis and also involved in establishing and reviewing the strategies, yearly targets and financial objectives of the Bank. All the strategic decisions of the Bank have been taken by the Board. Significant Issues/Matters discussed/approved by the Board of Directors: During the year 2019, the Board of Directors deliberated/ approved the following Significant Issues/ Matters: • Annual Budget for the year 2020; • Bank’s Policies including periodic reviews and amendments thereto; • Periodical review of Terms of Reference (“TORs”) of Board’s Committees; • Financial Results of MCB Bank and consolidated Financial Results with its subsidiaries on quarterly, half-yearly and annual basis together with Directors’ Report, Auditors’ Report and Chairman’s Review Report; • Declaration of Interim and Final Cash Dividends; • Related Party Transactions as recommended by Board’s Audit Committee; Till December 31, 2019, the following directors have attended Directors Training Program from SECP approved institutions: • Management Letter (s) issued by the External Auditors of the Bank and its compliance status; • Update on Biometric Verification Project; 1. Mr. S. M. Muneer 2. Mr. Muhammad Ali Zeb 3. Mrs. Iqraa Hassan Mansha • Institutional Risk Assessment Framework (“IRAF”) Questionnaire; In addition, the following directors have foreign certification: • • 1. Mr. Mohd Suhail Amar Suresh 2. Mr. Shariffuddin Bin Khalid The following directors hold exemption certificate issued by the Securities & Exchange Commission of Pakistan: 1. 2. 3. 4. Mr. Muhammad Tariq Rafi Mian Umer Mansha Mr. Salman Khalid Butt Mr. Shahzad Hussain Significant activities and achievements of Board’s Committees; Complaints Received under Whistle Blowing Program and Action taken thereon; • • Matters recommended by Board’s Committees; Appointment/Engagement of External Auditors of the Bank as well as for Bank’s Overseas Operations; • Exception to Board’s approved policies along with MIS; • Exception from Current and Linkage Ratio Policy Framework; Annual Report 2019 145
  148. • SBP Inspection Reports along with Time-Bound Action Plan thereon; • • Performance Evaluation of the Board as a whole, its Committees and Directors; • Matters pertaining to subsidiaries; • Regulations and Standards by Central Bank of the UAE; • Quarterly and Annual Reports on Fraud & Forgery Cases; • Fraud Risk Assessment; •Consumer Lending Business Management Business; and Wealth • Write-offs/Waivers approved at Different Authority Levels and recoveries thereto; • Status and implications of all material law suits filed by and against the Bank; • Annual Branch Expansion Plan of the Bank; and • Update on Laws, Rules and Regulations. Matters Delegated to the Management: The Board sets the strategic objectives and takes the overall responsibility of overseeing its implementation. The Board performs its duties by giving guidelines to the Management, setting performance targets and monitoring their achievements. The Management is primarily responsible for implementing the strategies as approved by the Board of Directors in conducting the operations of the Bank effectively. Tactical and operational matters are delegated to the Management. Governance Practices Exceeding Legal Requirements: MCB Board as a whole respects the country laws and ensures meticulous compliance of applicable laws, rules & regulations and being leading Bank always adheres to provide information and disclosures above the minimum regulatory requirements. The Board never gives the room for any sort of non-compliance and takes it as reputational risk for the Bank. The Management also regularly updates the Board with the latest development in the regulatory environment and maintains stringent control over regulatory compliance through designated resources. Following are some of the practices of the Bank which exceed the minimum legal requirement: 146 The Bank has only one Executive Director (President & CEO) though permitted two executive directors by SBP and four (one third of the Board as executive directors) under Listed Companies (Code of Corporate Governance) Regulations – 2019. • The Bank reports additional information in the Annual Report for stakeholders which is not required by any laws. Equity Investment in PCRCL and MCB Islamic Bank Limited; • Amalgamation of MNET Services (Private) Limited with and into MCB Bank Limited; • • The Board has formed its eight sub-Committees as against legal requirement of four. Unconsolidated Financial Statements Roles and Responsibilities of the Chairman and the President & CEO of the Bank: The Roles and Responsibilities of the Chairman and the President & CEO of the Bank are described below: Roles and Responsibilities of the Chairman: The Chairman of the Board of Directors (“the Board”) shall be elected from amongst the non-executive directors of the Bank and shall not hold office of Chief Executive Officer (“CEO”). He shall be responsible for leadership of the Board and shall ensure that the Board plays an effective role in fulfilling its responsibilities. The Chairman has responsibilities and powers as vested in him/her by law, Articles of Association of the Bank and/or assigned, from time to time, by the Board. In particular, the Chairman will coordinate the affairs of the Board and chair the meetings of the Bank; however, he shall not participate in day-to-day management affairs of the Bank. The Chairman shall ensure that: • The composition of the Board is in accordance with legal and regulatory requirements; • The Board as a whole is functioning effectively in accordance with applicable laws, regulations and rules to inculcate sound business principles and prudent commercial practices; • The Board receives appropriate, accurate, timely and unbiased information, in particular, about the Bank’s affairs and performance to enable the Board to take sound and effective decisions; • The meetings of the Board and the Shareholders of the Bank are convened in compliance with legal and regulatory requirements; and proceedings of such meetings are accurately and fairly recorded. The agenda of the meetings take full account of applicable laws & regulations and the requirements of Bank’s business; • All Board Members are encouraged to participate and raise issues and concerns in the Board discussions, whilst promoting highest standards of Corporate Governance; • The Board is concentrating on relevant issues and conflicts (if any) are effectively resolved;
  149. Annual Report 2019 • The Board sets the tone and values of the Bank; promotes a culture of openness and constructive debate and effective decision making; • The Board is periodically updated on its statutory and fiduciary duties, as required in relevant laws, regulations and rules, enabling the Directors to perform their roles & responsibilities properly and prudently in the best interest of the Bank; • Good relationship is maintained with Board Members, the Management and the Shareholders; so that obligations to the Shareholders and other stakeholders are understood and met; and • Shareholders’ and other stakeholders’ interest is promoted in the decisions taken by the Board. • Ensure through effective leadership, team building and motivation that the maximum possible performance is achieved by the Bank and ensure that the affairs of the Bank are being managed in accordance with highest ethical standards, sound business principles and prudent commercial practices; • Exercise the overall control, discretion, administration and supervision for the sound and efficient management and conduct of the business of the Bank; • Monitor short term goals and ensure that the operating groups/divisions develop their own plans for the future, which need to be quantified as far as possible with benchmarks established; • The Chairman and the Vice-Chairman shall be elected by the Board in accordance with the provisions of the Articles of Association of the Bank and shall hold the office for a period of three years. In the absence of the Chairman, the above mentioned role and responsibilities of the Chairman shall be performed by the Vice-Chairman of the Bank. Roles and Responsibilities of the President & CEO: The President & CEO of the Bank, subject to the control and directions of Board, shall be entrusted with the whole, or substantially the whole, of the power of the Management to direct, manage, administer and control the affairs of the Bank. He shall be responsible to the Board for the implementation of its strategies, policies and decisions. The President & CEO of the Bank shall: • Set the appropriate performance standards to achieve financial/business targets set by the Board; • Ensure that Bank’s resources and budgets are aligned with the implementation of its strategic plan; • Ensure assessment, monitoring and effective management of the significant risks to the Bank; Conduct a periodic performance review of the Senior Management team so that major initiatives such as expansion strategies, acquisitions and capital investments should be finalized and adopted through major marketing and development exercises; • Provide the Board with the relevant information it needs to carry out its fiduciary responsibilities and to supervise the Senior Management; • Liaise between the Board and the staff, and communicate on a regular basis with both to promote understanding, cohesiveness and coordination for development of policies and their implementation; • Ensure the compliance of applicable laws, rules and regulations; • Ensure establishment of an effective information mechanism whereby internal and/or external significant/material items affecting Bank’s affairs are identified and shared with relevant stakeholders on timely basis; and • Maintain follow up on regulators’ observations and other lawful instructions and issues raised by external and/or internal auditors and to ensure their strict adherence/compliance in Bank’s operations. • Ensure that Bank maintains high standards of corporate citizenship and social responsibility wherever it operates; Code of Conduct & Ethical Standards for Directors: • Establish an effective organizational structure having appropriate resources/systems within the Bank, to ensure Management’s focus on key functions; • Timely and effectively execute strategies set by the Board; The Bank has also developed “Code of Conduct & Ethical Standards for Directors” as per requirements of Code of Corporate Governance which is signed by every Director of the Bank. • Manage the affairs of the Bank in accordance with strategies and long term objectives approved by the Board; • Ensure effective communication with the Board, Shareholders, Employees, regulatory authorities and other stakeholders and serve as an effective representative of the Bank while communicating with all the stakeholders; Directors’ Profile: Directors’ profile has been incorporated in the “ Board of Directors” section. Accessibility of Annual Report-2019: Annual Report-2019 and other information of the Bank are accessible on Bank’s Website: www.mcb.com.pk Annual Report 2019 147
  150. Security Clearance of Foreign Directors Foreign Directors elected on the Board of Bank requires security clearance from Ministry of Interior through SECP . All legal formalities and requirements have been met and fulfilled in this regard. Diversity The Board of Directors firmly believes that the diverse mix of gender, knowledge, expertise and skill sets of the members / employees enhances the effectiveness of the Bank. MCB is committed in fostering, cultivating and preserving a culture of diversity and inclusion. Human capital is the most valuable asset the Bank has. The collective sum of the individual’s life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent that employees invest in their work, represents a significant part of Bank’s culture, as well as reputation and achievement. The Bank embraces and encourages employees’ with a mix of age, physical disability, family ethnicity, language, political affiliation, religion, sexual orientation, socioeconomic status and other characteristics that make its employees unique. Related Parties and approved Policy for Related Party Transactions The Board of Directors has approved a Policy for Related Party Transactions. The Bank’s policy is to conduct all the related party transactions on an arm’s length basis in the in the normal course of business. If a transaction is not conducted on arm’s length basis then specific approvals or ratifications is required by the Board on recommendation of the Audit Committee of the Bank in order to avoid any potential conflict of interest. The policy specifies that all transactions entered into with related parties shall require Board’s approval on the recommendation of the Board Audit Committee of the Bank, which is chaired by an independent director of the Bank. Every director (including spouse, children, step children and parents) of the Bank who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank shall disclose the nature of his concern or interest at a meeting of the board. No director of the Bank shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank, if he/ she is in any way, whether directly or indirectly, concerned 148 Unconsolidated Financial Statements or interested in the contract or arrangement, nor shall his/ her presence count for the purpose of forming a quorum at the time of any such discussion or vote. During the year, the Bank has entered into transactions and contracts with the related parties i.e. subsidiary and associate companies, post-employment benefit plans for the Bank’s employees, Key Management Personnel (KMPs), Close Family Members (CFMs) of KMPs and other related entities. Those transactions include lending activities, acceptance and placements, off balance sheet transactions and provision of other banking and financial services that are carried out in the ordinary course of business on an arm’s length basis at commercial rates, except for the transactions that KMPs have availed under HR policy of the Bank. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. The Bank has made detailed disclosures about related party transactions in its financial statements annexed with this annual report. During the year, no contract or arrangement entered with related parties other than in the ordinary course of business on an arm’s length basis. Managing Conflict of Interest: Overview: A conflict of interest arises when a director has an interest, pecuniary or otherwise, which can be regarded as a conflict of interest between his duty to perform his functions and such interest which could impair his ability to consider and decide any question impartially or create bias in his decision. The Board Members owe certain fiduciary duties, including the duties of loyalty, diligence, and confidentiality to the Bank which require that a director must act in good faith in order to promote the objectives of the Bank in the best interests of the Bank and its shareholders, employees and community as a whole. Every director of the Bank has responsibility to disclose potential or actual conflicts of interest with respect to his/her duties as soon as they arise or he/she becomes aware of them. All the Board Members took reasonable steps to avoid being in an actual, apparent or potential conflict of interest. The Board recognizes the responsibility to adhere to the defined policies of the Bank and avoid perceived conflicts of interest that may arise during the course of business. The Bank has also developed “Code of Conduct & Ethical Standards for Directors” as per requirements of Code of
  151. Annual Report 2019 Corporate Governance which is signed by every Director of the Bank and all of the Board Members are compliant with the provisions stipulated thereto . Disclosure of Interest by Director: Every director (including spouse, children, step children and parents) of the Bank who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank shall disclose the nature of his concern or interest at a meeting of the board. No director of the Bank shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank, if he/ she is in any way, whether directly or indirectly, concerned or interested in the contract or arrangement, nor shall his/ her presence count for the purpose of forming a quorum at the time of any such discussion or vote. The Bank shall not enter into leasing, renting and sale/ purchase of any kind with their directors, officers, employees or such persons who either individually or in concert with family members beneficially own 5% or more of the equity of the Bank. The Bank shall not take unsecured exposure on, or take exposure against the guarantee of any of its directors, any of the family members of any of directors and any firm or private company in which our directors are interested as director, proprietor and partner or public company in which such persons are substantially interested. Conflicts of Interest Register: The Bank maintains a register of all contracts, arrangements or appointments in which directors are interested. Insider Trading: Where any director of the Bank including his/her spouse, minor children and private limited company in which such director is a shareholder sells, buys or transacts, whether directly or indirectly, in shares of the Bank shall immediately notify, in writing, to the Company Secretary of such transaction. Such director shall also deliver a written record of the price, number of shares, form of share certificates, i.e., whether physical or electronic within the Central Depository System, and nature of transaction to the Company Secretary within two days of effecting the transaction. Further, if any director makes any gain while trading in the securities of the Bank within the period less than six months shall report the same to SECP along with amount of such gain within the stipulated time. No director shall, directly or indirectly, deal in the shares of the Bank, in any manner, during the closed period as determined by the Board of Directors. Disclosure of Interest by Officers: No other Officer of the Bank who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the Bank shall, unless he discloses the nature and extent of his/her interest in the transaction and obtains the prior approval of the Board of Directors, enter into any such contract or arrangement. Exposure in Interested: Companies where Directors are The Bank may take exposure in the companies in which directors (including their spouses, parents, and children) hold key management positions, or are interested as partner, director or guarantor, or shareholders holding 5% or more of the share capital of that concern, with the approval of the majority of the directors excluding the director concerned. The financing facilities shall be extended at market terms and conditions and be dealt with on arm’s length basis. Directors being the insiders are prohibited by the law to indulge in insider trading. They shall not deal directly or indirectly in the securities of the Bank whether on their own account or their relative’s account, if they are in possession of any unpublished price sensitive/inside information, which if published or known, is likely to materially affect the price of Bank’s securities. Directors are usually considered to have such information, shall not communicate directly or indirectly the said information to others who might exploit such information while trading in the securities of the Bank. As per the regulatory requirements relating to Insiders’ trading, the Bank is maintaining the register of Insiders who have access to unpublished price sensitive/inside information and the said Register regularly updated by the authorized personnel of the Senior Management of the Bank. Whenever, the Bank or a person acting on its behalf, discloses any inside information to any third party in the normal exercise of employment, profession or duty; a complete and effective public disclosure of that information is made simultaneously unless such person owes a duty of confidentiality. Further, Bank has approved policy on Prohibition of Insider Trading which is effectively implemented throughout the Bank. Investor Grievances MCB Bank ensures safeguarding the interests of its stakeholders by effective communication at regular intervals through multiple mediums. However, the Bank acknowledges that there may be instances where the stakeholders may have unaddressed concerns which if unresolved may become a grievance. To timely address any untoward incident, the Bank has a well-functioning Annual Report 2019 149
  152. grievance mechanism that provides a transparent and credible process resulting in outcomes that are seen as impartial , effective, and durable. Through this initiative the Bank is able to reduce investment risks, provide an effective avenue to express and resolve concerns, thereby substantiating positive relationship. The Bank ensures quality services with uncompromising focus on investors’ concerns and transparency in execution thereby extending respect to the trust placed. A centralized function namely the Shares department in the Corporate Affairs Division manages any such investor grievances. Investors can lodge complaints by contacting the shares registrar, or write a letter or send an email to the share department of the Bank. A designated e-mail address, (investor.relations@mcb.com.pk) has been created to timely address the same and is readily available through our website and annual reports. The Bank ensures resolution of any grievances within statutory timelines. Human resource management policies and succession planning Human Resource Policies” have been approved by the Board of Directors of the Bank on the recommendation of Human Resource and Remuneration Committee of Board in order to provide clear and definitive directions on human resource (HR) related matters. MCB being an equal opportunity employer is committed to create a congenial and efficient work environment in which the employees are assured a non-discriminatory, transparent, harassment free and respectful atmosphere regardless of their cast, creed, religion and gender. The Bank talent-acquisition policies provide unbiased criteria for hiring people through lateral and batch hiring, from any background as long as they qualify for the professional criteria required by the Bank. The culture at MCB Bank also depicts a healthy, team based and cooperative environment. We value the unique talents and perspectives of our employees and strive to create a respectful workplace The Bank is committed towards employee development practices which enable all its employees to reach their optimum potential, thereby creating a high performance organization. This belief is supported by the Bank’s comprehensive approach towards performance management, career development and management training. The Bank affirms its belief in motivating its work force through positive reinforcement and opportunities in each of these key areas regarding employee development. The Bank has a transparent KPI based performance assessment and reward mechanism that allows front- 150 Unconsolidated Financial Statements office employees to track their performance with their goal achievement throughout the year. Succession Planning Policy provides guidelines to develop and retain the talent pool of employees in order to ensure the continuity of leadership for all critical position in the Bank. Succession Planning is a continuous process that involves identification, assessment and development of talent, which in turn ensures that the Bank’s management is able to keep up with the changing business environment. The Bank reviews and update succession plan periodically. The Bank has complete set of policies covering below areas: • Talent Acquisition and Induction Policy • Learning and Development Policy • Succession Planning and Policy • Compensation and Benefits Policy • Staff Financing Policy • Leaves Policy • Education Assistance Policy • Travel Policy • Performance Management Policy • Work environment Policy • Organizational Structural Policy • Transfer and rotation Policy • Separation policy • Policy for Protection of Women against Harassment • Disciplinary Action Policy • Grievance Resolution Policy Salient feature of Staff Compensation/ Remuneration Policy The Remuneration Policy of Bank is designed to promote a culture of sound compensation aligned with risk and responsibilities in a transparent manner for acquisition of talent, retention of employees and achievement of stakeholders expectations. MCB’s remuneration policy applies to all staff. The policy covers identification of Material Risk Taker (MRT) and Material Risk Controllers (MRC), performance assessment through balanced scorecards, compensation structure and deferral mechanism. The responsibility for approving the remuneration policy rests with the Board of Directors. The Board has constituted Human Resource & Remuneration Committee (HR&RC) for recommending to the Board, the structure of the remuneration policy, including the remuneration setting mechanisms, structures, composition of remuneration,
  153. Annual Report 2019 and other related matters . HR & RC may take the support of Bank’s functions (e.g. Finance, Risk, Audit, Compliance, and HR). At management level, HRMG leads the overall remuneration policy of MCB. All compensation provided to MCB staff can be divided into fixed remuneration or variable remuneration. Fixed remuneration is that part of the compensation which remains unaffected by the performance of the Bank or individual employee. Fixed component of remuneration consists of basic salary and allowances that are part of the total compensation package of the employee. Variable remuneration is the part of total compensation package of an employee which is linked with some predetermined measures of performance. Variable compensation is linked with the individual’s performance and comprises of performance bonus, commissions, incentives and allowances. The Bank has identified functions and designations as MRTs/MRCs. These include, President/CEO, direct reportee to the President/CEO (members of management committee), Country heads of overseas branches, direct reportee to the members of senior management managing critical functions as determined by HR&RC and all other material Business units, Balanced scorecards are defined for all MRTs & MRCs for carrying out an objective and transparent performance assessment. The variable compensation for the MRTs and MRCs is linked to the performance result derived from the scorecard. The performance assessment for MRTs and MRCs is performed via the structured balanced scorecard mechanism that is in place to ensure that objective risk and return measures are duly taken into account for determining the bonuses and awards for MRTs and MRCs. The bonuses and awards for MRTs are determined based on the performance of the individual, their respective department and the overall Bank. MRCs in the Bank have suitable autonomy and authority to perform their tasks independently, without influence from the functions they are assigned to oversee and review. KPIs in the scorecards of MRCs are independent of the KPIs of the business functions that they oversee. This ensures that achievement of financial targets of the business functions are not considered for the performance assessment of the MRCs. For MCB employees classified as MRTs and MRCs, at least 25% of their variable remuneration shall be deferred. Minimum deferral period is three years with no vesting prior to year 1. Deferred variable remuneration shall be paid proportionately over the three years, even if the person is no more employee of the Bank (subject to the malus provisions). Policy for Sustainability and Corporate Social Responsibility (CSR) Policy Sustainability and Corporate Social Responsibility (CSR) is detailed in Sustainability and Corporate Social Responsibility Section of this report. Responsibilities of Management and the Board of Directors toward the preparation and presentation of the financial statements The Management is aware of its responsibility for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of directors is responsible for overseeing the Bank’s financial reporting process. Record Management Policy: Record management is a methodological approach to control the maintenance and disposition of organization’s record. Record management ensures that valuable record evidencing an organization’s activities that have legal, financial, administrative or historical value are protected and accessible while expired record is systematically destroyed. Thus MCB Bank has put in place comprehensive processes, controls and guidelines on handling, protection, retention, retrieval, and disposition of recorded business information generated daily which are of ongoing importance to MCB’s overall service capability and regulatory compliance. In its endeavor to comply these guidelines / processes, bank has already achieved major milestones. Social and Environmental Responsibility MCB Bank Limited undertakes its responsibility to be recognized as an organization that is aware of both its social and environmental obligation. The Bank continuously strives to inculcate the same by creating awareness amongst stakeholders, streamlining its operational processes and reinforcing the same through various policies. The key areas that the Bank focuses upon are to provide a safe and healthy workplace, protect the environment and conserve energy through use of appropriate technology and management practices. Annual Report 2019 151
  154. Some of the salient features of the Bank policy are as follows : Unreserved Compliance of International Financial Reporting Standards (IFRS) • Compliance with local, national and international laws and regulations as well as the spirit thereof and conduct of business operations with honesty and integrity The management of the Bank strongly believes in adherence to unreserved compliance with all the applicable International Financial Reporting Standards (IFRSs) issued by International Accounting Standards Board (IASB) for true and fair presentation of financial statements. • Promote and engage in social welfare activities that help strengthen communities and contribute to the enrichment of society • Provide innovative, safe and outstanding high quality banking products and services exceeding the expectations of customers • Significant investment to develop technological based ‘Alternative Delivery Channels’ for maximum ‘Financial inclusion’ Whistle Blowing Program • Overview Sustainable development through building and maintaining sound relationships with our stakeholders through open and fair communication • Communication and dialogue with employees, to build and share the value of “Mutual Trust and Mutual Responsibility” and work together for the success of our all stakeholders • Respect for people by honoring the culture, customs, history and laws of Pakistan. Constantly search for safer, cleaner and superior practices that satisfy the evolving needs of the society • Minimize the environmental impact of business operations, by working to reduce the wastage of all resources • Develop, establish and promote practices enabling the environment and economy to coexist harmoniously and build close and cooperative relationships with individuals and organizations involved in environmental preservation MCB Bank is committed to continually operate at the highest standards of conduct in our business. We are the trustees of public funds and it is our core value to serve our community with integrity. We endeavor to earn and uphold the trust of all our customers and stakeholders by serving and dealing with them lawfully, ethically and professionally. Purpose This program provides a channel to Bank’s staff and outside parties such as shareholders, vendors, customers etc. for raising concerns/complaints about irregularities, impropriety, financial malpractices, frauds & forgeries, personnel harassment and improper conduct or wrongdoing without any fear of reprisal or adverse consequences. The objective of the program is to address/resolve these concerns/complaints to prevent and/or detect improper activities for safeguarding the interest and reputation of the Bank and its stakeholders. Business Continuity Plan Scope The Board of Directors of the Bank periodically reviews the effectiveness of Business Continuity Policy & Framework to ensure that clear and concise plans are maintained for all critical areas while strong remedial actions are in place to reduce the risk of downtime against any untoward situation. Practicing BCP on regular intervals have given a confidence to the bank that it can live up-to the expectation of its stakeholders by ensuring functionality of its critical businesses and functions. The program covers deliberate, voluntary disclosure of individual or organizational impropriety by a person who has or had privileged access to data, information or event about an actual, suspected or anticipated wrongdoing within or by an organization that is within its ability to control. Stakeholders’ engagement Stakeholders’ engagement and the steps taken to solicit and understand the views of the shareholders is detailed in stakeholders’ engagement section of this report. 152 Financial statements for the year have been prepared in accordance with the accounting and reporting standards issued by IASB as are applicable in Pakistan. IFRS adoption status is detailed in note 3 of the unconsolidated financial statements. Unconsolidated Financial Statements Protection of Whistle Blowers MCB Bank is committed to the protection of genuine complainants against action(s) taken in reprisal for the making of protected disclosures. Confidentiality of the complainant’s identity, the nature of the report and the identity of the suspected person is strictly maintained.
  155. Annual Report 2019 The Bank does not tolerate harassment or victimization and takes action , which could involve disciplinary proceedings, to protect complainants when they raise a concern in good faith. Incentives for Whistle Blowing Complainant may be awarded monetary benefit/career advancement depending upon the nature and gravity of the concerns/complaints. Whistle Blowing Mechanism Employees or outside parties with concerns or complaints may report such concerns or complaints to Whistle Blowing Unit through any of the following means: •Hotline •E-mail •Fax •Website • Regular Mail Concerns and complaints are investigated and findings are shared with the senior management for their necessary action. Information related to investigations is also shared with the Audit Committee and Board of Directors. Number of instances reported to Audit Committee Number of whistle blowing incidents (wrongdoings) along with update on investigations/resolution reported to the Audit Committee and Board of Directors during the year 2019 was 19. Significant changes from prior years • During the year, three group heads (Key Management Personnel) resigned from their positions and Board approved the replacement accordingly. • During the year, land and buildings of the Bank were revalued as at December 31, 2019 by independent valuers (K.G. Traders (Pvt) Limited, Tristar International Consultant (Pvt) Limited & Sardar Enterprises), valuation and engineering consultants, on the basis of market value. Incremental surplus recognised during the year against revaluation of land and buildings amounts to Rs. 7.291 billion. Annual Report 2019 153
  156. IT Governance IT Governance is an integral part of enterprise governance and consists of the leadership and organizational structures and processes that ensure that the organization 's IT sustains and extends the organization's strategies and objectives. IT Governance systematically engages the Board members, executive management and underlying staff. The framework establishes a discipline used by the organization to measure transparent accountability of decisions, and ensures the traceability of decisions to assigned responsibilities. Well-structured IT Governance would assist in creating efficiencies, enhance conformity to internationally accepted best practices, improve overall IT performance and also enable better control and security. f. Information Technology Group is headed by CIO who in turn reports functionally and administratively to the President/ CEO. The Office of the CIO provides the leadership for the development and delivery of world-class technology services. The position is directly responsible for; a. b. c. d. e. f. g. h. i. j. k. l. a.Directing the operations of Information and technology Services for efficient and smooth delivery of technology services; b. Integrating IT Strategy with Bank’s Strategy; c.Encouraging technical innovation and the development of a robust and dependable technology infrastructure; d. Strengthening the IT Governance; e. Providing guidance, oversight, and strategic thinking on information technology; 154 Unconsolidated Financial Statements Setting the overall direction for IT Group to introduce and implement innovative technology solutions; g. Ensuring the availbility of Bank’s mission critical services are up running and active DR invocation mechanism at the time of disaster. Information Technology Group (ITG) has been taken care by teams of committed professionals, providing innovative and efficient solutions to achieve and nurture strategic objectives and goals of Business as well as other support groups under the guidance of Board IT Committee (BITC) and management IT Steering Committee (ITSC). Group is further be strengthened by following functions: IT Enterprise Infrastructure IT Operations IT Software Solutions IT Service Management IT Support Services IT Information Security IT Business Technology IT Project Management IT Financial Services IT Procurement IT Compliances & Internal Control IT Business Continuity
  157. Annual Report 2019 INTERNAL GOVERNANCE Project Governance : The Bank’s Management IT Steering Committee (ITSC) & Board IT Committee (BITC) are the governing bodies that review, monitor, prioritize and approve major IT projects. Key Objectives of these committees are: Effective project governance needs to be in place to ensure the Project is adequately supported and guided towards achieving its intended outcomes, and to ensure key decisions are made with appropriate governance oversight. IT-PMO (Project Management Office) is a central point of contact at Information Technology Group to facilitate ITG’s other verticals and Other Groups for endeavoring successful deliveries of major and critical “IT Projects”. The function is mainly responsible for: - To provide a forum for discussions, review and advice on Technology needs, Investments, Issues & Progress; - Prioritize, approve and monitor investments (projects & resource allocation), financial objectives and performance in order to review whether IT and Business strategies aligned with each other; - Assessment of IT capability and adequacy of the IT infrastructure & Guidance on strategic goals and direction to see if enterprise achieving the optimum use of the IT resources; - To review adoption of best practices, standardization and interoperability internally and externally; - To provide resolution of cross-function or intercompany critical issues; - Consideration of risk exposures and monitoring of risk management; - To review the communication path between the board/executive and middle management. - Establishing a connect between Technology and Business to understand business needs and to translate into technology solutions; - Providing an Interface of the IT Group for other business groups to discuss their initiatives/projects for end-state solutions; - End to end Project management of technology solution specifically and providing support for all other business initiatives in general, from technology perspective only; - Project governance, support processes and methodologies for successful delivery of projects and customer requirements; IT Compliance: Information Security: MCB management has centralized the authority, direction, management, and monitoring of Information Security activities for the entire organization in the Information Technology Group (ITG) under the umbrella of Information Security (IS) Team within the Group. This function is responsible for establishing, elaborating, and maintaining IT system’s security compliance, define security controls in the following listed sections of Information Security Policy, processes, and documentation (SOPs, manuals, etc.) commensurate with Information Security Policy, departmental framework, and the changing threat landscape. Information Security function also helps to ensure bank wide compliance with Information Security Policy, handling incidents of security breach, and recommending corrective action. An effective oversight to achieve compliance against regulatory instructions / guidelines is necessarily required so to fill the gaps, if any. The function is mainly responsible for; - - - - To conduct Risk Control Self Assessments (RCSA) for all entities in the IT Group (ITG) per approved framework in the Bank; To facilitate the auditing process as conducted by the Internal Audit, External Audit and Regulatory Inspection by the State Bank of Pakistan (SBP); To coordinate among the teams within and with the reviewing functions to fix the highlighted issues and to comply with the given recommendations accordingly; Maintain an internal MIS on the compliance status for tracking and reporting to ensure adequate monitoring at appropriate levels. Annual Report 2019 155
  158. Adoption and Statement of Adherence with the International Integrated Reporting Framework In the course of its operations a commercial organisation receives various inputs and converts them into value for itself and its stakeholders . This value creation can be over different time frames; short, medium and long. An integrated report describes this value creation process concisely including the business model, strategies, governance, processes, risks and opportunities. Since MCB is one of the largest Commercial Bank and plays a vital role in the economy of the country. It also makes its presence felt at the grassroots level with its sprawling network of branches and its wide customer base. Therefore, it has an impact far beyond the bottom line. Being the Bank with one of the largest customer base it is imperative; therefore, that the Bank reassures its stakeholders that it is safeguarding the public interest. Adoption of International Integrated Reporting Framework depends on the individual circumstances of an entity. The Bank has adopted the Integrated Reporting Framework to give an overview of Bank’s philosophy to explain connection between its financial and non-financial information, which would enhance the user’s understanding as to how the Bank is working to improve its performance keeping in view the stakeholder’s interests. The business strategy information is linked directly to business activities and non-financial information, and provides explanations accordingly. Integrated framework is still considered to be a practice in its early stages. We will continue to improve the information produced to make it even easier to understand, while taking into account the opinion of stakeholders reading this report. The Bank has included following content elements for the users of this report: • Organizational overview and external environment • Strategy and resource allocation • Risks and opportunities •Governance • Performance and position •Outlook • Stakeholder’s relationship and engagement • Sustainability and corporate social responsibility • Excellence in corporate reporting The Bank’s Annual Report 2019 covers the 12-month period from January 01, 2019 to December 31, 2019 and is consistent with our usual annual reporting cycle for financial and integrated reporting. The most recent previous report was dated December 31, 2018. 156 Unconsolidated Financial Statements
  159. Annual Report 2019 Profile of Shari ’ah Advisor Board Profile – MIB Shari’ah Board Members Prof. Mufti Munib-Ur-Rehman Chairman Shari’ah Board Prof. Mufti Munib-ur-Rehman, working with MCB Islamic Bank since September 2015, is a renowned Shari’ah scholar with a vast 47 years’ teaching and 32 years’ Fatawas issuance experience. He remained the member of Shari’ah Advisory Board of Securities and Exchange Commission of Pakistan (SECP) for three terms and the member of the Council of Islamic Ideology Pakistan (CIIP), he is rendering voluntary services for the country since 2001 as Chairman Central Moon Sighting Committee Pakistan. He served as Director of Islamic Studies, Hong Kong in 1985. He is the president of Tanzeem-ul-Madaris Ahle Sunnat Pakistan & Secretary General of Ittihad-eTanzeemat-e-Madaris Pakistan. He participated in international seminars in Saudi Arabia, UK, Norway, USA, Canada, Kazakhstan, Turkey and other Countries. He remained member of the Board of Studies of University of Karachi, Federal Urdu University & Board of Intermediate Karachi. He remained member of the syndicate of University of Karachi & PMAS Arid University, Rawalpindi. He is the member of National Curriculum Pakistan & National Education Task Force. He was Shari'ah Adviser of Federal Shariat Court Pakistan. The 11 Volumes of his Fatwas has already published and has vast acceptability amongst Ulama. He is the Principle & Managing Trustee of Jamia Naeemia Karachi. He is Chairman Shari'ah Advisory Committee of Dawood Family Takaful Ltd and remained Chairman Shari'ah Board of Burj Bank Ltd for more than a decade. Mufti Syed Sabir Hussain Resident Shari’ah Board Member/ Head-Shari’ah Compliance Department Mufti Syed Sabir Hussain, working with MCB Islamic Bank Ltd. since September 2015, is a prominent Shari’ah Scholar and experienced Islamic Banker with 20 years of teaching, 13 years of Fatawa and Islamic banking experience. He holds Shahadat-Al-Alimiyah & Takhassus-Fil-Fiqh, M.A Islamic Studies, M.Phil. in Islamic Banking & Finance and M.S (I.T) degrees. He is enrolled in Phd. on Islamic Banking and Finance from International Islamic University, Islamabad (IIUI). He is ex-member of Shari’ah Advisory Board of SECP, Member of the Committee on Accounting and Auditing Standards of ICAP and invitee participant of Shari’ah Advisory Committee of State Bank of Pakistan and Member of several committees constituted by SBP on AAOIFI Shari’ah standards. Further, he was member of review committee for Urdu translation of AAOIFI Shari’ah standards. He is author of 25 books on Islamic economics & banking and other social issues; He is also delivering lectures in different Dar-ul-Ulooms and Universities. Mufti Nadeem Iqbal Shari’ah Board Member Mufti Nadeem Iqbal is the Shari’ah Board Member. He is senior teacher and Mufti at Dar-ulUloom Amjadia, Karachi and currently heading Dar-ul-Ifta. He has 28 years’ experience of teaching Islamic Jurisprudence and 16 years’ experience of issuing Fatawa (Shari’ah Opinions). He has 14 years’ experience in Islamic Banking. He holds Master’s Degree in Islamic Studies from University of Karachi, Takhusus-Fil-Fiqh from Dar-ul-Uloom Amjadia, Karachi, Fazil Dars-eNizami, and Fazil Shahada-tul-Almia. He gave his services as Resident Shari’ah Board Member/ Shari’ah Advisor at Soneri Bank’s Islamic Banking Division for thirteen years. He is visiting faculty member at Sheikh Zayed Islamic Centre, University of Karachi and Hamdard University, Karachi. He is writer of several books including Islamic Jurisprudence. Annual Report 2019 157
  160. Report of Shari ’ah Board (For the Year ended December 31, 2019) The Shari’ah Board of MCB Islamic Bank Ltd. (MIB) was established in September, 2015. Currently Shari’ah Board comprises of respected Professor Mufti Munib-ur-Rehman as Chairman Shari’ah Board, Mufti Syed Sabir Hussain as Resident Shari’ah Board Member (RSBM) and Mufti Nadeem Iqbal as Member Shari’ah Board. There was availability of all Shari’ah Board Members throughout the year many meetings were held through conference calls & video conferencing. In the year 2019 formal Shari’ah Board meetings were held on the following dates: First Shari’ah Board Meeting Second Shari’ah Board Meeting Third Shari’ah Board Meeting Fourth Shari’ah Board Meeting – – – – March 29, 2019 June 18, 2019 September 26, 2019 December 19, 2019 1. While the Board of Directors and Executive Management are solely responsible to ensure that the operations of MIB are conducted in a manner that comply with Shari’ah principles at all times, we are required to submit a report on the overall Shari’ah compliance environment of MIB. In the year 2019 Shari’ah Board’s meetings with Board of Directors were held on the following dates: First Shari’ah Board – Board of Directors Meeting Second Shari’ah Board – Board of Directors Meeting – – April 23, 2019 December 19, 2019 2. To form our opinion as expressed in this report, the Shari’ah Compliance Department (SCD) of MIB carried out reviews of each type of transactions, products, process flows/modus operandi and concepts under the supervision of RSBM/Head Shari’ah Compliance. In this regard, all 100 branches have been inspected for Shari’ah compliance, as per Shari’ah Compliance Program. In the year 2019 the focus was on new 90 branches. Further, as far as Shari’ah compliance review of Goups/Divisions/Departments is concerned, it has been ensured to comply with Shari’ah Compliance Program. In order to enhance the Islamic banking knowledge and expertise regarding functions of different Goups/Divisions/Departments; Shari’ah trainings were made mandatory for all staff of the Bank with the coordination of Learning & Development Departmen (L&D) of HRG to comply with regularoty instructions. 3. Four (4) Instructions & Guidelines & Two (2) Fatawas were already issued by the Shari’ah Board of the MIB are still remained same without any changes. In the year 2019 a new Fatwa was issued by the Shari’ah Board of the MIB regarding Istisna transaction & an Instruction & Guideline was issued regarding compliance of the Shari’ah Governance Framework. All Fatawas and Instructions & Guidelines issued by Shari’ah Board of the MIB are being implemented in the MIB in true letter and spirit. 4. SCD with the coordination of management and under the supervision of RSBM/Head Shari’ah Compliance has reviewed following product documents: 158 Liability Products & Other Documents Letter of Documentary Credit Agency & Guarantee Consumer Finance MIB Na'mat Premium Plus Term Deposit, MIB Asaan remittance saving account & MIB Asaan remittance current account, MIB Deposit Product Manual, Liability Products Handbook, Profit & Loss to Customers Based Customer Group Level Deposits Aggregation, Services & Charges Differentiation for Priority Banking Customers - Interim Process & Changes in some MIB Liability Products. LC under Wakalah (Application & Agreements), Note for Approval-LC under Wakalah (Amendment in 'Trade Finance Manual for Imports'), Musawamah Financing (Purchase) Document, Application & Agreements for Issuance of Letter of Documentary Credit- Based on Murabaha/Musawamah. Security Documents (Agreements of Pledge and Personal Guarantee), Agency Agreement for Physical Delivery. Consumer Car Financing Product Program Amendment-Appraisal value of used car finance cases "Diminishing Unconsolidated Financial Statements
  161. Annual Report 2019 Musharakah Housing Finance – Revised Shari’ah Process Flows & Customer-End Documents, Customer Request for Deferral of Rental & Revised Payment Schedule Formats for Consumer Car Finance (Ijarah & Diminishing Musharakah) and Diminishing Musharakah Housing Finance, Consumer Car Finance Product Program (Renewal 2019), Diminishing Musharakah Housing Finance Product Program (Renewal-2019). Murabaha & Murabaha Microfinance Murabaha Product Manual V-2.0 & 2.01, Finished Goods Murabaha Agreements & Standard Process Flow, Revised Order Form and Revised Bank's Instructions-Murabaha, Murabaha Microfinance Facility Agreements, Agency Agreements and Process Flows, Murabaha Microfinance Product Program (Renewal – 2019), "Murabaha Microfinance End-to-End Process Manual (Renewal – 2019) and its allied formats. Musawamah Sukuk, Takaful & Bai Muajjal Urdu Translation Diminishing Musharakah Miscellaneous Schemes & Other Documents Musawamah Financing (Purchase) Product Structure & Process Flow and Salient Features, Legal Agreements for Musawamah Financing (Purchase) Product, Revised Bank's Instructions-Musawamah. Shari'ah Structure of Pakistan Energy Sukuk, Pakistan Energy Sukuk-All Legal Agreements & Documents, Shari’ah Structure of Pakistan Energy Sukuk – II, Pakistan Energy Sukuk II – Legal Agreements & Documents, Amendment in Master Istisna Agreements (Clause 11.01), Takaful Agreement between AICL-WTO and MIB for Housing Finance, Bai Muajjal Legal Agreements. Urdu Version of Murabaha Microfinance Application Form, English and Urdu Versions of Murabaha Microfinance Facility Advising Letter, Customer Undertaking on Payment of Installments for Murabaha Microfinance –Urdu and English Version. Translation of Product Key Fact Sheets for Bullet and EMI based Financing under Murabaha Microfinance. Diminishing Musharakah Housing Finance Product Program Amendment Length of Occupation Criteria, Amendment in Diminishing Musharakah Housing Finance Product Program-KIBOR Benchmark, Amendment in Diminshing Musharakah Housing Finance Product Program-Post Dated Cheques, Amendment in Musharakah Running Finance (MRF) Product Manual V3.0. Islamic Finance Facility for Storage of Agriculture Produce, Islamic Re-Finance Scheme for Working Capital Financing of SME & Low and Medium Enterprises, Islamic Re-Finance Facility for Modernization of SMEs, Islamic Finance Facility for Renewable Energy, Promotion of SME Finance-Content Material, Sale Agreement with Islamic Banks. 5. SCD has also facilitated Islamic Banking training sessions for the front and back offices staff of MIB. Further, L&D-HRG has taken initiative to establish an effective and comprehensive Islamic Banking training mechanism in compliance with IBD Circular No. 02 of 2018, Dated: Jun 29, 2018, “Enhanced Training & Capacity Building Measures for Islamic Banking Institutions (IBIs)” issued by Islamic Banking Department, State Bank of Pakistan, for MIB front and back offices staff at all levels. Internal trainers were also part of Shari’ah related training initiatives during the year. 6. Shari’ah Board praises and encourages the continuous, comprehensive & profound efforts of MIB Management regarding implementation of all instructions and guidelines issued by Shari’ah Board. Recommendations: Based on the observations made through Shari’ah review reports and Shari’ah Compliance checks, it is recommended that: i. To encourage small depositors towards Islamic banking, Deposit products should be designed specifically for small/micro depositors, it will not only boost banks’ deposits but will also be helpful for increasing percentage of population dealing with Islamic banking channel which is also one of the objective of IBD-SBP. Therefore, it is recommended to introduce deposit products for depositors with low savings is indispensable. ii. In future, there shall be more Shari’ah Trainings in compliance with regulatory requirements. Annual Report 2019 159
  162. iii . There should be more focus on Shari’ah trainings of Consumer finance & Microfinance. iv. It is emphasized to encourage the Islamic Microfinance due to its requirement in the country instead of investment in Sukuk etc. Through Islamic Microfinance, Islamic Banking Industry can penetrate to grass route level to facilitate micro level traders. v. To comply the regulatory requirement, it is strongly recommended to avoid the manual calculation & distribution of profit in Pool Management System. vi. Usage of Islamic Banking terminologies must be ensured during MIB’s Treasury, Trade and Operational activities, further compliance of Islamic banking principles must be ensured in all activities of MIB. vii. As from November 2019, to comply the instruction of IBD-SBP, SCD is not revieiwing the transaction at funding and financing stages and the responsibility of the relevant groups now has increased in this regard, therefore, it is recommended to ensure the compliance of Shari’ah Board’s approved Modus Operandi/Process Flow in true letter and spirit to avoid charitization of recognized profit. Conclusion: Shari’ah Board has reviewed & advised corrective measures on the External & Internal Shari’ah Audit and Shari’ah Compliance Inspection reports and is of the view that: i. MIB has complied with Shari’ah ruls and principles in the light of Fatawa, Instructions and Guidelines issued by Shari’ah Board. ii. MIB has complied with SBP Inspection report in true letter and spirit. iii. MIB has complied with directives, regulations, instructions and guidelines related to Shari’ah compliance issued by SBP in accordance with the rulings of SBP’s Shari’ah Board. iv. MIB has a comprehensive mechanism in place to ensure Shari’ah Compliance in their overall operations. v. During the course of Shari’ah compliance, it was realized that the addition in the amount of Charity during the year was PKR 54.88 million from different heads which was instructed to transfer to the Charity account. The bank has disbursed the Charity amount to Shari’ah approved charitable organizations as per MIB’s charity policy and SBP’s guidelines. Details of Charity account are available in the note # 18.1. During the year, nonShari’ah compliant income was reported through an SCD report in the last Shari’ah Board meeting of 2019, in which Shari’ah Board advised to Charitize the profit of two transactions of Microfinance. vi. MIB has complied with the SBP instructions on profit and loss distribution and pool management. vii. While the Bank is actively pursuing training of its human resources about various aspects of Islamic Banking & Finance through training sessions/seminars, however further improvement is required to enhance the level of awareness of Islamic Banking & Finance of the staff, management and the BOD through enhanced training mechanism for each level. The management and the BOD have made sincere efforts and appreciate the importance of Shari’ah compliance in overall operations of MIB. viii. The Shari’ah Board has been provided adequate resources enabling it to discharge its duties effectively. Shari’ah Board would like to take this opportunity to offer praise to Almighty ALLAH and seek his guidance and Tauwfeeq, and to express its wishes for further progress, development and prosperity of Islamic Banking, Alhamdulillah under the sincere efforts of senior management, and Islamic Banking industry in Pakistan as a whole. Professor Mufti Munib-ur-Rehman Chairman Shari’ah Board Mufti Syed Sabir Hussain Resident Shari’ah Board Member Date of Report: January 24, 2020. 160 Unconsolidated Financial Statements Mufti Nadeem Iqbal Member Shari’ah Board
  163. Annual Report 2019 Annual Report 2019 161
  164. 162 Unconsolidated Financial Statements
  165. Annual Report 2019 Annual Report 2019 163
  166. Sustainability & Corporate Social Responsibility As one of the largest Banks in Pakistan, MCB Bank, has a great legacy of service and innovation spanning over 72 years. The Bank always strives to adopt best practices and cultivating a culture of discipline and values which preserve the interests of all relevant stakeholders. Through the promotion and deployment of projects and services that work in a socially responsible way, MCB Bank stresses upon the importance of environmental sustainability and the social well-being of its employees and society as a whole. Our policy MCB Bank undertakes CSR initiatives with a vision to contribute towards harmonious and sustainable development of communities. Following will be the framework and broad parameters for CSR activities by the Bank to: 1. Comply with applicable laws and regulations as well as the spirit thereof and conducts business operations with honesty and integrity. 2. Promote and engage in social welfare activities that help strengthen communities and contribute towards the uplift of society. 3. Support and promote Financial Inclusion. 4. Endeavor to build and maintain sound relationships with customers and other stakeholders through open and fair communication in order to contribute towards sustainable image building. 5. Honor the culture, customs, history and laws as the Bank constantly searches for safer, cleaner and superior practices that satisfy the evolving needs of the society. 6. Strive to develop, establish and promote practices enabling the environment and economy to coexist harmoniously whilst encouraging minimum wastage of resources. 164 Unconsolidated Financial Statements
  167. Annual Report 2019 Our approach to sustainability The Bank has focused on several key principles as an institution . It is committed towards fostering a better work place and cleaner environment through its varied initiatives. By committing to a culture of excellence, good governance, transparency and integrity, it ensures that all activities are conducted in a manner that is ethically responsible and beneficial for all stakeholders. MCB Bank has a well-defined Code of Ethics and Conduct policy that serves as a guideline for the behavior and ethics of employees. Contributing to sustainable economic growth: MCB Bank uses its core business of banking to promote sustainable development in all the markets it operates. Income tax paid Rs. 20.15 billion Annual Report 2019 165
  168. Contribution to Economy & National Exchequer: MCB Bank has the highest market capitalization in the banking industry. In 2019 the Bank paid approx. PKR 2.31 billion on account of income taxes to Government Treasury and collected over PKR 17.51 billion for the National Exchequer as withholding tax agent under different provisions of Income Tax Ordinance 2001. In addition to that Bank has also paid RKR 1.27 billion in respect of sales tax and FED. The contribution by the Bank to the national economy by way of value addition was PKR 58.91 billion, out of which around PKR 14.59 Billion were distributed to employees and PKR 18.96 billion to shareholders. Zakat is an essential component in delivering assistance to those most in need. The Bank bolstered the zakat collection efforts of prominent public welfare organisations such as Shaukat Khanum and Edhi Welfare Organisation through its communication mediums such as MCB Mobile Banking, MCB Internet Banking and ATM Screens. MCB Bank also contributed to the national exchequer in Zakat Deductions to the sum of PKR 548 million. The Bank is making significant contribution to the development and growth of the country. An analysis of the Bank’s value creation and allocation of value among key stakeholder groups is represented in Statement of Value Added. Key financial highlights: Key financial figures and related ratios are discussed in financial performance section. Being a responsible organization: The Bank’s duty is to promote the right values and behaviors, investing in people, managing its environmental impact and supporting the fight against anticorruption measures. A number of steps have been taken by the Bank during the year: • • • • • • Occupational Safety and Health Business Ethics and Anti-Corruption Measures Service Council Customer Experience Management Turnaround Time (TAT) Monitoring Consumer Protection Measures Occupational Health and Safety For any progressive and productive organization, sound health, safety and congenial work environment are considered as core elements; therefore MCB Bank takes pride in providing an enabling environment to its employees to promote both the health and creativity of its staff while providing a sound basis for outstanding results. Since there is a strong focus on the safety and wellbeing of Bank employees and its customers, all iconic buildings, including branches of the Bank, are equipped with modern Fire Safety, Surveillance and Security equipment (as applicable). Moreover, trained security personnel also ensure physical safety and security of all employees, customers, building and equipment. The Bank has developed a comprehensive “Health, Safety & Environment Policy” which is periodically reviewed and updated by the Bank Management and implemented across the board. MCB is cognizant of the fact that to achieve any objective, staff is the prime enabler, therefore Building Admin, Floor Coordinators and other support staff in multistoried/ multipurpose buildings ensures the provision of safe, healthy and conducive work environment to Bank staff. Additionally, staff evacuation drills are periodically conducted under the supervision of Security Department which helps staff in practicing how to respond in different emergency situations. First Aid Kits are properly maintained at all major buildings and branches of the Bank. The dangers of smoking are well-known. In adults, second-hand smoke can cause serious ailments, including cardiovascular and respiratory diseases, coronary heart disease and lung cancer. Keeping in mind the dangers of smoking for both smokers and non-smokers alike, the senior management of MCB Bank has declared all Bank buildings as No Smoking Zones. Staff members are allowed to smoke at a safe distance of at least 20 feet away from any MCB premises. For the safety of Bank staff and their family, pictorial safety messages on topics such as Dengue prevention measures, Safe Driving / Riding in the Rain tips, precautionary measures in case of SMOG / FOG, Heat Wave precautions, Earthquake safety tips, Fire Safety actions, etc. are also frequently disseminated through internal mediums. 166 Unconsolidated Financial Statements
  169. Annual Report 2019 A healthy body nurtures a healthy mind , so all permanent employees of the Bank are provided with medical coverage under a comprehensive staff group life and medical insurance policy. MCB Bank has always been keen in taking initiatives such as on-site health checkups, arranging seminars on health & safety and emergency preparedness within its staff to safeguard life and assets of the Bank. Business Ethics and Anti-Corruption Measures The Bank actively identifies and addresses possible risk factors through the implementation of policies and procedures designed to reduce the possibility of such incidents. In this regard, it has fielded, alongside its Human Resource Policies and Procedures, a comprehensive “Code of Conduct and Business Ethics” which is disseminated to staff for information and sign off. This document is also freely available to all staff on MCB Intranet Portal. The Bank continues to maintain a strong compliance culture across the board. MCB Employees are expected to perform all tasks with diligence and honesty at all times. The Code of Conduct of the Bank has comprehensively defined the values and minimum standards for ethical business conduct. We ensure that all our interactions with clients, competitors, business partners, government and regulatory authorities, shareholders, or with one another following a vigorous ethical standard. Our foremost efforts are to ensure that the conduct of the employees is impeccable. This is done with the help of guidelines that ensures compliance with all applicable laws and regulations. MCB Bank strives to ensure that it provides a friendly and harassment free environment for all employees. The Policy for protection of women harassment has been revisited and is circulated Bank wide every year. Zero tolerance for any form of harassment or discrimination is also covered in the Bank’s existing code of conduct. The Disciplinary Action Committee (DAC) takes vigorous action to address any violation of policies & procedures, acts of fraud & forgery, breach of discipline and code of conduct, ethics & business practices, law of land and statutory regulations by an employee. To maintain the harmonious and efficient work environment in which the employees are assured a non-discriminatory, transparent, harassment free and respectful atmosphere regardless of their cast, religion and gender, HRMG has issued a clear and non-discriminatory code of conduct, violation of which may lead to disciplinary action. Consumer Grievances Handling Mechanism: Service Council: Service Council is a monthly forum, chaired by the President, which brings together key stakeholders from across the bank with a view to place service on the forefront through thought leadership, collaborative discussions and creation of a clear service roadmap. Customer Experience Management: Feedback is solicited from customers for all contact points via surveys and remedial actions are taken for identified areas. The end goal of these measures is to be the most preferred bank in Pakistan. Turnaround Time (TAT) Monitoring: Monitoring and evaluation of service indicators is part of the belief in increasing and retaining one’s customer base. In order to maintain a strong hold on processes within the Bank, the Service Quality Division has devised several controllable measures at par with prevailing market practices. Against each measure, a tolerance level along with a timeline is set. Similar to Branch Banking, indicators for Consumer Assets, Credit Cards, Bancassurance, Call Centre, Mobile Banking, Internet Banking and ATM Uptime are monitored on a monthly basis. Consumer Protection Measures The Bank is committed to provide quality products and services to its customers. It maintains a privacy statement for the usage of its products i.e. Credit Cards, ATM pins etc. To ensure a culture of ‘Quality Customer Service’ the Bank has a dedicated Service Quality Division with the objective of strengthening the Bank’s service culture. Regular training sessions are conducted in all Circles, Call Centers and other front-end staff offices regarding ‘Service Excellence’ & ‘Customer Satisfaction’. Annual Report 2019 167
  170. Customer Grievance Handling The Bank considers complaints as opportunities for improvement and understands the link between complaint resolution and customer loyalty . We believe that complaints are a primary measure of customer dissatisfaction. Thus, they should be taken seriously and staff is encouraged to bring complaints to the forefront so that gaps can be identified and addressed expediently and effectively. Service Quality (SQ) function is the custodian of customer grievance handling and works in collaboration with all businesses/functions of the Bank responsible for acknowledging, investigating, tracking, escalating and resolving customer complaints within specified turnaround times. A centralized complaint resolution team is used to manage all customer complaints through a Complaint Management System. During 2019, access to this centralized Complaint Management System has been provided to all branches which will further enhance our complaint capturing capability. At this stage, all our customer touch points are now connected to this system so as to ensure that all complaints, whether in verbal or written form, are immediately captured in the system. Current channels for complaints: • • • • • • • MCB Call Center MCB Branches MCB E-mail Letter/Fax Customer Service Centers Banking Mohtasib Secretariat State Bank of Pakistan Management Committee (MANCOM) The Bank makes its best effort to ensure that resolution of complaints is comprehensive, appropriate and quick. The customer is kept informed on the status of their complaint, starting from complaint acknowledgement till its resolution. An escalation matrix for complaint resolution observed and designed in the system is such that a complaint, if not resolved within the specified turnaround time, gets escalated to the next senior level of management and keeps on escalating onto a higher, appropriate level till the underlying issue is resolved. SQ also performs in-depth qualitative and quantitative complaints analysis, followed by suggestions and recommendations in order to eliminate root causes of customer issues and drive continuous improvement. During 2019, a total of 112,359 complaints were logged in the system out of which 112,270 complaints were resolved during the year (resolution rate 99.92%). There was a 3% decrease in total logged complaints in 2019 as compared to the previous year. Total complaints logged during 2018 were 116,136. Statement of Complaints Numbers Total Complaints Received 112,359 - Closed 112,270 99.92% Open 89 Average time taken for resolution Total Login Details: 168 Percentage 0.08% 8 Working Days Total Contribution Complaints 112,359 90% Request/Queries/Reversals 13,005 10% Total 125,364 100% Unconsolidated Financial Statements
  171. Annual Report 2019 Investing in communities : The organization seeks to promote sustainable economic and social development in communities. Key highlights of investment in communities Employees Environment Social welfare • • • • • • Our Key Partners in Social Investment  Edhi Welfare Organization  Shaukat Khanum Memorial Cancer Hospital  Indus Hospital  Pink Ribbon  Sindh Institute of Urology and Transplantation  Prime Minister and Chief Justice of Pakistan Fund for Diamer Bhasha and Mohmand Dam • Women empowerment female staff strength reached 15.80% • • • Education Allowance - Rs. 38 million Staff Capacity Building & TrainingsRs. 60 million Employee Hajj - Rs. 13 million Staff welfare - Rs. 5 million Employee education - Rs. 38 million • • Plantation investment - Rs. 23 million Solar energy-10 Branches 3 ATMs Introduction of multiple energy conservative practices Introduction of new waste heat management system Promotion of paperless culture and recycling of dry waste Following areas were addressed by the Bank in 2019: • Outreach to the Healthcare Sector •Education •Sports • Contribution to the Public Good • Equal Opportunity for All Employees • Energy Conservation and Eco-Friendly Measures • Environmental Protection Measures • Women Empowerment • Green banking activities and initiatives Outreach to the Healthcare Sector The Bank places great importance to support initiatives that bolster the health care sector of Pakistan. During 2019, it strongly supported blood donation drives conducted by Shaukat Khanum Memorial Cancer Hospital and Indus Hospital where employees at major locations enthusiastically participated in the collection drive. The deep association that MCB Bank has with major health initiatives deepened during the year. Comprehensive marketing collateral was also deployed to raise awareness of breast cancer in collaboration with Pink Ribbon, as part of the relationship the two organizations enjoy. The awareness campaign also supported Pink Ribbon in the NGO’s efforts to raise funds for Pakistan’s first ever Breast Cancer Hospital. MCB also helped generate awareness about Sindh Institute of Urology and Transplantation (SIUT), Edhi Welfare Organization and Shaukat Khanum Memorial Cancer Hospital through the Bank’s internal and external communication platforms. As part of its effort, the Bank stimulated donation channels through platforms such as MCB Mobile Banking, MCB Internet Banking and the MCB Bank corporate website. MCB Bank also supported activities for the youth, such as by supporting the Convocation of Quetta Institute of Medical Sciences and providing support to Murshid Hospital and Health Care Centre (MH&HCC), a non-profit organization serving underprivileged individuals since 1987 in Karachi. Education The importance of education cannot be stressed enough and MCB Bank considers it part of its national duty to support the uplift of the education sector in Pakistan. In support of New Town Housing Project in District Gwadar, scholarship funding was provided to students pursuing medical education in Pakistan. Furthermore, the Thardeep Rural Development Programme (TRDP) was also provided support for its educational facilities in Tharparkar, Sindh. MCB Bank also contributed to events held by Rehman Medical Institute (Peshawar) and Quetta Institute of Medical Sciences for their Open Golf Tournament and Spring Festival & Sports Week Event, respectively. Sports The Bank recognizes the important role played by sports in the well-being and health of the Nation. In this regard, it has taken the lead in sponsoring events in this area. Annual Report 2019 169
  172. MCB Bank keenly invests in causes related to the Banking Sector by sponsoring the activities of the Bankers Club in Karachi and Quetta , by participating in different State Bank Governor Cricket Cup Interbank Tournaments and the first QBC T-10 Inter-Bank Cricket Tournament. MCB Bank was also happy to contribute to the International Men's & Women's Squash Tournament conducted by the Pakistan Squash Federation in December 2019. Contribution to the Public Good MCB Bank is always poised to support any endeavor that creates sustainable preservation of the interests of public. This was done through different initiatives throughout the year. The aim of these projects was to have a positive social impact on the many communities MCB works with in so many varied ways. As part of its civic responsibility, the Bank was pleased to support the Pakistan Club in its Award Recognition Ceremony. The Bank is cognizant of the importance played by agriculture both in the economy and society. It participated in the Livestock, Fisheries & Agri-Business Expo 2019 held in Swat, KPK and the Farmer Literacy Program. Water scarcity is an issue of growing magnitude that people of Pakistan are facing and may continue to face in the coming years unless effective remedial steps are undertaken. MCB Bank is proud to serve as a platform to bolster donations channeled towards the Prime Minister and Chief Justice of Pakistan Fund for Diamer Bhasha and Mohmand Dam. The Bank has used extensive communication mediums such as its corporate website, ATM network and internal email communications to highlight the importance of and generate donations for this worthy cause. Equal Opportunity for All Employees The Bank provides equal employment opportunities without any discrimination and selects and appoints staff with appropriate qualifications/skills through a methodical merit based non-discriminatory selection process. The Bank capped off the year with permanent staff strength of 13,480 and 116 Contract Employees. The Bank takes the role of female staff within the larger context of both society and the Bank itself very seriously. The ratio of female staff members stood at 15.80% at the end of the year. The Bank hires employees without any discrimination and places physically challenged persons at an appropriate position/place of posting. To maintain a harmonious and efficient work environment in which the employees are assured a non-discriminatory, transparent, harassment free and respectful atmosphere regardless of their caste, religion and gender, HRMG has issued a clear and non-discriminatory code of conduct, violation of which may lead to disciplinary action. The Bank also actively addresses the welfare of the staff through different measures. Hajj on Bank’s account is provided to officers & non-management employees of the Bank through balloting conducted every year. Total amount paid during the year was Rs. 13 million; whereas, the balloting is made on a provincial basis. Total amount of Rs. 60 million is invested against staff capacity building and trainings. Staff Welfare Fund in 2019 was Rs. 5 million. Education allowance provided to employees was Rs. 38 million. Energy Conservation and Eco-Friendly Measures In line with its duty to the nation, MCB Bank accords great importance to the need for energy conservation. The Bank’s management decision-making process focuses on the long-term impact of business planning and is conducted in close harmony with policy focus and vision of the government. The Bank believes in the need to lead by example. MCB policies are geared towards reducing our environmental footprint and promote the use of energy smartly and economically to cut down on operational expenses. MCB Bank has taken up as a project, the switching over of its bank branches to solar power and in that direction has initially migrated 10 commercial branches to solar solutions. These branches are monitored 24x7 for any issue and rectification. In the line with the above, MCB Bank has also taken up solar energy as a project for ATM functionality under phases; initially, 3 branch ATMs in Lahore have been switched to solar power. The Bank believes that the shift to solar power will be essential in the coming years. It aims to provide best-in-class solutions that enable a responsible use of scarce human, natural and financial resources as part of a gradual, incremental process. As part of its policy to introduce energy saving practices which effectively address business requirements, MCB Bank has planned to switch over from normal lighting sources i.e bulbs/tubes in all major MCB buildings to efficient LED lights which save energy. 170 Unconsolidated Financial Statements
  173. Annual Report 2019 Harnessing technological solutions effectively , a BMS operational system has been installed at MCB Principal Office building to maintain centralized and better control over various energy sources. A recent initiative, the first of its kind, was introduced at MCB Centre in Lahore where waste heat is used for cogeneration. Waste heat of gas engine 3516-C (1555 KW) installed at MCB Tower Karachi Building is also utilized in the boiler and the hot water that is subsequently produced is used in the chiller. Approximately 100 to 150 tonnes of extra cooling is generated through this process. The Bank encourages staff to follow best practices to save energy. Environmental Protection Measures MCB Bank is working on environmental protection in multifaceted ways. The Bank believes in preserving the welfare of staff as well as the community at large. The bank management is quite focused in its efforts to promote a paperless culture that is linked towards a clean working environment. Dry waste (paper, cardboard, soft drink bottles) which weighs about 1 to 2 tonnes per month from two principal MCB Bank buildings in Lahore is removed from buildings for ethical recycling by Amal, a reputed civil society organization. This helps it to achieve resource optimization in pursuit of the goal of zero waste in its corporate offices. MCB Bank almost eliminated 3 to 4 tonnes in ‘dry waste’ during the last quarter of 2019. This trash was prevented from going to landfills and helped reduce the burden on environment of 1,600 kilograms of CO2 emissions. In 2020, MCB is looking to achieve the target of reducing 10,000 kilograms of CO2 by recycling all the dry waste generated from MCB corporate offices in Lahore. In the next step this year, we aim to complete the loop by promoting the reuse of recycled items such as paper and other materials and generate synergy in our systems through technology-based monitoring of resource usage and waste generation. Plantation within the commercial business branches is encouraged under the supervision of senior management. For example, in the past, the Bank took on a landscaping project of over two kilometers near Airport road, Lahore with extensive plantation of seasonal plants in Lahore Cantonment Area. With management’s emphasis on a clean working environment, the services of the best available janitorial companies are availed. Additionally, periodical emails are circulated to maintain a high standard of cleanliness inside/outside office buildings premises. For each respective building, administrators and floor coordinators periodically are on hand to maintain high quality hygiene standards. As part of our migration to a paperless environment, the Bank has procured a Loan Origination System (LOS) which is being implemented in all business segments of the Bank in phases. The LOS will automate the end to end credit approval process replacing the paper-based processing and approval of Credit Proposals of customers, thereby leading to considerable reduction in usage of paper by the Bank Staff. Women’s Empowerment The Bank’s product portfolio has also been deployed to foster this goal by actively promoting the MCB Ladies Account Portfolio to great success. Moreover, free Health Insurance Coverage by Adamjee Insurance Company Limited to all customers complying with the eligibility criteria was also provided accordingly. Green banking activities and initiatives Activities and initiatives taken by the Bank under SBP IH&SMEFD Circular # 08 dated October 09, 2017 are discussed in green banking initiative section. Annual Report 2019 171
  174. 172 Unconsolidated Financial Statements
  175. Annual Report 2019 Annual Report 2019 173
  176. Stakeholder Relationship & Engagement The development of sustained stakeholder relationships is paramount to the performance of any institution. From short term assessments to long-term strategic relationship building, ‘Stakeholders’ Engagement’ lies at the core of our business practices to promote improved risk management, compliance with regulatory and lender requirements in addition to overall growth of the Bank. In achieving and entrenching its integrated approach to sustainability, MCB Bank takes a highly collaborative approach towards ensuring maximum interaction with, and input by all its stakeholders. At MCB, stakeholder engagement involves far more than merely communicating with its various stakeholder groups. The Bank regards its stakeholders as partners and makes every effort to use all possible mediums to ensure that they are abreast with disclosures, aware of forums to provide valuable input and feedback that can help the Bank to grow, strengthen relations and meet expectations to serve better. The following tables provide an overview of stakeholder engagements at MCB Bank 174 Stakeholders Stakeholder worthiness and reasons of engagement Institutional Investors / Shareholders / Analysts • To deliver relevant and Quarterly, semi-annually and timeous information to annually existing and potential shareholders When the need arises • To keep shareholders posted to ensure that our shares are traded at a fair value •To ensure that the image of the bank and the trust placed in by our valuable shareholders, continues to improve, thereby minimizing the potential for reputational risks •Quarter, semi-annual and annual financial statements • Annual General Meeting •Participation in local and international road shows •Press releases / Media announcements •Communications and answering investor / analyst questions Employees •Integral to deliver strategic Annual objectives •Our most important and When the need arises valued ambassador •To ensure that we remain an employer of choice by providing a safe, positive and inspiring working environment • To understand and respond the needs and concerns of our staff members • To educate our staff regarding strategic direction and to communicate the pertinent information relating to bank activities •Continuously encouraging employees and working towards creating a healthy, ethical and supportive work environment Investing in a wide range of training programs for every member of the human capital to ensure personal and professional development. Unconsolidated Financial Statements Engagement frequency Mode of consultation / interaction In addition to the regular communication that takes place with direct managers and teams through a range of interactive channels, specific employees engagement include: • Regular electronic and printed newsletters • Compliance letters • Annual conference • Strategy sessions •Grievance reporting procedure • One Bank, One Team sessions with senior management
  177. Annual Report 2019 Stakeholder Engagement Process and Frequency Stakeholders Stakeholder worthiness and reasons of engagement Engagement frequency Mode of consultation / interaction Customers • To win and maintain customers by developing and providing products and services to improve the brand. • To understand the growing financial services needs of our customers. •To provide better solution and advice to our customers’ financial requirements • To ensure accuracy of our customers respective information. • Integral to achieve strategic objectives Regular interaction of customers through branch staff • Spreading the geographical boundaries through opening more branches across the country. Suppliers/Service Providers • Adhere to proper procurement regulations while maintaining a good business relationships with the service providers Routine basis/ When the need arises •Rigorously following internal procurement policy and upgrading the policy regularly to ensure strong control and fair treatment of suppliers. Regulator •To maintain open, honest and transparent relationships with regulator • To ensure meticulous compliance with legal and regulatory requirements • Develop legislation and policies that impact the environment in which we operate Daily, weekly, quarterly • Active engagement with regulator improves level of compliance these engagements include meetings with representative of regulator and written communications on need basis • One-on-one Meetings •Submission of applicable statutory returns Responding / enquiring various queries / information Communities Dependent on customers’ specific requirements When the need arises •To have best collaboration When the need arises with our community for delivering our social responsibilities • To obtain input from communities regarding key focus areas • To create awareness of our integrated sustainability commitments and initiatives •Conducting business without causing disruptions in the society •Continuously innovating in product suite and operational process to meet customer requirements in the most efficient manner. • Interaction through our branches, relationship managers, call centers, social media, surveys and various advertising activities The Bank actively participates in various social work initiatives as part of its corporate social responsibility. Being a conscientious member of the corporate community, the bank contributes to various social and charitable causes including towards health, education and social sectors. The bank is consistent in support for community development projects and interaction with a wide range of non-profit organizations. Enhancing financial access to marginalized population and most importantly, adding value to the society by being a good and transparent corporate citizen. Annual Report 2019 175
  178. Stakeholder Engagement Process and Frequency Stakeholders Stakeholder worthiness and reasons of engagement Engagement frequency Mode of consultation / interaction Government • To build strong and When the need arises or on constructive relationship request by either side with government, both as a partner in the development of our country and as a current / potential client •To contribute in legislative development for evolution in our activities and operations • To endorse our commitments for public sector business development • Understanding and ensuring all legal and regulatory requirements are complied with • Engaging with the government to address matters impacting business Media •To acknowledge the role When the need arises of media as a channel to communicate with relevant stakeholders and public at large •Advertisements through print, electronic, social media, website, interviews and capacity building seminars Investor Relation Section on Corporate Website The management of the Bank provides equal and fair treatment to all investors/shareholders through transparent investor relations, increased awareness, effective communication, and prompt resolution of investors’/ shareholders’ complaints. The Bank disseminates information to its investors and shareholders through a mix of information exchange platforms, including its corporate website, maintained in both English and Urdu Languages under the applicable regulatory framework. The website is updated regularly to provide detailed and latest Bank information including but not limited to financial highlights, investor information, dividend and other requisite information besides the link to SECP’s investor education portal, the ‘Jamapunji’. The “Investor Relations” section is also maintained on MCB website www.mcb.com. pk to promote investor relations and facilitate access to the Bank for grievance / other query registration. Steps to Encourage Minority Shareholders Participation in AGM Apart from being an event for decision making on important matters, General Meeting also provides a forum for twoway engagement with the shareholders, particularly the minority shareholders. Therefore, the Bank takes the following measures to ensure meaningful participation of minority shareholders in General meetings: 176 • Notice of General meetings is sent to every member of the Bank at least 21 days before the meeting. The notice is also published in newspapers (both English & Urdu) having nationwide circulation. Moreover, the notice is also circulated from the forum of Pakistan Stock Exchange. • The Bank timely updates its website with respect to all notices of general meetings. • Annual Report of the Bank is sent to each member of the Bank before Annual General Meeting (AGM) • During AGM, a detailed briefing on the Bank’s performance and future plans is given to the shareholders in both Urdu and English • The shareholders are encouraged to raise queries and give suggestions relating to the Bank’s operations. Unconsolidated Financial Statements
  179. Annual Report 2019 Summary of Analyst Briefing Analyst briefings are interactive sessions between the management of the Bank and the investor community whereby the Bank takes the opportunity to apprise the local and foreign investors about the business environment and economic indicators of the country , explain its financial performance, competitive environment in which the Bank operates, investment decisions, challenges faced as well as business outlook. The idea behind the Bank’s investor engagement through these briefings is to give the right perspective of the business affairs of the Bank to the investors (both existing and potential) which help them in making their investment decisions. The Bank conducts quarterly analyst briefings in order to share details pertaining to results announced and to respond to any queries of analysts relating to results and future prospects. Other than the quarterly analysts briefing, business analysts are provided with information and briefings as and when they require without compromising the confidentiality. Face to face discussions have also been arranged with foreign analysts as and when required. The briefing further envisages our transparent and continuously evolving stakeholders’ engagement approach. Briefing is being held as teleconferencing and during the year four analysts briefing were held on following dates; ResultsDate Annual Results 2018 March 12, 2019 1st Quarter Results 2019 May 2, 2019 2nd Quarter Results 2019 August 21, 2019 3rd Quarter Results 2019 October 30, 2019 In addition to the above mentioned regular teleconferencing sessions, during the year Bank also held Corporate Analyst Briefing Session which was held on December 10, 2019 in Lahore Stock Exchange Auditorium. Session was attended by senior management of MCB Bank Limited and various analysts and investors. CFO of the bank presented a detailed analysis of Bank’s performance along with future outlook; session was followed by Q & A session. Annual Report 2019 177
  180. Issues Raised in the Last Annual General Meeting (AGM) The 71st Annual General Meeting of the shareholders of Your Bank was held on MARCH 29, 2019 at 11:00 am, Nishat Hotel, Emporium Mall, Lahore. Mian Mohammad Mansha, Chairman of Board of Directors, chaired the meeting. The meeting was attended by Board members of the Bank including the Chief Executive Officer along with the Chief Financial Officer and the Company Secretary. During question/answer session, shareholders appreciated the overall growth in the Bank’s financial performance for year ended December 31, 2018. One of the shareholders inquired about the impact on profitability of increase in discount rate as announced by the State Bank of Pakistan (“SBP”); to which CFO stated that Bank’s Net interest income would increase owing to increase in interest rate. Further, he mentioned that rate on deposit was increased in subsequent month of policy rate announcement; whereas, investments and advances would be re-priced on maturity or next repricing date whichever is applicable. While responding to different queries of the shareholders, the President of the Bank stated that at the bottom line, the Bank posted healthy financial results. He further explained that the Bank remained a well-capitalized institution with a capital base well above the regulatory limits and Basel capital requirements. He also mentioned that the Bank had the highest cash dividend per share in the industry and also remained one of the prime stocks traded in the Pakistani equity markets reflected by the highest market capitalization in the financial institution category as at December 31, 2018. Secretary also explained to the shareholders that the Securities and Exchange Commission of Pakistan (“SECP”) had made it mandatory for listed companies to mention, in the case of Individuals, Computerized National Identity Card (“CNIC”), National Identity Card for Overseas Pakistanis (“NICOP”) or Passport number and in the case of Corporate Entity, National Tax Number (“NTN”) of the shareholders or their authorized persons, on dividend warrants. Following businesses were also discussed during the AGM: • • • 178 Appointment of External Auditors for FY 2020 Approval of Final Cash Dividend-2018 Increase in Remuneration for attending Board and its Committee Meetings Unconsolidated Financial Statements
  181. Annual Report 2019 Statement of Value Added Value Added 20192018 PKR (Mln) % PKR (Mln) Net interest income Non interest income Operating expenses excluding staff costs, depreciation, amortization and WWF Provision against advances, investments & others % 59,616 16,679 46,014 17,198 (14,897) (2,484) (15,921) 1,753 58,914 49,044 14,585 24.76% 14,053 28.65% Income tax To Shareholders 16,125 27.37% 10,704 21.83% Cash dividends to shareholders To Society 20,146 34.20% 18,961 38.66% – 0.00% 1 0.00% 8,058 13.68% 5,325 10.86% 58,914 100% 49,044 100% Value added available for distribution Distribution of value added: To employees Remuneration, provident fund and other benefits To government Donations Retained within the business Depreciation, Amortization, Retained profit and reserves 2019 2018 27% 22% 28% 25% 14% 11% 0% 0% 34% To Society To employees To expansion and growth To government To providers of capital 39% To Society To employees To expansion and growth To government To providers of capital Annual Report 2019 179
  182. Code of Conduct • The Code of Conduct spells out the behaviour expected from employees of MCB Bank Limited (MCB), reflecting fairness, transparency and accountability. The Code of Conduct gives a quick reference check for acceptable business practices. • However, the Code of Conduct does not replace defined and comprehensive HR Policies of MCB Bank Limited. • MCB Bank is committed to conduct its business in accordance with the applicable laws, rules and regulations as defined by the State Bank of Pakistan by adhering to high standards of business ethics which reflect our corporate values. • Adherence to the Code of conduct is mandatory for all employees of MCB Bank Ltd-Pakistan. In line with code of conduct the employees of the bank shall Abidance of Laws / Rules • Conform to and abide by the Bank rules and policies, wherever we operate and obey all lawful orders and directives which may from time to time be given by any person or persons under whose jurisdiction, superintendence or control, the persona will, for the time being, be placed. To undertake at all times compliance with and observation of all applicable laws, regulations and Bank policies, wherever the Bank operates. Integrity • Conduct the highest standards of ethics, professional integrity and dignity in all dealings with the public, customers, investors, employees, and government officials, State Bank of Pakistan and fellow Bankers and non-engagement in acts discreditable to the Bank, profession and nation • In case of awareness of any breaches of laws and regulations, frauds and other criminal activities or other similar serious incidents that might affect the interests of the Bank, the same shall be informed to the senior management immediately, including any issue, which may pose a reputational risk. • Not use this policy to raise grievances or act in bad faith against colleagues. Professionalism • Serve the Bank honestly and faithfully and strictly serve the Bank affairs and the affairs of its constituents, use utmost endeavor to promote the interest and goodwill of the Bank and show courtesy and attention 180 Unconsolidated Financial Statements in all transactions/ correspondence with officers of Government, State Bank of Pakistan, other Banks & Financial Institutions, other establishments dealing with the Bank, the Bank constituents and the public. • In case the employment is terminated for any reason, all rights to property and information generated or obtained as part of employment relationship will remain the exclusive property of MCB. • Comply with the laws and regulations on money laundering and fraud prevention and immediate reporting of all suspicions of money laundering as per the guidelines provided in CDD & AML/ CFT Handbook and Anti-fraud Framework Policy for the Management and the staff. • Not to engage in any act of violation of CDD & AML / CFT Handbook’s guidelines given by the State Bank of Pakistan and be extremely vigilant in protecting MCB Bank from being misused by anyone to launder money by violating these guidelines. • Ensure that all customer complaints are resolved quickly, fairly and recorded appropriately. Conflict of Interest • Avoid all such circumstances in which there is personal conflict of interest, or may appear to be in conflict, with the interest of the Bank or its customers. • In case of potential conflict of interest, the same should be declared immediately to senior management, action is taken to resolve and manage it in open manner and resolving the conflict of interest on their own would be avoided. • Report to the Company Secretary within three (3) days about any sale and purchase of MCB shares (own or spouse) in case the annual basic salary exceeds Rs. 500,000/-. • Not buy, sell or take position in any manner regarding MCB Bank shares during Closed Period, as announced by Company Secretary. Relatives and close friends • Avoid conflict of interest arising, where an employee makes or participates in a decision which affects another person with whom one has a personal relationship (such as a relative, parent, spouse, cousin, close friend or personal associate). In cases where a conflict may arise, employees must advise their immediate line manager. Wherever possible, employees should disqualify themselves from dealing with those persons in such situations.
  183. Annual Report 2019 Code of Conduct Political Participation • Not obtain membership of any political party, or take part in, subscribing in aid of, or assist in any way, any political movement in or outside of Pakistan or relating to the affairs of Pakistan. • Not express views detrimental to the ideology, sovereignty or integrity of Pakistan. • Not canvass or otherwise interfere or use influence in connection with or take part in any election as a candidate to a legislative/local body or issue an address to the electorate whether in Pakistan or elsewhere. However, the right to vote can be exercised. • Not bring or attempt to bring political or other pressure/ influence directly or indirectly to bear on the authorities/ superior officers or indulge in derogatory pamphleteering, contribute, or write letters to the newspapers, anonymously or in own name contribute or appear in media, with an intent to induce the authority/ superior officers to act in a manner inconsistent with rules, in respect of any matter relating to appointment, promotion, transfer, punishment, retirement or for any other conditions of service of employment. Financial Interest • Not indulge in any of the following activities without prior permission of competent authority (GH - HRM for VP & below and President for SVP & Above): • Borrow money from or in any way place myself under pecuniary obligation to a broker or moneylender or anyone, including but not limited to any firm, company or person having dealings with the Bank. • Buy or sell stock, shares or securities of any description without funds to meet the full cost in the case of purchase or scripts for delivery in the case of sale. However, a bona-fide investment of own funds in such stocks, shares and securities as wished can be made. • Lend money in private capacity to a constituent of the Bank or have personal dealings with a constituent in the purchase or sale of bills of exchange, Government paper or any other securities. • Act as agent for an insurance company otherwise than as agent for or on behalf of the Bank. • Be connected with the formation or management of a joint stock company or hold office of a director. • Engage in any other commercial business or pursuit, either on own account or as agent for another or others. • Engage in any outside employment or office whether stipendiary or honorary during my employment with MCB Bank. • Undertake part-time work for a private or public body or private person, or accept fee thereof. • Any kind of trading advice concerning the securities of MCB Bank or to third parties even when such director, officer or employee does not possess material nonpublic information about MCB Bank. • In reviewing or approving a loan application from a corporation wherein holding office as director, partner or guarantor. Gift, Favors Etc. • Not use the employment status to seek personal gain from those doing business or seeking to do business with MCB, nor accept such gain if offered. • Not accept any gift, favors, entertainment or other benefit the size or frequency of which exceeds normal business contacts from clients, stakeholders, colleagues of the Bank or from persons likely to have dealings with the Bank including candidates for employment in the Bank. • Reporting in writing to immediate supervisor within three working days in case any sizeable gift / favor is received from any third parties. Confidentiality • Maintain the privacy and confidentiality (during the course of employment and after its termination for whatever reason), of all the information acquired during the course of professional activities and refrain from disclosing the same unless otherwise required by statutory authorities / law. Inside information about Bank’s customers/affairs including customer data, product manuals, confidential financial and business information of the Bank etc., shall not be used for own gain or for that of others either directly or indirectly. • Not trade in relevant investments or indulge in giving tips to another person or dealing on behalf of relatives, friends or any other third parties, whilst in possession of non-public price sensitive information. • Not disclose to a customer or customers or to any irrelevant quarter(s) that a suspicious transaction or related information is being reported for investigation unless any law enforcement agency requires any lawful information. (Only authorized representatives can pass on information to Law enforcing agencies after obtaining clearance on information content from relevant GH / BH(for RBG) and LAG representative). Annual Report 2019 181
  184. Code of Conduct Data Security Personal Responsibility • Only access or update the system and data according to the authority given by the Bank. Any unauthorized access or updation will hold the person liable for a penal action by the Bank in accordance with HR policies. • Safeguard as a personal responsibility, both the tangible and intangible assets of MCB and its customer(s) that are under personal control and not to use Bank assets for personal benefits except where permitted by MCB. • Not compromise access to system by communicating identification and /or passwords to others. • Not use any Bank facilities including a car or telephone to promote trade union activities, or carry weapons into Bank premises unless so authorized by the management, or to carry on trade union activities during office hours, or in banking premises, or subject Bank officials to physical harassment or abuse. • Ensure that material non-public information is secure. Not discuss such information in public places where it can be overheard, such as elevators, restaurants, taxis and airplanes. Communication / Contact with Media • Be truthful in all advertisings and promotional efforts and to publish only accurate information about the Bank operations under valid authority as prescribed in the Bank policy. Punctuality • Ensure attendance and punctuality as per HR policies, departmental requirements & job standards and for any absence during working hours obtain written permission of the immediate supervisor. Dress Code • Not give any kind of confidential information or interview on behalf of the Bank or in my official capacity in the print/electronic media or road / talk shows or participate or act in television/stage plays or in any media or cinema without having permission from the Head of Corporate Communication & GH - HRM. Speak Up • To inform line management & HR of any perceived wrong doing / malpractice at any level, as an obligation to report it under the Bank whistle blowing program / policy. International Travel • Be culturally sensitive to the socio-cultural norms of the host country. • Represent Country and organization by conforming to high standards of personal and professional ethics at all times. Business / Work Ethics Work Environment • Respect fellow colleagues and work as a team. To be, at all times, courteous and not to let any personal differences affect work. • Cooperate in maintaining a healthy and productive work environment and not get engaged in the selling, manufacturing and distributing using any illegal substance or being under the influence of illegal drugs or alcohol while on the job. Customer Centricity • Treat every customer of the Bank with respect and courtesy. • Be responsive to customer complaints, and to feedback on products and services. • Provide relevant, complete and clear information to customers to the best of one’s knowledge. • Sell products or services to customers that are within the legitimate scope of one’s job. • Remain update with the latest products of the Bank, and provide all relevant information to the customers. 182 • Maintain a standard of personal hygiene / neatness and follow MCB Bank dress code policy in true spirit to promote a professional work environment during office hours. Unconsolidated Financial Statements • Ensure strict adherence to all policies of the Bank, as announced by the management from time to time and contribute utmost effort in maintaining a conductive work environment. Usage of Communication Tools • Ensure strict adherence to the use of internet, emails and telephone provided by the Bank for official use only. • Never use the Bank system to transmit or receive electronic images or text containing ethnic slurs, social epithets or anything that might be construed as harassing, offensive or insulting to others.
  185. Annual Report 2019 Code of Conduct • Never utilize Bank system to disseminate any material detrimental to the ideology, sovereignty or integrity of Pakistan. • Never indulge and /or utilize the Bank system for supporting any terrorist activity within and / or outside Pakistan. Reporting and Accountability • Maintain all books, data, information and records with scrupulous integrity, reflecting in an accurate and timely manner and to ensure that all business transactions are reported and documented correctly according to the business practices. Ensure facts are not misinterpreted / misused /tampered pertaining to: Harassment Against Women • Any type of harassment is not acceptable at MCB Bank. Harassment occurs when someone’s actions or words, based on gender, race, sexuality, caste, creed, and color are unwelcome, violate another person’s dignity and creates a hostile environment. (Reference to HR Policy Manual section 6, 6.2.5, Protection against harassment of women at the workplace Act, 2010) • Accordingly, not engage in harassment in any form. It may include objectionable epithets, threatened or actual physical harm and intimidating conduct directed against the individual that negatively affects the performance and well-being of an individual. Sexual Harassment • Issuing an incorrect account statement / any other information for any customer or fellow employees / management. • Placing a fake claim for reimbursement of any expenses (including medical insurance). • Unrecorded or recorded funds / assets or any other Bank’s documents. • Posting of false, artificial or misleading entries in the books or record of the Bank. • Intimate line management and HRM of any changes in the personal circumstances relating to service tenure and other related benefits, provided by the Bank. Zero Tolerance for Favoritism or Discrimination • Ensure adherence to the guidelines of MCB Bank’s non-discrimination on the basis of gender which limits the individual’s right of recruitment, future training, promotion and any other related benefits. • Not be a part of any undue favor / discriminatory advantage to any colleague / subordinate staff. Personal Space • Keeping in mind the Bank’s policy with reference to the Protection against harassment of Women at the Workplace Act, 2010, adherence to all guidelines given by the Bank. Communication • Not send sexually explicit or offensive communications and respect the privacy of fellow employee especially female employees. Following factors should be adhered to in order to maintain effective communication and ethical standards: 1. Not send any electronic mail that is abusive or threatens the safety of an Individual(s). 2. Always use a professional tone in all official communications. 3. Be careful when using sarcasm and humor Workplace bullying Refrain from any form of Workplace bullying: • Shouting or swearing at an employee or otherwise verbally abusing him / her. • Singling out an employee for excessive criticism/public humiliation. • No right to intrude on the personal space / close proximity of any staff particularly females. • Excluding an employee from company activities and undermining his / her work contributions. Female Staff/Employee Privacy • Language or actions that embarrass or humiliate an employee. • Recognize that female staff have more privacy and sensitivity needs in keeping with our cultural norms. Therefore, behaviour towards them must reflect that sensitivity, respect and consideration. • Inappropriate practical jokes, especially if they are targeted. Insider Trading Comply with insider trading policy and to abide by all guidelines provided in the policy. Annual Report 2019 183
  186. Statement on Internal Controls The internal control structure of MCB Bank Limited (Bank) comprises the Board of Directors, Senior Management, Risk Management Group, Financial Control Group, Operations Group, Compliance & Controls Group, Audit & Risk Assets Review (Audit & RAR) Group, Internal Control Units (ICUs) within all Groups and the controls & self-assessment procedures implemented at other functions within the Bank. The Bank’s management is responsible to establish and maintain an adequate and effective system of internal controls and procedures under the policies approved by the Board. The management is also responsible for evaluating effectiveness of the Bank’s internal control system that covers material matters through identification of control objectives as well as review of significant policies and procedures. Bank’s internal control system has been designed to identify and mitigate the risk of failure to achieve overall business objectives of the Bank. Internal controls and policies are designed to provide reasonable assurance regarding the effectiveness and efficiency of the Bank’s operations, reliability of financial information and compliance with applicable laws & regulations. However, it needs to be stated that systems are designed to manage, rather than eliminate the risk of failure to achieve the business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The management of the Bank has adopted the Integrated Framework on Internal Controls issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and has completed all the stages as set out in the roadmap provided by the State Bank of Pakistan (SBP) through the Guidelines on Internal Controls. Bank’s assessment included documenting, evaluating and testing of the design and operating effectiveness of its Internal Controls over Financial Reporting (ICFR). Bank has developed a management testing and reporting framework for monitoring ongoing operating effectiveness of key controls. Concerted efforts are made by every Group to improve the control environment at grass root level by regularly reviewing and streamlining procedures to prevent and rectify control lapses as well as imparting training for improvement at various levels. Compliance & Controls Group (CCG), through its specialized teams and centralized automated solutions, also oversees adherence to the regulatory requirements, with specific emphasis on Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (CFT). In addition, CCG also leads the Management’s Committee on AML/CFT for oversight of AML/CFT compliance with respect to relevant laws, regulations, policies and procedures. The scope of Audit & RAR Group, independent from the management, inter alia includes, review and assessment of the adequacy and effectiveness of the control activities across the Bank as well as evaluation of compliance with the Bank’s prescribed policies and procedures. All significant / material findings of the internal audit activities 184 Unconsolidated Financial Statements are reported to the Board’s Audit Committee. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard interest of the Bank. All significant and material findings of the internal and external auditors as well as observations of the regulators are addressed on priority by the management and their status is reported periodically to the Board’s Audit Committee and the Board’s Compliance Review & Monitoring Committee respectively, which ensures that the management takes appropriate corrective actions and put in place a system to minimize repetition for strengthening of the control environment. A separate Issues Tracking & Monitoring (ITAM) structure with membership comprising of senior management is also in place. Periodic meetings of management subcommittees formed for this purpose are held with the goal to expedite the resolution/compliance of issues identified by the Regulators, Statutory Auditors as well as Audit & RAR Group. The Management Committee chaired by the Bank’s President / Chief Executive Officer monitors the performance of sub-committees on annual basis. In accordance with SBP’s directives and as stated earlier, the Bank has completed all stages of ICFR roadmap and a Long Form Report (LFR) on the assessment of Bank’s ICFR for the year 2018 issued by the statutory auditors has been submitted to SBP in compliance with its directives stated in OSED Circular No. 1 of 2014 dated February 07, 2014. None of the deficiencies identified had a material impact on Financial Reporting. Based upon the results derived through ongoing testing of financial reporting controls and internal audits carried out during the year, the management considers that the Bank’s existing internal control system is adequate and has been effectively implemented and monitored. The management will continue enhancing its coverage and compliance with the SBP Guidelines on Internal Controls and further strengthening its control environment on an ongoing basis. Based on the above, the Board of Directors has duly endorsed management’s evaluation of internal controls including ICFR in the Directors’ report. Farid Ahmad Chief Compliance Officer Hammad Khalid Chief Financial officer Kamran Zaffar Muggo Group Head Operations Muhammad Farooq Wasi Chief Internal Auditor
  187. Annual Report 2019 Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2019 MCB Bank Limited For the year ended December 31, 2019 MCB Bank Limited (“MCB” or the “Bank”) has complied with the requirements of the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the “Regulations”) in the following manner: 1. The total number of Directors including President & CEO are 13 as per the following: a.Male: b.Female: 12 01 2. The composition of the Board is as follows: Category Name Independent Directors Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Shahzad Hussain Mr. Masood Ahmed Puri Non-Executive Directors Mian Mohammad Mansha Mr. S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Muhammad Ali Zeb Mr. Shariffuddin bin Khalid Executive Director (President & CEO) Mr. Imran Maqbool Female Director (Non-Executive) Mrs. Iqraa Hassan Mansha 3. The directors have confirmed that none of them is serving as a director on more than seven listed companies, including the Bank; 4. The Bank has prepared a ‘Code of Conduct’ and has ensured that appropriate steps have been taken to disseminate it throughout the Bank along with its supporting policies and procedures; 5. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Bank. The Board has ensured that complete record of particulars of significant policies along with their dates of approval or updating is maintained by the Bank; 6. All the powers of the Board have been duly exercised and decisions on relevant matters have been taken by the Board/ Shareholders as empowered by the relevant provisions of the Companies Act, 2017 (the “Act”) and the Regulations; 7. The meetings of the Board were presided over by the Chairman and, in his absence, by the Vice Chairman or a director elected by the Board for this purpose. The Board has complied with the requirements of the Act and the Regulations with respect to frequency, recording and circulating minutes of meeting of the Board; 8. The Board has a formal policy and transparent procedures for remuneration of directors in accordance with the Act and the Regulations; 9. All the Board Members except one either have minimum education and experience as required under Regulation 19 for exemption from Directors Training Program, or have already completed Directors Training Program pursuant to the requirements of the Regulations; 10. During the year, there was no any such appointment of the Chief Financial Officer (“CFO”), the Company Secretary and the Head of Internal Audit; 11. The CFO and the President & Chief Executive Officer (“CEO”) duly endorsed the financial statements before approval of the Board; Annual Report 2019 185
  188. 12 . The Board has formed its eight (8) Committees. The names and composition of Committees along with the details of Committee(s) Members have been given in the Section on Corporate Governance; 13. The Terms of Reference (“TORs”) of the aforesaid Committees have been formed, documented and advised to the respective Committee for compliance; 14. The frequency of the Committee meetings has been given in the Section on Corporate Governance; 15. The Board has set up an effective internal audit function which is considered suitably qualified and experienced for the purpose and conversant with the policies and procedures of the Bank; 16. The Statutory Auditors of the Bank have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan (“ICAP”) and registered with Audit Oversight Board of Pakistan, that they and all their partners are in compliance with International Federation of Accountants (“IFAC”) guidelines on code of ethics as adopted by the ICAP and that they and the partners of the firm involved in the audit are not a close relative (spouse, parent, dependent and non-dependent children) of the President & CEO, CFO, Head of Internal Audit, Company Secretary or Director of the Bank; 17. The Statutory Auditors or the persons associated with them have not been appointed to provide other services except in accordance with the Act, these regulations or any other regulatory requirement and the auditors have confirmed that they have observed IFAC guidelines in this regard; and 18. We confirm that all requirements of regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Regulations have been complied with. For and on behalf of the Board of Directors Imran Maqbool President & CEO MCB Bank Limited February 04, 2020 Lahore 186 Unconsolidated Financial Statements Mian Mohammad Mansha Chairman
  189. Annual Report 2019 Independent Auditor ’s Review Report To the members of MCB Bank Limited Review Report on the Statement of Compliance contained in Listed Companies (Code of Corporate Governance) Regulations, 2019 We have reviewed the enclosed Statement of Compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the “Regulations”) prepared by the Board of Directors of MCB Bank Limited (“the Bank”) for the year ended December 31, 2019, in accordance with the requirement of regulation 36(2) of the Regulations. The responsibility for compliance with the Regulations is that of the Board of Directors of the Bank. Our responsibility is to review whether the Statement of Compliance reflects the status of the Bank’s compliance with the provisions of the Regulations and report if it does not and to highlight any non-compliance with the requirements of the Regulations. A review is limited primarily to inquiries of the Bank’s personnel and review of various documents prepared by the Bank to comply with the Regulations. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Bank’s corporate governance procedures and risks. The Regulations require the Bank to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions and also ensure compliance with the requirements of Section 208 of the Companies Act, 2017. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. We have not carried out procedures to assess and determine the Bank’s process for identification of related parties and that whether the related party transactions were undertaken at arm’s length price or not. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Bank's compliance, in all material respects, with the requirements contained in the Regulations as applicable to the Bank for the year ended December 31, 2019. Date: February 14, 2020 Lahore KPMG Taseer Hadi & Co. Chartered Accountants Annual Report 2019 187
  190. Report of the Audit Committee Composition of Audit Committee The Audit Committee comprises four (4) non-executive directors including one Independent Director also being Chairman of the Audit Committee. Further, two qualified chartered accountants with diversified professional experience in various sectors are members of the Audit Committee. The members of the Audit Committee are qualified professionals and possess enriched experience of working at the Boards & Senior Management levels of entities operating in both banking and non-banking sectors. Role of Audit Committee to discharge its responsibilities towards financial statements and committee’s overall approach to risk management: • In line with the requirements of Listed Companies (Code of Corporate Governance) Regulations – 2019 and Guidelines for Internal Audit Function issued by the State Bank of Pakistan, the Chief Internal Auditor functionally reports to the Board’s Audit Committee and administratively to Bank’s President / CEO. The Committee ensures staffing of the internal audit function with personnel of sufficient internal audit knowledge and experience, as well as equipping of the function with necessary resources and authority to execute their responsibilities independently and objectively. • The Committee approves and overseas the risk assessment, annual audit plan and related enablers/budget along with resource requirements of Audit & Risk Assets Review (Audit & RAR) Group. • All significant and material findings of the internal audit activities are reported to the Audit Committee. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard the interest of the Bank. • Audit Committee actively engages in the review of the Bank’s quarterly, half yearly and annual financial statements as well as oversight of internal audit activities in accordance with the requirements of Listed Companies (Code of Corporate Governance) Regulations – 2019 and the Charter of the Board Audit Committee, duly approved by the Board of Directors. • The Committee understands its responsibility to ensure that the significant issues in relation to financial statements are addressed properly. Furthermore, Audit & RAR group also reviews the Bank’s quarterly, half yearly and annual financial statements and discuss the significant matters with management. • The Committee ensures the independence of external auditors, effectiveness of external audit process and appointment / re-appointment of external auditors by performing the following: o o o o o Review the terms of engagement and ensure that external auditors are independent to the Bank in terms of local regulatory requirements. Ensure that external auditors have resources and professional qualification to conduct the audit. The Auditors have been allowed direct access to the Audit Committee. Discuss external auditors’ feedback on the Bank’s critical accounting estimates and judgements. Discuss the significant control issues and significant audit matters identified by external auditors. Audit Committee held five (5) meetings, during the year 2019, and following matters (including significant matters) were discussed: • • • • • • • • • • 188 Reviewed the quarterly, half yearly and annual financial statements of the Bank, and recommended them for approval of the Board of Directors. The Committee concluded that the annual report was fair, balanced and understandable and also provided the necessary information for shareholders to assess the Bank’s position and performance, business model and strategy. Reviewed the disclosure of related party transactions prior to their approval by the Board of Directors (BOD). Review of status of compliance against observations highlighted by internal and external auditors, including regular updates on the rectification actions taken by the management in response to the audit findings. Review of status of implementation of decisions of BOD and its Sub-Committees. Review of significant issues highlighted by internal auditors during audits/reviews of branches and other functions of the Bank along with management actions thereon. Review of analysis related to significant frauds and forgery incidents in the Bank, with specific focus on nature and reasons along with Management action(s) thereof. Review of annual fraud risk assessment along with action plan for strengthening of internal controls. Review, approval and oversight of Risk Assessment, Annual Audit Plan and related enablers/budget along with resource requirements of Audit & Risk Assets Review (Audit & RAR) Group. Review of status of trainings imparted to internal audit staff, along with status of activities under Quality Assurance & Improvement Program of Internal Audit. Review of resolution status of complaints lodged under the Bank’s Whistle Blowing Program. Review of gap analysis and action plan with respect to Guidelines for Internal Audit Function issued by the State Bank of Pakistan. Unconsolidated Financial Statements
  191. Annual Report 2019 • • • • • Review of performance of Chief Internal Auditor against its Key Performance Indicators (KPIs). Review and approval of KPIs of Chief Internal Auditor for next year. Review & approval of Audit Group's increments, bonuses, promotions and performance appraisal of Chief Internal Auditor. Review of progress on Audit Group’s Strategic Initiatives and Milestones. Review and recommendation to the Board of Internal Audit Strategy (2020 – 2022). Being eligible for reappointment as Auditors of the Bank, the committee had recommended the appointment of KPMG Taseer Hadi & Co., Chartered Accountants as external auditors (5th term) of the Bank for the year ending December 31, 2020 as it is one of the big four audit firm and has thorough knowledge of the Bank’s business and industry. The Audit Committee ensures compliance with relevant regulations in regard to tenure of external auditors and provisions of non-audit services by external auditors to ensure independence and objectivity of external auditors. In addition to the above, the Committee also reviewed and recommended the following to the Board for approval: - - - - - - Global Internal Audit Policy (versions 1.0 & 2.0); Internal Audit Policy (versions 9.0 & 10) Internal Audit Policy for Wholesale Banking Operations – UAE (versions 5.0 & 6.0); Whistle Blowing Program (version 7.0); Internal Audit Manual (version 7.0); and Statement on Internal Control Systems prior to endorsement by the Board. Committee performance evaluation Performance of the Audit Committee is annually reviewed by the Board of Directors and Board appreciated the Committee’s role in thoroughly reviewing the financial statements and Bank’s internal audit function and other financial matters of critical importance. Further, during 2019, M/s Pakistan Institute of Corporate Governance (“PICG”) evaluated performance of Audit Committee and found to be properly fulfilling its roles. Internal Control Framework and role of Internal audit The Bank’s internal control structure comprises the Board of Directors, Senior Management, Risk Management Group, Compliance & Controls Group, Financial Control Group, the controls and self-assessment procedures implemented at other functions within the Bank; and Audit & Risk Assets Review (RAR) Group. The Management is responsible for establishing and maintaining a system of adequate and effective internal controls and procedures for implementing strategy and policies, as approved by the Board of Directors. The Bank has adopted integrated framework on Internal Controls issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and has completed all the stages, as set out in the roadmap provided by the State Bank of Pakistan (SBP) through the Guidelines on Internal Controls. Audit & RAR Group has performed its role effectively on both assurance and consultative fronts. The Group played pivotal role in evaluating the efficacy of Bank’s control systems and contributing towards their ongoing effectiveness by enhancing visibility of the Board and the management on the risk management and internal control matters of the Bank. All significant and material findings of the internal audit activities are reported to the Audit Committee of the Board of Directors. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard the interest of the Bank. The Audit Committee will continue to provide guidance to the Audit & RAR Group and the Management for further strengthening of Bank’s risk management practices and internal control environment. Shahzad Hussain Chairman Audit Committee MCB Bank Limited Lahore Annual Report 2019 189
  192. Notes
  193. Annual Report 2019 Unconsolidated Financial Statements MCB Bank Limited Annual Report 2019 191
  194. Independent Auditor ’s Report To the members of MCB Bank Limited Report on the Audit of the Unconsolidated Financial Statements Opinion We have audited the annexed unconsolidated financial statements of MCB Bank Limited (“the Bank”), which comprise the unconsolidated statement of financial position as at December 31, 2019 and the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated statement of cash flows for the year then ended, along with unaudited certified returns received from the branches except for 50 branches which have been audited by us and notes to the unconsolidated financial statements, including a summary of significant accounting policies and other explanatory information 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 the audit. In our opinion and to the best of our information and according to the explanations given to us, the unconsolidated statement of financial position, the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated statement of cash flows together with the notes forming part thereof conform with the accounting and reporting standards as applicable in Pakistan, and, give the information required by the Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Bank’s affairs as at December 31, 2019 and of the profit and other comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the unconsolidated financial statements of the current year. These matters were addressed in the context of our audit of the unconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Following are the Key Audit Matters: S. No. 1 Key Audit Matters How the matter was addressed in our audit Provision against advances Refer to note 10 and the accounting policies in Our audit procedures in respect of provision against notes 4.2 (b) and 5.4 to the unconsolidated financial loans and advances included the following: statements. •Assessing the design and operating The Bank’s advances to the customers represent effectiveness of manual and automated 32.78% of its total assets as at 31 December 2019 controls over classification and provisioning of and are stated at Rs. 496.67 billion which is net of advances including: provision of Rs. 43.35 billion at the year end. - The accuracy of data input into the system The provision against advances was identified as a key audit matter in our audit as it involves a considerable degree of management judgment and compliance with the Prudential Regulations (PRs) issued by the State Bank of Pakistan. used for disbursement and recovery of credit facilities; - Controls over correct classification of non-performing advances on time based criteria; - Controls over accurate computation and recording of provisions; and - 192 Unconsolidated Financial Statements Controls over the governance and approval process related to provision.
  195. Annual Report 2019 S . No. Key Audit Matters How the matter was addressed in our audit • Testing, on a sample basis, credit exposures identified by the management as displaying indicators of impairment, assessed the number of days overdue and assessed appropriateness of amount reported for provision in accordance with the PRs; • Testing, on a sample basis, credit exposure where the management has not identified as displaying indicators of impairment challenged the management’s assessment by reviewing the historical performances, account movement, financial ratios and reports on security maintained and formed our own view whether any impairment indicators are present; • For consumer and SME advances, analyzed the days past due report for calculation of provision required in accordance with PRs; and • Checking, on a sample basis, accuracy of specific provision against non-performing advances and of general provision against consumer and SME advances by recomputing the provision made in accordance with the criteria prescribed under the PRs. 2 Valuation of Investments Refer to note 9 and the accounting policies in notes Our procedures in respect of valuation of investments 4.2 (c) and 5.2 to the unconsolidated financial included the following: statements. • Assessing the design and tested the operating As at 31 December 2019, the Bank has investments effectiveness of the relevant controls in place classified as “Available-for-sale”, “Held for trading” relating to valuation of investments; and “Held to maturity”, amounting to Rs. 735.72 billion which in aggregate represent 48.56 % of the • Checking, on a sample basis, the valuation total assets of the Bank. of investments to supporting documents, externally quoted market prices and break-up Investments are carried at cost or fair value in the values; and accordance with the Bank’s accounting policy relating to their recognition. Provision against • Evaluating the management’s assessment investments is based on impairment policy of the of available for sale and held to maturity Bank which includes both objective and subjective investments for any additional impairment in factors. accordance with the Bank’s accounting policies and performed an independent assessment of We identified the valuation of investments including the assumptions. determination of impairment allowance on investments classified as ‘Available-for-sale’ and “Held to maturity” as a key audit matter because of their significance in relation to the total assets of the Bank and judgment involved in assessing impairment allowance. Annual Report 2019 193
  196. Information Other than the Unconsolidated Financial Statements and Auditor ’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Bank's Annual Report but does not include the unconsolidated financial statements and our auditors' report thereon. Our opinion on the unconsolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the unconsolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the unconsolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Board of Directors for the Unconsolidated Financial Statements Management is responsible for the preparation and fair presentation of the unconsolidated financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of unconsolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the unconsolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. The Board of directors is responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the unconsolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these unconsolidated financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 194 • Identify and assess the risks of material misstatement of the unconsolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the unconsolidated Unconsolidated Financial Statements
  197. Annual Report 2019 financial statements or , if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the unconsolidated financial statements, including the disclosures, and whether the unconsolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide to the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the unconsolidated financial statements of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements: Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Bank as required by the Companies Act, 2017 (XIX of 2017) and the returns referred above from the branches have been found adequate for the purpose of our audit; b) the unconsolidated statement of financial position, the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated statement of cash flows together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 and the Companies Act, 2017(XIX of 2017) and are in agreement with the books of account; c) investments made, expenditure incurred and guarantees extended during the year were in accordance with the objects and powers of the Bank and the transactions of the Bank which have come to our notice have been within the powers of the Bank; and d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance. We confirm that for the purpose of our audit we have covered more than sixty per cent of the total loans and advances of the Bank. The engagement partner on the audit resulting in this independent auditor’s report is M. Rehan Chughtai. Lahore Date: February 14, 2020 KPMG Taseer Hadi & Co. Chartered Accountants Annual Report 2019 195
  198. Unconsolidated Statement of Financial Position As at December 31 , 2019 Note 20192018 (Rupees in '000) ASSETS Cash and balances with treasury banks 6 Balances with other banks 7 Lendings to financial institutions 8 Investments 9 Advances 10 Fixed assets 11 Intangible assets 12 Deferred tax assets Other assets 13 132,704,797 12,542,239 1,090,058 748,764,502 496,678,874 58,271,245 957,552 – 64,142,748 103,174,597 11,878,975 35,106,241 749,368,738 503,581,323 40,811,956 630,141 – 53,578,090 LIABILITIES 1,515,152,015 1,498,130,061 Bills payable 15 Borrowings 16 Deposits and other accounts 17 Liabilities against assets subject to finance lease Subordinated debt 18 Deferred tax liabilities 19 Other liabilities 20 11,821,698 89,505,892 1,144,763,259 – – 5,850,645 94,295,738 15,699,280 216,018,886 1,049,037,615 – 3,891,019 1,532,177 62,673,355 1,346,237,232 1,348,852,332 NET ASSETS 168,914,783 149,277,729 Share capital 21 Reserves 22 Surplus on revaluation of assets 23 Unappropriated profit 11,850,600 77,591,253 23,695,441 55,777,489 11,850,600 74,147,981 9,747,104 53,532,044 168,914,783 149,277,729 REPRESENTED BY CONTINGENCIES AND COMMITMENTS24 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Imran Maqbool President/Chief Executive 196 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  199. Annual Report 2019 Unconsolidated Profit and Loss Account For the year ended December 31 , 2019 Note Mark-up / return / interest earned Mark-up / return / interest expensed 26 27 20192018 (Rupees in '000) 138,291,896 78,675,682 83,318,994 37,304,844 Net mark-up / interest income NON MARK-UP / INTEREST INCOME 59,616,214 46,014,150 Fee and commission income 28 Dividend income Foreign exchange income Income from derivatives Gain on securities 29 Other income 30 11,288,050 1,377,173 2,894,735 14,616 832,846 271,533 10,730,504 1,280,143 3,420,342 11,845 1,293,131 462,161 Total non-markup / interest Income 16,678,953 17,198,126 Total Income NON MARK-UP / INTEREST EXPENSES 76,295,167 63,212,276 Operating expenses 31 Workers welfare fund Other charges 32 32,670,918 802,046 236,357 32,090,793 641,272 169,849 Total non-markup / interest expenses 33,709,321 32,901,914 Profit before provisions Provisions / (reversals) and write offs - net 33 42,585,846 2,483,534 30,310,362 (1,753,256) Extra ordinary / unusual items – – PROFIT BEFORE TAXATION Taxation 34 40,102,312 16,125,473 32,063,618 10,704,040 PROFIT AFTER TAXATION 23,976,839 21,359,578 Rupees Basic and diluted earnings per share 35 20.23 18.02 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Imran Maqbool President/Chief Executive Hammad Khalid Chief Financial Officer Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director Annual Report 2019 197
  200. Unconsolidated Statement of Comprehensive Income For the year ended December 31 , 2019 20192018 (Rupees in '000) 23,976,839 21,359,578 Effect of translation of net investment in foreign branches Movement in surplus/ (deficit) on revaluation of investments - net of tax 1,045,588 6,975,891 1,145,550 (7,346,264) Items that will not be reclassified to profit and loss account in subsequent periods: 8,021,479 (6,200,714) Remeasurement loss on defined benefit obligations - net of tax Movement in surplus on revaluation of operating fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax (474,421) 6,908,341 165,776 (659,286) – 172,774 6,599,696 (486,512) Profit after taxation for the year Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: Total comprehensive income 38,598,014 14,672,352 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Imran Maqbool President/Chief Executive 198 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  201. - - - Annual Report 2019 Imran Maqbool President /Chief Executive Hammad Khalid Chief Financial Officer Mian Umer Mansha Director 2,675,131 - - - - 1,045,588 - - 1,045,588 1,629,543 Balance as at December 31, 2019 11,850,600 23,751,114 908,317 For details of dividend declaration and appropriations, please refer note 46 to these unconsolidated financial statements. For details of reserves, please refer note 22 to these unconsolidated financial statements. The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. - - - - 1,145,550 - - 1,145,550 483,993 - - - - - - - - - 908,317 - - - - - - - - 908,317 Revenue Suplus/(deficit) on revaluation of 31,656,691 - - - - - - 2,397,684 - - 29,259,007 - - - - - 2,135,958 - - 27,123,049 4,217,747 - - - - - 6,975,891 - - 6,975,891 (2,758,144) - - - - (7,346,264) - - (7,346,264) 4,588,120 Salman Khalid Butt Director 18,600,000 - - - - - - - - - 18,600,000 - - - - - - - - 18,600,000 (Rupees in '000) (4,740,240) (4,740,240) (4,740,240) (4,740,240) (4,740,240) (4,740,240) (4,740,240) (4,740,240) 19,477,694 (18,960,960) (4,740,240) (4,740,240) (4,740,240) (4,740,240) - 38,598,014 - 23,976,839 14,621,175 Masood Ahmed Puri Director 55,777,489 168,914,783 - (18,960,960) - 53,248 10,560 37,863 7,074,117 23,502,418 - (2,397,684) (53,248) (10,560) (37,863) (18,960,960) (4,740,240) (4,740,240) (4,740,240) (4,740,240) - 14,672,352 - 21,359,578 (6,687,226) 53,532,044 149,277,729 - 23,976,839 7,074,117 (474,421) 12,505,248 - (18,960,960) - 53,532 99,081 172,774 20,700,292 - (2,135,958) (53,532) (99,081) Total 53,776,057 153,566,337 - 21,359,578 172,774 (659,286) 12,485,087 Exchange Statutory General Unappropriated translation reserve reserve Investment Fixed / non - profit reserve banking assets - - - - - - - - - - - - - - - - 23,751,114 11,850,600 - Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 4.0 per share - December 31, 2018 Interim cash dividend at Rs. 4.0 per share - March 31, 2019 Interim cash dividend at Rs. 4.0 per share - June 30, 2019 Interim cash dividend at Rs. 4.0 per share - September 30, 2019 Balance as at December 31, 2018 Total comprehensive income for the year ended December 31, 2019 Profit after taxation for the year ended December 31, 2019 Other comprehensive income - net of tax - - - - - - - - - - - - - - 23,751,114 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 4.0 per share - December 31, 2017 Interim cash dividend at Rs. 4.0 per share - March 31, 2018 Interim cash dividend at Rs. 4.0 per share - June 30, 2018 Interim cash dividend at Rs. 4.0 per share - September 30, 2018 Balance as at December 31, 2017 Total comprehensive income for the year ended December 31, 2018 Profit after taxation for the year ended December 31, 2018 Other comprehensive income - net of tax 11,850,600 Non- distributable reserve Share Share capital premium Capital reserve Annual Report 2019 Unconsolidated Statement of Changes in Equity For the year ended December 31, 2019 199
  202. Unconsolidated Cash Flow Statement For the year ended December 31 , 2019 Note 20192018 (Rupees in '000) CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation 40,102,312 Less: Dividend income (1,377,173) 32,063,618 (1,280,143) 38,725,139 30,783,475 Adjustments: Depreciation on fixed assets 11.2 1,916,646 1,980,606 Depreciation on right of use assets 31 1,161,795 – Depreciation on non-banking assets acquired in satisfaction of claims 31 45,456 49,155 Amortization 12 301,022 255,629 Provisions / (reversals) and write offs - net 33 2,483,534 (1,753,256) Workers welfare fund 802,046 641,272 Gain on sale of non-banking assets acquired in satisfaction of claims 30 (111,948) (82,410) (Reversal) / charge for defined benefit plan 31.1 (101,509) 943,661 Gain on sale of fixed assets 30 (90,158) (245,655) Unrealized loss on revaluation of investments classified as held for trading 29 4,176 2,473 Interest expensed on lease liability against right-of-use assets 1,132,099 – Loss on amalgamation of a subsidiary 7,512 – Gain on sale of shares in an associate – (247,677) 7,550,671 46,275,810 Decrease / (increase) in operating assets Lendings to financial institutions 34,016,183 Held-for-trading securities (128,778) Advances 7,224,925 Others assets (excluding advance taxation) (16,297,896) 1,543,798 32,327,273 (30,708,127) (9,337,983) (31,435,283) 204,829 24,814,434 (Decrease) / increase in operating liabilities Bills Payable (3,877,582) Borrowings from financial institutions (125,990,277) Deposits 95,725,644 Other liabilities (excluding current taxation) 13,859,980 (5,767,177) 82,185,800 102,473,306 6,921,268 Defined benefits paid Income tax paid (20,282,235) (309,074) (2,306,594) 185,813,197 (343,743) (3,299,463) Net cash flow from operating activities 48,192,341 CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securities 8,627,647 Net investments in held-to-maturity securities 309,822 Investment in a subsidiary (350,000) Dividends received 1,394,813 Investments in fixed assets (4,395,890) Investments in Intangible assets (625,800) Proceeds from sale of fixed assets 158,186 Proceeds from sale of non-banking assets acquired in satisfaction of claims 540,000 Investments in non-banking assets acquired in satisfaction of claims (64,445) Net cash inflow from amalgamation of a subsidiary 40,968 Net cash outflow on demerger – Proceeds from divestment in an associate – Effect of translation of net investment in foreign branches 1,045,588 143,220,700 Net cash flow generated from / (used in) investing activities 6,680,889 CASH FLOW FROM FINANCING ACTIVITIES Payments of Subordinated debt (3,891,019) Dividend paid (18,838,387) Payment of lease liability against right-of-use-assets (1,427,643) (118,766,974) (24,157,049) 3,553,077 – (20,092,364) 5,575,328 (722,679) 34,269,258 109,628,331 9,214,011 103,967,397 Net cash flow used in financing activities Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents transferred to MIB under the scheme of demerger Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year (71,276,564) (93,718,703) (1,450,938) (1,200,000) 1,602,884 (4,261,454) (221,949) 573,958 682,410 – – (22,214,180) 295,448 1,145,550 (1,559) (20,090,805) – Cash and cash equivalents at end of the year 36 143,897,589 113,181,408 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Imran Maqbool President/Chief Executive 200 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  203. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 1. 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 the Pakistan stock exchange. The Bank’s Registered Office and Principal Office are situated at MCB -15 Main Gulberg, Lahore. The Bank operates 1,399 branches (2018: 1,376 branches) within Pakistan and 11 branches (2018: 11 branches) outside Pakistan (including the Karachi Export Processing Zone branch). 2. BASIS OF PRESENTATION 2.1 2.2 2.3 3. These unconsolidated financial statements represent separate financial statements of MCB Bank Limited. The consolidated financial statements of the Group are being issued separately. 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 profit in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these unconsolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of profit thereon. The unconsolidated financial statements are presented in Pak Rupees, which is the Bank’s functional and presentation currency. The amounts are rounded off to the nearest thousand. STATEMENT OF COMPLIANCE 3.1 These unconsolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: – International Financial Reporting Standards IFRS issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; – Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017; – Provisions of and directives issued under the Banking Companies Ordinance, 1962, the Companies Act, 2017; and – Directives issued by the SBP and the Securities and Exchange Commission of Pakistan (SECP). Wherever the requirements of the Banking Companies Ordinance, 1962, Companies Act, 2017 or the directives issued by the SBP and the SECP differ with the requirements of IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The State Bank of Pakistan has deferred the applicability of International Financial Reporting Standard 9, ‘Financial Instruments’ through BPRD Circular No. 04 of 2019 dated October 23, 2019 and International Accounting Standards 40, ‘Investment Property’ for Banking Companies through BSD Circular No. 10 dated August 26, 2002. The Securities and Exchange Commission of Pakistan (SECP) has deferred applicability of IFRS-7 “Financial Instruments: Disclosures” on banks through S.R.O 411(1) /2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars. IFRS10 Consolidated Financial Statements was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O 56(I) /2016 dated January 28, 2016, that the requirements of consolidation under section 237 of the repealed Companies Ordinance 1984 (Section 228 of Companies Act 2017) and Annual Report 2019 201
  204. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under Trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. 3.2 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year The Bank has adopted “IFRS 15 Revenue from Contracts with Customers” and “IFRS 16 Leases” effective 01 January 2019. IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Bank has adopted IFRS 15 from 01 January 2019. The timing or amount of income from contracts with customers was not impacted by the adoption of IFRS 15, accordingly, the adoption of this standard has no material impact in these unconsolidated financial statements. The impact of adoption of IFRS 16 on the Bank’s unconsolidated financial statements is disclosed in note 5.1. 3.3 In addition, there are certain other new standards and interpretations of and amendments to existing accounting standards that have become applicable to the Bank for accounting periods beginning on or after January 1, 2019. These are considered either to not be relevant or not to have any significant impact on the Bank’s unconsolidated financial statements. Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following other standards, amendments and interpretations of approved accounting standards are effective for accounting periods beginning on or after January 1, 2020: 202 IFRS 3, Business Combinations - (Amendments) IAS 1, Presentation of Financial Statements (Amendments) IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Amendments) Effective date (annual periods beginning on or after) January 1, 2020 January 1, 2020 January 1, 2020 The SECP, through SRO 229(I)/2019 dated February 14, 2019, has notified that IFRS 9, Financial Instruments, is applicable for accounting periods ending on or after June 30, 2019. However, as per BPRD Circular No. 04 of 2019 dated October 23, 2019 of SBP, effective date of IFRS 9 implementation is January 01, 2021. IFRS 9, Financial Instruments: Classification and Measurement, addresses recognition, classification, measurement and derecognition of financial assets and financial liabilities. The standard has also introduced a new impairment model for financial assets which requires recognition of impairment charge based on an ‘expected credit losses’ (ECL) approach rather than the ‘incurred credit losses’ approach as currently followed. The ECL approach has an impact on all assets of the Bank which are exposed to credit risk. The Bank is in the process of assessing the full impact of this standard. There are other new and amended standards and interpretations that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or do not have any significant effect on the Bank’s operations and are therefore not detailed in these unconsolidated financial statements. Unconsolidated Financial Statements
  205. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 4. BASIS OF MEASUREMENT 4.1 4.2 a) b) c) These unconsolidated financial statements have been prepared under the historical cost convention except that certain classes of fixed assets and non-banking assets acquired in satisfaction of claims are stated at revalued amounts and certain investments and derivative financial instruments have been marked to market and are carried at fair value. In addition, obligations in respect of staff retirement benefits are carried at present value. Critical accounting estimates and judgments The preparation of unconsolidated 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. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. 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: Classification of investments In classifying investments, the Bank follows the guidance provided in SBP circulars: – Investments classified as ‘held for trading’, are 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 of acquisition. – Investments classified as ‘held to maturity’ are 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 other than those in subsidiaries and associates which are not classified as ‘held for trading’ or ‘held to maturity’ are classified as ‘available for sale’. Provision against advances The Bank reviews its loan portfolio to assess the 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 note 10.4.4. 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 investee and sector performance, changes in technology and operational/financial cash flows. d)Taxation e) 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. 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 underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Annual Report 2019 203
  206. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 f) Depreciation, amortization 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) h) 5. Staff retirement benefits Certain actuarial assumptions have been adopted as disclosed in note 38 of these unconsolidated financial statements 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 affect the liability / asset under these plans in those years. Lease term The Bank applies judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Bank is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these unconsolidated financial statements are consistent with those of the previous financial year expect for the changes explained in notes 5.1. 5.1 Change in accounting policy IFRS 16 replaces existing guidance on accounting for leases, including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC-15, Operating Leases- Incentive, and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 introduces an on balance sheet lease accounting model for long term operating leases (short-term leases and leases where the underlying assets are of low value continue to be treated as off-balance sheet operating leases). A lessee recognizes a right-of-use asset representing its right of using the underlying asset and a corresponding lease liability representing its obligations to make lease payments. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as either finance or operating leases. The Bank has adopted IFRS 16 from January 1, 2019, and has not restated comparatives for the 2018 reporting period, using modified retrospective approach. On adoption of IFRS 16, the Bank has recognised liabilities in respect of leases which had previously been classified as operating leases under IAS 17. These liabilities are now measured as the present value of the remaining lease payments, discounted using the weighted average rate of 13.53% as of January 1, 2019. The associated right-of use assets are measured at the amount equal to the lease liability, adjusted by the amount of prepaid lease payments. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The right of- use assets are depreciated on a straight line basis over the lease term as this method most closely reflects the expected pattern of consumption of future economic benefits. The rightof-use assets are reduced by impairment losses, if any, and adjusted for certain remeasurements of lease liability. 204 Unconsolidated Financial Statements
  207. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 The change in accounting policy affected the following items in the statement of financial position as on January 01, 2019: – Right-of-Use (RoU) assets recognized as Fixed assets – increased by Rs 8,426.460 million which includes prepayments of Rs. 218.079 million; previously, included in advances, deposits, advance rent and other prepayments as at December 31, 2018. – Lease liabilities recognized as Other liabilities – increased by Rs 8,208.381 million. Interest on lease liability represents unwinding of lease liability amounting to Rs. 1,132.099 million. The impact on profit and loss account for the year ended December 31, 2019 is a decrease in profit after tax by Rs. 549.090 million and earning per share by Rs. 0.46. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. 5.2Investments a) The Bank classifies its investments as follows: These are securities, which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. b) c) Held for trading 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. 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 recognized at cost which in case of investments other than ‘held for trading’ include transaction costs associated with the investment. Transaction costs on investments held for trading are expensed in the profit and loss account. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognized 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 surplus / deficit on revaluation of investments through statement of comprehensive income in equity till disposal at which time it is recorded in profit and loss account. 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 (excluding investments in subsidiaries and associates) 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 financial statements. Investments classified as ‘held to maturity’ are carried at amortized cost less accumulated impairment losses, if any. Annual Report 2019 205
  208. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 5.3 Associates are all entities over which the Bank has significant influence but not control. Subsidiaries are all entities over which the Bank has the power to govern the financial and operating policies accompanying a shareholding of more than one half of the voting rights. Investments in subsidiaries and investments in associates are carried at cost less accumulated impairment losses, if any. Provision for impairment in the values of securities (except debentures, participation term certificates and term finance certificates) is made currently. Impairment of ‘available for sale’ equity investments is discussed in 4.2(c). 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. Sale and repurchase agreements Securities sold subject to a repurchase agreement (repo) are retained in these unconsolidated financial statements as investments and the counter party liability is included in borrowings. Securities purchased under an agreement to resell (reverse repo) are not recognized in these unconsolidated 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 recognized as mark-up income / expense on a time proportion basis, as the case may be. 5.4Advances 5.5 206 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 are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision against Consumer and Small Enterprise (SEs) loans made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. 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 finance leases. A receivable is recognized 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. Fixed assets and depreciation Fixed assets other than land and buildings are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Buildings are carried at revalued amount less any accumulated depreciation and subsequent impairment losses, if any. Land is carried at revalued amount less any subsequent impairment losses, if any. Cost of property and equipment of foreign operations includes exchange differences arising on currency translation at year-end rates. Capital work-in-progress is stated at cost less accumulated impairment losses, if any. These are transferred to specific assets as and when assets become available for use. Depreciation on all fixed assets (excluding land) is charged using the straight line method in accordance with the rates specified in note 11.2 to these unconsolidated 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. Land and buildings are revalued by independent, professionally qualified valuers with sufficient regularity to ensure that their net carrying amount does not differ materially from their fair value. An increase arising on revaluation is credited to the surplus on revaluation of fixed assets account. A Unconsolidated Financial Statements
  209. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 decrease arising on revaluation of fixed assets is adjusted against the surplus of that asset or, if no surplus exists, is charged to the profit and loss account as an impairment of the asset. A surplus arising subsequently on an impaired asset is reversed through the profit and loss account up to the extent of the original impairment. 5.5.1 Surplus on revaluation of fixed assets (net of associated deferred tax) to the extent of the incremental depreciation charged on the related assets is transferred 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 buildings (net of deferred taxation) is transferred directly to unappropriated profit. Subsequent costs are included in the asset’s carrying amount or are recognized 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. Intangible assets Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized from the month when these assets are available for use, using the straight line method, whereby the cost of the intangible assets are amortized 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. 5.6Impairment 5.7 a) 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. Staff retirement benefits The Bank operates the following staff retirement benefits for its employees: For clerical / non-clerical staff who did not opt for the new scheme, the Bank operates the following: b) – an approved contributory provident fund; – an approved gratuity scheme; and – a contributory benevolent scheme 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: c) – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund; and – contributory benevolent scheme 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: Annual Report 2019 207
  210. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 d) e) (i) – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund, and – contributory benevolent 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. For executives and officers who joined the Bank on or after January 01, 2000, the Bank operates an approved contributory provident fund. 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. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in other Comprehensive Income in the period of occurrence. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. The Bank recognises past service cost as an expense at the earlier of the following dates: when the plan amendment or curtailment occurs; and (ii) and when the Bank recognises related restructuring costs or termination benefits. 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 / losses arising from experience adjustments and changes in actuarial assumptions are recognized in Profit and Loss account in the period of occurrence. Employees’ compensated absences 5.8Taxation 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 / finalized during the year. 208 Deferred Deferred tax is recognised using the balance sheet liability method on all 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 substantively enacted by 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 recognized 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. Unconsolidated Financial Statements
  211. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 5.9Provisions 5.10 Provisions are recognized when the Bank has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimates. Foreign currencies 5.10.1 Foreign currency transactions Transactions in foreign currencies other than the results of foreign operations discussed in note 5.10.2 are translated to Rupees at the foreign exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in Rupee terms at the rates of exchange prevailing at the balance sheet date. Forward foreign exchange contracts are valued at the rates applicable to their respective maturities. 5.10.2 Foreign operations The assets and liabilities of foreign branches are translated to Rupees at exchange rates prevailing at the statement of financial position date. The results of foreign operations are translated to Rupees at the average rate of exchange for the year. 5.10.3 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) until the disposal of the net investment, at which time these are recognised in the profit and loss account. 5.10.4Commitments Commitments for outstanding forward foreign exchange contracts are disclosed in these unconsolidated 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 prevailing at the statement of financial position date. 5.11Acceptances 5.12 Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be simultaneously settled with the reimbursement from the customers. Revenue recognition – – Mark-up / interest on advances and returns on investments are recognized on a time proportion basis using the effective interest method except that mark-up / interest on non-performing advances and investments is recognized 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 countries where the branches operate. Where debt securities are purchased at premium or discount, such premium / discount is amortized through the profit and loss account over the remaining period of maturity. 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 recognized as income when these are realized. – Commission income is recognized on a time proportion basis. – Dividend income is recognized when the Bank’s right to receive dividend is established. – Gain / loss on sale of investments is credited / charged to profit and loss account currently. Annual Report 2019 209
  212. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 5.13 Assets acquired in satisfaction of claims Non-banking assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation and impairment loss. These assets are revalued by professionally qualified valuers with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of property is credited to the ‘surplus on revaluation of non banking assets’ account through statement of comprehensive income in equity and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title to property are charged to profit and loss account and not capitalised. 5.14 5.15 Cash and cash equivalents Cash and cash equivalents include cash and balances with treasury banks and balances with other banks (net of overdrawn Nostro balances) in current and deposit accounts. Financial instruments 5.15.1 Financial assets and financial liabilities Financial instruments carried on the statement of financial position include cash and balances with treasury banks, balances with other banks, lendings to financial institutions, investments, advances, other assets, bills payable, borrowings, deposits and other liabilities. 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 recognized 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 the derivative financial instruments are carried as an asset when the fair value is positive and as a liability when the 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 Off setting 5.16 5.17 Financial assets and financial liabilities are off set and the net amount is reported in these unconsolidated 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 realize the assets and settle the liabilities, simultaneously. Borrowings / deposits Borrowings / deposits are recorded at the proceeds received. The cost of borrowings / deposits is recognized as an expense in the period in which this is incurred. 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 segments Retail banking This includes retail lending and deposits, banking services, cards and branchless banking. This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Bank’s corporate and public sector customers. 210 Corporate banking Consumer Banking This segment primarily constitutes consumer financing activities with individual customers of the Bank. Product suite offered to these customers include credit cards, auto loans, housing finance and personal loans. Unconsolidated Financial Statements
  213. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making. International Banking This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities by Bank’s overseas operations. Others This includes the head office related activities and other functions which cannot be classified in any of the above segments. 5.17.2 Geographical segments The Bank operates in three geographic regions being: –Pakistan 5.18 5.19 5.20 – South Asia – Middle East 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. Business combination Business combinations other than under common control transaction are accounted for by applying the acquisition method. The cost of acquisition is measured as the fair value of assets given, equity instruments issued and the liabilities incurred or assumed at the date of acquisition. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, if any. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets acquired in the case of a bargain purchase, the difference is recognized directly in the profit and loss account as directed by the SBP. Earnings per share The Bank presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year. 5.21 Subordinated debt Sub-ordinated loans are initially recorded at the amount of proceeds received and subsequently measured at amortised cost. Markup accrued on these loans is charged to profit and loss account over the period at effective interest rate. Annual Report 2019 211
  214. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 6. 20192018 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand Local currency Foreign currencies 18,738,087 2,201,941 16,462,132 2,529,716 With State Bank of Pakistan in Local currency current account 6.1 Foreign currency current account 6.2 Foreign currency deposit account 6.3 20,940,028 18,991,848 56,533,231 277,126 14,023,401 40,305,992 279,023 12,621,991 With other central banks in Foreign currency current account 6.4 With National Bank of Pakistan in Local currency current account Prize bonds 70,833,758 53,207,006 16,220,148 5,197,681 24,390,028 320,835 25,657,815 120,247 132,704,797 103,174,597 6.1 This represents current accounts maintained with the SBP under the Cash Reserve Requirement of section 22 of the Banking Companies Ordinance, 1962. 6.2 This represents US Dollar settlement account maintained with SBP. 6.3 This represents account maintained with the SBP to comply with the Special Cash Reserve requirement. This includes balance of Rs. 10,517.551 million (2018: Rs. 9,446.493 million) which carries interest rate of 0.70% (2018: 1.35%) per annum as declared by SBP. 6.4 Foreign currency current account with other central banks are maintained to meet their minimum cash reserves and capital requirements pertaining to the foreign branches of the Bank. Note 7. 20192018 (Rupees in '000) BALANCES WITH OTHER BANKS Outside Pakistan In current account In deposit account 7.1 8,396,527 4,145,712 9,232,223 2,646,752 12,542,239 11,878,975 12,542,239 11,878,975 7.1 Balances with other banks outside Pakistan in deposit accounts carry interest rate ranging from 2.60% to 8.30% (2018: 2.90% to 3.90%) per annum. 20192018 Note (Rupees in '000) 8. LENDINGS TO FINANCIAL INSTITUTIONS Call / clean money lendings Repurchase agreement lendings (Reverse Repo) 8.1 8.2 212 Unconsolidated Financial Statements 880,853 209,205 2,069,329 33,036,912 1,090,058 35,106,241
  215. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 8.1 Call money lending carries mark-up rate of 9% (2018: 2.4% to 9.0%) per annum and is due to mature in January 2020. Repurchase agreement lendings carries mark-up rate of 7% (2018: 8% to 10.35%) per annum and is due to mature in January 2020. 20192018 (Rupees in '000) 8.2 8.3 Particulars of lending In local currency In foreign currencies 880,853 209,205 33,603,697 1,502,544 1,090,058 35,106,241 2019 2018 Held by Further given Total bank as collateral Held by Further given bank as collateral Total (Rupees in '000) 8.4 Securities held as collateral against lendings to financial institutions Market Treasury Bills – – – 32,972,346 – 32,972,346 Total – – – 32,972,346 – 32,972,346 9.INVESTMENTS 9.1 Investments by type: 20192018 Cost/Provision Surplus/CarryingCost/ProvisionSurplusCarrying Noteamortisedfor (deficit) value amortisedfor (deficit)value costdiminution costdiminution (Rupees in '000) Held-for-trading securities Federal Government Securities 9,479,849 - (4,128) 9,475,721 9,348,153 - (2,599) 9,345,554 Shares 13,158 - (48) 13,110 18,549 - 126 18,675 9,493,007 - (4,176) 9,488,831 9,366,702 - (2,473) 9,364,229 Available-for-sale securities Federal Government Securities Shares and units Non Government Debt Securities 1,309,773 - (3,359) 1,306,414 1,096,296 - 36 1,096,332 Foreign Securities 3,657,020 - 13,295 3,670,315 2,545,151 - (16,492) 2,528,659 666,128,289 - 4,981,349 671,109,638 674,920,983 24,938,090 (10,148,760) 696,033,172 (10,148,760) Held-to-maturity securities Federal Government Securities 16,207,249 (2,211) Provincial Government Securities 118 (118) Non Government Debt Securities 9,867,925 (533,788) Foreign Securities 8,320,599 (3,569) 34,395,891 (539,686) Associates 9.14 700,401 Subsidiaries 9.14 12,346,537 Total Investments - (725) 752,969,008 (10,689,171) - (3,990,667) 670,930,316 1,497,556 16,286,886 26,098,138 (7,371,946) (236,174) 18,490,018 6,488,841 692,373,253 704,660,568 (7,371,946) - 16,205,038 20,699,709 - - (1,675) 118 (118) - 9,334,137 8,196,110 (490,924) - 8,317,030 5,809,776 - 33,856,205 34,705,713 - 700,401 700,401 - 12,345,812 12,046,512 (4,243,297) 693,045,325 - 20,698,034 - - - 7,705,186 - (492,717) - 5,809,776 - 34,212,996 - - 700,401 (725) - 12,045,787 6,484,665 748,764,502 761,479,896 (7,865,388) (4,245,770) 749,368,738 Annual Report 2019 213
  216. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost/Provision Surplus/CarryingCost/ProvisionSurplusCarrying Noteamortisedfor (deficit) value amortisedfor (deficit)value costdiminution costdiminution (Rupees in '000) 9.2 Investments by segments: Federal Government Securities: Market Treasury Bills 397,866,023 - Pakistan Investment Bonds 292,723,081 - 5,376,303 298,099,384 127,913,919 Sukuks bonds 195,929 Euro Bonds 1,030,354 (2,211) 691,815,387 (2,211) 118 (118) Provincial Government Securities Shares: Listed Companies Unlisted Companies 23,398,083 (9,982,844) 1,553,165 (165,916) 24,951,248 (10,148,760) 14,333 - (290,163) 575,393,044 - (3,703,103) 124,210,816 210,262 140,601 - 1,028,143 1,231,118 (1,675) - 1,229,443 4,977,221 696,790,397 704,968,845 (1,675) (3,993,266) 700,973,904 - - 118 - (118) 1,497,508 14,912,747 24,552,022 (7,210,806) - 1,387,249 1,564,665 - - 140,601 - (236,048) 17,105,168 (161,140) - 1,403,525 1,497,508 16,299,996 26,116,687 (7,371,946) (236,048) 18,508,693 Non Government Debt Securities Listed 4,946,646 (16,269) 4,927,018 3,538,999 (16,269) Unlisted 6,231,052 (517,519) - 5,713,533 5,753,407 (474,655) 36 5,278,788 11,177,698 (533,788) (3,359) 10,640,551 9,292,406 (490,924) 36 8,801,518 13,295 11,528,269 (16,492) 7,853,682 Foreign Securities Government securities 11,517,802 (2,828) Non Government Debt securities 452,567 (741) Unlisted equity securities 7,250 11,977,619 - (3,569) (3,359) - 3,522,730 7,870,174 - - 451,826 478,548 - - 478,548 - 7,250 6,205 - - 6,205 13,295 11,987,345 8,354,927 - (16,492) 8,338,435 Associates - Adamjee Insurance Company Limited 9.8 647,880 - - 647,880 647,880 - - 647,880 52,521 - - 52,521 52,521 - - 52,521 700,401 - - 700,401 700,401 - - 700,401 49,975 - Euronet Pakistan (Private) Limited Subsidiaries MNET Services (Private) Limited 9.11 MCB Islamic Bank Limited 9.9 MCB Arif Habib Savings & Investments Limited Services (Pvt) Limited 9.10 Organization “ Closed Joint Stock Company” ‘(formely MCB Leasing CJSC, Azerbaijan) MCB Financial Services Limited 9.12 - - 49,975 - - - - 11,550,000 11,200,000 - - - 11,200,000 320,123 - - - - 320,123 - - 320,123 320,123 725 (725) - - 725 (725) MCB Non-Bank Credit - 11,550,000 Financial Management 214 - (413,415) 397,452,608 575,683,207 Total Investments Unconsolidated Financial Statements 448,189 - 27,500 12,346,537 (725) 752,969,008 (10,689,171) - 448,189 448,189 - - 448,189 - 27,500 27,500 - - 27,500 - 12,345,812 12,046,512 (725) - 12,045,787 6,484,665 748,764,502 761,479,896 (7,865,388) (4,245,770) 749,368,738
  217. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 9.2.1 Investments given as collateral - Market Treasury Bills - Pakistan Investment Bonds 22,820,226 5,316,208 155,324,815 10,489,134 9.3 Provision for diminution in value of investments 28,136,434 165,813,949 7,865,388 5,985,708 9.3.1 Opening balance Exchange adjustments Charge / (reversals) 251 286 Charge for the year Reversals for the year Reversal on disposals 3,275,539 (29,964) (422,043) 2,790,754 (4,620) (835,803) Amounts written off 2,823,532 – 1,950,331 (70,937) Closing balance 9.3.2 Particulars of provision against debt securities Category of classification 10,689,171 7,865,388 20192018 NPIProvisionNPIProvision (Rupees in '000) Domestic Doubtful Loss 145,656 461,078 72,828 461,078 – 491,042 – 491,042 606,734 533,906 491,042 491,042 9.3.3 In addition to the above, overseas branches hold a general provision of Rs 5.780 million (December 31, 2018: Rs 1.675 million) in accordance with the requirements of IFRS 9. 9.4 Quality of Available for Sale Securities Details regarding quality of Available for Sale (AFS) securities are as follows; 20192018 Cost Federal Government Securities - Government guaranteed (Rupees in '000) Market Treasury Bills Pakistan Investment Bonds Euro Bonds 386,882,153 278,739,813 506,323 566,335,054 108,585,929 – 666,128,289 674,920,983 Annual Report 2019 215
  218. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost Listed Companies and mutual funds (Rupees in '000) Automobile Assembler Automobile Part and Accessories Cable and Electrical Goods Cement Chemical Close End Mutual Fund Commercial Banks Engineering Fertilizer Food and Personal Care Products Insurance Investment Banks / Companies NIT Units Oil & Gas Exploration Companies Oil & Gas Marketing Companies Open End Mutual Fund Paper and Board Pharmaceutical Power Generation and Distribution Refinery Technology and Communication Textile 1,230,989 413,930 523,036 2,100,969 75,680 1,186,851 2,014,437 1,818,843 2,876,608 1,199,266 599,364 41,784 5,253 2,533,285 434,633 312,349 391,951 1,068,443 2,516,198 887,318 706,796 446,942 1,230,989 413,930 535,265 2,081,418 5,132 1,186,851 2,058,099 1,797,442 3,119,461 1,230,825 587,629 41,784 5,253 1,733,239 1,127,898 1,361,195 391,951 1,068,443 2,516,198 887,318 706,211 446,942 23,384,925 24,533,473 20192018 Cost Cost Breakup value (Rupees in '000) Unlisted Companies Central Depository Company Limited First Capital Investment (Pvt) Limited First Women Bank Limited ISE Towers Reit Management company Limited National Investment Trust Limited National Institutional Facilitation Technologies Pak Agro Storage And Service Corporation 1 Link (Pvt) Limited Pak Asian Fund Limited Arabian Sea Country Club SME Bank Limited Al-Ameen Textile Mills Limited Custodian Management Services Galaxy Textile Mills Limited Pakistan Textile City (Pvt) Limited Ayaz Textile Mills Limited Musarrat Textile Mills Limited Sadiqabad Textile Mills Limited Al-Arabia Sugar Mills Limited Preference shares Pak Elektron Limited - Preference shares 216 Breakup value Unconsolidated Financial Statements 184,426 2,500 63,300 687,011 3,334 201,807 184,426 2,500 63,300 619,651 3,334 201,807 30,346 1,027,651 1,527 2,500 50,000 – 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 87,958 1,665,882 69,766 605,006 147,332 – – – – – – – – – – 30,346 1,027,651 1,527 2,500 50,000 11,500 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 86,235 1,945,933 59,076 605,006 131,847 18,323 – – – – – – – – – 4,775 25,000 – 25,000 4,775 25,000 – 25,000 1,553,165 3,493,096 1,564,665 3,696,212
  219. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost (Rupees in '000) Non Government Debt Securities Listed - AA+, AA, AA- Unlisted 957,840 657,840 - AA+, AA, AA- - A+, A, A- 250,000 101,933 336,523 101,933 351,933 438,456 20192018 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Bahrain - Sri Lanka – 3,649,770 – B2 140,078 2,398,868 3,649,770 2,538,946 B2 B2 20192018 Cost (Rupees in '000) Unlisted Lanka Clear (Private) Limited Credit Information Bureau of Sri Lanka Lanka Financial Services Bureau Limited Society for Worldwide Inter Fund Transfer (SWIFT) 854 26 1,707 4,663 760 22 760 4,663 9.5 Particulars relating to Held to Maturity securities are as follows: 7,250 6,205 Federal Government Securities - Government guaranteed Pakistan Investment Bonds Market Treasury Bills Sukuks bonds Euro Bonds 13,842,253 1,645,036 195,928 524,032 19,327,990 – 140,601 1,231,118 Provincial Government Securities 16,207,249 20,699,709 118 118 Annual Report 2019 217
  220. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost (Rupees in '000) Non Government Debt Securities Listed - AAA - AA+, AA, AA- - BBB+, BBB, BBB- - Unrated 1,796,970 2,125,716 – 66,120 – 3,923,839 50,051 16,269 Unlisted 3,988,806 3,990,159 - AA+, AA, AA- - A+, A, A- - Unrated 4,848,863 439,910 590,346 3,099,684 481,613 624,654 5,879,119 4,205,951 20192018 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Sri Lanka - United Arad Emirates 1,544,542 6,323,490 B2 Aa2 7,868,032 1,172,721 4,158,507 B2 Aa2 5,331,228 20192018 Cost Non Government Debt Securities (Rupees in '000) Listed - A+, A, A- Unlisted 153,702 136,729 298,865 – 265,860 75,959 - AAA - A+, A, A- 298,865 341,819 9.5.1 The market value of securities classified as held-to-maturity as at December 31, 2019 amounted to Rs. 33,464.168 million (December 31, 2018: Rs. 32,921.417 million). 9.6 “Available for sale” Market Treasury Bills and Pakistan Investment Bonds are eligible for rediscounting with the State Bank of Pakistan. 9.7 Investments include Pakistan Investment Bonds amounting to Rs. 67.9 million (2018: Rs. 67.9 million) earmarked by the SBP against TT discounting facilities sanctioned to the Bank. In addition, Pakistan Investment Bonds amounting to Rs. 5 million (2018: Rs. 5 million) have been pledged with the Controller of Military Accounts on account of Regimental Fund account and Pakistan Investment 218 Unconsolidated Financial Statements
  221. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Bonds amounting to Rs.100 million (2018: Rs. 50 million ) have been pledged with the National Clearing Company of Pakistan Limited (NCCPL) on account of removal of irrevocable undertaking as alternate option for collateral against participant’s exposure in stock market. 9.8 9.9 9.10 9.11 Investment of the Bank in Adamjee Insurance Company Limited is carried at cost amounting to Rs.647.880 million (2018: Rs. 647.880 million) as at December 31, 2019. The market value of the investment in Adamjee Insurance Company Limited as at December 31, 2019 amounted to Rs.2,946.300 million (2018: Rs. 2,941.400 million). During the year, the Bank injected additional equity of Rs 350 million in MCB Islamic Bank Limited through subscription of rights shares. This investment is fully provided for. The company is dormant and has no asset and liability. Pursuant to the scheme of arrangement duly approved by the Board of Directors of Mnet Services (Private) Limited (Transferor Company) and MCB Bank Limited (Transferee Company), as required under section 284(2) of the Companies Act, 2017 for the amalgamation of Transferor Company with and into Transferee Company, the Transferor Company stands merged into Transferee Company with effect from April 30, 2019. 9.12 The Bank is in the process of disposal of its wholly owned subsidiary “MCB Financial Services Limited” subject to all regulatory and shareholders approvals. 9.13 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. 9.14 Summarized financial information of associates and subsidiaries Country of % of interest Revenue incorporation held Profit / (loss) Assets after tax Liabilities (Rupees in '000) 2019 Associates Euronet Pakistan (Private) Limited (unaudited based on December 31, 2019) Adamjee Insurance Company Limited (unaudited based on September 30, 2019) Subsidiaries Pakistan 30% 557,579 25,769 648,477 435,306 Pakistan 20% 19,551,861 1,108,984 82,967,479 63,892,816 MCB Islamic Bank Limited (audited based on December 31, 2019) Pakistan 100.00% 9,848,819 (243,612) 105,017,261 94,550,460 MCB Arif Habib Savings & Investments Limited (audited based on June 30, 2019) Pakistan 51.33% 715,079 24,235 2,044,323 582,097 MCB Non-Bank Credit Organization “Closed Joint Stock Company” ‘(formely MCB Leasing CJSC, Azerbaijan) (audited based on December 31, 2019) Azerbaijan 99.94% 155,085 55,014 943,878 576,914 MCB Financial Services Limited (audited based on December 31, 2019) Pakistan 100.00% 41,537 11,442 96,910 3,956 Annual Report 2019 219
  222. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Country of % of interest Revenue incorporation held Profit / (loss) Assets after tax Liabilities (Rupees in '000) 2018 Associates Euronet Pakistan (Private) Limited (audited based on December 31, 2018) Adamjee Insurance Company Limited (unaudited based on September 30, 2018) Subsidiaries Pakistan 30% 368,852 (44,052) 467,293 279,891 Pakistan 20% 18,872,622 MNET Services (Private) Limited (audited based on December 31, 2018) Pakistan 100.00% 13,085 MCB Islamic Bank Limited (audited based on December 31, 2018) Pakistan 100.00% 4,208,875 MCB Arif Habib Savings & Investments Limited (audited based on June 30, 2018) Pakistan 51.33% 716,540 124,193 2,248,728 681,192 MCB Non-Bank Credit Organization “Closed Joint Stock Company” ‘(formely MCB Leasing CJSC, Azerbaijan) (audited based on December 31, 2018) Azerbaijan 99.94% 117,835 36,440 700,447 422,137 MCB Financial Services Limited (audited based on December 31, 2018) Pakistan 100.00% 44,473 9,157 86,004 4,492 1,505,199 79,330,901 28,609,789 (3,214) 58,822 13,255 (1,095,982) 94,894,435 84,824,921 10.ADVANCES Performing Non Performing Total Note 201920182019201820192018 (Rupees in '000) Loans, cash credits, running finances, etc. 10.1 Bills discounted and purchased 471,126,199 19,486,758 479,948,340 17,887,661 48,759,157 665,102 47,976,277 979,271 519,885,356 527,924,617 20,151,860 18,866,932 Advances - gross 490,612,957 497,836,001 49,424,259 48,955,548 540,037,216 546,791,549 Provision against advances - Specific - General – (1,423,921) – (41,934,421) (1,266,717) – (41,943,509) – (41,934,421) (1,423,921) (41,943,509) (1,266,717) (1,423,921) (1,266,717) (41,934,421) (41,943,509) (43,358,342) (43,210,226) 489,189,036 496,569,284 7,489,838 7,012,039 Advances - net of provision 220 Unconsolidated Financial Statements 496,678,874 503,581,323
  223. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 10.1 Includes net investment in finance lease as disclosed below: 20192018 Not later Later than Over five than one one and less year Total year than five years Not later Later than Over five than one one and less year year than five years Total (Rupees in '000) Lease rentals receivable 56,237 1,972,680 2,365,197 4,394,114 104,622 2,046,561 2,721,816 4,872,999 Residual value 14,769 35,544 10,368 60,681 15,000 25,867 5,397 46,264 Minimum lease payments 71,006 2,008,224 2,375,565 4,454,795 119,622 2,072,428 2,727,213 4,919,263 Financial charges for future periods (3,376) (247,521) (517,870) (768,767) (10,382) (199,795) (496,750) (706,927) Present value of minimum lease payments 67,630 1,760,703 1,857,695 3,686,028 109,240 1,872,633 2,230,463 4,212,336 10.2 Particulars of advances (Gross) In local currency In foreign currencies 20192018 (Rupees in '000) 481,408,603 58,628,613 502,170,129 44,621,420 540,037,216 546,791,549 10.3 Advances include Rs. 49,424.259 million (2018: Rs. 48,955.548 million) which have been placed under the non-performing status as detailed below: 20192018 Non performing Provision Non performing Provision Noteloans loans (Rupees in '000) Category of Classification Domestic Other Assets Especially Mentioned 10.3.1 Substandard Doubtful Loss 123,678 584,129 2,690,841 37,835,619 3,529 145,075 1,345,421 37,087,269 49,212 1,141,738 1,734,078 38,336,086 2,591 284,313 866,961 37,706,005 41,234,267 Overseas 38,581,294 41,261,114 38,859,870 – 62,287 62,287 Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days > 365 days – 10,688 118,182 141,231 7,919,891 7,400 95,452 137,601 3,112,674 624,403 140,323 7,473 6,859,948 433,424 35,205 3,736 2,548,987 8,189,992 3,353,127 7,694,434 3,083,639 Total 49,424,259 41,934,421 48,955,548 41,943,509 10.3.1 This represents non-performing portfolio of agricultural and small enterprise financing classified as OAEM as per the requirements of the Prudential Regulation for Agricultural and Small Enterprise Financing issued by the State Bank of Pakistan. Annual Report 2019 221
  224. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 10.4 Particulars of provision against advances 20192018 NoteSpecificGeneral Total SpecificGeneral Total (Rupees in '000) Opening balance Exchange adjustments 41,943,509 302,297 1,266,717 21,237 43,210,226 323,534 44,586,915 513,168 1,115,091 18,341 45,702,006 531,509 Charge for the year Reversals 3,356,159 (3,649,742) 155,449 (19,482) 3,511,608 (3,669,224) 1,613,562 (4,618,549) 133,330 (45) 1,746,892 (4,618,594) (293,583) (17,802) 135,967 – (157,616) (17,802) (3,004,987) (151,587) 133,285 – (2,871,702) (151,587) 41,934,421 1,423,921 43,358,342 41,943,509 1,266,717 43,210,226 Amounts written off 10.5 Closing balance 10.4.1 Particulars of provision against advances 20192018 SpecificGeneral Total SpecificGeneral Total (Rupees in '000) In local currency In foreign currencies 38,581,294 3,353,127 1,087,464 336,457 39,668,758 3,689,584 38,859,870 3,083,639 1,087,110 179,607 39,946,980 3,263,246 41,934,421 1,423,921 43,358,342 41,943,509 1,266,717 43,210,226 10.4.2 State Bank of Pakistan vide BSD Circular No. 2 dated January 27, 2009, BSD Circular No. 10 dated October 20, 2009, BSD Circular No. 02 of 2010 dated June 03, 2010 and BSD Circular No.1 of 2011 dated October 21, 2011 has allowed benefit of forced sale value (FSV) of Plant & Machinery under charge, pledged stock and mortgaged residential, commercial & industrial properties (land and building only) held as collateral against NPLs for five years from the date of classification. However, management has not taken the FSV benefit in calculation of specific provision. 10.4.3 This includes reversal of provisions and reduction of non-performing loans amounting to Rs. NIL (2018: Rs. 307 million) as a result of settlement on debt asset swap arrangement with customers. 10.4.4 General provision against consumer loans represents provision maintained against fully secured performing portfolio and unsecured performing portfolio as required by the Prudential Regulations issued by the SBP. General provision against Small Enterprise Finance represents provision maintained at an amount equal to 1% of unsecured performing portfolio as required by the Prudential Regulations issued by the SBP. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries in which the overseas branches operate. General provision against all other advances represents provision maintained at around 0.1% of gross advances. Note 10.5 PARTICULARS OF WRITE OFFs: 10.5.1 Against Provisions 17,802 151,587 – 30 10.5.2 Write Offs of Rs. 500,000 and above 17,802 151,617 14,613 2,725 464 151,393 – 224 17,802 151,617 Directly charged to Profit & Loss account 10.4 33 - Domestic 10.6 - Overseas Write Offs of below Rs. 500,000 222 20192018 (Rupees in '000) Unconsolidated Financial Statements
  225. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 10.6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written-off loans or any other financial relief of Rupees five hundred thousand or above allowed to a person(s) during the year ended December 31, 2019 is given at Annexure- I of unconsolidated financial statements. However, this write off does not affect the Bank's right to recover the debts from these customers. 20192018 (Rupees in '000) Note 11. FIXED ASSETS Capital work-in-progress Property and equipment Right-of-use assets 11.1 11.2 11.3 975,566 49,620,934 7,674,745 1,239,422 39,572,534 – 58,271,245 40,811,956 Civil works Equipment Advances to suppliers Others 451,189 90,946 428,617 4,814 622,609 295,662 315,241 5,910 975,566 1,239,422 11.1 Capital work-in-progress 11.2 Property and Equipment 2019 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2019 Cost / Revalued amount Accumulated depreciation Net book value 19,556,136 563,273 1,689,662 13,954,280 1,149,293 521,985 52,013,686 (865,869) (116,820) (996,689) (9,595,619) (613,480) (252,675) (12,441,152) 19,556,136 2,440,151 11,273,037 446,453 692,973 4,358,661 535,813 269,310 39,572,534 19,556,136 2,440,151 11,273,037 – 2,440,151 12,138,906 – Year ended December 31, 2019 Opening net book value Additions Movement in surplus on assets 692,973 4,358,661 535,813 269,310 39,572,534 – 1,978,039 142,646 192,157 1,088,501 100,175 352,874 4,659,746 5,744,825 452,928 1,019,986 73,227 – – – – 7,290,966 Transfer from Non-Banking assets 34,000 – 17,520 – – – – – Disposals (21,000) – – – (1,306) (4,777) (40,683) Depreciation charge – – (406,881) (27,778) (132,669) (1,147,355) (132,259) Exchange rate adjustments – – 9,566 2,554 3,167 6,633 3,907 5,015 30,842 Transfers 4,350 – 7,121 – (1,249) 1,249 – (11,471) – Closing net book value 26,123,665 2,893,079 13,898,388 637,102 753,073 4,302,912 466,953 At December 31, 2019 Cost / Revalued amount 26,123,665 2,893,079 13,898,388 637,102 1,860,523 14,508,613 1,070,928 854,594 61,846,892 Accumulated depreciation – (1,107,450) (10,205,701) (603,975) (308,832) (12,225,958) Net book value 466,953 545,762 49,620,934 Rate of depreciation / revalued during the year 446,453 805,354 estimated useful life – 26,123,665 – – – 2,893,079 13,898,388 637,102 – Upto 60 years Upto 50 years 753,073 4,302,912 10% 10%-25% (262) 51,520 (68,028) (69,704) (1,916,646) 545,762 49,620,934 20% Lease term Annual Report 2019 – 223
  226. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 2018 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2018 Cost / Revalued amount Accumulated depreciation Net book value 18,944,318 460,136 1,632,930 13,841,043 1,109,632 352,010 49,973,334 (526,571) (96,357) (990,803) (9,394,871) (556,137) (174,147) (11,738,886) 18,944,318 2,392,866 10,713,828 363,779 642,127 4,446,172 553,495 177,863 38,234,448 18,944,318 2,392,866 10,713,828 – 2,392,866 11,240,399 – Year ended December 31, 2018 Opening net book value Additions Transfer from Non-Banking assets – – Transfer under demerger scheme – – 864,930 47,285 363,779 642,127 4,446,172 553,495 177,863 38,234,448 842,987 98,338 197,464 1,318,525 138,680 191,176 3,699,385 101,714 – – – – – 101,714 – – (27,071) (148,680) – – (175,751) (1,001) (893) (20,569) (123,190) (1,262,020) (137,633) Disposal (253,112) – (52,728) – Depreciation charge – – (336,903) (20,021) Exchange rate adjustments – – 4,139 4,357 Closing net book value 19,556,136 2,440,151 11,273,037 19,556,136 2,440,151 12,138,906 4,644 5,557 1,840 446,453 692,973 4,358,661 535,813 – (328,303) (100,839) (1,980,606) 1,110 21,647 269,310 39,572,534 At December 31, 2018 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation / estimated useful life – 19,556,136 – 563,273 1,689,662 13,954,280 1,149,293 521,985 52,013,686 (865,869) (116,820) (996,689) (9,595,619) (613,480) (252,675) (12,441,152) 2,440,151 11,273,037 446,453 692,973 4,358,661 535,813 269,310 39,572,534 – – Upto 60 years Upto 50 years 10% 10%-25% 20% 3 years 11.2.1 Leasehold land include a plot of land measuring 3,120.46 square yards having book value of Rs. 1,419.809 million situated at Railway Quarters, I.I. Chundrigar Road, Karachi, (the “Plot”), where a tenant is claiming for the possession as tenant of an insignificant area of only 18 square feet of the plot, however there is no issue over the title of the subject property. Both the Constitutional Petitions filed by the Bank have been dismissed by the Sindh High Court on 28 January 2016 against the Bank. The Bank has filed an appeal before the Supreme Court of Pakistan. 11.2.2 The land and buildings of the Bank were revalued as at December 31, 2019 by independent valuers (K.G. Traders (Pvt) Limited, Tristar International Consultant (Pvt) Limited & Sardar Enterprises), valuation and engineering consultants, on the basis of market value. The total surplus against revaluation of fixed assets as at December 31, 2019 amounts to Rs. 20,383.765 million. 11.2.3 Had the land and buildings not been revalued, the total carrying amounts of revalued properties as at December 31, 2019 would have been as follows: (Rupees in '000) Land 12,480,263 Buildings 10,688,206 11.2.4 The gross carrying amount (cost) of fully depreciated assets that are still in use are as follows: 224 – (Rupees in '000) Furniture and fixtures 512,783 Electrical, computers and office equipment 6,857,494 Vehicles 343,128 Unconsolidated Financial Statements
  227. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 11.2.5 Carrying amount of temporarily idle property of the Bank is Rs. 161.886 million (2018: Rs. 45.485 million). 11.2.6 The information relating to disposal of operating fixed assets to related parties is given in Annexure II of these unconsolidated financial statements. 11.3 This has arisen due to adoption of IFRS 16 as detailed in note 5.1. Depreciation expense on right to use asset during the year is Rs. 1,161.795 million. Movement in right-of-use assets is as follows: Note 20192018 (Rupees in '000) Effect of initial application of IFRS 16 as at January 01, 2019 Additions Depreciation charge 31 8,426,460 410,080 (1,161,795) – – – 7,674,745 – Closing net book value 20192018 (Rupees in '000) Computer software 12. INTANGIBLE ASSETS Capital work-in-progress Computer software 12.1 316,742 640,810 257,805 372,336 957,552 630,141 12.1 At January 1 Cost Accumulated amortisation 3,380,565 (3,008,229) 3,148,929 (2,744,603) Net book value 372,336 404,326 Opening net book value Additions Amortisation charge Exchange rate adjustments 372,336 566,863 (301,022) 2,633 404,326 221,949 (255,629) 1,690 Closing net book value 640,810 372,336 Cost Accumulated amortisation and impairment 3,963,740 (3,322,930) 3,380,565 (3,008,229) Net book value 640,810 372,336 Rate of amortisation (percentage) 14% to 33.33% 14% to 33.33% Useful life 3 - 7 years 3 - 7 years 12.2 The gross carrying amount (cost) of fully depreciated intangible assets that are still in use is Rs. 2,753.939 million. Year ended December 31 At December 31 Annual Report 2019 225
  228. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 13. Note OTHER ASSETS Income/ mark-up accrued in local currency Income/ mark-up accrued in foreign currencies Advances, deposits, advance rent and other prepayments Advance taxation (payments less provisions) Compensation for delayed income tax refunds Non-banking assets acquired in satisfaction of claims 13.1 Branch adjustment account Mark to market gain on forward foreign exchange contracts Unrealized gain on derivative financial instruments 25 Acceptances 20 Receivable from the pension fund 38.4 Others 22,099,766 558,407 11,232,274 128,921 3,720,012 – 133,809 3,251,508 37,075 2,340,059 7,354,020 133,809 3,653,840 146,299 3,875,681 1,236,517 18,152,032 3,605,121 9,399,297 3,520,808 852,465 15,847,453 3,815,170 6,622,685 Less: Provision held against other assets 13.2 66,069,225 2,604,137 55,647,803 2,550,584 Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 63,465,088 53,097,219 677,660 480,871 Other Assets - total 64,142,748 53,578,090 13.1 Market value of Non-banking assets acquired in satisfaction of claims 3,838,230 4,035,114 Non-banking assets acquired in satisfaction of claims of the Bank are revalued as at December 31, 2019 by independent valuers (Fks Building Services and J&M Associates) on the basis of market value. 20192018 Note (Rupees in '000) 13.1.1 Non-banking assets acquired in satisfaction of claims 226 20192018 (Rupees in '000) Opening balance Additions Revaluation Disposals Depreciation Reversal / (charge) of impairment Transfer to fixed assets 4,035,114 64,445 255,040 (428,052) (45,456) 8,659 (51,520) 4,288,001 309,163 265,806 (600,000) (49,155) (76,987) (101,714) Closing balance 13.1.2 Gain on disposal of non-banking assets acquired in satisfaction of claims 3,838,230 4,035,114 Disposal proceeds Less - Cost - Depreciation 540,000 682,410 433,813 (5,761) 600,500 (500) 428,052 600,000 111,948 82,410  Gain Unconsolidated Financial Statements 13.1.2.1
  229. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 20192018 (Rupees in '000) 13.1.2.1 Breakup of gain/loss realized on sale of non-banking assets: Plot at Clifton Karachi Industrial property Lahore – 111,948 82,410 – 13.2 Provision held against other assets 111,948 82,410 90,938 2,513,199 99,597 2,450,987 2,604,137 2,550,584 2,550,584 3,016,792 12,587 (36,023) 112,529 (721,119) (23,436) (3,638) 80,627 (608,590) (7,180) 149,562 2,604,137 2,550,584 Non banking assets acquired in satisfaction of claims Others 13.2.1 Movement in provision held against other assets Opening balance Charge for the year Reversals 33 Amount written off Exchange and other adjustments 14. Closing balance CONTINGENT ASSETS There were no contingent assets of the Bank as at December 31, 2019 (2018: NIL). Note 20192018 (Rupees in '000) 15. BILLS PAYABLE In Pakistan Outside Pakistan 11,786,207 35,491 15,644,752 54,528 16.BORROWINGS 11,821,698 15,699,280 16.1 16.2 16.3 16.4 33,862,262 18,138,200 85,062 188,809 27,443,517 14,628,994 28,420 165,267 Repurchase agreement borrowings 16.5 52,274,333 28,099,229 42,266,198 165,703,249 Total secured 80,373,562 207,969,447 Unsecured Borrowings from other financial institution 16.6 Call borrowings 16.7 Overdrawn nostro accounts Others 774,914 6,845,683 1,349,447 162,286 556,939 5,458,050 1,872,164 162,286 Total unsecured 9,132,330 8,049,439 89,505,892 216,018,886 Secured Borrowings from State Bank of Pakistan Under export refinance scheme Under long term financing facility Under renewable energy performance platform Under financing facility for storage of agricultural produce 16.8 Annual Report 2019 227
  230. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 16.1 16.2 16.3 16.4 16.5 16.6 16.7 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. These borrowings are repayable within six months. These carry mark up rates ranging from 1.0% to 2.0% per annum. These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 3.0% to 4.50% per annum. These borrowings have been obtained from the SBP for providing financing facilities to customers against renewable energy projects. These borrowings are repayable within a period of twelve years with two years grace period from date of disbursement. These carry mark up rate of 2% per annum. These borrowings have been obtained from SBP under “Financing Facility for Storage of Agricultural Produce (FFSAP)” to encourage Private Sector to establish Silos, Warehouses and Cold Storages. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.50% to 3.50% per annum. These carry mark-up rates ranging from 8.0% to 13.20% per annum (2018:9.0% to 10.25% per annum) and are secured against government securities of carrying value of Rs. 28,136.434 million (2018: Rs. 165,813.949 million). These are repayable latest by August 2020. These carry mark-up rates ranging from 2.75% to 3.00% per annum (2018: 2.30% per annum). These carry mark-up ranging from 2.30% to 13.10% per annum (2018: 2.25% to 10.25%per annum). These are repayable by June 2020. 16.8 20192018 (Rupees in '000) Particulars of borrowings with respect to currencies In local currency In foreign currencies 17. 85,452,572 4,053,320 212,073,343 3,945,543 89,505,892 216,018,886 DEPOSITS AND OTHER ACCOUNTS 20192018 In local In foreign Total currencycurrencies In local In foreign currencycurrencies Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 336,833,189 552,121,108 85,296,905 21,537,429 Financial Institutions 995,788,631 228 51,619,020 45,357,701 15,518,802 2,854,010 388,452,209 597,478,809 100,815,707 24,391,439 325,800,150 502,660,835 73,140,915 27,009,821 34,643,583 360,443,733 39,470,374 542,131,209 13,877,453 87,018,368 4,340,402 31,350,223 115,349,533 1,111,138,164 928,611,721 92,331,812 1,020,943,533 Current deposits Savings deposits Term deposits Others 9,421,664 13,005,530 1,143,468 – 2,093,098 26,432 7,741,444 193,459 11,514,762 13,031,962 8,884,912 193,459 7,560,308 10,762,643 661,580 – 2,267,492 20,548 6,544,203 277,308 9,827,800 10,783,191 7,205,783 277,308 23,570,662 10,054,433 33,625,095 18,984,531 9,109,551 28,094,082 1,019,359,293 125,403,966 1,144,763,259 947,596,252 Unconsolidated Financial Statements 101,441,363 1,049,037,615
  231. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 17.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 20192018 (Rupees in '000) 716,900,888 65,583,218 52,680,247 9,205,677 24,419,419 275,973,810 670,185,660 51,552,271 54,059,201 6,346,735 21,747,347 245,146,401 1,144,763,259 1,049,037,615 17.2 Deposits and other accounts include deposits eligible to be covered under the Deposits Protection insurance arrangements amounting to Rs 751,072.744 million (2018: Rs 719,636.806 million). Note 18. SUBORDINATED DEBT Term Finance Certificates - Listed, Unsecured 18.1 20192018 (Rupees in '000) – 3,891,019 Issue amount Rs. 4,198.035 million Issue date June 19, 2014 Maturity date June 19, 2022 Rating AAA (triple A) Security The TFCs are unsecured and subordinated to all other indebtedness of the Bank including deposits Profit payment frequency Semi-Annually Redemption Fifteen equal semi-annual installments of 0.02% of the Issue Amount for the first ninety months followed by remaining 99.70% on maturity at the end of the ninety sixth month. Mark-up Floating (no floor, no cap) rate of return at Base Rate +1.15% (The Base Rate is defined as the average “Ask Side” rate of the six month Karachi Interbank Offered Rate (“KIBOR”)) Call option The Bank may call the TFCs, in part or full, on any profit payment date from the 60th month from the last day of public subscription and on all subsequent profit payment dates, subject to the SBP approval and not less than forty five days prior notice being given to the Trustee and the Investors. Lock-in-clause Neither profit nor principal can be paid (even at maturity) if such payments will result in a shortfall in the Banks' Minimum Capital Requirements (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR and CAR. In case the lock-in clause goes into effect, the Bank will be required to comply with the SBP instructions prevalent or issued at the time. Loss absorbency clause The TFCs will be subject to loss absorbency clause as stipulated under the "Instructions for Basel III Implementation in Pakistan". 18.1 During the year, the Bank has exercised the call option under the terms of issuance of TFCs after completing the required regulatory requirements. Accordingly, the outstanding balance of the said TFCs have been redeemed on June 19, 2019, being the option exercise date. Annual Report 2019 229
  232. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 19. DEFERRED TAX LIABILITIES 2019 Note Recognised in P&L A/C Recognised in OCI At December 01, 2019 (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of Non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Surplus on revaluation of investments 23 (28,759) 382,625 1,346,550 168,305 1,607,561 1,335,309 705,218 – (20,388) 146,536 155,621 – – 89,264 – (229,137) – 2,271,094 237,181 1,754,097 1,261,793 705,218 2,271,094 Deductible Temporary Differences on 4,809,077 253,010 2,513,846 7,575,933 (1,791,747) (1,485,153) 66,459 – – 1,485,153 (1,725,288) – (3,276,900) 66,459 1,485,153 (1,725,288) 1,532,177 319,469 3,998,999 2018 5,850,645 - Provision against advances - Deficit on revaluation of investments 23 Note 230 At January 01, 2019 992,684 At January 01, 2018 Recognised in P&L A/C Recognised in OCI At December 01, 2018 (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Surplus on revaluation of investments 23 1,025,234 (32,550) 75,273 1,534,613 2,096,688 705,218 2,470,526 – 72,948 (225,585) – – 93,032 – (535,794) – (2,470,526) 168,305 1,607,561 1,335,309 705,218 – Deductible Temporary Differences on 7,907,552 (185,187) (2,913,288) 4,809,077 - Provision against advances - Deficit on revaluation of investments (3,282,517) – 1,490,770 – – (1,485,153) (1,791,747) (1,485,153) (3,282,517) 1,490,770 (1,485,153) (3,276,900) 4,625,035 1,305,583 (4,398,441) 1,532,177 Unconsolidated Financial Statements – 992,684
  233. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 20. OTHER LIABILITIES Mark-up/ return/ interest payable in local currency Mark-up/ return/ interest payable in foreign currencies Unearned commission and income on bills discounted Accrued expenses Provision for taxation (provisions less payments) Workers’ welfare fund 20.1 Acceptances 13 Unclaimed/dividends payable Mark to market loss on forward foreign exchange contracts Unrealized loss on derivative financial instruments 25 Staff welfare fund Provision for employees’ compensated absences 38.4 Provision for post retirement medical benefits 38.4 Provision for employees’ contributory benevolent scheme 38.4 Retention money Insurance payable against consumer assets Unclaimed balances Duties and taxes payable Provision against off-balance sheet obligations Security deposits against lease Lease liability against right of use assets 20.2 Others 20192018 (Rupees in '000) 22,831,727 649,536 181,751 5,397,614 6,130,846 7,873,706 18,152,032 1,592,979 4,642,692 1,232,806 5,727 939,495 1,921,348 221,193 20,657 655,146 993,105 753,674 46,581 491,366 8,295,864 11,265,893 12,775,306 468,339 201,151 5,022,283 – 7,071,660 15,847,453 1,470,406 3,495,971 863,617 5,490 1,028,129 1,730,409 214,252 20,657 688,107 1,133,843 577,222 37,430 479,428 – 9,542,202 94,295,738 62,673,355 20.1 Supreme Court of Pakistan vide its order dated November 10, 2016 has held that the amendments made in the law introduced by the Federal Government for the levy of Workers Welfare Fund were not lawful. The Federal Board of Revenue has filed review petitions against this order which are currently pending. Legal advice obtained on the matter indicates that consequent to filing of these review petitions the judgment may not currently be treated as conclusive. Accordingly, the Bank maintained its provision in respect of WWF. 20.2 This represents lease liability recognised due to adoption of IFRS 16 as detailed in note 5.1. 21. SHARE CAPITAL 21.1 Authorized Capital 20192018 (Number of shares) 1,500,000,000 1,500,000,000 Ordinary shares of Rs. 10 each 21.2 Issued, subscribed and paid up 20192018 (Rupees in ‘000) 15,000,000 15,000,000 20192018 (Number of shares) Ordinary shares 20192018 (Rupees in ‘000) 1,972,538 9,157,769 720,293 1,972,538 9,157,769 720,293 11,850,600 11,850,600 197,253,795 915,776,953 72,029,258 197,253,795 915,776,953 72,029,258 1,185,060,006 1,185,060,006 Fully paid in cash Issued as bonus shares Issued for consideration other than cash Annual Report 2019 231
  234. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 21.3 The movement in the issued, subscribed and paid-up capital during the year is as follows: 20192018 20192018 (Number of shares) (Rupees in ‘000) 1,185,060,006 1,185,060,006 Opening balance at January 1 11,850,600 11,850,600 21.4 1,185,060,006 1,185,060,006 Closing balance at December 31 11,850,600 11,850,600 Number of shares held by the associated undertakings as at December 31, are as follows: Adamjee Insurance Company Limited Nishat Mills Limited Siddiqsons Limited Nishat (Aziz Avenue) Hotels and Properties Limited 47,827,287 88,015,291 14,276,462 29,000 47,827,287 88,015,291 14,276,462 – 150,148,040 150,119,040 Note 20192018 (Number of shares) 20192018 (Rupees in '000) 22.RESERVES Share premium Non- distributable capital reserve - gain on bargain purchase option 22.1 Exchange translation reserve Statutory reserve 22.2 General reserve 23,751,114 23,751,114 908,317 2,675,131 31,656,691 18,600,000 908,317 1,629,543 29,259,007 18,600,000 77,591,253 74,147,981 22.1 Under IFRS-3 a bargain purchase represents an economic gain which should be immediately recognized by the acquirer as income. However, the amount of bargain purchase gain was not taken to the profit and loss account as the SBP, through its letter BPRD(R&PD)/2017/14330 dated June 13, 2017 recommended that the amount of gain may be routed directly into equity as a Non-distributable Capital Reserve (NCR). The NCR may become available for distribution through a stock dividend only with prior approval of the SBP. The Bank, before distribution of the gain as a stock dividend, may adjust any subsequent provisions/deficit, assessed by the Bank or recommended by the Banking Inspection Department of SBP, in the acquired assets and liabilities of NIB Bank Limited against the NCR. 22.2 Statutory reserve represents amount set aside as per the requirements of section 21 of the Banking Companies Ordinance, 1962. 232 Unconsolidated Financial Statements
  235. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 23. SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of - Available for sale securities - Fixed Assets - Non-banking assets acquired in satisfaction of claims 20192018 (Rupees in '000) 9.1 23.1 23.2 6,488,841 20,383,765 677,660 (4,243,297) 13,185,366 480,871 Deferred tax on surplus / (deficit) on revaluation of: - Available for sale securities 19 - Fixed Assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 27,550,266 9,422,940 2,271,094 1,346,550 237,181 (1,485,153) 992,684 168,305 3,854,825 (324,164) 23,695,441 9,747,104 13,185,366 7,290,966 (10,560) 13,370,529 – (99,081) (53,248) (53,532) (28,672) (28,824) (87) (3,726) 20,383,765 13,185,366 992,684 382,625 (87) (28,672) 1,025,234 – (3,726) (28,824) 1,346,550 992,684 23.2 Surplus on revaluation of non-banking assets acquired in satisfaction of claims 19,037,215 12,192,682 23.1 Surplus on revaluation of fixed assets Surplus on revaluation of fixed assets as at January 1 Recognised during the year Realised on disposal during the year - net of deferred tax Transferred to unappropriated profit in respect of incremental depreciation charged during the year net of deferred tax Related deferred tax liability on incremental depreciation charged during the year Related deferred tax liability on surplus realised on disposal Surplus on revaluation of fixed assets as at December 31 Less: Related deferred tax liability on: - revaluation as at January 1 - recognised during the year - surplus realised on disposal during the year - incremental depreciation charged during the year Surplus on revaluation as at January 1 Recognised during the year Realised on disposal during the year - net of deferred tax Related deferred tax liability on surplus realised on disposal 480,871 255,040 (37,863) (20,388) 215,065 265,806 – – Surplus on revaluation as at December 31 Less: Related deferred tax liability on: - revaluation as at January 1 - revaluation recognised during the year - surplus realised on disposal during the year 677,660 480,871 168,305 89,264 (20,388) 75,273 93,032 – 237,181 168,305 440,479 312,566 Annual Report 2019 233
  236. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 24. CONTINGENCIES AND COMMITMENTS -Guarantees -Commitments -Other contingent liabilities 24.1 24.2 24.3 20192018 (Rupees in '000) 173,535,128 649,690,990 27,920,652 170,138,859 397,683,110 16,612,336 851,146,770 584,434,305 Financial guarantees Performance guarantees Other guarantees 141,181,839 30,401,373 1,951,916 140,350,012 29,003,435 785,412 24.2Commitments: 173,535,128 170,138,859 145,217,983 132,940,176 405,615,318 87,696,638 10,244,806 – 216,768,127 27,935,661 11,285,103 7,223,152 24.1Guarantees: Documentary credits and short-term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts 24.2.1 - forward government securities transactions 24.2.2 - derivatives 24.2.3 - operating leases 24.2.4 859,953 56,292 1,420,585 110,306 24.2.1 Commitments in respect of forward foreign exchange contracts 649,690,990 397,683,110 Purchase Sale 217,809,539 187,805,779 125,528,129 91,239,998 24.2.2 Commitments in respect of government securities transactions 405,615,318 216,768,127 Purchase Sale 82,284,304 5,412,334 13,660,947 14,274,714 87,696,638 27,935,661 234 Commitments for acquisition of: - operating fixed assets - intangible assets Unconsolidated Financial Statements
  237. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 24.2.3 Commitments in respect of derivatives FX options (notional) Purchase Sale 431,449 431,449 1,378,370 1,378,370 862,898 2,756,740 4,428,663 4,636,745 4,026,814 4,185,049 Interest Rate Swaps (notional) Purchase Sale 9,065,408 8,211,863 316,500 – 316,500 – 316,500 316,500 10,244,806 11,285,103 – – – 1,211,422 3,754,916 2,256,814 Cross Currency Swaps (notional) Purchase Sale 24.2.4 Commitments in respect of operating leases Not later than one year Later than one year and not later than five years Later than five years – 7,223,152 24.2.5 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. 20192018 Note (Rupees in '000) 24.3 Other contingent liabilities Claims against the Bank not acknowledged as debts 24.3.1 27,920,652 16,612,336 24.3.1 These represent certain claims by third parties against the Bank, which are being contested in the Courts of law. The management is of the view that these relate to the normal course of business and the possibility of an outflow of economic resources is remote. 24.4 For assessment year 1988-89 through tax year 2018, the tax department disputed Bank’s treatment on certain issues, where the Bank’s appeals are pending at various appellate forums, entailing an additional tax liability of Rs. 1,487 million (2018: Rs. 1,399 million). Such issues inter alia principally include disallowance of expenses for non deduction of withholding tax and non availability of underlying records, provision for non performing loans, attribution of expenses to heads of income other than income from business and disallowance of credit for taxes paid in advance / deducted at source. The Bank has filed appeals which are pending at various appellate forums. In addition, certain decisions made in favour of the Bank are being contested by the department at higher forums. No provision has been made in the financial statements regarding the aforesaid additional tax demand and already issued favourable decisions where the department is in appeal, as the management is 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. Annual Report 2019 235
  238. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 25. DERIVATIVE INSTRUMENTS 25.1 Product Analysis 2019 Cross currency swaps Interest rate swaps FX option Notional Mark to Notional Mark to Notional Mark to principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) Counterparties With Banks for Hedging Market Making With other entities for Hedging Market Making 4,428,663 – 1,218,634 – 316,500 – 11,510 – 431,449 – 2,683 – – – 4,636,745 (1,226,433) – – – – – 431,449 – (2,683) 316,500 – 11,510 – 431,449 431,449 2,683 (2,683) Total Hedging Market Making 4,428,663 4,636,745 1,218,634 (1,226,433) 2018 Cross currency swaps Interest rate swaps FX option Notional Mark to Notional Mark to Notional Mark to principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) Counterparties With Banks for Hedging Market Making With other entities for Hedging Market Making 4,026,814 – 725,117 – 316,500 – – 4,185,049 – (751,040) – – 4,026,814 4,185,049 725,117 (751,040) 316,500 – 14,771 – 1,378,370 – 48,090 – – – – 1,378,370 – (48,090) 1,378,370 1,378,370 48,090 (48,090) Total Hedging Market Making 236 Unconsolidated Financial Statements 14,771 –
  239. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 25.2 Maturity Analysis 2019 No. of Notional Mark to Market contractsprincipalNegative Positive (Rupees in '000) Remaining Maturity Upto 1 month 14 409,597 (518) 1 to 3 months 32 1,076,111 (154,368) 3 to 6 months 1 52,745 (25,888) 6 month to 1 Year 7 1,847,480 (298,299) 1 to 2 Year 9 3,199,475 (312,482) 2 to 3 Years 4 1,714,098 (340,100) 3 to 5 Years 2 1,945,300 (101,151) Total 69 10,244,806 (1,232,806) 2018 518 154,707 – 299,689 323,222 353,553 104,828 Net – 339 (25,888) 1,390 10,740 13,453 3,677 1,236,517 3,711 No. of Notional Mark to Market contractsprincipalNegative Positive Net (Rupees in '000) Remaining Maturity Upto 1 month 44 1,462,433 (85,020) 1 to 3 months 66 1,512,180 (26,820) 3 to 6 months 14 197,096 (4,241) 1 to 2 Year 10 3,526,504 (431,981) 2 to 3 Years 6 2,418,453 (171,636) 3 to 5 Years 4 2,168,437 (143,919) 85,050 26,820 4,241 384,758 184,301 167,295 30 – – (47,223) 12,665 23,376 852,465 (11,152) Total 25.3 25.4 144 11,285,103 (863,617) Disclosure relating to qualitative and quantitative information on exchange traded derivatives are disclosed in note 45.5. Risk management related to derivatives is discussed in note 45.5. 20192018 (Rupees in '000) 26. MARK-UP/RETURN/INTEREST EARNED Loans and advances Investments Lendings to financial institutions Balances with banks 57,329,597 75,481,025 4,982,470 498,804 36,963,557 44,719,383 1,390,346 245,708 138,291,896 83,318,994 Annual Report 2019 237
  240. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 27. 20192018 (Rupees in '000) MARK-UP/RETURN/INTEREST EXPENSED Deposits Borrowings Subordinated debt Cost of foreign currency swaps against foreign currency deposits / borrowings Unwinding cost of liability against right-of-use assets 20.2 65,343,677 8,977,118 213,604 32,081,328 4,252,854 307,789 3,009,184 1,132,099 662,873 – 28. FEE & COMMISSION INCOME 78,675,682 37,304,844 Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fee Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on utility bills Commission income - Bancassurance Rent on lockers Commission on investments services Other Commission 1,810,293 331,007 3,065,534 183,688 168,748 1,406,051 584,369 602,605 1,172,359 106,320 1,432,878 236,616 56,360 131,222 2,459,709 270,806 2,579,871 150,733 103,639 1,411,010 415,822 600,347 981,721 109,641 1,143,620 242,072 83,948 177,565 29. GAIN ON SECURITIES, NET 11,288,050 10,730,504 29.1 9.1 837,022 (4,176) 1,295,604 (2,473) 29.1 Realised gain on: Federal Government Securities Subsidiary 29.2 Shares & units 832,846 1,293,131 95,699 (7,512) 748,835 269,209 – 1,026,395 Realised Unrealised - held for trading 837,022 1,295,604 29.2 This represents loss recorded against amalgamation of a subsidiary into and with the Bank. Pursuant to the scheme of arrangement duly approved by the Board of Directors of Mnet Services (Private) Limited (Transferor Company) and MCB Bank Limited (Transferee Company), as required under section 284(2) of the Companies Act, 2017 for the amalgamation of Transferor Company with and into Transferee Company, the Transferor Company stands merged into Transferee Company with effect from April 30, 2019. 30. OTHER INCOME 238 20192018 (Rupees in '000) Rent on property Gain on sale of fixed assets-net Gain on sale of non banking assets - net Compensation on tax refunds 69,427 90,158 111,948 – 47,234 245,655 82,410 86,862 271,533 462,161 Unconsolidated Financial Statements
  241. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 31. OPERATING EXPENSES Total compensation expense 20192018 (Rupees in '000) 31.1 14,585,179 14,053,111 Property expense Rent and taxes Insurance Utilities cost Fuel expense generators Security (including guards) Repair and maintenance (including janitorial charges) Depreciation on right-of-use assets 11.3 Depreciation 11.2 226,910 21,200 1,203,064 534,428 1,382,080 811,653 1,161,795 504,153 1,959,368 25,807 1,094,732 513,533 1,602,667 945,267 – 457,946 Information technology expenses 5,845,283 6,599,320 1,188,463 298,898 615,598 301,022 601,405 3,129 1,151,193 363,778 721,116 255,629 615,522 4,400 3,008,515 3,111,638 Software maintenance Hardware maintenance Depreciation 11.2 Amortisation 12 Network charges Insurance Other operating expenses Directors’ fees and allowances Legal and professional charges Outsourced services costs 37.1 Travelling and conveyance NIFT clearing charges Depreciation 11.2 Depreciation on non-banking assets acquired in satisfaction of claims 13.1.1 Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement & publicity Donations 31.2 Auditors’ remuneration 31.3 Cash transportation charges Repair and maintenance Subscription Entertainment Remittance charges Brokerage expenses Card related expenses CNIC verification charges Insurance Others 57,479 350,295 690,391 321,448 152,009 796,895 40,741 302,042 1,119,136 343,137 145,508 801,546 45,456 57,230 303,262 373,368 639,343 625,463 100 29,944 799,226 415,645 20,184 231,549 197,223 32,561 1,182,346 206,509 1,440,525 263,490 49,155 51,038 271,494 316,790 703,853 518,146 696 34,203 743,593 459,747 24,247 232,634 184,004 23,376 737,528 138,237 820,692 265,181 9,231,941 8,326,724 32,670,918 32,090,793 Total cost for the year included in other operating expenses relating to outsourced activities is Rs 307.993 million (2018: Rs 335.367 million) pertains to the payment to companies incorporated in Pakistan. Total Cost of outsourced activities for the year given to related parties is Rs 258.190 million (2018: Rs 263.283 million). Annual Report 2019 239
  242. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 31.1 Total compensation expense Fees and allowances Managerial remuneration i) Fixed ii) Variable - cash bonus / awards (Reversal) / charge for defined benefit plan Contribution to defined contribution Plan Commission Staff group insurance Rent and house maintenance Medical Conveyance 497,837 471,711 10,928,504 2,030,589 (101,509) 366,744 330,812 312,868 56,205 35,516 89,913 9,813,266 1,736,848 943,661 347,043 230,032 331,000 53,422 30,706 81,506 Sub-total Sign-on bonus 31.1.1 Severance allowance 31.1.2 14,547,479 100 37,600 14,039,195 960 12,956 31.1.1 31.1.2 31.2 Grand Total 14,585,179 14,053,111 During the year sign on bonus is paid to 1 employee (2018: 1). Severance allowance pertains to 6 employees (2018: 4). Detail of donations made during the year is as follows: Murshid Hospital & Health Care Centre District Head Quarter Hospital, Gawadar 20192018 (Rupees in '000) 100 – – 696 100 696 Audit fee Fee for audit of foreign branches Special certifications and sundry advisory services Sales tax Out-of-pocket expenses 15,628 9,905 348 2,500 1,563 14,606 13,669 3,360 730 1,838 29,944 34,203 31.3 Auditors’ remuneration 240 20192018 (Rupees in '000) 32. OTHER CHARGES Penalties of State Bank of Pakistan VAT & National Building tax & Crop Insurance Levy Education cess 46,069 179,643 10,645 7,097 151,159 11,593 236,357 169,849 Unconsolidated Financial Statements
  243. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Note 33. PROVISIONS / (REVERSALS) & WRITE OFFS - NET (Reversals) / provisions against balance with Banks Provisions for diminution in value of investments 9.3.1 Reversals against loans & advances 10.4 Provision against off balance sheet items 20 Reversals against other assets 13.2.1 Bad debts written off directly 10.5.1 Recovery of written off / charged off bad debts 20192018 (Rupees in '000) (3,111) 2,823,532 (157,616) 9,025 (23,436) – (164,860) 4,357 1,950,331 (2,871,702) – (608,590) 30 (227,682) 2,483,534 (1,753,256) 34.TAXATION Current Prior years Deferred 19 34.1 Relationship between tax expense and accounting profit Accounting profit for the year Tax rate Tax on income Tax effect of permanent differences Tax effect of prior years reversals Others Tax charge for the year 35. BASIC AND DILUTED EARNINGS PER SHARE Profit for the year after tax 15,355,566 450,438 319,469 11,105,084 (1,706,627) 1,305,583 16,125,473 10,704,040 40,102,312 32,063,618 35% 14,035,809 16,124 450,438 1,623,102 35% 11,222,266 2,484 (1,706,627) 1,185,917 16,125,473 10,704,040 (Rupees in '000) 23,976,839 21,359,578 (Number) Weighted average number of ordinary shares 1,185,060,006 1,185,060,006 (Rupees) Basic and diluted earnings per share 20.23 18.02 Annual Report 2019 241
  244. 242 Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 6 7 16 Note Unconsolidated Financial Statements Equity Balance as at January 01 , (Rupees in '000) Balance as at December 31 - (3,891,019) - 13,550,906 (122,573) - - 19,376,547 - - (122,573) 32,927,453 - 3,443,272 21,206,405 24,649,677 - - - - (18,838,387) (24,157,049) - - - - - (1,427,643) - (18,838,387) (18,838,387) - - 94,295,738 11,850,600 77,591,253 55,777,489 239,515,080 - 33,050,026 - - Total liability related other changes Total equity related other changes - - (3,891,019) (1,427,643) - - - - - - - - (1,427,643) - - - 13,550,906 - 122,573 - 19,376,547 - - (3,891,019) 3,891,019 62,673,355 11,850,600 74,147,981 53,532,044 206,094,999 Changes in Other liabilities - Cash based - Dividend payable - Non cash based Changes from Financing cash flows Redemption of Subordinated loan Payment of lease liability against right-of-use-assets Dividend paid Total changes from financing cash flows Changes arising from demerger Liability related Liabilities 2018 113,181,408 103,174,597 11,878,975 (1,872,164) Equity 143,897,589 132,704,797 12,542,239 (1,349,447) 20192018 (Rupees in '000) - (39,862) - - - - (1,559) - - 6,921,268 - 1,129,845 - - 711 - (20,090,805) (20,092,364) - - (39,862) - - - (20,090,805) (20,090,805) - - - 1,129,845 6,921,979 - 3,281,508 18,716,947 21,998,455 - - - - - - - - 3,891,019 62,673,355 11,850,600 74,147,981 53,532,044 206,094,999 - 5,792,134 - - - 6,921,268 - (1,129,845) - 711 (1,559) - - - (1,559) 3,892,578 56,921,083 11,850,600 70,866,473 53,776,057 197,306,791 Sub-ordinated OtherShare Reserves Unappropriated Total Sub-ordinated OtherShare Reserves Unappropriated Total loan liabilitiescapital profit loan liabilitiescapital profit Liabilities 2019 36.1 Reconciliation of movement of liabilities to cash flows arising from financing activities CASH AND CASH EQUIVALENTS 36. Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  245. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 (Number) 37. STAFF STRENGTH Permanent On Bank contract Bank’s own staff strength at end of the year 13,596 13,438 37.1 In addition to the above,157 (2018: 271) employees of outsourcing services companies were assigned to the Bank as at the end of the year to perform services other than guarding, tea and janitorial services. Outsourced staff includes 147 (2018: 264) working domestically and 10 (2018: 7) working abroad. 38. DEFINED BENEFIT PLAN 13,480 116 12,860 578 38.1 General description 38.2 The Bank operates the following retirement benefits for its employees: The number of employees covered under the following defined benefit schemes are: - Pension fund - funded - Benevolent scheme - unfunded - Post retirement medical benefits - unfunded - Employees compensated absence - unfunded The plan assets and defined benefit obligations are based in Pakistan. Number of Employees under the scheme 20192018 (Number) - Pension fund - funded 6,294 6,554 - Benevolent scheme - unfunded 1,692 1,730 - Post retirement medical benefits - unfunded 13,332 12,716 - Employees compensated absence - unfunded 13,332 12,716 38.3 Principal actuarial assumptions The latest actuarial valuations of the pension fund, employees’ contributory benevolent scheme, post retirement medical benefits and employee’s compensated absences were carried out at December 31, 2019. The principal actuarial assumptions used are as follows: Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 20192018201920182019201820192018 % Discount rate 11.2513.2511.2513.2511.2513.2511.2513.25 Expected rate of return on plan assets 11.25 13.25 - - - - - - Expected rate of salary increase 9.25 11.25 9.25 11.25 - - 9.25 11.25 Expected rate of increase in pension 0-5 0-5 - - - - - - Expected rate of increase in medical benefit - - - - 9.25 11.25 - - Annual Report 2019 243
  246. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 38.4 Reconciliation of (receivable from) / payable to defined benefit plans Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Present value of obligations Fair value of plan assets 5,182,991 4,690,587 (8,788,112) (8,505,757) 221,193 214,252 1,921,348 1,730,409 939,495 1,028,129 - - - - - - (Receivable) / payable (3,605,121) (3,815,170) 221,193 38.5 Movement in defined benefit obligations 214,252 1,921,348 1,730,409 939,495 1,028,129 Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Obligations at the beginning of the year Current service cost 38.8.1 Interest cost Benefits paid Past service cost 38.8.2 Re-measurement loss / (gain) 38.8.3 4,690,587 3,757,366 60,879 79,236 592,985 282,259 (430,453) (458,268) - 1,044,533 268,993 (14,539) 214,252 22,341 26,035 (35,528) - (5,907) 248,518 1,730,409 2,140,300 1,028,129 1,145,135 30,660 43,653 50,364 24,740 32,366 18,096 219,145 162,569 128,046 85,302 (44,628) (152,964) (144,664) (123,486) (157,708) - - - - (38,394) 81,105 (478,160) (117,934) (76,966) Obligations at end of the year 5,182,991 221,193 214,252 38.6 Movement in fair value of plan assets 4,690,587 1,921,348 1,730,409 939,495 1,028,129 Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Fair value at the beginning of the year 8,505,757 9,747,902 - - - - - Interest income on plan assets 1,098,495 761,501 - - - - - Benefits paid(430,453) (458,268)----- Re-measurement loss38.8.3 (385,687) (1,545,378)----- Fair value at end of the year 38.7 8,788,112 8,505,757 - - - Movement in (receivable) / payable under defined benefit schemes - - - Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 20192018201920182019201820192018 244 (Rupees in '000) Opening balance Charge / (reversal) for the year 38.8.1 Employees’ contribution Re-measurement loss / (gain) recognised in OCI during the year 38.8.3 Benefits paid by the Bank (3,815,170) (5,990,536) (444,631) 644,527 - - 214,252 45,472 2,904 248,518 45,499 3,257 1,730,409 2,140,300 1,028,129 1,145,135 262,798 212,933 34,852 40,702 - - - - 654,680 1,530,839 - - (5,907) (35,528) (38,394) (44,628) 81,105 (152,964) (478,160) (144,664) - (123,486) (157,708) (3,605,121) 221,193 214,252 1,921,348 1,730,409 939,495 1,028,129 Closing balance Unconsolidated Financial Statements (3,815,170)
  247. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 38.8 Charge for defined benefit plans 38.8.1 Cost recognised in profit and loss Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Current service cost Net interest on defined benefit asset / liability 60,879 79,236 22,341 30,660 43,653 50,364 24,740 32,366 (505,510) (479,242) 26,035 18,096 219,145 162,569 128,046 85,302 (2,904) (3,257) Employees’ contribution - - Actuarial loss / (gain) - - Past service cost - 1,044,533 38.8.2 (444,631) 644,527 - - - - - - - - - - 45,472 45,499 262,798 212,933 - (117,934) (76,966) - 34,852 40,702 38.8.2 In 2018, pursuant to the order of the Honorable Supreme Court of Pakistan, the Bank recorded past service cost of Rs. 1,044.533 million (one-off provision) on account of pension liability based on actuarial valuation. 38.8.3 Re-measurements recognised in OCI during the year Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 20192018201920182019201820192018 Loss / (gain) on obligation - 268,993 (14,539) (5,907) (38,394) 81,105 (478,160) - - over expected interest income 385,687 1,545,378 - - - - - - 654,680 1,530,839 (5,907) (38,394) 81,105 (478,160) - - Re-measurement loss / (gain) 38.9 financial assumptions Actual return on plan assets (Rupees in '000) recognised in OCI Components of plan assets Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Cash and cash equivalents - net 107,344 74,685 - - - - - - Shares 8,387,473 8,158,899 - - - - - - Open ended mutual funds units 293,295 272,173 - - - - - - 8,788,112 8,505,757 - - - - - - 38.9.1 Significant risk associated with the plan assets The Fund’s investments in equity securities and units of mutual funds are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. Annual Report 2019 245
  248. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 38.10 Sensitivity analysis Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligations under the various employee benefit schemes. The increase / (decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below: Approved Employees' Post Employees pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) 1% increase in discount rate (348,228) (16,638) (143,464) 1% decrease in discount rate 363,337 19,060 164,843 1 % increase in expected rate of salary increase 80,672 – – 1 % decrease in expected rate of salary increase (74,980) – – 1% increase in expected rate of pension increase 223,357 – – 1% decrease in expected rate of pension increase (201,589) – – 1% increase in expected rate of medical benefit increase – – 161,353 1% decrease in expected rate of medical benefit increase – – (142,385) 38.11 Expected contributions to be paid to the funds in the next financial year 38.12 (57,868) 64,403 65,020 (59,388) – – – – No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. No contribution to the pension fund is expected in the next year. Expected (reversal) / for the next financial year Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2019 would be as follows: Approved Employees' Post Employees pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) Expected (reversal) / charge for the next financial year 38.13 Maturity profile The weighted average duration of the obligation (in years) 38.14 Funding Policy 42,876 265,291 123,968 7.74 7.74 7.74 7.74 The Bank endeavours to ensure that liabilities under the various employee benefit schemes are covered by the Fund on any valuation date having regards to the various actuarial assumptions such as projected future salary increase, expected future contributions to the fund, projected increase in liability associated with future service and the projected investment income of the Fund. 246 (377,123) Unconsolidated Financial Statements
  249. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 38.15 The defined benefit plans may expose the bank to actuarial risks such as longevity risk, investment risk, salary increase risk and withdrawal rate risk as described below; Investment risk The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall in the funding objectives. Longevity risk The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population. Salary increase risk The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual increases are higher than expectation and impacts the liability accordingly. Withdrawal rate The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of the liability can go either way. 39. DEFINED CONTRIBUTION PLAN The Bank operates an approved contributory provident fund for 11,056 (2018: 10,357) employees where contributions are made by the Bank at 8.33% (2018: 8.33%) and employees ranging from 8.33% to 15% per annum (2018: 8.33% to 12.50% per annum) of the basic salary. 40. The Bank also operates an approved non-contributory provident fund for 745 (2018: 815) employees who have opted for the new scheme, where contributions are made by the employees ranging from 8.33% to 15% per annum (2018: 8.33% to 12.50% per annum) of the basic salary. COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 40.1 Total compensation expense 2019 Directors Key Other material Chairman Executive Non President/ management risk takers/ (other than executive CEO personnel controllers CEO) (Rupees in '000) Fee and allowances 25,000 – 32,479 Managerial Remuneration i) Fixed ii) Cash Bonus / Awards – – – Contribution to defined contribution plan – – – Rent & house maintenance – – – Medical – – – Severance allowance – – – Overseas allowance – – – Security – – – Commission – – – Others – – – Total 25,000 – 32,479 Number of Persons 1 – 12 – 63,046 40,000 2,484 240 1,071 – – 1,189 – 70 108,100 1 672 293,751 137,134 8,495 15,350 1,262 18,500 38,947 – 57 – 514,168 23 4,458 443,330 135,427 16,232 7,894 4,319 8,800 7,416 – 14,471 2,160 644,507 75 40.1.1 SBP has issued guidelines and disclosure on governance and remuneration practices through BPRD Circular No. 01 of 2017 dated January 25, 2017 effective from January 01, 2019. No bonus payout has yet been made under the said circular and deferral as per Human Resources Policy will be made at the time of payment. Annual Report 2019 247
  250. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 40.2 Remuneration paid to Directors for participation in Board and Committee meetings 2019 For Board Committee Board Board's BS & DC RM & PRC HR & RC ITC PP & CA CR & MC Total meeting Audit Committee (Rupees in '000) Mian Mohammad Mansha* Mr. S. M. Muneer 130 - - Mr. Tariq Rafi 430 - Mian Umer Mansha 300 Mrs. Iqraa Hassan Mansha 230 Mr. Muhammad Ali Zeb 330 - 330 - 330 Mr. Mohd Suhail Amar Suresh 4,620 - Mr. Yahya Saleem 4,710 - - 30 - 330 - - 230 - Mr. Salman Khalid Butt 5,814 - 330 Mr. Masood Ahmed Puri 3,503 - 200 - - - - - - - - - - - - 300 - - 230 - 330 230 - - 230 130 - - - 330 330 - - - 300 - 25,000 30 190 - 430 - 1,920 - 330 230 1,850 230 - - 5,310 200 - - 5,040 330 - - - 300 - 7,004 3,703 Mr. Shahzad Hussain 300 300 - - - - - - 600 Mr. Shariffuddin Bin Khalid 3,504 300 - - - - - - 3,804 Mr. Nor Hizam Bin Hashim 2,268 130 - - - - - - 2,398 26,139 1,390 1,120 990 460 1,090 630 660 57,479 *The Board Chairman is paid a fixed annual remuneration of Rs. 25 million approved by shareholders of the Bank in its 62nd Annual General Meeting held on March 26, 2010. In 2018, aggregate amount charged in the financial statements for compensation, including all benefits, to the Chief Executive, Directors and Executives of the Bank is as follows: 2018 President / Directors Chief Executive (Rupees in '000) Fees – 40,741 Managerial remuneration and bonus 79,377 – Retirement benefits 3,095 – Rent and house maintenance 16,714 – Utilities 3,714 – Medical 150 – Conveyance – – 40.3 Number of persons – 3,742,792 160,907 871,457 187,748 55,176 713,669 103,050 40,741 5,731,748 1 14 1,964 The Chairman has been provided with free use of the Bank maintained car. In addition to the above, the Chief Executive and certain executives are provided with free use of the Bank's maintained cars and household equipment in accordance with the terms of their employment. 248 Executive Unconsolidated Financial Statements
  251. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 41. FAIR VALUE MEASUREMENTS The fair value of traded investments is based on quoted market prices, except for tradable securities classified by the Bank as 'held to maturity'. Quoted securities classified as held to maturity are carried at amortised cost. Fair value of unquoted equity investments other than investments in associates and subsidiaries is determined on the basis of break up value of these investments as per the latest available financial statements. Fair value of fixed term loans, other assets, other liabilities, fixed term deposits and borrowings 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 5.4 to these unconsolidated financial statements. The maturity and repricing profile and effective rates are stated in note 45. In the opinion of the management, the fair value of the financial assets and financial liabilities other than those carried at fair value and disclosed in note 41.1 are not significantly different from their carrying values since assets and liabilities are either short-term in nature or re-priced over short term. 41.1 Fair value of financial assets The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1:Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2:Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). Valuation techniques used in determination of fair valuation of financial instruments within level 2 Item Valuation approach and input used Federal Government securities The fair values of Federal Government securities are determined using the PKRV rates. Term Finance and Bonds Investments in debt securities (comprising term finance certificates, bonds and any other security issued by a company or a body corporate for the purpose of raising funds in the form of redeemable capital) are valued on the basis of the rates announced by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the Securities and Exchange Commission of Pakistan. Foreign exchange contracts The valuation has been determined by interpolating the mid rates announced by the State Bank of Pakistan. 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 underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Operating fixed assets (land and building) & NBA Land and buildings are revalued every three years using professional valuers on the panel of Pakistan Banker's Association. The valuation is based on their assessment of market value of the properties. Annual Report 2019 249
  252. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 The table below analyses the financial and non-financial assets carried at fair values, by valuation methods. For financial assets, the Bank essentially carries its investments in debt and equity securities at fair values. Valuation of investments is carried out as per guidelines specified by the SBP. In case of non-financial assets, the Bank has adopted revaluation model (as per IAS 16) in respect of land and building. 2019 Carrying Level 1 Level 2 Level 3 Total value (Rupees in '000) On balance sheet financial instruments Financial assets - measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, subsidiaries and associates) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Advances Other assets Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange Derivatives purchase Derivatives sale 250 Unconsolidated Financial Statements 680,585,359 14,912,747 1,306,414 3,663,065 – 14,912,747 – – 680,585,359 – 1,306,414 3,663,065 – – – – 680,585,359 14,912,747 1,306,414 3,663,065 48,296,917 – – – – 132,704,797 12,542,239 1,090,058 496,678,874 52,808,501 – – – – – – – – – – – – – – – – – – – – 43,552,234 3,838,230 – – 43,552,234 3,838,230 – – 43,552,234 3,838,230 217,809,539 – 4,146,908 – 4,146,908 187,805,779 5,176,612 5,068,194 – – – 3,379,897 1,232,827 1,229,116 – – – 3,379,897 1,232,827 1,229,116
  253. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 2018 Carrying Level 1 Level 2 Level 3 Total value (Rupees in '000) On balance sheet financial instruments Financial assets - measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, subsidiaries and associates) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Advances Other assets Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange Derivatives purchase Derivatives sale (a) 680,275,870 17,105,168 1,096,332 2,522,454 - 17,105,168 - - 48,368,914 - - 103,174,597 11,878,975 35,106,241 503,581,323 35,753,619 680,275,870 - 1,096,332 2,522,454 - 680,275,870 17,105,168 1,096,332 2,522,454 - - - - - - 33,715,777 4,035,114 - - 33,715,777 4,035,114 - - 33,715,777 4,035,114 125,528,129 - 3,477,211 - 3,477,211 91,239,998 - 3,452,374 - 3,452,374 5,721,684 5,563,419 - - 787,978 799,130 - - 787,978 799,130 The Bank’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. Financial instruments in level 1 Financial instruments included in level 1 comprise of investments in listed ordinary shares and units of mutual funds. (b) Financial instruments in level 2 Financial instruments included in level 2 comprise of Sukuk Bonds, Pakistan Investment Bonds, Market Treasury Bills, Term Finance certificates, FX options, Cross Currency Swaps, Interest Rate Swaps and Forward Exchange Contracts. (c) Financial instruments in level 3 Currently, no financial instruments are classified in level 3. Annual Report 2019 251
  254. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 42 SEGMENT INFORMATION 42.1 Segment details with respect to business activities The segment analysis with respect to business activity is as follows: 2019 Ratail Consumer Corporate Treasury International Other Sub- Elimination Banking Banking BankingBanking total Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income (50,496,018) 99,832,569 6,318,956 3,938,893 (2,583,003) 2,111,319 Total Income Segment direct expenses Inter segment expense allocation 55,655,507 21,762,153 - 3,467,209 1,330,299 - 8,264,930 525,336 - Total expenses Provisions 21,762,153 345,610 1,330,299 (34,217) Profit before tax 33,547,744 2,171,127 Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non performing - net Others Total Assets 1,762,729 (180,860) 782,895 - 7,479,672 531,430 59,616,214 - 16,678,953 - - - 59,616,214 16,678,953 (1,468,345) 311,978 - 2,364,764 1,284,815 - 8,011,102 8,494,740 - 76,295,167 33,709,321 - - - - 76,295,167 33,709,321 - 525,336 947,291 311,978 2,772,041 1,284,815 75,179 8,494,740 (1,622,370) 33,709,321 2,483,534 - - 33,709,321 2,483,534 6,792,303 (4,552,364) 1,004,770 1,138,732 40,102,312 - 40,102,312 21,483 676,139 65,572,277 - 10,638,292 723,114,519 - - - - - 880,853 24,342,756 341,191,287 - 113,148 1,237,494 - 1,882,259 25,393,004 13,804,786 28,149,362 15,011,691 - 209,205 25,190,939 4,836,865 2,368,790 672,833 - 164,292,627 - - 227,544 45,162,743 1,124,468,770 26,359,646 803,372,435 75,766,852 210,355,747 2,619,459,666 (1,104,307,651) 1,515,152,015 Borrowings Deposits and other accounts Net inter segment borrowing Others 45,355,965 1,033,804,761 - 45,308,044 - 7,057,504 - 55,425,048 24,124,908 299,650,838 2,234,738 17,002,826 33,572,200 - 768,067,183 1,733,052 3,520,223 55,523,627 12,464,722 4,258,280 - 89,505,892 - 89,505,892 9,823 1,144,763,259 - 1,144,763,259 - 1,104,307,651 (1,104,307,651) 41,431,141 111,968,081 - 111,968,081 Total liabilities Equity 1,124,468,770 - 26,359,646 379,136,216 803,372,435 - - - 75,766,852 - 41,440,964 2,450,544,883 (1,104,307,651) 1,346,237,232 168,914,783 168,914,783 - 168,914,783 Total Equity & liabilities 1,124,468,770 26,359,646 210,355,747 2,619,459,666 (1,104,307,651) 1,515,152,015 Contingencies & Commitments 50,154,942 - 940,015,024 - 98,464,054 1,074,787 34,759,963 48,973,361 36,263,272 (31,413,118) 3,414,776 379,136,216 68,147,338 (73,135,260) 3,519,577 379,136,216 803,372,435 75,766,852 - 262,455,692 496,556,621 14,015,586 29,145,510 145,247,036 - 145,247,036 748,764,502 - 748,764,502 1,104,307,651 (1,104,307,651) 1,090,058 - 1,090,058 489,189,036 - 489,189,036 7,489,838 - 7,489,838 123,371,545 - 123,371,545 851,146,770 - 851,146,770 2018 Ratail Consumer Corporate Treasury International Other Sub- Elimination Banking Banking BankingBanking total Total 252 (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income (19,999,097) 50,778,451 6,820,225 2,425,240 (774,576) 1,732,440 Total Income Segment direct expenses Inter segment expense allocation 37,599,579 20,935,783 - 3,383,104 1,372,159 - 7,050,549 584,731 - Total expenses Provisions 20,935,783 (186,311) 1,372,159 (66,393) Profit before tax 16,850,107 2,077,338 Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non performing - net Others Total Assets Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others 49,001,673 - 838,293,766 - 121,784,772 1,214,697 31,327,270 1,041,622,178 21,038,061 (17,157,516) 3,170,004 41,399,090 (38,240,495) 3,970,534 1,532,970 (50,687) 601,005 (382,114) 5,444,823 903,918 46,014,150 - 17,198,126 - - - 46,014,150 17,198,126 7,129,129 281,947 - 2,083,288 1,026,008 - 5,966,627 8,701,286 - 63,212,276 32,901,914 - - - - 63,212,276 32,901,914 - 584,731 (780,762) 281,947 1,952,015 1,026,008 47,396 8,701,286 (2,719,201) 32,901,914 (1,753,256) - - 32,901,914 (1,753,256) 7,246,580 4,895,167 1,009,884 (15,458) 32,063,618 - 32,063,618 33,515 311,483 46,395,674 - 8,801,517 730,863,407 - - - - 1,502,544 33,603,697 22,525,967 321,721,326 - 39,757 1,117,586 - 1,887,934 6,358,321 8,127,064 17,175,344 2,135,883 115,053,572 9,703,814 - 749,368,738 - 134,110,279 972,404,045 - - 35,106,241 30,537,219 - 496,569,284 4,610,795 29,204 7,012,039 1,968,271 45,351,327 95,020,187 - 115,053,572 - 749,368,738 (972,404,045) - 35,106,241 - 496,569,284 - 7,012,039 - 95,020,187 24,487,173 63,995,443 (972,404,045) 1,498,130,061 339,812,777 818,989,842 181,626,693 2,470,534,106 35,293,396 - 969,799,371 - 36,529,411 - 6,372,366 171,553,288 - - - 16,556 40,266,753 - 22,478,042 288,680,375 642,523,588 1,992,575 4,493,283 4,912,966 2,799,836 - 38,929,495 18,722,040 3,544,072 Total liabilities Equity 1,041,622,178 - 24,487,173 339,812,777 818,989,842 - - - 63,995,443 32,348,964 2,321,256,377 - 149,277,729 149,277,729 (972,404,045) 1,348,852,332 - 149,277,729 Total Equity & liabilities 1,041,622,178 24,487,173 818,989,842 63,995,443 181,626,693 2,470,534,106 (972,404,045) 1,498,130,061 Contingencies & Commitments - 1 84,073,226 247,754,264 20,238,577 18,272,434 584,434,305 - 584,434,305 Unconsolidated Financial Statements 114,095,804 339,812,777 - 216,018,886 - 216,018,886 3,891,019 3,891,019 - 3,891,019 25,440 1,049,037,615 - 1,049,037,615 - 972,404,045 (972,404,045) 28,432,505 79,904,812 - 79,904,812
  255. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 42.2 Segment details with respect to geographical locations GEOGRAPHICAL SEGMENT ANALYSIS 2019 Pakistan South Asia Middle East Sub-total Eliminations Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 57,855,267 107,447 15,915,192 1,085,296 (119,613) 251,485 675,651 12,166 512,276 59,616,214 - 16,678,953 - - - 59,616,214 16,678,953 Total Income Segment direct expenses Inter segment expense allocation 73,877,906 32,419,640 - 1,217,168 737,142 - 1,200,093 552,539 - 76,295,167 33,709,321 - - - - 76,295,167 33,709,321 - Total expenses Provisions 32,419,640 2,388,895 737,142 29,232 552,539 65,407 33,709,321 2,483,534 - - 33,709,321 2,483,534 39,069,371 450,794 582,147 40,102,312 - 40,102,312 145,247,036 748,764,502 11,539,343 1,090,058 489,189,036 7,489,838 123,371,545 - - (11,539,343) - - - - 145,247,036 748,764,502 1,090,058 489,189,036 7,489,838 123,371,545 Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing - net Others 117,308,448 733,752,811 11,539,343 880,852 464,016,151 7,460,190 121,004,686 Total Assets Borrowings Deposits and other accounts Net inter segment borrowing Others 2,169,276 5,571,042 - 209,206 17,771,048 29,648 2,193,220 25,769,312 9,440,649 - - 7,401,837 - 173,639 1,455,962,481 27,943,440 42,785,437 1,526,691,358 (11,539,343) 85,985,670 1,091,755,442 - 109,306,586 845,703 18,431,297 6,151,041 2,515,399 2,674,519 34,576,520 5,388,302 146,096 89,505,892 1,144,763,259 11,539,343 111,968,081 - 89,505,892 - 1,144,763,259 (11,539,343) - 111,968,081 27,943,440 42,785,437 1,357,776,575 (11,539,343) Total liabilities 1,287,047,698 Equity 168,914,783 Total Equity & liabilities 1,455,962,481 - 27,943,440 - 42,785,437 168,914,783 1,526,691,358 Contingencies & Commitments 837,131,184 9,436,548 4,579,038 2018 851,146,770 Sub-total Pakistan South Asia Middle East - (11,539,343) - Eliminations 1,515,152,015 1,346,237,232 168,914,783 1,515,152,015 851,146,770 Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 44,613,921 (5,588) 16,481,810 909,102 (12,926) 233,086 491,127 18,514 483,230 46,014,150 - 17,198,126 - - - 46,014,150 17,198,126 Total Income Segment direct expenses Inter segment expense allocation 61,090,143 31,882,563 - 1,129,262 641,781 - 992,871 377,570 - 63,212,276 32,901,914 - - - - 63,212,276 32,901,914 - Total expenses Provisions 31,882,563 (1,800,652) 641,781 10,624 377,570 36,772 32,901,914 (1,753,256) - - 32,901,914 (1,753,256) 476,857 578,529 32,063,618 - 32,063,618 115,053,572 749,368,738 9,753,427 35,106,241 496,569,284 7,012,039 95,020,187 - - (9,753,427) - - - - 115,053,572 749,368,738 35,106,241 496,569,284 7,012,039 95,020,187 Profit before tax 31,008,232 Balance Sheet Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing - net Others 98,630,269 739,664,924 9,753,427 33,603,697 475,168,815 6,712,206 94,710,950 Total Assets Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others 1,906,785 4,040,982 - 368,406 16,047,102 299,833 183,273 14,516,518 5,662,832 - 1,134,138 5,353,367 - 125,964 1,458,244,288 22,846,381 26,792,819 1,507,883,488 (9,753,427) 213,220,309 3,891,019 1,012,916,251 - 78,938,980 616,822 - 16,266,330 5,058,214 905,015 2,181,755 - 19,855,034 4,695,213 60,817 216,018,886 3,891,019 1,049,037,615 9,753,427 79,904,812 - 216,018,886 - 3,891,019 - 1,049,037,615 (9,753,427) - 79,904,812 22,846,381 26,792,819 1,358,605,759 (9,753,427) Total liabilities 1,308,966,559 Equity 149,277,729 Total Equity & liabilities 1,458,244,288 22,846,381 26,792,819 1,507,883,488 Contingencies & Commitments 564,195,725 12,396,092 7,842,488 584,434,305 - - 149,277,729 - (9,753,427) - 1,498,130,061 1,348,852,332 149,277,729 1,498,130,061 584,434,305 42.3 Transactions between reportable segments are based on an appropriate transfer pricing mechanism using agreed rates. Furthermore, segment assets and liabilities include inter segment balances. Costs which are not allocated to segments are included in the Head office. Income taxes are managed at bank level and are not allocated to operating segments. 42.4 No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2019 or 2018. Annual Report 2019 253
  256. 254 Details of transactions with related parties during the year , other than those which have been disclosed elsewhere in these unconsolidated financial statements are as follows: Unconsolidated Financial Statements Closing balance Provision for diminution in value of investments Opening balance Addition / exchange adjustment during the year Repaid during the year Transfer in / (out) Closing balance Provision held against advances Advances Opening balance Investment made during the year Investment disposed off during the year Adjustment under amalgamation scheme Investments Closing balance - 1,722 658 29,148 (28,084) - - - - - - - - - - - Opening balance Addition during the year Repaid during the year - - In current accounts Lendings to Financial Institutions Balances with other banks - - - 129,049 141,390 62,216 (55,470) (19,087) - - - - - - - - 889,811 366,872 522,939 - - 725 12,346,537 12,046,512 350,000 - (49,975) 880,853 - 631,351 - 22,355,349 - (22,105,847) - - - - - - - - - 700,401 700,401 - - - - - - - - - - 339,520 1,050,277 1,642,434 (1,558,481) (794,710) 5,000 254,253 254,253 - - - - - - - 14,389 14,389 - - - - - - - - - - - - - 658 946 14,723 (15,011) - (Rupees in '000) - - - 141,390 84,167 73,571 (39,288) 22,940 - - - - - - - - 366,872 293,837 73,035 - - 725 12,046,512 10,846,512 1,200,000 - - 631,351 - 524,590 - 40,942,611 - (40,835,850) - - - - - - - - - 700,401 748,172 - (47,771) - - - - - - - - 1,050,277 2,324,608 6,640,565 (7,357,817) (557,079) 5,000 254,253 254,253 - - - - - KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel partiespersonnel parties 2019 2018 The Banks enters into transactions with related parties in the ordinary course of business and on substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. The Bank has related party relationship with its subsidiaries, associates, employee benefit plans, its directors and key management personnel and their close family members. RELATED PARTY TRANSACTIONS 43 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  257. Other Assets Opening balance Received during the year Withdrawn during the year Transfer in / (out) - net 3,745,457 9,889,584 (13,025,336) (7,324) 168,528 866,766 (884,532) (10,001) 556 - - - - 7,263 15,326 - - - (27,493) 158 23,134 - 20,000 - - - - - - - - 2,044,093 26,711 - - Contingencies and Commitments Commitments and contingent liabilities - outstanding Forward purchase of government securities Forward foreign exchange contracts (Notional) - outstanding Bank guarantee Markup payable Accrued expenses and other payable Payable to MCB Employee Security Services Advance received against sale of property Unrealized (gain) / loss on forward foreign exchange contracts - outstanding 69,166 - 144,166 (75,000) 5,191 27,080 - 3,605,121 - - - 10,444 - - 50,535 62,402 - - 3,657,552 - - 746,868 - - 66,906 50 24,565 - 4,179,849 - - - - - - - - - - - - - - 32,342 7,299 - - 3,745,457 3,953,730 4,259,454 (4,457,255) (10,472) (Rupees in '000) 65,933 3,339,847 3,212,620 4,513,372 22,234,251 62,263,273 (4,515,594) (21,916,546) (61,423,281) (9,229) - 127,237 Closing balance 602,381 140,761 54,482 Other Liabilities - - - - Closing balance - - 3,903 Deposits and other accounts - - - - - - Opening balance Borrowings / exchange adjustment during the year Settled during the year - 246,720 - - - 19,146 386,228 (401,471) Markup receivable - 3,202 31,552 Advances, deposits, advance rent and other prepayments - - 5,322 Acceptances - - - Receivable from Pension Fund - - - Provision held against other assets - - - Borrowings - - - - - 282 - - - 168,528 148,080 849,270 (851,481) 22,659 - - - - 3,101 - - - - - - - - - 86,579 - - - - 993,755 (993,755) 25,538 30,620 25,387 3,815,170 - 2,121,196 - - - 10,196 134 17,966 - 20,000 65,933 - - 10,227 - - 15,968 78,922 - - 3,339,847 - 4,374,481 8,739,500 - - 36,943 884 3,212,620 51,048 2,744,432 3,800,959 1,917,297 17,580,902 55,702,326 (1,902,412) (16,985,487) (56,301,430) - - 10,765 19,146 39,993 92,529 (113,377) 16,725 8,820 - - - KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel partiespersonnel parties 2019 2018 Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 255
  258. 256 Markup / return / interest earned Fee and commission income Dividend income Gain on forward foreign exchange contracts matured during the year Net gain on sale of securities Gain on sale of fixed assets Rent income and reimbursement of other expenses Unconsolidated Financial Statements Other Transactions Payment against scheme of demerger Proceeds from sale of fixed assets Purchase of fixed assets Sale of foreign currency Purchase of foreign currency Payments against home remittances Sale of government securities Purchase of government securities Forward exchange contracts matured during the year Insurance premium paid on behalf of related party Reimbursement of Insurance premium paid on behalf of a related party Insurance claim received on behalf of related party Insurance claim paid to related party - - - - - - 203,735 - - - - - - - - - - - - 165,579 - - - - - - - - - - 145,454 - - - - - - - - 347 - - - - 94,105 58,956 - - - - - - - - - - - 514,168 - - - - - - - - - - 1,999 12,357 - - - - 186 - - - - 35,675,520 25,874,008 2,980,860 - - - - - - - - - 9,741 - - - - - - - - - - - - - - 2,771 208,168 56,047 49,892 - - - 40,100 - - 46,339 - - - 6,043,338 6,410,544 - - - - - - - 21,347 - - - - 258,190 - - - - - - - 719,873 57,566 218,029 - 1,301,954 175,000 - 281 - 8,485 - - 20,003 - - - 22,634,697 17,302,184 24,426,964 - - - - 152,009 366,744 38,680 160,766 258,411 359,119 - - - 5,968 37,644 2,573 2,125 12,934 2,376 - - 364,984 20,846 4,631 41,162 12,850 10,990 - 3,105 38 - - - - - - - 2,503 - - - - - - - - - - - - - - - - - 143,791 - - - - - - - - - - 213,721 (Rupees in '000) - 3,216 - - - - 36,452 27,486 - - - - - - - - - - - 483,820 - - - - - - - - - - 1,982 11,022 - - - - 85 - 22,214,180 - - 19,362,244 11,361,607 1,706,791 - - - - - - - - - 8,855 - - - - - 11,814 - - - - - - - - 1,491 146,341 37,915 64,674 - - - 39,668 - - - - - 4,611,381 6,699,290 - 12,912 - 333 - - - - - - - - 263,283 - - - - - - - 554,703 280,532 98,218 - 1,109,700 140,000 - 53 - 3,679 296,705,958 297,767,019 101,658,555 12,912 333 425,000 - 145,508 347,043 47,576 157,249 234,318 398,773 5,816 38,571 10,676 1,726 4,330 - 246,176 103,646 27,258 37,470 206,723 46,195 156,400 3,375 The Chairman has been provided with free use of the Bank maintained car. The Chief Executive and certain executives are provided with free use of the Bank’s maintained cars and household equipment in accordance with the terms of their employment. Clearing expenses paid to NIFT Contribution to provident fund Rent expenses Cash sorting expenses Stationery expenses Security guards expenses Remuneration to key executives and non-executive directors fee Outsourcing service expenses Commission expenses E-dividend processing fee and CDC charges Travelling expenses Hotel stay expenses Repair and maintenance charges Advertisement expenses Miscellaneous expenses and payments Insurance premium-net of refund Insurance claim settled Markup / return / interest expensed Other Operating expenses Expense RELATED PARTY TRANSACTIONS Income KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel partiespersonnel parties 2019 2018 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  259. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 44 20192018 (Rupees in '000) CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 44.1 Capital Adequacy Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 11,850,600 11,850,600 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital 136,256,771 – 128,999,274 – Total Eligible Tier 1 Capital Eligible Tier 2 Capital 136,256,771 27,354,014 128,999,274 16,987,978 Total Eligible Capital (Tier 1 + Tier 2) 163,610,785 145,987,252 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 638,492,645 108,276,486 120,887,137 637,480,582 54,814,473 112,882,444 867,656,268 805,177,499 Capital Adequacy Ratio (CAR): Total Common Equity Tier 1 Capital Adequacy ratio 15.70% 16.02% Tier 1 Capital Adequacy Ratio 15.70%16.02% Total Capital Adequacy Ratio 18.86%18.13% The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid up capital (net of losses) for all locally incorporated banks of Rs. 10 billion. The paid up capital of the Bank for the year ended December 31, 2019 stood at Rs. 11.851 billion and is in compliance with the SBP requirements. Further, under Basel III instructions, banks are required to maintain minimum Capital Adequacy Ratio (CAR) of 12.50% (including 2.50% capital conservation buffer), Common Equity Tier 1 (CET 1) ratio of 6.0% and Tier 1 ratio of 7.50% as at December 31, 2019. The Bank is fully compliant with prescribed ratios. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Bank’s exposures based on eligible collateral under comprehensive approach. 44.2 Leverage Ratio (LR): 20192018 (Rupees in '000) Eligible Tier-1 Capital Total Exposures 136,256,771 1,928,383,315 128,999,274 1,820,404,530 Leverage Ratio 7.07% 7.09% Annual Report 2019 257
  260. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 44.3 Liquidity Requirements 45 Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding Net Stable Funding Ratio 20192018 (Rupees in '000) 713,965,089 362,188,259 609,585,939 341,044,576 197.13%178.74% 983,364,374 699,043,391 895,570,558 685,678,115 140.67%130.61% The full disclosures on the Capital Adequacy, Leverage Ratio & Liquidity Requirements as per SBP instructions issued from time to time are available at https://www.mcb.com.pk/investor-relations/ capital-adequacy-statements. RISK MANAGEMENT Risk is an inherent part of banking business activities. The risk management framework and governance structure at MCB helps to mitigate and counter any foreseeable risk in its various lines of business. Risk awareness forms an integral part of strategic and operational activities of risk management. Through its risk management policy the Bank sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Bank’s risk management structure is based on the following five guiding principles: • • • • • Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing independent and properly resourced risk management function. Promoting open risk culture Adopting international best practices in risk management Keeping in view dynamics of internal and external environment, the bank regularly reviews and updates policy manuals / frameworks and procedures in accordance with domestic regulatory environment and international standards. The Bank executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors and its relevant committee, i.e. the Risk Management & Portfolio Review Committee (RM&PRC), the senior management and its relevant committees, i.e. the Management Credit and Risk Committee (MC&RC), Asset and Liability Management Committee (ALCO), etc., are responsible to ensure formulation and implementation of comprehensive Risk Management Framework. This framework is based on prudent risk identification, measurement, management and monitoring processes which are closely aligned with the activities of the bank. The framework combines core policies, procedures and process designs with broad oversight and is supported by an efficient monitoring mechanism across the bank to ensure that risks are kept within an acceptable level. The Bank ensures that not only the relevant risks are identified but their implications are also considered and basis provided for managing and measuring the risks. Through Internal Control units, the Bank ensures that effective controls are in place to mitigate each of the identified risk. Independent from business groups, Head of Risk Management reports functionally to the Risk Management & Portfolio Review Committee (RM&PRC) and administratively to the President; the RM&PRC convenes regular meetings to evaluate bank’s risk and portfolio concentrations. The Risk Management Group performs the following critical functions: • • • 258 Risk Management Policy Formulation Credit Risk Management Credit Review Unconsolidated Financial Statements
  261. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 • • • • • Credit Risk Control Market Risk Management Liquidity Risk Management Operational Risk Management IT Risk Management Keeping in view the international best practices and SBP requirements, Board of Directors of the Bank has approved a Risk Appetite Statement, which takes into account quantitative and qualitative risk indicators, covering target ratios, credit, market, operational, liquidity and business risks. 45.1 Credit Risk Credit risk arises from bank’s dealings with individuals, corporate borrowers, financial institutions, sovereigns etc. The Bank is exposed to credit risk through its lending and investment activities. Credit risk makes up the largest part of the Bank’s exposure and it stems from Bank’s both on and offbalance sheet activities. Purpose of Credit Risk Management function is to identify, measure, manage, monitor and mitigate credit risk. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. The Bank has adopted Standardized Approach to measure Credit risk regulatory capital charge in compliance with Basel requirements. The approach mainly takes into account the assessment of external credit rating agencies. In line with SBP guidelines on Internal Credit Risk Rating Systems, the Bank has developed rating systems and all its borrowers are internally rated. In order to further enhance the credit risk analysis and the processes, Probability Default based internal credit risk rating (ICRR) system based on the statistical modeling and validation in line with Basel principles. The revamped ICRR is currently focused on Corporate Commercial and Corporate Large customer categories. The Internal Credit Risk Rating Model for rating of SME Customers has also been revamped to achieve more accurate results and to improve the quality of credit decisions. In order to manage bank’s credit risk, following policies and procedures are in place: • Individuals who take or manage risks clearly understand them in order to protect the Bank from avoidable risks; • The approval of credit limits to counter parties are subject to pre-fact review; • Extension in credit facility or material change to the credit facility is subject to credit review; • Approval and review process is reviewed by RM&PRC and internal audit; • Management periodically reviews the powers of credit approving and credit reviewing authorities. Ongoing administration of the credit portfolio is an essential part of the credit process that supports and controls extension and maintenance of credit. The Bank’s Credit Risk Control is responsible for performing following activities: • Credit disbursement authorization • Collateral coverage and monitoring • Compliance of loan covenants/ terms of approval • Maintenance/ custody of collateral and security documentation • Credit Risk Limit Controls Credit Risk Monitoring is based on a comprehensive reporting framework. Continuous monitoring of the credit portfolio and the risks attached thereto are carried out at different levels including businesses, Audit & Risk Assets Review, Credit Risk Control, Credit Risk Management Division, etc. To ensure a prudent distribution of asset portfolio, the Bank manages its lending and investment activities within an appropriate limits framework. Per party exposure limit is maintained in accordance with SBP Prudential Regulations. The Bank creates specific provision against Non-Performing Loans (NPLs) in accordance with the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Annual Report 2019 259
  262. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 Provisions against unidentified losses include general provision against consumer loans and Small enterprise (SEs) made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Please refer note No. 10.4 for reconciliation of changes in specific and general provisions. Management of Non Performing Loans The Bank has a Assets Rehabilitation Group (ARG), which is responsible for management of non performing loans. ARG undertakes restructuring / rescheduling of problem loans, as well as litigation of both civil and criminal cases for collection of debt. Stress Testing Credit Risk stress testing is a regular exercise. Bank’s credit exposures including funded and nonfunded facilities are subjected to stress tests. This exercise is conducted on a quarterly basis through assigning shocks to all assets of the Bank and assessing its resulting affect on capital adequacy inline with SBP requirements. 45.1.1 Lendings to financial institutions Credit risk by public / private sector Gross lendings Non - performing lending Provision held 201920182019201820192018 (Rupees in '000) Public/ Government Private 209,206 1,198,704 880,852 33,907,537 - - - - - - - 1,090,058 35,106,241 - - - - 45.1.2 Investment in debt securities Credit risk by industry sector Gross Investments Non - performing Investment Provision held 201920182019201820192018 (Rupees in '000) Chemical and pharmaceuticals 1,750,000 - Construction - 29,964 Electricity, gas, steam and air conditioning supply 101,933 188,456 Financials including government securities 712,505,023 721,780,711 Manufacture of cement 285,000 285,000 Manufacture of sugar 145,656 150,000 Manufacture of textiles 53,531 53,531 Telecommunications 114,747 114,747 Others 7,682 7,682 - 29,964 - - - - - 29,964 - 118 285,000 145,656 53,531 114,747 7,682 118 285,000 - 53,531 114,747 7,682 118 285,000 72,828 53,531 114,747 7,682 118 285,000 53,531 114,747 7,682 714,963,572 722,610,091 Credit Risk by Public/ Private Sector Public/ Government 703,333,310 712,839,136 Private 11,630,262 9,770,955 606,734 491,042 533,906 491,042 - 606,734 - 491,042 - 533,906 491,042 606,734 491,042 533,906 491,042 260 - - Unconsolidated Financial Statements 714,963,572 722,610,091
  263. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 45.1.3 Advances Credit risk by industry sector Gross Advances Non - performing Advance Provision held 201920182019201820192018 (Rupees in '000) Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather g arments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 6,209,291 7,863,709 18,950,532 21,144,096 390,080 289,435 798,008 343,453 362,867 287,840 763,426 339,991 42,221,235 42,900,207 379,846 381,282 378,125 379,485 4,322,348 4,805,636 20,897,873 14,241,054 4,357,262 3,406,115 113,496 532,286 173,985 119,040 741,551 179,687 107,776 532,286 173,590 113,320 739,169 179,292 2,760,760 4,258,217 39,528,041 38,641,227 50,211 4,377,113 52,395 4,310,937 34,981 3,999,488 37,025 4,002,049 16,420,515 14,349,676 10,344,007 12,850,003 3,104,026 392,862 2,193,872 392,862 2,892,814 392,862 2,190,086 392,862 45,734,806 38,954,379 334,485 376,631 331,551 366,010 14,789,736 22,581,791 399,317 361,167 398,701 360,551 51,582,644 53,415,267 3,014,962 3,233,140 2,786,691 3,169,855 435,301 474,815 434,527 456,142 4,100,112 1,229,934 5,020,189 4,793,034 661,498 711,653 23,116,287 34,643,259 4,497,643 2,483,424 78,774,991 74,543,561 13,537,492 13,854,193 4,252,835 2,510,868 7,286 10,078 3,778,008 4,916,424 10,694,258 15,883,537 57,884,271 47,103,072 6,394,182 4,170,766 242,331 261,677 9,207,374 2,436,614 3,040,220 10,241,030 596,857 1,135,283 17,945,996 42,798 57,304 57,345,264 93,955 507,773 45,042,652 12,562,163 12,116,637 5,706,434 758,217 818,466 658,226 428,762 3,434,211 1,843,056 13,088,287 13,210,706 7,286 10,013 213,453 2,436,614 588,408 42,798 84,307 7,573,707 693,025 232,751 3,040,220 1,030,585 52,791 402,386 7,448,877 754,099 540,037,216 546,791,549 49,424,259 48,955,548 41,934,421 41,943,509 Credit Risk by Public/ Private Sector Public/ Government 85,944,207 90,401,960 639,825 639,826 Private 454,093,009 456,389,589 48,784,434 48,315,722 639,825 639,825 41,294,596 41,303,684 540,037,216 546,791,549 49,424,259 48,955,548 41,934,421 41,943,509 Annual Report 2019 261
  264. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 45.1.4 Contingencies and Commitments Credit risk by industry sector Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 541,768 27,382,939 16,080,103 3,145,057 579,135,125 80,901 409,816 6,205,880 6,414,150 1,294,594 458,978 34,419,245 5,283,833 2,263,031 349,849,294 142,180 804,687 8,758,774 6,846,779 1,951,187 19,042,481 15,218,033 18,244,851 19,050,871 3,951,612 13,378,114 6,755,084 2,041,121 3,640,983 31,827,288 460,490 1,163,879 498,050 54,955,804 14,669,698 3,394,704 16,723,095 21,820,876 8,023,653 1,391,038 4,105,751 15,797,412 96,453 1,099,265 2,269,451 61,195,351 16,839,614 3,471,149 13,525,999 9,460,584 Credit risk by public / private sector 851,146,770 584,434,305 Public/ Government Private 321,606,927 529,539,843 146,299,566 438,134,739 851,146,770 584,434,305 45.1.5 Concentration of Advances The Bank top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs 236,769.236 million (2018: Rs. 233,522.506 million) are as following: Funded Non Funded 80,717,454 156,051,782 91,638,103 141,884,403 Total Exposure 236,769,236 233,522,506 262 20192018 (Rupees in '000) The sanctioned limits against these top 10 exposures aggregated to Rs 291,923.228 million (2018: Rs. 281,681.726 million) There is no provision against these top 10 exposures. Unconsolidated Financial Statements
  265. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 45.1.6 Advances - Province/Region-wise Disbursement & Utilization 2019 DisbursementsUtilization KPK AJK Punjab Sindh including Balochistan Islamabad including gilgit FATA Balochistan (Rupees in '000) Province/Region Punjab 572,121,989 Sindh 577,715,877 KPK including FATA 5,441,928 Balochistan 1,216,050 Islamabad 32,691,486 AJK including Gilgit-Baltistan 316,940 Total 1,189,504,270 500,803,912 57,758,820 12,573,575 494,016,936 67,761 - - - 3,470,284 227,242 425 - 516,915,957 552,002,998 10,024,921 3,370,558 5,374,167 - 1,782,828 - 20,552,474 322,571 67,526,981 - 1,216,050 - - 69,065,602 3,210,918 227,827 - - 27,135,929 - 30,574,674 847 75,203 316,515 392,565 2018 DisbursementsUtilization KPK AJK Punjab Sindh including Balochistan Islamabad including gilgit FATA Balochistan (Rupees in '000) Province/Region Punjab 628,307,204 Sindh 481,965,016 KPK including FATA 4,766,985 Balochistan 1,516,600 Islamabad 23,502,959 AJK including Gilgit-Baltistan 244,635 Total 1,140,303,399 45.2 Market Risk 611,326,290 10,548,026 126,017,699 308,651,722 19,454 - - - 5,430,245 3,181,755 151 - 742,793,839 322,381,503 5,880,252 909,217 4,532,025 - 3,439,965 - 14,761,459 - 46,266,053 - 1,516,600 - - 47,782,653 534,701 120,325 215,506 - 10,988,549 - 11,859,081 17,935 462,445 244,484 724,864 Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. MCB is exposed to market risk primarily through its trading activities, which are centered in the Treasury and Foreign Exchange Group and the Capital Market Division. Market risk also arises from market-making, facilitation of client business and proprietary positions in equities, fixed income and interest rate products and foreign exchange, which exposes bank to interest rate risk, foreign exchange risk and equity price risk. The Bank’s Market Risk Management structure consists of Risk Management & Portfolio Review Committee (RM&PRC) of the Board, Management Credit and Risk Committee, ALCO and independent Market Risk Management Division reporting directly to Group Head Risk Management. Market Risk function works in close partnership with the business segments to identify and monitor market risks throughout the Bank and to define market risk policies and procedures. Market Risk seeks to facilitate efficient risk/return management decisions, reduce volatility in operating performance and provide transparency into the Bank’s market risk profile for senior management, the Board of Directors and regulators. Market risk authority, including both approval of market risk limits and approval of market risks is vested in the ALCO. In line with regulatory requirements, MCB has clearly defined, in its Risk Management policy, the positions which shall be subject to market risk. The definition covers the accounting classifications as well as positions booked by different business groups under “Available for Sale” category. The assets subject to trading book treatment are frequently, mostly on daily basis, valued and actively managed. The positions which does not fulfill the criteria of Trading book falls under the Banking Book and are treated as per SBP requirements. Annual Report 2019 263
  266. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 The Bank measures and manages Market Risk by using different risk parameters with combinations of various limits. A specific Board approved Market Risk Limit Policy provides guidelines for assuming controlled market risk, its monitoring and management. The approved limits are compared with the numbers generated by the market risk management systems based on the trading activity and the outstanding positions. Besides conventional methods, the Bank also uses VaR (Value at Risk) technique for market risk assessment of positions assumed by its treasury and capital market groups. In-house based solutions are used for calculating mark to market value of positions and generating VaR (value at risk) and sensitivity numbers. Thresholds for different positions are established to compare the expected losses at a given confidence level and over a specified time horizon. A framework of stress testing, scenario analysis and reverse stress tests covering both banking and trading books as per SBP guidelines is also in place. The results of the stress tests are reviewed by senior management and also reported to the SBP. The Bank is also exposed to interest rate risk both in trading and banking books. Risk parameters along with the marked to market values of government securities held by the Bank’s treasury are generated on daily basis. The risk parameters include duration, PVBP, and VaR on individual security basis as well as on portfolio basis. These reports are presented to the senior management for review on a daily basis. 45.2.1 Balance sheet split by trading and banking books 20192018 BankingTrading Total BankingTrading Total bookbook bookbook (Rupees in '000) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 132,704,797 12,542,239 1,090,058 46,902,418 496,678,874 58,271,245 957,552 64,142,748 - 132,704,797 - 12,542,239 - 1,090,058 701,862,084 748,764,502 - 496,678,874 - 58,271,245 - 957,552 - 64,142,748 103,174,597 11,878,975 35,106,241 46,959,184 503,581,323 40,811,956 630,141 53,578,090 - - - 702,409,554 - - - - 813,289,931 701,862,084 1,515,152,015 795,720,507 702,409,554 1,498,130,061 103,174,597 11,878,975 35,106,241 749,368,738 503,581,323 40,811,956 630,141 53,578,090 45.2.2 Foreign Exchange Risk 264 Foreign exchange risk exposes the bank to changes in the values of current holdings and future cash flows denominated in currencies other than home currency due to the exchange rate fluctuation and volatility. The types of instruments exposed to this risk include investments in foreign branches, foreign currency-denominated loans, foreign currency-denominated deposits, future cash flows in foreign currencies arising from foreign exchange transactions, etc. The core objective of foreign exchange risk management is to ensure the foreign exchange exposure of the Bank remain within defined risk appetite and insulate bank against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage Foreign exchange risk including gap limits on different tenors in major currencies are in place to control risk. Bank’s net open position and foreign exchange exposure limit (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR is generated and monitored on daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the Board is a regular feature. Unconsolidated Financial Statements
  267. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 20192018 Foreign Foreign Off-balance Net foreign Foreign Foreign Off-balance Net foreign currencycurrency sheet currencycurrencycurrency sheet currency Assetsliabilitiesitems exposureAssetsliabilities items exposure (Rupees in '000) United States Dollar Sri Lankan Rupees Arab Emirates Dirham 194,163 Euro 3,187 Great Britain Pound Sterling 35,160 Japanese Yen Other currencies 38,440,687 59,119,303 21,719,452 - - 164,290 1,040,836 28,040,303 52,379,053 24,320,327 (15,331) (364,982) 949,404 590,192 (165,049) (116,907) 4,574,963 4,564,076 (7,700) 628,921 5,213,276 4,485,718 (98,637) 4,928,555 4,822,148 (71,247) 474,696 5,839,034 5,315,794 (48,544) 4,498 17,723 13,225 (8,967) 17 8,824 (160) 31,769 132,003 52,851 25,692 78,543 926,737 28,705,915 63,431,380 34,327,461 (398,004) 100,234 - 38,773,431 69,741,013 31,894,319 - 171,106 (18,423) 148,959 - - - (193,876) (116,907) 20192018 Banking book Trading book Banking book Trading book (Rupees in '000) Impact of 1% change in foreign exchange rates on - Profit and loss account 45.2.3 Equity position Risk - 11,864 - 4,199 Bank’s proprietary positions in the equity instruments exposes it to the equity price risk in its trading and banking books. Equity price risk is managed by applying trading limit, scrip-wise and portfolio wise nominal limits. VaR analysis and stress testing of the equity portfolio are also performed and reported to senior management on daily basis. The stress test for equity price risk assesses the impact of the fall in the stock market index using certain assumptions. In addition to this stress testing, historical scenario analysis on equities is also performed periodically as advised by the State Bank of Pakistan through Guideline on Stress Testing. 20192018 AFSHFT AFSHFT (Rupees in '000) Impact of 5% change in equity prices on - Profit and loss account - Other comprehensive income - 744,981 656 - - 854,324 934 - 45.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific Yield/ Interest rate sensitivity position for on-balance sheet instruments is based on the earlier of contractual re-pricing or maturity date and for off-balance sheet instruments is based on settlement date. The increase / (decrease) in earnings due to change in the interest rate is as follows: 20192018 Banking Book Trading Book Banking Book Trading Book (Rupees in '000) Impact of 1% change in interest rates on - Profit and loss account - Other comprehensive income 2,197,713 - - 6,794,790 2,621,559 - 1,477,422 The Bank has classified Available for Sale investments as Trading in Basel-II. Annual Report 2019 265
  268. 266 On-balance sheet financial instruments Unconsolidated Financial Statements Cumulative Yield /Interest Risk Sensitivity Gap 90,893,116 106,984,148 Total Yield/Interest Risk Sensitivity Gap 198,286,307 Off-balance sheet gap 74,320,344 305,270,455 431,449 5,412,334 4,636,745 187,805,779 FX options sale Forward sale of Government securities Cross Currency Swaps sale Foreign exchange contracts sale 65,518,963 65,518,963 165,213,460 204,798 5,412,334 - 68,703,212 204,798 82,284,304 - - 82,724,358 431,449 82,284,304 4,428,663 316,500 217,809,539 FX options purchase Forward purchase of Government securities Cross Currency Swaps purchase Interest Rate Swaps purchase Foreign exchange contracts purchase (25,374,153) 121,780,338 On-balance sheet gap 686,302,259 1,322,808,633 Off-balance sheet financial instruments - 54,865,233 631,437,026 - Bills payable 11,821,698 Borrowings 7.84% 89,505,892 Deposits and other accounts 5.96% 1,144,763,259 Other liabilities 76,717,784 660,928,106 1,444,588,971 Liabilities 10,517,551 2,805,338 1,090,058 180,617,919 465,897,240 - Cash and balances with treasury banks 0.70% Balances with other banks 0.55% Lending to financial institutions 10.91% Investments 11.47% Advances 11.70% Other assets 132,704,797 12,542,239 1,090,058 748,764,502 496,678,874 52,808,501 Assets 100,814,856 35,295,893 17,578,359 68,061,968 85,640,327 226,651 - 311,405 67,523,912 226,651 - 311,405 - 85,102,271 17,717,534 45,098,978 - 9,993,161 35,105,817 - 62,816,512 - 1,340,374 - 47,610,581 13,865,557 - 112,034,652 11,219,796 (4,889,264) 50,188,944 45,299,680 - - 52,745 50,136,199 - - - - 45,299,680 16,109,060 29,713,648 - 7,185,921 22,527,727 - 45,822,708 276,912,597 164,877,945 3,557,274 2,207,946 5,765,220 - - 765,490 1,442,456 - - 765,490 316,500 4,683,230 161,320,671 25,876,159 - 1,467,529 24,408,630 - 187,196,830 377,463,894 100,551,297 (155,337) 1,677,406 1,522,069 - - 1,677,406 - - - 1,522,069 - - 100,706,634 5,556,576 - 2,097,344 3,459,232 - 106,263,210 - - - - - - - - - 43,392,286 186,216,758 104,446,954 2,430,422 980,072 1,816,256 - - - (Rupees in '000) 389,612,976 12,149,082 - 857,049 857,049 - - 857,049 - - - 857,049 - - 12,149,082 4,219,832 - 2,217,657 2,002,175 - 16,368,914 - - - 13,359,230 3,009,684 - 446,558,209 56,945,233 - 972,650 972,650 - - 972,650 - - - 972,650 - - 56,945,233 4,843,717 - 3,572,934 1,270,783 - 61,788,950 - - - 60,307,907 1,481,043 - 523,737,374 77,179,165 - - - - 77,179,165 8,106,113 - 8,106,113 - - 85,285,278 - - - 83,531,045 1,754,233 - 11,821,698 424,551,869 76,717,784 212,674,096 529,181,741 5,444,367 - - - - - - - - 5,444,367 (300,417,255) - 513,091,351 - 5,444,367 - 122,187,246 - 8,396,527 - - 29,281,822 5,444,367 - 52,808,501 EffectiveTotal Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 2019 Exposed to Yield/ Interest risk 45.2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  269. 12 ,272,588 104,138,809 53,970,531 23,071,272 251,542,394 1,378,370 14,274,714 4,185,049 91,239,998 111,078,131 33,832,629 FX options sale Forward sale of Government securities Cross Currency Swaps - sale Foreign exchange contracts sale Off-balance sheet gap Total Yield/Interest Risk Sensitivity Gap 158,265 1,684,120 - - 1,684,120 - - 1,209,227 - - 1,209,227 - 1,209,227 - - 1,209,227 - - 14,261,929 3,981,785 - 1,743,962 2,237,823 - - 18,243,714 - - - 14,498,841 3,744,873 - 412,558,569 (7,110,846) (1,454,268) 1,975,033 - - - 1,975,033 1,842,385 - - 1,525,885 316,500 - 33,250,817 3,824,303 - 1,402,299 2,422,004 - - 37,075,120 - - - 34,915,013 2,160,107 - Cumulative Yield/Interest Risk Sensitivity Gap 251,542,394 355,681,203 371,998,404 364,887,558 398,296,640 16,317,201 (215,228) 29,147,808 98,548 - - 29,049,260 520,765 - - - - 520,765 (5,656,578) 24,160,640 - 699,729 23,460,911 - - 18,504,062 - - - 15,156,060 3,348,002 - 14,261,929 22,007,193 756,090 - - 21,251,103 28,932,580 98,548 - - - 28,834,032 16,532,429 29,234,539 - 8,445,473 16,898,047 3,891,019 - 45,766,968 - - - 41,941,537 3,825,431 - (Rupees in '000) 33,409,082 523,732 14,274,714 207,483 38,964,602 34,279,781 144,910,760 77,041,803 1,378,370 13,660,947 4,026,814 316,500 125,528,129 756,090 - - - 33,523,691 91,866,221 36,366,373 - 11,794,618 24,571,755 - - FX options purchase Outright purchase of Government Securities Cross currency swaps - purchase Interest Rate Swaps - purchase Foreign exchange contracts purchase 523,732 13,660,947 207,483 - 62,649,641 228,471,122 On-balance sheet gap Off-balance sheet financial instruments 756,629,580 1,336,698,483 102,165,010 - 180,077,688 576,551,892 - - Bills payable 15,699,280 Borrowings 4.81% 216,018,886 Deposits and other accounts 3.18% 1,049,037,615 Subordinated debt 7.91% 3,891,019 Other liabilities 52,051,683 128,232,594 9,466,493 - 2,369,028 277,724 34,474,890 631,351 466,394,574 119,714,644 472,395,717 7,608,875 - - 985,100,702 103,174,597 11,878,975 35,106,241 749,368,738 503,581,323 35,753,619 1,438,863,493 Liabilities Cash and balances with treasury banks 1.35% Balances with other banks 0.33% Lending to financial institutions 6.88% Investments 7.56% Advances 7.72% Other assets Assets On-balance sheet financial instruments Annual Report 2019 427,021,956 14,463,387 - 1,084,219 - - 1,084,219 - 1,084,219 - - 1,084,219 - - 14,463,387 4,093,808 - 3,097,690 996,118 - - 18,557,195 - - - 15,485,864 3,071,331 - 432,946,771 5,924,815 - - - - - 5,924,815 6,722,977 - 6,722,977 - - - 12,647,792 - - - 10,071,227 2,576,565 - 15,699,280 2,034,450 401,899,065 52,051,683 169,884,924 93,708,104 9,232,223 31,190,978 35,753,619 - - - - - 437,797,193 4,850,422 - - - - - 4,850,422 (301,799,554) - 471,684,478 - 4,850,422 - - - - 4,850,422 - EffectiveTotal Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 2018 Exposed to Yield/ Interest risk Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019 267
  270. 268 Unconsolidated Financial Statements 1 ,336,698,483 10,621,672 1,532,177 12,153,849 Operational Risk Management helps the Bank understand risks and improve mitigating controls so as to minimize operational risks that are inherent in almost all areas of the Bank. Going forward, the Bank will further strengthen its risk function, policies and procedures to facilitate its operations and improve quality of assets to safeguard interest of depositors. The Bank’s operational risk management framework, as laid down in the operational risk policy, duly approved by BOD, is flexible enough to implement in stages and permits the overall risk management approach to evolve in the light of organizational learning and the future needs of the Bank. Operational loss events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve control procedures with respect to design and operative effectiveness. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risks but excludes strategic and reputational risks. Operational loss data pertaining to key risk events is also collected on bank-wide basis. Operational Risk Management Software (ORMS) has been developed in house in line with the regulatory requirements, which has enhanced bank’s capability to capture and report operational risk events in a more systematic way. The software is also capable for periodical regulatory and management reporting. Periodic review and analysis is prepared for senior management and Risk Management and Portfolio Review Committee (RM&PRC) of the Board. The report covers the significant risk events with root cause analysis and recommendations for further improvements. Currently, the bank is reporting operational risk capital charge under Basic Indicator Approach (BIA). However, the Bank took a number of initiative with respect to operational risk management. The parallel run approval for Alternative Standardized Approach (ASA) was accorded by SBP. The bank will initiate further steps for improvement Operational Risk management in the bank. 45.3.1 Operational Risk-Disclosures Basel II Specific Operational Risk Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. 1,322,808,633 45.3 Total financial liabilities Yield risk is the risk of decline in earnings due to adverse movement of the yield curve. 1,438,863,493 17,577,954 5,850,645 23,428,599 1,444,588,971 59,266,568 40,811,956 Other liabilities 630,141 Deferred tax liability 17,824,471 Total financial assets 70,563,044 58,271,245 957,552 11,334,247 1,348,852,332 20192018 (Rupees in '000) 1,346,237,232 Fixed assets Intangible assets Other assets Less: Non financial assets Less: Non financial liabilities Balance as per balance sheet Balance as per balance sheet 1,515,152,015 1,498,130,061 Reconciliation to total liabilities Reconciliation to total assets 20192018 (Rupees in '000) Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  271. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 45.4 Liquidity Risk Liquidity represents the ability to fund assets and meet obligations as they become due. The Bank understands that liquidity does not come for free, and surplus liquidity has an opportunity cost which needs to be recognized. Liquidity risk is a risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Liquidity is essential to the ability to operate financial services businesses and, therefore, the ability to maintain surplus levels of liquidity through economic cycles is crucial. Particularly during periods of adverse conditions, liquidity management is among the most important activities that the MCB conducts during both normal and stress periods. MCB recognizes that liquidity risk can arise from the Bank’s activities and can be grouped into three categories: - - - Inflows/Outflows from on-balance sheet items (other than marketable securities and wholesale borrowings) and off-balance sheet items; Marketability of trading securities; and Capacity to borrow from the wholesale markets for funding as well as trading activities. Liquidity Management The Asset Liability Management Committee of the bank has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Banks’ liquidity under normal and stress scenarios. A framework to assess the maturity profile of non-contractual assets and liabilities is in place to supplement the liquidity management. Bank’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing, to ensure effective and timely decision making. MCB’s liquidity risk management framework is designed to identify measure and manage in a timely manner the liquidity risk position of the Bank. The underlying policies and procedures include: Risk Management policy, Treasury Policy, Investment policy, Contingency Funding Plan, Liquidity Strategy and Limit Structure which are reviewed and approved regularly by the senior management /Board members. Moreover; the Bank also prepares a ‘Contingency Funding Plan’ (CFP) to address liquidity issues in time of stress/crises situation containing early warning indicators to pre-empt unforeseen liquidity crises. MCB Bank conducts Liquidity Risk Analysis on regular basis as well as Maturity of gaps are also reviewed in order to ensure diversification in terms of tenors. MCB liquidity Risk Policy envisages to project the Bank’s funding position during temporary and long-term liquidity changes, including those caused by liability erosion and explicitly identifying quantifying and ranking all sources of funding preferences, such as reducing assets, modifying or increasing liability structure; and using other alternatives for controlling statement of financial position changes. MCB performs regular liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Bank under both idiosyncratic and systemic market stress conditions. MCB’s liquidity risk management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. Intraday Liquidity Management Intraday liquidity management is about managing the daily payments and cash flows. Bank has policies to ensure that sufficient cash is maintained during the day to make payments through local payment system. The policy of the Bank is 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 obligations, repay depositors and fulfill commitments. Managing Funding Sources Managing funding sources, as per policy MCB maintain a portfolio of marketable securities that can either be sold outright or sold through a repurchase agreement to generate cash flows for meeting unexpected liquidity requirement. As a part of liquidity management MCB maintains borrowing relationships to ensure the continued access to diverse market of funding sources. MCB’s sound credit rating together with excellent market reputation has enabled MCB to secure ample call lines with local and foreign banks. The level of liquidity reserves as per regulatory requirements also mitigates risks. MCB’s investment in marketable securities is much higher than the Statutory Liquidity requirements. Annual Report 2019 269
  272. 270 2019 Unconsolidated Financial Statements Lending to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Borrowings Deposits and other accounts Deferred tax liabilities Other liabilities - - 170 ,084,189 38,515,809 16,492,957 (35,127) 10,153,502 5,599,571 6,304,906 208,599,998 7,376,794 80,356 27,456 224,491 33,566,678 165,746,557 880,852 696,814 - 15,883,403 25,289,492 5,507,468 14,092 12,241,878 7,526,054 - 41,172,895 12,172,177 137,078 51,480 336,966 22,988,288 4,146,532 - 1,340,374 49,090,012 31,061,745 5,832,693 (101,995) 22,863,939 2,467,108 - 80,151,757 13,452,420 146,531 51,480 336,966 27,545,204 38,619,156 - - - 57,316,510 40,594,764 10,851,954 29,162 22,527,727 7,185,921 - 97,911,274 3,216,119 430,140 154,441 1,010,898 55,225,422 37,874,254 - - - 110,723,472 21,727,776 5,079,603 66,342 15,917,007 664,824 - 132,451,248 3,261,953 434,867 154,441 1,010,898 25,931,037 101,658,052 - - - 111,389,360 11,269,914 2,003,742 (28,156) 8,491,623 802,705 - 122,659,274 172,314 430,140 154,441 1,010,898 35,055,991 85,835,490 - - - 148,314,185 8,550,367 2,425,495 568,296 3,459,232 2,097,344 - 156,864,552 1,214,143 - 301,022 3,274,809 42,508,022 109,566,556 - - - 48,843,713 7,936,339 3,420,466 296,041 2,002,175 2,217,657 - 56,780,052 2,141,963 - 38,766 3,404,675 34,030,023 17,164,625 - - - 104,683,631 21,432,854 13,756,886 2,832,251 1,270,783 3,572,934 - 126,116,485 10,111,102 - - 4,271,900 46,800,437 64,933,046 - - - 175,318,142 16,878,934 4,876,699 3,896,122 - 8,106,113 - 192,197,076 - - - 43,276,271 39,631,154 109,289,651 - - - 168,914,783 Unappropriated profit55,777,489 Surplus on revaluation of assets 23,695,441 77,591,253 (3,203,145) 23,011,209 6,967,559 12,021 7,366,606 5,906,627 2,758,396 19,808,064 7,594,076 33,088 12,012 56,237 9,633,175 1,395,543 - 1,083,933 Over 5 years 11,850,600 (9,024,182) 168,914,783 (810,504,507) 7,271,888 16,036 2,388,779 35,802,978 9,808,328 10,848 23,761,935 2,364,340 26,778,796 3,239,882 28,361 10,296 48,204 10,898,866 12,011,605 - 1,347,962,520 1,065,890,339 94,295,738 7,575,933 - 541,582 Over 3 to 5 years Reserves Net assets 19,597,099 394,056 255,385,832 189,805 4,727 1,717 8,032 112,864,577 523,435 209,206 8,879,536 132,704,797 1,144,763,259 1,036,080,008 89,505,892 11,821,698 1,516,877,303 64,142,748 1,725,288 957,552 58,271,245 496,678,874 748,764,502 1,090,058 12,542,239 132,704,797 (Rupees in '000) Over 2 to 3 years Share capital Bills payable Liabilities Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 months 2 months 3 months 6 months 9 months months 2 years to 1 years 45.4.1 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Bank Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  273. 2018 Lending to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 1 ,501,406,961 53,578,090 3,276,900 630,141 40,811,956 503,581,323 749,368,738 35,106,241 11,878,975 103,174,597 234,085,449 1,735,336 6,798 712 9,662 116,414,040 496,923 368,406 11,878,975 103,174,597 383,311,415 2,211,927 78,138 4,976 57,248 10,794,134 337,192,646 32,972,346 - - 8,260,438 2,472,011 39,760 9,268 63,328 3,415,939 2,260,132 - - - Borrowings Deposits and other accounts Subordinated debt Deferred tax liabilities Other liabilities 975,568,898 9,764,850 290 - 955,472,971 3,139,856 (4,810,748) 13,071,186 5,148,016 2,023 - 3,679,425 578,556 3,663,166 143,372,582 32,299,766 11,265,606 4,914 - 12,394,894 261,403 8,372,949 - 116,151,683 20,737,280 4,831,581 8,382 - 12,192,921 3,704,396 - 34,444,747 26,187,389 5,709,373 8,960 - 12,378,834 8,090,222 66,367,519 28,569,445 3,198,844 26,302 779 16,898,047 8,445,473 - 94,936,964 2,151,240 605,792 85,391 847,974 52,789,907 38,456,660 - - - 37,920,401 14,675,024 2,434,193 26,591 - 11,792,354 421,886 - 52,595,425 4,482,051 483,745 128,358 805,007 35,126,272 11,569,992 - - - 16,248,797 13,684,420 1,710,939 26,302 779 11,668,557 277,843 - 29,933,217 3,773,072 446,710 128,358 805,007 19,439,737 5,340,333 - - - 82,080,069 7,749,268 3,817,909 105,498 1,558 2,422,004 1,402,299 - 89,829,337 3,423,685 413,594 181,158 1,916,155 44,561,335 39,333,410 - - - 58,650,309 5,348,876 1,260,035 105,498 1,558 2,237,823 1,743,962 - 63,999,185 925,700 393,188 - 1,947,399 42,106,802 18,626,096 - - - 46,680,291 17,595,454 7,900,691 1,714,610 3,886,345 996,118 3,097,690 - 64,275,745 8,017,579 96,893 - 1,732,766 34,735,383 19,693,124 - - - 96,238,711 10,747,628 1,246,678 2,777,973 - - 6,722,977 - 106,986,339 - 265,555 - 31,931,157 40,962,588 33,827,039 - - - 149,277,729 Unappropriated profit53,532,044 Surplus on revaluation of assets 9,747,104 74,147,981 197,416,817 185,894,598 4,384,640 1,734 - 6,903,667 171,464,701 60,632,136 9,339,729 152,176 42,786 268,335 47,306,328 3,522,782 - - - Over 5 years 11,850,600 149,277,729 (741,483,449) 1,352,129,232 62,673,355 4,809,077 3,891,019 1,049,037,615 523,309 9,807,478 136,888,963 8,360,199 159,520 32,760 278,361 16,016,572 111,410,200 631,351 - - Over 3 to 5 years Reserves Net assets 15,699,280 216,018,886 175,672,348 6,685,561 135,031 16,374 149,557 39,912,286 127,639,401 1,134,138 - - (Rupees in '000) Over 2 to 3 years Share capital Bills payable Liabilities Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 months 2 months 3 months 6 months 9 months months 2 years to 1 years Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 271
  274. 272 2019 Unconsolidated Financial Statements Fixed assets Intangible assets Deferred tax assets Other assets Deposits and other accounts Deferred tax liabilities Other liabilities 46 ,987,764 75,714,170 11,340,161 (88,384) 54,469,232 9,993,161 - 122,701,934 25,599,507 283,609 102,961 577,984 52,033,469 42,764,030 - - 20,746,558 68,468,799 10,855,453 28,760 50,398,665 7,185,921 - 89,215,357 3,241,210 430,140 154,441 1,106,846 46,410,125 37,872,595 - - - 176,198,817 69,379,672 7,079,846 37,225 60,795,072 1,467,529 - 245,578,489 3,434,267 865,007 308,882 2,021,795 51,464,951 187,483,587 - - - (96,658,372) 280,005,993 2,425,495 568,296 274,914,858 2,097,344 - 183,347,621 1,214,143 - 301,022 3,274,809 69,033,399 109,524,248 - - - (197,833,396) 279,391,170 3,420,466 295,246 273,457,801 2,217,657 - 81,557,774 2,141,963 - 38,766 2,124,651 60,132,349 17,120,045 - - - (137,398,940) 292,888,480 13,756,886 2,832,251 272,726,409 3,572,934 - 155,489,540 10,111,102 - - 5,551,924 74,935,777 64,890,737 - - - 36,726,693 105,506,832 4,338,448 2,577,062 90,485,209 8,106,113 - 142,233,525 - - - 6,047,543 41,348,513 94,837,469 - - - 23,695,441 168,914,783 55,777,489 Surplus on revaluation of assets Unappropriated profit 57,273,680 1,859,949 538,252 1,321,697 - - - 59,133,629 - - - 37,228,728 7,298,635 14,606,266 - - 11,850,600 262,871,979 168,914,783 - 1,340,374 77,591,253 Share capital 174,747,455 40,540,731 3,780 67,516,013 54,865,233 1,347,962,520 94,295,738 7,575,933 1,144,763,259 89,505,892 11,821,698 437,619,434 1,516,877,303 11,821,698 18,400,556 146,532 51,480 336,965 94,021,656 179,665,525 1,090,058 11,201,865 132,704,797 64,142,748 1,725,288 957,552 58,271,245 496,678,874 748,764,502 1,090,058 12,542,239 132,704,797 (Rupees in '000) Reserves Net assets Bills payable Borrowings Liabilities Investments Advances Lending to financial institutions Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 3 to Over 6 Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year 45.4.2 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Bank Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019
  275. 2018 304 ,197,404 418,208,375 1,352,129,232 149,277,729 98,423,280 87,506,582 - 11,794,618 66,895,101 - 17,053 8,799,810 Liquidity Gap Reporting 149,277,729 93,402,395 (15,250,104) 3,153,755 66,293,686 - 699,729 61,395,732 779 52,315 4,145,131 69,447,441 - - - 16,910,325 41,484,805 1,610,015 256,718 930,455 8,255,123 98,495,198 - - - 18,626,096 77,988,025 562,189 - 393,188 925,700 103,043,287 - - - 19,693,124 72,117,715 3,117,976 - 96,893 8,017,579 (110,941,471) 235,535,329 (134,639,738) 233,134,936 (142,338,231) 245,381,518 - - - 1,402,299 1,743,962 3,097,690 230,208,066 230,023,884 228,782,179 1,557 1,557 3,886,348 105,498 105,498 1,714,610 3,817,909 1,260,035 7,900,691 124,593,858 - - - 39,333,410 79,325,856 1,980,606 116,707 413,594 3,423,685 (Rupees in '000) (15,652,130) 84,790,572 - 6,722,977 75,928,687 - 892,230 1,246,678 69,138,442 - - - 19,670,396 45,633,251 3,569,240 - 265,555 - 48,313,993 1,886,810 1,886,810 - 50,200,803 14,156,643 7,682,243 28,361,917 - Annual Report 2019 Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years 30%30% 30%10% Over 1 to 2 Years When an asset or liability does not have any contractual maturity date, the period in which these are assumed to mature has been taken as the expected date of maturity. Bank regularly conducts an objective and systematic behavioral study using regression analysis technique to ascertain the maturity of its noncontractual assets and liabilities. Core and non-core parts of the non-contractual assets and liabilities are segregated through the behavioral study. Non Core part is placed among the short term maturity buckets i.e. up to 1 Year based on the model results, whereas core part is distributed among the longer terms buckets based on the discussion and decision by the ALCO. Following percentages are used to distribute the core assets and liabilities among longer term buckets: Share capital 11,850,600 Reserves 74,147,981 Surplus on revaluation of assets 9,747,104 Unappropriated profit 53,532,044 Net assets 15,699,280 182,112,138 75,813,914 - 8,960 30,563,112 - 8,445,473 79,990,052 779 26,102 4,939,989 15,699,280 216,018,886 1,049,037,615 3,891,019 4,809,077 62,673,355 Bills payable Borrowings Deposits and other accounts Subordinated debt Deferred tax liabilities Other liabilities 78,152,291 103,174,597 11,878,975 34,474,890 467,589,102 91,612,532 268,335 42,786 259,727 13,104,835 1,501,406,961 722,405,779 185,929,862 Liabilities 103,174,597 11,878,975 35,106,241 749,368,738 503,581,323 40,811,956 630,141 3,276,900 53,578,090 - - - 38,456,660 36,005,234 805,007 128,358 605,792 2,151,240 Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets - - 631,351 114,932,982 51,731,662 536,671 85,572 311,696 17,699,928 Assets Upto 1 Over 1 to Over 3 to Over 6 Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2019 273
  276. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 45.5 Derivative Risk Most business clients have either interest rate exposures arising from debt financing or currency exposures arising out of commercial transactions from import and export of goods. Businesses face the risk of sudden movements in interest rates or foreign exchange rates that may adversely affect their profitability. MCB Bank provides solutions to this problem through its derivatives desk in major types of derivative instruments i.e.; forwards, futures, swaps and options. As an Authorized Derivative Dealer (ADD), MCB is an active participant in Derivative market and has flexibility in providing a broad range of derivatives products covering both hedging and market making to satisfy customers’ needs. As an ADD, the bank offers derivative products which are permitted under the Financial Derivative Business Regulations (FDBR) or as permitted by the State Bank of Pakistan. Before executing Derivative transactions, the bank ensures that the clients understand the risk and reward associated with the derivative being offered. Derivative transactions are executed with appropriate clients only. 274 Risk management activities take place at the following different levels. Strategic Level: By senior management Assets and Liabilities Management Committee (ALCO), Management Credit and Risk Committee (MC&RC) 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 Bankwide basis. The Board provides the overall limits/thresholds for derivatives business. Macro Level By Treasury and FX Group and Risk Management Group, responsible for policy formulation, procedure development and implementation, monitoring and reporting. Micro Level: Treasury Derivatives and Structured Product Desk where risks are actually created and Treasury Operations for settlements of the transactions. Derivative Risk Management caters the following risks:- Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. In line with SBP’s regulatory guidelines, Bank hedges backto-back all option transactions with other financial institutions. Bank minimizes the exchange rate risk on its Cross Currency Swap Portfolio by hedging the exposure in interbank market. Bank also manages interest rate risk on its Interest Rate Derivatives and Cross Currency Swaps through various sensitivity limits approved by ALCO. Marked to market positions and sensitivity of the derivatives transactions are monitored on regular basis. All individual deals are approved at the appropriate level of authority after analyzing the risk and benefits associated with the deals. Credit risk is a probable risk of loss resulting from customer’s inability to meet contractual obligation that may have adverse impact on Bank’s profitability. Bank manages the risk by setting policies and limits for counterparty based on a pre-defined criteria linked with financial health of the customer. The exposure of each counterparty is monitored by Risk Management Function of the Bank on daily basis. Considering small Derivative portfolio, bank is not exposed to any liquidity risk. However; Bank manages its liquidity risk through Bank’s Liquidity Risk Policy which is defined in relevant Liquidity Risk Section. Bank has adequate system and controls for smooth execution of derivative transactions. Transactions are executed in line with well defined accounting and operational aspects to mitigate the operational risk. Policies and control functions are regularly reviewed on periodic basis. The Bank uses a third party’s Super Derivative System which provides front end sales and structuring capabilities, end to Unconsolidated Financial Statements
  277. Annual Report 2019 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2019 end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. 46 The Bank uses a third party’s Super Derivative System which provides front end sales and structuring capabilities, end to end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. Due to thin liquidity in the derivative market, interest rate derivatives are not actively used to manage/alter the interest rate risk profile of the bank. Accounting policy has been disclosed in the note 5. EVENTS AFTER THE REPORTING DATE The Board of Directors in its meeting held on February 04, 2020 has announced a final cash dividend in respect of the year ended December 31, 2019 of Rs. 5.00 per share (2018: Rs. 4.00 per share). These unconsolidated financial statements for the year ended December 31, 2019 do not include the effect of these appropriations which will be accounted for subsequent to the year end. 47GENERAL 48 Figures have been rounded off to the nearest thousand of rupees unless otherwise stated. DATE OF AUTHORIZATION FOR ISSUE These unconsolidated financial statements were authorized for issue by the Board of Directors of the Bank in their meeting held on February 04, 2020. Imran Maqbool President/Chief Executive Hammad Khalid Chief Financial Officer Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director Annual Report 2019 275
  278. 276 Name and address of the borrower Taj Muhammad /Faiz Muhammad House No. 379 B-III, Mohallah Gariban Bahawalpur. Faiz Muhammad 11 Bund Road, Near Dravre Gate, Bahawalpur Shahid & Co. Adda Hafiz Wala, Shujaabad Road, District Multan. Pigma Motors 84-Mecleod Road, Lahore Imran Knitwear Pvt. Ltd C-305, 3rd Floor, City Tower, Main Bulevard Gulberg II Lahore Saleem Flour Mills Old Gandam Mandi, Haji Pura, Sialkot Nasir Nazir Chatha Verpal Chattha, Tehsil Wazirabad, Gujranwala Muhammad Tanveer Jalal Pur Raod, Hafizabad. Irfan Siddique Moh. Bilal Park, Dhoop Sari, Tehsil Kamoke District Gujranwala Shamas & Co. Villaga Jhandwala, Bashmula Notheen, P.O Sukheke, Tehsil Pindi Bhattian District Hafizabad. Sandhu Traders Mianwali Bangla, Tehsil Daska District Sialkot. Ellahi Auto Motives Jinnah Road Gujrat 1 2 3 4 5 6 7 8 9 10 11 12 Domestic Sr. No. 31202-1505854-7 31202-2826488-1 31202-2826488-1 36301-3000887-7 35202-9213664-5 35202-0129760-7 35202-8770360-9 35202-2638843-3 35202-2830980-5 35202-6638688-4 34603-0432610-5 34104-2285988-5 34301-4997262-1 34102-9770740-5 34302-1228620-5 34101-2700687-7 34201-0346189-3 Faiz Muhammad Sadiq Hussain Abdul Hameed Khan Sabir Ali (Deceased) Imran Yousaf Nouman Yousaf Zeeshan Yousaf Sarwat Yousaf Muhammad Saleem Butt Nasir Nazir Chattha Muhammad Tanveer Irfan Siddique Shamas Ul Hassan Muhammad Shahbaz Azhar Iqbal NIC No. Taj Muhammad Faiz Muhammad Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Muhammad Hussain Ghulam Rasool Battay Khan Muhammad Siddique Muhammad Rafiq Muhammad Nazir Chattha Muhamamd Sharif Butt Muhammad Yousaf Muhammad Yousaf Muhammad Yousaf Muhammad Yousaf Akoza Khan Ch. Muhammad Ashiq Haji Allah Ditta Jan Muhammad Jan Muhammad Jan Muhammad Father's /Husband's name – – – – – – 11,052 1,212 566 529 1,142 673 11,126 3,811 – – 9,781 1,247 1,080 1,561 Interest / mark up 8,175 – – – Principal 57 67 67 43 42 31 60 20 17 57 50 67 Others 11,109 1,279 633 572 1,184 704 11,186 3,831 17,973 1,304 1,130 1,628 Total Outstanding liabilities at beginning of year – – – – – – – – 8,175 – – – Principal Written off 11,052 1,212 566 529 1,142 673 11,126 3,811 9,781 1,247 1,080 1,561 Interest/ Markup Written off/ waived 57 67 67 43 42 31 60 20 17 57 50 67 Other Fin. Reliefs Provided 11,109 1,279 633 572 1,184 704 11,186 3,831 17,973 1,304 1,130 1,628 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  279. Name and address of the borrower Afzal Naveed Gill Petroleum Chak 274 /RB, Chema Colony, Faisalabad Asghar Ali Petroleum Service Chak 373, Samundari Faisalabad Road, Khaldi Amir Hafeez House No. 645-P, Street No. 5, Saddar Bazar, Mohallah Mansoor Abad, Faisalabad. Zafar Iqbal & Co. Malik Muzaffar Street, Muslim Bazaar, Mianwali Allah Hoo Traders Rana House, Police Station Ahmedpur Sial, Mohallah Jamia Masjid, Ahmed Pur Sial. Ladar Mass House # 917, Sadar Bazar, Ward 4, Sialkot. Sheikhupura Karachi Auto Store 15 Civil Lines, Sheikhupura Shahid Screen Printer Mauza Machake Sandhuan, Dakhana Mandialla Tegga, Tahsil & District, Gujranwala Nadeem Zafar House # 366-A, EME Society, Multan Road, Lahore Ammad Hassan House situated at AlMashriq Street, Bhimber Road, Near ABL Nanwan Sio, Madowala Tehsil District Gujrat. Mustafa & Sons Enterprises Suit No.1 Bhatti Arcade, 2nd Floor, Model Town Link Road Lahore. 13 14 15 16 17 18 19 20 21 22 23 Domestic Sr. No. 33100-9403586-7 38302-4435789-3 33100-6330730-1 34603-5661981-9 35404-5390246-7 34101-2652152-1 35202-2903329-5 34201-6250280-7 Amir Hafeez Zafar Iqbal Khan Shahbaz Ahmed Muhammad Arfeen Shah Nawaz Riaz Shahid Iqbal Nadeem Zafar Ammad Hassan 35202-0108005-7 35202-2407381-2 33100-1019725-1 Afzal Naveed Badar Mustafa Bhatti Huma Badar 33100-1019723-3 NIC No. Sajjad Asghar Gill Name Name of individuals/ partners/ directors Ghulam Mustafa Bhatti Badar Mustafa Bhatti Ch Muhammad Malik Zafar Ali Muhammad Ashiq` Riaz Ahmad Sheikh Ahmad ud Din Ijaz Ahmed Sardar Khan Abdul Hafeez Ch.Asghar Ali Gill Ch.Asghar Ali Gill Father's /Husband's name – – – – – – – – – – – Principal 13,737 501 1,981 1,021 1,617 533 1,431 1,151 1,324 830 927 Interest / mark up 67 45 – – 17 – – 37 – 57 60 Others 13,804 546 1,981 1,021 1,634 533 1,431 1,188 1,324 887 987 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 13,737 501 1,981 1,021 1,617 533 1,431 1,151 1,324 830 927 Interest/ Markup Written off/ waived 67 45 – – 17 – – 37 – 57 60 Other Fin. Reliefs Provided 13,804 546 1,981 1,021 1,634 533 1,431 1,188 1,324 887 987 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 277
  280. 278 Name and address of the borrower Phoenix Metalware Industries Toorabad Daska Road , Sialkot Umer Ashfaq Ice Factory Zam Zam Colony Garh Morh Samundari Jahangir Bhatti 27-A, Gulistan Colony No. 1, Faisalabad. Naveed Weaving Factory Industrial Area Street No.03, Phata Stop Samundari Road Faisalabad. Hyundai Chenab Motors East Canal Road Faisalabad. Zantac Enterprises 1- Suit No. 711, 7th Floor, Saima Trade Tower, I.I Chundrigarh Road, Karachi. 2- Flat # 4, 2nd Floor, 15th Commercial Street, Plot # 31-C, Phase-II, Extension DHA, Karachi Alif Engineering House # 2/D-I/15, Nazimabad, Karachi Asim Irshad Kashif Park, St # 1, Sheikhupura. Moon Corporation House situated at Race Course Road, Allah Buksh Colony, Street No 2, Gujranwala Abdul Hameed and Sons Village Thatha Gondal, P.O Mangat Oncha, Hafizabad. Ehsan Ullah and Co. Mouza Pelow Tehsil & Distt Hafizabad 24 25 26 27 28 29 30 31 32 33 34 Domestic Sr. No. 34603-3405569-6 34603-1726845-2 33105-7932843-7 33100-0706478-9 33100-0972026-5 33100-0657693-9 33100-0609369-8 42201-8910089-3 42101-1720973-1 35404-6029816-5 34101-1869674-5 34301-8618115-5 34301-5484144-1 Ashfaq Ahmed Jahangir Faisal Naveed Mukhtar Muhamamd Bilal Tahir Naheed Firdos Junaid Ahmed Khan Haseen Khan Asim Irshad Amjad Saeed Khan Rana Muhammad Khalil Ehsan Ullah NIC No. Shahnaz Akther Uzma Baig Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Nasar Ullah Abdul Hameed Abdul Majeed Khan Muhammad Irshad Muhammad Ahmed Khan Zubair Ahmed Muhammad Tahir Khan Muhammad Tahir Khan Mukhtar Ahmed Bashrat Ali Bhatti Abdul Majeed Shaheen Baig Saleem Baig Father's /Husband's name 1,257 – 3,985 – – – – – 3,528 – – Principal 1,097 4,821 2,794 1,896 7,785 1,571 756 8,215 2,081 1,769 27,993 Interest / mark up 17 452 75 – 837 33 – 60 116 67 29 Others 2,371 5,273 6,854 1,896 8,622 1,604 756 8,275 5,725 1,836 28,022 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 1,074 4,821 2,693 1,896 7,785 1,571 756 8,215 2,081 1,769 27,993 Interest/ Markup Written off/ waived 17 452 75 – 837 33 – 60 116 67 29 Other Fin. Reliefs Provided 1,091 5,273 2,768 1,896 8,622 1,604 756 8,275 2,197 1,836 28,022 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  281. Name and address of the borrower GOGO Med Pvt Ltd 22-A , Small Industrial Estate, Shahbpura Road, Sialkot Zilfiqar Surgical Pvt Ltd Abdul Ghafoor Tahir (i) House No. 10, St No. 01, Khayaban-eFaisal, Airport Link Road, Rawalpindi (ii) Gali No. 02, House No. B1-952, Mohalla Muslim Town Rawalpindi Abdul Wahab Rice Mills Goth Abad, Lakha Post, ADC Workshop, Tehsil & District Sukkur Fazal Industries Plot No. 1-D1 & D3, Street 9/1, Sector 16-B, North Karachi Industrial Area, Karachi. Kathuria Iron & Steel Shop No. 09, Al-Hamd Market, Baba-e-Urdu Road, Ranchore Quarters, Karachi. Ali Brothers 1-House # A-100, Block 15, Gulistan-e-Johar, Karachi 2-House # 18/18, Sector 11-F, New Karachi, Karachi Bovichic Shazia Rabbani House # SB-58, Block “K”, North Nazimabad, Karachi 35 36 37 38 39 40 41 42 Domestic Sr. No. 37405-0466820-5 45504-0144679-1 42101-1638301-9 42301-3752165-9 42201-8011415-7 42101-9508864-1 Abdul Ghafoor Tahir Abdul Wahab Maqsood Hussain Asad Kathuria Abdul Rashid Abdul Ghafoor 42101-1235406-8 34603-2337181-1 34603-4779811-7 34603-2337169-7 34603-2337174-9 34603-2337167-9 Zulfiqar Ahmed Naseer Ahmed Munir Ahmed Majid Zulfiqar Shabbir Ahmed Shazia Rabbani 34603-2337169-7 34603-2337181-1 34603-2337167-9 34603-2337174-9 NIC No. Munir Ahmad Zulfiqar Ahmed Shabbir Ahmed Majid Zulfiqar Name Name of individuals/ partners/ directors Waliullah Malik Ali Muhammad Ali Muhammad Chaudhary Muhammad Naqi Fazal Hussain Faqeer Muhammad Abdul Wahid Muhammad Hanif Muhammad Hanif Muhammad Hanif Zulfiqar Ahmed Muhammad Hanif Muhammad Hanif Muhammad Hanif Muhammad Hanif Zulfiqar Ahmed Father's /Husband's name – 18 – 600 – – – – Principal 546 1,258 579 3,768 886 2,188 1,626 3,386 Interest / mark up Others – – – – – – – – 546 1,276 579 4,368 886 2,188 1,626 3,386 Total Outstanding liabilities at beginning of year – – – – – – – – Principal Written off 546 1,233 579 3,768 886 2,188 1,626 3,386 Interest/ Markup Written off/ waived – – – – – – – – Other Fin. Reliefs Provided 546 1,233 579 3,768 886 2,188 1,626 3,386 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 279
  282. 280 Name and address of the borrower Engineering Geo 1 . Bunglow # R-13, Aramish Bungalows, Block # 19, KDA Scheme # 36, Gulshen-e-Jauhar, Karachi. 2. Flat # C-407, 4th Floor, Savana City, Sub-Plot # C-7 of Plot # 1, Survey # 201, 20 & 203, Block 13-D/III, Gulshan-e-Iqbal, Karachi Farjan Khan & Muhammad Aslam Khan House # C-82, Block II, Federal B. Area, Karachi Kinza Fashion Private Limited Plot No. 11, Sector 6-E, Orangi Town Karachi Muhammad Bux C.S. # 681, 682 & 683, Ward “A”, Bhittai Mohalla, Gharri Road, Taluka Mehar, District Dadu Muhammad Farooq Flat # 302, 2nd Floor, Noor Homes, Sub-Plot # A-2, Plot # 34-A/410, Block "B", KCHSL, Karachi Amin Rice Mills 36-km, Multan Road, Near Manga High School, Mouza Baath, Tehsil Lahore City and District, Lahore. Muhammad Amin Commision Shop 36-km, Multan Road, Near Manga High School, Mouza Baath, Tehsil Lahore City and District, Lahore. Umer Trading Coroporation 22-A, Pir Ghazi Road. Ichra, Lahore 43 44 45 46 47 48 49 50 Domestic Sr. No. 42301-7121686-3 42201-0753075-3 42201-1339025-2 42101-2861071-5 42101-24509727 42401-2222735-1 42101-1902867-1 40401-2073176-1 41205-8964657-9 42201-0515762-9 35202-6107922-7 35202-9384022-1 35202-2323667-7 35202-6107922-7 35202-0461905-3 Farjan Khan Muhammad Aslam Khan Muhammad Tahir Zahir Ahmed Muhammad Amir Muhammad Bux Muhammad Farooq Muhammad Amin Muhammad Munir Muhammad Naeem Muhammad Amin Muhammad Waseem NIC No. Muhammad Ayaz Khan Mansoor Ahmed Rehana Adil Akhtar Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Sheikh Muhammad Tufail Muhammad Tufail Muhammad Tufail Muhammad Tufail Muhammad Tufail Abdul Sattar Muhammad Uris Buriro Muhammad Hussain Abdul Shakoor Ahmed NA Muhammad Aslam Khan Abdul Latif Khan Muhammad Ilyas Khan Ghulam Rasool Muhammad Adil Akhtar Father's /Husband's name – – – – – – – – Principal 1,241 5,587 1,577 1,242 637 4,879 4,705 4,643 Interest / mark up 214 204 181 – 40 35 216 34 Others 1,455 5,791 1,758 1,242 677 4,914 4,921 4,677 Total Outstanding liabilities at beginning of year – – – – – – – – Principal Written off 1,241 5,587 1,577 1,242 637 4,879 4,705 4,643 Interest/ Markup Written off/ waived 214 204 181 – 40 35 216 34 Other Fin. Reliefs Provided 1,455 5,791 1,758 1,242 677 4,914 4,921 4,677 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  283. Name and address of the borrower Sharah Tameer Traders Int Street No . 04, Sultanpura Hafizabad Road Gujranwala Muhammad Sohail Ikhlaq House# 122, Canal Bank Housing Society, Lahore Muhammad Qasim Butt & Samina Qasim House # 60, Block-J, M. A Johar Town, Lahore Muhammad Arjumand Farooq House # 355, Block EE, Phase 4, DHA, Lahore Shahid Ajmal Khan House # 16 Al-Falah Town Lahore Sohail Nazir House No 282, Block-1, Sector C-1, Township Lahore Ashraf Ali House # 175, Mughlia park, Maqbara Mor, Shahdra. Liaqat Ali Gujranwala Road District Hafizabad. Rehmat Group of Pakistan Railway Road Pasrur, District Sialkot. Sharif Traders Village Lohara, Tehsil Shakarghar District Narowala Gujar Rice Mills Village Lohara, Tehsil Shakarghar District Narowala Atta Ul Mustafa & Brothers Qadari House, Gousia Street , Mohallah Ganj Pura, Pindi Bhattian District Hafizabad 51 52 53 54 55 56 57 58 59 60 61 62 Domestic Sr. No. 34101-5581699-5 34101-2599484-5 34101-2599959-5 35202-8701430-3 35202-4959314-7 35202-5707310-2 35201-2684055-5 35201-5495986-5 35202-1321888-3 35202-1902966-9 34301-0257093-9 34602-4456903-1 34602-8182189-1 34602-8582938-9 34502-2210255-1 34502-1615749-9 34302-2378376-3 Muhammad Sohail Ikhlaq Muhammad Qasim Butt Samina Qasim Muhammad Arjumand Farooq Shahid Ajmal Khan Sohail Nazir Muhammad Ashraf Liaqat Ali Ch. Amjad Ali Imtiaz Ahmed Bhatti Hafiz Ijaz Mehmood Bhatti Muhammad Sharif Muhammad Farooq Atta Ul Mustafa NIC No. Muhammad Asif Jamil Abdul Karim Muhammad Iqbal Javed Name Name of individuals/ partners/ directors Abdul Khaliq Qadari Muhammad Sharif Ahmad Din Ch. Rehmat Ali Ch. Rehmat Ali Ch. Rehmat Ali Ghulam Muhammad Ghulam Qadir Hafiz Nazir Ahmad Muhammad Ajmal Muhammad Shafi Muhammad Rafique Butt Muhammad Qasim Butt Muhammad Ikhlaq ch Qazi Abdul Karim Mian Hassam ud Din Qazi Abdul Karim Father's /Husband's name 1,000 185 791 – – 2,025 – 1,854 – – – – Principal 751 1,122 620 1,277 563 1,645 1,045 1,703 2,231 2,653 14,336 2,376 Interest / mark up 82 43 – 10 17 – 17 19 63 17 33 50 Others 1,833 1,350 1,411 1,287 580 3,670 1,062 3,576 2,294 2,670 14,369 2,426 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – Principal Written off 751 1,107 611 1,277 563 1,310 1,045 657 2,231 2,653 14,336 2,376 Interest/ Markup Written off/ waived 82 43 – 10 17 – 17 19 63 17 33 50 Other Fin. Reliefs Provided 833 1,150 611 1,287 580 1,310 1,062 676 2,294 2,670 14,369 2,426 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 281
  284. 282 Name and address of the borrower Agbro Feeds 7-A , Kashmir Gate Plaza, Muree Road, Rawalpindi Agbro Chicks 7-A, Kashmir Gate Plaza, Muree Road, Rawalpindi Noorani Traders House No. 06, Madina Street, Gulbahar No. 03, Peshawar Bahoo Hardware & Paint Store Rail Bazar near MCB Branch Jaranwala. Fateh Muhammad & Sons Buchiana Tehsil Jaranwala District Faisalabad. Matloob Hussain Grain Market Faisalabad Shakeel Weaving Factory House No. P-326- Al Najaf Colony Faisalabad Sohail Weaving factory House No. P-326- Al Najaf Colony Faisalabad R.C.C Builders A-48, Main Samugli Road, Samungli Town, Quetta. Muhammad Tauseef House # 8, Row # 6, Sub-Block "C", Block III, Nazimabad Karachi Anwaar Ahmed Sheikh House# 457-Block-Q, Model Town Extension, Lahore Tahir Mehmood Butt House # 7, Block-J/3, Johar Town near Expo center Lahore Junaid & Co Shop # 3 New Grain Market Bahawalpur. Muhammad Farooq Bahawalpur Road Makhdoom Aali Lodhron. 63 64 65 66 67 68 69 70 71 72 73 74 75 76 Domestic Sr. No. 37405-5354092-7 37405-5354092-7 17301-1382718-9 33104-3383983-1 33104-8214221-7 33104-3514725-3 33104-3513775-3 33104-6790326-1 33100-0762256-5 33100-0683162-4 33100-8733550-5 61101-2949038-3 42101-5294928-7 35202-9101286-9 35201-3034098-7 36203-1822004-7 36201-2835915-9 Ali Afzal Sial Abdul Ahad Noorani Fazal Karim Khalid Mehmood Sadaqat Ali Liaqat Ali Nazakat Ali Matloob Hussain Shakeel Asghar Sohail Asghar Abdul Rahim Shah Muhammad Tauseef Anwaar Ahmed Sheikh Tahir Mehmood Butt Muhammad Abdullah Muhammad Farooq NIC No. Ali Afzal Sial Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Lal Khan Abdul Rehman Bashir Ahmed Haji Fazal Ahmed Saleem Khan Abdul Karim Asghar Ali Tabbasum Asghar Ali Tabbasum Talib Hussain Fateh Ali Fateh Ali Fateh Ali Muhammad Din Fazal Karim Haji Muhammad Arif Noorani Yar Baig Yar Baig Father's /Husband's name – – – – – – 75 75 – 1,152 – 854 – – Principal 1,330 662 5,328 2,192 2,390 1,349 1,198 1,201 1,259 627 661 4,003 1,933 2,237 Interest / mark up 50 52 18 17 256 163 25 25 17 43 25 - 207 207 Others 1,380 714 5,346 2,209 2,646 1,512 1,298 1,301 1,276 1,822 686 4,857 2,140 2,444 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – – – Principal Written off 1,330 662 5,328 2,192 2,390 1,349 1,199 1,201 1,259 620 661 3,886 1,933 2,237 Interest/ Markup Written off/ waived 50 52 18 17 256 163 25 25 17 43 25 – 207 207 Other Fin. Reliefs Provided 1,380 714 5,346 2,209 2,646 1,512 1,224 1,226 1,276 663 686 3,886 2,140 2,444 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  285. Name and address of the borrower Faisalbad Petroleum Services 1- Burewala Road Tehsil & District Vehari. 2-House No. 118, Street No. 01, Ashrafi Colony, Vehari. Bismillah Agencies Burewala House No.94-11 Block I Burewala. Awais Traders 1- Shop # 80/G Ghallah Mandi Burewala district Vehari, Burewala. 2- Ghumman House, Mohallah Yousafabad, Burewala Vehari Mahar Spray Center Quaid-e-Azam Road Kehror Pacca Lodhran. Keezia Poultry Farm Chak # 21 7/EB Gaggo Mandi. Muhammad Aslam Jetha Bhutta Shop Shahi Road Jehta Bhutta Rahim Yar Khan. Faiz Eye Centre House No. 83, Shadman II Lahore Qaiser Bashir H No. 198-A Faisal Town Lahore Faisal Javed & Musarrat Begum House # 71/1, 14th Lane, Khayaban-e-Behria, Phase-VII, DHA, Karachi Humayun & Company Ammar Road, Link Muslim Road, Near Jamia Faiz Rasool, Gujranwala. Inshallah Poultry Concern Chak No. 48, NB Post Office Same, Sargodha 77 78 79 80 81 82 83 84 85 86 87 Domestic Sr. No. 36601-0329189-1 31301-5813417-5 31301-3141281-3 38403-5867304-5 42301-3459401-1 42101-2116642-8 Raja Mazhar Iqbal Muhammad Aslam Dr. Faiz Rasool Choudry Qaiser Basheer Faisal Javed Musarrat Begum 38403-2243395-9 36202-2594109-5 36202-3213447-9 Abdul Razzaq Abdul Hamid Muhammad Naseem Akhtar 36601-1436875-1 Awais Yousaf 34101-8751265-3 36601-0194406-9 Muhammad Ilyas Humayun Faiz Ul Rasool 36603-7189356-9 NIC No. Ali Ikram Name Name of individuals/ partners/ directors Abdul Majeed Muhammad Shafi Javed Safi Vohra Javed Safi Vohra Bashir Ahmed Abdul Khaliq Muhammad Rafiq Muhammad Ilyas Imam Buksh Imam Buksh Khalid Maqsood Sharif Muhammad Ikram Ul Haq Father's /Husband's name 2,389 945 1,819 7,417 – – – – – – – Principal 794 830 5,835 991 5,994 577 1,059 465 499 783 1,010 Interest / mark up 64 23 34 340 90 34 45 100 35 47 21 Others 3,247 1,798 7,688 8,748 6,084 611 1,104 565 534 830 1,031 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 583 830 4,749 991 5,994 577 1,059 465 499 783 1,010 Interest/ Markup Written off/ waived 64 23 34 340 90 34 45 100 35 47 21 Other Fin. Reliefs Provided 647 853 4,783 1,331 6,084 611 1,104 565 534 830 1,031 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 283
  286. 284 Name and address of the borrower Rehman Traders P-114 Ghala Mandi Tandlianwala Faisalabad . Muhammad Zahoor & Zafar Iqbal Saadat Biscuit Industry, Factory Area, Mohini Road, Sargodha Munir Hussain & Iftikhar Ahmed House No.2-C, Street No.42, Jameel Town ,Liaqat Chowk, Mouza Saidpure, Tehsil District Lahore. Uppal Brothers Rice Mills Kot Radha Kishen, Raiwind Chohan Construction Company 466K Model Town, Lahore. Jehangir Rice Traders Pindori PO Kirto, Sheikhupura M.N Nadeem Brothers Main Bazaar Sohawari Mughalpura, Lahore. Qazi Enterprises House # 99 Qasim Block Naqshband Colony Rasheedabad, Multan MRS Enterprises Plot 6 street 8 Block U, New Multan Colony Multan Malik Ghulam Abbas 1. House No. 145, Trust Colony, Bahawalpur 2. Suiwala Post Office Qureshi Wala Sui Wala Post Office Lodhran Faizan-e-Madina Trading Co Azeem Lodge, House No. 13, Street No. 5, New Multan Colony Multan 88 89 90 91 92 93 94 95 96 97 98 Domestic Sr. No. 33106-0343019-1 38403-1694420-3 35202-7366680-1 35401-1363534-3 35202-2348240-9 35202-2812561-5 35202-2865946-5 35401-4977041-5 35201-1645259-5 35201-8305028-7 35201-2655045-9 36302-0451380-7 36302-4820682-9 36302-0286705-3 31202-9377767-5 36302-2285937-6 Muhammad Zahoor Munir Hussain Iftikhar Ahmed Muhammad Afzal Arshad Ali Muhammad Riaz Chohan Muhammad Jahangir Muhammad Yaqoob Muhammad Nadeem Muhammad Nisar Masroor Mehmood Qureshi Syed Mujahid Abbas Zaidi Rizwan Ul Haq Qureshi Malik Ghulam Abbas Asghar Ali Khan NIC No. Rasheed Khan Pathan Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Muhammad Amin Malik Ghulam Qadir Syed Akhlaq Hussain Zaidi Mian Sharuddin Hashmi. Qazi Nasir UD Deen Qureshi Muhammad Ibrahim Muhammad Yaqoob Muhammad Yaqoob Allah Ditta Muhammad Jameel Chohan Muhammad Ali Muhammad Ali Muhammad Ramzan Manzoor Ahmed Ghulam Gelani Sharif Khan Father's /Husband's name – – 510 – – – – – – 1,899 929 Principal 761 694 1,814 498 974 1,451 3,778 11,233 546 789 528 Interest / mark up 17 17 50 41 33 – 137 19 41 70 32 Others 778 711 2,374 539 1,007 1,451 3,915 11,252 587 2,758 1,489 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 761 694 1,814 498 974 1,451 3,778 11,233 546 639 517 Interest/ Markup Written off/ waived 17 17 50 41 33 – 137 19 41 70 32 Other Fin. Reliefs Provided 778 711 1,864 539 1,007 1,451 3,915 11,252 587 709 549 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  287. Name and address of the borrower Asim Brothers 1 . Ward # 02, Mohallah Bhatti, Allahabad Tehsil Liaquatpur. 2. Main Bazar, Allah Abad, Rahim Yar Khan Muhammad Sharif Khan 1. H No. 123-P Burewala. 2. H No. 6, Amjad Town, Burewala Rashid Ahmad Chah Waheed Wala Mouza Dera Gharbi Tehsil & District D.G Khan. Athar Ahmed Quereshi Muhallah Railway Colony, Mughalpura Station, Block 13, Lahore Iftikhar Traders Mouza Kolaar, PO Kot Waris, Tehsil Wazirabad, District Gujranwala Space Builders/Estate Agent Mohallah Mola Dad Colony, Gujrat Falak Sher Anzar Mehar Street Maher Saleem Wali, Mohallah BakhhtaWala, Gujranwala Muhammad Nawaz Muhalla Bahawalpura, Kassoki Road, District Hafizabad. Muhammad Asad Naseer House No-90-91, Hassan Street Canal Park Besides Kamal House East Canal Road Faisalabad. Muhammad Abdullah & Muhammad Akbar House # 991/1, 13th Lane, , Phase-VII, DHA, Karachi 99 100 101 102 103 104 105 106 107 108 Domestic Sr. No. 32102-5968852-5 35201-0964836-7 34104-2350831-1 34401-7201009-1 34101-5830126-5 34301-1764731-3 33100-2904569-3 Rashid Ahmad Athar Ahmed Quereshi Iftikhar Ahmad Saleem Nasir Falak Sher Anzar Mehar Muhammad Nawaz Asad Naseer 42301-6915230-9 42301-4608970-1 36601-1582898-7 Muhammad Sharif Khan Muhammad Abdullah Muhammad Akbar 31302-2122517-5 NIC No. Muhammad Asim Bhatti Name Name of individuals/ partners/ directors Muhammad Akbar Haji Muhammad Sadiq Naseer Ahmed Manzoor Ahmad Muhammad Younus Hatim Ali Muhammad Maalik Muhammad Sharif Qadir Buksh Gul Khan Abdul Malik Bhatti Father's /Husband's name 14,995 – 999 1,045 491 189 524 – – – Principal 7,077 7,303 510 570 1,341 586 499 545 1,155 535 Interest / mark up 35 67 33 77 17 37 16 36 44 47 Others 22,107 7,370 1,542 1,692 1,849 812 1,039 581 1,199 582 Total Outstanding liabilities at beginning of year – – – – – – – – – – Principal Written off 7,077 7,303 528 579 1,349 579 493 545 1,155 535 Interest/ Markup Written off/ waived 35 67 33 77 17 37 16 36 44 47 Other Fin. Reliefs Provided 7,112 7,370 561 656 1,366 616 509 581 1,199 582 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 285
  288. 286 Name and address of the borrower Malik Yousaf Falooda Shop Main Wahdat road , Lahore Rubbani Rice Mills Circular Road, Daska District Sialkot Ittefaq Textile Mills Limited 48Km, Multan Road, Bhai Phero Agro Leads International Chowk by-pass 1 KM Bahawalpur Road Multan. Rauf Corporation House # 14, Mohallah Housing scheme block V Burewala District Vehari. Friends Corporation Hasil Pur Road, near General Bus Stand Chistian. Ahsan Corporation House # 39 Baldia colony Block G Tehsil Chistian District Bahawalnagar. Ayyaz Oil Company Farid Town Road,House # 508/3 Block 7 Sahiwal. Muhammad Dilshad Akhtar Basti Malook Dunyapur Road Multan. Sheikh Paper Mart Out side Bohar Gate, Paper Market Multan. Muhammad Adil House#8, Street 12, Main Bazar Mali pura Lahore. Azmat Nishan Ajmi House # 149-A, Valancia Town, Lahore 109 110 111 112 113 114 115 116 117 118 119 120 Domestic Sr. No. 35202-0674271-3 34601-0721805-7 34601-9109252-9 34601-2935906-9 34601-4709823-9 35202-2913294-7 35202-0694312-9 35202-8823233-4 35202-0468551-8 35202-2707358-8 36302-8310973-1 36302-0490448-5 36601-3612784-5 31102-2459218-9 31102-0652057-1 31102-0652059-9 36502-9541227-5 36302-5981876-1 36302-0955466-5 36302-6193173-3 322-91-709680 35202-8274115-3 35202-2031079-9 Abdul Rauf Rabbani Naveed Asif Rabbani Nadeem Asif Rabbani Adeel Asif Rabbani Haroon Yousaf Aziz Muhammad Yusuf Aziz Kausar Yousaf Saira Farooq Ayesha Haroon Ashraf Ali Attique Mian Abdul Hameed Rauf Ul Gani Shoaib Toor Abdul Hameed Shahzad Faisal Hussain Muhammad Ayyaz Muhammad Dilshad Akhtar Sheikh Ansar Zahoor Sheikh Muhammad Naeem Sheikh Saeed Ahmad Muhammad Adil Azmat Nishan Ajmi NIC No. Muhammad Shafiq Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Qaise Ajmi Muhammad Fazil Sheikh Zahoor Ahmad Muhammad Farooq Muhammad Farooq Abdul Shakoor Ahmad Hassan Muhammad Shafi Abdul Hameed Shahzad Abdul Razzaq Abdul Gani – – – – – – – – – 974 5,188 1,676 732 808 958 1,367 557 2,823 417,120 – Muhammad Yousaf Aziz Abdul Aziz Mian Yousaf Aziz Farooq Pasha Haroon Yousaf Hakomat Ali Mian Sardar Ali 17,538 774 Interest / mark up – – Principal Abdul Rasheed Rabbani Abdul Rasheed Rabbani Abdul Rasheed Rabbani Abdul Rasheed Rabbani Muhammad Boota Father's /Husband's name – 16 17 85 50 62 17 15 68 185 87 47 Others 974 5,204 1,693 817 858 1,020 1,384 572 2,891 417,305 17,625 821 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – Principal Written off 974 5,188 1,676 732 808 958 1,367 557 2,823 417,120 17,538 774 Interest/ Markup Written off/ waived – 16 17 85 50 62 17 15 68 185 87 47 Other Fin. Reliefs Provided 974 5,204 1,693 817 858 1,020 1,384 572 2,891 417,305 17,625 821 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  289. Name and address of the borrower Tariq Mahmood House # 11, Nargis Block, Allama Iqbal Town, Lahore. Anum Fabrics 314-B-III, Johar Town Lahore PACE (PAKISTAN) Limited Rummy International Mughal Street Mohalla Shahab Pura District Sialkot. Timex International 747-B Satellite Town Gujranwala Warraich Commission Shop Chak Jano Kalan Tehsil Phalia District Mandi Bahuddin Chaneer Builders Mouza Shahpur, Rehmand Shaheed Road Gujrat. Sikandar Industry Nowshera Sansi Road, Gujranwala. Muhammad Sadiq Industries (Pvt.) Limited 12-KM Liberty town Sheikhupura Road Lahore Shazco Trader House # 353, Quaid Villa, Bahria Town, Karachi The Circuit Pvt Ltd F-78, Block-5, Kehkashan, Clifton, Karachi 7560, Pakistan Sufi Traders House # 296, 2C-I Township Lahore 121 122 123 124 125 126 127 128 129 130 131 132 Domestic Sr. No. 34101-1121264-1 34403-1847324-7 34201-6539259-5 34101-5183439-3 34101-7989841-9 35202-5908919-5 35202-2518150-3 35202-2781792-2 35202-8385516-1 42201-2187455-5 Asim Zahoor Muhammad Inayat Sarfraz Sarwar Shahbaz Amin Rana Sikandar Muhammad Arshad Muhammad Asad Farzana Arshad Fahad Arshad Syed Bilal Shah 35202-8002059-5 35202-2372387-5 3603-7223377-1 Ilyas Ahmed Bhatti Tasneem Ahmed Sufi Yasir Tasneem 35201-1566773-0 35201-7312405-1 35201-2124264-0 35201-4049045-6 42301-8974036-9 35201-4547644-5 35201-2053114-4 Aamna Taseer Shahbaz Ali Taseer Shehrbano Taseer Rema Husain Qureshi Kanwar Latafat Ali Khan Farhan Hasan Shabana Atta 42301-0327349-2 42301-4660337-1 35202-1484707-3 Sheikh Muhammad Abdullah Nighat Mir Azam Ali Imran Mir Azam Ali 35202-2936752-9 NIC No. Tariq Mahmood Name Name of individuals/ partners/ directors Sufi Nazeer Ahmed Tasneem Ahmed Sufi Imran Mir Azam Ali Mir Ahmed Ali Azmatullah Shah Muhammad Sadiq Muhammad Sadiq Muhammad Arshad Muhammad Arshad Muhammad Amin Laeeq Ur Rehman Ghulam Sarwar Taj Din Sardar Zahoor Ahmed Muammad Saeed Bhatti Salmaan Taseer (Late) Salmaan Taseer (Late) Amin Ellahi Sheikh Shehryar Ali Taseer Kanwar Latafat Ali Khan Malik Usman Hasan Atta Muhammad Ashraf Ali Mahmood Ahmad Chaudary Father's /Husband's name – – – – 1,000 – 885 – – 29,964 – – Principal 7,332 3,405 58,228 15,270 700 1,271 540 5,400 2,105 39,959 1,557 6,978 Interest / mark up 204 – – 67 42 – – – 66 – 17 17 Others 7,536 3,405 58,228 15,337 1,742 1,271 1,425 5,400 2,171 69,923 1,574 6,995 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – Principal Written off 7,332 3,405 58,228 15,270 623 1,271 534 5,400 2,105 39,959 1,557 6,978 Interest/ Markup Written off/ waived 204 – – 67 42 – – – 66 – 17 17 Other Fin. Reliefs Provided 7,536 3,405 58,228 15,337 665 1,271 534 5,400 2,171 39,959 1,574 6,995 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 287
  290. 288 Name and address of the borrower Jaguar Private Limited P-79 Sheikhupura Road Faisalabad Mirza Niaz Muhammad & Sons Plot No.3331, Harbance Pura Road, P.O.Taj Pura, Lahore Outlet (Pvt.) Ltd 248-XX, DHA, Lahore. Mobin khan 103-F, Model Town, Lahore Madina Oil House # 97, Mohallah Mistarian, Old Sabzi mandi, District Kasur. E.S Sons International Allama Iqbal Town, Defence Road, Sialkot Al-Qadir Paper Roll Print P Nawabanwala Road, Faisalabad Malik Zari Services Chowki More Kotla Moosa Khan Road Ahmed Pur East Bahawalpur Muhammad Younis Jahanian Chak No.113-R P.O SAME Jahanian. Liaquat Ali Gill Enterprises Rampur Road Jatoi. Arslan Traders 760-E Shah Rukne Alam Colony Multan SAWA AG Network 135/A Multan Road Sahiwal. Abdul Sattar Chak 451/E-B Laat Kariyan Wali Burewala. 133 134 135 136 137 138 139 140 141 142 143 144 145 Domestic Sr. No. 33100-7705265-3 33100-2732219-3 35201-4926404-6 33100-2101785-6 33100-5314979-0 35201-2381125-9 35201-9378404-1 35202-7880704-9 35202-9553494-8 35202-7363318-3 35101-7399260-5 34603-8383357-9 34603-8384402-9 33100-9919838-9 33100-6130624-5 31201-0355276-9 36101-2011559-5 32302-1711368-9 36302-5253731-1 36302-1773647-9 36502-9348308-1 36601-1548973-3 Mirza Naser Saeed Mirza Mazhar Saeed Muhammad Ahsan Naeem Asma Ahsan Mobin Khan Khalid Hussain Sultan Sarwar Rana Waqas Sarwar Rana Waheed Ahmad Buttar Zeeshan abbas Buttar Malik Ayyaz Hussain Muhammad Younis Liaquat Ali Gill Muhammad Asif Arshad Abu-Ul-Aas Ali Muhammad Saeed Akhtar Abdul Sattar NIC No. Naeem Ul Haq Asam Ul Haq  Sobia Kashwaha Iram Asim Shabiran Bibi Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Muhammad Sardar Din Muhammad Muhammad Arshad Karamat Ali Haji Inayat Ullah Muhammad Ali Muhammad Nawaz Hussain Ch. Shukar Din Ch. Shukar Din Muhammad Sarwar Rana Muhammad Sarwar Rana Rehmat Ali M. A. Azam Khan Ch. Muhammad Naeem Muhammad Ahsan Naeem Mirza Saeed Ahmed Mirza Saeed Ahmed Ch. Abdul Haleem Ch. Abdul Haleem Naeem Ul Haq Asam Ul Haq Ch. Abdul Haleem Father's /Husband's name – – – – – – 1,000 – – 2,090 – – – Principal 924 2,177 3,650 838 500 974 1,099 2,558 946 2,182 22,757 7,669 48,249 Interest / mark up 15 67 68 – 17 37 32 – 19 – 44 – 20 Others 939 2,244 3,718 838 517 1,011 2,131 2,558 965 4,272 22,801 7,669 48,269 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – – Principal Written off 924 2,177 3,650 838 500 974 1,118 2,558 946 2,199 22,757 7,669 48,249 Interest/ Markup Written off/ waived 15 67 68 – 17 37 32 – 19 – 44 – 20 Other Fin. Reliefs Provided 939 2,244 3,718 838 517 1,011 1,150 2,558 965 2,199 22,801 7,669 48,269 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  291. Name and address of the borrower Bashir Flour Mills Seetal Mari Budhala Road Multan . Data Zari Services Ghallah Mandi Bahawalpur. Ghousia Filling Station House No.798 Near Al Jeelan School Suraj Kund Road Multan Muhammad Afzal Kotla Mugh Lan Jampur. Khan Industrial & Medical Gases Bahawalpur Road Multan. Muhammad Hanif Raza House No. 19/B Fateh Sher Colony Sahiwal. Fateh Muhammad Khan Village Umer Khichi Mailsi District Vehari. Al-Sheikh Enterprises KLP Road Near Chowk Petrol Pump Sadiqbad Rahim Yar Khan. Zar Cotton Linkers 383 Housing Colony Arif Wala Pak Pattan. Javed Iqbal K Block Burewala. Ahmed Petroleum Services Officers Colony Rahim Yar Khan. Babar & Co. Chak No. 313/E.B Burewala District Vehari. Mohsin Farooq Cotton Ginners Distt. Rajanpur Muhalla Dera Malkan Wala PO Rajanpur Aasni. 146 147 148 149 150 151 152 153 154 155 156 157 158 Domestic Sr. No. 36302-0439822-9 36302-0439821-1 36302-0439802-1 36302-0439821-1 36302-0439810-3 31202-4275081-5 31202-2031991-7 36302-0928343-3 32402-5114560-7 36302-3478854-1 36502-4007434-1 36602-1968785-7 31304-3808491-7 36401-9835068-3 36601-8636398-9 31303-6585584-7 36603-2230792-7 32403-1631118-5 32403-1630242-3 32403-1630243-3 32403-1622674-9 Rana Abdul Majeed Muhammad Haneef Abdul Qayyum Muhammad Afzal Imran Khan Muhammad Hanif Raza Fateh Muhammad Khan Sheikh Sikandar Mehmood Siraj Ul Haq Rana Javed Iqbal Syed Muhammad Ahmed Sharif Muhammad Babar Ashraf Malik Abid Hussain Ghulam Mustafa Malik Riaz Ahmad Malik Sajid Hussain NIC No. Bashir Ahmad Shahid Bashir Arshad Bashir Raheel Bashir Mujahid Bashir Name Name of individuals/ partners/ directors Karim Bakhsh Muhammad Bakhsh Mohsin Muhammad Bakhsh Mohsin Karim Bakhsh Muhammad Ashraf Syed Muhammad Hussain Ghulam Mujtaba Rana Fazal Muhammad Khan Sheikh Allah Ditta. Haji Noor Muhammad Khan Muhammad Abdullah Asmat Ullah Khan Muhammad Saqdiq Abdul Ghaffar Ali Ahmed Khan Muhammad Ismail Rahmat Ullah Rahmat Ullah Rahmat Ullah Rahmat Ullah Rahmat Ullah Father's /Husband's name – – – – – – – – 2,994 – – – – Principal 1,872 598 774 797 650 1,604 598 742 5,740 890 992 980 2,713 Interest / mark up 67 60 56 16 40 84 17 30 17 40 17 – 67 Others 1,939 658 830 813 690 1,688 615 772 8,751 930 1,009 980 2,780 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – – Principal Written off 1,872 598 774 797 650 1,604 598 742 5,740 890 992 980 2,713 Interest/ Markup Written off/ waived 67 60 56 16 40 84 17 30 17 40 17 – 67 Other Fin. Reliefs Provided 1,939 658 830 813 690 1,688 615 772 5,757 930 1,009 980 2,780 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 289
  292. 290 Name and address of the borrower Madni Traders Railway Road Kot Mithan Sharif Tehsil & District Rajanpur Muhammad Ishaq Mouza Qambeer Chah Sandlian Wala Mailsi District Vehari. Zahid Niaz & Co. Ghallah Mandi Sadiqabad Rahim Yar Khan. Chaudhry Naeem Autos General Truck Stand Main Road Multan. Malik Muhammad Akmal Nazd Bismillah Cotton Factory Jin Pur P/o Khas Tehsil Liaqat Pur, District Rahim Yar Khan. Shadab Oil Products G.T Road Kot Addu, District Muzaffargarh Kot Addu. Muhammad Khalid House#274, Block No. 4, Sector A-II, Township Lahore Afshan Waheed House#252-M, Phase-I, DHA Lahore Hamid Riaz House#20, Street#46, Bashir Shah Street, Muhalla Chah Miran, Lahore Syed Muhammad Faisal Ahmed House No. 88, Sardar Street, Habibullah Road, Lahore Muhammad Ishaq Malik House No:6, near 58-K, Model Town, Lahore Atif Irfan Sheikh House#30-P, Model Town Exetension Lahore 159 160 161 162 163 164 165 166 167 168 169 170 Domestic Sr. No. 32403-1630243-3 36602-7921215-1 31304-4342202-7 360-65-319190 36302-9130221-3 31302-2161802-1 32303-2395363-1 35202-2722134-3 35201-1566810-2 35202-7833577-7 35202-0688674-5 35202-3013505-9 35202-9554587-5 Muhammad Ishaq Zahid Iqbal Niaz Muhammad Chaudhry Muhammad Naeem Muhammad Akmal Zulfiqar Ali Muhammad Khalid Afshan Waheed Hamid Riaz Syed Muhammad Faisal Ahmed Muhammad Ishaque Malik Atif Irfan Sheikh NIC No. Malik Riaz Ahmad Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Irfan Aslam Muhammad Akhlaq Malik Syed Muhammad Ahmed Muhammad Bashir Riaz Shahid Waheed Zia Ud Din Charigh -UD-Din Haji Hazoor Buksh Chaudhry Ghulam Muhammad Haji Niaz Muhammad Jan Muhammad Jan Muhammad Muhammad Bakhsh Father's /Husband's name – – – – – – – 799 – – – – Principal 3,334 1,262 1,866 2,756 856 1,071 606 478 4,197 1,443 1,340 848 Interest / mark up 215 17 49 19 125 19 35 47 116 57 67 43 Others 3,549 1,279 1,915 2,775 981 1,090 641 1,324 4,313 1,500 1,407 891 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – Principal Written off 3,334 1,262 1,866 2,756 856 1,071 606 482 4,197 1,443 1,340 848 Interest/ Markup Written off/ waived 215 17 49 19 125 19 35 47 116 57 67 43 Other Fin. Reliefs Provided 3,549 1,279 1,915 2,775 981 1,090 641 529 4,313 1,500 1,407 891 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  293. Name and address of the borrower Muhammad Manan Nasir Nighat Parveen House # 12, Nasir Street, Zubaida Park, Paki Thati, Lahore Muhammad Imran Muhammad Ikram House No. 92 – C, Garden Block, New Garden Town, Lahore Imran Corporation House No. 92 – C, Garden Block, New Garden Town, Lahore Masud-ul-Hassan House No. 212, Block-2, Sector C-II, Township (Quaid-e-Azam Town Society), Lahore Muhammad Younus 1- Sarai Sultan, Pather Market, 90-Railway Road, Lahore. 2- H # 52, Firdous Colony, Gulshan Ravi, Lahore Tanveer Ahmed H # 160/D, Block - Z, Settelite Town, Khanpur, District Raheem Yar Khan Javed Carpet House # 14, St # 43, Sanat Nagar, Lahore Asif & Company Grain Market Toba Tek Singh Hamid Nawaz & Sons Hari Pur Mailsi, District Vehari. Zahoor & Sons Al Farooq Ice Factory,Mohallah Lakar Mandi Khanewal. Moon Enterprises 113-C Block, Munir Market Vehari. 171 172 173 174 175 176 177 178 179 180 181 Domestic Sr. No. 35202-9092092-1 31301-8581118-3 35202-4284850-3 35202-6213320-5 33105-0332935-1 36602-5817370-3 Muhammad Younus Tanveer Ahmed Mustansir Ali Javed Mudassar Ali Javed Asif Latif Hamad Nawaz 36603-7334336-7 35202-2535832-7 Masud-ul-Hassan Masood Aziz Khan 35202-2868354-3 Muhammad Imran 36103-6332086-9 35202-2868354-3 35202-8413884-3 Muhammad Imran Muhammad Ikram Sheikh Zahoor Ahmed 35202-2912489-9 35202-2260563-6 NIC No. Muhammad Manan Nasir Nighat Parveen Name Name of individuals/ partners/ directors Munir Ahmad Sheikh Abdul Shakoor Haji Shah Muhammad Muhammad Latif Sheikh Sakhawat Ali Sheikh Mustansir Ali Javed Muhammad Hafeez Abdul Rehman Salah-Ud-Din Muhammad Ikram Muhammad Ikram Sheikh Taj Din Muhammad Nasrullah Nasir Muhammad Nasrullah Nasir Father's /Husband's name 492 – – – 2,836 1,726 – – – – 2,319 Principal 561 753 1,130 977 7,821 1,115 697 623 1,234 7,426 3,202 Interest / mark up 67 35 58 45 – – 86 18 17 344 17 Others 1,120 788 1,188 1,022 10,657 2,841 783 641 1,251 7,770 5,538 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 561 753 1,130 977 7,821 680 697 623 1,234 7,426 3,233 Interest/ Markup Written off/ waived 67 35 58 45 – – 86 18 17 344 17 Other Fin. Reliefs Provided 628 788 1,188 1,022 7,821 680 783 641 1,251 7,770 3,250 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 291
  294. 292 Name and address of the borrower Rajput Commission Shop P /o chak # 57/10 R,chak # 47/10 R, Tehsil & District Khanewal. Kashtkar Cotton Ginning Factory Chak #365 WB District Lodhran. Janay Ya Ali Commission Shop Thatha Ghara, PO Rasoolpur Tarar, District Hafizabad Classic Ceramics Plot No.A-102, Works Cooperative Housing Society, Block -10, K.D.A. Scheme No.24, Gulshan-e-Iqbal, Karachi. Asif Rana Flour and General Mills 1-D/4,Sector 16-B, North Karachi United Freight International (Pvt.) Ltd. 3rd Floor, 41 Commercial Area, Convalary Ground, Lahore Cantt. Syed Zafar Abbas Zaidi House No 77, Block K Civil Bazar Attock. Fahim Aslam St# 66, Mozang Road, Lahore Fareedia Art Press International 04 kamal Road, Kamal Ganj, Bilal Ganj Lahore Bismillah Poultry Farm LDA. Tajpura Scheme, Block 30C,Tajpura Lahore. Data Estate Center 190-A, Block D, Gulshan Ravi, Lahore 182 183 184 185 186 187 188 189 190 191 192 Domestic Sr. No. 36103-1640094-5 36201-2388757-5 36302-8290374-1 322-5463318-7 322-2432409-3 36201-6555990-2 326-3617381-0 37405-9780400-4 34301-1736567-1 42201-2066935-3 42101-7643439-3 42301-1458559-0 42301-1115116-9 37101-3275978-9 35200-1488498-7 35202-7282524-1 35201-1360842-1 35202-3727451-9 Malik Muhammad Iqbal Khan Muhammad Malik Ayesha Malik Ghulam Fatima Hurmat Fatima Jannat Fatima Naseem Fatima Muhammad Ahmed Usman Ghani Lasania Rana Muhammad Sadiq Khan (Late) Adeeba Shabnam Zaidi Ammar Yasir Zaidi (Late) Syed Zafar Abbas Zaidi Fahim Aslam Ch. Abdul Shakoor Fareedi Ch. Kafeel Ahmad Muhammad Jamil Chaudary NIC No. Rana Muhammad Abdullah Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Mian Muhammad Shafi Ghullam Hussain Ch. Muhammad Ibraheem Muhammad Aslam Syed Muhammad Abbas Zaidi Ammar Yasir Zaidi Israr Hussain Zaidi Choudary Gahyee Khan Ibrahim Lasania 1,000 1,124 3,804 401 90 – – 2,850 805 944 1,564 11,878 754 469 9,747 34,820 4,784 1,138 29,685 – Malik Dost Muhammad Malik Dost Muhammad Malik Khan Muhammad Malik Dost Muhammad Malik Dost Muhammad Malik Dost Muhammad Malik Dost Muhammad Zafar Ullah Khan 934 – Principal Interest / mark up Riyaasat Ali Father's /Husband's name – – 19 17 52 33 – 34 67 180 41 Others 1,944 2,688 15,701 1,172 611 9,780 34,820 7,668 2,010 29,865 975 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 929 1,597 11,932 753 449 9,747 34,820 4,784 1,019 29,685 934 Interest/ Markup Written off/ waived – – 19 17 52 33 – 34 67 180 41 Other Fin. Reliefs Provided 929 1,597 11,951 770 501 9,780 34,820 4,818 1,086 29,865 975 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  295. Name and address of the borrower Data Hosiery & Dying Baba Qaim Sain Road Main road Sidhupura Faisalabad. Madina Kinno Factory Chak # 08-NB, Model Town, Main Kot Moman Road, Tehsil Bhalwal, District Sargodha Prism Computers House No.153, Mohallah new colony Jahanian, District Khanewal Punjab. Zahid Ali Khan and Co, House # 195, Ward # 1 Mohallah Gillani, Uch Sharif, Tehsil Ahmed Pur East, District Bahawalpur. Allah Yar Mailsi Road, Chowk Allah Waray Wala, Kehror Pacca. Quality Cotton Factory & Oil Mills Khan Pur Road Rahim Yar Khan. Malik & Co. Mohalla Kakey Zain, Tehsil Wazirabad, District Gujranwala. Madina Commission Shop Azam Ali Hakeemwala Road Jalalpur Bhattian -Hafizabad Sabookh Salik House No:426, Block B, Toheed Park, Gulshan E Ravi, Lahore. Sabookh Salik House No:426, Block B, Toheed Park, Gulshan E Ravi, Lahore. Syed Mohsin Raza Naqvi House No. 422, Block H-3, M.A , Johar Town, Lahore 193 194 195 196 197 198 199 200 201 202 203 Domestic Sr. No. 33100-0619921-9 54400-0492356-7 36101-4319183-1 31201-0338767-3 36202-0925743-1 31303-7252668-5 31303-3352389-3 34104-1389081-3 34302-1190958-3 35202-5583580-1 35202-9197290-3 35202-1712242-8 35202-5583580-1 35401-8517830-3 Bacha Gul Naveed Iqbal Zahid Ali Khan Allah Yar Muhammad Jameel Munir Ahmed Malik Muhammad Shafique Azam Ali Sabookh Salik Ali Sabookh Lavaiz Sabookh Sabookh Salik Syed Mohsin Raza Naqvi NIC No. Muhammad Nawaz Name Name of individuals/ partners/ directors Syed Ihsan Elahi Naqvi Ch. Muhammad Amin Ch. Muhammad Amin Sabookh Salik Sabookh Salik Manzoor Ahmad Malik Abdul Rehman Abdul Majeed Muhammad Saddique Fazal Hussain Sultan Ali Khan Zafar Iqbal Madad Khan Muhammad Yousaf Father's /Husband's name – – – 2,731 2,115 – – 1,000 85 5,766 – Principal 3,424 1,456 7,277 2,838 842 14,239 813 719 500 2,458 1,246 Interest / mark up 155 63 120 77 – 67 67 39 32 169 67 Others 3,579 1,519 7,397 5,646 2,957 14,306 880 1,758 617 8,393 1,313 Total Outstanding liabilities at beginning of year – – – – – – – – – – – Principal Written off 3,424 1,456 7,277 2,838 894 14,239 813 719 485 2,214 1,246 Interest/ Markup Written off/ waived 155 63 120 77 – 67 67 39 32 169 67 Other Fin. Reliefs Provided 3,579 1,519 7,397 2,915 894 14,306 880 758 517 2,383 1,313 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 293
  296. 294 Name and address of the borrower Lamination House Ch Anwar Ali & Qamarul-Hassan R/O 6-D Fazal Din Building, Cooper Road, Lahore Syed Tasawar Hussain Shah 100-D Gulfishan Town, 8-KM Sheikhupura Rd, Teshil Ferozewala, Distt Sheikhupura. Ch. Abdul Rasheed H # 216 Block-E Johar Town, Lahore Abdul Latif Plot # R-464, Sector # 33-F, Korangi Township, Karachi Evergreen Green Electronics Raja Road Gulistan Colony Faisalabad Pakistan Agri Services Main Shakhupura Road, Green Gold Gardens Gujranwala Green Gold Seed Ind (Pvt) Ltd Main Shakhupura Road, Green Gold Gardens Gujranwala Asad Corporation Thatha Aurgn, P.O Jalalpur Bhattian Tehsil Pindi Bhattian District Hafizabad Al-Makkah Filling Station & Madina Filling Station House No. 82, Street # 40 Sector 1-8-2 Islamabad Imran Ali Bajwa Flat # 28-C, 3rd Floor, JOSON V.I.P Apartment Block-7, Clifton, K.D.A Scheme # 05 Karachi. 204 205 206 207 208 209 210 211 212 213 Domestic Sr. No. Unconsolidated Financial Statements Syed Tasleem Hussain 35202-3836718-7 35200-7331709-7 42000-0445788-5 33100-0883763-9 34101-3649229-7 34101-2844691-0 34101-9543289-7 34101-5319668-3 34101-2300420-6 34101-2205420-6 34302-5000593-7 61101-9220088-6 42301-6457342-3 Syed Tasawar Hussain Shah Ch- Abdul Rasheed Abdul Latif Safi Ullah Anwar Anwar Ul Haq Raahat Anwar Mubeen Anwaar Safeen Anwar Maheen Yasir Sana Anwar Ghulam Haider Nagina Bibi Imran Ali Bajwa Salamat Ali Abdul Rashid Muhammad Nazir Muhammad Yasir Kiyani Anwar Ul Haq Salamat Ali Anwar Ul Haq Anwar Ul Haq Anwar Ul Haq Muhammad Anwar Ghulam Nabi Ghulam Muhammad Ch Barkat Ali 35202-4831102-1 NIC No. Father's /Husband's name Ch. Anwar Ali Name Name of individuals/ partners/ directors 3,715 904 1,599 – 373 2,685 6,350 – – 2,272 Principal 1,328 1,686 1,700 3,349 16,736 1,428 4,091 1,851 2,086 1,578 Interest / mark up – 92 17 17 89 117 35 – 67 26 Others 5,043 2,682 3,316 3,366 17,198 4,230 10,476 1,851 2,153 3,876 Total Outstanding liabilities at beginning of year – – – – – – – – – – Principal Written off 818 1,687 1,751 3,349 16,559 1,413 3,790 1,851 2,086 1,674 Interest/ Markup Written off/ waived – 92 17 17 89 117 35 – 67 26 Other Fin. Reliefs Provided 818 1,779 1,768 3,366 16,648 1,530 3,825 1,851 2,153 1,700 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  297. Name and address of the borrower Shahzad Shoukat and Co . Budha Gorya Nowshehra Virkan, Gujranwala Yamin Rice Mills Talwandi Musa Khan Shahbaz Commission Shop Thattha Cheena, Tehsil & district Hafizabad. 224 225 226 34101-6736706-7 34301-7588177-5 Shahbaz Khan 34103-4414242-7 Muhammad Iqbal Iqbal Commission Shop Budha Gorya Nowshehra Virkan, Gujranwala. 223 Muhammad Shahbaz Naseem 36601-0716186-5 Muhammad Anwar Gill Ch. Anwar & Co Chak # 215 E B P/o Khas, Tehsil Burewala District Vehari. 222 34103-6385061-1 36601-2684987-7 Shakeel Ahmad Shakeel Ahmad Chak # 215 E B P/o Khas, Tehsil Burewala District Vehari. 221 Shahzad Shoukat 36103-1648875-9 36302-1955367-7 Munir Ahmad Khawaja Muhammad Mazhar Hussain Mehar Cotton Ginning Factory Laar Road, Shujabad District Multan. 220 32102-2617523-7 Sultan Ahmed Kissan Tractors Kot Chakar Khan Near Board Office Churahatta Sindh Shumali P/o Khas Tehsil & District Dera Ghazi Khan. 219 35201-1302314-1 Nisar ul Haq Nisar ul Haq G.T Road, Baghbanpura Lahore 218 35201-9026206-1 Nasir Mehmood Nasir Brothers Model Town Main Bazar Liaquat Abad Lahore. 217 35202-81536803 Zahid Packages Chohan Park, Bund Road, Lahore 216 Zahid Pervaiz A & M Active Wear P-930/1, Street No.06, behind Faisal Flour Mills Sheikhupura Road Faisalabad. 215 33100-5571479-7 Rashid Mehmood Bhakkar Road, Umer Wali, Tehsil Kallur Kot, District Bhakkar 214 Tariq Sohail NIC No. 38103-7375481-7 Name Rashid Mehmood Domestic Sr. No. Name of individuals/ partners/ directors Mirza Muhammad Naseem Akhtar Shoukat Ali Ashique Hussain Chaudhry Muhammad Yaqub Gill Muhammad Anwar Gill Chaudhry Allah Baksh Khawaja Khuda Baksh Chaker Khan Mian Muhammad Rafiq Maqsood Ahmad Muhammad Latif Ghulam Dastgir Muhammad Hanif Father's /Husband's name – 12,484 3,320 – 2,499 3,999 – – 2,728 1,113 11,988 12,998 979 Principal 1,757 9,606 2,446 931 660 830 563 979 2,489 1,098 6,511 21,377 724 Interest / mark up 2 94 68 17 57 57 58 16 938 150 44 188 47 Others 1,759 22,184 5,834 948 3,216 4,886 621 995 6,155 2,361 18,543 34,563 1,750 Total Outstanding liabilities at beginning of year – – – – – – – – 1,844 – – – – Principal Written off 1,757 7,808 2,446 931 706 838 563 979 2,062 1,016 6,511 20,793 602 Interest/ Markup Written off/ waived 2 94 68 17 57 57 58 16 938 150 44 188 47 Other Fin. Reliefs Provided 1,759 7,902 2,514 948 763 895 621 995 4,844 1,166 6,555 20,981 649 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 295
  298. 296 Name and address of the borrower Muhammad Nasir Javed 15-College Road , Civil Lines Sheikhupura. Muhammad Naeem, Saleem & Tasneem House No. 21 – S, Huma Block, Allama Iqbal Town, Lahore New Pipe Sanitary Store 5 - A, Ferozpur Road, Mozang Chungi, Lahore Mian Azeem Khalid House # 1042, Block-E, Phase-I, Canal View housing Society, Lahore Dilshad Anwar House No: 28, Sardar Street, College Road, New Samanabad Lahore, Kashif Munir & Abida Munir House No: 305, Block B, Phase, Govt. Employees Corporative Society, Model Town Link Road, Lahore. Amin Sons (Pvt.) Limited 9-Davis Road, Lahore Silver Fiber Enterprises 1/A Industrial Estate Sher Shah Road Multan. Silver Fiber Model Ginning Factory 1/A Industrial Estate Sher Shah Road Multan. Sea Trade International House # A-18, Sector 11-A, North Karachi Township, Karachi 227 228 229 230 231 232 233 234 235 236 Domestic Sr. No. 35404-1509792-5 35202-5513112-5 35202-6891231-5 35202-6796136-5 35202-5513112-5 35202-0608435-1 35202-2422974-9 35202-2736174-9 35202-0615203-5 35202-6501153-6 35202-9314320-7 35202-7673741-0 35202-5498147-9 35202-0293882-9 35202-2434098-7 36302-0462448-9 36103-1678964-5 36302-6189447-7 36302-0406848-1 36302-5523802-7 36302-6189447-7 36302-0534579-7 36302-0406848-1 36103-1678964-5 42000-0520064-3 Muhammad Naeem Muhammad Saleem Muhammad Tasneem Muhammad Naeem Mian Azeem Khalid Dilshad Anwar Sardar Ali Naseem Kashif Munir Abida Munir Sheikh Muhammad Anwar Safia Anwar Sheikh Anjum Anwar Sheikh Akbar Amin Sheikh Intikhab Amin Muhammad Younis Muhammad Masood Arshad Abdul Aziz Farooq Ahmad Sheikh Tauqeer Ahmad Sheikh Abdul Aziz Bilal Ahmed Sheikh Farooq Ahmad Sheikh Muhammad Maqsood Arshad Asad Ahmed NIC No. Muhammad Nasir Javed Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Muhammad Asif Farooqui Sheikh Sarfraz Ahmed Chaudhry Barkat Ali Sheikh Sarfraz Ahmed Sheikh Sarfraz Ahmad Muhammad Yousaf Din Muhammad Muhammad Yousaf Chaudhry Barkat Ali Sheikh Sarfraz Ahmad Sheikh Muhammad Amin Sheikh Muhammad Anwar Sheikh Muhammad Anwar Sheikh Muhammad Anwar Sheikh Muhammad Anwar Muhammad Munir Muhammad Munir Sardar Ali Naseem Ali Muhammad Khalid Saeed Mian Muhammad Nazeer Muhammad Nazeer Muhammad Nazeer Muhammad Nazeer Naseer Ullah Khan Father's /Husband's name 2,953 – – 4,594 – – – 1,900 – 443 Principal 2,753 2,979 3,895 47,685 1,522 2,128 3,982 1,268 2,500 875 Interest / mark up – – 66 66 500 169 19 50 – 125 Others 5,706 3,045 3,961 52,779 1,691 2,147 4,032 3,168 2,625 1,318 Total Outstanding liabilities at beginning of year – – – 4,594 – – – – – – Principal Written off 2,753 2,979 3,895 47,685 1,522 2,128 3,982 1,176 2,500 888 Interest/ Markup Written off/ waived – 66 66 500 169 19 50 – 125 – Other Fin. Reliefs Provided 2,753 3,045 3,961 52,779 1,691 2,147 4,032 1,176 2,625 888 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  299. Name and address of the borrower Sohail Haider Flat # B-404, 4th Floor Jauhar Belle View Apartment Block No.14 Gulistan e- johar, Karachi Kiran Asif Ali House # 10, Fatima Jinnah Colony Cantt., Karachi Ashok Kumar House # A-15, AlRehman Housing Society, Qasimabad, Hyderabad Hameedyas Impex Madina Street, Fateh Garh, Daska Road, Sialkot. Muhammad Ishaque Mohallah Daroghan Wala Purani Abadi Khiali, Tehsil & District Gujranwala. Royal Engineering Works Nat Kalan, Ghakkar Mandi. Muazam Ali Beriwala Post Office Khas, Tehsil and District Hafizabad. Ehsan Rice Dealer Wazirabad Road, Near Fruit Market, Sambrial, District Sialkot. Zulfiqar Ali Chaddher House No. 40-B/5, St. No. 04, Mohalla Lalazar, Tulsa Road, Rwp Cantt Ali CNG Bara Gate, Bara Road, Peshawar S.S. Brothers R-227, Block-16, F.B.Area, Karachi The Elbow Room Ground Floor, Writer Chamber, Mumtaz Hassan Road, Karachi 237 238 239 240 241 242 243 244 245 246 247 248 Domestic Sr. No. 42101-1836485-5 34603-2217392-4 44203-9613175-5 34603-1341029-1 34602-1713252-9 34603-2311534-7 34101-5645016-7 34104-8021196-5 34104-4366794-9 34301-2798390-1 34601-7876347-9 37405-1564666-5 17301-7022481-1 17301-1410702-1 42101-2891157-5 54400-3519472-3 Kiran Asif Ali Ashok Kumar Nisar Ahmed Hameed Ullah Muhammad Shahid Muhammad Ishaque Muhammad Yousaf Muhammad Asif Muazam Ali Ehsan Ullah Zulfiqar Chaddher Abubakar Siddique Ali Murtaza Syed Muhammad Obaid Ather Wasti Shahzad Tareen NIC No. Sohail Haider Name Name of individuals/ partners/ directors Abdul Rasheed Tareen Syed Muhammad Idrees Ather Wasti Haji Muhammad Usman Haji Muhammad Usman Abdul Rehman Chaddher Qurban Ali Saif Ullah Muhammad Sharif Muhammad Sharif Muhammad Sharif Naseem Anwar Jalal Din Muhammad Ishaq Khob Chand Asif Ali Faiz Sultan Haider Father's /Husband's name – – 689 1,699 2,204 – 971 622 7,927 999 13,725 3,855 Principal 826 1,685 1,559 1,398 4,812 1,516 698 2,940 6,189 806 8,553 1,885 Interest / mark up – – 25 156 17 – – 74 60 27 33 33 Others 826 1,685 2,273 3,253 7,033 1,516 1,669 3,636 14,176 1,832 22,311 5,773 Total Outstanding liabilities at beginning of year – – – – – – – – – – – – Principal Written off 826 1,685 1,248 1,398 2,679 1,166 726 2,745 6,150 756 6,036 1,885 Interest/ Markup Written off/ waived – – 25 156 17 – – 74 60 27 33 33 Other Fin. Reliefs Provided 826 1,685 1,273 1,554 2,696 1,166 726 2,819 6,210 783 6,069 1,918 Total (Rupees in '000) Annual Report 2019 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019 Annual Report 2019 297
  300. 298 Name and address of the borrower Unconsolidated Financial Statements J .A. Textile Mills Limited JK House, 32-Susan Road, Faisalabad AL Noor Agency P-77 Street No.03 Mointgomery Bazar Faisalabad. Madina Rice Mills Tandlianwala District Faisalabad Mian Faisal Nawaz/ Muhammad Nawaz House # 162-C–Model Town Lahore Nadeem Aftab House no. 89, Block E, Architect Engineering Housing Scheme, Phase II, Opposite Shaukat Khanum Hospital Lahore Basit Raza House No S-19-R-122, 2-A Race Course Lahore Ishtaiq Ahmad House # S-57-R-34/RH, 5 Temple Road Lahore B.R Enterprises 2-A, Moon Villas, Canal Berg, Multan Road, Thokar Niaz Baig, Lahore Sheikh Muhammad Khalid Kiryana Store 531 Block 3, Sector C-II, Garden Town Lahore. 250 251 252 253 254 255 256 257 258 1 Grand Total J.B Traders Overseas Total Domestic Knitwear Fabrics D-149/D, Manghopir Road, S.I.T.E, Karachi 249 Domestic Sr. No. 33100-0959262-7 33106-0297856-3 33106-7949115-5 35202-9852305-1 35202-3702061-7 35200-1569365-7 35202-5203075-5 34102-9288188-1 35202-9335054-5 35202-9836320-0 35404-8964465-7 35202-7112708-7 Mian Muhammad Shafiq Muhammad Ibrahim Muhammad Ifrahim Mian Faisal Nawaz Muhammad Nawaz Nadeem Aftab Basit Raza Ishtaiq Ahmad Babar Ishaq Irshad Mahmood Muhammad Rafiq Sheikh Muhammad Khalid M2861 33100-0663808-2 33100-0699858-5 33100-0698580-3 33100-0699854-5 33100-0663806-6 33100-0279691-9 33100-7382121-5 Quratul Ain Zahid Imran Zahid Muhammad Ali Zahid Anwer Rukhsana Begum Liaqat Ali Qamar Riaz Ahmed Jiker Cassim 42201-0620534-9 NIC No. Fawad Hussain Name Name of individuals/ partners/ directors NA Muhammad Yaqoob Muhammad Ishaq Bhatti Muhammad Ishaq Muhammad Younas Ch Muhamamd Boota Nawab Ali Muhammad Asif Mahmood Muhammad Nawaz Mian Islam-ud-Din Ahmed Din Muhammad Ibrahim Zahid Anwer Zahid Anwer Zahid Anwer Zahid Anwer Zahid Anwer Zahid Anwer Zahid Anwer Muhammad Hussain Father's /Husband's name 264,664 1,456,916 36,266 1,420,650 261,939 2,725 7,278 5,391 1,738 1,059 1,566 2,060 939 6,950 2,849 4,148 – 3,071 3,234 1,499 2,136 18,460 – – 19,832 Interest / mark up – Principal – 15,531 – 15,531 20 85 17 17 20 19 162 92 170 Others 1,737,111 38,991 1,698,120 14,248 8,325 5,903 1,076 4,657 5,313 2,600 2,228 18,630 19,832 Total Outstanding liabilities at beginning of year 17,338 2,725 14,613 – – – – – – – – – – Principal Written off 1,443,421 36,266 1,407,155 7,278 5,139 1,791 1,059 1,566 2,059 939 2,136 18,460 19,832 Interest/ Markup Written off/ waived 15,531 – 15,531 20 85 17 17 20 19 162 92 170 – Other Fin. Reliefs Provided 1,476,290 38,991 1,437,299 7,298 5,224 1,808 1,076 1,586 2,078 1,101 2,228 18,630 19,832 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2019
  301. Book value 195 977 116 236 88 80 117 268 1 ,139 Laptop Laptop Laptop Laptop Laptop Laptop 117 80 88 147 116 117 117 Laptop 117 162 73 – – – 89 – – – (Rupees in '000) Accumulated depreciation 117 Cost/ revalued amount Laptop Computers Description As per Bank's policy 12 236 As per Bank's policy As per Bank's policy 8 78 As per Bank's policy 9 As per Bank's policy 12 As per Bank's policy As per Bank's policy 12 93 As per Bank's policy Mode of disposal 12 Sales proceeds/ insurance claim Laqa Sarwar Aali Shafi Shoaib Mumtaz Nabeela Waheed Faisal Ejaz Khan Faisal Ejaz Khan Mohammad Nauman Chughtai Muhtashim Ashai Particulars of buyers Lahore Lahore Lahore Lahore Lahore Lahore Lahore Lahore Location Annual Report 2019 Annexure I I Disposal of fixed assets (refer note 11.2.6) Annual Report 2019 299
  302. 300 Unconsolidated Financial Statements
  303. Annual Report 2019 Consolidated Financial Statements MCB Bank Limited Annual Report 2019 301
  304. Directors ’ Report On Consolidated Financial Statements The Board of Directors present the report on the consolidated financial statements of MCB Bank Limited and its subsidiaries namely MCB-Arif Habib Savings & Investments Limited, MCB Financial Services Limited, MCB Islamic Bank Limited, Financial & Management Services (Private) Limited and MCB Non-Bank Credit Organization "Closed Joint Stock Company" for the year ended December 31, 2019. Profit and Appropriations The profit before and after taxation for the year ended December 31, 2019 together with appropriations is as under: Rs. in Million Profit before taxation 40,153 Taxation16,206 Profit after taxation Profit attributable to non-controlling interest 23,947 (79) Profit attributable to ordinary shareholders Un-appropriated profit brought forward Re-measurement of defined benefit plans - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transfer from surplus on revaluation of fixed assets - net of tax 23,868 53,598 Profit available for appropriation Appropriations: Statutory Reserve Final Cash Dividend at Rs. 4.0 per share - December 31, 2018 Interim Cash Dividend at Rs. 4.0 per share - March 31, 2019 Interim Cash Dividend at Rs. 4.0 per share - June 30, 2019 Interim Cash Dividend at Rs. 4.0 per share - September 30, 2019 77,466 Total appropriations 21,357 Un-appropriated Profit Carried Forward 56,109 53,971 (474) 10 37 54 2,397 4,740 4,740 4,740 4,740 Earnings per Share The consolidated financial statements reflect Rs. 20.14 earnings per share for the year under review. For and on behalf of the Board of Directors, Imran Maqbool President & CEO MCB Bank Limited February 04, 2020 302 Unconsolidated Financial Statements Mian Umer Mansha Director MCB Bank Limited
  305. Annual Report 2019 Annual Report 2019 303
  306. Independent Auditor ’s Report To the members of MCB Bank Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the annexed consolidated financial statements of MCB Bank Limited and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at December 31, 2019, and the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2019 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the accounting and reporting standards as applicable in Pakistan. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of the Chartered Accountants of Pakistan (the Code), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current year. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Following are the Key Audit Matters: S. No. 1 Key Audit Matters How the matter was addressed in our audit Provision against advances Refer to note 10 and the accounting policies in Our audit procedures in respect of provision against notes 4.2 (b) and 5.5 to the consolidated financial loans and advances included the following: statements. • Assessing the design and operating The Group’s advances to the customers represent effectiveness of manual and automated 34.02% of its total assets as at 31 December 2019 controls over classification and provisioning of advances including: and are stated at Rs. 548.47 billion which is net of provision of Rs. 43.39 billion. - The accuracy of data input into the system The provision against advances was identified as a key audit matter in our audit as it involves a considerable degree of management judgment and compliance with the Prudential Regulations (PRs) issued by the State Bank of Pakistan. used for disbursement and recovery of credit facilities; - Controls over correct classification of non-performing advances on time based criteria; - Controls over accurate computation and recording of provisions; and - Controls over the governance and approval process related to provision. • Testing, on a sample basis, credit exposures identified by the management as displaying indicators of impairment, assessed the number of days overdue and assessed appropriateness of amount reported for provision in accordance with the PRs; 304 Unconsolidated Financial Statements
  307. Annual Report 2019 S . No. Key Audit Matters How the matter was addressed in our audit • Testing, on a sample basis, credit exposure where the management has not identified as displaying indicators of impairment challenged the management’s assessment by reviewing the historical performances, account movement, financial ratios and reports on security maintained and formed our own view whether any impairment indicators are present; • For consumer advances, analyzed the days past due report for calculation of provision required in accordance with the PRs; and • Checking, on a sample basis, accuracy of specific provision against non-performing advances and of general provision against consumer and SME advances by recomputing the provision made in accordance with the criteria prescribed under the PRs. 2 Valuation of Investments Refer to note 9 and the accounting policies in Our procedures in respect of valuation of investments notes 4.2 (c) and 5.3 to the consolidated financial included the following: statements. • Assessing the design and tested the operating As at December 31, 2019, the Group has effectiveness of the relevant controls in place investments classified as “Available-for-sale”, “Held relating to valuation of investments; for trading” and “Held to maturity”, amounting to Rs. 753.16 billion in aggregate represent 46.72 % of the • Checking, on a sample basis, the valuation total assets of the Group. of investments to supporting documents, externally quoted market prices and break-up Investments are carried at cost or fair value in the values; and accordance with the Group’s accounting policy relating to their recognition. Provision against • Evaluating the management’s assessment investments is based on impairment policy of the of available for sale and held to maturity Group which includes both objective and subjective investments for any additional impairment factors. in accordance with the Group’s accounting policies and performed an independent We identified the valuation of investments including assessment of the assumptions. determination of impairment allowance on investments classified as ‘Available-for-sale’ and “Held to maturity” as a key audit matter because of their significance in relation to the total assets of the Group and judgment involved in assessing impairment allowance. Annual Report 2019 305
  308. Information Other than the Consolidated Financial Statements and Auditor ’s Report Thereon Management is responsible for the other information. The other information comprises the information included in the Group's Annual Report but does not include the consolidated financial statements and our auditors' report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Board of Directors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance 1962 and Companies Act, 2017 and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The Board of Directors is responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: a) Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. b) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 306 Unconsolidated Financial Statements
  309. Annual Report 2019 d ) Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. e) Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. f) Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditor’s report is M. Rehan Chughtai. Lahore Date: February 14, 2020 KPMG Taseer Hadi & Co. Chartered Accountants Annual Report 2019 307
  310. Consolidated Statement of Financial Position As at December 31 , 2019 Note 20192018 (Rupees in '000) ASSETS Cash and balances with treasury banks 6 Balances with other banks 7 Lendings to financial institutions 8 Investments 9 Advances 10 Fixed assets 11 Intangible assets 12 Deferred tax assets Other assets 13 142,957,358 21,371,753 6,060,869 757,441,590 548,472,860 64,201,807 1,978,975 – 69,729,659 110,165,006 13,338,117 39,149,890 754,385,775 566,792,265 43,531,396 1,452,462 – 56,395,096 LIABILITIES 1,612,214,871 1,585,210,007 Bills payable 15 Borrowings 16 Deposits and other accounts 17 Liabilities against assets subject to finance lease Subordinated debt 18 Deferred tax liabilities 19 Other liabilities 20 12,795,325 92,859,968 1,226,593,025 – – 6,214,223 102,405,513 17,003,272 223,216,115 1,122,306,535 – 3,891,019 1,983,145 65,487,042 1,440,868,054 1,433,887,128 NET ASSETS 171,346,817 151,322,879 Share capital 21 Reserves 22 Surplus on revaluation of assets 23 Unappropriated profit 11,850,600 77,894,829 24,752,206 56,108,779 11,850,600 74,374,573 10,417,875 53,971,079 Non-controlling interest 170,606,414 740,403 150,614,127 708,752 REPRESENTED BY 171,346,817 151,322,879 CONTINGENCIES AND COMMITMENTS24 The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Imran Maqbool President/Chief Executive 308 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  311. Annual Report 2019 Consolidated Profit and Loss Account For the year ended December 31 , 2019 Note Mark-up / return / interest earned Mark-up / return / interest expensed 26 27 20192018 (Rupees in '000) 148,088,700 84,370,609 87,502,337 39,495,913 Net mark-up / interest income 63,718,091 48,006,424 NON MARK-UP / INTEREST INCOME Fee and commission income 28 Dividend income Foreign exchange income Income from derivatives Gain on securities 29 Other income 30 12,230,871 1,240,771 2,957,999 14,616 828,873 244,551 11,636,751 1,156,944 3,568,576 11,845 1,257,148 434,351 Total non-markup / interest Income 17,517,681 18,065,615 Total Income NON MARK-UP / INTEREST EXPENSES 81,235,772 66,072,039 Operating expenses 31 Workers welfare fund Other charges 32 37,685,431 802,046 260,743 35,715,447 644,304 174,431 Total non-markup / interest expenses Share of profit of associates 38,748,220 339,633 36,534,182 446,257 Profit before provisions Provisions / (reversals) and write offs - net 33 Extra ordinary / unusual items 42,827,185 2,673,592 – 29,984,114 (821,807) – PROFIT BEFORE TAXATION 40,153,593 30,805,921 Taxation 16,206,382 10,390,637 PROFIT AFTER TAXATION 23,947,211 20,415,284 Profit attributable to non-controlling interest (78,962) (62,528) 34 PROFIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS OF THE BANK 23,868,249 20,352,756 Rupees Basic and diluted earnings per share 35 20.14 17.17 The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Imran Maqbool President/Chief Executive Hammad Khalid Chief Financial Officer Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director Annual Report 2019 309
  312. Consolidated Statement of Comprehensive Income For the year ended December 31 , 2019 20192018 (Rupees in '000) 23,947,211 20,415,284 Effect of translation of net investment in foreign branches and subsidiaries - Equity shareholders of the bank - Non-controlling interest 1,079,203 20 1,200,257 143 Share of exchange translation reserve of associate 1,079,223 43,369 1,200,400 10,446 Movement in surplus/ (deficit) on revaluation of investments - net of tax - Equity shareholders of the bank Movement in surplus on associated undertaking - net of tax 7,138,866 93,516 (7,145,219) (192,315) 7,232,382 (7,337,534) Items that will not be reclassified to profit and loss account in subsequent periods: 8,354,974 (6,126,688) Remeasurement loss on defined benefit obligations - net of tax Surplus on revaluation of operating fixed assets - net of tax Surplus on revaluation of non-banking assets - net of tax (474,421) 7,038,689 165,776 (659,286) – 172,774 6,730,044 (486,512) Total comprehensive income Attributable to: 39,032,229 13,802,084 - Equity shareholders of the bank - Non-controlling interest 38,953,247 78,982 13,739,413 62,671 Profit after taxation for the year Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: 39,032,229 13,802,084 The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Imran Maqbool President/Chief Executive 310 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  313. - - Share of dividend attributable to Non-controlling interest - - Share of dividend attributable to Non-controlling interest 11 ,850,600 23,973,024 - - Annual Report 2019 Imran Maqbool President/Chief Executive Hammad Khalid Chief Financial Officer For details of dividend declaration and appropriations, please refer note 46 to these consolidated financial statements. For details of reserves, please refer note 22 to these consolidated financial statements. The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Balance as at December 31, 2019 - - - - - - - - - - - - - - - - 11,850,600 23,973,024 - - Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 4.0 per share - December 31, 2018 Interim cash dividend at Rs. 4.0 per share - March 31, 2019 Interim cash dividend at Rs. 4.0 per share - June 30, 2019 Interim cash dividend at Rs. 4.0 per share - September 30, 2019 Balance as at December 31, 2018 Total comprehensive income for the year ended December 31, 2019 Profit after taxation for the year ended December 31, 2019 Other comprehensive income - net of tax - - - - - - - - - - - - - - 11,850,600 23,973,024 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 4.0 per share - December 31, 2017 Interim cash dividend at Rs. 4.0 per share - March 31, 2018 Interim cash dividend at Rs. 4.0 per share - June 30, 2018 Interim cash dividend at Rs. 4.0 per share - September 30, 2018 Balance as at December 31, 2017 Total comprehensive income for the year ended December 31, 2018 Profit after taxation for the year ended December 31, 2018 Other comprehensive income - net of tax - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Mian Umer Mansha Director - - - - - - - 7,138,866 - - - - - 7,138,866 (4,740,240) (4,740,240) (4,740,240) (4,740,240) 54,377 99,081 (4,740,240) (4,740,240) (4,740,240) (4,740,240) - - - (18,960,960) (18,960,960) - - - - (54,377) (99,081) (4,740,240) (4,740,240) (4,740,240) (4,740,240) 54,093 10,560 37,863 (4,740,240) (4,740,240) (4,740,240) (4,740,240) - - - - (18,960,960) (18,960,960) - - - - (54,093) (10,560) (37,863) (4,740,240) (4,740,240) (4,740,240) (4,740,240) - (4,740,240) (4,740,240) (4,740,240) (4,740,240) - 740,403 171,346,817 - (18,960,960) (47,331) (47,331) - - - - 78,982 39,032,229 - - 78,962 23,947,211 20 15,085,018 708,752 151,322,879 - (18,960,960) (61,326) (61,326) - - - 62,671 13,802,084 - - 62,528 20,415,284 143 (6,613,200) 707,407 156,543,081 Masood Ahmed Puri Director 344,762 20,081,193 56,108,779 170,606,414 - - - - - - 93,516 7,204,465 23,393,828 38,953,247 - - (2,397,684) - - - 23,868,249 23,868,249 93,516 7,204,465 (474,421) 15,084,998 251,246 12,979,244 53,971,079 150,614,127 - - - - - 172,774 19,693,470 13,739,413 - (2,135,958) - Salman Khalid Butt Director 908,317 2,730,354 31,683,134 18,600,000 4,326,251 - - - - - - - 1,122,572 - - - 2,397,684 - - - 1,122,572 - - - - - - (7,145,219) (192,315) - - - - 20,352,756 20,352,756 172,774 (659,286) (6,613,343) 443,561 12,959,928 55,221,069 155,835,674 - - - - (7,145,219) (192,315) 908,317 1,607,782 29,285,450 18,600,000 (2,812,615) - - - - - - 1,210,703 - - - 2,135,958 - - 397,079 27,149,492 18,600,000 4,332,604 - - - 1,210,703 908,317 (Rupees in '000) Capital reserve Revenue Suplus/(deficit) on revaluation of reserve UnappropriatedTotal Non Grand Share Share Non- ExchangeStatutory capital premium distributable translation reserve General Investments Associate Fixed / non- profit controlling total capital reserve reservereserve banking assetsinterest Annual Report 2019 Consolidated Statement of Changes in Equity For the year ended December 31, 2019 311
  314. Consolidated Cash Flow Statement For the year ended December 31 , 2019 Note CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income and share of profit of associates 20192018 (Rupees in '000) 40,153,593 (1,580,404) 30,805,921 (1,603,201) 38,573,189 29,202,720 2,233,008 1,610,893 45,456 425,585 2,673,592 802,046 (111,948) (101,509) (63,176) (83,986) 1,506,301 – 2,205,841 49,155 356,533 (821,807) 644,304 (82,410) 943,661 (245,866) 47,766 – (51,360) 8,936,262 3,045,817 Decrease / (increase) in operating assets Lendings to financial institutions Held-for-trading securities Advances Others assets (excluding advance taxation) 47,509,451 32,248,537 33,089,021 (148,713) 18,629,092 (17,511,282) (33,876,366) (10,019,549) (63,057,860) (1,188,977) Adjustments: Depreciation on fixed assets 11.2 Depreciation on right of use assets 31 Depreciation on non-banking assets acquired in satisfaction of claims 31 Amortization 12 Provisions / (reversals) and write offs - net 33 Workers welfare fund Gain on sale of non-banking assets acquired in satisfaction of claims 30 (Reversal) / charge for defined benefit plan 31.1 Gain on sale of fixed assets 30 Unrealized (gain) / loss on revaluation of investments classified as held for trading 29 Interest expensed on lease liability against right-of-use assets Gain on sale of shares in an associate (Decrease) / increase in operating liabilities Bills Payable Borrowings from financial institutions Deposits Other liabilities (excluding current taxation) 34,058,118 (108,142,752) (4,207,947) (129,752,644) 104,286,490 14,307,719 (5,991,605) 81,874,414 121,160,373 7,955,642 Defined benefits paid Income tax paid (15,366,382) (309,074) (2,506,095) 204,998,824 (343,743) (3,421,728) Net cash flow from operating activities 63,386,018 125,339,138 Net investments in available-for-sale securities Net investments in held-to-maturity securities Dividends received Investments in fixed assets Investments in Intangible assets Proceeds from sale of fixed assets Proceeds from sale of non-banking assets acquired in satisfaction of claims Investments in non-banking assets acquired in satisfaction of claims Effect of translation of net investment in foreign branches & subsidiaries Proceeds from divestment in an associate 6,412,423 (1,001,069) 1,433,411 (4,817,498) (949,464) 167,374 540,000 (64,445) 1,079,223 – (96,176,337) (2,380,874) 1,619,685 (4,812,362) (376,872) 574,720 682,410 – 1,200,400 295,448 Net cash flow generated from / (used in) investing activities CASH FLOW FROM FINANCING ACTIVITIES 2,799,955 (99,373,782) Payments of Subordinated debt Dividend paid Payment of lease liability against right-of-use-assets (3,891,019) (18,877,984) (1,987,479) (1,559) (20,152,021) – Net cash flow used in financing activities Effects of exchange rate changes on cash and cash equivalents (24,756,482) (20,153,580) 3,553,077 5,575,328 Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year 44,982,568 118,003,940 11,387,104 110,169,913 CASH FLOW FROM INVESTING ACTIVITIES Cash and cash equivalents at end of the year 36 162,986,508 121,557,017 The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Imran Maqbool President/Chief Executive 312 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director
  315. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 1. STATUS AND NATURE OF BUSINESS The “Group” consists of Holding company 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 the Pakistan stock exchange. The Bank’s Registered Office and Principal Office are situated at MCB -15 Main Gulberg, Lahore. The Bank operates 1,399 branches (2018: 1,376 branches) within Pakistan and 11 branches (2018: 11 branches) outside Pakistan (including the Karachi Export Processing Zone branch). 1.1 Subsidiary companies MCB Financial Services Limited MCB Financial Services Limited (the Company) was incorporated on February 12, 1992 as a private limited company. The Company converted its status from Private Limited Company to Unlisted Public Limited Company on June 19, 2009. The principal objects of the Company are to act as Trustee of Investment Trust Schemes, voluntary pension schemes, real estate investment trust schemes, to provide custodian services and to act as transfer agent/share registrar of securities of listed and non listed companies and mutual funds etc. The Company’s main source of income is from trusteeship services provided to mutual funds. Its registered office is located at Karachi. Out of 2,750,012 shares, 2,750,000 shares are owned by the Bank and 12 shares are held by the Bank nominees. The beneficial ownership of shares held by nominees rest with the Bank. The Bank is in the process of disposal of “MCB Financial Services Limited” subject to all regulatory requirements. MCB - Arif Habib Savings and Investments Limited MCB - Arif Habib Savings and Investments Limited (the Company) was incorporated on August 30, 2000, as an unquoted public limited company. During 2008, the Company was listed on the Pakistan Stock Exchange by way of offer for sale of shares by a few of the existing shareholders of the Company to the general public. The registered office of the Company is situated at 24th Floor, Centre point, Off Shaheed-e- Millat Expressway, near K.P.T. Interchange, Karachi, Pakistan. The Company is registered as an Asset Management Company and Investment Advisor under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 and Pension Fund Manager under Voluntary Pension System Rules 2005. The Company also manages discretionary portfolio accounts. The Bank owns 51.33% shares of the company. MCB Non-Bank Credit Organization “ Closed Joint Stock Company” (formely MCB Leasing CJSC, Azerbaijan) “MCB Leasing” CJSC (the “Company”) was incorporated on 16 October 2009 and domiciled in the Republic of Azerbaijan. The Company is a closed joint stock company limited by shares and was set up in accordance with Azerbaijani regulations. The registered office of the company is located at 49B Tbilisi Ave. Baku AZ1065, Republic of Azerbaijan. The Bank owns 99.94% shares of the company. The Company’s principal business activity is provision of finance leases within the Republic of Azerbaijan. The Company leases out various types of industrial equipment, equipment used in medicine, health care, and for other business needs. In addition, the Company leases out cars and trucks. Further the Company is also involved in real estate finance leases. MCB Islamic Bank Limited MCB Islamic Bank Limited (MCBIBL) was incorporated in Pakistan as an unlisted public limited company on May 15, 2014 to carry out the business of an Islamic commercial Bank in accordance and in conformity with the principles of Islamic Shari’ah and in accordance with regulations and guidelines of the State Bank of Pakistan. The Securities and Exchange Commission of Pakistan granted “Certificate of Commencement of Business” to MCBIBL on January 30, 2015. MCBIBL is a wholly owned subsidiary of MCB Bank Limited (MCB). Annual Report 2019 313
  316. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 2. MCBIBL is operating through 185 branches in Pakistan (December 31, 2018: 176 branches). The Registered Office of MCBIBL is situated at 59 Block T, Phase II, DHA, Lahore Cantt and Principal Office is situated at 339 Block Z, Phase III, DHA Lahore Cantt. Financial & Management Services (Private) Limited Financial & Management Services (Private) Limited is fully provided subsidiary and the company is dormant and has no asset and liability. The Board of Directors of the Bank has approved winding up of the Company. The Bank holds 95.90% shareholding in this subsidiary. MNET Services (Private) Limited Pursuant to the scheme of arrangement duly approved by the Board of Directors of Mnet Services (Private) Limited (Transferor Company) and MCB Bank Limited (Transferee Company), as required under section 284(2) of the Companies Act, 2017 for the amalgamation of Transferor Company with and into Transferee Company, the Transferor Company stands merged into Transferee Company with effect from April 30, 2019. BASIS OF PRESENTATION 2.1 2.2 2.3 2.4 3. The State Bank of Pakistan (SBP) granted a “Certificate of Commencement of Banking Business” to MCBIBL on September 14, 2015 under Section 27 of the Banking Companies Ordinance, 1962. MCBIBL formally commenced operations as a Scheduled Islamic Commercial Bank with effect from October 15, 2015 upon receiving notification in this regard from SBP under section 37 of the State Bank of Pakistan Act, 1956. Currently, the Bank is engaged in corporate, commercial, consumer, micro finance, investment and retail banking activities. These consolidated financial statements include the financial statements of MCB Bank Limited and its subsidiary companies and share of the profit / reserves of associates (the “Group”). 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 profit in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these consolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of profit thereon. The Islamic Banking operations of the Group have complied with the requirements set out under the Islamic Financial Accounting Standards issued by the Institute of Chartered Accountants of Pakistan and notified under the provisions of the Companies Act, 2017. Key financial figures of the MCBIBL are disclosed in Annexure II to these consolidated financial statements. These consolidated financial statements are presented in Pak Rupees, which is the Group functional and presentation currency. The amounts are rounded off to the nearest thousand. STATEMENT OF COMPLIANCE 3.1 These consolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: – International Financial Reporting Standards IFRS issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; – Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017; – Provisions of and directives issued under the Banking Companies Ordinance, 1962, the Companies Act, 2017; and – 314 Directives issued by the SBP and the Securities and Exchange Commission of Pakistan (SECP). Unconsolidated Financial Statements
  317. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 3.2 Wherever the requirements of the Banking Companies Ordinance, 1962, Companies Act, 2017 or the directives issued by the SBP and the SECP differ with the requirements of IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The State Bank of Pakistan has deferred the applicability of International Financial Reporting Standard 9, ‘Financial Instruments’ through BPRD Circular No. 04 of 2019 dated October 23, 2019 and International Accounting Standards 40, ‘Investment Property’ for Banking Companies through BSD Circular No. 10 dated August 26, 2002. The Securities and Exchange Commission of Pakistan (SECP) has deferred applicability of IFRS-7 “Financial Instruments: Disclosures” on banks through S.R.O 411(1) /2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars. IFRS10 Consolidated Financial Statements was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O 56(I) /2016 dated January 28, 2016, that the requirements of consolidation under section 237 of the repealed Companies Ordinance 1984 (Section 228 of Companies Act 2017) and IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under Trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. The State Bank of Pakistan has deferred the applicability of IFAS 3 ‘Profit and Loss Sharing on Deposits’, through BPRD Circular No.04 dated February 25, 2015, International Financial Reporting Standard 9, ‘Financial Instruments’ through BPRD Circular No. 04 of 2019 dated October 23, 2019 and International Accounting Standards 40, ‘Investment Property’ for Banking Companies through BSD Circular No. 10 dated August 26, 2002. Standards, interpretations and amendments to published approved accounting standards that are effective in the current year The Group has adopted “IFRS 15 Revenue from Contracts with Customers” and “IFRS 16 Leases” effective 01 January 2019. IFRS 15 established a comprehensive framework for determining whether, how much and when revenue is recognized. It replaced IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. The Group has adopted IFRS 15 from January 01, 2019 and one of its subsidiary from July 01, 2018. The timing or amount of income from contracts with customers was not impacted by the adoption of IFRS 15, accordingly, the adoption of this standard has no material impact in these consolidated financial statements. The impact of adoption of IFRS 16 on the Group consolidated financial statements is disclosed in note 5.1. In addition, there are certain other new standards and interpretations of and amendments to existing accounting standards that have become applicable to the Group for accounting periods beginning on or after January 1, 2019. These are considered either to not be relevant or not to have any significant impact on the Group’s consolidated financial statements. 3.3 Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following other standards, amendments and interpretations of approved accounting standards are effective for accounting periods beginning on or after January 1, 2020: IFRS 3, Business Combinations - (Amendments) IAS 1, Presentation of Financial Statements (Amendments) IAS 8, Accounting Policies, Changes in Accounting Estimates and Errors (Amendments) Effective date (annual periods beginning on or after) January 1, 2020 January 1, 2020 January 1, 2020 Annual Report 2019 315
  318. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 4. IFRS 9, Financial Instruments: Classification and Measurement, addresses recognition, classification, measurement and derecognition of financial assets and financial liabilities. The standard has also introduced a new impairment model for financial assets which requires recognition of impairment charge based on an ‘expected credit losses’ (ECL) approach rather than the ‘incurred credit losses’ approach as currently followed. The ECL approach has an impact on all assets of the Bank which are exposed to credit risk. The Group is in the process of assessing the full impact of this standard. There are other new and amended standards and interpretations that are mandatory for accounting periods beginning on or after January 1, 2020 but are considered not to be relevant or do not have any significant effect on the Group’s operations and are therefore not detailed in these consolidated financial statements. BASIS OF MEASUREMENT 4.1 4.2 a) b) 316 The SECP, through SRO 229(I)/2019 dated February 14, 2019, has notified that IFRS 9, Financial Instruments, is applicable for accounting periods ending on or after June 30, 2019. However, as per BPRD Circular No. 04 of 2019 dated October 23, 2019 of SBP, effective date of IFRS 9 implementation for Banks in Pakistan is January 01, 2021. These consolidated financial statements have been prepared under the historical cost convention except that certain classes of fixed assets and non-banking assets acquired in satisfaction of claims are stated at revalued amounts and certain investments and derivative financial instruments have been marked to market and are carried at fair value. In addition, obligations in respect of staff retirement benefits are carried at present value. Critical accounting estimates and judgments The preparation of consolidated 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 Group’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. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to the Group financial statements or where judgment was exercised in the application of accounting policies are as follows: Classification of investments In classifying investments, the Group follows the guidance provided in SBP circulars: – Investments classified as ‘held for trading’, are 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 of acquisition. – Investments classified as ‘held to maturity’ are non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Group evaluates its intention and ability to hold such investment to maturity. – The investments other than those in associates which are not classified as ‘held for trading’ or ‘held to maturity’ are classified as ‘available for sale’. Provision against advances The Group reviews its loan portfolio including Islamic financing and related assets to assess the amount of non-performing advances and Islamic financing and provision required 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 note 10.4.4. Unconsolidated Financial Statements
  319. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 c) Impairment of ‘available for sale’ equity investments The Group 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 Group 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 investee and sector performance, changes in technology and operational/financial cash flows. d)Taxation e) f) g) h) 5. In making the estimates for income taxes currently payable by the Group, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. 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 underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Depreciation, amortization 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 Group. 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 Group 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. Staff retirement benefits Certain actuarial assumptions have been adopted as disclosed in note 38 of these consolidated financial statements 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 affect the liability / asset under these plans in those years. Lease term The Group applies judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these consolidated financial statements are consistent with those of the previous financial year expect for the changes explained in notes 5.1. 5.1 Change in accounting policy IFRS 16 replaces existing guidance on accounting for leases, including IAS 17, Leases, IFRIC 4, Determining whether an Arrangement contains a Lease, SIC-15, Operating Leases- Incentive, and SIC-27, Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 introduces an on balance sheet lease accounting model for long term operating leases (short-term leases and leases where the underlying assets are of low value continue to be treated as off-balance sheet operating leases). A lessee recognizes a right-of-use asset representing its right of using the underlying asset and a corresponding lease liability representing its obligations to make lease payments. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as either finance or operating leases. Annual Report 2019 317
  320. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 The Group has adopted IFRS 16 from January 1, 2019, and has not restated comparatives for the 2018 reporting period, using modified retrospective approach. On adoption of IFRS 16, the Group has recognised liabilities in respect of leases which had previously been classified as operating leases under IAS 17. These liabilities are now measured as the present value of the remaining lease payments, discounted using the weighted average rate as of January 1, 2019. The associated right-of use assets are measured at the amount equal to the lease liability, adjusted by the amount of prepaid lease payments. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The right-of-use assets are depreciated on a straight line basis over the lease term as this method most closely reflects the expected pattern of consumption of future economic benefits. The rightof-use assets are reduced by impairment losses, if any, and adjusted for certain remeasurements of lease liability. The change in accounting policy affected the following items in the statement of financial position as on January 01, 2019: 5.2 a) b) c) d) 318 – Right-of-Use (RoU) assets recognized as Fixed assets – increased by Rs. 11,392.795 million which includes prepayments of Rs. 359.920 million; previously, included in advances, deposits, advance rent and other prepayments as at December 31, 2018. – Lease liabilities recognized as Other liabilities – increased by Rs. 11,032.875 million. Interest on lease liability represents unwinding of lease liability amounting to Rs. 1,506.301 million. The impact on profit and loss account for the year ended December 31, 2019 is a decrease in profit after tax by Rs. 730.856 million and earning per share by Rs. 0.62. Payments associated with short-term leases and leases of low-value assets are recognized on a straight-line basis as an expense in profit or loss. Basis of consolidation These consolidated financial statements include the financial statements of MCB Bank Limited and its subsidiary companies and share of the profit / reserves of associates are accounted for under the equity basis of accounting. Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date when control ceases / the subsidiaries are disposed off. The assets and liabilities of subsidiary companies have been consolidated on a line by line basis based on the financial statements as at December 31, 2019 and the carrying value of investments held by the Bank is eliminated against the subsidiaries’ shareholders’ equity in these consolidated financial statement. Material intra-group balances and transactions have been eliminated. Associates are all entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost, thereafter for the post-acquisition change in the Group’s share of net assets of the associate, the cumulative post-acquisition movements are adjusted in the carrying amount of the investment. Accounting policies of the associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interest is that part of the net results of operations and of net assets of subsidiary companies attributable to interests which are not owned by the Group. Unconsolidated Financial Statements
  321. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.3Investments a) The Group classifies its investments as follows: These are securities, which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. b) c) 5.4 Held for trading Held to maturity These are securities with fixed or determinable payments and fixed maturity in respect of which the Group has the positive intent and ability to hold to maturity. Available for sale These are investments, other than those in associates, that do not fall under the ‘held for trading’ or ‘held to maturity’ categories. Investments are initially recognized at cost which in case of investments other than ‘held for trading’ include transaction costs associated with the investment. Transaction costs on investments held for trading are expensed in the profit and loss account. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognized at the trade date. Trade date is the date on which the Group 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’, 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 surplus / deficit on revaluation of investments through statement of comprehensive income in equity till disposal at which time it is recorded in profit and loss account. 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 (excluding investments in associates) 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 financial statements. Investments classified as ‘held to maturity’ are carried at amortized cost less accumulated impairment losses, if any. Provision for impairment in the values of securities (except debentures, participation term certificates and term finance certificates) is made currently. Impairment of ‘available for sale’ equity investments is discussed in 4.2(c). Provisions for impairment in value of sukuks, 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. Sale and repurchase agreements Securities sold subject to a repurchase agreement (repo) are retained in these consolidated financial statements as investments and the counter party liability is included in borrowings. Securities purchased under an agreement to resell (reverse repo) are not recognized in these consolidated 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 recognized as mark-up income / expense on a time proportion basis, as the case may be. 5.5Advances 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 are held against identified as well as unidentified Annual Report 2019 319
  322. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 losses. Provisions against unidentified losses include general provision against Consumer and Small Enterprise (SEs) loans made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Advances are written off when there is no realistic prospect of recovery. 5.6 320 Leases where the Group transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognized 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. In Murabaha transactions, the Group purchases the goods through its agent or client and after taking the possession, sells them to the customer on cost plus profit basis either in a spot or credit transaction. Under Murabaha financing, funds disbursed for purchase of goods are recorded as ‘Advance against Murabaha finance’. On culmination of Murabaha i.e. sale of goods to customers, Murabaha financing are recorded at the deferred sale price. Goods purchased but remaining unsold at the statement of financial position date are recorded as inventories. The Group values its inventories at the lower of cost and net realizable value. The net realizable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale. Cost of inventories represents actual purchases made by the Group / customers as the agent of the Group for subsequent sale. In Ijarah financing, the Group provides the asset on pre-agreed rentals for specific tenors to the customers. Ijarah assets are stated at cost less depreciation and are disclosed as part of ‘Islamic financing and related assets’. The rental on Ijarah under Islamic Financial Accounting Standard - 2 Ijarah (IFAS 2) are recorded as income / revenue. The Group charges depreciation from the date of recognition of Ijarah of respective assets to Mustajir. Ijarah assets are depreciated over the period of Ijarah using the straight line method. Impairment of Ijarah assets is determined in accordance with the Prudential Regulations issued by the SBP. In Diminishing Musharaka based financing, the Group enters into Musharaka based on Shirkat-ul-Milk for financing and agreed share of fixed assets (example: house, land, plant, machinery or vehicle) with its customers and enters into period profit payment agreement for the utilization of the Group’s Musharaka share by the customer. In Istisna financing, the Group acquires the described goods to be manufactured by the customer from raw material of its own and deliver to the Group within an agreed time. The goods are then sold and the amount financed is received back by the Group alongwith profit. In Salam financing, the Group pays full in advance to its customer for buying specified goods / commodities to be delivered to the Group within an agreed time. The goods are then sold and the amount financed is received back by the Group alongwith profit. In Running Musharaka based financing, the Group enters into financing with the customer based on Shirkat-ul-Aqd or Business Partnership in the customer’s operating business where the funds can be withdrawn or refunded during the Musharakah period. Fixed assets and depreciation Fixed assets other than land and buildings are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Buildings are carried at revalued amount less any accumulated depreciation and subsequent impairment losses, if any. Land is carried at revalued amount less any subsequent impairment losses, if any. Cost of property and equipment of foreign operations includes exchange differences arising on currency translation at year-end rates. Capital work-in-progress is stated at cost less accumulated impairment losses, if any. These are transferred to specific assets as and when assets become available for use. Unconsolidated Financial Statements
  323. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.6.1 Depreciation on all fixed assets (excluding land) is charged using the straight line method in accordance with the rates specified in note 11.2 to these consolidated 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. Land and buildings are revalued by independent, professionally qualified valuers with sufficient regularity to ensure that their net carrying amount does not differ materially from their fair value. An increase arising on revaluation is credited to the surplus on revaluation of fixed assets account. A decrease arising on revaluation of fixed assets is adjusted against the surplus of that asset or, if no surplus exists, is charged to the profit and loss account as an impairment of the asset. A surplus arising subsequently on an impaired asset is reversed through the profit and loss account up to the extent of the original impairment. Surplus on revaluation of fixed assets (net of associated deferred tax) to the extent of the incremental depreciation charged on the related assets is transferred 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 buildings (net of deferred taxation) is transferred directly to unappropriated profit. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account. Intangible assets Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized from the month when these assets are available for use, using the straight line method, whereby the cost of the intangible assets are amortized over its estimated useful lives over which economic benefits are expected to flow to the Group. The useful lives are reviewed and adjusted, if appropriate, at each balance sheet date. 5.7Impairment 5.8 a) 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. Staff retirement benefits MCB Bank Limited (Holding Company) The Bank operates the following staff retirement benefits for its employees: 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 Annual Report 2019 321
  324. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 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: c) d) e) an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund; and – contributory benevolent scheme 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; – an approved pension fund, and – contributory benevolent 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. For executives and officers who joined the Bank on or after January 01, 2000, the Bank operates an approved contributory provident fund. 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 services subject to the completion of qualifying period of service. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in other Comprehensive Income in the period of occurrence. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. The Bank recognises past service cost as an expense at the earlier of the following dates: (i) when the plan amendment or curtailment occurs; and (ii) when the Bank recognises related restructuring costs or termination benefits. 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 / losses arising from experience adjustments and changes in actuarial assumptions are recognized in Profit and Loss account in the period of occurrence. 322 – Employees’ compensated absences MCB Islamic Bank Limited MCBIBL operates a recognised contributory provident fund scheme for all its permanent employees. Equal monthly contributions are made both by the Bank and its permanent employees, to the Fund at the rate of 8.33% of the basic salaries of employees. However, an employee has an option to increase his/her contribution upto 15% but the Bank will still contribute 8.33% of the employee’s basic salary. The Bank has no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. MCB Financial Services The Company operates a recognised contributory provident fund scheme for all its permanent employees. Equal monthly contributions are made both by the Bank and its permanent employees. Unconsolidated Financial Statements
  325. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.9Taxation 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 / finalized during the year. Deferred Deferred tax is recognised using the balance sheet liability method on all temporary differences between the amounts attributed to assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The Group records deferred tax assets / liabilities using the tax rates, enacted or substantively enacted by 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 Group 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 recognized 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. 5.10Provisions 5.11 Provisions are recognized when the Group has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimates. Foreign currencies 5.11.1 Foreign currency transactions Transactions in foreign currencies other than the results of foreign operations discussed in note 5.11.2 are translated to Rupees at the foreign exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in Rupee terms at the rates of exchange prevailing at the balance sheet date. Forward foreign exchange contracts are valued at the rates applicable to their respective maturities. 5.11.2 Foreign operations The assets and liabilities of foreign branches and subsidiary are translated to Rupees at exchange rates prevailing at the statement of financial position 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 Group’s net investment in foreign branches and subsidiary, which are taken to the capital reserve (exchange translation reserve) until the disposal of the net investment, at which time these are recognised in the profit and loss account. 5.11.4Commitments Commitments for outstanding forward foreign exchange contracts are disclosed in these consolidated 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 prevailing at the consolidated statement of financial position date. Annual Report 2019 323
  326. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.12Acceptances 5.13 Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be simultaneously settled with the reimbursement from the customers. Revenue recognition – Mark-up / interest on advances and returns on investments are recognized on a time proportion basis using the effective interest method except that mark-up / interest on non-performing advances and investments is recognized 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 countries where the branches operate. Where debt securities are purchased at premium or discount, such premium / discount is amortized through the profit and loss account over the remaining period of maturity. – 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 recognized as income when these are realized. – Profit on investments in Sukuks is recognised on time proportion basis. Where Sukuks (excluding those classified as held for trading) are purchased at a premium or discount, such premiums / discounts are amortised through the profit or loss account using the effective yield method. – Profit on Salam financing is recognised on time proportion basis. – Profit on Running Musharaka financing is booked on an accrual basis and is subject to adjustment (if any) upon declaration of profit by Musharakah partners. – Commission income is recognized on a time proportion basis. – Dividend income is recognized when the Group’s right to receive dividend is established. – Gain / loss on sale of investments is credited / charged to profit and loss account in the year to which it relates. – Rental income from Ijarah financing is recognised on an accrual basis. Depreciation on Ijarah asset is charged to income (net of with rental income) over the period of Ijarah using the straight line method. – Profit from Bai-Mua’jjal is recognised on an time proportionate basis. – Profit on Diminishing Musharaka is recognised on time proportionate basis. – Profit on Istisna financing is recognised on time proportionate basis. – Profit from Musharaka placements with financial institutions is recognised on time proportionate basis. – Profit from Murabaha financing is accounted for on culmination of Murabaha transaction. Profit on Murabaha is recognised on an accrual basis. Profit on Murabaha transactions for the period from the date of disbursement to the date of culmination of Murabaha is recognised immediately on the later date. – Revenue for acting as trustee is recognized on Net Assets Value (NAV) of respective funds. – Management / advisory fee is calculated on a daily / monthly basis by charging specified rates to the net assets value / income of the Collective Investment Schemes. Advisory fee from the discretionary portfolio is calculated in accordance with the respective agreements with the clients. Management fee from the pension funds is calculated by charging the specified rates to the average net assets value. – Revenue from trusteeship and custodian is recognised when the group satisfies a performance obligation by rendering promised services as per respective agreements. 324 Unconsolidated Financial Statements
  327. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 The income on Islamic financing is recognised in accordance with the principles of Islamic Shari’ah and in accordance with regulations and guidelines of the State Bank of Pakistan. However, income, if any, received which does not comply with the principles of Islamic Shari’ah is recognised as charity payable if so directed by the Shari’ah Board of the Group. 5.14 Assets acquired in satisfaction of claims Non-banking assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation and impairment loss. These assets are revalued by professionally qualified valuers with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of property is credited to the ‘surplus on revaluation of non banking assets’ account through statement of comprehensive income in equity and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title to property are charged to profit and loss account and not capitalised. 5.15 5.16 Cash and cash equivalents Cash and cash equivalents include cash and balances with treasury banks and balances with other banks (net of overdrawn Nostro balances) in current and deposit accounts. Financial instruments 5.16.1 Financial assets and financial liabilities Financial instruments carried on the statement of financial position include cash and balances with treasury banks, balances with other banks, lendings to financial institutions, investments, advances, other assets, bills payable, borrowings, deposits and other liabilities. 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. 5.16.2 Derivative financial instruments Derivative financial instruments are initially recognized 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 the derivative financial instruments are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account currently. 5.16.3 Off setting 5.17 Financial assets and financial liabilities are off set and the net amount is reported in these consolidated financial statements when there is a legally enforceable right to set off and the Group intends either to settle on a net basis, or to realize the assets and settle the liabilities, simultaneously. Borrowings / deposits Borrowings / deposits are recorded at the proceeds received. The cost of borrowings / deposits is recognized as an expense in the period in which this is incurred. Deposits are generated on the basis of two modes i.e. Qard and Mudaraba. Deposits taken on Qard basis are classified as ‘Current accounts’ and Deposits generated on Mudaraba basis are classified as ‘Savings deposits’ or ‘Fixed deposits’. No profit or loss is passed to current account depositors. Profits realized in investment pools are distributed in pre-agreed profit sharing ratio. Rab-ul-Maal share is distributed among depositors according to weightages assigned at the inception of profit calculation period. Profits are distributed from the pool such that the depositors (remunerative) only bear the risk of assets in the pool during the profit calculation period. In case of loss in a pool during the profit calculation period, the loss is distributed among the depositors (remunerative) according to their ratio of Investments. Annual Report 2019 325
  328. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Asset pools may be created at the Group’s discretion and the Group may add, amend, and transfer an asset to any other pool in the interests of the deposit holders. 5.18 Segment reporting A segment is a distinguishable component of the Group 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 Group’s primary format of reporting is based on business segments. 5.18.1 Business segments Retail banking This includes retail lending and deposits, banking services, cards and branchless banking. This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Group’s corporate and public sector customers. Corporate banking Consumer Banking This segment primarily constitutes consumer financing activities with individual customers of the Group. Product suite offered to these customers include credit cards, auto loans, housing finance and personal loans. Islamic Banking This segment primarily constitutes Islamic lending and deposits, banking services, cards and branchless banking. Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making. Assets Management It includes asset management, investment advisory, portfolio management, equity research and underwriting. International Banking This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities by Group’s overseas operations. Others This includes the head office related activities and other functions which cannot be classified in any of the above segments. 5.18.2 Geographical segments The Group operates in Four geographic regions being: –Pakistan – South Asia – Middle East –Azerbaijan 326 Unconsolidated Financial Statements
  329. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.19 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. 5.20 5.21 5.22 5.23 Business combination Business combinations other than under common control transaction are accounted for by applying the acquisition method. The cost of acquisition is measured as the fair value of assets given, equity instruments issued and the liabilities incurred or assumed at the date of acquisition. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, if any. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets acquired in the case of a bargain purchase, the difference is recognized directly in the profit and loss account or as directed by the SBP. Earnings per share The Group presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year. Subordinated debt Sub-ordinated loans are initially recorded at the amount of proceeds received and subsequently measured at amortised cost. Markup accrued on these loans is charged to profit and loss account over the period at effective interest rate. Pool Management The Group operates general and specific pools for deposits and inter-Group funds accepted / acquired under Mudaraba, Musharaka and Wakala modes. Under the general deposits pool, the Group accepts funds on Mudaraba basis from depositors (Rabbul-Maal) where the Group acts as Manager (Mudarib) and invests the funds in the Shari’ah Compliant modes of financings, investments and placements. When utilising investing funds, the Group prioritizes the funds received from depositors over the funds generated from own sources. Specific pools may be operated for funds acquired / accepted from the State Group of Pakistan and other Groups for Islamic Export Refinance to Group’s customers and liquidity management respectively under the Musharaka / Mudaraba modes. The Group also maintains an Equity Pool which consists of Group’s equity and funds accepted on Qard (non-remunerative current deposit account) basis. The profit of each deposit pool is calculated on all the remunerative assets booked by utilising the funds from the pool after deduction of expenses directly incurred in earning the income of such pool, if any. The directly related costs comprise of depreciation on Ijarah assets, takaful premium, documentation charges etc. No general or administrative nature of expense is charged to pool. No provision against any non-performing asset of the pool is passed on to the pool except on the actual loss / write-off of such non-performing asset. The profit of the pool is shared between equity and other members of the pool on the basis of Musharaka at gross level (before charging of Mudarib fee) as per the investment ratio of the equity. The profit of the pool is shared among the members of the pool on pre-defined mechanism based on the weightages announced before the profit calculation period after charging of Mudarib fee. Annual Report 2019 327
  330. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 5.24 The deposits and funds accepted under the above mentioned pools are provided to diversified sectors and avenues of the economy / business as mentioned in the notes and are also invested in Government of Pakistan backed Ijarah Sukuks. Staff financings are exclusively financed from the equity pool. The risk characteristic of each pool mainly depends on the assets and liability profile of each pool. Funds due to / from financial institutions Bai Mu’ajjal In Bai Mu’ajjal, the Group sells sukuk on credit to other financial institutions. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. Musharaka / Mudaraba / Wakala In Musharaka / Mudaraba / Wakala, the Group invests in the Shariah compliant business pools of the financial institutions at the agreed profit and loss sharing ratio / fees. Note 6. 20192018 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand Local currency Foreign currencies 20,833,520 2,802,190 18,425,271 3,091,560 With State Bank of Pakistan in Local currency current account 6.1 Foreign currency current account 6.2 Foreign currency deposit account 6.3 23,635,710 21,516,831 62,180,493 599,384 14,320,863 43,735,552 571,438 12,841,393 With other central banks in Foreign currency current account 6.4 With National Bank of Pakistan in Local currency current account Prize bonds 77,100,740 57,148,383 16,220,148 5,197,681 25,666,525 334,235 26,181,864 120,247 142,957,358 110,165,006 6.1 This represents current accounts maintained with the SBP under the Cash Reserve Requirement of section 22 of the Banking Companies Ordinance, 1962. 6.2 This represents US Dollar settlement account maintained with SBP. 6.3 This represents account maintained with the SBP to comply with the Special Cash Reserve requirement. This includes balance of Rs. 10,517.551 million (2018: Rs. 9,466.493 million) which carries interest rate of 0.70% (2018: 1.35%) per annum as declared by SBP. 6.4 Foreign currency current account with other central banks are maintained to meet their minimum cash reserves and capital requirements pertaining to the foreign branches of the Bank. 328 Unconsolidated Financial Statements
  331. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 7. Note 20192018 (Rupees in '000) BALANCES WITH OTHER BANKS In Pakistan In current account In deposit account 7.1 9,183 4,378,142 3,812 1,011,404 Outside Pakistan In current account In deposit account 7.2 4,387,325 1,015,216 12,845,556 4,138,872 9,676,073 2,646,828 16,984,428 12,322,901 21,371,753 13,338,117 7.1 This represents saving accounts carrying profit at expected rates ranging from 3.00% to 12.54% per annum (2018: 0.03% to 9.95% per annum). 7.2 Balances with other banks outside Pakistan in deposit accounts carry interest rate ranging from 2.60% to 8.30% (2018: 2.90% to 6%) per annum. Note 8. LENDINGS TO FINANCIAL INSTITUTIONS Call / clean money lendings Repurchase agreement lendings (Reverse Repo) Musharaka arrangements Bai Muajjal receivable - with State Bank of Pakistan – 209,205 2,480,000 3,371,664 1,437,978 33,036,912 4,675,000 – 6,060,869 8.1 Call money lending carries mark-up rate of nil (2018: 2.4% to 9.0%) per annum. 39,149,890 8.2 8.3 8.4 8.1 8.2 8.3 8.4 20192018 (Rupees in '000) Repurchase agreement lendings carries mark-up rate of 7% (2018: 8% to 10.35%) per annum and is due to mature in January 2020. This represents Musharaka arrangements with banks carry rates ranging from 10.80% to 11.00% per annum (2018: 9.25% to 9.55% per annum) and having maturity till January 2020. This represents Bai Muajjal receivable arrangements with State Bank of Pakistan carries rate of 10.34% per annum (2018: nil) and having maturity till February 2020. 8.5 Particulars of lending 20192018 (Rupees in '000) In local currency In foreign currencies 5,851,664 209,205 37,647,346 1,502,544 6,060,869 39,149,890 Annual Report 2019 329
  332. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 2019 2018 Held by Further given Total Group as collateral Held by Further given Group as collateral Total (Rupees in '000) 8.6 Securities held as collateral against lendings to financial institutions Market Treasury Bills – – – 32,972,346 – 32,972,346 Total – – – 32,972,346 – 32,972,346 9.INVESTMENTS 9.1 Investments by type: 20192018 Cost/Provision Surplus/CarryingCost/ProvisionSurplusCarrying Noteamortisedfor (deficit) value amortisedfor (deficit)value costdiminution costdiminution (Rupees in '000) Held-for-trading securities Federal Government Securities 9,479,849 - (4,128) 9,475,721 9,348,153 - (2,599) 9,345,554 Shares and units 1,062,839 - 88,114 1,150,953 1,093,588 - (45,167) 1,048,421 10,542,688 - 83,986 10,626,674 10,441,741 - (47,766) 10,393,975 Available-for-sale securities Federal Government Securities Shares and units Non Government Debt Securities 2,428,773 - (4,671) 2,424,102 2,523,629 - 4,452 2,528,081 Foreign Securities 3,657,020 - 13,295 3,670,315 2,545,151 - (16,492) 2,528,659 - 4,973,965 682,001,324 683,373,062 26,846,236 (11,207,932) 709,959,388 (11,207,932) Held-to-maturity securities Federal Government Securities 18,908,076 (2,211) Provincial Government Securities 118 (118) Non Government Debt Securities 10,442,925 (533,788) Foreign Securities 8,320,599 (3,569) 37,671,718 (539,686) 9.11 Associates Total Investments 330 677,027,359 Unconsolidated Financial Statements 4,275,658 - 762,449,452 (11,747,618) - (4,031,830) 679,341,232 1,673,181 17,311,485 27,929,718 (8,253,849) 6,655,770 705,407,226 716,371,560 (8,253,849) - 18,905,865 21,859,645 - - (1,675) 118 (118) - 9,909,137 9,001,110 (490,924) - 8,317,030 5,809,776 - 37,132,032 36,670,649 - 4,275,658 4,019,526 - (492,717) - 6,739,756 757,441,590 767,503,476 (8,746,566) (279,499) 19,396,370 (4,323,369) 703,794,342 - 21,857,970 - - - 8,510,186 - 5,809,776 - 36,177,932 - 4,019,526 (4,371,135) 754,385,775
  333. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 9.2 Investments by segments: 20192018 Cost/Provision Surplus/CarryingCost/ProvisionSurplusCarrying Noteamortisedfor (deficit) value amortisedfor (deficit)value costdiminution costdiminution (Rupees in '000) Federal Government Securities: Market Treasury Bills 397,866,023 - Pakistan Investment Bonds 292,723,081 - 5,376,303 298,099,384 127,913,919 Sukuks bonds 11,094,999 Euro Bonds 1,030,354 Bai Mu’ajjal 2,700,827 705,415,284 (2,211) 118 (118) Provincial Government Securities Shares: Listed Companies Unlisted Companies Non Government Debt Securities - 6,949 11,101,948 8,592,680 - 1,028,143 1,231,118 - 2,700,827 1,159,936 (2,211) - 26,355,910 (11,042,016) 1,553,165 (413,415) 397,452,608 575,683,207 4,969,837 710,382,910 714,580,860 - 118 - 1,387,249 1,564,665 (290,163) 575,393,044 - (3,703,103) 124,210,816 - (1,675) (41,163) 8,551,517 - 1,229,443 - (1,675) - 1,159,936 (4,034,429) 710,544,756 (118) - 1,761,295 17,075,189 27,458,641 (8,092,709) (165,916) 27,909,075 (11,207,932) - - - (324,666) 19,041,266 (161,140) - 1,403,525 1,761,295 18,462,438 29,023,306 (8,253,849) (324,666) 20,444,791 Listed 5,800,646 (16,269) (2,050) 5,782,327 4,697,999 (16,269) 4,367 4,686,097 Unlisted 7,071,052 (517,519) (2,621) 6,550,912 6,826,740 (474,655) 85 6,352,170 12,871,698 (533,788) (4,671) 12,333,239 11,524,739 (490,924) 4,452 11,038,267 Foreign Securities Government securities 11,517,802 (2,828) 452,567 (741) Unlisted equity securities 7,250 11,977,619 Associates Adamjee Insurance Company Limited 9.9 Euronet Pakistan (Private) Limited 9.10 Non Government Debt securities Total Investments 13,295 11,528,269 7,870,174 - - 451,826 478,548 - - 478,548 - 7,250 6,205 - - 6,205 13,295 11,987,345 8,354,927 - - (3,569) (16,492) (16,492) 7,853,682 8,338,435 4,211,707 - - 4,211,707 3,959,039 - - 3,959,039 63,951 - - 63,951 60,487 - - 4,275,658 - - 4,275,658 4,019,526 - - 4,019,526 762,449,452 (11,747,618) 6,739,756 757,441,590 767,503,476 (8,746,566) 60,487 (4,371,135) 754,385,775 20192018 (Rupees in '000) 9.2.1 Investments given as collateral - Market Treasury Bills - Pakistan Investment Bonds 22,820,226 5,316,208 155,324,815 10,489,134 28,136,434 165,813,949 Annual Report 2019 331
  334. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 9.3 Provision for diminution in value of investments 20192018 (Rupees in '000) 9.3.1 Opening balance 8,746,566 5,984,983 Exchange adjustments Charge / (reversals) Charge for the year Reversals for the year Reversal on disposals 251 286 3,452,808 (29,964) (422,043) 3,700,485 (4,620) (835,803) Amounts written off 3,000,801 – 2,860,062 (98,765) 11,747,618 8,746,566 9.3.2 Closing balance Category of classification Particulars of provision against debt securities 20192018 NPIProvisionNPIProvision (Rupees in '000) Domestic Doubtful Loss 145,656 461,078 72,828 461,078 – 492,717 – 492,717 606,734 533,906 492,717 492,717 9.3.3 In addition to the above, overseas branches hold a general provision of Rs. 5.780 million (December 31, 2018: Rs. 1.675 million) in accordance with the requirements of IFRS 9. 9.4 Quality of Available for Sale Securities Details regarding quality of Available for Sale (AFS) securities are as follows; 20192018 Cost (Rupees in '000) Federal Government Securities Government guaranteed 332 Market Treasury Bills Pakistan Investment Bonds GOP Ijarah Sukuks Euro Bonds 386,882,153 278,739,813 10,899,070 506,323 566,335,054 108,585,929 8,452,079 – 677,027,359 683,373,062 Unconsolidated Financial Statements
  335. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost Listed Companies and mutual funds Automobile Assembler Automobile Part and Accessories Cable and Electrical Goods Cement Chemical Close End Mutual Fund Commercial Banks Engineering Fertilizer Food And Personal Care Products Insurance Investment Banks / Companies NIT Units Oil & Gas Exploration Companies Oil & Gas Marketing Companies Open End Mutual Fund Paper And Board Pharmaceutical Power Generation and Distribution Refinery Technology And Communication Textile (Rupees in '000) 1,385,302 413,930 659,439 2,100,969 76,050 1,186,851 2,014,437 2,085,008 3,047,663 1,199,266 599,364 41,784 5,253 2,649,990 742,705 312,349 700,059 1,230,160 2,616,001 981,399 706,796 538,296 1,316,749 413,930 671,668 2,081,418 5,132 1,186,851 2,058,099 2,132,161 3,287,154 1,230,825 587,629 41,784 5,253 1,733,239 1,413,084 1,361,195 700,059 1,230,159 2,702,805 981,399 706,211 518,249 25,293,071 26,365,053 20192018 Cost Breakup value Cost Breakup value (Rupees in '000) Unlisted Companies Central Depository Company Limited First Capital Investment (Pvt) Limited First Women Bank Limited ISE Towers Reit Management company Limited National Investment Trust Limited National Institutional Facilitation Technologies Pak Agro Storage And Service Corporation 1 Link (Pvt) Limited Pak Asian Fund Limited Arabian Sea Country Club SME Bank Limited Al-Ameen Textile Mills Limited Custodian Management Services Galaxy Textile Mills Limited Pakistan Textile City (Pvt) Limited Ayaz Textile Mills Limited Musarrat Textile Mills Limited Sadiqabad Textile Mills Limited Al-Arabia Sugar Mills Limited - Preference shares Pak Elektron Limited - Preference shares 184,426 2,500 63,300 30,346 1,027,651 1,527 2,500 50,000 – 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 4,775 25,000 687,011 3,334 201,807 87,958 1,665,882 69,766 605,006 147,332 – – – – – – – – – – – 25,000 184,426 2,500 63,300 30,346 1,027,651 1,527 2,500 50,000 11,500 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 4,775 25,000 619,651 3,334 201,807 86,235 1,945,933 59,076 605,006 131,847 18,323 – – – – – – – – – – 25,000 1,553,165 3,493,096 1,564,665 3,696,212 Annual Report 2019 333
  336. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost Non Government Debt Securities Listed - AA+, AA, AA- - A+, A, A- 1,086,840 150,000 882,840 129,000 Unlisted 1,236,840 1,011,840 990,000 201,933 1,411,789 100,000 (Rupees in '000) - AA+, AA, AA- - A+, A, A- 1,191,933 20192018 1,511,789 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Bahrain - Sri Lanka – 3,649,770 – B2 140,078 2,398,868 3,649,770 2,538,946 B2 B2 20192018 Cost Unlisted (Rupees in '000) Lanka Clear (Private) Limited Credit Information Bureau of Sri Lanka Lanka Financial Services Bureau Limited Society for Worldwide Inter Fund Transfer (SWIFT) 854 26 1,707 4,663 760 22 760 4,663 9.5 Particulars relating to Held to Maturity securities are as follows: 7,250 6,205 Pakistan Investment Bonds Market Treasury Bills Sukuks bonds Euro Bonds Bai Mu'ajjal 13,842,253 1,645,036 195,928 524,032 2,700,827 19,327,990 – 140,601 1,231,118 1,159,936 Provincial Government Securities 18,908,076 21,859,645 118 118 Federal Government Securities Government guaranteed 334 Unconsolidated Financial Statements
  337. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 Cost (Rupees in '000) Non Government Debt Securities Listed - AAA - AA+, AA, AA- - BBB+, BBB, BBB- - Unrated 1,796,970 2,700,716 – 66,120 – 4,728,839 50,051 16,269 Unlisted 4,563,806 4,795,159 - AA+, AA, AA- - A+, A, A- - Unrated 4,848,863 439,910 590,346 3,099,684 481,613 624,654 5,879,119 4,205,951 20192018 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Sri Lanka - United Arad Emirates 1,544,542 6,323,490 B2 Aa2 1,172,721 4,158,507 7,868,032 5,331,228 B2 Aa2 20192018 Cost Non Government Debt Securities (Rupees in '000) Listed - A+, A, A- Unlisted 153,702 136,729 - AAA - A+, A, A- 298,865 – 265,860 75,959 298,865 341,819 9.5.1 The market value of securities classified as held-to-maturity as at December 31, 2019 amounted to Rs. 34,042.566 million (December 31, 2018: Rs. 34,895.775 million). 9.6 "Available for sale" Market Treasury Bills and Pakistan Investment Bonds are eligible for rediscounting with the State Bank of Pakistan. 9.7 Investments include Pakistan Investment Bonds amounting to Rs. 67.9 million (2018: Rs. 67.9 million) earmarked by the SBP against TT discounting facilities sanctioned to the Bank. In addition, Pakistan Investment Bonds amounting to Rs. 5 million (2018: Rs. 5 million) have been pledged with the Controller of Military Accounts on account of Regimental Fund account and Pakistan Investment Annual Report 2019 335
  338. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Bonds amounting to Rs.100 million (2018: Rs. Rs. 50 million ) have been pledged with the National Clearing Company of Pakistan Limited (NCCPL) on account of removal of irrevocable undertaking as alternate option for collateral against participant’s exposure in stock market. 9.8 9.9 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. Investment of the Group in Adamjee Insurance Company Limited has been accounted for under the equity method of accounting in accordance with the treatment specified in International Accounting Standard 28, (IAS 28) 'Accounting for Investments in Associates'. The market value of the investment in Adamjee Insurance Company Limited as at December 31, 2019 amounted to Rs. 2,946.300 million (2018: Rs. 2,941.400 million). Investment in Adamjee Insurance Company Limited under equity method - holding 20% (2018: 20%) 20192018 (Rupees in '000) Opening balance 3,959,039 4,385,602 Share of profit for the year before tax Dividend from associate Share of tax 326,755 (175,000) (109,675) 446,121 (140,000) (208,759) Share of other comprehensive income Disposal during the year 42,080 210,588 – 97,362 (222,761) (301,164) 4,211,707 3,959,039 167,219 43,369 (239,821) 17,060 Closing balance Share of unrealized surplus on assets -net of tax Share of exchange translation reserve of associate Share of other comprehensive income 210,588 (222,761) 9.10 Investment of the Group in Euronet Pakistan Private Limited has been accounted for under the equity method of accounting in accordance with the treatment specified in International Accounting Standard 28, (IAS 28) 'Accounting for Investments in Associates'. Investment in Euronet Pakistan Private Limited under equity method - holding 30% (2018: 30%) Opening balance 336 20192018 (Rupees in '000) 60,487 70,637 Share of profit for the year before tax Share of tax 12,878 (9,414) 136 (10,286) Closing balance 3,464 (10,150) 63,951 60,487 Unconsolidated Financial Statements
  339. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 9.11 Summarized financial information of associates Country of % of interest Revenue incorporation held 2019 Associates Euronet Pakistan (Private) Limited (unaudited based on December 31, 2019) Adamjee Insurance Company Limited (unaudited based on September 30, 2019) 2018 Associates Euronet Pakistan (Private) Limited (audited based on December 31, 2018) Adamjee Insurance Company Limited (unaudited based on September 30, 2018) Profit/(loss) after tax Assets Liabilities (Rupees in '000) Pakistan 30% 557,579 25,769 648,477 435,306 Pakistan 20% 19,551,861 1,108,984 82,967,479 63,892,816 Pakistan 30% 368,852 (44,052) 467,293 279,891 Pakistan 20% 18,872,622 1,505,199 79,330,901 28,609,789 10.ADVANCES Performing Non Performing Total Note 201920182019201820192018 (Rupees in '000) Loans, cash credits, running finances, etc. 10.1 Islamic financing and related assets Bills discounted and purchased 471,613,945 50,965,243 19,486,758 480,263,372 62,911,298 17,887,661 48,759,157 381,427 665,102 47,976,277 10,766 979,271 520,373,102 528,239,649 51,346,670 62,922,064 20,151,860 18,866,932 Advances - gross 542,065,946 561,062,331 49,805,686 48,966,314 591,871,632 610,028,645 Provision against advances - Specific - General – (1,461,011) – (1,292,113) (41,937,761) – (41,944,267) – (41,937,761) (1,461,011) (41,944,267) (1,292,113) (1,461,011) (1,292,113) (41,937,761) (41,944,267) (43,398,772) (43,236,380) 540,604,935 559,770,218 7,867,925 7,022,047 Advances - net of provision 10.1 548,472,860 566,792,265 Includes net investment in finance lease as disclosed below: 20192018 Not later Later than Over five than one one and less year Total year than five years Not later Later than Over five than one one and less year year than five years Total (Rupees in '000) Lease rentals receivable 623,319 2,500,339 2,365,197 5,488,855 555,270 2,445,911 2,721,816 5,722,997 Residual value 14,769 35,544 10,368 60,681 15,000 25,867 5,397 46,264 Minimum lease payments Financial charges for future periods Present value of minimum lease payments 638,088 2,535,883 2,375,565 5,549,536 570,270 2,471,778 2,727,213 5,769,261 (136,416) (319,293) (517,870) (973,579) (119,266) (252,971) (496,750) (868,987) 501,672 2,216,590 1,857,695 4,575,957 451,004 2,218,807 2,230,463 4,900,274 Annual Report 2019 337
  340. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 10.2 Particulars of advances (Gross) In local currency In foreign currencies 20192018 (Rupees in '000) 532,760,442 59,111,190 565,091,153 44,937,492 591,871,632 610,028,645 10.3 Advances include Rs. 49,805.686 million (2018: Rs. 48,966.314 million) which have been placed under the non-performing status as detailed below: 20192018 Non performing Provision Non performing Provision Noteloans loans (Rupees in '000) Category of Classification Domestic Other Assets Especially Mentioned 10.3.1 Substandard Doubtful Loss Overseas 138,432 591,832 3,048,946 37,836,484 3,529 146,872 1,346,099 37,088,134 59,044 1,141,973 1,734,078 38,336,785 2,591 284,372 866,961 37,706,704 41,615,694 38,584,634 41,271,880 38,860,628 Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days >365 days – – 62,287 62,287 10,688 118,182 141,231 7,919,891 7,400 95,452 137,601 3,112,674 624,403 140,323 7,473 6,859,948 433,424 35,205 3,736 2,548,987 8,189,992 3,353,127 7,694,434 3,083,639 Total 49,805,686 41,937,761 48,966,314 41,944,267 10.3.1 This represents non-performing portfolio of agricultural and small enterprise financing classified as OAEM as per the requirements of the Prudential Regulation for Agricultural and Small Enterprise Financing issued by the State Bank of Pakistan. 10.4 Particulars of provision against advances 20192018 NoteSpecificGeneral Total SpecificGeneral Total (Rupees in '000) Opening balance Exchange adjustments 41,944,267 302,297 1,292,113 23,426 43,236,380 325,723 44,587,644 513,168 1,118,256 19,014 45,705,900 532,182 Charge for the year Reversals 10.4.3 3,359,542 (3,649,841) 174,710 (29,238) 3,534,252 (3,679,079) 1,613,591 (4,618,549) 158,663 (3,820) 1,772,254 (4,622,369) (290,299) (18,504) 145,472 – (144,827) (18,504) (3,004,958) (151,587) 154,843 – (2,850,115) (151,587) 41,937,761 1,461,011 43,398,772 41,944,267 1,292,113 43,236,380 Amounts written off 10.5 Closing balance 338 Unconsolidated Financial Statements
  341. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 10.4.1 Particulars of provision against advances 20192018 SpecificGeneral Total SpecificGeneral Total (Rupees in '000) In local currency In foreign currencies 38,244,450 3,693,311 1,120,827 340,184 39,365,277 4,033,495 38,860,628 3,083,639 1,100,149 191,964 39,960,777 3,275,603 41,937,761 1,461,011 43,398,772 41,944,267 1,292,113 43,236,380 10.4.2 State Bank of Pakistan vide BSD Circular No. 2 dated January 27, 2009, BSD Circular No. 10 dated October 20, 2009, BSD Circular No. 02 of 2010 dated June 03, 2010 and BSD Circular No.1 of 2011 dated October 21, 2011 has allowed benefit of forced sale value (FSV) of Plant & Machinery under charge, pledged stock and mortgaged residential, commercial & industrial properties (land and building only) held as collateral against NPLs for five years from the date of classification. The Bank (holding company) has not taken the FSV benefit in calculation of specific provision. However, one of the subsidiary of the Bank has availed benefit of forced sale values amounting to Rs. 178.374 million (December 31, 2018: Nil) in determining the provisioning against non-performing Islamic financing and related assets as at December 31, 2019. The additional benefit on the Bank’s statement of profit and loss arising from availing the FSV benefit - net of tax amounts to Rs. 115.943 million as at December 31, 2019 (December 31, 2018: Nil). However, the additional impact on profitability arising from availing the benefit of forced sales value is not available for payment of cash or stock dividends to shareholders. 10.4.3 This includes reversal of provisions and reduction of non-performing loans amounting to Rs. NIL (2018: Rs. 307 million) as a result of settlement on debt asset swap arrangement with customers. 10.4.4 General provision against consumer loans represents provision maintained against fully secured performing portfolio and unsecured performing portfolio as required by the Prudential Regulations issued by the SBP. General provision against Small Enterprise Finance represents provision maintained at an amount equal to 1% of unsecured performing portfolio as required by the Prudential Regulations issued by the SBP. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries in which the overseas branches operate. General provision against all other advances represents provision maintained at around 0.1% of gross advances. Note 10.5 PARTICULARS OF WRITE OFFs 10.5.1 Against Provisions 20192018 (Rupees in '000) Directly charged to Profit & Loss account 10.4 33 18,504 - 151,587 30 10.5.2 Write Offs of Rs. 500,000 and above 18,504 151,617 14,613 2,725 1,166 151,393 224 18,504 151,617 - Domestic 10.6 - Overseas Write Offs of below Rs. 500,000 10.6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written-off loans or any other financial relief of Rupees five hundred thousand or above allowed to a person(s) during the year ended December 31, 2019 is given at Annexure- I of unconsolidated financial statements. However, this write off does not affect the Bank’s right to recover the debts from these customers. Annual Report 2019 339
  342. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) Note 11. FIXED ASSETS Capital work-in-progress Property and equipment Right-of-use assets 11.1 11.2 11.3 1,068,429 52,466,540 10,666,838 1,501,801 42,029,595 – 64,201,807 43,531,396 Civil works Equipment Advances to suppliers Others 476,799 90,946 491,968 8,716 719,229 295,662 452,188 34,722 1,068,429 1,501,801 11.1 Capital work-in-progress 11.2 Property and Equipment 2019 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2019 Cost / Revalued amount Accumulated depreciation Net book value 20,287,003 – 2,440,151 12,602,260 – (881,516) 1,831,107 15,115,272 1,231,531 870,429 54,941,026 (116,820) (1,025,554) (9,887,641) 563,273 (638,772) (361,128) (12,911,431) 446,453 805,553 5,227,631 592,759 509,301 42,029,595 20,287,003 2,440,151 11,720,744 20,287,003 2,440,151 11,720,744 446,453 805,553 5,227,631 592,759 509,301 42,029,595 806,735 – 1,989,250 142,646 237,979 1,414,512 123,397 536,351 5,250,870 7,439,943 Year ended December 31, 2019 Opening net book value Additions Movement in surplus on assets 5,840,577 452,928 1,073,211 73,227 – – – – Transfer from Non-Banking assets revalued during the year 34,000 – 17,520 – – – – – 51,520 Disposals (21,000) – – – (6,202) (5,101) (40,683) (31,212) (104,198) (151,530) (1,346,139) (146,347) Depreciation charge – – (417,054) (27,778) Exchange rate adjustments – – 9,566 2,554 3,438 6,770 3,927 (144,160) (2,233,008) 5,563 31,818 Transfers 4,350 – 7,121 – (1,249) 1,249 – (11,471) – Closing net book value 26,951,665 2,893,079 14,400,358 637,102 887,989 5,298,922 533,053 26,951,665 2,893,079 14,400,594 637,102 2,047,789 15,989,634 864,372 52,466,540 At December 31, 2019 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation / estimated useful life 340 Unconsolidated Financial Statements – 26,951,665 – – (236) 2,893,079 14,400,358 – (1,159,800) (10,690,712) 637,102 – Upto 60 years Upto 50 years 887,989 5,298,922 10% 10%-25% 1,176,389 1,352,983 65,449,235 (643,336) (488,611) (12,982,695) 533,053 864,372 52,466,540 20% Lease term –
  343. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 2018 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2018 Cost / Revalued amount Accumulated depreciation Net book value 19,651,902 – 2,392,866 11,598,762 – (543,788) 460,136 1,734,672 14,673,873 1,160,908 702,531 52,375,650 (96,357) (1,021,937) (9,594,418) (582,315) (304,818) (12,143,633) 19,651,902 2,392,866 11,054,974 363,779 712,735 5,079,455 578,593 397,713 40,232,017 19,651,902 2,392,866 11,054,974 363,779 Year ended December 31, 2018 Opening net book value Additions Transfer from Non-Banking assets Disposal 712,735 5,079,455 578,593 397,713 40,232,017 888,213 47,285 957,666 98,338 225,696 1,553,797 179,485 262,146 – – 101,714 – – – – – 101,714 (253,112) – (52,728) – (1,269) (1,176) (20,569) – (328,854) Depreciation charge – – (345,021) (20,021) (135,042) (1,409,898) (146,590) Write off – – – – (701) – Exchange rate adjustments – – 4,139 4,357 4,134 5,453 1,840 Closing net book value 20,287,003 2,440,151 11,720,744 446,453 805,553 5,227,631 592,759 20,287,003 2,440,151 12,602,260 563,273 – 4,212,626 (149,269) (2,205,841) (2,399) (3,100) 1,110 21,033 509,301 42,029,595 At December 31, 2018 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation / estimated useful life – 20,287,003 – – (881,516) 2,440,151 11,720,744 1,831,107 15,115,272 1,231,531 870,429 54,941,026 (116,820) (1,025,554) (9,887,641) (638,772) (361,128) (12,911,431) 446,453 592,759 509,301 42,029,595 – Upto 60 years Upto 50 years 805,553 5,227,631 10% 10%-25% 20% 33.33% – 11.2.1 Leasehold land include a plot of land measuring 3,120.46 square yards having book value of Rs. 1,419.809 million situated at Railway Quarters, I.I. Chundrigar Road, Karachi, (the “Plot”), where a tenant is claiming for the possession as tenant of an insignificant area of only 18 square feet of the plot, however there is no issue over the title of the subject property. Both the Constitutional Petitions filed by the Group have been dismissed by the Sindh High Court on 28 January 2016 against the Group. The Group has filed an appeal before the Supreme Court of Pakistan. 11.2.2 The land and buildings of the Group were revalued as at December 31, 2019 by independent valuers (K.G. Traders (Pvt) Limited, Tristar International Consultant (Pvt) Limited & Sardar Enterprises), valuation and engineering consultants, on the basis of market value. The total surplus against revaluation of fixed assets as at December 31, 2019 amounts to Rs. 21,031.256 million. 11.2.3 Had the land and buildings not been revalued, the total carrying amounts of revalued properties as at December 31, 2019 would have been as follows: (Rupees in '000) Land 12,810,476 Buildings 11,040,472 11.2.4 The gross carrying amount (cost) of fully depreciated assets that are still in use are as follows: (Rupees in '000) Furniture and fixtures Electrical, computers and office equipment Vehicles Leasehold Improvements 515,437 6,901,900 345,168 13,699 Annual Report 2019 341
  344. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 11.2.5 Carrying amount of temporarily idle property of the Group is Rs. 161.886 million (2018: Rs. 45.485 million) 11.2.6 The information relating to disposal of operating fixed assets to related parties is given in Annexure I of these consolidated financial statements. 11.3 This has arisen due to adoption of IFRS 16 as detailed in note 5.1. Depreciation expense on rightof-use assets asset during the year is Rs. 1,610.893 million. Movement in right-of-use assets is as follows: 20192018 Note (Rupees in '000) Effect of initial application of IFRS 16 as at January 01, 2019 Additions Depreciation charge 31 Closing net book value – – – 10,666,838 – 20192018 (Rupees in '000) Computer software 12. INTANGIBLE ASSETS Capital work-in-progress Goodwill Management rights Computer software 12.1 342 11,392,795 884,936 (1,610,893) 472,336 82,127 192,000 1,232,512 257,805 82,127 192,000 920,530 1,978,975 1,452,462 12.1 At January 1 Cost Accumulated amortisation 4,114,222 (3,193,692) 3,791,731 (2,892,297) Net book value 920,530 899,434 Opening net book value Additions Amortisation charge Exchange rate adjustments 920,530 734,933 (425,585) 2,634 899,434 376,872 (356,533) 757 Closing net book value 1,232,512 920,530 Cost Accumulated amortisation and impairment 4,865,584 (3,633,072) 4,114,222 (3,193,692) 12.2 Net book value 1,232,512 920,530 Rate of amortisation (percentage) 14% to 33.33% 14% to 33.33% Useful life 3 - 7 years 3 - 7 years Year ended December 31 At December 31 The gross carrying amount (cost) of fully depreciated intangible assets that are still in use is Rs. 2,753.939 million. Unconsolidated Financial Statements
  345. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 13. Note 20192018 (Rupees in '000) OTHER ASSETS Income/ mark-up accrued in local currency Income/ mark-up accrued in foreign currencies Advances, deposits, advance rent and other prepayments Advance taxation (payments less provisions) Compensation for delayed income tax refunds Non-banking assets acquired in satisfaction of claims 13.1 Branch adjustment account Mark to market gain on forward foreign exchange contracts Unrealized gain on derivative financial instruments 25 Acceptances 20 Receivable from the pension fund 38.4 Others 24,533,964 564,667 12,291,231 134,709 3,940,446 – 133,809 3,251,508 77,281 2,737,424 7,464,966 133,809 3,653,840 – 3,848,188 1,236,517 20,346,205 3,605,121 10,118,430 3,690,505 852,465 16,256,882 3,815,170 7,433,809 Less: Provision held against other assets 13.2 71,656,136 2,604,137 58,464,810 2,550,585 Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 69,051,999 55,914,225 677,660 480,871 Other Assets - total 69,729,659 56,395,096 13.1 Market value of Non-banking assets acquired in satisfaction of claims 3,838,230 4,035,114 Non-banking assets acquired in satisfaction of claims of the Group are revalued as at December 31, 2019 by independent valuers ( Fks Building Services and J&M Associates) on the basis of market value. 20192018 Note (Rupees in '000) 13.1.1 Non-banking assets acquired in satisfaction of claims Opening balance Additions Revaluation Disposals Depreciation Reversal / (charge) of impairment Transfer to fixed assets 4,035,114 64,445 255,040 (428,052) (45,456) 8,659 (51,520) 4,288,001 309,163 265,806 (600,000) (49,155) (76,987) (101,714) Closing balance 13.1.2 Gain on disposal of non-banking assets acquired in satisfaction of claims 3,838,230 4,035,114 Disposal proceeds Less - Cost - Depreciation 540,000 682,410 433,813 (5,761) 600,500 (500) 428,052 600,000 111,948 82,410  Gain 13.1.2.1 Annual Report 2019 343
  346. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 20192018 (Rupees in '000) 13.1.2.1 Breakup of gain/loss realized on sale of non-banking assets: Plot at Clifton Karachi Industrial property Lahore – 111,948 82,410 – 13.2 Provision held against other assets 111,948 82,410 90,938 2,513,199 99,597 2,450,988 13.2.1 Movement in provision held against other assets 2,604,137 2,550,585 Opening balance 2,550,585 3,016,793 Charge for the year Reversals 12,587 (36,023) 112,529 (721,119) (23,436) (3,638) 80,626 (608,590) (7,180) 149,562 2,604,137 2,550,585 Non banking assets acquired in satisfaction of claims Others 33 Amount written off Exchange and other adjustments 14. Closing balance CONTINGENT ASSETS There were no contingent assets of the Group as at December 31, 2019 (2018: NIL). Note 20192018 (Rupees in '000) 15. BILLS PAYABLE In Pakistan Outside Pakistan 12,759,834 35,491 16,948,744 54,528 16.BORROWINGS 12,795,325 17,003,272 16.1 16.2 16.3 16.4 36,513,083 18,138,200 85,062 188,809 29,430,925 14,628,994 28,420 165,267 Repurchase agreement borrowings 16.5 54,925,154 44,253,606 28,099,229 165,703,249 83,024,383 209,956,855 Secured Borrowings from State Bank of Pakistan Under export refinance scheme Under long term financing facility Under renewable energy performance platform Under financing facility for storage of agricultural produce Total secured Unsecured Borrowings from other financial institution 16.6 Call borrowings 16.7 Overdrawn nostro accounts Musharaka arrangements 16.8 Others 889,161 5,964,830 1,342,603 1,476,705 162,286 592,818 4,826,699 1,946,106 5,731,351 162,286 Total unsecured 9,835,585 13,259,260 92,859,968 223,216,115 344 Unconsolidated Financial Statements 16.9
  347. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 16.1 16.2 16.3 16.4 16.5 16.6 16.7 16.8 The Group has entered into agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Group with SBP. These borrowings are repayable within six months. These carry mark up rates ranging from 1.0% to 2.0% per annum. These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 3.0% to 4.50% per annum. These borrowings have been obtained from the SBP for providing financing facilities to customers against renewable energy projects. These borrowings are repayable within a period of twelve years with two years grace period from date of disbursement. These carry mark up rate of 2% per annum. These borrowings have been obtained from SBP under “Financing Facility for Storage of Agricultural Produce (FFSAP)” to encourage Private Sector to establish Silos, Warehouses and Cold Storages. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.50% to 3.50% per annum. These carry mark-up rates ranging from 8.0% to 13.20% per annum (2018: 9.0% to 10.25% per annum) and are secured against government securities of carrying value of Rs. 28,136.434 million (2018: Rs. 165,813.949 million). These are repayable latest by August 2020. These carry mark-up rates ranging from 2.75% to 3.00% per annum (2018: 2.30% to 13.0% per annum). These carry mark-up ranging from 2.30% to 13.10% per annum (2018: 2.25% to 10.25%per annum). These are repayable by June 2020. These carry mark-up ranging from 8.50% to 9.00% per annum (2018: 9.40% to 9.80%per annum). These are repayable by January 2020. 20192018 (Rupees in '000) 16.9 Particulars of borrowings with respect to currencies In local currency 88,699,245 219,160,751 In foreign currencies 4,160,723 4,055,364 17. 92,859,968 223,216,115 DEPOSITS AND OTHER ACCOUNTS 20192018 In local In foreign Total currencycurrencies In local In foreign currencycurrencies Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 357,303,848 583,751,817 100,346,882 26,456,179 53,340,189 47,420,170 15,590,901 2,854,010 410,644,037 631,171,987 115,937,783 29,310,189 346,298,054 532,295,382 78,181,102 30,699,847 36,242,971 382,541,025 41,139,150 573,434,532 13,981,644 92,162,746 4,340,402 35,040,249 1,067,858,726 119,205,270 1,187,063,996 987,474,385 95,704,167 1,083,178,552 Financial Institutions Current deposits 9,520,075 2,094,703 11,614,778 7,633,474 2,268,698 9,902,172 Savings deposits 14,992,263 27,986 15,020,249 16,647,671 20,548 16,668,219 Term deposits 4,959,099 7,741,444 12,700,543 5,736,081 6,544,203 12,280,284 Others – 193,459 193,459 – 277,308 277,308 29,471,437 1,097,330,163 10,057,592 39,529,029 30,017,226 129,262,862 1,226,593,025 1,017,491,611 9,110,757 39,127,983 104,814,924 1,122,306,535 Annual Report 2019 345
  348. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 17.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 20192018 (Rupees in '000) 751,908,455 73,275,909 52,949,106 10,219,893 29,285,707 308,953,955 700,871,292 56,639,743 54,340,556 7,653,537 31,437,255 271,364,152 18. 1,226,593,025 1,122,306,535 17.2 Deposits and other accounts include deposits eligible to be covered under the Deposits Protection insurance arrangements amounting to Rs. 802,238.351 million (2018: Rs. 719,677.340 million). 20192018 Note (Rupees in '000) SUBORDINATED DEBT Term Finance Certificates - Listed, Unsecured 18.1 – 3,891,019 Issue amount Rs. 4,198.035 million Issue date June 19, 2014 Maturity date June 19, 2022 Rating AAA (triple A) Security The TFCs are unsecured and subordinated to all other indebtedness of the Group including deposits Profit payment frequency Semi-Annually Redemption Fifteen equal semi-annual installments of 0.02% of the Issue Amount for the first ninety months followed by remaining 99.70% on maturity at the end of the ninety sixth month. Mark-up Floating (no floor, no cap) rate of return at Base Rate +1.15% (The Base Rate is defined as the average “Ask Side” rate of the six month Karachi Interbank Offered Rate (“KIBOR”)) Call option The Group may call the TFCs, in part or full, on any profit payment date from the 60th month from the last day of public subscription and on all subsequent profit payment dates, subject to the SBP approval and not less than forty five days prior notice being given to the Trustee and the Investors. Lock-in-clause Neither profit nor principal can be paid (even at maturity) if such payments will result in a shortfall in the Banks' Minimum Capital Requirements (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR and CAR. In case the lock-in clause goes into effect, the Bank will be required to comply with the SBP instructions prevalent or issued at the time. Loss absorbency clause The TFCs will be subject to loss absorbency clause as stipulated under the "Instructions for Basel III Implementation in Pakistan". 18.1 346 During the year, the Group has exercised the call option under the terms of issuance of TFCs after completing the required regulatory requirements. Accordingly, the outstanding balance of the said TFCs have been redeemed on June 19, 2019, being the option exercise date. Unconsolidated Financial Statements
  349. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 19. DEFERRED TAX LIABILITIES 2019 Note At January 01, 2019 Recognised in P&L A/C Recognised in OCI At December 01, 2019 (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of Non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Investments in associated undertaking - Surplus on revaluation of investments 23 1,018,502 (29,214) 401,254 1,390,542 168,305 1,810,834 1,335,309 705,218 1,158,906 – (20,388) 150,279 155,621 – 14,728 – 89,264 – (229,137) – 73,706 2,329,519 237,181 1,961,113 1,261,793 705,218 1,247,340 2,329,519 Deductible Temporary Differences on 6,197,074 271,026 2,664,606 9,132,706 - Tax losses carried forward - Provision against advances - Others - Surplus/deficit on revaluation of investments (818,652) (1,791,768) (92,755) (1,510,754) (131,148) 65,617 (149,777) – – – – 1,510,754 (949,800) (1,726,151) (242,532) – (4,213,929) (215,308) 1,510,754 (2,918,483) 1,983,145 55,718 4,175,360 6,214,223 Recognised in OCI At December 01, 2018 2018 Note At January 01, 2018 Recognised in P&L A/C (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Investments in associated undertaking - Surplus on revaluation of investments 23 1,051,507 (33,005) – 1,018,502 75,273 1,704,905 2,096,688 705,218 1,291,483 2,260,717 – 108,475 (225,585) – (34,648) – 93,032 (2,546) (535,794) – (97,929) (2,260,717) 168,305 1,810,834 1,335,309 705,218 1,158,906 – Deductible Temporary Differences on 9,185,791 (184,763) (2,803,954) 6,197,074 - Tax losses carried forward - Post retirement employee benefits - Provision against advances - Others - Surplus/ (deficit) on revaluation of investments (209,657) (201) (3,282,517) (32,343) – (608,995) 201 1,490,749 (60,412) 4,989 – – – – (1,515,743) (818,652) – (1,791,768) (92,755) (1,510,754) (3,524,718) 826,532 (1,515,743) (4,213,929) 5,661,073 641,769 (4,319,697) 1,983,145 Annual Report 2019 347
  350. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 20. OTHER LIABILITIES Mark-up/ return/ interest payable in local currency Mark-up/ return/ interest payable in foreign currencies Unearned commission and income on bills discounted Accrued expenses Provision for taxation ( provisions less payments) Workers’ welfare fund 20.1 Acceptances 13 Unclaimed/dividends payable Mark to market loss on forward foreign exchange contracts Unrealized loss on derivative financial instruments 25 Staff welfare fund Branch adjustment account Provision for employees’ compensated absences 38.4 Provision for post retirement medical benefits 38.4 Provision for employees’ contributory benevolent scheme 38.4 Provision for gratuity Retention money Insurance payable against consumer assets Unclaimed balances Duties and taxes payable Charity fund balance Provision against off-balance sheet obligations Security deposits against lease Lease liability against right of use assets 20.2 Others 20192018 (Rupees in '000) 23,511,019 664,130 252,842 6,310,392 6,045,948 7,873,706 20,346,205 1,605,123 4,638,011 1,232,806 5,727 – 939,495 1,921,348 221,193 – 20,657 655,146 993,105 775,694 54,782 46,581 1,497,296 11,436,633 11,357,674 13,166,020 478,001 231,516 5,443,401 – 7,071,660 16,256,882 1,474,816 3,495,971 863,617 5,490 44,770 1,028,129 1,730,409 214,252 719 38,437 688,107 1,133,843 1,007,800 25,402 37,430 1,291,857 – 9,758,513 102,405,513 65,487,042 20.1 Supreme Court of Pakistan vide its order dated November 10, 2016 has held that the amendments made in the law introduced by the Federal Government for the levy of Workers Welfare Fund were not lawful. The Federal Board of Revenue has filed review petitions against this order which are currently pending. Legal advice obtained on the matter indicates that consequent to filing of these review petitions the judgment may not currently be treated as conclusive. Accordingly, the Bank maintained its provision in respect of WWF. 20.2 This represents lease liability recognised due to adoption of IFRS 16 as detailed in note 5.1. 21. SHARE CAPITAL 21.1 Authorized Capital 20192018 (Number of shares) 1,500,000,000 1,500,000,000 Ordinary shares of Rs. 10 each 21.2 Issued, subscribed and paid up 15,000,000 15,000,000 20192018 (Number of shares) Ordinary shares 20192018 (Rupees in ‘000) 1,972,538 9,157,769 720,293 1,972,538 9,157,769 720,293 11,850,600 11,850,600 348 20192018 (Rupees in ‘000) 197,253,795 915,776,953 72,029,258 197,253,795 915,776,953 72,029,258 1,185,060,006 1,185,060,006 Unconsolidated Financial Statements Fully paid in cash Issued as bonus shares Issued for consideration other than cash
  351. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 21.3 The movement in the issued, subscribed and paid-up capital during the year is as follows: 20192018 20192018 (Number of shares) (Rupees in ‘000) 1,185,060,006 1,185,060,006 Opening balance at January 1 11,850,600 11,850,600 21.4 1,185,060,006 1,185,060,006 Closing balance at December 31 11,850,600 11,850,600 Number of shares held by the associated undertakings as at December 31, are as follows: Adamjee Insurance Company Limited Nishat Mills Limited Siddiqsons Limited Nishat (Aziz Avenue) Hotels and Properties Limited 47,827,287 88,015,291 14,276,462 29,000 47,827,287 88,015,291 14,276,462 – 150,148,040 150,119,040 Note 20192018 (Number of shares) 20192018 (Rupees in '000) 22.RESERVES Share premium Non- distributable capital reserve - gain on bargain purchase option 22.1 Exchange translation reserve Statutory reserve 22.2 General reserve 23,973,024 23,973,024 908,317 2,730,354 31,683,134 18,600,000 908,317 1,607,782 29,285,450 18,600,000 77,894,829 74,374,573 22.1 Under IFRS-3 a bargain purchase represents an economic gain which should be immediately recognized by the acquirer as income. However, the amount of bargain purchase gain was not taken to the profit and loss account as the SBP, through its letter BPRD(R&PD)/2017/14330 dated June 13, 2017 recommended that the amount of gain may be routed directly into equity as a Non-distributable Capital Reserve (NCR). The NCR may become available for distribution through a stock dividend only with prior approval of the SBP. The Group, before distribution of the gain as a stock dividend, may adjust any subsequent provisions/deficit, assessed by the Bank or recommended by the Banking Inspection Department of SBP, in the acquired assets and liabilities of NIB Bank Limited against the NCR. 22.2 Statutory reserve represents amount set aside as per the requirements of section 21 of the Banking Companies Ordinance, 1962. Annual Report 2019 349
  352. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 23. SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of - Available for sale securities 9.1 - Fixed assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 - Associated undertaking 6,655,770 21,031,256 (4,323,369) 13,685,180 677,660 611,247 480,871 444,027 28,975,933 10,286,709 2,329,519 1,390,542 (1,510,754) 1,018,502 237,181 266,485 168,305 192,781 4,223,727 (131,166) 23.1 Surplus on revaluation of fixed assets 24,752,206 10,417,875 13,685,180 7,439,943 (10,560) 13,871,643 – (99,081) (54,093) (54,377) (29,127) (29,279) (87) (3,726) 21,031,256 13,685,180 1,018,502 401,254 (87) (29,127) 1,051,507 – (3,726) (29,279) 1,390,542 1,018,502 23.2 Surplus on revaluation of non-banking assets acquired in satisfaction of claims 19,640,714 12,666,678 Deferred tax on surplus / (deficit) on revaluation of: - Available for sale securities 19 - Fixed assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 - Associated undertaking Surplus on revaluation of fixed assets as at January 1 Recognised during the year Realised on disposal during the year - net of deferred tax Transferred to unappropriated profit in respect of incremental depreciation charged during the year net of deferred tax Related deferred tax liability on incremental depreciation charged during the year Related deferred tax liability on surplus realised on disposal Surplus on revaluation of fixed assets as at December 31 Less: Related deferred tax liability on: - revaluation as at January 1 - recognised during the year - surplus realised on disposal during the year - incremental depreciation charged during the year 350 20192018 (Rupees in '000) Surplus on revaluation as at January 1 Recognised during the year Realised on disposal during the year - net of deferred tax Related deferred tax liability on surplus realised on disposal 480,871 255,040 (37,863) (20,388) 215,065 265,806 – – Surplus on revaluation as at December 31 Less: Related deferred tax liability on: - revaluation as at January 1 - revaluation recognised during the year - surplus realised on disposal during the year 677,660 480,871 168,305 89,264 (20,388) 75,273 93,032 – 237,181 168,305 440,479 312,566 Unconsolidated Financial Statements
  353. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 24. CONTINGENCIES AND COMMITMENTS - Guarantees - Commitments - Other contingent liabilities 24.1 24.2 24.3 20192018 (Rupees in '000) 180,002,174 657,101,777 28,352,091 173,231,396 412,067,935 17,038,156 865,456,042 602,337,487 Financial guarantees Performance guarantees Other guarantees 141,181,839 33,833,099 4,987,236 140,350,012 30,103,382 2,778,002 24.2Commitments: 180,002,174 173,231,396 153,036,304 144,579,352 404,891,089 87,696,638 10,244,806 – 307,755 217,219,090 27,935,661 11,285,103 7,256,479 2,221,317 859,953 65,232 1,430,980 139,953 24.2.1 Commitments in respect of forward foreign exchange contracts 657,101,777 412,067,935 Purchase Sale 216,647,656 188,243,433 126,872,293 90,346,797 24.2.2 Commitments in respect of government securities transactions 404,891,089 217,219,090 Purchase Sale 82,284,304 5,412,334 13,660,947 14,274,714 87,696,638 27,935,661 24.1Guarantees: Documentary credits and short-term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts 24.2.1 - forward government securities transactions 24.2.2 - derivatives 24.2.3 - operating leases 24.2.4 - commitments to extent credit 24.2.5 Commitments for acquisition of: - operating fixed assets - intangible assets Annual Report 2019 351
  354. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 24.2.3 Commitments in respect of derivatives FX options (notional) Purchase Sale 431,449 431,449 1,378,370 1,378,370 862,898 2,756,740 4,428,663 4,636,745 4,026,814 4,185,049 Interest Rate Swaps (notional) Purchase Sale 9,065,408 8,211,863 316,500 – 316,500 – 316,500 316,500 24.2.4 Commitments in respect of operating leases 10,244,806 11,285,103 Cross Currency Swaps (notional) Purchase Sale Not later than one year Later than one year and not later than five years Later than five years 24.2.5 Other commitments Commitments to extent credit – – – 1,219,754 3,779,911 2,256,814 – 7,256,479 307,755 2,221,317 Other than those mentioned above, the group 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. Note 24.3 Other contingent liabilities Claims against the Group not acknowledged as debts 24.3.1 20192018 (Rupees in '000) 28,352,091 17,038,156 24.3.1 These represent certain claims by third parties against the Group, which are being contested in the Courts of law. The management is of the view that these relate to the normal course of business and the possibility of an outflow of economic resources is remote. 24.4 For assessment year 1988-89 through tax year 2018, the tax department disputed Group treatment on certain issues, where the Group’s appeals are pending at various appellate forums, entailing an additional tax liability of Rs. 1,487 million (2018: Rs. 1,399 million). Such issues inter alia principally include disallowance of expenses for non deduction of withholding tax and non availability of underlying records, provision for non performing loans, attribution of expenses to heads of income other than income from business and disallowance of credit for taxes paid in advance / deducted at source. The Group has filed appeals which are pending at various appellate forums. In addition, certain decisions made in favour of the Group are being contested by the department at higher forums. No provision has been made in the financial statements regarding the aforesaid additional tax demand and already issued favourable decisions where the department is in appeal, as the management is of the view that the issues will be decided in the Group’s favour as and when these are taken up by the Appellate Authorities. 352 Unconsolidated Financial Statements
  355. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 25. DERIVATIVE INSTRUMENTS 25.1 Product Analysis 2019 Cross currency swaps Interest rate swaps FX option Notional Mark to Notional Mark to Notional Mark to Counterparties principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) With Banks for Hedging Market Making With other entities for Hedging Market Making 4,428,663 – 1,218,634 – 316,500 – – 4,636,745 – (1,226,433) – – 4,428,663 4,636,745 1,218,634 (1,226,433) 316,500 – 11,510 – 431,449 – 2,683 – – – – 431,449 – (2,683) 11,510 – 431,449 431,449 2,683 (2,683) Total Hedging Market Making 2018 Cross currency swaps Interest rate swaps FX option Notional Mark to Notional Mark to Notional Mark to Counterparties principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) With Banks for Hedging Market Making With other entities for Hedging Market Making 4,026,814 – 725,117 – 316,500 – 14,771 – 1,378,370 – 48,090 – – 4,185,049 – (751,040) – – – – – 1,378,370 – (48,090) 4,026,814 4,185,049 725,117 (751,040) 316,500 – 14,771 1,378,370 – 1,378,370 48,090 (48,090) Total Hedging Market Making Annual Report 2019 353
  356. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 25.2 Maturity Analysis 2019 No. of Notional Mark to Market contractsprincipalNegative Positive (Rupees in '000) Remaining Maturity Upto 1 month 14 409,597 (518) 1 to 3 months 32 1,076,111 (154,368) 3 to 6 months 1 52,745 (25,888) 6 month to 1 Year 7 1,847,480 (298,299) 1 to 2 Year 9 3,199,475 (312,482) 2 to 3 Years 4 1,714,098 (340,100) 3 to 5 Years 2 1,945,300 (101,151) Total 69 10,244,806 (1,232,806) 2018 518 154,707 – 299,689 323,222 353,553 104,828 – 339 (25,888) 1,390 10,740 13,453 3,677 1,236,517 3,711 No. of Notional Mark to Market contractsprincipalNegative Positive Net (Rupees in '000) Remaining Maturity Upto 1 month 44 1,462,433 (85,020) 1 to 3 months 66 1,512,180 (26,820) 3 to 6 months 14 197,096 (4,241) 1 to 2 Year 10 3,526,504 (431,981) 2 to 3 Years 6 2,418,453 (171,636) 3 to 5 Years 4 2,168,437 (143,919) 85,050 26,820 4,241 384,758 184,301 167,295 30 – – (47,223) 12,665 23,376 852,465 (11,152) Total 25.3 25.4 144 11,285,103 (863,617) Disclosure relating to qualitative and quantitative information on exchange traded derivatives are disclosed in note 45.5. Risk management related to derivatives is discussed in note 45.5. 354 Net 20192018 (Rupees in '000) 26. MARK-UP/RETURN/INTEREST EARNED Loans and advances Investments Lendings to financial institutions Balances with banks 64,738,017 77,292,876 5,361,703 696,104 40,472,966 45,364,359 1,368,635 296,377 148,088,700 87,502,337 Unconsolidated Financial Statements
  357. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 27. Note 20192018 (Rupees in '000) MARK-UP/RETURN/INTEREST EXPENSED Deposits Borrowings Subordinated debt Cost of foreign currency swaps against foreign currency deposits / borrowings Unwinding cost of liability against right-of-use assets 20.2 70,280,198 9,361,322 213,604 33,730,188 4,795,063 307,789 3,009,184 1,506,301 662,873 – 28. FEE & COMMISSION INCOME 84,370,609 39,495,913 Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fee Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on utility bills Commission income - Bancassurance Rent on lockers Commission on investments services Other Commission 1,822,700 350,591 3,134,235 188,443 181,177 1,477,458 607,844 612,178 1,172,359 106,320 1,502,899 245,866 646,560 182,241 2,469,298 278,132 2,634,203 150,733 113,998 1,460,206 431,287 603,687 981,721 109,641 1,169,169 245,842 806,641 182,193 29. GAIN ON SECURITIES, NET 12,230,871 11,636,751 744,887 83,986 1,304,914 (47,766) 29.1 Realised gain on: Federal Government Securities Shares & units 828,873 1,257,148 17,685 727,202 269,209 1,035,705 744,887 1,304,914 Realised Unrealised - held for trading 29.1 9.1 30. OTHER INCOME Rent on property Gain on sale of fixed assets-net Gain on sale of non banking assets - net Compensation on tax refunds 69,427 63,176 111,948 – 19,213 245,866 82,410 86,862 244,551 434,351 Annual Report 2019 355
  358. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 31. OPERATING EXPENSES Total compensation expense 20192018 (Rupees in '000) 31.1 17,017,561 15,759,480 Property expense Rent and taxes Insurance Utilities cost Fuel expense generators Security (including guards) Repair and maintenance (including janitorial charges) Depreciation on right-of-use assets 11.3 Depreciation 11.2 395,237 57,198 1,338,457 534,428 1,589,659 924,232 1,610,893 659,926 2,469,920 103,573 1,184,003 513,533 1,743,167 1,013,249 – 557,142 Information technology expenses 7,110,030 7,584,587 1,279,569 372,808 732,943 425,585 714,755 5,198 1,208,867 407,378 818,474 356,533 706,488 4,400 3,530,858 3,502,140 57,479 9,147 406,992 891,883 412,033 170,664 840,139 40,741 14,479 345,683 1,271,889 418,253 157,898 830,225 45,456 73,194 355,306 390,721 710,930 683,174 100 43,305 799,226 417,823 39,360 275,532 197,223 48,342 1,182,346 206,509 1,511,988 258,110 49,155 61,849 313,962 327,215 752,488 559,566 696 45,454 743,593 461,717 39,437 268,356 186,476 44,319 737,528 138,237 821,590 238,434 10,026,982 8,869,240 Software maintenance Hardware maintenance Depreciation 11.2 Amortisation 12 Network charges Insurance Other operating expenses Directors’ fees and allowances Fees and allowances to Sharia Board members Legal and professional charges Outsourced services costs 37.1 Travelling and conveyance NIFT clearing charges Depreciation 11.2 Depreciation on non-banking assets acquired in satisfaction of claims 13.1.1 Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement & publicity Donations 31.2 Auditors’ remuneration 31.3 Cash transportation charges Repair and maintenance Subscription Entertainment Remittance charges Brokerage expenses Card related expenses CNIC verification charges Insurance Others 37,685,431 35,715,447 Total cost for the year included in other operating expenses relating to outsourced activities is Rs. 670.334 million (2018: Rs. 501.371 million). Out of this cost Rs. 668.548 million ( 2018: Rs. 499.903 million ) pertains to the payment to companies incorporated in Pakistan and Rs. 1.786 million ( 2018: Rs. 1.786 million) pertains to companies incorporated out of Pakistan. Total Cost of outsourced activities for the year given to related parties is Rs. 258.190 million (2018: Rs 263.283 million). 356 Unconsolidated Financial Statements
  359. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 31.1 20192018 (Rupees in '000) Total compensation expense Fees and allowances 520,877 Managerial remuneration i) Fixed 12,380,700 ii) Variable - cash bonus / awards 2,229,669 (Reversal) / charge for defined benefit plan (101,509) Contribution to defined contribution Plan 422,671 Commission 341,105 Staff group insurance 367,855 Rent and house maintenance 404,007 Medical 67,855 Conveyance 346,631 495,049 – 10,988,881 1,686,428 943,661 387,735 235,391 370,363 310,364 54,867 272,825 Sub-total Sign-on bonus 31.1.1 Severance allowance 31.1.2 16,979,861 100 37,600 15,745,564 960 12,956 31.1.1 31.1.2 31.2 Grand Total 17,017,561 15,759,480 During the year sign on bonus is paid to 1 employee (2018: 1). Severance allowance pertains to 6 employees (2018: 4). Detail of donations made during the year is as follows: Murshid Hospital & Health Care Centre District Head Quarter Hospital, Gawadar 20192018 (Rupees in '000) 100 – – 696 100 696 Audit fee Fee for audit of foreign branches Fee for audit of subsidiaries Special certifications and sundry advisory services Sales tax Out-of-pocket expenses 15,628 9,905 13,361 348 2,500 1,563 14,606 13,669 6,271 7,210 1,060 2,638 43,305 45,454 31.3 Auditors’ remuneration 32. OTHER CHARGES Penalties of State Bank of Pakistan VAT & National Building tax & Crop Insurance Levy Education cess 70,455 179,643 10,645 11,679 151,159 11,593 260,743 174,431 Annual Report 2019 357
  360. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Note 33. PROVISIONS / (REVERSALS) & WRITE OFFS - NET (Reversals) / provisions against balance with Banks Provisions for diminution in value of investments 9.3.1 Reversals against loans & advances 10.4 Provision against off balance sheet items 20 Reversals against other assets 13.2.1 Other Write offs Bad debts written off directly 10.5.1 Recovery of written off / charged off bad debts 34.TAXATION Current Prior years Deferred 19 Share of tax of associates 34.1 Relationship between tax expense and accounting profit Accounting profit for the year Tax rate Tax on income Tax effect of permanent differences Tax effect of prior years reversals Others Tax charge for the year 35. BASIC AND DILUTED EARNINGS PER SHARE Profit for the year after tax attributable to equity shareholders 20192018 (Rupees in '000) (3,111) 3,000,801 (144,827) 9,025 (23,436) – – (164,860) 4,386 2,860,062 (2,850,115) – (608,590) 102 30 (227,682) 2,673,592 (821,807) 15,580,790 450,785 55,718 119,089 11,239,855 (1,710,032) 641,769 219,045 16,206,382 10,390,637 40,153,593 30,805,921 35% 14,053,758 24,659 450,785 1,677,180 35% 10,782,072 4,088 (1,710,032) 1,314,509 16,206,382 10,390,637 (Rupees in '000) 23,868,249 20,352,756 (Number) Weighted average number of ordinary shares 1,185,060,006 1,185,060,006 (Rupees) Basic and diluted earnings per share 358 Unconsolidated Financial Statements 20.14 17.17
  361. Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 6 7 16 Note Redemption of Subordinated loan Payment of lease liability against Balance as at December 31 - Non cash based Total equity related other changes - Dividend payable Total liability related other changes - Cash based Changes in Other liabilities Liability related Changes arising from demerger cash flows Total changes from financing Dividend paid right-of-use-assets Changes from Financing cash flows Balance as at January 01 , Equity Liabilities 20192018 121,557,017 110,165,006 13,338,117 (1,946,106) Equity 162,986,508 142,957,358 21,371,753 (1,342,603) 20192018 (Rupees in '000) - - (1,987,479) - 130,307 - - - - - - - - (130,307) - (130,307) - - - (18,830,653) - (18,830,653) - - - 3,520,256 21,098,660 - - - - - - - - - - 102,405,513 11,850,600 77,894,829 56,108,779 - - 38,905,950 - 24,776,998 - - 13,998,645 - (3,891,019) - - (1,987,479) (3,891,019) 3,891,019 65,487,042 11,850,600 74,374,573 53,971,079 - - 740,403 249,000,124 78,982 24,697,898 - 38,775,643 - 24,776,998 - - 13,998,645 - (47,331) (24,756,482) (47,331) (18,877,984) - (1,987,479) - (3,891,019) 708,752 210,283,065 - - - - - (131,012) - - - - - - - 1,129,735 - - 1,129,735 - - - (20,090,695) - (20,090,695) - - - 3,346,661 17,710,970 - - - - - - - - - 3,891,019 65,487,042 11,850,600 74,374,573 53,971,079 - - 6,694,895 - - (1,129,735) - 7,955,642 - (1,559) - - (1,559) 3,892,578 58,792,147 11,850,600 71,027,912 55,221,069 (Rupees in '000) - (1,559) (131,012) 708,752 210,283,065 62,671 21,120,302 - 7,824,630 - - - 7,955,642 - (61,326) (20,153,580) (61,326) (20,152,021) - - 707,407 201,491,713 Sub- Unappropriated Non- Sub- Unappropriated Non- ordinatedOther Share Reserves profitcontrollingTotal ordinated Other ShareReserves profitcontrollingTotal loan liabilitiescapital interest loan liabilitiescapital interest Liabilities Reconciliation of movement of liabilities to cash flows arising from financing activities 36.1 CASH AND CASH EQUIVALENTS 36. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 359
  362. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 (Number) 37. STAFF STRENGTH Permanent On Bank contract 15,422 142 14,354 598 Bank’s own staff strength at end of the year 15,564 14,952 37.1 38. In addition to the above,728 (2018: 623) employees of outsourcing services companies were assigned to the Group as at the end of the year to perform services other than guarding, tea and janitorial services. Outsourced staff includes 718 (2018: 616) working domestically and 10 (2018: 7) working abroad. DEFINED BENEFIT PLAN 38.1 General description 38.2 The Group operates the following retirement benefits for its employees: The number of employees covered under the following defined benefit schemes are: - Pension fund - funded - Benevolent scheme - unfunded - Post retirement medical benefits - unfunded - Employees compensated absence - unfunded The plan assets and defined benefit obligations are based in Pakistan. Number of Employees under the scheme 20192018 (Number) - Pension fund - funded 6,294 6,554 - Benevolent scheme - unfunded 1,692 1,730 - Post retirement medical benefits - unfunded 13,332 12,716 - Employees compensated absence - unfunded 13,332 12,716 38.3 Principal actuarial assumptions The latest actuarial valuations of the pension fund, employees’ contributory benevolent scheme, post retirement medical benefits and employee’s compensated absences were carried out at December 31, 2019. The principal actuarial assumptions used are as follows: Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 201920182019 2019 2018 20192018 % Discount rate 11.2513.2511.2513.2511.2513.2511.2513.25 Expected rate of return on plan assets 11.25 13.25 - - - - - - Expected rate of salary increase 9.25 11.25 9.25 11.25 - - 9.25 11.25 Expected rate of increase in pension 0-5 0-5 - - - - - - Expected rate of increase in medical benefit - - - - 9.25 11.25 - - 360 2018 Unconsolidated Financial Statements
  363. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 38.4 Reconciliation of (receivable from) / payable to defined benefit plans Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 2019 2018 201920182019201820192018 (Rupees in '000) Present value of obligations Fair value of plan assets 5,182,991 4,690,587 (8,788,112) (8,505,757) 221,193 214,252 1,921,348 1,730,409 939,495 1,028,129 - - - - - - (Receivable) / payable (3,605,121) (3,815,170) 221,193 38.5 Movement in defined benefit obligations 214,252 1,921,348 1,730,409 939,495 1,028,129 Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 2019 2018 201920182019201820192018 (Rupees in '000) Obligations at the beginning of the year Current service cost 38.8.1 Interest cost Benefits paid Past service cost 38.8.2 Re-measurement loss / (gain) 38.8.3 4,690,587 3,757,366 60,879 79,236 592,985 282,259 (430,453) (458,268) - 1,044,533 268,993 (14,539) 214,252 22,341 26,035 (35,528) - (5,907) 248,518 1,730,409 2,140,300 1,028,129 1,145,135 30,660 43,653 50,364 24,740 32,366 18,096 219,145 162,569 128,046 85,302 (44,628) (152,964) (144,664) (123,486) (157,708) - - - - (38,394) 81,105 (478,160) (117,934) (76,966) Obligations at end of the year 5,182,991 221,193 214,252 38.6 Movement in fair value of plan assets 4,690,587 1,921,348 1,730,409 939,495 1,028,129 Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 20192018201920182019201820192018 (Rupees in '000) Fair value at the beginning of the year 8,505,757 9,747,902 - - - - - Interest income on plan assets 1,098,495 761,501 - - - - - Benefits paid(430,453) (458,268)----- Re-measurement loss38.8.3 (385,687) (1,545,378)----- Fair value at end of the year 38.7 8,788,112 8,505,757 - - - Movement in (receivable) / payable under defined benefit schemes - - - Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 2019 2018 2019 2018 2019 2018 2019 2018 (Rupees in '000) Opening balance Charge / (reversal) for the year 38.8.1 Employees’ contribution Re-measurement loss / (gain) recognised in OCI during the year 38.8.3 Benefits paid by the Group (3,815,170) (5,990,536) (444,631) 644,527 - - 214,252 45,472 2,904 248,518 45,499 3,257 1,730,409 2,140,300 1,028,129 1,145,135 262,798 212,933 34,852 40,702 - - - - - 654,680 1,530,839 - - (5,907) (35,528) (38,394) (44,628) 81,105 (152,964) (478,160) (144,664) - (123,486) (157,708) (3,605,121) 221,193 214,252 1,921,348 1,730,409 939,495 1,028,129 Closing balance (3,815,170) Annual Report 2019 361
  364. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 38.8 Charge for defined benefit plans 38.8.1 Cost recognised in profit and loss Approved Employees' Post retirement Employees pension contributory medical compensated Note fund benevolent scheme benefits absences 2019 2018 2019 2018 2019 2018 2019 2018 (Rupees in '000) Current service cost Net interest on defined benefit asset / liability 60,879 79,236 22,341 30,660 43,653 50,364 24,740 32,366 (505,510) (479,242) 26,035 18,096 219,145 162,569 128,046 85,302 (2,904) (3,257) Employees’ contribution - - Actuarial loss / (gain) - - Past service cost 38.8.2 - - 1,044,533 (444,631) 644,527 - 45,472 - - 45,499 - - - - - 262,798 - 212,933 - (117,934) (76,966) - 34,852 40,702 38.8.2 In 2018, pursuant to the order of the Honorable Supreme Court of Pakistan, the Group recorded past service cost of Rs. 1,044.533 million (one-off provision) on account of pension liability based on actuarial valuation. 38.8.3 Re-measurements recognised in OCI during the year Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 2019 2018 2019 2018 2019 2018 2019 2018 Loss / (gain) on obligation - 268,993 (14,539) (5,907) (38,394) 81,105 (478,160) - - over expected interest income 385,687 1,545,378 - - - - - - 654,680 1,530,839 (5,907) (38,394) 81,105 (478,160) - - Re-measurement loss / (gain) 38.9 financial assumptions Actual return on plan assets (Rupees in '000) recognised in OCI Components of plan assets Approved Employees' Post retirement Employees pension contributory medical compensated fund benevolent scheme benefits absences 2019 2018 2019 2018 2019 2018 2019 2018 (Rupees in '000) Cash and cash equivalents - net 107,344 74,685 - - - - - - Shares 8,387,473 8,158,899 - - - - - - Open ended mutual funds units 293,295 272,173 - - - - - - 8,788,112 8,505,757 - - - - - - 38.9.1 Significant risk associated with the plan assets The Fund’s investments in equity securities and units of mutual funds are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. 362 Unconsolidated Financial Statements
  365. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 38.10 Sensitivity analysis Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligations under the various employee benefit schemes. The increase / (decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below: Approved Employees' Post Employees pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) 1% increase in discount rate (348,228) (16,638) (143,464) 1% decrease in discount rate 363,337 19,060 164,843 1 % increase in expected rate of salary increase 80,672 – – 1 % decrease in expected rate of salary increase (74,980) – – 1% increase in expected rate of pension increase 223,357 – – 1% decrease in expected rate of pension increase (201,589) – – 1% increase in expected rate of medical benefit increase – – 161,353 1% decrease in expected rate of medical benefit increase – – (142,385) 38.11 Expected contributions to be paid to the funds in the next financial year 38.12 (57,868) 64,403 65,020 (59,388) – – – – No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. No contribution to the pension fund is expected in the next year. Expected (reversal) / for the next financial year Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2019 would be as follows: Approved Employees' Post Employees pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) Expected (reversal) / charge for the next financial year 38.13 Maturity profile The weighted average duration of the obligation (in years) (377,123) 42,876 265,291 123,968 7.74 7.74 7.74 7.74 Annual Report 2019 363
  366. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 38.14 Funding Policy The Group endeavours to ensure that liabilities under the various employee benefit schemes are covered by the Fund on any valuation date having regards to the various actuarial assumptions such as projected future salary increase, expected future contributions to the fund, projected increase in liability associated with future service and the projected investment income of the Fund. 38.15 The defined benefit plans may expose the Group to actuarial risks such as longevity risk, investment risk, salary increase risk and withdrawal rate risk as described below; 39. 364 Investment risk The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall in the funding objectives. Longevity risk The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population. Salary increase risk The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual increases are higher than expectation and impacts the liability accordingly. Withdrawal rate The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of the liability can go either way. DEFINED CONTRIBUTION PLAN 39.1 MCB Bank Limited (holding company) The Bank operates an approved contributory provident fund for 11,056 (2018: 10,357) employees where contributions are made by the Bank at 8.33% (2018: 8.33%) and employees ranging from 8.33% to 15% per annum (2018: 8.33% to 12.5% per annum) of the basic salary. The Bank also operates an approved non-contributory provident fund for 745 (2018: 815) employees who have opted for the new scheme, where contributions are made by the employees ranging from 8.33% to 15% per annum (2018: 8.33% to 12.50% per annum) of the basic salary. 39.2 MCB Islamic Bank Limited The Bank operates an approved contributory provident fund for 1,304 (2018: 1,050) employees. Equal monthly contributions are made both by the Bank and its permanent employees to the Fund at the rate of 8.33% of the basic salaries of employees. However, an employee has an option to increase his / her contribution upto 15% but the Bank will still contribute 8.33% of the employee’s basic salary. 39.3 MCB Financial Services Limited The company operates the provident fund scheme covering all permanent employees. Contribution at the rate of 8.33% per annum are made both by the Company and employees to the fund. Unconsolidated Financial Statements
  367. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 40. COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 40.1 Total compensation expense 2019 Directors Members Key Other material Note Chairman Executive Non shariah President/ management risk takers/ (other than executive board CEO personnel controllers CEO) (Rupees in '000) Fee and allowances Managerial Remuneration i) Fixed ii) Cash Bonus / Awards 40.1.1 Contribution to defined contribution plan Rent & house maintenance Medical Severance allowance Overseas allowance Security Commission Conveyance Utilities Fuel Special pay Leave fare assistance Others 25,000 Total 25,000 - 32,479 9,147 108,100 Number of Persons 1 - 12 3 1 - - - - - - - - - - - - - - - - - 32,479 - - - - - - - - - - - - - - - - - 5,319 1,000 163 879 - - - - - 1,122 195 228 241 - - 63,046 40,000 2,484 240 1,071 - - 1,189 - - - - - - 70 672 293,751 137,134 8,495 15,350 1,262 18,500 38,947 - 57 - - - - - - 5,418 689,511 226,212 28,559 104,977 11,744 8,800 7,416 14,471 62,670 21,457 14,513 16,044 16,170 34,305 514,168 1,262,267 23 177 40.1.1 SBP has issued guidelines and disclosure on governance and remuneration practices through BPRD Circular No. 01 of 2017 dated January 25, 2017 effective from January 01, 2019. No bonus payout has yet been made under the said circular and deferral as per Human Resources Policy will be made at the time of payment. 40.2 Remuneration paid to Directors for participation in Board and Committee meetings 2019 For Board Committee Board Board's BS & DC RM & PRC HR & RC ITC PP & CA CR & MC Total meeting Audit Committee Mian Mohammad Mansha* Mr. S. M. Muneer Mr. Tariq Rafi Mian Umer Mansha Mrs. Iqraa Hassan Mansha Mr. Muhammad Ali Zeb Mr. Mohd Suhail Amar Suresh Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Masood Ahmed Puri Mr. Shahzad Hussain Mr. Shariffuddin Bin Khalid Mr. Nor Hizam Bin Hashim (Rupees in '000) - 130 430 300 230 330 4,620 4,710 5,814 3,503 300 3,504 2,268 26,139 - - - 330 - 330 - - - - 300 300 130 1,390 - 30 - 330 - - 230 - 330 200 - - - 1,120 - - - 300 - 230 230 - 230 - - - - - - - - - 330 - 130 - - - - - 990 460 - - - 330 - - 230 200 330 - - - - 1,090 - - - 330 - 300 - - - - - - - - 30 - - - 330 - - 300 - - - - 25,000 190 430 1,920 230 1,850 5,310 5,040 7,004 3,703 600 3,804 2,398 630 660 57,479 Annual Report 2019 365
  368. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 40.3 *The Board Chairman is paid a fixed annual remuneration of Rs 25 million approved by shareholders of the Group in its 62nd Annual General Meeting held on March 26, 2010. Remuneration paid to Shariah Board Members 2019 ResidentNon- Chairmanmember Resident Total (member) (Rupees in '000) Meeting Fees and Allowances Other Heads Basic salary House rent Utilities Conveyance Fuel Special pay Bonus PF Employer – – – – 2,166 – – – – – – – 1,953 879 195 1,122 228 241 1,000 163 1,200 – – – – – – – 5,319 879 195 1,122 228 241 1,000 163 Total Amount 2,166 5,781 1,200 9,147 Total Number of Persons 1 1 1 3 In 2018, aggregate amount charged in the financial statements for compensation, including all benefits, to the Chief Executive, Directors and Executives of the Group is as follows: 2018 President / Chief Executive Directors (Rupees in '000) Fees – 40,741 Managerial remuneration and bonus 79,377 – Retirement benefits 3,095 – Rent and house maintenance 16,714 – Utilities 3,714 – Medical 150 – Conveyance – – 40.4 41. Number of persons – 4,420,432 192,397 1,054,133 228,330 67,613 801,684 103,050 40,741 6,764,589 1 14 2,311 The Chairman has been provided with free use of the Group maintained car. In addition to the above, the Chief Executive and certain executives are provided with free use of the Group maintained cars and household equipment in accordance with the terms of their employment. FAIR VALUE MEASUREMENTS The fair value of traded investments is based on quoted market prices, except for tradable securities classified by the Group as ‘held to maturity’. Quoted securities classified as held to maturity are carried at amortised cost. Fair value of unquoted equity investments other than investments in associates and subsidiaries is determined on the basis of break up value of these investments as per the latest available financial statements. 366 Executive Unconsolidated Financial Statements
  369. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 Fair value of fixed term loans, other assets, other liabilities, fixed term deposits and borrowings 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 Group accounting policy as stated in note 5.5 to these consolidated financial statements. The maturity and repricing profile and effective rates are stated in note 45. In the opinion of the management, the fair value of the financial assets and financial liabilities other than those carried at fair value and disclosed in note 41.1 are not significantly different from their carrying values since assets and liabilities are either short-term in nature or re-priced over short term. 41.1 Fair value of financial assets The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1:Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). Valuation techniques used in determination of fair valuation of financial instruments within level 2 Item Valuation approach and input used Federal Government securities The fair values of Federal Government securities are determined using the PKRV rates. Term Finance and Bonds Investments in debt securities (comprising term finance certificates, bonds and any other security issued by a company or a body corporate for the purpose of raising funds in the form of redeemable capital) are valued on the basis of the rates announced by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the Securities and Exchange Commission of Pakistan. Foreign exchange contracts The valuation has been determined by interpolating the mid rates announced by the State Bank of Pakistan. 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 underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Operating fixed assets (land and building) & NBA Land and buildings are revalued every three years using professional valuers on the panel of Pakistan Banker's Association. The valuation is based on their assessment of market value of the properties. Annual Report 2019 367
  370. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 The table below analyses the financial and non-financial assets carried at fair values, by valuation methods. For financial assets, the Group essentially carries its investments in debt and equity securities at fair values. Valuation of investments is carried out as per guidelines specified by the SBP. In case of non-financial assets, the Group has adopted revaluation model (as per IAS 16) in respect of land and building. 2019 Carrying Level 1 Level 2 Level 3 Total value On balance sheet financial instruments Financial assets - measured at fair value (Rupees in '000) Investments Federal Government Securities Shares 691,477,045 – 691,477,045 – 691,477,045 17,075,189 17,075,189 – – 17,075,189 Non-Government Debt Securities 2,424,102 – 2,424,102 – 2,424,102 Foreign Securities 3,663,065 – 3,663,065 – 3,663,065 42,802,189 – – – – Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, and associates) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Advances Other assets 142,957,358 – – – – 21,371,753 – – – – 6,060,869 – – – – 548,472,860 – – – – 58,219,618 – – – – 44,882,204 – 44,882,204 – 44,882,204 3,838,230 – 3,838,230 – 3,838,230 Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets Off-balance sheet financial instruments - measured at fair value 368 Forward purchase of foreign exchange 216,647,656 – 4,142,227 – 4,142,227 Forward sale of foreign exchange 188,243,433 – 3,352,404 – 3,352,404 Derivatives purchase 5,176,612 – 1,232,827 – 1,232,827 Derivatives sale 5,068,194 – 1,229,116 – 1,229,116 Unconsolidated Financial Statements
  371. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 2018 Carrying Level 1 Level 2 Level 3 Total value On balance sheet financial instruments Financial assets - measured at fair value (Rupees in '000) Investments Federal Government Securities Shares 688,686,786 – 688,686,786 – 688,686,786 19,041,266 19,041,266 – – 19,041,266 Non-Government Debt Securities 2,528,081 – 2,528,081 – 2,528,081 Foreign Securities 2,522,454 – 2,522,454 – 2,522,454 Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, and associates) Cash and balances with treasury banks 41,607,188 – – – – 110,165,006 – – – – Balances with other banks 13,338,117 – – – – Lendings to financial institutions 39,149,890 – – – – Advances Other assets 566,792,265 – – – – 38,208,613 – – – – Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets 34,894,351 – 34,894,351 – 34,894,351 4,035,114 – 4,035,114 – 4,035,114 126,872,293 – 3,477,211 – 3,477,211 90,346,797 – 3,452,374 – 3,452,374 Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange Derivatives purchase 5,721,684 – 787,978 – 787,978 Derivatives sale 5,563,419 – 799,130 – 799,130 (a) The Group's policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. Financial instruments in level 1 Financial instruments included in level 1 comprise of investments in listed ordinary shares and units of mutual funds. (b) Financial instruments in level 2 Financial instruments included in level 2 comprise of Sukuk Bonds, Pakistan Investment Bonds, Market Treasury Bills, Term Finance certificates, FX options, Cross Currency Swaps, Interest Rate Swaps and Forward Exchange Contracts. (c) Financial instruments in level 3 Currently, no financial instruments are classified in level 3. Annual Report 2019 369
  372. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 42 SEGMENT INFORMATION 42.1 Segment details with respect to business activities The segment analysis with respect to business activity is as follows: 2019 Ratail ConsumerCorporate TreasuryInternational Islamic Assets Others BankingBankingBanking Banking Banking Management Sub- Elimination Total total (Rupees in '000) Profit & Loss Net mark-up/return/profit (50,496,018) 3,938,893 36,263,272 68,147,338 1,762,729 3,993,758 Inter segment revenue - net 99,832,569 (2,583,003) (31,413,118) (73,135,260) (180,860) - Non mark-up / return / interest income 6,318,956 2,111,319 3,414,776 3,519,577 782,895 343,319 Total Income 55,655,507 Segment direct expenses Inter segment expense allocation 21,762,153 1,330,299 - - 3,467,209 525,336 - Total expenses Provisions 21,762,153 345,610 525,336 947,291 1,330,299 (34,217) 8,264,930 (1,468,345) 2,364,764 4,337,077 311,976 1,284,816 4,503,022 - - - 311,976 2,772,041 1,284,816 75,176 4,503,022 199,814 (2,059) 110,178 63,718,091 - 7,479,672 - 722,042 644,430 17,857,314 719,983 8,234,280 81,575,405 - 63,718,091 - - 17,857,314 - 81,575,405 499,336 8,531,282 38,748,220 - - - - 38,748,220 - 499,336 8,531,282 38,748,220 - (1,632,123) 2,673,592 - 38,748,220 - 2,673,592 220,647 - 40,153,593 Profit before tax 33,547,744 2,171,127 6,792,303 (4,552,362) 1,004,772 (365,759) Balance Sheet Cash and Bank balances 50,154,942 21,483 676,139 65,572,277 28,149,362 19,075,532 Investments - - 10,638,292 710,593,710 15,011,692 16,309,796 Net inter segment lending 940,015,023 - - - - - Lendings to financial institutions - - - - 209,206 5,851,663 Advances - performing 98,464,054 24,342,756 341,191,287 - 25,190,939 50,931,880 - non performing 1,074,787 113,148 1,237,494 - 4,836,865 378,087 Others 34,759,967 1,882,259 25,393,004 13,804,785 2,368,787 11,538,184 28,347 651,029 164,329,111 - 1,055,226 3,832,874 757,441,590 - 164,180,279 1,104,195,302 (1,104,195,302) - - 6,060,869 - 5,169 478,850 540,604,935 - - 227,544 7,867,925 - 1,060,496 45,102,959 135,910,441 - Total Assets 1,124,468,773 26,359,646 379,136,216 789,970,772 75,766,851 104,085,142 2,149,238 214,473,535 2,716,410,173 (1,104,195,302) 1,612,214,871 Borrowings Deposits and other accounts Net inter segment borrowing Others 45,355,966 - 7,057,504 32,270,471 3,520,222 4,127,525 1,033,790,838 - 55,425,048 - 55,523,628 81,853,511 - 24,124,908 299,650,838 755,967,249 12,464,722 10,466,801 45,321,969 2,234,738 17,002,826 1,733,052 4,258,279 7,637,305 - 528,280 92,859,968 - 92,859,968 - - 1,226,593,025 - 1,226,593,025 1,520,784 - 1,104,195,302 (1,104,195,302) 628,454 42,598,438 121,415,061 - 121,415,061 Total liabilities Equity 1,124,468,773 26,359,646 379,136,216 789,970,772 75,766,851 104,085,142 - - - - - - 2,149,238 43,126,718 2,545,063,356 (1,104,195,302) 1,440,868,054 - 171,346,817 171,346,817 - 171,346,817 Total Equity & liabilities 1,124,468,773 26,359,646 379,136,216 789,970,772 75,766,851 104,085,142 2,149,238 214,473,535 2,716,410,173 (1,104,195,302) 1,612,214,871 Contingencies & Commitments 48,973,361 - 262,455,692 496,556,621 14,015,586 18,397,458 1,335,121 40,153,593 - 25,057,324 865,456,042 164,329,111 757,441,590 6,060,869 540,604,935 7,867,925 135,910,441 - 865,456,042 2018 Ratail ConsumerCorporate TreasuryInternational Islamic Assets Others BankingBankingBanking Banking Banking Management Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 370 (Rupees in '000) (19,999,097) 50,778,451 6,334,844 2,425,240 20,426,188 41,399,090 (774,576) (17,027,342) (38,240,495) 1,732,440 2,988,114 3,970,534 1,762,729 (180,860) 782,895 1,903,925 - 399,262 3,383,104 2,364,764 2,303,187 Total Income 37,114,198 Segment direct expenses Inter segment expense allocation 20,935,783 1,372,159 - - 325,923 - Total expenses Provisions 20,935,783 (186,311) 1,372,159 (66,393) 325,923 (808,542) 281,947 1,952,015 1,284,816 75,176 16,364,726 2,077,338 6,869,579 4,895,167 35,421,656 722,207,238 - 32,972,346 - - 8,127,064 Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non performing Others Sub- Elimination Total total 6,386,960 49,001,673 33,515 311,483 - - 3,493,639 838,293,767 - - - - 1,293,338 121,784,772 22,525,967 327,067,606 1,214,697 39,757 891,516 31,327,269 1,887,934 16,459,558 7,129,129 281,947 1,284,816 3,087,754 - - - 1,950 - 884,808 86,399 48,006,424 5,444,822 - 1,418,975 18,511,872 886,758 6,950,196 66,518,296 - 48,006,424 - - 18,511,872 - 66,518,296 526,852 8,718,948 36,534,182 - - - - 36,534,182 - 3,087,754 895,646 526,852 27,828 8,718,948 36,534,182 (2,711,226) (821,807) - 36,534,182 - (821,807) 1,004,772 (1,680,213) 332,078 942,474 30,805,921 - 30,805,921 28,149,362 15,011,692 - 209,206 25,190,939 4,836,865 2,368,788 8,413,070 12,713,954 - 4,675,000 62,897,196 10,179 5,434,142 28,204 2,144,160 123,503,123 - 123,503,123 959,252 - 754,385,775 - 754,385,775 - 137,396,563 975,690,330 (975,690,330) - - 39,149,890 - 39,149,890 - 303,738 559,770,218 - 559,770,218 - 29,033 7,022,047 - 7,022,047 1,114,256 34,659,943 101,378,954 - 101,378,954 Total Assets Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others 1,041,622,178 24,487,173 349,517,140 798,728,304 75,766,852 94,143,541 7,800,628 - 73,269,994 10,106,876 2,966,043 - 407,714 223,216,115 - 223,216,115 - 3,891,019 3,891,019 - 3,891,019 - 24,366 1,122,306,535 - 1,122,306,535 1,455,816 - 975,690,330 (975,690,330) 645,896 18,887,459 84,473,459 - 84,473,459 Total liabilities Equity 1,041,622,178 24,487,173 349,517,140 798,728,304 75,766,852 94,143,541 - - - - - - 2,101,712 23,210,558 2,409,577,458 (975,690,330) 1,433,887,128 - 151,322,879 151,322,879 - 151,322,879 Total Equity & liabilities 1,041,622,178 24,487,173 349,517,140 798,728,304 75,766,852 94,143,541 2,101,712 174,533,437 2,560,900,337 (975,690,330) 1,585,210,007 Contingencies & Commitments Unconsolidated Financial Statements 35,293,396 - 5,651,980 170,542,175 3,520,222 - - - - - 969,799,371 16,556 23,672,620 - 55,523,628 - 22,478,042 305,911,711 623,273,163 12,464,722 36,529,411 1,992,575 14,280,829 4,912,966 4,258,280 111,974,609 - 190,296,217 247,754,264 14,015,586 19,756,379 2,101,712 174,533,437 2,560,900,337 (975,690,330) 1,585,210,007 - 18,540,432 602,337,487 - 602,337,487
  373. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 42.2 Segment details with respect to geographical locations GEOGRAPHICAL SEGMENT ANALYSIS Pakistan South Asia Middle East Sub-total Eliminations Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 61,849,240 107,447 17,088,129 1,085,296 (119,613) 251,485 675,651 12,166 512,276 107,904 - 5,424 1,217,168 1,200,093 113,328 63,718,091 - 17,857,314 - - - 63,718,091 17,857,314 Total Income 79,044,816 81,575,405 - 81,575,405 Segment direct expenses Inter segment expense allocation 37,396,274 - 737,142 - 552,539 - 62,265 - 38,748,220 - - - 38,748,220 - Total expenses Provisions 37,396,274 2,588,709 737,142 29,232 552,539 65,407 62,265 (9,756) 38,748,220 2,673,592 - - 38,748,220 2,673,592 Profit before tax 39,059,833 450,794 582,147 60,819 40,153,593 - 40,153,593 Balance Sheet 136,384,595 742,429,899 11,906,306 5,851,663 514,539,167 7,838,277 133,505,520 2,169,276 5,571,042 - 209,206 17,771,048 29,648 2,193,220 25,769,312 9,440,649 - - 7,401,837 - 173,639 5,928 - - - 892,883 - 38,062 164,329,111 757,441,590 11,906,306 6,060,869 540,604,935 7,867,925 135,910,441 - - (11,906,306) - - - - 164,329,111 757,441,590 6,060,869 540,604,935 7,867,925 135,910,441 Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing Others Total Assets 1,552,455,427 27,943,440 42,785,437 936,873 1,624,121,177 (11,906,306) 1,612,214,871 Borrowings Deposits and other accounts Net inter segment borrowing Others 88,811,466 1,173,585,208 - 118,711,936 845,703 18,431,297 6,151,041 2,515,399 2,674,519 34,576,520 5,388,302 146,096 528,280 92,859,968 - 1,226,593,025 366,963 11,906,306 41,630 121,415,061 - 92,859,968 - 1,226,593,025 (11,906,306) - 121,415,061 Total liabilities Equity 1,381,108,610 171,346,817 27,943,440 - 42,785,437 - 936,873 1,452,774,360 - 171,346,817 (11,906,306) 1,440,868,054 - 171,346,817 1,552,455,427 27,943,440 42,785,437 936,873 1,624,121,177 (11,906,306) 1,612,214,871 851,440,456 9,436,548 4,579,038 Total Equity & liabilities Contingencies & Commitments - 865,456,042 - 865,456,042 2018 Pakistan South Asia 2019 Azerbaijan Middle East Azerbaijan Sub-total Eliminations Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 46,521,993 (5,588) 17,788,281 909,102 (12,926) 233,086 1,129,262 491,127 18,514 483,230 84,202 - 7,275 48,006,424 - 18,511,872 - - - 48,006,424 18,511,872 Total Income 64,304,686 992,871 91,477 66,518,296 - 66,518,296 Segment direct expenses Inter segment expense allocation 35,549,030 - 641,781 - 377,570 - 50,152 - 36,618,533 - (84,351) - 36,534,182 - Total expenses Provisions 35,549,030 (877,178) 641,781 10,624 377,570 36,772 50,152 7,975 36,618,533 (821,807) (84,351) - 36,534,182 (821,807) Profit before tax Balance Sheet 29,632,834 476,857 578,529 33,350 30,721,570 84,351 30,805,921 107,077,457 744,681,961 10,176,366 37,647,346 537,681,842 6,722,214 100,926,572 1,906,785 4,040,982 - 368,406 16,047,102 299,833 315,568 14,516,518 5,662,832 - 1,134,138 5,353,367 - 125,964 2,363 - - - 687,907 - 10,850 Total Assets 1,544,913,758 22,978,676 26,792,819 701,120 1,595,386,373 (10,176,366) 1,585,210,007 220,009,824 3,891,019 1,086,185,171 - 83,504,865 616,822 - 16,266,330 5,190,509 905,015 2,181,755 - 19,855,034 4,695,213 60,817 407,714 223,216,115 - 3,891,019 - 1,122,306,535 290,644 10,176,366 2,762 84,473,459 - 223,216,115 - 3,891,019 - 1,122,306,535 (10,176,366) - 84,473,459 Total liabilities Equity 1,393,590,879 151,322,879 22,978,676 - 26,792,819 - 701,120 1,444,063,494 - 151,322,879 (10,176,366) 1,433,887,128 - 151,322,879 Total Equity & liabilities 1,544,913,758 22,978,676 26,792,819 701,120 1,595,386,373 (10,176,366) 1,585,210,007 582,065,580 12,396,092 7,842,488 Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing Others Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others Contingencies & Commitments 33,327 123,503,123 - 754,385,775 10,176,366 (10,176,366) 39,149,890 - 559,770,218 - 7,022,047 - 101,378,954 - 602,337,487 123,503,123 754,385,775 39,149,890 559,770,218 7,022,047 101,378,954 - 602,337,487 42.3 Transactions between reportable segments are based on an appropriate transfer pricing mechanism using agreed rates. Furthermore, segment assets and liabilities include inter segment balances. Costs which are not allocated to segments are included in the Head office. Income taxes are managed at bank level and are not allocated tto operating segments. 42.4 No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2019 or 2018. Annual Report 2019 371
  374. 372 Details of transactions with related parties during the year , other than those which have been disclosed elsewhere in these financial statements are as follows: Unconsolidated Financial Statements Provision held against advances Closing balance - 1,722 658 29,148 (28,084) - - Opening balance Addition / exchange adjustment during the year Repaid during the period / year Transfer in / (out) - - Closing balance Provision for diminution in value of investments Advances - - Investment disposed off during the year - 223,338 253,945 77,133 (84,375) (23,365) - - - - - - - Opening balance Equity method adjustments Investment made during the year - - - - In current accounts Investments Balances with other banks - - - - 4,275,658 - 4,019,526 256,132 - - - - 1,101,457 1,540,791 4,275,492 (3,920,116) (794,710) 5,000 1,283,438 (8,907,292) 1,283,998 - 8,906,732 14,389 14,389 (Rupees in '000) - 658 946 14,723 (15,011) - - - - - - - - - - 253,945 189,022 113,559 (55,351) 6,715 - - - - - - - - - - - - 4,019,526 (301,164) 4,456,239 (135,549) - - - - - - 1,540,791 2,638,740 7,899,213 (8,440,083) (557,079) 5,000 1,283,998 (3,024,387) 1,312,374 2,996,011 KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors partiesshariah advisors parties 2019 2018 The Group enters into transactions with related parties in the ordinary course of business and on substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. Remuneration to Chief Executive, Directors and Executives is disclosed in note 40 to the consolidated financial statements. The Group has related party relationship with associates, employee benefit plans, its directors and key management personnel and their close family members. The detail of associates are stated in note 9.11 to the consolidated financial statements. RELATED PARTY TRANSACTIONS 43 Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  375. Closing balance Deposits and other accounts Opening balance Received during the year Withdrawn during the year Transfer in / (out) - net Closing balance Other Liabilities Markup payable Accrued expenses and other payable Payable to MCB Employee Security Services Contingencies and Commitments Commitments and contingent liabilities - outstanding Forward foreign exchange contracts (Notional) - outstanding Forward purchase of government securities - - - 7,263 15,326 - 602,381 3,745,457 9,889,584 (13,025,336) (7,324) - - - - Opening balance Borrowings / exchange adjustment during the year Settled during the year - Other Assets Markup receivable Advances, deposits, advance rent and other prepayments Acceptances Receivable from Pension Fund Provision held against other assets Borrowings - - - 818 2,640 - 194,366 202,014 1,152,025 (1,139,761) (19,912) - - - - 4,948 587 - - - 10,444 - - 50,535 62,402 - 4,013,859 3,696,154 22,234,251 (21,916,546) - - - - - - 246,720 - - - 1,669,038 776,734 - 75,118 7,629 24,565 5,124,551 3,245,407 78,846,758 (77,299,321) 331,707 69,166 - 144,166 (75,000) 21,627 612,811 - 3,605,121 - - - - - - - - - 32,342 7,409 - 3,745,457 3,953,730 4,259,454 (4,457,255) (10,472) (Rupees in '000) - - - 282 55 - 202,014 208,466 1,092,745 (1,121,818) 22,621 - - - - 4,731 150 - - - 10,227 - - 15,968 82,805 - 3,696,154 3,100,739 17,580,902 (16,985,487) - - - - - - 86,579 - - - 5,063,359 790,886 8,739,500 38,354 11,551 - 3,245,407 3,824,540 64,459,081 (64,891,958) (146,256) - 993,755 (993,755) 29,913 633,281 25,387 3,815,170 - KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors partiesshariah advisors parties 2019 2018 Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 373
  376. 374 RELATED PARTY TRANSACTIONS Unconsolidated Financial Statements - - - - - - - 20 ,003 22,634,697 17,302,184 26,625,371 - - - - 2,503 - - - - - - - - 3,216 - 36,452 27,486 - - 687,539 - - - - - 900 - - - - 30,629 - - 85 - - - 333 - - - 4,611,381 6,699,290 - 12,912 - 264,691 - - - - - - 554,703 280,532 - 98,218 - 53 - 3,679 - 12,912 333 425,000 296,705,958 297,767,019 104,091,795 - 5,816 49,247 1,726 4,817 14,479 95,995 - 145,508 469,967 53,739 157,249 234,318 446,267 252,549 206,723 46,195 156,400 49,719 653,353 The Chairman has been provided with free use of the Group maintained car. The Chief Executive and certain executives are provided with free use of the Group’s maintained cars and household equipment in accordance with the terms of their employment. - - - - - - - 46,339 6,043,338 6,410,544 - - 143,791 - - - - - - - - - - 466 - 94,105 58,956 - - - - 203,735 - - - - - 5,968 40,218 2,125 12,934 3,023 9,147 106,825 291 152,009 479,670 45,055 160,766 258,411 414,106 213,722 - Proceeds from sale of fixed assets Purchase of fixed assets Sale of government securities Purchase of government securities Forward exchange contracts matured during the year Insurance premium paid on behalf of related party Reimbursement of Insurance premium paid on behalf of a related party Insurance claim received on behalf of related party Insurance claim paid to related party - 258,190 - - - - - - 719,873 57,566 - - 21,347 - - - 395,520 12,850 10,990 - 44,812 677,735 523,315 - - - - - 850 - - - - 218,029 - 281 - 8,485 - Other Transactions 165,579 - - - - - - - - - 38,562 - - 186 - - - Clearing expenses paid to NIFT Contribution to provident fund Rent expenses Cash sorting expenses Stationery expenses Security guards expenses Remuneration to key executives , shariah advisors and non-executive directors fee Outsourcing service expenses E-dividend processing fee and CDC charges Travelling Expenses & Hotel stay expenses Repair & Maintenance Charges Advertisement Expenses Miscellaneous expenses and payments Sharia Fee Paid Insurance premium-net of refund Insurance claim settled 145,454 - Other Operating expenses 142,545 136,272 43,701 - 1,109,700 140,000 15,458 21 - Markup / return / interest expensed 38 - - Expense 87,124 218,005 70,408 - 1,301,954 175,000 16,843 27 - Markup / return / interest earned Fee and commission income Dividend Income / received Gain on forward foreign exchange contracts matured during the year Net gain on sale of securities Gain on sale of fixed assets Rent income and reimbursement of other expenses Management fee and Advisory income - - - (Rupees in '000) Income KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors partiesshariah advisors parties 2019 2018 Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  377. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 44 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 44.1 Capital Adequacy Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 11,850,600 11,850,600 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital 132,504,188 – 125,999,355 – Total Eligible Tier 1 Capital Eligible Tier 2 Capital 132,504,188 28,503,091 125,999,355 17,503,483 Total Eligible Capital (Tier 1 + Tier 2) 161,007,279 143,502,838 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 662,366,497 113,394,030 126,966,330 666,892,937 59,642,582 116,673,450 902,726,857 843,208,969 Capital Adequacy Ratio (CAR): Total Common Equity Tier 1 Capital Adequacy ratio 14.68% 14.94% Tier 1 Capital Adequacy Ratio 14.68%14.94% Total Capital Adequacy Ratio 17.84%17.02% The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid up capital (net of losses) for all locally incorporated banks of Rs. 10 billion. The paid up capital of the Bank for the year ended December 31, 2019 stood at Rs. 11.851 billion and is in compliance with the SBP requirements. Further, under Basel III instructions, banks are required to maintain minimum Capital Adequacy Ratio (CAR) of 12.50% (including 2.50% capital conservation buffer), Common Equity Tier 1 (CET 1) ratio of 6.0% and Tier 1 ratio of 7.50% as at December 31, 2019. The Bank is fully compliant with prescribed ratios. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Bank’s exposures based on eligible collateral under comprehensive approach. 44.2 Leverage Ratio (LR): 20192018 (Rupees in '000) Eligible Tier-1 Capital Total Exposures 132,504,188 2,037,241,480 125,999,355 1,927,024,025 Leverage Ratio 6.50% 6.54% Annual Report 2019 375
  378. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 44.3 Liquidity Requirements 45 20192018 (Rupees in '000) Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow 734,587,045 379,626,249 625,831,686 355,738,136 Liquidity Coverage Ratio 193.50% 175.92% Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding 1,045,877,006 745,689,676 952,851,382 730,504,652 Net Stable Funding Ratio 140.26% 130.44% The full disclosures on the Capital Adequacy, Leverage Ratio & Liquidity Requirements as per SBP instructions issued from time to time are available at https://www.mcb.com.pk/investor-relations/ capital-adequacy-statements. RISK MANAGEMENT Risk is an inherent part of banking business activities. The risk management framework and governance structure of Group helps to mitigate and counter any foreseeable risk in its various lines of business. Risk awareness forms an integral part of strategic and operational activities of risk management. Through its risk management policy the Group sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Group’s risk management structure is based on the following five guiding principles: • • • • • Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing independent and properly resourced risk management function. Promoting open risk culture Adopting international best practices in risk management Keeping in view dynamics of internal and external environment, the bank regularly reviews and updates policy manuals / frameworks and procedures in accordance with domestic regulatory environment and international standards. The Group executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors and its relevant committee, i.e. the Risk Management & Portfolio Review Committee (RM&PRC), the senior management and its relevant committees, i.e. the Management Credit and Risk Committee (MC&RC), Asset Liability Committee (ALCO), etc., are responsible to ensure formulation and implementation of comprehensive Risk Management Framework. This framework is based on prudent risk identification, measurement, management and monitoring processes which are closely aligned with the activities of the Group. The framework combines core policies, procedures and process designs with broad oversight and is supported by an efficient monitoring mechanism across the bank to ensure that risks are kept within an acceptable level. The Group ensures that not only the relevant risks are identified but their implications are also considered and basis provided for managing and measuring the risks. Through Internal Control units, the Group ensures that effective controls are in place to mitigate each of the identified risk. Independent from business groups, Head of Risk Management reports functionally to the Risk Management & Portfolio Review Committee (RM&PRC) and administratively to the President; the RM&PRC convenes regular meetings to evaluate bank’s risk and portfolio concentrations. The Risk Management Group performs the following critical functions: • • • 376 Risk Management Policy Formulation Credit Risk Management Credit Review Unconsolidated Financial Statements
  379. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 • • • • • Credit Risk Control Market Risk Management Liquidity Risk Management Operational Risk Management IT Risk Management Keeping in view the international best practices and SBP requirements, Board of Directors of the Bank has approved a Risk Appetite Statement, which takes into account quantitative and qualitative risk indicators, covering target ratios, credit, market, operational, liquidity and business risks. 45.1 Credit Risk Credit risk arises from Group’s dealings with individuals, corporate borrowers, financial institutions, sovereigns etc. The Group is exposed to credit risk through its lending and investment activities. Credit risk makes up the largest part of the Group’s exposure and it stems from Group’s both on and off-balance sheet activities. Purpose of Credit Risk Management function is to identify, measure, manage, monitor and mitigate credit risk. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Group provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. The Group has adopted Standardized Approach to measure Credit risk regulatory capital charge in compliance with Basel requirements. The approach mainly takes into account the assessment of external credit rating agencies. In line with SBP guidelines on Internal Credit Risk Rating Systems, the Group has developed rating systems and all its borrowers are internally rated. In order to further enhance the credit risk analysis and the processes, Probability Default based internal credit risk rating (ICRR) system based on the statistical modeling and validation in line with Basel principles. The revamped ICRR is currently focused on Corporate Commercial and Corporate Large customer categories. The Internal Credit Risk Rating Model for rating of SME Customers has also been revamped to achieve more accurate results and to improve the quality of credit decisions. In order to manage Group’s credit risk, following policies and procedures are in place: • • • • • Individuals who take or manage risks clearly understand them in order to protect the Group from avoidable risks; The approval of credit limits to counter parties are subject to pre-fact review; Extension in credit facility or material change to the credit facility is subject to credit review; Approval and review process is reviewed by RM&PRC and internal audit; Management periodically reviews the powers of credit approving and credit reviewing authorities. Ongoing administration of the credit portfolio is an essential part of the credit process that supports and controls extension and maintenance of credit. The Group’s Credit Risk Control is responsible for performing following activities: • • • • • Credit disbursement authorization Collateral coverage and monitoring Compliance of loan covenants/ terms of approval Maintenance/ custody of collateral and security documentation Credit Risk Limit Controls Credit Risk Monitoring is based on a comprehensive reporting framework. Continuous monitoring of the credit portfolio and the risks attached thereto are carried out at different levels including businesses, Audit & Risk Assets Review, Credit Risk Control, Credit Risk Management Division, etc. To ensure a prudent distribution of asset portfolio, the Group manages its lending and investment activities within an appropriate limits framework. Per party exposure limit is maintained in accordance with SBP Prudential Regulations. The Group creates specific provision against Non-Performing Loans (NPLs) in accordance with the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision against consumer loans and Small Annual Report 2019 377
  380. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 enterprise (SEs) made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Please refer note No. 10.4 for reconciliation of changes in specific and general provisions. Management of Non Performing Loans The Group has a Assets Rehabilitation Group (ARG), which is responsible for management of non performing loans. ARG undertakes restructuring / rescheduling of problem loans, as well as litigation of both civil and criminal cases for collection of debt. Stress Testing Credit Risk stress testing is a regular exercise. Group’s credit exposures including funded and nonfunded facilities are subjected to stress tests. This exercise is conducted on a quarterly basis through assigning shocks to all assets of the Group and assessing its resulting affect on capital adequacy inline with SBP requirements. 45.1.1 Lendings to financial institutions Credit risk by public / private sector Gross lendings Non - performing lending Provision held 201920182019201820192018 (Rupees in '000) Public/ Government Private 3,580,870 1,198,704 2,479,999 37,951,186 - - - - - - - 6,060,869 39,149,890 - - - - 45.1.2 Investment in debt securities Credit risk by industry sector Gross Investments Non - performing Investments Provision held 201920182019201820192018 (Rupees in '000) Chemical and pharmaceuticals 1,750,000 - Construction - 29,964 Electricity, gas, steam and air conditioning supply 101,933 188,456 Financials including government securities 712,505,023 721,780,711 Manufacture of cement 285,000 285,000 Manufacture of sugar 145,656 150,000 Manufacture of textiles 53,531 53,531 Power (electricity), Gas, Water, Sanitary 575,000 805,000 Telecommunications 114,747 114,747 Others 14,726,579 11,047,030 Credit risk by public / private sector Public/ Government 718,043,511 721,291,216 Private 12,213,958 13,163,223 378 730,257,469 734,454,439 Unconsolidated Financial Statements 730,257,469 734,454,439 - - - 29,964 - - - - - 29,964 - 118 285,000 145,656 53,531 118 285,000 - 53,531 118 285,000 72,828 53,531 118 285,000 - 53,531 - 114,747 7,682 - 114,747 7,682 - 114,747 7,682 114,747 7,682 606,734 491,042 533,906 491,042 - 606,734 - 491,042 - 533,906 491,042 606,734 491,042 533,906 491,042
  381. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 45.1.3 Advances Credit risk by industry sector Gross Advances Non - performing Advances Provision held 201920182019201820192018 (Rupees in '000) Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 7,582,097 9,386,665 20,852,864 22,685,213 652,580 289,435 798,008 343,453 362,867 287,840 763,426 339,991 44,370,647 45,349,612 379,846 381,282 378,125 379,485 4,760,213 6,058,899 21,334,593 15,525,588 113,496 532,286 119,040 741,551 107,776 532,286 113,320 739,169 3,604,384 173,985 179,687 173,590 179,292 2,760,760 4,258,217 44,438,103 41,591,645 50,211 4,397,242 52,395 4,320,944 34,981 4,001,136 37,025 4,002,049 16,420,515 14,349,676 12,095,610 15,290,708 3,104,026 392,862 2,193,872 392,862 2,892,814 392,862 2,190,086 392,862 48,727,242 41,436,107 334,485 376,631 331,551 366,010 14,789,736 22,581,791 399,317 361,167 398,701 360,551 55,638,390 53,415,267 3,014,962 3,233,140 2,786,691 3,169,855 435,301 474,815 434,527 456,142 4,566,500 4,835,798 2,245,534 5,376,391 4,793,034 661,498 711,653 26,450,203 38,979,252 4,497,643 2,483,424 87,196,612 82,724,853 13,537,492 13,854,193 4,252,835 2,510,868 7,286 10,078 5,021,705 8,366,211 13,688,812 15,883,537 66,336,431 47,946,182 8,179,645 4,170,766 242,331 261,677 9,207,374 2,436,614 3,040,220 10,835,172 596,857 1,135,283 17,945,996 42,798 57,304 67,628,034 93,955 507,773 45,923,376 12,562,812 12,117,336 27,530,614 856,366 818,526 658,226 428,762 3,434,211 1,843,056 13,088,287 13,210,706 7,286 10,013 213,453 2,436,614 588,408 42,798 84,307 7,574,356 694,068 232,751 3,040,220 1,030,585 52,791 402,386 7,448,877 754,857 591,871,632 610,028,645 49,805,686 48,966,314 Credit risk by public / private sector Public/ Government 95,096,713 101,279,217 639,825 639,826 Private 496,774,919 508,749,428 49,165,861 48,326,488 639,825 639,825 41,297,936 41,304,442 41,937,761 41,944,267 591,871,632 610,028,645 49,805,686 48,966,314 41,937,761 41,944,267 Annual Report 2019 379
  382. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 (Rupees in '000) 45.1.4 Contingencies and Commitments Credit risk by industry sector Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 626,318 28,790,117 16,318,961 4,574,959 578,498,188 123,152 409,816 6,205,880 6,414,150 1,761,514 929,975 34,658,187 5,513,067 2,263,031 345,910,620 316,345 804,687 8,758,774 6,846,779 2,367,858 19,976,862 15,369,784 19,550,105 20,291,122 3,951,612 13,378,114 6,790,046 2,162,953 3,790,969 35,676,318 460,490 1,165,844 2,535,412 55,448,997 14,669,698 4,076,724 17,521,657 22,537,128 8,228,640 1,391,038 4,202,367 18,738,315 96,453 1,099,265 2,269,451 61,467,471 16,839,614 5,881,808 15,194,470 20,938,424 Credit risk by public / private sector 865,456,042 602,337,487 Public/ Government Private 321,606,927 543,849,115 146,299,566 456,037,921 865,456,042 602,337,487 45.1.5 Concentration of Advances The Group top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs. 236,769.236 million (2018: Rs. 233,522.506 million) are as following: Funded Non Funded 80,717,454 156,051,782 91,638,103 141,884,403 Total Exposure 236,769,236 233,522,506 380 20192018 (Rupees in '000) The sanctioned limits against these top 10 exposures aggregated to Rs 291,923.228 million (2018: Rs. 281,681.726 million) There is no provision against these top 10 exposures. Unconsolidated Financial Statements
  383. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 45.1.6 Advances - Province/Region-wise Disbursement & Utilization 2019 DisbursementsUtilization KPK AJK Province / Region Punjab Sindh including Balochistan Islamabad including Gilgit FATA Balochistan (Rupees in '000) Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Total 753,218,687 688,753,937 5,481,487 1,251,413 43,495,899 678,763,640 60,879,964 12,583,438 605,024,224 73,656 - - 9,294 5,008,912 228,682 368,360 29,738 1,492,569,783 696,459,384 10,039,632 3,370,558 5,407,831 - 1,789,813 323,686 67,547,890 - 1,242,119 - 3,210,918 227,827 - - 36,393,156 847 75,336 - - - 338,622 - 666,142,164 20,607,834 69,113,695 39,831,901 414,805 2018 DisbursementsUtilization KPK AJK Province / Region Punjab Sindh including Balochistan Islamabad including Gilgit FATA Balochistan (Rupees in '000) Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Total 45.2 Market Risk 572,121,989 577,715,877 5,441,928 1,216,050 32,691,486 500,803,912 57,758,820 12,573,575 494,016,936 67,761 - - - 3,470,284 227,242 316,940 425 1,189,504,270 516,915,957 - 552,002,998 10,024,921 3,370,558 5,374,167 - 1,782,828 322,571 67,526,981 - 1,216,050 - 3,210,918 227,827 - - 27,135,929 847 75,203 - - - 316,515 20,552,474 69,065,602 30,574,674 392,565 Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. MCB is exposed to market risk primarily through its trading activities, which are centered in the Treasury and Foreign Exchange Group and the Capital Market Division. Market risk also arises from market-making, facilitation of client business and proprietary positions in equities, fixed income and interest rate products and foreign exchange, which exposes Group to interest rate risk, foreign exchange risk and equity price risk. The Group’s Market Risk Management structure consists of Risk Management & Portfolio Review Committee (RM&PRC) of the Board, Management Credit and Risk Committee, ALCO and independent Market Risk Management Division reporting directly to Group Head Risk Management. Market Risk function works in close partnership with the business segments to identify and monitor market risks throughout the Group and to define market risk policies and procedures. Market Risk seeks to facilitate efficient risk/return management decisions, reduce volatility in operating performance and provide transparency into the Group’s market risk profile for senior management, the Board of Directors and regulators. Market risk authority, including both approval of market risk limits and approval of market risks is vested in the ALCO. In line with regulatory requirements, MCB has clearly defined, in its Risk Management policy, the positions which shall be subject to market risk. The definition covers the accounting classifications as well as positions booked by different business groups under “Available for Sale” category. The assets subject to trading book treatment are frequently, mostly on daily basis, valued and actively managed. The positions which does not fulfill the criteria of Trading book falls under the Grouping Book and are treated as per SBP requirements. Annual Report 2019 381
  384. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 The Group measures and manages Market Risk by using different risk parameters with combinations of various limits. A specific Board approved Market Risk Limit Policy provides guidelines for assuming controlled market risk, its monitoring and management. The approved limits are compared with the numbers generated by the market risk management systems based on the trading activity and the outstanding positions. Besides conventional methods, the Group also uses VaR (Value at Risk) technique for market risk assessment of positions assumed by its treasury and capital market groups. In-house based solutions are used for calculating mark to market value of positions and generating VaR (value at risk) and sensitivity numbers. Thresholds for different positions are established to compare the expected losses at a given confidence level and over a specified time horizon. A framework of stress testing, scenario analysis and reverse stress tests covering both Grouping and trading books as per SBP guidelines is also in place. The results of the stress tests are reviewed by senior management and also reported to the SBP. The Group is also exposed to interest rate risk both in trading and Grouping books. Risk parameters along with the marked to market values of government securities held by the Group’s treasury are generated on daily basis. The risk parameters include duration, PVBP, and VaR on individual security basis as well as on portfolio basis. These reports are presented to the senior management for review on a daily basis. 45.2.1 Balance sheet split by trading and banking books 20192018 BankingTrading Total BankingTrading Total bookbook bookbook (Rupees in '000) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 142,957,358 21,371,753 6,060,869 41,407,690 548,472,860 64,201,807 1,978,975 69,729,659 - 142,957,358 - 21,371,753 - 6,060,869 716,033,900 757,441,590 - 548,472,860 - 64,201,807 - 1,978,975 - 69,729,659 110,165,006 13,338,117 39,149,890 40,197,458 566,792,265 43,531,396 1,452,462 56,395,096 - - - 714,188,317 - - - - 896,180,971 716,033,900 1,612,214,871 871,021,690 714,188,317 1,585,210,007 110,165,006 13,338,117 39,149,890 754,385,775 566,792,265 43,531,396 1,452,462 56,395,096 45.2.2 Foreign Exchange Risk Foreign exchange risk exposes the Group to changes in the values of current holdings and future cash flows denominated in currencies other than home currency due to the exchange rate fluctuation and volatility. The types of instruments exposed to this risk include investments in foreign branches, foreign currency-denominated loans, foreign currency-denominated deposits, future cash flows in foreign currencies arising from foreign exchange transactions, etc. The core objective of foreign exchange risk management is to ensure the foreign exchange exposure of the Group remain within defined risk appetite and insulate Group against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage Foreign exchange risk including gap limits on different tenors in major currencies are in place to control risk. Group’s net open position and foreign exchange exposure limit (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR is generated and monitored on daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the Board is a regular feature. 382 Unconsolidated Financial Statements
  385. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 20192018 Foreign Foreign Off-balance Net foreign Foreign Foreign Off-balance Net foreign currencycurrency sheet currencycurrencycurrency sheet currency Assetsliabilitiesitems exposureAssetsliabilities items exposure Rupees in '000 United States Dollar Sri Lankan Rupees Arab Emirates Dirham 194,163 Euro 438,134 Great Britain Pound Sterling 703,957 Japanese Yen 19,750 Other currencies 133,740 42,949,125 61,958,946 20,204,447 - 164,290 1,194,626 29,147,140 54,998,521 26,118,156 (15,331) (364,982) 949,404 590,192 (165,049) (116,907) 4,960,868 4,564,076 41,342 709,714 5,412,390 4,639,790 (62,885) 5,585,201 4,822,148 (59,096) 785,034 6,431,110 5,667,817 21,741 4,627 17,723 32,846 (90,824) 136 103,369 12,410 31,769 165,509 76,593 25,692 102,285 1,194,847 30,145,769 66,842,157 36,725,930 29,542 - 44,438,869 73,623,336 30,379,314 - 171,106 266,775 148,959 - - - (193,876) (116,907) 20192018 Banking book Trading book Banking book Trading book (Rupees in '000) Impact of 1% change in foreign exchange rates on - Profit and loss account 45.2.3 Equity position Risk - 14,545 - 8,474 Group’s proprietary positions in the equity instruments exposes it to the equity price risk in its trading and Grouping books. Equity price risk is managed by applying trading limit, scrip-wise and portfolio wise nominal limits. VaR analysis and stress testing of the equity portfolio are also performed and reported to senior management on daily basis. The stress test for equity price risk assesses the impact of the fall in the stock market index using certain assumptions. In addition to this stress testing, historical scenario analysis on equities is also performed periodically as advised by the State Bank of Pakistan through Guideline on Stress Testing. 20192018 AFSHFT AFSHFT (Rupees in '000) Impact of 5% change in equity prices on - Profit and loss account - Other comprehensive income - 796,211 57,548 - - 899,642 52,421 - 45.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific Yield/ Interest rate sensitivity position for on-balance sheet instruments is based on the earlier of contractual re-pricing or maturity date and for off-balance sheet instruments is based on settlement date. The increase / (decrease) in earnings due to change in the interest rate is as follows: 20192018 Banking book Trading book Banking book Trading book (Rupees in '000) Impact of 1% change in interest rates on - Profit and loss account - Other comprehensive income 2,334,051 - - 6,819,634 2,726,872 - 1,514,828 The Group has classified Available for Sale investments as Trading in Basel-II. Annual Report 2019 383
  386. 384 Unconsolidated Financial Statements 741 ,514,266 (55,265,898) 1,417,545,560 On-balance sheet gap 17,578,359 63,820,745 97,848,426 74,757,998 89,293,579 34,027,681 34,027,681 198,723,961 105,384,611 Off-balance sheet gap Total Yield/Interest Risk Sensitivity Gap Cumulative Yield/Interest Risk Sensitivity Gap 68,061,968 85,640,327 226,651 - 311,405 67,523,912 304,108,572 431,449 5,412,334 4,636,745 188,243,433 FX options sale Forward sale of Government securities Cross Currency Swaps sale Foreign exchange contracts sale 164,051,577 204,798 5,412,334 - 69,140,866 431,449 82,284,304 4,428,663 316,500 216,647,656 226,651 - 311,405 - 85,102,271 46,242,386 46,400,102 - 11,294,285 35,105,817 - 92,642,488 - 1,340,374 3,371,664 58,772,960 29,157,490 - FX options purchase Forward purchase of Government securities Cross Currency Swaps purchase Interest Rate Swaps purchase Foreign exchange contracts purchase 204,798 82,284,304 - - 81,562,475 - 55,458,386 686,055,880 - Bills payable 12,795,325 Borrowings 7.84% 92,859,968 Deposits and other accounts 5.96% 1,226,593,025 Other liabilities 85,297,242 Off-balance sheet financial instruments 686,248,368 1,523,550,295 Liabilities 106,004,735 10,517,551 7,176,640 2,689,205 180,997,048 484,867,924 - 142,957,358 21,371,753 6,060,869 757,441,590 537,499,107 58,219,618 Cash and balances with treasury banks 0.70% Balances with other banks 0.55% Lending to financial institutions 10.91% Investments 11.47% Advances 11.70% Other assets Assets On-balance sheet financial instruments 112,231,875 14,383,449 (4,889,264) 50,188,944 45,299,680 - - 52,745 50,136,199 - - - - 45,299,680 19,272,713 31,133,447 - 8,605,720 22,527,727 - 50,406,160 280,081,681 167,849,806 3,557,274 2,207,946 5,765,220 - - 765,490 1,442,456 - - 765,490 316,500 4,683,230 164,292,532 25,916,159 - 1,507,529 24,408,630 - 190,208,691 381,792,914 101,711,233 (155,337) 1,677,406 1,522,069 - - 1,677,406 - - - 1,522,069 - - 101,866,570 5,556,576 - 2,097,344 3,459,232 - 107,423,146 - - - - - - - - - 43,600,582 187,051,328 105,606,890 6,805,578 3,157,363 1,816,256 - - - (Rupees in '000) 395,482,887 13,689,973 - 857,049 857,049 - - 857,049 - - - 857,049 - - 13,689,973 4,219,832 - 2,217,657 2,002,175 - 17,909,805 - - - 14,900,121 3,009,684 - 452,428,120 56,945,233 - 972,650 972,650 - - 972,650 - - - 972,650 - - 56,945,233 4,843,717 - 3,572,934 1,270,783 - 61,788,950 - - - 60,307,907 1,481,043 - 529,612,454 77,184,334 - - - - 77,184,334 8,106,113 - 8,106,113 - - 85,290,447 - - - 83,531,045 1,759,402 - 12,795,325 451,762,781 85,297,242 226,187,873 535,056,821 5,444,367 - - - - - - - - 5,444,367 (323,667,475) - 549,855,348 - 5,444,367 - 132,439,807 - 12,854,739 - - 22,673,709 5,444,367 - 58,219,618 EffectiveTotal Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above bearing interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 10 financial rate month months monthsyear years yearsyearsyears years instruments 2019 Exposed to Yield/ Interest risk 45.2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  387. 13 ,239,100 137,236,081 54,242,406 23,910,168 205,489,414 1,378,370 14,274,714 4,185,049 90,346,797 110,184,930 36,069,994 FX options sale Forward sale of Government securities Cross Currency Swaps - sale Foreign exchange contracts sale Off-balance sheet gap Total Yield/Interest Risk Sensitivity Gap 36,925,982 158,265 1,684,120 - - 1,684,120 - 15,421,865 - 1,209,227 - - 1,209,227 - 1,209,227 - - 1,209,227 - - 15,421,865 3,981,785 - 1,743,962 2,237,823 - - 19,403,650 - - - 15,658,777 3,744,873 - 14,463,387 - 1,084,219 - - 1,084,219 - 1,084,219 - - 1,084,219 - - 14,463,387 4,093,808 - 3,097,690 996,118 - - 18,557,195 - - - 15,485,864 3,071,331 - - - - - - 5,924,815 6,722,977 - 6,722,977 - - - 12,647,792 - - - 10,071,227 2,576,565 - 17,003,272 2,116,319 427,627,638 54,362,490 184,081,882 - - - - - - - - - - 4,850,422 (317,027,837) - 501,109,719 - 4,850,422 - 100,698,513 - 9,679,885 - - 24,400,414 4,850,422 11,094,457 - 38,208,613 447,732,276 (2,845,152) (1,454,268) 1,975,033 - - - 1,975,033 1,842,385 - - 1,525,885 316,500 - 36,767,717 3,824,303 - 1,402,299 2,422,004 - - 40,592,020 - - - 38,431,913 2,160,107 - Cumulative Yield/Interest Risk Sensitivity Gap 205,489,414 342,725,495 372,990,957 370,145,805 407,071,787 422,493,652 436,957,039 442,881,854 30,265,462 216,729 27,860,977 98,548 - - 27,762,429 520,765 - - - - 520,765 (1,390,884) 24,160,640 - 699,729 23,460,911 - - 22,769,756 - - - 15,156,060 7,613,696 - 4,850,422 22,128,948 756,090 - - 21,372,858 28,077,706 98,548 - - - 27,979,158 30,048,733 29,642,253 - 8,853,187 16,898,047 3,891,019 - 59,690,986 - - - 42,253,700 17,437,286 - (Rupees in '000) 5,924,815 523,732 14,274,714 207,483 39,236,477 35,368,048 146,254,924 78,152,574 1,378,370 13,660,947 4,026,814 316,500 126,872,293 756,090 - - - 34,611,958 123,996,981 37,497,723 - 12,925,968 24,571,755 - - FX options purchase Outright purchase of Government Securities Cross currency swaps - purchase Interest Rate Swaps - purchase Foreign exchange contracts purchase 523,732 13,660,947 207,483 - 63,760,412 181,579,246 On-balance sheet gap Off-balance sheet financial instruments 809,746,223 1,420,779,431 94,634,445 - 185,653,984 624,092,239 - - Bills payable 17,003,272 Borrowings 5.10% 223,216,115 Deposits and other accounts 3.18% 1,122,306,535 Subordinated debt 7.91% 3,891,019 Other liabilities 54,362,490 161,494,704 9,466,493 - 3,380,508 277,724 39,149,890 - 466,525,985 126,401,835 472,802,593 34,815,145 - - 991,325,469 110,165,006 13,338,117 39,149,890 754,385,775 560,166,475 38,208,613 1,515,413,876 Liabilities Cash and balances with treasury banks 1.35% Balances with other banks 0.38% Lending to financial institutions 6.40% Investments 7.53% Advances 7.68% Other assets Assets On-balance sheet financial instruments Exposed to Yield/ Interest risk EffectiveTotal Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Above bearing interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 10 financial rate month months monthsyear years yearsyearsyears years instruments 2018 Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 385
  388. 386 Unconsolidated Financial Statements 1 ,420,779,431 11,124,552 1,983,145 13,107,697 Operational Risk Management helps the Group understand risks and improve mitigating controls so as to minimize operational risks that are inherent in almost all areas of the Group. Going forward, the Group will further strengthen its risk function, policies and procedures to facilitate its operations and improve quality of assets to safeguard interest of depositors. The Group operational risk management framework, as laid down in the operational risk policy, duly approved by BOD, is flexible enough to implement in stages and permits the overall risk management approach to evolve in the light of organizational learning and the future needs of the Group. Operational loss events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve control procedures with respect to design and operative effectiveness. Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risks but excludes strategic and reputational risks. Operational loss data pertaining to key risk events is also collected on Group-wide basis. Operational Risk Management Software (ORMS) has been developed in house in line with the regulatory requirements, which has enhanced Group’s capability to capture and report operational risk events in a more systematic way. The software is also capable for periodical regulatory and management reporting. Periodic review and analysis is prepared for senior management and Risk Management and Portfolio Review Committee (RM&PRC) of the Board. The report covers the significant risk events with root cause analysis and recommendations for further improvements. Currently, the Group is reporting operational risk capital charge under Basic Indicator Approach (BIA). However, the Group took a number of initiative with respect to operational risk management. The parallel run approval for Alternative Standardized Approach (ASA) was accorded by SBP. The Group will initiate further steps for improvement Operational Risk management in the Group. 45.3.1 Operational Risk-Disclosures Basel II Specific Operational Risk Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. 1,417,545,560 Yield risk is the risk of decline in earnings due to adverse movement of the yield curve. Total financial liabilities 45.3 69,796,131 1,515,413,876 88,664,576 17,108,271 6,214,223 23,322,494 1,433,887,128 20192018 (Rupees in '000) 1,440,868,054 Total financial assets 1,523,550,295 6,625,790 Other liabilities 43,789,201 Deferred tax liability 1,194,657 18,186,483 Less: Non financial liabilities Balance as per balance sheet Reconciliation to total liabilities 10,973,753 64,201,807 1,978,975 11,510,041 Less: Non financial assets Islamic financing and related assets Fixed assets Intangible assets Other assets Balance as per balance sheet 1,612,214,871 1,585,210,007 Reconciliation to total assets 20192018 (Rupees in '000) Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  389. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 45.4 Liquidity Risk Liquidity represents the ability to fund assets and meet obligations as they become due. The Group understands that liquidity does not come for free, and surplus liquidity has an opportunity cost which needs to be recognized. Liquidity risk is a risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Liquidity is essential to the ability to operate financial services businesses and, therefore, the ability to maintain surplus levels of liquidity through economic cycles is crucial. Particularly during periods of adverse conditions, liquidity management is among the most important activities that the MCB conducts during both normal and stress periods. MCB recognizes that liquidity risk can arise from the Group’s activities and can be grouped into three categories: - - - Inflows/Outflows from on-balance sheet items (other than marketable securities and wholesale borrowings) and off-balance sheet items; Marketability of trading securities; and Capacity to borrow from the wholesale markets for funding as well as trading activities. Liquidity Management The Asset Liability Management Committee of the Group has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Groups’ liquidity under normal and stress scenarios. A framework to assess the maturity profile of non-contractual assets and liabilities is in place to supplement the liquidity management. Group’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing, to ensure effective and timely decision making. Group’s liquidity risk management framework is designed to identify measure and manage in a timely manner the liquidity risk position of the Group. The underlying policies and procedures include: Risk Management policy, Treasury Policy, Investment policy, Contingency Funding Plan, Liquidity Strategy and Limit Structure which are reviewed and approved regularly by the senior management /Board members. Moreover; the Group also prepares a ‘Contingency Funding Plan’ (CFP) to address liquidity issues in time of stress/crises situation containing early warning indicators to pre-empt unforeseen liquidity crises. Group conducts Liquidity Risk Analysis on regular basis as well as Maturity of gaps are also reviewed in order to ensure diversification in terms of tenors. MCB liquidity Risk Policy envisages to project the Group’s funding position during temporary and long-term liquidity changes, including those caused by liability erosion and explicitly identifying quantifying and ranking all sources of funding preferences, such as reducing assets, modifying or increasing liability structure; and using other alternatives for controlling statement of financial position changes. Group performs regular liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Group under both idiosyncratic and systemic market stress conditions. Group’s liquidity risk management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. Intraday Liquidity Management Intraday liquidity management is about managing the daily payments and cash flows. Group has policies to ensure that sufficient cash is maintained during the day to make payments through local payment system. The policy of the Group is 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 obligations, repay depositors and fulfill commitments. Managing Funding Sources Managing funding sources, as per policy Group maintain a portfolio of marketable securities that can either be sold outright or sold through a repurchase agreement to generate cash flows for meeting unexpected liquidity requirement. As a part of liquidity management MCB maintains borrowing relationships to ensure the continued access to diverse market of funding sources. Group’s sound credit rating together with excellent market reputation has enabled MCB to secure ample call lines with local and foreign Groups. The level of liquidity reserves as per regulatory requirements also mitigates risks. Group’s investment in marketable securities is much higher than the Statutory Liquidity requirements. Annual Report 2019 387
  390. 388 2019 Unconsolidated Financial Statements Advances Fixed assets Intangible assets Deferred tax assets Other assets Deposits and other Other liabilities - - 168 ,334,361 43,919,875 17,612,872 (30,763) 13,914,022 5,599,571 6,824,173 212,254,236 8,254,924 80,356 38,546 254,848 34,999,908 165,948,840 1,980,000 696,814 - 19,898,680 29,835,599 5,700,838 19,132 16,239,575 7,876,054 - 49,734,279 12,645,114 137,078 62,705 404,607 27,246,925 4,525,813 3,371,663 1,340,374 54,256,423 33,871,447 5,938,865 (96,955) 24,611,305 3,418,232 - 88,127,870 13,810,916 146,531 63,157 404,874 34,646,455 39,055,937 - - - 66,095,500 43,333,512 11,057,222 81,403 23,589,167 8,605,720 - 109,429,012 3,683,264 430,140 189,591 1,212,956 65,929,233 37,983,828 - - - 110,814,499 24,393,693 6,614,626 71,253 17,002,990 704,824 - 135,208,192 3,547,514 435,730 189,829 1,213,009 28,106,558 101,715,552 - - - 109,553,227 14,796,497 2,060,339 (18,568) 11,952,021 802,705 - 124,349,724 457,875 430,140 189,836 1,214,158 35,278,081 86,779,634 - - - 154,372,983 8,869,189 2,694,699 594,557 3,482,589 2,097,344 - 163,242,172 1,214,143 210,356 442,526 4,062,375 46,252,132 111,060,640 - - - 56,859,075 8,430,568 3,753,391 321,640 2,137,880 2,217,657 - 65,289,643 2,141,963 974,942 173,054 4,108,763 39,070,405 18,820,516 - - - 113,838,155 22,265,931 14,544,640 2,874,074 1,274,283 3,572,934 - 136,104,086 11,584,333 - 506,395 5,466,376 53,513,936 65,033,046 - - - 182,444,041 19,712,400 6,328,728 5,277,559 - 8,106,113 - 202,156,441 - - 71,737 45,729,417 44,970,408 111,384,879 - - - 171,346,817 Non-controlling interest 740,403 Unappropriated profit56,108,779 Surplus on revaluation of assets 24,752,206 77,894,829 (4,038,576) 24,675,663 7,761,515 12,337 8,009,608 5,906,627 2,985,576 20,637,087 8,150,816 33,088 12,012 65,212 9,807,984 1,484,042 - 1,083,933 Over 5 years 11,850,600 (10,139,379) 171,346,817 (850,942,172) 8,025,836 16,352 4,344,655 24,261,935 2,559,065 29,068,464 3,757,122 28,361 10,296 55,896 12,087,746 39,207,843 10,311,942 10,685 500,000 12,087,461 1,443,786,537 1,130,474,320 102,405,513 9,132,706 - 541,582 Over 3 to 5 years Reserves Net assets 19,690,252 426,511 279,532,148 481,675 11,761 29,291 9,316 116,563,089 1,561,402 209,206 17,709,050 142,957,358 1,226,593,025 1,100,034,930 92,859,968 12,795,325 1,615,133,354 69,729,659 2,918,483 1,978,975 64,201,807 548,472,860 757,441,590 6,060,869 21,371,753 142,957,358 (Rupees in '000) Over 2 to 3 years Share capital Deferred tax liabilities accounts Borrowings Bills payable Liabilities Investments institutions Lending to financial Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 months 2 months 3 months 6 months 9 months months 2 years to 1 years 45.4.1 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Group Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  391. 2018 Advances Fixed assets Intangible assets Deferred tax assets Other assets Deposits and other Deferred tax liabilities Other liabilities Net assets 8 ,878,461 566,776 249,833,934 1,749,407 6,796 27,795 109,122 117,978,845 1,415,440 5,043,406 13,338,117 110,165,006 (7,580,017) 17,121,258 5,298,569 2,713 - 4,372,404 3,480,142 3,967,430 9,541,241 2,570,521 39,761 4,971 67,625 4,518,142 2,340,221 - - - 139,476,445 37,734,657 11,609,728 6,589 - 15,084,901 1,965,027 9,068,412 177,211,102 6,910,725 135,032 15,692 176,024 41,017,024 127,822,467 1,134,138 - - 115,642,389 25,243,420 5,058,653 11,241 - 15,130,985 5,042,541 - 140,885,809 9,212,575 159,521 29,313 310,527 19,420,424 111,753,449 - - - 40,954,773 27,904,644 5,936,445 12,016 - 13,509,166 8,447,017 - 68,859,417 10,192,105 152,178 29,357 311,417 49,383,687 8,790,673 - - - 80,584,185 30,754,304 3,456,002 35,273 779 17,358,983 9,903,267 - 111,338,489 2,151,240 605,797 88,072 935,113 68,933,747 38,624,520 - - - 43,731,995 15,402,238 2,691,351 35,661 - 12,232,954 442,272 - 59,134,233 4,537,524 576,506 88,072 937,639 41,308,667 11,685,825 - - - 20,189,768 14,733,968 1,968,097 35,273 779 12,431,591 298,228 - 34,923,736 3,828,545 446,715 88,072 938,658 24,113,553 5,508,193 - - - 92,188,320 7,899,190 3,817,909 141,480 1,558 2,454,401 1,483,842 - 100,087,510 3,423,685 912,972 213,367 2,253,979 50,099,142 43,184,365 - - - 66,196,988 5,513,315 1,260,035 141,480 1,558 2,284,737 1,825,505 - 71,710,303 925,700 712,463 96,532 2,202,397 47,653,125 20,120,086 - - - 57,437,175 17,864,836 7,928,223 1,786,574 3,886,345 1,002,918 3,260,776 - 75,302,011 8,017,579 96,893 443,639 2,109,194 44,826,582 19,808,124 - - - Over 3 to 5 years - - - 93,428,332 11,955,715 1,246,678 3,986,060 - - 6,722,977 - 105,384,047 - 265,555 323,320 33,121,737 45,602,321 26,071,114 Over 5 years 74,374,573 11,850,600 197,499,466 151,322,879 (788,426,940) 4,923,115 2,326 - 7,920,483 187,712,638 10,292,237 388 - 171,466,060 3,400,654 385,212,104 2,875,490 103,740 4,260 57,964 11,937,006 337,261,298 32,972,346 - - 1,438,101,057 1,038,260,874 65,487,042 6,197,074 3,891,019 1,122,306,535 1,018,523,012 223,216,115 17,003,272 1,589,423,936 56,395,096 4,213,929 1,452,462 43,531,396 566,792,265 754,385,775 39,149,890 13,338,117 110,165,006 (Rupees in '000) Over 2 to 3 years 151,322,879 Unappropriated profit53,971,079 Non-controlling interest 708,752 Surplus on revaluation of assets 10,417,875 Reserves Share capital Subordinated debt accounts Borrowings Bills payable Liabilities Investments institutions Lending to financial Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 months 2 months 3 months 6 months 9 months months 2 years to 1 years Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 389
  392. 390 2019 Unconsolidated Financial Statements Deferred tax assets Other assets (142,226,817) 34,880,757 121,384,282 5,790,477 2,711,159 104,776,533 8,106,113 - 156,265,039 - - 71,737 6,073,232 44,506,083 105,613,987 - - 52,255,113 3,107,288 538,251 2,569,037 - - - 55,362,401 - - - 39,637,086 9,480,319 6,244,996 - - 171,346,817 740,403 56,108,779 Unappropriated profit (203,789,165) 308,012,882 14,544,640 2,874,074 287,021,234 3,572,934 - 165,786,065 11,573,236 - 506,395 6,746,400 81,649,276 65,310,758 - - - Non-controlling interest (104,570,879) 294,176,724 3,753,391 320,845 287,884,831 2,217,657 - 90,387,559 2,141,963 974,942 173,054 2,828,912 65,172,731 19,095,957 - - - 173,699,844 294,616,140 2,694,699 594,557 289,229,540 2,097,344 - 190,045,261 1,214,143 210,356 442,526 4,062,375 72,777,509 111,338,352 - - - 29,713,686 75,572,172 8,671,466 51,724 65,341,453 1,507,529 - 249,272,016 4,005,389 865,870 379,665 2,432,421 53,862,562 187,726,109 - - - 24,752,206 11,850,600 56,130,245 71,163,050 11,060,721 36,504 51,460,105 8,605,720 - 100,876,736 3,719,452 430,140 189,591 1,315,538 57,113,936 38,108,079 - - - 77,894,829 Share capital 275,254,033 171,346,817 83,365,683 11,639,703 (78,304) 60,509,999 11,294,285 - 139,495,928 26,430,940 283,609 125,863 718,212 63,393,356 43,831,910 3,371,664 - - Surplus on revaluation of assets Net assets 192,388,316 1,443,786,537 43,712,165 53,110 80,369,330 55,458,386 - 1,340,374 102,405,513 9,132,706 1,226,593,025 92,859,968 12,795,325 467,642,349 1,615,133,354 12,795,325 20,644,536 153,566 90,144 387,631 100,517,088 180,171,442 2,689,205 20,031,379 142,957,358 69,729,659 2,918,483 1,978,975 64,201,807 548,472,860 757,441,590 6,060,869 21,371,753 142,957,358 (Rupees in '000) Reserves Deferred tax liabilities Other liabilities Deposits and other accounts Borrowings Bills payable Liabilities Fixed assets Advances Intangible assets Investments Lending to financial institutions Balances with other banks treasury banks Cash and balances with Assets Upto 1 Over 1 to Over 3 to Over 6 to Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 5 years 10 years 1 year 45.4.2 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Group Notes To The Consolidated Financial Statements For the year ended December 31, 2019
  393. 2018 95 ,471,022 (5,884,023) 86,996,743 106,344,535 - - - 20,258,305 83,534,348 817,187 96,532 712,463 925,700 114,207,773 - - - 19,946,343 82,208,915 3,494,404 443,639 96,893 8,017,579 (112,240,162) 247,230,411 (138,499,999) 244,844,534 (139,139,900) 253,347,673 - - - 1,483,842 1,825,505 3,260,776 241,785,623 241,615,957 236,485,752 1,557 1,557 3,886,348 141,480 141,480 1,786,574 3,817,909 1,260,035 7,928,223 134,990,249 - - - 43,322,583 84,863,663 2,253,979 213,367 912,972 3,423,685 (16,979,377) 90,155,410 - 6,722,977 79,777,074 - 2,408,681 1,246,678 73,176,033 - - - 20,460,967 48,465,501 3,918,495 65,515 265,555 - 39,271,912 5,427,226 3,848,387 1,578,839 - 44,699,138 5,748,365 9,489,726 29,461,047 - Liquidity Gap Reporting Over 1 to 2 Years Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years 30%30% 30%10% When an asset or liability does not have any contractual maturity date, the period in which these are assumed to mature has been taken as the expected date of maturity. Group regularly conducts an objective and systematic behavioral study using regression analysis technique to ascertain the maturity of its noncontractual assets and liabilities. Core and non-core parts of the non-contractual assets and liabilities are segregated through the behavioral study. Non Core part is placed among the short term maturity buckets i.e. up to 1 Year based on the model results, whereas core part is distributed among the longer terms buckets based on the discussion and decision by the ALCO. Following percentages are used to distribute the core assets and liabilities among longer term buckets: 151,322,879 762,188 93,846,011 - 740,500 81,525,858 779 70,159 4,659,448 81,112,720 - - - 17,329,972 52,341,015 1,876,298 176,145 1,023,221 8,366,069 102,817,330 - 9,903,267 80,450,988 779 34,976 3,456,002 94,608,199 - - - 38,678,902 52,149,075 935,113 88,072 605,797 2,151,240 11,850,600 74,374,573 10,417,875 708,752 53,971,079 320,782,026 421,214,911 151,322,879 - 13,489,558 70,963,497 - 22,869 10,995,098 198,288,352 - - - 120,652,884 57,212,873 621,945 58,671 337,300 19,404,679 (Rupees in '000) Share capital Reserves Surplus on revaluation of assets Non-controlling interest Unappropriated profit Net assets 17,003,272 185,789,690 85,853,399 - 12,016 32,123,649 741,996,937 110,165,006 13,338,117 39,149,890 467,987,454 96,527,149 152,928 310,521 259,728 14,106,144 1,438,101,057 17,003,272 223,216,115 1,122,306,535 3,891,019 6,197,074 65,487,042 Bills payable Borrowings Deposits and other accounts Subordinated debt Deferred tax liabilities Other liabilities 110,165,006 13,338,117 39,149,890 754,385,775 566,792,265 43,531,396 1,452,462 4,213,929 56,395,096 1,589,423,936 Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Assets Upto 1 Over 1 to Over 3 to Over 6 to Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 5 years 10 years 1 year Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31, 2019 Annual Report 2019 391
  394. Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 45.5 Derivative Risk Most business clients have either interest rate exposures arising from debt financing or currency exposures arising out of commercial transactions from import and export of goods. Businesses face the risk of sudden movements in interest rates or foreign exchange rates that may adversely affect their profitability. Group provides solutions to this problem through its derivatives desk in major types of derivative instruments i.e.; forwards, futures, swaps and options. As an Authorized Derivative Dealer (ADD), MCB ( Holding Company) is an active participant in Derivative market and has flexibility in providing a broad range of derivatives products covering both hedging and market making to satisfy customers’ needs. As an ADD, the Group offers derivative products which are permitted under the Financial Derivative Business Regulations (FDBR) or as permitted by the State Bank of Pakistan. Before executing Derivative transactions, the Group ensures that the clients understand the risk and reward associated with the derivative being offered. Derivative transactions are executed with appropriate clients only. 392 Risk management activities take place at the following different levels. Strategic Level: By senior management Assets and Liabilities Management Committee (ALCO), Management Credit and Risk Committee (MC&RC) 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 Groupwide basis. The Board provides the overall limits/thresholds for derivatives business. Macro Level By Treasury and FX Group and Risk Management Group, responsible for policy formulation, procedure development and implementation, monitoring and reporting. Micro Level: Treasury Derivatives and Structured Product Desk where risks are actually created and Treasury Operations for settlements of the transactions. Derivative Risk Management caters the following risks:- Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. In line with SBP’s regulatory guidelines, Bank hedges backto-back all option transactions with other financial institutions. Group minimizes the exchange rate risk on its Cross Currency Swap Portfolio by hedging the exposure in interbank market. Group also manages interest rate risk on its Interest Rate Derivatives and Cross Currency Swaps through various sensitivity limits approved by ALCO. Marked to market positions and sensitivity of the derivatives transactions are monitored on regular basis. All individual deals are approved at the appropriate level of authority after analyzing the risk and benefits associated with the deals. Credit risk is a probable risk of loss resulting from customer’s inability to meet contractual obligation that may have adverse impact on Group’s profitability. Group manages the risk by setting policies and limits for counterparty based on a pre-defined criteria linked with financial health of the customer. The exposure of each counterparty is monitored by Risk Management Function of the Group on daily basis. Considering small Derivative portfolio, Group is not exposed to any liquidity risk. However; Group manages its liquidity risk through Group’s Liquidity Risk Policy which is defined in relevant Liquidity Risk Section. Group has adequate system and controls for smooth execution of derivative transactions. Transactions are executed in line with well defined accounting and operational aspects to mitigate the operational risk. Policies and control functions are regularly reviewed on periodic basis. The Group uses a third Unconsolidated Financial Statements
  395. Annual Report 2019 Notes To The Consolidated Financial Statements For the year ended December 31 , 2019 party’s Super Derivative System which provides front end sales and structuring capabilities, end to end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. 46 The Group uses a third party’s Super Derivative System which provides front end sales and structuring capabilities, end to end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. Due to thin liquidity in the derivative market, interest rate derivatives are not actively used to manage/alter the interest rate risk profile of the Group. Accounting policy has been disclosed in the note 5. EVENTS AFTER THE REPORTING DATE The Board of Directors in its meeting held on February 04, 2020 has announced a final cash dividend in respect of the year ended December 31, 2019 of Rs. 5.00 per share (2018: Rs. 4.00 per share). These consolidated financial statements for the year ended December 31, 2019 do not include the effect of these appropriations which will be accounted for subsequent to the year end. 47GENERAL 48 Figures have been rounded off to the nearest thousand of rupees unless otherwise stated. DATE OF AUTHORIZATION FOR ISSUE These consolidated financial statements were authorized for issue by the Board of Directors of the Group in their meeting held on February 04, 2020. Imran Maqbool President/Chief Executive Hammad Khalid Chief Financial Officer Mian Umer Mansha Director Salman Khalid Butt Director Masood Ahmed Puri Director Annual Report 2019 393
  396. 394 Book value 195 977 116 236 88 80 117 268 1 ,139 Laptop Laptop Laptop Laptop Unconsolidated Financial Statements Laptop Laptop 117 80 88 147 116 117 117 Laptop 117 162 73 – – – 89 – – – (Rupees in '000) Accumulated depreciation 117 Cost/ revalued amount Laptop Computers Description As per Bank's policy 12 236 As per Bank's policy As per Bank's policy 8 78 As per Bank's policy 9 As per Bank's policy 12 As per Bank's policy As per Bank's policy 12 93 As per Bank's policy Mode of disposal 12 Sales proceeds/ insurance claim Laqa Sarwar Aali Shafi Shoaib Mumtaz Nabeela Waheed Faisal Ejaz Khan Faisal Ejaz Khan Mohammad Nauman Chughtai Muhtashim Ashai Particulars of buyers Lahore Lahore Lahore Lahore Lahore Lahore Lahore Lahore Location Annexure I Disposal of fixed assets (refer note 11.2.6)
  397. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Statement of Financial Position As At December 31, 2019 MCB Islamic bank ( the 'Bank') is operating 185 Islamic banking branches in Pakistan (December 31, 2018: 176 branches). Note 20192018 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions 1 Investments - net 2 Islamic financing and related assets - net 3 Fixed assets Intangible assets Deferred tax assets - net Other assets - net 10,252,547 8,822,985 5,851,664 16,309,800 51,309,967 5,779,772 719,723 921,017 5,049,786 6,990,369 1,422,701 4,675,000 12,713,954 62,907,204 2,552,600 592,171 751,065 2,289,371 LIABILITIES 105,017,261 94,894,435 Bills payable Due to financial institutions Deposits and other accounts 4 Liabilities against assets subject to finance lease Sub-ordinated debts Deferred tax liabilities - net Other liabilities 973,627 4,127,526 81,853,511 - - - 7,595,796 1,303,992 7,800,628 73,307,185 2,413,116 94,550,460 84,824,921 NET ASSETS 10,466,801 10,069,514 11,550,000 26,444 422,326 (1,531,969) 11,200,000 26,444 132,272 (1,289,202) REPRESENTED BY Share capital Reserves Surplus on revaluation of assets - net of tax Accumulated losses 6 10,466,801 10,069,514 CONTINGENCIES AND COMMITMENTS7 Annual Report 2019 395
  398. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Profit and Loss Account For the year ended December 31, 2019 The profit and loss account of the bank's bracnches for the year ended 185 (December 31, 2018: 176 branches). Note Profit / return earned Profit / return expensed 20192018 (Rupees in '000) 8 9 9,848,819 5,855,061 4,208,875 2,304,950 Net spread earned OTHER INCOME 3,993,758 1,903,925 Fee and commission income Dividend income Foreign exchange income (Loss) / gain on securities Other income 294,491 75,383 63,685 (109,983) 19,743 162,245 58,031 148,228 17,738 13,020 Total other income Total income OTHER EXPENSES 343,319 399,262 4,337,077 2,303,187 Operating expenses Workers welfare fund Other charges 4,478,636 – 24,386 3,083,172 – 4,582 Total other expenses Loss before provisions Provisions and write offs - net Extra ordinary / unusual items 4,503,022 3,087,754 (165,945) 199,814 – (784,567) 895,646 – LOSS BEFORE TAXATION (365,759) (1,680,213) Taxation (122,147) (584,231) LOSS AFTER TAXATION (243,612) (1,095,982) 396 Unconsolidated Financial Statements
  399. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 1 20192018 (Rupees in '000) Note DUE FROM FINANCIAL INSTITUTIONS Secured Bai Muajjal receivable - with State Bank of Pakistan Unsecured 1.1 3,371,664 – 1.2 2,480,000 4,675,000 Musharaka arrangements 5,851,664 4,675,000 1.1 This represents Bai Muajjal with State Bank of Pakistan carrying profit at average rate of 10.34% per annum (2018: Nil) and having maturity till February 07, 2020. 1.2 This represents Musharaka arrangements with banks carrying profit at expected rates ranging from 10.80% to 11.00% per annum (2018: 9.25% to 9.55% per annum) and having maturity till January 20, 2020. 1.3 20192018 (Rupees in '000) Particulars of due from financial institutions - local currency 5,851,664 4,675,000 2INVESTMENTS 2.1 Investments by segments: 20192018 Cost/ Provision for Surplus / amortised cost diminution (deficit) Carrying Cost/ Provision for Surplus / value amortised cost diminution (deficit) Carrying value (Rupees in '000) Federal Government securities GOP Ijarah Sukuks WAPDA Sukuks Bai Mu’ajjal Shares Listed companies Non Government securities 10,842,666 - 56,404 - 2,700,827 - 1,908,146 1,059,172 (8,095) 10,834,571 8,366,893 711 57,115 - (41,185) 8,325,708 85,187 - - 2,700,827 1,159,936 - 175,625 1,024,599 1,831,580 881,903 22 85,209 - 1,159,936 (43,325) 906,352 Listed 854,000 - 1,309 855,309 1,159,000 - 4,367 1,163,367 Un listed 840,000 - (2,621) 837,379 1,073,333 - 49 1,073,382 Total Investments 2.2 There were no investment given as colleteral as at December 31, 2019 (2018: Nil). 2.3 Provision for diminution in value of investments 17,202,043 1,059,172 166,929 16,309,800 13,675,929 Opening balance Charge for the year Closing balance 881,903 (80,072) 12,713,954 20192018 (Rupees in '000) 881,903 177,269 – 881,903 1,059,172 881,903 Annual Report 2019 397
  400. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 Note 3 ISLAMIC FINANCING AND RELATED ASSETS - NET Murabaha 3.1 Musawamah Istisna Salam Ijarah 3.2 Running Musharaka Diminishing Musharaka Staff finance 7,609,830 2,000 2,603,493 111,287 4,881,400 16,669,096 18,176,482 1,293,082 17,097,127 – 1,793,878 4,118 4,269,903 19,441,575 19,057,417 1,258,046 Islamic financing and related assets - gross Less: Provision against non-performing Islamic financing and related assets - Specific - General 51,346,670 62,922,064 (3,340) (33,363) (758) (14,102) Islamic financing and related assets - net of provisions 3.1Murabaha (36,703) (14,860) 51,309,967 62,907,204 4,671,163 2,649,423 239,244 7,334,021 6,625,790 3,056,316 – – 50,000 81,000 7,609,830 17,097,127 - Murabaha financing 3.1.1 - Murabaha inventory - Advances against Murabaha financing - Murabaha financing under Islamic export refinance scheme - Advances against Murabaha financing under Islamic export refinance scheme 3.1.1 Murabaha receivable - gross 3.1.1.1 5,005,449 7,674,572 Less: Deferred Murabaha income 3.1.1.3 334,286 340,551 4,671,163 7,334,021 Opening balance Sales during the year Adjusted during the year 7,674,572 25,845,273 (28,514,396) 4,860,060 23,655,655 (20,841,143) 3.1.1.2 Murabaha sale price during the year 5,005,449 7,674,572 25,845,273 23,655,655 Murabaha purchase price during the year (24,447,190) (22,644,766) 3.1.1.3 Deferred Murabaha income 1,398,083 1,010,889 Opening balance Arising during the year Recognised during the year 340,551 1,398,083 (1,404,348) 158,456 1,010,889 (828,794) 334,286 340,551 Murabaha financing 3.1.1.1 Movement in Murabaha receivable during the year 398 20192018 (Rupees in '000) Unconsolidated Financial Statements
  401. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 20192018 (Rupees in '000) Note 3.2 Ijarah financing and related assets - Net book value of assets in Ijarah under IFAS 2 3.2.1 - Advances against Ijarah 3.2.1 4,190,369 691,031 2,948,075 1,321,828 4,881,400 4,269,903 Net book value of assets in Ijarah under IFAS 2 2019 CostDepreciation As at January 1, 2019 Addition/ (disposal) As at As at December 31, 2019 January 1, 2019 Charge (disposal) As at December Book Value as a 31, 2019 December 31, 2019 (Rupees in '000) Vehicles 2,882,357 Equipment and 1,203,656 Plant and Machinery Total 4,086,013 1,501,816 3,999,646 654,281 (384,527) 970,541 1,689,096 483,657 (485,101) 629,680 (244,181) 363,007 (388,071) 1,039,780 2,959,866 458,593 1,230,503 2,472,357 5,688,742 1,137,938 (869,628) 992,687 (632,252) 1,498,373 4,190,369 2018 CostDepreciation As at January 1, 2018 Addition/ (disposal) As at As at December 31, 2018 January 1, 2018 Charge (disposal) As at December Book Value as a 31, 2018 December 31, 2018 (Rupees in '000) Vehicles 1,662,346 Equipment and 788,327 Plant and Machinery 1,588,759 2,882,357 603,033 (368,748) 543,461 1,203,656 363,380 (128,132) 321,939 (270,691) 226,778 (106,501) Total 2,450,673 2,132,220 4,086,013 966,413 (496,880) 548,717 (377,192) 3.2.2 654,281 2,228,076 483,657 719,999 1,137,938 2,948,075 Future Ijarah payments receivable 2019 Not later Later than one than one year year and not later than five years Over five years Total (Rupees in '000) Ijarah rental receivables 3,094,930 3,085,207 72,419 2018 Not later Later than one than one year year and not later than five years Over five years 6,252,556 Total (Rupees in '000) Ijarah rental receivables 904,424 3.3 Particulars of Islamic financing and related assets - gross In local currency 2,174,932 80,941 3,160,297 20192018 (Rupees in '000) 51,346,670 62,922,064 Annual Report 2019 399
  402. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 4 DEPOSITS AND OTHER ACCOUNTS 20192018 In Local In Foreign Total currencycurrency In Local In Foreign currencycurrency Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 20,470,659 31,630,709 15,049,977 4,918,750 1,721,169 2,085,896 72,099 - 22,191,828 33,716,605 15,122,076 4,918,750 20,498,978 29,634,547 5,040,187 3,690,026 1,599,388 1,705,967 104,191 - 22,098,366 31,340,514 5,144,378 3,690,026 72,070,095 3,879,164 75,949,259 58,863,738 3,409,546 62,273,284 Financial Institutions Current deposits Savings deposits Term deposits 98,729 1,986,733 3,815,631 1,605 1,554 - 100,334 1,988,287 3,815,631 73,166 5,885,028 5,074,501 1,206 - - 74,372 5,885,028 5,074,501 5,901,093 3,159 5,904,252 11,032,695 1,206 11,033,901 77,971,188 3,882,323 81,853,511 69,896,433 3,410,752 73,307,185 4.1 Composition of deposits Individuals Government (Federal and Provincial) Public Sector Entities Banking Companies Non-Banking Financial Institutions Private Sector 20192018 (Rupees in '000) 35,007,567 7,692,691 268,859 1,037,961 4,866,288 32,980,145 30,685,632 5,087,472 281,355 1,343,993 9,689,908 26,218,825 81,853,511 73,307,185 4.2 This includes deposits eligible to be covered under takaful arrangements amounting to Rs. 51,165.607 million (2018: Rs. 40.534.489 million). 400 20192018 (Rupees in '000) 5 Charity balance Opening balance Additions during the year - Received from customers against late payment - Dividend purification amount - Profit on charity saving account 25,402 5,513 45,958 7,383 1,539 25,548 2,133 308 Charity paid during the year 54,880 (25,500) 27,989 (8,100) 54,782 25,402 Closing balance Unconsolidated Financial Statements
  403. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 5.1 Charity was paid to the following institutions: Pink Ribbon Pakistan Student Loan Scheme (Endowment fund) Indus Hospital Layton Rehmatullah Benevolent Trust Sindh Institute of Urology & Transplantation (SIUT) Shaukat Khanam Memorial Cancer Hospital The Citizens Foundation Arthiritis Care Aziz Jehan Begum Trust for the Blind Family Welfare Society Fatmid Foundation Infaq Memorial Trust Mind Organization The Patient Behbood Society for AKUH The Lahore Hospital Welfare Society Care Foundation Pakistan Chiniot Anjuman Islamia Fast – NU Chiniot – Faisalabad Campus Rising Sun Education & Welfare Society 20192018 (Rupees in '000) 5,000 3,000 2,000 2,000 2,000 2,000 2,000 1,000 1,000 1,000 1,000 1,000 1,000 1,000 500 – – – – – – – – 700 1,000 600 – 700 600 700 700 – – 500 700 600 600 700 25,500 8,100 5.2 Charity was not paid to any staff of the Bank or to any individual / organisation in which a director or his spouse had any interest at any time during the year. Note 20192018 (Rupees in '000) 6 ISLAMIC BANKING BUSINESS ACCUMULATED LOSS Opening balance Islamic banking loss for the year Taxation Other adjustments (1,289,202) (365,759) 122,147 845 (194,065) (1,680,213) 584,231 845 7 Closing balance (1,531,969) (1,289,202) Guarantees 7.1 Commitments 7.2 Other contingent liabilities 6,467,046 11,498,973 431,439 3,092,537 18,593,888 425,820 18,397,458 22,112,245 Performance guarantees Other guarantees 3,431,726 3,035,320 1,099,947 1,992,590 6,467,046 3,092,537 CONTINGENCIES AND COMMITMENTS 7.1Guarantees: Annual Report 2019 401
  404. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 Note 20192018 (Rupees in '000) 7.2Commitments: Documentary credits and short-term trade-related transactions: Letters of credit Commitments in respect of: Forward foreign exchange contracts 7.2.1 Commitments for acquisition of: Fixed assets Intangible assets Other commitments 7.2.2 7,818,321 11,639,176 3,363,957 4,693,353 – 8,940 10,395 29,647 307,755 2,221,317 11,498,973 18,593,888 Purchase Sale 882,210 2,481,747 3,465,359 1,227,994 3,363,957 4,693,353 7.2.1 Commitments in respect of forward foreign exchange contracts 7.2.2 Other Commitments Commitments to extend credit 7.2.2.1 307,755 2,221,317 7.2.2.1 Other than those stated above, the Bank makes commitment(s) to extend credit in the normal course of business including related parties but these being revocable commitments do not attract any penalty or expense if the facility is unilaterally withdrawn. 7.3 Other contingent liabilities Claim against the Bank not acknowledged as debt 431,439 425,820 This includes claim by a third party against the Bank, amounting to Rs.425.820 million which is being contested in the Court of law. The suit has been disposed off by the Court vide Order dated May 10, 2019 wherein the status quo has been ordered to be maintained with respect to bank guarantee and the matter has been referred to arbitration with the consent of the parties. However the Bank has not received any official notice to attend the arbitration proceedings till date. In addition to the above, this includes claim by a customer against the bank amounting to Rs.5.6 million which is pending before the court. The Sindh Revenue Board (SRB) has issued order under “Sindh Sales Tax on Services Act, 2011”, for the year 2016 thereby raising demand of Rs.0.642 million. The Bank has filed appeal before Commissioner of Inland Revenue Appeals which is pending adjudication. The management of the Bank, in consultation with its tax advisor, is confident that the decision in respect of the above matter would be in the Bank’s favor and accordingly no provision has been made in these financial statements with respect thereto. 402 20192018 (Rupees in '000) Unconsolidated Financial Statements
  405. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 8 PROFIT / RETURN EARNED 20192018 (Rupees in '000) Financings Investments in - available for sale securities - held to maturity securities 7,288,776 3,419,424 1,411,649 400,202 562,606 82,370 Musharaka arrangements with financial institutions Deposits with financial institutions 1,811,851 555,462 192,730 644,976 97,176 47,299 9,848,819 4,208,875 Deposits and other accounts Musharaka arrangements with the State Bank of Pakistan under IERS Musharaka arrangements with other financial institutions Musharaka arrangements with other institution Unwinding of liability against right-of-use of asset 4,936,521 1,648,860 45,860 24,067 490,506 7,973 374,201 632,023 – – 5,855,061 2,304,950 9 10 PROFIT / RETURN EXPENSED PROFIT / (LOSS) DISTRIBUTION TO DEPOSITORS’ AND SPECIFIC POOLS 10.1 1) The Bank is maintaining the following types of pools for profit declaration and distribution: 2) IERS Musharaka Pool 3) Treasury Musharaka / Mudaraba Pools 4) Special Musharaka Pool 5) Equity Pool Features, risks and rewards of each pool are given below: 1) General Pool The Bank manages one general pool for its depositors’ (Rabbul Mal) maintaining deposits in both local and foreign currencies and also commingled its equity in this pool. The income (gross income less direct expenses) generated from the pool is distributed between Bank’s equity and depositors’ fund in proportion to their respective share in the pool. Under the Mudaraba mechanism, the income so distributed to depositors’ fund is shared between the Bank (Mudarib) and depositors’ (Rabbul Mal) according to the pre-agreed profit sharing ratios and assigned weightages. General Pool The deposits and funds accepted under the General Pool are deployed to diversified sectors and avenues of the economy / business mainly to ‘Agriculture, Forestry & Fishing’, ‘Textile & Allied’, ‘Food & Allied’, ‘Distribution & Trade’, ‘Investment in Government of Pakistan Ijarah Sukuk’, etc. Annual Report 2019 403
  406. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 Parameters associated with risk and rewards – Following are the consideration attached with risk and reward of general pool: – Financing proposals under process at various stages and likely to be extended in the near future. – Expected amount of procurement of deposit during coming days as a result of concerted marketing efforts of the Bank. – Element of risk attached to various types of investments. – 2) SBP rules and Shari’ah clearance. The Bank manages IERS Musharaka Pool for funds accepted from SBP under IERS. Under the PLS mechanism, the Bank generates revenues from the pool funds which are shared with the SBP according to the pre-agreed profit sharing ratios. Musharaka investments from the SBP under IERS are channeled towards the export sector of the economy and other financings as per SBP guidelines. 3) Treasury Musharaka / Mudaraba Pools The Bank accepts funds from other banks to manage its liquidity under Musharaka / Mudaraba mode. The funds accepted are tagged to remunerative assets having maturity on or after the period for which funds are accepted. The revenue generated from the pool asset is shared between the bank and other member of the pool according to pre-agreed profit sharing ratios or assigned weightages accordingly. 4) 5) 404 Period, return, safety, security and liquidity of investment. Islamic Export Refinance Scheme (IERS) Musharaka Pool Special Musharaka Pool The Bank under Musharaka agreement accepts funds from institution(s) (other than banks). The comingled funds under this arrangement are deployed in remunerative assets as per the terms of agreement. The revenue generated from these assets are then shared as per pre-agreed profit sharing ratio. Equity Pool The Equity Pool consists of Bank’s equity and funds accepted on Qard (non-remunerative current deposit account) basis. The funds of this pool are invested in various assets or ventures which are higher in risk or having longer funding period. In addition to that all staff financings are financed by this pool. The risk of assets in the pool is borne by the Bank. Charging of expenses Direct expenses are being charged to respective pools, while indirect expenses such as general and administrative expenses are being borne by the Bank as Mudarib. No provision expense is charged to the pool unless it is written off. The direct expenses charged to the pool may include depreciation of Ijarah assets, premium amortization on Sukuk, impairment losses due to physical damages to specific assets in pools etc. However, this is not an exhaustive list; the Bank’s pool management framework and the respective pool creation memo may identify and specify these and any other similar expenses to be charged to the pool. Unconsolidated Financial Statements
  407. Annual Report 2019 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2019 10.2 Following are the detail of profit distribution among different pool maintained by the Bank: 2019 Pool Description General Pool Pool Description Profit Rate & weightage announcement period Monthly Profit Rate & weightage announcement period Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee Profit Rate return distributed General Hiba Amount of General Hiba % % (Rupees in '000) % % (Rupees in '000) 13.36 50.00 3,710,740 8.82 31.84 1,181,467 Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee Profit Rate return distributed General Hiba Amount of General Hiba % % (Rupees in '000) % % (Rupees in '000) 7.92 – – 2.00 – – 11.51 – – 9.88 – – Monthly 8.69 – – 8.08 – – Monthly 1.58 – – – – – Islamic Export Refinance (IERS) Pool Monthly Treasury Musharaka/ Mudaraba Pool As required Special Musharakh Pool Equity Pool 2018 Pool Description General Pool Pool Description Profit Rate & weightage announcement period Monthly Profit Rate & weightage announcement period Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee Profit Rate return distributed General Hiba Amount of General Hiba % % (Rupees in '000) % % (Rupees in '000) 8.18 50.00 1,350,604 5.00 22.10 298,447 Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee Profit Rate return distributed General Hiba Amount of General Hiba % % (Rupees in '000) % % (Rupees in '000) Islamic Export Refinance (IERS) Pool Monthly 4.63 – – 2.00 – – Treasury Musharaka/ Mudaraba Pool As required 7.00 – – 6.64 – – Equity Pool Monthly 2.10 – – – – – Annual Report 2019 405
  408. Branch Network As of December 31 , 2019 Retail Banking Group - Central No. of Branches No. of SubBranches Gujranwala 31 - Gujrat 26 - Mandi Bahauddin 28 - Circle/ No. of Branches GUJRANWALA - 119 LAHORE EAST - 73 LAHORE WEST - 91 Region Sialkot 34 - Lahore Defence 24 - Lahore Gulberg 26 - Lahore Johar Town 23 - Lahore City 32 - Lahore The Mall 32 - Shiekhupura 27 - 283 - No. of Branches No. of SubBranches Abbottabad 26 - Attock 20 - Muzaffarabad A.K. 21 - Total RBG - Central Retail Banking Group - North Circle/ No. of Branches ABBOTTABAD - 90 ISLAMABAD - 94 PESHAWAR - 96 Region Swat 23 - Fateh Jang 21 1 Islamabad 27 - Rawalpindi Cantt 26 1 Rawalpindi City 20 - Kohat 26 - Mardan 23 - Peshawar East 22 1 Peshawar West 25 - 280 03 No. of Branches No. of SubBranches Total RBG - North Retail Banking Group - West Circle/ No. of Branches FAISALABAD - 87 JHELUM - 75 SARGODHA - 94 Region Faisalabad 29 - Faisalabad City 29 1 Toba Tek Singh 29 - Chakwal 26 - Jhelum 25 - Mirpur A.K. 24 - Jhang 28 2 Mianwali 31 - Sargodha Total RBG - West 406 Unconsolidated Financial Statements 35 1 256 04
  409. Annual Report 2019 Retail Banking Group - East Circle / No. of Branches BAHAWALPUR - 103 MULTAN - 113 No. of Branches No. of SubBranches Bahawalnagar 18 - Bahawalpur 28 - Rahim Yar Khan 31 - Region Vehari 26 - Dera Ghazi Khan 20 - Multan 31 1 Muzaffargarh 18 - Okara 21 1 Sahiwal 23 - 216 02 No. of Branches No. of SubBranches Karachi City 29 - Karachi North 29 - Karachi East 26 - Karachi South 21 - Karachi Central 23 - Karachi West 24 - 152 - No. of Branches No. of SubBranches Hyderabad 29 - Mirpurkhas 25 1 Nawabshah 24 - Khuzdar 14 - Makran 10 - Quetta 25 2 Larkana 24 - Naushero Feroze 23 - Total RBG - East Retail Banking Group - Karachi Circle/ No. of Branches KARACHI CITY - 58 KARACHI EAST - 47 KARACHI WEST - 47 Region Total RBG - Karachi Retail Banking Group - South Circle/ No. of Branches HYDERABAD - 78 QUETTA - 49 SUKKUR - 74 Region Sukkur Total RBG - South 27 - 201 3 11* - Wholesale Banking Group WBG Branches *EPZ not included Annual Report 2019 407
  410. Branch Network As of December 31 , 2019 Overseas Branches / International Banking No. of-Branches Colombo 1 EPZ 1 Galle 1 Kandy 1 Kattankudy 1 Kollupitiya 1 Maradana 1 MCB Offshore Banking Unit (OBU) Bahrain 1 Pettah 1 Wellawatte 1 MCB Dubai Wholesale Branch (UAE) 1 TOTAL 11 MCB Representative Office Dubai (UAE) 1 Groupwise Group Circles No. of Branches No. of SubBranches RBG-Central 3 283 - RBG-North 3 280 3 RBG-West 3 256 4 RBG-East 2 216 2 RBG-Karachi 3 152 - RBG-South 3 201 3 WBG 3 11 - Total 20 1,399 12 - 10 - Overseas EPZ Grand Total - 1 - 20 1,410 12 Branches Sub-Branches Total 37 - 37 Province-Wise Provinces/Territories/AJK Azad Jammu & Kashmir Balochistan 50 2 52 Federal Capital Territory 32 1 33 Gilgit-Baltistan 6 - 6 Khyber Pakhtunkhwa 150 1 151 Punjab 818 7 825 Sindh Domestic Total 1 307 12 1,411 Overseas Branches / International Banking 10 - 10 EPZ 1 - 1 1,410 12 1,422 Grand Total 408 306 1,399 Unconsolidated Financial Statements
  411. Annual Report 2019 Pattern of Shareholding As of December 31 , 2019 No. of Shareholders Shareholdings From Total Shares Held To 28,228 1 100 900,555 13,685 101 500 3,334,441 5,729 501 1,000 4,248,659 7,621 1,001 5,000 13,155,556 401 5,001 10,000 2,877,234 446 10,001 50,000 10,133,981 108 50,001 100,000 7,514,976 149 100,001 500,000 35,246,254 49 500,001 1,000,000 35,935,152 57 1,000,001 5,000,000 132,563,511 10 5,000,001 10,000,000 70,839,990 3 10,000,001 15,000,000 38,486,608 4 15,000,001 25,000,000 74,868,331 11 25,000,001 Above 754,954,758 56,501 1,185,060,006 Categories of Shareholders As of December 31, 2019 Categories of Shareholders Shares Held Percentage Directors, Chief Executive Officer, and their Spouses and Minor Children 119,605,330 10.0928% Associated Companies, Undertakings and Related Parties 215,730,246 18.2042% 912 0.0001% 16,218,227 1.3686% 100,220,314 8.4570% NIT and ICP Banks, Development Financial Institutions, Non-Banking Financial Institutions Insurance Companies Modarabas and Mutual Funds 7,455,211 0.6291% Shareholders Holding 10% 222,606,147 18.7844% General Public Local 134,139,330 11.3192% 3,132,548 0.2643% 365,951,741 30.8804% 1,185,060,006 100.0000% General Public Foreign Others Grand Total Annual Report 2019 409
  412. Categories of Shareholders As of December 31 , 2019 Categories of Shareholders Shares Held Percentage Directors, Chief Executive Officer, and their Spouses and Minor Children Mian Mohammad Mansha 7,834 0.0007% Naz Mansha 6,424,057 0.5421% S. M. Muneer 2,059 0.0002% Muhammad Tariq Rafi 32,094,304 2.7082% Nighat Tariq 5,715,093 0.4823% Mian Umer Mansha 31,986,378 2.6991% Iqraa Hassan Mansha 8,000 0.0007% Mian Hassan Mansha 43,363,671 3.6592% Muhammad Ali Zeb 550 0.0000% Mohd Suhail Amar Suresh bin Abdullah 884 0.0001% Yahya Saleem 500 0.0000% Salman Khalid Butt 1,000 0.0001% Masood Ahmed Puri 1,000 0.0001% 119,605,330 10.0928% Associated Companies, Undertakings and Related Parties Nishat Mills Limited 88,015,291 7.4271% Adamjee Insurance Company Limited 47,827,287 4.0359% Siddiqsons Limited 14,276,462 1.2047% Adamjee Life Assurance Company Ltd - IMF 5,691,200 0.4802% Adamjee Life Assurance Company Limited - NUIL Fund 4,900 0.0004% Adamjee Life Assurance Co. Ltd - DGF 25,000 0.0021% Nishat (Aziz Avenue) Hotels and Properties Limited 29,000 0.0024% Trustee - MCB Employees Pension Fund 17,328,222 1.4622% Trustee - MCB Provident Fund Pak Staff 34,166,060 2.8831% Trustee - Nishat (Chunian) Ltd. Employees Provident Fund Trust 8,857 0.0007% Nishat Mills Ltd. Employees Provident Fund Trust 8,284,390 0.6991% Trustees of Adamjee Insurance Company Ltd. Emp. Prov. Fund 73,577 0.0062% 215,730,246 18.2042% NIT and ICP Investment Corporation of Pakistan 912 0.0001% 410 912 0.0001% Banks, Development Financial Institutions, Non-Banking Financial Institutions The Bank of Punjab Prudential Investment Bank Ltd. Crescent Investment Bank Ltd. Saudi Pak Industrial & Agricultural Investment Co. (Pvt) Ltd. Trust Leasing Corporation Ltd. National Bank of Pakistan - Investar A/c (Former NDFC) Universal Leasing Corporation Ltd. National Bank of Pakistan Islamic Investment Bank Ltd. National Development Finance Corporation M/s. Al Faysal Investment Bank Ltd IDBL (ICP Unit) Interasia Leasing Company Limited Pakistan Kuwait Investment Co. (Pvt) Ltd. Allied Bank Limited Faysal Bank Limited Habib Bank Limited Habib Metropolitan Bank Limited Bank Al Habib Limited Soneri Bank Limited - Ordinary Shares Saudi Pak Leasing Company Limited Bank Alfalah Limited The Punjab Provincial Cooperative Bank 0.0079% 0.0001% 0.0000% 0.0007% 0.0000% 0.0001% 0.0000% 0.2024% 0.0000% 0.0000% 0.0000% 0.0000% 0.0001% 0.1013% 0.2381% 0.2179% 0.0001% 0.0003% 0.0591% 0.1454% 0.0000% 0.2176% 0.0001% Unconsolidated Financial Statements 93,341 1,393 590 7,992 101 943 1 2,398,493 4 433 49 432 950 1,200,000 2,821,600 2,582,670 1,306 3,000 700,000 1,723,600 495 2,578,600 1,558
  413. Annual Report 2019 Escorts Investment Bank Limited Askari Bank Limited Saudi Pak Industrial & Agricultural Investment Co. Ltd - PMD House Building Finance Company Limited Summit Bank Limited Pair Investment Company Limited Sindh Bank Limited Samba Bank Limited - MT 225 675,600 500,000 41,951 15,000 93,870 770,530 3,500 0.0000% 0.0570% 0.0422% 0.0035% 0.0013% 0.0079% 0.0650% 0.0003% 16,218,227 1.3686% Insurance Companies National General Insurance Co. Ltd. 1,359 0.0001% Business & Industrial Insurance Co. Ltd. 9 0.0000% M/s. New Jubilee Insurance Co. Ltd. 2 0.0000% The South British Insurance Company Ltd. 1,864 0.0002% M/s. Beema Pakistan Company Ltd. 69 0.0000% E.F.U. General Insurance Ltd. 713 0.0001% Orient Insurance Co. Ltd. 3 0.0000% Premier Insurance Limited 125,204 0.0106% Jubilee General Insurance Company Limited 743,500 0.0627% State Life Insurance Corp. of Pakistan 16,727,114 1.4115% EFU Life Assurance Ltd 219,192 0.0185% Pakistan Reinsurance Company Limited 500,000 0.0422% Excel Insurance Co. Ltd. 20,000 0.0017% The Crescent Star Insurance Co. Ltd. 3 0.0000% Jubilee Life Insurance Company Limited 22,599,800 1.9071% Atlas Insurance Limited 60,000 0.0051% Security General Insurance Co. Ltd. 59,136,076 4.9901% The Pakistan General Insurance Co. Limited 71 0.0000% The Pakistan General Ins. Co. Ltd. 35 0.0000% IGI Life Insurance Limited 10,200 0.0009% Alfalah Insurance Company Limited 75,100 0.0063% 100,220,314 8.4570% Modarabas and Mutual Funds First Hajveri Modaraba 60 0.0000% Crescent Modaraba Managment Co. Ltd. 17 0.0000% First Elite Capital Modaraba 39 0.0000% First Crescent Modaraba 4,030 0.0003% Trust Modaraba 313 0.0000% UNICAP Modaraba 15 0.0000% First Interfund Modaraba 2 0.0000% Industrial Capital Modaraba 4 0.0000% Safeway Fund (Pvt) Ltd. 1,665 0.0001% Pak Asian Fund Limited 162 0.0000% Safeway Mutual Fund Ltd. 4 0.0000% Golden Arrow Selected Stocks Fund Ltd. 15 0.0000% Prudential Stocks Funds Limited 233 0.0000% M/s. Safeway Mutual Fund Limited 12 0.0000% M/s. Asian Stock Fund Ltd. 4 0.0000% PICIC Benovelent Fund-2 29 0.0000% UNICOL Limited Employees Provident Fund 5,000 0.0004% Nationwide (Pvt) Ltd. 357 0.0000% MCBFSL - Trustee JS Value Fund 96,000 0.0081% CDC - Trustee PICIC Investment Fund 164,200 0.0139% CDC - Trustee JS Large Cap. Fund 72,000 0.0061% CDC - Trustee PICIC Growth Fund 229,800 0.0194% CDC - Trustee Atlas Stock Market Fund 2,300 0.0002% CDC - Trustee Faysal Stock Fund 35,000 0.0030% CDC - Trustee Alfalah GHP Value Fund 102,600 0.0087% CDC - Trustee Unit Trust of Pakistan 148,600 0.0125% Annual Report 2019 411
  414. CDC - Trustee AKD Index Tracker Fund Tri-Star Mutual Fund Limited CDC - Trustee Faysal Asset Allocation Fund CDC - Trustee UBL Stock Advantage Fund Crescent Standard Business Management (Pvt) Limited CDC - Trustee NBP Stock Fund CDC - Trustee NBP Balanced Fund CDC - Trustee Askari Asset Allocation Fund CDC - Trustee JS Pension Savings Fund - Equity Account CDC - Trustee HBL - Stock Fund MC FSL - Trustee JS Growth Fund CDC - Trustee HBL Multi - Asset Fund CDC - Trustee Alfalah GHP Stock Fund CDC - Trustee Alfalah GHP Alpha Fund CDC - Trustee NIT - Equity Market Opportunity Fund CDC - Trustee ABL Stock Fund CDC - Trustee First Habib Stock Fund CDC - Trustee NBP Sarmaya Izafa Fund CDC - Trustee HBL Equity Fund CDC - Trustee HBL PF Equity Sub Fund MCBFSL - Trustee Pak Oman Advantage Asset Allocation Fund CDC - Trustee First Capital Mutual Fund CDC - Trustee Faysal Savings Growth Fund - MT CDC - Trustee UBL Retirement Savings Fund - Equity Sub Fund CDC - Trustee National Investment (Unit) Trust CDC - Trustee NITPF Equity Sub-Fund CDC - Trustee Faysal MTS Fund - MT CDC - Trustee NBP Financial Sector Fund CDC - Trustee Alfalah Capital Preservation Fund II CDC - Trustee UBL Financial Sector Fund 101,128 754 5,000 1,686 1 2,041,000 156,600 3,800 27,000 228,000 284,000 23,500 312,700 224,500 1,143,176 400 20,470 168,700 30,600 40,100 5,300 20,000 200 800 855,735 25,000 42,000 383,200 21,900 425,500 7,455,211 0.0085% 0.0001% 0.0004% 0.0001% 0.0000% 0.1722% 0.0132% 0.0003% 0.0023% 0.0192% 0.0240% 0.0020% 0.0264% 0.0189% 0.0965% 0.0000% 0.0017% 0.0142% 0.0026% 0.0034% 0.0004% 0.0017% 0.0000% 0.0001% 0.0722% 0.0021% 0.0035% 0.0323% 0.0018% 0.0359% 0.6291% Shareholders Holding 10% Maybank International Trust (Labuan) Berhad 222,606,147 222,606,147 18.7844% 18.7844% General Public A. Local B. Foreign 134,139,330 3,132,548 11.3192% 0.2643% 137,271,878 11.5835% Others A. Foreign Companies B. Other Companies 160,406,695 38,225,856 C. Shareholders Holding 5% 1. D. G. Khan Cement Company Limited 102,277,232 2. Nishat Mills Limited (as disclosed in Associated Companies, Undertakings and Related Parties) – 3. Bugis Investments (Mauritius) PTE Ltd. 65,020,947 D. Executives (as per the threshold determined by the Board of Directors) Grand Total 13.5357% 3.2256% 8.6306% – 5.4867% 21,011 365,951,741 0.0018% 30.8804% 1,185,060,006 100.0000% All the trades in shares carried out by Directors, CEO, CFO, Secretary, Executives, their Spouses and Minor Children during the year 2019 are given below: Name Mr. Masood Ahmed Puri 412 Unconsolidated Financial Statements Status Director No. of Shares 1,000 Purchase/Sale/Transfer Purchased
  415. Annual Report 2019 Notice of 72nd Annual General Meeting Notice is hereby given that 72nd Annual General Meeting of MCB Bank Limited (the “Bank” or “MCB”) will be held on Thursday, March 19, 2020 at 11:00 AM (PST) at Grand Ball Room-D, The Nishat Hotel, Emporium Mall, Near Expo Center, Abdul Haq Road, Johar Town, Lahore to transact the following business: Ordinary Business: 1. To confirm/approve the Minutes of Extraordinary General Meeting held on November 21, 2019. 2. To receive, consider and adopt the Annual Audited Separate and Consolidated Financial Statements of the Bank together with the Directors’ and Auditors’ reports thereon and Chairman’s Review for the year ended December 31, 2019. 3. To appoint Statutory Auditors of the Bank and fix their remuneration for the year ending December 31, 2020. The Members are hereby notified that the Audit Committee and the Board of Directors have recommended the name of retiring auditors M/s KPMG Taseer Hadi & Company, Chartered Accountants, for appointment as Statutory Auditors of the Bank. 4. To approve, as recommended by the Board of Directors, payment of Final Cash Dividend @ 50% i.e., PKR 5.00 per share having face value of PKR 10/- in addition to 120% (40% each for 1st, 2nd and 3rd quarter) Interim Cash Dividend already declared and paid, thus total 170% i.e., PKR 17.00 per share for the year ended December 31, 2019. Special Business: 5. To consider and if deemed fit, to pass an Ordinary Resolution as proposed in the Statement of Material Facts annexed to this Notice to approve the Directors’ Remuneration Policy of the Bank. 6. To consider and if deemed fit, to pass an Ordinary Resolution, as proposed in the Statement of Material Facts annexed to this Notice to approve the scale of remuneration to be paid to the Board Members for attending the Board and its Committee(s) meetings of the Bank. 7. To consider and if deemed fit, to pass a resolution as Special Resolution, as proposed in the Statement of Material Facts annexed to this Notice to approve the alterations in the Articles of Association of the Bank. To transact any other business with the permission of the Chair. By Order of the Board, Sd/ February 27, 2020 Lahore. FIDA ALI MIRZA Company Secretary Statement of Material Facts under Section 134(3) of the Companies Act, 2017 (“Act”) pertaining to the above mentioned Special Business is annexed to this Notice of Annual General Meeting circulated to the members of the Bank. Notes: 1. Copies of the Minutes of the Extraordinary General Meeting held on November 21, 2019 of MCB Bank Limited (the “Bank” or “MCB”) are available for inspection by Members as required under Section 152 of the Companies Act, 2017. 2. The Shares Transfer Books of the Bank will remain closed from March 12, 2020 to March 19, 2020 (both days inclusive). Transfers received at the Bank’s Share Registrar and Transfer Agent’s Office at the below mentioned address, at the close of business hours on March 11, 2020 will be treated as being in time for the purpose of entitlement of Final Cash Dividend and also to attend, speak and vote at the 72nd Annual General Meeting (the “Meeting” or “AGM”) of the Bank. Annual Report 2019 413
  416. 3 . All Members are entitled to attend, speak and vote at the Meeting. A member entitled to attend, speak and vote at AGM is entitled to appoint another member as a proxy to attend, speak and vote on his/her behalf. A corporate entity, being a member, may authorize an individual to act as its representative and the individual so authorized shall be entitled to exercise the same powers on behalf of the corporate entity which he represents. 4. The proxies and in case of corporate entity, the power of attorney or resolution of the board of directors or other governing body (if any) under which it is signed, a notarized/certified copy of the same in order to be effective must be deposited at the Share Registrar and Transfer Agent Office of the Bank not less than 48 hours (no account shall be taken of any part of the day that is not a working day) before the time for holding the Meeting, and must be duly stamped, signed and witnessed. 5. Members having physical scrip of shares are requested to immediately notify the change, if any, in their registered and/or e-mail addresses, in writing, to the Share Registrar and Transfer Agent of the Bank, whereas, CDC Account holders are requested to contact their CDC Participant/CDC Account Services. 6. Central Depository Company of Pakistan (“CDC”) Accountholders will further have to follow the under mentioned guidelines as laid down by Circular No. 01, dated January 26, 2000, issued by the Securities and Exchange Commission of Pakistan: For Attending the Meeting: i. In case of individuals, the accountholder or sub-accountholder and/or the person whose securities are in group account and their registration details are uploaded as per the Regulations, shall authenticate his identity by showing his original Computerized National Identity Card (“CNIC”) or original passport at the time of attending the Meeting. ii. In case of corporate entity, the Board of Directors’ resolution/power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the Meeting. For Appointing of Proxies: i. In case of individuals, the accountholder or sub-accountholder and/or the person whose securities are in group account and their registration details are uploaded as per the CDC Regulations, shall submit the proxy form as per the above requirement. ii. The proxy form shall be witnessed by the two persons whose names, addresses and CNIC numbers shall be mentioned on the form. iii. Attested copy of CNIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form. iv. The proxy shall produce his/her original CNIC or passport at the time of the meeting. v. In case of corporate entity, the Board of Directors resolution/power of attorney with specimen signature shall be submitted along with proxy form of the Bank. 7. A Proxy Form, both in English and Urdu language, is being separately sent to the Members, along with Notice of AGM. 8. Copies of the Notice of AGM, the latest annual audited/quarterly financial statements, Directors’ Remuneration Policy and the existing and the amended Memorandum & Articles of Association of the Bank have been kept at the Registered Office of the Bank which can be obtained and/or inspected during the business hours on any working day from the date of publication of this Notice of AGM till the conclusion of the Meeting by the shareholders and other persons entitled to attend the Meeting. Notice of AGM, Directors’ Remuneration Policy and the latest annual audited/quarterly financial statements have also been placed on website of the Bank: www.mcb.com.pk 9. Members can attend and participate in the AGM through Video-Link. Pursuant to the provisions of the Companies Act, 2017 the shareholders residing in a city and holding at least 10% of the total paid up share capital may demand 414 Unconsolidated Financial Statements
  417. Annual Report 2019 the Bank to provide the facility of video-link for participating in the AGM . The demand for video-link facility shall be received by the Company Secretary at the Registered Office of the Bank located at MCB Building, 15-Main Gulberg, Jail Road, Lahore, at least seven (7) days prior to the date of AGM. In this regard, a ‘Standard Request Form for Video-Link Facility’ is available on the Bank’s website. www.mcb.com.pk STATEMENT UNDER SECTION 134(3) OF THE COMPANIES ACT, 2017 IN RESPECT OF SPECIAL BUSINESS This statement sets out the material facts under Section 134(3) of the Companies Act, 2017 pertaining to the special business to be transacted at Annual General Meeting (the “Meeting” or “AGM”) of MCB Bank Limited (the “Bank” or “MCB”) scheduled to be held on March 19, 2020. Agenda Item No. 5 Directors’ Remuneration Policy of the Bank: The Board of Directors, on the recommendations of the Board’s Human Resource & Remuneration Committee (“HR&RC”), has approved the Directors’ Remuneration Policy (the “Policy”) of MCB Bank Limited (the “Bank” or “MCB”) for attending the Board and its Committees Meetings in compliance of BPRD Circular No. 03 of 2019 dated August 17, 2019 (“SBP Circular”) issued by the State Bank of Pakistan (“SBP”). The Policy is being presented to the Shareholders of the Bank for their approval as required by the SBP Circular. The salient features of the Policy are given below: • • • • • • • • • The Policy aims to set out the requirements and methodology for the determination of the scale of the remuneration to be paid, from time to time, to the Chairman and other Directors for attending the Board and its Committees meetings. It ensures that the Board Members are fairly rewarded with regard to their respective responsibilities undertaken, and also to attract and retain high-caliber, experienced directors by offering appropriate remuneration levels commensurate with their expertise, skill and experience. The Policy has been formulated with clear mandate and charter, keeping in view the ownership structure, governance mechanism, risk profile, scope of operations and performance of the Bank. The Policy is applicable to Non-Executive/Independent Directors, Executive Director(s) and the Chairman of the Board of Directors. The Board Members shall be accountable for their conduct according to the scope of their roles and responsibilities as determined by the Board of Directors, from time to time, and the scale of remuneration may be reviewed/adjusted based on their annual performance evaluation conducted as per Guidelines issued vide SBP BPRD Circular No. 11 of 2016. No consultancy or allied work shall be awarded to a director or to the firm(s), institution(s) or company (ies) etc. in which he/she individually and/or in concert with other directors of the same Bank, holds substantial interest. The Administrative expenses pertaining to the office, staff and security allocated etc., to the Chairman of the Board shall be determined rationally. Proper disclosures of remuneration and other benefits/facilities provided to the Board Members shall be made in the annual financial statements of the Bank. The disclosure shall also include the details of attendance of each director in Board and its Committees meetings. The Policy shall be reviewed by the Board of Directors biennially or on need basis and any change(s) therein shall be approved by the Shareholders of the Bank, on pre or post facto basis, in its Annual General Meeting. The Shareholders are requested to consider and if thought fit, to approve, with or without modification, the Directors’ Remuneration Policy of the Bank by passing the following resolution as an Ordinary Resolution: “RESOLVED THAT the Directors’ Remuneration Policy, as recommended by the Board of Directors of the Bank, effective from February 05, 2020, in compliance with the requirements of BPRD Circular No. 03 of 2019 dated August 17, 2019 issued by the State Bank of Pakistan, be and is hereby approved.” The Directors of the Bank have no personal interest, directly or indirectly, in the above special business, save to the extent of their respective shareholding in the Bank as given below and payment of remuneration as per Remuneration Policy/ Shareholders’ approval. Annual Report 2019 415
  418. Agenda Item No . 6 The Scale of Remuneration including Additional Remuneration: The Board of Directors, on the recommendations of the Board’s Human Resource & Remuneration Committee (“HR&RC”), has determined the scale of remuneration to be paid to Board Members for attending the Board and its Committees meetings and for holding office of the Chairman, effective from February 05, 2020 in accordance with the requirements of BPRD Circular No. 03 of 2019 dated August 17, 2019 (“SBP Circular”) issued by the State Bank of Pakistan (“SBP”). In addition to the above, the Bank shall either make all arrangements for travelling, boarding and lodging of Board Members for attending Board and its Committees meetings and any other meeting relating to Bank’s business or reimburse such expenses to the Board Members, on actual basis. Non-Executive/Independent Directors shall be entitled for maximum of First Class airfare along with boarding, lodging expenses and/or any ancillary expenses incurred for attending Board and its Committees meetings and any other meeting relating to Bank’s business, on actual basis. However, considering the stature of the Chairman, he is allowed the option of availing the services of chartered plane and expenses related to such facility shall be borne by the Bank, on actual basis. Executive Director(s) shall be entitled for travelling, boarding, lodging and/or any other expenses incurred for attending Board and its Committees meetings, on actual basis, as per the Bank’s standard rules and regulations. The scale of remuneration including additional remuneration and travelling arrangement as mentioned above are being presented to the Shareholders of the Bank for their approval. Following are the present shareholdings of the Directors of MCB Bank Limited: Share held by Directors and their Spouses Mian Mohammad Mansha As at December 31, 2019 7,834 Mrs. Naz Mansha 6,424,057 Mr. S. M. Muneer 2,059 Mr. Muhammad Tariq Rafi Mrs. Nighat Tariq Mian Umer Mansha Mrs. Iqraa Hassan Mansha Mian Hassan Mansha 32,094,304 5,715,093 31,986,378 8,000 43,363,671 Mr. Muhammad Ali Zeb 550 Mr. Mohd Suhail Amar Suresh Bin Abdullah 884 Mr. Yahya Saleem 500 Mr. Salman Khalid Butt 1,000 Mr. Masood Ahmed Puri 1,000 The Shareholders are requested to consider and if thought fit, to approve, with or without any modification, the following resolutions as Ordinary Resolutions: 416 “RESOLVED THAT in suppression of the previous resolutions approved by the Shareholders, the scale of remuneration including additional remuneration to be paid to Non-Executive Directors / Independent Directors and the Chairman for attending the Board and its Committees meetings, effective from February 05, 2020 as recommended by the Board of Directors of the Bank as detailed below, in compliance with the requirements of BPRD Circular No. 03 of 2019 dated August 17, 2019 issued by the State Bank of Pakistan, be and is hereby approved.” Unconsolidated Financial Statements
  419. Annual Report 2019 Amount in PKR Board Meeting Fee Additional Remuneration for Chairman Committee Meeting Fee Resident Directors 400 ,000/- per Meeting -- 100,000/- per Committee per Meeting Non-Resident / Foreign Directors 800,000/- per Meeting -- 100,000/- per Committee per Meeting Chairman of the Board 800,000/- per Meeting 20% of Board Meeting Fee 100,000/- per Committee per Meeting All the payments are subject to applicable taxes. “FURTHER RESOLVED THAT in addition to above scale of remuneration, the travelling, boarding and lodging of Non-Executive Directors including Independent Directors for attending Board and its Committees meetings and any other meeting relating to Bank’s business and travelling entitlement of the Chairman by availing the facility of chartered plane, as mentioned in Directors’ Remuneration Policy of the Bank, be and is hereby approved.” The Directors of the Bank have no personal interest, directly or indirectly, in the above special business, save to the extent of their respective shareholding as given hereinabove in the Bank and payment of remuneration as per Remuneration Policy/Shareholders’ approval. Agenda Item No. 7 Alteration in the Articles of Association of the Bank: In order to make the Article 94 (titled ‘Remuneration’) of the Articles of Association in line with Directors’ Remuneration Policy of the Bank, the Board of Directors has recommended certain amendments in the said Article. A comparison of existing and proposed Articles is given below: Title Existing Article Proposed Article First Paragraph of Article 94 The scale of the No Change. remuneration to be paid, from time to time, to the Non-Executive including Independent Directors and the Chairman for attending the Board and its Committee(s) meetings shall be determined by the Board and approved by the shareholders on a pre or post facto basis in the Annual General Meeting. Second Paragraph of Article 94 A Director shall also be paid any reasonable traveling and hotel and other expenses incurred in consequence of his attendance at Board Meeting and otherwise in the execution of his duties as Director. The Directors may also be remunerated for any services done by them outside their ordinary duties. The Bank shall either make all arrangements for travelling, boarding and lodging of Board Members for attending Board and its Committees meetings and any other meeting relating to Bank’s business or reimburse such expenses to the Board Members, on actual basis. Reason for Change -- To make the enabling provisions of the Articles of Association in line with the Directors’ Remuneration Policy as recommended by the Board of Directors and approved by the Shareholders of the Bank. Annual Report 2019 417
  420. Title Existing Article Proposed Article Reason for Change Third Paragraph of Article 94 The chartered plane round trips (domestic and/or international) by the Chairman for Bank business will be limited to twelve in a Calendar year starting January, 2014 and any additional trips may be paid by the Chairman out of his annual compensation/ pocket. The details of the twelve chartered plane round trips (domestic and/or international) by the Chairman, allowed by the Board on annual basis and approved by the shareholders, shall be placed before the Board for its information and record. N o n - E x e c u t i v e / Independent Directors shall be entitled for maximum of First Class airfare along with boarding, lodging expenses and/or any ancillary expenses incurred for attending Board and its Committees meetings and any other meeting relating to Bank’s business, on actual basis. However, considering the stature of the Chairman, he is allowed the option of availing the services of chartered plane and expenses related to such facility shall be borne by the Bank, on actual basis. To make the enabling provisions of the Articles of Association in line with the Directors’ Remuneration Policy as recommended by the Board of Directors and approved by the Shareholders of the Bank. Section 38 of the Companies Act, 2017 (“Act”) requires that the alteration in the Articles of Association shall be approved by the shareholders through special resolution; therefore, the Board of Directors has recommended the amendments in Article 94 of the Articles of Association of the Bank to shareholders for their approval. The Shareholders are requested to consider and if thought fit, to pass the following resolutions as Special Resolutions, with or without modifications, to approve alterations in the Articles of Association of the Bank in accordance with the provisions of Section 38 of the Companies Act, 2017: “RESOLVED THAT the approval be and is hereby accorded to amend the second and third Paragraph of Article 94 of the Articles of Association of MCB Bank Limited in terms of the provisions of Section 38 of the Companies Act, 2017 to read as follows: The Bank shall either make all arrangements for travelling, boarding and lodging of Board Members for attending Board and its Committees meetings and any other meeting relating to Bank’s business or reimburse such expenses to the Board Members, on actual basis. Non-Executive/Independent Directors shall be entitled for maximum of First Class airfare along with boarding, lodging expenses and/or any ancillary expenses incurred for attending Board and its Committees meetings and any other meeting relating to Bank’s business, on actual basis. However, considering the stature of the Chairman, he is allowed the option of availing the services of chartered plane and expenses related to such facility shall be borne by the Bank, on actual basis. “FURTHER RESOLVED THAT the Company Secretary and/or Chief Financial Officer be and are hereby jointly/severally authorized to do all acts, deeds and things, take all steps and actions necessary, ancillary and incidental for altering the Articles of Association of the Bank, including filing of all requisite documents/ statutory forms, as may be required to be filed with the Registrar of Companies and complying with all other regulatory requirements, so as to effectuate the alterations in the Articles of Association and implementing the aforesaid resolution.” The Board of Directors of the Bank has confirmed that the proposed alteration in the Article 94 of the Articles of Association of the Bank is in line with the applicable provisions of the law and regulatory framework. The Directors of the Bank have no personal interest, directly or indirectly, in the above special business, save to the extent of their respective shareholding in the Bank as given above and payment of remuneration as per Remuneration Policy/ Shareholders approval. 418 Unconsolidated Financial Statements
  421. Annual Report 2019 Attention of Shareholders is drawn towards Circulars /Notifications: The following Circulars/Notifications require special attention of shareholders of the Bank: 1. Requirement of Valid CNIC and IBAN: As per the requirements of the Companies (Distribution of Dividends) Regulations, 2017 issued by the Securities and Exchange Commission of Pakistan (“SECP”) and SRO 275 (I)/2016, dated March 31, 2016 issued by the SECP, the payment of cash dividend shall only be made to the Shareholders who have provided copies of their valid CNIC/ NICOP/ Passport (in the case of Individuals) and NTN (in the case of Corporate Entities) and valid details of designated International Bank Account Number (“IBAN”). Therefore, in order to comply with the above regulatory requirements, the Bank has withheld and shall be withholding the payment of cash dividend to those shareholders who have not yet provided copies of their valid CNIC/NICOP/NTN/Passport and details of valid IBAN. 2. Requirement of FBR’s Approval or Valid Tax Exemption Certificate for Claim of Exemption U/S 150 of the Income Tax Ordinance, 2001: The Honorable Lahore High Court, Lahore, in its recent decision has advised that the Mutual Funds as approved by the Federal Board of Revenue (“FBR”), would not be required to provide exemption certificate under Section 159 of the Income Tax Ordinance, 2001 (“Ordinance”) to claim tax immunity as per clause (47B) of Part-IV of the Second Schedule to the Ordinance. It is, therefore, requested to provide either approval certificate or valid exemption certificate under Section 159 (1) of the Ordinance issued by the concerned Commissioner of the Income Tax, Inland Revenue, FBR. In case of non-availability of approval / exemption certificate(s), the deduction of advance tax on dividend shall be made as per the relevant provisions of the Ordinance. 3. Deduction of Withholding Tax on the Amount of Dividend: The Government of Pakistan through the Finance Act, 2019, has made amendment in Section 150 of the Income Tax Ordinance, 2001, whereby, withholding tax on dividends has been enhanced as follows: • • For Filers of Income Tax Returns: For Non-Filers of Income Tax Returns: 15% 30% In case of joint-shareholders, tax is to be deducted as per ratio of their respective share in the ownership. Federal Board of Revenue (“FBR”) has provided the Active Tax-Payer List (“ATL”), for identification on the basis of NTN/CNIC number; hence, in case of non-availability of valid NTN/CNIC number with MCB’s Share Registrar and Transfer Agent, it would not be possible to identify the same in ATL and the shareholder will constraint to be treated as ‘Non-Filer’ to qualify for tax at higher rate of 30%. Therefore, shareholders who have not yet provided such information are requested to ensure that their valid NTN/CNIC number is available with the Share Registrar and Transfer Agent of MCB. In case of shares held as book-entry securities, the said information would be required to be provided to CDS, through CDS Participants. 4. Deduction of Withholding Tax on Joint Account Holder(s): The Joint Account Holders whose shareholding details as to Principal Shareholder have not yet been determined for deduction of withholding tax on the upcoming dividend of the Bank, are requested to please furnish to the Share Registrar and Transfer Agent of the Bank; the shareholding details of yourself as Principal Shareholder and your Joint Holder(s) in the following manner, enabling MCB to compute withholding tax of each shareholder accordingly: CDC Account No./ Folio No. Name of Principal Shareholder/Joint Holders Shareholding Proportion CNIC No. (copy attached) Signature Kindly note that in case of non-receipt of the information each Account Holder will be assumed to hold equal proportion of shares and the deduction will be made accordingly. Annual Report 2019 419
  422. 5 . Circulation of Annual Audited Financial Statements and Notice of AGM to Members: SECP through its Notification No. SRO 787 (I)/2014, dated September 08, 2014, has allowed companies to circulate Annual Audited Financial Statements along with Notice of Annual General Meeting to its members through email. Further, as per the requirements of the SECP Notification No. SRO 470 (I)/2016, dated May 31, 2016, the Bank is circulating its Annual Accounts to shareholders through electronic medium, i.e., DVD at their registered addresses instead of transmitting the said annual accounts in hard copies. However, in case a shareholder is required hard copy of the Annual Accounts, the same can be obtained, free of cost, within one week of the request. In this regard, a Standard Request Form has been placed on website of the Bank for shareholders to communicate the need of hard copies of the Annual Accounts instead of sending the same through DVD. A shareholder may also prefer to receive hard copies for all future Annual Accounts. 6. Unclaimed Dividends and Shares Certificates: The shareholders who have not yet claimed their cash dividends, right and bonus shares which are kept with the Share Registrar of the Bank, namely, M/s THK Associates (Pvt.) Limited, as undelivered/unclaimed dividends and shares certificates or which are in their custody are requested that they should either en-cash their dividend warrants already available with them, or make a claim for cash dividends, right and bonus shares kept by MCB’s Share Registrar and Transfer Agent. 7. Deposit of Physical Shares into CDC Account: The Shareholders having physical shareholding may open CDC sub-account with any of the brokers or Investor Account directly with CDC to place their physical shares into scripless form, this will facilitate them in many ways including safe custody and sale of shares, any time they want, as the trading of physical shares is not permitted as per existing regulations of the Stock Exchange. Further, Section 72 of the Act states that after the commencement of the Act from a date notified by SECP, a company having share capital, shall have shares in book-entry form only. Every existing company shall be required to replace its physical shares with book-entry form in a manner as may be specified and from the date notified by SECP, within a period not exceeding four years from the commencement of the Act. 8. Merger of Different Folios into One Folio: As per record, some of the shareholders are maintaining more than one folio(s) under the same particulars. Carrying two different folios may be a hassle for the shareholders to reconcile and receive different benefits in the shape of dividends/ bonus. In order to provide better services and convenience, such shareholders are requested to send requests to the MCB’s Share Registrar and Transfer Agent to merge their folios into one folio. While sending the copy of NTN/CNIC/NICOP number, shareholders are requested to quote their respective Folio/ CDC Account Numbers for identification purpose. M/s THK Associates (Pvt) Ltd., Share Registrar and Transfer Agent-MCB Bank Limited First Floor, 40-C, Block-6, P.E.C.H.S., Karachi-75400. P.O. Box No. 8533, UAN: +92 (21) 111-000-322, Fax: +92 (21) 3 4168271. Email: sfc@thk.com.pk 420 Unconsolidated Financial Statements
  423. Annual Report 2019 Glossary of Terms Important terms and formulae used for calculation in Financial Statements are briefly described here ; Accrual Basis Recognizing the effects of transactions and other events when they occur without waiting for receipt or payment of cash or its equivalent. Basis point One hundredth of a per cent i.e. 0.01 per cent. 100 basis points is 1 per cent. Used when quoting movements in interest rates or yields on securities. Breakup Value per share Represents the total worth (equity) of the business per share, calculated as shareholders’ equity or Net Assets excluding the impact of revaluation on fixed assets, divided by the total number of share outstanding at year end. BSD Banking Surveillance Department of State Bank of Pakistan BPRD Banking Policy and Regulation Department of State Bank of Pakistan CAGR An abbreviation for Compound Annual Growth Rate. Capital Adequacy Ratio (CAR) The relationship between capital and risk weighted assets as defined in the framework developed by the State Bank of Pakistan. Cash Reserve Ratio (CRR) Cash Reserve Ratio is the amount of funds that the banks have to keep with SBP. Cash Equivalents Short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Commitment to Extend Credit Credit facilities approved but not yet utilized by the client as at the Balance Sheet date. Cost to Income Ratio The proportion of admin expenses to total income, represented as combination of net interest income and non interest income. Credit Risk Spread The credit spread is the yield spread between securities with the same coupon rate and maturity structure but with different associated credit risks, with the yield spread rising as the credit rating worsens. It is the premium over the benchmark or risk-free rate required by the market to take on a lower credit quality. Discount rate Discount is the rate at which SBP provides three-day Repo facility to banks, acting as the lender of last resort. Dividend Payout Ratio Dividends (cash dividend plus bonus shares) paid per share as a fraction of earnings per share (EPS). Dividend Yield Ratio Dividend per share divided by the market value of share. Earnings Per Share Profit after taxation divided by the weighted average number of ordinary shares in issue Fixed Deposits Deposits having fixed maturity dates and a rate of return. Forced Sale Value (FSV) Forced Sale Value means the value which fully reflects the possibility of price fluctuations and can currently be obtained by selling the mortgaged / pledged assets in a forced / distressed sale conditions. Government Securities Government Securities shall include such types of Pak. Rupee obligations of the Federal Government or a Provincial Government or of a Corporation wholly owned or controlled, directly or indirectly, by the Federal Government or a Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the Official Gazette, declare, to the extent determined from time to time, to be Government Securities. Impairment allowances A provision held on the balance sheet as a result of the raising of a charge against profit for the incurred loss inherent in the lending book. An impairment allowance may either be identified or unidentified and individual or collective. Foreign Exchange Options(FX Options) Contracts that give the buyer the right, but not the obligation, to buy or sell one currency against the other, at a predetermined price and on or before a predetermined date. The buyer of a call/ put FX option has the right to buy/sell a currency against another at a specified rate. Forward Purchase Contract Forward purchase contract is one in which the exporter enters into the forward booking contract to protect himself from the exchange rate fluctuation at the time of receiving payment. Forward Sale Contract In a forward sale contract the importer enters into a transaction to buy foreign currency from the Bank at the predetermined rate to protect himself from the exchange fluctuation at the date the payment. Historical Cost Convention Recording transactions at the actual value received or paid. IAS International Accounting Standards IFRS International Financial Reporting Standards IFRIC International Financial Reporting Interpretation Committee Interest Spread Represents the difference between the average interest rate earned and the average interest rate paid on funds. Loan losses and provisions Amount set aside against identified and possible losses on loans, advances and other credit facilities as a result of their becoming party or wholly uncollectible. Annual Report 2019 421
  424. Glossary of Terms Liquid Assets The assets which are readily convertible into cash without recourse to a court of law and mean encashment / realizable value of government securities, bank deposits, certificates of deposit, shares of listed companies which are actively traded on the stock exchange, NIT Units, certificates of mutual funds, Certificates of Investment (COIs) issued by DFIs / NBFCs rated at least ‘A’ by a credit rating agency on the approved panel of State Bank of Pakistan, listed TFCs rated at least ‘A’ by a credit rating agency on the approved panel of State Bank of Pakistan and certificates of asset management companies for which there is a book maker quoting daily offer and bid rates and there is active secondary market trading. These assets with appropriate margins should be in possession of the banks / DFIs with perfected lien. Market Capitalization Number of ordinary shares in issue multiplied by the market value of share as at any cut-off date. Materiality The relative significance of a transaction or an event the omission or misstatement of which could influence the economic decisions of users of financial statements. Net Interest Income (NII) Net interest income is the difference between the interest earned on assets and interest expensed on liabilities. Non-Performing Loan A non-performing loan is a loan that is in default or close to being in default. Loans become non-performing in accordance with provision of prudential regulations issued by SBP. NPLs to Gross Advances/Loans Represents the infected portfolio of the bank and is calculated by dividing the total non-performing loans by gross advances. Non Performing Loan-Substandard Category Where markup/interest or principal is overdue by 90 days or more from the due date. Non Performing Loan-Doubtful Category Where markup/interest or principal is overdue by 180 days or more from the due date. Non Performing Loan-Loss Category Where mark-up/interest or principal is overdue by one year or more from the due date and Trade Bill (Import/ Export or Inland Bills) are not paid/adjusted within 180 days of the due date. Off Balance Sheet Transactions Transactions that are not recognized as assets or liabilities in the statement of financial position but which give rise to contingencies and commitments. Price Earnings Ratio (P/E Ratio) Market price of a share divided by earnings per share. Repo / Reverse Repo A repurchase agreement, or repo, is a short term funding agreements which allow a borrower to sell a financial asset, such as ABS or government bonds as collateral for cash. As part of the agreement the borrower agrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of 422 Unconsolidated Financial Statements the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement or reverse repo. Return on Equity (ROE) Represents the ratio of the current year’s profit available for distribution to the weighted average shareholders equity over the period under review, calculated by dividing the net profit (profit after tax) to the average equity (before surplus) for the period. Return on Assets (ROA) Indicator of profitability of the business relative to the value of its assets, calculated by dividing the net profit (profit after tax) to the average total assets for the period. Statutory Reserve Funds A capital reserve created as per the provisions of the section 21 of Banking Companies Ordinance, 1962. Small Enterprise A Small Enterprise (SE) is a business entity which meets both the following parameters: Number of Employees *Up to 50 *including contract employees. Annual Sales Turnover Up to Rs. 150 million Basel III Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Strategic Investment Strategic Investment is an investment which a bank / DFI makes with the intention to hold it for a period of minimum 5 years. The following must be noted further in respect of strategic investment: • The bank should mark strategic investment as such at the time of investment •If there are a series of purchases of stocks of a company, the minimum retention period of 5 years shall be counted from the date of the last purchase. SRO Statutory Regulatory Order KIBOR – (Karachi Interbank Offered Rate) KIBOR is the interbank lending rate between banks in Pakistan and is used as a benchmark for lending. LIBOR (London Interbank Offered Rate) An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. VaR Value at Risk is an estimate of the potential loss which might arise from market movements under normal market conditions, if the current positions were to be held unchanged for one business day, measured to a confidence level of 97.5 per cent. Weighted Average Cost of Deposits Percentage of the total interest expense on average deposit of the bank for the period.
  425. Annual Report 2019 Form of Proxy 72nd Annual General Meeting I /We _________________________________________________________________________________________________ of ________________being a member (s) of MCB Bank Limited, and holder of ________________________________ Ordinary Shares, do hereby appoint ______________________________________________________________________ of _________________________ vide Folio/CDC Account No. ___________________________________ or failing him/her ___________________________________________________________ of _______________________ who is also a member of the Bank, vide Folio/CDC Account No. ______________________________ as my/our proxy in my/our absence to attend, speak and vote for me/us and on my/our behalf at the 72nd Annual General Meeting of the Bank to be held on Thursday, March 19, 2020 at 11:00 AM (PST) at Grand Ball Room-D, The Nishat Hotel, Emporium Mall, Near Expo Center, Abdul Haq Road, Johar Town, Lahore, and at any adjournment thereof. As witness my/our hand/Seal this ___________________________ day of ________________________________ 2020. Signed by_____________________________________________________________________________________________ Folio No. CDC Account No. Participant I.D. Account No. Signature on Five-Rupees Revenue Stamp The signature should agree with the specimen registered with the Bank. Witnesses: 1.Name :________________________________ 2.Name :________________________________ Address :________________________________Address:________________________________ CNIC No. :________________________________ CNIC No. :________________________________ Signature :________________________________ Signature:________________________________ Note: 1. A member eligible to attend and vote at the meeting may appoint another member as his/her proxy who shall have such rights as respects attending, speaking and voting at the meeting. 2. This Proxy Form, duly completed and signed, must be deposited in the office of M/s THK Associates (Pvt) Limited, the Share Registrar and Transfer Agent of the Bank, situated at First Floor, 40-C, Block 6, P.E.C.H.S., Karachi-75400, not less than 48 hours before the time of holding the meeting. 3. If a member appoints more than one proxy and more than one instrument of proxies are deposited by a member with the Share Registrar and Transfer Agent of the Bank, all such instruments of proxy shall be rendered invalid. 4. For CDC Account Holders / Corporate Entities: • Attested copies of Computerized National Identity Card (“CNIC”) or the passport of the beneficial owners and the proxy shall be provided with the Proxy Form. • The proxy shall produce his/her original CNIC or passport at the time of the meeting. • In case of a corporate entity, the Board of Directors’ resolution / power of attorney with specimen signature shall be submitted along with Proxy Form to the Share Registrar and Transfer Agent of the Bank. Annual Report 2019 423
  426. 424 Unconsolidated Financial Statements
  427. Investors ’ Awareness
  428. Registered Office : MCB House, 15 Main Gulberg, Jail Road, Lahore, Pakistan U: +92 42 111 000 622 T: +92 42 36041998-9 E: info@mcb.com.pk www.mcb.com.pk