Allied Bank: Annual Report 2019

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2. CONTENTS Overview 02 Who We Are 04 Awards and Accolades 06 Business Excellence 08 Corporate Structure 10 Board of Directors 14 Chairman ’s Message 18 Management Team 20 Our Value Creation Business Model 22 Products & Services 28 Achievments Against Our Strategic Objectives 30 Director’s Report 42 CEO’s Review 52 Group Reviews 64 Key Performance Indicators 66 Horizontal & Vertical Analysis 70 Value Creation for Shareholders 73 Cash Flow 74 Stakeholders Engagement Risk Management 80 Risk Management Approach & Oversight This section details our commitment to robust and effective risk management framework. 81 Risk & Opportunities Governance 84 Our Governance Philosophy 85 Board Committees 87 Managing Conflict of Interest 88 Report of the Audit Committee 89 Statement of Internal Controls 90 Statement of Compliance 91 Independent Auditor’s Review Report 92 Remuneration Report 94 Shariah Board 94 Report of Shariah Board 98 Information Technology Governance 100 Whistle Blowing Policy 100 Investor Grievance 101 Corporate Social Responsibility Policy 102 Corporate Sustainability Report 108 Our Committment to Sustainable Development Goals 110 Unconsolidated Financial Statements 203 Consolidated Financial Statements 286 Pattern of Shareholding 290 Notice of 74th Annual General Meeting This section provides information covering who we are and our corporate structure. It also contains message from the Chairman Board of the Directors. Strategy and Resource Allocation This section contains the CEO’s thoughts on pertinent matters and recaps the year’s performance. About this report The Board is responsible for the preparation of this Annual Report. It is prepared in accordance with the following regulations, frameworks and guidelines: • The International Integrated Reporting <IR> Framework issued in December 2014 by the International Integrated Reporting Council. • The Banking Companies Ordinance, 1962 issued by the State Bank of Pakistan. • The Companies Act, 2017 issued by the Securities and Exchange Commission of Pakistan. • • • • This section details our commitment to sound and effective governance and sustainability. The Listed Companies (Code of Corporate Governance) Regulations, 2019 issued by the Securities and Exchange Commission of Pakistan. International Financial Reporting Standards and Interpretations issued by the International Accounting Standards Board. Islamic Financial Accounting Standards issued by the Institute of Chartered Accountants of Pakistan. Directives issued by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan. This report is published within three months of the date of the Statement of Financial Position and is available in three mediums to cater the need of our various readers. A limited number of printed reports have been produced to be dispatched to those who have requested for the same. Readers who prefer viewing our report online and on the go can access through https:// www.abl.com/investor-relations/financials/ financial-presentations/ A soft copy (PDF) version of the report is also available in CD (compact disk) format for those who would like to maintain an easilyportable digital version of the Report. Financial and Other Reports 292Glossary 295 Form of Proxy Allied Bank Limited 01
3. WHO WE ARE Total Assets (PKR) 1,481 billion Total Deposits (PKR) 1,049 billion Total Equity (PKR) 115 billion Profit After Tax (PKR) 14.1 billion Earnings Per Share (PKR) 12.3 ABL is the 4th largest private sector commercial bank and 5th largest bank in Pakistan in terms of total assets which accounts for approximately 7.3% of sector assets. As one of Pakistan’s leading bank, we understand the intricacies of the local market and provide a wide range of financial services with a nationwide coverage and customer outreach. Our superior asset quality depicted by an industry leading coverage, infection ratios, diverse revenue streams, resilient deposit-based funding structures and a solid capital base, supplemented by high standards of corporate governance have contributed towards maintaining a strong financial position with stable profitability. Keeping track of the fast paced, dynamic and a competitive market scenario, we are constantly updating our technology platforms to enhance customer experiences and improve operating effectiveness. Over 4 million customers Over The Bank is among the group of select few which have been awarded highest long term and short-term entity credit ratings of AAA (Triple A) and A1+ (A One Plus) respectively. 11,000 Mr. Mohammad Naeem Mukhtar (Chairman) Mr. Sheikh Mukhtar Ahmad Mr. Muhammad Waseem Mukhtar Mr. Abdul Aziz Khan Dr. Muhammad Akram Sheikh Mr. Zafar Iqbal Ms. Nazrat Bashir Mr. Tahir Hassan Qureshi (CEO) Shariah Board Mufti Muhammad Iftikhar Baig (Chairman) Mufti Tayyab Amin Mufti Mahmood Ahmad Chief Financial Officer Mr. Mehmud ul Hassan Mr. Muhammad Raffat Auditors KPMG Taseer Hadi & Co. Chartered Accountants Legal Advisor Share Registrar CDC Share Registrar Services Limited Over 1,375 1,500 Annual To provide value added services to our customers • To provide high tech innovative solutions to meet customers’ requirements • To create sustainable value through growth, efficiency and diversity for all stakeholders • To provide a challenging work environment and reward dedicated team members according to their abilities and performance • To play a proactive role in contributing towards the society Core Values • Integrity • High Performance • Excellence in Service • Innovation and Growth www.abl.com info@abl.com Bank Ranking (As per Bankers ALMANAC) Report 2019 • Contact Details ATMs Present in 4 markets globally with 2 overseas branches (Bahrain & Karachi Export processing Zone) and 2 overseas representative offices (Peoples Republic of China & Dubai). Mission 3 Tipu Block, New Garden Town, Lahore, Pakistan Postal Code 54000 Over In Pakistan To become a dynamic and efficient bank providing integrated solutions in order to be the first choice bank for the customers. Registered and Head Office Branches 5 Vision Company Secretary Mandviwalla & Zafar Advocates Employees 02 Board of Directors Pakistan’s Widest Network with coverage in 128 547 Districts & Cities/Towns (+92-42) 35880043 UAN: 111-225-225 /ablpk /alliedbankpk /user/alliedbankltd /ablpk Allied Bank Limited 03
4. 04 Annual Report 2019 Allied Bank Limited 05
5. BUSINESS EXCELLENCE Digital Transformation Service Delivery In 1 Link Acquiring transaction volume having 13 .1% market share with 26 million transactions count and Rs. 250 billion transaction volume. In PayPak POS transactions having 21.1% market share. Up 54% 99% Up 81% Up 29% 3,253,800 No. of PIB Transactions Up 46% Up 25% 426,853 PIB Users 190,452 ATM Uptime 100 2,396,966 POS Transactions New to Bank Customers Up 14% 97% 9,303 million POS Volume 1,742,335 Cards in Circulations Branches with Kiosks 35,023 Number of Customer Complaint Resolutions Up 53% Up 10% 417,510 New Debit Cards Up 46% 123,179 e-commerce Transactions Up 7% 53,189,236 Number of ATM Transactions 675 BIB Users Up 43% 182,800 No. of BIB Transaction Up 46% 16,423 million Volume of BIB Transactions 1.83 CAF Rating (Product Service & Design) CAF Rating (Dispute Resolution) 3.87 days 100 Branches CAF Rating (Culture) 123,555 million Volume of PIB Transactions Digital/ Self-Service Branches 1.79 1.83 In Launch of PayPak Cards. 6 Allied Phone Banking is working 24/7 to serve its customers and provide First Call Resolution (FCR). Allied Bank customers may get in touch with Allied Phone Banking using telephone service, email, webchat, social media and state of the art ABL Video Phone Banking. Complaint Resolutions TAT 85 158 Branches with EQMS Customer support staff Up 33% 427 million e-commerce Volume of Transactions Mystery shoppings CAF: Conduct Assessment Framework for Banks by SBP EQMS: Electronic Queue Management System 56:44 e-banking Transaction Ratio Human Resource Diversity 1 Female HOD HR Ratio Up 10% 605,180 million Volume of ATM Transactions 1 17.44% Female Director 47 Diffrently abled Employees PIB: Personal Internet Banking BIB: Business Internet Banking 4 Female Employees reporting directly to HODs HOD: Head of Department, reporting directly to the CEO 06 Annual Report 2019 Allied Bank Limited 07
6. CORPORATE STRUCTURE BOARD OF DIRECTORS Board Risk Management Committee e-Vision Committee Strategic Planning & Monitoring Committee Shariah Board* Human Resource and Remuneration Committee Audit Committee of the Board Chief Executive Officer Management Committee Asset Liability Committee IT Steering Committee Human Resource Committee Risk Management Committee Fair Treatment Committee Compliance Committee Centeral Administrative Action Committee Audit & Risk Review Corporate & Investment Banking Human Resource Business Planning & New Initiatives Treasury Banking Services Service Standards & Quality Commercial & Retail Banking (South) Risk Management Marketing & Corporate Communication Commercial & Retail Banking (North) Information Technology Islamic Banking Finance Digital Banking Compliance Special Assets Management General Services & Real Estate Anti Harassment Committee Corporate Affairs Board Committee Management Committee Group Function Allied Bank owes its existence to Australasia Bank, commenced its operations before independence in 1942; merged with three other banks (Sarhad Bank Limited, Lahore Commercial Bank Limited and Pak Bank Limited) upon nationalization in 1974 with the name changed to Allied Bank of Pakistan Limited; recapitalized in 2004 by Ibrahim Group and renamed as Allied Bank Limited in 2005. Its journey from Aiwan Shah Chiragh Building, Lahore to Head Office Building, New Garden Town, Lahore is worth-emulation saga of resilience against odds and obstacles over the decades. It has grown into a towering tree with verdant foliage, blossoms and blooms and has become one of the most prestigious financial institutions of the country and preferred choice of millions who bank with and repose trust in its personalize service excellence to mutually beneficial advantage. * Independent Shariah Board overseas Islamic banking operations 08 Annual Report 2019 Allied Bank Limited 09
7. BOARD OF DIRECTORS Sitting from Left to Right • Nazrat Bashir • Mohammad Naeem Mukhtar • Sheikh Mukhtar Ahmad • Abdul Aziz Khan 10 Annual Report 2019 Standing from Left to Right • Zafar Iqbal • Tahir Hassan Qureshi • Muhammad Waseem Mukhtar • Dr. Muhammad Akram Sheikh Allied Bank Limited 11
8. BOARD OF DIRECTORS Dr . Muhammad Akram Sheikh Mohammad Naeem Mukhtar Independent Director He is Chairman of the Board of Allied Bank since August 2004. He has done MBA from Cardiff Business School UK, Post Graduate diploma in Textiles from UK and Chartered Textile Engineer (CText ATI) from The Textile Institute in Manchester UK. He has over 34 years of experience of finance and industrial manufacturing. Besides Chairman of Board of Directors of Allied Bank Limited, he is also Chief Executive Officer/ Director of M/s. Ibrahim Fibres Limited and M/s. Ibrahim Holdings (Pvt.) Limited, In addition, he is also on the boards of M/s. Ibrahim Agencies (Pvt.) Limited, ABL Asset Management Company Limited, Karachi Education Initiative and Pakistan German Business Forum. He is also a Member of Board of Governors of National Management Foundation, the parent body of Lahore University of Management Sciences (LUMS). He is also representing ABL at Pakistan Business Council and is Industry Co-Chair Banking Sector of NUST Corporate Advisory Council (CAC) as well as Senior Fellow at Global Think Tank Network (GTTN). Dr. Muhammad Akram Sheikh (Hilale-Imtiaz) has over 54 years of work experience in the public and private sectors. He has founded Global Think Tank Network (GTTN) and currently chairs its Board of Directors. He is also Director on the Boards of Quality School Foundation, Tricon Boston Consulting Corporation (Pvt.) Limited (a 100% subsidiary of Sapphire Textile Mills Limited - STML). In addition to the above, Mr. Akram Sheikh is a member of KPK Search and Selection Committee for Vice Chancellors and Pakistan Engineering Council Elders Committee. He has held prestigious senior positions including Federal Minister/Head of Planning Commission, Federal Secretary of the Ministries of Communication, Water & Power and Industries & Production, Managing Director and Chairman of some of the largest public sector industrial establishments. During the period from 1998 to 2008, he also spearheaded many strategic policy initiatives including Medium Term Development Framework and Vision 2030 which lays down strategic directions for the future of the Country. He is on the Board of Directors of Allied Bank Limited since February 2015. Chairman / Non-Executive Sponsor Director Zafar Iqbal Independent Director Sheikh Mukhtar Ahmad Non-Executive Sponsor Director He started his business career immediately after migrating from India at the time of independence of Pakistan in 1947 and contributed to the industrial and business growth of Pakistan through his entrepreneurship skills and business acumen. He has over 58 years of experience in establishing and successfully managing various industrial and financial companies. He has been on the Board of Directors of Allied Bank Limited since April 2005 and is a “Certified Director” from Pakistan Institute of Corporate Governance. He is also Chairman of the Board of Directors of M/s. Ibrahim Fibres Limited, Ibrahim Holdings (Pvt.) Limited, Ibrahim Agencies (Pvt.) Limited and ABL Asset Management Company Limited. He has 34 years’ experience in senior management positions in financial and power generation sector. He was the Managing Director/ CEO of Pak Oman Investment Company Limited, a DFI owned jointly by the Governments of Pakistan and Sultanate of Oman. During his 8 years stay at Pak Oman he led the company in becoming the leading DFI in its peer group. Over the past 27 years, he has served on the Boards of number of listed and non-listed companies and financial institutions. He is a Fellow member of Institute of Chartered Accountants in England & Wales (ICAEW) and the Institute of Chartered Accountants of Pakistan (ICAP). He is a “Certified Director” from Pakistan Institute of Corporate Governance. He specialized in Investment Banking, Corporate Finance, Capital Markets, Leasing, Aircraft Financing and Energy & Power Generation. Presently, he is associated in advisory business and extensively travels within Middle East, South Asia, Europe and North America for business negotiation. He is on the Board of Directors of Allied Bank Limited since August 2015. Nazrat Bashir Muhammad Waseem Mukhtar Independent Director Ms. Nazrat Bashir belongs to Pakistan Administrative Service. She retired in BPS-22 from the government Service. Her academic qualifications are Master’s in economics from New York University, USA and Master’s in Psychology from University of Peshawar. She is a Certified Director from the PICG. Ms. Bashir has over 36 years of diversified civil service experience to her credit. During her career she served in different Ministries. She remained Additional Finance Secretary, Internal Finance, Finance Division, Government of Pakistan, Managing Director, Public Procurement Regulatory Authority (PPRA) and Senior Advisor, Wafaqi Mohtasib Secretariat. She also held directorship in various Government and Semi Government Organizations and attended numerous Conferences, Workshops Seminars in Pakistan and abroad. She is on the Board of Directors of Allied Bank Limited since August 2018. Non-Executive Sponsor Director He is MBA from the University of Chicago Booth School of Business, Illinois, USA. He also holds a Master’s degree in Total Quality Management (TQM) from University of Glamorgan, Wales, UK, and has 22 years of diversified experience of Finance, IT and Industry. His strategic guidance played a vital role in technological up-gradation of the Bank. He has been on the Board of Directors of Allied Bank Limited since August 2004 and is a “Certified Director” from Pakistan Institute of Corporate Governance. He is also Director on the Boards of M/s. Ibrahim Fibres Limited, Ibrahim Holdings (Pvt.) Limited, Ibrahim Agencies (Pvt.) Limited, ABL Asset Management Company Limited. Tahir Hassan Qureshi Chief Executive Officer Abdul Aziz Khan Non-Executive Director Mr. Abdul Aziz Khan has enriched and diversified experience of more than 56 years in the fields of General Banking, Credit, Lease Finance, Business Development and Administration. His accomplishments include 16 years of experience as Board Member of ABL, 11 years of experience as Chief Executive Officer of M/s. Ibrahim Leasing and 9 years of international banking, holding key positions. He is on the Board of Allied Bank Limited since August 2004. 12 Annual Report 2019 He is a seasoned professional banker and Fellow member (FCA) of the Institute of Chartered Accountants of Pakistan (ICAP) with a diversified experience of more than 31 years including over 26 years of experience in the banking industry where he has held senior management positions. He has served on various Committees of the ICAP and Pakistan Banks’ Association. Before Joining Allied Bank Limited he held senior management positions in The Bank of Punjab, Habib Bank Limited and MCB Bank Ltd. He joined Allied Bank Limited in 2008 and served as Chief, Audit & Risk Review (A&RR), Chief Financial Officer and Chief Operating Officer (COO). Apart from attending various seminars and conferences locally and internationally, he also represented Allied Bank Limited on World Economic Forum’s annual meetings of the New Champions. He is ‘‘Certified Director’’ from the ICAP and is Bank’s nominee director on the Board of Habib Allied Holding Limited - UK, ABL Asset Management Company Limited and Pakistan Corporate Restructuring Company Limited. He is Member of Council of the Institute of Bankers Pakistan and Finance and Investment Committee (A working Committee of IBP's Council). He is a lifetime fellow member of Institute of Bankers Pakistan and a representative of the Bank at Management Association of Pakistan and Pakistan Business Council. He is serving as CEO of the Bank since January 2017. Allied Bank Limited 13
9. CHAIRMAN ’S MESSAGE As governments and businesses seek continuous growth in an evolving global economy, many have turned to digitization; the digital economy now constitutes 23% of the global Gross Domestic Product and is expected to grow by approximately US$ 5.5 trillion to increase its share in the world economy to 25% by end 2020. Global Banking landscape is also being reshaped to yield a new business normal; displacing banks focus from a closed operating environment to more open ended and agile e-banking platforms. Banks are developing long term strategies to strike a balance between brick and mortar branches and e-banking platforms. Furthermore, disruptions posed by Fintechs and heightened customer expectations are gradually impacting banks traditional approach of growth and efficiency while concurrently raising concerns about cyber security, data governance, high transitioning and infrastructure costs, complexity of technology migration and skills shortage. Technologies like Internet of Things (IoT), Big Data, Artificial Intelligence (AI), Advanced Machine Learning, Blockchain Technology and Cloud Computing are having a growing impact on digital ecosystems in general and particularly the traditional banking processes including credit expansion, low cost funding mobilization, compliance and risk management. The World is continuously being transformed by digital revolution with a momentum not experienced since the 19th century industrial revolution; embedding digital practices and capabilities into the fabric of global economies thereby inculcating fundamental changes in all areas of modern life including society and government. The mass adoption of digital technologies through connected services and devices has accelerated economic growth, facilitated digital entrepreneurship for the next generation, especially millennials, reduced socioeconomic inequalities amongst citizens and enabled transparent and efficient governance. 14 Annual Report 2019 Cross-divisional integration of e-banking processes and company-wide information linkages are enabling gradual launch of virtual branches facilitating customers to perform transactions without human intervention through Graphical User Interface (GUI), applications and remote helpdesks; thus, improving productivity, efficiency and offering customers an omni-channel experience based on their individual needs. Amidst high penetration of smart phones, banks continue to tap into the digital domain by offering innovation, enriched mobile applications and web access to a wider community in order to remain competitive and increase financial inclusion. In a digitally disruptive environment banks’ ability to manifest opportunities by progressively transforming processes, leveraging intelligent analytics, incubating robotic assisted environments and forming strategic external partnerships to create customer value will eventually determine their sustainability. Pakistan is considered to be amongst the major emerging global economies. On the digital participation metrics, however, the country still lags other regional economies. Cash transactions continue to heavily dominate Pakistan’s US$ 275 billion plus economy; characterized by country’s large informal sector, infrastructural impediments, low affordability due to low-income population, low digital literacy and an evolving regulatory and supervisory framework governing e-financial services; hence, further efforts are needed to reach the scale necessary for transforming the cash-based economy to digital economy. Country’s economic growth has witnessed a slowdown as the incumbent Government, paying heed to the deteriorating economic imbalances, undertook restrictive policy actions and several reforms; consumption led Gross Domestic Product (GDP) growth rate thereby moderating to 3.3% in FY 201819 from an un-sustainable level of 5.8% achieved in FY 2017-18. Curtailment of non-essential imports, exchange rate adjustments, initiatives encouraging remittance inflows, and support from friendly countries reduced external vulnerabilities, while Extended Finance Facility (EFF) program agreed with the International Monetary Fund (IMF) to support Government’s structural reform agenda paved way for country’s access to international markets and concessionary financing from other multilateral partners. Long standing structural weaknesses continue to impact fiscal discipline; as lowest taxes to GDP ratios in the region, burgeoning debt servicing and unavoidable expenditure leaves little fiscal space to address economic inefficiencies. Primary deficit and overall deficit worsened to reach 3.5% and 8.9% of GDP respectively in FY 2018-19. A legacy of unsynchronized policy decisions has led the country into the current economic dilemma and while the stabilization measures adopted by the incumbent Government have swiftly placed the country on the path of macroeconomic adjustment, it still faces a long and arduous journey to lay the foundation for driving structural and governance reforms to improve documentation, broaden tax net and increase exports base to support a move from consumption driven to exports driven economy. While threats emanating from digital disruptions are more visible globally; Pakistan’s banking industry’s transition is at a comparatively slower pace in view of country’s unique population demographics and aforementioned economic dynamics. Encouraging strides have been made by the sector in its e-banking drive through investments in sophisticated tools and processes for provision of digital support, extension of branchless banking to far flung areas, creation of digital innovation labs and digitization of payments along with initiatives to educate consumers about the benefits of e-banking. However, the progress remains hampered by an underdeveloped financial ecosystem, both on the issuance and acceptance side; trailing other countries with similar macroeconomic profiles and supporting one of the lowest financial inclusion ratios in the region. According to the recent World Bank Global Financial Inclusion Database (FINDEX), only 14% of the adults have access to a formal account, with the percentage dropping as low as 7% in case of females. With a population base of more than 220 million, around 2/3rd of the total population falling below the age of 30 and one of the fastest growing mobile markets globally with over 150 million mobile phone subscribers accounting for 73% tele-density, Pakistan’s low ranking in the Digital Infusion Index and Mobile Connectivity Index (MCI) highlights vast potential for growth in the e-banking spectrum, while at the same time reflecting immense challenges faced in achieving transformation from infancy to pioneer stage. Engulfed in a challenging macroeconomic and operating scenario, banking sector’s growth trajectory has remained stressed; with repricing lag between earning assets and remunerative liabilities, rising risks to credit profiles and increasing cost of doing business amidst emerging regulatory requirements focusing on compliance, leaving a marked impact on interest margins. However, stabilization of interest rates, during first half of FY 201920, have helped ease pressure on banks bottom line and assisted in consolidating revenue growth momentum. Credit growth has registered a sharp slowdown which had averaged 16% over the last three years. Muted demand and flagging economic activities weighed down on private sectors credit uptake; which has grown by only 2.2% during the first half of FY 2019-20 as compared to a growth rate of 8.5% achieved in the corresponding period of FY 2018-19. Although, Non-Performing Loans have witnessed a gradual buildup on the back of deteriorating asset quality indicators; the incremental formation is primarily driven by idiosyncratic factors rather than a systematic risk. Rising currency in circulation due to un-documentation in the economy and prevailing income tax regime has remained a key challenge to deposit mobilization, which has depicted a growth rate of 10% mainly due to rising Minimum Saving Rate (MSR). Currency to deposit ratio has increased to 37% in December 2019 as against 34% in December 2018. This factor has also impacted the growth of low-cost private sector deposits, which has depicted a muted growth rate of 5% against a period end growth of 15% in public sector deposits as at December 2019. Your Bank’s robust asset quality depicted by industry leading coverage and infection ratios, diverse revenue streams, resilient deposit-based funding structures and a solid capital base, supplemented by high standards of corporate governance have contributed towards maintaining a strong financial position with stable profitability despite aforementioned challenges. The performance has also culminated into recognition as the “Best Bank of the Year Allied Bank Limited 15
10. CHAIRMAN ’S MESSAGE 2018 – Large Banks” by the prestigious CFA institute and “Best Primary Dealer” by the State Bank of Pakistan. Your Bank’s evolving 10 year rolling strategic plan takes into consideration the aforementioned changing operating environment and challenges while paving the Bank’s future roadmap. Establishing, nurturing and deepening of relationships with both individual and institutional clients, undertaking e-banking initiatives and following through on a comprehensive innovation strategy entailing forging of strong partnerships with leading technology platforms and partners for provision of premier services to the customers remains at the forefront of Your Bank’s strategic focus. During the year under review, Your Bank collaborated with Avanza Premier Payment Services (APPS) to revamp online transactions through APPS’ payment gateway, Payfast; thereby enabling customers to shop on APPS’ vast ecosystem of merchants using their bank accounts. Keeping track of the fast paced, dynamic and a virtually competitive market scenario, Your Bank has constantly updated its technology platforms to enhance customer experiences and improve operating effectiveness. Oracle Big Data Appliance was successfully installed to support data driven business decisions based on meaningful insights and machine learning models while implementation of several use cases on Robotic Process Automation Solution has enabled Your Bank in instilling and further strengthening operational efficiencies. myABL has been augmented with new features to provide customers a reliable e-banking channel that is rapid, secure and customer friendly. myABL’s upgrade to the latest version of Oracle Digital Banking Experience (OBDx 18.1), during the year, has been designed exclusively to enable customers to seamlessly perform financial operations and conveniently utilize a wide range of available mobile payments options while simultaneously offering exciting and distinct features of 360-degree view of accounts, touch and face ID login, Master Card QR payments, credit card bill payment facility using “1Bill” option and ticket purchasing options for various utilities from any location. Your Bank optimistically and actively engages in focus driven partnerships to avail sustainable results for the stakeholders while attracting customers in an inclusive manner. In order to elevate fee income streams by increasing debit and credit card circulation alongside engaging the tech savvy customer segment, Your Bank signed an agreement with Golootlo to offer a wide array of discounts at more than 12,500 merchants nationwide via myABL Digital Banking App and UPI-PayPak co-badged debit cards. 16 Annual Report 2019 Immense growth in conventional and e-banking platforms has culminated into the need for heightened focus on monitoring of Data Governance and Cybersecurity risks. Your Bank remaining fully cognizant of these risks has implemented robust information security (info-sec) platforms, arranged awareness programs for customers and has undertook regular system audits along with independent information technology security and risk assessments. A multi-layered safety approach encompassing extension of biometric verification services, undertaking recarding activity with upgradation to chip and PIN capability, installation of antiskimming devices and implementation of ‘Euro-Pay, Mastercard and Visa’ (EMV) compliance standards across the entire ATM network remained an imperative part of Your Bank’s strategic priority. Initiation of 3-D secure services on all ABL Visa debit and credit cards further facilitated in improving customer confidence in online shopping while minimizing risk of fraud. Your Bank’s contribution towards enhancing financial services’ access to country’s population remained on course as 50 additional branches were added into the network during the year to expand bank’s overall outreach to 1,395 branches, while concurrent in roads made into introducing service offering’s in the e-banking realm supported launch of a state of the art, self-servicing branch at Lahore University of Management Sciences (LUMS); enabling customers to conduct banking seamlessly and independently 24/7 using various e-touch points. Upon attaining a reasonable footprint of 117 Islamic Banking branches, sustained focus on further promoting Islamic Banking amongst a vast potential customer base has continued through addition of 50 “Islamic Windows” at viable conventional branches. Similarly, the ATM network of the Bank has increased from 1,388 ATM’s to 1,515 ATM’s including 329 offsite ATM’s. Developing a highly skilled and capable workforce within the perspective of upcoming digital age remains one of the key objectives of Your Bank. Specialized in-house and external training programs were conducted to instill and reinforce existing workforce with skills necessary to transforming them into a dynamic and progressive work force capable of delivering in this age of technology revolution. Sustaining focus on creating an inclusive work environment encompassing gender diversity and a multi-cultural workforce through provision of equal employment opportunities to female employees as well as internal elevations across the bank has enabled to achieve female ratio of 17.4% during the year. In line with SBP directives for training initiatives under the National Financial Literacy program (NFLP), Your Bank arranged 496 sessions in 37 remote districts of the country to improve financial inclusion in unbanked segments of the society. More than 10,900 persons from local communities attended these sessions. Lauding Your Bank’s contribution to the national financial inclusion agenda, Your Bank was declared an industry leader in NFLP’s execution. Playing its role as a responsible corporate citizen, Your Bank generously contributed towards Corporate Social Responsibility (CSR) programs through active assistance to reputable healthcare, educational and environmental protection initiatives, proactively supporting various charitable organizations in their endeavors. In continuance of Bank’s distinctive initiative of engaging with the obligors to offer them the latest insights on business management and strategies; three interactive seminars for corporate, commercial and SME obligors on the topic “Transition from Family Owned Business Structure to Corporate Structure” were organized during 2019. Furthermore, implementation of Enterprise Resource Planning (ERP) system was successfully completed at two SME obligors to facilitate transition towards an ERP based automated book keeping and accounting system, with off the shelf features, in turn enabling enhanced control over their financial decision-making processes. Acknowledging the sound business and governance performance, Pakistan’s Credit Rating Agency (PACRA) has maintained Long Term and Shot Term ratings of Allied Bank at the highest level of “AAA” (Triple A) and “A1+” (A One plus) respectively. Your Bank further consolidating its position as one of only a select group of financial institutions in the country to maintain highest entity credit rating. Future Outlook According to IMF, Pakistan has achieved most of its milestones on the heels of tax and non-tax revenue growth and pragmatic development spending. Resultantly, fiscal stimulus to support exports along with envisaged interest rate cut on the back of improving external indicators is expected to bolster economic outlook for 2020. However, the reversal in economic downtrend still remains largely dependent on Government’s ability to prioritize efforts towards implementing structural and governance reforms to sustain recent uplift in fiscal discipline, further improve “ease of doing business” metric to encourage corporatization, incentivize export-oriented industries to support current account adjustment and effective anchoring of market sentiment to exploit immense potential for growth in foreign direct investment; amidst sustained pressure on the financial front due to rising debt servicing costs. World Bank’s latest release on country’s outlook has re-affirmed the need to focus on 4 key elements to achieve and sustain industry growth; (i) Accumulation of physical and human capital to utilize country’s growing working age population; (ii) Productive allocation of resources; (iii) Environmental and social sustainability; (iv) Proper governance to ensure successful implementation of reforms. Furthermore, Pakistan needs to target curtailment in population growth to 2%, increase tax to GDP ratio to 18% and rise up 86 points in the “ease of doing” business metric to be ranked within top 50 countries in the world by year 2023. With the dynamic growth framework already in place together with improvement in literacy rate, the country is expected to gradually reach uppermiddle income status by 2047. The country’s e-commerce industry thereby has the potential to strengthen country’s economy by creating job opportunities for the youth who are more open to embracing advancements in technology. In this era of the 4th industrial revolution, people aspire easy access, proficiency, convenience and transaction swiftness. This revolution is expected to thoroughly transform bank-customer relationship with the objective to continuously stay in touch vide cyber space and offer seamless and limitless services 24/7. Banking sector’s future success, thereby, clearly depends on amalgamating conventional banking platforms with smart mobile and virtual technologies such as cyber-physical systems, artificial intelligence and cloud computing to intelligently track user behaviors and meet customer expectations with personal, contextual, and predictive services while simultaneously handling the advice and communication part of the customer services domain through data analytics. Concurrent focus on adopting emerging data protection and cryptographic techniques to improve secrecy and integrity of data is paramount to supplement the transition amidst evolving vulnerabilities. In line with changing industry dynamics and long term-strategic vision of Your Bank, focused efforts are being made to increase the mix of e-banking transactions vide adoption of Artificial intelligence, machine learning, humanoids and implementation of “Integration Framework Studio” and “AA Architecture” on T24-R16, which will facilitate Your Bank’s business analytics, customer service offerings and operational efficacy, in the e-banking era. Your bank, maintaining its industry pioneer status in innovative solutions has launched Application Programming Interface (APIs) with a view to establish open ended and agile platforms through which third parties including FinTech’s’, while becoming ecosystem partners, can engage, collaborate and innovate for the benefit of customers. Encouraging headways were achieved during the year towards launch of branchless banking; augmenting Your Bank’s e-banking suite in line with the SBP’s objective of building a dynamic and inclusive financial sector under National Financial Inclusion Strategy. Commercial launch in 2020 shall add to Your Bank’s e-touch points, facilitating in expanding its customer base particularly in unserved areas of the country. myABL (Personal Internet Banking) and myABL Business Internet Banking (BIB) facilities shall continue to be augmented with the purpose of converting conventional ways of interaction with our customers towards a handheld experience, thereby capitalizing on the technological edge. Your Bank would keep focusing on serving priority sectors, while remaining cognizant of enabling environment, including agriculture and SME sectors by expanding bank-maintained warehouse initiative with the purpose of increasing quality lending portfolio and Country’s GDP. Your Bank aims to continue its efforts towards expanding the horizon of Robotic Process Automation and Machine Learning solutions, which will not only inculcate operational efficiencies but shall also optimize resources allocation. Data governance and Data security shall remain at the forefront of Your Bank’s strategic focus to supplement the transition and strengthen the structure for informed decision making and service provision to valued customers. Your Bank shall continue to leverage upon emerging technologies including digital recruitment solutions, internal communication platforms and workforce engagement software in creating a workforce for the future; thereby introducing better learning and development platforms, performance monitoring tools, workforce mobility and efficient HR services to ensure better employment experience and agility in meeting evolving business needs. Visualizing 2020, I am optimistic that Your Bank will remain well positioned to register steady growth in shareholder’ value. On behalf of the Board of Directors, I would like to extend my gratitude to the regulatory bodies including State Bank of Pakistan, Securities and Exchange Commission of Pakistan and Federal Board of Revenue for their uninterrupted assistance and co-operation. I would also like to appreciate our valued shareholders’ for putting up their confidence in long-term strategic goals. Finally, I would like to pay my gratitude to Allied Banks’s management team and the 11,000+ Allied bankers, for their utmost hard work and commitment on the road to building a robust and technologically empowered Allied Bank. Mohammad Naeem Mukhtar Chairman Allied Bank Limited 17
11. MANAGEMENT TEAM Mujahid Ali Aizid Gill Saira Shahid Hussain Tariq Javed Ghumman Mehmud ul Hassan Abid Anwar Ahmed Mansoor Muhammad Mohsin Muhammad Raffat Chief Information Technology Chief Risk Management Chief Human Resource Tahir Hassan Qureshi Chief Executive Officer Chief Banking Services Owais Shahid Chief Corporate & Investment Banking Ahmad Faheem Khan Chief Treasury Asif Bashir Chief Commercial & Retail Banking South Chief Compliance Shahid Aamir Chief Commercial & Retail Banking North Muhammad Idrees Chief Islamic Banking Retired since December 31, 2019 Sohail Aziz Awan Chief Digital Banking Chief Financial Officer Chief General Services & Real Estate Chief Special Assets Management Company Secretary Imran Maqsood Chief Audit & Risk Review 18 Annual Report 2019 Allied Bank Limited 19
12. Our Value Creation Business Model OUR CAPITALS - Inputs Financial Capital • Equity - Tier 1 • Total Equity • Deposits ACTIVITIES 89,542 million 115,351 million 1,049,043 million • Domestic & Foreign Branches • ATM Network • Core IT Systems • Digital Touch points • Other Fixed Assets 1,395 1,515 93 14 Manufactured Capital Human Capital • Engaged and capable employees • Female Employees 2,034 • Male Employees 9,631 • Total Number of Employees 11,665 • Total Number of Graduates 10,706 • State of the Art Management Development Centers 3 • Culture of Empathy Social and Relationship Capital • Depositors 4.2 million • Obligors 24,500 • Regulators, Pakistan Business Council, PBA, Chambers of Commerce and Industry • Community Service (CSR) • Strong Social Media Presence • Robust Complaint Handling Mechanism Intellectual Capital • Solar Branches • Inverters • Green Banking Initiatives • Compliance to Environmental Laws 20 Annual Report 2019 Generate NIM on earning Assets / Liabilities Facilitate Payments and Transactions - Conventional & Digital Data Analytics Data Governance Risk Management to balance Risk and Reward Maintain, optimize and invest in our operations, including technology, infrastructure and regulatory compliance Automation Pay taxes in the jurisdictions in which we operate Collaboration & Alliances Reward & Compensation structure linked with performance and value drivers; staff development and retention of quality staff Shareholders • 4th Largest private sector commercial bank of the country • Profit Before Tax 24,242 million • Profit After Tax 14,113 million • Earning per Share Rs. 12.32 • Full-year dividend per share Rs. 8 • Return on Equity (Tier 1) 16% • Return on Assets 1% • Capital Adequacy Ratio (CAR) 22% Customer • Advances Growth • Deposits Mobilization • Non Performing Loans Reduction • CASA Mix Improved • Customer Onboarding (Approx) • Customer Complaint Resolutions • myABL Registered Users (Approx) • myABL volume of transactions (PKR million) • No. of Debit Cards issued (Approx) • Digital Transactions increase • Corporate Website Visits • Social Media Fan Employees • Salaries and Benefits (Rs. In million) • Employee Retention Ratio • Training Programs • Employees Trained in Service • Total Investmnet in Employee Trainings • Team building events Regulators • 10 Year Strategic Rolling Plan • Strong IT Platform • Robust Risk Management (RAMS) • Comprehensive Compliance Management • Detailed Policies & Procedures • Strong Management Structure - Leadership Teams Natural Capital Enrichment of Customer Experience VALUE FOR STAKEHOLDERS 11% 7% -1% 1% 750,000+ 99% 426,000+ 125,555 417,000+ 2% 5,869,766 1,002,370 13,180 93% 1,396 10,800+ 97 million • Long Term Entity Credit Rating • Short Term Entity Credit Rating • Corporate Governance Rating • Compliance with all Regulatory requirements AAA A1+ CGR 9+ Society 58 1,060 • Contribution to National Exchequer Rs. 18,653 million • Customer Relations Rs. 943 million • Improving Workplace Environment Rs. 435 million • Environmental Sustainabilty Rs. 204 million • Plantation of saplings of environment friendly plants 16,000 + Allied Bank Limited 21
13. PRODUCTS & SERVICES Branch Banking over the country gives 24/7 access to cash withdrawals, mini statement, bill payments, fund transfers and much more. ABL has 12 CCDMs installed at selected branches offering facility to deposit cash & cheques round the clock. Allied Basic Banking Account Saturday Banking & Extended Hours Banking Biometric ATM Service With a vast network of 1,395 branches and 1,515 ATMs, Bank is committed to provide real time online banking solution to its customers in an efficient and convenient manner. ABL offers added convenience of “full service” Saturday Banking to its customers. The extended week of banking operations, is currently available at 165 branches from 10:00 AM to 02:00 PM. Extended hours banking facility is also offered at selected branches. Theme Branches In the quest to evolve into a customer friendly bank in the retail industry, Bank is adopting modern technology and signature themes. Accordingly, the Bank has launched Women branches, Youth branches and Village branches. ATMs and CCDMs (Cash & Cheque Deposit Machines) The vast network of 1,515 ATMs all 22 Annual Report 2019 ABL has set another milestone by introducing the Biometric ATM service on the entire ATM network network for the convenience of valued customers. Now customers can seamlessly perform ATM transactions without using the Prepaid or Debit card. Allied Easy Current Account Allied Easy current account is tailored to meet banking needs of every individual. With Allied Easy Current Account Financial transactions can be conducted through variety of e-banking channels without any minimum balance requirement with zero service charges on minimum balance requirement. empowerment as it provides a safe place to save money and opens up a channel to credit which can be used for investing in education, property or business along with bundle of free of cost services including lower locker fee. Visa Debit Card along with free accidental insurance coverage and premium access to Vouch365 application with exciting offers for restaurants, health & fitness and leisure/travel activities. Allied Business Account is meant for growing business proprietors looking for exceptional value and services, packed with multiple free of cost features. It is a cost effective and simple way to consolidate business and personal banking needs into one tailored package. Platinum Rewarding Profit Account Bank offers savings accounts bundled with free features on maintenance of certain minimum monthly average balance. Allied Asaan Account Your Bank launched Allied Senior Citizen account offering a host of free services including free visa debit card, free cheque books along with health insurance and discounted lab testing facilities, which relieves senior citizens from their health worries. A non-remunerative PKR checking account that gives our customers the support they need to manage their bank account in a simple and hassle-free way. Allied Business Account Allied Asaan Account is tailored to cater to the banking needs of unbanked people of society with simplified account opening requirement. Customers can open current or saving account according to their needs with a number of free facilities offered. Allied Khanum Assan Account Access to a bank account is essential for women’s economic Get all the benefits and features of a remunerative current account with premium profit rates and manage your daily transactions, frequent payments and flow of funds. Allied Senior Citizen Account Allied Youth Account Your Bank launched Allied Youth Account to meet the financial needs of millennials across the country. The account offers Branded Youth PLS Saving Account Allied Express Account Allied Express Account is exclusively crafted for remitting money in Pakistan. Customers can remit funds to their own account or accounts of their loved ones in Pakistan through Allied Express Account and enjoy free of cost banking services i.e. Cheque Books, ATM Visa Debit card, SMS Alerts Internet Banking etc. Remittances can be originated from different time zones and countries in multiple currencies. Allied Rising Star – Youth’s 1st Bank Account Allied Rising Star Account is a great way to accumulate children’s savings for their future while inculcating saving habits amongst children with exclusive free features like welcome pack, birthday gift, accidental insurance coverage up to Rs. 500,000, ATM / VISA Debit card and cheque book. Salaried Individuals who want to invest their savings and earn profit. Non-Resident Pakistanis (NRPs) who want to invest their remittances in a scheme which gives them immediate advance profit. Institutions who want to retain their savings by earning advance profit. Debit Card Variants Allied Term Plus Deposit Foreign Currency Term Deposit Allied Co-Badged Debit Card Allied Term Plus is a regular term deposit with the flexibility of tenure and frequency of profit payment which allows the customers to opt for investment plan best suited to their need. Allied Advance Profit Plus Payment Is Ideal for, Individuals who intend to start banking for the first time and want to build a profitable relationship with a strong, stable and robust bank. Parents who are already saving and intend to invest for the best and immediate returns Businessmen who are looking for an opportunity to earn instant profit against their savings. Allied Bank’s Foreign Currency Term Deposit offers industry’s competitive profit rates for customer chosen term and is ideal to help them save in a foreign currency. This particular account is available in multiple currencies, including: US Dollar, British Sterling Pound, and Euro. Allied VISA Debit Card Allied Visa Debit Card is Allied Bank’s flagship product that gives our customers access to their bank accounts and convenience to use it at over 50,000 retailers in Pakistan and millions of retailers worldwide. It also gives cardholders access to millions of retailers and over 13,000 ATMs in Pakistan. Customers have liberty to choose from a variety of Visa Debit Card ‘Sapphire’ packages, offering wideranging transactional limits to pay for everyday shopping or get access to funds at ATMs in Pakistan and abroad. Allied Bank welcomes you to a world of convenience and security with first ever Co-Badged Union Pay & PayPak Debit Card in Pakistan. Now you not only can conduct ATM and retail transactions within Pakistan but around the globe as well. E-commerce Transactions on VISA Debit Card Allied Bank Visa Debit Card holders can now use their VISA Debit cards for online and ecommerce transactions. Considering evolving customer needs Allied Bank delivers services that fit customers’ lifestyles and offers more choice as to where, when and how customers conduct transactions. Allied Bank differentiates not just by offering Allied Bank Limited 23
14. PRODUCTS & SERVICES multi-dimensional channels to customer but also by enhancing their experience from utilization of the new and innovative channels. EZ Cash Prepaid Card Allied EZCash is a re-loadable prepaid card which comes with the convenience of easy load, reload, top-up from any ABL branch. This is the first prepaid card launched on local payment scheme PayPak. This card is instantly issued from all ABL branches and can be used on ATM for cash withdrawal, bill payment, mobile top-ups and purchasing goods from merchants at Point of Sale (POS) machines where PayPak Cards are accepted. Allied EZCash offers added security of PIN for Point-of-Sale (POS) Transactions as well i.e. use of Prepaid Card for shopping requires cardholders to enter PIN to authorize their purchase transactions. Third Party Products: Mutual Funds & BANCA ABL offers distinctive third party products; Mutual Funds (investment 24 Annual Report 2019 plans and competitive return oriented funds of Allied Asset Management Company-a wholly owned subsidiary of ABL) and BANCA products in collaboration with EFU and Jubilee Insurance partners. Jazz Cash Domestic Remittance Services In line with the Financial Inclusion Strategy set by SBP, Allied Bank collaborated with Jazz Cash [a Branchless Banking Brand of Jazz (Mobilink) & Mobilink Microfinance Bank Limited (MMBL)] to provide domestic remittance services to prospective customers. Through this initiative the beneficiary of Jazz Cash Domestic Remittances can send and collect their remittances from any ABL Branch in addition to the existing network of Jazz Cash agents. myABL Personal Internet Banking myABL Personal Internet Banking is the new face of Allied Direct Internet Banking. It is the latest internet and mobile banking platform which offers a more secure, reliable and efficient e-banking service. myABL Business Internet Banking With Business Internet Banking, customers can significantly enjoy the multiple benefits of “Efficiency, Ease of use and Economy”. Business Internet Banking (BIB) is Allied Bank’s online internet banking service exclusively designed and developed for non-individual customers. The internet banking platform has a user-friendly and device-responsive facility which allows users in online tracking and maintaining the accounts while enabling the customers to execute Banking transactions from their workstation and offices. ABL Self Service Digital Branch ABL has introduced Self Service Banking facility at Lucky One Mall and LUMS with state of the art e-banking channels. Allied Bank’s self-service banking offers a blend of “Conventional” and “SelfService Banking” facilities to its account holders as well as walk-in customers. It is equipped with hi-tech equipment, which enables ABL customers to address their banking needs while interfacing with diverse range of digital touch points i.e. tablets, interactive tables, video conferencing and digital kiosks, eliminating hefty paper work and long queues. Allied Business Finance (ABF) Allied Business Finance is designed for SME sector to avail financing against non-cash securities. The Bank offers evergreen line in shape of Running Finance, Letter of Guarantee, Finance for Exports (working Capital) & Letter of Credit along with Term Loans. Allied Fast Finance (AFF) Allied Fast Finance is a facility secured against cash backed securities i.e. Lien on TDR & Account designed to meet liquidity requirements of obligors without disturbing their core savings. This product offers evergreen line in shape of Running Finances, Letter of Guarantee & Letter of Credit as well as Term Loan. Prime Minister Youth business Loan (PMYBL) It is a long-term loan scheme specifically launched for unemployed youth under the directives of GOP and SBP. The scheme especially funds startups. Loans are offered at subsidized rates. Allied Home Finance The Bank, in its endeavor to provide current and prospective customers a complete suite, launched “Allied Home Finance” to fulfill customers’ needs to build, buy and renovate their own home. Allied Car Finance This product is designed to serve vehicle financing needs of bank’s depositors and the employees of institutional customers. It’s Hari Bhari Agriculture Revolving Credit Scheme to working capital needs as well as long term investment for purchase of new equipment and machinery for farm, hatchery incubators, generators, farms equipment and construction of sheds for extension of current poultry farms Allied Visa Gold and Platinum Credit Cards are exclusively being offered to the bank’s valued customers. Allied Visa Credit Card offers a host of privileges, benefits and savings, together with attractive service charges and a free credit period of up to 50 days. Tractor Financing Allied Aabayari (Irrigation Solution) Allied Personal Finance (APF) This product is designed to support dairy farmers in meeting working capital needs of businesses as well as purchase of assets and construction of sheds for extension of their dairy farms for enhanced productivity. a demand finance facility with repayment in equal monthly installments spread over the term of the finance with a competitive mark-up rate. Allied Visa Credit Card (Pay wave – Chip Based) Allied Personal Finance is a term loan facility targeting Employees of Corporate under corporate arrangement, Salaried Individuals fall under Cross-Sell Criteria and Affluent Individual of the Bank. with a low mark-up rate. Product offers smart financial solutions to customers for their immediate personal financial needs. This facility is designed to facilitate farmers in obtaining agriculture based loans to meet working capital needs of farming. Credit is available on revolving basis. Tractor financing is designed to facilitate farmers in obtaining Agriculture Development Loans (Term Finance) for purchase of brand new Tractor. Agriculture Finance for Dairy farming Agriculture Finance for Poultry Farming & Allied Activities This financing facility is designed to facilitate farmers in obtaining Agriculture Development Loans for purchase and installation of electric or solar tube wells, lift pumps & high efficiency irrigation systems e.g. sprinkler, trickles, drip and rain gun etc. This product will target the prospective obligors who possess experience in the farm sector activities and actively involved in the farm business management interested to achieve operational efficiencies Bank has developed this product program for poultry farmers to cater Allied Bank Limited 25
15. PRODUCTS & SERVICES Allied Farm Mechanization This financing facility is designed to facilitate farmers in obtaining Agriculture Development Loans (Term Finance) to purchase Agricultural Equipment to be employed for farm mechanization. Allied Commercial Lease Allied Bank offers leasing products to meet the business needs of its customers with flexible terms & conditions based on customers’ choice of asset & repayments. Allied Bank Lockers Bank Lockers provide high-security protection for customers’ valuables. Lockers of different capacities are available nationwide at conveniently located branches. Digital Lockers First ever bank in Pakistan to bring an innovative, secure and customerfriendly technology in the form of Digital Lockers. Digital Lockers are fully automated version of traditional lockers operational round the clock (even on weekends and non-banking hours). These lockers are powered by revolutionary robotic technology enabling access of your locker 24/7 at any time of your convenience. Digital lockers are made accessible vide self-service kiosk placed in a secure room at our branch that can be entered through electronic verification only. Allied Bank Call Center Customers no longer have to take time out to visit branches for everyday banking needs. Selfservice banking offers assistance in all transactions by Interactive Voice Response System (IVR). Allied Pay Anyone A unique product in which the Bank’s customers can send cash to any individual in Pakistan even if the beneficiary doesn’t have a bank account. This is done at the click of 26 Annual Report 2019 a button through myABL. Salary Management Account Fast, easy and convenient services are just some of the benefits of Allied Salary Management Account. Organizations can enjoy one of the largest branch networks with ease and convenience of technologically advanced banking. ABL offers quick and efficient payroll service with instant credit of salaries and offers Allied Salary Management Account for company employees with a number of free features. SME Financing The Bank continues to focus on SME business with a vision to capitalize on the bank’s countrywide footprint and longstanding customer loyalty to become a preferred and prudent provider of a “Total Banking Solution”. The Bank offers a wide range of funded and non-funded products and services to meet needs of various types of SME businesses under the umbrella of Allied Hunarmand, Allied Tijarat and Allied Seasonal Support Financing, Emerging Corporates Middle Market caters to all business requirements of our top tier commercial obligors with wide range of products including Working Capital Facilities, Term Loans, Trade Finance Facilities, Letters of Guarantee, Letters of Credit and Export Financing. Corporate Banking Corporate Banking provides a single point within the Bank to cater to all business requirements of our corporate and institutional customers, including public sector enterprises with the primary objective of enhancing customer service. Bank offers full suite of products including Working Capital Facilities, Term Loans, Structured Trade Finance Facilities, Letters of Guarantee, Letters of Credit, Fund Transfers / Remittances, Bill Discounting, Export Financing and Receivable Discounting. Investment Banking Investment Banking (IB) wing of the Bank strives to meet complex financing needs of its clientele by providing a full suite of financing solutions to corporate clients including debt syndications, capital markets, project financing and advisory services. Home Remittances Home Remittances provide a seamless inflow of foreign remittance credited in the beneficiary accounts and over the counter payment. Cash Management Cash Management is a state of the art real- time service providing customers with efficient liquidity management solutions, across the robust ABL network. Treasury Product Services Bank offers fixed income treasury services, having attractive returns, to its institutional and retail clients. ABL’s treasury is an active participant in the interbank securities trading and FX trading, capitalizing on its primary dealer status, providing competitive pricing. Allied Islamic Current Account Based on principles of “Qard”, it provides convenience of conducting day-to-day transactions available both in local and foreign currencies. There is no restriction on withdrawals or numbers of transactions. Allied Islamic Asaan Account It is developed on the guidelines provided by SBP for Pakistani Nationals with simplified account opening procedure, initial deposit requirement of Rs.100. The product is available both in Current and Saving deposit categories. Allied Islamic Basic Banking Account It is a banking account for day to day transactions without any risks or rewards. A simple bank account for individuals with minimum transactional requirements. It enables customers to fulfill their basic banking needs. Allied Islamic Youth Account ABL-IBG has developed a Shariah compliant Mudharabah based product (Saving Account) for individuals between the age group of 18 to 35 years. This product is designed to cater the Banking requirements of Youth segment through a Shariah compliant solution and is offered in Regular & Asaan variants. Allied Aitebar Senior Citizen Account A Shariah compliant Mudharabah based product (Saving Account) for individuals of 55 years or above age. This Account is designed to cater the banking requirements of senior citizens and offered in regular & asaan variants. Allied Islamic Saving Account Regular chequing account, offered in local and foreign currencies, on the basis of “Mudharabah” with no minimum balance requirement. Profit is calculated on monthly average balance and credited on six monthly basis, offering a number of free services on maintaining a minimum monthly average balance. Allied Islamic Anmol Plus Account This is a “Mudharabahdeposit product for individuals available in local currency. Profit is calculated on monthly average balance and credited on six monthly basis. The customers can avail a large number of free services by maintaining a certain average monthly balance as per specifications. Allied Islamic Business Plus Account This is a savings account with several unique features that make it very suitable for use as a business account. On maintaining minimum monthly average balance, as per specification, the customer can avail a large number of free services. Account can be opened in local currency only. Allied Islamic Khalis Munafa Account This is a tier based savings account specially designed to encourage and promote savings. Minimum deposit required for opening an account is Rupees 1,000 only. Allied Islamic Sahulat Account The product is designed to facilitate allocation of complimentary safe deposit lockers upon maintaining of certain balance in account. The account is offered in Pak Rupees only and profit is paid semi-annually. Allied Islamic Investment Certificates Islamic Investment Certificates are Term Deposit certificates for investment periods ranging from period of 1 month to 5 years with profit payment options of monthly, quarterly, half yearly or at maturity. Investment certificates are issued with investment of Rs.25,000 with no maximum limit. Pre-mature withdrawal can be made as per product features. Allied Aitebar Institutions Account This is a “Mudharabah” deposit product for Financial Institutions and Non-Banking Financial Institutions available in local currency. Profit is calculated on daily average balance and paid on monthly basis. Allied Aitebar Premium Account A Shariah compliant saving deposit product particularly for high networth individuals, business entities, pension / benevolent funds, Govt. / semi-Govt. bodies which is based on Mudharabah. Profit is calculated on daily average balance and paid monthly. Allied Aitebar Express Account • Allied Aitebar Home Musharakah • Allied Aitebar Tractor Financing • Allied Aitebar Hari Bhari Agriculture Financing • Allied SME Financing myABL integration with Fintechs The Bank has integrated with Fintechs like GoLootlo, Easy Tickets, 1 Link and Avanza Premier Payment Services through myABL mobile apps. Now customer can scan QR and avail different deals at thousands of merchants through myABL mobile application. A Shariah compliant banking product especially designed for Home Remittance Beneficiaries to facilitate hassle free transfer of home remittances. This Pak Rupee based product is developed on the concept of Mudharabah and operated like normal chequeing account(s) on profit / loss sharing basis. Allied Islamic Notice Period Certificate This product is designed to cater to the requirements of the customers who want to place their deposit for short tenure like 7 days, 30 days etc. The profit is calculated on daily basis and paid at maturity. Islamic Financing Products Various Islamic Financing Products based on the following modes of finance are being offered by the Bank • Murabaha • Salam • Istisna • Islamic Export Refinance Scheme • Ijarah • Diminishing Musharakah • Business Musharakah • Forward Cover • Allied Islamic Car Ijarah Allied Bank Limited 27
16. ACHIEVEMENTS AGAINST OUR STRATEGIC OBJECTIVES Enhancing brand image and creating shareholders ’ value through sustainable performance, while optimizing return against acceptable risk appetite. Industry leading, infection coverage ratio, capital adequacy ratio with sustainable growth. Awarded “Most Innovative Islamic Bank Window” – International Finance Awards 2018 by International Finance Footprint expansion with facilities such as Cash Management, Employee Banking and Business Internet Banking and Personal Internet Banking. MoU signed with Bank of China and China Everbright Bank to formalize strategic partnerships Continuous re-engineering of policies, procedures, SOPs, SLAs and TATs, ensuring operational efficiencies through effective management of key resources. Installation of Oracle Big Data Appliance in partnership with IBM Implementation of Robotics Process Automation for improved service delivery Launched 3D Secure service to secure e-commerce transactions Automation of approvals through system Upgradation to IBFT 3.0 for complying with SBP Electronic Fund Transfer (EFT) guidelines Upgradation of Financial Crime and Compliance Management (FCCM) application & Review of Benchmarks Deployed Compliance Risk Management solution from Bench Matrix. Augmenting financial inclusion of unbanked population through innovative and diversified technologies, building customers’ confidence through convenient delivery channels and product designs. Launched of Open banking API portal to offer Fintechs and Startups Upgradation of myABL digital banking platform and launch of Master Card QR retail payments Launch of card management facility on myABL Establishment of dedicated Countering Financing of Terrorism (CFT) Desk. Re-carded all debit and prepaid cards with chip and PIN capability to comply with SBP guidelines Self-service branch at LUMS Lahore with state of the art facilities including instant Debit Card issuance and Interactive Teller Machine (ITM) Powered top 100 branches with Self Service Kiosks providing myABL digital banking, complaint services, customer feedback, various promotions and discounts offers Full week banking operations from Disaster Recovery site for robust banking operations. Capacity Building & awareness provided to 1,668 staff during the year through class room trainings. Launch of Pakistan First Co-badged Card in collaboration with UPI and PayPak Provision of Mastercard QR transaction in myABL Introduction of Biometric ATM Services on all ABL ATMs Launched segment based Shariah Compliant products for Consumer, Agriculture, Senior Citizen and Youth segments. Launched its first self service branch for 24/7 banking. Instilling a culture of ethics and responsibility among human resource and becoming an ‘Employer of Choice’ for the Top Professionals. Trainings, Seminars & Workshopsfor employees. Awarded “Best Place to Work” under the category of “Financial Services” 28 Annual Report 2019 Allied Bank Limited 29
17. DIRECTOR ’S REPORT contraction and impact realization of government offered incentives for export-oriented industries are expected On behalf of the Board of Directors, we are pleased to present the Annual Report of Your Bank for the year ended December 31, to support economic growth under 2019. The operating results and appropriations, as recommended by the Board are included in the appended table: Government of Pakistan’s economic reform agenda; while measures aimed Year ended December 31, at curtailing imports, partial withdrawal However, Governments’ adopted broad 2019 2018Growth of tax reliefs, tightening in regulatory based taxation reforms encompassing Rs. In Million % and federal excise duties shall improve partial withdrawal of tax reliefs, enhancing revenue mobilization amidst sustained regulatory duties and federal excise, Profit after tax for the year 14,113 12,881 10 pressure on expenditure and financial public confidence building measures Accumulated profits brought forward 52,501 49,212 7 account management due to rising debt together with austerity measures to Effect of re-measurement of defined benefit plans - net of tax (503) 455 (211) servicing costs and maturing external manage non-development expenditures Transferred from surplus on revaluation of operating fixed assets debt. improved revenue mobilization; which witnessed a growth of 18.4% in first to un-appropriated profit - net of tax 116 112 4 half of FY 2019-20 as compared to the Financial Performance Transferred from surplus on revaluation of non-banking assets corresponding period of FY 2018-19. to un-appropriated profit - net of tax 166 3 5,433 Pakistan’s banking sector continued Profit available for appropriation 66,39262,663 6 Attributable to higher Government to face significant ramifications and Final cash dividend for the year ended December 31, 2018 at Rs. 2.00 per share (2018: borrowing from State Bank of Pakistan private sector credit appetite has (SBP) during FY 2018-19, lagged impact remained subdued stemming from the Year ended December 31, 2017 at Rs. 1.75 per share) (2,290) (2,004) 14 of currency devaluation, hike in domestic prevailing economic circumstances. First interim cash dividend for the year ended December 31, 2019 at fuel costs and rising food prices, Sector’s bottom line was affected by Rs. 2,00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) (2,290) (2,290) Consumer Price Index (CPI) was recorded sharp repricing pace of funding liabilities, Second interim cash dividend for the year ended December 31, 2019 at a multi-year high level of 8% on a year credit losses, impairment related to at Rs. 2.00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) (2,290) (2,290) on year (YoY) basis in FY 2018-19. equity portfolio, rising cost of doing During the first half of FY 2019-20, CPI business, increasing compliance cost Third interim cash dividend for the year ended December 31, 2019 at rose further to reach 12.6% at end and regulatory changes. However, in Rs. 2.00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) (2,290) (2,290) December 2019, on a YoY basis, as second half of the year ended December Transfer to statutory Reserves (1,411) (1,288) 10 inflationary pressures persisted; reflecting 31, 2019 improved asset repricing on Accumulated profits carried forward 55,82152,501 6 various rounds of upward adjustments in the back of stabilizing interest rates has Earnings Per Share (EPS) (Rs.) 12.32 11.2510 administered tariffs of gas and electricity diluted the impact. and rising prices of perishable and nonperishable food items owing to supply Your Bank fully cognizant of these The Board of Directors has proposed a final cash dividend of Rs. 2 per share (aggregate cash dividend of Rs 8 per share including disruptions. developments, prudently managed its interim dividends). This, together with the interim dividends declared during 2019, will be approved in the forthcoming Annual economic capital during the year under General Meeting. In view of the above, SBP proactively review. Capitalizing on consistent growth managed its monetary policy stance in low and no cost deposits along with leading to a cumulative increase of 475 superior quality asset base, a multisubdued during FY 2018-19, macro including International Monetary Fund Macroeconomic bps in policy rate during the FY 2018faceted long-term strategy governing stabilization measures entailing currency (IMF) have assisted in supporting the Developments 2019 19 to reach 12.25% at end June 2019. optimum organizational structure, devaluation amidst transition to a dwindling reserves; which stood at US$ However, as inflation outcomes achieved comprehensive risk management flexible, market determined exchange 7.3 billion as at end June 2019. Pakistan’s Gross Domestic Product parity with projections, policy rate framework, investment towards digital rate, monetary tightening, reduction (GDP) growth has moderated to increase was curtailed to 100 bps during transformation, enhanced customer in development spending and trade Improvement in Balance of Payments 3.3% in FY 2018-19 from 5.8% in the first half of FY 2019-20; with no-hike acquisition and continuous enrichment protectionist measures implemented position gained further momentum FY 2017-18 on account of measures announcements in monetary policy of its innovative and well-diversified through imposition of various tariff and during the first half of FY 2019-20. implemented to address the twin deficit announcements of September 2019 and service suite has facilitated Your Bank non-tariff barriers assisted in reducing Contracting trade deficit and steady crises emanating from consumption November 2019 respectively. in achieving sustainable financial country’s import bill by 8%. worker’s remittance inflows despite a led growth in preceding years. Policy performance. synchronized global economic slowdown induced demand management measures Although the current account deficit Supplemented by 10% growth in worker translated into favorable current account weighed in on the aggregate demand balance has been brought down to Positive volumetric growth in average remittances on back of stronger inflows developments, while a trend reversal which has resulted in contraction of the sustainable level, posting a contraction of earning assets supported by improving and enhanced focus, current account in foreign portfolio investment, on the Industrial activity. Agriculture production 75% during first half of FY 2019-20, the spreads and effective duration deficit balance contracted by 30% as back of improving market sentiment, was also affected due to high input external position still remains challenging management of investments through compared to a sizeable expansion of disbursement of IMF’s economic program cost, lower fertilizer offtake, water as the containment exercise is primarily re-profiling towards flexible, shorter 58% in FY 2017-18. related inflows and activation of Saudi shortages and redistribution of area driven by import contraction rather than tenor investments in a rising interest rate Arabia’s oil facility extended much under cultivation resulting in a muted import substitution and the economy still scenario has enabled Your Bank to post Foreign Direct Investment has witnessed needed support on the financial front; growth of 0.85% during FY 2018-19 as carries the risk of trend reversal when the a higher gross mark-up income by Rs. a marked slowdown, falling by 52% in FY further easing pressure on State Bank compared to previous year’s growth of local demand starts to rebound. 49,363 million, higher by 67% over the 2018-19 as ensuing uncertainty regarding of Pakistan’s foreign exchange reserves 3.9%. Service sector was also affected last year. exchange rate volatility, external financing which have consequently risen to US$ due to aforementioned reasons and Going forward rising business and risk and completion of early harvest 11.3 billion as at end December 2019. has depicted a growth rate of 4.7% as consumer confidence on the back of In-spite of volumetric growth in deposits CPEC related energy projects impacted Fiscal consolidation gained traction to against 6.2% in FY2017-18, falling short improving “ease of doing business” with immediate re-pricing upon each the business confidence and the growth counter deteriorating indicators; fiscal of the annual target by 1.8%. metric, expected agriculture sector policy rate change, gross mark-up trajectory. However, external financing deficit was recorded at 8.9% of GDP in On the external front, notwithstanding rebound from weather induced expense growth curtailed to Rs. 39,971 from bilateral and multilateral agencies FY 2018-19 owing to low taxation base, country’s export volumes which remained Dear Shareholders, 30 Annual Report 2019 shortfall in revenue collections, broad based expansion in current expenditures, bloating energy sector circular debt, untargeted subsidies and loss-making public sector enterprises. million. As a result, Your Bank has posted net mark-up income of Rs. 41,507 million against Rs. 32,115 million in 2018, reflecting a growth of 29%. Diversification of revenue streams through continuous enrichment of service suite along with concurrent focus on upholding highest service standards has enabled Your Bank to post a robust growth of 17% in fee income which has reached Rs. 5,092 million. Prudent positioning of Your Bank’s foreign exchange assets and liabilities assisted a notable growth of 32% in income from dealing in foreign currencies to close the year at Rs. 1,992 million against Rs. 1,504 million recorded in 2018. Dividend income has decreased, as compared to the corresponding year, as aforementioned economic slowdown weighed in on shareholder returns, thereby impacting dividend payouts. Active participation as a Primary Dealer along-with staggered derecognition of equity portfolio has resulted in capital gains of Rs. 1,579 million realized during the year; lower than Rs. 2,382 million recognized in 2018 on the back of prudent disposal of Pakistan Investment Bonds, foreseeing imminent sharp increase in benchmark rates. Correspondingly, non markup income stood at Rs. 10,891 million for the year as against Rs. 11,289 million in the corresponding year. In line with SBP’s National Financial Inclusion Strategy for building a dynamic and inclusive financial services sector in the country, Branch outreach expanded to 1,395 branches including 1,278 conventional and 117 Islamic banking branches across Pakistan. Islamic network was further augmented with 50 windows added to the network at viable conventional branches while contemporaneous growth in ATM network increased total ATMs to 1,515, inclusive of 1,186 on-site and 329 off-site ATMs. During the year, Punjab Workers Welfare Fund Act 2019 (PWWF) has introduced provincial levy of WWF in Punjab with effect from December 13, 2019. Your Bank, based on the legal opinion of the Bank’s tax consultant, conservatively reversed the cumulative provision maintained, against WWF from 2014 till the date of PWFF’s enactment. Despite aforementioned outreach expansion coupled with new and ongoing Allied Bank Limited 31
18. DIRECTOR ’S REPORT compliance related regulatory changes, sustaining inflationary pressures, ongoing investment in technological infrastructure along-with performance awards and merits adjustments of the human resource; implementation of technologybased solutions has assisted Your Bank in optimizing operating costs; thus, Nonmarkup expense growth was curtailed to 15%. Realization of systematic risks posed by the aforementioned economic slowdown has culminated into a lack luster performance by Pakistan Stock Exchange during the year under review. In consideration of downtrend along with translation of other idiosyncratic factors, Your Bank has recognized a net charge of Rs. 979 million for diminution in value of equity securities. Proactive monitoring and recovery efforts has resulted in a net provision reversal against non-performing loans; aggregating to Rs. 394 million for the year under review; thereby infection ratio fell to 3.2% while coverage ratio stood a strong level of 95.6%, well above the September 2019 industry averages of 8.2% and 84.4% respectively. No FSV benefit has taken while determining the provision against non-performing loans as allowed under the guidelines of the State Bank of Pakistan. As a result, Your Bank has earned profit before tax of Rs. 24,242 million for the year ended December 31, 2019 as compared to Rs. 21,016 million earned in the corresponding year; reflecting a healthy growth of 15%. Super Tax, which was initially levied vide Finance Act, 2015 has continued and vide Finance Act 2019 was extended with retrospective effect causing an additional charge of Rs. 835 million, for the tax year 2018, recognized in first quarter of 2019; effective tax rate thereby rising to 42%. Profit after tax stood at Rs. 14,113 million as against Rs. 12,881 million achieved in the corresponding year. Barring impact of aforementioned incremental super tax charge, Profit after tax has posted a notable growth of 16%. Resultantly Earnings per share of Your Bank has improved to Rs. 12.32 while Return on Equity and Return on Assets stood at a strong level of 16% and 1% respectively. Loan growth momentum has slowed sharply as a weaker economic scenario and elevated interest rates has dampened credit demand; industry advances growth declined by 83% during the year. Amidst aforementioned industry downtrend, Your Bank’s pragmatic business strategy 32 Annual Report 2019 along with a robust risk management framework facilitated growth of 10% in gross advances, well above the industry growth of 4%; Gross Advances thereby crossed the half a trillion mark and closed the year at Rs. 500,168 million compared to Rs. 453,867 million posted at end December 2018. With rising credit risks and a dearth of quality lending avenues, incremental liquidity diversified towards investments; the portfolio was reprofiled, anticipating peaked interest rates, to reach Rs. 757,957 million at end December 2019; posting an increase of 13%, synchronized with the industry trend. The liquidity was placed primarily in Government securities, Rs. 542,742 million deployed in T-bills and Rs. 155,134 million diverted to Pakistan Investment Bonds (PIB’s); thereby increasing PIB’s contribution in total investment mix to 20% at end December 31, 2019 as against 9% in the corresponding year. Despite a notable increase in Minimum Saving Rate amidst monetary tightening cycle, unabated growth in the undocumented economy and prevailing income tax regime hampered deposit growth. M2 growth was registered at 11.2%, while Currency in Circulation has grown to Rs. 5,391 billion at end December 31, 2019, on the back of a staggering CAGR growth of 16% achieved in last 2 years. Accumulation of zero-cost and low-cost deposits during the year has remained a key strategic objective of Your Bank. Thereby, non-remunerative deposits have grown by 17% to close at Rs. 388,019 million; constituting 37% of the total deposits mix as at end December 2019. Total Deposit base of Your Bank has registered a healthy increase of Rs 64,568 million and stood at Rs. 1,049,043 million, reflecting a YoY growth of 7%. Consequently, aggregated asset base of Your Bank has increased by 10% to reach Rs. 1,481,121 million as against Rs. 1,350,599 million at end December, 2018, while the equity base stood at robust level of Rs. 115,351 million; recording an increase of 7%. Capital Adequacy ratio (CAR) under Basel III stood at a healthy level of 21.7% on standalone basis whereas the consolidated CAR stood at 21.8%; adequately meeting the requirements of the State Bank of Pakistan. Common Equity Tier ratio (CET) and Tier 1 ratio (CET1) have stood at 17% as against Pakistan (a non-profit organization) and got selected as a Partner for this project. The financing activity under the project to the targeted segment is expected to commence shortly. This project will not only help us in fulfilling our social responsibility of financial inclusion but also facilitate in creating business opportunities for the Bank. the requirement of 6.0% and 7.5% respectively; clearly depicting a wellcapitalized position of Your Bank. The economy continues to pass through challenging times with GDP growth projections remaining strangulated in the medium term. Decrease in public sector spending’s amidst limited fiscal space owing to low tax revenues and high current expenditures remain key impediments to economic growth. Implementation of envisaged governance and structural reforms to strengthen institutional frameworks and enhancing documentation of economic activities shall remain critical to credibly reversing the trend of fiscal deterioration; while further laying the foundation for achieving long term sustainable and balanced GDP growth. Risk Management Framework The Board of Directors manages risk through a framework of sound risk principles which include establishment of risk tolerance limits, identification of potential risks, assessment of their impact on the Bank and formulation of strategies to mitigate all foreseeable risks to the Bank while ensuring continuous monitoring. Risk mitigating strategies were recommended and monitored through Board of Directors’ sub-committee “Board Risk Management Committee” (BRMC). Management sub-committees “Risk Management Committee” (RMC), Compliance Committee and “Asset and Liability Committee” (ALCO) ensuring effective risk management. Summarized Risk and related mitigating factors are covered in annexed Risk and Opportunity Report. • State Bank of Pakistan (SBP) issued detailed directions on implementation of International Financial Reporting Standard-9 (IFRS 9) vide BPRD Circular No. 04, dated October 24, 2019. The effective date for implementation of IFRS 9 is January 1, 2021 and the Banks are required to conduct parallel run and make necessary preparations for its implementation during 2020. Your Bank has already submitted a detailed quantitative and qualitative impact analysis report to SBP for adoption of IFRS-9 for the year ended December 31, 2017. In order to ensure smooth transition towards the compliance of SBP’s instructions for implementation of IFRS 9, Project Steering Committee of the management comprising senior members of Finance, Risk, IT and Business Groups has been formed while presenting periodical project status to the “Board Risk Management Committee”. The main stakeholders are acting in a coordinated manner through the Committee forum towards preparedness of the Bank for smooth implementation. The Bank believes that implementation of IFRS 9 in Pakistan requires a comprehensive forward-looking approach, less dependent on subjectivity, by all the stakeholders and alignment of existing laws and regulations with IFRS 9 requirements. The Risk Management Group (RMG) is mandated to implement this framework as a function, independent of commercial lines of business. RMG took following major initiatives in 2019 to further strengthen the risk management framework: • The Bank has successfully implemented Bench Matrix Solution for Operational and Compliance Risk Management. This system has enabled the bank to automate various functions pertaining to Operational and Compliance risk management as per best practices. • Owing to Small and Medium Enterprises economic significance and in light of SBP’s initiative to promote SME financing, Your Bank participated in Innovative Challenge Fund (ICF3) “Transforming SME Financing, Innovative Credit Scoring Model of SMEs” launched by Karandaaz • The Bank has an in-house developed state of the art Risk Assessment and Management System (RAMS) for loans processing and Monitoring. The system has enabled the Bank towards effective management of Credit Risk, also reflected by one of the lowest infection ratios in the industry. During the year, the management has undertaken initiative for major upgrade in the system, providing additional tools and information for the risk approvers and monitoring teams. • The Project of Oracle Financial Services Analytical Application (OFSAA) for Enterprise Risk Management was completed during the year with the implementation of Assets Liability Management (ALM) & Liquidity Risk Management (LRM) Modules. With the successful completion of OFSAA and Bench Matrix practices, a wide spectrum of Enterprise Risk now stands automated in the Bank; enabling effective monitoring of the underlying risks. • In compliance with the Green Banking Guidelines issued by the State Bank of Pakistan, Your Bank has established a dedicated Green Banking Office (GBO) to promote environmentally friendly practices. In this regard, Your Bank has formulated & implemented a Green Banking Policy to reinforce its commitment for environmental sustainability. The objective of this policy is to reduce the vulnerability of the Bank from the Environmental Risks and to reduce its carbon footprint on the environment. Your Bank is one of the leading Banks in the Industry, which has successfully implemented Environment Risk Management (EnvRM) discipline to identify, assess, mitigate and monitor environmental risks arising from operations of obligor’s business. Besides, Your Bank is also actively pursuing the initiative of creating a sustainable paperless environment. • In continuance of Bank’s distinctive initiative of engaging with the obligors to provide them with latest insight on business management and strategies; three interactive seminars for corporate, commercial & SME obligors on the topic “Transition from Family Owned Business Structure to Corporate Structure” were organized during 2019. The Bank devotes considerable resources in managing the risks to which it is exposed. The momentum attained thus far will be continued in the future through significant investments in human resources, training and technology. Chief Executive Officer’s Review The Board of Directors fully endorses the Chief Executive Officer’s Review on the Bank’s operational performance for the year ended December 31, 2019. Statement of Internal Control The Board is pleased to endorse the statement made by management relating to internal controls including management’s evaluation of ICFR. The Management’s Statement on Internal Control is included in the Annual Report. Corporate Sustainability The Board is pleased to endorse the Corporate Sustainability initiatives taken by Your Bank, as disclosed separately in the Annual Report. Entity Rating During the year, Pakistan Credit Rating Agency (PACRA) maintained Bank’s longterm and short-term credit rating at the highest level of “AAA” (Triple A) and “A1+” (A One Plus) respectively. These ratings indicate highest credit quality and an exceptionally strong capacity for payment of financial commitments. Corporate Governance Rating VIS Credit Rating Company Limited re-affirmed Allied Bank’s Corporate Governance Rating of ‘CGR-9+’. The rating indicates a ‘very high level of corporate governance’; thus, depicting a strong commitment towards governance framework by the Board and Management of Your Bank. VIS has noted that Human Resource and Remuneration Committee be chaired by an independent director as per Listed Companies (Code of Corporate Governance) Regulations 2019, which is currently being headed by a non-executive director. Board of Directors The profile of all Board members is disclosed separately in Overview section of the Annual Report. Composition of the Board of Directors is Allied Bank Limited 33
19. DIRECTOR ’S REPORT specified in “Statement of Compliance with Code of Corporate Governance”. While Composition of Board committees is also disclosed separately in the Annual Report. Non-Executive Directors (excluding those who have opted not to receive meeting fee on voluntary basis) are paid a reasonable and appropriate remuneration for attending the Board and/or its committees’ meetings which is disclosed in the Financial Statements note 38. This remuneration is not at a level that could be perceived to compromise independence. No fee is paid to the directors who do not attend a meeting. Similarly, fee is not paid for the proposals considered through circulation. Performance evaluation Mechanism for the Board The Board of Directors (BOD), while ensuring regulatory compliance is also vested with fiduciary responsibility on behalf of the shareholders to protect Bank’s interests, provide strategic direction and monitor the execution of strategic objectives. The Companies Act 2017, Banking Companies Ordinance 1962, SBP’s Prudential Regulations and Code of Corporate Governance (The Code) describes the role of Board of Directors along with its responsibilities and functions. In order to comply with the requirement of Code, the Board, in the year 2014, put in place an effective mechanism for Board Evaluation. Subsequently, SBP vide BPRD Circular No. 11 dated August 22, 2016, issued detailed Guidelines on Performance Evaluation of Board of Directors. As per these Guidelines, the Board decided to opt for in-house approach with quantitative techniques and evaluation by an external independent evaluator every three years. Accordingly, independent assessment was conducted in 2018 and for 2019, in-house approach has been exercised. As per approved mechanism, performance evaluation of following categories was carried out: IV. Independent Directors. V. Other Non-Executive Directors. VI. Board of Directors’ Committees. VII. Chief Executive Officer. The responses and feedback from the directors on each of the above-mentioned categories (except Chairman) is compiled and submitted to the Chairman enabling him to discuss the results/findings with each individual Board member, if so desired. The authorized independent director communicates the feedback in respect of the Chairman to the Company Secretary for incorporation in the consolidated performance report. Accordingly, the report comprising of consolidated evaluation results and action plan forwarded by the Chairman is submitted to the Board of Directors for consideration. The Board of Directors, in its 244th Meeting dated February 07,2020, noted contents of Board Annual Evaluation for the year 2019 and expressed its satisfaction on its results. External Auditors The present Auditors M/s KPMG Taseer Hadi & Co, Chartered Accountants in pursuance of the Code of Corporate Governance become ineligible for re-appointment having completed a term of five years. However, State Bank of Pakistan and Securities Exchange Commission of Pakistan has granted permission to the Bank to extend the term of M/s KPMG Taseer Hadi & Co, Chartered Accountants for next term. Extension was sought to avoid selfreview threat in light of exceptional circumstances which arose due to evaluation of automated solutions to comply with regulatory requirements. Acknowledgement On behalf of the Board and the Management, we would like to place on record our gratitude to esteemed shareholders and valuable customers for placing their trust in Allied Bank. Securities and Exchange Commission of Pakistan, State Bank of Pakistan and other regulatory authorities for their consistent direction and oversight. We would also like to extend appreciation to our colleagues for their diligent work towards meeting customer expectations and their dedication towards achieving the Bank’s goals and objectives. For and on behalf of the Board of Directors. Tahir Hassan Qureshi Chief Executive Officer Mohammad Naeem Mukhtar Chairman Board of Directors Lahore Date: February 07, 2020 M/s KPMG Taseer Hadi & Co, Chartered Accountants retired and offered themselves for re-appointment. The Board of Directors, on the recommendation of the Audit Committee has recommended M/s KPMG Taseer Hadi & Co, Chartered Accountants, as Statutory Auditors for the next term. Pattern of Shareholding Pattern of Shareholding is annexed. I. Chairman. II. Overall Board of Directors III. Sponsor Directors. 34 Annual Report 2019 Allied Bank Limited 35
20. 36 Annual Report 2019 Allied Bank Limited 37
21. 38 Annual Report 2019 Allied Bank Limited 39
22. 40 Annual Report 2019 Allied Bank Limited 41
23. CEO ’S REVIEW Economic Review According to the International Monetary Fund, global economy is in synchronized stagnation, with growth for the year 2019 downgraded further to 2.9% compared to 3% projected in October 2019, delineating its slowest pace since the global financial crisis. The sluggish trend has emanated from escalating trade barriers, geopolitical tensions and aberrant economic pressures in key emerging markets. Amidst aforementioned headwinds, global growth started to bottom out by the fourth quarter of 2019; unfolding lagged impact of a broad-based shift towards an accommodative monetary policy, improving sentiments following announcement of “Phase One” of USChina trade deal and fading fears of a no Brexit deal. Global growth for the year 2020 and 2021 has thereby been projected to improve to 3.3% and 3.4% respectively. Pakistan’s economy found itself struggling against another economic quagmire as the legacy of yesteryear’s policies, including incurrence of large fiscal deficits, accommodative monetary stance and an overvalued exchange rate had fueled consumption led growth, which steadily eroded macroeconomic buffers resulting in increased external and public debt. The incumbent government persistently adopted a three-pronged strategy encompassing currency devaluation, monetary tightening and trade protectionism to curtail the burgeoning twin deficits and avert an imminent Balance of Payment (BoP) crisis. In line with the aforementioned macro stabilization measures, Pakistan’s GDP growth moderated to 3.3% in FY 2018-19. Industrial activity contracted with sector growth falling to 1.4% in FY 2018-19 against target of 7.6%, compared to 4.9% achieved in the FY 2017-18. Large Scale Manufacturing (LSM) witnessed a broad-based decline of 5.9% during the period of July 2019 to November 2019 as compared to the corresponding period; domestic oriented industries such as automobile, petroleum and construction allied firms have particularly suffered adversely. Water shortages and weather-related concerns in tandem with higher cost of major inputs had dented agriculture outcome, resulting in lower than projected growth in the Agriculture sector. The decelerating trend in both of these sectors led to moderation in the services sector growth as well, which fell to 4.7% in FY 2018-19 compared to 6.2% achieved in FY 2017-18. On the external front, Balance of Payment position has improved considerably as current account (CA) balance moved progressively along the adjustment path. Deficit contracted by 42 Annual Report 2019 62% during the year 2019 on the back of favorable trends in trade balance and worker remittances growth. Unfolding impact of aforementioned macro stabilization measures and an imminent economic slowdown, import demand contracted, with total bill shrinking by 17.5% for the year 2019 as compared to the corresponding year. In case of exports, lower unit values dominated; partially offsetting the impact of volumetric rise achieved in a number of major export products and thereby stagnating growth to keep exports at the previous year’s level of US$ 30,000 million. Workers’ Remittances posted a growth of 5.3% to reach US$ 22,204 million, in 2019, compared to US$ 21,079 million posted in 2018. The impetuous was provided by the persistent uptick in inflows from US, UK, Malaysia and Saudi Arabia which has assisted in offsetting remittances decline from UAE due to general economic slowdown. Barring impact of one-off inflows into the telecom sector, in lieu of license renewal fee, net foreign Direct Investment had witnessed a sharp decline of 6% and stood at US$ 2,211 million in 2019; reflecting completion of first phase of China Pakistan Economic Corridor (CPEC) related projects and weakening business confidence. However, cognizant of these issues, policy measures and initiatives taken by the Government to create a business-friendly environment, progress on Financial Action Task Force’s action plan through legislative updates and enhanced interagency cooperation, waning political uncertainty, elevating confidence level about sustainability of market-based exchange rate system and comfort provided by initiation of IMF’s Extended Fund Facility program have started yielding results; the country’s position has improved 28 notches as per latest “Ease of Doing Business” report released by the World Bank. The positive sentiment also depicting in the performance of KSE 100 index during latter half of the year; which had rebounded from its lowest level of 28,765 points in August 2019 and gained a total of 11,970 points to close the year at a high level of 40,735 points. The improvement in CA along with sufficient availability of external financing had led to building of reserve buffers; Rupee has thereby appreciated by 5.2% since June 2019 to close the year at a parity of Rs. 154.55 against the US$, while gross foreign exchange reserves have reached US$ 18,081 million, which depicts its highest month end level achieved during the last 2 years. Long standing structural frailties, subsiding economic growth and sustained financial account pressures amidst higher debt servicing costs continued to hamper fiscal consolidation. However, results of various initiatives, broad-based taxation reforms, public facilitation and confidence building measures have helped to improve revenue growth and resource mobilization, with collections during first half of FY 2019-20 increasing by 18.4% compared to the corresponding period of 2018; the growth driven primarily by domestic tax collection with 21%, 34% and 26% increase witnessed in income tax, sales tax and federal excise duty collection respectively. Banking Sector Performance: Banking sector witnessed multifarious challenges emanating from domestic macro-economic bottlenecks and digital transformation in sync with the global trend; changing business models, increasing regulatory compliance requirements, looming cyber security threats, asset liability repricing lag and rising risk of credit losses. Nonetheless, during the year under review the sector has maintained its growth trajectory, as net interest spread expansion gained traction on the back of stabilizing interest rates. Headline Return on Equity for the banking sector during the period ended September 2019 stood at 12.3%, higher than 11.5% for the corresponding period of 2018 in spite of hefty one offs and market related factors such as prior years super tax imposition, deposit insurance cost levy, regulatory non-compliance penalties, loan losses and equity related impairment charges putting a drag on the earnings; barring which the increase would have been more pronounced. Rise in Minimum Saving Rate (MSR), PKR depreciation and increased inflows under Government amnesty scheme facilitated a growth of 10% for Industry deposits during 2019 compared to 8% growth achieved in 2018. Deposits, hence closed at Rs. 14,575 billion as at end December 2019, compared to Rs. 13,303 billion in December 2018. The growth trajectory remained hampered by growing currency in circulation (CIC) due to informal economy and prevailing income tax regime; currency to deposit ratio had increased to 37% in December 2019 as against 34% posted in December 2018, while M2 posted a growth of 11.2% in 2019 compared to 10.2% in 2018; The burgeoning informal economy is also impacting the growth of low-cost private sector deposits which has fallen compared to the growth in expensive public sector deposits; increasing by 5% as compared to 15% growth witnessed in public sector deposits during 2019. Imminent from macroeconomic slowdown, multi-year high interest rates, rising risks to credit quality, Allied Bank Limited 43
24. CEO ’S REVIEW declining public sector spending and increased Govt. borrowing, industry advances growth dampened to mere 4% during 2019 as compared to 21.4% growth registered in 2018; with almost all segments witnessing a slowdown as Banks stayed shy of lending to structurally weaker institutions. Industry infection and Coverage ratio deteriorated to 8.2% and 84.4% as at September 2019 against 7.5% and 87.8% in December 2018 respectively. Amidst weakening credit demand, banks channeled incremental liquidity towards government backed avenues. Investment in Government securities rose to 44% of total assets as at end December 2019 compared to 41% at end December 2018. Resultantly, sector investments stood at Rs. 8,767 billion as at end December 2019, compared to Rs.7,545 billion at end December 2018; posting a YoY increase of 16%. Business Performance: During the year under review, Your Bank maintained its steady growth trajectory despite aforementioned challenging macroeconomic and operating scenario; elucidated by the long-term strategic direction set by the Board of Directors. Your Bank continued to purposefully and diligently work towards improving all aspects of banking operations, enhancing customer offerings, enriching technology platforms and developing Bank’s human capital for gearing up towards the e-banking transition; resultantly, driving stable profitability along with robust growth in financial position and sustainable value created for stakeholders. Another year of sustainable business performance has translated into a growth of 10% in total Assets footing, which stood at Rs. 1,481,121 million as at December 31, 2019, while the equity base stood at level of Rs. 115,351 million; recording an increase of 7%. Subdued economic activity, on the back of trend reversal in expansionary cycle of various industries and higher borrowing costs weighed in on the credit offtake; creating a dearth of quality lending avenues in the market and concurrently alleviating systematic risks posed to asset quality. However, Your Bank remaining fully cognizant of the paradigm shift in the evolving economic and banking sector dynamics, regularly upgraded its multidimensional and comprehensive Risk Management (RM) framework, which comprises of robust risk assessment models, effective pre-disbursement evaluation tools and an array of postdisbursement monitoring systems to sustain focus on lending practices while maintaining superior asset quality. 44 Annual Report 2019 The aforementioned RM platform, in addition to facilitating an overall growth of 11% in advances portfolio during the year, also remained the underlying driving force behind Your Bank’s low infection ratio and high coverage ratio of 3.2% and 95.6% respectively. Proactive monitoring and recovery effort’s contributed towards net provision reversal of Rs. 394 million against NonPerforming Loans, which declined to Rs.15,152 million from Rs.15,549 million during the year under review. Apart from consistent growth in Corporate advances, profitable Emerging Corporates segment posted a strong increase of 54% and laid the basis for Your Bank to cross a significant milestone of “half a trillion” in total advances as at December 31, 2019; Gross Advances thereby reaching Rs. 500,168 million. Pro-actively managing the evolving interest rate risk, incremental resource mobilization was utilized towards shorter tenor instruments. Effective management of repricing gaps, optimization of investment portfolio duration and exploitation of interbank lending opportunities resulted in positive net interest income along-with curtailment of revaluation and opportunity losses. Enhanced focus on customer service and delivery channels by capitalizing on a resilient technology platform of Your Bank to strengthen customer base paved way for augmentation of account opening run-rates during the year. As a result, a record 750,000+ New to Bank (NTB) accounts were opened in 2019; depicting a significant growth of 15% over the corresponding year. Special emphasis was maintained on leveraging Bank’s unparalleled network of touch-points to extend outreach to underbanked and unbanked segments of the rural community through opening of Asaan Accounts; which contributed 43% to the total NTB accounts mix for the year. Overall growth in domestic deposits remained stifled for private sector banks due to intense competition and unabated growth in undocumented economy amidst prevailing income tax regime. Nonetheless, substantial growth in customer base has facilitated Your Bank to post a Year on Year (YoY) growth of 10% in average deposits and 7% on an outstanding basis, which increased by Rs. 64,568 million to reach Rs. 1,049,043 million at the end of 2019 In a rising interest rate scenario, repricing lag between earning assets and liabilities further emphasized the need to accumulate zero and low-cost deposits. Hence, Your Bank, maintaining its strategic focus, achieved a growth of 13% in Current Deposits; which reached Rs 410,262 million as at December 31, 2019, while a CASA growth of 7% during the year facilitated improvement in overall CASA share to 83% Your Bank’s strong Equity base grew by 7% to reach Rs. 115,351 million as at end December 2019. Tier 1 equity increased to Rs. 89,542 million and enabled Your Bank to post a Capital Adequacy ratio (CAR) well above the requirements of the State Bank of Pakistan. The standalone CAR stood at a healthy level of 22%. Common Equity Tier ratio (CET) and Tier 1 ratio (CET1) stood at 17% as against the requirement of 6.0% and 7.5% respectively; clearly depicting a well-capitalized position of Your Bank. Positive volumetric growth in average earning assets supplemented by duration and cost management along with gradually increasing assets and liability spreads has enabled Your Bank to post Net interest income (NII) of Rs. 41,507 million; representing a healthy growth of 29% from the comparative period. The Bank continued to maintain focus on diversifying revenue streams with emphasis on the growth of fee-based income. Accordingly, non-mark-up income reached Rs. 10,891 million for the year with major contribution from fee-based income that registered a strong growth of 17% and stood at Rs.5,092 million as compared to Rs. 4,361 million in the corresponding year. Capitalizing on the opportunities in interbank foreign exchange market, Your Bank posted a significant growth of 32% in income from dealing in foreign currencies, reaching at milestone figure of Rs. 2 billion as compared to Rs. 1,504 million in the corresponding year. Forecasting imminent rise in interest rates amidst SBP’s restrictive policy stance, Your Bank had realized sizeable capital gains in 2018 for duration management through divestment of its Fixed Income investments; which, thereby, witnessed a decline during the year under review. However, continued active participation in the Fixed Income securities, trading business has facilitated Your Bank in realizing capital gains of Rs. 593 million through trading. Significant progress and market coverage in this segment also translated into Your Bank’s recognition as the Top Primary Dealer in the market, by State Bank of Pakistan, during the FY 201819. continued investments towards technological uplift for the “Digital Age”, regulatory compliance, footprint expansion in both conventional and e-banking channels and continuous development of the human capital. emanating from rapid technological advancements along with persistently enhancing customer preferences. Digitization is at the forefront of this profound transformation and innovation in banking service offerings. Promulgation of Punjab Workers Welfare Fund Act 2019 (PWWF), with effect from December 13, 2019 introduced provincial levy of WWF in Punjab. Your Bank, based on the legal opinion of the Bank’s tax consultant has reversed the cumulative provision maintained thereagainst resulting in a net reversal of Rs. 769 million during the year. Your Bank has adopted a multipronged long-term strategy to focus on broad based digitization and transformation through adoption of cutting-edge technologies geared towards delivering customer centric user experiences, while simultaneously taking concrete steps towards circumventing related cyber security and data governance threats. Resultantly, Your Bank’s Profit Before Tax increased to Rs. 24,242 million for the year, compared to Rs. 21,016 million in the corresponding year depicting a growth rate of 15%. Capitalizing on its extensive technological infrastructure, including an in-house maintained “Innovation Lab”, Your Bank kept pace with the transforming e-banking landscape through upgrade of ‘myABL’ e-banking platform to the latest version of Oracle Digital Banking Experience (OBDx); designed to enable customers to seamlessly perform financial operations while offering an enhanced user friendly and device responsive interface. Profit after current years’ taxation stood at Rs. 14,948 million, as against Rs. 12,881 million for the corresponding year. Super Tax, which was initially levied vide Finance Act, 2015 continued and was extended vide Finance Act 2019 which led to an incremental super tax levy for the tax year 2018 amounting to Rs. 835 million, recognized in first quarter of 2019. This led to an additional drag on the profitability of Your Bank and resultantly Your Bank’s Profit after tax amounted to Rs. 14,113 million; depicting a notable growth of 10%. In view of the above developments, EPS of Your Bank improved to Rs.12.32 per share against an EPS of Rs.11.25 per share last year. Despite a significant additional taxation liability, Return on Equity (ROE) and Return on Assets (ROA) also stood at a robust level of 16% and 1% respectively. The aforementioned upgrade together with the launch of card management facility on myABL platform, entailing activation, temporary block/unblock, PIN change and international card usage blocking/unblocking option, drove a significant growth of 46% in myABL registered users at the close of the year. E-Banking Initiatives Business Internet Banking (BIB) module, geared towards facilitating institutional customers in conducting banking transactions, including bulk payments and trade business, continued to be well received by the market; the number of registered customers rising at the end of December 2019 registering a growth of 46%. Pakistan banking sector dynamics are continuously evolving, with challenges Your Bank continued to augment its Debit Card base during the year under review. Therefore, total debit cards in circulation increased to 1.7 million as at December 31, 2019, registering a YoY growth of 14%. The Bank’s pioneer initiative of issuing subsidized PayPak debit cards, for the low-income segment, yielded results as the volume increased by 1.5 times during the year, to close at 550,214 cards. Moreover, to facilitate customers, who seek both international and domestic spending convenience, the Bank launched Pakistan’s first ever co-badged EMV Chip and PIN debit card powered by UnionPay International (UPI) & PayPak. The card offers not only an array of exciting features and benefits of both payment schemes but also comes with enhanced security features; enabling customers to carryout transactions at millions of acceptance points including ATMs, Point of Sale (PoS) terminals and e-commerce sites across Pakistan and around the world. The advent of sophisticated technologies has contributed towards evolving methods of skimming attacks, with ATM fraud becoming one of the fastest growing cyber security crimes in the world. The Bank proactively devised a multi-layered safety approach to counter emerging security threats through extension of biometric verification services, undertaking re-carding activity with upgradation to chip and PIN capability, installation of antiskimming devices and implementation of ‘Euro-Pay, Mastercard and Visa’ (EMV) compliance standards across the entire ATM network to ensure provision of maximum protection to the Bank’s customers. Following through on its strategy to vigorously engage with the IT-Savvy and highly educated customer segment, Your Bank installed additional Interactive Teller Machines (ITMs) during the year under review. These ITM’s, combining Amidst sustained volatility in the stock market, Your Bank prudently and cautiously de-recognized its equity portfolio in a staggered manner; thereby realizing Rs. 991 million in capital gains from equity divestments. Automation led saving initiatives and centralization of operations enabled Your Bank to restrict growth in operating expenses to 15% during 2019, despite Allied Bank Limited 45
25. CEO ’S REVIEW convenience of an ATM with the personal touch of banking services in a branch, engage virtual off-site tellers to assist customers in conducting financial transactions and meeting their dynamic needs, flexibly and seamlessly. Furthermore, in order to shift over-thecounter (OTC) transactions towards digitized channels and facilitate personal banking, the Bank installed ‘Pointof-Sale’ (POS) machines at selective branches to facilitate accountholders in withdrawing cash, paying utility and telco bills through use of their Debit and Prepaid Cards. The sustained concentration towards alternate delivery channels with aforementioned focus on the ATM network yielded positive results. Consequent to these initiatives, the digital service channel mix, in the overall transactions, mix improved from 54% in 2018 to 56% in 2019; thereby contributing in reducing the costlier counter transaction mix. Bank’s innovation strategy also encompasses forging strategic partnerships with leading technological platforms and partners to facilitate provision of the premier services to the customers while simultaneously playing a positive role in expanding the domestic technology ecosystem. During the year under review, Your Bank collaborated with Avanza Premier Payment Services to revamp online transactions through payfast payment gateway; allowing customers to shop on Avanza Premier Payment Services’ vast merchant base ranging from schools, billers, mutual funds and marketplaces vide their bank accounts. Expanding strategic business alliances with ecommerce companies, large retailers, trading houses and major eateries chains for its debit card holders; 46 Annual Report 2019 Your Bank partnered with Golootlo to offer wide array of discounts via MyABL Digital Banking App and UPI- PayPak co-badged Debit Cards. As a result, debit card spent increased by 29% and debit card transactions elevated by 24% on YoY basis. Green Banking and environment protection In compliance with the Green Banking Guidelines issued by the State Bank of Pakistan, Your Bank has established a dedicated Green Banking Office (GBO) to promote environmentally friendly practices. In this regard, Your Bank has formulated & implemented a Green Banking Policy to reinforce its commitment for environmental sustainability. The objective of this policy is to reduce the vulnerability of the Bank from the Environmental Risks and to reduce its carbon footprint on the environment. Your Bank is one of the leading Banks in the Industry, which has successfully implemented Environment Risk Management (EnvRM) discipline to identify, assess, mitigate and monitor environmental risks arising from operations of obligor’s business. Besides, Your Bank is also actively pursuing the initiative of creating a sustainable paperless environment. Your Bank continued to invest in energy saving solutions through convergence to renewable energy sources during the year under review. Apart from operating 58 branches vide solar energy, one bank-maintained warehouse was also converted to solar. In view of promoting a paperless environment, Your Bank continued its focus on process automation during the year whereby, an “Asset Management System” was deployed with the objective of automating approvals to create paperless environment, avoiding excessive courier costs while simultaneously attaining operational efficiencies. Service Excellence Measures Your Bank sustains focus on developing effective strategies for proactively responding to various dimensions influencing quality parameters, thereby driving excellence in service offerings for effectively differentiating Your Bank from the competition while ensuring 24/7 availability of its comprehensive services suite in an omni-channel environment, combining “brick-and-mortar” banking branches with mobile and online channels. Striving to deliver superior, customer centric services and enhancing user experiences, Your Bank developed an electronic que management system (EQMS) live dashboard for effectively measuring and monitoring the real-time cash counter performance at Top-100 branches. Enabled with an auto update feature, the dashboard provides a vibrant display of branches’ performance against pre-specified quality benchmarks; in turn enabling Your Bank to take necessary and timely measures for improvement, where required. Your Bank has persistently worked towards the project of flagship branches, under which selected top performing branches were renovated, supplemented with additional facilities, together with up to date gadgets, equipment. Furthermore, customer service at these branches was augmented by placement and training of top-tier staff and Customer Support Officers to provide enhanced service quality and user experience for our valued customers. Governance around monitoring and measurement was strengthened with mystery shopping as well as independent customer surveys in order to align internal service measures with customer feedback. This has resulted in tangible improvements in service levels, branch upkeep and overall high satisfaction. During the year 2019, Allied Phone Banking introduced Outbound Call Center with the purpose of connecting with our existing and potential customers in order to widen our customer base by lead generation and offering competitive bank’s products. Allied Phone Banking is working 24/7 to serve its customers and provide First Call Resolution (FCR). The organizationwide focus on visibility of customer complaints and quick complaint resolution has also improved the customer satisfaction. The Fair Treatment to Customers (FTC) committee worked on various crossfunctional initiatives to improve Conduct Assessment Framework (CAF) as per the SBP’s guidelines. They were able to achieve an improvement in the Bank’s CAF rating. Risk Management, Compliance and Controls Risk Management (RM) of Your Bank is continuously striving towards managing risk through an augmented framework of sound risk principles supported by optimum organizational structure, robust risk assessment models and effective monitoring systems in an IT enabled environment to safeguard the strength of the capital base of Your Bank while achieving maximum shareholders value. Although digitalization of the banking sector has brought in benefits of lower transaction costs, improved agility, increased flexibility, low latency and enhanced virtualization, it has also led to the evolution of emerging IT and cyber security risks. Staying ahead of the curve on these rising vulnerabilities, Your Bank conducted various security assessment exercises including vulnerability assessments, penetration testings’ and technical risk assessments together with compromise assessment activity as mandated by SBP. PCI DSS Certification was also achieved during the year under review; depicting a major security milestone along with compliance to swift customer security program being mandated by Swift International. Assets Liability Management (ALM) & Liquidity Risk Management (LRM) modules of Oracle Financial Services Analytical Application (OFSAA) for Enterprise Risk Management (ERM) have been successfully implemented to enable Your Bank to measure and meet risk-adjusted performance objectives, lower compliance and regulation costs and improve customer insights while cultivating a risk management culture across the bank. Persisting in its endeavor to ensure optimum management of compliance risks; arising out of an evolving landscape and promulgation of new laws and standards, Your Bank places intense emphasis on adopting alert-based technology enabled solutions to optimize compliance functionality. During the year under review, Your Bank completed implementation of C-link, creation of additional private lists in C-link and its integration with core banking to conduct name screening against an enriched proscribed database with real time updates. The Bank wide implementation of this screening tool along with integrated mechanism at Bank’s centralized account opening significantly enhanced effectiveness and efficiency of AML/ KYC related controls and enabled effective screening of Politically Exposed Persons and other High-risk entities with enhanced due diligence. Your Bank took discrete measures to combat compliance requirement’s emanating from country’s inclusion in grey list by FATF through timely upgradation of Financial Crime and Compliance Management (FCCM) software for improved transaction monitoring with structured workflow. Combating financing terrorism (CFT) desk has also been established in accordance with SBP AML/CFT Guidelines on Risk Based Approach (RBA). The Bank has an in-house developed state of the art Risk Assessment and Management System (RAMS) for loans processing and Monitoring. The system has enabled Your Bank towards effective management of Credit Risk, also reflected by one of the lowest infection ratios in the industry. During the year, the management has undertaken initiative for major upgrade in the system providing additional tools and information for the risk appraiser and monitoring teams. Your Bank aims to continue the pace of initiatives in 2020 with further augmentation of bank-maintained warehouses for pledge financing and enhancements in robust risk management systems, through significant investments in technology and human resource development to maintain an effective risk management framework. Meanwhile, emphasis on further strengthening the Bank’s Information Security Posture shall continue. Customer Awareness Sessions In continuance of Bank’s distinctive initiative of engaging with the obligors to provide them with latest insight on business management & strategies; interactive seminars for corporate, commercial & SME obligors on the topic Allied Bank Limited 47
26. CEO ’S REVIEW 128 districts across Pakistan at end December 2019. With the addition of 14 new rural branches, the total rural network expanded to 282 branches geared towards serving the un-banked and under-banked population of the country. Simultaneously 36 new urban branches were added, which aggregated to 1,113 branches at end December 2019. Islamic network was further augmented with 50 windows added to the network at viable conventional banking branches; thereby bringing the total number of Islamic banking windows to 60 at end December 2019 and enabling Your Bank’s Islamic Banking arm to further expand its low costs deposit base in this niche market, without investing in new physical branches. “Transition from Family Owned Business Structure to Corporate Structure” were organized during 2019. Information Technology Keeping track with fast-paced, vigorous and virtually competitive market scenario, Your Bank continuously focusing on strengthening IT Infrastructure including systems, Networks, Applications and Data Centers according to the expectations of its customers supported by Big Data, Artificial Intelligence (AI) and Robotic Process Automation (RPA). Existing Information Technology Systems are timely upgraded and new hardware/software solutions promptly acquired to prevent systems failure and obsolescence while simultaneously laying the foundation for supporting risk management initiatives, strengthen compliance culture and improve data analytics to drive business growth and achieve operational efficiencies. Business continuity and disaster recovery remained a high priority to ensure availability of round the clock service. Following the practice of conducting annual mock exercise to monitor the security and robustness of the Disaster Recover (DR) site, Your Bank has successfully shifted and ran the critical business applications from Bank’s DR Site for 1 week over 80 services/applications in one go to ensure banking systems availability for its customers in bare minimum time. Investments in Human Capital Role of Human Resource in digital transformation is twofold, it is not only responsible for its own transformation using automation but also involves empowering employees with a digital mindset to improve workforce processes and enhance productivity. 48 Annual Report 2019 Human Capital management premised on digitalizing Bank’s operations through exploiting common access to technological solutions has led Your Bank to complete implementation of “Phase One” of Oracle based Human Resource Management System; thereby enabling automatic calibration of Human Resource functions and processes including benefits administration, payroll, recruiting, training, performance analysis and review into one package. With the aim of creating a performance driven culture, the Bank empowered its employees by providing them with the means to perform to their fullest potential. Resultantly, Your Bank launched Allied Onboarding Journey (AOJ). Fully customized automated online program designed for newly hired employees, across all functions of the Bank. AOJ program provides a comprehensive onboarding journey mapped up to 12 weeks covering orientation about the Bank, inculcation of code of ethics, function/role specific regulatory requirements, digital transformation and desired culture fit behaviors. Being a value driven organization, Your Bank believes in the concept of “best fit” and has undertaken various initiatives for employees’ capacity building through its extensive training and development program. The human capital management strategically aimed at strengthening Your Bank’s competitive advantage by enhancing skills and knowledge base of its employees coupled with professional & leadership development. The training and development activities for the year 2019 revolved around technological agility, productivity, ethics & compliance, design thinking, customer excellence and personal effectiveness. Your Bank achieved 96% employee coverage by imparting 1,396 trainings to 10,844 number of staff with 7.6 training man days per employee. Organizational structure of Bank’s functions was revamped, making them robust, smart and transformation enabler while augmenting functional role and achieving optimal alignment with operational activities of each group. Further, performance management matrix was redefined and scope of Key Performance Indicators (KPIs) was enhanced during the year. The revised matrix aimed at enhancing performance in ever changing industry dynamics, achieving customer satisfaction, service excellence and regulatory compliance, while rewarding performers. It simultaneously introduces paradigm shift and divert branch focus towards digital transactions. Human Resource policy was reviewed, in view of State Bank of Pakistan’s guidelines, to align annual performance appraisal scores with underlying risk adjustments in line with best international practices. Remuneration structure relating to Material Risk Takers (MRTs) and Material Risk Controllers (MRCs) across the Bank was defined and implemented under revised Human Resource policy. Your Bank encourages gender diversity and multi-cultural workforce, providing equal employment opportunities to female candidates across the Bank which has resulted in female ratio of 17.44% at end of the year 2019. Outreach Expansion In line with the SBP’s objective of expanding Financial Inclusion, Your Bank has taken concrete measures through augmentation of e-banking and conventional banking services all across Pakistan. During the year under review, outreach was expanded to 1,395 branches including 1,278 conventional and 117 Islamic banking branches; thereby improving district-wide coverage of Your Bank’s branch network to ATM network increased to 1,515, inclusive of 1,186 on-site, 328 off-site ATMs and 1 Mobile ATM during the year. Your Bank also successfully maintained its ATM uptime at 97% during the year, well above the industry average. Rewards and Accolades Resilient risk management, high focus on compliance with domestic and international applicable regulatory requirements and high standards of corporate governance; Your Bank achieved tremendous success in 2019 which also translated into various awards and recognitions by prestigious institutions; 1. 2. 3. 4. 5. 6. 7. 8. 9. Best Bank of the Year – Large Banks by CFA. Best Primary Dealer by State Bank of Pakistan. Best Place to work in Financial Services – Pakistan Society of Human Resource Management Top issuer of PayPak debit Cards by 1-Link. Certificate of Merit Corporate Governance Disclosure by South Asian Federation of Accountants. Certificate of Excellence 2019 by Management Association of Pakistan. 2nd Position in Best Corporate Report 2018 by Institute of Chartered Accountants of Pakistan and Institute of Cost & Management Accountants of Pakistan. Utility Deal of the Year from Triple-A Asia Infrastructure Awards 2019. Most Innovative Islamic Bank Window by International Finance Awards 2018. ABL Asset Management Company Limited Allied Bank Limited wholly owned subsidiary, ABL Asset Management Company Limited (AMC) is a public unlisted company, incorporated in Pakistan as a limited liability company. ABL AMC has obtained licenses from the Securities and Exchange Commission of Pakistan (SECP) to carry on Asset Management Services and Investment Advisory Services as a Non-Banking Finance Company (NBFC) under Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003. The Company has also obtained license to carry out business as Pension Fund Manager, under the Voluntary Pension System Rules, 2005. ABL AMC offers a portfolio of 15 products including investment solutions, mutual funds and investment advisory services to cater to specific investment needs of a wide array of customers. ABL AMC’s financial position at year end remained healthy and closed at Rs.2.8 billion, 22% higher on a YoY basis. Assets under management (AUM) increased by 25%, despite deteriorating key economic indicators, to close the year at Rs.55 billion; representing a market share of 7.8% and improving AMC’s market position to 5th within the private fund category. The Special Managed Assets (SMA) hiked by 200% to close the year at Rs.5.9 billion. VIS Credit Rating Company Limited (VIS) has reaffirmed the Management Quality Rating (MQR) of ABL AMC at ‘AM2++’ (AM-Two-Double Plus). The medium to long term rating of ‘AM2++” exhibits very good management characteristics. Outlook on the assigned rating is ‘Stable’. The assigned rating derives strength from ABL AMC’s strong sponsor profile, adequate control functions, one of the highest equities in the industry, continuous investment in technology and balanced board composition. Rating also takes into account, company’s sound governance framework as reflected by professional management team, satisfactory board oversight along the adequate risk management and control framework. Entity Ratings Your Bank’s sustainable and robust financial position, capable of absorbing economic cycles, one-off shocks and proficient enough to deliver stable results culminated into Pakistan Credit Rating Agency Limited (PACRA) maintaining the highest long term and short-term entity credit ratings of AAA (Triple A) and A1+ (A One Plus) respectively; reflecting very high credit quality of the organization. Corporate Governance Rating Your Bank’s corporate governance aims to instill effective and prudent management to deliver sustainable long-term value. Therefore, Your Bank on yearly basis have its corporate governance practices reviewed by an independent evaluator. VIS Credit Rating Company Limited re-affirmed Your Bank’s Corporate Governance Rating of ‘CGR-9+’. Rating indicates a ‘high level of corporate governance’; thus, depicting a strong commitment towards governance framework by the Board and management of Your Bank, while noting that the Human Resource and Remuneration Committee to be chaired by an independent director as per Listed Companies (Code of Corporate Governance) Regulations, 2019, requirements. International Rating Moody’s Investor Service maintained Your Bank’s deposit rating at B3 during 2019, with outlook upgraded to stable, aligned with the stable outlook on the sovereign rating; indicating stable deposit – based funding profile, high liquidity buffer and good earnings generating capacity Future Outlook Country’s GDP growth is projected to remain strangulated in the short term with current growth projection of 3.5%, by the State Bank of Pakistan, for the FY 2019-20, expected to be revised even further downwards owing to sustaining downside risks in the form of supply shocks, hike in industry input prices and fiscal constraints regarding budgeted public spending. Agriculture sector’s performance continues to be impacted by persisting structural shortcomings and is expected to remain below par primarily on account of adverse supply side disruptions to cotton production; while other major kharif crops are expected to grow in line with the revised targets. Contraction in Large Scale Manufacturing (LSM) is expected to persist in inward oriented industries, which continue to bear the brunt of rising input prices amidst sustained inflationary pressures and demand dampening regulatory measures, high cost of borrowings and declining real incomes, while export oriented and import competing industries are likely to witness a gradual recovery amidst impact realization of export incentives and trade protectionist measures. The near-term outlook for services sector performance, inextricably linked to the commodity producing sectors, hence will remain affected by the aforementioned impediments to agriculture and industrial sector growth. On the external front, marked contraction in imports bill has been the primary reason for a narrowing trade deficit balance while the exports have witnessed a muted growth. However, recent uplift in market sentiment on the back of an improving “ease of doing business” metric shall support corporatization drive, while a reducing Real Effective Exchange Rate (REER), Allied Bank Limited 49
27. CEO ’S REVIEW signaling towards a stable USD / PKR parity, and impact realization of Governments adopted measures in incentivizing credit schemes for export oriented manufacturing entities shall improve market competitiveness while paving the way for a favorable outlook for exports growth. Improving external position together with recent uptick in foreign capital inflows in the form of portfolio investments and bilateral agreements, on the back of an IMF program bode well for the country’s FX position; IMF also terming external debt repayment ability as adequate in its latest review. However, downside risks emerging from slippages in twin deficits would continue to exert strain on country’s gross financing needs thereby keeping FX position in check. Federal Board of Revenue (FBR) posted an impressive Year on Year (YoY) growth of 18.4% in tax collection during the first half of FY 2019-20; however, the collection still fell short of the indicative target set by IMF by PKR 118 billion. Hence, it is of paramount importance that the Government of Pakistan’s persists with its renewed resolve for improving documentation of economic activities while concurrently undertaking structural reforms in the taxation department, encompassing utilization of technological upgrades, for streamlining tax collection, reducing cost of compliance and creating the necessary fiscal space. Going forward, it remains imperative that while capitalizing on improving Balance Of Payment dynamics, recovering FX reserves, falling external vulnerability risks as re-affirmed from Moody’s upgrade of country’s outlook from negative to stable and recent uplift in business confidence, the Government instills a sense of policy stability and follows through on envisaged structural and governance reforms to improve fiscal discipline and promotes FX earnings vide exports and Foreign Direct Investment; in turn laying the foundation for credibly reversing the trend of tightening macroeconomic adjustments and thereby stimulating economic growth. As macro indicators begin to show improvement and key economic fundamentals driving SBP’s tightening monetary policy stance, including inflation projections, achieve parity with expectations, SBP is likely to begin monetary policy transmission towards an adoptive stance, albeit in a gradual manner, while simultaneously anchoring markets inflation expectations. Banking sector outlook is linked with these evolving macro-economic developments and emerging challenges. Despite the rate hike; resultant credit costs, expansion in currency in circulation, rising compliance costs amidst tougher regulatory environment 50 Annual Report 2019 without considering ecosystem, inflation driven expenditure growth and discriminatory tax regime with the continuation of the Super tax pose significant challenges to the sector’s bottom line outlook. Your Bank would continue to focus on operational excellence vide deployment and upgrading of technological tools and automated processes within the Bank. Targeted implementation of Business Process Management, Warehouse Management System, and Customer Relationship Management system are expected to optimize, automate and streamline business processes and enhance profitability in the long run. Enhanced focus shall continue to tap into opportunities in the captive business available with Your Bank’s vast corporate obligors base and by focusing on emerging corporate segment. Quality growth in priority sectors including SME would remain under focus, by expanding bank-maintained warehouse initiative, launching of shariah compliant business finance product and initiating SME financing activity under karandaz’s cashflow based lending project. With gradual transition from a closed environment towards more open ended and agile platforms, information security shall remain a significant operational risk for financial institutions. Your Bank intends to implement network visibility and security analytics solution together with End point detection, response EDR and Trade Based money laundering solution in order to promptly detect and mitigate these emerging threats. Planned implementation of “Integration Framework Studio” will offer a graphical development environment enabling “Wizard Based Development Technique” and “Web Services”, while the intended implementation of Agile framework “AA Architecture” shall facilitate in developing new products with high degree of reusability and customization. E-banking services suite enrichment shall persist with the launch of Open Banking Application Programming Interface Portal. This portal will help adopt an “Open Banking” approach to incubate value added services and features for online community together with benefiting corporate clients of Your Bank in having real time access to their financial information for better decision making and funds management by integrating their internal systems. Your Bank continues to focus on enhancing e-banking proposition for attracting and retaining the technically proficient “millennial” customer segment. Hence, Your Bank intends to achieve commercial launch of branchless banking services together with further augmentation of e-banking network to include greater digital touch points, introduce ABL AMC booking and redemption facility through Your Bank’s e-banking platforms and drive digital transformation by implementing tech savvy procedures to improve services. Additional headways into the branchless banking endeavor through planned launch of Home Remittance facility on myABL Wallet, within the ambit of “Branchless Banking Regulations” of the State Bank of Pakistan (SBP), shall keep Your Bank well positioned to take benefit of opportunities for generating fee-based income avenues while concurrently facilitating swift and cost-effective inflow of home remittances and improving financial inclusion through enhanced usage of e-banking platforms. Emergence of new enabling technologies is transforming retail payment systems and allowing public to pay and receive money in real time. Your Bank maintaining its industry status of pioneering technological initiatives, intends to achieve commercial launch of Micro Payment Gateway; thereby simplifying the payment mechanism and offering swift retail payments with advanced Application Programming Interfaces (APIs) and directory services to the public. Contributing to the SBP’s objective of improving new customers accessibility for account opening, driving usage of digital financial services through increased number of account-to-account transactions across various networks and providing digital access to a range of quality financial services; Your Banks Asaan Mobile Account (AMA) scheme shall provide an integrated platform for swiftly and seamlessly opening a digital transaction account, via mobile phone, through a unified unstructured supplementary service data (USSD) code from anywhere at any time. Your Bank intends to apply internet and big data technologies to drive its business transformation and development; in turn laying the basis for launch of “Payday Initiative” for selfservice personal loans. This innovation will offer customers to select and apply instant personal loans through Your Bank’s mobile banking application in just few taps; thereby providing customer convenience through ease of access, minimum documentation, user friendly online portal and instant approvals while concurrently enabling exploitation of credit expansion opportunities by Your Bank. Your Bank seeks to build long-term business partnerships to strengthen banking relationships with financially capable enterprises proposing competitive solutions that contribute towards achievement of Bank’s corporate objectives. A Memorandum of Understanding (MOU) was signed with Pakistan’s largest online real estate portal Zameen.com, which shall enable Allied home financing offering to be made live on Zameen.com portal along with placement of loan calculator on the respective website. In an effort to promote e-payments Your Bank has signed a strategic agreement with National Institutional Facilitation Technologies (NIFT) to enable e-commerce through NIFT platform under the brand name “NIFT ePay”. Mobile Banking Unit (MBU) pilot, which contains an ATM within and offers banking services of cash collection and cash payment while also operating as an ATM on wheels, continued to be well received and is been expanded to additional two major cities. Similarly, response to the launch of Pakistan’s first ever Automated Robotic Digital Lockers that can be operated on a 24/7 basis via self-service kiosks at the convenience of the valued customers has been encouraging and Your Bank plans to gradually expand this facility in other high-end niche markets. Your Bank’s robust compliance framework has evolved to embrace legal and regulatory requirements as well as emerging industry best practices and is founded on the highest standards of corporate conduct and ethics. Persisting strategic focus is to automate documentation, review processes and use key Risk Indicators (KRIs) to identify, assess and monitor compliance risk. Your Bank continues to pursue identification and evaluation of artificial intelligence-based solution for enterprise vide compliance, transaction monitoring and sanction screening together with development of live risk matrix for managing bank wide Anti-Money Laundering (AML) and Combating the Financing of terrorism CFT risk. The ongoing transformation agenda of Your Bank involves focusing on automated, technologically driven processes in order to improve efficiencies and enhance transparency. As a result, planned implementation of Audit Management system (eAudit), shall enable Your Bank to attain a holistic, centralized, integrated, efficient, paperless and automated audit environment. The system shall be further evaluated with a view of automating the follow-up procedure of Board and Board Committee’s decisions with necessary enhancements to drive additional operational efficiencies. In order to ensure swift and flexible monitoring of ATMs, mobile application (app) would be developed. While premised on taking a strategic, organized and systematic approach to employee training and development that aligns individual growth with business goals, launch of app driven learning facility shall further augment Your Bank’s employee learning platform. Implementation of IFRS-9 shall result in development of a comprehensive forward-looking approach for incorporation of loss provision. However, its successful implementation in Pakistan shall remain largely dependent on alignment of existing laws and regulations, maturity of supporting software solutions and development of required skill set of human capital. Internally, Your Bank remains committed to work in a coordinated manner through its committee forum towards ensuring Bank’s preparedness for smooth implementation. Your Bank administers it business subject to ongoing regulations and associated legal and compliance risks. As per provisions of PSX notice no PSX/N-92 dated January 28th, 2019, Your Bank successfully conducted Corporate Briefing Session during the year under review to enlighten shareholders and analysts with Bank’s strategic, operational and financial developments. Your Bank continues to meticulously evaluate and adopt requirements of Revised Listed Companies (Code of Corporate Governance) Regulations 2019 and E-Commerce Policy Framework 2019. After marked success in the conventional banking business, Your Bank aims to replicate success in the growing niche market for Islamic Banking. Digitalization would continue to be key driver for facilitating Islamic Banking Group in graduating to the emerging technological advancement era; thereby enabling improved service offering with a complete range of customer centric Shariah compliant services. Acknowledgement I would like to express my deepest appreciation to the Board of Directors for their round the clock leadership and guidance. I would also like to acknowledge that the skills, experience and commitment of our team members are the key to realizing our vision. Special praise is due towards our much-valued customers for placing their continuous faith in our products and services. Furthermore, I would extend my sincere appreciation to the State Bank of Pakistan, Securities and exchange commission and other regulatory bodies for their direction and ceaseless support. Tahir Hassan Qureshi Chief Executive Officer Dated: February 07, 2020 Allied Bank Limited 51
28. GROUP REVIEWS Corporate & Investment Banking Corporate and Investment Banking Group (CIBG) continued to capitalize its strong position as one of the leading wholesale banking services provider in the industry. CIBG’s strength lies in unmatched ability to understand business relationships and competency to provide structured financial solutions while ensuring comprehensive relationship coverage and consistent level of service excellence. CIBG offers a broad array of products and services covering all types of funding and trade facilities, cash management, remittance business and customized investment banking solutions. CIBG also maintains a well-diversified capital markets portfolio with exposure in high quality stocks having a steady and resilient dividend stream. Additionally, CIBG manages Your Bank’s relationships with both overseas and local Financial Institutions and is also responsible for the overseas operations in Bahrain, Dubai and China. Furthermore, CIBG consistently synergizes with other business groups for maximizing cross sell opportunities. Amidst macro-economic challenges, CIBG continued to deliver on its business objectives in line with the Bank’s overall strategy of quality lending. Core business drivers remained; deepening of relationships with top tier corporates, expanding client base, enhancing relationship coverage and increased focus on nonfunded and ancillary business income. Corporate Banking (CB) aims to work on the basis of long term relationship with the primary objective of meeting all business requirements of our corporate and institutional customers while offering tailored and cost effective credit solutions with highly personalized services. During 2019, Corporate Banking’s performing loan portfolio increased by Rs.39 billion or 10% as against December 2018. Simultaneously, momentum towards augmenting CIBG’s trade finance portfolio was also maintained to maximize earnings for the Bank. Emerging Corporate (EC) division within CIBG has remained focused on its core objective of providing value added financing solutions and advisory services to mid-tier clientele including growing commercial entities; while simultaneously enlightening them with better corporate practices. During the year, EC has remained instrumental 52 Annual Report 2019 Future Outlook Going forward, CIBG aims to maintain its quality lending approach with primary focus on top tier and bluechip corporate clientele, in mid-tier corporate segment, cross selling of financial institutions products while capitalizing upon established corporate relationships and exploring avenues for maximizing fee based and ancillary business income exploiting on its domestic and international network. Treasury in increasing Bank’s penetration into this segment and added several new bankable relationships to supplement Bank’s overall portfolio growth and business generation. EC portfolio grew by impressive 55% during the year. Investment Banking (IB) offers a wide range of investment banking services and solutions to corporate clients partnering to achieve their growth and strategic objectives. ABL’s Investment Banking is building business on the back of strong corporate relationships; in-depth understanding of structured finance and local regulations; and rich past experience. The Debt Syndication and Advisory Unit’s forte is executing big ticket debt arrangement transactions ranging from advising on IPOs, Underwritings, Divestments, Debt Restructurings and Merger & Acquisition Deals. The Project Finance Unit offers services to project sponsors for development of a credit-worthy and bankable financial structure for Greenfield / Brownfield Investment Projects with appropriate risk management. The team also arranges funding on a syndicated basis for these Projects. During 2019, Investment Banking advised and financed multiple transactions covering diverse sectors including power generation and distribution, steel and telecommunication. Investment Banking’s pre-eminence in the local banking environment can be gauged from the numerous local and international awards received over the past years. During the outgoing year, ABL won the award for “Utility Deal of the Year - Highly Commended” from The Asset Triple A Asia Infrastructure Awards 2019. The Capital Markets division, operated by highly experienced equity investment specialists, manages a well-diversified equity portfolio with enhanced focus on investment quality, diversification and stable dividend payout. Total Capital Gain and Dividend Income amounted to Rs. 2,815 million during the year. Revaluation surplus as at December 31, 2019 registered at Rs. 9,686 million. The Financial Institutions & International Division continued to enhance ABL’s global institutional banking relationship base with leading and reputed financial institutions to support trade, treasury, and foreign exchange payments. In addition, our partnerships with various multi-lateral agencies and global banks continued to facilitate customers’ growing and diversifying international banking requirements. Your Bank has more than 300 international correspondents located in 79 countries, providing global reach and acceptability. The Bahrain branch and Dubai office remained instrumental in harnessing opportunities for business in the Gulf region. Our Representative Office in Beijing, People’s Republic of China, continued to develop relationships with leading Chinese Banks to explore potential business opportunities for trade and investment flows between China and Pakistan. During the year under review, Memorandums of Understanding were signed with Bank of China and China Everbright Bank to formalize strategic partnerships with these banks and collaborate with them on RMB business, trade finance, treasury and corporate banking transactions. Home Remittance Division (HRD), continued to enhance remittance inflows by strengthening relationships with existing correspondent partners and adding new-tie-ups globally. During 2019, new tie-up relationships were established with correspondent partners from UK, Ireland, Sweden and Japan. Contribution to income by HRD amounted to Rs. 444 million during the year. Major global financial markets witnessed subdued volatility in 2019 amid sustained growth and a shift towards easing bias by G-7 central banks reflecting the underlying fragility of the global economic recovery. The easing impacts of announcement of “Phase One” of US-China Trade deal, fading fears of a no Brexit deal supplemented by lagged impact of broad-based accommodative monetary policy paved the way towards acceleration in global growth rates. Federal Reserve acknowledged policy error of 2018 target rate hike, along with its spillover effect on world economy, resulting in series of rate cuts that brought the policy rate down to 1.75% from 2.5%. This, along with assurance of policy accommodation by other major central banks, provided much needed relief and dispelled the fears of another crisis similar to the one faced by Asian countries in 1997. Pakistan economy faced significant headwinds for most part of 2019, mainly due to the twin deficits experienced in past years resulting in stagflation as the GDP growth slowed to under 4% while inflation touched double digits. In order to counter these pressures, SBP increased policy interest rate by 325bps and shifted towards market determined exchange rate system. These measures came in tandem with a new IMF program and with commitments to foster policies directed towards economic stabilization and sustainable economic growth. Towards the end of 2019, the economy began to show signs of stabilization, with improved outlook as acknowledged by international institutions resulting in improved credit ratings and resumption of foreign flows, however, the risks remain elevated. Anticipating the impact of elevated twin deficits on interest rates and USD-PKR parity, ABL divested most of its long term bond portfolio and reduced the maturity profile of assets to benefit from upward movement of the yield curve. This positioned ABL in an advantageous position to benefit from the upward movement of the yield curve. On the FX side ABL treasury’s performance was noteworthy as timely position taking supplemented with excellent client servicing resulted in contribution of Rs. 2 billion to the bank’s bottom line. SBP’s award of “Best Primary Dealer” status to Your Bank boasts for the Treasury Group’s remarkable contribution towards development of Country’s primary and secondary fixed income markets. ABL’s FX interbank desk continued to manifest its status as one of the leading market maker in the spot and FX swap market while sales desk further strengthened its share in fixed income sales segment through competitive pricing and diverse offering of sovereign fixed income and money market opportunities. Future Outlook Going forward, in 2020 global economy is likely to continue its consolidation phase as challenges to maintain the pace of global growth remain high with Middle East and US-China trade tensions posing a potential risk. On the domestic front, inflation is expected to ease off in later half of the year before touching a multi-year high, owing to factors like rupee appreciation and ongoing fiscal consolidation. Although the stabilization measures have started bearing fruit, however cautious approach still seems appropriate for the economic managers to safeguard the nascent recovery. Treasury will continue to closely monitor the changing economic landscape particularly the change in direction and the pace of change in the economic indicators that will determine the portfolio strategy. Commercial and Retail Banking Commercial & Retail Banking Group (CRBG) has capitalized on its legacy of an enriched services suite, tailored to fulfill customers’ diversified banking needs, complimented through e-channels and enhanced service quality, despite challenges emanating from the economic and operating environment. The Bank has achieved historic milestone of surpassing the deposit of 1,000 billion during 2019, complemented by impressive growth in CASA and Rack deposit mix from 82% to 83%. Resultantly increase in cost of deposit was restricted to 273 bps as against 487 bps rise in average Policy Rate. Moreover, 13% growth was witnessed in Current Account volume, enabling 10% average deposit growth and is well positioned to exhibit further growth while remaining part of the “Trillion” Club. Your Bank continued to expand its footprint; branch network was expanded by 50 new branches during the year to reach at 1,395 along with 10 new regions to support business expansion in new geographies. Remaining focused on boarding NTB relationships, CRBG has added 700,000 plus accounts to existing account base. In line with the objectives of National Financial Inclusion strategy of SBP, Your Bank continued to play its pivotal role. Services like Allied Youth Account and Allied Senior Citizen Account were further enriched during the year contributing towards financial inclusion of relatively un-banked, low income segments of the society and also adding to deposit base of the bank. Being cognizant of significance of Small and Medium Enterprises in our economy, Your Bank has always supported this segment through provision of exceptional financial and non-financial services. In line with the Bank’s strategic objective to create an enabling environment for SMEs; CRBG has continued its practice to arrange SME awareness sessions, road shows, seminars to engage various stakeholders and disseminate product knowledge of SBP schemes to SMEs. During the year multiple nationwide awareness seminars were conducted and attended by numerous representatives from SMEs, trade associations and business community. Moreover, in order to support women entrepreneurs and introduce financial and non-financial advisory services of Your Bank, CRBG held sessions with Women Chamber of Commerce and Industry in Faisalabad and Lahore. Taking further the partnership with Karandaaz Pakistan (NonProfit Organization funded by the Bill & Melinda Gates Foundation for Innovation Challenge Fund “Transforming SME Financing Innovative Credit Scoring of SMEs”), Your Bank has successfully developed an innovative credit scoring model and has planned disbursement to the selected segment during 2020 which will not only support SMEs by augmenting their access to finance but will also add towards gradual quality asset growth of Your Bank, while remaining cognizant of enabling environment. CRBG also continued to expand its novel initiative of financing through ABL Allied Bank Limited 53
29. GROUP REVIEWS through murabaha and Istisna modes . Allied Aitebar Islamic Banking, in 2019, won the award of “Most Innovative Islamic Bank Window – International Finance Awards 2018” by International Finance. Warehouses. This product supports various classes of obligors to avail financing on relaxed collateral securities and other terms. CRBG continued with unique corporate social responsibility initiative of imparting financial literacy to our SME obligors through free of cost implementation of Enterprise Resource Planning (ERP) software. During the year ERP was successfully implemented at two SME obligors. CRBG is ambitious to remain instrumental in financial literacy, including implementation of ERP systems, of SMEs contributing towards the societies in which it operates. CRBG adopts a realistic approach towards consumer portfolio and in addition to building relationships with new obligors, focuses on strengthening relationships with existing customers by offering cross sell consumer finance services. During the year, CRBG expanded its consumer finance services suite through launch of “Allied Home Finance”, a mortgage financing product, with unique embedded feature of Life Insurance of the obligor, which is currently not being offered by peer banks. The product also caters for low cost housing needs. Aligned with the bank’s focus to play a significant role in development of innovative financing services for deployment of clean energy technologies and providing Green Banking, CRBG has developed new service product “Allied Solar System Finance” which is ready for launch in early 2020. CRBG has enriched its agriculture financing services suite to encourage 54 Annual Report 2019 the farming community in adopting best mechanical and irrigation practices to improve per-acre yields. “Allied Aabyari” & “Allied Farm Mechanization”, were developed during 2019. In continuation of its initiatives towards diversification, CRBG is evaluating to collaborate with Agriculture Universities to introduce courses on the Hydroponic Greenhouse Farming techniques and planning to finance the pilot projects under CSR. Efforts to launch web based Agri Advisory Services are also underway. CRBG has been actively creating awareness among the farming community through regular Farmers Financial Literacy Programs. In line with the Bank’s vision to digitize processes, CRBG has entered into agreement with Punjab Land Record Authority for generation of computerized land record leading to efficient services with reduced leadtime. Future Outlook Going forward CRBG segment of Your Bank aims to focus on transformation towards digital platform by focusing on internal and external awareness about ABL’s e-banking services, financial inclusion by increasing outreach of our service offerings, augment feebased avenues by directing efforts on services, channels and cross sell opportunities that have the highest potential to add to the bottom-line. Optimization of the network in light of the Bank’s long term strategic plan and gradual transformation towards digital era shall be further focused upon. Furthermore, CRBG aims to maintain and further build upon the momentum through capitalizing on customer segmentation; working closely with all support functions to maximize return by achieving business targets. Islamic Banking Islamic finance has emerged as an effective tool for financing development worldwide, including in the non-Muslim countries. According to The Banker, top Islamic Financial Institutions rankings show overall asset growth in the sector in 2019, with regions such as Asia booming and others, such as Africa, holding plenty of unbanked potential. ABL IBG started its journey during 2014 and by the end of 2019, it not only achieved its breakeven but also registered annual profit of Rs. 79 million, excluding the impact of IFRS-16 the profit amounted to Rs 196 million. The total assets and deposits have registered healthy growth of 54% and 40% respectively on YoY basis, i.e. Assets increased to Rs.42,107 million from Rs.27,304 million with ”Nil” Non-performing loans, and deposits increased to Rs.34,389 million from Rs.24,633 million. In order to facilitate its customers, IBG expanded outreach by opening 50 more Islamic Banking Window (IBWs) at selected conventional branches and making the count to total 60 IBWs besides its network of 117 dedicated Islamic Banking Branches. Total Advances and Investments as at December 31, 2019 reached at Rs.25,067 million, a growth of 46%. Strengthening the product suite, IBG developed and launched segment based Shariah Compliant service products for Consumer, Agriculture, Senior Citizen and Youth segments. IBG, following the initiative of SBP, also launched refinancing facility products Islamic Long Term Financing Facility Seminars were held in Gujranwala and Bahawalpur Chamber of Commerce to enhance awareness about Islamic Banking. Ulamas, Islamic sharia scholars, obligors and other participants attended the sessions. Going forward, IBG is determined to focus towards enhancing market share while providing innovative and customer centric shariah compliant services to its valued customers. During the year, enhancing the human resource capabilities remained the focal point for the IBG, therefore In-house training sessions were conducted to provide Islamic banking training to staff along with arranging training from reputable external training institutes. Digitalization and automation in Islamic Banking Group has remained part and parcel of the Bank’s overall strategy during the year. In order to keep pace with the rapid technological advancements in the competitive banking industry; Islamic Banking Group is meeting challenges of digital era with digitalization concept and availing every opportunity for its implementation within the Group. consistent innovation and dynamic products from Fintechs are continuously challenging the traditional banking industry to focus on augmenting customer experience through adopting latest technologies and excellence in services on both conventional and e-banking fronts. Attracting and retaining the technically proficient “millennial” customer segment is also an emerging challenge of digital age. As a forward-thinking Bank, DBG has responded to these market disruptions by expanding in-house capabilities and also has partnered with Fintechs for new digital offerings. DBG is maintaining strategic focus on broad based digitalization to augment the service products suite by offering personalized and innovative solutions catering to the evolving needs of different customer segments. In the transforming digital financial landscape and with a view to provide high-end cashless solution, DBG has launched Open Banking Application Program Interface (API) portal to enable its innovation ecosystem and collaborated with the following FinTechs: • • Future Outlook Coping with the challenges of strong industry competition, ABL Islamic Banking commits to offer a complete range of Shariah compliant customer centric services, where dedicated hard work with clarity would enable capturing the sizable share of this growing niche segment. Customer awareness sessions would be given significant importance to promote Islamic banking and to spread savoir-faire on services being offered. Digital Banking Banking industry is gradually being transformed, wherein digital disruption, • • “EasyTickets” to provide online cashless booking of movie, bus and event tickets on myABL Digital Banking platform. “Golootlo” to offer discounts on a wide array of products and services at 12,500+ merchants nationwide through myABL Digital Banking App and UPI-PayPak CoBadged Debit Cards. “1LINK” to provide bill payment aggregation services to pay bills conveniently through 1LINK member bank’s channels. “Avanza Premier Payment Services (APPS)” to revamp online transactions through Payfast; an APPS’ payment gateway enabling the ABL customers to shop on APPS’ vast ecosystem of schools, billers, mutual funds, marketplaces and other entities vide bank accounts. In line with the SBP’s objective of building a dynamic and inclusive financial sector under National Financial Inclusion Strategy, which aims to encourage people to have a bank account and ensure its digital presence, DBG has soft launched branchless banking to augment its e-banking suite. myABL (Personal Internet Banking) complements individual users’ experience over mobile apps for Apple iOS and Google Android and works seamlessly across wide array of devices. It offers a wide array of customer features, available 24/7 on internet and mobile. The numbers of registered myABL users has increased by 46% during 2019. Keeping pace with the ever-evolving needs of business and institutional customers, exclusively designed user friendly and device responsive interface; myABL Business Internet Banking (BIB) facility enables customers to execute wide range of banking transactions online from their respective workstation. Business entities can initiate multiple transactions on BIB including specialized trade finance transactions letter of credits, guarantees and export collections, term deposit issuance and encashment and perform general banking transactions [funds transfers, bill payments, tax (FBR) payments, bankers cheque printing] and bulk payment transactions. Self-service banking (SSB) enables the customers to cater their banking needs while interfacing with diverse range of digital touch points including tablets, interactive tables, video conferencing and digital kiosks and provides an instant paperless user experience. SSB branch network is also being expanded gradually across selected locations. Various discount campaigns were executed during the year with leading retailers including Daraz.pk, Serene Air, Metro Cash & Carry, Zenith, MeatOne etc. to encourage card-based transactions and promote cashless economy. Resultantly phenomenal growth of 29% was witnessed in debit card spent on YoY basis. Allied Bank Limited 55
30. GROUP REVIEWS During the year , Your Bank has centralized all its cash management services under one payment hub wherein customized batch mode processing or API based integration is offered to customers. Consequently, DBG has onboarded 37 New To Bank cash management mandates during the year from government, educational, real estate and housing sectors. Focusing on enriched customer experience and convenience, Your Bank remained the top issuer of PayPak Debit cards and ranked as N.o 1 transaction acquirer in terms of number and volume in the industry, while continuing to expand its ATM network providing 24/7 service to the customer with a leading position of 97% uptime during the year. Your Bank continues to supplement its ATM network with the extension of biometric verification services, installation of anti-skimming devices and re-carding activity to achieve EMV compliance to ensure multilayered security approach to guard our valued customers against emerging security threats, and simultaneously achieving Compliance of PCI DSS standards. Innovation Lab has worked closely with the Branch Transformation team to improve the customer experience for self-service equipment including Cash & Cheque Deposit Machine (CCDM), Interactive Teller Machine (ITM), Tablets, Digital Signage machines, and SelfService Kiosks. Future Outlook Keeping in view the customer needs and desire from millennials, Digital Banking Group will further strengthen the products suites. DBG aims to adapt agile approach towards product development for faster implementation. Key initiatives are planned in 2020 such as commercial launch of Branchless Banking services, launch of home remittance facility through branchless account, commercial launch of Micro Payment Gateway, enhancement of digital branch network with more digital touch points and drive transformation in the bank by augmenting e-services. Information Technology Technological advancements are consistently revolutionizing the banking landscape. Machine Learning, Artificial Intelligence, Big data and Robotics are transforming the traditional brick and mortar banking model. Responding to continuously evolving trends, Your Bank has made significant advancement in serving banking needs of its diversified customer base through state of the art technological infrastructure. The Bank is converging to ensure uninterrupted 24/7 customer service, using emerging technologies and by enhancing its digital footprint so that customers are delivered all “digital and networked banking services” on the go. The Bank has positioned its Information Technology Infrastructure including systems, networks, applications and robust data centers supported by Big Data, Artificial Intelligence (AI) and Robotic Process Automation (RPA) to ensure seamless banking services beyond the expectations of its customers. Big Data, Machine Learning & Deep Learning are creating disruption in entire financial landscape. Your Bank has implemented Oracle Big Data Appliance, a multi-purpose engineered solution for Hadoop workloads and data processing, in partnership with IBM and has started building its Data Lake. The data being extracted from multiple source systems is uploaded into Data Lake to support data driven business decisions based on meaningful insights and machine learning models, and in turn, improve and personalize customer experiences. 56 Annual Report 2019 Your Bank has implemented several use-cases on Robotic Process Automation Solution for improving operational efficiency, control and cost saving. Automation of these manual processes resulted in timely availability of services to the customers and reduction in resolution turn-around time consequently task automation has improved human resource management. Additionally, ITG has adopted effective measures to gauge network efficiency resulting in astounding-over 97% ATM uptime and related network services. Furthermore, the Bank is planning to develop cross platform Android & iOS based mobile application, to enable real-time monitoring of ATM network operational status. The application shall drive following benefits: • • • Field Force Optimization and Workload Management Real time visibility of ATM Cash Status Improved Service Level Turn Around Time In order to ensure business continuity and availability of critical services to the customers’ in case of a disaster, ITG periodically conducts mock exercise to monitor the security and robustness of the marked disaster recovery site. Like-wise In 2019, ITG has successfully performed Head Office functions from marked disaster recovery sites for a week’s time. During this period ITG successfully delivered more than 80 services and applications to the customers. Future Outlook Looking Forward to 2020, Information Technology Group aims to focus on augmentation in Core banking solution towards implementation of agile framework for digital era, graphic development environment enabling web services and wizard-based development techniques, adoption to Big data, Artificial Intelligence and Data Governance, business process management and enhanced network visibility and security analytics. In addition to above commitments, enabling learning environment and continuing job enrichment shall be ensured throughout the function. Risk Management Risk Management (RM) of Your Bank is continuously striving towards management of risk through an augmented framework of sound risk principles, reinforced by optimum organizational structure, robust risk assessment models and effective monitoring systems in an automated environment to safeguard the strength of the capital base of Your Bank while achieving maximum value for the stakeholders. Dedicated functions of Risk Management Group include Corporate & FI Risk; Commercial, SME & Consumer Risk; Credit Administration and Monitoring; Technical Appraisal; Information Security and Governance and Enterprise Risk which operate cohesively to continuously augment the risk monitoring and assessment architecture, ensuring superior quality of asset portfolio while keeping the aggregate risks well within the Bank’s overall risk acceptance criteria. During 2019, RMG continued to hone and innovate its risk management practices through use of latest technology and took following key initiatives to further strengthen risk monitoring and assessment processes: • Owing to Small and Medium Enterprises economic significance and in light of SBP’s initiative to promote SME financing, Your Bank participated in Innovative Challenge Fund (ICF3) “Transforming SME Financing, Innovative Credit Scoring Model of SMEs” launched by Karandaaz Allied Bank Limited 57
31. GROUP REVIEWS • Pakistan (a non-profit organization) and got selected as a Partner for this project. The financing activity under the project to targeted segment is expected to be commenced shortly. This project will not only help us in fulfilling our social responsibility of financial inclusion but also facilitate in creating business opportunities for the Bank. State Bank of Pakistan (SBP) issued detailed directions on implementation of International Financial Reporting Standard-9 (IFRS-9) vide BPRD Circular No. 04, dated October 24, 2019. The effective date for implementation of IFRS-9 is January 1, 2021 and the Banks are required to conduct parallel run and make necessary preparations for its implementation during 2020. Your Bank has already submitted a detailed quantitative and qualitative impact analysis report to SBP for adoption of IFRS-9 for the year ended 31st Dec 2017. In order to ensure smooth transition towards the compliance of SBP’s instructions for implementation of IFRS 9, Project Steering Committee of management comprising senior members of Finance, Risk, IT and Business Groups was formed and monitored by Board Risk Management Committee. The main stakeholders are working in a coordinated manner through the Committee forum towards preparedness of the Bank for smooth implementation. We believe that implementation of IFRS -9 in Pakistan requires a comprehensive forward -looking approach by all the stakeholders and alignment of existing laws and regulations with IFRS 9 requirements. 58 Annual Report 2019 • • • • RMG successfully implemented BenchMatrix Solution for Operational and Compliance Risk Management. This system has enabled Your Bank to automate various functions pertaining to Operational and Compliance risk management as per best practices. The Bank has an in-house developed state of the art Risk Assessment and Management System (RAMS) for loans processing and Monitoring. The system has enabled the Bank towards effective management of Credit Risk, also reflected by one of the lowest infection ratio in the industry. During the year, the management has undertaken initiative for major upgrade in the system providing additional tools and information for the risk assessor and monitoring teams. The project of Oracle Financial Services Analytical Application (OFSAA) for Enterprise Risk Management was completed during the year with the implementation of Assets Liability Management (ALM) & Liquidity Risk management Modules. With the successful completion of OFSAA for Basel, Market Risk, ALM and Liquidity Risk and Benchmatrix for Operational Risk Management, the wide spectrum of Enterprise Risk now stands automated in the Bank enabling effective monitoring of the underlying risks. In continuance of Bank’s distinctive initiative of engaging with the obligors to provide them with latest insight on business management & strategies; three interactive seminars for corporate, commercial & SME obligors on the topic “Transition from Family • Owned Business Structure to Corporate Structure” were organized during 2019. Your Bank also conducted various Security assessment exercises in 2019 on Information assets of the Bank. This includes Vulnerability Assessment (VA), Penetration Testing (PT) and Technical Risk Assessment (TRA) exercises. A Compromise Assessment activity as mandated by State Bank on all e-banking channels was also conducted as part of these assessment activities. PCI DSS Certification was also achieved in 2019 as a major security milestone along with compliance to Swift Customer Security Program (CSP) as mandated by Swift International. Various Information Security campaigns were conducted which include sending SMSs and Emails to the customers to educate them on security issues. Your Bank continued to invest in energy saving solution through convergence to renewable energy sources during the year under review. Accordingly, one bank-maintained warehouse was also converted to solar energy. Moreover, paper-based approval process for fixed asset disposal was replaced by “Asset Management System”, to avoid excessive use of paper and in turn minimize courier cost. in Risk Assessment and Management System, information security awareness campaigns, implementation of IFRS-9, augmentation of Bank maintained warehouses for pledge financing. Meanwhile, emphasis on further strengthening the Bank’s Information Security Posture shall continue along with investments in technology and human resource development to maintain an effective risk management framework across the Bank. Human Resource Human Resource Group (HRG) has continued to play pivotal role in organizational development through strategic capacity building of all functions of the Bank, it remained focused on recruiting, training and retaining quality human capital. The Bank’s culture was further strengthened with forward looking positivity thus paving way for conducive work environment. Keeping pace with evolving digital age, HRG took the role of transformation enabler and revamped the Bank’s organizational structure, encompassing all functional groups. This was aimed to transform the organization into a robust, smart and agile by augmenting functional role and achieving optimal resource utilization in each function. In order to address the increased regulatory regime, business expansion in new geographies was supported through carving ten (10) new business regions, alongside control structure was amplified by creating the same in Banking Services domain as well. Your Bank believes in ‘Pay for Performance’ strategy and each year the Branch performance management matrix is evaluated and redefined. This year based on the business and market analysis, the scope of Key Performance Indicators were enhanced to cover the relationship management segment and to bring in the right mix of over the counter transactions and digital platform. Human Resource policy was revamped to align annual performance appraisal scores with underlying risk adjustments in line with best international practices. Remuneration structure relating to Material Risk Takers (MRTs) and Material Risk Controllers (MRCs) across the Bank was defined and implemented under revised HR policy. Career growth opportunities were offered to employees at all hierarchal levels through merit-based elevations of Bank’s internal resources to provide cross functional exposures at Chief, Group Head, Divisional Head, Regional Head and Unit Head positions. Through effective succession planning at junior management levels, 193 cadre change promotions were made along with 1,907 grade promotions during the year 2019 to provide adequate growth opportunities within the organization. Induction of the best available and tech savvy talent to support expanding branch network and bank’s business strategy was carried on with recruitment of 1,866 new employees. Human Resource Group supports gender diversity and equal employment opportunities were offered to females and candidates belonging to minority groups across the Bank, at present the female employees’ ratio is 17.44%. The in-house Psychometric Assessment Center ‘CARE’ continued to perform its function with vigor. A number of strategic initiatives were introduced, such as competency assessment for new Management Trainee Officers (MTOs), learnability curve assessment and personality profiling of existing MTOs and aptitude test for new Tellers. Moreover, psychometric assessment for posting of Regional Heads was also introduced to find the best fit for this critical middle management position. Psychometric Assessments was also Future Outlook Risk Management aims to continue the pace of major initiatives in 2020 such as effective utilization of the implemented Modules of OFSAA and Benchmatrix, process design assessments and Control Testing, re-validation and calibration of Obligor Risk Rating Models by external consultant, automation of workflows Allied Bank Limited 59
32. GROUP REVIEWS made mandatory for promotions from Management Grade 7 (MG7) to MG6. With the deployment of Robotic Process Automation in branch banking processes, the Manpower plan (MPP) required a harmonized approach. Thus, the ‘Universal Banker’ concept was implemented, aimed at improving service standards and rationalizing workload among branch employees. This year while remaining abreast with industry dynamics, a unique program of Allied Leadership Talent Pipeline (ALTP) was introduced to ensure effective succession at the mid-level management. Under this program, Based on individual leadership potential, young leaders were categorized in three echelons: High potential successor, Intrinsic potential successor and Extrinsic potential successor. A comprehensive training cycle for a group of 83 employees, based on identified individual needs in each echelon was delivered to enhance their leadership skills and build their capacity for senior level assignments, in coming years. Focused learning interventions were executed under ALTP, through engaging in-house mentors, and external industry experts. Training and Development of employees continued to remain primary focus of HR initiatives. This year with higher focus on regulatory compliance in various functions, training needs increased manifold and therefore modern technology solutions such as e-Learning, gamification modules, online assessments, webinars, online tutorials, bite-sized learning were deployed to achieve the training milestones. HRG achieved 96% employee coverage by imparting training to 10,844 participants with 7.6 training man days per employee. 60 Annual Report 2019 Being a responsible corporate entity, Allied Bank continued training initiatives in under- privileged and unbanked areas focusing on National Financial Inclusion Strategy. These trainings were conducted by the Bank’s resources in Baluchistan, FATA, Gilgit/Baltistan, etc. The central Bank recognized our efforts for this national cause and designated Your Bank as a ‘Lead Bank’ for National Financial Literacy Program in 37 districts of Pakistan. So far, a total of 10,983 nationals across Pakistan have attended these sessions. MTO Reconnect program was launched for existing MTOs, working across various functions in the Bank to provide platform for sharing insights, professional experience and journey within the Bank, thereby providing mature feedback for further improvement in bank’s processes, policies and working environment. Allied Onboarding Journey (AOJ), a fully customized automated online program was introduced for newly hired employees. It encompasses vital information on Bank’s functions and provides the new hire with comprehensive onboarding journey mapped up to 12 weeks covering orientation about the Bank, its mission and value statements, code of ethics, information on job specific regulatory requirements, vision on digital transformation and desired culture fit behaviors. The Bank has won the prestigious award of ‘Best Place to Work’ under the category of ‘Financial Services’ for the Year 2019. This award is manifestation and recognition of Allied Bank’s unwavering professional resolve and progress towards inducting, retaining and nurturing the best human capital as well as successfully managing all functions of human resource management in line with the core values, mission and vision of the Bank under the guidance of its Board. Future Outlook As integral part of Bank’s hierarchy HRG shall continue its concerted efforts towards providing and augmenting the right human capital. HRG shall focus on establishing world class Management Development Centers; equipped with video conference facility, collaboration and resource sharing of MDCs with other reputable institutions, leading Digital Transformation’ training for middle management, shift toward e-recruitment, introduction of shared performance objectives program and career development plan aligning individual career objectives and organizational goals and improve female employee ratio. Banking Services Banking Services Group plays a pivotal role in business growth through effective and efficient support supplemented by strengthening control environment. It aims to ensure delivery of banking services with utmost customer satisfaction which in turn synergizes the New To Bank (NTB) relationship building along with deepening in the existing clientele. Opening and reviving of almost 1 million accounts during 2019 were the result of professional support extended during the year. Furthermore, healthy percentage of the total unclaimed deposits were re-activated and retained during the year. In order to improve the service delivery timelines and support growing network, ten new controlling regions were formed during the year. Automation and digitization remained the key objective of the Group during the year. Initiatives like utilization of Biometric Verification for Asaan Account opening, Biometric Authentication for Locker operation, introduction of Universal Banker concept (Onewindow operation) and installation of Interactive Digital Signage machines at over 750 branches reflect Bank’s strong commitment towards high class customer service. By affirming its impression as a cross-selling and digital transformation agent, consistent efforts were made ensuing significant growth in digital transaction mix and cross sell segments. Along with regular banking operations, Banking Services Group ensures dedicated support to the Compliance function to comply with the SBP guidelines and regulation, evident from the successful execution of Biometric verification exercise to strengthen AML/ KYC regime. The Bank’s Branch Banking Solution, namely T-24, was expanded to Bahrain Branch & Export Processing Zone Branch during the year. In line with the Bank’s strategy of capitalizing on the evolving technologies, Robotics Technology was deployed to automate issuance of Statement of Accounts on demand. Moreover, Intimation Letters to customers were replaced with SMS alerts for enhancing cost and time efficiency. Outreach of centralized inward clearing was expanded to additional 107 branches (total reaching 555 branches) in order to strengthen control environment and improve process centralization. Digital reading of cheques was introduced to reduce transaction Turn-Around-Time, SMS alert for transaction exceeding Rs. 300,000/- threshold was implemented and Call Back Confirmation was automated through recorded call. Straight Through Processing was implemented at ABL SWIFT along with integration of Image Management System for SWIFT transaction to supplement international correspondent banking. Automated Solution was implemented for screening of SWIFT messages for Foreign Remittances and trade transactions. Additionally, almost 40% agents were converted on Application Programming Interface, Cloud based platform to make the payment availability on practically real time basis. Direct debit mode was also implemented to eradicate risk of any overdraft in agent account. Dedicated efforts were continued to be made during the year to facilitate Your Bank in achieving industry leading ATM uptime and top acquirer status. Banking Services Group has Digital Banking infrastructure which was augmented during the year with expansion of existing fleet of full-service Mobile Banking Unit to three major cities of Islamabad, Karachi and Lahore. The Group remained instrumental in successful planning & testing of business continuity plan ensuring bank’s preparedness to continue to provide banking services to its customers even under unusual circumstances. Banking Services Group is fully committed to continue with the momentum of flow of fee-based income attributable directly to its service delivery, the Group resolves to outperform their standards, to bring about efficiency in customer service. Future Outlook Going forward BSG aims to focus on automation of processes to enhance customer experience along with system augmentation to strengthen control environment. In this context BSG shall focus on biometric verification facilitated customer transactions, extension of digital lockers and mobile banking facilities, data enrichment, augment home remittance transactions, digital signage at branches. Allied Bank Limited 61
33. GROUP REVIEWS Special Assets Management Fragile economic conditions , subdued business activity coupled with monetary measures, adopted by SBP to counter inflationary pressure, gave rise to impaired repayment capacity of businesses and obligors which, in-turn, deteriorated the industry’s infection ratio. Across the banking sector, the remedial assets management has gained increasing importance for preserving Bank’s profitability. Special Asset Management Group of Your Bank, through its dedicated remedial team, continued its multipronged strategy for recovery against non-performing loans during the year, along with playing its contribution in the overall bottom-line. The function focusses more on negotiated settlements to avoid unnecessary cost on lengthy and complex litigation process. The year 2019 proved another successful year for SAMG with recovery of over Rs. 1,290 million. Infection ratio (NPL/Gross advances) decreased to 3.2% as at December 31, 2019 compared to 3.5% in December 2018. Meanwhile, loan loss coverage (including general provision) decreased to 96% as at December 31, 2019 from 97% as at December 31, 2018. Infection and coverage ratios are significantly better than the industry’s infection and coverage ratio recorded at 8.2% and 84% respectively at period ended September 30, 2019. SAMG has played an active role in recent incorporation of “Pakistan Corporate Restructuring Company Limited (PCRCL)”, and is a key shareholder along-with nine other major banks. PCRCL has been setup to acquire, restructure and resolve non-performing assets of financial institutions thereby reorganizing and reviving the commercially or financially distressed companies. In line with Your Bank’s overall vision towards digitalization and paperless banking, SAMG has digitized its settlement approval, release of securities and Fraud Risk Management Unit (FRMU) approval process through Workflow Automation System (WAS). FRMU has also implemented Visa Risk Manager Module for 24/7 monitoring of e-banking transactions on real time basis and foiled various fraudulent attempts by strengthening internal control design measures. 62 Annual Report 2019 Future Outlook Going forward, SAMG is focusing on up-gradation of Litigation Management System (LMS), integration of NPL/ Write off loans settlement with Risk Assessment & Management System (RAMS) and enhancements in Financial Crime & Compliance Management (FCCM) & FRACTALs (Fraud Detection Module for Branch Banking transactions) with new scenarios along with imparting professional trainings to staff for enhancement in professional expertise. Compliance Compliance Group (CG) aims to ensure strong compliance culture on entity wide basis through effective adoption of regulatory requirements in all policies and procedures of Your Bank, strengthening compliance review function, ensuring compliance of internal and external audit observations, enhancing stakeholder engagement and awareness, skill enhancement of compliance staff and ensuring technology driven controls for effective implementation of Anti Money Laundering and Combating the Finance of Terrorism (AML/CFT) framework within the bank. CG performed its core responsibility of ensuring strong regulatory compliant environment bank wide, inculcating strong compliance culture and establishing robust compliance risk framework enabling the Bank to remain abreast with the continuously evolving domestic and international regulatory requirements. CG maintained its focus to enhance compliance at all the levels of the Bank including the following key areas: • Compliance risk management and • • • • • • • monitoring; Entity and Process level controls to avoid Money Laundering (ML), Terrorist Financing (TF) and Proliferation Financing (PF); Continuous and consistent adherence to Regulatory promulgations and frameworks; Maintenance and updation of bank-wide Policies and Procedure documents; Coordination with the regulator along with ensuring accurate and timely regulatory reporting; Enhanced & Effective Stakeholder Management & Organization wide awareness through Recurring & Relevant Training/ Education; Effective technology utilization and upgradation; Issues tracking and resolution identified during internal and external reviews and audits During the year, Your Bank implemented Operational and Compliance Risk Management solution to augment technology supported controls. The Bank also completed Implementation of C-link, a name-screening solution, along with creation of additional private lists in C-link & its integration with Core banking System for enhanced due-diligence measures based on an enriched proscribed database with capability to update on real time basis. This tool has enabled Your Bank to effectively screen out Sanctioned Entities, Politically Exposed Persons, other High-risk entities and Over the Counter Home Remittance transactions. During the year, Oracle’s Financial Crime and Compliance Management solution was upgraded and customer jurisdictions for Risk assessment were significantly enhanced from 12 to 21, which resulted in further broadening the scope of its coverage. The Bank has redesigned e-KYC form to capture trade related business information of customers to ensure effective KYC/ CDD and strengthening review of AML/ CFT & PF measures. During the year 2019, Your Bank developed Entity Risk Rating Mechanism for Terrorist Financing & Money Laundering and conducted two assessments in line with revised National Risk Assessment (NRA) report of Pakistan with respect to vulnerability risk, threat risk and determination of residual risk after accounting for mitigating controls. Your Bank is also in process of identification & selection of Trade Based Money Laundering solution. Your Bank made continuous interaction across organization for creating strong Compliance culture through role-based training for Compliance especially awareness of KYC and AML aspects by conducting onsite & class room trainings of more than 1,668 participants covering branches, regional offices and Centralized Processing Unit. Future Outlook Going forward Compliance function of Your Bank aims to focus on, inculcating strong compliance culture through enhanced awareness by creating distant learning & role-based learning opportunities, automation of documentation review & approval process, using key risk indicators to identify, assess and monitor compliance risk, conducting compliance reviews of bank’s material and high-risk areas to evaluate the adequacy of implemented compliance controls. Identification and evaluation of artificial intelligence-based solution for enterprise vide compliance, transaction monitoring and sanction screening along with implementation of trade-based money laundering framework shall be focused upon. Service Standards & Quality Service Quality is a strategic priority for Your Bank and is viewed as a key product offering to our valued customers. Customer service in banking is one of the most important tools to enhance its market share. It includes responding to customers’ needs and addressing their complaints in a thorough and timely manner by interacting with customers through face-to-face interactions, on telephone, and vide other communication mediums. Service Standards & Quality (SS&Q) Group is committed to nurture a service culture across the organization. The governance around monitoring and measurement was strengthened with mystery shopping and independent customer surveys in order to align internal service measures with customer feedback. The Initiative of top 100 flagship branches was introduced to provide an impetus to service quality across the bank through availability of trained and dedicated human resources and creation of a pleasant ambiance for customers. Customer Support Officers are assigned at the greeting station near branch entrance areas to implement meet and greet concept. Provision of Electronic Queue Management system and feedback tablets has been installed to facilitate customers in conducting transactions conveniently and providing valuable feedback on the delivered banking services. Availability of Internet Banking Kiosks has also enabled better customers’ facilitation towards selfservice banking. In order to further streamline and improve the delivery of support services to the branches and other offices of the Bank, the internal ticket resolution system has been revamped. It provides work categorization, standard turnaround times, and automatic escalation mechanism ensuring timely provision of internal support services. The Bank has arranged for video mystery shopping of Top 100 flagship branches through an external research partner. Mystery shopping allows Your bank to evaluate the level of customer experience from a third party’s unbiased perspective. The exercise provides an objective view of the services experienced by customers at these branches. Prior to initiation of the activity, Service Quality personnel conducted training sessions for branch staff and provided guidance about customer services aspects to be evaluated during the mystery shopping. Branch Service Health parameters and Service Standards were further strengthened with enhanced scope to track delivery of services against the set performance benchmarks for front-desk and back-end functions of the Bank. With the objective to engage customers and nourish relationship with the customers on the mediums of their preference, the Bank maintains profiles on social media websites and actively interacts with the customers on a variety of topics. Customer engagement through timely attention and resolution of customer queries, total social media followers has increased from 879,143 to 972,940. Facebook followers reached 966,382 from 872,392; Instagram followers touched 6,166 from 814 whereas and Twitter followers stretched to 6,392 from 5,937, comparing Year 2019 against Year 2018. At ABL, we maintain customer trust by striving to protect their data and information, and delivering fair outcomes for them – and in rare cases of customer grievance, addressal of customer complaints in a timely manner. The Bank has a centralized Complaint Management Division in place to efficiently and effectively resolve customers’ grievances and strengthen the ‘customer-bank’ relationship. With the aim to create awareness among customers about the Bank’s complaint lodgment process and available mediums, information was disseminated through SMS, e-mails, corporate website, digital signages and ATMs as part of Your Bank’s initiatives for Fair Treatment of Customers (FTC). Your Bank taking appropriate measures promptly achieved 99% resolution rate with average Turnaround Time (TAT) of 3.9 working days within the prescribed TAT, for resolution of customer complaints lodged during the year. Allied Phone Banking is striving 24/7 to serve its customers and ensure First Call Resolution (FCR). Allied Bank customers are welcomed to get in touch with Allied Phone Banking agents through telephone, email, webchat, social media and high-tech ABL Video Phone Banking. During the year under review, Outbound Call Centre was introduced to connect with existing and potential customers for lead generation and information on service offering related to cross sell and new products. Future Outlook Going forward Service Quality resolved to the following initiative in 2020 including installation of Electronic Queue Management System (EQMS) & feedback tablet in additional 100 branches, develop and monitor Service Quality Standards for branches and support units, upgrade Allied Phone Banking Web Chat Solutions, system improvement to augment complaint resolution and gradual transfer of customer services from branches to call center . Additionally, service quality hankers to continue its conspicuous supporting role in customer convenience while ensuring high class service delivery. Allied Bank Limited 63
34. KEY PERFORMANCE INDICATORS Long Term Objectives Maintain profitability trend enabling continuous recognition among the top tier profitable banks of the country Key Performance Indicators Overall Earnings Analysis Amidst multifarious challenges emanating from struggling domestic economy , changing business models, increasing regulatory compliance, cyber security threats, asset liability repricing lag and rising risk of credit losses; Your Bank has maintained its bequest of steady growth along with robust progression in financial position. Profit before taxation for the year ended December 31, 2019 grew by 15% and stood at Rs. 24,242 million. Your Bank’s profitability was attributed to volumetric growth in average earning assets, asset duration management, healthy growth in CASA and Rack based deposits, noteworthy growth in non markup income including 32% increase in foreign exchange earnings capitalizing on favorable swap curve during the year. Significance Going Forward KPI shall remain relevant for future Long Term Objectives Consistently augment Risk Management culture resulting in superior asset quality Key Performance Indicators Quality of Assets Your Bank’s comprehensive Risk management platform, in addition to facilitating 11% growth in quality advances portfolio has remained instrumental in curtailing infection ratio to 3.2% in 2019 as compared to 3.5% in 2018. Your Bank has not taken benefit of Forced Sale Value of collaterals, while calculating the provision against nonperforming loans. Inculcate operational efficiencies through innovative and viable cost controlling measures Effective and efficient cost controls Your Bank’s EPS stood at Rs.12.3 per share as compared to Rs.11.25 per share in 2018. Your Bank continued to focus on increasing its outreach including underbanked and unbanked segments of our economy. 50 new branches were opened during 2019, with total number of branches standing at 1,395 as at December 31, 2019. At the same time, focus on expanding e-banking channels for customers convenience was maintained, consequently ATM network was increased to 1,515 inclusive of 1,186 on-site, 328 off-site and 1 Mobile ATM as at December 31, 2019 with an addition of 127 ATM’s during the year. Along with robust growth in outreach, sustained efforts towards deposit mobilization yielded encouraging results, as the total Deposits of Your Bank stood at Rs.1,049,043 million reflecting a prominent average deposits growth of 10% as against industry outstanding deposit growth of 10%; while remaining fully committed towards evolving compliance framework. Improved CASA mix has assisted Your Bank in curtailing cost of deposit, which grew by only 273bps as against 487 bps average rise in policy rate. 64 Annual Report 2019 Despite exponential rise in cost of doing business resulting from currency devaluation, increasing compliance cost, inflationary pressures and investments in human capital; effective cost rationalization initiatives and implementation of automated solutions and sustained focus on centralization of processes has enabled Your Bank in optimizing costs while achieving operational efficiencies and manage intermediation cost at 2.7% of average deposits in 2019. KPI shall remain relevant for future This is well below the average intermediation cost of top 10 peer banks of 3.1% as at September 30, 2018. Cost to income ratio for the year ended December 31, 2019 significantly improved to 52% as compared to 54% during 2018 and industry’s average of 57% as at September 2019. KPI shall remain relevant for future Strengthen capital base to support business development Your Bank continued its focus on increasing zero cost deposits, with 13% growth in Non-remunerative current deposits which closed at Rs. 410,134 million. Resultantly, growth in CASA and Rack deposits mix improved to healthy 77% as at December 31, 2019 from 71% as at December 31, 2018. ABL’s Lower than Industry’s deposits growth on outstanding basis is mainly in line with ABL’s strategic shift to lower reliance on costly corporate deposits. Mix of Current deposits and Total of CASA and Rack deposits grew by 2% and 5% respectively; resultantly mix of corporate deposits decreased to 23% as on December 31, 2019 as compared to 29% on December 31, 2018. KPI shall remain relevant for future The loan loss coverage stood at 96% as at December 31, 2019, well above industry’s coverage ratio of 84% as at September 30, 2019. ABL’s Return on Equity (ROE) stood at 16% in 2019, which is in line with top 9 banks’ average ROE of 16% while remaining well above the average industry ROE of 12% as at September 2019. Deposits Mobilization Robust risk management framework is in place that has enabled Your Bank to adequately contain any potential surge in associated risks while ensuring quality of assets. The industry’s infection ratio stood at 8.2% as at September 30, 2019. Super Tax, which was initially levied vide Finance Act, 2015 has continued and vide Finance Act 2019 was extended with retrospective effect translating in an additional charge of Rs. 835 million, for the tax year 2018, effective tax rate thereby rising to 42% and accordingly Profit after tax stood at Rs.14,113 million. Continuous growth in Statement of Financial Position primarily through Zero /low costs deposits Significance Going Forward Analysis Capital Adequacy Status. Compliance with regulatory minimum capital requirements Your Bank in line with its business strategy as well as the minimum requirements of the State Bank of Pakistan (SBP) continued its focus on establishing a robust equity base. Your Bank’s Total Equity grew by 7% to reach Rs. 115,351 million as at December 2019, whereas Tier 1 equity increased to Rs. 89,542 million KPI shall remain relevant for future Common Equity Tier ratio (CET) and Tier 1 ratio (CET1) have stood at 17% as against the requirement of 6.0% and 7.5% respectively; clearly depicting a well-capitalized position of Your Bank. Capital Adequacy Ratio as per Basel III requirements was maintained at 22% during 2019. This is well above the regulatory requirement of 12.5%. Banking sector CAR as at September 30, 2019 stood at 16.7%. Bank is well positioned to capitalize on any credit expansion opportunities in future. Sustainable payout to our Shareholders Return to Shareholders Your Bank has maintained the steady dividend stream during the year under review. Cash Dividend of Rs. 8.0 per share was declared in 2019 in line with 2018. KPI shall remain relevant for future Allied Bank Limited 65
35. STATEMENT OF FINANCIAL POSITION Six Years HORIZONTAL & VERTICAL Performance Highlights ASSETS 2014 Cash & Balances with Treasury & Other Banks 2015 44% -8% 5.0% 42,129 Lendings to Financial Institutions 6.1% 2016 2017 Rs. in Million Six Years HORIZONTAL & VERTICAL Performance Highlights 2018 2019 LIABILITIES CAGR for the last six years-annualized is 17.5% 22% 6.9% 60,789 73,884 65% 213% 16% 6.9% 86,016 18% 7.5% 101,763 -17% 120,546 -75% 0.2% 0.3% 2,030 3,356 0.7% 10,513 8,694 18% YOY growth in balance is mainly due to expanded ATM's and remote branch network and fulfil regulatory reserve requirement in line with increase in deposit. 2% 50.6% 428,791 8% 54.8% 544,349 55.0% 589,865 18% 0.5% 4,832 4,942 101% 109% 5% 32.4% 321,605 Fixed Assets (including Intangible Assets) 49.7% 698,082 671,228 18% 29.8% 32.5% 372,038 438,317 CAGR for the last six years-annualized is 13% 51.2% 757,957 11% 27,250 3.1% 28,850 32,757 66,096 Investments continue to take the major share of the total asset base. 13% YOY growth in investment portfolio is due to the higher yield on investments which is inligned with the overall indusrty growth of 16% . Deposits and other accounts 41,199 15% 3.9% 48,327 4% 3% 3.4% 3.3% 2.9% Annual Report 2019 667,878 34,148 35,598 36,508 993,097 18.0% 11.8% 18% YOY growth is mainly due to increase in Repo Borrowings by Rs.14,910, call money borrowings by Rs.12,741 million, SBP (ERF/LTF) by Rs.12,409 million and other borrowing by Rs.507 million . 3.9% 52,128 -9% 10% 223,556 10% 225,883 266,448 11% 74.0% 75.1% 70.7% 72.9% CAGR for the last six years-annualized is 9.5% 70.8% 734,596 805,111 883,741 0% 0% 984,475 1,049,043 0% 7% YOY steady growth in outstanding deposits in comparison to overal growth of 10% in industry deposits is mainly due to strategic shift to increase the mix of no/low cost deposits. 0% 0.4% YOY growth of 23% is mainly due to capitalization of lease contracts as “Right of use assets” in pursuance to implementation of IFRS-16 “Leases” Reflects robust capital base of the Bank which is not supported by additional Tier-1 capital. 2,994 Other Liabilities (Including Deferred Tax Liabilities) 64,084 20% 2.5% 2.7% 33,382 39,911 68% 7% 15% -8% CAGR for the last six years-annualized is 5.9% 20% YOY growth is primarily due to increase in accrued markup which is in line with the increase in average benchmark rate by 487bps. 24,723 2.7% 26,343 2.8% 30,176 2.2% 27,817 CAGR for the last six years-annualized is 11.2% -9% 2.9% 1.9% 25,183 42,400 68% YOY increase is mainly due to recognition of present value of lease liablity under IFRS 16. CAGR for the last six years-annualized is 12.3% 8% 1,249,665 10% 126,369 4.3% 17% 1,072,179 137,960 CGAR for the last six years-annualized is 41.7% -100% CAGR for the last six years-annualized is 19.4% 2.9% 8% 847,413 16.7% 18% 7% 8% -17% 17% 1% Sub- Ordinated Loans 485,016 Total Assets 66 10% 11% 4.9% 77% CAGR for the last six years-annualized is 10.5% Other Assets 45% 7,879 32.7% 23% 14% 2.9% 7,753 7.8% 48% 3.2% 7,835 2% YOY increase. -29% 23% 6% 0.5% -4% 2% 329,562 0.6% 17.9% Steady growth in advances over the last six years coupled with 11% YOY growth helped in imparing Advances to Deposit Ratio (ADR) of 48% in 2019. 306,014 9,849 13,607 13% 55.9% 13% 30.7% 2% 0.6% -8% 75% YOY declline is mainly pertains to maturity of placement during the year 2019. 78.8% 36.1% -1% CAGR for the last six years-annualized is 1.5% Advances - Net 15% CAGR for the last six years-annualized is 8.3% -20% 0.9% 0.6% Investments - Net 18% 2019 99% -1% 13.9% 27% 2018 Borrowings 0.9% 53,780 2016 2017 Rs. in Million Bills Payable 8.1% 4.0% 1.0% 2015 18% 519% -84% 2014 1,350,598 10% 1,481,121 ABL managed to grow its asset base by 10% YOY surpassing the industry growth by over 5%. Allied Bank Limited 67
36. STATEMENT OF FINANCIAL POSITION PROFIT AND LOSS ACCOUNT Six Years HORIZONTAL & VERTICAL Performance Highlights EQUITY 2014 2015 2016 2017 Rs. in Million Six Years HORIZONTAL & VERTICAL Performance Highlights 2018 2019 INCOME Share Capital CAGR for the last six years-annualized is 1.6% 10% 0% 0% 0% 0% Markup Income 2014 11,451 1.2% 11,451 1.1% 11,451 2016 2017 Rs. in Million 2018 2019 67.4% 23.6% 7.6% -10.4% 1.7% 11.5% CAGR for the last six years-annualized is 14.6% 0% 84.0% 1.4% 2015 0.9% 0.8% 0.8% 11,451 11,451 11,451 88.1% 85.2% 88.1% 86.7% 91.8% Fully compliant with the regulatory requirement. 67,001 Non-Markup Income 72,116 64,606 65,709 73,274 32.6% 122,637 27.3% Reserves 14.9% 9% 1.6% 13,549 11% 1.5% 15,102 9% 1.5% 16,533 10% 9% 1.5% 17,980 1.5% 20,277 -20.9% -23.4% 16.0% 1.4% CAGR for the last six years annualized is -2.1% -3.5% CAGR for the last six years-annualized is 10.2% 13% 10% YOY growth is on account of exchange translation of net investment in foreign branches & statutory reserve transfer from un-appropriated profits. 12,736 11.9% 9,755 14.8% 11,210 11.9% 13.3% 8,871 11,289 8.2% 10,891 57.9% 24.9% 79,737 2.7% -7.4% 81,871 75,816 -1.6% 74,580 13.4% 84,563 CAGR for the last six years annualized is 16.4% Markup Expense 19.2% CAGR for the last six years-annualized is 10.4% 20% 4.4% 37,053 4.2% 41,415 12% 4.3% 46,490 6% 7% 3.9% 3.9% 3.8% 49,212 52,500 55,821 97.1% -7.3% 8.9% -12.9% 20.6% 60.8% 6% 48.7% 48.7% 43.9% 41.3% 45.8% (38,815) (35,977) (31,345) (34,130) (41,159) 10.0% 7.3% 5.3% 29.4% 7.0% (81,130) 17.6% CAGR for the last six years-annualized is 12.9% 51% 13% 23% 7% 2.2% 2.1% 2.4% 2.2% 18,837 21,288 26,200 28,073 -18% 1.7% 23,077 25,809 12% YOY growth is due to increase in revaluation of investment. 21.9% 22.9% (17,466) (18,742) 27.8% 20.7% (20,839) (21,938) (23,478) Total Liabilities & Equity 847,413 993,097 1,072,179 1,249,665 1,350,598 1,481,121 (Provisions) / Reversals 1.6% 31.5% 2.0% Taxation (1,649) -150.2% 0.4% -0.3% CAGR: Compound Average Growth Rate YOY: Year on Year (2019 vs 2018) (1,254) Better Infection and coverage ratio than industry. -54.0% -112.1% 199 Increase is due to recognition of impairment against investment. -1.3% -3.2% 2,367 1,090 (547) 5990.7% CAGR for the last six years annualized is 110% 44.5% 9.0% 17.6% YOY incease in Non mark-up expense is due to increase in Deposit Protection Cost by SBP, recognizing depreciation instead of rental expense under IFRS 16, and augmentation of the branch network. The Non-Markup expense has been partially offset by reversal of Workers' Welfare Fund. (27,610) 1089.4% 99.7% CAGR for the last six years annualized is 9.7% 11.2% 27.5% 12% 1.7% The increase is mainly due to rise in cost of deposits, (on account of change in policy rate) and higher average deposit volume, along with increase in cost of borrowings. 6% YOY growth is on account of current year's profit after appropriations. Non-Markup Expense Surplus on revaluation of assets - net CAGR for the last six years annualized is 13.1% 133,528 EXPENSES 12% 3.5% YoY decline is mainly because of lower capital gains on disposal of investments and redcued dividend payouts of the investee companies. Total Income 22,270 Unappropriated Profits 67% YOY growth resulting from positive volume variance of mark-up bearing assets along with positive rate variance mainly on account of increase in average benchmark policy rate. 12.7% (7,187) (10,383) 2.5% 0.7% -9.4% 12.4% (9,404) -13.4% -0.1% 24.5% 10.9% 9.6% 7.6% (8,145) (8,136) (10,129) Increase is due to higher profitability and recognition of one time super tax related to FY-2018 Profit after Taxation CAGR for the last six years annualized is 0.6% 18.8% 15,015 68 Annual Report 2019 18.5% 15,120 -4.6% 19.0% 14,427 1.1% -11.7% 9.6% Sustained profitability. 17.1% 15.2% 10.5% 12,734 12,880 14,112 CAGR: Compound Average Growth Rate YOY: Year on Year (2019 vs 2018) Allied Bank Limited 69
37. VALUE CREATION FOR SHAREHOLDERS ROBUST BALANCE SHEET ENABLED AN ATTRACTIVE DIVIDEND PAYOUT Through our financial performance we demonstrate our commitment to delivering long-term value for our shareholders . Over the last six years the bank increased it's break-up value per share at a CAGR of 6%, which also reflected in improving value creation (market value less breakup value) of 22% for our shareholders in 2019. Growing "Total assets to shareholder's funds" coupled with ROA also contributed in achieving higher ROE from respective average ratio of the industry . Our CET1 & Tier 1 and Capital Adequacy ratios of 16.98 % and 21.7% respectively, LCR of 167.84% and an NSFR of 143.13 % ,on a pro forma basis, are all Basel III-compliant and are a reflection of a strong balance sheet. On the back of solid earnings growth in operations and a strong capital position, a final dividend of Rs. 2 was declared. Our full-year dividend cover was 1.54 times exactly also approved by our board. 19.8% 119.2 113.1 20.9% 20.8% 22.4% 22.2% 21.7% 107.5 94.1 85.0 5.9% 2014 2015 2016 17.1% 17.3% 16.2% 15.8% 15.4% 16.1% 2014 2015 2016 2017 2018 2019 87.5% 87.7% 87.0% 86.3% 86.1% 84.8% 2014 2015 2016 2017 2018 2019 2014 13.11 13.20 12.60 11.12 11.25 12.32 2.02 2014 2015 2016 2017 2018 2019 65.0% 85.9% 2015 2014 2016 4.6% 3.5% 3.2% 2017 2018 2019 92.6% 96.8% 95.6% 2019 73.6 68.7 65.0 59.4 6.4% 78.2 77.9 70.6 54.2 100.7 95.6 93.7 93.2 87.9 7.0% 2018 2017 87.2% 91.6% 2015 2016 2017 2018 1.89 1.74 1.59 1.41 2014 2015 2016 2017 2018 5.7% 7.4% 6.1% 2014 2015 2016 2019 DUPONT ANALYSIS 27.8% 31.2% 31.4% 28.1% 18.8% 18.5% 19.0% 17.1% 24.9% 18.2% 15.2% 1.9% 1.6% 1.4% 1.1% 10.6% 2014 10.1% 2015 8.9% 2016 2017 2015 2016 2019 2014 2015 2016 14.6 15.3 15.0 2017 9.4% 7.4% 6.4% 2014 2018 2017 6.5% 2018 2019 2014 2015 16.3 2016 2017 1.0% 1.54 2019 1.0% 2018 2019 16.3 17.0 2018 70.0% 72.5% 70.0% 80.0% 80.0% 49.6% 53.0% 57.5% 62.9% 71.1% 64.9% 2014 2015 2016 2017 2018 8.2% 7.4% 8.4% 2019 2019 2017 2018 2019 25.9% 23.3% 20.3% 16.6% 16.1% 2014 70 Annual Report 2019 15.6% 2015 14.4% 2016 11.5% 2017 15.8% 10.7% 2018 16.2% 11.4% 2019 Allied Bank Limited 71
38. VALUE CREATION FOR SHAREHOLDERS CASH FLOW Rs . In Million STATEMENT FOR THE YEAR 2019 SHARE PRICE MOVEMENT AND SENSITIVITY ANALYSIS High Low Closing Market Capitalization Rs. Capital (Million) Value (Million) December 31, 2019 101.9 95.0 95.6 11,450 109,462 September 30, 2019 June 30, 2019 87.5 106.0 85.2 101.0 86.8 105.0 11,450 11,450 99,352 120,248 March 31, 2019 108.9 107.5 108.0 11,450 123,706 CASH FLOW FROM OPERATING ACTIVITIES Mark-up / return / interest and commission receipts 128,678 Mark-up / return / interest payments Cash payments to employees, suppliers and others (78,997) (21,492) 28,189 (Increase) / decrease in operating assets Lendings to financial institutions 40,173 Held for trading securities (19,862) Advances (46,449) Other assets (excluding advance taxation) (7,822) (33,960) Increase / (decrease) in operating liabilities Bills payable 126 Borrowings 40,745 Deposits 64,568 Other liabilities (excluding current taxation) 8,507 113,946 Cash flow from operating activities before tax Income tax paid 108,175 (9,229) Net cash flow from operating activities 98,946 CASH FLOW FROM INVESTING ACTIVITIES Net investments in 'available-for-sale' securities Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 (67,525) Net investments in 'held-to-maturity' securities 3,137 Dividend income received 1,826 Investments in operating fixed assets (7,409) Proceeds from sale of fixed assets 373 Effect of translation of net investment in foreign wholesale branch 582 Net cash used in investing activities (69,017) CASH FLOW FROM FINANCING ACTIVITIES Regularly recurring matters (such as financial results and dividends) have a temporary impact on the share price of Allied Bank Limited. However, Government/ Regulatory policy changes such as inflation, discount rate , monetary policy and political & environment situation of the country are the key determinants for change in profitability of the Bank ultimately having an impact on share prices. Dividends paid (9,130) Payment of lease liability against right of use assets (1,837) (10,967) Net cash used in financing activities Increase in cash and cash equivalents during the year STATEMENT OF VALUE CREATION VALUE ADDED Income from banking services Cost of services Rs. In Million 52,012 (8,316) Value added by banking services Non - banking income Reversals against non-performing assets 43,696 387 (547) Total Value Added 43,536 VALUE ALLOCATED 18,962 Cash and cash equivalents at beginning of the year Effect of exchange rate changes on opening cash and cash equivalents 103,874 (2,354) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (under direct method) 120,482 13,458 31.6% 10,129 22.7% SIX YEARS CASH FLOW ANALYSIS 9,161 20.5% 11,201 25.1% 55 0.1% Cash Flow from Operating Activities Cash Flow from Investing Activities Cash Flow from Financing Activities 148,505 119,790 98,946 63,803 57,504 33,680 (53,293) 2014 2015 2016 2017 2018 Annual Report 2019 (42,388) (99,712) (9,256) (69,017) (7,950) 2014 2014 72 (118,571) 2019 2015 2016 2017 2018 (11,257) 2015 (8,271) 2016 (7,987) 2017 (8,815) 2018 (10,967) 2019 2019 Allied Bank Limited 73
39. STAKEHOLDERS ENGAGEMENT Your Bank believes in connecting with its various stakeholder groups to create a better understanding of stakeholder perspectives on key issues and consequently realize business value through informed decision making . Your Bank maintains formal mechanisms to engage with each group of stakeholders and the responsibility for such engagement is shared across the organisation at every stakeholder touch point. The key stakeholder groups and their related engagements as a means of creating value are noted below: Customers 74 Annual Report 2019 • • • • Video Mystery Shopping Customer Access Points Corporate website SMS & Email Alerts CSR activities Customer Awareness Seminars Road Shows Promotional campaigns Print and electronic media Social Media Needs & Expectations Why do they Matter Excellent customer service, convenient access across the country, less complexity and improved flexibility, innovative financial services & solutions, value for money banking, responsible banking services, confidentiality, integrity and accountability, security for customers investments, ambience in touch points. Customers are at the center of our business strategy and customer focus provides the basis to achieve a profitable and sustainable business model. How We Create Value for Stakeholders Activities Continuously • • • • • • Periodically Individuals Institutions Corporates Entrepreneurs Frequency of Engagement Regularly Methods of Engagement Occasionally Stakeholder Group Understanding evolving customer requirements to roll out more efficient channels thereby delivering competitive, convenient, technology driven and innovative banking solutions. • Conducted video mystery shopping to assess service delivery standards and understand customers’ experience and level of satisfaction when using banking services and service channels. • Launched various innovative solutions to make banking more convenient and meet the needs of its clients. Details of which are presented in CEO and Group reviews. • The Bank continues to expand its footprint, branch network added 50 new branches during the year to reach at 1,395, expanded ATM network to 1,515 (including On-site and Off-site ATMs), while providing Internet banking. • Increased Gross Advances by Rs. 46,302 million and deposits by Rs. 64,568 million. • The Bank partnered with Karandaaz (Non-Profit Organization) for Innovation Challenge Fund “Transforming SME Financing - Innovative Credit Scoring of SMEs” to promote access of finance primarily to collateral deficient entrepreneurs. Safeguarding deposits and investments while growing returns. • Your Bank paid Rs. 81,130 million, interest / profit to its depositors. • Continued investment in technological infrastructure, including upgradation of T-24 core banking software, to improve data security and maintain customer privacy. • Conducted regular mock tests of documented processes to ensure institutional readiness for Business Continuity Planning. • Conducted Vulnerability Assessment, Penetration Testing and Technical Risk Assessments to ensure controlled environment for customer related information. • Replacement of all existing Magnetic Stripe based Debit Cards with more secure EMV compliant chip-based cards to counter ever increasing cyber security threats • SMS Alerts all digital banking transactions to customers. Timely communication of relevant information on products and services. • Undertook marketing communications through various channels to extend outreach to customers and public at large. • Your Bank arranged awareness seminars and road shows to engage customers and disseminate information regarding Banks’ services portfolio. • Launched Open Banking Application Program Interface (API) portal and partnered with Fintechs for new digital offerings for customers. In addition, myABL was continuously updated to cater the evolving digital needs of the Bank’s customers. Upholding highest standards of service quality across the Bank. • Complaint Management Division efficiently and effectively resolved 99% of customers’ complaints within a Turnaround Time of 3.87 Days on average. • High ATM uptime further improved to 97%. Allied Bank Limited 75
40. STAKEHOLDERS ENGAGEMENT Shareholders / Institutional Investors Regulators 76 Annual State Bank of Pakistan (SBP) Federal Board of Revenue (FBR) Securities and Exchange Commission of Pakistan Pakistan Stock Exchange (PSX) Credit Rating Agencies Other Public Offices and Regulatory Bodies Report 2019 Annual Report Interim Financial statements Corporate website Annual General Meeting Extra Ordinary General Meetings • Analyst Briefings • Coporate Breifing Sessions • • • • • Directives and circulars Financial statements Statutory examination Regulatory reporting Filing of income tax fedreal Excise and sales tax returns • Filing of corporate return • Interviews and meetings with representatives of regulators, Pakistan Banking Association, Business Council Needs & Expectations Why do they Matter How We Create Value for Stakeholders Activities Continuously • • • • • Periodically Sponsors Minority Shareholders Individual Investors Institutional Investors Frequency of Engagement Regularly Methods of Engagement Occasionally Stakeholder Group Sustainable performance, dividend payout, return on equity, return on assets, earning per share, future growth strategy, corporate governance, risk management, compliance with rules and regulations. Compliance with all legal and regulatory requirements, remain responsible tax payer, corporate governance practices, adherence to reporting requirements, risk management, sustainable business practices, timely withholding taxes and deposit, income tax, FED & sales tax payment including advance tax. To ensure long term shareholder value and uphold the rights of the shareholder to ensure their wealth maximization. To ensure compliance with legal and regulatory directives. Generating sustainable financial returns, enabled by growing revenues. Managing risks while optimizing our cost base. • Generated a sustainable ROE and ROA at 16% and 1% respectively; Increased dividend yield ratio to 8.37%. Maintaining a strong balance sheet and safeguarding asset quality which contributes towards sustainable performance. • Financial position improved by 10% to Rs. 1,481,121 million; Your Bank’s Equity base stood at the robust level of Rs. 115,351 million; NPLs reduced by Rs. 211 million causing infection ratio to fall by 0.12% and improving coverage ratio to 97%. Providing existing and potential shareholders with relevant and timely information. • Annual Audited Financial statements together with the Auditor’s and Director’s report were circulated to all shareholders along with the Notice of AGM. • Analyst briefings and conference calls were conducted following announcements of quarterly financial statements. • Your Bank organized Allied Corporate Briefing Program at PSX regional office for providing an overview of Your Bank’s achievements for the nine-month ending on September 30, 2019. The program was attended by over 47 shareholders, investors and brokers. • Major financial information disclosed under a separate section of “Investor Relations” on corporate website. Ensuring equitable treatment of all shareholders including minority shareholders to attend, contribute and vote at the General Meetings. • All required support is being provided to minority shareholders for participation in election of Directors. Embracing prudent banking practices and regulatory compliance that enables a safe and stable banking system. • Achieved the long-term rating of “AAA” and maintained short-term rating at “A1+” from PACRA. Ensuring regulator confidence in the Bank and reducing potential for reputational risk. • Continued to be the only Bank in industry to be rated on Corporate Governance and maintained a high corporate governance rating of “CGR-9+” • Complied with all key aspects of Basel III requirements, with Capital Adequacy ratio (Tier 1 and Tier 2) of 21.7%, above the SBP requirements of 12.5%. • Your Bank paid Rs 18,554 million in direct, indirect, staff taxes and Zakat contribution while fulfilling its responsivity towards the society. Providing timely and detailed regulatory updates and reporting disclosures. • On-time submission of statutory returns and statutory payments. • Adherence to PSX requirements for disclosure of key information. Record Management • The Bank has records management program that ensures maintenance, protection, retention and disposal of records in accordance with applicable regulations, operations, fiscal and legal requirements. Allied Bank Limited 77
41. STAKEHOLDERS ENGAGEMENT Employees • • • • • • • • • Society and Environment Society at large Media 78 Annual Report 2019 • • • • Formal meetings Informal & Ad hoc meetings Performance appraisals Internal newsletter Informational and Instructional Circulars Training programs Employee Satisfaction Surveys Intranet / Employee Self Service Portal Team Building Events Annual Family Festival Welfare events and activities Disaster Recovery and Emergency Response Drills Medical Benefits Retirement Benefits Service channels Corporate website Donations and Sponsorships Press releases, conferences and media campaigns • Public relation activities Needs & Expectations Why do they Matter How We Create Value for Stakeholders Activities Continuously • • • • • Periodically Permanent employees Contractual employees Outsourced personnel Employee union Frequency of Engagement Regularly Methods of Engagement Occasionally Stakeholder Group Competitive remuneration, career development and advancement, effective performance management, equal opportunity along with safe, positive and inspiring work environment, work life balance, recognition and reward, grievance handling mechanism, culture of empathy, continuous training opportunities to grow as a person and professional, job security, succession planning. Skills, experience, and activities that our employees carry out drive the day to day operations of the bank. How our staff think and feel about work are directly connected with customer satisfaction levels. Retaining “Employer of Choice” status by providing a safe, inspiring and challenging work environment. • Total workforce of 11,665 employees. Female representation increased to 17.44%. Inducting and retaining quality human resource in all functions of the Bank. • 1,866 recruitments for permanent and contractual positions. Offering competitive remuneration and rewarding performance. Motivating and inspiring our work force. Skills training and development initiatives to align workforce with strategic objectives of the Bank. Understanding and responding to the needs and concerns of Bank’s staff along with equal opportunity and culture of empathy. Social responsibility activities, employment opportunities, financial resilience, community development, ethical business practices. Working in tandem with global and local mandates which safeguard the environment and promote community empowerment. Community capacity building and empowerment. • Rs. 13,458 million in terms of salaries, allowance and other benefits to employees • Rewarded performance through 1,907 grade promotions. • Invested Rs 97 million on inhouse and external staff training & development programs. • Training coverage of 96% employees during the year. • Employee survey conducted by external evaluator to assess and compare the work environment of the Bank with the industry. • Your Bank was awarded with Best Place to Work – Financial Services 2019 by Pakistan Society of Human Resource Management (PSHRM) • Other activities delineated in detailed CSR report • Your Bank plays a proactive role in contributing towards the society. Detailed CSR report is included in the Annual Report. Social welfare of community. Allied Bank Limited 79
42. RISK MANAGEMENT APPROACH & OVERSIGHT RISK & OPPORTUNITIES The Board of Directors is responsible for the overall effective risk management and has a comprehensive risk management and governance framework in place to effectively identify, evaluate and mitigate all risks undertaken in the achievement of long-term strategic objectives of Your Bank. The robust risk management platform ensures that sustainable value is created for all stakeholders. The Board of Directors monitors the implementation of risk strategy, approves the risk acceptance criteria while ensuring that risks are managed within tolerance level. Risk and opportunities and the related mitigating factors are summarized below; Risk Credit Risk Key Source of Risk Mitigating Strategy Impact Area Sovereign credit risk on exposure to Public sector enterprises (PSE) - Oversight is kept through guidance of Board of Directors and its sub-committee “Board Risk Management Committee” as well as through management committee of “Risk Management Committee (RMC)”. Financial Capital - Public sector advances are generally secured by sovereign guarantee or the equivalent from the Government of Pakistan (GoP). Risk Governance - Certain PSEs have a well-defined cash flow stream and appropriate business model, based on which the lending may be secured through collaterals other than GoP guarantee. RISK IDENTIFICATION RISK EVALUATION & MEASUREMENT Adequate and timely risk identifiction to ensure that risks are appropriately catagorised. Risks are evaluated in terms of their qualitative and quantitative impact. RISK MANAGEMENT & RESPONSE Mitigation plans are deployed and tracked against predetermined timelines with the necessary escalation processes in place Counterparty credit risk on exposure to Private sector advances and Interbank limits. MONITORING & REPORTING - In respect of interbank borrowers, Your Bank maintains eligibility criteria that links exposure limits to counterparty credit ratings (minimum credit rating of ‘A’) - Concentration risk is monitored with obligor, group and sector exposure limits and risk profile benchmarks. - Automated ‘Watch-List’ categorization system facilitates to identify deterioration in quality of loans. The Bank’s comprehensive and integrated risk management governance structure consists of the Board and the management sub-committees, with varying areas of responsibilities, in order to maintain sustained focus on monitoring and governance over differing categories of risk within the following risk universe: - Country risk, exposure limits are in place that broadly captures direct exposure on sovereigns and exposures on foreign domiciled counter parties; limits linked to the sovereign ratings Allied Bank’s Risk Universe Market Risk Operational Risk Liquidity Risk Capital Adequacy Risk Strategic Risk Technology Risk Reputational Risk Risk that the Bank will incur losses owing to the failure of an obligor or counterparty to meet its obligation to settle outstanding amounts. Risk of a potential decrease in stakeholders’ value due to adverse changes in market prices and rates, negatively impacting assets and liabilities. Risk of direct or indirect losses resulting from inadequate or failed internal Processes, People, Systems or External Events. Risk that the Bank is unable to meet its financial liabilities as they fall due. Risk that the Bank has insufficient capital to support its growth or is not able to meet the statutory defined capital requirements. Risk of an adverse impact on strategic goals. Risk arising from non -availability of IT systems and Cyber threats disrupting Bank’s operations. Risk to the Business caused by negative effects, public perceptions and customer opinions and the damage caused to the Brand by failure to manage Public Relations. Financial Capital - Credit worthiness of borrowers is analyzed on work-flow based RAMS, with focus towards balanced assessment of credit risk and identification of related proper mitigants. Clear and concise risk reporting requirements developed to put management and the BoD in a position of making effective and timely decisions. Credit Risk - Bank’s Risk Assessment and Management System (RAMS) uses risk rating models, based on qualitative and quantitative factors, to assign credit risk ratings to various categories of borrowers. - Specialized team comprising engineers and industry experts conducts technology assessments of obligors’ plant & machinery and reviews the technical feasibility of projects and valuation reports. Market Risk Risk associated with fluctuations in interest rates, foreign currency rates, credit spreads, equity prices and commodity prices - Oversight is kept through guidance of Board of Directors and its sub-committee “Board Risk Management Committee” as well as through management committee – “Asset & Liability Committee (ALCO)”. Financial Capital - Comprehensive structure is in place aimed at ensuring that Your Bank does not exceed its qualitative and quantitative tolerance for market risk. - Balanced approach towards risk taking in the market risk area while keeping exposures within the defined risk acceptance criteria. - Tools like Value at Risk methodologies, sensitivity measures, intraday exposure limits, notional limits and loss triggers are monitored at a detailed portfolio level. - Extensive stress testing is performed to capture and report the multi-dimensional aspects of market risk using automated solutions. 80 Annual Report 2019 Allied Bank Limited 81
43. RISK & OPPORTUNITIES Risk Operational Risk Key Source of Risk Mitigating Strategy Impact Area Risk of inadequate / failed internal processes and losses caused by external events. - Oversight kept through Board of Director’s sub-committee “Board Risk Management Committee” as well as through management subcommittee of “Risk Management Committee (RMC)”. Financial Capital Risk Capital Adequacy Risk - Board of Directors’ approved Operational Risk Policy Key Source of Risk Mitigating Strategy Impact Area Undertaking higher risks in view of more volatile and competitive financial markets. - Oversight kept through Board and its sub-committee “Board Risk Management Committee” (BRMC) as well as through management sub committees of “Risk Management Committee” and “Asset & Liability Committee (ALCO)”. Financial Capital - The ALCO assesses capital adequacy on a quarterly basis, including a historical and future capital positioning review and stress tests and reports regularly to the BRMC. - Detailed documented procedures - Adequate system of internal controls designed to keep operational risk at appropriate levels - The Internal Capital Adequacy Assessment Process (ICAAP) Framework is updated and reviewed annually. - Business Continuity Policy and Plan driven towards ensuring provision of un-interrupted banking services in case of any unforeseen emergency and/or natural calamities. - Policy of sufficient profit retention. - Periodic extensive stress testing activity in line with SBP requirements. - Disaster recovery and evacuation plans were tested successfully during the year. Strategic Risk - IT disaster recovery plans are tested on ongoing basis. - Insurance coverages are in place for theft and damage to physical assets. Risk arising due to the unauthorized or inappropriate employee activity and failure to adhere to staff policies - Board of Directors’ oversight along with its sub committees “Human Resource and Remuneration Committee” as well as through management committees of “Human Resource Committee” and “Central Administrative Action Committee”. Human and Intellectual Capital Improper implementation of decisions, or lack of responsiveness to evolving industry, economic or technological changes. - Proactive staff engagement. Technological Risk - Strong staff development programs in place combining e-learning, in-house and external trainings programs Risk arising from nonavailability of IT systems, and disruptions due to Cyber threats. - Insurance coverages are held for fraud and fidelity incidents. - Whistle blowing mechanism is in place Liquidity Risk - Independent Compliance Group to ensure compliance with specific regulatory requirements. Risks emanating from nature of the Banking business, from the macro factors exogenous to the Bank as well as from internal financing and operational policies. - Oversight kept through Board of Directors and its sub-committee “Board Risk Management Committee” as well as through management committee - “Asset & Liability Committee (ALCO)”. - Well-defined ALM triggers / limits, exposures against which are regularly monitored by ALCO. - Detailed Recovery Plan is in place which highlights the strategy and critical tools for effective monitoring, escalation, planning, and execution of recovery actions in the event of a financial crisis situation. - Your Bank performs liquidity stress tests as part of its liquidity monitoring activities regularly. - Periodic gap analysis to re-profile the earning asset mix in accordance with interest rate expectations as well as keeping asset and liability mismatch within acceptable limits. - Maintenance of appropriate marketable securities portfolio that can be realized in the event of liquidity stress. 82 Annual Report 2019 Financial Capital - Rolling 10-year strategic plan which is reviewed on annual interval basis along with operational plan to account for the evolving economic and business dynamics; duly in consideration of the peer banks. - Oversight kept through Board of Director’s sub committees “E-Vision Committee” as well as through “IT Steering Committee” (ITSC). - IT planning is conducted as part of Your Bank’s strategic and operational planning process. - Systems audits, IT Security & Risk Assessments are performed for system before deploying into production environment. - Significant ongoing investments in systems and processes to protect customer databases through robust information security (Info-sec) platform. Financial Capital - Info-Sec’s Security Operation Center utilizes Security Incident and Event Management (SIEM) solution to proactively monitor and respond to security threats. - Compliance Policies and procedures are in place - ALCO oversees the activities of treasury, which operates in terms of an approved ALM policy. Financial Capital - The impact of events on the future direction of the business and forecast results is constantly monitored and quantified. - Recruitment, pre-employment screening, employer feedback/exit interviews. Risk arising from non-compliance with statutory and/or regulatory provisions applicable to the Bank - Oversight kept through Board of Directors’ and its sub- committee “Strategic Planning & Monitoring Committee” as well as through Management Committees namely “Management Committee” (MANCO), “Risk Management Committee” (RMC) and “Asset & Liability Committee” (ALCO). - Countermeasures against cyber threats included regular penetration testing and vulnerability assessment. Financial Capital - Continuous awareness programs for customers about cyber threats Reputational Risk Risk arising from any action or inaction perceived by any stakeholders to be inappropriate, unethical or inconsistent with the Bank’s values and beliefs. - Oversight kept through Board of Directors’ sub committees “Board Risk Management Committee” as well as through “Management Committee (MANCO)”. Social and Relational Capital - Formal customer grievance redressal policy, including policy and procedures on receiving customer complaints and resolution mechanism. - Timely and efficient communications among all stakeholders. - Policies and procedures in place for securing digital payments including protection of customers’ data. Opportunities The assessment of opportunities is integrated into the annual strategic planning process. Strategic planning enables Your Bank to identify and analyze changing market dynamics at the domestic and global levels. These major opportunities and future outlook have been covered in detail in CEO review. Allied Bank Limited 83
44. OUR GOVERNANCE PHILOSOPHY Modus Operandi of Board of Directors The Board of Directors and Management of the Bank are committed towards maintaining a high standard of corporate governance . The Board of Directors is responsible for the overall stewardship and oversight of the Bank by reviewing, deliberating and approving the Bank’s strategic planning, organizational structure and supervising the management for ensuring enhanced shareholders’ value. Chief Executive Officer and senior management are responsible for business operations by following board’s approved policies, while keeping the Board of Directors well informed by providing timely information. The Board of Directors has adopted corporate governance guidelines to assist in meeting its aforementioned governance responsibilities. Key Governance Practices • The Board of Directors comprises of an appropriate mix of Directors in terms of experience, competence and financial acumen. • Five members of the Board of Directors are certified directors, whereas three directors are exempted from the requirement based on their experience. • Three members of the Board of Directors are independent directors. • Audit Committee of the Board of Directors is comprised of two independent directors and also Chaired by an independent Director. • Board of Directors has constituted four additional subcommittees to assist in the governance of the Bank i.e. e-Vision Committee, Board Risk Management Committee, Strategic Planning & Monitoring Committee and Human Resources and Remuneration Committee. BOARD COMMITTEES Review of overall performance of the Board Your Bank has formalized an in-house process for reviewing the Board of Directors’ overall performance including performance of Chairman of the Board of Directors, individual Directors including Chief Executive Officer and Board Committees. An independent external evaluation is being carried out once in every three years to further augment the process with evaluation findings, thoroughly reviewed independently for continuous improvement and refinement. Accordingly an independent external evaluation was arranged in the year 2018. Audit Committee of the Board Constitution: Zafar Iqbal Chairman Muhammad Waseem Mukhtar Member Dr. Muhammad Akram Sheikh Member Primary objectives of the Board of Directors, apart from carrying out its fiduciary duties as required under relevant regulations, includes providing strategic direction, financial oversight and guidance to the Management. The Board of Directors assisted by five Committees, performed its duties diligently and effectively in the best interest of all stakeholders, despite of challenging operating and regulatory environment, whilst upholding the vision, mission and core values of the Bank. Board of Directors are committed to enhance shareholders’ value while continuing to transform the Bank to cater to the ever-evolving needs of the Bank’s valued customers. Your Bank’s Board of Directors shall remain committed in carrying out their duties diligently and professionally while maintaining the Bank’s focus on sustainable growth and momentum ahead. Board Risk Management Committee Constitution: Sheikh Mukhtar Ahmad Chairman Abdul Aziz Khan Member Dr. Muhammad Akram Sheikh Member Tahir Hassan Qureshi Member • Corporate Governance rating of “CGR 9+” by an independent VIS Credit Rating Company Limited., indicates high level of corporate governance; depicting a strong commitment towards governance framework by the Board and management of Your Bank. Appointment and term of office With a view to enable the Board to discharge its responsibilities effectively, the Directors are nominated and appointed through election, ensuring that the Members so elected possess required skillset, knowledge and experience and fulfill Fit & Proper Test (FPT) criteria regarding eligibility of a Director set by the State Bank of Pakistan. The Directors of the Bank are elected by Shareholders of the Bank in a General Meeting for a three years’ term, Casual Vacancy, if any occurred is filled by the Directors for the remaining term in accordance with the provisions of the Companies Act 2017 and SBP regulations. To facilitate minority shareholders to contest election of directors, the Bank provides them support as per regulatory requirements. 84 Annual Report 2019 e-Vision Committee Constitution: Mohammad Naeem Mukhtar Chairman Zafar Iqbal Member Ms. Nazrat Bashir Member Tahir Hassan Qureshi Member Terms of Reference Primary responsibilities of Audit Committee of the Board (ACOB) are to determine appropriateness of measures taken by the Management to safeguard Bank’s assets, review financial statements focusing on major judgmental areas, significant adjustments, going concern assumption, any change in accounting policies, compliance with applicable statutory and regulatory requirements and related party transactions. The Committee recommends appointment of the external auditors and also coordinates with them to fulfill statutory and Code of Corporate Governance requirements. The Committee is inter-alia responsible to ascertain the effectiveness of the Internal Control System including financial and operational controls, ensuring adequate and effective accounting and reporting structure and monitoring compliance with the best practices of the corporate governance. ACOB is also responsible to facilitate BOD in establishing strong and effective system of internal controls based on & supported by strong ethical practices, culture, comprehensive policies, procedures, processes and technological systems; keeping an oversight and quarterly review of the Internal Controls over Financial Reporting and review of all findings of SBP Inspection Report, Management Letter by external auditors and weaknesses identified in internal controls by Audit & Risk Review along with review of Bank’s Statement of Internal Controls prior to endorsement by the Board. The other function of the Committee includes assurance that an independent and effective internal audit function is in place. Terms of Reference The primary functions of Board Risk Management Committee (BRMC) include monitoring of Management’s adherence to prudent and sound risk policies, assessing the ever changing risk profile and determining risk appetite of the Bank. BRMC also ensures development of risk management principles to build stakeholders confidence, safeguard and enhance reputation. BRMC also monitors quality of asset portfolio and suggest measures to keep the infected portfolio at the minimum level. The Committee approves risk limits for credit, market and operational risks, credit approval grid and proposals regarding write-offs above certain limits. In term of Bank’s recovery policy, BRMC considers and approves Debt-Asset-Swap proposals. It also monitors Bank’s Basel initiatives including capital adequacy requirements and up-gradation of Risk Management Systems. The Committee also reviews information security governance initiatives and periodical risk assessments. Overseeing of Asset Liability Committee (ALCO) and Risk Management Committee (RMC), Risk Management, Special Asset Management and Compliance functions is also undertaken by BRMC. In addition, it reviews compliance status of the bank including AML/CFT requirements, quarterly progress report on IFRS-9 implementation. Terms of Reference One of the key functions of the e-Vision Committee is to provide strategic direction for e-banking and adoption of evolving technologies for providing new products and better services to its customers and to improve internal control environment. Review of strategic plans to improve IT infrastructure and automation of processes and systems including alternate delivery channels are within the scope of the responsibilities of the e-Vision Committee. The Committee provides assistance to the Board with insights regarding international developments in the field of e-banking evolving technologies for adoption; keeping in view the Bank’s requirements. It also oversees performance of IT Steering Committee (ITSC), Information Technology functions. Besides the above, the Committee also decides in principle on matters related to acquiring/replacing/ upgrading technology, software and hardware such as banking solutions, ATMs etc. involving Rs. 15 million and above. Allied Bank Limited 85
45. MANAGING CONFLICT OF INTEREST BOARD COMMITTEES Overview Strategic Planning & Monitoring Committee Constitution: Muhammad Waseem Mukhtar Chairman Abdul Aziz Khan Member Ms. Nazrat Bashir Member Tahir Hassan Qureshi Member Terms of Reference Strategic Planning & Monitoring Committee (SPMC) is responsible to review medium to long term strategic plans, operational plan and budget of the Bank before Board’s consideration / approval. The Committee also monitors progress against above referred plans and budget. SPMC is also responsible to approve capital expenditure and disposal of fixed assets as per defined threshold. SPMC is also responsible to assist the Board on corporate development activities and new initiatives including, but not limited to acquisitions, mergers, alliances, joint ventures and divestitures etc. SPMC also oversees performance of management committee (MANCO) and Fair Treatment of Customers (FTC) Committee, Corporate Investment Banking, Commercial and Retail Banking, Islamic Banking, Treasury, Finance, Banking Services, Corporate Affairs, Digital Banking, General Services and Real-Estate functions of the Bank. The Board and the Management of Allied Bank Limited (“the Bank”) are committed towards transparent disclosure, management and constant monitoring of potential conflicts of interest to ensure that no undue benefit is passed on. The Board recognizes the responsibility to adhere to the defined policies, procedures and avoid perceived conflicts of interest that may arise during the course of business. • Human Resource and Remuneration Committee Constitution: Abdul Aziz Khan Chairman Muhammad Waseem Mukhtar Member Dr. Muhammad Akram Sheikh Member Tahir Hassan Qureshi (Permanent Invitee) Terms of Reference Human Resource and Remuneration Committee (HR&RC) defines the organizational structure and functional responsibilities of all areas of the Bank. It approves staff strength, key appointments, salary revisions, bonuses and special allowances and recommends to the Board appointment, remuneration bonuses/ performance awards, terms and conditions of employment and other benefits of the key position holders. HR&RC also monitors the utilization of training & development budget and implementation of approved training & development policy. The Committee nominates the Bank’s directors and management personnel on the board of other companies / subsidiaries. HR&RC also recommends Remuneration Policy and other Human Resource related policies to the Board, besides monitoring performance of Human Resource Committee and Human Resource function. Besides the above, the Committee also ensures that a fair, transparent and competitive remuneration mechanism is developed and put in place to encourage the culture of ‘pay for performance’. e-Vision Committee Strategic Planning & Monitoring Committee Human Resource & Remuneration Committee Board of Directors Audit Committee of the Board Board Risk Management Committee Mohammad Naeem Mukhtar 6/7 × × 4/4 × × Sheikh Mukhtar Ahmad 7/7 × 5/5 × × × Muhammad Waseem Mukhtar 7/7 5/6 × × 10/10 6/6 Abdul Aziz Khan 5/7 × 5/5 × 9/10 5/6 Dr. Muhammad Akram Sheikh 7/7 6/6 5/5 × × 6/6 Zafar Iqbal 7/7 6/6 × 4/4 × × Nazrat Bashir 7/7 × × 4/4 10/10 × 9/10 × 10 6 Name Tahir Hassan Qureshi (CEO) 7/7 × 4/5 4/4 Total Number of meetings held during 2019 7 6 5 4 • 86 Annual Report 2019 • Directors are required to disclose existing or perceived conflicts of interest at the Board meeting as per the requirements of prevailing law. Where a conflict of interest or potential conflict of interest has been disclosed, the concerned Board member shall not take part in the Board discussion on that agenda item. The member who has disclosed the conflict cannot vote on that agenda item. • Conform to and abide by all the legal and standing requirements and Code of Corporate Governance while performing their duties and obey all lawful orders and directives. All Board members shall comply with and observe all applicable related statutory requirements, regulatory directives and the Bank’s policies. Shall not bring or attempt to bring political or other pressure and influence directly or indirectly on the Bank. • • • Conduct themselves with the highest standards of ethics, professional integrity and dignity in all dealings with all stakeholders and not engage in acts discreditable to the Bank, their profession and the nation. If they become aware of any irregularity that might affect the interests of the Bank, they shall inform the Board immediately. Maximum utilization of their abilities, experience and expertise for achieving set goals, maintain high standards of professional conduct, protect the Bank’s assets and respect interest of all the stakeholders. Practice transparency in all acts and deeds related to the business of the Bank. Reject corruption in all forms direct, indirect, public or private and do not directly or indirectly engage Maintain the privacy and confidentiality of all the information acquired being Member of Board of Directors of the Bank or come into their knowledge and refrain from disclosing the same unless otherwise required by statutory authorities/law and Bank’s own policies. All such information will remain with them as a trust and will only be used for the purpose for which it is intended and will not be used for personal benefits. Inside information about the Bank’s affairs shall not be used for their own gains or for that of others either directly or indirectly. Directors of the Bank are strictly prohibited to disclose the fact (comes into their knowledge) to the customer or any other quarter that a suspicious transaction or related information is being or has been reported to any authority, except if required under the law. • • Avoid all such circumstances in which there is personal interest conflict, or may appear to be in conflict with any of the stakeholder as prescribed by the statutes and in probable case their interest conflicts with any of the stakeholder, he/she would immediately declare such interest before the Board of Directors. • No director shall exploit for their own personal gain, opportunities that are discovered through use of corporate property, information or position, unless the opportunity is disclosed completely in writing to the Board of Directors of the Bank and the Board allows him/her to avail such opportunity. • No interested person shall participate in the discussion or vote in the Board’s proceedings or participate in any other manner in the conduct or supervision of such dealings. • Avoid any dealing with contractors or suppliers of the Bank that compromises the ability to transact business on a professional, impartial and competitive basis or that may influence discretionary decision to be made by the Board Members / Bank. • No Director shall hold any position or job or engage in outside business or other interest that is prejudicial to the interests of the Bank. • Shall not make any statement which has the effect of adverse criticism of any policy or action of the Bank or which is capable of embarrassing the relation between the Bank and the public including all the stakeholders. Provided that nothing in Refrain from accepting gifts, personal favors or preferential treatment, that could, in any way, influence or appear to influence, business decisions in favor of any person or organization with whom or with which the Bank has or is likely to have business dealings. Insider Trading: • Directors 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 information concerning the Bank. Directors who are in possession of any unpublished price sensitive information shall not communicate directly or indirectly the said information to others who trade on such information. • Where any director or his/her spouse sells, buys or takes any beneficial position, whether directly or indirectly, in the shares of the Bank, he/ she shall immediately notify the Company Secretary in writing. 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. Further, 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. Conflict of Interest: Integrity: None of the Board meeting held outside Pakistan during the year. The information retaled to directorship of the Board members in other companies is as disclosed in Board of Directors section of the report. Every director (including spouse and minor children) 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 directors. Remain loyal to the Bank, keeping its interest above own personal interests at all times. Confidentiality: Abidance of Laws / Rules: • Board of Directors and Board’s Committees Attendance as of 2019 • Disclosure of Interest by Director: • this clause shall apply to any statement made or views expressed by a Board Member, which are purely factual in nature and are not considered as confidential, in his official capacity or in due performance of the duties assigned to him. in bribery, kick-backs, payoffs, or any other corrupt practices. Related Party Transaction: • The Bank has devised a mechanism for identification of related parties and execution of related party transaction at arm’s length, which are executed in the normal course of business. Based on the statutory requirements, complete transactional details of related parties are presented before the Audit Committee for review and deliberations. The Audit Committee reviews and recommends the related party transactions to the Board and AGM (where required) for its approval. • Moreover, as a statutory requirement, a comprehensively prepared return is submitted on half yearly interval to State Bank of Pakistan that primarily covers every related party transaction executed during the said period. Allied Bank Limited 87
46. REPORT OF AUDIT COMMITTEE The Audit Committee of the Board comprises of three non-executive members including two independent directors , one being Chairman of the Audit Committee. The members of the Audit Committee bring years of diversified rich experience at senior management positions and strategic roles in commercial banking, investment banking, planning, energy, manufacturing and engineering sectors. Detailed profile of the respective members is included in the Annual Report. During the year under review, the Audit Committee diligently performed its duties and responsibilities in accordance with its Charter approved by the Board of Directors while remaining compliant with the requirements of the Code of Corporate Governance and Prudential Regulations issued by State Bank of Pakistan (SBP). The Committee oversees the functions of the Audit and Risk Review Group (A&RRG) and ensures that A&RRG has adequate financial, technological and operational resources along with appropriate human resources having required skill-sets, expertise and trainings necessary to perform A&RRG’s responsibilities independently, effectively and objectively. The Chief A&RRG reports directly to the Audit Committee. A&RRG assists the Audit Committee and the Board of Directors in discharging their responsibility in respect of Internal Control System. A&RRG periodically reviews, assesses adequacy and monitors the ongoing effectiveness of control systems. The meetings of the Audit Committee are designed to facilitate and encourage communication between the Audit Committee, ARRG, the Bank’s senior management, and the external auditors. During the year 2019, six meetings of the Audit Committee were held and, among others, following agenda items were deliberated in the meetings: • 88 Review of the Bank’s annual and interim financial statements prior to their approval by the Board of Directors. That included detailed discussions with the Banks’ senior management, external auditors and A&RRG by focusing on major judgmental areas, significant adjustments and issues resulting from audit, going concern assumption, any changes in accounting policies and practices, compliance with applicable accounting standards, listing regulations and other statutory and regulatory requirements and related Annual Report 2019 • • • • • • • • • party transactions. Review of quarterly Consolidated Reports on Testing of Financial Reporting Controls. Review of significant issues highlighted by A&RRG during audits and reviews of branches and other functions of the Bank, external auditors and SBP’s inspection reports and status of compliance including regular updates on the rectification actions taken by the management. Monitoring of compliance status of observations highlighted in SBP’s inspection reports. Review of analysis related to frauds, forgeries and dacoities incidents in the Bank; with specific focus on nature and reasons along with management action(s) thereof. Review and approval of risk based internal audit approach along with annual audit plan, 2020 and related enablers / budget along with resource requirements of A&RRG. Review of resolution status of complaints lodged under the Bank’s Whistle Blowing Policy along with resolutions thereof. Approval of Framework for assessment of efficacy of the Bank’s Internal Controls over Financial Reporting (ICFR) by A&RRG. Review of periodic activity review reports of A&RRG. The Audit Committee also met with senior staff members of A&RRG. In addition to above, the Audit Committee also reviewed and recommended the following to the Board of Directors: • Statement of Internal Controls, prior to endorsement by the Board of Directors; • Activity review report of ACOB for 2018 • Charter of the Audit Committee • Internal Audit Policy • IBG External Shari’ah Audit Report and compliance status • Accounting, Disclosure and Related Party Transaction policy of the Bank, accounting policies for Islamic Banking and Bahrain Branch Furthermore, the committee ensured the independence of the external auditor and efficient supervision of the internal control system by steering separate meetings with External auditors, Chief A&RRG and internal audit staff. The Audit Committee also recommends the scope and appointment of external auditors, including finalization of audit and other fees. The Audit Committee evaluates the qualifications, performance and independence of STATEMENT ON INTERNAL CONTROL the external auditors. In doing so, the Audit Committee considers the quality and efficiency of the services provided by the external auditors, the external auditors’ capabilities, technical expertise and knowledge of the Bank’s operations and industry. The Audit Committee ensures compliance with relevant regulations with regard to tenure of external auditors and provisions of non-audit services by external auditors to ensure independence and objectivity of external auditors. The Audit Committee reviewed the requirements for the rotation of external auditors on completion of the five years term of the current auditors in 2019. The present Auditors M/s KPMG Taseer Hadi & Co, Chartered Accountants in pursuance of the Code of Corporate Governance become ineligible for re-appointment having completed a term of five years. However, State Bank of Pakistan and Securities Exchange Commission of Pakistan (SECP) has granted permission to the Bank to extend the term of M/s KPMG Taseer Hadi & Co, Chartered Accountants. The Audit Committee recommended to the Board of Directors re-appointment of M/s KPMG Taseer Hadi & Co. Chartered Accountants, as statutory auditors of the Bank for the year ending December 31, 2020 for 6th term after obtaining approval of SBP and SECP, subject to approval of the Bank’s shareholders in the forthcoming Annual General Meeting. Furthermore, the Committee evaluates its own performance on annual basis thereby assessing the targets achieved, performance initiatives and whistle blow actions (If any) taken and submit the report to the Board of Directors. Internal Controls Framework and Role of ARR The Bank’s internal control structure comprises of the Board of Directors, the Audit Committee of the Board, Management including Compliance Group and A&RRG. Roles of all the functionaries have been defined in the Management’s Statement of Internal Controls, as part of the Annual Report which is duly endorsed by the Board of Directors. Zafar Iqbal Chairman Audit Committee Lahore: Dated: February 06 2020 The Bank’s management is responsible for establishing the Internal Control System with the main objectives of ensuring effectiveness and efficiency of operations, reliability of financial reporting, safeguarding of assets and compliance with applicable laws and regulations. The Bank’s Compliance policy & procedures further strengthened by a comprehensive Control Review and Testing Framework (CRTF), approved by the Board, outlines the Bank’s overall control objectives and approach towards implementation and testing of the Bank’s internal Control system. Under the aforementioned CRTF, the Bank’s Internal Control System is being evolved, reviewed and improved on an ongoing basis to minimize risks which are inherent in banking business and operations; with continuous monitoring by the Compliance Group (CG), an independent Audit and Risk Review Group (ARRG) respectively. ARRG works under direct supervision of Audit Committee of the Board (ACOB). ACOB comprises of majority independent Directors and is chaired by an independent Director as well. ARRG assists ACOB and Board of Directors in discharge of their responsibility in respect of Internal Control System. ARRG reviews, assesses adequacy and monitors the effectiveness of control systems on an ongoing basis. All significant and material findings are reported to the ACOB; which actively monitors that the identified risks and observations are properly mitigated to safeguard the interest of the Bank. The Board, acting through ACOB, provides supervision and overall guidance in improving the effectiveness of the Internal Control System. The CG is entrusted with the responsibility to minimize compliance risk with reference to regulatory framework; internal, external and regulatory audit compliance; control selfassessment, monitoring completeness and maintaining up to date inventory of the Bank’s policies, procedures and controls. Bank has implemented effective document life cycle management mechanism necessitating timely review and updation of documentation to incorporate material regulatory requirements and enhance control environment. In order to further strengthen the control environment, the Bank has automated the compliance processes especially related to Anti Money Laundering (AML) & Countering Terrorism Financing to ensure compliance with local and international regulations. The management has also established Compliance Committee to strengthen oversight role on compliance environment. Risk Management Group is entrusted for implementation of effective operational risk management framework. Risk control design assessment and control implementation selfassessment is carried out to evaluate operational controls both at design and implementation level. Incident and loss data are gathered for analysis and suggesting improvements in existing control structure. Further, Key Risk Indicators are defined in coordination with stakeholders for effective monitoring of potential risk. Concerted efforts are made by all functions of the Bank to improve the Control Environment at grass root level by continuous review and streamlining of procedures to prevent and rectify control lapses. Furthermore, compliance status of all irregularities identified during various audits and inspections are reported to ACOB, while other significant compliance risk related matters are reported to the Board Risk Management Committee (BRMC) as per approved ToRs. The Bank’s Internal Control System is designed to provide reasonable assurance to the Bank’s Management and Board of Directors about the aforementioned objectives. While the Internal Control System is effectively implemented and monitored, there are inherent limitations in the effectiveness of any system, including the possibility of human error or system failure and circumvention or overriding of controls. In addition, projections of effective evaluation pertaining to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. However, control activities are an ongoing process that includes continuous identification, evaluation and management of significant risks faced by the Bank. As part of CRTF relating to financial reporting, the Bank has documented and mapped As-Is processes and controls, identified gaps and requisite recommendations, developed remediation initiatives and management testing plans. In addition, the Bank is formulating guidelines for adherence to Integrated Framework on Internal Controls issued by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission on continuing basis. Bank has completed all the stages of Internal Control over Financial Reporting as specified by State Bank of Pakistan (SBP), which has granted exemption from the requirement of submission of Long Form Report by the External Auditors. As a result, the bank shall submit “Annual Assessment Report on Efficacy of Bank’s ICFR” approved by ACOB. The Bank’s management considers that the existing Internal Control System is adequate and has been effectively implemented and monitored, based upon the results derived through ongoing testing of financial reporting controls and internal audits carried out during the year. However, the management, adopting a prudent approach, would be continuously evaluating procedures and processes to further augment the Internal Control System. Based on the above, the Board of Directors has duly endorsed the Management’s evaluation of internal controls including ICFR in the attached Director’s report. Tahir Hassan Qureshi Chief Executive Officer Lahore. Dated: February 07, 2020 Allied Bank Limited 89
47. STATEMENT OF COMPLIANCE WITH LISTED COMPANIES (CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2019 The Bank has complied with the requirements of the Regulations in the following manner: 1. The total number of directors are (08) including the CEO (Deemed Director) as per the following, a. Male: Seven (07) b. Female: One (01) 2. The Composition of Board is as follows CategoryNames Dr. Muhammad Akram Sheikh Independent Director Mr. Zafar Iqbal Ms. Nazrat Bashir Non-Executive Directors Mr. Mohammad Naeem Mukhtar Sheikh Mukhtar Ahmad Mr. Muhammad Waseem Mukhtar Mr. Abdul Aziz Khan Executive Director Mr. Tahir Hassan Qureshi, CEO Female Director Ms. Nazrat Bashir 3. The directors have confirmed that none of them is serving as a director on more than seven listed companies including Allied Bank Limited. 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 and mission statement, overall corporate strategy and significant policies of the Bank. The Board has ensured that complete record of particulars of the significant policies along with their date 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 Act and these Regulations. 7. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose. The Board has complied with the requirements of Act and the Regulations with respect to frequency, recording and circulating minutes of meeting of the Board. 8. The Board have a formal policy and transparent procedures for remuneration of directors in accordance with the Act and these Regulations. 9. Appropriate arrangements were made for orientation of Directors on their election with a view to acquaint them with their duties and responsibilities. Five members of the Board of Directors (Including the CEO) are Certified Directors from The Pakistan Institute of Corporate Governance (PICG) or Institute of Chartered Accountants of Pakistan (ICAP). Whereas three directors are exempted from such requirement on account of their experience and qualifications. Besides, a two days’ study tour in April 2019 for four ABL Directors (three Independent and one NonExecutive Director) at Dubai was arranged to provide them with first-hand knowledge of latest international banking techniques and digital technology. The Directors visited Mashreq Bank, Emirates NBD, Citibank Dubai and JP Morgan Chase in this regard. requirements of the Regulations. 11.Chief Financial Officer and Chief Executive Officer duly endorsed the financial statements before approval of the Board. INDEPENDENT AUDITOR’S REVIEW REPORT ON THE STATEMENT OF COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE To the members of Allied Bank Limited Review Report on the Statement of Compliance contained in Listed Companies (Code of Corporate Governance) Regulations, 2019 12.The Board has formed five (5) committees. The names and composition of the Committees along with details of the Committees members is disclosed separately in the Annual Report. 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 Allied Bank Limited for the year ended 31 December 2019 in accordance with the requirements of regulation 36 of the Regulations. 13.The terms of reference of the aforesaid committees have been formed, documented and advised to the committee for compliance. 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. 14.The frequency of meetings of the committee is disclosed separately in the Annual Report. 15.The Board has set up an effective internal audit function who are considered suitably qualified and experienced for the purpose and are 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 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 Institute of Chartered Accountants of Pakistan 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 chief executive officer, chief financial officer, 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 Companies Act, 2017, these Regulations or any other regulatory requirement and the auditors have confirmed that they have observed IFAC guidelines in this regard. 18.We confirm that all requirements of regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Regulations have been complied with; and 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 31 December 2019. Lahore KPMG Taseer Hadi & Co. Date: March 03, 2020Chartered Accountants 19.Explanation for non-compliance with requirements, other than regulations 3, 6, 7, 8, 27, 32, 33 and 36 are below: Chairman of HR&RC is a non-executive director. Due to his acumen and vast experience of Human Resource management the Board considered him as a most appropriate choice for this position. He is the Chairman of Human Resources & Remuneration Committee of Allied Bank since June 28, 2011 and has the capacity to run affairs of HR&RC effectively. His profile is separately disclosed in the annual report. Mohammad Naeem Mukhtar Chairman Place & Dated: Lahore, February 07, 2020 10.During the period under report the Board has approved appointment of Chief Financial Officer, and the Company Secretary including their remuneration and terms and conditions of employment and complied with relevant 90 Annual Report 2019 Allied Bank Limited 91
48. REMUNERATION REPORT Compensation Governance Remuneration of Material Risk Takers (MRT) and Material Risk Controllers (MRC) Employee compensation plays an integral role in the successful delivery of Your Bank’s strategic objectives. Attracting and retaining the capable employees is central to Your Bank’s compensation strategy. The cornerstone is the concept of pay for performance within a sound risk management and governance framework and with due consideration of market factors and societal values. Bank regularly reviews and aligns human resource policies encompassing all aspects of the remuneration to the ever evolving internal and external dynamics. The Human Resource and Remuneration Committee of the Board is entrusted with the overall governance of all areas of the Human Resource including remuneration. The key features of the Bank’s Human Resource Policy related to remuneration in line with the mission of the Bank, are as under: Fixed pay of MRTs and MRCs is decided based on fixed pay determination criteria for overall bank’s employees and includes same components.Variable remuneration (performance bonus) is based upon performance score calculated against defined key performance indicators and rating scores achieved by each individual. Furthermore, rating assigned to MRTs or MRCs through annual performance appraisal process against their managerial capabilities and personal traits is then clubbed together against predefined weightages to reach consolidated performance score which is used as basis for deciding variable remuneration which is adjusted against underlying risks specifically for MRTs. MRCs are identified as functions and designations having appropriate level of authority and control duly governed by approved organograms having clearly defined independent reporting lines from the function they oversee. Organizational hierarchy of the Bank ensures segregation of roles and independence among Business, Operational support as well as Risk management. • • • • • Maintain fair and competitive salary and benefit structure which is not only market comparable but also recognizes and rewards the individual performance suitably. Attract and retain the right skillset and competence in line with the Bank’s strategic objective to become the leading Bank in digital age. Encouraging prudent decision making by incorporating related risks in the remuneration structure. Reflect regulatory guidance in compensation programs. Aims to be recognized as the best place to work. Total Remuneration Structure As part of the compensation strategy, the Bank employs a total compensation philosophy, which comprises fixed pay, variable compensation and benefits. Element Fixed Pay Variable Compensation Benefits 92 Purpose • Attract and retain employees by paying market competitive pay for the role, skills and experience required. • This include base pay and allowances as part of monthly salary as per terms of employment. • Drive and reward performance based on annual financial and non-financial measures consistent with the medium to long-term strategy, stakeholder interests and adherence to the Bank’s values. • Awards vary with performance achievement and the Bank has the discretion to assess the extent to which performance has been achieved. • Awards are in monetary terms. A portion of the annual incentive award may be deferred and vests over a period of three years. All deferred awards are subject to malus. • This include annual performance award, cash award on passing IBP diploma and any other reward for target achievement or extraordinary performance. • Ensure market competitiveness and provide benefits in accordance with market practice. • This include but not limited to medical benefits, education assistance and post-employment benefits. Basis of deferral of payment Quantum of associated risk is considered while deciding deferred portion of variable remuneration of MRTs. Percentage as per following grid is withheld and deferred from variable remuneration of MRTs for a period of 3 years: High Risk Medium Risk Low Risk CEO, Chiefs & Executive Management 25 % 20 % 15 % Senior Management 20 % 15 % 12.5 % Middle Management 15 % 12.5 % 10 % Assessment of Risk Factors Risk Matrices encompassing Key Risk Indicators (KRIs) are used for assessment of major types of risks undertaken by identified MRTs. Percentage of variable remuneration of identified MRTs which has been deferred is based on quantum of respective current and future risks undertaken, assessed using Risk Matrices based on data for the current year. Remuneration Framework for Chairman of the Board, Non-Executives Directors and Shariah Board Members Chairman of the Board and Non-Executive Directors The Bank’s Remuneration Policy related to the remuneration of Chairman and other Directors is governed by the State Bank of Pakistan (SBP) Prudential Regulations as revised from time to time. The scale of remuneration to be paid to Chairman of the Board and Non-Executive Directors for attending the Board or its committee meetings is determined keeping in view responsibilities, governance structure and expertise and is approved by the Shareholders on a pre or post facto basis in the General Meeting. The salient features of the Directors Remuneration Framework are as under; Bank employees are graded into 12 salary grades, from MG1 to MG12, with MG1 being the senior most and MG 12, being the junior most. The management of the Bank is further classified in the following four levels according to salary grades: • • Management level Executive Management Senior Management Middle Management Junior Management • Salary Grades MG1 to MG3 MG4 to MG6 MG7 to MG9 MG10 to MG12 • • No director is involved in deciding his own remuneration. No fee is paid if any of the directors does not attend a meeting. Similarly, fee is not paid for consideration of the proposals considered through circulation. No consultancy or allied work is awarded to non-executive directors or to the firms, institutions, companies etc. in which they hold substantial interest. The administrative expenses pertaining to the office, staff and security allocated to the Chairman of the Board are determined rationally. Directors may be provided with certain facilities incidental to the performance of their role as Board members depending on the need and as approved by the Board and shareholders. The above categories may include, from time to time, Material Risk Takers (MRTs) and Material Risk Controllers (MRCs). The remuneration of employees categorized as such is based on risk-based pay structure which is referred to as ‘risk-based employee’s remuneration pool’. The remuneration of employees other than such categories have pay structure which is referred to as ‘general employee’s remuneration pool’ Shariah Board Classification of Material Risk Takers (MRT) and Material Risk Controllers (MRC) No variable remuneration (performance bonus) is paid to Chairman Shariah Board and non-resident shariah board member. Material Risk Takers (MRTs) and Material Risk Controllers (MRCs) of the Bank are identified as functions and designations having appropriate level of authority and control within the bank either working as regular or contractual employees. No third-party employee is designated as either MRT or MRC. Functions are identified as MRTs or MRCs based on designations or functions involved in critical business decision making, i.e. Chief Executive Officer (CEO), direct reportees of CEO, members of critical management committees involved in business decision making and risk management. Further, relevant Group Heads and other senior level positions managing critical areas, and meeting the risk materiality and threshold criteria as approved by the Board are also designated as MRTs or MRCs respectively. Resident Shariah Board members are paid fixed remuneration which includes monthly salary and allowances as per terms of contract and post-employment benefits. Variable remuneration (performance bonus) is paid on the basis of performance assessment carried out annually through performance appraisal process. Annual Report 2019 Fixed remuneration is paid to Chairman Shariah Board as well as non-resident shariah board member in line with employment contracts including monthly salary, medical benefit and fuel reimbursement. Allied Bank Limited 93
49. SHARIAH BOARD Terms of Reference The primary function of Shariah Board is to supervise and advise the management of the Bank on all shariah related matters , develop comprehensive Shariah compliance framework and is responsible for all Shariah related decision. The Shariah Board approves all Islamic Banking related policies, procedures, services and related agreements and contracts in conformity with the rules and principles of Shariah. The Shariah board is responsible to review Internal Shariah Audit review report, external Shariah Audit, SBP Shariah Inspection and Shariah compliance reviews and prescribes appropriate remedial measures. Shariah Board is also responsible for training and development of the staff members. Shariah Board meetings are held at-least quarterly it also meets with Board of Directors at-least on quarterly basis. Process of appointment and nomination The appointment of members of the Shariah Board is approved by the Board of Directors, of the Bank, upon recommendation of the Human Resource and Remuneration Committee. The appointment is subject to prior clearance of SBP and pursuant to Fit and Proper Criteria (FAPC) and regulation of SBP. PROFILE OF SHARIAH ADVISORS Mufti Muhammad Iftikhar Baig Mufti Mahmood Ahmad Mufti Tayyab Amin He is serving Allied Bank Limited since February 18, 2013 and as Chairman Shariah Board since August 17, 2018. He is a qualified Mufti from the Jamia Darul-Uloom Karachi, which is one of the most reputed and prestigious religious institution in the country. He is also a Law graduate and in the process of completing his Ph.D thesis on the subject ‘Shariah Compliant Solution regarding Foreign Trade’. His previous experience includes Shariah Advisory services in local and international banks. He regularly delivers lectures on Islamic Economics and Finance at different forums and educational institutions. He is serving as member Shariah Board of the Bank since August 17, 2015. He graduated as a Shariah scholar in Shahadatul-Almiah (Masters in Arabic and Islamic studies) from Wifaqu-ul-Almadaris Alarabia. He has also earned his Master’s in Arabic from University of Punjab, Lahore (Takhassus-Fi-Alifta) in Islamic Fiqh and Fatawa from Jamia Darul-Uloom, Karachi. He has also completed his M Phil in Islamic Banking and is in the process of completing his Ph.D thesis on “Comparison between Conventional and Islamic Law of Contracts”. He has experience of eight years as a Shariah consultant with Islamic MicroFinance and other organizations. He is a Mufti and lecturer in renowned Islamic university - Al Jamia Al Ashrafia Lahore. He is serving as Resident Shariah Board Member (RSBM) of the Bank since September 03, 2018. He earned his Al-Aalamiyyah (a degree recognized by the HEC Pakistan as a Masters in Arabic & Islamiyyat) and specialization in Islamic Jurisprudence from Jamia Darul-Uloom, Karachi, which is one of the most reputed and prestigious religious institution in the country. Prior to joining the bank, he has worked as Shariah advisor for three years at First Elite Mudharabah and six years at First Punjab Mudharbah. He regularly delivers lectures on Islamic Economics and Finance at different forums and educational institutions. Chairman Shariah Board Member Shariah Board Resident Shariah Board Member None of the members of Shariah Board of the Bank are member of Shariah Board of any other financial institution. No. of Meetings Attended: Four Shariah Board meetings were held in 2019 and all Shariah Board members have attended all the meetings. REPORT OF SHARIAH BOARD By the grace of Almighty Allah, the year under review was the 6th year of Islamic Banking Operations of Allied Bank Limited (ABL-IBG). The Board of Directors and Executive Management are solely responsible to ensure that the operations of ABL-IBG are conducted in compliance with Shariah principles at all times. The scope of this report is to cover the affairs of ABL-IBG, from Shariah perspective as described under Shariah Governance Framework of 94 Annual Report 2019 State Bank of Pakistan. Shariah Board is pleased to submit a report on the overall Shariah compliance environment of ABL-IBG. Shariah Board asserts that it has performed its duties independently with courteous relationship among the Shariah Board members and management of Bank. To form basis of our opinion as expressed in this report, Shariah compliance reviews, on test check basis, of each class of transactions, the relevant documentation and process flows on sample basis was carried out. ABL-IBG has put a mechanism in place in the form of Internal Shariah Audit and Shariah Compliance reviews to ensure Shariah compliance in its overall operations that will keep its focus on continuous improvement for catering to the large branch network over the coming years. The system within the Bank is sound enough to ensure that amounts realized from prohibited sources, if any, are not made a part of the income. The Bank recovered charity of Rs. 0.075 million and accordingly an amount of Rs. 0.06 million was granted to approved charitable institutions. The Internal Shariah Audit Function (ISAF) plays a vital role in achieving the objective of ensuring Shariah compliance by evaluating the adherence to Shariah guidelines prescribed by SB, Resident Shariah Board Member (RSBM) and Shariah guidelines of Islamic banking division of SBP, in every activity under taken by the ABL-IBG, on sample basis. ISAF submits periodical reports to RSBM /Shariah Board for information, review and determination of appropriate corrective actions. Shariah Compliance Department (SCD) of the Bank is working under the guidance of SB with adequate resources. The main objective of this department is to facilitate and ensure Shariah compliance in all the new researches, conducting Islamic banking trainings, Shariah-compliance review of each class of transactions, relevant documentation and process flows. Moreover, SCD has conducted the review of branches to evaluate the Shariah knowledge of staff. Review and Development: For the year ended December 31, 2019 In the name of Allah, the Beneficent, the Merciful The Bank primarily used Ijarah, Diminishing Musharakah, Salam and Business Musharkah for its financing activities during the year. The bank under review period also maintained gradual shift from Trade based modes to Participative mode which is an encouraging development. Besides, we have also reviewed the reports of the internal Shariah audit and external Shariah Audit of ABL-IBG operations conducted during the year. Based on the above, we are of the view that: The business affairs of ABLIBG, especially with reference to transactions, relevant documentation and procedures, performed during the year 2019 are in conformity with the principles and guidelines of Shariah issued by Shariah Board (SB) and State Bank of Pakistan. ABL-IBG has completed yet another successful year. Upon achieving a branch network of 117 dedicated Islamic branches and 10 Islamic Banking windows, further expansion in outreach has been made through addition of 50 Windows at selected conventional branches during 2019. Similarly, significant growth in assets, Investments, liabilities, trade and other business avenues have been registered. Asset Review: During the year, financing portfolio has increased by 82.16% to Rs. 12,615 million as compared to 6,925 million in last year, which mainly constitutes of Business Musharkah (53.52%), Diminishing Musharkah (25.37%), Islamic Export Re-Finance– Business Musharkah (7.93%). Besides, the investment portfolio has also risen by 21.50% to Rs. 12,452 million as compared to 10,249 million in last year, which mainly constituting Government Ijarah Sukuk, Corporate Sukuks and Bai-Muajjal with Government of Pakistan. During the year, the SB approved new products including Allied Aitebar Business Finance, Islamic Financing Facility for Renewable Energy (IFRE) and Low Cost Housing for Special Segment (IHFS) on assets side and “Allied Aitebar Waseela e Hajj & Umrah Account” on Liability side. Liability Review: The total deposits of ABL-IBG have increased by 39.61% during the year reaching to Rs. 34,389 million at December 31, 2019 as compared to Rs. 24,632 million as of last year. Other Key Activities: SB also reviewed various policies and manuals during the year related to Tractor Finance, Istisna Finance, Home Musharakah Policy, Islamic Export Refinance Scheme, Forward Cover, Business Muaharakah Manual, Allied Aitebar Express Account Allied Aitebar Institutions Account, Allied Aitebar Premium Account and Allied Aitebar Notice Period Certificates. Profit Distribution Review: SCD also conducted review of the process of profit distribution on monthly basis and ensured that the distribution is in line with instructions of SB and SBP. Moreover, internal Shariah audit of pool management has been conducted on quarterly basis, which has further improved the process of pool management, profit and loss distribution and strengthened the compliance of Shariah guidelines. Shariah Board Meetings: Shariah Board had held four meetings during the year 2019 wherein multiple issues were discussed upon, reviewed and resolved. Staff Training: In order to enhance the Islamic banking knowledge and expertise, training on Islamic Banking concepts as well as on Islamic baking products were imparted to the staff of the Islamic Banking Group and other staff involved in management of Islamic Banking operations and affairs. Management Development Center of ABL, arranged 27 training sessions and more than 1070 employees attended these sessions. Moreover, 54 employees attended training session conducted by NIBAF and other reputed Islamic banking training institutes. BOD and Shari’ah Board Training/Orientation: In order to enhance Islamic banking knowledge and acumen, an orientation session for BOD was conducted by the Shariah Board. Moreover, the members of Shariah Board participated in SBP designed program which was aimed to provide exposure with respect to International trade and treasury operation & derivative management. Recommendations: Following are some areas, which require continuous focus: 1. Bank’s increased focus on customers’ awareness regarding Islamic banking is well appreciated. It is recommended that such programs should also be continued in future for Ulama/Shariah scholars as well. 2. Bank’s policy of appointing new staff members for Islamic banking branches with inclination /commitment to the ideology of Islamic banking should be continued. 3. The Bank is actively pursuing training of its human resources about various aspects of Islamic Banking & Finance through training sessions/seminars. However continuous focus should be maintained to improve the level of awareness through Islamic Banking refresher, certification and Shariah documentation courses. Moreover, enhanced training for IB Treasury operations should also be conducted. This will ensure enhanced capacity building as well as address the possible Shariah non-compliance risk. We pray to almighty ALLAH to provide us guidance to adhere to the Shariah principles in day-to-day operations, to absolve our mistakes and for the success of Islamic banking in Pakistan. Mufti Tayyab Amin Resident Shari’ah Board Member Mufti Mahmood Ahmad Member Shari’ah Board Mufti Muhammad Iftikhar Baig Chairman Shari’ah Board Date of Report: February 07, 2020 Allied Bank Limited 95
50. 2019 96 Annual Report 2019 31 Allied Bank Limited 97
51. INFORMATION TECHNOLOGY (IT) GOVERNANCE e-Vision Committee BOARD OF DIRECTORS Chief Executive Officer MANCO ITSC IT Governance framework ensures that Your Bank’s significant investment in IT infrastructure is duly aligned with the long-term strategies and objectives of Your Bank; while ensuring conformity with industry’s best practices. IT Governance of the Bank is regulated by the IT Governance Policy approved by the Board of Directors which focuses on ensuring that: Chief Risk Management ACOB • Digital Business Analytics & Artificial Intelligence IT System & Infrastructure Chief Audit and Risk Review IT Operations Project Management Office & IT Compliance Information System Audit 98 Annual Report 2019 Ensure maintenance of Bank’s IT infrastructure including online business services for smooth transactions processing. » Validate IT processes through testing and oversee quality control throughout the IT infrastructure. » Devise security policies and ensure that arrangements for disaster recovery plan are in place. » ITG designs, specifies and maintains systems for optimal utilization by Your Bank. Keep the e-Vision Committee and MANCO informed of emerging trends and developments in IT and put forth necessary recommendations. » IT acquisitions follow the necessary approvals ensuring that there is appropriate balance between cost, risks, short term and long term benefits. Maintain a requisite professional IT staff strength with sufficient knowledge, skills, experience and professional qualifications to meet the expectations along with regular training to keep up with the latest technologies and concepts. ITG of Your Bank is strengthened by the following functions which are headed by committed professionals, providing innovative and efficient solutions to achieve organizational objectives. IT based policies and procedures conform to the Banks, statutory and regulatory requirements. • Software Delivery » • Technology Compliance Chief Information Technology Develop and implement IT policies and procedures in line with best practices. IT strategic plan fits with the current and evolving needs of Your Bank and customers. • Chief Compliance Information Technology Group (ITG) is headed by Chief ITG, reporting to Chief Executive Officer of Your Bank. ITG is responsible for development and delivery of technology driven services in line with directions of the Board and its committees under the strategic guidance of ITSC. Chief ITG is responsible to: » • Information Security & Governance IT Steering Committee (ITSC) of Your Bank is entrusted to review initiatives and prioritize projects for their implementation along with recommendation for required infrastructure and monitor their performance. ITSC reviews and recommends the annual and long term Strategic IT plan before its recommendation to MANCO and Board’s e-Vision Committee for review and approval of the Board of Directors. ITSC assists MANCO in implementing IT and Digital strategies approved by Board of Directors and also plays an advisory role in all technology related matters. ITSC also reviews the result of vulnerability and IT risk assesment exercises and ascertains measures taken to mitigate identified risks. Chief ITG is the chairman of ITSC. Roles and responsibilities are clearly defined for smooth delivery of business requirements and services. IT Governance of Your Bank comprises monitoring by: e-Vision Committee of Board supervises the IT Governance in Your Bank and provides strategic direction for adoption/upgrading of evolving technologies in order to provide new customer centric products and services and to improve internal control environment. The Committee reviews the strategic plan of Your Bank to improve IT infrastructure and automation of processes and systems including alternate delivery channels. The Committee extends assistance to the Board with insights regarding evolving technologies in the field of e-banking and digital platforms. It also oversees performance of Information Technology Group of Your Bank. Software Delivery Digital Business Analytics & Artificial Intelligence IT System & Infrastructure IT Operations Project Management Office & IT Compliance Information Security & Governance functioning under the umbrella of Risk Management Group, is primarily responsible to develop and implement information security guidelines through a set of policies, procedures and frameworks and conduct Technical Risk Assessment as per policy guidelines. The function is also mandated to develop information security policies in line with regulatory requirements and based on best industry practices. This function also manages the information security awareness campaign across the Bank. Technology Compliance under Compliance Group performs technology compliance review of Information Security Policies and Procedures to ensure that they are compliant with SBP guidelines/regulations. Furthermore, it also ensures compliance against the recommendations of SBP inspection report, external auditors’ management letter and internal audit report of Audit and Risk Review Group (A&RRG). Information System Audit function under A&RRG is entrusted to perform systems audit across the Bank; testing desired functionality and integrity while providing recommendations where necessary. Allied Bank Limited 99
52. WHISTLE BLOWING POLICY (WBP) Preamble Protection of Whistleblowers The purpose of WBP is to create a channel whereby Your Bank’s staff is encouraged to report, without any fear, any malicious activity or conduct by any other employee, which may cause financial or reputational loss to the Bank. All matters are dealt with confidentiality and the identification of the Whistleblower is not disclosed except for inevitable situations, where disclosure of identity of the Whistleblower is essential. Your Bank stands committed to protect Whistle blowers for whistle blowing and any subsequent harassment or victimization of the whistleblower is not tolerated. If any Whistleblower feels that at his / her existing place of posting, he / she might be subjected to victimization or harassment by the alleged officials after blowing the whistle, the management may consider transferring him / her to another suitable place on his / her request. Indemnity from disciplinary action will be provided to the whistleblower employee, against actions/involvement in the activity against which whistle is blown, based on the merits of the respective case. It provides assurance to the Whistleblowers about total confidentiality and protection of their legitimate personal interests. It also provides incentives for the Whistleblowers on reporting of suspicious activities. Objectives The intended objectives of this policy are: • Develop a culture of openness, accountability and integrity; • Provide an environment whereby employees of the Bank blow whistle where they know or suspect any immoral, unethical, fraudulent act of any current or former employees, vendors, contractors, service providers and customers which may cause financial or reputational risk to the Bank; • Create awareness amongst employees and stakeholders regarding the Whistle Blowing Function; and • Enable management to be informed at an early stage about aforementioned activities or misconduct, if any, and take appropriate actions. Scope The scope of this policy includes, without limitation all types of unlawful acts / orders, fraud, corruption, misconduct, collusive practices or any other activity which undermines the Bank’s operations, financial position, reputation and mission. Independence of Whistle Blowing Unit An operationally independent Whistle Blowing Unit has been established under supervision of Audit Committee of Board (ACOB), for handling and monitoring allegations, complaints and concerns raised by the whistleblower under the WBP. Incentives for Whistle Blowing On the recommendation of the ACOB, the Whistle blower will be suitably awarded according to the significance of the information he / she had provided and impact of losses averted as a result. Process of Whistle Blowing Your Bank has established the following communication channels for whistle blowing complaints: • A dedicated e-mail address for whistle blowing (whistle. blowing@abl.com) accessible by the Chairman ACOB. • Whistle blowing forms available on the Your Bank’s corporate website. • Post / courier addressed to Chairman ACOB, Allied Bank Limited, Head Office, 3 Tipu Block, New Garden Town, Lahore. CORPORATE SOCIAL RESPONSIBILITY (CSR) POLICY OUR PHILOSOPHY CSR vision of Your Bank “To be a socially responsible corporate citizen” has evolved into its CSR policy which clearly outlines Corporate Social Responsibility objectives of Your Bank. CSR Policy stipulates that CSR is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis. POLICY OBJECTIVES Objective of the policy is to provide guidelines to align business objectives and the entity’s roles as responsible corporate citizen. Your Bank recognizes its obligations as responsible corporate citizen and aims to achieve following broader objectives by implementation of its CSR Plan: • Establish a WORKPLACE environment to maintain balanced work life with healthcare facilities along with high ethical standards, equal employment opportunities, aided social interaction among employees and encouraged employment of disabled. • Our working style should have positive impact on ENVIRONMENT promoting green banking, use of renewable energy sources, reducing carbon omissions, promoting trees and plants and change of working style, on best effort basis, from paper based to computer based and promoting green culture. • Make our COMMUNITY feel our presence not only by our business interactions but also by sharing and caring, especially during the times of adversities and natural calamities. • Strengthen CUSTOMER RELATIONS by ensuring satisfaction and privacy. • Protecting Human rights, ensuring transparency, taking anti-corruption measures, adopting best business practices and improving stakeholder relations through GOVERNANCE. • Our BRAND and slogans such as, “Aap kai dil main hamara account” should be known as community caring organization and not just for the profit. Bank’s contributions towards these areas have been mentioned in Corporate Sustainability Report. Bank’s contributions towards these areas have been mentioned in Corporate Sustainability Report. Number of instances reported to ACOB Number of whistle blowing incidences reported to ACOB in Year 2019: Eighteen (18). INVESTOR GRIEVANCE Your Bank has put in place comprehensive guidelines for investors and shareholders to address their grievances. The guidelines conform to the Bank’s internal policy to address the investor grievances as well as statutory requirements as stipulated under SECP SRO 634 (1) / 2014. • For all shares related issues, shareholders are advised to contact Shares Registrar of the Bank with contact details available on Bank’s corporate website. • In order to facilitate the shareholders who, intend to register a complaint, the contact details of the focal person of Shares Department is given on the Bank’s corporate website for this purpose. • In addition, if shareholders grievances are not resolved by the Shares Registrar of the Bank, as well as Shares Department, they may escalate their complaints to the Company Secretary of the Bank. • If any complaint still remains unsatisfied, the same can be forwarded to Securities Exchange Commission of Pakistan (SECP); using links of SECP website which are available in investor grievance section of the Bank’s corporate website. • Furthermore, queries with respect to financial results of Your Bank can be directed to ‘Investor Relations’ department, which is headed by Chief Financial Officer, vide using email address investor.relations@abl.com (which is available on corporate website as well). 100 Annual Report 2019 Allied Bank Limited 101
53. CORPORATE SUSTAINABILITY REPORT Allied Bank Limited (the Bank) being a socially responsible citizen remains committed towards Corporate Social Responsibility (CSR) which forms an integral part of the Bank’s long-term strategy. Your Bank echoes a commitment of making a positive impact on our society and works to sustain the trust of the customers and communities in which we operate. OUR PHILOSOPHY OF CSR The Bank has been meticulously observing globally recognized environmental and social practices through its approved CSR policy. The key CSR objectives of the policy have been aligned with the rolling strategic plan of the Bank and ensuring to adhere closely to the global sustainable development goals (SDGs). Under this CSR Policy, Your Bank focuses on these four key areas to achieve following objectives: Customer Relation: First Choice Bank for the Customers. Workplace: Build an engaged, healthy and inclusive workplace, with an emphasized focus on achieving an equitable gender employment ratio. Environment: Contribute towards sustainable growth; with no adverse impact on the environment. Society: Contribute towards wider social development including health, education and general community welfare. • • • • Best Place to Work Award 10% increase in female employees Education Assistance – 341 employees Trainings Facilitated – 11,000+ CSR SNAPSHOT • • Contribution to National Exchequer, Donations & Sponsorships – Rs. 83 million Taxes Paid – Rs. 18,554 million Zakat Submission – Rs. 398 million CUSTOMER RELATIONS Business thrives for the constant support and commitment of its customers. The Bank in line with its vision “to become first choice Bank for the customers”, constantly aspires service excellence and enhanced user experiences of our valued customers. A goal as critical as such can only be achieved through persistent interactions, getting to know the customer and their needs while providing dynamic solutions to cater to their evolving needs. Customers are at the core of the continuous technological transmutation which is geared towards reshaping 102 Annual Report 2019 Society Rs. 18,653M Consumption of Fossil Fuel ↓13% Consumption of Paper ↓14% Solar Locations – 59 Inverter Branches – 1,060 3 Business Processes Automated • With the objective of providing nonfinancial services, Your Bank organized following seminars and programs to promote financial inclusion and credit expansion throughout the year: • Environment Rs. 204M • • • • • CUSTOMER AWARENESS AND FINANCIAL LITERACY SEMINARS Workplace Rs. 435M • Deposit Protection – Rs. 937M 1,515 Biometric & Anti-Skimming enabled ATM 96.6% ATM Uptime 99% Resolution against 35,023 Customer Complaints Received 3.87 Days Average Turnaround Time • • • • Customer Relations Rs. 943M In line with the aforementioned CSR objectives during the year, the Bank’s contributions towards these key areas are as follows: to conduct transactions conveniently. In continuation of ABL’s journey towards digitalization, 75 Self Service Kiosks worth Rs. 19 million are installed in selected Branches. In order to receive objective feedback on customer experience of services provided by the Bank, Your Bank arranged for video mystery shopping of Top 100 flagship branches through an external research company. The Bank further strengthened customer relations through the following initiatives: banking of the future. Concentrating on technology driven 24/7 banking solutions, the expansion in Bank’s ATM network was maintained during the year with an addition of 127 ATMs. In order to augment services and security all ATMs are equipped with biometric access facility to allow transactions without use of cards. All ATMs are equipped with antiskimming devices to enhance security of transactions.Recognizing the impact of digitalization and understanding the banking needs of millennials, Your Bank has introduced its first SelfService branch at Lahore University of Management Sciences (LUMS), which offers full-scale, rapid, secure and hassle-free banking services with seamless customer experience. The self-service branch offers digital account opening through tablets, Interactive Teller Machine (ITM) where customers can do banking transactions through teller assistance over video conferencing facility and instant card issuance for accountholders at the branch. Your Bank ensured 99%+ ATM uptime during the occasions of Eid-ul-Fitr and Eid-ul Adha holidays; processing around 2.2 million transactions involving Cash Withdrawals of approximately Rs. 25.2 billion. Your Bank installed Electronic Queue Management Systems in Top 100 Flagship branches with total cost Rs. 42.58 million, facilitating the customers • In line with SBP’s vision to promote SME, 8 awareness seminars on Middle Market & SME Policy were organized in Gujranwala, Peshawar, Faisalabad, Sahiwal, Bahawalpur and Larkana. All the events were well-attended by the business communities of the respective territories. Focused interactive seminars on “Awareness Program on Islamic Banking” were arranged, one at Gujranwala and another at Bahawalpur with the objective of acquainting the business community as well as Ulemas, in particular, about the possible alternatives of banking solutions within their Shariah interpretation and thereby providing avenues of taking due advantage of it and play a key role in the country’s economics. The Bank’s Human Resource Group in coordination with the SBP, arranged 496 National Financial Literacy Program (NFLP) sessions in the rural districts with an aim of financial inclusion of unbanked segments of the society. These sessions, attended by 10,000+ citizens, enhanced the awareness levels, which was appreciated by all the participants. During the year, Your Bank ranked top amongst the participating Banks in Panjgur and selected districts of Karachi for highest account opening ratio; the efforts lauded by SBP CUSTOMER PROTECTION AND QUALITY ASSURANCE Your Bank is constantly aspiring to achieve excellence in services to earn customers loyalty. Your Bank spent Rs.937 million towards deposit protection insurance in order to comply with SBP initiative to provide protection to small depositors across the banking industry. In this Digital era, customer information is more vulnerable than ever before. Cognizant to this fact, Your Bank continued to safeguard Data and Information Technology assets including compliance of PCI DSS and Customer Security Program (CSP) by SWIFT. Your Bank conducted assessment exercises including Vulnerability Assessment (VA), Penetration Testing (PT) and Technical Risk Assessment (TRA); ensuring a controlled environment for customers’ related information; augmented by re-issuance of EMV chip-based cards for secured POS transactions. Information Security Awareness campaigns were shared with the valued customers vide emails and SMS respectively to educate and enhance awareness of Bank’s customers about latest cyber security threats. Phishing email simulations were also conducted on bank’s staff to gauge the phishing index of the organization. Through Customer Relationship Management (CRM) system; Your Bank continued to improve the resolution rate and timelines to further strengthen the complaint handling mechanism. Allied Bank Limited 103
54. With the objective to engage customers and nourish relationships , Your Bank maintains profiles on Facebook, Twitter & Instagram and actively interacts with the customers on a variety of topics. This engagement is providing significant boost to the Bank’s presence on the social media platforms, especially with the millennial segment of the society. 966K 11%↑ 6K 8%↑ 6K 100+%↑ CONTRIBUTION TOWARDS FINANCIAL INCLUSION During the year under review, Your Bank continued to endeavor towards financial inclusion in rural areas and providing quality financial services at grass root level. Your Bank has opened 2 branches in Baluchistan Province and 9 branches in Khyber Pakhtunkhawa (KPK); increasing the total number of rural branches to 278. Another 3 branches were opened in Un-Banked areas of Karora, Fateh Pur Kamal and Gadari. In order to play an effective role in the development of agrarian economy of the country, the Bank is also extending agricultural financing across the country and offers vast range of agricultural finance products through Agri designated branches. The Bank also continued supporting Prime Minister Youth Business Loan Scheme to eligible small borrowers under this segment. DIGITAL INNOVATION The Bank is continuously striving to deliver enhanced user experience through innovative digital banking products and services. The face of the banking industry has drastically changed in the last few years, wherein digital disruption, consistent innovation and dynamic products from Fintechs are continuously pushing the traditional banking industry to focus on augmenting customer experience through adopting latest technologies and excellence in services on both conventional and digital channels. As a forward-thinking advocator, Your Bank has responded to these market disruptions by expanding in-house capabilities and also have partnered with Fintechs for new digital offerings. 104 Annual Report 2019 myABL Personal Internet Banking has remained the most convenient and widely used Online Banking channel for ABL customers during the year 2019. With improved customer experience and well-organized customer onboarding campaign, Bank succeeded in doubling the myABL userbase. myABL Business Internet Banking (BIB) is the dedicated Digital Banking platform exclusively designed and developed for Business and Institutional Customers. This userfriendly and device-responsive facility continued to grow during 2019, enabling customers to execute wide range of online banking transactions from their workstation/offices. The Bank has an ATM/ Branch Locator and Discount Offer services on the Bank’s Corporate Website and Facebook that has rich, engaging and user-friendly interface with simple navigation. With an easy to use mapbased interface, customers can find their nearest ATMs or Branches or they can search for a specific branch based on available facilities and can view Discount Offers available on Debit, Credit, Prepaid cards and Masterpass QR, which is a world renowned Mastercard product offering. The Bank has also been actively engaged in facilitating various institutions for Cash Management Solution. The Bank has merged all its cash management solutions under Payment Hub wherein Conventional, Batch Mode processing or API Based integration is offered. The Bank has added 61 new clients the year for Cash Management Services. Your Bank’s unique initiative of facilitation of small obligors towards an Enterprise Resource Planning (ERP) based automated book keeping and accounting system, with off-the-shelf features enabling enhanced control over financial decision-making processes, was maintained during the year. During the year ERP was implemented for two obligors thus enhancing the total number to 4. WORKPLACE Health and Medical Building an Facility Expenditure engaged, healthy and Rs. 250M inclusive team is a cornerstone to accomplish Rs. Rs. 22M 124M the business Financial Assistance for Education & Training strategies of Expense Marriage & Burial Grants the Bank while meeting the ever-evolving external challenges in the ‘digital era’. In recognition of its efforts towards nurturing the best human capital and creating an inclusive environment, Your Bank received the award of ‘Best Place to Work’ under the category of ‘Financial Services’ for the Year 2019 from Pakistan Society of Human Resource Management. Your Bank is constantly working towards hiring the most dynamic and capable staff while simultaneously investing in relevant trainings to further enhance their talent and providing the best facilities and culture to thrive. Employees’ engagement plays an important role in creating a great workplace culture which is vital for shaping the future of an organization. Accordingly, Rs.8 million was spent on staff cricket tournaments held at Lahore, Karachi, Islamabad and Multan; which were well participated by staff and their family members who thoroughly enjoyed the festive environment. EQUAL OPPORTUNITY EMPLOYER AND EMPLOYMENT OF SPECIAL PERSONS Continuous focus was maintained towards increasing the diversity of Bank’s human capital; reinforcing the inclusive culture of Your Bank. Your Bank aims to ensure that employees of all backgrounds are treated equally and have an equal opportunity to be successful. Over the years, the Bank has generated direct and indirect employment which is currently exceeding 11,000+ employees, who are mainly employed from diverse areas of Pakistan; thereby positively impacting the broad-based economy and society at large. ABL being equal opportunity employer, encourages employment of special persons and currently 47 special persons are honorably earning their livelihood while contributing towards the growth of the Bank and society. Simultaneously 2034 - females, representing 17.44% of total permanent staff members, are diligently performing their duties. A special function was held to celebrate the International Women Day. OCCUPATIONAL HEALTH AND SAFETY Your Bank aims to provide safe and healthy environment to all employees at work. During the year 2019, the Bank spent Rs.134 million under the approved medical expense policy to over 2,370 staff members. Adhering to responsibility towards eligible ex-employees, during the year, from the platform of “Post-retirement Medical Fund”, Your Bank contributed Rs.116 million towards the health of 666 ex-employees. Your Bank ensures that maximum safety standards are met at all premises. For training and awareness of the employees on how to act during any emergency in the building, 12 safety drills were conducted at major buildings in Lahore, Karachi, Islamabad, Faisalabad, Peshawar and Multan. Your Bank prioritized to arrange emergency lights, fire and smoke detection equipment, alarm systems, portable fire extinguishers, periodic evacuation/safety drills and emergency exit doors and incurred Rs. 7 million during the year 2019 in order to augment staff safety at the workplace. EDUCATION AND WELLBEING OF THE STAFF Learning is one of the keys to success. Investing in education helps the workforce to excel in their current roles – and thrive in the future. Cognizant of this fact, Your Bank spent Rs. 97 million on trainings to 10,844 staff members and Rs.30 million towards employee’s education. During the year, Your Bank through its platform of “Staff Welfare Fund” spent Rs.22 million to assist 56 employees by financially enabling them in important social events like marriage ceremony of their daughters or to meet the burial expense of their departed loved ones. Keeping in view the religious sentiments of our employees, Your Bank sponsored its clerical, non-clerical and executive staff totaling 37 to perform Hajj by spending Rs.24 million. BUSINESS ETHICS AND ANTI-CORRUPTION MEASURES Your Bank nurtures a culture of excellence, good governance, transparency, integrity and accountability. Controls and Compliance being an integral function, Your Bank encourages high business ethics while promoting positive compliance culture. Your Bank is committed to the best industry practices for compliance with all regulatory frameworks including anti-money laundering practices, so that the interests of all stakeholders are protected. Code of Ethics and Conduct signed by all employees acts as a guide for them in discharging their duties and sets out the standards of good practice. Management’s Central Administration Action Committee (CAAC) takes action on any violation of policies and procedures, act of fraud and forgery, breach of discipline, code of conduct, ethics and business practices. Appeal of the staff against whom CAAC has already taken disciplinary action is reviewed by Human Resource Committee. ENVIRONMENT Your Bank plays a positive role in the development of a healthier environment to meet the social obligations and contribute towards more sustainable future growth. Your Bank is promoting green banking, paperless culture, renewable energy sources and reduction of carbon emissions. Allied Bank Limited 105
55. GENERAL WELFARE During the year , Your Bank spent Rs.22 million on general welfare of the community. These included contributions in shape of donations towards poor feeding, rehabilitation of special persons and sports activities and sponsorships for organizing social events, conferences and awareness programs. CONTRIBUTION TO NATIONAL EXCHEQUER GREEN BANKING AND ENVIRONMENT PROTECTION As a responsible corporate citizen, Your Bank is taking genuine leaps forward in setting out a series of targets to assist in the transition to a low-carbon economy. During the year, Your Bank invested Rs. 204 million toward energy saving solutions through installation of solar panels and inverters. Your Bank’s total solar locations stand at 59 while inverterbased locations increased to 1,060. Administrative measures including maintenance of electrical equipment carried out during the year resulted in reduced consumption in electricity and reduction in consumption on fossil fuel by 13%. During the year, Your Bank continued its efforts to automate the existing manual processes; resultantly 3 processes were shifted towards paperless banking. As part of Green Banking efforts, the Bank arranged Training Need Assessment (TNA) session on Green Banking by the experts from Frankfurt School of Finance & Management & GIZ, Germany. The workshop agenda included inherent risks in solar systems, key financial performance indicators, evaluating bankability, solar experiences and market outlook. Your Bank, under the Clean & Green Pakistan Campaign, organized a tree plantation campaign with the slogan “Aek Bashar Do Shajar”. Plants were selected on the basis of environmental benefits keeping in view the soil and characteristics of a particular area and over 16,000 saplings of local trees, native to climate, were planted on different locations. COMMUNITY Bank as a trusted member of the community is playing an active role in following CSR activities and community engagements: EDUCATION Education is the only way to create a civilized society and forms the basis of nation building. Your Bank is supporting leading educational institutions at all the levels (schooling, higher education, vocational and professional education institutions/universities) which play pivotal role in the enlightenment of our future generations. Recognizing the importance of information technology, Your Bank continued its policy to donate its used but working personal computers to educational institutions; especially targeting under privileged segments of the society. Your Bank donated a total of 40 computers to 4 educational institutions during 2019. Community service is one of the main objectives under the CSR Plan of the 106 Annual Report 2019 Bank and the education sector being an essential part of it has been a major beneficiary to whom the bank has been donating regularly. In pursuance of this objective, Your Bank contributed Rs. 30 million to The Lahore University of Management Sciences (LUMS) towards the development of Hostel. Staff of Your Bank carried out a Corporate Social Responsibility activity at the Family Educational Services Foundation (FESF) – Deaf Reach School. This interactive session was concluded with the distribution of goody bags to every student and a donation from the Bank’s staff to the FESF. FESF is a non-profit educational organization active in Pakistan since 1984, working to meet the need for the hearing impaired in Pakistan. The program’s approach focused on education and skills training for deaf children and youth, development of teachers’ and language interpreters’ skills and job placements. The Bank donated Rs.31 million and spent Rs.10 Million on sponsorships to various educational institutions including above. HEALTH Limited Healthcare access for the under-privileged population is another key area of concern within the country. During the year, Your Bank contributed Rs.22 million in the shape of direct donations and sponsorships, towards six healthcare institutions thereby playing its role in easing the predicament of underprivileged patients. Cognizant of the importance of Blood donation to save the life, Your Bank in cooperation with Shaukat Khanum Memorial Cancer Hospital, organized a voluntary blood donation camp at the Head Office for the Bank’s employees, which was well participated by the Bank’s staff. Your Bank is one of the leading institutions in its contribution towards the national exchequer. During the year, Your Bank paid Rs. 8,905 million as Income Tax (inclusive of Super Tax), deposited Rs. 8,648 million as withholding tax agent and contributed Rs. 604 million on account of Federal Excise duty and Sales Tax to the national exchequer. Further, the Bank collected Rs. 397 Million Zakat from 72,722 account holders and deposited to the national exchequer. Contribution to national exchequer ZAK AT Income Tax (incl. Super Tax) FED & Sales Tax Witholding Tax Zakat Collection Rs. 8,905 million Rs. 604 million Rs. 8,648 million Rs. 397 million Your Bank is one of the leading institutions in its contribution towards the national exchequer. During the year, Your Bank paid Rs. 8,905 million as Income Tax (inclusive of Super Tax), deposited Rs. 8,648 million as withholding tax agent and contributed Rs. 604 million on account of Federal Excise duty and Sales Tax to the national exchequer. Further, the Bank collected Rs. 397 Million Zakat from 72,722 account holders and deposited to the national exchequer. Allied Bank Limited 107
56. OUR COMMITTMENT TO SUSTAINABILE DEVELOPMENT GOALS The bank has been making contributions to combat hunger in Pakistan with monthly provision of sacrificial meat for the poor feeding . In 2019, Rs. 4 million was spent on this activity. Community services, especially for the health sector is one of the main objectives under the CSR Plan of the Bank. • Indus Hospital and Liver Foundation Trust were the main beneficiaries to whom donation has been made. • ABL has been regularly engaged in blood donation drives, a Blood Donation Drive was conducted at ABL. • The Bank has also donated to LABARD and Tamir Welfare, which are dedicated to the well being of differently abled persons. Education is the cornerstone to building the country’s future and enabling a secure future to our children. • In our drive to promote educational growth in this sector, the Bank donated Rs. 30 million for the construction of Hostel at Lahore University of Management Sciences. • The Bank also financially assisted Government College of Science Lahore in the uplifting of their Laboratories and Classrooms. The Bank places the utmost importance on gender equality in its work environment. There is continuous growth in number of female staff. Renewable energy in Pakistan is a relatively underdeveloped sector. Reliance on fossil fuel has drastic effects on the climate. To reduce the effects, pursuance of clean energy sources is essential. • During the year, one location has been switched to solar increasing the total number to 59, whereas 243 locations have been switched to inverter technology. Your Bank is devoted to equitable development of the economy. Our business activity at its core is contributing to economy in form of a better workplace, generation employment, contribution to the national exchequer and financial services for economy. • The Bank also focuses on enabling its employees to earn better in the current inflationary economy. There are 47 special persons serving respectfully in the Bank. • The bank has also spent Rs. 30 million on the education of clerical and non-clerical staff. The Bank also contributed to Mashal Association, a welfare dedicated to the uplift of under privileged women & girls. 108 Annual Report 2019 The country’s economy cannot achieve optimal growth without the development of the SME sector. • In order to create a healthy competitive environment and foster innovation, the Bank has assisted in implementation of ERP solutions for 2 SME Obligors during 2019. • Additionally, multiple awareness seminars have been conducted to involve further potential SMEs and increase the proportion of small scale business Your Bank’s Green Banking Policy lays the foundation to promote environment friendly practices. Our objective is to manage environmental risks, socially adverse actions and reduce carbon footprint while espousing paperless environment. • The Bank achieved reduction of 21% in paper consumption through process automation. • The Bank further achieved 13% reduction in fossil fuel consumption through conversion to clean or efficient energy alternatives during the year. Climate change has been recognized the world over as an imminent threat to our lives and global mobilization is required to combat such threats. • A tree plantation campaign was organized by the Bank under the Clean & Green Pakistan Campaign where a total of 16,942 saplings were planted. Main objectives of the plantation were to control soil erosion in waterlogged areas and rehabilitation of waste lands. The Bank is ideally positioned to partner with relevant organizations in order to promote sustainable development of various sectors of the economy. • The Bank has entered into a partnership with Karandaaz Pakistan which has been established to promote access to finance for micro, small and medium sized business. This approach further increases the Bank’s involvement in financial inclusion of SMEs and their business growth. Allied Bank Limited 109
57. Independent Auditor ’s Report To the members of Allied Bank Limited Report on the Audit of the Unconsolidated Financial Statements Opinion We have audited the annexed unconsolidated financial statements of Allied Bank Limited (“the Bank”), which comprise the unconsolidated statement of financial position as at 31 December 2019 and the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated cash flow statement for the year then ended, along with unaudited certified returns received from the branches except for forty two 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 cash flow statement 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 31 December 2019 and of the profit, other comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion UNCONSOLIDATED FINANCIAL STATEMENTS 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 for the year ended December 31, 2019 Key Audit Matters How the matter was addressed in our audit Provision against Loans and Advances Refer to note 9 and the accounting policies in notes 2.4.2 and 4.5 to the unconsolidated financial statements. Our audit procedures in respect of provision against advances, amongst others, included the following: The Bank makes provision against advances on a time based • criteria that involves ensuring all non-performing loans and advances are classified in accordance with the ageing criteria specified in the Prudential Regulations (PRs) issued by the State Bank of Pakistan (SBP). – In addition to the time based criteria the PRs require a subjective evaluation of the credit worthiness of borrowers to determine the classification of advances. – The Bank’s advances to the customers represent 32.75% of its total assets as at 31 December 2019 and are stated at Rs. 485,016 million which is net of provision of Rs. 15,152 million at the year end. – The determination of provision against advances was identified as a key audit matter in our audit as it involves – a considerable degree of management judgment and estimation in complying with the above criteria. • • 110 Annual Report 2019 Assessing the design and operating effectiveness of key controls to identify loss events and for determining provision required against non-performing advances, including: Controls over correct classification of non–performing advances on time based criteria; Controls over monitoring of advances with higher risk of default and migration of these advances on a timely basis to watch list or to non-performing advances category on subjective 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 Prudential Regulations; Checking on a sample basis, the accuracy of specific provision made against non–performing advances and of general provision by recomputing the provision amount in accordance with the criteria prescribed under the PRs; Allied Bank Limited 111
58. S . No. Key Audit Matters • 2 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. How the matter was addressed in our audit Examining the credit history, account movement, financial ratios, report on security maintained in respect of advances where the management has not identified indicators displaying impairment, on a sample basis and challenging the management’s assessment based on our view of the credit from the review of credit file. 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 Bank’s internal control. c) Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 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 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 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. e) 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. Valuation of Investments Refer to note 8 and the accounting policies in notes 2.4.2, Our procedures in respect of valuation of investments, 2.4.3 and 4.4 to the unconsolidated financial statements. amongst others, included the following: As at 31 December 2019, the Bank has investments • classified as “Available-for-sale”, “Held for trading”, “Held to maturity” and “Investment in subsidiary” amounting to Rs. 757,957 million which in aggregate represent 51.17% of the total assets of the Bank. • Investments are carried at cost or fair value in accordance with the Bank’s accounting policy relating to their recognition. Provision against investment is made based on impairment • policy of the Bank which includes both objective and subjective factors. We identified assessing the valuation of investments as a key audit matter because of its significance to the unconsolidated financial statements and because assessing the key • impairment assumptions involves a significant degree of management judgement. Obtaining an understanding of and testing the design and operation effectiveness of the controls relating to the valuation of investments; Checking on a sample basis, the valuation of investments to supporting documents, externally quoted market prices and break-up values; Evaluating the Bank’s assessment of available for sale and held to maturity investments for any additional impairment in accordance with the Bank’s accounting policies and performed an independent assessment of the assumptions; and Considering the Bank’s disclosures of investments, to the guidelines laid down by the State Bank of Pakistan regarding forms and disclosures. 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. 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 cash flow statement 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. 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. 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 Mr. Kamran Iqbal Yousafi. 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. KPMG Taseer Hadi & Co. Chartered Accountants The Board of directors is responsible for overseeing the Bank’s financial reporting process. Date: 03 March 2020 Lahore 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 scepticism throughout the audit. We also: a) 112 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 Annual Report 2019 Allied Bank Limited 113
59. Unconsolidated Statement of Financial Position Unconsolidated Profit and Loss Account as at December 31 , 2019 December 31, December 31, 2019 2018 for the year ended December 31, 2019 Note US $ in ‘000 640,555 16,630 347,310 4,334,767 2,830,636 325,343 11,295 215,581 8,722,117 50,880 1,720,714 6,774,681 38,091 235,729 8,820,095 744,930 50,068 1,458,744 6,357,704 30,710 131,920 8,029,146 692,971 73,948 130,945 149,032 339,046 692,971 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 LIABILITIES Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Sub-ordinated debt Deferred tax liabilities - net Other liabilities 5 6 7 8 9 10 11 12 14 15 16 17 18 NET ASSETS REPRESENTED BY Share capital Reserves Surplus on revaluation of assets - net of tax Unappropriated profit CONTINGENCIES AND COMMITMENTS 114 December 31, December 31, December 31, 2019 2018 2019 2018 Rupees in ‘000 774,593 3,891 87,873 4,894,858 3,132,214 401,134 12,716 257,746 9,565,025 73,948 143,820 166,671 360,491 744,930 December 31, 19 20 119,943,828 602,582 13,606,921 757,956,993 485,015,881 62,114,648 1,969,051 39,911,348 1,481,121,252 99,188,414 2,575,055 53,780,195 671,228,285 438,317,184 50,378,537 1,749,054 33,382,185 1,350,598,909 7,878,626 266,448,386 1,049,043,032 5,898,310 36,502,065 1,365,770,419 115,350,833 7,752,959 225,882,986 984,475,183 4,755,428 20,427,520 1,243,294,076 107,304,833 11,450,739 22,270,225 25,808,658 55,821,211 115,350,833 11,450,739 20,276,515 23,077,174 52,500,405 107,304,833 21 Note US $ in ‘000 December 31, December 31, 2019 2018 Rupees in ‘000 791,988 523,934 268,054 473,202 265,802 207,400 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income 32,886 11,787 12,866 10,196 2,600 70,335 28,160 18,021 9,714 15,381 1,630 72,906 338,389 280,306 Total income 182,015 (4,968) 1,260 178,307 160,082 3,531 156,551 65,411 91,140 158,344 (7,252) 529 151,621 128,685 (7,038) 135,723 52,542 83,181 NON MARK–UP / INTEREST EXPENSES Operating expenses Workers welfare fund - net Other charges Total non-markup / interest expenses Profit before provisions Provisions / (reversals) and write offs - net Extra-ordinary / unusual items PROFIT BEFORE TAXATION Taxation PROFIT AFTER TAXATION NON MARK–UP / INTEREST INCOME Fee and commission income Dividend income Foreign exchange income Income from derivatives Gain on securities - net Other income Total non-markup / interest income 23 24 122,637,434 81,129,964 41,507,470 73,274,161 41,158,720 32,115,441 25 5,092,354 1,825,206 1,992,194 1,578,881 402,545 10,891,180 4,360,541 2,790,528 1,504,189 2,381,713 252,469 11,289,440 52,398,650 43,404,881 28,184,528 (769,220) 195,045 27,610,353 24,788,297 546,658 24,241,639 10,128,728 14,112,911 24,519,149 (1,122,970) 81,963 23,478,142 19,926,739 (1,089,688) 21,016,427 8,135,909 12,880,518 26 27 28 29 30 31 32 In US $ 0.08 In Rupees 0.07 Basic and diluted earnings per share 33 12.32 The annexed notes 1 to 46 and annexures I to III form an integral part of these unconsolidated financial statements. The annexed notes 1 to 46 and annexures I to III form an integral part of these unconsolidated financial statements. Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 11.25 Allied Bank Limited 115
60. Unconsolidated Statement of Comprehensive Income Unconsolidated Cash Flow Statement for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, December 31, December 31, December 31, December 31, 2019 2018 2019 2018 2019 2018 US $ in ‘000 Rupees in ‘000 91,140 83,181 Profit after taxation for the year 14,112,911 US $ in ‘000 12,880,518 Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: 3,761 6,512 14,487 18,248 (34,276) (27,764) Effect of translation of net investment in foreign branches Movement in surplus / (deficit) on revaluation of investments - net of tax 582,419 1,008,347 2,243,212 2,825,631 (5,307,574) (4,299,227) Items that will not be reclassified to profit and loss account in subsequent periods: (3,246) 2,935 - (881) 4,977 1,731 111,119 3,638 5,692 61,109 Re–measurement (loss) / gain on defined benefit obligations - net of tax Movement in deficit on revaluation of fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Total comprehensive income (502,598) 454,522 - (136,403) 770,648 268,050 17,206,592 563,393 881,512 9,462,803 The annexed notes 1 to 46 and annexures I to III form an integral part of these unconsolidated financial statements. Note December 31, December 31, 2019 2018 Rupees in ‘000 156,552 (11,787) 144,765 135,723 (18,021) 117,702 21,443 10,398 6,333 1,579 4,471 (37) (4,968) (1,733) (208) 37,278 182,043 20,074 2,590 (6,065) (7,252) (225) 9,122 126,824 259,437 (128,271) (299,963) (50,513) (219,310) (291,198) 160,326 (423,005) 26,919 (526,958) 812 263,129 416,977 54,939 735,857 698,590 (59,599) 638,991 (533) 14,129 650,539 3,814 667,949 267,815 (50,315) 217,500 (436,075) 20,256 11,790 (47,846) 2,406 3,761 (445,708) (417,567) 377,214 18,403 (44,636) 300 6,512 (59,774) (11,862) (58,964) (70,826) (15,205) 107,252 670,816 778,068 (56,927) (56,927) (28,270) 72,529 583,082 655,611 CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income 24,241,639 (1,825,206) 22,416,433 21,016,427 (2,790,528) 18,225,899 3,320,430 1,610,134 980,709 244,545 692,374 (5,767) (769,220) (268,304) (32,266) 5,772,635 28,189,068 3,108,403 401,074 (939,121) (1,122,970) (34,903) 27 1,412,510 19,638,409 40,173,274 (19,862,396) (46,448,602) (7,821,787) (33,959,511) (45,091,280) 24,826,109 (65,501,244) 4,168,416 (81,597,999) Income tax paid Net cash flow generated from operating activities 125,667 40,744,817 64,567,849 8,507,210 113,945,543 108,175,100 (9,228,776) 98,946,324 (82,508) 2,187,802 100,734,474 590,535 103,430,303 41,470,713 (7,791,213) 33,679,500 CASH FLOW FROM INVESTING ACTIVITIES Net investments in 'available-for-sale' securities Net realizations from 'held-to-maturity' securities Dividend received Investments in fixed assets and intangible assets Proceeds from sale of fixed assets Effect of translation of net investment in foreign branches Net cash flow used in investing activities (67,525,173) 3,136,581 1,825,661 (7,408,881) 372,579 582,419 (69,016,814) (64,659,309) 58,410,682 2,849,652 (6,911,838) 46,490 1,008,347 (9,255,976) (1,836,761) (9,130,391) (10,967,152) (2,354,435) 16,607,923 103,874,280 120,482,203 (8,815,003) (8,815,003) (4,377,475) 11,231,046 90,288,799 101,519,845 Adjustments: Depreciation Depreciation on right of use assets Interest expense on lease liability Amortization Net provision / (reversals) and write offs 31 Unrealized gain on revaluation of 'held-for-trading' securities Reversal against workers' welfare fund - net Gain on sale of fixed assets (Gain) / loss on sale of non-banking assets / other assets (Increase) / decrease in operating assets Lendings to financial institutions Held-for-trading securities Advances Other assets (excluding advance taxation) Increase / (decrease) in operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities (excluding current taxation) CASH FLOW FROM FINANCING ACTIVITIES Payment of lease liability against right of use assets Dividend paid Net cash flow used in financing activities Effect of exchange rate changes on opening cash and cash equivalents Increase in cash and cash equivalents during the year Cash and cash equivalents at beginning of the year CASH AND CASH EQUIVALENTS AT END OF THE YEAR 34 The annexed notes 1 to 46 and annexures I to III form an integral part of these unconsolidated financial statements. 116 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Allied Bank Limited 117
61. Unconsolidated Statement of Changes in Equity Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 Revenue reserve Capital reserve Exchange translation reserve Share capital for the year ended December 31, 2019 Statutory reserve General reserve Surplus on revaluation of Investments Unappropriated Nonbanking profit assets Fixed assets Total Rupees in ‘000 Balance as at January 01, 2018 Profit after taxation for the year ended December 31, 2018 Other Comprehensive Income - net of tax Deficit on revaluation of investments - net of tax Deficit on revaluation of fixed assets - net of tax Surplus on revaluation of non-banking assets - net of tax Remeasurement gain on defined benefit obligation - net of tax Effect of translation of net investment in foreign branches Transfer to statutory reserve Transferred from surplus in respect of incremental depreciation of fixed assets to un-appropriated profit - net of tax Transferred from surplus in respect of incremental depreciation of non-banking assets to unappropriated profit - net of tax Surplus realised on disposal of revalued non-banking assets - net of tax Transactions with owners recognized directly in equity Final cash dividend for the year ended December 31, 2017 (Rs. 1.75 per ordinary share) First interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Second interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Third interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Balance as at December 31, 2018 Profit after taxation for the year ended December 31, 2019 Other Comprehensive Income – net of tax Surplus on revaluation of investments - net of tax Surplus on revaluation of non-banking assets - net of tax Remeasurement loss on defined benefit obligation - net of tax Effect of translation of net investment in foreign branches Transfer to statutory reserve Transferred from surplus in respect of incremental depreciation of fixed assets to un-appropriated profit - net of tax Surplus realised on disposal of revalued fixed assets - net of tax Transferred from surplus in respect of incremental depreciation of non-banking assets to unappropriated profit - net of tax Surplus realised on disposal of revalued non-banking assets - net of tax Transactions with owners recognized directly in equity Final cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) First interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Second interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Third interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Balance as at December 31, 2019 11,450,739 230,954 17,743,162 6,000 10,493,343 16,004,075 1,575,633 49,212,447 106,716,353 - - - - - - - 12,880,518 12,880,518 - - - - (5,307,574) - (136,403) - 563,393 - (5,307,574) (136,403) 563,393 - 1,008,347 1,008,347 - - (5,307,574) (136,403) 563,393 454,522 454,522 454,522 1,008,347 (3,417,715) - - 1,288,052 - - - - (1,288,052) - - - - - - (112,263) - 112,263 - - - - - - - (1,157) 1,157 - - - - - - - (1,873) 1,873 - - - - - - - - (2,003,879) (2,003,879) - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) 1,239,301 19,031,214 6,000 11,450,739 5,185,769 15,755,409 2,135,996 (2,290,148) (2,290,148) (8,874,323) (8,874,323) 52,500,405 107,304,833 - - - - - - - 14,112,911 14,112,911 - - - - 2,243,212 - - 770,648 - 2,243,212 770,648 - 582,419 582,419 - 1,411,291 - 2,243,212 - - 770,648 - (502,598) (502,598) (1,411,291) (502,598) 582,419 3,093,681 - - - - - - (106,684) - 106,684 - - - - - - (9,729) - 9,729 - - - - - - - (2,224) 2,224 - - - - - - - (163,739) 163,739 - - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) 1,821,720 20,442,505 6,000 11,450,739 7,428,981 15,638,996 2,740,681 (2,290,148) (2,290,148) (9,160,592) (9,160,592) 55,821,211 115,350,833 The annexed notes 1 to 46 and annexures I to III form an integral part of these unconsolidated financial statements. 118 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 1 STATUS AND NATURE OF BUSINESS Allied Bank Limited (“the Bank”), incorporated in Pakistan, is a scheduled bank, engaged in commercial banking and related services. The Bank is listed on Pakistan Stock Exchange Limited. The Bank operates a total of 1,393 (2018: 1,343) branches in Pakistan including 117 (2018: 117) Islamic banking branches, 1 branch (2018: 1) in Karachi Export Processing Zone and 1 Wholesale banking branch (2018: 1) in Bahrain. The long term credit rating of the Bank assigned by the Pakistan Credit Rating Agency Limited (PACRA) is ‘AAA’. Short term rating of the Bank is ‘A1+’. Ibrahim Holdings (Private) Limited is the parent company of the Bank and it’s registered office is in Pakistan. The Bank is the holding company of ABL Asset Management Company Limited. The registered office of the Bank is situated at 3 - Tipu Block, Main Boulevard, New Garden Town, Lahore. 2 BASIS OF PRESENTATION These unconsolidated financial statements represent separate financial statements of the Bank. The consolidated financial statements of the Bank 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 (SBP) has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these unconsolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon. The financial results of the Islamic banking branches have been consolidated in these financial statements for reporting purposes, after eliminating inter-branch transactions / balances. Key financial figures of the Islamic banking branches are disclosed in Annexure II to these financial statements. These unconsolidated financial statements have been presented in Pakistan Rupees (PKR), which is the currency of the primary economic environment in which the Bank operates and functional currency of the Bank, in that environment as well. The amounts are rounded to nearest thousand. The US Dollar amounts reported in the statement of financial position, profit and loss account, statement of comprehensive income and statement of cash flow are stated as additional information, solely for the convenience of the users of financial statements. For the purpose of translation to US Dollar, spot rate of Rs. 154.8476 per US Dollar has been used for 2019 and 2018, as it was the prevalent rate on reporting date. 2.1 STATEMENT OF COMPLIANCE These unconsolidated financial statements have been prepared in accordance with the 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 and the Companies Act, 2017; and – Directives issued by the State Bank of Pakistan (SBP) & the Securities and Exchange Commission of Pakistan (SECP). 2.1.1 Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the directives issued by the SBP and the SECP differ with the requirements of IFRS and IFAS the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives, shall prevail. 2.1.2 The SBP, vide BSD Circular Letter No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39) and International Accounting Standard 40 ‘Investment Property’ (IAS 40) for banking companies till further instructions. Further, according to a notification of Securities and Exchange Commission of Pakistan (SECP) dated April 28, 2008, International Financial Reporting Standard 7 ‘Financial Instruments Disclosure’ (IFRS 7), has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and disclosed in accordance with the requirements prescribed by SBP through various circulars. Allied Bank Limited 119
62. Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 2.1.3 The Securities and Exchange Commission of Pakistan (SECP) vide SRO 56 (1) / 2016 dated January 28, 2016, has notified that the requirements of International Financial Reporting Standard 10 ‘Consolidated Financial Statements’ (IFRS 10) and section 228 of the Companies Act, 2017 will not be applicable with respect to the investment in mutual funds established under Trust structure. 2.1.4 The State Bank of Pakistan through BPRD Circular No. 04 of 2015 dated February 25, 2015 has deferred applicability of Islamic Financial Accounting Standard 3 ‘Profit & Loss Sharing on Deposits’ (IFAS-3) issued by the Institute of Chartered Accountants of Pakistan and notified by the Securities & Exchange Commission of Pakistan (SECP), vide their SRO No. 571 of 2013 dated June 12, 2013 for Institutions offering Islamic Financial Services (IIFS). The standard will result in certain new disclosures in the financial statements of the Bank. 2.2 STANDARDS, INTERPRETATIONS OF AND AMENDMENTS TO THE 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’ from January 01, 2019. The impact of the adoption of theses standards and the new accounting policies are explained in note 4. There are certain other new and amended standards, interpretations and amendments that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2019 but are considered not to be relevant or do not have any significant effect on the Bank’s operations and therefore not detailed in these financial statements. 2.3 STANDARDS, INTERPRETATIONS OF AND AMENDMENTS TO THE PUBLISHED APPROVED ACCOUNTING STANDARDS THAT ARE NOT YET EFFECTIVE The following standards, amendments and interpretations of accounting and reporting standards as applicable in Pakistan will be effective for accounting periods beginning on or after January 01, 2020: – Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business (effective for business combinations for which the acquisition date is on or after the beginning of annual period beginning on or after January 01, 2020). The IASB has issued amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments include an election to use a concentration test. The standard is effective for transactions in the future and therefore would not have an impact on past financial statements. – IFRS 9 ‘Financial Instruments’ and amendment – Prepayment Features with Negative Compensation – for Banks and DFIs, the effective date of the standard has been extended to annual periods beginning on or after January 01, 2021 vide SBP BPRD circular no. 4 dated October 23, 2019. IFRS 9 replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. According to SBP circular referred to above, the Banks/DFIs are required to have a parallel run of IFRS 9 from January 01, 2020 and are also required to prepare pro-forma financial statements which includes the impact of IFRS 9 from the year ended December 31, 2019. – Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective for annual periods beginning on or after January 01, 2020). The amendments are intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. In addition, the IASB has also issued guidance on how to make materiality judgments when preparing their general purpose financial statements in accordance with IFRS Standards. – On March 29, 2018, the International Accounting Standards Board (the IASB) has issued a revised Conceptual Framework for Financial Reporting which is applicable immediately contains changes that will set a new direction for IFRS in the future. The Conceptual Framework primarily serves as a tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting them. It does not override the requirements of individual IFRSs and any inconsistencies with the revised Framework will be subject to the usual due process – this means that the overall impact on standard setting may take some time to crystallise. The companies may use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements. In these cases, companies should review those policies and apply the new guidance retrospectively as of January 01, 2020, unless the new guidance contains specific scope outs. – Interest Rate Benchmark Reform which amended IFRS 9, IAS 39 and IFRS 7 is applicable for annual financial periods beginning on or after January 01, 2020. The G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of major interest rate benchmarks. Following the review, the FSB published a report setting out its recommended reforms of some major interest rate benchmarks such as IBORs. Public authorities in many jurisdictions have since taken steps to implement those recommendations. This has in turn led to uncertainty about the long-term viability of some interest rate benchmarks. In these amendments, the term ‘interest rate benchmark reform’ refers to the market-wide reform of an interest rate benchmark including its replacement with an alternative benchmark rate, such as that resulting 120 Annual Report 2019 Notes to the Unconsolidated Financial Statements for the year ended December 31, 2019 from the FSB’s recommendations set out in its July 2014 report ‘Reforming Major Interest Rate Benchmarks’ (the reform). The amendments made provide relief from the potential effects of the uncertainty caused by the reform. – IFRS 14 Regulatory Deferral Accounts - (effective for annual periods beginning on or after 1 July 2019) provides interim guidance on accounting for regulatory deferral accounts balances while IASB considers more comprehensive guidance on accounting for the effects of rate regulation. In order to apply the interim standard, an entity has to be rate regulated – i.e. the establishment of prices that can be charged to its customers for goods or services is subject to oversight and/or approved by an authorized body. The term ‘regulatory deferral account balance’ has been chosen as a neutral descriptor for expense (income) or variance account that is included or is expected to be included by the rate regulator in establishing the rate(s) that can be charged to customers and would not otherwise be recognized as an asset or liability under other IFRSs. 2.4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of these financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. It also requires the management to exercise its judgment in the process of applying the Bank’s accounting policies. Estimates, underlying assumptions and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Bank’s financial statements or where judgment was exercised in application of accounting policies are as follows: 2.4.1 Classification of investments – In classifying investments as ‘held-for-trading’ the Bank has determined securities which are acquired with the intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days. – In classifying investments as ‘held-to-maturity’ the Bank follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. – The investments, other than those in subsidiary, which are not classified as ‘held-for-trading’ or ‘held-to-maturity’ are classified as ‘available-for-sale’ 2.4.2 Provision against non–performing loans and advances and debt securities classified as investments The Bank reviews its loan portfolio and debt securities classified as investments to assess amount of non-performing loans and advances and debt securities and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrower and the requirements of the Prudential Regulations are considered. The amount of general provision is determined in accordance with the requirements set out in Prudential Regulations. 2.4.3 Valuation and 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. This determination of what is significant and prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. 2.4.4 Income taxes In making the estimates for income taxes currently payable by the Bank, the management looks at the current income tax laws and the decisions of appellate authorities. In determination of deferred taxes, estimates of the Bank’s future taxable profits are taken into account. 2.4.5 Fair value of derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant interest rates in effect at the reporting date and the rates contracted. 2.4.6 Depreciation / amortization In making estimates of the depreciation / amortization, the management uses method which reflects the pattern in which economic benefits are expected to be consumed by the Bank and estimates the useful life. The method applied and useful lives estimated are reviewed at each financial year end and if there is a change in the expected pattern or timing of consumption of the future economic benefits embodied in the assets, the estimate would be changed to reflect the change in pattern. Such a change is accounted for as change in accounting estimates in accordance with International Accounting Standard 8 - Accounting Policies, ‘Changes in Accounting Estimates and Errors’. Allied Bank Limited 121
63. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 2 .4.7 Defined benefits plan Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method. The actuarial assumptions used to determine the liability and related expense are disclosed in note 36. 2.4.8 Fair value hierarchy of assets and liabilities The fair value of the assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Bank categorizes fair value measurements within the following fair value hierarchy: a) Level 1 These are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Bank can access at the measurement date. b) Level 2 These are inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly or indirectly. c) Level 3 These are input for the assets or liability that are not based on observable market data (unobservable Inputs). 3 BASIS OF MEASUREMENT These unconsolidated financial statements have been prepared under the historical cost convention except for the following which are stated at revalued amounts / fair values / present values: – Investments (Note 4.4); – Certain operating fixed assets (Note 4.6); – Staff retirement and other benefits (Note 4.8); – Non-banking assets acquired in satisfaction of claims (Note 4.9); and – Derivative financial instruments (Note 4.16.2). 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these unconsolidated financial statements have been applied consistently to all periods presented in these unconsolidated financial statements of the Bank, except for the change explained in note 4.1. Significant accounting policies are enumerated as follows: 4.1 Change in accounting policy IFRS 16 ‘Leases’ At commencement or on modification of a contract that contains a lease component, the Bank allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price. Previously, the Bank classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Bank’s incremental borrowing rate as at 01 January 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. The Bank has applied this approach to all other leases. The Bank used practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Bank excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application and used hindsight when determining the lease term. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Bank by the end of the lease term. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Bank presents right-of-use assets in ‘property and equipment’ and lease liabilities in ‘other liabilities’ in the statement of financial position. Impact on financial statements The impact on transition is summarised below: for the year ended December 31, 2019 122 for the year ended December 31, 2019 As a lessee, the Bank previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards incidental to ownership of the underlying asset to the Bank. Under IFRS 16, the Bank recognises right-of-use assets and lease liabilities for most of these leases – i.e. these leases are on-balance sheet. Annual Report 2019 Right-of-use assets presented in property and equipment 8,774,405 8,020,323 Lease liabilities Decrease in other assets 8,479,326 295,080 8,555,677 - Right-of-use assets: Balance as at January 01, 2019 Depreciation charge for the period Addition to right-of-use assets Derecognition of right-of-use assets Rupees in ‘000 8,774,405 (1,610,134) 856,276 (224) 8,020,323 Lease liabilities: Balance as at January 01, 2019 On transition to IFRS 16, the Bank elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Bank applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 01 January 2019. 2019 The impact of IFRS 16 on profit or loss for the year refer is summarized below: Previously, the Bank determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a Lease. The Bank now assesses whether a contract is or contains a lease based on the definition of a lease, as per IFRS 16. As a Lessee December 31, 2019 Rupees in ‘000 The Bank applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 01 January 2019. Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information. January 01, Rupees in ‘000 8,479,326 Interest on lease liabilities 980,709 Addition to lease liabilities 852,494 Derecognition of lease liabilities Payment of lease liabilities (860) (1,755,992) 8,555,677 When measuring lease liabilities for leases that were classified as operating leases, the Bank discounted lease payments using its incremental borrowing rate at 01 January 2019. Allied Bank Limited 123
64. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 Lease liabilities: for the year ended December 31, 2019 Rupees in ‘000 Operating lease commitments at 31 December 2018 as disclosed under IAS 17 6,018,458 Discounted using the incremental borrowing rate at 01 January 2019 (773,390) Extension options reasonably certain to be exercised 3,234,257 Lease liabilities recognised at 01 January 2019 8,479,325 IFRS 15 ‘Revenue from contracts with customers’ IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control at a point in time or over time requires judgement. The Bank has adopted IFRS 15 on January 01, 2019 retrospectively in accordance with IAS 8 without practical expedient. The timing or amount of the Bank’s income from contract with customers was not impacted by IFRS 15. The application of IFRS 15 has no impact on the financial position and/or financial performance of the Bank. Accordingly, there was no adjustment in retained earnings on application of IFRS 15 as at January 01, 2019. 4.2 Cash and cash equivalents For the purpose of cash flow statement, 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. 4.3 Lendings to / borrowings from financial institutions The Bank enters into transactions of borrowing (re-purchase) from and lending (reverse re-purchase) to financial institutions, at contracted rates for a specified period of time. These are recorded as under: a. Sale under re–purchase agreements Securities sold subject to a re-purchase agreement are retained in the financial statements as investments and the counter party liability is included in borrowings from financial institutions. The differential in sale and re-purchase value is accrued on a prorata basis and recorded as mark-up expense. b. Purchase under resale agreements Securities purchased under agreement to resell (reverse re-purchase) are included in lendings to financial institutions. The differential between the contracted price and resale price is amortized over the period of the contract and recorded as mark-up income. Securities held as collateral are not recognized in the financial statements, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability under borrowings from financial institutions. In Bai Muajjal, the Bank sells Shariah Compliant instruments including sukuks 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. Expected profit expense is recognized on accrual basis. In Musharaka / Mudaraba, the Bank invests in the Shariah compliant business pools of the financial institutions at the agreed profit and loss sharing ratio. Expected profit is recognized on accrual basis. Other borrowings including borrowings from SBP are recorded at the proceeds received. Mark-up on such borrowings is charged to the profit and loss account on a time proportion basis. Lendings are stated net of provision. Return on such lending is accrued to the profit and loss account on a time proportion basis except mark-up on impaired/ delinquent lendings, which is recognized on receipt basis. 124 Annual Report 2019 4.4Investments 4.4.1 The Bank at the time of purchase classifies its investment portfolio as mentioned in note 2.4.1. 4.4.2 Investments are initially recognized at fair value which, in case of investments other than ‘held-for-trading’, includes transaction cost associated with the investments. Transaction cost on ‘held-for-trading’ investments are expensed as incurred. All ‘regular way’ purchases and sales of investments are recognized on the trade date, i.e., the date that the Bank commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of investments that require settlement within the time frame generally established by regulation or convention in the market place. 4.4.3 In accordance with the requirements of the SBP, quoted securities, other than those classified as ‘held-to-maturity’ and investments in subsidiaries, are carried at market value. Investments classified as ‘held-to-maturity’ are carried at amortized cost. Unrealized surplus / (deficit) arising on revaluation of the Bank’s ‘held-for-trading’ investment portfolio is taken to the profit and loss account. Surplus / (deficit) arising on revaluation of quoted securities classified as ‘available-for-sale’ is kept in a separate account shown in the statement of financial position. The surplus / (deficit) arising on these securities is taken to the profit and loss account when actually realized upon disposal or when the investment is considered to be impaired. Unquoted equity securities are valued at the lower of cost and break-up value. The break-up value of these securities is calculated with reference to the net assets of the investee company as per the latest available audited financial statements. A decline in the carrying value is charged to the profit and loss account. A subsequent increase in the carrying value, upto the cost of the investment, is credited to the profit and loss account. Investments in other unquoted securities are valued at cost less impairment, if any. Provision for diminution in the value of securities (except for debentures, participation term certificates, sukuks and term finance certificates) is made after considering impairment, if any, in their value. Provision for diminution in value of debentures, participation term certificates, sukuks and term finance certificates are made in accordance with the requirements of Prudential Regulations issued by SBP. 4.4.4 Investments in subsidiaries are stated at cost less impairmen 4.5Advances a. Loans and advances Loans and advances are stated net of general and specific provisions. Specific provision against loans is determined in accordance with the requirements of the Prudential Regulations and other directives issued by SBP and charged to the profit and loss account. General provision is maintained in accordance with the requirements of Prudential Regulations issued by SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recover b. Net investment in finance lease Leases, where the Bank transfers substantially all the risks and rewards incidental to the 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 minimum lease payments, including un-guaranteed residual value, if any. Finance lease receivables are included in advances to the customers. c. Islamic financing and related assets The Bank provides Islamic financing and related assets mainly through Murabaha, Ijarah, Diminishing Musharakah, Business Musharakah and Salam. The purchases and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of profit thereon. The profit on such financings is recognised in accordance with the principles of Islamic Shariah. The Bank determines specific and general provisions against Islamic financing and related assets in accordance with the requirements of the Prudential Regulations issued by the SBP. The net provision made / reversed during the year is charged to profit and loss account and accumulated provision is netted off against Islamic financing and related assets. Islamic financing and related assets are written off when there are no realistic prospects of recovery. 4.6 Fixed assets and depreciation a. Tangible assets Property and equipment owned by the Bank, other than land which is not depreciated, are stated at cost or revalued amount less accumulated depreciation and impairment losses, if any. Land is carried at revalued amount. Depreciation is calculated using the straight line method, except buildings which are depreciated using the reducing balance method, to write down the cost of property and equipment to their residual values over their estimated useful lives. The rates at which the fixed assets are depreciated are disclosed in note 10.2. The residual values, useful lives and Allied Bank Limited 125
65. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements depreciation methods are reviewed and adjusted , if required. Adjustments in residual values, useful lives and depreciation methods are treated as change in accounting estimates. 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. When an asset or class of assets is revalued, any increase in the carrying amount arising on revaluation is recorded through other comprehensive income and credited to the revaluation reserve in equity. However, the increase shall be recognized in the profit and loss account to the extent it reverses previously recognised revaluation decrease/impairment loss of the same asset in the profit and loss account, net of amortization or depreciation had no revaluation decrease/ impairment been required for the asset in prior years. A decrease resulting from a revaluation is initially charged directly against any related revaluation surplus held in respect of that asset and the remaining portion being charged as an expense. The surplus on revaluation of fixed assets to the extent of incremental depreciation (net of deferred tax) charged on the related assets is transferred directly to un-appropriated profit. Revaluation of entire class of assets is carried out by independent professionally qualified valuers with sufficient regularity (every third year) to ensure that the carrying amount of the entire class of assets does not differ materially from their fair value. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognized in the profit and loss account in the year the asset is derecognized, except that the related surplus on revaluation of fixed assets (net of deferred tax) is transferred directly to unappropriated profit. Subsequent costs are included in the asset’s carrying amount 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. b. Intangible assets Intangible assets are carried at cost less any accumulated amortization and impairment losses, if any. The cost of intangible assets is amortized over their estimated useful lives, using the straight line method. Amortization is charged from the month the assets are available for use at the rate stated in note 11.2. The useful lives are reviewed and adjusted, if appropriate, at each reporting date. c. Capital work–in–progress Capital work-in-progress is stated at cost less impairment losses, if any. 4.7Taxation a.Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing laws for taxation. The charge for current tax is calculated using the prevailing tax rates or tax rates expected to apply to the profits for the year. b.Prior The taxation charge for prior years represents adjustments to the tax charge relating to prior years, arising from assessments/changes in laws and changes in estimates made during the current year. c.Deferred Deferred tax is recognized using the balance sheet liability method on all temporary differences, at the reporting date between the amounts attributed to assets and liabilities for financial reporting purpose and amounts used for taxation purposes. Deferred tax is calculated at the rates that are expected to apply to the periods when the difference will reverse, based on tax rates that have been enacted or substantially enacted at the reporting date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Bank also recognizes a deferred tax asset / liability on deficit / surplus on revaluation of fixed assets, non-banking assets and securities which is adjusted against the related deficit / surplus in accordance with the requirements of IAS-12 ‘Income Taxes’. 4.8 Staff retirement and other benefits 4.8.1 Staff retirement schemes a. For employees who opted for the 2002 scheme introduced by the management An approved pension scheme (defined benefit scheme) under which the benefits on the basis of frozen basic salary, service length and age as on June 30, 2002 are payable to all employees whose date of joining the Bank is on or before July 01, 1992, i.e., who have completed ten years of continuous service as on June 30, 2002. During the year, the pensioners were given a voluntary option to settle their monthly pension with a lump sum payment. Those who will not opt for the lump sum option, will continue to receive monthly pension (defined benefit scheme). An approved gratuity scheme (defined benefit scheme) under which the benefits are payable as under: i. For members whose date of joining the Bank is on or before July 01, 1992, their services would be calculated starting from July 01, 2002 for gratuity benefit purposes. ii. For members whose date of joining the Bank is after July 01, 1992 their services would be taken at actual for the purpose of calculating the gratuity benefit. This rule will be applicable upon retirement or in service death only, in case of resignation gratuity will be payable from July 01, 2002, even if he or she had joined the Bank before July 01, 2002. A contributory provident fund scheme to which equal contributions are made by the bank and the employees (defined contribution scheme). b. For employees who did not opt for 2002 scheme An approved pension scheme (defined benefit scheme) under which the benefits on the basis of frozen basic salary as on June 30, 2002 are payable to all employees opting continuation of the previous scheme and whose date of joining the Bank is on or before July 01, 1992, i.e., who had completed ten years of continuous service as on June 30, 2002. In the light of decision of Honorable Supreme Court of Pakistan in SMC No. 20/2016 dated 13th February 2018 read with Order dated 3rd April 2018 passed in CRP No.72/2018 and Order dated 7th August 2018 in Crl.O.No. 98 and 99 of 2018 and after consultation with Bank’s legal counsel, the monthly pension of eligible pensioners has been fixed with indexation levels for eligible pensioners effective from February 13, 2018. c. Post-retirement medical benefits The Bank provides post-retirement medical benefits to eligible retired employees. Provision is made annually to meet the cost of such medical benefits on the basis of actuarial valuation carried out using the Projected Unit Credit Method. for the year ended December 31, 2019 126 Annual Report 2019 for the year ended December 31, 2019 Annual contributions towards the defined benefit schemes are made 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 Other Comprehensive Income in the period of occurrence. 4.8.2 Other long term benefit a. Employees’ compensated absences Employees’ entitlement to annual leave is recognized when they accrue to employees, upto a maximum of 60 days. A provision is made for estimated liability for annual leaves as a result of services rendered by the employee against unavailed leaves, as per terms of service contract, up to the reporting date, based on actuarial valuation using 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. b. Compensation to certain class of employees Bank has revised its retirement policy by reducing the retirement age to 58 years for class of employees effective January 01, 2018. Consequent to the revision, these employees shall be compensated with gross salary along with employer’s contribution on provident fund and gratuity for the remaining period up to 60 years in addition to already defined postemployment benefits, payable at the time of retirement, if any. 4.9 Non–banking assets acquired in satisfaction of claims Non-banking assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation (excluding land). Revaluation by independent professionally qualified valuers, is carried out with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. Surplus arising on revaluation of NBA is credited to the ‘surplus on revaluation of assets’ account through statement of comprehensive income 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. Allied Bank Limited 127
66. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 4 .10Deposits Deposits are initially recorded at the amount of proceeds received. Mark-up accrued on deposits is recognized separately as part of other liabilities and is accrued to the profit and loss account on time proportion basis. Deposits mobilized under Islamic Banking operations are generated under two modes i.e. ‘Qard’ and ‘Modaraba’. Deposits taken on Qard basis are classified as ‘Current accounts’ and Deposits generated on Modaraba basis are classified as ‘Saving deposits / Fixed deposits’. 4.11Impairment a. Available–for–sale equity securities The Bank determines that ‘available-for-sale’ equity investments are impaired when there has been a significant or prolonged decline in the fair value of these investments below their 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 the case of listed equity securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial condition of the investee, industry and sector performance and changes in technology. b. Non–financial assets The carrying amount of the Bank’s assets (other than deferred tax assets) are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the relevant asset is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the profit and loss account except for an impairment loss on revalued assets which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the revaluation surplus. An impairment loss is reversed if the reversal can be objectively related to an event occurring after the impairment loss was recognized. 4.12Provisions Provisions are recognized when the Bank has a present obligation (legal or constructive) as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provision against identified losses on non-funded exposure is recognized when intimated and reasonable certainty exists for the Bank to settle the obligation. The loss is charged to the profit and loss account net of expected recovery and is classified under other liabilities. Provisions are reviewed at the reporting date and are adjusted to reflect the current best estimate. 4.13Acceptances Acceptances comprise of undertakings by the Bank to pay bills of exchange drawn on customers. Acceptances are recognised as financial liability in the statement of financial position with a contractual right of reimbursement from the customer as a financial asset. Therefore, commitments in respect of acceptances have been accounted for as financial assets and financial liabilities. 4.14 Dividend distribution and appropriations Bonus and cash dividend and other appropriations (except for the appropriations required by law), declared / approved subsequent to the reporting date are considered as non-adjusting event and are not recorded in financial statements of the current year. These are recognized in the period in which these are declared / approved. 4.15 Foreign currencies a) Foreign currency transactions Transactions in foreign currencies are translated into rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the reporting date. Foreign bills purchased are valued at spot rate and forward foreign exchange contracts are valued at forward rates applicable to their respective maturities. b) Foreign operations The assets and liabilities of foreign operating branches are translated to Pakistan Rupee (PKR) at exchange rates prevailing at reporting date. The results of foreign operations are translated at the average exchange rate for the period. c) Translation gains and losses Translation gains and losses arising on revaluation of net investments in foreign operations are taken to equity under “Exchange Translation Reserve” through Other Comprehensive Income and on disposal are recognised in profit and loss account. Regular translation gains and losses are taken to profit and loss account. Annual d) Commitments Commitments for outstanding forward contracts disclosed in these financial statements are translated at forward rates applicable to their respective maturities. 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 on the reporting date. 4.16 Financial instruments 4.16.1 Financial assets and liabilities Financial assets and financial liabilities are recognised at the time when the Bank becomes a party to the contractual provision of the instrument. Financial assets are de-recognised when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specific in the contract is extinguished. Any gain or loss on de-recognition of the financial asset and liability is recognised in the profit and loss account of the current period. The particular recognition and subsequent measurement methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. 4.16.2 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using appropriate valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account. 4.17 Off setting Financial assets and financial liabilities are off set and the net amount is reported in the financial statements when there is a legally enforceable right to off set and the Bank intends to either settle on a net basis, or to realize the assets and to settle the liabilities simultaneously 4.18 Revenue recognition Revenue is recognized to the extent that the economic benefits will flow to the Bank and the revenue can be reliably measured. These are recognised as follows: a. Advances and investments Mark-up / return on regular loans / advances and investments is recognized on a time proportion basis. Where debt securities are purchased at premium or discount, the same is amortized through the profit and loss account using the effective interest rate method. Interest or mark-up recoverable on classified loans, advances and investments is recognized on receipt basis. Interest / return / mark-up on classified rescheduled / restructured loans and advances and investments is recognized as permitted by the regulations of the SBP. Dividend income is recognized when the right to receive the dividend is established. Gains and losses on sale of investments are recognized in the profit and loss account. b. Lease financing 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. Unrealised income on classified leases is recognized on receipt basis. Gains / losses on termination of lease contracts and other lease income are recognized when realized. c. Islamic financing and related assets Profit on Business Musharakah financing is booked on accrual basis and is adjusted upon declaration of profit by Musharakah partners. Ijarah and Diminishing Musharakah income is recognised on an accrual basis as and when the rental becomes due. Murabaha and Salam income is recognised on deferred income basis. for the year ended December 31, 2019 128 Report 2019 for the year ended December 31, 2019 Allied Bank Limited 129
67. Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 d. Fees, brokerage and commission Fee, Commission and Brokerage income is recognized on an accrual basis except where, in the opinion of management, it would not be prudent to do so. 4.19 Business Segment reporting A segment is a distinguishable component of the Bank that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Bank’s functional and management reporting structure. The Bank’s primary segment reporting is based on following business segments: a. Corporate & investment banking This segment offers a wide range of financial services to medium and large sized public and private sector entities and also covers overseas operation of the Bank. These services include, providing and arranging tenured financing, corporate advisory, underwriting, cash management, trade products, corporate finance products and customer services on all bank related matters. b. Trading and sales (Treasury) This segment undertakes the Bank’s treasury and money market activities. c. Commercial & retail banking Commercial and retail banking provides services to commercial and retail customers including agriculture sector. It includes loans, deposits and other transactions with commercial and retail (conventional and Islamic) customers. d. Islamic Banking Islamic banking provides shariah compliant services to customers including loans, deposits and other transactions. e.Others Others includes functions which cannot be classified in any of the above segments. 4.20 Geographical Segment Reporting Geographically the Bank operates in Pakistan, Middle East and China. 4.21 Earnings per share The Bank presents basic and diluted earnings per share (EPS) for its shareholders. 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. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any. Notes to the Unconsolidated Financial Statements for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 5 CASH AND BALANCES WITH TREASURY BANKS In hand Local currency 13,645,304 Foreign currencies Remittances in transit 15,271,580 1,008,793 1,008,439 14,654,097 16,280,019 1,528,644 591,133 38,599,518 With State Bank of Pakistan (SBP) in Local currency current accounts 5.1 51,250,399 Foreign currency current account 5.2 91,812 81,311 Foreign currency deposit accounts (non-remunerative) 5.1 5,515,729 4,722,714 Foreign currency deposit accounts (remunerative) 5.3 16,509,764 14,128,800 73,367,704 57,532,343 30,059,400 24,610,744 With National Bank of Pakistan in Local currency current accounts Prize Bonds 333,983 174,175 119,943,828 99,188,414 Deposits with SBP are maintained to comply with the cash reserve requirement, under section 22 of the Banking Companies Ordinance, 1962 and SBP statutory requirements issued from time to time. 5.2 This represents US Dollar settlement account maintained with SBP. 5.3 This represents special cash reserve maintained with SBP. The return on this account is declared by SBP on a monthly basis and carries mark-up at the rate of 0.7% to 1.51% (2018: 0.56% to 1.35%) per annum. 5.1 Note December 31, December 31, 2019 2018 Rupees in ‘000 6 BALANCES WITH OTHER BANKS In Pakistan In deposit accounts - 2,000,000 Outside Pakistan 6.1 130 Annual Report 2019 In current accounts 6.1 300,295 268,512 In deposit accounts 6.1 302,287 306,543 602,582 2,575,055 These are nostro balances placed with other banks. Allied Bank Limited 131
68. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 December 31, 2019 December 31, 2018 Classified Provision Classified Provision Lending Held Lending Held Rupees in ‘000 Rupees in ‘000 7 7.8 LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings - 5,500,000 7.1 & 7.7 2,052,491 44,455,680 7.2 1,000,000 2,500,000 – State Bank of Pakistan 7.3 2,704,142 - – other financial institutions 7.4 7,850,288 1,024,515 7.5 70,000 70,000 - 300,000 Repurchase agreement lendings (Reverse Repo) Musharaka lendings Domestic Other Assets Especially Mentioned Substandard Doubtful Loss Bai muajjal receivable from: Certificates of investment Letters of placement Less: Provision held against lendings to financial institutions Lendings to financial institutions – net of provision 7.1 7.2 7.3 7.4 7.5 13,676,921 53,850,195 (70,000) (70,000) 13,606,921 53,780,195 7.5 & 7.8 These are short-term local currency lendings to financial institutions against government securities as shown in note 7.7 below. These carry mark-up at the rate of 13.45% to 13.50% (2018: 10.10% to 10.40%) per annum, maturing on various dates, latest by January 20, 2020. Category of classification Note INVESTMENTS 8.1 Investments by type: Federal Government Securities Federal Government Securities* Surplus / (Deficit) Carrying Value Provision for diminution Surplus / (Deficit) Carrying Value 19,862,396 - 5,767 19,868,163 - - - - 19,862,396 - 5,767 19,868,163 - - - - 677,300,056 (15,961) 1,689,073 678,973,168 610,683,028 (21,248) (1,608,458) 609,053,322 Shares 24,349,646 (3,202,822) 9,686,372 30,833,196 25,390,405 (2,266,130) 9,572,003 32,696,278 Non Government Debt Securities 13,633,213 (21,071) (37,667) 13,574,475 11,732,046 (21,071) (47,874) 11,663,101 1,037,692 - - 1,037,692 1,037,692 - - 1,037,692 63,834 - 91,424 155,258 63,834 - 62,436 126,270 716,384,441 (3,239,854) 11,429,202 724,573,789 648,907,005 (2,308,449) 7,978,107 654,576,663 13,015,041 - - 13,015,041 16,151,622 - - 16,151,622 344,260 (344,260) - - 346,090 (346,090) - - 13,359,301 (344,260) - 13,015,041 16,497,712 (346,090) - 16,151,622 500,000 - - 500,000 500,000 - - 500,000 750,106,138 (3,584,114) 11,434,969 757,956,993 665,904,717 (2,654,539) 7,978,107 671,228,285 Market Treasury Bills 542,565,953 - 176,506 542,742,459 543,454,942 - (21,792) 543,433,150 Pakistan Investment Bonds 154,349,214 - 784,365 155,133,579 64,695,276 - (1,397,373) 63,297,903 GOP Ijarah Sukuks 876,511 - (8,765) 867,746 3,350,848 - (16,997) 3,333,851 GOP Sukuks (US$) 3,869,387 (15,961) 59,871 3,913,297 9,756,796 (21,248) (191,642) 9,543,906 Foreign Currency Bonds (US$) 6,215,907 - 682,863 6,898,770 5,576,788 - 19,346 5,596,134 GOP Ijarah Sukuks - Bai Muajjal Placement 2,300,521 - - 2,300,521 - - - - 710,177,493 (15,961) 1,694,840 711,856,372 626,834,650 (21,248) (1,608,458) 625,204,944 21,940,832 (3,168,936) 9,686,372 28,458,268 22,646,719 (2,103,351) 9,572,003 30,115,371 2,408,814 (33,886) - 2,374,928 2,743,686 (162,779) - 2,580,907 63,834 - 91,424 155,258 63,834 - 62,436 126,270 24,413,480 (3,202,822) 9,777,796 30,988,454 25,454,239 (2,266,130) 9,634,439 32,822,548 Listed 5,417,804 (103,498) (37,667) 5,276,639 3,139,909 (105,329) (47,874) 2,986,706 Unlisted 8,559,669 (261,833) - 8,297,836 8,938,227 (261,832) - 8,676,395 13,977,473 (365,331) (37,667) 13,574,475 12,078,136 (367,161) (47,874) 11,663,101 1,037,692 - - 1,037,692 1,037,692 - - 1,037,692 500,000 - - 500,000 500,000 - - 500,000 750,106,138 (3,584,114) 11,434,969 757,956,993 665,904,717 (2,654,539) 7,978,107 671,228,285 Foreign Securities Open Ended Mutual Funds 8.4 Held–to–maturity securities Federal Government Securities 8.5 This represents local currency classified certificates of investment and related provisioning, amounting to Rs. 70 million (2018: Rs. 70 million). Subsidiaries Total Investments 8.2 Rupees in ‘000 December 31,2018 Cost / Amortized cost Available-for-sale securities Non Government Debt Securities 2018 Provision for diminution 70,000 70,000 Held-for-trading securities This represent local currency lending by Islamic banking business under Bai Muajjal agreement with various Islamic banks at expected profit of 12.15% to 12.60% (2018: 9.80%) per annum, maturing on various dates, latest by January 17, 2020. 2019 Cost / Amortized cost 70,000 70,000 Rupees in ‘000 8 This represent local currency lending by Islamic banking business under Bai Muajjal agreement with the State Bank of Pakistan at expected profit of 10.53% (2018: Nil) per annum, maturing on February 07, 2020. December 31, 70,000 70,000 December 31,2019 These represent local currency lendings by Islamic banking business under Musharaka agreement at expected profit of 12.15% (2018: 9.50% to 9.70%) per annum, maturing on various dates, latest by February 6, 2020. December 31, 70,000 70,000 Investments by segments: Federal Government Securities: 7.6 Particulars of lending In local currency 13,676,921 53,850,195 - - 13,676,921 53,850,195 In foreign currencies December 31, 2019 December 31, 2018 Further Further Held by Held by given as Total given as Total Bank Bank collateral collateral Rupees in ‘000 7.7 Securities held as collateral against Shares: Listed Companies Unlisted Companies Units of open-ended mutual funds Non Government Debt Securities lending to financial institutions Foreign Securities Market Treasury Bills Pakistan Investment Bonds - - - 33,500,000 - 33,500,000 2,200,000 - 2,200,000 11,000,000 - 11,000,000 2,200,000 - 2,200,000 44,500,000 - 44,500,000 Equity securities Subsidiaries ABL - Asset Management Company Total Investments * Provision for diminution against federal government securities represents expected credit loss provisioning under IFRS 9 on portfolio pertaining to overseas branch. 132 Annual Report 2019 Allied Bank Limited 133
69. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 Rupees in ‘000 8.2.1 December 31, 2019 December 31, 2018 Cost Rupees in ‘000 Investments given as collateral 8.4 Market Treasury Bills Pakistan Investment Bonds GOP Foreign Currency Sukuks (US$) 145,442,739 158,411,120 48,417,010 10,077,521 2,957,611 4,451,600 - 710,569 GOP Foreign Currency Bonds (US$) 196,817,360 Total Investments given as collateral 173,650,810 Quality of Available for Sale Securities Federal Government Securities – Government guaranteed Market Treasury Bills 524,797,544 543,454,941 Pakistan Investment Bonds 141,540,707 48,543,655 GOP Sukuks (US$) 3,869,387 9,756,796 Foreign Currency Bonds (US$) 6,215,907 5,576,788 GOP Ijarah Sukuks 8.3 Provision for diminution in value of investments 8.3.1 Opening balance 2,654,539 2,705,403 3,163 1,556 Exchange adjustments 876,511 3,350,848 677,300,056 610,683,028 Power Generation and Distribution 8,159,528 8,991,081 Oil & Gas Exploration Companies 5,093,606 5,093,607 Fertilizer 3,827,631 3,701,965 Commercial Banks 2,900,903 2,900,903 Oil & Gas Marketing Companies 1,043,460 1,043,460 Real Estate Investment Trust 455,851 455,851 Chemical 268,289 268,289 Leasing Companies 89,322 89,322 Close-end Mutual Funds 51,603 51,603 Investment Banks 50,000 50,000 Shares Listed Companies Charge / reversals Charge for the year Reversals for the year 1,118,302 112,795 (139,161) (3,776) 979,141 109,019 (52,729) (161,439) Reversal on disposals 3,584,114 Closing Balance December 31, 2019 NPI 2,654,539 December 31, 2018 Provision NPI Provision Cement Rupees in ‘000 8.3.2 Particulars of provision against debt securities Domestic Other assets especially mentioned Substandard - - - - Doubtful - - - - 365,331 365,331 367,161 367,161 365,331 365,331 367,161 367,161 3,869,387 15,961 9,756,796 21,248 Upto 90 days - - - - 91 to 180 days - - - - 181 to 365 days - - - - > 365 days - - - - - - - - 4,234,718 381,292 10,123,957 388,409 Overseas Not past due but impaired* Overdue by: Total 134 * Provision represents expected credit loss provisioning in overseas branch. The State Bank of Pakistan (SBP) has not granted any relaxation in any classification / provisioning during the year ended December 31, 2019. Annual Report 2019 638 21,940,831 22,646,719 December 31, 2019 December 31, 2018 Cost Breakup value Cost Breakup value Rupees in ‘000 Category of classification Loss 638 Unlisted Companies Security General Insurance Ltd. Habib Allied Holding Ltd. Nishat Hotels And Properties Ltd. Atlas Power Limited Pakistan Mortgage Refinance Co. Ltd. 1 Link Private Limited Central Depository Company ISE Towers REIT Management Company Limited First Women Bank Limited LSE Financial Services Limited SME Bank Limited Arabian Sea Country Club Ltd. Eastern Capital Limited SWIFT National Institutional Facilitation Technologies Private Limited Pakistan Agricultural Storage and Services Corporation Pakistan Corporate Restructuring Company 1,075,653 1,035,922 566,982 355,000 200,000 50,000 40,300 30,346 21,200 8,440 5,250 5,000 5,000 1,770 2,527,369 1,241,538 1,025,523 1,070,210 202,984 61,068 43,979 72,287 19,155 351 6,431 1,075,653 1,035,922 944,970 355,000 200,000 50,000 40,300 30,346 21,200 8,440 5,250 5,000 5,000 1,770 1,830,648 1,241,939 816,078 849,650 200,459 58,408 42,765 72,287 18,318 351 6,777 1,527 1,000 43,117 3,446,507 51,641 295,078 43,117 6,660,731 1,527 1,000 3,781,378 59,076 242,002 5,438,758 Allied Bank Limited 135
70. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Subsidiary Asset Management Company Rupees in ‘000 December 31, December 31, 2019 2018 Rupees in ‘000 Non Government Debt Securities 8.6 Listed – AAA 1,497,900 383,308 – AA+, AA, AA– 2,716,405 2,618,458 – A+, A, A– 500,000 32,813 4,714,305 3,034,579 Country of incorporation 3,250,000 3,750,000 – AA+, AA, AA– 4,209,436 3,080,965 – A+, A, A– 1,438,401 1,845,431 – Unrated 21,071 21,071 8,918,908 8,697,467 38,834 38,834 Allied Finergy Fund 25,000 25,000 63,834 63,834 100% Assets 2,793,765 Liabilities 433,044 Revenue 783,478 Profit after taxation 375,852 Total comprehensive income 375,743 Note 9 9.1 A-II. 3 9.2 Provision against advances Specific General 9.3 & 9.4 9.4 Advances – net of provision Foreign Securities Performing December December 31,2019 31,2018 Non Performing December December 31,2019 31,2018 Rupees in ‘000 467,845,262 428,894,557 12,615,228 6,925,320 3,853,892 1,982,031 484,314,382 437,801,908 (39,795) (15,868) (39,795) (15,868) 484,274,587 437,786,040 14,450,873 1,403,045 15,853,918 14,569,294 1,495,347 16,064,641 482,296,135 12,615,228 5,256,937 500,168,300 443,463,851 6,925,320 3,477,378 453,866,549 (15,112,624) (15,533,497) (15,112,624) (15,533,497) 741,294 531,144 (15,112,624) (39,795) (15,152,419) 485,015,881 (15,533,497) (15,868) (15,549,365) 438,317,184 December 31, 2019 Equity Securities – Unlisted Habib Allied Holding Limited SWIFT 8.5 1,035,922 Not later than one year 1,035,922 1,770 1,770 1,037,692 1,037,692 Pakistan Investment Bonds 10,714,521 16,151,622 2,300,521 - 13,015,042 16,151,622 – Unrated 103,499 105,329 240,761 240,761 Unlisted – Unrated 8.5.1 136 Total Not later than one year Later than one and less than five years Over five years Total 606,329 50,138 656,467 (108,826) 547,641 1,331,279 510,411 1,841,690 (206,316) 1,635,374 85,114 147,989 233,103 (19,224) 213,879 2,022,722 708,538 2,731,260 (334,366) 2,396,894 631,223 42,542 673,765 (66,148) 607,617 1,504,537 460,880 1,965,417 (133,067) 1,832,350 116,221 188,280 304,501 (130,661) 173,840 2,251,981 691,702 2,943,683 (329,876) 2,613,807 December 31, December 31, 2019 2018 Rupees in ‘000 Non Government Debt Securities Listed December 31, 2018 Over five years Includes net investment in finance lease as described below Lease rentals receivable Residual value Minimum lease payments Financial charges for future periods Present value of minimum lease payments Federal Government Securities – Government guaranteed GOP Ijarah Sukuks - Bai Muajjal Placement Later than one and less than five years Rupees in ‘000 9.1 Particulars relating to Held to Maturity securities are as follows: Total December December 31,2019 31,2018 ADVANCES Loans, cash credits, running finances, etc. Islamic financing and related assets Bills discounted and purchased Advances – gross Open Ended Mutual Funds HBL Growth Fund – Class B Segment Pakistan Percentage holding Unlisted – AAA Details regarding subsidiary company: 9.2 Particulars of advances (Gross) 9.2.1 In local currency In foreign currencies 484,420,108 443,642,116 15,748,192 10,224,433 500,168,300 453,866,549 The market value of Pakistan Investment Bonds classified as held-to-maturity as at December 31, 2019 amounted to Rs. 10,848.5 million (December 31, 2018: Rs. 15,579.4 million). Annual Report 2019 Allied Bank Limited 137
71. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Advances include Rs. 15,853.918 million (2018: Rs. 16,064.641 million) which have been placed under non-performing status as detailed below: 9.3 December 30, 2019 Non Performing Loans 9.7 December 31, 2018 Non Specific Performing Provision Loans Rupees in ‘000 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 writtenoff loans or any other financial relief of five hundred thousand rupees and above allowed to a person(s) during the year ended December 31, 2019 is given in Annexure-’I’. However, these write-offs do not affect the Bank’s right to recover debts from these customers. Specific Provision Note December 31, December 31, 2019 2018 Rupees in ‘000 Category of Classification 10 FIXED ASSETS Domestic Other Assets Especially Mentioned Substandard Doubtful Loss 35,436 449 38,425 2,231 Capital work–in–progress 10.1 2,991,144 2,338,494 809,938 202,107 436,938 109,035 Property and equipment 10.2 51,103,181 48,040,043 Right-of-Use Assets 4.1 196,952 98,476 334,094 167,047 14,811,592 14,811,592 15,255,184 15,255,184 15,853,918 15,112,624 16,064,641 15,533,497 December 31, 2019 Note 9.4 Specific General 10.1 December 31, 2018 Total Specific Rupees in ‘000 General Total 8,020,323 - 62,114,648 50,378,537 Civil works 2,219,464 1,855,180 Equipment 6,546 - 765,134 483,314 2,991,144 2,338,494 CAPITAL WORK-IN-PROGRESS Advances to suppliers Particulars of provision against advances Opening balance 15,533,497 Exchange adjustments Charge for the year Reversals Amounts written off December 31,2019 9.5 9.6 15,868 15,549,365 16,702,236 11,701 16,713,937 - (896) (896) - - - 589,752 24,823 614,575 500,412 4,167 504,579 (1,008,707) - (1,008,707) (1,637,415) - (1,637,415) (418,955) 24,823 (394,132) (1,137,003) 4,167 (1,132,836) (1,918) - (1,918) (31,736) - (31,736) Freehold Land 15,112,624 39,795 15,152,419 15,533,497 15,868 15,549,365 In local currency 14,748,991 16,820 14,765,811 15,207,403 15,717 15,223,120 363,633 22,975 386,608 326,094 15,112,624 39,795 15,152,419 15,533,497 Leasehold Land Building on Leasehold Land Electrical, office and computer equipment Furniture and fixture Building Improvements (Rented Premises) Vehicles Total Rupees in ‘000 10.2 Property and Equipment At January 1, 2019 Cost / Revalued amount 17,564,604 10,962,212 7,120,644 4,558,168 1,929,172 13,546,580 1,155,158 4,076,878 60,913,416 - - (340,664) (228,787) (1,035,342) (8,125,715) (636,528) (2,506,337) (12,873,373) 17,564,604 10,962,212 6,779,980 4,329,381 893,830 5,420,865 518,630 1,570,541 48,040,043 17,564,604 10,962,212 6,779,980 4,329,381 893,830 5,420,865 518,630 1,570,541 48,040,043 1,547,674 354,505 795,815 296,857 223,379 1,870,492 427,830 810,629 6,327,181 Disposals cost - - - (89,780) (14,449) (140,182) (346,079) (553) (591,043) Disposals accumulated depreciation - - - 16,432 12,855 127,550 326,274 553 483,664 Disposals - - - (73,348) (1,594) (12,632) (19,805) - (107,379) (3,156,542) Accumulated depreciation Closing balance Building on Freehold Land Net book value Year ended December 2019 9.4.1 In foreign currencies 9.4.2 9.5 15,868 15,549,365 Depreciation charge - - (361,282) (221,432) (194,807) (1,597,130) (218,320) (563,571) Exchange rate adjustments - - - - - (122) - - (122) 19,112,278 11,316,717 7,214,513 4,331,458 920,808 5,681,473 708,335 1,817,599 51,103,181 This includes reversal of provision on account of a non performing loan, classified as loss, settled against Debt Property Swap amounting to Rs. 311.2 million (2018: Rs. 29.2 million). At December 31, 2019 19,112,278 11,316,717 7,916,459 4,765,246 2,138,103 15,276,891 1,236,909 4,886,954 66,649,557 - - (701,946) (433,788) (1,217,295) (9,595,418) (528,574) (3,069,355) (15,546,376) 19,112,278 11,316,717 7,214,513 4,331,458 920,808 5,681,473 708,335 1,817,599 51,103,181 - - 5% 5% 10% 14.28% -50% 20% 20% - 9.6 Particulars of write–offs 9.6.1 Against provisions Directly charged to Profit and Loss account Write–offs of Rs. 500,000 and above – Domestic Write–offs of below Rs. 500,000 138 326,245 Additions No benefit of forced sale value of the collaterals held by the Bank has been taken while determining the provision against nonperforming loans as allowed under BSD circular No. 01 dated October 21, 2011. Note 9.6.2 151 Opening net book value Annual Report 2019 9.7 December 31, December 31, 2019 2018 Rupees in ‘000 1,918 - 31,736 - 1,918 31,736 1,918 31,736 - - 1,918 31,736 Closing net book value Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation (percentage) Allied Bank Limited 139
72. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31,2018 Freehold Land Building on Freehold Land Leasehold Land Building on Leasehold Land Electrical, office and computer equipment Furniture and fixture Building Improvements (Rented Premises) Vehicles December 31, December 31, 2019 2018 Rupees in ‘000 Total Rupees in ‘000 10.8 At January 1, 2018 Cost / Revalued amount The carrying amount of property and equipment that have retired from active use 283,457 349,670 15,281,070 11,068,636 6,260,977 4,261,641 1,675,822 11,631,268 824,980 3,501,922 54,506,316 - - - - (874,675) (7,194,647) (535,393) (1,997,095) (10,601,810) 15,281,070 11,068,636 6,260,977 4,261,641 801,147 4,436,621 289,587 1,504,827 43,904,506 10.9 The sale of fixed assets (otherwise than a regular auction) to related parties are disclosed in Annexure III. 15,281,070 11,068,636 6,260,977 4,261,641 801,147 4,436,621 289,587 1,504,827 43,904,506 2,380,971 58,138 859,667 296,527 271,228 2,344,493 359,000 575,046 7,145,070 11 INTANGIBLE ASSETS Disposals cost - - - - (17,878) (429,181) (28,822) (90) (475,971) Disposals accumulated depreciation - - - - 17,173 422,683 24,524 90 464,470 Capital work in progress 11.1 644,315 337,076 Disposals - - - - (705) (6,498) (4,298) - (11,501) Depreciation charge - - (340,664) (228,787) (177,762) (1,353,638) (125,659) (509,332) (2,735,842) Intangible Assets 11.2 1,324,736 1,411,978 Exchange rate adjustments - - - - (78) (113) - - (191) 1,969,051 1,749,054 (97,437) (164,562) - - - - - - (261,999) 17,564,604 10,962,212 6,779,980 4,329,381 893,830 5,420,865 518,630 1,570,541 48,040,043 17,564,604 10,962,212 7,120,644 4,558,168 1,929,172 13,546,580 1,155,158 4,076,878 60,913,416 - - (340,664) (228,787) (1,035,342) (8,125,715) (636,528) (2,506,337) (12,873,373) 617,519 180,132 17,564,604 10,962,212 6,779,980 4,329,381 893,830 5,420,865 518,630 1,570,541 48,040,043 26,796 156,944 - - 5% 5% 10% 14.28% -50% 20% 20% - 644,315 337,076 Accumulated depreciation Net book value Year ended December 2018 Opening net book value Additions Other adjustments / transfers Closing net book value 11.1 Capital work in progress At December 31, 2018 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation (percentage) 10.3 – Land (Freehold and leasehold) 16,670,183 – Building 8,393,866 Fair value of property and equipment excluding land and buildings is not expected to be materially different from their carrying amount. Note 10.5 20.1 164,129 172,713 63,370 57,694 that are still in use: Electrical, office and computer equipments Vehicles Leasehold Improvements 11.2 Annual Report 2019 Total Intangible Assets At January 1, 2019 Cost 3,141,857 - 3,141,857 (1,729,879) - (1,729,879) 1,411,978 - 1,411,978 1,411,978 - 1,411,978 157,303 - 157,303 (735) - (735) 735 - 735 - - - Amortisation charge (244,545) - (244,545) Closing net book value 1,324,736 - 1,324,736 Accumulated amortisation and impairment Net book value Year ended December 2019 Opening net book value Directly purchased Disposals cost At December 31, 2019 510,781 342,011 5,317,286 4,497,694 108,035 327,935 1,738,160 1,342,260 Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Useful life 140 Others Rupees in ‘000 Disposals accumulated depreciation The cost of fully depreciated assets Furniture and fixtures December 31, 2019 Computer software Additions: Restriction / discrepancy in the title of property having a net book value of 10.7 December 31, December 31, 2019 2018 Rupees in ‘000 Incremental depreciation charged during the year transferred to unappropriated profit 10.6 Advances for softwares to suppliers Bank arranged for valuation of all Land and Buildings as at December 31, 2017 from four independent valuers {Sadruddin Associates (Pvt.) Ltd, Unicorn International Surveyors, Indus Surveyors (Pvt.) Limited and Harvester Services (Pvt). Ltd.}. The revalued amounts of properties have been determined on the basis of market value. Had there been no revaluation, the carrying amount of revalued assets would have been as follows: Rupees in ‘000 10.4 Softwares 3,298,425 - 3,298,425 (1,973,689) - (1,973,689) 1,324,736 - 1,324,736 5% to 14.28% 5% to 14.28% 7 to 20 Years 7 to 20 Years Allied Bank Limited 141
73. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, 2018 Computer software Others Total December 31, December 31, 2019 2018 Rupees in ‘000 Rupees in ‘000 12 At January 1, 2018 Cost Accumulated amortisation and impairment Net book value 2,689,905 - 2,689,905 (1,328,806) - (1,328,806) 1,361,099 - 1,361,099 OTHER ASSETS Income / Mark–up accrued in local currency – net of provision 20,573,788 11,777,626 Income / Mark–up accrued in foreign currency – net of provision 245,676 293,994 Advances, deposits, advance rent and other prepayments 888,144 883,302 3,817,847 4,626,194 1,609,193 1,947,348 - 2,698,766 5,182,716 4,183,083 Advance taxation (payments less provisions) Non–banking assets acquired in satisfaction of claims 12.1 Mark to market gain on forward foreign exchange contracts Acceptances Year ended December 2018 Due from the employees’ retirement benefit schemes Opening net book value 1,361,099 - 1,361,099 Additions: Directly purchased 451,952 - 451,952 Amortisation charge (401,073) - (401,073) Closing net book value 1,411,978 - 1,411,978 Benevolent fund 36.4 - 115,915 Pension fund 36.4 4,440,411 4,560,065 Fraud and forgeries 524,357 502,115 Stationery and stamps in hand 286,343 190,398 Overdue FBN / FBD 97,601 72,441 Home Remittance Cell agent receivable 93,978 111,098 Receivable from SBP – customers encashments At December 31, 2018 Cost Accumulated amortisation and impairment Net book value 3,141,857 - 3,141,857 (1,729,879) - (1,729,879) 1,411,978 - 1,411,978 6,033 12,572 Charges receivable 32,329 23,043 Suspense Account 1,387 7,898 Others Rate of amortisation (percentage) 14.28% 14.28% Less: Provision held against other assets Useful life 7 Years 7 Years Other assets (net of provision) 12.2 96,535 3,572 37,896,338 32,009,430 (862,460) (787,203) 37,033,878 31,222,227 Surplus on revaluation of non–banking assets acquired December 31, December 31, 2019 2018 Rupees in ‘000 in satisfaction of claims Other assets – net 12.1 11.3 The cost of fully amortized assets that are still in use: 11.4 323,406 Decrease in annual amortization expense 2020 2021 Rupees in ‘000 (188,617) (45,731) (23,808) 4,486,663 4,107,306 306,326 During 2019, the Bank conducted a review of useful life of its intangible assets, which resulted in change in estimate of expected usage of certain softwares. The softwares, which management had previously intended to use for 7 years, are now expected to remain in usage for 20 years from the date of purchase. As a result, the expected useful life of the softwares increased and their estimated residual value decreased. The effect of these changes on actual and expected amortization expense, included in ‘Operating expenses’, was as follows. 2019 2,159,958 33,382,185 Market value of non–banking assets acquired in satisfaction of claims Intangible assets – software 2,877,470 39,911,348 2022 2023 (21,867) (14,135) Full-scope revaluation was carried out at December 31, 2019 through two independent valuers approved by Pakistan Banks’ Association (A-1 Warda Engineering Services & Sadruddin Associates Private Limited). The revalued amounts of properties have been determined on the basis of market rates depending upon physical verification and general appearance of the site. December 31, December 31, 2019 2018 Rupees in ‘000 12.1.1 Non banking assets acquired in satisfaction of claims Opening balance 52,482 Revaluation 884,674 600,425 (847,050) (109,969) Depreciation Closing balance Annual Report 2019 3,584,030 361,584 Disposals / Transfers 142 4,107,306 Additions (19,851) (19,662) 4,486,663 4,107,306 Allied Bank Limited 143
74. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 15.2 12.1.2 Gain / Loss on Disposal of Non banking assets acquired in satisfaction of claims Disposal proceeds Less: Cost Impairment / Depreciation (loss) / Gain 12.2 879,316 3,542 (847,050) (847,050) 32,266 (3,629) 60 (3,569) (27) 15.4 15.5 Provision held against other assets Advances, deposits, advance rent and other prepayments Provision against fraud and forgeries Overdue Foreign Bills Negotiated / Discounted Charges receivable Suspense account Others 120,584 524,357 24,295 32,327 6,453 154,444 862,460 209,506 507,977 24,295 23,043 22,382 787,203 12.2.1 Movement in provision held against other assets Opening balance Charge for the year Reversals Written off / adjusted Closing balance 13 15.3 787,203 213,529 (112,865) (25,407) 862,460 747,062 96,695 (12,000) (44,554) 787,203 CONTINGENT ASSETS 15.6 15.7 15.8 15.9 These represent borrowings in local and foreign currency from local and foreign interbank markets against government securities, carrying mark-up at the rate of 13% to 13.20% (2018: 10% to 10.21%) per annum for local currency borrowings, and at the rate of 2.45% to 2.65% (2018: 3.37% to 3.99%) per annum for foreign currency borrowings. These borrowings are maturing on various dates, latest by January 31, 2020. These represent unsecured borrowings in local and foreign currency from the local and foreign interbank markets, carrying markup at the rate of 12.25% to 12.50% (2018: 8.10% to 10.10%) per annum for local currency borrowings, and at the rate of 2.40% to 3% (2018: 2.35% to 4.27%) per annum for foreign currency borrowings. These borrowings are maturing on various dates, latest by April 13, 2020. This represents unsecured local currency borrowing by Islamic banking business under Musharaka agreement at profit of 8% (2018: Nil) per annum, maturing on January 02, 2020. Note 8.2.1 includes the carrying amount of investments given as collateral. 7,878,626 Repurchase agreement borrowings from Financial Institutions Unsecured Call borrowings Trading liability Overdrawn nostro accounts Musharaka borrowing Other borrowings 15.1 December 31, 2019 2018 245,915,573 211,201,481 20,532,813 14,681,505 266,448,386 225,882,986 7,752,959 December 31, 2019 In Local In Foreign Total Currency Currencies BORROWINGS Secured Borrowings from State Bank of Pakistan Repurchase agreement borrowings Under export refinance scheme Under long term financing facility Under financing scheme for renewable energy December 31, Particulars of borrowings with respect to currencies In foreign currencies In Pakistan 144 These represent borrowings from the SBP availed by the Bank for financing power projects / facilities using alternative / renewable energy (solar, wind, hydro, biogas, bio-fuels, bagasse cogeneration, and geothermal as fuel) for a maximum period of 12 years under Category I and for a maximum period of 10 years under Category II and III. The borrowing carries mark-up at the rate of 3% for Category I, 4% for Category II and 3% for Category III. In local currency BILLS PAYABLE 15 This represents Long Term Financing facility availed by the Bank for further extending the same to its customers, for a maximum period of 10 years. The borrowing carries mark-up at the rate of 1.50%, 2.50% and 3.00% (2018: 4.50%, 3.50% and 3.00%) per annum for financing up-to 3 years, 5 years & 10 years respectively. Rupees in ‘000 There were no contingent assets of the Bank as at December 31, 2019 and December 31, 2018. 14 The Bank has entered into various agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per agreements, the Bank has granted to 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 the SBP. The borrowing carries mark-up at the rate of 1.00% to 2.00% (2018 1.00% to 2.00%) per annum. These borrowings are repayable within six months from the deal date. December 31, 2018 In Local In Foreign Total Currency Currencies Rupees in ‘000 15.1 & 15.8 15.2 15.3 15.4 15.5 & 15.8 170,120,570 22,523,266 21,426,590 426,031 214,496,457 26,585,287 157,248,800 17,913,692 13,894,674 158,952 189,216,118 14,559,563 16 DEPOSITS AND OTHER ACCOUNTS Customers Current deposits 327,547,304 20,719,488 348,266,792 292,438,272 18,841,868 311,280,140 Savings deposits 403,489,789 21,019,875 424,509,664 365,456,206 24,707,235 390,163,441 Term deposits 107,203,269 63,293,352 170,496,621 120,847,788 50,092,266 170,940,054 19,207,173 30,890 19,238,063 31,335,721 32,615 31,368,336 857,447,535 105,063,605 962,511,140 810,077,987 93,673,984 903,751,971 Current deposits 39,711,458 41,039 39,752,497 20,552,284 27,949 20,580,233 Savings deposits 33,722,513 - 33,722,513 54,634,073 - 54,634,073 Term deposits 10,011,200 40,261 10,051,461 4,950,750 52,735 5,003,485 3,005,421 - 3,005,421 505,421 - 505,421 86,450,592 81,300 86,531,892 80,642,528 80,684 80,723,212 943,898,127 105,144,905 1,049,043,032 890,720,515 93,754,668 984,475,183 Others Financial Institutions 15.6 15.7 24,602,435 64,207 700,000 25,366,642 266,448,386 11,861,797 9,987,849 243,624 14,035 22,107,305 225,882,986 Others This represents local currency borrowing from the SBP against government securities, carrying mark-up at the rate of 13.31% (2018: 10.21%) per annum, maturing on January 03, 2020. Annual Report 2019 Allied Bank Limited 145
75. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 December 31, 2018 Rupees in ‘000 16.1 At January 1, 2018 Composition of deposits Individuals 457,188,412 384,786,399 Private Sector 270,915,027 287,469,596 Government (Federal and Provincial) 125,409,058 117,892,648 Public Sector Entities 108,998,643 113,603,058 77,158,043 72,932,722 9,373,849 7,790,760 1,049,043,032 984,475,183 Banking Companies 16.3 Deductible Temporary Differences on Provision against: At January 1, 2019 19,093 - - 19,093 38,959 - - 38,959 – Off balance sheet obligations 14,824 - - 14,824 – Advances 46,869 (556) - 46,313 – Post retirement medical benefits 42,980 - - 42,980 1,183,246 (393,039) - 790,207 1,345,971 (393,595) - 952,376 – Surplus on revaluation of fixed assets (1,208,989) 54,842 - (1,154,147) – Surplus on revaluation of investments (5,650,262) - 2,857,924 (2,792,338) Taxable Temporary Differences on Net outstanding value against prepaid cards is Rs. 128.403 million as at reporting date (December 31, 2018: 140.858 million). Recognised Recognised in in other profit and loss comprehensive account Income – Investments – Other assets – Workers welfare fund This includes deposits eligible to be covered under insurance arrangements amounting to Rs. 628,087 million (December 31, 2018: 585,901 million). December 31, 2019 – Surplus on revaluation on non banking assets (25,789) - 1,827 (23,962) – Actuarial gains (93,888) - (244,743) (338,631) (1,295,641) (89,879) - (1,385,520) – Accelerated tax depreciation / amortization At December 31, 2019 – Excess of investment in finance lease over written down value of leased assets Rupees in ‘000 17 DEFERRED TAX LIABILITIES (13,206) - - (13,206) (8,287,775) (35,037) 2,615,008 (5,707,804) (6,941,804) (428,632) 2,615,008 (4,755,428) December 31, December 31, 2019 2018 Note Deductible Temporary Differences on Provision against: Rupees in ‘000 – Investments 19,093 - - 19,093 – Other assets 38,959 - - 38,959 – Off balance sheet obligations 14,824 - - 14,824 – Advances 46,313 68,871 - 115,184 – Post retirement medical benefits 42,980 - - 42,980 790,207 (269,227) - 520,980 952,376 (200,356) - 752,020 – Surplus on revaluation of fixed assets (1,154,147) 62,682 - (1,091,465) – Surplus on revaluation of investments (2,792,338) - (1,207,883) (4,000,221) (136,789) – Workers welfare fund Taxable Temporary Differences on – Surplus on revaluation on non banking assets – Actuarial gains – Accelerated tax depreciation / amortization (23,962) - (112,827) (338,631) - 270,629 (68,002) (1,385,520) 44,873 - (1,340,647) – Excess of investment in finance lease over written down value of leased assets 146 Annual Report 2019 At December 31, 2018 Rupees in ‘000 Non–Banking Financial Institutions 16.2 Recognised Recognised in in other profit and loss comprehensive account Income (13,206) - - (13,206) (5,707,804) 107,555 (1,050,081) (6,650,330) (4,755,428) (92,801) (1,050,081) (5,898,310) 18 OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Accrued expenses Retention money payable Unearned commission and income on bills discounted Acceptances Unclaimed dividends Dividend payable Branch adjustment account Unrealized loss on forward foreign exchange contracts Provision for: Gratuity Employees' medical benefits Employees' compensated absences Early retirement Payable to defined contribution plan Provision against off-balance sheet obligations Security deposits against lease ATM / Point of Sale settlement account Charity fund balance Home Remittance Cell overdraft With-holding tax payable Sundry deposits Workers welfare fund payable Present value of lease liability Others 36.4 36.4 36.4 18.1 29 4,323,269 519,548 1,544,570 342,559 115,745 5,182,716 330,514 23,558 41,140 2,714,153 2,366,943 343,307 1,032,259 306,416 123,294 4,183,083 291,816 32,055 280,134 - 606,906 1,365,237 668,547 337,527 84,946 313,043 712,112 1,243,494 15 490,972 2,345,071 2,451,078 1,488,514 8,555,677 701,154 36,502,065 444,655 1,332,925 606,216 3,306 306,342 693,151 932,311 3 701,908 688,375 2,427,652 2,257,734 1,073,635 20,427,520 Allied Bank Limited 147
76. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 Note Rupees in ‘000 18.1 20 306,342 6,701 6,701 313,043 The above provision includes provisions made against letters of guarantee issued by the Bank. 19 19.1 SHARE CAPITAL 306,342 306,342 SURPLUS ON REVALUATION OF ASSETS – NET OF TAX – fixed assets 20.1 15,638,996 – non–banking assets acquired in satisfaction of claims 20.2 2,740,681 2,135,996 – available–for–sale securities 8.1 7,428,981 5,185,769 25,808,658 23,077,174 16,909,555 17,213,064 Surplus on revaluation of assets – net of tax Authorized capital December 31, December 31, December 31, December 31, 2019 2018 2019 2018 Surplus on revaluation during the year Surplus related to transfer / adjustments Rupees in ‘000 Ordinary shares of Rs.10/– each 15,000,000 Issued, subscribed and paid–up capital Related deferred tax liability Fully paid–up Ordinary shares of Rs. 10/– each December 31, December 31, December 31, 2018 2019 2018 No. of shares 9,148,550 8,400,000 1,145,073,830 406,780,094 Fully paid in cash 720,745,186 Issued as bonus shares 1,127,525,280 18,348,550 Ordinary shares of Rs. 10 each, determined pursuant to the Scheme of Amalgamation in accordance with the swap ratio stipulated therein less 9,200,000 ordinary shares of Rs. 10 each, held by Ibrahim 9,148,550 Leasing Limited on the cut–off date (September 30, 2004) (60,450) 16,730,460 16,909,555 Revaluation surplus as at January 1, 2019 (1,154,146) (1,208,989) Deferred tax liability on revaluation surplus 5,237 (5,607) 57,445 60,450 Less: Related deferred tax liability on : Rupees in ‘000 8,400,000 Ordinary shares of Rs. 10 each, determined pursuant to the Scheme of Amalgamation of First Allied Bank Modaraba with Allied Bank Limited in accordance 8,400,000 with the share swap ratio stipulated therein. 1,145,073,830 4,067,801 7,207,452 11,275,253 (1,091,464) (1,154,146) 15,638,996 15,755,409 2,159,958 1,601,421 Surplus on revaluation during the year 884,673 599,769 Surplus realised on disposal /transfer (163,739) (39,099) (2,224) (1,157) 4,067,801 7,207,452 11,275,253 20.2 Surplus on revaluation of non–banking assets acquired in satisfaction of claims Surplus as at January 1, 2019 91,486 84,000 11,450,739 91,486 84,000 11,450,739 Ibrahim Holdings (Private) Limited (holding company of the Bank), holds 972,510,410 (84.93%) [2018: 967,911,610 (84.53%)] ordinary shares of Rs. 10 each respectively, as at reporting date. (112,263) (172,713) Deferred tax on incremental depreciation transferred to profit and loss account 406,780,094 720,745,186 1,127,525,280 (106,684) (164,129) Surplus on revaluation as at December 31, 2019 2019 37,226 (168,022) (57,445) 10.5 December 31, (14,966) Transferred to unappropriated profit in respect of incremental 15,000,000 depreciation charged during the year – net of deferred tax 19.2 15,755,409 Surplus on revaluation of fixed assets Surplus as at January 1, 2019 1,500,000,000 1,500,000,000 2018 Surplus arising on revaluation of: 20.1 No. of shares December 31, 2019 Rupees in ‘000 Provision against off–balance sheet obligations Opening balance Charge for the year Reversals Net reversal Closing balance December 31, Transferred to unappropriated profit in respect of incremental depreciation charged during the year – net of deferred tax Related deferred tax liability (1,198) (976) (3,422) (2,133) 2,877,470 2,159,958 Revaluation surplus as at January 1, 2019 (23,962) (25,789) Deferred tax liability on revaluation surplus (114,025) (5,412) - 6,263 Surplus on revaluation as at December 31, 2019 Less: Related deferred tax liability on : Deferred tax on surplus on disposal/transfer Deferred tax on incremental depreciation transferred to profit and loss account 148 Annual Report 2019 1,198 976 (136,789) (23,962) 2,740,681 2,135,996 Allied Bank Limited 149
77. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 21 CONTINGENCIES AND COMMITMENTS 21.1 Guarantees 21.1 32,308,285 28,018,148 Commitments 21.2 423,987,452 342,770,483 Other contingent liabilities 21.3 8,923,603 8,738,009 465,219,340 379,526,640 Financial guarantees 4,594,077 4,434,872 Performance guarantees 5,508,570 6,656,657 22,205,638 16,926,619 32,308,285 28,018,148 60,392,362 68,457,757 Guarantees Other guarantees 21.2 Commitments Documentary credits and short term trade related transactions: letters of credit Commitments in respect of: forward foreign exchange contracts 21.2.1 358,881,918 207,509,971 forward government securities transactions 21.2.2 513,938 57,768,858 - 6,018,458 4,199,234 2,895,671 operating leases Commitments for acquisition of: fixed assets intangible assets - 119,768 423,987,452 342,770,483 21.2.1 Commitments in respect of forward foreign exchange contracts Purchase 220,381,401 Sale 138,500,517 137,056,586 70,453,385 358,881,918 207,509,971 464,217 57,768,858 21.2.2 Commitments in respect of forward government securities transactions Purchase Sale 21.3 - 513,938 57,768,858 8,923,603 8,738,009 Other contingent liabilities 21.3.1 Claims against the Bank not acknowledged as debt 150 49,721 Annual Report 2019 21.3.2 The income tax assessments of the Bank have been finalized upto and including tax year 2019 for local, Azad Kashmir and Gilgit Baltistan operations. While finalizing income tax assessments upto tax year 2019, income tax authorities made certain add backs with aggregate tax impact of Rs.25,455 million (2018: 24,332 million). As a result of appeals filed by the Bank before appellate authorities, most of the add backs have been deleted. However, the Bank and Tax Department are in appeals / references before higher forums against unfavorable decisions. Pending finalization of appeals / references no provision has been made by the Bank on aggregate sum of Rs.25,455 million (2018: 24,332 million). The management is confident that the outcome of these appeals / references will be in favor of the Bank. Tax Authorities have conducted proceedings of withholding tax audit under section 161/205 of Income Tax Ordinance, 2001 for tax year 2003 to 2006 and tax year 2008 to 2018 and created an arbitrary demand of Rs. 1,700 million (2018: 1,536 million). The Bank’s appeals before CIR(A)/Appellate Tribunal Inland Revenue (ATIR) are pending for adjudication. The management is confident that these appeals will be decided in favor of the Bank; therefore, no provision has been made against the said demand of Rs. 1,700 million (2018: 1,536 million). Tax authorities have also issued orders under Federal Excise Act, 2005 / Sales Tax Act, 1990 and Sindh Sales Tax on Services Act, 2011 for the year 2008 to 2017 thereby creating arbitrary aggregate demand of Rs. 963 million (2018: 900 million). The Bank’s appeals before CIR(A) / Appellate Tribunal Inland Revenue (ATIR) are pending for adjudication. The management is confident that aforesaid demand will be deleted by appellate authorities and therefore no provision has been made against the said demand of Rs. 963 million (2018: 900 million). 21.3.3 As a result of default by Fateh Textile Mills to terms of compromise decree passed in August 2002 by the Honourable High Court of Sindh, 16,376,106 shares of ABL were sold in accordance with section 19 (3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, after complying with the due and complete transparent process. Sealed bids were invited from interested parties. The bidding process was scheduled for July 23, 2004 and the Rs. 25 per share was fixed reserve price. On the bid date, the highest offer for these shares was received at a rate of Rs. 25.51 per share. The bid was approved and the successful bidder had deposited an amount of Rs. 417.75 million with the Bank. Fateh Textile Mills Limited filed suit in the High Court of Sindh challenging the above sale of shares. The High Court had not granted a stay order against the said sale. The sale of shares was, therefore; concluded. 21.3.4 While adjudicating foreign exchange repatriation cases of exporter namely: Fateh Textile Mills Limited, the Foreign Exchange Adjudicating Court (FEAC) of the State Bank of Pakistan (SBP) has arbitrarily adjudicated penalties against various banks including Rs. 2,173 million in aggregate against Allied Bank Limited (the Bank). Against the said judgments, the Bank had filed appeals before the Appellate Board and Constitutional Petitions (CP) in the High Court of Sindh, Karachi. The Honorable High Court granted relief to the Bank by way of interim orders. Meanwhile, alongwith other banks, Bank filed a further CP whereby vires of section 23C of the FE Regulations Act, 1947 was sought to be declared ultra vires. On November 8, 2018, the Honorable court was pleased to order that the Appellate Board shall not finally decide the appeals. Subsequently, the earlier CP was disposed of vide order dated January 15, 2019 with a direction to the Appellate Board to first decide the stay application of the Bank and till then, the Foreign Exchange Regulation Department has been restrained from taking any coercive action against the Bank. Based on merits of the appeals, the management is confident that these appeals shall be decided in favor of the Bank and therefore no provision has been made against the impugned penalty. 22 DERIVATIVE INSTRUMENTS An FX Swap prevents the Bank from gaining any benefit resulting from a favorable exchange rate movement in the relevant currency pair between the time Bank enters into the transaction deal and when settlement occurs. Cancellation of the swap The Bank at present does not offer structured derivative products such as Interest Rate Swaps, Forward Rate Agreements or FX Options. However, the Bank buys and sells derivative instruments such as: – Forward Exchange Contracts – Foreign Exchange Swaps – Equity Futures – Forward Contracts for Government Securities Forward Exchange Contracts Forward Exchange Contract (FEC) is a product which is offered to the obligor who transact internationally. These obligor use this product to hedge themselves from unfavorable movements in a foreign currency, however, by agreeing to fix the exchange rate, they do not benefit from favorable movements in that currency. An FEC is a contract between the Obligor and the Bank in which both agree to exchange an amount of one currency for another currency at an agreed forward exchange rate for settlement over more than two business days after the FEC is entered into (the day on which settlement occurs is called the value date). FEC is entered with those Obligors whose credit worthiness has already been assessed, and they have underlined trade transactions. If the relevant exchange rate moves un-favorably, Obligor will benefit from that movement because the Bank must exchange currencies at the FEC rate. In order to mitigate this risk of adverse exchange rate movement, the Bank hedges its exposure by taking opposite forward position in inter-bank FX. Foreign Exchange Swaps A Foreign Exchange Swap (FX Swap) is used by the Bank if it has a need to exchange one currency for another currency on one day and then re-exchange those currencies at a later date. Exchange rates and forward margins are determined in the “inter-bank” market and fluctuate according to supply and demand. Allied Bank Limited 151
78. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 may also result in exposure to market movements. The key advantage of an FX swap is that it provides the Bank with protection against unfavorable currency movements between the time it enters into the transaction and settlement. The term and amounts for FX Swap can also be tailored to suit the Bank’s particular needs. Equity Futures An equity futures contract is a standardized contract, traded on a futures counter of the stock exchange, to buy or sell a certain underlying script at a certain date in the future, at a specified price. 27 Other assets disposal 23 MARK–UP / RETURN / INTEREST EARNED On: Loans and advances Investments Lendings to financial institutions Balances with banks 24 MARK–UP / RETURN / INTEREST EXPENSED On: Deposits Borrowings Cost of foreign currency swaps against foreign currency deposits Interest expense on lease liability 25 FEE AND COMMISSION INCOME On: Card related fees (debit and credit cards) Branch banking customer fees Commission on remittances including home remittances Investment banking fees Commission on trade Commission on cash management Commission on guarantees Commission on bancassurance Credit related fees Consumer finance related fees 26 December 31, December 31, 2019 2018 Rupees in ‘000 49,549,601 64,070,753 8,639,234 377,846 122,637,434 29,696,524 37,204,167 6,185,232 188,238 73,274,161 58,822,780 15,225,536 6,100,939 980,709 81,129,964 30,129,853 9,524,346 1,504,521 41,158,720 1,644,627 1,376,300 691,815 578,270 346,940 153,897 134,569 119,076 42,775 4,085 5,092,354 1,328,622 1,228,557 590,077 524,226 362,470 120,102 103,085 78,936 20,270 4,196 4,360,541 1,573,114 5,767 1,578,881 2,381,713 2,381,713 583,191 990,608 (685) 1,573,114 1,775,998 606,868 (1,153) 2,381,713 GAIN ON SECURITIES Realised – net Unrealised – held for trading 26.1 26.1 8.1 Realised gain / (loss) on: Federal government securities Shares Non Government debt securities Annual Report 2019 172,074 34,903 79,258 34,463 5,582 Fee for attending Board meetings 3,384 2,845 - 2,629 27.1 32,266 (27) 402,545 252,469 This includes gain on sale of two non-banking assets amounting to Rs. 18 million and Rs. 14.266 million respectively (2018: loss of Rs. 0.027 million). Note 28 12,198 268,304 7,135 Gain / (loss) on sale of non-banking assets 27.1 December 31, December 31, 2019 2018 Rupees in ‘000 Rent on property Gain on disposal of islamic financing and related assets - net The accounting policies used to recognize and disclose derivatives are given in Note 4.15.2. The risk management framework of derivative instruments is given in note 43. Note OTHER INCOME Recovery of written off mark–up and charges Gain on sale of fixed assets – net The Bank may use equity futures as a hedging instrument to hedge its equity portfolio, in both ‘held-for-trading’ and ‘available-forsale’, against equity price risk. Only selected shares are allowed to be traded on futures exchange. Equity futures give flexibility to the Bank either to take delivery on the future settlement date or to settle it by adjusting the notional value of the contract based on the current market rates. Maximum exposure limit to the equity futures is 10% of Tier I Capital of the Bank, based on prevailing SBP regulations. 152 Note OPERATING EXPENSES Total compensation expense Property expense: Depreciation Rent and taxes Utilities cost Security (including guards) Repair and maintenance (including janitorial charges) Insurance 28.1 13,458,144 12,261,402 28.2 28.2 3,880,133 294,992 1,225,114 888,206 735,836 69,922 7,094,203 2,068,320 1,736,688 996,508 717,501 558,166 64,293 6,141,476 689,087 668,223 244,545 546,047 346,507 9,232 2,503,641 631,926 541,863 401,074 353,806 297,826 8,521 2,235,016 730,917 1,148,296 625,208 521,405 463,995 232,428 118,999 204,440 218,320 55,253 123,966 89,261 30,260 6,059 96,671 19,633 443,429 5,128,540 28,184,528 642,873 567,053 534,151 415,560 333,162 178,971 140,230 126,877 125,659 113,238 106,097 87,952 18,182 6,991 101,430 17,727 365,102 3,881,255 24,519,149 Information technology expenses: Network charges Depreciation Amortization Software maintenance Hardware maintenance Others Other operating expenses: Marketing, advertisement and publicity Insurance Outsourced service costs Cash in Transit service charge Stationery and printing Travelling and conveyance Legal and professional charges Postage and courier charges Depreciation Donations NIFT clearing charges Communication Directors fees and allowances Fees and allowances to Shariah Board Training and development Auditors Remuneration Others December 31, December 31, 2019 2018 Rupees in ‘000 28.3 35.1 28.5 28.4 Allied Bank Limited 153
79. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 28.1 Acumen Fund Pakistan Total compensation expense Anjuman Himayat-i-Islam 28.5.1 10,000 5,065 1,000 8,733,678 8,031,521 Bakhtawar Amin Memorial Trust Hospital - Fees And Allowances etc. 1,476,956 1,440,423 Government College of Science, Lahore 599 - - 1,000 Chaman (Center for Mentally Challenged Children) Variable 979,147 570,583 Lahore Businessmen Association For Rehabilitation Of The Disabled 5,000 - Fixed 568,546 526,326 Children Hospital Faisalabad - 1,730 Charge For Defined Benefit Plan 455,260 768,712 Diamer - Bhasha and Mohmand Dam Fund - 14,283 Contribution To Defined Contribution Plan 318,753 310,235 Fountain House Mental Health Association - 500 Conveyance expense 289,602 199,580 Liver Foundation Trust 1,000 1,000 Medical expense Namal Education Foundation - 30,000 30,000 30,000 189,264 113,576 Insurance 86,675 80,194 National Management Foundation (LUMS) Education Subsidy 29,793 30,200 Mashal Association Hajj Expenses 24,494 23,531 Punjab Food Authority Staff Uniform 200 - - 337 1,000 1,000 12,219 13,175 RAAST Welfare Society Executive Club Membership 5,291 11,335 Rising Sun Institution for Special Children - 200 Verification Charges Educational Documents 3,821 1,282 Shaukat Khanum Memorial Trust - 1,000 Recruitment Charges 4,631 2,275 Sundas Foundation Others 2,048 1,218 Tamir Welfare Organization 13,180,178 12,124,166 Sub–Total Tehzeeb Social Welfare Organization The Indus Hospital Voluntary Retirement Scheme Grand Total 277,966 137,236 13,458,144 12,261,402 28.1.1 The Bank announced the Voluntary Retirement Scheme (VRS) for its employees. Forty eight (48) employees (2018: 53) of the Bank opted for retirement under this scheme. 28.2 Adoption of IFRS 16 ‘Leases’ resulted in increase in depreciation expense of Rs. 1,610.1 million and decrease of rent and registration charges of Rs. 1,869.4 million. 28.3 Includes Deposit protection cost of Rs. 937.4 million (December 31, 2018: 410.6 million). December 31, December 31, 2019 2018 Rupees in ‘000 University of Turbat 6,110 5,859 2,341 2,535 605 631 1,552 19,633 6,110 4,752 2,150 2,535 628 1,552 17,727 *This includes audit fee amounting to Bahraini Dinar 5,500 (2018: 5,500) and Chinese Yuan 3,000 relating to Wholesale Bahrain Branch and China Representative Office respectively. 28.5 None of the directors, executives and their spouses had any interest in the donees, except Mr. Mohammad Naeem Mukhtar (Chairman/ Non-Executive Sponsor Director) is director in National Management Foundation (LUMS). Further, spouse of a key management personnel also holds key position in RAAST Welfare Society. Annual Report 2019 - 1,000 3,000 2,500 - 250 10,000 10,000 - 2,373 55,253 113,238 28.5.1 This represents charitable expenses on account of sadqa & feeding to under privileged. 29 WORKERS WELFARE FUND Supreme Court of Pakistan vide order dated November 10, 2016 held that the amendments made in the law through Finance Act 2008, introduced by the Federal Government for the levy of Worker Welfare Fund (WWF) were unlawful. Federal Board of Revenue filed review petition against the subject order, which is currently pending for adjudication. Auditors’ remuneration Audit fee Fee for other statutory certifications Annual audit overseas business unit* Half year review Special certifications and miscellaneous services Sales tax Out–of–pocket expenses 154 - 4,454 Salaries Bonus and Awards 28.4 December 31, December 31, 2019 2018 Rupees in ‘000 WWF provision from 2014 to 2019 has been maintained conservatively based on tax advisor’s opinion in view of provincial levy of WWF by the provinces with effect from 2014, including levy by Sindh which is under litigation. Punjab Government has promulgated Punjab Workers Welfare Fund Act 2019 (PWWF) with effect from December 13, 2019, therefore, WWF provision related to Punjab and pertaining to the period from 2014 till the date of promulgation of PWWF is reversed from the provision maintained for WWF from 2014 to 2019. December 31, December 31, 2019 2018 Rupees in ‘000 30 OTHER CHARGES Penalties imposed by State Bank of Pakistan Education cess Depreciation – non–banking assets Other assets written off 120,914 54,187 19,851 93 195,045 38,143 23,267 19,662 891 81,963 Allied Bank Limited 155
80. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note 31 December 31, December 31, 2019 2018 Rupees in ‘000 PROVISIONS AND WRITE OFFS – NET Provision for diminution in the value of investments Reversal against loans and advances Provision against other assets Provision against off balance sheet obligations Bad debts written off directly Recovery of written off bad debts Note 34 8.3.1 979,141 109,019 9.4 (394,132) (1,132,836) 12.2.1 100,664 84,696 6,701 - - - 692,374 (939,121) (145,716) (150,567) 546,658 (1,089,688) 35 Deferred – current 32.1 33 9,201,094 834,833 10,035,927 92,801 10,128,728 7,707,277 7,707,277 428,632 8,135,909 Relationship between tax expense and accounting profit Accounting profit for the year 24,241,639 21,016,427 Tax on income @ 35% (2018: 35%) Super Tax @ 4% Prior year Super Tax @ 4% Others Tax charge for the year 8,484,574 964,348 834,833 (155,027) 10,128,728 7,355,749 790,490 (10,330) 8,135,909 5 119,943,828 99,188,414 Balances with other banks 6 602,582 2,575,055 Overdrawn nostro accounts 15 (64,207) (243,624) 120,482,203 101,519,845 STAFF STRENGTH Temporary / on contractual basis / trainee 14,112,911 276 Bank’s own staff strength at the end of the year 11,665 11,206 Average number of employees 11,436 11,141 35.1 In addition to the above, 501 (2018: 376) employees of outsourcing services companies were assigned to the Bank as at the end of the year to perform services other than guarding and janitorial services. Further, 7 (2018: 8) employees were posted abroad. The rest were working domestically. 36 36.1 DEFINED BENEFIT PLANS The Bank operates a funded gratuity scheme for all employees who opted for the staff retirement benefit scheme introduced by the management with effect from July 1, 2002. For those employees who did not opt for the new scheme, the Bank continues to operate a funded pension scheme. General description The Bank also provides post retirement medical benefits (unfunded scheme) to eligible retired employees. 36.2 Number of employees and beneficiaries under the schemes The number of employees covered under the following defined benefit scheme / plans are: 12,880,518 1,145,073,830 1,145,073,830 Rupees Earnings per share – basic and diluted There is no dilution effect on basic earnings per share. Annual Report 2019 10,930 December 31, December 31, 2019 2018 Numbers Number of Shares Weighted average number of ordinary shares outstanding during the year 11,207 458 EARNINGS PER SHARE – BASIC AND DILUTED Profit after taxation 156 Cash and balances with treasury banks Permanent TAXATION Current – for the year including super tax – for prior year CASH AND CASH EQUIVALENTS Numbers December 31, December 31, 2019 2018 Rupees in ‘000 32 December 31, December 31, 2019 2018 Rupees in ‘000 12.32 11.25 – Pension fund – Gratuity fund – Benevolent fund – Post retirement medical benefits – Employees’ compensated absences 632 11,245 11,183 11,183 922 10,674 76 10,623 10,623 2,330 1,610 2,236 1,610 In addition, the number of beneficiaries covered under the following defined benefit scheme / plans are: – Pension fund – Post retirement medical benefits Allied Bank Limited 157
81. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 36 .3 36.6 for the year ended December 31, 2019 for the year ended December 31, 2019 Principal actuarial assumptions Movement in defined benefit obligations The actuarial valuations were carried out for December 31, 2019 based on the Projected Unit Credit Method, using the following significant assumptions: Sources of estimation December 31, 2019 Pension fund December 31, 2019 December 31, 2018 Pension fund Low Low Current service cost Gratuity fund Moderate High Opening balance 1,585,703 2,827,757 9,206 1,332,925 - 400,530 - 21,879 38,186 Interest cost 178,867 357,867 - 168,954 72,152 606,216 (123,348) - High Benefits paid (471,523) (253,741) (9,206) (115,607) High High VRS / settlement loss 147,596 2,970 - 1,726 15,391 Employees’ compensated absences High High Re–measurement loss / (gain) 221,183 15,945 - (44,640) 59,950 1,661,826 3,351,328 - 1,365,237 668,547 Adjusted SLIC Adjusted SLIC Pension fund Gratuity fund Closing balance 2001–2005 2001–2005 Yield on investments in Government Bonds 11.25% 13.25% Pension fund Yield on investments in Government Bonds 11.25% 13.25% Gratuity fund Yield on investments in Government Bonds 11.25% 13.25% Opening balance Benevolent fund Yield on investments in Government Bonds - 13.25% Current service cost Discount rate December 31, 2018 Expected rate of return on plan assets Rate of salary increase Expected rate of salary increase 9.25% The expected return on plan assets is based on the market expectations and depends on the asset portfolio of the Bank, at the beginning of the period, for returns over the entire life of the related obligation. 36.4 Reconciliation of (receivable from) / payable to defined benefit plans / other long term benefits Pension fund Gratuity fund 2,531,300 8,036 1,240,250 - 307,163 - 29,241 32,688 Interest cost 148,404 195,575 579 95,846 38,441 Benefits paid (361,231) (321,380) (2,041) (156,968) (208,358) 172,111 - - - - 4,285 33,851 - 22,975 18,252 Past Service Cost– Supreme Court Past Service Cost– Change in retirement age VRS / settlement loss / (gain) Re–measurement (gain) / loss Benevolent fund Post retirement medical Employees’ compensated absences Pension fund Gratuity fund Benevolent fund Post retirement medical Employees’ compensated absences 6,952 7,672 - (3,450) 17,215 (364,271) 73,576 2,632 105,031 137,850 1,585,703 2,827,757 9,206 1,332,925 606,216 36.7 Pension fund Gratuity fund Movement in fair value of plan assets Rupees in ‘000 Present value of defined benefit obligations 36.6 1,661,826 3,351,328 - 1,365,237 668,547 1,585,703 2,827,757 9,206 1,332,925 606,216 Fair value of plan’s / scheme’s assets 36.7 (6,102,237) (2,744,422) - - - (6,145,768) (2,383,102) (241,036) - - (4,440,411) 606,906 - 1,365,237 668,547 (4,560,065) 444,655 (231,830) 1,332,925 606,216 - - - - - - - 115,915 - - (4,440,411) 606,906 - 1,365,237 668,547 (4,560,065) 444,655 (115,915) 1,332,925 606,216 December 31, 2019 the Bank Net (asset) / liability Opening balance Expected return on plan assets Bank’s contribution Movement in (receivable from) / payable to defined benefit plans Benefits paid December 31,2019 Note Pension fund Gratuity fund Opening balance 36.9 Re–measurement loss December 31,2018 Benevolent fund Post retirement medical Employees’ compensated absences Pension fund Gratuity fund Rupees in ‘000 Benevolent fund Post retirement medical Employees’ compensated absences Closing balance 444,655 (115,915) 1,332,925 606,216 (3,692,032) 511,919 (112,061) 1,240,250 570,128 (466,025) 462,416 (28,157) 192,559 185,679 (121,245) 390,919 (18,490) 144,612 244,446 727,746 90,737 - (44,640) - (746,788) (72,143) 14,636 105,031 - (142,067) (390,902) 144,072 (115,607) (123,348) - (386,040) - (156,968) (208,358) (4,440,411) 606,906 - 1,365,237 668,547 (4,560,065) 444,655 (115,915) 1,332,925 606,216 241,036 - - 298,951 - - - 142,067 390,902 - - - (471,523) (253,741) (241,036) - - (506,563) (74,792) - - - 6,102,237 2,744,422 - - - Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Rupees in ‘000 Opening balance Expected return on plan assets Bank’s contribution Benefits paid Re–measurement gain / (loss) Closing balance Annual 2,383,102 792,488 December 31, 2018 (4,560,065) Other comprehensive (income) / losses Report 2019 Post Employees’ retirement compensated medical absences 6,145,768 Rupees in ‘000 Contribution to the fund / benefits paid Closing balance Benevolent fund Rupees in ‘000 Benefit of the surplus not available to (Reversal) / charge for the year 570,128 December 31,2018 Rupees in ‘000 Net (asset) / liability Post Employees’ retirement compensated medical absences 1,979,453 Closing balance Note Benevolent fund Rupees in ‘000 11.25% December 31,2019 158 Post Employees’ retirement compensated medical absences Post retirement medical benefits Mortality rate 36.5 Benevolent fund Rupees in ‘000 Withdrawal rate Benevolent fund Gratuity fund 5,671,485 2,019,381 232,158 - - 452,997 153,342 19,069 - - - 386,040 - - - (361,231) (321,380) (2,041) - - 382,517 145,719 (8,150) - - 6,145,768 2,383,102 241,036 - - Allied Bank Limited 159
82. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 36.8 for the year ended December 31, 2019 Composition of plan assets December 31, 2018 Pension fund December 31, 2019 Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Current service cost - 307,163 - 29,241 32,688 - - - 95,846 38,441 (304,593) 42,233 (18,490) - - 172,111 - - - - Past Service Cost– Change in retirement age 4,285 33,851 - 22,975 18,252 VRS loss 6,952 7,672 - (3,450) 17,215 Equity securities 4,880,641 738,956 - - - Net interest 1,221,596 2,005,466 - - - Past Service Cost– Supreme Court 6,102,237 2,744,422 - - - Re-measurement loss recognised Fair value of Bank’s financial instruments included in plan assets 2,649,848 582,681 Term deposit receipts 1,047,174 1,895,966 - - - 174,422 109,500 - - - 3,871,444 2,588,147 - - - Pension fund Gratuity fund Bank balances with ABL - - - 36.10 - - - - 137,850 (121,245) 390,919 (18,490) 144,612 244,446 Re–measurements recognized in other comprehensive income December 31, 2019 Pension fund Gratuity fund Post Employees’ retirement compensated medical absences Cash and cash equivalents 36.8.2 5,333,723 655,028 29,796 - Experience adjustments - 812,045 1,728,074 211,240 - - 6,145,768 2,383,102 241,036 - - (221,183) (15,945) - 44,640 - Re-measurement gain / (loss) on assets (506,563) (74,792) - - - Re-measurement gain / (loss) in OCI (727,746) (90,737) - 44,640 - Pension fund Gratuity fund December 31, 2018 Fair value of Bank’s financial instruments 3,277,428 655,028 29,796 - Term deposit receipts 664,594 1,693,708 193,345 - - 147,451 34,366 17,895 - - 2,383,102 241,036 - Re-measurement gain / (loss) on obligations - - Bank balances with ABL 4,089,473 Post Employees’ retirement compensated medical absences 364,271 (73,576) (2,632) (105,031) - 382,517 145,719 - - (8,150) - - (3,854) - 746,788 72,143 (14,636) (105,031) Experience adjustments Re-measurement gain / (loss) on assets Asset ceiling adjustment - Re-measurement gain / (loss) in OCI 36.8.3 Investment in term deposit receipts are subject to credit risk and interest rate risks, while equity securities are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. 36.9 Benevolent fund Rupees in ‘000 included in plan assets Shares of ABL Post Employees’ retirement compensated medical absences Re-measurement gain / (loss) on obligations - Rupees in ‘000 Equity securities Benevolent fund Rupees in ‘000 December 31, 2018 Benevolent fund Post Employees’ retirement compensated medical absences Interest cost Cash and cash equivalents Shares of ABL Benevolent fund Rupees in ‘000 Rupees in ‘000 36.8.1 Gratuity fund December 31, December 31, 2019 2018 Rupees in ‘000 Charge for defined benefit plan 36.11 December 31, 2019 Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Rupees in ‘000 Current service cost Interest cost Net interest VRS loss / (gain) Re–measurement loss recognised - - 400,530 - 21,879 38,186 - - - 168,954 72,152 (613,621) 58,916 - - - 147,596 2,970 - 1,726 15,391 - - - - 59,950 (466,025) 462,416 - 192,559 185,679 Actual return / (loss) on plan assets – Pension fund – Gratuity fund – Benevolent fund 285,925 224,159 - 835,514 299,061 10,919 36.12 Five year data of defined benefit plan and experience adjustments Pension fund 2019 2018 2017 2016 2015 Rupees in ‘000 Present value of defined benefit obligation 1,661,826 1,585,703 1,979,453 2,001,618 1,971,233 (6,102,237) (6,145,768) (5,671,485) (6,616,345) (5,770,403) (4,440,411) (4,560,065) (3,692,032) (4,614,727) (3,799,170) Re–measurement gain / (loss) on obligation (221,183) 364,271 (94,595) (172,722) (152,852) Re–measurement gain / (loss) on assets (506,563) 382,517 (1,191,876) 660,173 (854,480) Fair value of plan assets Experience adjustments on plan obligations / assets 160 Annual Report 2019 Allied Bank Limited 161
83. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 36.14 Sensitivity analysis Gratuity fund 2019 2018 2017 2016 Description 2015 +1% Discount Rate Rupees in ‘000 Present value of defined benefit obligation Fair value of plan assets -1% +1% Salary Discount Increase Rate Rate -1% Salary +10% -10% 1Year 1Year Increase Withdrawal Withdrawal Mortality age Mortality age Rate Rate Rate set back set forward Rupees in ‘000 3,351,328 2,827,757 2,531,300 2,285,523 2,043,833 Pension fund 1,613,770 1,715,331 1,661,826 1,661,826 1,661,894 1,661,765 1,662,587 1,661,069 (2,744,422) (2,383,102) (2,019,381) (2,030,232) (1,482,378) Gratuity fund 3,146,615 3,582,223 3,600,668 3,127,017 3,351,328 3,351,328 3,350,060 3,352,591 - - - - - - - - 1,272,317 1,470,835 1,399,106 1,330,036 1,405,845 1,329,438 1,360,812 1,369,967 625,368 717,204 717,674 624,241 660,538 676,907 666,953 670,135 606,906 444,655 511,919 255,291 Benevolent fund 561,455 Post retirement medical Experience adjustments on plan obligations / assets Re–measurement gain / (loss) on obligation (15,945) (73,576) (20,492) 36,036 (167,783) Re–measurement gain / (loss) on assets (74,792) 145,719 (230,025) 26,301 (168,935) Leave compensated absences Benevolent fund 2019 2018 2017 2016 2015 Rupees in ‘000 Present value of defined benefit obligation - 9,206 8,036 8,776 12,355 Fair value of plan assets - (278,393) (232,158) (221,007) (205,166) - (269,187) (224,122) (212,231) (192,811) Re–measurement (loss) / gain on obligation - (2,632) (1,111) 931 (4,376) Re–measurement (gain) / loss on assets - (8,150) (3,976) 1,136 (10,841) The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the defined benefit obligation recognized within the statement of financial position. December 31, 2019 Pension fund Gratuity fund Benevolent fund Experience adjustments on plan obligations / assets Post Employees’ retirement compensated medical absences Rupees in ‘000 36.15 Maturity Profile Post retirement medical 2019 2018 2017 2016 The weighted average duration of the obligation (in years) 2015 3.06 6.5 - 5.40 5.40 Rupees in ‘000 Present value of defined benefit obligation 1,365,237 Fair value of plan assets 1,332,925 1,240,250 1,298,380 1,217,945 - - - - - 1,365,237 1,332,925 1,240,250 1,298,380 1,217,945 44,640 (105,031) 62,068 (97,990) (243,936) Experience adjustments on plan obligations Re–measurement (loss) / gain on obligation 36.17 Risk associated with defined benefit plans 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; Employees’ compensated absences 2019 2018 2017 2016 2015 Rupees in ‘000 Present value of defined benefit obligation 668,547 606,216 570,128 698,964 761,498 - - - - - 668,547 606,216 570,128 698,964 761,498 (59,950) (137,850) 71,640 11,662 (45,712) Fair value of plan assets Experience adjustments on plan obligations Re–measurement (loss) / gain on obligation 36.13 Expected contributions to be paid to the funds in the next financial year The Bank contributes to the gratuity fund as per actuarial expected charge for the next financial year. No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2020 would be as follows: Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Rupees in ‘000 Expected (reversal) / charge for the next year 162 Annual Report 2019 (499,546) 401,961 - 127,086 36.16 Funding Policy 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. 108,310 Longevity risks: 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. Investment risks: The risk arises when the actual performance level of investment levels is lower than expectation and thus creating a shortfall in the funding objectives. Salary increase risk: The most common type of retirement benefit is one where the final benefit is linked with final salary. The risk arises when the actual increases are higher than expectations and impact 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. 37 DEFINED CONTRIBUTION PLAN The Bank operates an approved contributory provident fund for 10,089 (2018: 10,158) employees where contributions are made by the Bank and employees at 8.33% per annum (2018: 8.33% per annum) of the basic salary every month. Allied Bank Limited 163
84. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 38 38 .2Remuneration paid to Directors for participation in Board and Committee Meetings for the year ended December 31, 2019 for the year ended December 31, 2019 COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL December 31, 2019 December 31, 2019 Directors Chairman 38.1 Members President / Shariah CEO Board Rupees in ‘000 Non-Executives Key Management Personnel Other Material Risk Takers / Controllers Total compensation expense Sr. No. Name of Director 1 Mohammad Naeem Mukhtar 2 Sheikh Mukhtar Ahmad Fees and allowances etc. - 27,400 - - - - Managerial remuneration - - - - - - 3 Muhammad Waseem Mukhtar 4 Abdul Aziz Khan - Fixed (including Eid bonus) - - 2,842 14,200 96,537 186,385 - Total Variable - - - 22,000 114,000 84,501 of which a. Cash Bonus / awards - - - 22,000 114,000 84,501 b. Bonus and awards in Shares - - - - - - Charge for defined benefit plans - - 294 1,590 19,303 35,936 Contribution to defined contribution plan - - 219 1,183 8,042 15,526 Rent and house maintenance - - 1,574 8,520 57,922 107,860 Utilities - - 525 2,840 19,307 35,965 Medical - - 525 2,840 20,335 35,965 Conveyance - - 813 3,000 50,475 58,203 Others - - 284 349 12,805 41,375 Total - 27,400 7,076 56,522 398,726 601,716 Number of persons 1 6 3 1 18 75 December 31, 2018 Directors Non-Executives Chairman Members President / Shariah CEO Board Rupees in ‘000 Key Management Personnel 5 Dr. Muhammad Akram Sheikh 6 Zafar Iqbal 7 Nazrat Bashir Board Meetings Audit Committee of Board 1,750 1,250 Board Committees Human Board Risk Resource Management E-Vision Remuneration Committee Committee Rupees in ‘000 Strategic Planning and Monitoring Committee Total Amount Paid - - - - - - - - - - - - 1,150 1,400 - - 2,400 6,700 - 1,150 1,150 - 2,150 5,700 5,700 1,750 1,400 1,400 1,150 - - 1,750 1,750 1,400 - - 1,000 - 4,150 - - - 1,000 2,400 5,150 8,250 3,950 3,950 2,300 2,000 6,950 27,400 December 31, 2018 Sr. No. Name of Director 1 Mohammad Naeem Mukhtar 2 Sheikh Mukhtar Ahmad 3 Muhammad Waseem Mukhtar 4 Abdul Aziz Khan 5 Dr. Muhammad Akram Sheikh 6 Zafar Iqbal 7 Nazrat Bashir 8 Mubashir A. Akhtar Board Meetings Audit Committee of Board 1,050 1,050 Board Committees Human Board Risk Resource Management E-Vision Remuneration Committee Committee Rupees in ‘000 Strategic Planning and Monitoring Committee Total Amount Paid - - - - - - - - - - - - 300 750 450 - 1,650 4,200 - 750 600 - 1,500 3,900 1,050 750 150 300 600 - 2,850 1,050 450 750 - - 150 - 1,950 - - - 150 300 900 600 450 - - 450 1,200 2,700 5,250 2,250 1,650 1,350 1,350 4,650 16,500 38.3 Remuneration paid to Shariah Board Members Fees and allowances etc. - 16,500 Managerial remuneration - - - - - - - - - Fixed (including Eid bonus) - - 3,107 12,900 90,933 - Total Variable - - - 20,000 110,100 Items Chairman December 31, 2019 Resident Non-Resident Member Member(s) of which a. Cash Bonus / awards - - - 20,000 110,100 b. Bonus and awards in Shares - - - - - - - 309 1,399 19,796 Charge for defined benefit plans 164 Contribution to defined contribution plan - - 237 1,075 7,575 Rent and house maintenance - - 1,708 7,740 54,560 Utilities - - 569 2,580 18,187 Medical - - 569 2,687 18,390 Conveyance - - 1,095 3,000 50,677 Others - - 420 374 8,935 Total - 16,500 8,014 51,755 379,153 Number of persons 1 6 4 1 17 Annual Report 2019 Salaries and allowances Total Number of Persons December 31, 2018 Resident Non-Resident Member Member(s) Rupees in ‘000 Chairman 3,979 1,162 1,355 3,672 2,979 1,053 1 1 1 1 1 1 38.4 Deferred cash bonus / remuneration for MRTs for the year 2019 is Rs. 15,828,450. Allied Bank Limited 165
85. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 39 FAIR VALUE OF FINANCIAL INSTRUMENTS The table below analyses financial instruments measured at the end of the reporting period by the level in the fair value hierarchy into which the fair value measurement is categorised: December 31,2019 Level 1 Level 2 Level 3 December 31,2018 Total Level 1 Level 2 Level 3 Total Rupees in ‘000 December 31, 2019 39.1 Carrying Value On–Balance sheet Financial Instruments Held to Maturity Held for Trading Available for Sale Fair value of non-financial assets Fair Value Financing and receivables Other financial assets Other financial liabilities Total Level 1 Level 2 Level 3 Fixed assets Non-banking assets Total - 41,974,966 - 4,486,663 - 41,974,966 - 4,486,663 - 39,636,178 - 4,107,306 - 39,636,178 - 4,107,306 Rupees in ‘000 39.2 Financial assets – measured at fair value Investments Shares / Open Ended Mutual Funds - - 28,613,526 - - - 28,613,526 28,458,268 155,258 - 28,613,526 Federal Government Securities - 19,868,163 678,973,168 - - - 698,841,331 - 698,841,331 - 698,841,331 Non Government Debt Securities - - 4,176,639 - - - 4,176,639 - 4,176,639 - 4,176,639 - - - - 119,943,828 - 119,943,828 - - - - Financial assets – not measured at fair value Cash and balances with treasury banks Balances with other banks - - - - 602,582 - 602,582 - - - - Lendings - - - 13,606,921 - - 13,606,921 - - - - Advances - - - 485,015,881 - - 485,015,881 - - - - Other assets - - - - 35,112,658 - 35,112,658 - - - - Investments ( HTM, unlisted ordinary shares, Term finance certificate, sukuks, subsidiaries ) 13,310,456 - - - 26,325,497 - - - - 13,015,041 13,015,041 19,868,163 - 725,073,789 498,622,802 155,659,068 - 1,412,238,863 28,458,268 703,173,228 - 731,631,496 - - - - - - - - - - - Financial liabilities – measured at fair value Trading Liability 40 40.1 Valuation Techniques used in determination of Fair Valuation of Financial Instruments within Level 2 Item Valuation approach and input used Federal Government Securities Non–Government Debt Securities Foreign exchange contracts Open ended mutual funds Marked to Market on the basis of PKRV rates. Marked to Market on the basis of MUFAP rates. Marked to Market on the basis of SBP rates. Marked to Market on the basis of MUFAP rates. SEGMENT INFORMATION Segment Details with respect to Business Activities December 31, 2019 Financial liabilities – not measured at fair value Bills payable - - - - - 7,878,626 7,878,626 - - - - Borrowings - - - - - 266,448,386 266,448,386 - - - - Deposits and other accounts - - - - - 1,049,043,032 1,049,043,032 - - - - Other liabilities - - - - - 36,147,882 36,147,882 - - - - - - - - - 1,359,517,926 1,359,517,926 - - - - - - - - 358,881,918 - 358,881,918 - 358,881,918 Corporate & Investment Banking Commercial and Retail Banking Trading & Sale (Treasury) Islamic Banking Other Total 41,507,469 Rupees in ‘000 Off–balance sheet financial instruments – measured at fair value Forward foreign exchange contracts Forward government securities transactions 358,881,918 - - - - 359,395,856 On–Balance sheet Financial Instruments - 513,938 513,938 - 513,938 359,395,856 - 513,938 359,395,856 - 359,395,856 December 31, 2018 Held to Maturity Held for Trading Carrying Value Available Financing for Sale and receivables Fair Value Other financial assets Other financial liabilities Total Level 1 Level 2 Level 3 Rupees in ‘000 - - 30,241,640 - - - 30,241,640 30,115,370 126,270 - 30,241,640 Federal Government Securities - - 609,053,323 - - - 609,053,323 - 609,053,323 - 609,053,323 Non Government Debt Securities - - 2,986,706 - - - 2,986,706 - 2,986,706 - 2,986,706 Financial assets – not measured at fair value Cash and balances with treasury banks - - - - 99,188,414 - 99,188,414 - - - - - - - - 2,575,055 - 2,575,055 - - - - - 53,780,195 - 53,780,195 Advances - - - 438,317,184 - - 438,317,184 - - - - Other asset - - - - 28,988,381 - 28,988,381 - - - - - - - - - - - Investments (HTM, unlisted ordinary shares, 16,151,622 - 12,794,995 - - - 28,946,617 - - - - 16,151,622 - 655,076,664 492,097,379 130,751,850 - 1,294,077,515 30,115,370 612,166,299 - 642,281,669 - 9,987,849 - - - - 9,987,849 - 9,987,849 - 9,987,849 Financial liabilities – measured at fair value Trading Liability Bills payable - - - - - 7,752,959 7,752,959 - - - - - - - - - 215,895,137 215,895,137 - - - - Deposits and other accounts - - - - - 984,475,183 984,475,183 - - - - Other liabilities - - - - - 19,848,238 19,848,238 - - - - - 9,987,849 - - - 1,227,971,517 1,237,959,366 - 9,987,849 - 9,987,849 - - - - 207,509,971 - 207,509,971 - 207,509,971 - 207,509,971 - - - - 265,278,829 - 265,278,829 - 265,278,829 - 265,278,829 Off–balance sheet financial instruments – measured at fair value Forward government securities transactions 166 Annual Report 2019 49,983,718 1,203,117 (566,190) 95,831,440 (47,548,684) - (3,104,654) - Non mark-up / return / interest income 4,419,600 3,339,124 2,611,642 161,154 359,661 10,891,181 Total Income 5,055,288 44,243,598 5,046,676 1,364,271 (3,311,183) 52,398,650 Segment direct expenses (582,516) (15,889,959) (114,760) (1,285,405) (9,737,713) (27,610,353) Total expenses (582,516) (15,889,959) (114,760) (1,285,405) (9,737,713) (27,610,353) Profit before tax (1,292,941) (205,842) - (12) 952,137 (546,658) 3,179,831 28,147,797 4,931,916 78,854 (12,096,759) 24,241,639 Cash & Bank balances Investments Net inter segment Lending Lendings to financial institutions - Advances - performing 57,768,858 57,768,858 57,768,858 57,768,858 59,821 51,303,207 61,984,899 2,045,240 5,153,243 120,546,410 47,128,653 - 697,876,038 12,452,302 500,000 757,956,993 (413,717,279) 972,381,940 (557,387,800) 4,753,821 - 161,300 (1,438,161) - 2,052,492 11,554,430 (4,753,822) 13,606,921 484,314,381 437,660,414 25,631,709 - 12,615,228 8,407,030 Advances - non-performing 511,117 461,688 - - 14,881,113 15,853,918 Provision against advances (127,779) (205,889) - (20) (14,818,730) (15,152,418) 438,043,752 25,887,508 - 12,615,208 8,469,413 485,015,881 7,072,635 8,706,936 7,215,579 2,752,910 78,246,987 103,995,047 Total Assets 83,341,403 1,058,279,591 211,741,208 41,581,390 Borrowings 63,149,483 2,415,660 203,936,638 1,700,000 - 1,012,571,004 - 34,389,411 Advances - net Financial liabilities – not measured at fair value Borrowings Forward foreign exchange contracts (54,926,966) Balance Sheet Balances with other banks Term finance certificate, sukuks, subsidiaries ) 45,813,790 (45,178,102) Provisions Investments Lending to Financial institutions Net mark-up/return/profit Inter segment revenue - net Total Financial assets – measured at fair value Shares / Open Ended Mutual Funds Profit & Loss Others Deposits & other accounts Others 16,402,958 1,917,549 2,143,144 Total liabilities 65,562,844 1,031,389,622 2,413,361 205,854,187 38,232,555 Equity/Reserves 17,778,559 26,889,969 5,887,021 3,348,835 Total Equity & liabilities 83,341,403 1,058,279,591 211,741,208 41,581,390 Contingencies & Commitments 78,732,154 359,395,856 1,907,886 12,055,398 86,177,660 1,481,121,252 (4,753,395) 266,448,386 2,082,617 1,049,043,032 27,401,989 50,279,001 24,731,211 1,365,770,419 61,446,449 115,350,833 86,177,660 1,481,121,252 13,128,046 465,219,340 Allied Bank Limited 167
86. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 40.2 December 31, 2018 Corporate & Investment Banking Commercial and Retail Banking Trading & Sale (Treasury) Islamic Banking Other GEOGRAPHICAL SEGMENT ANALYSIS Total December 31, 2019 Rupees in ‘000 Domestic Operations Profit & Loss Net mark-up/return/profit 27,917,656 (28,096,467) 31,526,565 655,849 111,838 56,996,482 (27,126,100) - (2,457,435) - Non mark-up / return / interest income 4,610,156 2,879,344 3,460,206 79,343 260,391 11,289,440 Total Income 5,114,865 31,779,359 7,860,671 735,192 (2,085,206) 43,404,881 Segment direct expenses (540,139) (13,782,024) (108,445) (1,083,994) (7,963,540) (23,478,142) (540,139) (13,782,024) (108,445) (1,083,994) (7,963,540) (23,478,142) Provisions / (reversal) 234,885 3,418 - (8) 851,393 1,089,688 4,809,611 18,000,753 7,752,226 (348,810) (9,197,353) 21,016,427 79,354 44,090,551 47,880,283 4,157,592 5,555,689 101,763,469 53,748,130 - 606,731,062 10,249,093 500,000 671,228,285 893,698,327 (529,115,678) 1,705,552 35,712,038 - 50,255,680 3,524,515 (3,610,409) 53,780,195 453,231,477 Balance Sheet Cash & Bank balances Investments Net inter segment Lending Lendings to financial institutions Advances - performing (402,000,239) 3,610,409 - 394,258,308 28,081,086 - 6,925,320 23,966,763 Advances - non-performing 415,941 183,631 - - - 599,572 Provision against advances (116,635) (103,416) - (8) (15,293,806) (15,513,865) 394,557,614 28,161,301 - 6,925,312 8,672,957 438,317,184 4,772,402 7,977,518 2,236,843 1,641,756 68,881,257 85,509,776 Total Assets 54,767,670 973,927,697 177,988,190 28,203,820 Borrowings 42,470,266 3,912,691 183,088,196 - (3,588,167) 225,882,986 - 957,686,063 - 24,632,633 2,156,487 984,475,183 21,641,279 32,935,907 Advances - net Others Deposits & other accounts Others Total liabilities Equity/Reserves 2,326,844 12,328,943 (3,680,842) 319,683 44,797,110 973,927,697 179,407,354 24,952,316 9,970,560 - (1,419,164) 3,251,504 Total Equity & liabilities 54,767,670 973,927,697 177,988,190 28,203,820 Contingencies & Commitments 83,808,051 12,033,029 265,278,829 582,318 115,711,532 1,350,598,909 20,209,599 1,243,294,076 95,501,933 107,304,833 115,711,532 1,350,598,909 17,824,413 379,526,640 Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income Total Income 41,133,593 (134,330) 10,722,859 51,722,122 373,877 134,330 168,321 676,528 - 41,507,470 10,891,180 52,398,650 (27,484,843) (27,484,843) 528,487 23,708,792 (91,819) (91,819) 18,171 566,538 (33,691) (33,691) (33,691) (27,610,353) (27,610,353) 546,658 24,241,639 Balance Sheet Cash & Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing Advances - non-performing Provision against advances Advances - net Others Total Assets 120,521,423 753,181,351 8,858,245 469,626,834 15,853,918 (15,152,419) 470,328,333 103,773,102 1,456,662,454 24,987 4,775,642 4,748,676 14,687,548 14,687,548 221,945 24,458,798 - 120,546,410 757,956,993 4,748,676 8,858,245 484,314,382 15,853,918 (15,152,419) 485,015,881 103,995,047 1,481,121,252 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity Total Equity & liabilities 241,166,918 1,048,500,756 4,748,676 50,185,782 1,344,602,132 112,060,322 1,456,662,454 20,532,792 542,276 93,219 21,168,287 3,290,511 24,458,798 - 261,699,710 1,049,043,032 4,748,676 50,279,001 1,365,770,419 115,350,833 1,481,121,252 464,677,824 541,516 - 465,219,340 Segment direct expenses Total expenses Provisions Profit before tax Contingencies and commitments 168 Annual Report 2019 Total 32,115,441 Total expenses Profit before tax China Rupees in ‘000 (27,412,947) Inter segment revenue - net Middle East Allied Bank Limited 169
87. Domestic Operations Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income Total Income Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax Contingencies and commitments 170 Report 2019 Annual Middle East Balance Sheet 31,309,237 11,461,765 42,771,002 543,312 262,892 (172,326) 633,878 31,852,549 262,892 11,289,439 43,404,880 (23,349,830) (23,349,830) (1,109,600) 20,530,772 (97,631) (97,631) 19,912 516,335 (30,680) (30,680) (30,680) (23,478,141) (23,478,141) (1,089,688) 21,016,427 Cash & Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing Advances - non-performing Provision against advances Advances - net Others Total Assets 101,730,996 660,984,862 50,171,088 451,843,009 599,572 (15,513,865) 436,928,716 85,384,347 1,335,200,009 32,473 10,243,423 3,609,107 1,388,468 1,388,468 125,429 15,398,900 101,763,469 671,228,285 3,609,107 50,171,088 453,231,477 599,572 (15,513,865) 438,317,184 85,509,776 1,350,598,909 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity Total Equity & liabilities 209,636,299 983,988,816 3,609,107 32,910,962 1,230,145,184 105,054,825 1,335,200,009 12,637,580 486,367 24,945 13,148,892 2,250,008 15,398,900 222,273,879 984,475,183 3,609,107 32,935,907 1,243,294,076 107,304,833 1,350,598,909 379,041,027 485,613 379,526,640 - Closing balance - - Closing balance Provision for diminution in value of investments - - Repaid during the year Transfer in / (out) – net Closing balance Provision held against advances - Opening balance Addition during the year Advances - Investment redeemed / disposed off during the year Transfer in / (out) – net - Opening balance Investment made during the year Investments - Repaid during the year Transfer in / (out) – net - Opening balance Addition during the year Allied Bank Limited - 4,764 - (29,659) 25,719 8,704 - - - - - - - - - - - Lendings to financial institutions - - - In current accounts Directors In deposit accounts Balances with other banks Parent - 196,884 - (165,274) 97,754 264,404 - - - - - - - - - - - - - - - - - - - - - 500,000 - - - 500,000 - - - - - - - - Key management Subsidiaries personnel - - - - - - - - (351) - 351 - - - - - - - - Associates* December 31, 2019 - - - - - - - - - - - - - - - - - - - - Joint venture Parent - 575 - (9,147) 9,129 593 - 25,000 - - 25,000 - - - - - - - - Rupees in ‘000 Other related parties - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 8,704 - (21,629) 13,304 17,029 Directors - 264,404 1,661 (102,179) 112,248 252,674 - - - - - - - - - - - - - - - - - - - - - 500,000 - - - 500,000 - - - - - - - - Key management Subsidiaries personnel - - - - - - 4,649 351 - - - 351 - - - - - - - - Associates* December 31, 2018 - - - - - - - - - - - - - - - - - - - Joint venture - 593 - (7,361) 8,011 (57) - 25,000 25,000 - - - - - - - - - - - Othe related parties Contributions to the accounts in respect of staff retirement benefits are made in accordance with actuarial valuation / terms of the contribution plan. Remuneration of the key management personnel are in accordance with the terms of their employment. Other transactions are at agreed terms. Total China The Bank has related party relationships with its parent, subsidiary, companies with common directorship, directors, employee benefit plans and key management personnel including their associates. Rupees in ‘000 December 31, 2018 RELATED PARTY TRANSACTIONS for the year ended December 31, 2019 41 Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31, 2019 171
88. 172 Report 2019 Annual 41 .1 - Closing balance - Charge in respect of staff retirement benefit funds Insurance premium paid Insurance claims settled - Other expenses** - Remuneration Rent expense*** - Mark-up / return / interest paid Directors meeting fee Expense - Rental Income Other Income - 167 - - - 53,749 27,400 14,749 - - - - - 21 - 422 Directors 1 Dividend income - 70,387 - - - - - - - - 879 - - - 371,381 - 559 - - 14 - 97 18,179 - 82,381 - - - - - - - - - - - - - - - - - - - 4,607 5,905 7,135 - - 7,857 - - - 14,191 31,211 - - 5,108 - - - - 16 - Associates* - - - 599 123,315 - (7,677,777) 7,718,711 December 31, 2019 - - - - 24,228 - (958,301) 970,413 12,116 - - - - - - - - - - 7,348 - Key management Subsidiaries personnel - - - - 34,632 - (559,794) Mark-up / return / interest earned Net gain / ( loss) on sale of securities - 524,039 Fee and commission income Income Parent - - - - 357,194 - (1,492,156) 1,824,926 24,424 - - - - - - - - - - 69,367 Associates* - 247,373,312 18,296,520 - - - - - - - - - - 3,705,491 - - - - - - - - - - - - - - - - - - - - - - - - - - - 60,868 - - - - 884,506 - - 465 - 667 - Rupees in ‘000 Parent - - - - 1,784 - (9,622,816) 9,623,398 Other related parties - - - 116,987 16,915,806 Joint venture - - - - - - - 1,202 Parent Rupees in ‘000 Other related parties - (248,754,026) - - - - - - - - - - - - - - Joint venture - - - - - - - - - - - - - 2 - 99 - - - 49,281 16,500 2,506 - - - - 10 513 Directors - - - 2,506 24,424 369 (337,996) 99,342 262,709 - - - - - - - - - - - 13,143 Directors - 1,006,553 38,653 - - - - - - - - - - 1,824 - - 8,614,444 85,690 - - - - - - - - - - - - 244 - - - 351,782 - 625 - - - - 101 13,475 - - - - - - - - 1,570 - 5,581 - - 9,458 - - - 757 82,381 (14) - - - 11,896 32,006 - - 757 - - - - 83 - Associates* December 31, 2018 - - - 1,570 12,116 - Key management Subsidiaries personnel - - - 625 70,387 2,643 (616,342) (1,033,090) (8,617,739) 622,197 61,889 - - - - - - - - - - - 66,580 Associates* December 31, 2018 Key management Subsidiaries personnel 226,189,869 9,246,496 - - - - - - - - - - 4,204,441 - Othe related parties - - - - - - - - - - - - - - Joint venture - - - - - - - - 546,795 - - - - 651,581 - - (262) - 423 - Othe related parties - - - 651,581 18,296,520 9,339 - (217,149,184) - - - - - - - - - - - - - - Joint venture for the year ended December 31, 2019 RELATED PARTY TRANSACTIONS Other contingencies - - Other liabilities Contingencies and Commitments - Interest / mark-up payable 2,849 Payable to staff retirement fund Other Liabilities Closing balance - (8,593,314) Withdrawn during the year Transfer in / (out) - net 8,594,379 Opening balance Received during the year 1,784 - Redemption / Sold during the year Closing balance Deposits and other accounts - Opening balance Issued / Purchased during the year Subordinated debt - Settled during the year Transfer in / (out) - net - Opening balance Borrowings during the year Borrowings - - - Other receivable Provision against other assets - - Interest / mark-up accrued 7,860 Directors Receivable from staff retirement fund Other Assets Parent December 31, 2019 Key management Subsidiaries personnel Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31, 2019 Allied Bank Limited 173
89. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Shares held by the holding company, outstanding at the end of year are included in note 19 to these unconsolidated financial statements. December 31, December 31, 2019 2018 Rupees in ‘000 * Associated companies are as per IAS 24 ‘Related Party Disclosures’. **Other expenses mainly include donation of Rs. 30 million to National Management Foundation for construction of hostel building. Leverage Ratio (LR): ***Rent expense of ABL Branch with associated company (Ibrahim Fibres Limited) was carried out on terms other than that of arm’s length with prior permission of State Bank of Pakistan. Eligible Tier-1 Capital During the year ended December 31, 2019; certain movable assets having cumulative net book value of Rs. 36,000 were disposed off for Rs. 269,000 to the Key Management Personnel of the Bank. Leverage Ratio 80,480,270 75,040,687 1,798,987,646 1,633,878,538 4.47% 4.59% Total High Quality Liquid Assets 460,376,621 397,968,465 Total Net Cash Outflow 274,294,059 262,615,154 167.84% 151.54% Total Available Stable Funding 1,007,506,800 913,354,244 Total Required Stable Funding 703,906,177 491,398,752 143.13% 185.87% Total Exposures Liquidity Coverage Ratio (LCR): December 31, December 31, 2019 2018 Rupees in ‘000 42 Liquidity Coverage Ratio CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS Net Stable Funding Ratio (NSFR): Minimum Capital Requirement (MCR): Paid–up capital (net of losses) 11,450,739 11,450,739 80,480,270 75,040,687 - - Total Eligible Tier 1 Capital 80,480,270 75,040,687 Eligible Tier 2 Capital 22,351,157 21,171,279 102,831,427 96,211,966 Credit Risk 345,902,918 317,173,241 Market Risk 44,703,919 38,020,880 Operational Risk 83,485,603 77,614,260 474,092,440 432,808,381 Common Equity Tier 1 Capital Adequacy ratio 16.98% 17.34% Tier 1 Capital Adequacy Ratio 16.98% 17.34% Total Capital Adequacy Ratio 21.69% 22.23% Capital Adequacy Ratio (CAR): 42.1 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital Total Eligible Capital (Tier 1 + Tier 2) Risk Weighted Assets (RWAs): Total In order to strengthen the solvency of Banks / Development Financial Institutions (DFI), SBP through its BSD Circular No. 07 of 2009 dated April 15, 2009 has asked the Banks to raise their minimum paid up capital to Rs. 10 billion free of losses. Further, SBP through its BPRD Circular # 6 of 2013 dated August 15, 2013 has asked Banks to maintain the minimum Capital Adequacy Ratio (CAR) of 12.50% on standalone as well as on consolidated basis till December 31, 2019. A phase in arrangement was put in place whereby the banks were required to maintain the following ratios on an ongoing basis, which has been completed as on December 31, 2019. 2015 174 2016 2017 2018 2019 Common Equity Tier–1 – CET1 Additional Tier–1 Tier 1 Total Capital *Capital Conservation Buffer – CCB 6.00% 1.50% 7.50% 10.00% 0.25% 6.00% 1.50% 7.50% 10.00% 0.65% 6.00% 1.50% 7.50% 10.00% 1.275% 6.00% 1.50% 7.50% 10.00% 1.90% 6.00% 1.50% 7.50% 10.00% 2.50% Total Capital plus CCB 10.25% 10.65% 11.275% 11.90% 12.50% * Consisting of CET1 only. The paid up capital and CAR of the Bank stands at Rs. 11.451 billion and 21.69% of its total risk weighted assets as at December 31, 2019, respectively. The Bank has complied with all externally imposed capital requirements as at year end. Standardized Approach is used for calculating the Credit and Market risk, whereas, Basic Indicator Approach is used for Operational Risk in the Capital Adequacy Calculation. Annual Report 2019 Net Stable Funding Ratio The link to the full disclosure is available at https://www.abl.com/investor-relations/ 43 RISK MANAGEMENT The principal risks associated with ABL’s business are credit risk, market risk, liquidity risk, reputational risk and operational risk. The Risk Management Framework (henceforth to be referred to as ‘The Framework’) provides principles for identifying, assessing, and monitoring risk within the Bank. The Framework specifies the key elements of the risk management process in order to maximize opportunities, minimize adversities and to achieve improved outputs based on informed decision making. The Bank performs risk measurement, monitoring and control functions through use of various risk procedures and models. To give it a formal structure, all the policies and guidelines are approved by the Board and relevant management committees. Risk management functions have been segregated by business specialization, i.e., Credit Risk, Credit Administration, Technical Appraisal and Enterprise Risk which inter alia includes Risk Architecture, Reputational Risk, Operational Risk and Market & Liquidity Risk. All these functions are operating in tandem to improve and maintain the health of the Bank’s assets and liabilities. Categories of Risk Credit Risk Market Risk Liquidity Risk Operational Risk Reputational Risk This risk is defined as the possibility of loss due to unexpected default or a deterioration of credit worthiness of a business partner. Credit Risk includes Country Risk i.e., the risks that counterparty is unable to meet its foreign currency obligations as a result of adverse economic conditions or actions taken by governments in the relevant country. The risk of loss generated by adverse changes in the price of financial assets or contracts currently held by the Bank (this risk is also known as price risk). The risk that the Bank is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn; the consequences of which may be the failure to meet obligations to repay depositors and fulfill commitments to lend. Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. The definition excludes reputational risk. The risk of failing to meet the standards of performance or behaviour required or expected by stakeholders in commercial activities or the way in which business is conducted. Information Security & Information Security Governance Risk Management involves the identification of an organization’s Governance Risk information assets and the development, documentation, and implementation of policies, standards, procedures and guidelines that ensure confidentiality, integrity, and availability. Strategic Risk Risk of an adverse impact on strategic goals. Strategic risk mainly arises from strategic decisions, improper implementation of those decisions, or lack of responsiveness of Bank to industry, economic or technological changes. Allied Bank Limited 175
90. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements Risk Responsibilities – The Board of Directors are accountable for overall supervision of the risk management process. The Board is responsible for determining the manner in which risk authorities are set, as well as the approval of all risk policies and ensuring that these are properly implemented. Further, the Board shall also seek appointment of senior management personnel capable of managing the risk activities conducted by the Bank. – The Board Risk Management Committee (BRMC) is responsible for ensuring that the overall risk strategy and appetite of the Bank is appropriately defined in the Strategic Plan and recommend the same to the Board of Directors. – The CEO and Group Chiefs are accountable for the management of risk collectively through their membership of Asset & Liability Committee (ALCO) and Risk Management Committee (RMC). Independent supervision of risk management activities is provided by the Audit Committee. – The Risk Management Group is headed by a Group Chief responsible to set–up and implement the Risk Framework of the Bank. Risk Management Group Organization Risk management functions have been segregated by business specialization, i.e., Credit Risk, Credit Administration, Technical Appraisal, Information security and Enterprise Risk which interalia includes Risk Architecture, Operational Risk and Market & Liquidity Risk. All these functions are operating in tandem to monitor the health of assets and liabilities, while ensuring risk mitigants against cyber and information system threats. 43.1 Credit Risk Credit risk, the potential default of one or more debtors, is a major source of risk for the Bank. The Bank is exposed to credit risk through its lending and investment activities. The Bank’s credit risk function is divided into Corporate and Financial Institutions Risk and Commercial, SME and Consumer Risk. The functions operate within an integrated framework of credit policies, guidelines and processes. The credit risk management activities are governed by the Credit Policy of the Bank that defines the respective roles and responsibilities, the credit risk management principles and the Bank’s credit risk strategy. The policy is supported by a comprehensive Credit Procedures Manual. A. Country Risk The Bank has in place a Country Risk Management Framework which has been approved by the Board. This framework focuses on providing detailed roles and responsibilities with respect to country risk assessment as well as limit setting, exposure management and reporting of cross border exposure undertaken by the Bank. The Bank utilizes S&P, Fitch and Moody’s country ratings as well as other macroeconomic and external risk factors in assigning a country risk limit. The Financial Institutions Division is responsible for monitoring of country exposure limits. Credit Administration Credit Administration is involved in minimizing losses that could arise due to security and documentation deficiencies. The Credit Administration Function constantly monitors the security and documentation risks inherent in the existing credit portfolio through four regional credit administration departments located all over the country. for the year ended December 31, 2019 for the year ended December 31, 2019 Gross lendings December 31,2019 43.1.1 Public/ Government Private 2,704,142 - - - - - 53,850,195 70,000 70,000 70,000 70,000 13,676,921 53,850,195 70,000 70,000 70,000 70,000 Gross lnvestments Non–performing lnvestments December 31,2018 December 31,2019 December 31,2018 Provision held December 31,2019 December 31,2018 Rupees in ‘000 Sovereign Credit Risk When the Bank lends to public sector borrowers, it prefers obtaining a full sovereign guarantee or the equivalent from the Government of Pakistan (GOP). However, certain public sector enterprises have a well defined cash flow stream and appropriate business model, based on which the lending is secured through collaterals other than GOP guarantee. Financial Counterparty credit risk on its private sector advances 43.1.2 Investment in debt securities Credit risk by industry sector Basic metals (iron, steel) 500,000 500,000 - - - - 5,631,006 6,081,881 - - - - 470,000 248,085 - - - - Power, gas, water & sanitary 5,411,136 4,881,010 - - - - Chemicals 1,600,000 - - - - - 10,487 10,487 10,487 10,487 10,487 10,487 Hotel, restaurant & clubs Sugar 176 December 31,2018 10,972,779 December 31,2019 i) Sovereign credit risk on its public sector advances ii) Counterparty credit risk on its private sector advances iii) Counterparty credit risk on interbank limits Each borrower’s credit worthiness is analyzed on the Credit Application Package that incorporates a formalized and structured approach for credit analysis and directs the focus of evaluation towards a balanced assessment of credit risk with identification of proper mitigates. These risks include Industry Risk, Business Risk, Financial Risk, Security Risk and Account Performance Risk. Textile – Spinning 51,345 51,345 51,345 51,345 51,345 51,345 Textile – Weaving 200,000 200,000 200,000 200,000 200,000 200,000 710,177,493 626,834,650 3,869,387 9,756,796 15,961 21,248 Financial analysis is further strengthened through use of separate financial spread sheet templates that have been designed for manufacturing / trading concerns, financial institutions and insurance companies. Others 103,498 105,329 103,498 105,329 103,498 105,329 724,154,965 638,912,787 4,234,717 10,123,957 381,291 388,409 713,427,493 630,584,650 3,869,387 9,756,796 15,961 21,248 10,727,472 8,328,137 365,330 367,161 365,330 367,161 724,154,965 638,912,787 4,234,717 10,123,957 381,291 388,409 Counter Party Credit Risk on Interbank Limits In the normal course of its business, the Bank’s Treasury utilizes products such as Reverse REPO and call lending to meet the needs of interbank borrowers and manage its exposure to fluctuations in market, interest and currency rates. Further, these products are also used to temporarily invest Bank’s liquidity prior to disbursement. All of these financial instruments involve, to varying degrees, the risk that the counterparty in the transaction may be unable to meet its obligation to the Bank. December 31,2019 Credit risk by public / private sector Provision held December 31,2018 Lendings to financial institutions The Bank manages three principal sources of credit risk: December 31,2019 Rupees in ‘000 Non–performing lendings December 31,2018 Government Credit risk by public / private sector Public/ Government Private Reflecting a preference for minimizing exposure to counterparty credit risk, the Bank maintains eligibility criteria that link the exposure limits to counterparty credit ratings by external rating agencies. Annual Report 2019 Allied Bank Limited 177
91. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 Gross advances December December 31,2019 31,2018 43.1.3 for the year ended December 31, 2019 Non–performing advances December December 31,2019 31,2018 Rupees in ‘000 43.1.4 Contingencies and Commitments Advances Credit risk by industry sector Credit risk by industry sector 79,583,981 78,511,776 654,964 624,049 511,318 596,596 Agriculture, Forestry and Hunting 517,460 1,748,522 5,243,108 7,220,441 413,828 151,863 214,278 151,863 Basic metals (iron, steel) 2,865,799 2,298,302 Cement / clay & ceramics 19,359,961 16,781,544 74,089 74,089 74,089 74,089 Cement/clay & ceramics 3,578,271 2,491,703 Chemical & pharmaceutical 25,230,941 23,965,746 372,744 376,479 372,744 376,479 Chemical & pharmaceutical 2,844,113 1,168,652 6,701,913 6,958,964 190,283 120,529 176,038 120,529 Construction 3,942,101 3,532,782 130,146 124,885 123 123 123 123 31,875,767 22,710,967 56,154 72,454 56,154 72,454 Footwear & leather garments 2,823,053 2,212,093 111,740 116,953 106,841 108,133 Furniture & sports goods 1,978,284 1,118,853 265,984 265,990 265,984 265,990 Grains, food & beverages 10,952,503 12,750,666 1,853,302 1,917,020 1,853,302 1,766,367 27,029 52,122 2,688 3,478 2,688 3,478 Agriculture, Forestry and Hunting Basic metals (iron, steel) Construction Education Financial Health & social welfare Hotel, restaurant & clubs 1,000,000 1,000,000 7,564 7,664 7,564 7,664 10,060,120 10,034,356 368,240 361,566 337,085 361,501 Machinery & equipment 5,790,537 4,200,452 1,097,134 1,157,834 1,097,134 1,157,834 Manufacture of transport equipment 2,176,982 844,246 139,822 140,522 139,822 140,522 Paper & paper boards 7,046,681 5,632,472 208,574 210,574 208,574 210,574 3,934,730 13,291,165 176,351 13,228 94,073 13,228 156,149,658 140,719,800 637,015 637,015 637,015 637,015 Individuals Petroleum products Power, gas, water & sanitary Printing, publishing & allied Real estate, renting, and business activities Rubber & plastic Sugar 206,458 1,121,462 10,056 10,056 10,056 10,056 8,331,917 5,485,741 - - - - 288,680 295,588 230,563 233,068 230,563 233,068 6,897,513 7,365,203 51,066 51,066 51,066 51,066 Textile –Manufacture of made up & ready made garments Education 61,193 55,461 367,806,904 272,292,661 Footwear & leather garments 341,512 248,281 Furniture & sports goods 112,737 25,375 Financial Grains, food and beverages Health & social welfare Hotel, restaurant & clubs Individuals Machinery & equipment 1,055,823 58,426 337,057 1,993,444 960 960 7,391,727 11,027,620 16,099,059 38,708,740 Manufacture of transport equipment 188,471 87,725 Paper & paper boards 626,468 275,184 Petroleum products 23,298,418 17,777,157 Power, gas, water & sanitary 12,693,725 9,569,562 Printing, publishing & allied 67,631 136,729 - 6,018,458 Rubber & plastic 35,037 106,775 Sugar 59,430 26,740 227,892 275,109 Real estate, renting and business activities 30,431,729 25,684,060 3,002,600 3,003,575 3,002,601 3,003,575 Textile - Manufacture of madeup & ready made garments Textile – Finishing 15,189,368 16,456,503 2,872,372 2,884,586 2,872,372 2,884,586 Textile – Spinning 18,024,943 18,618,930 1,261,119 1,141,751 1,157,244 1,141,751 Textile - Finishing 4,891,277 1,589,863 Textile – Weaving 3,210,115 1,664,289 38,482 38,632 38,482 38,632 Textile - Spinning 1,368,295 56,195 16,154,933 12,439,987 126,459 428,077 46,546 127,149 Textile - Weaving 1,618,571 65,702 Transport, storage & communication 3,015,015 5,315,605 Transport, storage & communication Wholesale & retail trade 9,199,116 9,220,564 967,415 977,027 885,681 948,802 22,168,134 7,385,384 663,187 1,045,374 663,187 1,030,374 500,168,300 453,868,259 15,853,918 16,064,642 15,112,624 15,533,498 Public/ Government 204,243,892 177,970,051 134,430 135,181 134,430 135,181 Private 295,924,408 275,898,208 15,719,488 15,929,461 14,978,194 15,398,317 Public/ Government 15,533,498 Private Others Credit risk by public / private sector 500,168,300 178 December 31, December 31, 2019 2018 Rupees in ‘000 Provision held December December 31,2019 31,2018 Annual Report 2019 453,868,259 15,853,918 16,064,642 15,112,624 Wholesale & retail trade Others 342,676 957,570 9,831,718 1,617,337 465,219,340 379,526,640 Credit risk by public / private sector 63,282,369 89,704,889 401,936,971 289,821,751 465,219,340 379,526,640 Allied Bank Limited 179
92. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 43 .1.5 Concentration of Advances 43.2 for the year ended December 31, 2019 for the year ended December 31, 2019 The Bank’s top 10 exposures on the basis of total (funded and non-funded) exposures aggregating to Rs. 222,105.62 million (December 31, 2018: Rs. 220,201.42 million) are as following: December 31, December 31, 2019 2018 Rupees in ‘000 Funded Non Funded Total Exposure 191,393,656 184,180,778 30,711,963 36,020,642 222,105,619 220,201,420 The sanctioned limits against these top 10 exposures aggregated to Rs. 265,900.73 million (December 31, 2018: Rs. 255,278.34 million). 43.1.6 Advances – Province/Region–wise Disbursement & Utilization During the year ended December 31, 2019 Disbursements Utilization AJK KPK Punjab Sind including FATA Balochistan Islamabad including Gilgit– Baltistan Rupees in ‘000 Province/Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit–Baltistan Total 691,256,822 1,110,838,731 1,621,529 683,293,584 4,672,048 3,172,039 3,810 104,071 11,270 74,993,563 1,034,704,724 35,148 9,290 1,075,242 20,764 - 1,378,313 - - - - - 618,127 243,216 618,127 - 16,733,824 - - - - 16,733,824 - 881,289 - - - - - 881,289 758,530,363 1,039,376,772 4,585,500 631,227 17,913,137 913,323 1,821,950,322 During the year ended December 31, 2018 Disbursements Utilization Punjab Sind KPK AJK including including FATA Balochistan Islamabad Gilgit– Baltistan Rupees in ‘000 Province/Region Punjab 591,723,087 522,554,625 34,494,817 - - 34,673,645 - Sindh 802,485,680 42,048,213 656,714,012 4,851,487 - 98,871,968 - 1,429,676 686,026 - 743,650 - - - 525,809 - - - 525,809 - - 8,766,970 - - - - 8,766,970 - 551,587 - - - - - 551,587 1,405,482,809 565,288,864 691,208,829 5,595,137 525,809 142,312,583 551,587 KPK including FATA Balochistan Islamabad AJK including Gilgit–Baltistan Total 180 Annual Report 2019 Market Risk Market Risk is the risk of loss in earnings and capital due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. Thus market risk can be further described into Interest Rate Risk, Foreign Exchange Risk and Equity Position Risk. Market Risk performs risk measurement, monitoring and control functions through use of various risk procedures and models. To give it a formal structure, all the policies and guidelines are approved by the Board and relevant management committees. The Bank appointed services of a foreign risk advisory firm for assistance in establishment of Market Risk Management Framework. The Bank uses three types of risk management tools to measure the Bank’s Market Risk: Value-at Risk (VaR), Expected Shortfall (ES) and Stress Testing. In addition, control limits are utilized to maintain the risks within acceptable levels. The Bank maintains adequate regulatory capital to cover all interest rate risks falling under the “Trading Book” as well as “Banking Book”, as defined by Basel capital accord. The Bank uses Standardized Approach in determining credit risk, market risk and operational risk exposures in the capital adequacy calculation. In Market risk exposures, Maturity method is used to calculate charge on Interest rate risk and FX risk. In its pursuit of automation, the Bank has successfully implemented Oracle Financial Services Analytical Application (OFSAA) Market Risk Module to automate the risk monitoring and reporting activities pertaining to Market Risk, which allows for more efficient risk monitoring and increased focus on risk analysis to help in making more informed decisions. 43.2.1 Market Risk Pertaining to the Trading Book Trading Book The Trading Book of the Bank consists of positions in financial instruments held either with trading intent or in order to hedge other elements of the trading book. To be eligible for trading book, financial instruments must be held with the intent of trading and free of any restrictive covenants on their tradability. In addition, positions need to be frequently and accurately valued and the portfolio should be actively monitored and managed accordingly. The Bank’s trading book includes securities classified as ‘Held–For–Trading’, ‘Open Ended Mutual Fund’ and non strategic listed equity placed in ‘Available–For–Sale’. These positions are exposed to all forms of market risk, therefore, are managed actively. Risk Pertaining to Banking Book Investment Portfolio All investments excluding trading book are considered as part of banking book. Banking book includes: i) Available–for–sale securities – (other than non–strategic listed equity) ii)  Held–to–maturity securities Treasury investments parked in the banking book include: i) Government securities ii) Capital market investments iii) Investments in bonds, debentures, etc. Due to the diversified nature of investments in banking book, it is subject to interest rate risk, equity price risk and FX risk. Interest Rate Risk – Banking Book Government securities (PIBs, Sukuks & T-Bills), Bonds, Debentures, etc. and other money market investments are subject to interest rate risk. To capture the risk associated with these securities, extensive modelling is being done with respect to duration analysis. Stress testing and scenario models are also in place to capture the sensitivity of the portfolio to adverse movement in interest rates. For prudent risk management, all money market investments are marked to market to assess changes in the market value of investments due to interest rate movements. Stress Testing The Bank also conducts Stress Testing of the Bank’s investment portfolio to ascertain the impact of various scenarios on the capital adequacy and sustainability of the Bank. The exercise assumes various stress conditions, with respect to Market Risk (Rise or Fall in Interest Rates, leading to interest rate risk), Equity Price Risk resulting from Stock Market movements, FX Rate Risk leading from adverse movements in exchange rates and Liquidity Risk (ability to meet short-term obligations if there is a run on deposits). Stress testing is also conducted on various macro-economic scenarios to test the resilience of the Bank. Allied Bank Limited 181
93. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 43.2.4 Equity position Risk Equity risk is the potential for incurring losses due to adverse changes in stock prices. The Bank holds a diversified portfolio of equity investments in order to minimize non-systematic risk while retaining acceptable systematic risk. ALCO ensures that equity price risk is mitigated through prudent portfolio management. December 31, 2019 December 31, 2018 Banking Trading Banking Trading Total Total book book book book Rupees in ‘00 43.2.2 Balance sheet split by trading and banking books Cash and balances with treasury banks Balances with other banks 119,943,828 - 119,943,828 99,188,414 - 99,188,414 602,582 - 602,582 2,575,055 - 2,575,055 13,606,921 - 13,606,921 53,780,195 - 53,780,195 Investments 721,486,859 36,470,134 757,956,993 655,534,517 15,693,768 671,228,285 Advances 485,015,881 - 485,015,881 438,317,184 - 438,317,184 62,114,648 - 62,114,648 50,378,537 - 50,378,537 1,969,051 - 1,969,051 1,749,054 - 1,749,054 Lendings to financial institutions Fixed assets Intangible assets Deferred tax assets Other assets - - - - - - 39,911,348 - 39,911,348 33,382,185 - 33,382,185 1,444,651,118 36,470,134 1,481,121,252 1,334,905,141 December 31, 2019 Foreign Currency Assets Foreign Currency Laibilities Net foreign currency exposure Foreign Currency Assets Foreign Currency Laibilities Rupees in ‘000 Pakistani Rupee United States Dollar Great Britain Pound Sterling Japanese Yen Euro Other currencies Banking book Off–balance sheet items After tax Impact of 5% change in equity prices on – Profit and loss account – Other comprehensive income Rupees in ‘000 1,227,520,873 (80,271,378) 115,096,801 1,299,889,605 1,125,939,797 (66,414,629) 107,535,179 56,981,096 130,223,325 73,575,765 333,536 50,030,348 109,211,476 58,937,581 (243,547) 892,579 4,561,262 3,611,463 (57,220) 283,035 5,309,004 5,026,143 174 14,613 1,110 (22,808) (9,305) 4,317 975 (2,521) 821 310,246 3,435,978 3,105,506 (20,226) 326,332 2,826,096 2,502,163 2,399 33,666 27,871 1,452 7,247 65,272 6,728 (48,737) 9,807 58,232,200 138,249,546 80,271,378 254,032 50,709,304 117,354,279 66,414,629 (230,346) 1,481,121,252 1,365,770,419 - 115,350,833 1,350,598,909 1,243,294,076 - 107,304,833 (517,535,673) (539,564,082) Banking book Trading book After tax Impact of 1% change in foreign exchange rates on: – Profit and loss account – Other comprehensive income 182 Annual Report 2019 - 1,651,213 - (510,047,451) In accordance with BSD Circular No.03 of 2011, issued by the SBP, the Group is required to report interest rate sensitivity gap of assets and liabilities on the basis of an objective and systematic behavioural study approved by ALCO committee. Banking book Trading book December 31, 2018 Banking book Trading book Rupees in ‘000 After tax Impact of increase in interest rates by 1% – Profit and loss account – Other comprehensive income - (606,660,345) Yield Risk is the risk of decline in earnings due to adverse movement of the yield curve. Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. Trading book Rupees in ‘000 Trading book Government securities (PIBs & T-Bills, Sukuks), Bonds, Debentures, etc. and other money market investments are subject to interest rate / rate of return risk. To capture the risk associated with these securities, extensive modelling is being done with respect to duration analysis. Stress testing and scenario-based models are also in place to capture the sensitivity of the portfolio to adverse movement in interest rates. For prudent risk management, all money market investments are marked to market to assess changes in the market value of investments due to interest rate movements. 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. December 31, 2018 Banking book Banking book Interest rate risk is measured through “duration” of an instrument. To assess the interest rate risk at Balance Sheet and Income Statement level, gap analysis on “re-pricing schedule” is utilized. Re-pricing schedule is a distribution of interest-sensitive assets, liabilities, and Off-Balance Sheet positions into a number of predefined time bands according to their maturity (if fixed-rate) or time remaining to their next re-pricing (if floating-rate), and is calculated in compliance with SBP instructions. For non-contractual assets and liabilities, an ALCO approved methodology is utilized to place these assets and liabilities in the re-pricing schedule. This methodology is based on the results of a behavioural analysis which statistically models the historical trends of the last 5 years. December 31, 2019 December 31, 2019 December 31, 2018 43.2.5 Yield / Interest Rate Risk in the Banking Book (IRRBB)–Basel II Specific Interest rate / Rate of return risk is the current or prospective risk of losses, to both the Bank’s capital and earnings, arising from movements in interest rates / rates of return. The losses may be due to earnings deterioration or capital erosion. The Bank has a robust system in place to monitor Interest rate risk and ALCO regularly analyses the interest rate scenario and devises strategies to minimize adverse impact of interest rate risk to the Bank’s equity and profits. Net foreign currency exposure 1,422,889,052 Trading book Rupees in ‘000 December 31, 2018 Off–balance sheet items December 31, 2019 15,693,768 1,350,598,909 43.2.3 Foreign Exchange Risk Foreign Exchange Risk is the risk of loss arising from fluctuations in exchange rates. The Bank’s FX Risk is largely mitigated by following a matched funding policy whereas for any mismatched exposures, the Bank utilizes appropriate derivative instruments such as Forwards and Swaps. The majority of the Bank’s net foreign currency exposure is in US Dollars and the Bank uses system-based monitoring of it’s intra-day Net Open Position for effective risk management. The Bank carefully monitors the net foreign currency exposure and the effect of exchange rate fluctuations by conducting sensitivity analysis and stress testing, as well as utilizing the currency forwards and swaps to hedge the related exposure. The Bank maintains adequate regulatory capital to cover against foreign exchange risks. The bank undertakes foreign exchange exposures in the shape of FX Forwards and Swaps in order to hedge its foreign currency deposits and advances, after incorporating the impact of it’s NOSTRO and Cash Reserve balances. The Bank maintains adequate regulatory capital to cover against equity price risks. Equity investments classified as “Held-ForTrading” as well as listed non-strategic equity investments classified as “Available-For-Sale” are part of the “Trading Book” and subject to market risk change as specified by the Basel Framework. Un-listed and listed strategic equity investment are part of “Banking Book” and are therefore subject to credit risk charge as specified by the Basel Framework. (2,014,326) (153,019) - (1,284,209) - (1,497,249) - Allied Bank Limited 183
94. 184 Report 2019 Annual Allied Bank Limited 136 ,512,865 136,512,865 304,735,588 304,735,588 Total Yield/Interest Risk Sensitivity Gap Cumulative Yield/Interest Risk Sensitivity Gap 94,659,580 248,610,246 Off–balance sheet gap 33,140,303 33,140,303 46,875,838 54,219,284 101,095,122 12,705,839 173,702,776 121,296,471 294,999,247 41,853,285 13,998,922 70,453,385 70,453,385 137,056,586 57,768,858 194,825,444 96,475,905 7,752,959 225,882,986 984,475,183 19,841,044 1,237,952,172 56,125,342 14,128,800 50,993,095 230,869,328 40,861,309 336,852,532 27,762,282 5.89% 3.51% 7.95% 7.94% 7.35% 99,188,414 2,575,055 53,780,195 671,228,285 438,317,184 28,988,381 1,294,077,514 Other commitments Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Off–balance sheet financial instruments Documentary credits and short–term trade–related transactions On–balance sheet gap Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets On–balance sheet financial instruments 206,923,634 266,028,849 Cumulative Yield/Interest Risk Sensitivity Gap Upto 1 Month 206,923,634 266,028,849 Total Yield/Interest Risk Sensitivity Gap 496,976,713 360,463,848 53,752,454 4,536,571 16,724,966 16,724,966 55,520,667 3,549,574 59,070,241 6,870,608 27,973,227 229,412,178 257,385,405 306,711,394 2,787,100 324,040,190 237,269,509 564,096,799 Over 1 to 3 Months 435,424,064 228,500,430 45,409,465 5,340,939 38,926,182 38,926,182 59,117,691 59,117,691 19,877,017 17,002,396 235,893,774 252,896,170 183,090,965 3,704,142 299,087,158 133,195,835 435,987,135 Over 1 to 3 Months 355,629,865 (141,346,848) 48,715,471 2,459,295 20,561,418 20,561,418 34,407,428 34,407,428 32,410,166 10,161,557 295,508,730 305,670,287 (190,062,319) 19,584,532 96,023,436 115,607,968 Over 3 to 6 Months 301,748,891 (133,675,173) 79,057,570 8,850,528 52,880,690 52,880,690 85,699,466 85,699,466 37,388,266 7,539,422 312,174,543 319,713,965 (212,732,743) 11,271,561 95,709,661 106,981,222 Over 3 to 6 Months 418,564,167 56,735,822 12,520,902 392,903,463 37,273,598 24,021,319 1,850,964 26,698 26,698 252,653 252,653 21,944,400 40 53,568,188 53,568,228 13,252,279 31,803,113 35,017,394 66,820,507 Over 1 to 2 years 396,370,956 3,467,493 21,008,372 807,808 - - 20,200,564 282,296 19,398,720 19,681,016 (17,540,879) 893,744 1,246,393 2,140,137 Rupees in ‘000 Over 6 Months to 1 Year - - - 12,520,902 400,733 14,219,030 14,619,763 44,214,920 58,286,547 548,136 58,834,683 Over 1 to 2 years December 31, 2018 361,828,345 60,079,454 22,247,975 7,206,213 - 4,393,706 4,393,706 10,648,056 140,611 42,431,719 42,572,330 37,831,479 55,989,298 24,414,511 80,403,809 Rupees in ‘000 Over 6 Months to 1 Year December 31, 2019 406,111,382 9,740,426 1,893,442 807,808 - - 1,085,634 641,607 825,194 1,466,801 7,846,984 5,816,244 3,497,541 9,313,785 Over 2 to 3 years 427,598,108 9,033,941 577,593 - - - 577,593 199,152 1,965,574 2,164,726 8,456,348 9,452,969 1,168,105 10,621,074 Over 2 to 3 years 419,981,555 13,870,173 1,692,956 1,615,617 - - 77,339 1,556,729 876,633 2,433,362 12,177,217 7,291,693 7,318,886 14,610,579 Over 3 to 5 years 438,795,313 11,197,205 196,028 - - - 196,028 3,137,791 1,734,959 4,872,750 11,001,177 10,765,765 5,108,162 15,873,927 Over 3 to 5 years 438,116,204 18,134,649 1,692,797 1,685,297 - - 7,500 11,564,754 534,810 12,099,564 16,441,852 16,569,201 11,972,215 28,541,416 Over 5 to 10 years 445,681,716 6,886,403 - - - - - 17,974,334 370,974 18,345,308 6,886,403 7,091,383 18,140,328 25,231,711 Over 5 to 10 years 103,434,064 602,582 32,526,146 2,263,076 35,112,658 173,938,526 Non–interest bearing financial instruments - - - - - 85,059,614 2,575,055 34,360,240 285,953 28,988,381 151,269,243 Non–interest bearing financial instruments - - - - - 444,034,499 5,918,295 (139,298,911) 1,173,855 - - - 1,173,855 7,752,959 80,108 262,974,151 19,841,044 80,108 290,568,154 4,744,440 (139,298,911) 4,824,548 4,824,548 Above 10 Years 451,333,350 5,651,634 (185,304,501) 872,762 - - - 872,762 7,878,626 - 315,216,519 36,147,882 - 359,243,027 4,778,872 (185,304,501) 4,778,872 4,778,872 Above 10 Years for the year ended December 31, 2019 Total 52,425,617 213,307,912 46,693,645 49,721 46,743,366 71,170,538 464,217 71,634,755 10,620,023 220,053,947 125,035,940 345,089,887 154,498,017 Off–balance sheet gap 138,500,517 49,721 138,550,238 220,381,401 464,217 220,845,618 92,700,647 7,878,626 266,448,386 1,049,043,032 36,147,882 1,359,517,926 52,720,937 16,509,764 9,902,779 273,486,166 199,689,195 499,587,904 Upto 1 Month 16,914,205 Effective Yield/ Interest rate 9.48% 6.24% 10.70% 11.97% 11.54% 119,943,828 602,582 13,606,921 757,956,993 485,015,881 35,112,658 1,412,238,863 Total 38,311,885 Other commitments Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Off–balance sheet financial instruments Documentary credits and short–term trade–related transactions On–balance sheet gap Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets On–balance sheet financial instruments Effective Yield/ Interest rate 43.2.6 Mismatch of Interest Rate Sensitive Assets and Liabilities Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements for the year ended December 31, 2019 185
95. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements Annual Report 2019 151 ,629,206 72,996,216 6,584,526 27,285,140 2,355,305 - - - 370,975 17,974,334 - 4,242,178 178,914,346 563,149 - 46,029,426 96,352,852 31,726,741 - - - 59,273,856 107,204,051 68,015,169 102,351,451 (18,345,154) 67,721,107 122,724,252 58,777,779 (4,714,217) 11,450,739 22,270,225 55,821,211 25,808,658 Share capital Reserves Unappropriated profit Surplus on revaluation of assets net of tax 115,350,833 (643,720,264) 115,350,833 Net assets (28,562,619) 3,935,856 1,539,754 2,016,077 3,624,693 21,113,725 1,061,118 1,096,849 10,539,250 61,442,771 1,479,030 975,964 43,994,442 32,983,413 2,007,265 9,381,627 46,195,982 15,270,585 3,863,023 3,311,162 214,627,952 551,860 877,031,842 36,502,065 1,365,770,419 Other liabilities 231,376 491,239 62,071 362,993 75,154 328,947 581,039 653,666 269,156 230,705 38,451 5,898,310 Deferred tax liabilities – net - - - - - - - - - - Subordinated debt Liabilities against assets subject to finance lease 1,965,574 716,644 19,856,144 9,073,189 46,929,499 30,861,262 25,220,982 20,993,265 9,854,157 12,905,548 868,560,834 1,049,043,032 Deposits and other accounts 199,152 - 400,733 134,392 - 6,219 12,959,088 - 11,828,269 5,174,127 - 15,167,424 1,284,249 - 198,180,537 Borrowings 7,878,626 7,878,626 266,448,386 Bills payable Liabilities 2,071 63,209,712 640,952 642,806 110,828,744 89,128,894 1,194,215 1,404,106 112,890,701 43,097,617 3,964,817 2,554,371 111,715,549 155,707,665 4,005,541 10,145,337 104,973,761 10,556,368 4,177,492 3,580,707 596,785 233,311,578 39,911,348 1,481,121,252 Other assets – net 186,065,333 Deferred tax assets 281,180 3,306,222 3,352,692 281,180 70,295 1,598,188 1,598,188 70,295 70,295 1,598,188 532,729 23,432 23,432 532,729 292,141 12,850 5,291 120,294 103,109 4,535 756 17,185 62,114,648 1,969,051 Intangible assets Fixed assets 48,805,745 10,175,613 59,246,823 47,305,243 86,266,196 55,989,298 53,828,814 36,596,571 867,746 91,671,218 16,933,799 7,893,474 139,548,347 79,249,756 13,862,657 1,187,531 178,403,209 547,774 79,624,296 32,526,146 3,704,142 1,411,020 5,065,760 3,425,999 13,606,921 485,015,881 - - - - - - - - - - 119,943,828 602,582 Rupees in ‘000 Over 3 to 6 Months Upto 3 Months December 31, 2019 Upto 2 Months Upto 1 Month Upto 14 Days 119,943,828 757,956,993 Gap Analysis Liquidity Ratio Liquidity Stress Testing Liquidity Contingency Plan Risk Control Limits Advances – net • • • • • Investments – net The Bank uses the following tools to identify and mitigate Liquidity Risk: Lending to financial institutions Liquidity Risk Mitigation Techniques Cash and balances with treasury banks Daily liquidity management is carried out centrally by the Asset and Liability Management (“ALM”) Desk in Treasury Group which regulates the day to day liquidity needs of the Bank. Funding and liquidity management strategies are regularly discussed during Asset and Liability Committee “ALCO” meetings. Such discussions include analysis on composition of deposits and tenure, funding gaps and concentration, monitoring of short and long–term liquidity ratios (including LCR and NSFR). The Bank utilizes internal Management Action Triggers and Limits which act as early warning indicators and safeguards to ensure sufficient liquidity buffers at all times. Additionally, external and internal liquidity stress tests are performed to evaluate available liquidity under a range of adverse scenarios and to identify potential vulnerabilities in portfolios. The Bank also has in place contingency funding plans that identify specific management action that can be invoked in times of liquidity crisis. Assets Liquidity Management Framework Total The Bank has in place a robust Liquidity Crisis Contingency Plan in place to deal with any liquidity crisis in the most efficient and effective manner. Maturities of Assets and Liabilities – based on contractual maturity of the assets and liabilities of the Bank Liquidity Risk is the risk that the Bank is unable to fund its current obligations and operations in the most cost efficient manner. The Bank’s BoD has delegated the responsibility to ALCO for ensuring that Bank’s policy for liquidity management is adhered to on a continual basis. ALCO uses gap analysis based on “maturity schedule” to assess the Bank’s liquidity risk and devise strategies accordingly. The Bank also has various limits and triggers in place to monitor liquidity risk on a periodic basis, whille it also utilizes stress testing & scenario analysis to assess adequacy of Bank’s liquid assets. The Bank also complies with SBP’s instructions on Liquidity Standards as prescribed under the Basel III Framework. 43.4.1 Liquidity Risk 602,582 Over 6 to 9 Months The Bank, like all financial institutions, is exposed to different types of operational risks, including the potential losses arising from internal activities or external events caused by breakdowns in information, communication, physical safeguards, business continuity, supervision, transaction processing, settlement systems and the execution of legal, fiduciary and agency responsibilities. Balances with other banks Up to 1 year Operational Risk The Bank with permission of SBP is conducting a parallel run for Alternate Standardized Approach (ASA) for Basel II – Operational Risk Capital Charge Reporting, which signifies readiness of the Bank to move to advance approach. 43.4 - 1,237,952,172 Upto 3 years 1,359,517,926 The Bank is also implementing internationally accepted Integrated Framework on Internal Control issued by the Committee of Sponsoring Organizations of the Tread way Commission (COSO), with a view to consolidate and enhance the existing internal control processes. 186 5,341,904 The Bank has a BoD approved BCP policy and Business Continuity Plan applicable to all its functional areas. The Bank updates functional BCPs on annual basis or at any process change. 586,476 6,252,493 Further, detailed data of operational losses is being maintained, in conformance with regulatory guidelines. Major Operational Risk events are also analyzed from the control breaches perspective and mitigating controls are assessed on design and operating effectiveness. Quarterly updates on Operational Risk events are presented to senior management and Board’s Risk Management Committee & BoD. Total financial liabilities 354,183 In accordance with the BoD approved Operational Risk Policy, Bank maintains a system of internal controls designed to keep operational risk at appropriate levels, in view of the bank’s financial strength and the characteristics of the activities and market in which it operates. These internal controls are periodically updated to conform to industry best practice. Deferred tax liabilities Other liabilities Upto 7 Days Less: Non financial liabilities Upto 1 Day 43.3 2,633,810 1,294,077,514 7,724,768 1,412,238,863 Total financial assets 218,208 56,521,395 4,755,428 1,734,959 68,882,389 5,898,310 3,137,791 4,393,804 2,762,041 4,798,690 80,720,984 Other assets 1,243,294,076 562,361 52,127,591 1,365,770,419 3,033,557 64,083,699 Balance as per balance sheet (Rupees in ‘000) 13,925,985 Fixed assets Less: Non financial assets (Rupees in ‘000) December 31, 2018 60,437,040 1,350,598,909 December 31, 2019 - (Rupees in ‘000) 1,481,121,252 Balance as per balance sheet Reconciliation to total liabilities - (Rupees in ‘000) December 31, 2018 Over 3 to 5 years December 31, 2019 Uptp 2 years Reconciliation to total assets for the year ended December 31, 2019 Over 5 years for the year ended December 31, 2019 Allied Bank Limited 187
96. Notes to the Unconsolidated Financial Statements Notes to the Unconsolidated Financial Statements 2 ,231,318 16,412,958 82,790,181 895,342 3,475,370 60,797,099 - 2,001,968 - 146,666 614,919 876,633 for the year ended December 31, 2019 - - 11,564,753 - 99,203,139 64,272,469 1,556,729 - 4,290,836 500,229 499,530 2,732,176 37,569,944 2,137,177 - 25,542,242 31,299,888 - 8,471,835 - - 50,431,751 - - - Over 5 years Over 3 to 5 years for the year ended December 31, 2019 43.4.2 Maturities of assets and liabilities – based on expected maturities of the assets and liabilities of the Bank Cash and balances with treasury banks Balances with other banks 59,100,954 1,044,424 3,695,897 176,080 - - 2,193,097 - 282,296 62,796,851 586,758 - 249,765 2,777,178 1,135,813 58,047,337 - - Over 1 to 2 Years Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years Above 10 Years 119,943,828 33,818,371 10,456,036 6,768,479 4,526,963 2,496,978 2,774,287 - - 602,582 602,582 - - - - - - - 59,102,714 - 13,606,921 9,902,779 3,704,142 - - - - - - - Investments – net 757,956,993 259,295,601 231,219,565 867,746 55,989,298 67,547,808 18,476,599 13,925,985 108,719,391 1,915,000 485,015,881 25,890,266 27,701,487 39,002,766 142,911,817 67,716,835 69,217,337 80,848,632 26,990,835 4,735,906 62,114,648 532,729 1,065,458 1,598,188 3,196,376 3,352,692 3,306,222 3,033,557 3,885,367 42,144,059 1,969,051 23,432 46,864 70,295 140,590 281,180 281,180 562,361 563,149 - - - - - - - - - - - 39,911,348 18,500,321 6,559,912 3,964,817 2,598,321 642,806 640,952 2,762,041 4,242,178 - 1,481,121,252 348,566,081 280,753,464 52,272,291 94,696,577 101,132,576 144,400,920 107,897,679 Fixed assets 85,882,768 883,536 24,821,741 166,219 - - 23,771,946 - 40 110,704,509 1,378,006 - 62,441 1,285,862 6,135,369 101,842,831 - - Over 6 Months to 1 Year Advances – net Intangible assets - Over 3 to 6 Months Assets Lending to financial institutions Upto 1 year Over 1 to 3 Months Rupees in ‘000 55,099,834 773,156 2,436,997 197,040 - - 825,194 - 641,607 57,536,831 586,758 - 249,765 2,750,793 7,051,206 46,898,309 - - - Upto 3 years Upto 2 years December 31, 2019 Upto 1 Month Total Deferred tax assets Other assets – net 209,363,365 142,038,299 31,143,135 898,464 13,744,624 255,541 - - 12,590,619 - - 44,887,759 1,404,043 - 62,441 1,285,861 25,667,744 - - - 16,467,670 Deposits and other accounts (2,142,876) 1,015,410 54,573,063 214,988 - - 37,210,046 - 16,132,619 52,430,187 4,119,201 - 62,441 1,285,861 16,947,301 30,015,383 - - Rupees in ‘000 Deferred tax liabilities – net Other liabilities - - - - - - - - 17,002,396 12,959,088 140,611 400,733 199,152 3,137,791 17,974,334 - 1,049,043,032 125,035,940 149,008,992 534,117,770 96,457,612 64,513,767 36,301,078 41,501,940 1,734,959 370,974 - - - - - - - - - - 5,898,310 1,191,978 909,986 75,154 425,064 491,239 231,376 218,208 746,915 1,608,390 36,502,065 17,107,672 (10,127,505) 285,060,653 2,157,967 2,016,077 1,539,754 2,633,810 6,584,526 - 67,237,409 39,209,127 43,472,222 7,724,768 25,676,749 535,726,160 115,350,833 (17,282,416) 110,848,861 (58,698,593) 142,125,956 102,829,172 51,224,355 93,407,808 118,724,171 (427,828,481) Over 2 to 3 Years Over 3 to 5 Years 22,270,225 Unappropriated profit 55,821,211 of assets net of tax 25,808,658 115,350,833 December 31, 2018 Upto 1 Month Total Over 1 to 3 Months Over 3 to 6 Months Over 6 Months to 1 Year Over 1 to 2 Years Over 5 to 10 Years Above 10 Years Rupees in ‘000 Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions 107,304,833 23,077,174 52,500,405 20,276,515 Surplus on revaluation of assets net of tax 4,908,440 4,104,803 1,973,027 2,007,802 - - - - - - - - - 48,663,227 - 53,780,195 50,993,095 2,787,100 - - - - - - - 671,228,285 229,565,085 317,427,104 16,947,301 31,803,113 9,798,775 14,898,089 8,471,835 40,401,983 1,915,000 22,695,395 21,999,270 32,819,525 121,876,130 75,463,863 64,314,835 67,848,278 26,482,007 4,817,881 50,378,537 428,620 857,241 1,285,861 2,571,723 2,777,178 2,750,793 2,137,177 2,391,543 35,178,401 1,749,054 20,814 41,628 62,441 124,882 249,765 249,765 499,530 500,229 - - - - - - - - - - - 33,382,185 10,736,417 7,547,990 4,119,201 2,782,049 586,758 586,758 2,732,176 4,290,836 - 1,350,598,909 344,353,570 360,852,359 60,142,769 163,262,700 90,849,366 84,808,042 81,688,996 74,066,598 90,574,509 Other assets – net Unappropriated profit 10,192,026 2,575,055 438,317,184 Deferred tax assets Reserves 27,339,089 2,575,055 Investments – net Fixed assets Share capital 99,188,414 Advances – net Intangible assets 11,450,739 101,369,121 (610,865,340) 107,304,833 Net assets Other liabilities Deferred tax liabilities – net 1,479,030 110,970,884 11,450,739 Liabilities 7,752,959 - - - - - - - - Borrowings Bills payable 225,882,986 168,981,472 26,723,469 16,132,619 40 282,296 641,607 1,556,729 11,564,754 - Deposits and other accounts 984,475,183 121,296,471 173,849,475 463,254,390 Other liabilities Subordinated debt Liabilities against assets subject to finance lease Deposits and other accounts Bills payable Borrowings Liabilities Other assets – net Deferred tax assets Intangible assets Fixed assets Advances – net Investments – net Lending to financial institutions Balances with other banks Cash and balances with treasury banks Assets Report 2019 2,983,229 1,365,770,419 365,848,497 169,904,603 Reserves Deferred tax liabilities – net Annual 7,878,626 Share capital Subordinated debt 188 7,878,626 266,448,386 214,634,281 Surplus on revaluation (16,809,064) (13,994,127) 27,138,940 685,178 718,160 44,198,678 43,239,756 6,183,946 2,549,293 20,029,427 2,185,108 171,715,548 364,185 817,811,077 20,427,520 1,243,294,076 43,166 1,359,344 106,615 43,900 37,629 6,272 4,755,428 - - - - - - - - - - 13,976,360 27,831,940 10,413,217 984,475,183 809,687,661 14,158,732 30,324,819 12,434,236 - 14,289,234 6,624,376 - 3,277,502 159,079,594 - 7,752,959 7,752,959 3,220,363 273,084,669 206,945,737 1,350,598,909 225,882,986 17,011,435 329,259,331 29,245,629 5,647,584 1,900,406 5,887,713 2,424,352 2,078,016 346,336 33,382,185 - 428,621 20,814 20,814 428,620 11,414 235,050 96,785 4,700 4,029 82,959 671 13,826 50,378,537 1,749,054 32,888 6,728,176 10,881,528 317,394,215 8,071,443 13,015,494 - 2,033,096 70,461,195 194,526 220,417,989 34,360,240 438,317,184 671,228,285 - 2,787,100 2,024,515 500,000 48,468,580 53,780,195 - - - - 99,188,414 99,188,414 2,575,055 Upto 14 Days Upto 7 Days Upto 1 Day Total 2,575,055 - Net assets Upto 2 Months Upto 3 Months Bills payable Borrowings Subordinated debt Upto 1 Month December 31, 2018 Over 3 to 6 Months Over 6 to 9 Months Liabilities Net assets 7,752,959 83,725,237 70,017,278 35,847,810 35,073,079 876,633 534,810 - - - - - - - - - - 4,755,428 194,416 1,402,510 214,988 421,760 176,080 197,040 146,666 280,666 1,721,302 20,427,520 11,282,532 1,403,338 1,015,410 1,782,000 1,044,424 773,156 895,342 2,231,318 - 1,243,294,076 309,507,850 203,378,792 101,088,254 72,221,078 37,350,610 36,684,882 3,475,370 14,611,548 464,975,692 (40,945,485) 91,041,622 53,498,756 48,123,160 78,213,626 59,455,050 (374,401,183) 107,304,833 Share capital 11,450,739 Reserves 20,276,515 Unappropriated profit 52,500,405 34,845,720 157,473,567 Surplus on revaluation of assets net of tax 23,077,174 107,304,833 Allied Bank Limited 189
97. 44 44 .1 190 NON ADJUSTING EVENT AFTER THE REPORTING DATE The Board of Directors of the Bank in its meeting held on February 7, 2020 has proposed a final cash dividend in respect of 2019 of Rs. 2.00 per share (2018: cash dividend Rs. 2.00 per share). This appropriation will be approved in the forthcoming Annual General Meeting. The unconsolidated financial statements of the Bank for the year ended December 31, 2019 do not include the effect of these appropriations which will be accounted for in the unconsolidated financial statements for the year ending December 31, 2020. 45GENERAL 45.1 Captions as prescribed by BPRD circular no.2 of 2018 issued by SBP, in respect of which there are no amounts, have not been reproduced in these financial statements, except for caption of the statement of financial position and profit and loss account. 45.2 Comparative figures have been re-classified, re-arranged or additionally incorporated in these financial statements wherever necessary to facilitate comparison and better presentation in accordance with new format prescribed by SBP vide BPRD circular no. 2 of 2018. 46 DATE OF AUTHORIZATION FOR ISSUE These financial statements were authorized for issue on February 7, 2020 by the Board of Directors of the Bank. Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Report 2019 Annual SURRIYA TEXTILE (PVT) LTD. 4th Floor, Namco Centre, Campbell Street New Challi, Karachi. ALI TRDERS Office No.25, Regal Plaza, Jinnah Road, Quetta 10 11 ASRAR ALAM SHAIKH B-8, Phase-Vi, Darakshan Villas DHA, Karachi FRIENDS ENTERPRISES C-92, Steel Town, Gulshan-e-Hadeed, Ph-II, Karachi 9 15 QAISER ABBAS Aqil Shah, Tehsil Shahpur, Distt: Sargodha 8 MIRZA ASHIQ HUSSAIN Bunglow No. 26 & 27 GMB Colony Qasimabad, Hyderabad ASKARI ENTERPRISES, 16/60, Ist Floor, Rafia Plaza, Street Near JS Bank, Rawalpindi 7 14 WASEEM CONSTRUCTION & PROPERTY DEVELOPERS, 543-D, Shah Rukan-e-Alam Colony, Multan 6 KAMRAN RAZA House No.32, Hijaz Apartment Manik Jee Street, Post Office Soldier Bazar, Karachi. NISAR AHMAD & BROTHERS (PVT) LTD., Vehari Road, Hasilpur, Multan 5 13 ZAIGHAM & CO., Ghallah Mandi, Qila Didar Singh 4 FAQEER TRADERS Dad Road Daharki RIZWAN STEEL FURNANCE, Dewan Road, Opposite Station, Eminabad, Gujranwala. 3 12 RANA TEXTILE MILLS, Rafhan Mills Road, near Rafhan Mills, Samana Pul, Faisalabad. 2 2 RAJA RICE, H.No. 1809//99, Hindu Mohallah, Shahdadkot 1 1 3 ASRAR ALAM SHAIKH MIRZA ASHIQ HUSSAIN KAMRAN RAZA ALLAH DINO LIAQAT ALI MUHAMMAD RAFI MUHAMMAD TARIQ RAFI MUHAMMAD ARIF RAFI MUHAMMD ANJUM RAFI MUHAMMAD ABDULA RAFI BASHIR AHMED CHUADHRY QAISER ABBAS MAJ.(Rtd) IMTIAZ ALI MUREED ABBAS ALIAS GHULAM MUSTAFA HAJI NISAR AHMAD MUSHTAQ AHMAD MUHAMMAD AJMAL MUHAMMAD RAFI RAZA HASSAN ARIF HASSNAIN ARIF MALIK NOMAN SAJID MUHAMMAD RIZWAN SAJID RANA ZAHID TOUSIF RANA ARIF TAUSEEF RANA ASIF TAUSEEF MRS.LUBNAZAHID MRS.RIZWANA ARIF RANA USMAN ZAHID RANA ATIF TOUSEEF RAMESH KUMAR NAME OF DIRECTORS 42301-4519983-7 41303-7883647-5 42201-0393207-9 45101-0054843-1 54400-4039117-5 35202-3244950-5 42301-0838522-7 35202-1504108-3 35202-2434949-9 35200-1416576-7 42501-1432103-9 38404-0983040-5 37405-0301030-9 36302-4593265-9 31203-4612123-3 31203-6414142-9 31203-1699839-3 31203-1313546-7 34101-1774125-3 34101-2316997-3 34101-2638290-9 34101-2638295-7 33100-0672286-7 33100-0708556-3 33100-0672190-5 33102-1723085-2 33100-0670508-4 33100-0672287-1 33100-0695537-3 43206-8363288-9 NIC NOS. 4 ABDUL AZIZ MIRZA QAMBAR ALI BAIG ANWAR ALI HAJI KHETOOR MEHAR CH. ABDUL HAMEED MUHAMMAD ISMAIL MUHAMMAD RAFI MUHAMMAD RAFI MUHAMMAD RAFI MUHAMMAD RAFI ABDUL HAMEED GHULAM JILANI GUL MUHAMMAD RANA FAIZ BAKHSH MUHAMMAD SHAFI MUHAMMAD SHAFI ABDUL GHAFOOR NISAR AHMAD MUHAMMAD ARIF MUHAMMAD ARIF MUHAMMAD NAZIR MUHAMMAD NAZIR RANA TOUSIF ALI KHAN RANA TAUSEEF ALI KHAN RANA TAUSEEF ALI KHAN W.O RANA ZAHID TAUSEEF RANA ARIF TAUSEEF ZAHID TAUSEEF RANA TOUSEEF ALI KHAN MEHRAJ GOPI KIRISHAN 4.996 9.899 2.600 0.293 1.758 2.278 18.016 4.998 3.500 3.327 2.998 0.287 4.999 13.498 37.314 5 PRINCIPAL - - - - - - - - - - - - - - - 6 INTEREST/ MARK–UP 3.978 6.456 2.215 2.933 4.361 1.911 12.294 3.400 1.178 2.601 2.162 2.477 1.562 5.410 28.311 7 OTHER 8.974 16.355 4.815 3.226 6.119 4.189 30.310 8.398 4.678 5.928 5.160 2.764 6.561 18.908 65.625 8 TOTAL - - - - - - - - - - - - - - - 9 PRINCIPAL WRITTEN–OFF The Bank’s Risk Management Group, ALCO & BRMC monitor the risk emanating from the Bank’s portfolio of derivatives exposures on a periodic basis and uses Off-Balance Sheet gap analysis to implement prudent asset liability management of the Bank’s derivatives exposures. OUTSTANDING LIABILITIES AT THE BEGINNING OF THE PERIOD - - - - - - - - - - - - - - - 10 INTEREST/ MARK– UP WRITTEN–OFF – Forward Exchange Contracts – Foreign Exchange Swaps – Equity Futures – Forward Contracts for Government Securities FATHER’S NAME 11 6.355 1.352 2.051 4.247 1.911 7.324 0.650 0.950 2.601 1.178 1.994 0.530 4.308 25.519 6.355 1.352 2.051 4.247 1.911 7.324 0.650 0.950 2.601 1.178 1.994 0.530 4.308 25.519 1.110 12 TOTAL 9+10+11 Amount in Million 1.110 OTHER FINANCIAL RELIEF PROVIDED The Bank’s Treasury Group buys and sells derivative instruments, for hedging and market making purposes, such as: NAME OF INDIVIDUALS/PARTNERS/ DIRECTORS Market & Liquidity Risk Division under Risk Management Group is responsible for assessing and monitoring the derivative risk emanating from Bank’s exposures. NAME AND ADDRESS OF BORROWER Derivative Risk Sr. No. 43.5 STATEMENT SHOWING WRITTEN OFF LOANS OR ANY OTHER FINANCIAL RELIEF OF FIVE HUNDRED THOUSAND OR ABOVE FROM (JANUARY 1, 2019 TO DECEMBER 31, 2019) Notes to the Unconsolidated Financial Statements Annexure I for the year ended December 31, 2019 Allied Bank Limited 191
98. 192 Report 2019 Annual USMAN DAL MILLS Chak No .41/NB, near New Satellite Town, Sargodha MIAN TRADER Agency Chowk, Fateh Garh, Sialkot REHMAN WOOLEN INDUSTRIES (PVT) LTD., Plot No.107, Phase III, Industrial Estate, Gadoon Amazai, Distt: Swabi AL AZAM CORPORATION Grain Market, Opp Haq Cotton, Shop No.27, Haroon Abad SAMPHY PHARMA Suit No.B-6, M.A Plaza, Al-Falah Street Behind Amin Hotel G.T Road Peshawar AFGHAN ENGINEERING WORKS Plot No. 907, Pathan Goth Auto Bhan Road, Latifabad, Hyderabad SHAHID TRADERS No.07 Ikram Colony, Kot Farid Rpad, Sargodha CHIMERA (PVT) LIMITED 32-1/A, Lawrence Road, Lahore TARIQ SANITARY 143- Railway Road, Faisalabad FAISAL ZULFIQAR TRADERS Chak No.134/116-L, Mohsin Wala, Mian Channu. NAYA SAWERA ZARI SERVICE Noor Pur Road, Head Rajkan ASHIQ & SONS TRADERS 1787/10, Mohallah Iqbal Nagar Near Raees T.B. Hospital Road, Multan. BURNI GLASS WORKS A-11, SITE, Hyderabad ASAD & CO. COTTON SUPPLIERS, Chak No.160/WB, High Way Road, Tehsil Mailsi. MIPA RICE MILLS (PVT) LTD., Near Munir Abad, Bahawalpur Road, Multan. 17 18 19 20 21 22 23 24 25 26 27 28 29 30 2 NAME AND ADDRESS OF BORROWER 16 1 Sr. No. 3 MUHAMMAD ASGHAR IMTIAZ FATIMA MUHAMMAD AYOUB MUHAMMAD IJAZ MEHMOOD AHMAD MUHAMMAD RIAZ FIAZ AHMAD ABDUL KARIM SULEMAN RAZA MASOOD ASHIQ TARIQ MEHMOOD ZULFIQAR ALI TARIQ SHAHZAD TAHIR SALEEM ANWAR KHAN AMIR SALEEM ANWAR KHAN NASIR SALEEM ANWAR KHAN SHAHID KHAN HUMA TASNEEM ANJUM ALI SHOAIB UL HASAN ABDUL WAHEED MUHAMMAD NADEEM MUHAMMAD IMRAN MIAN MUHAMMAD IJAZ MIAN MUHAMMAD NAWAZ IMRAN ASLAM KHUSHI MUHAMMAD ABID NAEEM NAME OF DIRECTORS 36302-0286622-9 36302-0854756-0 36101-2873800-1 36602-6498435-5 36101-0601293-9 36602-2932745-7 36602-3388719-1 41304-9044307-7 36302-1410957-7 36302-2923110-1 31202-0202485-5 36104-0430224-5 33100-2330673-7 35202-2713059-9 35202-3418643-7 35200-6304912-5 38403-2049842-1 41303-9166136-0 17301-8517754-7 17301-1315226-7 17301-7342848-7 31104-0988167-1 31104-1676357-1 35202-0523905-7 35202-1866065-7 34603-9690226-5 38403-8259911-3 38403-1003145-3 NIC NOS. NAME OF INDIVIDUALS/PARTNERS/ DIRECTORS BARKAT ALI MUHAMMAD ASGHAR MUHAMMAD KHAN MUHAMMAD KHAN MUHAMMAD KHAN MUHAMMAD JAMAL MUHAMMAD JAMAL ABDUL RASHEED ASHIQ ALI MUSHTAQ AHMAD NOOR DIN HAJI KHAIR DIN MUHAMMAD ANWAR KHAN MUHAMMAD ANWAR KHAN MUHAMMAD ANWAR KHAN MANZOOR KHAN W/O TASNEEM AHMED MUHAMMAD BASHIR GHAYAS UD DIN ABDUL SAMAD KHAN KARAM ELAHI MUHAMMAD AZAM ABDUL GHANI ABDUL GHANI MUHAMMAD ASLAM CH SAKHI MUHAMMAD KHUSHI MUHAMMAD 4 FATHER’S NAME 4.100 1.500 1.596 0.145 1.918 2.555 3.467 557.724 93.140 5.100 2.076 7.146 1.200 1.797 9.999 311.224 5 PRINCIPAL - - - - - - - - - - - - - - - - 6 INTEREST/ MARK–UP 0.924 3.432 407.080 41.595 2.459 1.914 2.963 0.952 1.537 6.469 225.679 2.126 0.900 0.967 0.878 33.036 7 OTHER 3.479 6.899 964.804 134.735 7.559 3.990 10.109 2.152 3.334 16.468 536.903 6.226 2.400 2.563 1.023 34.954 8 TOTAL OUTSTANDING LIABILITIES AT THE BEGINNING OF THE PERIOD 1.918 - - - - - - - - - - - - 1.918 - - 9 PRINCIPAL WRITTEN–OFF - - - - - - - - - - - - - - - - 10 INTEREST/ MARK– UP WRITTEN–OFF 11 306.135 36.595 0.509 1.914 2.110 0.501 0.894 3.968 158.902 1.226 0.624 0.563 0.573 33.036 0.729 1.911 OTHER FINANCIAL RELIEF PROVIDED 308.053 36.595 0.509 1.914 2.110 0.501 0.894 3.968 158.902 1.226 0.624 0.563 0.573 34.954 0.729 1.911 12 TOTAL 9+10+11 Annexure II ISLAMIC BANKING BUSINESS The Bank is operating 117 (2018: 117) Islamic Banking Branches and 60 (2018: 10) Islamic Banking Windows at the end of the year. Statement of Financial Position As at December 31, 2019 Note Cash and balances with treasury banks Balances with other banks Due from financial institutions 1 11,554,430 3,524,515 Investments 2 12,452,302 10,249,093 Islamic financing and related assets - net 3 12,615,208 6,925,342 2,041,413 1,139,785 Fixed assets Intangible assets Due from Head Office Accumulated Losses CONTINGENCIES AND COMMITMENTS 4 Bills payable Due to financial institutions Subordinated debt Other liabilities NET ASSETS Islamic Banking Fund Reserves Surplus/ (Deficit) on revaluation of assets 7 December 31, December 31, 2019 2018 Rupees in ‘000 ASSETS 1,985,765 2,111,510 59,475 2,046,081 764 893 161,300 799,045 LIABILITIES Other assets 710,733 501,078 Total Assets 41,581,390 27,297,342 1,700,000 164,687 146,954 Deposits and other accounts 5 34,389,411 24,632,632 - Due to Head Office 4 - REPRESENTED BY - - - 1,978,457 172,759 38,232,555 24,952,345 3,348,835 2,344,997 4,100,000 (305) 3,200,000 (305) 76,488 51,504 (827,348) (906,202) 3,348,835 2,344,997 8 Allied Bank Limited 193
99. ISLAMIC BANKING BUSINESS Profit and Loss Account Annexure II ISLAMIC BANKING BUSINESS Notes to the Annexure II For the year ended December 31 , 2019 For the year ended December 31, 2019 December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 Profit / return earned 9 2,960,335 1,257,179 Profit / return expensed 10 1,757,218 601,330 1,203,117 655,849 Net Profit / return In Local Currency Dividend income Foreign exchange (loss) / gain Income / (loss) from derivatives Loss on securities Other Income Total other income TOTAL INCOME Operating expenses Other charges Total other expenses PROFIT/ (LOSS) BEFORE PROVISIONS Provisions and write offs - net PROFIT/ (LOSS) BEFORE TAXATION Taxation PROFIT/ (LOSS) AFTER TAXATION Total In Foreign Currencies Total 1 DUE FROM FINANCIAL INSTITUTIONS Bai Muajjal Receivable from other Financial Institutions 7,850,288 - 7,850,288 1,024,515 - 1,024,515 Bai Muajjal Receivable from 158,643 State Bank of Pakistan 74,463 - - 5,002 3,302 - - (4,974) (1,347) 2,483 2,925 161,154 79,343 1,364,271 735,192 Musharaka Lending 1,285,405 1,083,994 - - - - 1,285,405 1,083,994 78,866 (348,802) 12 8 78,854 (348,810) - - 78,854 (348,810) 2,704,142 - 2,704,142 - - - 1,000,000 - 1,000,000 2,500,000 - 2,500,000 11,554,430 - 11,554,430 3,524,515 - 3,524,515 December 31, 2019 Cost/ Amortised cost Provision for diminution December 31, 2018 Surplus / (Deficit) Carrying Value Cost/ Amortised cost Provision for diminution Surplus / (Deficit) Carrying Value Rupees in ‘000 2 OTHER EXPENSES Workers welfare fund December 31, 2018 In Local Currency Rupees in ‘000 OTHER INCOME Fee and commission income In Foreign Currencies INVESTMENTS BY SEGMENTS Federal Government Securities: - Ijarah Sukuks - Other Federal Securities 876,500 - (8,765) 867,735 3,350,837 - (16,997) 2,300,521 - - 2,300,521 - - - 3,333,840 - 3,177,021 - (8,765) 3,168,256 3,350,837 - (16,997) 3,333,840 Non Government Debt Securities - Listed 2,222,735 - 15,910 2,238,645 172,579 - (842) 171,737 - Unlisted 7,045,401 - - 7,045,401 6,743,516 - - 6,743,516 9,268,136 - 15,910 9,284,046 6,916,095 - (842) 6,915,253 12,445,157 - 7,145 12,452,302 10,266,932 - (17,839) 10,249,093 Total Investments Note 3 December 31, December 31, 2019 2018 Rupees in ‘000 ISLAMIC FINANCING AND RELATED ASSETS Ijarah 3.1 Istisna Murabaha 3.2.1 294,553 268,514 504,728 - 114,409 73,116 Islamic Export Re-finance - Business Musharakah 1,000,000 - Diminishing Musharaka 3,200,020 2,628,167 Finance against Dishonored Bills Salam Business Musharakah - Financings Staff Ijarah Staff - Diminishing Musharakah Gross Islamic financing and related assets 309,737 - - 20,643 6,752,116 3,626,407 348,929 272,629 90,736 35,874 12,615,228 6,925,350 Less: provision against Islamic financings - Specific - - - General 20 8 Islamic financing and related assets - net of provision 194 Annual Report 2019 20 8 12,615,208 6,925,342 Allied Bank Limited 195
100. ISLAMIC BANKING BUSINESS Notes to the Annexure II ISLAMIC BANKING BUSINESS Notes to the Annexure II For the year ended December 31 , 2019 For the year ended December 31, 2019 December 31, December 31, 2019 2018 Rupees in ‘000 December 31, 2019 Cost As at Jan 01, 2019 Accumulated Depreciation Additions / (deletions) As at Dec 31, 2019 As at Jan 01, 2019 Charge for the year Book Value as at 31 Dec 2019 As at Dec 31, 2019 Rupees in ‘000 3.1 3.2.4 Ijarah Vehicles 331,241 Equipment Total 97,842 429,083 82,182 68,691 150,873 22,230 - 22,230 2,775 3,112 5,887 16,343 97,842 451,313 84,957 71,803 156,760 294,553 Opening balance 1,680 50 Arising during the year 6,104 3,464 (6,247) (1,834) 1,537 1,680 161,300 799,045 Less: Recognised during the year 278,210 353,471 Deferred murabaha income Closing balance 4 DUE FROM/ (DUE TO) HEAD OFFICE December 31, 2018 Cost As at Jan 01, 2018 Pak Account Daily settlement with Head Office Accumulated Depreciation Additions / (deletions) As at Dec 31, 2018 As at Jan 01, 2018 Charge for the year Book Value as at 31 Dec 2018 As at Dec 31, 2018 December 31, 2019 Rupees in ‘000 In Local Currency In Foreign Currencies December 31, 2018 In Local Currency Total In Foreign Currencies Total Rupees in ‘000 Vehicles 198,603 132,638 331,241 53,777 28,405 Equipment 1,600,000 Total 1,798,603 82,182 249,059 (1,577,770) 22,230 107,132 (104,357) 2,775 19,455 (1,445,132) 353,471 160,909 (75,952) 84,957 268,514 5 DEPOSITS Customers December 31, 2019 Not later than 1 year Later than 1 year& less than 5 years Over Five years December 31, 2018 Total Not later than 1 year Later than 1 year& less than 5 years Over Five years Total 6,015,518 4,220,655 404,381 46,487 11,754,139 9,331,462 31,623 4,625,036 9,363,085 1,518,756 - 1,518,756 1,237,301 - 1,237,301 2,089,570 - 2,089,570 2,667,097 - 2,667,097 20,900,886 477,097 21,377,983 17,456,515 436,004 17,892,519 Current deposits 5,057 - 5,057 3,822 - 3,822 Savings deposits 8,196,371 - 8,196,371 6,736,291 - 6,736,291 Term deposits 4,810,000 - 4,810,000 - - - - - - - - - 13,011,428 - 13,011,428 6,740,113 - 6,740,113 33,912,314 477,097 34,389,411 24,196,628 436,004 24,632,632 Financial Institutions 5,952 222,937 1,124 230,013 7,722 Note 178,212 - 185,934 December 31, December 31, 2019 2018 Rupees in ‘000 Others Murabaha Murabaha financing 3.2.2 Inventory for Murabaha Advances for Murabaha 3.2.1 Murabaha receivable - gross Less: Deferred murabaha income Profit receivable shown in other assets Murabaha financings 3.2.2 Sales during the year Adjusted during the year Closing balance 3.2.3 3.2 3.2.4 102,282 74,796 - - December 31, December 31, 2019 2018 Rupees in ‘000 13,664 - 115,946 74,796 115,946 74,796 - Individuals 8,929,921 6,893,387 (1,537) (1,680) - Government 3,954,561 4,713,978 - - 114,409 73,116 5.1 Murabaha sale price Murabaha purchase price Annual Report 2019 74,796 18,687 140,959 135,644 (113,473) (79,535) 102,282 74,796 140,959 135,644 (134,855) (131,154) 6,104 4,490 Composition of deposits - Public Sector Entities The movement in Murabaha financing during the year is as follows: Opening balance 196 430,610 11,707,652 Others Future Ijarah payments receivable 3.2 5,584,908 Savings deposits Term deposits Rupees in ‘000 Ijarah rental receivables Current deposits 5.2 2,438 100 - Banking Companies 3,645,353 1,518,173 - Non-Banking Financial Institutions 9,366,078 5,221,940 - Private Sector 8,491,060 6,285,054 34,389,411 24,632,632 This includes deposits eligible to be covered under insurance arrangements amounting to Rs. 15,833 million. Allied Bank Limited 197
101. ISLAMIC BANKING BUSINESS Notes to the Annexure II ISLAMIC BANKING BUSINESS Notes to the Annexure II For the year ended December 31 , 2019 For the year ended December 31, 2019 December 31, December 31, 2019 2018 Rupees in ‘000 6 CHARITY FUND Opening Balance 3 2 64 933 Additions during the period: Received from customers on account of delayed payment Dividend purification amount - - Other Non-Shariah compliant income - 46 Profit on charity saving account 5 9 Others 3 - 72 988 Payments / utilization during the period: Education Health Closing Balance 6.1 During the year charity exceeding Rs 0.5 million and charity to related party is Nil. (2018: Nil) 7 ISLAMIC BANKING BUSINESS UNAPPROPRIATED PROFIT Opening Balance Add: Islamic Banking profit / (loss) for the period 485 60 985 12 3 (906,202) (557,392) 78,854 (348,810) - - Less: Reserves - - Less: Transferred / Remitted to Head Office - - (827,348) (906,202) CONTINGENCIES AND COMMITMENTS -Guarantees -Commitments -Other contingent liabilities 9 500 - Less: Taxation Closing Balance 8 60 200,370 96,846 1,660,217 485,472 47,299 - 1,907,886 582,318 11 Profit earned on: Investments Financings Placements 10 689,782 938,926 382,297 202,090 185,100 2,960,335 1,257,179 PROFIT ON DEPOSITS AND OTHER DUES EXPENSED Deposits and other accounts 1,336,705 297,719 Profit paid on Musharaka borrowings 228,213 46,739 Other expenses (IFRS-16) 154,017 - Due to Financial Institutions Cost of foreign currency swap on foreign currency deposits Profit paid on Mudaraba borrowings Other profit expenses 198 1,819,319 Annual Report 2019 7,364 256,159 28,268 - 1,574 - 1,077 713 1,757,218 601,330 Allied Bank Limited – Islamic Banking operating in general and specific pools for deposits and inter-bank funds accepted / acquired under Mudaraba, Musharkah and Wakala modes. 1– General Pool for Local Currency Depositors (Mudaraba) 2- General Pool for FCY (USD, GBP and EURO) depositors (Mudaraba) 3- Specific Pools (Mudaraba) 4- Treasury related FI Pools (Mudaraba / Musharakah / Wakala) 5- Islamic Export Refinance Pool (Musharakah) 1– General Pool for Local Currency Depositors (Modaraba) Under this pool category, The Bank acts as Manager (Mudarib) and accepts funds in local currency from general depositors (Rab-ul-Maal) on the principals of mudarba and invests the same in Shariah compliant modes of financings, investments and placements. The Bank may commingle its own equity in this pool, Bank prioritizes the funds received from depositors over the funds generated from own sources. The profit of General Pool is calculated after deducting the directly incurred expenses, if any, from the income earned on all the remunerative assets managed by the pool. No provision against any non-performing asset of the pool are passed on to the pool except on the actual loss / write-off of such non-performing asset as per SBP guidelines. The profit of the pool is shared between equity and other members of the pool at gross level (before charging of mudarib fee) as per the investment ratios. After charging of agreed mudarib fee, The profit of the pool is shared among the members of the pool on profit weightages i.e. announced before start of profit calculation period. 2– General pool for Foreign Currency (USD, GBP and EURO) depositors (Mudaraba) FCY pools are being maintained in USD, GBP, EURO currencies. All FCY deposits are parked in these pool(s) and return is shared among FCY deposit holders on the principals of mudarba according to the weightages of respective pool. 3– Specific Pools (Mudaraba) Specific pool(s) are created where the customers desire to invest in high yield assets. Profit rates of these pool(s) are usually different from the general pool depending on the assets. In case of loss in special pool, the loss will be borne by the Special pool members. The distributable profit is calculated as direct costs from the gross return earned on the pool. From the net return, profit is paid to the Mudarib in the ratio of the Mudarib’s equity in the pool to the total pool. Specific pool deposits are invested in assets yielding relatively higher rate of return, as relative high risk investments are involved in these pools, hence bearing relative more risk than the general pool depositors. 4– Treasury related FI Pools (Mudaraba/Musharka/Wakala) Treasury Pools are created, to manage liquidity, on the basis of Musharaka / Mudaraba / Wakala modes, wherein ABL–IBG and Financial Institutions share actual return earned by the pool according to pre–defined profit sharing ratio. 5- Islamic Export Refinance Pool (Musharkah) Islamic Export Refinance Pool is created with SBP, to manage export refinance customers, on the basis of Musharakah, wherein ABL-IBG and State Bank of Pakistan share actual return earned by the pool according to pre-defined profit sharing ratio. PROFIT/RETURN EARNED OF FINANCING, INVESTMENTS AND PLACEMENT POOL MANAGEMENT The risk characteristic of each pool mainly depends on the assets and liability profile of each pool. As per the Bank’s policy, relatively low risk / secured financing and placement transactions and assets are allocated to general depositors pool of PKR, USD, GBP. and Euro. The general pools are usually exposed to general credit risk, asset ownership risk and profit rate risk of the underlying assets involved in pool. Following are the considerations attached with risk & reward of Modaraba based pools: • • • • • Period, return, safety, security and liquidity of investment Risk annexed to investments / financings Change in deposit base due to early withdrawals of deposits SBP rules, guidelines Sharia Non compliance risk The deposits and funds accepted under the above mentioned pools are invested in diversified sectors and avenues of the economy / business along with investment in Government of Pakistan backed Ijarah Sukuks & other Shariah Compliant assets. Allied Bank Limited 199
102. Details of Disposal of Fixed Assets to Related Party Details of Disposal of Fixed Assets to Related Party For the year ended December 31 , 2019 For the year ended December 31, 2019 Annexure III December 31, December 31, 2019 2018 Rupees in ‘000 11.1 Original Cost Accumulated depreciation Book value Sale proceeds Mode of Disposal Particulars of purchaser* Rupees in ‘000 Manufacturing Chemicals & Allied Products Petroleum and Gas Leather / Leather products Financial Institutions Agriculture & Food Products Transportation & Logistics Auto & Allied Products 4,164,902 2,971,679 736,066 748,676 2,498,502 50,918 845,275 1,812,676 2,349 3,061 768,812 429,185 19,064 22,839 90,303 28,647 152,807 13,588 Cotton Processing Metal products - Steel Foundries Cement - 20,643 484,328 499,996 1,000,000 - Textile - Knitting 850,000 - Retail Chain 500,000 - Communication 24,626 - 478,194 323,442 12,615,228 6,925,350 GOP Ijarah Sukuk 3,168,257 3,333,840 Power/Energy Generation 5,411,046 4,880,168 Financial Institutions 1,287,000 1,287,000 Chemicals 1,616,000 - 470,000 248,085 Others Total Gross Financing & Related Assets Hotel Business Steel Processing 500,000 500,000 Total Investments & Placements 12,452,303 10,249,093 Total Invested Funds 25,067,531 17,174,443 Electrical and Computer Equipments 162 162 - 24 As Per Bank Policy Ahmed Faheem Khan 85 85 - 8 As Per Bank Policy Tahir Hassan Qureshi 473 473 - 47 As Per Bank Policy Owais Shahid 170 170 - 17 As Per Bank Policy Aizid Gill 205 205 - 21 As Per Bank Policy Imran Maqsood 65 65 - 6 As Per Bank Policy Saira Shahid Hussain 85 85 - 9 As Per Bank Policy Muhammad Raffat 85 85 - 9 As Per Bank Policy Sohail Aziz 125 125 - 12 As Per Bank Policy Mujahid Ali 178 146 32 41 As Per Bank Policy Muhammad Farhanullah Khan 164 164 - 16 As Per Bank Policy Shahid Aamir 420 416 4 42 As Per Bank Policy Muhammad Idrees As Per Bank Policy Muhammad Mohsin 171 171 - 17 2,388 2,352 36 269 *They are Key Management Personnel of the Bank during the year ended December 31, 2019. Profit / (loss) distribution to general depositor’s pool Remunerative Depositor’s Pool Profit rate and weightage announcement period Profit rate return earned on earning assets Profit sharing ratio Mudarib share Profit rate return distributed to remunerative deposits (Savings and Fixed) Percentage of Mudarib share transferred through Hiba Rupees in ‘000’ 200 Description Avenues / sectors where Mudaraba based deposits have been deployed Production & Transmission of Energy 11.2 The particulars of disposal of fixed assets to related parties are given below: Amount of Mudarib Share transferred through Hiba Rupees in ‘000’ General Pool Monthly 11.70% 50% : 50% 727,426 6.61% 25.11% 182,662 Foreign Currency Pool - EUR Monthly 5.24% 1% : 99% 143 0.001 0.95% 1.36 Foreign Currency Pool - GBP Monthly 5.24% 1% : 99% 74 0.001 0.93% 0.69 Foreign Currency Pool - USD Monthly 5.24% 1% : 99% 1990 0.001 0.07% 17.93 Annual Report 2019 Allied Bank Limited 201
103. CONSOLIDATED FINANCIAL STATEMENTS for the year ended December 31 , 2019 202 Annual Report 2019 Allied Bank Limited 203
104. Directors ’ Report on Consolidated Financial Statements Independent Auditor’s Report To the members of Allied Bank Limited Report on the Audit of the Consolidated Financial Statements For the year ended December 31, 2019 On behalf of the Board of Directors, we are pleased to present the consolidated annual report of Allied Bank Limited (holding company) and ABL Asset Management Company Limited (subsidiary company) The operating results and appropriations, as recommended by the Board are given below: 2019 2018 Growth Rs. In Million Profit after tax for the year 14,489 13,032 Accumulated profits brought forward 53,985 50,546 7% (503) 454 (211)% Transferred from surplus on revaluation of fixed assets – net of tax 116 112 4% Transferred from surplus on revaluation of non–banking assets – net of tax 166 3 5433% 68,253 64,147 6% (2,290) (2,004) 14% Effect of re–measurement of defined benefit plans–net of tax Profit available for appropriation 11% Final cash dividend for the year ended December 31, 2018 at Rs. 2 per share (2018: Year ended December 31, 2017 at Rs. 1.75 per share) First Interim cash dividend for the year ended December 31, 2019 at Rs. 2.00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) (2,290) (2,290) 0% Second Interim cash dividend for the year ended December 31, 2019 at Rs. 2.00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) (2,290) (2,290) 0% (2,290) (2,290) 0% Transfer to statutory reserves (1,411) (1,288) 10% Accumulated profits carried forward 57,682 53,985 7% 12.65 11.38 11% Earnings Per Share (EPS) (Rs.) Pattern of shareholding Pattern of shareholding as at December 31, 2019 is included in the Annual Report. In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 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 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 period. 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. S. No. 1 Key Audit Matters How the matter was addressed in our audit Provision against Loans and Advances Refer to note 9 and the accounting policies in notes 2.4.2 and 4.5 to the consolidated financial statements. Our audit procedures in respect of provision against advances, amongst others, included the following: The Group makes provision against advances on a time • based criteria that involves ensuring all non-performing loans and advances are classified in accordance with the ageing criteria specified in the Prudential Regulations (PRs) issued by the State Bank of Pakistan (SBP). – In addition to the time based criteria the PRs require a subjective evaluation of the credit worthiness of borrowers to determine the classification of advances. – The Group’s advances to the customers represent 32.7% of its total assets as at 31 December 2019 and are stated at Rs. 485,052 million which is net of provision of Rs. 15,152 million at the year end. – For and on behalf on the Board Mohammad Naeem Mukhtar Chairman Board of Directors We have audited the annexed consolidated financial statements of Allied Bank Limited and its subsidiary (the Group), which comprise the consolidated statement of financial position as at 31 December 2019 and the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. Following are the Key Audit Matters: Third Interim cash dividend for the year ended December 31, 2019 at Rs. 2.00 per share (2018: Year ended December 31, 2018 at Rs. 2.00 per ordinary share) Opinion Tahir Hassan Qureshi Chief Executive Officer The determination of provision against advances was identified as a key audit matter in our audit as it involves – a considerable degree of management judgment and estimation in complying with the above criteria. • Lahore Dated: February 07, 2020 • 204 Annual Report 2019 Assessing the design and operating effectiveness of key controls to identify loss events and for determining provision required against non-performing advances, including: Controls over correct classification of non-performing advances on time based criteria; Controls over monitoring of advances with higher risk of default and migration of these advances on a timely basis to watch list or to non-performing advances category on subjective 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 Prudential Regulations; Checking on a sample basis, the accuracy of specific provision made against non-performing advances and of general provision by recomputing the provision amount in accordance with the criteria prescribed under the PRs; Allied Bank Limited 205
105. Independent Auditor ’s Report To the members of Allied Bank Limited Report on the Audit of the Consolidated Financial Statements S. No. Key Audit Matters 2 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. 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) Obtaining an understanding of and testing the design and operation effectiveness of the controls relating to the valuation of investments; 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) Checking on a sample basis, the valuation of investments to supporting documents, externally quoted market prices and break-up values; 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. How the matter was addressed in our audit • Independent Auditor’s Report To the members of Allied Bank Limited Report on the Audit of the Consolidated Financial Statements Examining the credit history, account movement, financial ratios, report on security maintained in respect of advances where the management has not identified indicators displaying impairment, on a sample basis and challenging the management’s assessment based on our view of the credit from the review of credit file. Valuation of Investments Refer to note 8 and the accounting policies in notes 2.4.2, Our procedures in respect of valuation of investments, 2.4.3 and 4.4 to the consolidated financial statements. amongst others, included the following: As at 31 December 2019, the Group has investments • classified as “Available-for-sale”, “Held for trading”, “Held to maturity” amounting to Rs. 759,654 million which in aggregate represent 51.21% of the total assets of the Group. • Investments are carried at cost or fair value in accordance with the Group’s accounting policy relating to their recognition. Provision against investment is made based on impairment policy of the Group which includes both objective • and subjective factors. We identified assessing the valuation of investments as a key audit matter because of its significance to the consolidated financial statements and because assessing the key impairment assumptions involves a significant degree of • management judgement. Evaluating the Group’s assessment of available for sale and held to maturity investments for any additional impairment in accordance with the Group’s accounting policies and performed an independent assessment of the assumptions; and Considering the Group’s disclosures of investments, to the guidelines laid down by the State Bank of Pakistan regarding forms and disclosures. Information Other than the Consolidated Financial Statements and Auditor’s Report Thereon 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 consolidated 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. The engagement partner on the audit resulting in this independent auditor’s report is Mr. Kamran Iqbal Yousafi. 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. KPMG Taseer Hadi & Co. Chartered Accountants Date: 03 March 2020 Lahore 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 and the 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 scepticism throughout the audit. We also: a) 206 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. Annual Report 2019 Allied Bank Limited 207
106. Consolidated Statement of Financial Position Consolidated Profit and Loss Account as at December 31 , 2019 December 31, December 31, 2019 2018 for the year ended December 31, 2019 Note US $ in ‘000 December 31, 2019 2018 December 31, December 31, 2019 2018 Note US $ in ‘000 December 31, December 31, 2019 2018 Rupees in ‘000 Rupees in ‘000 774,537 3,891 87,873 4,905,820 3,132,445 401,944 12,760 260,365 9,579,635 640,485 16,630 347,310 4,343,544 2,830,888 325,480 11,341 217,963 8,733,641 50,880 1,720,714 6,774,524 38,182 238,388 8,822,688 756,947 50,068 1,458,744 6,357,626 30,684 133,958 8,031,080 702,561 73,948 143,820 166,671 372,508 756,947 December 31, 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 LIABILITIES Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Sub-ordinated debt Deferred tax liabilities - net Other liabilities 5 6 7 8 9 10 11 12 14 15 16 17 18 NET ASSETS REPRESENTED BY 73,948 Share capital 130,945 Reserves 149,032 Surplus on revaluation of assets - net of tax 348,636 Unappropriated profit 702,561 19 20 119,935,126 602,582 13,606,921 759,654,427 485,051,568 62,240,062 1,975,898 40,316,857 1,483,383,441 99,177,561 2,575,055 53,780,195 672,587,309 438,356,170 50,399,773 1,756,127 33,751,113 1,352,383,303 7,878,626 266,448,386 1,049,018,804 5,912,375 36,913,696 1,366,171,887 117,211,554 7,752,959 225,882,986 984,463,067 4,751,359 20,743,121 1,243,593,492 108,789,811 11,450,739 22,270,225 25,808,658 57,681,932 117,211,554 11,450,739 20,276,515 23,077,174 53,985,383 108,789,811 791,995 523,954 268,041 473,210 265,792 207,418 36,831 12,289 12,866 11,389 2,554 75,929 32,169 18,266 9,714 14,978 1,594 76,721 343,970 284,139 184,657 (5,002) 1,260 180,915 163,055 3,531 160,748 (7,221) 529 154,056 130,083 (7,038) 159,524 65,956 93,568 21 NON MARK–UP / INTEREST INCOME Fee and commission income Dividend income Foreign exchange income Income from derivatives Gain on securities - net Other income Total non-markup / interest income 23 24 122,638,580 81,132,992 41,505,588 73,275,474 41,157,150 32,118,324 25 5,703,136 1,902,872 1,992,194 1,763,512 395,412 11,757,126 4,981,220 2,828,478 1,504,189 2,319,341 246,888 11,880,116 53,262,714 43,998,440 28,593,691 (774,603) 195,045 28,014,133 25,248,581 546,658 24,701,923 10,213,160 14,488,763 24,891,410 (1,118,156) 81,963 23,855,217 20,143,223 (1,089,688) 21,232,911 8,201,094 13,031,817 26 27 Total income NON MARK–UP / INTEREST EXPENSES Operating expenses Workers welfare fund - net Other charges Total non-markup / interest expenses Profit before provisions Provisions / (reversals) and write offs - net - Extra-ordinary / unusual items 137,121 PROFIT BEFORE TAXATION 52,963 Taxation 84,158 PROFIT AFTER TAXATION 28 29 30 31 32 In US $ 0.08 CONTINGENCIES AND COMMITMENTS Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income In Rupees 0.07 Basic and diluted earnings per share 33 12.65 11.38 The annexed notes 1 to 46 form an integral part of these consolidated financial statements. The annexed notes 1 to 46 form an integral part of these consolidated financial statements. 208 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 Allied Bank Limited 209
107. Consolidated Statement of Comprehensive Income Consolidated Cash Flow Statement for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, December 31, December 31, 2019 2018 2019 2018 US $ in ‘000 December 31, 2019 2018 84,158 Profit after taxation for the year 14,488,763 13,031,817 Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: 6,512 (34,276) (27,764) Effect of translation of net investment in foreign branches Movement in deficit on revaluation of investments - net of tax 582,419 2,243,212 2,825,631 1,008,347 (5,307,574) (4,299,227) Items that will not be reclassified to profit and loss account in subsequent periods: (3,246) 2,935 - (881) 4,977 1,731 113,547 3,638 5,692 62,086 Re–measurement (loss) / gain on defined benefit obligations - net of tax Movement in surplus / (deficit) on revaluation of fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Total comprehensive income (502,707) 454,522 - (136,403) 770,648 267,941 17,582,335 563,393 881,512 9,614,102 The annexed notes 1 to 46 form an integral part of these consolidated financial statements. Note US $ in ‘000 Rupees in ‘000 93,568 3,761 14,487 18,248 December 31, 159,524 (12,289) 147,235 20,556 10,447 6,383 1,593 4,471 1,230 (5,002) (1,733) (208) 37,737 184,972 259,437 (129,264) (300,084) (50,856) (220,767) 812 263,129 416,820 54,052 734,813 699,018 (60,123) 638,895 December 31, December 31, 2019 2018 Rupees in ‘000 CASH FLOW FROM OPERATING ACTIVITIES 137,121 Profit before taxation (18,266) Less: Dividend income 118,855 Adjustments: 20,118 Depreciation - Depreciation on right of use assets - Interest expense on lease liability 2,609 Amortization (6,065) Net provision / (reversals) and write offs 403 Unrealized gain on revaluation of 'held-for-trading' securities (7,221) Reversal against workers' welfare fund - net (225) Gain on sale of fixed assets (35) (Gain) / loss on sale of non-banking assets / other assets 9,584 128,439 (Increase) / decrease in operating assets (291,198) Lendings to financial institutions 160,326 Held-for-trading securities (422,971) Advances 26,958 Other assets (excluding advance taxation) (526,885) Increase / (decrease) in operating liabilities (533) Bills payable 14,129 Borrowings 650,524 Deposits and other accounts 3,756 Other liabilities (excluding current taxation) 667,876 269,430 (50,787) Income tax paid 218,643 Net cash flow generated from operating activities (436,075) 20,256 12,292 (48,176) 2,406 3,761 (445,536) (417,567) 377,214 18,403 (45,847) 300 6,512 (60,985) (12,001) (58,964) (70,965) (15,205) 107,189 670,824 778,013 (56,927) (56,927) (28,270) 72,461 583,080 655,541 31 CASH FLOW FROM INVESTING ACTIVITIES Net investments in 'available-for-sale' securities Net realizations from 'held-to-maturity' securities Dividend received Investments in fixed assets and intangible assets Proceeds from sale of fixed assets Effect of translation of net investment in foreign branches Net cash flow used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Payment of lease liability against right of use assets Dividend paid Net cash flow used in financing activities Effect of exchange rate changes on opening cash and cash equivalents Increase in cash and cash equivalents during the year Cash and cash equivalents at beginning of the year CASH AND CASH EQUIVALENTS AT END OF THE YEAR 34 24,701,923 (1,902,872) 22,799,051 21,232,911 (2,828,478) 18,404,433 3,183,010 1,617,769 988,344 246,646 692,374 190,398 (774,603) (268,306) (32,266) 5,843,366 28,642,417 3,115,251 404,071 (939,121) 62,372 (1,118,156) (34,903) (5,485) 1,484,029 19,888,462 40,173,274 (20,016,175) (46,467,284) (7,874,969) (34,185,154) (45,091,280) 24,826,109 (65,496,094) 4,174,455 (81,586,810) 125,667 40,744,817 64,543,621 8,369,824 113,783,929 108,241,192 (9,309,899) 98,931,293 (82,508) 2,187,802 100,732,013 581,670 103,418,977 41,720,629 (7,864,272) 33,856,357 (67,525,173) 3,136,581 1,903,327 (7,459,934) 372,634 582,419 (68,990,146) (64,659,309) 58,410,682 2,849,652 (7,099,357) 46,526 1,008,347 (9,443,459) (1,858,363) (9,130,391) (10,988,754) (2,354,435) 16,597,958 103,875,543 120,473,501 (8,815,003) (8,815,003) (4,377,475) 11,220,420 90,288,572 101,508,992 The annexed notes 1 to 46 form an integral part of these consolidated financial statements. 210 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 Allied Bank Limited 211
108. Consolidated Statement of Changes in Equity Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 Revenue reserve Capital reserve Exchange translation reserve Share capital for the year ended December 31, 2019 Statutory reserve General reserve Surplus on revaluation of Investments Unappropriated Nonbanking profit assets Fixed assets Total Rupees in ‘000 Balance as at January 01, 2018 Profit after taxation for the year ended December 31, 2018 Other Comprehensive Income - net of tax Deficit on revaluation of investments - net of tax Deficit on revaluation of fixed assets - net of tax Surplus on revaluation of non-banking assets - net of tax Remeasurement gain on defined benefit obligation - net of tax Effect of translation of net investment in foreign branches Transfer to statutory reserve Transferred from surplus in respect of incremental depreciation of fixed assets to un-appropriated profit - net of tax Transferred from surplus in respect of incremental depreciation of non-banking assets to unappropriated profit - net of tax Surplus realised on disposal of revalued non-banking assets - net of tax Transactions with owners recognized directly in equity Final cash dividend for the year ended December 31, 2017 (Rs. 1.75 per ordinary share) First interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Second interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Third interim cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) Balance as at December 31, 2018 Profit after taxation for the year ended December 31, 2019 Other Comprehensive Income – net of tax Surplus on revaluation of investments - net of tax Surplus on revaluation of non-banking assets - net of tax Remeasurement loss on defined benefit obligation - net of tax Effect of translation of net investment in foreign branches Transfer to statutory reserve Transferred from surplus in respect of incremental depreciation of fixed assets to un-appropriated profit - net of tax Surplus realised on disposal of revalued fixed assets - net of tax Transferred from surplus in respect of incremental depreciation of non-banking assets to unappropriated profit - net of tax Surplus realised on disposal of revalued non-banking assets - net of tax Transactions with owners recognized directly in equity Final cash dividend for the year ended December 31, 2018 (Rs. 2 per ordinary share) First interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Second interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Third interim cash dividend for the year ended December 31, 2019 (Rs. 2 per ordinary share) Balance as at December 31, 2019 11,450,739 230,954 17,743,162 6,000 10,493,343 16,004,075 1,575,633 50,546,126 108,050,032 - - - - - - - 13,031,817 13,031,817 - - - - (5,307,574) - (136,403) - 563,393 - (5,307,574) (136,403) 563,393 - 1,008,347 1,008,347 - - (5,307,574) (136,403) 563,393 454,522 454,522 454,522 1,008,347 (3,417,715) - - 1,288,052 - - - - (1,288,052) - - - - - - (112,263) - 112,263 - - - - - - - (1,157) 1,157 - (1,873) 1,873 - - - - - - - - (2,003,879) (2,003,879) - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) 1,239,301 19,031,214 6,000 11,450,739 5,185,769 15,755,409 2,135,996 (2,290,148) (2,290,148) (8,874,323) (8,874,323) 53,985,383 108,789,811 - - - - - - - 14,488,763 14,488,763 - 582,419 582,419 - 1,411,291 - 2,243,212 2,243,212 - - 770,648 770,648 - (502,707) (502,707) (1,411,291) 2,243,212 770,648 (502,707) 582,419 3,093,572 - - - - - - (106,684) - 106,684 - - - - - - (9,729) - 9,729 - - - - - - - (2,224) 2,224 - (163,739) 163,739 - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) - - - - - - - (2,290,148) (2,290,148) 1,821,720 20,442,505 6,000 11,450,739 7,428,981 15,638,996 2,740,681 (2,290,148) (2,290,148) (9,160,592) (9,160,592) 57,681,932 117,211,554 1 STATUS AND NATURE OF BUSINESS The “Group” consist of: Holding Company Allied Bank Limited (“the Bank”), incorporated in Pakistan, is a scheduled bank, engaged in commercial banking and related services. The Bank is listed on Pakistan Stock Exchange Limited. The Bank operates a total of 1,393 (2018: 1,343) branches in Pakistan including 117 (2018: 117) Islamic banking branches, 1 branch (2018: 1) in Karachi Export Processing Zone and 1 Wholesale banking branch (2018: 1) in Bahrain. The long term credit rating of the Bank assigned by the Pakistan Credit Rating Agency Limited (PACRA) is ‘AAA’. Short term rating of the Bank is ‘A1+’. Ibrahim Holdings (Private) Limited is the parent company of the Bank and it’s registered office is in Pakistan. The Bank is the holding company of ABL Asset Management Company Limited. The registered office of the Bank is situated at 3 - Tipu Block, Main Boulevard, New Garden Town, Lahore. Subsidiary Company ABL Asset Management Company Limited (“the Company”) is a public unlisted company, incorporated in Pakistan as a limited liability company on 12 October 2007 under the repealed Companies Ordinance, 1984 (now the Companies Act,2017). The Company has obtained licenses from the Securities and Exchange Commission of Pakistan (SECP) to carry on Asset Management Services and Investment Advisory Services as a Non-Banking Finance Company (NBFC) under Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 as amended through S.R.O.1131[I] 2007 (“the NBFC Rules”), and S.R.O. 1233 (I) / 2019 The Company received certificate of commencement of business on 31 December 2007. The Company has also obtained license to carry out business as Pension Fund Manager, under the Voluntary Pension System Rules, 2005. The registered office of the Company is situated at Plot no. 14, Main Boulevard, DHA Phase VI, Lahore. The Company is a wholly owned subsidiary of Allied Bank Limited (“the holding Company”). The management quality rating of the Company, as assigned by JCR-VIS Crediting Rating Company Limited, is AM2++ (Stable) in December 2019. – ABL Income Fund Launched on September 20, 2008 – ABL Stock Fund Launched on June 28, 2009 – ABL Cash Fund Launched on July 30, 2010 – ABL Islamic Income Fund Launched on July 30, 2010 Launched on November 30, 2011 – ABL Government Securities Fund – ABL Islamic Stock Fund Launched on June 12, 2013 – ABL Pension Fund Launched on August 20, 2014 – ABL Islamic Pension Fund Launched on August 20, 2014 – ABL Islamic Financial Planning Fund Launched on December 22, 2015 – ABL Financial Planning Fund Launched on December 31, 2015 – ABL Islamic Dedicated stock fund Launched on December 19, 2016 – Allied Capital Protected Fund Launched on February 19, 2018 – ABL Islamic Asset Allocation Fund Launched on May 31, 2018 – Allied Finergy Fund Launched on November 30, 2018 – ABL Special Saving Fund Launched on September 19, 2019 – ABL Monthly Payout Fund To be launched – ABL Islamic Cash Fund To be launched 2 BASIS OF PRESENTATION a) These consolidated financial statements consists of holding company and its subsidiary company for the year ended December 31, 2019 The annexed notes 1 to 46 form an integral part of these consolidated financial statements. 212 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Annual Report 2019 In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan (SBP) has issued various circulars from time to time. Permissible forms of traderelated modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these consolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon. Allied Bank Limited 213
109. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 The financial results of the Islamic banking branches have been consolidated in these financial statements for reporting purposes, after eliminating inter-branch transactions / balances. These consolidated financial statements have been presented in Pakistan Rupees (PKR), which is the currency of the primary economic environment in which the Group operates and functional currency of the Group, in that enviornment as well. The amounts are rounded to nearest thousand. The US Dollar amounts reported in the statement of financial position, profit and loss account, statement of comprehensive income and statement of cash flow are stated as additional information, solely for the convenience of the users of financial statements. For the purpose of translation to US Dollar, spot rate of Rs. 154.8476 per US Dollar has been used for 2019 and 2018, as it was the prevalent rate on reporting date. b) BASIS OF CONSOLIDATION The assets and liabilities of subsidiary company have been consolidated on a line by line basis and the carrying value of investment in subsidiary held by the bank is eliminated against the shareholders’ equity in the consolidated financial statements. 2.1 STATEMENT OF COMPLIANCE These consolidated financial statements have been prepared in accordance with the 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 and the Companies Act, 2017; and – Directives issued by the State Bank of Pakistan (SBP) & the Securities and Exchange Commission of Pakistan (SECP). 2.1.1 Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the directives issued by the SBP and the SECP differ with the requirements of IFRS and IFAS the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives, shall prevail. 2.1.2 The SBP, vide BSD Circular Letter No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard 39 ‘Financial Instruments: Recognition and Measurement’ (IAS 39) and International Accounting Standard 40 ‘Investment Property’ (IAS 40) for banking companies till further instructions. Further, according to a notification of Securities and Exchange Commission of Pakistan (SECP) dated April 28, 2008, International Financial Reporting Standard 7 ‘Financial Instruments Disclosure’ (IFRS 7), has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and disclosed in accordance with the requirements prescribed by SBP through various circulars. 2.1.3 The Securities and Exchange Commission of Pakistan (SECP) vide SRO 56 (1) / 2016 dated January 28, 2016, has notified that the requirements of International Financial Reporting Standard 10 ‘Consolidated Financial Statements’ (IFRS 10) and section 228 of the Companies Act, 2017 will not be applicable with respect to the investment in mutual funds established under Trust structure. 2.1.4 The State Bank of Pakistan through BPRD Circular No. 04 of 2015 dated February 25, 2015 has deferred applicability of Islamic Financial Accounting Standard 3 ‘Profit & Loss Sharing on Deposits’ (IFAS-3) issued by the Institute of Chartered Accountants of Pakistan and notified by the Securities & Exchange Commission of Pakistan (SECP), vide their SRO No. 571 of 2013 dated June 12, 2013 for Institutions offering Islamic Financial Services (IIFS). The standard will result in certain new disclosures in the financial statements of the Group. STANDARDS, INTERPRETATIONS OF AND AMENDMENTS TO THE 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’ from January 01, 2019. The impact of the adoption of theses standards and the new accounting policies are explained in note 4. There are certain other new and amended standards, interpretations and amendments that are mandatory for the Group’s accounting periods beginning on or after January 1, 2019 but are considered not to be relevant or do not have any significant effect on the Group’s operations and therefore not detailed in these financial statements. 2.2 2.3 STANDARDS, INTERPRETATIONS OF AND AMENDMENTS TO THE PUBLISHED APPROVED ACCOUNTING STANDARDS THAT ARE NOT YET EFFECTIVE The following standards, amendments and interpretations of accounting and reporting standards as applicable in Pakistan will be effective for accounting periods beginning on or after January 01, 2020: 214 Annual Report 2019 for the year ended December 31, 2019 – Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business (effective for business combinations for which the acquisition date is on or after the beginning of annual period beginning on or after January 01, 2020). The IASB has issued amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments include an election to use a concentration test. The standard is effective for transactions in the future and therefore would not have an impact on past financial statements. – IFRS 9 ‘Financial Instruments’ and amendment – Prepayment Features with Negative Compensation – for Banks and DFIs, the effective date of the standard has been extended to annual periods beginning on or after January 01, 2021 vide SBP BPRD Circular No. 4 dated October 23, 2019. IFRS 9 replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. According to SBP circular referred to above, the Banks/DFIs are required to have a parallel run of IFRS 9 from January 01, 2020 and are also required to prepare pro-forma financial statements which includes the impact of IFRS 9 from the year ended December 31, 2019. – Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors (effective for annual periods beginning on or after January 01, 2020). The amendments are intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. In addition, the IASB has also issued guidance on how to make materiality judgments when preparing their general purpose financial statements in accordance with IFRS Standards. On March 29, 2018, the International Accounting Standards Board (the IASB) has issued a revised Conceptual Framework for Financial Reporting which is applicable immediately contains changes that will set a new direction for IFRS in the future. The Conceptual Framework primarily serves as a tool for the IASB to develop standards and to assist the IFRS Interpretations Committee in interpreting them. It does not override the requirements of individual IFRSs and any inconsistencies with the revised Framework will be subject to the usual due process – this means that the overall impact on standard setting may take some time to crystallise. The companies may use the Framework as a reference for selecting their accounting policies in the absence of specific IFRS requirements. In these cases, companies should review those policies and apply the new guidance retrospectively as of January 01, 2020, unless the new guidance contains specific scope outs. – Interest Rate Benchmark Reform which amended IFRS 9, IAS 39 and IFRS 7 is applicable for annual financial periods beginning on or after January 01, 2020. The G20 asked the Financial Stability Board (FSB) to undertake a fundamental review of major interest rate benchmarks. Following the review, the FSB published a report setting out its recommended reforms of some major interest rate benchmarks such as IBORs. Public authorities in many jurisdictions have since taken steps to implement those recommendations. This has in turn led to uncertainty about the long-term viability of some interest rate benchmarks. In these amendments, the term ‘interest rate benchmark reform’ refers to the market-wide reform of an interest rate benchmark including its replacement with an alternative benchmark rate, such as that resulting from the FSB’s recommendations set out in its July 2014 report ‘Reforming Major Interest Rate Benchmarks’ (the reform). The amendments made provide relief from the potential effects of the uncertainty caused by the reform. – IFRS 14 Regulatory Deferral Accounts - (effective for annual periods beginning on or after 1 July 2019) provides interim guidance on accounting for regulatory deferral accounts balances while IASB considers more comprehensive guidance on accounting for the effects of rate regulation. In order to apply the interim standard, an entity has to be rate regulated – i.e. the establishment of prices that can be charged to its customers for goods or services is subject to oversight and/or approved by an authorized body. The term ‘regulatory deferral account balance’ has been chosen as a neutral descriptor for expense (income) or variance account that is included or is expected to be included by the rate regulator in establishing the rate(s) that can be charged to customers and would not otherwise be recognized as an asset or liability under other IFRSs. 2.4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The preparation of these financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. It also requires the management to exercise its judgment in the process of applying the Group’s accounting policies. Estimates, underlying assumptions and judgments are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. The areas where various assumptions and estimates are significant to the Group’s financial statements or where judgment was exercised in application of accounting policies are as follows: 2.4.1 Classification of investments – In classifying investments as ‘held-for-trading’ the Group has determined securities which are acquired with the intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days. – In classifying investments as ‘held-to-maturity’ the Group follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. – Allied Bank Limited 215
110. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements – Investments (Note 4.4); – Certain operating fixed assets (Note 4.6); – Staff retirement and other benefits (Note 4.8); – Non-banking assets acquired in satisfaction of claims (Note 4.9); and – Derivative financial instruments (Note 4.16.2). 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these consolidated financial statements have been applied consistently to all periods presented in these consolidated financial statements of the Group, except for the change explained in note 4.1. Significant accounting policies are enumerated as follows: 4.1 Changes in Accounting Policy for the year ended December 31, 2019 – The investments, other than those in subsidiary, which are not classified as ‘held-for-trading’ or ‘held-to-maturity’ are classified as ‘available-for-sale’. 2.4.2 Provision against non-performing loans and advances and debt securities classified as investments The Group reviews its loan portfolio and debt securities classified as investments to assess amount of non-performing loans and advances and debt securities and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrower and the requirements of the Prudential Regulations are considered. The amount of general provision is determined in accordance with the requirements set out in Prudential Regulations. 2.4.3 Valuation and 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. This determination of what is significant and prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. 2.4.4 Income taxes In making the estimates for income taxes currently payable by the Group, the management looks at the current income tax laws and the decisions of appellate authorities. In determination of deferred taxes, estimates of the Group’s future taxable profits are taken into account. 2.4.5 Fair value of derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant interest rates in effect at the reporting date and the rates contracted. 2.4.6 Depreciation / amortization In making estimates of the depreciation / amortization, the management uses method which reflects the pattern in which economic benefits are expected to be consumed by the Group and estimates the useful life. The method applied and useful lives estimated are reviewed at each financial year end and if there is a change in the expected pattern or timing of consumption of the future economic benefits embodied in the assets, the estimate would be changed to reflect the change in pattern. Such a change is accounted for as change in accounting estimates in accordance with International Accounting Standard 8 – Accounting Policies, ‘Changes in Accounting Estimates and Errors’. 2.4.7 IFRS 16 ‘Leases’ The Group applied IFRS 16 using the modified retrospective approach, under which the cumulative effect of initial application is recognised in retained earnings at 01 January 2019. Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented, as previously reported, under IAS 17 and related interpretations. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in IFRS 16 have not generally been applied to comparative information. Previously, the Group determined at contract inception whether an arrangement was or contained a lease under IFRIC 4 Determining whether an Arrangement contains a Lease. The Group now assesses whether a contract is or contains a lease based on the definition of a lease, as per IFRS 16. On transition to IFRS 16, the Group elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Group applied IFRS 16 only to contracts that were previously identified as leases. Contracts that were not identified as leases under IAS 17 and IFRIC 4 were not reassessed for whether there is a lease under IFRS 16. Therefore, the definition of a lease under IFRS 16 was applied only to contracts entered into or changed on or after 01 January 2019. As a Lessee As a lessee, the Group previously classified leases as operating or finance leases based on its assessment of whether the lease transferred substantially all of the risks and rewards incidental to ownership of the underlying asset to the Bank. Under IFRS 16, the Group recognises right-of-use assets and lease liabilities for most of these leases – i.e. these leases are on-balance sheet. At commencement or on modification of a contract that contains a lease component, the Group allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price. Previously, the Group classified property leases as operating leases under IAS 17. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Group’s incremental borrowing rate as at 01 January 2019. Right-of-use assets are measured at an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments. The Group has applied this approach to all other leases. The Group used practical expedients when applying IFRS 16 to leases previously classified as operating leases under IAS 17. In particular, the Group excluded initial direct costs from the measurement of the right-of-use asset at the date of initial application and used hindsight when determining the lease term. The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Group by the end of the lease term. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurement of the lease liability. When the lease liability is remeasured, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group presents right-of-use assets in ‘property and equipment’ and lease liabilities in ‘other liabilities’ in the statement of financial position. Defined benefits plan Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method. The actuarial assumptions used to determine the liability and related expense are disclosed in note 36. 2.4.8 Fair value hierarchy of assets and liabilities The fair value of the assets and liabilities is the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Bank categorizes fair value measurements within the following fair value hierarchy: a) Level 1 These are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Group can access at the measurement date. b) Level 2 These are inputs other than quoted prices included within Level 1 that are observable for asset or liability, either directly or indirectly. c) Level 3 These are input for the assets or liability that are not based on observable market data (unobservable Inputs). 3 BASIS OF MEASUREMENT These consolidated financial statements have been prepared under the historical cost convention except for the following which are stated at revalued amounts / fair values / present values: 216 for the year ended December 31, 2019 Annual Report 2019 Allied Bank Limited 217
111. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 4 .3 Lendings to / borrowings from financial institutions The Group enters into transactions of borrowing (re-purchase) from and lending (reverse re-purchase) to financial institutions, at contracted rates for a specified period of time. These are recorded as under: for the year ended December 31, 2019 for the year ended December 31, 2019 Impact on financial statements The impact on transition is summarised below:- January 01, 2019 December 31, 2019 Rupees in ‘000’ Right-of-use assets presented in property and equipment Lease liabilities Decrease in other assets Deferred tax assets 8,858,011 8,562,932 295,080 - 8,087,208 8,625,315 799 The impact of IFRS 16 on profit or loss for the year refer is summarized below: Right-of-use assets: Balance as at January 01, 2019 Depreciation charge for the period Addition to right-of-use assets Derecognition of right-of-use assets a. Sale under re-purchase agreements Securities sold subject to a re-purchase agreement are retained in the financial statements as investments and the counter party liability is included in borrowings from financial institutions. The differential in sale and re-purchase value is accrued on a prorata basis and recorded as mark-up expense. b. Purchase under resale agreements Securities purchased under agreement to resell (reverse re-purchase) are included in lendings to financial institutions. The differential between the contracted price and resale price is amortized over the period of the contract and recorded as mark-up income. Rupees in ‘000 Securities held as collateral are not recognized in the financial statements, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability under borrowings from financial institutions. 8,858,011 (1,626,855) 856,276 (224) In Bai Muajjal, the Group sells Shariah Compliant instruments including sukuks 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. Expected profit expense is recognized on accrual basis. In Musharaka / Mudaraba, the Group invests in the Shariah compliant business pools of the financial institutions at the agreed profit and loss sharing ratio. Expected profit is recognized on accrual basis. Other borrowings including borrowings from SBP are recorded at the proceeds received. Mark-up on such borrowings is charged to the profit and loss account on a time proportion basis. 8,087,208 Lease liabilities: Rupees in ‘000 Lendings are stated net of provision. Return on such lending is accrued to the profit and loss account on a time proportion basis except mark-up on impaired/ delinquent lendings, which is recognized on receipt basis. 4.4Investments 4.4.1 The Group at the time of purchase classifies its investment portfolio as mentioned in note 2.4.1. 4.4.2 Investments are initially recognized at fair value which, in case of investments other than ‘held-for-trading’, includes transaction cost associated with the investments. Transaction cost on ‘held-for-trading’ investments are expensed as incurred. Balance as at January 01, 2019 Interest on lease liabilities Addition to lease liabilities Derecognition of lease liabilities Payment of lease liabilities 8,562,931 988,344 852,494 (860) (1,777,594) 8,625,315 When measuring lease liabilities for leases that were classified as operating leases, the Group discounted lease payments using its incremental borrowing rate at 01 January 2019. Rupees in ‘000 Operating lease commitments at 31 December 2018 as disclosed under IAS 17 Discounted using the incremental borrowing rate at 01 January 2019 6,040,047 (774,432) Extension options reasonably certain to be exercised 3,297,316 Lease liabilities recognised at 01 January 2019 8,562,931 IFRS 15 ‘Revenue from contracts with customers’ IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognized. It replaces IAS 18 Revenue, IAS 11 Construction Contracts and related interpretations. Under IFRS 15, revenue is recognized when a customer obtains control of the goods or services. Determining the timing of the transfer of control at a point in time or over time requires judgement. The Group has adopted IFRS 15 on January 01, 2019 retrospectively in accordance with IAS 8 without practical expedient. The timing or amount of the Group’s income from contract with customers was not impacted by IFRS 15. The application of IFRS 15 has no impact on the financial position and/or financial performance of the Group. Accordingly, there was no adjustment in retained earnings on application of IFRS 15 as at January 01, 2019. 4.2 Cash and cash equivalents For the purpose of cash flow statement, 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. 218 Annual Report 2019 All ‘regular way’ purchases and sales of investments are recognized on the trade date, i.e., the date that the Group commits to purchase or sell the asset. Regular way purchases or sales are purchases or sales of investments that require settlement within the time frame generally established by regulation or convention in the market place. 4.4.3 In accordance with the requirements of the SBP, quoted securities, other than those classified as ‘held-to-maturity’ and investments in subsidiaries, are carried at market value. Investments classified as ‘held-to-maturity’ are carried at amortized cost. Unrealized surplus / (deficit) arising on revaluation of the Group’s ‘held-for-trading’ investment portfolio is taken to the profit and loss account. Surplus / (deficit) arising on revaluation of quoted securities classified as ‘available-for-sale’ is kept in a separate account shown in the statement of financial position. The surplus / (deficit) arising on these securities is taken to the profit and loss account when actually realized upon disposal or when the investment is considered to be impaired. Unquoted equity securities are valued at the lower of cost and break-up value. The break-up value of these securities is calculated with reference to the net assets of the investee company as per the latest available audited financial statements. A decline in the carrying value is charged to the profit and loss account. A subsequent increase in the carrying value, upto the cost of the investment, is credited to the profit and loss account. Investments in other unquoted securities are valued at cost less impairment, if any. Provision for diminution in the value of securities (except for debentures, participation term certificates, sukuks and term finance certificates) is made after considering impairment, if any, in their value. Provision for diminution in value of debentures, participation term certificates, sukuks and term finance certificates are made in accordance with the requirements of Prudential Regulations issued by SBP. 4.5Advances a. Loans and advances Loans and advances are stated net of general and specific provisions. Specific provision against loans is determined in accordance with the requirements of the Prudential Regulations and other directives issued by SBP and charged to the profit and loss account. General provision is maintained in accordance with the requirements of Prudential Regulations issued by SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recovery. Allied Bank Limited 219
112. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements b . Net investment in finance lease Leases, where the Group transfers substantially all the risks and rewards incidental to the 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 minimum lease payments, including un-guaranteed residual value, if any. Finance lease receivables are included in advances to the customers. 4.7Taxation a.Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing laws for taxation. The charge for current tax is calculated using the prevailing tax rates or tax rates expected to apply to the profits for the year. b.Prior The taxation charge for prior years represents adjustments to the tax charge relating to prior years, arising from assessments/changes in laws and changes in estimates made during the current year. for the year ended December 31, 2019 c. Islamic financing and related assets The Group provides Islamic financing and related assets mainly through Murabaha, Ijarah, Diminishing Musharakah, Business Musharakah and Salam. The purchases and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of profit thereon. The profit on such financings is recognised in accordance with the principles of Islamic Shariah. The Group determines specific and general provisions against Islamic financing and related assets in accordance with the requirements of the Prudential Regulations issued by the SBP. The net provision made / reversed during the year is charged to profit and loss account and accumulated provision is netted off against Islamic financing and related assets. Islamic financing and related assets are written off when there are no realistic prospects of recovery. 4.6 Fixed assets and depreciation a. Tangible assets Property and equipment owned by the Group, other than land which is not depreciated, are stated at cost or revalued amount less accumulated depreciation and impairment losses, if any. Land is carried at revalued amount. Depreciation is calculated using the straight line method, except buildings which are depreciated using the reducing balance method, to write down the cost of property and equipment to their residual values over their estimated useful lives. The rates at which the fixed assets are depreciated are disclosed in note 10.2. The residual values, useful lives and depreciation methods are reviewed and adjusted, if required. Adjustments in residual values, useful lives and depreciation methods are treated as change in accounting estimates. 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. When an asset or class of assets is revalued, any increase in the carrying amount arising on revaluation is recorded through other comprehensive income and credited to the revaluation reserve in equity. However, the increase shall be recognized in the profit and loss account to the extent it reverses previously recognised revaluation decrease/impairment loss of the same asset in the profit and loss account, net of amortization or depreciation had no revaluation decrease/ impairment been required for the asset in prior years. A decrease resulting from a revaluation is initially charged directly against any related revaluation surplus held in respect of that asset and the remaining portion being charged as an expense. The surplus on revaluation of fixed assets to the extent of incremental depreciation (net of deferred tax) charged on the related assets is transferred directly to un-appropriated profit. Revaluation of entire class of assets is carried out by independent professionally qualified valuers with sufficient regularity (every third year) to ensure that the carrying amount of the entire class of assets does not differ materially from their fair value. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognized in the profit and loss account in the year the asset is derecognized, except that the related surplus on revaluation of fixed assets (net of deferred tax) is transferred directly to unappropriated profit. for the year ended December 31, 2019 c.Deferred Deferred tax is recognized using the balance sheet liability method on all temporary differences, at the reporting date between the amounts attributed to assets and liabilities for financial reporting purpose and amounts used for taxation purposes. Deferred tax is calculated at the rates that are expected to apply to the periods when the difference will reverse, based on tax rates that have been enacted or substantially enacted at the reporting date. Deferred tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the assets can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Group also recognizes a deferred tax asset / liability on deficit / surplus on revaluation of fixed assets, non-banking assets and securities which is adjusted against the related deficit / surplus in accordance with the requirements of IAS-12 ‘Income Taxes’. 4.8 Staff retirement and other benefits 4.8.1 Staff retirement schemes a. For employees who opted for the 2002 scheme introduced by the management An approved pension scheme (defined benefit scheme) under which the benefits on the basis of frozen basic salary, service length and age as on June 30, 2002 are payable to all employees whose date of joining the Group is on or before July 01, 1992, i.e., who have completed ten years of continuous service as on June 30, 2002. During the year, the pensioners were given a voluntary option to settle their monthly pension with a lump sum payment. Those who will not opt for the lump sum option, will continue to receive monthly pension (defined benefit scheme). An approved gratuity scheme (defined benefit scheme) under which the benefits are payable as under: I) For members whose date of joining the Group is on or before July 01, 1992, their services would be calculated starting from July 01, 2002 for gratuity benefit purposes. ii) For members whose date of joining the Group is after July 01, 1992 their services would be taken at actual for the purpose of calculating the gratuity benefit. This rule will be applicable upon retirement or in service death only, in case of resignation gratuity will be payable from July 01, 2002, even if he or she had joined the Group before July 01, 2002. Subsequent costs are included in the asset’s carrying amount 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. b. Intangible assets A contributory provident fund scheme to which equal contributions are made by the Group and the employees (defined contribution scheme). b. For employees who did not opt for 2002 scheme An approved pension scheme (defined benefit scheme) under which the benefits on the basis of frozen basic salary as on June 30, 2002 are payable to all employees opting continuation of the previous scheme and whose date of joining the Bank is on or before July 01, 1992, i.e., who had completed ten years of continuous service as on June 30, 2002. In the light of decision of Honorable Supreme Court of Pakistan in SMC No. 20/2016 dated 13th February 2018 read with Order dated 3rd April 2018 passed in CRP No.72/2018 and Order dated 7th August 2018 in Crl.O.No. 98 and 99 of 2018 and after consultation with Bank’s legal counsel, the monthly pension of eligible pensioners has been fixed with indexation levels for eligible pensioners effective from February 13, 2018. Post-retirement medical benefits Intangible assets are carried at cost less any accumulated amortization and impairment losses, if any. The cost of intangible assets is amortized over their estimated useful lives, using the straight line method. Amortization is charged from the month the assets are available for use at the rate stated in note 11.2. The useful lives are reviewed and adjusted, if appropriate, at each reporting date. c. Capital work-in-progress Capital work-in-progress is stated at cost less impairment losses, if any. c) The Group provides post-retirement medical benefits to eligible retired employees. Provision is made annually to meet the cost of such medical benefits on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Annual contributions towards the defined benefit schemes are made 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 Other Comprehensive Income in the period of occurrence. 220 Annual Report 2019 Allied Bank Limited 221
113. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 4 .8.2 Other long term benefit a) Employees’ compensated absences 4.14 Dividend distribution and appropriations Bonus and cash dividend and other appropriations (except for the appropriations required by law), declared / approved subsequent to the reporting date are considered as non-adjusting event and are not recorded in financial statements of the current year. These are recognized in the period in which these are declared / approved. for the year ended December 31, 2019 b) Employees’ entitlement to annual leave is recognized when they accrue to employees, upto a maximum of 60 days. A provision is made for estimated liability for annual leaves as a result of services rendered by the employee against unavailed leaves, as per terms of service contract, up to the reporting date, based on actuarial valuation using 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. Compensation to certain class of employees Bank has revised its retirement policy by reducing the retirement age to 58 years for class of employees effective January 01, 2018. Consequent to the revision, these employees shall be compensated with gross salary along with employer’s contribution on provident fund and gratuity for the remaining period up to 60 years in addition to already defined postemployment benefits, payable at the time of retirement, if any. 4.9 Non-banking assets acquired in satisfaction of claims Non-banking assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation (excluding land). Revaluation by independent professionally qualified valuers, is carried out with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. Surplus arising on revaluation of NBA is credited to the ‘surplus on revaluation of assets’ account through statement of comprehensive income 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. for the year ended December 31, 2019 4.15 Foreign currencies a. Foreign currency transactions Transactions in foreign currencies are translated into rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the reporting date. Foreign bills purchased are valued at spot rate and forward foreign exchange contracts are valued at forward rates applicable to their respective maturities. b. Foreign operations The assets and liabilities of foreign operating branches are translated to Pakistan Rupee (PKR) at exchange rates prevailing at reporting date. The results of foreign operations are translated at the average exchange rate for the period. c. Translation gains and losses Translation gains and losses arising on revaluation of net investments in foreign operations are taken to equity under “Exchange Translation Reserve” through Other Comprehensive Income and on disposal are recognised in profit and loss account. Regular translation gains and losses are taken to profit and loss account. d.Commitments 4.10Deposits Deposits are initially recorded at the amount of proceeds received. Mark-up accrued on deposits is recognized separately as part of other liabilities and is accrued to the profit and loss account on time proportion basis. Deposits mobilized under Islamic Banking operations are generated under two modes i.e. ‘Qard’ and ‘Modaraba’. Deposits taken on Qard basis are classified as ‘Current accounts’ and Deposits generated on Modaraba basis are classified as ‘Saving deposits / Fixed deposits’. 4.11Impairment a) Available-for-sale equity securities The Group determines that ‘available-for-sale’ equity investments are impaired when there has been a significant or prolonged decline in the fair value of these investments below their 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 the case of listed equity securities. In addition, impairment may be appropriate when there is evidence of deterioration in the financial condition of the investee, industry and sector performance and changes in technology. b) Non-financial assets The carrying amount of the Group’s assets (other than deferred tax assets) are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the relevant asset is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized in the profit and loss account except for an impairment loss on revalued assets which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the revaluation surplus. An impairment loss is reversed if the reversal can be objectively related to an event occurring after the impairment loss was recognized. 4.12Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of past events and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount can be made. Provision against identified losses on non-funded exposure is recognized when intimated and reasonable certainty exists for the Group to settle the obligation. The loss is charged to the profit and loss account net of expected recovery and is classified under other liabilities. 222 Acceptances comprise of undertakings by the Group to pay bills of exchange drawn on customers. Acceptances are recognised as financial liability in the statement of financial position with a contractual right of reimbursement from the customer as a financial asset. Therefore, commitments in respect of acceptances have been accounted for as financial assets and financial liabilities. Annual Report 2019 Commitments for outstanding forward contracts disclosed in these financial statements are translated at forward rates applicable to their respective maturities. 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 on the reporting date. 4.16 Financial instruments 4.16.1 Financial assets and liabilities Financial assets and financial liabilities are recognised at the time when the Group becomes a party to the contractual provision of the instrument. Financial assets are de-recognised when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specific in the contract is extinguished. Any gain or loss on de-recognition of the financial asset and liability is recognised in the profit and loss account of the current period. The particular recognition and subsequent measurement methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. 4.16.2 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using appropriate valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account. 4.17 Off setting Financial assets and financial liabilities are off set and the net amount is reported in the financial statements when there is a legally enforceable right to off set and the Group intends to either settle on a net basis, or to realize the assets and to settle the liabilities simultaneously. 4.18 Revenue recognition Revenue is recognized to the extent that the economic benefits will flow to the Group and the revenue can be reliably measured. These are recognised as follows: a. Advances and investments Mark-up / return on regular loans / advances and investments is recognized on a time proportion basis. Where debt securities are purchased at premium or discount, the same is amortized through the profit and loss account using the effective interest rate method. Interest or mark-up recoverable on classified loans, advances and investments is recognized on receipt basis. Interest / return / mark-up on classified rescheduled / restructured loans and advances and investments is recognized as permitted by the regulations of the SBP. Dividend income is recognized when the right to receive the dividend is established. Provisions are reviewed at the reporting date and are adjusted to reflect the current best estimate. 4.13Acceptances Allied Bank Limited 223
114. Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 Gains and losses on sale of investments are recognized in the profit and loss account. b. Lease financing 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. Unrealised income on classified leases is recognized on receipt basis. Gains / losses on termination of lease contracts and other lease income are recognized when realized. Islamic financing and related assets c. Profit on Business Musharakah financing is booked on accrual basis and is adjusted upon declaration of profit by Musharakah partners. Ijarah and Diminishing Musharakah income is recognised on an accrual basis as and when the rental becomes due. Notes to the Consolidated Financial Statements for the year ended December 31, 2019 Note 5 In hand Local currency 13,636,602 Foreign currencies Fees, brokerage and commission Remittances in transit Fee, Commission and Brokerage income is recognized on an accrual basis except where, in the opinion of management, it would not be prudent to do so. With State Bank of Pakistan (SBP) in 4.19 Business Segment reporting A segment is a distinguishable component of the Bank that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Bank’s functional and management reporting structure. The Group’s primary segment reporting is based on following business segments: a. Corporate & investment banking This segment offers a wide range of financial services to medium and large sized public and private sector entities and also covers overseas operation of the Group. These services include, providing and arranging tenured financing, corporate advisory, underwriting, cash management, trade products, corporate finance products and customer services on all Group related matters. b. Trading and sales (Treasury) This segment undertakes the Group’s treasury and money market activities. c. Commercial & retail banking d. 16,269,166 1,528,644 591,133 38,599,518 5.1 51,250,399 5.2 91,812 81,311 Foreign currency deposit accounts (non-remunerative) 5.1 5,515,729 4,722,714 Foreign currency deposit accounts (remunerative) 5.3 16,509,764 14,128,800 73,367,704 57,532,343 30,059,400 24,610,744 With National Bank of Pakistan in Prize Bonds 333,983 174,175 119,935,126 99,177,561 Deposits with SBP are maintained to comply with the cash reserve requirement, under section 22 of the Banking Companies Ordinance, 1962 and SBP statutory requirements issued from time to time. 5.2 This represents US Dollar settlement account maintained with SBP. 5.3 This represents special cash reserve maintained with SBP. The return on this account is declared by SBP on a monthly basis and carries mark-up at the rate of 0.7% to 1.51% (2018: 0.56% to 1.35%) per annum. 5.1 Note Islamic Banking December 31, December 31, 2019 2018 Rupees in ‘000 6 BALANCES WITH OTHER BANKS e.Others 224 1,008,439 14,645,395 Foreign currency current account Commercial and retail banking provides services to commercial and retail customers including agriculture sector. It includes loans, deposits and other transactions with commercial and retail (conventional and Islamic) customers. Islamic banking provides shariah compliant services to customers including loans, deposits and other transactions. 15,260,727 1,008,793 Local currency current accounts Local currency current accounts 2018 CASH AND BALANCES WITH TREASURY BANKS Murabaha and Salam income is recognised on deferred income basis. December 31, 2019 Rupees in ‘000 d. December 31, 4.20 Geographical Segment Reporting Geographically the Group operates in Pakistan, Middle East and China. 4.21 Earnings per share The Group presents basic and diluted earnings per share (EPS) for its shareholders. 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. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any. Annual In Pakistan In deposit accounts Others includes functions which cannot be classified in any of the above segments. Report 2019 - 2,000,000 Outside Pakistan 6.1 In current accounts 6.1 300,295 268,512 In deposit accounts 6.1 302,287 306,543 602,582 2,575,055 These are nostro balances placed with other banks. Allied Bank Limited 225
115. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 December 31, 2019 December 31, 2018 Classified Provision Classified Provision Lending Held Lending Held Rupees in ‘000 Rupees in ‘000 7 7.8 LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings - 5,500,000 7.1 & 7.7 2,052,491 44,455,680 7.2 1,000,000 2,500,000 – State Bank of Pakistan 7.3 2,704,142 - – other financial institutions 7.4 7,850,288 1,024,515 7.5 70,000 70,000 - 300,000 Repurchase agreement lendings (Reverse Repo) Musharaka lendings Domestic Other Assets Especially Mentioned Substandard Doubtful Loss Bai muajjal receivable from: Certificates of investment Letters of placement Less: Provision held against lendings to financial institutions Lendings to financial institutions – net of provision 7.1 7.2 7.3 7.4 7.5 13,676,921 53,850,195 (70,000) (70,000) 13,606,921 53,780,195 7.5 & 7.8 These are short-term local currency lendings to financial institutions against government securities as shown in note 7.7 below. These carry mark-up at the rate of 13.45% to 13.50% (2018: 10.10% to 10.40%) per annum, maturing on various dates, latest by January 20, 2020. Category of classification Note 8 INVESTMENTS 8.1 Investments by type: Federal Government Securities Open Ended Mutual Funds/Pension Funds Federal Government Securities* Provision for diminution Surplus / (Deficit) Carrying Value 19,862,396 - 5,767 19,868,163 - - - - 2,061,722 - 135,712 2,197,434 1,912,351 - (53,328) 1,859,023 21,924,118 - 141,479 22,065,597 1,912,351 - (53,328) 1,859,023 (15,961) 1,689,073 678,973,168 610,683,028 (21,248) (1,608,457) 609,053,323 24,349,646 (3,202,822) 9,686,372 30,833,196 25,390,404 (2,266,130) 9,572,004 32,696,278 Non Government Debt Securities 13,633,213 (21,071) (37,667) 13,574,475 11,732,046 (21,071) (47,874) 11,663,101 1,037,692 - - 1,037,692 1,037,692 - - 1,037,692 63,834 - 91,424 155,258 63,834 - 62,436 126,270 716,384,441 (3,239,854) 11,429,202 724,573,789 648,907,004 (2,308,449) 7,978,109 654,576,664 13,015,041 - - 13,015,041 16,151,622 - - 16,151,622 344,260 (344,260) - - 346,090 (346,090) - - 13,359,301 (344,260) - 13,015,041 16,497,712 (346,090) - 16,151,622 751,667,860 (3,584,114) 11,570,681 759,654,427 667,317,067 (2,654,539) 7,924,781 672,587,309 Market Treasury Bills 542,565,953 - 176,506 542,742,459 543,454,941 - (21,790) 543,433,151 Pakistan Investment Bonds 154,349,214 - 784,365 155,133,579 64,695,276 - (1,397,373) 63,297,903 GOP Ijarah Sukuks 876,511 - (8,765) 867,746 3,350,848 - (16,997) 3,333,851 GOP Sukuks (US$) 3,869,387 (15,961) 59,871 3,913,297 9,756,796 (21,248) (191,642) 9,543,906 Foreign Currency Bonds (US$) 6,215,907 - 682,863 6,898,770 5,576,788 - 19,346 5,596,134 Open Ended Mutual Funds 8.4 Held–to–maturity securities Federal Government Securities 8.5 Total Investments 8.2 Particulars of lending Carrying Value 677,300,056 Foreign Securities Rupees in ‘000 7.6 Surplus / (Deficit) Shares Non Government Debt Securities 2018 December 31,2018 Cost / Amortized cost Available-for-sale securities This represents local currency classified certificates of investment and related provisioning, amounting to Rs. 70 million (2018: Rs. 70 million). 2019 Provision for diminution 70,000 70,000 Held-for-trading securities This represent local currency lending by Islamic banking business under Bai Muajjal agreement with various Islamic banks at expected profit of 12.15% to 12.60% (2018: 9.80%) per annum, maturing on various dates, latest by January 17, 2020. December 31, Cost / Amortized cost 70,000 70,000 Rupees in ‘000 This represent local currency lending by Islamic banking business under Bai Muajjal agreement with the State Bank of Pakistan at expected profit of 10.53% (2018: Nil) per annum, maturing on February 07, 2020. December 31, 70,000 70,000 December 31,2019 These represent local currency lendings by Islamic banking business under Musharaka agreement at expected profit of 12.15% (2018: 9.50% to 9.70%) per annum, maturing on various dates, latest by February 6, 2020. Note 70,000 70,000 Investments by segments: Federal Government Securities: In local currency 13,676,921 53,850,195 - - 13,676,921 53,850,195 In foreign currencies GOP Ijarah Sukuks - December 31, 2019 December 31, 2018 Further Further Held by Held by given as Total given as Total Group Group collateral collateral Rupees in ‘000 7.7 Bai Muajjal Placement 2,300,521 - - 2,300,521 - - - - 710,177,493 (15,961) 1,694,840 711,856,372 626,834,649 (21,248) (1,608,456) 625,204,945 Shares: Listed Companies 21,940,832 (3,168,936) 9,686,372 28,458,268 22,646,719 (2,103,351) 9,572,003 30,115,371 Unlisted Companies 2,408,814 (33,886) - 2,374,928 2,743,686 (162,779) - 2,580,907 Units of open-ended mutual funds 2,125,556 - 227,136 2,352,692 1,976,185 - 9,108 1,985,293 26,475,202 (3,202,822) 9,913,508 33,185,888 27,366,590 (2,266,130) 9,581,111 34,681,571 Listed 5,417,804 (103,498) (37,667) 5,276,639 3,139,909 (105,329) (47,874) 2,986,706 Unlisted 8,559,669 (261,833) - 8,297,836 8,938,227 (261,832) - 8,676,395 13,977,473 (365,331) (37,667) 13,574,475 12,078,136 (367,161) (47,874) 11,663,101 Securities held as collateral against Non Government Debt Securities lending to financial institutions Market Treasury Bills Pakistan Investment Bonds - - - 33,500,000 - 33,500,000 2,200,000 - 2,200,000 11,000,000 - 11,000,000 Foreign Securities 2,200,000 - 2,200,000 44,500,000 - 44,500,000 Equity securities 1,037,692 - - 1,037,692 1,037,692 - - 1,037,692 Total Investments 751,667,860 (3,584,114) 11,570,681 759,654,427 667,317,067 (2,654,539) 7,924,781 672,587,309 *Provision for diminution against federal government securities represents expected credit loss provisioning under IFRS 9 on portfolio pertaining to overseas branch. 226 Annual Report 2019 Allied Bank Limited 227
116. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note 8.2.1 December 31, December 31, 2019 2018 Rupees in ‘000 December 31, 2019 Cost Rupees in ‘000 Investments given as collateral 8.4 Market Treasury Bills Pakistan Investment Bonds GOP Foreign Currency Sukuks (US$) 145,442,739 158,411,120 48,417,010 10,077,521 2,957,611 4,451,600 - 710,569 GOP Foreign Currency Bonds (US$) 196,817,360 Total Investments given as collateral 8.3 Provision for diminution in value of investments 8.3.1 Opening balance 173,650,810 Quality of Available for Sale Securities Details regarding quality of Available for Sale (AFS) securities are as follows: Federal Government Securities – Government guaranteed Market Treasury Bills 524,797,544 543,454,941 Pakistan Investment Bonds 141,540,707 48,543,655 GOP Sukuks (US$) 3,869,387 9,756,796 Foreign Currency Bonds (US$) 6,215,907 5,576,788 GOP Ijarah Sukuks 2,654,539 2,705,403 3,163 1,556 1,118,302 112,795 (139,161) (3,776) 979,141 109,019 (52,729) (161,439) 3,584,114 2,654,539 Exchange adjustments 876,511 3,350,848 677,300,056 610,683,028 Power Generation and Distribution 8,159,528 8,991,081 Oil & Gas Exploration Companies 5,093,606 5,093,607 Fertilizer 3,827,631 3,701,965 Commercial Banks 2,900,903 2,900,903 Oil & Gas Marketing Companies 1,043,460 1,043,460 Real Estate Investment Trust 455,851 455,851 Chemical 268,289 268,289 Leasing Companies 89,322 89,322 Close-end Mutual Funds 51,603 51,603 Investment Banks 50,000 50,000 Shares Listed Companies Charge / reversals Charge for the year Reversals for the year Reversal on disposals Closing Balance December 31, 2019 NPI December 31, 2018 Provision NPI Provision Cement Rupees in ‘000 8.3.2 Particulars of provision against debt securities December 31, 2019 Cost Breakup value Category of classification Domestic Other assets especially mentioned Substandard Doubtful Loss - - - - - - - - 365,331 365,331 367,161 367,161 365,331 365,331 367,161 367,161 3,869,387 15,961 9,756,796 21,248 Upto 90 days - - - - 91 to 180 days - - - - 181 to 365 days - - - - > 365 days - - - - - - - - 4,234,718 381,292 10,123,957 388,409 Overseas Not past due but impaired* Overdue by: Total 228 December 31, 2018 * Provision represents expected credit loss provisioning in overseas branch. The State Bank of Pakistan (SBP) has not granted any relaxation in any classification / provisioning during the year ended December 31, 2019. Annual Report 2019 Unlisted Companies Security General Insurance Ltd. Habib Allied Holding Ltd. Nishat Hotels And Properties Ltd. Atlas Power Limited Pakistan Mortgage Refinance Co. Ltd. 1 Link Private Limited Central Depository Company ISE Towers REIT Management Company Limited First Women Bank Limited LSE Financial Services Limited SME Bank Limited Arabian Sea Country Club Ltd. Eastern Capital Limited SWIFT National Institutional for Facilitation Technologies Private Limited Pakistan Agricultural Storage and Services Corporation Pakistan Corporate Restructuring Company 638 638 21,940,831 22,646,719 December 31, 2018 Cost Breakup value Rupees in ‘000 1,075,653 1,035,922 566,982 355,000 200,000 50,000 40,300 30,346 21,200 8,440 5,250 5,000 5,000 1,770 2,527,369 1,241,538 1,025,523 1,070,210 202,984 61,068 43,979 72,287 19,155 351 6,431 1,075,653 1,035,922 944,970 355,000 200,000 50,000 40,300 30,346 21,200 8,440 5,250 5,000 5,000 1,770 1,830,648 1,241,939 816,078 849,650 200,459 58,408 42,765 72,287 18,318 351 6,777 1,527 1,000 43,117 3,446,507 51,641 295,078 43,117 6,660,731 1,527 1,000 3,781,378 59,076 242,002 5,438,758 Allied Bank Limited 229
117. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, 2019 December 31, 2018 Subsidiary Asset Management Company Cost Rupees in ‘000 8.6 Details regarding subsidiary company: Non Government Debt Securities Country of incorporation Pakistan Percentage holding Listed 100% Assets 2,793,765 – AAA 1,497,900 383,308 – AA+, AA, AA– 2,716,405 2,618,458 Liabilities 433,044 500,000 32,813 Revenue 783,478 4,714,305 3,034,579 Profit after taxation 375,852 Total comprehensive income 375,743 – A+, A, A– Unlisted – AAA 3,250,000 3,750,000 – AA+, AA, AA– 4,209,436 3,080,965 – A+, A, A– 1,438,401 1,845,431 – Unrated 21,071 21,071 8,918,908 8,697,467 Note 9 HBL Growth Fund – Class B Segment 38,834 38,834 Allied Finergy Fund 25,000 25,000 63,834 63,834 Non Performing December December 31,2019 31,2018 Rupees in ‘000 Total December December 31,2019 31,2018 ADVANCES Loans, cash credits, running finances, etc. Islamic financing and related assets Bills discounted and purchased Advances – gross Open Ended Mutual Funds Performing December December 31,2019 31,2018 9.1 A-II. 3 9.2 Provision against advances Specific General 9.3 & 9.4 9.4 Advances – net of provision 467,880,949 428,933,543 12,615,228 6,925,320 3,853,892 1,982,031 484,350,069 437,840,894 (39,795) (15,868) (39,795) (15,868) 484,310,274 437,825,026 14,450,873 1,403,045 15,853,918 14,569,294 1,495,347 16,064,641 482,331,822 12,615,228 5,256,937 500,203,987 443,502,837 6,925,320 3,477,378 453,905,535 (15,112,624) (15,533,497) (15,112,624) (15,533,497) 741,294 531,144 (15,112,624) (39,795) (15,152,419) 485,051,568 (15,533,497) (15,868) (15,549,365) 438,356,170 Foreign Securities Equity Securities – Unlisted Habib Allied Holding Limited SWIFT 8.5 December 31, 2019 1,035,922 1,035,922 1,770 1,770 1,037,692 1,037,692 Particulars relating to Held to Maturity securities are as follows: Not later than one year Pakistan Investment Bonds 9.1 10,714,521 Lease rentals receivable Residual value Minimum lease payments Financial charges for future periods Present value of minimum lease payments 16,151,622 - 13,015,042 16,151,622 – Unrated – Unrated 8.5.1 103,499 105,329 9.2 Particulars of advances (Gross) 240,761 240,761 9.2.1 In local currency 230 The market value of Pakistan Investment Bonds classified as held-to-maturity as at December 31, 2019 amounted to Rs. 10,848.5 million (December 31, 2018: Rs. 15,579.4 million). Annual Report 2019 Not later than one year Later than one and less than five years Over five years Tota 606,329 50,138 656,467 (108,826) 547,641 1,331,279 510,411 1,841,690 (206,316) 1,635,374 85,114 147,989 233,103 (19,224) 213,879 2,022,722 708,538 2,731,260 (334,366) 2,396,894 631,223 42,542 673,765 (66,148) 607,617 1,504,537 460,880 1,965,417 (133,067) 1,832,350 116,221 188,280 304,501 (130,661) 173,840 2,251,981 691,702 2,943,683 (329,876) 2,613,807 December 31, December 31, 2019 2018 Rupees in ‘000 Non Government Debt Securities Unlisted Total Includes Net investment in finance lease as described below 2,300,521 Listed December 31, 2018 Over five years Rupees in ‘000 Federal Government Securities – Government guaranteed GOP Ijarah Sukuks - Bai Muajjal Placement Later than one and less than five years In foreign currencies 484,455,795 443,682,812 15,748,192 10,224,433 500,203,987 453,905,535 Allied Bank Limited 231
118. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Advances include Rs. 15,853.918 million (2018: Rs. 16,064.641 million) which have been placed under non-performing status as detailed below: 9.3 December 31, 2019 Non Performing Loans 9.7 December 31, 2018 Non Performing Loans Specific Provision Specific Provision 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 writtenoff loans or any other financial relief of five hundred thousand rupees and above allowed to a person(s) during the year ended December 31, 2019 is given in Annexure-’I’. However, these write-offs do not affect the Bank’s right to recover debts from these customers. Note December 31, December 31, 2019 2018 Rupees in ‘000 Rupees in ‘000 Category of Classification 10 FIXED ASSETS Domestic Other Assets Especially Mentioned Substandard Doubtful Loss 9.4 35,436 449 38,425 2,231 Capital work–in–progress 10.1 2,991,144 2,338,494 809,938 202,107 436,938 109,035 Property and equipment 10.2 51,161,710 48,061,279 Right-of-Use Assets 4.1 196,952 98,476 334,094 167,047 14,811,592 14,811,592 15,255,184 15,255,184 15,853,918 15,112,624 16,064,641 15,533,497 10.1 Particulars of provision against advances December 31, 2019 Note Opening balance Charge for the year Amounts written off General 15,533,497 Exchange adjustments Reversals Specific 9.5 9.6 Closing balance 15,868 December 31, 2018 Total Specific Rupees in ‘000 15,549,365 General 16,702,236 8,087,208 - 62,240,062 50,399,773 Civil works 2,219,464 1,855,180 Equipment 6,546 - 765,134 483,314 2,991,144 2,338,494 CAPITAL WORK-IN-PROGRESS Advances to suppliers Total December 31,2019 11,701 16,713,937 - (896) (896) - - - 589,752 24,823 614,575 500,412 4,167 504,579 (1,008,707) - (1,008,707) (1,637,415) - (1,637,415) (418,955) 24,823 (394,132) (1,137,003) 4,167 (1,132,836) (1,918) - (1,918) (31,736) 15,112,624 39,795 15,152,419 15,533,497 - (31,736) 15,868 15,549,365 Freehold Land In local currency In foreign currencies 9.4.2 14,748,991 16,820 14,765,811 15,207,403 363,633 22,975 386,608 326,094 15,112,624 39,795 15,152,419 15,533,497 15,717 15,223,120 151 326,245 15,868 15,549,365 No benefit of forced sale value of the collaterals held by the Group has been taken while determining the provision against nonperforming loans as allowed under BSD circular No. 01 dated October 21, 2011. This includes reversal of provision on account of a non performing loan, classified as loss, settled against Debt Property Swap amounting to Rs. 311.2 million (2018: Rs. 29.2 million). 9.5 Leasehold Land Building on Leasehold Land Electrical, office and computer equipment Furniture and fixture Building Improvements (Rented Premises) Vehicles Total Rupees in ‘000 10.2 Property and Equipment At January 1, 2019 Cost / Revalued amount 17,564,604 10,962,212 7,120,644 4,558,168 1,937,930 13,594,585 1,158,143 4,076,878 60,973,164 - - (340,664) (228,787) (1,039,647) (8,157,542) (638,908) (2,506,337) (12,911,885) 17,564,604 10,962,212 6,779,980 4,329,381 898,283 5,437,043 519,235 1,570,541 48,061,279 17,564,604 10,962,212 6,779,980 4,329,381 898,283 5,437,043 519,235 1,570,541 48,061,279 1,547,674 354,505 795,815 296,857 223,501 1,916,366 431,013 810,629 6,376,360 Disposals cost - - - (89,780) (14,449) (140,257) (346,079) (553) (591,118) Disposals accumulated depreciation - - - 16,432 12,855 127,573 326,274 553 483,687 Disposals - - - (73,348) (1,594) (12,684) (19,805) - (107,431) Depreciation charge - - (361,282) (221,432) (195,452) (1,607,980) (218,659) (563,571) (3,168,376) Exchange rate adjustments - - - - - (122) - - (122) 19,112,278 11,316,717 7,214,513 4,331,458 924,738 5,732,623 711,784 1,817,599 51,161,710 19,112,278 11,316,717 7,916,459 4,765,246 2,146,982 15,370,694 1,243,077 4,886,954 66,758,407 - - (701,946) (433,788) (1,222,244) (9,638,071) (531,293) (3,069,355) (15,596,697) 19,112,278 11,316,717 7,214,513 4,331,458 924,738 5,732,623 711,784 1,817,599 51,161,710 - - 5% 5% 10% 10% -50% 20% 20% - Accumulated depreciation 9.4.1 Building on Freehold Land Net book value Year ended December 2019 Opening net book value Additions Closing net book value At December 31, 2019 Cost / Revalued amount Accumulated depreciation Note 9.6 Particulars of write–offs 9.6.1 Against provisions 1,918 Directly charged to Profit and Loss account 9.6.2 Write–offs of Rs. 500,000 and above – Domestic Write–offs of below Rs. 500,000 232 Annual Report 2019 December 31, December 31, 2019 2018 Rupees in ‘000 9.7 Net book value Rate of depreciation (percentage) 31,736 - - 1,918 31,736 1,918 31,736 - - 1,918 31,736 Allied Bank Limited 233
119. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31,2018 Freehold Land Building on Freehold Land Leasehold Land Building on Leasehold Land Electrical, office and computer equipment Furniture and fixture Building Improvements (Rented Premises) Vehicles December 31, December 31, 2019 2018 Rupees in ‘000 Total Rupees in ‘000 10.8 10.2 Property and Equipment The carrying amount of property and equipment that have retired from active use 283,457 349,670 At January 1, 2018 Cost / Revalued amount 15,281,070 11,068,636 6,260,977 4,261,641 1,682,198 11,676,459 827,965 3,501,922 54,560,868 - - - - (878,225) (7,220,730) (537,487) (1,997,095) (10,633,537) 15,281,070 11,068,636 6,260,977 4,261,641 803,973 4,455,729 290,478 1,504,827 43,927,331 15,281,070 11,068,636 6,260,977 4,261,641 803,973 4,455,729 290,478 1,504,827 43,927,331 Accumulated depreciation Net book value 11 Year ended December 2018 Opening net book value Additions 2,380,971 58,138 859,667 296,527 273,610 2,347,406 359,000 575,046 7,150,365 Disposals cost - - - - (17,878) (429,280) (28,822) (90) (476,070) Disposals accumulated depreciation - - - - 17,173 422,746 24,524 90 464,533 Disposals - - - - (705) (6,534) (4,298) - (11,537) - - (340,664) (228,787) (178,517) (1,359,445) (125,945) (509,332) (2,742,690) Depreciation charge Exchange rate adjustments - - - - (78) (113) - - (191) (97,437) (164,562) - - - - - - (261,999) 17,564,604 10,962,212 6,779,980 4,329,381 898,283 5,437,043 519,235 1,570,541 48,061,279 Other adjustments / transfers Closing net book value 11.1 INTANGIBLE ASSETS Capital work in progress 11.1 650,104 340,990 Intangible Assets 11.2 1,325,794 1,415,137 1,975,898 1,756,127 623,308 184,046 26,796 156,944 650,104 340,990 Capital work in progress Softwares Advances for softwares to suppliers At December 31, 2018 Cost / Revalued amount 17,564,604 Accumulated depreciation Net book value 7,120,644 4,558,168 1,937,930 13,594,585 1,158,143 4,076,878 60,973,164 - - (340,664) (228,787) (1,039,647) (8,157,542) (638,908) (2,506,337) (12,911,885) 17,564,604 10,962,212 6,779,980 4,329,381 898,283 5,437,043 519,235 1,570,541 48,061,279 - - 5% 5% 10% 10% -50% 20% 20% - Rate of depreciation (percentage) 10.3 10,962,212 Bank arranged for valuation of all Land and Buildings as at December 31, 2017 from four independent valuers {Sadruddin Associates (Pvt.) Ltd, Unicorn International Surveyors, Indus Surveyors (Pvt.) Limited and Harvester Services (Pvt). Ltd.}. The revalued amounts of properties have been determined on the basis of market value. Had there been no revaluation, the carrying amount of revalued assets would have been as follows: December 31, 2019 Computer software Others Total Rupees in ‘000 11.2 Intangible Assets At January 1, 2019 Rupees in ‘000 – Land (Freehold and leasehold) 16,670,183 – Building 10.4 8,393,866 Fair value of property and equipment excluding land and buildings is not expected to be materially different from their carrying amount. Note 10.5 10.7 20.1 164,129 172,713 Restriction / discrepancy in the title of property having a net book value of 63,370 57,694 The cost of fully depreciated assets Electrical, office and computer equipments Vehicles Leasehold Improvements 234 Annual Report 2019 - 3,168,039 - (1,752,902) 1,415,137 - 1,415,137 1,415,137 - 1,415,137 157,303 - 157,303 (735) - (735) 735 - 735 - - - Amortisation charge (246,646) - (246,646) Closing net book value 1,325,794 - 1,325,794 Net book value Year ended December 2019 Opening net book value Additions: directly purchased Disposals cost At December 31, 2019 Cost that are still in use: Furniture and fixtures 3,168,039 (1,752,902) Accumulated amortisation and impairment Disposals accumulated depreciation Incremental depreciation charged during the year transferred to unappropriated profit 10.6 December 31, December 31, 2019 2018 Rupees in ‘000 Cost Accumulated amortisation and impairment 510,781 342,011 5,317,286 4,497,694 108,035 327,935 1,738,160 1,342,260 Net book value Rate of amortisation (percentage) Useful life 3,324,607 - 3,324,607 (1,998,813) - (1,998,813) 1,325,794 - 1,325,794 5% to 33.33% 5% to 33.33% 3 to 20 Years 3 to 20 Years Allied Bank Limited 235
120. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, 2018 Computer software Others Note Total Rupees in ‘000 12 At January 1, 2018 Cost Accumulated amortisation and impairment Net book value 2,714,595 - 2,714,595 (1,348,832) - (1,348,832) 1,365,763 - 1,365,763 Advances, deposits, advance rent and other prepayments Advance taxation (payments less provisions) Non–banking assets acquired in satisfaction of claims Acceptances 1,365,763 - directly purchased Amortisation charge 1,365,763 Closing net book value 453,444 - 453,444 (404,070) - (404,070) 1,415,137 - 1,415,137 At December 31, 2018 Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) 3,168,039 - 3,168,039 (1,752,902) - (1,752,902) 1,415,137 - 14.28%-33.33% 3 to7 Years 3 to7 Years Useful life 330,126 During 2019, the Group conducted a review of useful life of its intangible assets, which resulted in change in estimate of expected usage of certain softwares. The softwares, which management had previously intended to use for 7 years, are now expected to remain in usage for 20 years from the date of purchase. As a result, the expected useful life of the softwares increased and their estimated residual value decreased. The effect of these changes on actual and expected amortization expense, included in ‘Operating expenses’, was as follows. 2019 (188,617) 2020 (45,731) 2021 Rupees in ‘000 (23,808) 2022 (21,867) 4,624,072 1,609,193 1,947,348 - 2,698,766 5,182,716 4,183,083 - 115,915 36.4 4,440,411 4,560,065 Fraud and forgeries 524,357 510,013 Stationery and stamps in hand 286,343 190,398 Overdue FBN / FBD 97,601 72,441 Home Remittance Cell agent receivable 93,978 111,098 6,033 12,572 Charges receivable 32,329 23,043 Suspense Account 1,387 - 96,535 3,572 38,301,847 32,378,358 Other assets (net of provision) 12.2 (862,460) (787,203) 37,439,387 31,591,155 Surplus on revaluation of non–banking assets acquired in satisfaction of claims Other assets – net 12.1 347,206 3,817,847 36.4 Less: Provision held against other assets December 31, December 31, 2019 2018 Rupees in ‘000 The cost of fully amortized assets that are still in use: Intangible assets – software 1,254,352 Pension fund Others 1,415,137 14.28%-33.33% 293,994 1,293,653 Benevolent fund Receivable from SBP - customers encashments Cost 11,777,626 245,676 Due from the employees' retirement benefit schemes Additions: Decrease in annual amortization expense 12.1 Mark to market gain on forward foreign exchange contracts Opening net book value 11.4 20,573,788 Income / Mark–up accrued in foreign currency – net of provision Year ended December 2018 11.3 OTHER ASSETS Income / Mark–up accrued in local currency – net of provision December 31, December 31, 2019 2018 Rupees in ‘000 Market value of non–banking assets acquired in satisfaction of claims 2,877,470 2,159,958 40,316,857 33,751,113 4,486,663 4,107,306 Full-scope revaluation was carried out at December 31, 2019 through two independent valuers approved by Pakistan Banks’ Association (A-1 Warda Engineering Services & Sadruddin Associates Private Limited). The revalued amounts of properties have been determined on the basis of market rates depending upon physical verification and general appearance of the site. 2023 December 31, December 31, 2019 2018 Rupees in ‘000 (14,135) 12.1.1 Non banking assets acquired in satisfaction of claims Opening balance 52,482 Revaluation 884,674 600,425 (847,050) (109,969) Depreciation Closing balance Annual Report 2019 3,584,030 361,584 Disposals / Transfers 236 4,107,306 Additions (19,851) (19,662) 4,486,663 4,107,306 Allied Bank Limited 237
121. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 15.2 12.1.2 Gain / Loss on Disposal of Non banking assets acquired in satisfaction of claims Disposal proceeds Less: Cost Impairment / Depreciation Gain / (loss) 12.2 879,316 3,542 (847,050) (847,050) 32,266 (3,629) 60 (3,569) (27) 15.4 15.5 Provision held against other assets Advances, deposits, advance rent and other prepayments Provision against fraud and forgeries Overdue Foreign Bills Negotiated / Discounted Charges receivable Suspense account Others 120,584 524,357 24,295 32,327 6,453 154,444 862,460 209,506 507,977 24,295 23,043 22,382 787,203 12.2.1 Movement in provision held against other assets Opening balance Charge for the year Reversals Written off / adjusted Closing balance 13 15.3 787,203 213,529 (112,865) (25,407) 862,460 747,062 96,695 (12,000) (44,554) 787,203 CONTINGENT ASSETS 15.6 15.7 15.8 These represent borrowings from the SBP availed by the Bank for financing power projects / facilities using alternative / renewable energy (solar, wind, hydro, biogas, bio-fuels, bagasse cogeneration, and geothermal as fuel) for a maximum period of 12 years under Category I and for a maximum period of 10 years under Category II and III. The borrowing carries mark-up at the rate of 3% for Category I, 4% for Category II and 3% for Category III. These represent borrowings in local and foreign currency from local and foreign interbank markets against government securities, carrying mark-up at the rate of 13% to 13.20% (2018: 10% to 10.21%) per annum for local currency borrowings, and at the rate of 2.45% to 2.65% (2018: 3.37% to 3.99%) per annum for foreign currency borrowings. These borrowings are maturing on various dates, latest by January 31, 2020. These represent unsecured borrowings in local and foreign currency from the local and foreign interbank markets, carrying markup at the rate of 12.25% to 12.50% (2018: 8.10% to 10.10%) per annum for local currency borrowings, and at the rate of 2.40% to 3% (2018: 2.35% to 4.27%) per annum for foreign currency borrowings. These borrowings are maturing on various dates, latest by April 13, 2020. This represents unsecured local currency borrowing by Islamic banking business under Musharaka agreement at profit of 8% (2018: Nil) per annum, maturing on January 02, 2020. Note 8.2.1 includes the carrying amount of investments given as collateral. 15.9 7,878,626 In local currency Repurchase agreement borrowings from Financial Institutions 15.1 238 245,915,573 December 31, 2019 In Local In Foreign Total Currency Currencies 211,201,481 20,532,813 14,681,505 266,448,386 225,882,986 December 31, 2018 In Local In Foreign Total Currency Currencies Rupees in ‘000 15.1 & 15.8 15.2 15.3 15.4 15.5 & 15.8 170,120,570 22,523,266 21,426,590 426,031 214,496,457 157,248,800 17,913,692 13,894,674 158,952 189,216,118 26,585,287 14,559,563 16 DEPOSITS AND OTHER ACCOUNTS Customers Current deposits 327,523,076 20,719,488 348,242,564 292,438,272 18,841,868 311,280,140 Savings deposits 403,505,248 21,019,875 424,525,123 365,456,206 24,707,235 390,163,441 Term deposits 107,203,269 63,293,352 170,496,621 120,847,788 50,092,266 170,940,054 19,207,173 30,890 19,238,063 31,335,721 32,615 31,368,336 857,438,766 105,063,605 962,502,371 810,077,987 93,673,984 903,751,971 Current deposits 39,711,458 41,039 39,752,497 20,552,284 27,949 20,580,233 Savings deposits 33,707,054 - 33,707,054 54,621,957 - 54,621,957 Term deposits 10,011,200 40,261 10,051,461 4,950,750 52,735 5,003,485 3,005,421 - 3,005,421 505,421 - 505,421 86,435,133 81,300 86,516,433 80,630,412 80,684 80,711,096 943,873,899 105,144,905 1,049,018,804 890,708,399 93,754,668 984,463,067 Others Unsecured Call borrowings Trading liability Overdrawn nostro accounts Musharaka borrowing Other borrowings 2018 7,752,959 BORROWINGS Secured Borrowings from State Bank of Pakistan Repurchase agreement borrowings Under export refinance scheme Under long term financing facility Under financing scheme for renewable energy December 31, 2019 Particulars of borrowings with respect to currencies In foreign currencies In Pakistan December 31, Rupees in ‘000 BILLS PAYABLE 15 This represents Long Term Financing facility availed by the Bank for further extending the same to its customers, for a maximum period of 10 years. The borrowing carries mark-up at the rate of 1.50%, 2.50% and 3.00% (2018: 4.50%, 3.50% and 3.00%) per annum for financing up-to 3 years, 5 years & 10 years respectively. Note There were no contingent assets of the Bank as at December 31, 2019 and December 31, 2018. 14 The Bank has entered into various agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per agreements, the Bank has granted to 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 the SBP. The borrowing carries mark-up at the rate of 1.00% to 2.00% (2018 1.00% to 2.00%) per annum. These borrowings are repayable within six months from the deal date. 15.6 15.7 24,602,435 64,207 700,000 25,366,642 266,448,386 11,861,797 9,987,849 243,624 14,035 22,107,305 225,882,986 Financial Institutions Others This represents local currency borrowing from the SBP against government securities, carrying mark-up at the rate of 13.31% (2018: 10.21%) per annum, maturing on January 03, 2020. Annual Report 2019 Allied Bank Limited 239
122. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 December 31, 2018 Rupees in ‘000 16.1 At January 1, 2018 Composition of deposits Individuals 457,188,412 384,786,399 Private Sector 270,915,027 287,469,596 Government (Federal and Provincial) 125,409,058 117,892,648 Public Sector Entities 108,998,643 113,603,058 77,133,815 72,920,606 9,373,849 7,790,760 1,049,018,804 984,463,067 Banking Companies 16.3 Deductible Temporary Differences on Provision against: At January 1, 2019 19,093 - - 19,093 38,959 - - 38,959 – Off balance sheet obligations 14,824 - - 14,824 – Advances 46,869 (556) - 46,313 – Post retirement medical benefits 42,980 - - 42,980 1,183,246 (393,039) - 790,207 1,345,971 (393,595) - 952,376 – Surplus on revaluation of fixed assets (1,208,989) 54,842 - (1,154,147) – Surplus on revaluation of investments (5,648,427) 2,998 2,857,924 (2,787,505) Taxable Temporary Differences on Net outstanding value against prepaid cards is Rs. 128.403 million as at reporting date (December 31, 2018: 140.858 million). Recognised Recognised in in other profit and loss comprehensive account Income – Investments – Other assets – Workers welfare fund This includes deposits eligible to be covered under insurance arrangements amounting to Rs. 628,087 million (December 31, 2018: 585,901 million). December 31, 2019 – Surplus on revaluation on non banking assets (25,789) - 1,827 (23,962) – Actuarial gains (93,888) - (244,743) (338,631) (1,296,878) (89,406) - (1,386,284) – Accelerated tax depreciation / amortization At December 31, 2019 – Excess of investment in finance lease over written down value of leased assets Rupees in ‘000 17 DEFERRED TAX LIABILITIES Deductible Temporary Differences on 19,093 - - – Other assets 38,959 4,080 - 43,039 14,824 - - 14,824 – Advances 46,313 68,871 - 115,184 – Post retirement medical benefits 42,980 - - 42,980 790,207 (269,227) - 520,980 952,376 (196,276) - 756,100 Taxable Temporary Differences on – Surplus on revaluation of fixed assets (1,154,147) 62,682 - (1,091,465) – Surplus on revaluation of investments (2,787,505) (19,657) (1,207,883) (4,015,045) (136,789) - Surplus on revaluation on non banking assets – Actuarial gains – Accelerated tax depreciation / amortization (23,962) - (112,827) (338,631) - 270,629 (68,002) (1,386,284) 41,517 - (1,344,767) (13,206) 799 - (12,407) – Excess of investment in finance lease over written down value of leased assets 240 Annual Report 2019 - - (13,206) (31,566) 2,615,008 (5,703,735) (6,941,206) (425,161) 2,615,008 (4,751,359) December 31, December 31, 2019 2018 19,093 – Off balance sheet obligations – Workers welfare fund (13,206) (8,287,177) Note Provision against: – Investments At December 31, 2018 Rupees in ‘000 Non–Banking Financial Institutions 16.2 Recognised Recognised in in other profit and loss comprehensive account Income (5,703,735) 85,341 (1,050,081) (6,668,475) (4,751,359) (110,935) (1,050,081) (5,912,375) Rupees in ‘000 18 OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Accrued expenses Retention money payable Unearned commission and income on bills discounted Acceptances Unclaimed dividends Dividend payable Branch adjustment account Unrealized loss on forward foreign exchange contracts Provision for: Gratuity Employees' medical benefits Employees' compensated absences Early retirement Payable to defined contribution plan Provision against off-balance sheet obligations Security deposits against lease ATM / Point of Sale settlement account Charity fund balance Home Remittance Cell overdraft With-holding tax payable Sundry deposits Workers welfare fund payable Present value of lease liability Others 36.4 36.4 36.4 18.1 29 4,323,269 519,548 1,640,767 342,559 115,745 5,182,716 330,514 23,558 41,140 2,714,153 2,366,946 343,307 1,101,822 306,416 123,294 4,183,083 291,816 32,055 280,134 - 620,977 1,365,237 668,547 337,527 84,946 313,043 712,112 1,243,494 15 490,972 2,348,629 2,451,078 1,522,454 8,625,316 895,380 36,913,696 444,655 1,332,925 606,216 3,306 306,342 693,151 932,311 701,908 690,598 2,427,652 2,297,057 1,278,127 20,743,121 Allied Bank Limited 241
123. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 Note Rupees in ‘000 18.1 Provision against off–balance sheet obligations Opening balance Charge for the year Reversals Net reversal 20 306,342 6,701 6,701 Closing balance 306,342 - 313,043 The above provision includes provisions made against letters of guarantee issued by the Bank. 19 19.1 SHARE CAPITAL – fixed assets 20.1 15,638,996 – non–banking assets acquired in satisfaction of claims 20.2 2,740,681 2,135,996 – available–for–sale securities 8.1 7,428,981 5,185,769 25,808,658 23,077,174 16,909,555 17,213,064 Surplus on revaluation of assets – net of tax 20.1 December 31, December 31, December 31, 2019 2018 2019 2018 No. of shares 15,755,409 Surplus on revaluation of fixed assets Surplus as at January 1, 2019 Authorized capital Surplus on revaluation during the year Surplus related to transfer / adjustments - 37,226 (14,966) (168,022) (106,684) (112,263) Rupees in ‘000 1,500,000,000 1,500,000,000 19.2 SURPLUS ON REVALUATION OF ASSETS – NET OF TAX Surplus arising on revaluation of: 306,342 December 31, December 31, December 31, 2019 2018 Rupees in ‘000 Ordinary shares of Rs.10/– each 15,000,000 Transferred to unappropriated profit in respect of incremental 15,000,000 depreciation charged during the year – net of deferred tax Related deferred tax liability Issued, subscribed and paid–up capital 10.5 Surplus on revaluation as at December 31, 2019 Fully paid–up Ordinary shares of Rs. 10/– each (57,445) (60,450) (164,129) (172,713) 16,730,460 16,909,555 Less: Related deferred tax liability on : December 31, December 31, December 31, December 31, Revaluation surplus as at January 1, 2019 (1,154,146) (1,208,989) 2019 2018 2019 2018 Deferred tax liability on revaluation surplus 5,237 (5,607) No. of shares 406,780,094 720,745,186 1,127,525,280 9,148,550 406,780,094 Fully paid in cash 720,745,186 Issued as bonus shares 1,127,525,280 18,348,550 Ordinary shares of Rs. 10 each, determined pursuant to the Scheme of Amalgamation in accordance with the swap ratio stipulated therein less 9,200,000 ordinary shares of Rs. 10 each, held by Ibrahim 9,148,550 Leasing Limited on the cut–off date (September 30, 2004) 8,400,000 1,145,073,830 8,400,000 Ordinary shares of Rs. 10 each, determined pursuant to the Scheme of Amalgamation of First Allied Bank Modaraba with Allied Bank Limited in accordance 8,400,000 with the share swap ratio stipulated therein. 1,145,073,830 Rupees in ‘000 4,067,801 7,207,452 11,275,253 Deferred tax on incremental depreciation transferred to profit and loss account 4,067,801 7,207,452 11,275,253 20.2 91,486 84,000 11,450,739 91,486 84,000 11,450,739 Ibrahim Holdings (Private) Limited (holding company of the Bank), holds 972,510,410 (84.93%) [2018: 967,911,610 (84.53%)] ordinary shares of Rs. 10 each respectively, as at reporting date. 57,445 60,450 (1,091,464) (1,154,146) 15,638,996 15,755,409 2,159,958 1,601,421 Surplus on revaluation during the year 884,673 599,769 Surplus realised on disposal /transfer (163,739) (39,099) (2,224) (1,157) Surplus on revaluation of non–banking assets acquired in satisfaction of claims Surplus as at January 1, 2019 Transferred to unappropriated profit in respect of incremental depreciation charged during the year – net of deferred tax Related deferred tax liability (1,198) (976) (3,422) (2,133) 2,877,470 2,159,958 Revaluation surplus as at January 1, 2019 (23,962) (25,789) Deferred tax liability on revaluation surplus (114,025) (5,412) - 6,263 Surplus on revaluation as at December 31, 2019 Less: Related deferred tax liability on : Deferred tax on surplus on disposal/transfer Deferred tax on incremental depreciation transferred to profit and loss account 242 Annual Report 2019 1,198 976 (136,789) (23,962) 2,740,681 2,135,996 Allied Bank Limited 243
124. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note 21 December 31, December 31, 2019 2018 Rupees in ‘000 CONTINGENCIES AND COMMITMENTS 21.1 Guarantees 21.1 32,308,285 28,018,148 Commitments 21.2 424,029,683 342,834,074 Other contingent liabilities 21.3 8,923,603 8,738,009 465,261,571 379,590,231 Financial guarantees 4,594,077 4,434,872 Performance guarantees 5,508,570 6,656,657 22,205,638 16,926,619 32,308,285 28,018,148 Tax Authorities have conducted proceedings of withholding tax audit under section 161/205 of Income Tax Ordinance, 2001 for tax year 2003 to 2006 and tax year 2008 to 2018 and created an arbitrary demand of Rs.1,720 million (December 31, 2018: Rs.1,556 million). The Group’s appeals before CIR(A)/Appellate Tribunal Inland Revenue (ATIR) are pending for adjudication. The management is confident that these appeals will be decided in favor of the Group; therefore, no provision has been made against the said demand of Rs.1,720 million (December 31, 2018: Rs.1,556 million). Tax authorities have also issued orders under Federal Excise Act, 2005 / Sales Tax Act, 1990 and Sindh Sales Tax on Services Act, 2011 for the year 2008 to 2017 thereby creating arbitrary aggregate demand of Rs.963 million (December 31, 2018: Rs.900 million). The Group’s appeals before CIR(A)/Appellate Tribunal Inland Revenue (ATIR) are pending for adjudication. The management is confident that aforesaid demand will be deleted by appellate authorities and therefore no provision has been made against the said demand of Rs.963 million (December 31, 2018: Rs.900 million). Guarantees Other guarantees 21.2 21.3.2 The income tax assessments of the Group have been finalized up to and including tax year 2019 for local, Azad Kashmir and Gilgit Baltistan operations. While finalizing income tax assessments up to tax year 2018, income tax authorities made certain add backs with aggregate tax impact of Rs.25,467 million (December 31, 2018: Rs.24,344 million). As a result of appeals filed by the Group before appellate authorities, most of the add backs have been deleted. However, the Group and Tax Department are in appeals / references before higher forums against unfavorable decisions. Pending finalization of appeals / references no provision has been made by the Group on aggregate sum of Rs.25,467 million (December 31, 2018: Rs.24,344 million). The management is confident that the outcome of these appeals / references will be in favor of the Group. Commitments Documentary credits and short term trade related transactions: letters of credit 60,392,362 68,457,757 Commitments in respect of: forward foreign exchange contracts 21.2.1 358,881,918 207,509,971 forward government securities transactions 21.2.2 513,938 57,768,858 - 6,018,458 4,199,234 2,895,671 - 119,768 42,231 63,591 424,029,683 342,834,074 Purchase 220,381,401 137,056,586 Sale 138,500,517 70,453,385 358,881,918 207,509,971 464,217 57,768,858 operating leases 21.3.3 As a result of default by Fateh Textile Mills to terms of compromise decree passed in August 2002 by the Honourable High Court of Sindh, 16,376,106 shares of ABL were sold in accordance with section 19 (3) of the Financial Institutions (Recovery of Finances) Ordinance, 2001, after complying with the due and complete transparent process. Sealed bids were invited from interested parties. The bidding process was scheduled for July 23, 2004 and the Rs. 25 per share was fixed reserve price. On the bid date, the highest offer for these shares was received at a rate of Rs. 25.51 per share. The bid was approved and the successful bidder had deposited an amount of Rs. 417.75 million with the Bank. Commitments for acquisition of: fixed assets intangible assets Other Commitments 21.2.1 Commitments in respect of forward foreign exchange contracts 21.2.2 Commitments in respect of forward government securities transactions Purchase Sale 21.3 57,768,858 Other contingent liabilities 21.3.1 Claims against the Bank not acknowledged as debt 244 49,721 513,938 Annual Report 2019 8,923,603 8,738,009 Fateh Textile Mills Limited filed suit in the High Court of Sindh challenging the above sale of shares. The High Court had not granted a stay order against the said sale. The sale of shares was, therefore; concluded. 21.3.4 While adjudicating foreign exchange repatriation cases of exporter namely: Fateh Textile Mills Limited, the Foreign Exchange Adjudicating Court (FEAC) of the State Bank of Pakistan (SBP) has arbitrarily adjudicated penalties against various banks including Rs. 2,173 million in aggregate against Allied Bank Limited (the Bank). Against the said judgments, the Bank had filed appeals before the Appellate Board and Constitutional Petitions (CP) in the High Court of Sindh, Karachi. The Honorable High Court granted relief to the Bank by way of interim orders. Meanwhile, alongwith other banks, Bank filed a further CP whereby vires of section 23C of the FE Regulations Act, 1947 was sought to be declared ultra vires. On November 8, 2018, the Honorable court was pleased to order that the Appellate Board shall not finally decide the appeals. Subsequently, the earlier CP was disposed of vide order dated January 15, 2019 with a direction to the Appellate Board to first decide the stay application of the Bank and till then, the Foreign Exchange Regulation Department has been restrained from taking any coercive action against the Bank. Based on merits of the appeals, the management is confident that these appeals shall be decided in favor of the Bank and therefore no provision has been made against the impugned penalty. 22 DERIVATIVE INSTRUMENTS The Bank at present does not offer structured derivative products such as Interest Rate Swaps, Forward Rate Agreements or FX Options. However, the Bank buys and sells derivative instruments such as: – – – – Forward Exchange Contracts Foreign Exchange Swaps Equity Futures Forward Contracts for Government Securities Allied Bank Limited 245
125. Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 246 Forward Exchange Contract (FEC) is a product which is offered to the obligor who transact internationally. These obligor use this product to hedge themselves from unfavorable movements in a foreign currency, however, by agreeing to fix the exchange rate, they do not benefit from favorable movements in that currency. An FEC is a contract between the Obligor and the Bank in which both agree to exchange an amount of one currency for another currency at an agreed forward exchange rate for settlement over more than two business days after the FEC is entered into (the day on which settlement occurs is called the value date). FEC is entered with those Obligors whose credit worthiness has already been assessed, and they have underlined trade transactions. If the relevant exchange rate moves un-favorably, Obligor will benefit from that movement because the Bank must exchange currencies at the FEC rate. In order to mitigate this risk of adverse exchange rate movement, the Bank hedges its exposure by taking opposite forward position in inter-bank FX. Foreign Exchange Swaps A Foreign Exchange Swap (FX Swap) is used by the Bank if it has a need to exchange one currency for another currency on one day and then re-exchange those currencies at a later date. Exchange rates and forward margins are determined in the “inter-bank” market and fluctuate according to supply and demand. An FX Swap prevents the Bank from gaining any benefit resulting from a favorable exchange rate movement in the relevant currency pair between the time Bank enters into the transaction deal and when settlement occurs. Cancellation of the swap may also result in exposure to market movements. The key advantage of an FX swap is that it provides the Bank with protection against unfavorable currency movements between the time it enters into the transaction and settlement. The term and amounts for FX Swap can also be tailored to suit the Bank’s particular needs. Equity Futures An equity futures contract is a standardized contract, traded on a futures counter of the stock exchange, to buy or sell a certain underlying script at a certain date in the future, at a specified price. for the year ended December 31, 2019 Forward Exchange Contracts Notes to the Consolidated Financial Statements The Bank may use equity futures as a hedging instrument to hedge its equity portfolio, in both ‘held-for-trading’ and ‘available-forsale’, against equity price risk. Only selected shares are allowed to be traded on futures exchange. Equity futures give flexibility to the Bank either to take delivery on the future settlement date or to settle it by adjusting the notional value of the contract based on the current market rates. Maximum exposure limit to the equity futures is 10% of Tier I Capital of the Bank, based on prevailing SBP regulations. The accounting policies used to recognize and disclose derivatives are given in Note 4.15.2. The risk management framework of derivative instruments is given in note 43. Annual Report 2019 Note December 31, December 31, 2019 2018 Rupees in ‘000 23 24 25 MARK–UP / RETURN / INTEREST EARNED On: Loans and advances Investments Lendings to financial institutions Balances with banks MARK–UP / RETURN / INTEREST EXPENSED On: Deposits Borrowings Cost of foreign currency swaps against foreign currency deposits Interest expense on lease liability 58,818,173 15,225,536 6,100,939 988,344 81,132,992 30,128,283 9,524,346 1,504,521 41,157,150 1,637,042 1,994,939 691,815 578,270 346,940 153,625 134,569 119,076 42,775 4,085 5,703,136 1,328,552 1,849,638 590,077 524,226 362,470 119,770 103,085 78,936 20,270 4,196 4,981,220 1,622,033 141,479 1,763,512 2,372,668 (53,327) 2,319,341 583,191 990,608 (685) 48,919 1,622,033 1,775,998 606,868 (1,153) (9,045) 2,372,668 GAIN ON SECURITIES Realised – net Unrealised – held for trading 26.1 29,697,818 37,204,167 6,185,232 188,257 73,275,474 FEE AND COMMISSION INCOME Card related fees (debit and credit cards) Branch banking customer fees Commission on remittances including home remittances Investment banking fees Commission on trade Commission on cash management Commission on guarantees Commission on bancassurance Credit related fees Consumer finance related fees 26 49,550,748 64,070,753 8,639,234 377,845 122,638,580 26.1 8.1 Realised gain / (loss) on: Federal government securities Shares Non Government debt securities Open Ended Mutual Funds Allied Bank Limited 247
126. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note December 31, December 31, 2019 2018 December 31, December 31, 2019 2018 Rupees in ‘000 Rupees in ‘000 27 28.1 OTHER INCOME Recovery of written off mark-up and charges Gain on sale of fixed assets - net Other assets disposal Rent on property Fee for attending Board meetings Gain on disposal of islamic financing and related assets Gain / (loss) on sale of non-banking assets 27.1 27.1 12,198 172,074 268,306 34,903 79,258 34,464 - - 3,384 2,845 - 2,629 32,266 (27) 395,412 246,888 Salaries Fees And Allowances etc. Bonus and Awards Variable Fixed Charge For Defined Benefit Plan Contribution To Defined Contribution Plan Conveyance expense Medical expense Insurance Education Subsidy Hajj Expenses Staff Uniform Executive Club Membership Verification Charges Educational Documents Recruitment Charges Others Sub–Total Voluntary Retirement Scheme Grand Total This includes gain on sale of two non-banking assets amounting to Rs. 18 million and Rs. 14.266 million respectively (2018: loss of Rs. 0.027 million). Note December 31, December 31, 2019 2018 Rupees in ‘000 28 OPERATING EXPENSES Total compensation expense Property expense: Depreciation Rent and taxes Utilities cost Security (including guards) Repair and maintenance (including janitorial charges) Insurance 28.1 13,749,364 12,502,989 28.2 28.2 3,906,601 288,321 1,231,431 888,206 751,678 73,833 7,140,070 2,068,320 1,755,132 1,012,681 717,501 564,580 68,064 6,186,278 689,087 668,223 246,646 546,047 346,507 9,234 2,505,744 631,926 548,711 404,071 353,806 297,826 8,521 2,244,861 746,592 1,148,296 625,208 521,405 466,341 234,157 119,572 218,094 218,320 55,253 123,966 89,261 32,860 6,059 96,671 21,360 475,098 5,198,513 28,593,691 654,441 567,053 534,151 415,560 334,409 193,607 141,709 126,877 125,659 113,238 106,097 87,952 29,736 6,991 101,430 19,611 398,761 3,957,282 24,891,410 Information technology expenses: Network charges Depreciation Amortization Software maintenance Hardware maintenance Others Other operating expenses: Marketing, advertisement and publicity Insurance Outsourced service costs Cash in Transit service charge Stationery and printing Travelling and conveyance Legal and professional charges Postage and courier charges Depreciation Donations NIFT clearing charges Communication Directors fees and allowances Fees and allowances to Shariah Board Training and development Auditors Remuneration Others 248 Annual Report 2019 28.3 35.1 28.5 28.4 Total compensation expense 9,014,086 1,476,956 8,273,108 1,440,423 979,147 568,546 455,260 318,753 300,414 189,264 86,675 29,793 24,494 12,219 5,291 3,821 4,631 2,048 13,471,398 277,966 13,749,364 570,583 526,326 768,712 310,235 199,580 113,576 80,194 30,200 23,531 13,175 11,335 1,282 2,275 1,218 12,365,753 137,236 12,502,989 28.1.1 The Bank announced the Voluntary Retirement Scheme (VRS) for its employees. Forty eight (48) employees (2018: 53) of the Bank opted for retirement under this scheme. 28.2 Adoption of IFRS 16 ‘Leases’ resulted in increase in depreciation expense of Rs. 1,610.1 million and decrease of rent and registration charges of Rs. 1,869.4 million. 28.3 Includes Deposit protection cost of Rs. 937.4 million (December 31, 2018: 410.6 million). December 31, December 31, 2019 2018 Rupees in ‘000 28.4 Auditors’ remuneration Audit fee Fee for other statutory certifications Annual audit overseas business unit* Half year review Special certifications and miscellaneous services Sales tax Out-of-pocket expenses 6,450 5,859 2,341 2,620 1,787 631 1,672 21,360 6,450 4,752 2,150 2,620 1,359 628 1,652 19,611 *This includes audit fee amounting to Bahraini Dinar 5,500 (2018: 5,500) relating to Wholesale Bahrain Branch. 28.5 None of the directors, executives and their spouses had any interest in the donees, except Mr. Mohammad Naeem Mukhtar (Chairman/ Non-Executive Sponsor Director) is director in National Management Foundation (LUMS). Further, spouse of a key management personnel also holds key position in RAAST Welfare Society. Allied Bank Limited 249
127. Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 Note Acumen Fund Pakistan Anjuman Himayat-i-Islam 28.5.1 Bakhtawar Amin Memorial Trust Hospital Government College of Science, Lahore December 31, December 31, 2019 2018 Rupees in ‘000 - 10,000 4,454 5,065 - 1,000 599 - - 1,000 5,000 - Children Hospital Faisalabad - 1,730 Diamer - Bhasha and Mohmand Dam Fund - 14,283 Chaman (Center for Mentally Challenged Children) Lahore Businessmen Association For Rehabilitation Of The Disabled Fountain House Mental Health Association Liver Foundation Trust Namal Education Foundation National Management Foundation (LUMS) Mashal Association Punjab Food Authority RAAST Welfare Society - 500 1,000 1,000 - 30,000 30,000 30,000 200 - - 337 1,000 1,000 Rising Sun Institution for Special Children - 200 Shaukat Khanum Memorial Trust - 1,000 Sundas Foundation Tamir Welfare Organization Tehzeeb Social Welfare Organization The Indus Hospital University of Turbat - 1,000 3,000 2,500 - 250 10,000 10,000 - 2,373 55,253 113,238 28.5.1 This represents charitable expenses on account of sadqa & feeding to under privileged. 29 Note 31 Reversal against loans and advances Provision / (reversal) against other assets Provision against off balance sheet obligations Bad debts written off directly Recovery of written off bad debts WWF provision from 2014 to 2019 has been maintained conservatively based on tax advisor’s opinion in view of provincial levy of WWF by the provinces with effect from 2014, including levy by Sindh which is under litigation. Punjab Government has promulgated Punjab Workers Welfare Fund Act 2019 (PWWF) with effect from December 13, 2019, therefore, WWF provision related to Punjab and pertaining to the period from 2014 till the date of promulgation of PWWF is reversed from the provision maintained for WWF from 2014 to 2019. 979,141 109,019 9.4 (394,132) (1,132,836) 12.2.1 100,664 84,696 6,701 - - - 692,374 (939,121) (150,567) 546,658 (1,089,688) 9,267,347 834,833 10,102,180 110,980 10,213,160 7,780,029 (4,096) 7,775,933 425,161 8,201,094 Accounting profit for the year 24,701,923 21,232,911 Tax on income @ 35% (2018: 35%) Super Tax @ 4% Prior year Super Tax @ 4% Others Tax charge for the year 8,645,673 964,348 834,833 (231,694) 10,213,160 7,431,519 790,490 (20,915) 8,201,094 14,488,763 13,031,817 TAXATION Deferred – current 32.1 8.3.1 (145,716) Current – for the year including super tax – for prior year 33 WORKERS WELFARE FUND Supreme Court of Pakistan vide order dated November 10, 2016 held that the amendments made in the law through Finance Act 2008, introduced by the Federal Government for the levy of Worker Welfare Fund (WWF) were unlawful. Federal Board of Revenue filed review petition against the subject order, which is currently pending for adjudication. PROVISIONS AND WRITE OFFS – NET Provision for diminution in the value of investments 32 December 31, December 31, 2019 2018 Rupees in ‘000 Relationship between tax expense and accounting profit EARNINGS PER SHARE – BASIC AND DILUTED Profit after taxation Number of Shares Weighted average number of ordinary shares outstanding during the year 1,145,073,830 1,145,073,830 Rupees Earnings per share – basic and diluted 12.65 11.38 There is no dilution effect on basic earnings per share. Note 30 OTHER CHARGES Penalties imposed by State Bank of Pakistan 120,914 38,143 Education cess 54,187 23,267 Depreciation - non-banking assets 19,851 19,662 Other assets written off 250 December 31, December 31, 2019 2018 Rupees in ‘000 Annual Report 2019 93 891 195,045 81,963 Allied Bank Limited 251
128. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 Note 34 December 31, December 31, 2019 2018 Rupees in ‘000 36.3 Principal actuarial assumptions The actuarial valuations were carried out for December 31, 2019 based on the Projected Unit Credit Method, using the following significant assumptions: Sources of estimation CASH AND CASH EQUIVALENTS Cash and balances with treasury banks 5 119,935,126 99,177,561 Balances with other banks 6 602,582 2,575,055 Overdrawn nostro accounts 15 (64,207) (243,624) 120,473,501 101,508,992 December 31, 2019 Withdrawal rate Pension fund Gratuity fund December 31, 2018 Low Low Moderate High Benevolent fund Numbers 35 High Post retirement medical benefits High High Employees’ compensated absences High High Adjusted SLIC Adjusted SLIC 2001–2005 2001–2005 Yield on investments in Government Bonds 11.25% 13.25% Pension fund Yield on investments in Government Bonds 11.25% 13.25% Gratuity fund Yield on investments in Government Bonds 11.25% 13.25% Benevolent fund Yield on investments in Government Bonds STAFF STRENGTH Mortality rate Permanent 11,389 11,122 458 276 Bank's own staff strength at the end of the year 11,847 11,398 Average number of employees 11,623 11,141 Temporary / on contractual basis / trainee Discount rate Expected rate of return on plan assets 35.1 In addition to the above, 501 (2018: 376) employees of outsourcing services companies were assigned to the Bank as at the end of the year to perform services other than guarding and janitorial services. Further, 7 (2018: 8) employees were posted abroad. The rest were working domestically. 36 36.1 DEFINED BENEFIT PLANS General description The Bank operates a funded gratuity scheme for all employees who opted for the staff retirement benefit scheme introduced by the management with effect from July 1, 2002. For those employees who did not opt for the new scheme, the Bank continues to operate a funded pension scheme. The expected return on plan assets is based on the market expectations and depends on the asset portfolio of the Bank, at the beginning of the period, for returns over the entire life of the related obligation. 36.4 Reconciliation of (receivable from) / payable to defined benefit plans / other long term benefits 13.25% Rate of salary increase Expected rate of salary increase 9.25% December 31,2019 Note The Bank also provides post retirement medical benefits (unfunded scheme) to eligible retired employees. 36.2 Number of employees and beneficiaries under the schemes The number of employees covered under the following defined benefit scheme / plans are: 922 10,674 76 10,623 10,815 December 31,2018 Benevolent fund Post retirement medical Employees’ compensated absences Pension fund Gratuity fund 36.6 1,661,826 3,365,399 - 1,365,237 668,548 1,585,703 2,827,757 9,206 1,332,925 36.7 (6,102,237) (2,744,422) - - - (6,145,768) (2,383,102) (241,036) - - (4,440,411) 620,977 - 1,365,237 668,548 (4,560,065) 444,655 (231,830) 1,332,925 606,880 Net (asset) / liability 2,236 1,610 the Bank 36.5 - - - - - - - 115,915 - - (4,440,411) 620,977 - 1,365,237 668,548 (4,560,065) 444,655 (115,915) 1,332,925 606,880 Movement in (receivable from) / payable to defined benefit plans December 31,2019 Note Pension fund Gratuity fund December 31,2018 Benevolent fund Post retirement medical Employees’ compensated absences Pension fund Gratuity fund Annual Report 2019 36.9 Benevolent fund Post retirement medical Employees’ compensated absences Rupees in ‘000 (4,560,065) 444,655 (115,915) 1,332,925 606,880 (3,692,032) 511,919 (112,061) 1,240,250 571,757 (466,025) 476,334 (28,157) 192,559 185,016 (121,245) 390,919 (18,490) 144,612 244,446 Other comprehensive (income) / losses 727,746 90,890 - (44,640) - (746,788) (72,143) 14,636 105,031 - Contribution to the fund / benefits paid (142,067) (390,902) 144,072 (115,607) (123,348) - (386,040) - (156,968) (209,323) (4,440,411) 620,977 - 1,365,237 668,548 (4,560,065) 444,655 (115,915) 1,332,925 606,880 Closing balance 252 606,880 Benefit of the surplus not available to Opening balance 2,330 1,610 Employees’ compensated absences Present value of defined benefit obligations (Reversal) / charge for the year – Pension fund – Post retirement medical benefits Post retirement medical Rupees in ‘000 Rupees in ‘000 In addition, the number of beneficiaries covered under the following defined benefit scheme / plans are: Benevolent fund Fair value of plan’s / scheme’s assets Net (asset) / liability 632 11,427 11,183 11,183 Gratuity fund Rupees in ‘000 December 31, December 31, 2019 2018 Numbers – Pension fund – Gratuity fund – Benevolent fund – Post retirement medical benefits – Employees’ compensated absences Pension fund 11.25% Allied Bank Limited 253
129. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 36 .6 36.8 for the year ended December 31, 2019 for the year ended December 31, 2019 Movement in defined benefit obligations Composition of plan assets December 31, 2019 Gratuity fund Pension fund December 31, 2019 Post retirement medical Benevolent fund Employees’ compensated absences Pension fund Gratuity fund Rupees in ‘000 Opening balance 2,827,757 9,206 1,332,925 606,880 - 414,448 - 21,879 37,523 Interest cost 178,867 357,867 - 168,954 72,152 Benefits paid (471,523) (253,741) (9,206) (115,607) (123,348) VRS / settlement loss / (gain) 147,596 2,970 - 1,726 15,391 Re-measurement loss / (gain) 221,183 16,098 - (44,640) 59,950 1,661,826 3,365,399 - 1,365,237 668,548 Closing balance 36.8.1 Gratuity fund Post retirement medical Benevolent fund Equity securities 4,880,641 738,956 - - - Cash and cash equivalents 1,221,596 2,005,466 - - - 6,102,237 2,744,422 - - - Fair value of Bank’s financial instruments included in plan assets December 31, 2018 Pension fund Post Employees’ retirement compensated medical absences Rupees in ‘000 1,585,703 Current service cost Benevolent fund Employees’ compensated absences Shares of ABL 2,649,848 582,681 - - - Term deposit receipts 1,047,174 1,895,966 - - - Bank balances with ABL 174,422 109,500 - - - 3,871,444 2,588,147 - - - Pension fund Gratuity fund Rupees in ‘000 December 31, 2018 Opening balance 1,979,453 Current service cost 2,531,300 8,036 1,240,250 571,757 - 307,163 - 29,241 32,688 Interest cost 148,404 195,575 579 95,846 38,441 Benefits paid (361,231) (321,380) (2,041) (156,968) (209,323) Past Service Cost- Supreme Court Past Service Cost- Change in retirement age - - - - 4,285 33,851 - 22,975 18,252 Government securities Cash and cash equivalents VRS / settlement loss / (gain) 6,952 7,672 - (3,450) 17,215 (364,271) 73,576 2,632 105,031 137,850 1,585,703 2,827,757 9,206 1,332,925 606,880 Closing balance Equity securities 36.8.2 36.7 Movement in fair value of plan assets Pension fund Bank’s contribution Benefits paid Re–measurement gain / (loss) Closing balance 655,028 29,796 - - - - - - - 812,045 1,728,074 211,240 - - 6,145,768 2,383,102 241,036 - - Fair value of Bank’s financial instruments Gratuity fund Shares of ABL Post retirement medical Benevolent fund Employees’ compensated absences Term deposit receipts Bank balances with ABL Rupees in ‘000 Opening balance 5,333,723 included in plan assets December 31, 2019 Expected return on plan assets 6,145,768 2,383,102 241,036 - - 792,488 298,951 - - - 142,067 390,902 - - - (471,523) (253,741) (241,036) - - (506,563) (74,792) - - - 6,102,237 2,744,422 - - - 3,277,428 655,028 29,796 - - 664,594 1,693,708 193,345 - - 147,451 34,366 17,895 - - 4,089,473 2,383,102 241,036 - - 36.8.3 Investment in term deposit receipts are subject to credit risk and interest rate risks, while equity securities are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. 36.9 Charge for defined benefit plan December 31, 2019 Pension fund Gratuity fund Benevolent fund December 31, 2018 Pension fund Gratuity fund Post retirement medical Benevolent fund Employees’ compensated absences Rupees in ‘000 Opening balance Expected return on plan assets Bank’s contribution Benefits paid Re–measurement gain / (loss) Closing balance 254 Annual Report 2019 Post Employees’ retirement compensated medical absences Rupees in ‘000 172,111 Re-measurement loss / (gain) Benevolent fund 5,671,485 2,019,381 232,158 - - 452,997 153,342 19,069 - - - 386,040 - - - (361,231) (321,380) (2,041) - - 382,517 145,719 (8,150) - - 6,145,768 2,383,102 241,036 - - Post Employees’ retirement compensated medical absences Rupees in ‘000 Current service cost - 414,448 - 21,879 37,523 Interest cost - - - 168,954 72,152 (613,621) 58,916 - - - 147,596 2,970 - 1,726 15,391 Net interest VRS loss / (gain) Re–measurement loss recognised - - - - 59,950 (466,025) 476,334 - 192,559 185,016 Allied Bank Limited 255
130. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 36.12 Five year data of defined benefit plan and experience adjustments December 31, 2018 Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Gratuity fund 2019 Rupees in ‘000 Current service cost - 307,163 - 29,241 32,688 - - - 95,846 38,441 (304,593) 42,233 (18,490) - - 172,111 - - - - Past Service Cost– Change in retirement age 4,285 33,851 - 22,975 18,252 VRS loss / (gain) 6,952 7,672 - (3,450) 17,215 - - - - 137,850 (121,245) 390,919 (18,490) 144,612 244,446 Net interest Re–measurement loss recognised Present value of defined benefit obligation Fair value of plan assets 2,827,757 2,531,300 2,285,523 2,043,833 (2,383,102) (2,019,381) (2,030,232) (1,482,378) 620,977 444,655 511,919 255,291 561,455 Experience adjustments on plan obligations / assets Re–measurement gain / (loss) on obligation (16,098) (73,576) (20,492) 36,036 (167,783) Re–measurement gain / (loss) on assets (74,792) 145,719 (230,025) 26,301 (168,935) Benevolent fund December 31, 2019 Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences 2017 Re-measurement gain / (loss) on obligations Re-measurement gain / (loss) in OCI (221,183) (506,563) (727,746) (16,098) (74,792) (90,890) Pension fund Gratuity fund - 44,640 44,640 Benevolent fund - 9,206 8,036 8,776 12,355 Fair value of plan assets - (278,393) (232,158) (221,007) (205,166) - (269,187) (224,122) (212,231) (192,811) Re–measurement (loss) / gain on obligation - (2,632) (1,111) 931 (4,376) Re–measurement (gain) / loss on assets - (8,150) (3,976) 1,136 (10,841) Post retirement medical 2019 Present value of defined benefit obligation 364,271 (73,576) (2,632) (105,031) - 382,517 145,719 (8,150) - - - - (3,854) - 746,788 72,143 (14,636) (105,031) 2016 1,332,925 1,240,250 1,298,380 - - - - - 1,365,237 1,332,925 1,240,250 1,298,380 1,217,945 44,640 (105,031) 62,068 (97,990) (243,936) 2018 2017 2016 2015 Rupees in ‘000 - December 31, December 31, 2019 2018 Present value of defined benefit obligation 668,548 606,880 570,128 698,964 - - - - - 668,548 606,880 570,128 698,964 761,498 (59,950) (137,850) 71,640 11,662 (45,712) Fair value of plan assets 761,498 Experience adjustments on plan obligations Re–measurement (loss) / gain on obligation Actual return / (loss) on plan assets 36.13 Expected contributions to be paid to the funds in the next financial year – Pension fund – Gratuity fund – Benevolent fund 285,925 224,159 - 835,514 299,061 10,919 36.12 Five year data of defined benefit plan and experience adjustments The Bank contributes to the gratuity fund as per actuarial expected charge for the next financial year. No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2020 would be as follows: Pension fund Gratuity fund Benevolent fund Pension fund 2019 2018 2017 2016 Expected (reversal) / charge for the next year 1,661,826 1,585,703 1,979,453 2,001,618 1,971,233 (6,102,237) (6,145,768) (5,671,485) (6,616,345) (5,770,403) (4,440,411) (4,560,065) (3,692,032) (4,614,727) (3,799,170) Post Employees’ retirement compensated medical absences Rupees in ‘000 2015 Rupees in ‘000 Fair value of plan assets 1,217,945 Employees’ compensated absences 2019 Rupees in ‘000 Present value of defined benefit obligation 2015 Experience adjustments on plan obligations Re–measurement (loss) / gain on obligation Re-measurement gain / (loss) on obligations 2017 1,365,237 Fair value of plan assets Post Employees’ retirement compensated medical absences Re-measurement gain / (loss) on assets 2018 Rupees in ‘000 Rupees in ‘000 Re-measurement gain / (loss) in OCI 2015 Present value of defined benefit obligation - December 31, 2018 Asset ceiling adjustment 2016 Experience adjustments on plan obligations / assets Rupees in ‘000 36.11 2018 Rupees in ‘000 Pension fund - Experience adjustments 2015 3,365,399 Re–measurements recognized in other comprehensive income Re-measurement gain / (loss) on assets 2016 (2,744,422) 2019 36.10 2017 Rupees in ‘000 Interest cost Past Service Cost– Supreme Court 2018 (499,546) 407,227 - 127,086 108,310 Experience adjustments on plan obligations / assets 256 Re–measurement gain / (loss) on obligation (221,183) 364,271 (94,595) (172,722) (152,852) Re–measurement gain / (loss) on assets (506,563) 382,517 (1,191,876) 660,173 (854,480) Annual Report 2019 Allied Bank Limited 257
131. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 36 .14 Sensitivity analysis 38 for the year ended December 31, 2019 Description +1% Discount Rate for the year ended December 31, 2019 -1% +1% Salary Discount Increase Rate Rate COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL -1% Salary +10% -10% 1Year 1Year Increase Withdrawal Withdrawal Mortality age Mortality age Rate Rate Rate set back set forward December 31, 2019 Directors Rupees in ‘000 Pension fund 1,613,770 1,715,331 1,661,826 1,661,826 1,661,894 1,661,765 1,662,587 1,661,069 Gratuity fund 3,159,317 3,597,914 3,616,359 3,139,696 3,351,328 3,351,328 3,350,060 3,352,591 - - - - - - - - 1,272,317 1,470,835 1,399,106 1,330,036 1,405,845 1,329,438 1,360,812 1,369,967 625,368 717,204 717,674 624,241 660,538 676,907 666,953 670,135 Benevolent fund Post retirement medical Leave compensated absences The above sensitivity analysis are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of defined benefit obligation calculated with the projected unit credit method at the end of the reporting period) has been applied when calculating the defined benefit obligation recognized within the statement of financial position. December 31, 2019 Pension fund Gratuity fund Benevolent fund Post Employees’ retirement compensated medical absences Rupees in ‘000 36.15 3.06 6.5 - 5.40 5.40 36.16 Funding Policy 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. Longevity risks: 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. Investment risks: The risk arises when the actual performance level of investment levels is lower than expectation and thus creating a shortfall in the funding objectives. 37 258 Salary increase risk: The most common type of retirement benefit is one where the final benefit is linked with final salary. The risk arises when the actual increases are higher than expectations and impact 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 The Bank operates an approved contributory provident fund for 10,089 (2018: 10,158) employees where contributions are made by the Bank and employees at 8.33% per annum (2018: 8.33% per annum) of the basic salary every month. Annual Report 2019 Other Material Risk Takers / Controllers Fees and allowances etc. - 30,000 - - Managerial remuneration - - - - - - - Fixed (including Eid bonus) - - 2,842 14,200 112,947 186,385 - - Total Variable - - - 22,000 121,500 84,501 a. Cash Bonus / awards - - - 22,000 121,500 84,501 b. Bonus and awards in Shares - - - - - - - - 294 1,590 20,448 35,936 of which Charge for defined benefit plans Contribution to defined - - 219 1,183 8,922 15,526 Rent and house maintenance - - 1,574 8,520 57,922 107,860 Utilities - - 525 2,840 19,307 35,965 Medical - - 525 2,840 20,335 35,965 Conveyance - - 813 3,000 50,990 58,203 Others - - 284 349 12,805 41,375 Total - 30,000 7,076 56,522 425,176 601,716 Number of persons 1 8 3 1 19 75 December 31, 2018 Directors 36.17 Risk associated with defined benefit plans 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; Key Management Personnel Total compensation expense contribution plan Maturity Profile The weighted average duration of the obligation (in years) 38.1 Members President / Shariah CEO Board Rupees in ‘000 Non-Executives Chairman Non-Executives Chairman Fees and allowances etc. Members President / Shariah CEO Board Rupees in ‘000 Key Management Personnel - 18,700 - - - - Fixed - - 3,107 12,900 106,023 - Total Variable - - - 20,000 117,600 a. Cash Bonus / awards - - - 20,000 117,600 b. Bonus and awards in Shares - - - - - - - 309 1,399 20,088 Managerial remuneration of which Charge for defined benefit plans Contribution to defined contribution plan Rent and house maintenance - - 237 1,075 8,375 - - 1,708 7,740 54,560 Utilities - - 569 2,580 18,187 Medical - - 569 2,687 18,390 51,218 Conveyance - - 1,095 3,000 Others - - 420 374 8,935 Total - 18,700 8,014 51,755 403,376 Number of persons 1 8 4 1 18 Allied Bank Limited 259
132. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 38 .2Remuneration paid to Directors for participation in Board and Committee Meetings 39 FAIR VALUE OF FINANCIAL INSTRUMENTS The table below analyses financial instruments measured at the end of the reporting period by the level in the fair value hierarchy into which the fair value measurement is categorised: for the year ended December 31, 2019 for the year ended December 31, 2019 December 31, 2019 Name of Director Audit Committee of Board Board Meetings Board Committees Human Board Risk Resource Management E-Vision Remuneration Committee Committee Rupees in ‘000 Strategic Planning and Monitoring Committee Total Amount Paid December 31, 2019 Carrying Value Held to Maturity On–Balance sheet Financial Instruments Held for Trading Available for Sale Fair Value Financing and receivables Other financial assets Other financial liabilities Total Level 1 Level 2 Total Level 3 Rupees in ‘000 Mohammad Naeem Mukhtar - - - - - - - Sheikh Mukhtar Ahmad - - - - - - - Muhammad Waseem Mukhtar 1,750 1,150 1,400 - - 2,400 6,700 Abdul Aziz Khan 1,250 - 1,150 1,150 - 2,150 5,700 Dr. Muhammad Akram Sheikh 1,750 1,400 1,400 1,150 - - 5,700 Financial assets – measured at fair value Investments Shares / Open Ended Mutual Funds Federal Government Securities Non Government Debt Securities 2,197,434 28,613,526 - - - 30,810,960 28,458,268 2,352,692 - 30,810,960 19,868,163 678,973,168 - - - 698,841,331 - 698,841,331 - 698,841,331 - 4,176,639 - - - 4,176,639 - 4,176,639 - 4,176,639 119,935,126 Financial assets – not measured at fair value Zafar Iqbal 1,750 1,400 - - 1,000 - 4,150 Cash and balances with treasury banks - - - 119,935,126 - Nazrat Bashir 1,750 - - - 1,000 2,400 5,150 Balances with other banks - - - 602,582 - 602,582 - - - - Kamran Shahzad 1,300 - - - - - 1,300 Lendings - - 13,606,921 - - 13,606,921 - - - - Advances - - 485,051,568 - - 485,051,568 - - - - Pervaiz Iqbal 1,300 - - - - - 1,300 10,850 3,950 3,950 2,300 2,000 6,950 30,000 Total Amount Paid Other assets - - - - - - - 34,250,198 - 34,250,198 - - - - - 12,810,456 - - - 25,825,497 - - - - 13,015,041 22,065,597 724,573,789 498,658,489 154,787,906 - 1,413,100,822 28,458,268 705,370,662 - 733,828,930 - - - - - - - - - - - Investments ( HTM, unlisted ordinary shares, Term finance certificate, sukuks, subsidiaries ) 13,015,041 Financial liabilities – measured at fair value December 31, 2018 Trading Liability Board Committees Name of Director Audit Committee of Board Board Meetings Human Resource Remuneration Committee Board Risk Management Committee Strategic Planning and Monitoring Committee E-Vision - Financial liabilities – not measured at fair value Total Amount Paid - Bills payable Borrowings Deposits and other accounts Rupees in ‘000 Other liabilities - 7,878,626 7,878,626 - - - - - - - - - 266,448,386 266,448,386 - - - - - - - - - - - - 1,049,018,804 1,049,018,804 - - - - - - - - - 36,559,513 36,559,513 - - - - - - - - - 1,359,905,329 1,359,905,329 - - - - Off-balance sheet financial instruments - Mohammad Naeem Mukhtar - - - - - - - Sheikh Mukhtar Ahmad - - - - - - - 1,050 300 750 450 - 1,650 4,200 Muhammad Waseem Mukhtar Abdul Aziz Khan 1,050 - 750 600 - 1,500 3,900 Dr. Muhammad Akram Sheikh 1,050 750 150 300 600 - 2,850 Zafar Iqbal 1,050 750 - - 150 - 1,950 Nazrat Bashir 450 - - - 150 300 900 Mubashir A. Akhtar 600 450 - - 450 1,200 2,700 measured at fair value Forward foreign exchange contracts On–Balance sheet Financial Instruments 1,100 - - - - - 1,100 Financial assets – measured at fair value - - - - - 1,100 Investments Total Amount Paid 7,450 2,250 1,650 1,350 1,350 4,650 18,700 358,881,918 - 358,881,918 - 358,881,918 - 358,881,918 - 513,938 - 513,938 - 513,938 - 513,938 - 359,395,856 - 359,395,856 - 359,395,856 - 359,395,856 December 31, 2018 Held to Maturity Held for Trading Available for Sale Fair Value Financing and receivables Other financial assets Other financial liabilities Total Level 1 Level 2 Total Level 3 Shares / Open Ended Mutual Funds Federal Government Securities Non Government Debt Securities - 1,859,024 30,241,640 - - - 32,100,664 30,115,370 1,985,294 - 32,100,664 - 609,053,323 - - - 609,053,323 - 609,053,323 - 609,053,323 - 2,986,706 - - - 2,986,706 - 2,986,706 - 2,986,706 Financial assets – not measured at fair value Cash and balances with treasury banks - - - - 99,177,561 - 99,177,561 - - - - Balances with other banks - - - - 2,575,055 - 2,575,055 - - - - - - 53,780,195 - - 53,780,195 - - - - - - 438,356,170 - - 438,356,170 - - - - - - - 28,199,057 - 28,199,057 - - - - Lending December 31, 2019 December 31, 2018 Advances Other asset Chairman Resident Member Non-Resident Member(s) Resident Member Chairman Non-Resident Member(s) Rupees in ‘000 3,979 1,162 1,355 3,672 Term finance certificate, sukuks, subsidiaries ) Financial liabilities – measured at fair value Trading Liability 2,979 1,053 1 1 1 1 1 1 - Investments (HTM, unlisted ordinary shares, Financial liabilities – not measured at fair value Bills payable Borrowings Total Number of Persons - - Rupees in ‘000 1,100 Salaries and allowances - - Carrying Value Kamran Shahzad Items - Pervaiz Iqbal 38.3 Remuneration paid to Shariah Board Members - Forward government securities transactions Deposits and other accounts Other liabilities 16,151,622 - 12,294,994 - - - 28,446,616 - - - - 16,151,622 1,859,024 654,576,663 492,136,365 129,951,673 - 1,294,675,347 30,115,370 614,025,323 - 644,140,693 - 9,987,849 - - - - 9,987,849 - 9,987,849 - 9,987,849 - - - - - 7,752,959 7,752,959 - - - - - - - - 225,882,986 225,882,986 - - - - - - - - 984,463,067 984,463,067 - - - - - - - 20,156,645 20,156,645 - - - - - 9,987,849 - - - 1,238,255,657 1,248,243,506 - 9,987,849 - 9,987,849 - - - - 207,509,971 - 207,509,971 - 207,509,971 - 207,509,971 - - - - 265,278,829 - 265,278,829 - 265,278,829 - 265,278,829 - Off–balance sheet financial instruments – measured at fair value 38.4 260 Deferred cash bonus / remuneration for MRTs for the year 2019 is Rs. 15,828,450 Annual Report 2019 Forward foreign exchange contracts Forward government securities transactions 57,768,858 57,768,858 57,768,858 57,768,858 Allied Bank Limited 261
133. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, 2019 Level 1 Level 2 December 31, 2018 Level 3 Total Level 1 Level 2 Level 3 December 31, 2018 Corporate & Investment Banking Total Commercial and Retail Banking Trading & Sale (Treasury) Fair value of non-financial assets 40 40.1 Others Total 32,103,287 Profit & Loss 27,902,619 (28,096,467) 31,526,565 655,849 2,883 111,838 (27,412,947) 56,996,482 (27,126,100) - - (2,457,435) - Non mark-up/ return/ interest income 4,610,156 2,879,344 3,460,206 79,343 504,736 260,391 11,794,176 Valuation Techniques used in determination of Fair Valuation of Financial Instruments within Level 2 Total Income 5,099,828 31,779,359 7,860,671 735,192 507,619 (2,085,206) 43,897,463 Item Segment direct expenses (525,101) (13,782,024) (108,445) (1,083,994) (291,136) (7,963,540) (23,754,240) Total expenses (525,101) (13,782,024) (108,445) (1,083,994) (291,136) (7,963,540) (23,754,240) (234,885) (3,418) - 8 - (851,393) (1,089,688) 4,809,612 18,000,753 7,752,226 (348,810) 216,483 (9,197,353) 21,232,911 Fixed assets Non-banking assets 39.2 Asset Management Rupees in ‘000 Rupees in ‘000 39.1 Islamic Banking - 41,974,966 - 4,486,663 - 41,974,966 - 4,486,663 - 39,636,178 - 4,107,306 - 39,636,178 - 4,107,306 Valuation approach and input used Net mark-up/return/profit Inter segment revenue - net Federal Government Securities Marked to Market on the basis of PKRV rates. Provisions Non-Government Debt Securities Marked to Market on the basis of MUFAP rates. Profit before tax Foreign exchange contracts Marked to Market on the basis of SBP rates. Balance Sheet Open ended mutual funds Marked to Market on the basis of MUFAP rates. Cash & Bank balances Investments SEGMENT INFORMATION Net inter segment lending Lendings to financial institutions Segment Details with respect to Business Activities Advances - performing December 31, 2019 Corporate & Investment Banking Commercial and Retail Banking Trading & Sale (Treasury) Islamic Banking Asset Management Others Total 44,090,551 47,880,283 4,157,592 1,263 5,543,573 101,752,616 - 606,731,062 10,249,093 1,859,024 - 672,587,309 (402,000,239) 893,698,327 (529,115,678) 1,705,552 - 35,712,038 - 3,610,409 - 50,255,680 3,529,999 - (3,615,893) 53,780,195 453,270,463 394,258,308 28,081,086 - 6,927,030 38,985 23,965,054 Advances - non-performing 415,941 183,631 - - - - 599,572 Provision against advances (116,635) (103,416) - (8) - (15,293,806) (15,513,865) 394,557,614 28,161,301 - 6,927,022 38,985 8,671,248 438,356,170 4,772,402 7,977,518 2,236,843 1,641,756 406,822 68,871,672 85,907,013 Total Assets 54,767,670 973,927,697 177,988,190 28,211,014 2,306,094 Borrowings 42,470,266 3,912,691 183,088,196 - - (3,588,167) 225,882,986 - 957,686,063 - 24,632,633 - 2,144,371 984,463,067 33,247,439 Advances - net Others Rupees in ‘000 79,354 53,748,130 Profit & Loss Net mark-up/return/profit Inter segment revenue - net 45,813,790 (54,926,966) 49,983,718 1,203,117 (1,882) (566,190) 41,505,587 (45,178,102) 95,831,440 (47,548,684) - - (3,104,654) - Non mark-up/ return/ interest income 4,419,600 3,339,124 2,611,642 161,154 778,874 359,661 11,670,055 Total Income 5,055,288 44,243,598 5,046,676 1,364,271 776,992 (3,311,183) 53,175,642 Segment direct expenses (582,516) (15,889,959) (114,760) (1,285,405) (316,708) (9,737,713) (27,927,061) Total expenses (582,516) (15,889,959) (114,760) (1,285,405) (316,708) (9,737,713) (27,927,061) (1,262,930) (235,843) - (12) - 952,127 (546,658) 3,209,842 28,117,796 4,931,916 78,854 460,284 (12,096,769) 24,701,923 Provisions Profit before tax Deposits & other accounts 115,182,638 1,352,383,303 - Others Total liabilities 2,326,844 12,328,943 (3,680,842) 326,877 321,117 21,624,500 44,797,110 973,927,697 179,407,354 24,959,510 321,117 20,180,704 1,243,593,492 Equity / Reserves Total Equity and Liabilities 9,970,560 - (1,419,164) 3,251,504 1,984,977 54,767,670 973,927,697 177,988,190 28,211,014 2,306,094 Contingencies and Commitments 83,806,271 12,033,028 265,278,829 582,318 65,371 95,001,934 108,789,811 115,182,638 1,352,383,303 17,824,414 379,590,231 Balance Sheet Cash & Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing 59,821 51,303,207 61,984,899 2,045,240 15,525 5,129,016 120,537,708 47,263,032 - 697,876,038 12,452,302 2,197,434 (134,379) 759,654,427 (413,851,658) 972,381,940 (557,387,799) 161,300 - (1,303,783) - 4,753,821 - 2,052,492 11,554,430 - (4,753,822) 13,606,921 484,350,069 437,660,414 25,631,709 - 12,615,228 35,688 8,407,030 Advances - non-performing 511,117 461,688 - - - 14,881,113 15,853,918 Provision against advances (127,779) (205,889) - (20) - (14,818,731) (15,152,419) 438,043,752 25,887,508 - 12,615,208 35,688 8,469,412 485,051,568 7,072,635 8,706,936 7,215,579 2,752,910 545,118 78,239,639 104,532,817 Total Assets 83,341,403 1,058,279,591 211,741,209 41,581,390 2,793,765 Borrowings 63,149,483 2,415,660 203,936,638 1,700,000 - - 1,012,571,004 - 34,389,411 - Advances - net Others Deposits & other accounts Others Total liabilities 262 2,413,361 85,646,083 1,483,383,441 (4,753,395) 266,448,386 2,058,389 1,049,018,804 16,402,958 1,917,550 2,143,144 433,045 27,394,639 65,562,844 1,031,389,622 205,854,188 38,232,555 433,045 24,699,633 1,366,171,887 50,704,697 Equity / Reserves Total Equity and Liabilities 17,778,559 26,889,969 5,887,021 3,348,835 2,360,720 60,946,450 83,341,403 1,058,279,591 211,741,209 41,581,390 2,793,765 85,646,083 1,483,383,441 Contingencies and Commitments 78,732,154 359,395,856 1,907,886 42,231 Annual Report 2019 12,055,398 13,128,046 117,211,554 465,261,571 Allied Bank Limited 263
134. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 40.2 for the year ended December 31, 2019 GEOGRAPHICAL SEGMENT ANALYSIS December 31, 2019 Domestic Operations Middle East December 31, 2018 China Domestic Operations Total Rupees in ‘000 Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income Total Income 373,877 134,330 168,321 676,528 - 41,505,588 11,778,023 53,283,611 (27,909,520) (27,909,520) 528,487 24,169,076 (91,819) (91,819) 18,171 566,538 (33,691) (33,691) (33,691) (28,035,030) (28,035,030) 546,658 24,701,923 Cash & Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing Advances - non-performing Provision against advances Advances - net Others Total Assets 120,512,721 754,878,785 8,858,245 469,662,521 15,853,918 (15,152,419) 470,364,020 104,310,872 1,458,924,643 24,987 4,775,642 4,748,676 14,687,548 14,687,548 221,945 24,458,798 - 120,537,708 759,654,427 4,748,676 8,858,245 484,350,069 15,853,918 (15,152,419) 485,051,568 104,532,817 1,483,383,441 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity / Reserves Total Equity & liabilities 241,166,918 1,048,476,528 4,748,676 50,611,478 1,345,003,600 113,921,043 1,458,924,643 20,532,792 542,276 93,219 21,168,287 3,290,511 24,458,798 - 261,699,710 1,049,018,804 4,748,676 50,704,697 1,366,171,887 117,211,554 1,483,383,441 464,720,055 541,516 Balance Sheet Contingencies and commitments 264 Annual Report 2019 China Total Rupees in ‘000 41,131,711 (134,330) 11,609,702 52,607,083 Segment direct expenses Total expenses Provisions Profit before tax Middle East 465,261,571 Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income Total Income 31,312,120 12,052,442 43,364,562 543,312 262,892 (172,326) 633,878 - 31,855,432 262,892 11,880,116 43,998,440 (23,726,906) (23,726,906) (1,109,600) 20,747,256 (97,631) (97,631) 19,912 516,335 (30,680) (30,680) (30,680) (23,855,217) (23,855,217) (1,089,688) 21,232,911 Cash & Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing Advances - non-performing Provision against advances Advances - net Others Total Assets 101,720,143 662,343,886 1,302 53,780,195 451,950,423 531,144 (15,513,865) 436,967,702 85,781,584 1,340,594,812 32,473 10,243,423 3,609,107 1,388,468 1,388,468 125,429 15,398,900 - 101,752,616 672,587,309 3,610,409 53,780,195 453,338,891 531,144 (15,513,865) 438,356,170 85,907,013 1,355,993,712 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity / Reserves Total Equity & liabilities 213,245,406 983,976,700 3,610,409 33,222,494 1,234,055,009 106,539,803 1,340,594,812 12,637,580 486,367 24,945 13,148,892 2,250,008 15,398,900 - 225,882,986 984,463,067 3,610,409 33,247,439 1,247,203,901 108,789,811 1,355,993,712 379,104,618 485,613 - 379,590,231 Segment direct expenses Inter-segment expense allocation Total expenses Provisions Profit before tax Balance Sheet Contingencies and commitments Allied Bank Limited 265
135. 266 Report 2019 Annual Directors – – – – Addition during the year Repaid during the year Transfer in / (out) – net Closing balance – Investment redeemed / disposed off during the year Surplus Transfer in / (out) – net Closing balance Provision for diminution in value of investments - – Repaid during the year Transfer in / (out) – net Closing balance Provision held against advances – Closing balance Other contingencies Contingencies and Commitments Other liabilities Payable to staff retirement fund Interest / mark-up payable Other Liabilities Closing balance - - - 2,849 - (8,593,314) Withdrawn during the year Transfer in / (out) - net 8,594,379 Opening balance Received during the year 1,784 – – Redemption / Sold during the year Closing balance Deposits and other accounts – – Opening balance Issued / Purchased during the year Subordinated debt – – Settled during the year Transfer in / (out) - net – – Opening balance Borrowings during the year Borrowings - - Other receivable Provision against other assets - - - 357,194 - (1,492,156) 1,824,926 24,424 – – – – – – – – – - - - Interest / mark-up accrued Receivable from staff retirement fund 7,860 - Addition during the year - - - 34,632 - (559,794) 524,039 70,387 – – – – – – – – – - - - 69,367 Key management personnel – - - - - - - – – – – – - – – – – – – – – – - - - - - 599 123,315 - (7,677,777) 7,718,711 82,381 Associates* – 196,884 - (165,274) 97,754 264,404 December 31, 2019 – 4,764 - (29,659) 25,719 8,704 – - - - - - - – – – – – – – – – – – – – – – Joint venture – - - - - - - - (351) - - 351 Associates* - - - - - - - - - – – – – – – – – – - - - – - - - - - – - - - - - - – – – – – – – – – – – – – – – – - - 116,987 16,915,806 - (248,754,026) 247,373,312 18,296,520 – – – – – – – – – - 365,707 - – – – – – – – – – - - - - - - 1,784 - (9,622,816) 9,623,398 1,202 Parent – 575 - (9,147) 9,129 593 – 2,197,434 - 135,712 (4,073,665) 4,276,363 1,859,024 3,705,491 Parent Rupees in ‘000 Other related parties Rupees in ‘000 Other related parties Joint venture - - 2,506 24,424 369 (337,996) 99,342 262,709 – – – – – – – – – - - - 13,143 Directors – - - - - - – - - - - - – – – – – – – – – - - - - - - – – – – – – – – – - - - - - - – – – – – – – – - - 625 70,387 2,643 (616,342) 622,197 61,889 – – – – – – – – – - - - 66,580 - - - 757 82,381 (14) (8,617,739) 8,614,444 85,690 – – – – – – – – – - - - – – – – – – – – – - - - - - 4,649 351 - - - - 351 Associates* Associates* December 31, 2018 264,404 1,661 (102,179) 112,248 252,674 Key management personnel Key management personnel – 8,704 - (21,629) 13,304 17,029 Directors December 31, 2018 Joint venture - - - - - - - – – – – – – – – – - - - - Joint venture – – – – – – – – - 9,246,496 – – – – – – – – – – 330,776 4,204,441 Othe related parties - 651,581 18,296,520 9,339 (217,149,184) – 593 - (7,361) 8,011 (57) – 1,859,024 - (53,327) (1,626,870) 1,797,598 1,741,623 226,189,869 – - - - - – - - - - - - – – – – – – – – Othe related parties for the year ended December 31, 2019 Other Assets - Opening balance Parent - Investment made during the year Advances - Opening balance Investments – Opening balance – – – Lendings to financial institutions – – – – In deposit accounts Directors In current accounts Balances with other banks Parent Key management personnel Contributions to the accounts in respect of staff retirement benefits are made in accordance with actuarial valuation / terms of the contribution plan. Remuneration of the key management personnel are in accordance with the terms of their employment. Other transactions are at agreed terms. December 31, 2019 The Group has related party relationships with its parent, companies with common directorship, directors, employee benefit plans and key management personnel including their associates. RELATED PARTY TRANSACTIONS 41 Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31, 2019 Allied Bank Limited 267
136. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements ‘**Other expenses mainly include donation of Rs. 30 million to National Management Foundation for construction of hostel building. ‘*Associated companies are as per IAS 24 ‘Related Party Disclosures’. Insurance claims settled benefit funds Insurance premium paid Charge in respect of staff retirement Other expenses** Rent expense*** Remuneration Mark-up / return / interest paid Directors meeting fee Expense Rental Income Other Income Net gain / (loss) on sale of securities Fee and commission income Dividend income Mark-up / return / interest earned Sales Commission Income Shares held by the holding company, outstanding at the end of year are included in note 19 to these consolidated financial statements. - - - - - 879 - 167 - - 31,211 28,658 - - - - - - 371,381 - 78,174 - 5,108 559 14,749 - - 30,000 - - - - - - - - 14 - - - 16 97 - 1 21 - - - 18,179 422 - - Directors Parent Annual Report 2019 During the year ended December 31, 2019; certain movable assets having cumulative net book value of Rs. 36,000 were disposed off for Rs. 269,000 to the Key Management Personnel of the Bank. - - - 244 99 - - 74,123 - - 26,363 32,006 - - - - - - 351,782 73,504 - - 757 625 18,700 2,506 - - 884,506 - - - - - - - - - 465 - - 83 101 - 10 2 - 492,090 - - - - 13,475 513 - - 22,444 Rupees in ‘000 Parent Joint venture - Key management Associates* personnel Directors December 31, 2018 Other related parties Key management Associates* personnel December 31, 2019 RELATED PARTY TRANSACTIONS 41.1 268 ‘***Rent expense of ABL Branch with associated company (Ibrahim Fibres Limited) was carried out on terms other than that of arm’s length with prior permission of State Bank of Pakistan. - - 551,657 - - - - - - - 651,581 - - - 2,237 - - - (262) - 483,477 - - - 26,827 - Othe related parties for the year ended December 31, 2019 Joint venture - for the year ended December 31, 2019 December 31, December 31, 2019 2018 Rupees in ‘000 42 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS Minimum Capital Requirement (MCR): Paid–up capital (net of losses) 11,450,739 11,450,739 82,135,834 75,372,381 Capital Adequacy Ratio (CAR): Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital - - 82,135,834 22,351,157 104,486,991 75,372,381 20,564,931 95,937,312 Credit Risk 345,197,859 315,518,950 Market Risk 49,574,917 40,673,396 Operational Risk 84,845,040 78,800,062 479,617,816 434,992,408 Common Equity Tier 1 Capital Adequacy ratio 17.13% 17.33% Tier 1 Capital Adequacy Ratio 17.13% 17.33% Total Capital Adequacy Ratio 21.79% 22.05% Total Eligible Tier 1 Capital Eligible Tier 2 Capital Total Eligible Capital (Tier 1 + Tier 2) Risk Weighted Assets (RWAs): Total In order to strengthen the solvency of Banks / Development Financial Institutions (DFI), SBP through its BSD Circular No. 07 of 2009 dated April 15, 2009 has asked the Banks to raise their minimum paid up capital to Rs. 10 billion free of losses. Further, SBP through its BPRD Circular # 6 of 2013 dated August 15, 2013 has asked Banks to maintain the minimum Capital Adequacy Ratio (CAR) of 12.50% on standalone as well as on consolidated basis till December 31, 2019. A phase in arrangement was put in place whereby the banks were required to maintain the following ratios on an ongoing basis, which has been completed as on December 31, 2019. 2015 2016 2017 2018 2019 Common Equity Tier–1 – CET1 Additional Tier–1 Tier 1 Total Capital *Capital Conservation Buffer – CCB 6.00% 1.50% 7.50% 10.00% 0.25% 6.00% 1.50% 7.50% 10.00% 0.65% 6.00% 1.50% 7.50% 10.00% 1.275% 6.00% 1.50% 7.50% 10.00% 1.90% 6.00% 1.50% 7.50% 10.00% 2.50% Total Capital plus CCB 10.25% 10.65% 11.275% 11.90% 12.50% * Consisting of CET1 only. The paid up capital and Consolidated CAR of the Bank stands at Rs. 11.451 billion and 21.79% of its total risk weighted assets as at December 31, 2019, respectively. The Bank has complied with all externally imposed capital requirements as at year end. Standardized Approach is used for calculating the Credit and Market risk, whereas, Basic Indicator Approach is used for Operational Risk in the Capital Adequacy Calculation. Allied Bank Limited 269
137. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 – The Bank manages three principal sources of credit risk: i) Sovereign credit risk on its public sector advances ii) Counterparty credit risk on its private sector advances iii) Counterparty credit risk on interbank limits Sovereign Credit Risk When the Bank lends to public sector borrowers, it prefers obtaining a full sovereign guarantee or the equivalent from the Government of Pakistan (GOP). However, certain public sector enterprises have a well defined cash flow stream and appropriate business model, based on which the lending is secured through collaterals other than GOP guarantee. Counterparty credit risk on its private sector advances Credit Risk includes Country Risk i.e., the risks that counterparty is unable to meet its foreign currency obligations as a result of adverse economic conditions or actions taken by governments in the relevant country. Each borrower’s credit worthiness is analyzed on the Credit Application Package that incorporates a formalized and structured approach for credit analysis and directs the focus of evaluation towards a balanced assessment of credit risk with identification of proper mitigates. These risks include Industry Risk, Business Risk, Financial Risk, Security Risk and Account Performance Risk. The risk of loss generated by adverse changes in the price of financial assets or contracts currently held by the Bank (this risk is also known as price risk). Financial analysis is further strengthened through use of separate financial spread sheet templates that have been designed for manufacturing / trading concerns, financial institutions and insurance companies. The risk that the Bank is unable to meet its payment obligations when they fall due and to replace funds when they are withdrawn; the consequences of which may be the failure to meet obligations to repay depositors and fulfill commitments to lend. Counter Party Credit Risk on Interbank Limits In the normal course of its business, the Bank’s Treasury utilizes products such as Reverse REPO and call lending to meet the needs of interbank borrowers and manage its exposure to fluctuations in market, interest and currency rates. Further, these products are also used to temporarily invest Bank’s liquidity prior to disbursement. All of these financial instruments involve, to varying degrees, the risk that the counterparty in the transaction may be unable to meet its obligation to the Bank. Reflecting a preference for minimizing exposure to counterparty credit risk, the Bank maintains eligibility criteria that link the exposure limits to counterparty credit ratings by external rating agencies. A. Country Risk The Bank has in place a Country Risk Management Framework which has been approved by the Board. This framework focuses on providing detailed roles and responsibilities with respect to country risk assessment as well as limit setting, exposure management and reporting of cross border exposure undertaken by the Bank. The Bank utilizes S&P, Fitch and Moody’s country ratings as well as other macroeconomic and external risk factors in assigning a country risk limit. The Financial Institutions Division is responsible for monitoring of country exposure limits. Credit Administration Credit Administration is involved in minimizing losses that could arise due to security and documentation deficiencies. The Credit Administration Function constantly monitors the security and documentation risks inherent in the existing credit portfolio through four regional credit administration departments located all over the country. December 31, December 31, 2019 2018 Rupees in ‘000 Leverage Ratio (LR): Eligible Tier-1 Capital Total Exposures Leverage Ratio 82,135,834 75,372,381 1,801,242,634 1,634,600,480 4.56% 4.61% 43 RISK MANAGEMENT The principal risks associated with ABL’s business are credit risk, market risk, liquidity risk, reputational risk and operational risk. The Risk Management Framework (henceforth to be referred to as ‘The Framework’) provides principles for identifying, assessing, and monitoring risk within the Bank. The Framework specifies the key elements of the risk management process in order to maximize opportunities, minimize adversities and to achieve improved outputs based on informed decision making. The Bank performs risk measurement, monitoring and control functions through use of various risk procedures and models. To give it a formal structure, all the policies and guidelines are approved by the Board and relevant management committees. Risk management functions have been segregated by business specialization, i.e., Credit Risk, Credit Administration, Technical Appraisal and Enterprise Risk which inter alia includes Risk Architecture, Reputational Risk, Operational Risk and Market & Liquidity Risk. All these functions are operating in tandem to improve and maintain the health of the Bank’s assets and liabilities. Categories of Risk Credit Risk Market Risk Liquidity Risk Operational Risk Reputational Risk This risk is defined as the possibility of loss due to unexpected default or a deterioration of credit worthiness of a business partner. Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. The definition excludes reputational risk. The risk of failing to meet the standards of performance or behaviour required or expected by stakeholders in commercial activities or the way in which business is conducted. Information Security & Information Security Governance Risk Management involves the identification of an organization’s information assets and the development, documentation, and implementation of policies, standards, Governance Risk procedures and guidelines that ensure confidentiality, integrity, and availability. Strategic Risk Risk of an adverse impact on strategic goals. Strategic risk mainly arises from strategic decisions, improper implementation of those decisions, or lack of responsiveness of Bank to industry, economic or technological changes. Risk Responsibilities – The Board of Directors are accountable for overall supervision of the risk management process. The Board is responsible for determining the manner in which risk authorities are set, as well as the approval of all risk policies and ensuring that these are properly implemented. Further, the Board shall also seek appointment of senior management personnel capable of managing the risk activities conducted by the Bank. – The Board Risk Management Committee (BRMC) is responsible for ensuring that the overall risk strategy and appetite of the Bank is appropriately defined in the Strategic Plan and recommend the same to the Board of Directors. – The CEO and Group Chiefs are accountable for the management of risk collectively through their membership of Asset & Liability Committee (ALCO) and Risk Management Committee (RMC). Independent supervision of risk management activities is provided by the Audit Committee. 270 Annual Report 2019 The Risk Management Group is head by a Group Chief responsible to set-up and implement the Risk Framework of the Bank. Risk Management Group Organization Risk management functions have been segregated by business specialization, i.e., Credit Risk, Credit Administration, Technical Appraisal, Information security and Enterprise Risk which interalia includes Risk Architecture, Operational Risk and Market & Liquidity Risk. All these functions are operating in tandem to monitor the health of assets and liabilities, while ensuring risk mitigants against cyber and information system threats. 43.1 Credit Risk Credit risk, the potential default of one or more debtors, is a major source of risk for the Bank. The Bank is exposed to credit risk through its lending and investment activities. The Bank’s credit risk function is divided into Corporate and Financial Institutions Risk and Commercial, SME and Consumer Risk. The functions operate within an integrated framework of credit policies, guidelines and processes. The credit risk management activities are governed by the Credit Policy of the Bank that defines the respective roles and responsibilities, the credit risk management principles and the Bank’s credit risk strategy. The policy is supported by a comprehensive Credit Procedures Manual. Allied Bank Limited 271
138. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 43.1.1 Lendings to financial institutions Credit risk by public / private sector Gross advances December December 31,2019 31,2018 Gross lendings December 31,2019 Non–performing lendings December 31,2018 December 31,2019 Provision held December 31,2018 December 31,2019 December 31,2018 Private 43.1.2 Advances Agriculture, Forestry and Hunting 79,583,981 78,511,776 654,964 624,049 511,318 596,596 5,243,108 7,220,441 413,828 151,863 214,278 151,863 Cement / clay & ceramics 19,359,961 16,781,544 74,089 74,089 74,089 74,089 Chemical & pharmaceutical 25,230,941 23,965,746 372,744 376,479 372,744 376,479 6,701,913 6,958,964 190,283 120,529 176,038 120,529 130,146 124,885 123 123 123 123 31,875,767 22,710,967 56,154 72,454 56,154 72,454 Footwear & leather garments 2,823,053 2,212,093 111,740 116,953 106,841 108,133 Furniture & sports goods 1,978,284 1,118,853 265,984 265,990 265,984 265,990 Grains, food & beverages 10,952,503 12,750,666 1,853,302 1,917,020 1,853,302 1,766,367 3,478 2,704,142 - - - - - 10,972,779 53,850,195 70,000 70,000 70,000 70,000 Basic metals (iron, steel) 70,000 13,676,921 53,850,195 70,000 70,000 70,000 Construction Investment in debt securities Education Financial Credit risk by industry sector Gross Investment December 31,2019 Non–performing Investment December 31,2018 December 31,2019 Provision held December 31,2018 December 31,2019 December 31,2018 Rupees in ‘000 Health & social welfare Hotel, restaurant & clubs Individuals Basic metals (iron, steel) 27,029 52,122 2,688 3,478 2,688 1,000,000 1,000,000 7,564 7,664 7,564 7,664 10,095,807 10,071,632 368,240 361,566 337,085 361,501 500,000 500,000 - - - - Machinery & equipment 5,790,537 4,200,452 1,097,134 1,157,834 1,097,134 1,157,834 44,714,582 42,410,942 - - - - Manufacture of transport equipment 2,176,982 844,246 139,822 140,522 139,822 140,522 470,000 248,085 - - - - Paper & paper boards 7,046,681 5,632,472 208,574 210,574 208,574 210,574 Power, gas, water & sanitary 5,411,136 4,881,010 - - - - Petroleum products 3,934,730 13,291,165 176,351 13,228 94,073 13,228 Chemicals 1,600,000 - - - - - Power, gas, water & sanitary 156,149,658 140,719,800 637,015 637,015 637,015 637,015 Sugar 10,487 10,487 10,487 10,487 10,487 10,487 Printing, publishing & allied 10,056 Textile – Spinning 51,345 51,345 51,345 51,345 51,345 51,345 Real estate, renting, and business activities Textile – Weaving 200,000 200,000 200,000 200,000 200,000 200,000 710,177,493 626,834,650 3,869,387 9,756,796 15,961 21,248 103,498 105,329 103,498 105,329 103,498 105,329 763,238,541 675,241,848 4,234,717 10,123,957 381,291 388,409 Financial Hotel, restaurant & clubs Government Others Gross Investment December 31,2019 December 31,2018 Non–performing Investment December 31,2019 December 31,2018 Provision held December 31,2019 December 31,2018 Rubber & plastic Annual Report 2019 10,056 10,056 10,056 5,485,741 - - - - 288,680 295,588 230,563 233,068 230,563 233,068 6,897,513 7,365,203 51,066 51,066 51,066 51,066 30,431,729 25,684,060 3,002,600 3,003,575 3,002,601 3,003,575 16,456,503 2,872,372 2,884,586 2,872,372 2,884,586 Textile - Spinning 18,024,943 18,618,930 1,261,119 1,141,751 1,157,244 1,141,751 Textile - Weaving 3,210,115 1,664,289 38,482 38,632 38,482 38,632 16,154,933 12,439,987 126,459 428,077 46,546 127,149 Transport, storage & communication Credit risk by public / private sector Private 1,121,462 15,189,368 Others Public/ Government 206,458 8,331,917 Sugar Textile -Manufacture of made up & ready made garments Textile - Finishing Wholesale & retail trade Rupees in ‘000 272 Provision held December December 31,2019 31,2018 Credit risk by industry sector Rupees in ‘000 Public/ Government 43.1.3 Non–performing advances December December 31,2019 31,2018 Rupees in ‘000 9,199,116 9,220,564 967,415 977,027 885,681 948,802 22,168,134 7,385,384 663,187 1,045,374 663,187 1,030,374 500,203,987 453,905,535 15,853,918 16,064,642 15,112,624 15,533,498 713,427,493 630,584,650 3,869,387 9,756,796 15,961 21,248 49,811,048 44,657,198 365,330 367,161 365,330 367,161 Credit risk by public / private sector 763,238,541 675,241,848 4,234,717 10,123,957 381,291 388,409 Public/ Government 204,243,892 177,970,051 134,430 135,180 134,430 135,180 Private 295,960,095 275,935,484 15,719,488 15,929,461 14,978,194 15,398,317 500,203,987 453,905,535 15,853,918 16,064,641 15,112,624 15,533,497 Allied Bank Limited 273
139. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31 , 2019 for the year ended December 31, 2019 December 31, December 31, 2019 2018 Rupees in ‘000 43.1.5 Concentration of Advances The Bank’s top 10 exposures on the basis of total (funded and non-funded) exposures aggregating to Rs. 222,105.62 million (December 31, 2018: Rs. 220,201.42 million) are as following: 43.1.4 Contingencies and Commitments December 31, December 31, 2019 2018 Rupees in ‘000 Credit risk by industry sector 517,460 1,748,522 Funded Basic metals (iron, steel) 2,865,799 2,298,302 Non Funded Cement/clay & ceramics 3,578,271 2,491,703 Total Exposure Chemical & pharmaceutical 2,844,113 1,168,652 Construction 3,942,101 3,532,782 Agriculture, Forestry and Hunting Education 61,193 55,461 367,806,904 272,292,661 Footwear & leather garments 341,512 248,281 Furniture & sports goods 112,737 25,375 1,055,823 58,426 337,057 1,993,444 Financial Grains, food and beverages Health & social welfare Hotel, restaurant & clubs Individuals Machinery & equipment Manufacture of transport equipment Paper & paper boards 960 960 7,391,727 11,027,620 16,099,059 38,708,740 188,471 87,725 626,468 275,184 Petroleum products 23,298,418 17,777,157 Power, gas, water & sanitary 12,693,725 9,569,562 67,631 136,729 - 6,018,458 35,037 106,775 Printing, publishing & allied Real estate, renting and business activities Rubber & plastic Sugar 59,430 26,740 227,892 275,109 Textile - Finishing 4,891,277 1,589,863 Textile - Spinning 1,368,295 56,195 Textile - Weaving 1,618,571 65,702 Transport, storage & communication 3,015,015 5,315,605 342,676 957,570 9,874,129 1,680,928 465,261,751 379,590,231 63,324,780 89,768,480 401,936,971 289,821,751 465,261,751 379,590,231 Textile - Manufacture of madeup & ready made garments Wholesale & retail trade Others Private During the year ended December 31, 2019 Disbursements Utilization Punjab Sindh KPK AJK including including FATA Balochistan Islamabad Gilgit– Baltistan Rupees in ‘000 Province/Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Total 691,256,822 1,110,838,731 1,621,529 683,293,584 4,672,048 3,172,039 3,810 104,071 11,270 74,993,563 1,034,704,724 35,148 9,290 1,075,242 20,764 - 1,378,313 - - - - - 618,127 243,216 618,127 - 16,733,824 - - - - 16,733,824 - 881,289 - - - - - 881,289 758,530,363 1,039,376,772 4,585,500 631,227 17,913,137 913,323 1,821,950,322 During the year ended December 31, 2018 Disbursements Utilization Punjab Sindh KPK AJK including including FATA Balochistan Islamabad Gilgit– Baltistan Rupees in ‘000 Punjab 591,723,087 522,554,625 34,494,817 - - 34,673,645 - Sindh 802,485,680 42,048,213 656,714,012 4,851,487 - 98,871,968 - 1,429,676 686,026 - 743,650 - - - 525,809 - - - 525,809 - - 8,766,970 - - - - 8,766,970 - 551,587 - - - - - 551,587 1,405,482,809 565,288,864 691,208,829 5,595,137 525,809 142,312,583 551,587 KPK including FATA Balochistan Total Annual 220,201,420 43.1.6 Advances – Province/Region–wise Disbursement & Utilization AJK including Gilgit–Baltistan Report 2019 36,020,642 222,105,619 The sanctioned limits against these top 10 exposures aggregated to Rs. 265,900.73 million (December 31, 2018: Rs. 255,278.34 million). Islamabad 274 184,180,778 30,711,963 Province/Region Credit risk by public / private sector Public/ Government 191,393,656 Allied Bank Limited 275
140. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 43 .2 43.2.2 Balance sheet split by trading and banking books for the year ended December 31, 2019 Market Risk Market Risk is the risk of loss in earnings and capital due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. Thus market risk can be further described into Interest Rate Risk, Foreign Exchange Risk and Equity Position Risk. Market Risk performs risk measurement, monitoring and control functions through use of various risk procedures and models. To give it a formal structure, all the policies and guidelines are approved by the Board and relevant management committees. The Bank appointed services of a foreign risk advisory firm for assistance in establishment of Market Risk Management Framework. The Bank uses three types of risk management tools to measure the Bank’s Market Risk: Value-at Risk (VaR), Expected Shortfall (ES) and Stress Testing. In addition, control limits are utilized to maintain the risks within acceptable levels. The Bank maintains adequate regulatory capital to cover all interest rate risks falling under the “Trading Book” as well as “Banking Book”, as defined by Basel capital accord. The Bank uses Standardized Approach in determining credit risk, market risk and operational risk exposures in the capital adequacy calculation. In Market risk exposures, Maturity method is used to calculate charge on Interest rate risk and FX risk. In its pursuit of automation, the Bank has successfully implemented Oracle Financial Services Analytical Application (OFSAA) Market Risk Module to automate the risk monitoring and reporting activities pertaining to Market Risk, which allows for more efficient risk monitoring and increased focus on risk analysis to help in making more informed decisions. 43.2.1 Market Risk Pertaining to the Trading Book Trading Book The Trading Book of the Bank consists of positions in financial instruments held either with trading intent or in order to hedge other elements of the trading book. To be eligible for trading book, financial instruments must be held with the intent of trading and free of any restrictive covenants on their tradability. In addition, positions need to be frequently and accurately valued and the portfolio should be actively monitored and managed accordingly. The Bank’s trading book includes securities classified as ‘Held-For-Trading’, ‘Open Ended Mutual Fund’ and non strategic listed equity placed in ‘Available-For-Sale’. These positions are exposed to all forms of market risk, therefore, are managed actively. Risk Pertaining to Banking Book Investment Portfolio All investments excluding trading book are considered as part of banking book. Banking book includes: i) Available-for-sale securities - (other than non-strategic listed equity) ii)  Held-to-maturity securities Treasury investments parked in the banking book include: i) Government securities ii) Capital market investments iii) Investments in bonds, debentures, etc. Due to the diversified nature of investments in banking book, it is subject to interest rate risk, equity price risk and FX risk. Interest Rate Risk – Banking Book Government securities (PIBs, Sukuks & T-Bills), Bonds, Debentures, etc. and other money market investments are subject to interest rate risk. To capture the risk associated with these securities, extensive modelling is being done with respect to duration analysis. Stress testing and scenario models are also in place to capture the sensitivity of the portfolio to adverse movement in interest rates. For prudent risk management, all money market investments are marked to market to assess changes in the market value of investments due to interest rate movements. Stress Testing The Bank also conducts Stress Testing of the Bank’s investment portfolio to ascertain the impact of various scenarios on the capital adequacy and sustainability of the Bank. The exercise assumes various stress conditions, with respect to Market Risk (Rise or Fall in Interest Rates, leading to interest rate risk), Equity Price Risk resulting from Stock Market movements, FX Rate Risk leading from adverse movements in exchange rates and Liquidity Risk (ability to meet short-term obligations if there is a run on deposits). Stress testing is also conducted on various macro-economic scenarios to test the resilience of the Bank. 276 for the year ended December 31, 2019 Annual Report 2019 Banking book Cash and balances with treasury banks December 31, 2019 December 31, 2018 Trading Banking Trading Total Total book book book Rupees in ‘000 119,935,126 - 119,935,126 99,177,561 - 602,582 - 602,582 2,575,055 - 2,575,055 13,606,921 - 13,606,921 53,780,195 - 53,780,195 Investments 720,986,859 38,667,568 759,654,427 655,034,517 17,552,792 672,587,309 Advances 485,051,568 - 485,051,568 438,356,170 - 438,356,170 62,240,062 - 62,240,062 50,399,773 - 50,399,773 1,975,898 - 1,975,898 1,756,127 - 1,756,127 - - - - - - 40,316,857 - 40,316,857 33,751,113 - 33,751,113 Balances with other banks Lendings to financial institutions Fixed assets Intangible assets Deferred tax assets Other assets 1,444,715,873 38,667,568 1,483,383,441 1,334,830,511 99,177,561 17,552,792 1,352,383,303 43.2.3 Foreign Exchange Risk Foreign Exchange Risk is the risk of loss arising from fluctuations in exchange rates. The Bank’s FX Risk is largely mitigated by following a matched funding policy whereas for any mismatched exposures, the Bank utilizes appropriate derivative instruments such as Forwards and Swaps. The majority of the Bank’s net foreign currency exposure is in US Dollars and the Bank uses system-based monitoring of it’s intra-day Net Open Position for effective risk management. The Bank carefully monitors the net foreign currency exposure and the effect of exchange rate fluctuations by conducting sensitivity analysis and stress testing, as well as utilizing the currency forwards and swaps to hedge the related exposure. The Bank maintains adequate regulatory capital to cover against foreign exchange risks. The bank undertakes foreign exchange exposures in the shape of FX Forwards and Swaps in order to hedge its foreign currency deposits and advances, after incorporating the impact of it’s NOSTRO and Cash Reserve balances. December 31, 2019 Foreign Currency Assets Foreign Currency Laibilities December 31, 2018 Off–balance sheet items Net foreign currency exposure Foreign Currency Assets Foreign Currency Laibilities Rupees in ‘000 Pakistani Rupee United States Dollar Great Britain Pound Sterling Japanese Yen Euro Other currencies Off–balance sheet items Net foreign currency exposure Rupees in ‘000 1,425,151,241 1,227,922,341 (80,271,378) 116,957,522 1,301,673,999 1,126,239,213 (66,414,629) 109,020,157 56,981,096 130,223,325 73,575,765 333,536 50,030,348 109,211,476 58,937,581 (243,547) 892,579 4,561,262 3,611,463 (57,220) 283,035 5,309,004 5,026,143 174 14,613 1,110 (22,808) (9,305) 4,317 975 (2,521) 821 310,246 3,435,978 3,105,506 (20,226) 326,332 2,826,096 2,502,163 2,399 33,666 27,871 1,452 7,247 65,272 6,728 (48,737) 9,807 58,232,200 138,249,546 80,271,378 254,032 50,709,304 117,354,279 66,414,629 (230,346) 1,483,383,441 1,366,171,887 - 117,211,554 1,352,383,303 1,243,593,492 - 108,789,811 December 31, 2019 Banking book Trading book December 31, 2018 Banking book Trading book Rupees in ‘000 After tax Impact of 1% change in foreign exchange rates on: – Profit and loss account – Other comprehensive income - 1,651,213 - - (1,497,249) - Allied Bank Limited 277
141. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 278 Annual Report 2019 451 ,393,265 445,741,631 438,855,228 427,658,023 418,624,082 361,888,260 301,808,806 206,983,549 267,771,374 Cumulative Yield/Interest Risk Sensitivity Gap 435,483,979 5,651,634 (183,621,891) 6,886,403 11,197,205 9,033,941 56,735,822 60,079,454 (133,675,173) 206,983,549 267,771,374 228,500,430 872,762 196,028 577,593 12,520,902 22,247,975 79,057,570 45,409,465 7,206,213 8,850,528 5,340,939 52,880,690 52,880,690 38,926,182 38,926,182 46,693,645 49,721 46,743,366 138,500,517 49,721 138,550,238 4,393,706 4,393,706 85,699,466 85,699,466 59,117,691 59,117,691 71,170,538 464,217 71,634,755 220,381,401 464,217 220,845,618 872,762 196,028 577,593 12,520,902 10,648,056 37,388,266 17,974,334 370,974 18,345,308 6,886,403 3,137,791 1,734,959 4,872,750 11,001,177 199,152 1,965,574 2,164,726 8,456,348 400,733 14,219,030 14,619,763 44,214,920 140,611 42,431,719 42,572,330 37,831,479 7,539,422 312,174,543 319,713,965 (212,732,743) 17,002,396 235,893,774 252,896,170 183,090,965 19,877,017 10,620,023 92,700,647 16,509,764 9,902,779 273,486,166 199,724,882 499,623,591 220,053,947 125,011,712 345,065,659 154,557,932 7,878,626 266,448,386 1,049,018,804 36,559,513 1,359,905,329 54,463,462 9.48% 6.24% 103,425,362 602,582 34,223,580 2,263,076 35,518,167 176,032,767 7,091,383 18,140,328 25,231,711 9,452,969 1,168,105 10,621,074 58,286,547 548,136 58,834,683 3,704,142 299,087,158 133,195,835 435,987,135 Over 1 to 3 Months 119,935,126 602,582 13,606,921 759,654,427 485,051,568 35,518,167 1,414,368,791 Total Yield/Interest Risk Sensitivity Gap - 52,425,617 (1,284,209) 213,307,912 (153,019) - Off–balance sheet gap (2,014,326) 16,914,205 After tax Impact of increase in interest rates by 1% – Profit and loss account – Other comprehensive income 38,311,885 Rupees in ‘000 Other commitments Trading book Commitments in respect of sale of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Banking book Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Trading book Off–balance sheet financial instruments Documentary credits and short–term trade–related transactions Banking book December 31, 2018 On–balance sheet gap December 31, 2019 Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Other liabilities In accordance with BSD Circular No.03 of 2011, issued by the SBP, the Group is required to report interest rate sensitivity gap of assets and liabilities on the basis of an objective and systematic behavioural study approved by ALCO committee. 10.70% 11.97% 11.54% Yield Risk is the risk of decline in earnings due to adverse movement of the yield curve. Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest rates. On–balance sheet financial instruments Government securities (PIBs & T-Bills, Sukuks), Bonds, Debentures, etc. and other money market investments are subject to interest rate / rate of return risk. To capture the risk associated with these securities, extensive modelling is being done with respect to duration analysis. Stress testing and scenario-based models are also in place to capture the sensitivity of the portfolio to adverse movement in interest rates. For prudent risk management, all money market investments are marked to market to assess changes in the market value of investments due to interest rate movements. 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. Upto 1 Month Interest rate risk is measured through “duration” of an instrument. To assess the interest rate risk at Balance Sheet and Income Statement level, gap analysis on “re-pricing schedule” is utilized. Re-pricing schedule is a distribution of interest-sensitive assets, liabilities, and Off-Balance Sheet positions into a number of predefined time bands according to their maturity (if fixed-rate) or time remaining to their next re-pricing (if floating-rate), and is calculated in compliance with SBP instructions. For non-contractual assets and liabilities, an ALCO approved methodology is utilized to place these assets and liabilities in the re-pricing schedule. This methodology is based on the results of a behavioural analysis which statistically models the historical trends of the last 5 years. 43.2.6 Mismatch of Interest Rate Sensitive Assets and Liabilities 55,989,298 24,414,511 80,403,809 43.2.5 Yield / Interest Rate Risk in the Banking Book (IRRBB)–Basel II Specific Interest rate / Rate of return risk is the current or prospective risk of losses, to both the Bank’s capital and earnings, arising from movements in interest rates / rates of return. The losses may be due to earnings deterioration or capital erosion. The Bank has a robust system in place to monitor Interest rate risk and ALCO regularly analyses the interest rate scenario and devises strategies to minimize adverse impact of interest rate risk to the Bank’s equity and profits. 11,271,561 95,709,661 106,981,222 (570,465,731) Rupees in ‘000 (590,410,345) December 31, 2019 (610,980,676) Exposed to Yield/ Interest risk (501,285,673) Over 2 to 3 Years Rupees in ‘000 After tax Impact of 5% change in equity prices on – Profit and loss account – Other comprehensive income 10,765,765 5,108,162 15,873,927 Trading book Over 1 to 2 Years Banking book 4,778,872 4,778,872 Above 10 Years Over 3 to 5 Years December 31, 2018 Over 6 Months to 1 Year Trading book Over 3 to 6 Months Banking book Total December 31, 2019 Over 5 to 10 Years The Bank maintains adequate regulatory capital to cover against equity price risks. Equity investments classified as “Held-ForTrading” as well as listed non-strategic equity investments classified as “Available-For-Sale” are part of the “Trading Book” and subject to market risk change as specified by the Basel Framework. Un-listed and listed strategic equity investment are part of “Banking Book” and are therefore subject to credit risk charge as specified by the Basel Framework. Effective Yield/ Interest rate Non–interest bearing financial instruments 43.2.4 Equity position Risk Equity risk is the potential for incurring losses due to adverse changes in stock prices. The Bank holds a diversified portfolio of equity investments in order to minimize non-systematic risk while retaining acceptable systematic risk. ALCO ensures that equity price risk is mitigated through prudent portfolio management. 7,878,626 - 315,216,519 36,559,513 - 359,654,658 4,778,872 (183,621,891) for the year ended December 31, 2019 Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets for the year ended December 31, 2019 Allied Bank Limited 279
142. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 280 445 ,944,625 421,863,172 407,990,428 398,248,346 356,574,612 497,456,106 136,682,021 305,817,139 394,778,899 440,003,646 5,940,979 (140,127,486) 13,872,744 9,742,082 3,469,447 (140,881,494) 360,774,085 136,682,021 305,817,139 38,204,287 18,140,474 1,173,855 1,692,956 1,893,442 21,008,372 48,715,471 53,752,454 94,659,580 248,610,246 24,021,319 1,692,797 1,685,297 2,459,295 4,536,571 13,998,922 27,762,282 1,615,617 20,561,418 20,561,418 16,724,966 16,724,966 33,140,303 33,140,303 70,453,385 70,453,385 807,808 34,407,428 34,407,428 55,520,667 3,549,574 59,070,241 46,875,838 54,219,284 101,095,122 137,056,586 57,768,858 194,825,444 807,808 32,410,166 6,870,608 12,705,839 96,475,905 1,850,964 - 10,161,557 295,508,730 305,670,287 (189,596,965) 27,973,227 229,412,178 257,385,405 307,021,631 173,702,776 121,284,355 294,987,131 42,022,441 Cumulative Yield/Interest Risk Sensitivity Gap Total Yield/Interest Risk Sensitivity Gap Off–balance sheet gap Other commitments Commitments in respect of sale of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Commitments in respect of purchase of: – forward foreign exchange contracts – forward government securities transactions – derivatives – forward lending Off–balance sheet financial instruments Documentary credits and short–term trade–related transactions On–balance sheet gap Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Other liabilities 7.95% 7.94% 7.35% Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets On–balance sheet financial instruments Report 2019 5.89% 3.51% 7,752,959 225,882,986 984,463,067 20,156,646 1,238,255,658 57,206,893 26,698 26,698 252,653 252,653 - 1,173,855 77,339 1,085,634 20,200,564 21,944,400 7,500 7,752,959 80,108 262,974,151 20,156,646 80,108 290,883,756 4,767,124 (140,127,486) 1,556,729 876,633 2,433,362 12,179,788 641,607 825,194 1,466,801 7,848,640 282,296 19,398,720 19,681,016 (17,538,925) 40 53,568,188 53,568,228 14,182,968 11,564,754 534,810 12,099,564 16,447,677 7,291,693 7,321,457 14,613,150 5,816,244 3,499,197 9,315,441 893,744 1,248,347 2,142,091 32,732,625 35,018,571 67,751,196 20,049,288 96,024,034 116,073,322 2,787,100 324,350,027 237,269,909 564,407,036 99,177,561 2,575,055 53,780,195 672,587,309 438,356,170 28,986,261 1,295,462,551 14,128,800 50,993,095 231,024,247 40,863,430 337,009,572 Rupees in ‘000 Over 3 to 5 Years Over 2 to 3 Years Over 1 to 2 Years Over 6 Months to 1 Year Reconciliation to total assets Over 3 to 6 Months Effective Yield/ Interest rate Annual for the year ended December 31, 2019 Over 1 to 3 Months Upto 1 Month Total December 31, 2018 43.2.6 Mismatch of Interest Rate Sensitive Assets and Liabilities Exposed to Yield/ Interest risk Over 5 to 10 Years 16,569,201 11,978,040 28,547,241 Above 10 Years 4,847,232 4,847,232 Non–interest bearing financial instruments 85,048,761 2,575,055 33,860,240 285,953 28,986,261 150,756,270 for the year ended December 31, 2019 Balance as per balance sheet December 31, 2019 December 31, 2018 (Rupees in ‘000) (Rupees in ‘000) 1,483,383,441 1,352,383,303 Balance as per balance sheet Less: Non financial assets 64,215,960 Other assets 4,798,690 69,014,650 43.3 43.4 December 31, 2019 December 31, 2018 (Rupees in ‘000) (Rupees in ‘000) 1,366,171,887 1,243,593,492 5,912,375 4,751,359 Less: Non financial liabilities Fixed assets Total financial assets Reconciliation to total liabilities 1,414,368,791 52,155,900 Deferred tax liabilities 4,764,852 Other liabilities 56,920,752 1,295,462,551 Total financial liabilities 354,183 586,475 6,266,558 5,337,834 1,359,905,329 1,238,255,658 Operational Risk The Bank, like all financial institutions, is exposed to different types of operational risks, including the potential losses arising from internal activities or external events caused by breakdowns in information, communication, physical safeguards, business continuity, supervision, transaction processing, settlement systems and the execution of legal, fiduciary and agency responsibilities. In accordance with the BoD approved Operational Risk Policy, Bank maintains a system of internal controls designed to keep operational risk at appropriate levels, in view of the bank’s financial strength and the characteristics of the activities and market in which it operates. These internal controls are periodically updated to conform to industry best practice. Further, detailed data of operational losses is being maintained, in conformance with regulatory guidelines. Major Operational Risk events are also analyzed from the control breaches perspective and mitigating controls are assessed on design and operating effectiveness. Quarterly updates on Operational Risk events are presented to senior management and Board’s Risk Management Committee & BoD. The Bank has a BoD approved BCP policy and Business Continuity Plan applicable to all its functional areas. The Bank updates functional BCPs on annual basis or at any process change. The Bank is also implementing internationally accepted Integrated Framework on Internal Control issued by the Committee of Sponsoring Organizations of the Tread way Commission (COSO), with a view to consolidate and enhance the existing internal control processes. The Bank with permission of SBP is conducting a parallel run for Alternate Standardized Approach (ASA) for Basel II – Operational Risk Capital Charge Reporting, which signifies readiness of the Bank to move to advance approach. Liquidity Risk Liquidity Risk is the risk that the Bank is unable to fund its current obligations and operations in the most cost efficient manner. The Bank’s BoD has delegated the responsibility to ALCO for ensuring that Bank’s policy for liquidity management is adhered to on a continual basis. ALCO uses gap analysis based on “maturity schedule” to assess the Bank’s liquidity risk and devise strategies accordingly. The Bank also has various limits and triggers in place to monitor liquidity risk on a periodic basis, while it also utilizes stress testing & scenario analysis to assess adequacy of Bank’s liquid assets. The Bank also complies with SBP’s instructions on Liquidity Standards as prescribed under the Basel III Framework. The Bank has in place a robust Liquidity Crisis Contingency Plan in place to deal with any liquidity crisis in the most efficient and effective manner. Liquidity Management Framework Daily liquidity management is carried out centrally by the Asset and Liability Management (“ALM”) Desk in Treasury Group which regulates the day to day liquidity needs of the Bank. Funding and liquidity management strategies are regularly discussed during Asset and Liability Committee “ALCO” meetings. Such discussions include analysis on composition of deposits and tenure, funding gaps and concentration, monitoring of short and long-term liquidity ratios (including LCR and NSFR). The Bank utilizes internal Management Action Triggers and Limits which act as early warning indicators and safeguards to ensure sufficient liquidity buffers at all times. Additionally, external and internal liquidity stress tests are performed to evaluate available liquidity under a range of adverse scenarios and to identify potential vulnerabilities in portfolios. The Bank also has in place contingency funding plans that identify specific management action that can be invoked in times of liquidity crisis. Liquidity Risk Mitigation Techniques The Bank uses the following tools to identify and mitigate Liquidity Risk: • • • • • Gap Analysis Liquidity Ratio Liquidity Stress Testing Liquidity Contingency Plan Risk Control Limits Allied Bank Limited 281
143. 282 43 .4.1 43.4.1 Report 2019 Annual (641,995,845) 117,211,554 11,450,739 22,270,225 57,681,932 25,808,658 Net assets Share capital Reserves Unappropriated profit Surplus on revaluation of assets net of tax (28,562,619) 214,627,952 3,311,162 230,705 - - 12,905,548 198,180,537 - 186,065,333 3,580,707 - 4,535 103,109 547,774 178,403,209 3,425,999 - - Upto 7 Days (4,714,217) 15,270,585 3,863,023 269,156 - - 9,854,157 1,284,249 - 10,556,368 4,177,492 - 5,291 120,294 1,187,531 - 5,065,760 - - Upto 14 Days 58,781,820 46,597,450 9,793,258 667,731 - - 20,969,037 15,167,424 - 105,379,270 10,550,846 - 12,850 292,141 13,862,657 79,249,756 1,411,020 - - Upto 1 Month (609,511,558) 108,789,811 11,450,739 20,276,515 53,985,383 23,077,174 Net assets Share capital Reserves Unappropriated profit Surplus on revaluation of assets net of tax 108,789,811 371,706 817,806,477 20,743,121 6,267 - - 809,675,545 - 7,752,959 1,243,593,492 Other liabilities 4,751,359 Deferred tax liabilities – net - Deposits and other accounts Subordinated debt 984,463,067 Borrowings Liabilities against assets subject to finance lease 7,752,959 225,882,986 Bills payable Liabilities 347,328 208,294,919 33,751,113 1,352,383,303 Other assets – net - 674 13,842 - 1,756,127 70,461,195 35,719,264 - 2,575,055 99,177,561 Deferred tax assets Intangible assets 50,399,773 438,356,170 Fixed assets 672,587,309 Advances – net 53,780,195 2,575,055 99,177,561 Investments – net Lending to financial institutions Balances with other banks Cash and balances with treasury banks Assets Total Upto 1 Day 101,330,080 171,760,648 2,230,240 37,597 - - 10,413,217 159,079,594 - 273,090,728 2,083,967 - 4,045 83,051 2,033,096 220,417,989 48,468,580 - - Upto 7 Days (16,854,609) 20,082,042 2,601,946 43,862 - - 14,158,732 3,277,502 - 3,227,433 2,431,295 - 4,719 96,893 194,526 - 500,000 - - Upto 14 Days (14,104,358) 43,367,538 6,311,819 106,524 - - 30,324,819 6,624,376 - 29,263,180 5,904,573 - 11,460 235,313 13,015,876 8,071,443 2,024,515 - - Upto 1 Month - 122,724,252 32,983,413 2,007,265 581,039 - - 25,220,982 5,174,127 - 155,707,665 4,005,541 - 23,432 532,729 7,893,474 139,548,347 3,704,142 - 285,066,895 44,223,980 744,625 1,358,181 - - 27,831,940 14,289,234 - 329,290,875 1,931,149 - 20,898 429,099 6,728,414 317,394,215 2,787,100 - - (10,122,389) 27,165,367 711,642 43,129 - - 13,976,360 12,434,236 - 17,042,978 5,678,328 - 20,898 429,099 10,881,765 32,888 - - - Upto 3 Months Rupees in ‘000 Upto 2 Months December 31, 2018 67,721,107 43,994,442 975,964 328,947 - - 30,861,262 11,828,269 - 111,715,549 2,554,371 - 23,432 532,729 16,933,799 91,671,218 - - - Upto 3 Months Rupees in ‘000 Upto 2 Months December 31, 2019 (2,057,892) 54,582,710 1,025,241 214,804 - - 37,210,046 16,132,619 - 52,524,818 4,211,433 - 62,694 1,287,298 30,016,092 16,947,301 - - - Over 3 to 6 Months (18,345,154) 61,442,771 1,479,030 75,154 - - 46,929,499 12,959,088 - 43,097,617 3,964,817 - 70,295 1,598,188 36,596,571 867,746 - - - Over 3 to 6 Months 31,228,146 13,754,236 908,295 255,322 - - 12,590,619 - - 44,982,382 1,496,275 - 62,694 1,287,298 16,468,371 25,667,744 - - - Over 6 to 9 Months 102,351,451 10,539,250 1,096,849 362,993 - - 9,073,189 6,219 - 112,890,701 1,404,106 - 70,295 1,598,188 53,828,814 55,989,298 - - - Over 6 to 9 Months 85,967,694 24,831,430 893,367 166,077 - - 23,771,946 40 - 110,799,124 1,470,237 - 62,693 1,287,298 101,843,527 6,135,369 - - - Upto 1 year 68,015,169 21,113,725 1,061,118 62,071 - - 19,856,144 134,392 - 89,128,894 1,194,215 - 70,295 1,598,188 86,266,196 - - - - Upto 1 year 59,110,219 3,695,746 1,044,424 175,929 - - 2,193,097 282,296 - 62,805,965 586,758 - 250,775 2,782,924 58,049,695 1,135,813 - - - Upto 2 years 107,204,051 3,624,693 2,016,077 491,239 - - 716,644 400,733 - 110,828,744 642,806 - 281,180 3,352,692 47,305,243 59,246,823 - - - Upto 2 years 55,108,758 2,436,828 773,156 196,871 - - 825,194 641,607 - 57,545,586 586,758 - 250,775 2,756,539 46,900,308 7,051,206 - - - Upto 3 years 59,273,856 3,935,856 1,539,754 231,376 - - 1,965,574 199,152 - 63,209,712 640,952 - 281,180 3,306,222 48,805,745 10,175,613 - - - Upto 3 years 60,803,944 3,475,245 895,342 146,541 - - 876,633 1,556,729 - 64,279,189 2,732,176 - 501,550 2,138,850 50,434,778 8,471,835 - - - Over 3 to 5 years 72,996,216 7,724,768 2,633,810 218,208 - - 1,734,959 3,137,791 - 80,720,984 2,762,041 - 562,361 3,033,557 60,437,040 13,925,985 - - - Over 3 to 5 years 82,824,881 16,411,245 2,231,318 2,000,255 - - 614,919 11,564,753 - 99,236,126 4,290,836 - 502,252 37,572,269 31,328,527 25,542,242 - - - Over 5 years 151,761,467 27,285,140 6,584,526 2,355,305 - - 370,975 17,974,334 - 179,046,607 4,242,178 - 569,996 46,154,840 31,726,741 96,352,852 - - - Over 5 years for the year ended December 31, 2019 Maturities of Assets and Liabilities – based on contractual maturity of the assets and liabilities of the Bank 117,211,554 551,860 877,031,842 36,913,696 38,451 - - 868,560,834 2,071 1,366,171,887 Other liabilities 5,912,375 - Subordinated debt Deferred tax liabilities – net - Liabilities against assets subject to finance lease 1,049,018,804 Borrowings Deposits and other accounts 7,878,626 266,448,386 Bills payable 7,878,626 235,035,997 1,483,383,441 Liabilities 596,785 40,316,857 Other assets – net - 756 17,185 - 1,975,898 79,659,983 34,223,580 - 602,582 119,935,126 Deferred tax assets Intangible assets 62,240,062 485,051,568 Fixed assets 759,654,427 Advances – net 13,606,921 602,582 119,935,126 Investments – net Lending to financial institutions Balances with other banks Cash and balances with treasury banks Assets Total Upto 1 Day Maturities of Assets and Liabilities – based on contractual maturity of the assets and liabilities of the Bank Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements for the year ended December 31, 2019 Allied Bank Limited 283
144. Notes to the Consolidated Financial Statements Notes to the Consolidated Financial Statements 43 .4.2 43.5 for the year ended December 31, 2019 for the year ended December 31, 2019 Maturities of assets and liabilities – based on expected maturities of the assets and liabilities of the Bank December 31, 2019 Upto 1 Month Total Over 1 to 3 Months Over 3 to 6 Months Over 6 Months to 1 Year Over 1 to 2 Years Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years Above 10 Years Rupees in ‘000 Cash and balances with treasury banks Balances with other banks Lending to financial institutions 119,935,126 33,818,371 10,456,036 6,768,479 4,526,963 2,496,978 2,774,287 - - 59,094,012 602,582 602,582 - - - - - - - - 13,606,921 9,902,779 3,704,142 - - - - - - - Investments – net 759,654,427 259,295,601 231,219,565 867,746 55,989,298 68,646,525 19,575,316 13,925,985 108,719,391 1,415,000 Advances – net 485,051,568 25,925,953 27,701,487 39,002,766 142,911,817 67,716,835 69,217,337 80,848,632 26,990,835 4,735,906 62,240,062 532,729 1,065,458 1,598,188 3,196,376 3,352,692 3,306,222 3,033,557 4,010,781 42,144,059 1,975,898 23,432 46,864 70,295 140,590 281,180 281,180 562,361 569,996 - - - - - - - - - - - 40,316,857 18,905,830 6,559,912 3,964,817 2,598,321 642,806 640,952 2,762,041 4,242,178 - 1,483,383,441 349,007,277 280,753,464 52,272,291 95,795,294 101,132,576 144,533,181 107,388,977 - - - Fixed assets Intangible assets Deferred tax assets Other assets – net 209,363,365 143,137,016 Liabilities Bills payable Borrowings Deposits and other accounts 7,878,626 7,878,626 - 266,448,386 214,634,281 17,002,396 12,959,088 140,611 400,733 199,152 3,137,791 17,974,334 - 1,049,018,804 125,011,712 149,008,992 96,457,612 64,513,767 36,301,078 41,501,940 1,734,959 370,974 534,117,770 Subordinated debt Deferred tax liabilities – net Other liabilities Net assets - - - 5,912,375 1,206,043 909,986 75,154 425,064 491,239 231,376 218,208 746,915 1,608,390 36,913,696 17,519,303 2,983,229 1,479,030 2,157,967 2,016,077 1,539,754 2,633,810 6,584,526 - 1,366,171,887 366,249,965 169,904,603 110,970,884 67,237,409 39,209,127 43,472,222 7,724,768 25,676,749 535,726,160 117,211,554 (17,242,688) 110,848,861 (58,698,593) 142,125,956 103,927,889 52,323,072 93,407,808 118,856,432 (428,337,183) Over 2 to 3 Years Over 3 to 5 Years Share capital 11,450,739 Reserves 22,270,225 Unappropriated profit 57,681,932 Surplus on revaluation of assets net of tax - 25,808,658 117,211,554 December 31, 2018 Upto 1 Month Total Over 1 to 3 Months Over 3 to 6 Months Over 6 Months to 1 Year Over 1 to 2 Years Over 5 to 10 Years Above 10 Years Market & Liquidity Risk Division under Risk Management Group is responsible for assessing and monitoring the derivative risk emanating from Bank’s exposures. The Bank’s Treasury Group buys and sells derivative instruments, for hedging and market making purposes, such as: Assets Derivative Risk 44 44.1 - Forward Exchange Contracts - Foreign Exchange Swaps - Equity Futures - Forward Contracts for Government Securities The Bank’s Risk Management Group, ALCO and BRMC monitors the risk emanating from the Bank’s portfolio of derivates exposures on a periodic basis and uses Off-Balance Sheet gap analysis to implement prudent asset liability management of the Bank’s derivatives exposures. NON ADJUSTING EVENT AFTER THE REPORTING DATE The Board of Directors of the Bank in its meeting held on February 7, 2020 has proposed a final cash dividend in respect of 2019 of Rs. 2.00 per share (2018: cash dividend Rs. 2.00 per share). This appropriation will be approved in the forthcoming Annual General Meeting. The consolidated financial statements of the Bank for the year ended December 31, 2019 do not include the effect of these appropriations which will be accounted for in the consolidated financial statements for the year ending December 31, 2020. 45GENERAL 45.1 Captions as prescribed by BPRD circular no.2 of 2018 issued by SBP, in respect of which there are no amounts, have not been reproduced in these financial statements, except for caption of the statement of financial position and profit and loss account. 45.2 Comparative figures have been re-classified, re-arranged or additionally incorporated in these financial statements wherever necessary to facilitate comparison and better presentation in accordance with new format prescribed by SBP vide BPRD circular no. 2 of 2018. 46 DATE OF AUTHORIZATION FOR ISSUE These financial statements were authorized for issue on February 7, 2020 by the Board of Directors of the Bank. Rupees in ‘000 Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions 99,177,561 27,339,089 10,192,026 4,908,440 4,104,803 1,973,027 2,007,802 - - 2,575,055 2,575,055 - - - - - - - 48,652,374 - 53,780,195 50,993,095 2,787,100 - - - - - - - Investments – net 672,587,309 229,720,004 317,736,941 17,412,057 32,732,625 9,798,775 14,898,089 8,471,835 40,401,983 1,415,000 Advances – net 438,356,170 22,695,777 21,999,745 32,820,234 121,877,527 75,466,221 64,316,834 67,851,305 26,487,962 4,840,565 50,399,773 429,099 858,198 1,287,298 2,574,596 2,782,924 2,756,539 2,138,850 2,393,868 35,178,401 1,756,127 20,898 41,796 62,694 125,387 250,775 250,775 501,550 502,252 - - - - - - - - - - - 33,751,113 10,767,163 7,609,477 4,211,433 2,966,512 586,758 586,758 2,732,176 4,290,836 - 1,352,383,303 344,540,180 361,225,283 60,702,156 164,381,450 90,858,480 84,816,797 81,695,716 74,076,901 90,086,340 Fixed assets Intangible assets Deferred tax assets Other assets – net Liabilities 7,752,959 - - - - - - - - Borrowings Bills payable 225,882,986 168,981,472 26,723,469 16,132,619 40 282,296 641,607 1,556,729 11,564,754 - Deposits and other accounts 984,463,067 121,284,355 173,849,475 83,725,237 70,017,278 35,847,810 35,073,079 876,633 534,810 463,254,390 1,719,829 Subordinated debt Deferred tax liabilities – net Other liabilities Net assets 7,752,959 4,751,359 194,250 1,401,310 214,804 421,399 175,929 196,871 146,541 280,426 20,743,121 11,515,711 1,456,267 1,025,241 1,801,662 1,044,424 773,156 895,342 2,231,318 - 1,243,593,492 309,728,747 203,430,521 101,097,901 72,240,379 37,350,459 36,684,713 3,475,245 14,611,308 464,974,219 (40,395,745) 92,141,071 53,508,021 48,132,084 78,220,471 59,465,593 (374,887,879) 108,789,811 Share capital 11,450,739 Reserves 20,276,515 Unappropriated profit 53,985,383 Surplus on revaluation of assets net of tax 34,811,433 157,794,762 23,077,174 108,789,811 284 Annual Report 2019 Mehmud ul Hassan Tahir Hassan Qureshi Zafar Iqbal Chief Financial Officer President and Chief Executive Director Dr. Muhammad Akram Sheikh Director Mohammad Naeem Mukhtar Chairman Allied Bank Limited 285
145. Pattern of Shareholding as at December 31 , 2019 Information for annual financial statements as on December 31, 2019. 1 No. of Shareholders Shareholdings’Slab From To Issued, Subscribed and Paid-up Capital Ordinary Shares As on December 31, 2019 No. of Shares Fully paid in cash Increase in Share Capital Issued as bonus shares Issued for consideration other than cash 406,780,094 720,745,186 17,548,550 Amount (Rs) 4,067,800,940 7,207,451,860 175,485,500 1,145,073,830 11,450,738,300 2 As on December 31, 2018 No. of Shares 406,780,094 720,745,186 17,548,550 Amount (Rs) 4,067,800,940 7,207,451,860 175,485,500 1,145,073,830 11,450,738,300 Major Shareholding Holding more than 5% of the total paid-up capital Name of Shareholder No. of Shares Held Percentage Held Ibrahim Holdings (Pvt.) Ltd. Total 972,510,410 972,510,410 84.9299 84.9299 No. of Shareholders Shareholdings’Slab From To 286 Total Shares Held 6133 1 to 100 236,478 9073 101 to 500 2,518,661 1108 501 to 1000 802,483 2082 1001 to 5000 4,425,151 376 5001 to 10000 2,760,243 149 10001 to 15000 1,869,323 78 15001 to 20000 1,412,602 58 20001 to 25000 1,307,612 33 25001 to 30000 905,558 22 30001 to 35000 709,273 19 35001 to 40000 719,688 19 40001 to 45000 818,199 10 45001 to 50000 487,643 5 50001 to 55000 255,469 Annual 5 55001 to 60000 287,826 7 60001 to 65000 431,974 6 65001 to 70000 411,996 6 70001 to 75000 443,000 3 75001 to 80000 238,000 7 80001 to 85000 576,300 3 85001 to 90000 260,863 8 95001 to 100000 799,000 5 100001 to 105000 519,369 4 105001 to 110000 424,900 2 2 4 110001 115001 120001 to to to 115000 120000 125000 223,871 238,844 489,600 1 125001 to 130000 127,500 1 130001 to 135000 131,674 3 145001 to 150000 447,800 Report 2019 3 2 1 3 1 1 1 1 1 1 1 1 1 2 1 1 1 1 1 1 1 3 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 19301 150001 155001 165001 175001 180001 185001 195001 210001 215001 235001 240001 250001 260001 290001 300001 345001 350001 355001 370001 375001 400001 495001 525001 535001 540001 565001 580001 610001 640001 735001 800001 820001 950001 960001 995001 1015001 1035001 1065001 1195001 1225001 1230001 1525001 1640001 1755001 1835001 1940001 1995001 2580001 2735001 2885001 3070001 3125001 4910001 4995001 6260001 6275001 9755001 30995001 34210001 972510001 to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to to 155000 160000 170000 180000 185000 190000 200000 215000 220000 240000 245000 255000 265000 295000 305000 350000 355000 360000 375000 380000 405000 500000 530000 540000 545000 570000 585000 615000 645000 740000 805000 825000 955000 965000 1000000 1020000 1040000 1070000 1200000 1230000 1235000 1530000 1645000 1760000 1840000 1945000 2000000 2585000 2740000 2890000 3075000 3130000 4915000 5000000 6265000 6280000 9760000 31000000 34215000 972515000 Total Shares Held 457,927 316,200 165,500 530,950 181,820 189,300 200,000 210,500 220,000 236,437 243,200 250,500 264,800 582,800 304,100 346,400 351,600 360,000 370,500 378,000 403,500 1,500,000 528,500 536,900 541,900 569,800 580,500 1,224,500 641,200 737,700 801,700 822,151 953,100 964,400 1,000,000 1,015,897 1,038,500 1,067,614 1,200,000 1,227,500 1,230,104 1,530,000 1,644,700 1,755,300 1,839,100 1,940,500 1,999,500 2,580,300 2,740,000 2,885,747 3,073,600 3,127,226 4,911,500 5,000,000 6,264,200 6,277,500 9,755,604 31,000,000 34,211,743 972,510,410 1,145,073,830 Allied Bank Limited 287
146. Categories of Shareholders as at December 31 , 2019 Categories of Shareholders Categories of Shareholders No. of Shareholders Shares Held Percentage Parent, Associated Companies, undertakings and related parties IBRAHIM HOLDINGS (PRIVATE) LIMITED TRUSTEES OF ABL EMPLOYEES SUPERANNUATION (PENSION) FUND A/C Sub-Total 1 1 2 972,510,410 34,211,743 1,006,722,153 84.9299 2.9877 87.9177 Directors and their Spouse(s) and Minor Children MOHAMMAD NAEEM MUKHTAR MUHAMMAD WASEEM MUKHTAR SHEIKH MUKHTAR AHMAD ABDUL AZIZ KHAN ZAFAR IQBAL DR. MUHAMMAD AKRAM SHEIKH NAZRAT BASHIR Sub-Total 1 1 1 1 1 1 1 7 2,500 2,500 2,500 26,620 2,500 2,500 100 39,220 0.0002 0.0002 0.0002 0.0023 0.0002 0.0002 0.0000 0.0034 Banks, Development Finance Institutions, Non-Banking Financial Institutions AL-FAYSAL INVESMENT BANK STANDARD CHARTERED BANK (PAKISTAN) LIMITED HABIB METROPOLITAN BANK LIMITED MCB BANK LIMITED - TREASURY NATIONAL BANK Of PAKISTAN THE BANK OF PUNJAB, TREASURY DIVISION. BANK ALFALAH LIMITED ESCORTS INVESTMENT BANK LIMITED FIRST CREDIT & INVESTMENT BANK LIMITED Sub-Total 1 1 1 1 5 1 1 1 1 13 55 22,118 580,500 6,264,200 2,602,590 1,999,500 1,530,000 77 21,900 13,020,940 0.0000 0.0019 0.0507 0.5471 0.2273 0.1746 0.1336 0.0000 0.0019 1.1371 NIT AND ICP IDBL (ICP UNIT) INVESTMENT CORPORATION OF PAKISISTAN Sub-Total 1 3 4 762 14,438 15,200 0.0001 0.0013 0.0013 Executives* OTHER EMPLOYEES Sub-Total 1 541 542 1,394 612,842 614,236 0.0001 0.0535 0.0536 Insurance Companies STATE LIFE INSURANCE CORP. OF PAKISTAN JUBILEE GENERAL INSURANCE COMPANY LIMITED ALPHA INSURANCE CO. LTD. EFU LIFE ASSURANCE LTD IGI LIFE INSURANCE LIMITED ADAMJEE INSURANCE COMPANY LIMITED GULF INSURANCE COMPANY LIMITED. ORIENT INSURANCE CO.LTD., PREMIER INSURANCE LIMITED Sub-Total 1 1 1 1 2 1 1 1 1 10 2,885,747 614,100 121,000 4,911,500 24,100 6,277,500 723 404 5,100 14,840,174 0.2520 0.0536 0.0106 0.4289 0.0021 0.5482 0.0001 0.0000 0.0004 1.2960 No. of Shareholders Shares Held Percentage Modarabas and Mutual Funds FIRST FIDELITY LEASING MODARABA M/S. FIRST TAWAKKAL MODARABA M/S. MODARABA AL MALI CDC - TRUSTEE NAFA PENSION FUND EQUITY SUB-FUND ACCOUNT TRUSTEE NATIONAL BANK OF PAKISTAN EMPLOYEES PENSION FUND GOVERNMENT OF SINDH - PROVINCIAL PENSION FUND TRUSTEE PAK HERALD PUBLICATIONS (Pvt) LTD STAFF PENSION FUND PAKISTAN HERALD PUBLICATIONS (PVT) LTD. STAFF PENSION FUND CDC - TRUSTEE PAKISTAN PENSION FUND - EQUITY SUB FUND TRUSTEE OF PAK. HERALD PUBLICATION (PVT.) LTD.-SPF CDC - TRUSTEE AGPF EQUITY SUB-FUND TRUSTEE-ANPL MANAGEMENT STAFF PENSION FUND ICI PAKISTAN MANAGEMENT STAF PENSION FUND ADAMJEE LIFE ASSURANCE COMPANY LTD-IMF WYETH PAKISTAN DC PENSION FUND PFIZER PAKISTAN DC PENSION FUND PFIZER PAKISTAN PROVIDENT FUND ADAMJEE LIFE ASSURANCE COMPANY LIMITED-NUIL Fund CDC - TRUSTEE AKD INDEX TRACKER FUND CDC - TRUSTEE UBL STOCK ADVANTAGE FUND CDC - TRUSTEE NBP STOCK FUND CDC - TRUSTEE NBP BALANCED FUND CDC - TRUSTEE NIT-EQUITY MARKET OPPORTUNITY FUND CDC - TRUSTEE ABL STOCK FUND CDC - TRUSTEE NBP SARMAYA IZAFA FUND CDC - TRUSTEE UBL ASSET ALLOCATION FUND CDC - TRUSTEE UBL RETIREMENT SAVINGS FUND - EQUITY SUB FUND CDC - TRUSTEE NATIONAL INVESTMENT (UNIT) TRUST MCBFSL - TRUSTEE ALLIED CAPITAL PROTECTED FUND CDC - TRUSTEE NBP FINANCIAL SECTOR FUND CDC - TRUSTEE UBL FINANCIAL SECTOR FUND CDC - TRUSTEE UBL DEDICATED EQUITY FUND CDC - TRUSTEE PICIC INVESTMENT FUND CDC - TRUSTEE PICIC GROWTH FUND CDC - TRUSTEE ALFALAH GHP VALUE FUND CDC - TRUSTEE HBL - STOCK FUND CDC - TRUSTEE ALFALAH GHP STOCK FUND CDC - TRUSTEE ALFALAH GHP ALPHA FUND CDC - TRUSTEE HBL EQUITY FUND CDC - TRUSTEE HBL PF EQUITY SUB FUND CDC - TRUSTEE ALLIED FINERGY FUND CDC - TRUSTEE ALFALAH CAPITAL PRESERVATION FUND II CDC - TRUSTEE HBL MULTI - ASSET FUND CDC - TRUSTEE PAKISTAN CAPITAL MARKET FUND CDC - TRUSTEE MCB PAKISTAN STOCK MARKET FUND CDC - TRUSTEE MCB PAKISTAN ASSET ALLOCATION FUND Sub-Total 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 46 614 347 116 158,600 236,437 31,000,000 13,600 3,500 220,000 6,600 4,000 11,000 175,500 1,755,300 3,200 6,000 5,000 291,600 41,762 3,127,226 3,073,600 153,800 1,067,614 536,900 123,700 370,500 641,200 1,230,104 3,700 528,500 1,644,700 131,674 541,900 737,700 62,000 610,400 147,800 107,900 81,300 59,100 82,000 10,400 30,000 123,900 1,839,100 569,800 51,569,694 0.0001 0.0000 0.0000 0.0139 0.0206 2.7072 0.0012 0.0003 0.0192 0.0006 0.0003 0.0010 0.0153 0.1533 0.0003 0.0005 0.0004 0.0255 0.0036 0.2731 0.2684 0.0134 0.0932 0.0469 0.0108 0.0324 0.0560 0.1074 0.0003 0.0462 0.1436 0.0115 0.0473 0.0644 0.0054 0.0533 0.0129 0.0094 0.0071 0.0052 0.0072 0.0009 0.0026 0.0108 0.1606 0.0498 4.5036 FOREIGN INVESTORS MAHMOOD AHMAD CHAUDHRY ADAM JOOSUB SHOKATALI MOHAMEDALI ALIBHAI CYRUS MINOCHER PATEL HABIB BANK AG ZURICH, ZURICH,SWITZERLAND THE BANK OF NEW YORK MELLON ARROW DOGS OF THE WORLD ETF Sub-Total 1 1 1 1 1 1 1 7 10,000 10,000 25,000 4,350 6,000 1 42,158 97,509 0.0009 0.0009 0.0022 0.0004 0.0005 0.0000 0.0037 0.0085 42,939,524 15,215,180 1,145,073,830 3.7499 1.3288 100.0000 General Public-Individual Others Grand Total 18473 197 19301 *CEO, all Chiefs & Group Heads are termed as Executives All the trades in shares carried out by the Sponsors, Directors, Executives, their spouses and minor children reported during the year 2019 are as under: S.No 1 2 288 Annual Report 2019 Name M/S. IBRAHIM HOLDINGS (PVT.) LIMITED MS. NAZRAT BASHIR Designation Sponsor Director Sale 2,500 Purchase 4,598,800 100 Apart from the above there have been no trade in the shares of the Bank carried out by its Sponsors, Directors, Executives their Spouses and minor children. Allied Bank Limited 289
147. NOTICE OF 74th ANNUAL GENERAL MEETING Notice is hereby given that 74th Annual General Meeting of Allied Bank Limited (the “Bank”) will be held on Wednesday, March 25, 2020 at 11:00 a.m. at Grand Ball Room ‘D’, 4th Floor, The Nishat Hotel, (Entrance from Gate No. 07), adjacent to Emporium Mall, Main Abdul Haque Road, Johar Town, Lahore to transact the following business: Ordinary Business: 1. To confirm minutes of the 73rd Annual General Meeting of Allied Bank Limited held on March 28, 2019. Copy of the said minutes is being provided to all shareholders along with this notice. 2. To receive, consider and adopt Annual Audited Accounts of the Bank (consolidated and unconsolidated) for the year ended December 31, 2019 together with the Directors’ Report, Auditors’ Report and Chairman’s Review Report thereon. As required under Section 223 (7) of the Companies Act 2017, Financial Statements of the Bank have been uploaded on website of the Bank which can be downloaded from the following link: https://www.abl.com/investor-relations/financials/financialpresentations/ 3. To consider and approve Final Cash Dividend @ 20% (i.e. Rs. 2.00 per share) as recommended by the Board of Directors. This Final Cash Dividend would be in addition to 60% Interim Cash Dividends (20% each for 1st, 2nd & 3rd quarters aggregating to Rs.6.00 per share) already paid to the shareholders for the year ended December 31, 2019. 4. To appoint Statutory Auditors of the Bank for the year ending December 31, 2020 and fix their remuneration. The retiring auditors M/s. KPMG Taseer Hadi & Co. Chartered Accountants have completed the maximum period of 5 Years in accordance with the regulation No. 33 of the Listed Companies (Code of Corporate Governance) Regulations, 2019. However, the Board of Directors of the Bank with permission of State Bank of Pakistan (SBP) and Securities & Exchange Commission of Pakistan (SECP) has recommended re-appointment of M/s. KPMG Taseer Hadi & Co. Chartered Accountants for the next term and the audit firm appointed will hold office till conclusion of the next AGM to be held in 2021. Special Business: 5. To accord Post facto approval of Bank’s “Board Remuneration Policy” framed in accordance with SBP BPRD Circular # 3 dated August 17, 2019 by passing an ordinary resolution. Other Business: 6. To transact any other business with permission of the Chair. Date: March 03, 2020 (Lahore) By Order of the Board Muhammad Raffat Company Secretary 290 Annual Report 2019 Statement under section 134 (3) of the Companies Act, 2017 v) Members are requested to immediately notify changes in their registered addresses, if any, to the Bank’s Share Registrar before start of the book closure period. ITEM NO.5: To accord Post facto approval of Bank’s “Board Remuneration Policy” framed in accordance with SBP BPRD Circular # 3 dated August 17, 2019 by passing an ordinary resolution. vi) Members may exercise their right to vote as per provisions of the Companies (Postal Ballot) Regulations, 2018, subject to the requirements of Section 143 & 144 of the Companies Act 2017. Further, details in this regard will be communicated to the shareholders within legal time frame as stipulated under these Regulations, if required. In terms of SBP BPRD Circular No. 03 dated August 17, 2019 the Human Resource & Remuneration Committee (HR&RC) of Allied Bank Limited has formulated a policy containing comprehensive, fair and transparent remuneration/ compensation mechanism for Chairman and other NonExecutive Directors of the Bank. All Non-Executive Directors are interested parties of this policy. The Policy on the recommendation of HR&RC was approved by the Board of Directors in its 243rd Meeting held on December 16, 2019. Accordingly, the policy is being placed before shareholders for their post facto approval. The Board Remuneration Policy of the Bank will be available to the members at Company Secretary Office, located at Bank’s Registered / Head Office, 3 – Tipu Block, New Garden Town, Lahore, during 9:00 a.m. to 5:30 p.m. on working days from March 04, 2020 to March 24, 2020. The document will also be available for inspection of the members at the time of Annual General Meeting. vii) CDC Account Holders will have to follow the under mentioned guidelines as laid down by the Securities and Exchange Commission of Pakistan: A. For Attending the Meeting: i) ii) In case of individuals, the Account Holder or Subaccount Holder and / or the person whose securities are in group account and their registration details are uploaded as per CDC’s Regulations, shall authenticate their identity by showing original valid Computerized National Identity Card (CNIC) or original Passport at the time of attending the Meeting. B. For Appointing Proxies: i) In case of individuals, the Account Holder or Subaccount Holder and / or the person whose securities are in group account and their registration details are uploaded as per CDC’s Regulations, shall submit proxy form as per the above mentioned requirements. ii) The proxy form shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on the form. iii) Attested copies of valid 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 original passport at the time of the Meeting. v) In case of corporate entity, the resolution of Board of Directors / Power of Attorney with specimen signature shall be produced along with the proxy form of the Company. In case of corporate entity, the resolution of Board of Directors / Power of Attorney with specimen signature of the nominee shall be produced (if not provided earlier) at the time of attending the Meeting. In this respect, the following Ordinary Resolution is proposed to be adopted by the shareholders: “Resolved that Bank’s Board Remuneration Policy be and is hereby approved on post facto basis.” NOTES: i) All members are entitled to attend and vote at the Meeting. ii) A member entitled to attend and vote at the Meeting is entitled to appoint another member as a proxy to attend, speak and vote for him/her: and the proxy appointed should be a member of Allied Bank Limited (Proxy Form Attached). iii) The instrument of proxy duly completed and signed along with power of attorney or other authority (if any) under which it is signed, or a notarized certified copy of such power of attorney must be valid and deposited at the Registered Office of the Bank or its Share Registrar, M/s. CDC Share Registrar Services Limited at CDC House, 99-B, Block-B, S.M.C.H.S, Main Shahrah-e-Faisal, Karachi not less than 48 hours before the start time of the Meeting. In calculating the 48 hours, no account shall be taken of any part of the day that is not a working day. iv) Share Transfer Books of the Bank will remain closed from Thursday, March 19, 2020 to Wednesday, March 25, 2020 (both days inclusive). Share transfer requests received at Bank’s Share Registrar M/s. CDC Share Registrar Services Limited on the above mentioned address before the close of business on Wednesday, March 18th, 2020 will be treated as being in time for the purpose of transfer of shares. Allied Bank Limited 291
148. Glossary of Financial & Banking Terms Accrual Basis Recognizing the effects of transactions and other events when they occur without waiting for receipt or payment of cash or its equivalent. Automated Teller Machine (ATM) ATM is an e-banking delivery channel that enables the customers to perform financial transactions 24/7. Alternate Delivery Channels (ADCs) ADCs are those access points that expand the reach of banking services beyond the traditional over the counter banking and traditional over the counter banking and includes internet banking, mobile banking, Point of Sale (POS) transactions, ATM, SMS and Phone banking. Basis point One hundredth of a per cent i.e. 0.01 percent. 100 basis points is 1 per cent. Used when quoting movements in interest rates or yields on securities. Call Deposits These include short notice and special notice deposits Effective Tax Rate Provision for taxation excluding deferred tax divided by the profit before taxation. Current Deposits Non-remunerative Chequing account deposits wherein withdrawals and deposit of funds can be made frequently by the account holders. Euro-pay, Master-card and Visa (EMV) EMV is a global standard for cards equipped with computer chips and the technology used to authenticate chip-card transactions. Contingencies A condition or situation existing at date of Statement of Financial Position where the outcome will be confirmed only by occurrence of one or more future events. CAGR An abbreviation for Compound Annual Growth Rate. Corporate Governance It is “the system by which companies are directed and controlled” by the Securities and Exchange Commission of Pakistan. It involves regulatory and market mechanisms, which govern the roles and relationships between a company’s management, its board, its Bonus Issue (Scrip Issue) shareholders and other stakeholders. The issue of new shares to existing shareholders in proportion to their Defined Contribution shareholdings. It is a process for converting A post-employment benefit plan under which a company’s reserves (in whole or part) into entity and employee pays fixed contribution issued capital and hence does not involve an into a separate entity (a fund) and will have infusion of cash. no legal or constructive obligation to pay further contribution if the fund does not hold Cash Equivalents sufficient assets to pay all the employee Short–term highly liquid investments that benefits relating to employee service in the are readily convertible to known amounts of current and prior periods. cash. Derivatives Capital Adequacy Ratio A financial instrument or a contract where; The relationship between capital and risk • Its value is dependent upon or derived weighted assets as defined in the framework from one or more underlying assets. developed by the State Bank of Pakistan and • Requires no or very little initial net Basel Committee. investment • It is settled at a future date. Call Money Rate Interbank clean (without collateral) lending/ Defined Benefits borrowing rates are called Call Money Rates In a defined benefit plan, an employer typically   guarantees a worker a specific lifetime annual Common Equity Tier (CET) Capital retirement benefit, based on years of service, CET capital is sum of fully paid share capital, final rate of pay, age and other factors. The reserves and un-appropriated profit adjusted risks of paying for the plan rest entirely with by regulatory adjustments as specified in the plan. Basel III. 292 Consumer Price Index (CPI) The CPI measure changes in the cost of buying a representative fixed basket of goods and generally indicates inflation rate in the country. (Source: Pakistan Bureau of Statistics) Deferred Taxation Sum set aside for tax in financial statements that will become payable / receivable in a financial year other than current financial year due to differences in accounting policies and applicable taxation legislations. Coupon Rate Coupon rate is interest rate payable on bond’s par value at specific regular periods. In PIBs they are paid on bi-annual basis. Discount rate Discount is the rate at which SBP provides three-day Repo facility to banks, acting as the lender of last resort. Annual Report 2019 Finance Lease Finance lease is the one in which risk and rewards incidental to the ownership of the leased asset is transferred to lessee but not the actual ownership. Financial Capital Financial Capital represent shareholder’s equity. 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. Forward Exchange Contract Forward contracts are agreements between two parties to exchange two designated currencies at a specific time in the future. Gross Domestic Product (GDP) GDP is a monetary value of all the finished goods and services produced in a country in a specified time period. GDP includes all private and public consumption, government outlays, investments and exports minus imports that occur within a country. Guarantees A promise to answer for the payment of some debt, or the performance of some duty, in case of the failure of another person, who is, in the first instance, liable to such payment or performance. Historical Cost Convention Recording transactions at the actual value received or paid. Human Capital The collective skills, knowledge, and other intangible assets of individuals that can be used to create economic value for our customers. Impairment Impairment of an asset is an abrupt decrease of its fair value and measured in accordance with applicable regulations. Intellectual Capital Brand value, research and development, innovation capacity, reputation and strategic partnerships. Interest Rate Swap (IRS) An Interest Rate Swap (the swap) is a financial contract between two parties exchanging or swapping a stream of interest payments for a `Notional Principal’ amount on multiple occasions during a specified period. The swap is usually “fixed to floating” or “floating to floating” exchanges of interest rate. As per the contract, on each payment date during the swap period, the cash payments based on difference in fixed/floating or floating / floating rates are exchanged by the parties from one another. The party incurring a negative interest. The party incurring a negative interest rate differential for that leg pays the other counter-party. 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. Natural Capital Impact on natural resources operations and business activities. through 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. 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 Interest Spread Where markup/interest or principal is overdue Represents the difference between the by 180 days or more from the due date. average interest rate earned and the average interest rate paid on funds.   Non-Performing Loan-Loss Category Interest in Suspense Where mark-up/interest or principal is Interest suspended on non–performing loans overdue by one year or more from the due and advances. date and Trade Bill (Import/ Export or Inland Bills) are not paid/adjusted within 180 days of KIBOR – (Karachi Interbank Offered Rate) the due date. KIBOR is the interbank lending rate between banks in Pakistan and is used as a benchmark Nostro Account for lending. An account held with a bank outside Pakistan. LIBOR (London Interbank Offered Rate) Net Interest Income An interest rate at which banks can borrow The difference between what a bank earns funds, in marketable size, from other banks in on interest bearing assets such as loans and the London interbank market. The LIBOR is securities and what it pays on interest bearing fixed on a daily basis by the British Bankers’ liabilities such as deposits, refinance funds Association. and inter–bank borrowings. Liquid Assets Off Balance Sheet Transactions An asset that can be converted into cash Transactions that are not recognized as quickly and with minimal impact to the price assets or liabilities in the statement of financial received. position but which give rise to contingencies and commitments. Market Capitalization Number of ordinary shares in issue multiplied Organization of the Petroleum Exporting by the market value of share as at any cutoff Countries (OPEC) date. OPEC is a permanent intergovernmental Organization whose objective is to coordinate Market Treasury bills (MTBs) and unify petroleum policies among member MTBs are negotiable debt instrument Countries. issued by State Bank of Pakistan on behalf of Government of Pakistan with tenors Pakistan Investment Bonds (PIBs) available in 3 months, 6 months and one year They are the long term coupon yielding maturities. instruments of the Government of Pakistan with tenors available in 3, 5, 10, 15 and 20 Manufactured Capital years. It includes business structure and operational processes, including physical, digital and IT Prudence Infrastructure, Product and Services that Inclusion of degree of caution in the exercise provides the framework and mechanics of of judgment needed in making the estimates how the bank does business and create required under conditions of uncertainty, so values. that assets or income are not overstated and liabilities or expenses are not understated. Risk Weighted Assets On Balance Sheet assets and the credit equivalent of off Balance Sheet assets multiplied by the relevant risk weighting factors. Repurchase Agreement Contract to sell and subsequently repurchase securities at a specified date and price. Reverse Repurchase Agreement Transaction involving the purchase of securities by a bank or dealer and resale back to the seller at a future date and specified price. Related Parties Parties where one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Revenue Reserve Reserves set aside for future distribution and investment. Subsidiary Company A company is a subsidiary of another company if the parent company holds more than 50% of the nominal value of its equity capital or holds some share in it and controls the composition of its Board of Directors. Shareholders’ Funds Total of Issued and fully paid share capital and revenue reserves. Statutory Reserve Funds A capital reserve created as per the provisions of the Banking Companies Ordinance, 1962. Social & Relationship Capital Strong stakeholder relationships, including the communities in which we operate. Building a strong and thriving society as well as financial and digital ecosystem. YOY Year on Year (2019 vs 2018). Allied Bank Limited 293
149. Financial Ratios Formulas Profit before Tax Ratio = Profit before Tax Interest Income + Non-Interest Income Gross Spread Ratio = Net markup Income Form of Proxy 74th Annual General Meeting Allied Bank Limited Gross Markup Income Cost / Income Ratio = Operating expenses Gross Income Return on Equity = Net Income Shareholder’s Equity-CET1 Profit Margin = I/We _____________________________________________ S/o/ D/o/ W/o ____________________________________________________________________ of ________________________________________________________________________________________________________________________ being a member of Allied Bank Limited and holder of _______________________________________ ordinary shares as per Folio No. _________________________ and/or CDC Participant ID No. __________________ and Account/Sub-account No. _______________ do hereby appoint Mr./Ms. _______________________ Net Profit Folio No./CDC No. ______________ having CNIC ________________ failing him/her, Mr./Ms. __________________ Folio No./ CDC No. _______________ Markup + Non Markup Income having CNIC ___________________of ___________ as my/our proxy and to attend, act and vote for me/us on my/our behalf at the 74th Annual General Meeting of the Bank to be held on Wednesday, the March 25, 2020 and at any adjournment thereof in the same manner as I/we myself/ourselves Advances to Deposits Ratio (Net) = Loans & Advances (Net) would vote if personally present at such meeting. Deposits Total Asset to Shareholder Fund (Tier 1) = Total Assets Signed this __________________________ day of _________________2020. Shareholder’s Equity-CET1 NPL Ratio = Non-Performing Loans Witness Gross Advances 1. AFFIX Revenue Stamp of Rs. 5/Signature Name Net Infection Ratio = Non-performing Loans - Provision on NPL’s Net Advances Earnings Per Share (EPS) = Signature of Member (s) _________________ CNIC # Address [The signature should agree with the specimen registered with the Company] Profit after Tax Weighted Average Number of Ordinary Shares Price Earnings Ratio = Market value of share at Year End EPS Dividend Yield Ratio = Witness 2. Name Annual Dividends per Ordinary Share Market Price of Share at Year End Dividend Payout Ratio = Signature CNIC # Address Dividend per Share EPS Dividend Cover Ratio = Basic EPS Annual Total Dividend per Share IMPORTANT NOTES: 1. Break-up Value per share without = Total Ordinary Shares Outstanding Surplus on Revaluation of Fixed Assets Break-up Value per share including = = Risk Weighted Assets Earning Assets to Total Assets Ratio 2. This instrument of proxy duly completed and signed along with Power of Attorney or other authority (if any) under which it is signed, or notarized copy of such Power of Attorney must be valid and deposited at the Registered Office of the Bank or Bank’s Share Registrar at M/s. CDC Share Registrar Services Limited, CDC House, 99-B, Block-B, S.M.C.H.S, Main Shahrah-e-Faisal, Karachi not less than 48 hours before the time of the Meeting. In calculating the 48 hours, no account shall be taken of any part of the day that is not a working day. 3. For CDC Account Holders/Corporate Entities: Total Shareholders’ Equity Tier One Capital + Tier Two Capital = = Net Assets Number of Shares outstanding Assets Turnover = i) Attested copies of valid Computerized National Identity Cards (CNIC) or the Passport of the beneficial owners and the proxy shall be provided with proxy form. ii) The proxy shall produce his/her original CNIC or Passport at the time of meeting. iii) In case of corporate entity, the Board of Directors’ resolution / power of attorney with specimen signatures shall be submitted along with proxy form to the company. Earning Assets Total Assets Net Assets per Share A member entitled to attend and vote at a meeting is entitled to appoint another member as a proxy to attend, speak and vote for him/her. The proxy appointed should be a member of Allied Bank Limited. Total Ordinary Shares Outstanding Surplus on Revaluation of Fixed Assets Capital Adequacy Ratio Total Equity - Revaluation Surplus Mark-up Income + Non mark-up Income 4. If a member appoints more than one proxy and more than one instrument of proxies are deposited with the Share Registrar, all such instruments of proxy shall be rendered invalid. 5. Members are requested to immediately notify changes in their registered addresses if any, to Bank’s Share Registrar at the address mentioned above before start of the book closure. Total Assets Price to Book Ratio = Market value of share at Year End Net Assets / No of Shares NPL Coverage Ratio = Provision against NPL’s Non-performing Loans 294 Annual Report 2019
150. AFFIX CORRECT POSTAGE Company Secretary Allied Bank Limited Head Office / Registered Office 3 Tipu Block, Main Boulevard New Garden Town Lahore – Pakistan. Postal Code: 54000 Phone: +92 42 35880043 Website: www.abl.com
151. AFFIX CORRECT POSTAGE Company Secretary Allied Bank Limited Head Office / Registered Office 3 Tipu Block, Main Boulevard New Garden Town Lahore – Pakistan. Postal Code: 54000 Phone: +92 42 35880043 Website: www.abl.com