Bank AL Habib Limited: Annual Report 2021

Transcription

1. VISION STATEMENT TO BE OUR CUSTOMERS ’ MOST CONVENIENT AND TRUSTED BANK MISSION STATEMENT TO MAKE BANKING SAFE, SIMPLE, AND PLEASANT
2. CORPORATE INFORMATION Board of Directors Abbas D . Habib Anwar Haji Karim Farhana Mowjee Khan Syed Mazhar Abbas Qumail R. Habib Safar Ali Lakhani Syed Hasan Ali Bukhari Murtaza H. Habib Arshad Nasar Adnan Afridi Chairman Mansoor Ali Khan Chief Executive Audit Committee Safar Ali Lakhani Syed Mazhar Abbas Anwar Haji Karim Syed Hasan Ali Bukhari Arshad Nasar Chairman Member Member Member Member Human Resource & Remuneration Committee Syed Hasan Ali Bukhari Syed Mazhar Abbas Abbas D. Habib Farhana Mowjee Khan Arshad Nasar Chairman Member Member Member Member Credit Risk Management Committee Syed Mazhar Abbas Safar Ali Lakhani Qumail R. Habib Syed Hasan Ali Bukhari Murtaza H. Habib Chairman Member Member Member Member Risk Management Committee Adnan Afridi Qumail R. Habib Farhana Mowjee Khan Anwar Haji Karim Safar Ali Lakhani Chairman Member Member Member Member IT Committee Abbas D. Habib Qumail R. Habib Arshad Nasar Syed Mazhar Abbas Mansoor Ali Khan Chairman Member Member Member Member Executive Director
3. IFRS 9 Committee Syed Hasan Ali Bukhari Arshad Nasar Qumail R . Habib Chairman Member Member Company Secretary Mohammad Taqi Lakhani Chief Financial Officer Ashar Husain Statutory Auditors EY Ford Rhodes Chartered Accountants Legal Advisor LMA Ebrahim Hosain Barristers, Advocates & Corporate Legal Consultants Registered Office 126-C, Old Bahawalpur Road, Multan Principal Office 2nd Floor, Mackinnons Building, I.I. Chundrigar Road, Karachi Share Registrar CDC Share Registrar Services Limited CDC House 99-B, Block-B, S.M.C.H.S. Main Shahrah-e-Faisal, Karachi-74400. Website www.bankalhabib.com
4. CONTENTS History 1 Review Report by the Chairman 6 Directors ' Report 7 Corporate Governance 14 Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2019 28 Independent Auditors’ Review Report on the Statement of Compliance contained in Listed Companies (Code of Corporate Governance) Regulations, 2019 31 Statement on Internal Controls 32 Independent Auditors’ Report to the Members 33 Unconsolidated Statement of Financial Position 37 Unconsolidated Profit and Loss Account 38 Unconsolidated Statement of Comprehensive Income 39 Unconsolidated Statement of Changes in Equity 40 Unconsolidated Cash Flow Statement 41 Notes to the Unconsolidated Financial Statements 42 Disclosure on Complaint Handling 128 Report of Shariah Board 129 Notice of Annual General Meeting 130 Pattern of Shareholding 138 Consolidated Financial Statements 141 242 252 253 Branch Network E - Dividend Bank Mandate Form Form of Proxy 254
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6. HIGHLIGHTS YEAR 2021 Total Assets Rs PKR 1 .85 Tr Profit before tax PKR 30.3 Bn Deposits PKR 1.31 Tr Awards Best Bank of the year-Runnerup (Large-Size Bank) 2020 from Chartered Financial Analyst (CFA) Society Pakistan. Total Network Domestic ATM Network 956 Over 1100+ Branches & Sub-Branches Total Cities Served Total Foreign Branches and Representative Offices 381 6 in Pakistan Countries Across the Globe 2
7. 3 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 100 200 300 400 500 600 700 800 900 1000 1100 1200 1300 1400 1997 1992 2001 24 .7 2002 34.2 0.4 1997 0.05 1992 2001 0.6 2002 0.6 Profit Before Tax 13.4 1.7 Deposits 2003 1.5 2003 46.2 2004 1.0 2004 62.2 2005 2.0 2005 75.8 2006 2.7 2006 91.4 2007 3.1 2007 114.8 PERFORMANCE 1992-2021 Rs. in Billion Rs. in Billion 2008 3.6 2008 144.4 2009 4.5 2009 189.3 2010 5.7 2010 249.8 2011 7.2 2011 302.1 2012 8.9 2012 340.4 2013 7.5 2013 386.2 2014 9.9 2014 446.4 2015 12.3 2015 516.2 2016 13.2 2016 584.2 2017 13.9 2017 692.6 2018 14.3 2018 796.9 2019 19.0 2019 903.7 2020 28.6 2020 1099.7 2021 30.3 2021 1309.8
8. 4 100 200 300 400 500 600 700 800 900 1000 10 20 30 40 50 60 70 80 90 1997 1992 2001 1 .5 2002 1.8 2003 2.7 2004 3.3 1992 6 1997 27 2001 41 2002 57 2003 70 2004 74 2005 100 2005 4.7 Branches / Sub - Branches 0.9 0.3 2006 152 2006 6.2 2007 175 2007 8.0 2008 225 2008 10.0 2009 255 2009 12.3 2010 302 2010 14.7 2011 351 2011 17.7 2012 390 2012 21.1 2013 416 2013 23.2 2014 459 2014 27.6 Shareholders' Equity excluding surplus on revaluation of assets PERFORMANCE 1992-2021 Rs. in Billion Number 2015 528 2015 31.7 2016 605 2016 35.7 2017 650 2017 40.4 2018 721 2018 46.3 2019 755 2019 55.5 2020 850 2020 69.6 2021 956 2021 83.6
9. Performance 1992-2021 (Rupees in Million) Years Assets Deposits Advances Investments Shareholders’ Equity excluding surplus on revaluation of assets Profit Before Tax 1992 2,727 1,679 607 1,060 325 51 1993 5,590 3,372 1,647 1,907 421 1994 8,346 5,200 3,067 1,932 528 1995 11,395 6,353 4,254 2,055 1996 11,248 8,573 5,664 1997 16,515 13,445 7,372 1998 16,897 13,226 1999 19,870 14,113 2000 24,226 17,823 14,722 2001 29,025 24,697 2002 49,437 34,240 Profit After Tax Cash Dividend Stock Dividend 25 –0 –0 151 96 –0 –0 224 107 –0 –0 611 255 127 15.0% –0 2,489 718 341 153 15.0% 10.0% 7,440 851 442 199 20.0% 15.0% 7,564 6,999 1,016 445 203 10.0% 32.0% 10,925 4,601 1,169 373 153 –0 20.0% 1,289 1,322 403 153 –0 20.0% 15,902 5,664 1,532 551 246 5.0% 20.0% 23,775 18,831 1,822 620 290 –0 25.0% 2003 58,066 46,178 35,232 14,109 2,726 1,513 1,012 10.0% 25.0% 2004 77,436 62,171 47,367 14,414 3,274 1,039 541 –0 35.0% 2005 91,502 75,796 55,304 19,758 4,746 2,022 1,464 15.0% 40.0% 2006 114,998 91,420 70,796 21,023 6,186 2,689 1,761 15.0% 40.0% 2007 141,234 114,819 79,224 35,287 8,014 3,052 2,211 15.0% 30.0% 2008 177,324 144,390 100,197 48,234 9,967 3,579 2,425 12.5% 27.5% 2009 249,807 189,280 105,985 111,018 12,287 4,512 2,856 20.0% 20.0% 2010 301,552 249,774 125,773 137,168 14,706 5,656 3,602 20.0% 20.0% 2011 384,282 302,099 114,872 222,959 17,723 7,155 4,533 25.0% 15.0% 2012 453,106 340,393 147,869 249,754 21,058 8,878 5,455 30.0% –0 2013 460,727 386,161 167,579 239,753 23,227 7,513 5,155 20.0% 10.0% 2014 579,394 446,409 181,737 331,423 27,555 9,917 6,349 30.0% –0 2015 639,973 516,213 207,289 356,649 31,698 12,332 7,405 35.0% –0 2016 768,018 584,172 261,440 405,028 35,673 13,164 8,119 35.0% –0 2017 944,134 692,576 339,833 476,125 40,409 13,890 8,501 30.0% –0 2018 1,048,239 796,901 478,215 414,605 46,283 14,264 8,418 25.0% –0 2019 1,298,682 903,703 488,669 586,141 55,489 19,011 11,169 35.0% –0 2020 1,522,091 1,099,686 510,252 764,944 69,570 28,581 17,81 45.0% –0 2021 1,849,652 1,309,823 733,799 826,600 83,569 30,273 18,702 70.0% –0 5
10. REVIEW REPORT BY THE CHAIRMAN ON THE OVERALL PERFORMANCE OF THE BOARD Alhamdolillah , I am pleased to present a report on the overall performance of the Board and effectiveness of the role played by the Board in achieving the Bank’s objectives. Power for management and control of affairs of the Bank rest with the Board of Directors, except for powers expressly required to be exercised by shareholders in general meeting. The Directors delegate day-to-day operations of the Bank to the Management, but such delegation remains subject to the control and direction of the Board, to the best of their knowledge. The Directors are required to carry out their fiduciary duties and exercise their independent judgement to the best of their abilities in the interests of the Bank. The Board has approved a formal process for its performance evaluation. The Bank has adopted In-House Approach and Quantitative Technique with scored questionnaires for Board evaluation. Overall objective of performance evaluation of the Board is to ensure sustainable growth and development of the Bank, with focus on the following areas: (a) (b) (c) (d) (e) (f) (g) Board Composition and Functioning Corporate Strategy and Business plan Monitoring of Bank Performance Internal Audit and Internal Control Risk Management and Compliance Disclosure of Material Information Ideas for Improvement Accordingly, performance evaluation of the Board was conducted in 2021 as per mechanism approved by the Board. It was concluded that the overall performance of the Board, including effectiveness of the role played by the Board in achieving the Bank’s objective, was found to be generally satisfactory. Karachi: February 09, 2022 Abbas D. Habib Chairman Board of Directors 6
11. DIRECTORS ' REPORT Alhamdolillah, the Directors of Bank AL Habib Limited are pleased to present the Thirty First Annual Report together with the audited financial statements of the Bank for the year ended December 31, 2021. The operating results and appropriations, as recommended by the Board, are given below: (Rupees in '000) Profit for the year before tax Taxation 30,272,788 (11,570,489) Profit for the year after tax Unappropriated profit brought forward Transfer from surplus on revaluation of fixed assets – net of tax Other comprehensive income – net of tax 18,702,299 40,024,361 120,440 (177,387) 39,967,414 58,669,713 Profit available for appropriations Appropriations: Transfer to Statutory Reserve Cash dividend – 2020 Unappropriated profit carried forward Basic / Diluted earnings per share – after tax (1,870,230) (5,001,414) (6,871,644) 51,798,069 Rs. 16.83 For the year ended December 31, 2021, the Directors propose a cash dividend of 70%, i.e., Rs. 7.0 per share. Performance Review Alhamdolillah, the performance of your Bank continued to be satisfactory during the year. Deposits rose to Rs. 1,309.8 billion against Rs. 1,099.7 billion a year earlier, while advances increased to Rs. 733.8 billion from Rs. 510.3 billion. Foreign Trade Business handled by the Bank during the year was Rs. 2,540.6 billion. Profit before tax for the year was Rs. 30.3 billion as compared to Rs. 28.6 billion last year, while profit after tax was Rs. 18.7 billion against Rs. 17.8 billion last year. During the year, the Bank opened 107 new branches and converted 3 sub-branches into full-fledged branches, bringing our network to 960, which comprises 927 branches (including 138 Islamic Banking Branches and 2 Overseas Branches, one each in Bahrain and Malaysia), 29 sub-branches, and 4 Representative Offices, one each in Dubai, Istanbul, Beijing, and Nairobi. The Bank will continue to expand its network. During the year, the Bank had closed its overseas branch in Seychelles. The closure of a Branch is in line with the Bank’s strategy, and it will not have any material impact on the overall operating and financial position of the Bank. In September 2021, the Bank successfully completed its eighth issue of rated, unsecured, and subordinated Term Finance Certificates (TFCs) amounting to Rs. 5,000 million (inclusive of a “Green Shoe” option of Rs. 2,000 million), through private placement. This private placement was managed and arranged by your Bank. These TFCs have further enhanced the Bank's capital adequacy and will also support future growth in our operations. 7
12. AWARDS AND RECOGNITION Chartered Financial Analyst (CFA) Society Pakistan Award for the Year 2020 The Bank received the Runner Up award for “Best Bank of the Year (Large-Size Banks) 2020” from the Chartered Financial Analyst (CFA) Society Pakistan. These awards recognized the outstanding performance of a financial institution. COMPOSITION OF BOARD OF DIRECTORS Total number of Directors is as follows: • Male • Female 09 01 10 The composition of the Board is as follows: Independent Directors Non-Executive Directors Executive Director Female Director-Non Executive Syed Hasan Ali Bukhari Mr. Arshad Nasar Mr. Safar Ali Lakhani Mr. Abbas D. Habib Mr. Anwar Haji Karim Syed Mazhar Abbas Mr. Murtaza H. Habib Mr. Adnan Afridi Mr. Qumail R. Habib Ms. Farhana Mowjee Khan Mr. Mansoor Ali Khan is the Chief Executive of the Bank. Being CEO of the Bank, he is deemed to be a Director. Board Meetings During the year, four meetings of the Board were held and the attendance of each Director was as follows: Name of Director Meetings Held Meetings Attended Mr. Abbas D. Habib Mr. Anwar Haji Karim 4 4 4 4 Ms. Farhana Mowjee Khan Syed Mazhar Abbas Mr. Qumail R. Habib Mr. Safar Ali Lakhani Syed Hasan Ali Bukhari 4 4 4 4 4 4 4 4 3 3 Mr. Murtaza H. Habib Mr. Arshad Nasar 4 4 4 3 Mr. Adnan Afridi Mr. Mansoor Ali Khan, Chief Executive 4 4 4 4 8
13. Committees Meetings The Listed Companies (Code of Corporate Governance) Regulations, 2019 requires the Bank to disclose the composition of all Committees of the Board, viz. Audit Committee, Human Resource & Remuneration Committee, Credit Risk Management Committee, Risk Management Committee, IT Committee, and IFRS 9 Committee. During the year, eight meetings of the Audit Committee, and four meetings of Human Resource & Remuneration Committee, Credit Risk Management Committee, Risk Management Committee, IT Committee, and IFRS 9 Committee were held, and the attendance of members was as follows: Audit Committee Name of Director Meetings Held Human Resource & Remuneration Committee Meetings Attended Name of Director Mr. Safar Ali Lakhani, Chairman Syed Mazhar Abbas 8 8 6 8 Syed Hasan Ali Bukhari, Chairman Syed Mazhar Abbas Mr. Anwar Haji Karim Syed Hasan Ali Bukhari Mr. Arshad Nasar 8 8 8 7 6 6 Mr. Abbas D. Habib Ms. Farhana Mowjee Khan Mr. Arshad Nasar Credit Risk Management Committee Name of Director Syed Mazhar Abbas, Chairman Mr. Safar Ali Lakhani Mr. Qumail R. Habib Syed Hasan Ali Bukhari Mr. Murtaza H. Habib Meetings Held Meetings Attended 4 4 4 4 4 4 3 4 3 4 IT Committee Name of Director Meetings Held Meetings Attended 4 4 3 4 4 4 4 4 4 3 Risk Management Committee Name of Director Mr. Adnan Afridi, Chairman Mr. Qumail R. Habib Ms. Farhana Mowjee Khan Mr. Anwar Haji Karim Mr. Safar Ali Lakhani Meetings Held Meetings Attended 4 4 4 4 4 4 3 4 3 3 IFRS 9 Committee Meetings Held Meetings Attended Mr. Abbas D. Habib, Chairman Mr. Qumail R. Habib Mr. Arshad Nasar Syed Mazhar Abbas 4 4 4 4 4 3 3 4 Mr. Mansoor Ali Khan 4 4 Name of Director Syed Hasan Ali Bukhari, Chairman Mr. Arshad Nasar Mr. Qumail R. Habib Meetings Held Meetings Attended 4 4 4 3 3 3 Directors Training Programme Directors have either attended the required training in prior years or stand exempted, as per criteria mentioned in the Code. 9
14. Directors ’ Remuneration Policy The shareholders of the Bank have approved a ‘Policy & Procedure for Fixing Remuneration of Directors’, which states that: • The remuneration of Non-Executive Directors for attending Board and Committee meetings shall be decided by the Board within the maximum limit as specified by the State Bank of Pakistan from time to time. • The Chairman of the Board is also entitled to have 20% additional remuneration fee of the remuneration set for him for attending Board and its Committee meeting considering the Chairman’s vast knowledge, experience, insight, sense of judgement and market contacts. The Chairman of the Board shall also monitor the performance of the Bank’s management and implementation of the Business Plan of the Bank on behalf of the Board. • A full time Director shall receive such remuneration as the members (shareholders) may fix. • The Chairman of the Board (in case of individual Directors) and Independent Directors with the help of other Directors (in case of Chairman of the Board) shall decide regarding reconsideration in remuneration of underperforming Director/Chairman if the overall performance of the Director/Chairman consistently remains in “Needs Improvement” category for the two consecutive years as per Annual Performance Evaluation of the Board members. Credit Rating Alhamdollilah, as informed earlier in our review for the period ended June 30, 2021, Pakistan Credit Rating Agency Limited (PACRA) has upgraded the Bank's long term entity rating from AA+ (Double A plus) to AAA (Triple A) while maintaining the short term entity rating at A1+ (A One plus). This long term credit rating AAA (Triple A) denotes the highest credit quality with the lowest expectation of credit risk, and indicates exceptionally strong capacity for timely payment of financial commitments. The ratings of our unsecured, subordinated Term Finance Certificates (TFCs) were also upgraded from AA (Double A) to AA+ (Double A Plus) for TFC-2018 and from AA- (Double A minus) to AA (Double A) for TFC-2017 (perpetual). The initial rating of our unsecured, subordinated TFC–2021 issued during the year is AA+ (Double A plus). These ratings denote a very low expectation of credit risk emanating from a very strong capacity for timely payment of financial commitments. Future Outlook Proactive steps taken by the Government and the State Bank of Pakistan mitigated the effects of Covid-19 during the year to a large extent, making Pakistan one of the best performing countries for its effective handling of the pandemic. The country’s GDP posted a remarkable recovery after registering a contraction in the previous year. Growth in GDP was led by large scale manufacturing, construction, and agriculture. Fiscal deficit declined in spite of additional government spending related to Covid-19; current account deficit reached a ten-year low; workers’ remittances continued to rise; and foreign exchange reserves witnessed a surge. However, mismatch between the country’s imports and exports and unanticipated increase in global commodity prices have exposed the economy to exchange rate instability as well as inflationary pressures. The State Bank has, therefore, commenced raising the benchmark policy rate, while the Government has decided to introduce new fiscal measures. These, together with potential emergence of new Covid-19 variants, may affect the overall economic and business environment. Nevertheless, the aforementioned sectors may continue to support the economy. Accordingly, we are confident that, by the Grace of Allah, the Bank will continue to grow and progress, as in the past. Auditors The present auditors EY Ford Rhodes, Chartered Accountants, retire and offer themselves for reappointment. As suggested by the Audit Committee, the Board of Directors has recommended their reappointment as auditors of the Bank for the year ending December 31, 2022, at a fee to be mutually agreed. 10
15. Risk Management Framework The Bank always had a risk management framework commensurate with the size of the Bank and the nature of its business . This framework has developed over the years and continues to be refined and improved. A key guiding principle of the Bank is to treat the depositors’ money as a trust which must be protected. Therefore, the Bank aims to take business risks in a prudent manner, guided by a conservative outlook. Salient features of the Bank’s risk management framework are summarized below: • Credit risk is managed through the credit policies approved by the Board; a well-defined credit approval mechanism; use of internal risk ratings; prescribed documentation requirements; post-disbursement administration, review, and monitoring of credit facilities; and continuous assessment of credit worthiness of counterparties. The Bank has also established a mechanism for independent, post-disbursement review of large credit risk exposures. Decisions regarding the credit portfolio are taken mainly by the Central Credit Committee. Credit Risk Management Committee of the Board provides overall guidance in managing the Bank’s credit risk. • Market risk is managed through the market risk policy approved by the Board; approval of counterparty limits and dealer limits; treasury & investment policy; and regular review and monitoring of the investment portfolio by the Bank’s Asset Liability Management Committee (ALCO). In addition, the liquidity risk policy provides guidance in managing the liquidity position of the Bank, which is monitored on daily basis by the Treasury and the Middle Office. Decisions regarding the investment portfolio are taken mainly by ALCO. Risk Management Committee of the Board provides overall guidance in managing the Bank’s market and liquidity risks, capital adequacy, and integrated risk management (also known as enterprise risk management). • Operational risk is managed through the audit policy, the operational risk policy, the compliance policy & programme, IT and IT security policies, human resource policy, consumer protection framework, and outsourcing policy approved by the Board, along with the fraud prevention policy; consumer grievance handling policy; operational manuals and procedures issued from time to time; a system of internal controls and dual authorization for important transactions and safe-keeping; a Business Continuity Plan, including a Disaster Recovery Plan for I.T.; and regular audit of the branches and divisions. Audit Committee of the Board provides overall guidance in managing the Bank’s operational risk. In addition, Risk Management Policy, Risk Tolerance Statement, and Country Risk Management Policy provide further guidance on managing the potential risk exposures of the Bank. In order to comply with SBP’s guidelines on risk management, the Bank has established a separate Risk Management Division, including a Middle Office, that independently monitors and analyses the risks inherent in Treasury operations. The steps taken by the Division include: sensitivity testing of Government Securities portfolio; computation of portfolio duration and modified duration; analysis of maturity mismatch and rate sensitive assets and liabilities, analysis of forward foreign exchange gap positions; more detailed reporting of TFCs and equities portfolios; development of improved procedures for dealing in equities and settlements; monitoring of off-market foreign exchange rates and foreign exchange earnings; collecting operational loss data and developing Key Risk Indicators; identifying Top Ten Risks of the Bank; conducting risk evaluation of products and processes; and establishment of a mechanism for independent, post-disbursement review of large credit risk exposures. Assessment of enterprise-wide integrated risk profile of the Bank is carried out, using the Basel Framework, Key Risk Indicators, Internal Capital Adequacy Assessment Process, Stress Testing, and Recovery Plan. Corporate Social Responsibility (CSR) Your Bank is fully committed to the concept of Corporate Social Responsibility and fulfills this responsibility by engaging in a wide range of activities which include: • corporate philanthropy amounting to Rs. 487.32 million by way of donations & charities during the year for social and educational development and welfare of people; • energy conservation, environmental protection, and occupational safety and health by restricting unnecessary lighting, implementing tobacco control law and “No Smoking Zone”, and providing a safe and healthy work environment; 11
16. • business ethics and anti-corruption measures, requiring all staff members to comply with the Bank’s “Code of Conduct” and “Anti-Bribery And Corruption Policy”. • consumer protection measures, requiring disclosure of the schedule of charges and terms and conditions that apply to the Bank’s products and services; • amicable staff relations, recognition of merit and performance, and on-going opportunities for learning and growth of staff, both on-the-job and through formal training programmes; • employment through a transparent procedure, without discrimination on the basis of religion, caste, language, etc., including employment of special persons; • expansion of the Bank’s branch network to rural areas, which helps in rural development; • contribution to the national exchequer by the Bank by way of direct taxes of about Rs. 10.51 billion paid to the Government of Pakistan during the year; furthermore, an additional amount of over Rs. 18.41 billion was deducted/collected by the Bank on account of withholding taxes, federal excise duties and sales tax on services, and paid to the Government of Pakistan/Provincial Governments. • During the last five years, the Bank has disbursed Rs. 16.21 million under the Prime Minister’s Youth Business Loan programme. Statement on Corporate and Financial Reporting 1. The financial statements, prepared by the Bank, present fairly its state of affairs, the result of its operations, cash flows and changes in equity. 2. Proper books of account have been maintained by the Bank. 3. Appropriate accounting policies have been consistently applied in preparation of the financial statements; changes, if any, have been adequately disclosed and accounting estimates are based on reasonable and prudent judgment. 4. International Financial Reporting Standards and Islamic Financial Accounting Standards, as applicable in Pakistan, have been followed in preparation of financial statements and departure therefrom, if any, has been adequately disclosed. 5. The system of internal controls is sound in design and has been effectively implemented and monitored. The Board’s endorsement of the management’s evaluation related to Internal Control over Financial Reporting, along with endorsement of overall Internal Controls is given on page 32. 6. Going concern assumption is appropriate. There is no identifiable material uncertainty that raises doubt about the ability of the Bank to continue as a going concern. 7. Key operating and financial data for last six years are summarized below: (Rupees in million) 2021 Total customer deposits Total advances Profit before tax Profit after tax Shareholders' Equity Earnings per share (Rs.) Cash Dividend (%) 2020 2019 2018 1,309,823 1,099,686 733,799 510,252 30,273 28,581 18,702 17,812 83,569 69,570 16.83 16.03 70 45 903,703 488,669 19,011 11,169 55,489 10.05 35 796,901 478,215 14,264 8,418 46,283 7.57 25 2017 2016 692,576 584,172 339,833 261,440 13,890 13,164 8,501 8,119 40,409 35,673 7.65 7.31 30 35 12
17. 8 . Value of investments of Provident Fund and Gratuity Fund Schemes based on latest audited financial statements as at December 31, 2020 was as follows: Provident Fund Gratuity Fund (Rupees in '000) 8,314,541 3,439,971 9. The pattern of shareholding and additional information regarding pattern of shareholding is given on pages 138, 139 & 140. 10. The Board has approved a formal process for its performance evaluation. The Bank has adopted In-House Approach and Quantitative Technique with scored questionnaires for Board evaluation. Scope of Board evaluation covers evaluation of the full Board, Individual Directors, Board Committees, the Chairman, and the Chief Executive. Consolidated results/findings will be discussed with the relevant parties. Any areas of improvement identified during the evaluation will be noted for appropriate action. Evaluation process for each calendar year will be completed latest by March 31 of the next year. Additionally, performance evaluation of the Board will be conducted by an external independent evaluator at least every three years. We have appointed Pakistan Institute of Corporate Governance (PICG) for external independent evaluation of the Board. There is no conflict of interest between the experts hired by the Bank and any Board member or Key Executive. 11. No trade in the shares of the Bank was carried out by the Directors, CEO, CFO, Head of Internal Audit, Company Secretary, and Executives and their spouses and minor children, during the year, except the following: • Son of a Director, who acts independently, sold 77,042 shares through a CDC account in which spouse of the Director is a joint account holder with the son. • 400 shares purchased by an Executive. For the purpose of this disclosure, the definition of “Executive” includes Assistant General Managers and above, in addition to officials already mentioned in the Rule Book of the Pakistan Stock Exchange regulations. General We wish to thank our customers, for their continued trust and support, local and foreign correspondents for their confidence and cooperation, and the State Bank of Pakistan for their guidance. We also thank all our staff members for their sincerity, dedication and hard work. MANSOOR ALI KHAN Chief Executive ABBAS D. HABIB Chairman Board of Directors Karachi: February 09, 2022 13
18. CORPORATE GOVERNANCE Corporate Governance Culture Habib Family has been engaged in the business of banking for over 80 years , and is well known for commitment to its traditional values of integrity, prudence, and trust. We are committed to continue all our business activities as per highest ethical and professional standards and practices. We ensure good corporate governance culture by remaining true to our values and by following the Prudential Regulations issued by the State Bank of Pakistan and the Code of Corporate Governance Regulations issued by the Securities & Exchange Commission of Pakistan. Board of Directors of the Bank comprises reputable businessmen, bankers, professional managers, and chartered accountants, representing a range of industries. They carry out their fiduciary duties to protect the interests of shareholders, depositors, and creditors, and exercise their independent judgement in the best interests of the Bank. We have clearly defined the responsibilities of the Board, Chief Executive, and Senior Management. Nomination and Selection of Board Members There is a defined procedure for election of Directors in Companies Act, 2017 and the Bank’s Articles of Association which has been strictly followed by the Bank. Accordingly, the Bank announces the schedule of election of Directors in the year when the election is due. Any person desirous to become a Director can submit his/her nomination papers as per the requirements of the Companies Act, 2017 and regulations of State Bank of Pakistan (SBP). The person elected by the shareholders shall hold the office of Director, subject to Fit and Proper Criteria and approval of the State Bank of Pakistan. Any casual vacancy on the Board is filled up by the Directors, subject to applicable regulations. Profile of Board Members 1. Mr. Abbas D. Habib – Chairman Mr. Abbas D. Habib, Founder Member & Chairman of the Board, has over 50 years’ commercial, industrial and banking experience in the domestic and international markets. He is a Fellow Member of the Institute of Bankers, Pakistan. He has held senior management positions with various organizations of the Habib Group and gained international banking experience while working with Habibsons Bank Limited, London, as Regional Director and later as Executive Director. Upon the inception of Bank AL Habib Limited in 1991, he became its Director and Joint Managing Director. He assumed responsibilities as Managing Director and Chief Executive of the Bank on May 8, 1994 and served in that position till October 31, 2016. He has been on the Board of Habib Insurance Company Limited since June 13, 2000. He became Chairman of Bank AL Habib Limited on November 1, 2016. He is also the Chairman of the Board of AL Habib Asset Management Limited a wholly owned subsidiary of the Bank since August 11, 2020. 2. Mr. Anwar Haji Karim Mr. Anwar Haji Karim holds a Bachelor’s degree in commerce and has over 40 years’ experience in business and industry. He belongs to the Al Karam Group, a reputable business group of Pakistan, with interests in textiles and synthetics. He is Chief Executive of Al Karam Textile Mills (Private) Limited and Iqbal Textile Mills (Private) Limited. He is a Founder Member of the Board of Directors of the Bank since its inception in 1991. 3. Ms. Farhana Mowjee Khan Ms. Farhana Mowjee Khan, Director of Razaque Steels (Private) Limited, has over 30 years’ experience in the local and international environment. She has also served as Managing Director of Razaque Steels (Private) Limited from 1994 to 2006. She graduated from University College London, UK and is a qualified Chartered Accountant from Institute of Chartered Accountants in England and Wales, UK. Ms. Farhana Mowjee Khan is also a director of Shabbir Tiles and Ceramics Limited. She joined the Board of Bank AL Habib Limited in April 2019. 14
19. 4 . Syed Mazhar Abbas Syed Mazhar Abbas studied at American University of Beirut. He has over 45 years’ experience in commercial banking, including senior executive positions at Habib Bank Limited and Bank AL Habib Limited. He has had extensive exposure to international banking in several countries including Bahrain, Lebanon, France, UK, Egypt, and Hong Kong. He joined Bank AL Habib Limited in 1992 as a senior executive and became its Director in 2000. 5. Mr. Qumail R. Habib – Executive Director Mr. Qumail R. Habib is a graduate of the University of California in Business Economics and has over 35 years’ commercial, industrial, and banking experience. He is a Founder Member of the Board and Executive Director of the Bank since its inception in 1991. Prior to that, he was Resident Director of AL Ghazi Tractors Limited. He has been actively involved with the operations of the Bank since its inception. He is responsible for enhanced oversight on Enterprise Risk and Corporate Strategy, and for monitoring Fraud Investigation Unit. He has been on the Board of Habib Insurance Company Limited since October 03, 2017. 6. Mr. Safar Ali Lakhani Mr. Safar A. Lakhani holds a Bachelor’s degree in Commerce and is also a Law graduate. He is a Diplomaed Associate of the Institute of Bankers, Pakistan. He has extensive experience of working in banks in senior positions. He served in Habib Bank Limited as Senior Executive Vice President & General Manager for East & Pacific Region, based in Singapore. Also served as the founder President of Soneri Bank from 1991 until his retirement in 2010. He has been associated with Bank AL Habib Limited as advisor/consultant during the years 2011-2013 and was appointed as a Director in January 2014. 7. Syed Hasan Ali Bukhari Syed Hasan Ali Bukhari is a Commerce graduate and a Fellow of the Institute of Chartered Accountant of Pakistan (FCA). Mr. Bukhari has also attended General Management Course at Henley Management College, England. He has vast experience in a professional accounting firm and the shipping industry. His corporate experience span over 36 years in various positions with Mackinnon Mackenzie & Co. of Pakistan, until his retirement as Chief Executive & Managing Director of the company in 2010. Mr. Bukhari is Advisor to Chairman of Hilton Pharma (Private) Limited since 2011. Mr. Bukhari has served as a Board member of Karachi Port Trust and Pakistan Institute of Corporate Governance, and he is currently a Director of Pakistan Oxygen Limited, Quick Food Industries (Private) Limited, and Pakistan Gum & Chemicals Limited. He was appointed as a Director of Bank AL Habib Limited in June 2014. 8. Mr. Murtaza H. Habib Mr. Murtaza H. Habib holds a Bachelor’s degree in finance from Texas A&M University, USA, and has over 25 years’ experience in business and industry. He is currently Executive Director of Habib Sugar Mills, and also holds Directorships in several other companies of Habib Group. He is actively involved with social welfare activities of the Group. He is a Founder Member of the Board of Directors of the Bank since its inception in 1991, except for a gap of one year. 9. Mr. Arshad Nasar Mr. Arshad Nasar served as Chairman and Chief Executive of Oil & Gas Development Company Ltd (OGDCL) from 2005 - 2008. Under his watch, OGDCL successfully launched a Global Depository Receipt (GDR) issue and was listed on London Stock Exchange. Mr. Nasar previously served as Country Chairman and Managing Director of Caltex Oil (Chevron) Pakistan Ltd from 1998 – 2004, the first Pakistani to lead Caltex Oil in Pakistan. He retired from the Company after 36 years of service. He holds a Master's Degree in Economics and has extensive functional and Management experience in a wide ranging international corporate career spanning more than 40 years. Mr. Nasar has served as Director on the Boards of: Oil & Gas Development Company Limited (OGDCL), Caltex Oil (Chevron) Pakistan Ltd, Engro Corporation Pakistan Ltd, Engro Fertilizer Ltd, Pakistan Industrial Development Corporation (PIDC), Pakistan Refinery Limited (PRL), Mari Gas Company, The American Business Council of Pakistan, and Petroleum Institute of Pakistan. Presently, he is also on the Board of FAST National University of Computer and Emerging Sciences. He joined the Board of Bank AL Habib Limited in March 2016. 15
20. 10 . Mr. Adnan Afridi Mr. Adnan Afridi holds a Bachelor’s degree in Economics and a Juris Doctor degree in Law from Harvard University, USA. He assumed charge as Managing Director, National Investment Trust Limited (NITL) in February 2019. He has 26 years’ international experience in change management, business transformation, innovation and profitability enhancement in blue chip companies, public sector, and start-up situations. He had a distinguished local career in financial services and capital markets, including the position of Managing Director of the Karachi Stock Exchange, CEO of Overseas Chamber of Commerce and Industry, Chairman of National Clearing Corporation of Pakistan, and a Director of Central Depository Company. He is also a Member of the SECP Policy Board. He represents NITL as a Director on the Boards of several well-known and multinational companies in Pakistan. Mr. Afridi also serves as Vice Chairman of the Board of Governors of The Kidney Center Post Graduate Institute and also as Board member of Shaukat Khanum Memorial Trust. He was also former president of Old Grammarians Society and Board member of Young Presidents’ Organization (YPO) as well and currently serving as member of Young Presidents’ Organization (YPO) – Gold Pakistan. He joined the Board of Bank AL Habib Limited as a nominee of NITL in April 2019. Details of Membership on the Bank’s & other Boards Sr. No. Name of Director Date of Status of Joining Director /Leaving the (Independent, Board Non-Executive, Executive) (dd/mm/yyyy) Member of Board Committees Number of other Board Memberships along with name of Company(ies) 1 Mr. Abbas D. Habib 15/10/1991 Non-Executive • Human Resource and Remuneration Committee • IT Committee 1. Habib Insurance Company Limited 2. Habib & Sons (Private) Limited 3. AL Habib Asset Management Limited 2 Mr. Anwar Haji Karim 15/10/1991 Non-Executive • Audit Committee • Risk Management Committee 1. AL - Karam Textile Mills (Private) Limited 2. Iqbal Textile Mills (Private) Limited 3 Ms. Farhana Mowjee Khan 17/04/2019 Non-Executive • Human Resource and Remuneration Committee • Risk Management Committee 1. Razaque Steels (Private) Limited 2. Razaque Sino (Private) Limited 3. Shabbir Tiles and Ceramics Limited 4 Syed Mazhar Abbas 10/10/2000 Non-Executive • Audit Committee • Human Resource and Remuneration Committee • Credit Risk Management Committee • IT Committee 5 Mr. Qumail R. Habib 15/10/1991 Executive 6 Mr. Safar Ali Lakhani 29/01/2014 Independent • Credit Risk Management Committee • Risk Management Committee • IT Committee • IFRS 9 Committee • Audit Committee • Credit Risk Management Committee • Risk Management Committee - Habib Insurance Company Limited - 16
21. Details of Membership on the Bank ’s & other Boards Sr. No. Name of Director Date of Status of Joining Director /Leaving the (Independent, Board Non-Executive, Executive) (dd/mm/yyyy) 7 Syed Hasan Ali Bukhari 02/06/2014 8 Mr. Murtaza H. Habib 15/10/1991 to Non-Executive 22/12/1997 and 24/11/1998 to date • Credit Risk Management Committee 9 Mr. Arshad Nasar 28/03/2016 • Audit Committee • Human Resource and Remuneration Committee • IT Committee • IFRS 9 Committee 10 Mr. Adnan Afridi 17/04/2019 Independent Member of Board Committees Independent Non-Executive Number of other Board Memberships along with name of Company(ies) • Audit Committee 1. Pakistan Gum & Chemicals • Human Resource and Limited Remuneration Committee 2. Pakistan Oxygen Limited • Credit Risk Management 3. Quick Food Industries Committee (Private) Limited • IFRS 9 Committee • Risk Management Committee 1. Habib Sugar Mills Limited 2. Habib & Sons (Private) Limited 3. Investment Consultancy (Private) Limited 4. Habib Capital Management (Private) Limited 5. Habib Leasing Corporation (Private) Limited 6. Habib Management Services (Private) Limited 7. Habib Energy (Private) Limited 8. HSM Energy Limited – 1. Habib Sugar Mills Limited 2. Dynea Pakistan Limited 3. International Industries Limited 4. Mari Petroleum Company Limited 5. Lotte Chemical Pakistan Limited 6. Siemens (Pakistan) Engineering Limited Appointment of the Shariah Board (SB) Members Shariah scholars who meet the Fit and Proper Criteria as laid down by State Bank of Pakistan are appointed as SB members for a term of three years by the Board of Directors and are eligible for re-appointment. Their appointment and re-appointment is subject to prior written clearance of SBP. The three years’ term of SB commenced from the date of SBP’s clearance for appointment / re-appointment. Any SB member (including Chairperson) may be re-appointed as a member of SB for another term by the Board of Directors, at least two months prior to expiry of the term, subject to a fresh prior written clearance of SBP and pursuant to Fit and Proper Criteria of SBP. During the year, SBP amended the criteria of composition of Shariah Board members with effect from July 1st, 2021 via IBD Circular Letter No. 01 of 2021 dated February 03, 2021 as follows; “The SB members, except Resident Shariah Board Member (RSBM), may serve on the SBs of up to three IBIs in Pakistan. However, the IBI must ensure that its SB has at least 2 members (other than RSBM), who are not on the SB of any other IBI. Hence, each Islamic Banking Institution (IBI) will have at least three unique members in SB including RSBM”. 17
22. Shariah Board of the Bank constituted of three Shariah Board members including the Resident Member (RSBM) who was the only unique member at that time. To comply with the new regulatory requirement, a new member, Mufti Sher Ali, was inducted as a unique member in the Shariah Board while the Chairman, Mufti Ismatullah Hamdullah opted to become a unique member in the Bank’s Shariah Board by resigning as member Shariah Board of other Financial Institution. Effective July 01, 2021 Bank’s Shariah Board is compliant with the SBP’s related directives. It is pertinent to mention that upon expiry of their 3-Year term, these members have been reappointed for another 3-Year term w.e.f October 8, 2021. Casual vacancy Board of Directors of the Bank fills the casual vacancy on the SB that may occur as a result of resignation, removal, termination or death of a member, within three months from the date on which such vacancy arises. However, the SB member appointed on casual vacancy shall hold the office till the expiry of the existing term of the SB. During the year, RSBM Mufti Muhammad Sarfraz Nihal resigned and, to fill this vacancy a new member Mufti Muhammad Hamza was appointed as Shariah Board Member, while Mufti Sher Ali was designated as Resident Shariah Board Member. Profile of each of the Shariah Board member Mufti Ismatullah Hamdullah Mufti Ismatullah holds the degrees of “Shahadat-ul-Aalamiyah” and “Takhassus Fil Fiqh” from Jamia Dar-ul-Uloom, Karachi. He is a PhD in Islamic Economics from University of Karachi. He has been associated with Islamic Banking Division of Bank AL Habib Limited since 2006 as Shariah Advisor prior to his appointment as the Chairman of Shariah Board. He has been teaching Quran, Hadith, Fiqh, Philosophy and Arabic Grammar in Dar-ul-Uloom since 1993. He has a vast experience in issuing Shariah rulings (Fatwa) and is currently serving Dar-ul-Ifta’ of Dar-ul-Uloom. So far, he has issued about 25,000 Fatwas regarding various topics and Shariah issues. His thesis – Zar (Money) in light of Shariah – is considered as one of the most useful research on Islamic Economics and has already been published. He is a renowned research scholar; his research papers have been published in Monthly “Al Balaagh”. He wrote a book “Guide to Takaful or Islamic Insurance” that has also been published. Mufti Sahab is Shariah Advisor of AL Habib Asset Management Limited, IGI window Takaful and Pak Qatar Family Takaful Ltd, he is also a Shariah Board member of Pak Qatar Takaful Group. Mufti Mohib ul Haq Mufti Mohib ul Haq Siddiqui graduated from Jamia Dar-ul-Uloom, Karachi. He obtained Shahadat-ul-Aalamia (Master’s in Arabic and Islamic Studies) and Al-T’akhassus fi al-Iftaa’ (Specialization in Islamic Jurisprudence and Fatwa) qualifications from Darul Uloom. He joined the Shariah Board of Bank AL Habib Limited – Islamic Banking in November 2015 as a Member. With substantial and diversified experience in the field of Islamic Finance, he has served several financial institutions as a member of their Shariah Boards. Mufti Mohib ul Haq is currently associated with Faysal Barkat Islamic Banking as the Chairman of Shariah Board. He is also a member of the State Bank of Pakistan’s Forum for Shariah review, standardization of Islamic products and processes, and formalization of Shariah Accounting standards for the Pakistan banking industry. He is a member of the Shariah Board of Bank Alfalah Islamic Banking Division. Formerly, he was also member of the Shariah Board of Takaful Pakistan Limited, Royal Bank of Scotland Berhad, Malaysia and JS Islamic Fund. He has over twelve years of teaching experience at renowned institutions and is also a Faculty Member/ Visiting Faculty Member of various well-known institutions such as: • Jamia Dar-ul-Uloom Karachi – Centre for Islamic Economics • National Institute of Banking and Finance (NIBAF) – SBP Mufti Sher Ali Mufti Sher Ali obtained the degrees of “Shahadat-ul-Aalamiyyah and “Specialization in Ifta wa Fiqhil halal” from Jamiah tur Rasheed, besides having a Masters degree in Islamic Studies from the University of Karachi, while currently he is pursuing his M.Phil. He has an outstanding academic record in both Islamic and Contemporary education throughout his career, winning numerous awards & positions at institution, university and national level. Before becoming Shariah Board member Mufti Sher Ali served in Shariah Compliance Department of BAHL-IB as Shariah Scholar for three years. 18
23. Having been a member of the Darul Ifta at Jamia tur Rasheed , he has issued numerous verdicts (Fatawas) on various issues. He also serves as a faculty member at Al –Burhan (An International Academy offering Islamic education for professionals.). He possesses a vast Shariah Compliance experience and command over conducting Shariah review of corporate, SME and consumer post-execution transactions, review of legal documents and internal policies, training and educating branch and corporate banking staff on Islamic Banking & Finance, vetting of investment banking transactions, Shariah review of product manuals and policies etc. Mufti Muhammad Hamza Mufti Muhammad Hamza is serving Bank AL Habib – Islamic Banking as Shariah Board Member since September 2021. He has a diverse professional experience in IBIs and Audit Firms. Prior to his joining, he has served as Shariah Scholar (Assistant Manager Shariah Support) in Product Management and Development Department at Faysal Bank Limited-Islamic. He also served as Shariah Consultant in EY Ford Rhodes. Mufti Muhammad Hamza possesses both contemporary as well as religious academic qualifications. He holds Shahadat-ul-Aalamiyah (Masters in Islamic and Arabic Studies) along with Takhassus Fiqh-ul-Muamlaat (Islamic Commercial Law and Management Science) from Jamia Tur Rasheed, Karachi. He is also an MBA (Finance) from University of Karachi. Furthermore, he holds “Post Graduate Diploma in Islamic Banking and Takaful” from Centre for Islamic Economics Jamia Darul Uloom Karachi. He is presently associated with Jamia-tur-Rasheed, Karachi as a Member of Darul Iftaa and lecturer in department of Dars-e-Nizami. Mufti Muhammad Hamza has significant experience of teaching Islamic Jurisprudence (Fiqh) and other related subjects in renowned institutions as Permanent and Visiting Faculty Member such as Jamia tur Rasheed and Al-Burhan international Karachi. Details of Membership on Bank’s and other Shariah Boards Sr. No. Name of Shariah Board Member Date of Joining /Leaving the Shariah Board (dd/mm/yyyy) Status of Shariah Board Member Number of other Shariah Board Memberships along with name of Company(ies) 1 Mufti Ismatullah Hamdullah 08/10/2015 Chairman (Unique) 2 Mufti Mohib ul Haq 08/10/2015 Member 3 Mufti Muhammad Sarfaraz Nihal Date of Leaving 07/07/2021 Outgoing Resident Member – 4 Mufti Sher Ali 01/07/2021 Resident Member (Unique) – 5 Mufti Muhammad Hamza 07/10/2021 Member (Unique) – • Member, Shariah Board - Pak Qatar Takaful Group • Chairman, Shariah Board - Faysal Bank Limited • Member, Shariah Board - Bank Alfalah Limited 19
24. Composition of Board Committees and their Terms of References (TORs) The Listed Companies (Code of Corporate Governance) Regulations, 2019 requires the Bank to disclose the composition of all Committees of the Board, viz. Audit Committee, Human Resource & Remuneration Committee, Credit Risk Management Committee, Risk Management Committee, IT Committee and IFRS 9 Committee. Composition of Board’s Committees Audit Committee Human Resource & Remuneration Committee Credit Risk Management Committee Risk Management Committee IT Committee IFRS 9 Committee Mr. Safar Ali Lakhani, Chairman Syed Hasan Ali Bukhari, Syed Mazhar Abbas, Chairman Chairman Mr. Adnan Afridi, Chairman Mr. Abbas D. Habib, Chairman Syed Hasan Ali Bukhari, Chairman Syed Mazhar Abbas Syed Mazhar Abbas Mr. Safar Ali Lakhani Mr. Qumail R. Habib Mr. Qumail R. Habib Mr. Arshad Nasar Mr. Anwar Haji Karim Mr. Abbas D. Habib Mr. Qumail R. Habib Ms. Farhana Mowjee Khan Mr. Arshad Nasar Mr. Qumail R. Habib Syed Hasan Ali Bukhari Ms. Farhana Mowjee Khan Syed Hasan Ali Bukhari Mr. Anwar Haji Karim Syed Mazhar Abbas – Mr. Arshad Nasar Mr. Arshad Nasar Mr. Murtaza H. Habib Mr. Safar Ali Lakhani Mr. Mansoor Ali Khan – During the year, eight meetings of the Audit Committee and four meetings of Human Resource & Remuneration Committee, Credit Risk Management Committee, Risk Management Committee, IT Committee, and IFRS 9 Committee were held, and the attendance of members was as follows: Sr. No. Name of Director Number of Board Committees Meetings Attended No. of Board Meetings Attended Audit Committee Human Resource & Remuneration Committee Risk Management Committee Credit Risk Management Committee IT Committee IFRS 9 Committee 1 Mr. Abbas D. Habib 4 - 4 - - 4 - 2 Mr. Anwar Haji Karim 4 7 - 3 - - - 3 Ms. Farhana Mowjee Khan 4 - 4 4 - - - 4 Syed Mazhar Abbas 4 8 4 - 4 4 - 5 Mr. Qumail R. Habib 4 - - 3 4 3 3 6 Mr. Safar Ali Lakhani 3 6 - 3 3 - - 7 Syed Hasan Ali Bukhari 3 6 3 - 3 - 3 8 Mr. Murtaza H. Habib 4 - - - 4 - - 9 Mr. Arshad Nasar 3 6 3 - - 3 3 10 Mr. Adnan Afridi 4 - - 4 - - - 11 Mr. Mansoor Ali Khan 4 - - - - 4 - 4 4 4 4 Total Meetings Held 4 8 4 20
25. TORs of Audit Committee of the Board The key functions in the TORs include the following : • • • • Recommend to the Board the appointment / re-appointment of external auditors, their removal, audit fees and provision by external auditors of any services to the Bank in addition to audit of its financial statements for Pakistan Operations and Overseas jurisdictions. Discuss with external auditors the major observations arising from interim and final audits and review management letter issued by them and management’s response thereto; Review quarterly, half-yearly and annual financial statements of the Bank before their publication. Review of quarterly, half-yearly and annual financial statements of the Bank, focusing on: Major judgmental areas; Significant adjustments resulting from the audit; the going-concern assumption; any changes in accounting policies and practices; compliance with applicable accounting standards; compliance with listing regulations and other statutory and regulatory requirements; review of preliminary announcement of results prior to publication; review of significant related party transactions. Appropriate measures to safeguard the Bank’s assets. Review of implementation of Customer Risk Profile (CRP), Know Your Customers (eKYC), Anti Money Laundering (AML)/Combating Financing Terrorism (CFT), Terrorist Financing (TF), Proliferation Financing (PF), Trade Based Money Laundering (TBML), and sanctioned screening related measures. Approve the half-yearly audit planning schedule and the estimated timeframe for completion of various audits. Ensure that policies and procedures of the Bank are in line with prevailing banking laws and regulations of the State Bank of Pakistan and other relevant statutory requirement. Institute special projects, value for money studies or other investigations on any matter specified by the Board, in consultation with the CEO and to consider remittance of any matter to the external auditors or to any other external body. Recommend the development/ amendments in the Bank’s Internal Control Systems and Internal Audit Policy, Audit Manual and Internal Audit Strategy to the Board of Directors for approval. Review and approve Internal Audit Charter and Internal Audit Risk Assessment Policy. Review of periodical reporting made by the Audit Division on significant findings pointed out during the testing of existing key controls relating to Internal Control over Financial Reporting (ICFR). Review the significant audit findings presented by Audit Division in Internal Audit Reports of domestic & overseas operations (Branch Audits, Centralized Credit Audits, Management Audits, Information System Audit, Islamic Banking Branches Audits and Shariah Audits). Review the significant findings of Inspection Reports of State Bank of Pakistan, regulators of overseas branches and the status of compliance submitted by the Bank’s Management. Ensure compliance of the corrective actions as required by Shariah Board on the reports of ‘Internal Shariah Audit’ and ‘External Shariah Audit’ as per Shariah Governance Framework for Islamic Banking Institutions. Review of quarterly report of all Shariah Non-Compliance events/transactions. Review the reports on internal control system presented by Audit Division on quarterly basis as required under internal control guidelines issued by the State Bank of Pakistan. Review of six monthly compliance report on Bank’s compliance status, in each jurisdiction, to host country’s regulatory requirements and inspection reports etc. as required under SBP Governance Framework for Bank Overseas Operations. Review and approve the increments of internal auditors and recommend the performance appraisal and increment / promotion of Head of Internal Audit. n n n n n n n n • • • • • • • • • • • • • • • 21
26. • • • • • • • • • • • • • • Approve annual budget of Audit Division for expenditures and staff requirements. Coordination between the internal and external auditors of the Bank and review their findings to ensure that necessary steps for implementing their recommendations have been taken. Adequacy and effectiveness of internal control systems including financial and operational controls, accounting systems and reporting structure; Compliance with the best practices of Corporate Governance; Consideration of major findings of internal investigation of activities characterized by fraud, forgeries and misuse of powers and management responses. Review of matters relating to operational risk and operational loss event reports including implementation of Operational Risk Framework. Review of observations pointed out by the Audit Division during the annual review of BASEL design and implementation. Review of Zero Tolerance cases decided by the Disciplinary Action Committee. Review of summary of cases investigated by Fraud Investigation Unit (FIU) under Bank’s Policy on Employees’ Duty to Report (Whistle Blowing Policy). Review of summary of cases received and investigated by Fraud Investigation Unit (FIU) under Bank’s Anti-Bribery & Corruption Policy. Review of the significant audit findings on the Bank’s outsourced/insourced arrangements. Review of annual report of containing incidents of robbery and dacoity. Review of summary of long-outstanding issues / exceptions and the suggested future course of action. Consider any other issue or matter as may be assigned by the Board of Directors or required by regulatory authorities. TORs of Human Resource & Remuneration Committee of the Board The key functions in the TORs include the following: • • • • • • • • • • Review and recommend to the Board for approval of Human Resource Policy & Service Rules of the Bank. Recommend to the Board the selection, evaluation, compensation (including retirement benefits) and succession planning of the CEO. Recommend to the Board the selection, evaluation, compensation (including retirement benefits) of COO (if any), CFO, Company Secretary, and Head of Internal Audit. Consider and approve recommendations of CEO on above matters for key management positions who report directly to CEO or COO (if any). Review the manpower budget of the Bank, taking into consideration the expansion programme proposed by the Management. Review training activities and management development programmes for employees of the Bank. Review total staff strength with cadre and location-wise break-up of employees. Review on quarterly basis name-wise details of employees of Senior Chief Manager level and above who have joined on left service of the Bank during the period, along with reasons for their separation. Recommend the Remuneration Policy to the Board for approval, ensuring that the Remuneration Policy is fair and competitive, and encourages performance and motivation. Recommend to the Board the “structure” of compensation package of Executive Directors, Chief Executive, Key Executives, and other employees, as may be required by the Board. TORs of Credit Risk Management Committee of the Board The key functions in the TORs include the following: • • • Review from time to time that the Management has put in place effective policies and information systems to identify and mitigate credit risk. Review that the Management follows appropriate procedures to recognize adverse trends in the credit portfolio of the Bank, identifies weaknesses in the loan portfolio, takes corrective/remedial actions and maintains an adequate level of provisions for potential loan losses in the light of the requirements of the Prudential Regulations. Review and recommend to the Board any changes in the Bank's policies related to credit. 22
27. • Review the quality of the Bank's credit portfolio on a quarterly basis through various comparisons / benchmarking, including but not limited to: Industry Benchmarks / Positioning. Diversification of advances by industry, business segment, etc. Concentration of advances in private and public sectors. Movement / changes in advances by region / industry / business segments. Details of large limits approved / enhanced during the quarter, as per the threshold prescribed by the Committee. Maturity profile of the loan portfolio. Review of Non-Performing Loans (NPLs). Review of Watch-List & NPL accounts, as per the threshold prescribed by the Committee. Review / approval of any policy exceptions. Review restructured / rescheduled accounts and written-off advances, as per the threshold prescribed by the Committee. Review any adverse findings of Credit Risk Review Department (CRRD). Consider Write Off/Waiver of NPLs up to Rs. 50 million. Recommend cases for Write Off/Waiver, exceeding Rs. 50 million, to the Board of Directors for consideration and approval. n n n n n n n n n n n • • TORs of Risk Management Committee of the Board The key functions in the TORs include the following: • • • • • • • • • Review from time to time that the management has put in place effective policies and information systems to identify and mitigate the following risks. • Market Risk, which includes Interest Rate Risk, Foreign Exchange Risk, and Equity Price Risk. • Liquidity Risk. Review summary of risk reports relating to the following risks: • Credit Risk • Operational Risk Which are reviewed in detail by the Credit Risk Management Committee and the Audit Committee of the Board, respectively. Review and provide guidance regarding integrated risk management (also known as enterprise risk management), covering various significant risk exposures of the Bank. Review the Bank’s capital adequacy ratio and establish a process for internal capital adequacy assessment process (ICAAP) using integrated risk management. Review and recommend to the Board any changes in the Bank’s Treasury and Investment Policy, Market Risk Policy, Liquidity Risk Policy, Risk Management Policy, and ICAAP. Review the credit rating report of the Bank, issued by the credit rating agency. Review any changes in laws and regulations relating to Market Risk, Liquidity Risk and Capital Adequacy. Review changes in prevailing economic and market conditions. Review the financial data of other comparable banks. TORs of IT Committee of the Board The key functions in the TORs include the following: • • • • • Review and recommend the Bank's IT and digital strategies, relevant policies, frameworks and changes thereof, for the Board's approval. Review the role of IT as an enabler to provide competitive advantage and efficient services to customers. Review the level of expertise of IT personnel and assess their adequacy in number and skillset as well as continuous professional development. Review major IT related risks and ensure that IT Risk Management strategies are designed and implemented to address IT related risks including cyber-attacks and attacks on multiple critical infrastructure sectors in order to achieve resilience. Receive periodic updates from IT Steering Committee to monitor all IT related projects, particularly those which are approved by the Board. 23
28. • • • • Ensure that IT related procurements are in line with the strategic directions provided by the Board. Review and recommend any IT related material outsourcing arrangement including obtaining IT experts' opinion. Constitute/reconstitute IT Steering Committee and approve its TORs and any revisions thereof. Review the MIS on incidents, logs, breaches and significant incidents on a regular basis. TORs of IFRS 9 Committee of the Board The key functions in the TORs include the following: • • • • • Constitution of IFRS 9 Project Steering Committee of management to administer the Project. Review and approve Bank AL Habib Limited’s transition plan for IFRS 9 implementation. Quarterly review of the progress made against the IFRS 9 implementation challenges (resolution plan). Ensure smooth implementation of IFRS 9 within the timelines stipulated by State Bank of Pakistan. Review of Expected Credit Loss (ECL) and ensure compliance of ECL policy. Board’s Oversight over Shariah Compliance Functions and Shariah Board (SB) The Shariah Board members meet the Board of Directors on half yearly basis and give detailed briefings on the Shariah compliance environment, the issues/weaknesses (if any), and recommendations to improve Shariah compliance environment and to ensure timely and effective enforcement of the SB’s decisions, Fatwas, observations and recommendations. Further, every year, Shariah Board Report is also presented by the Shariah Board in the meeting of the Board of Directors of the Bank. TORs of Shariah Board (SB) of the Bank The key functions in the TORs include the following: • • • • • • • • The SB shall be empowered to consider, decide and supervise all Shariah related matters of Islamic Banking Division. All decisions, rulings, Fatwas of the SB shall be binding on Islamic Banking Division whereas SB shall be responsible and accountable for all its Shariah related decisions. The SB shall cause to develop a comprehensive Shariah compliance framework for all areas of operations of the Islamic Banking Division and shall approve all products/services to be offered and/or launched by the Islamic Banking Division. The SB shall review and approve all the Islamic Banking Division’s procedure manuals, product programs/structures, process flows, related agreements, marketing advertisements, sales illustrations and brochures so that they are in conformity with the rules and principles of Shariah. The SB shall have at all reasonable times unhindered access to all books of accounts, records, documents and information from all sources including professional advisors and Bank’s employees in the due discharge of its duties. Considering the importance of the SB decisions, rulings and Fatwas given by SB, it shall rigorously deliberate on the issue placed before it for consideration before giving any decision/ Fatwa. All such deliberations and rationale for allowing or disallowing a particular product or service shall be duly recorded and documented. All reports of internal Shariah audit, external Shariah audit, Shariah compliance reviews and SBP Shariah compliance inspection shall be submitted to the SB for consideration and prescribing appropriate enforcement action. The report of Internal Shariah shall be finalized by the Internal Shariah Audit Unit (ISAU) and the final report shall be submitted to SB for prescribing appropriate enforcement/corrective actions. The SB shall take up the unresolved issues with Management and shall include all significant outstanding issues in its annual report on the Shariah compliance environment of Islamic Banking Division. Moreover, the Head-Shariah Compliance Department and RSBM shall discuss both the significant and unresolved issues with SBP inspection team during their onsite inspection. The SB shall also specify the process/procedures for changing, modifying or revisiting Fatwas/rulings/guidelines etc. already issued by SB. The SB shall not delegate any of its roles and responsibilities prescribed in Shariah Governance Framework (updated time to time) to any other person or any of its members. 24
29. • • • • • • • • • • • • All the decisions and rulings of the SB of the Bank shall be in conformity with the directives, regulations, instructions and guidelines issued by SBP in accordance with the rulings of Shariah Advisory Committee of SBP. The SB shall, in addition to its meetings with the BOD, meet at least on quarterly basis and each member of SB shall attend at least two-thirds of the meetings during a calendar year. Further, in addition to the mandatory quarterly meeting, the Chairperson of SB may convene SB meetings as and when he deems it necessary. The quorum of the SB meetings, including that with BOD of the Bank, shall be at least two thirds of Shariah Board members. The SB decisions should preferably be made through consensus of the Shariah Board members; however, in case of difference of opinion, the decisions may be made by a majority vote of the Shariah Board members. In the event of equality of votes, the Chairman shall have a second or casting vote. All meetings shall be chaired by the Chairman of SB and in his absence one of the Shariah Board members, other than the RSBM, shall be elected as the acting Chairperson to preside over the meeting. The agenda of the SB meeting along with sufficient details and documents shall be sent to SB members well in advance enabling them to come prepared to the meeting; the specific timelines for submission of the agenda shall be set by the SB itself. The meetings of the SB shall be held by physical presence of the members. However, in appropriate circumstances to be determined by the Chairman of the SB, meeting(s) may be held through video conferencing subject to recording of proper minutes of the meeting. The SB shall ensure to cause that minutes of its meetings are properly recorded incorporating necessary details of all deliberations, decisions, rulings and Fatwas issued along with the rationale and difference of opinion or dissenting note, if any. Further, the minutes shall be signed by all the SB members who attended the meeting and a copy thereof be provided to each member of the SB. All SB approvals taken through circulation shall be placed for ratification of the SB at its next meeting. A resolution in writing signed by all SB members for the time being and shall be as valid and effective as if it had been ratified at a SB meeting. For implementation of the decisions of SB meeting prior to the confirmation of the minutes of the meeting, the approval/ confirmation of the relevant resolution / decision for the specific agenda must be obtained from SB through written consent duly signed by the SB members or through email by the SB members. However, the same shall be ratified in the subsequent meeting of SB. The approved / confirmed minutes of meetings of the SB shall be submitted to IBD-SBP within 15 days of its approval/confirmation for information and record. Further, the minutes shall be made available to the BOD, SBP inspection teams, internal auditors and external auditors on request, enabling them to appreciate and understand the rationale and background of the SB rulings, decisions and fatawa. The SB shall, based on the findings and reports of internal Shariah audit and external Shariah audit and Shariah compliance review, prepare a report on Islamic Banking Division’s Shariah compliance environment and conditions. The minimum requirements for the report shall be as per prescribed Annexure – B of Shariah Governance Framework. The report shall be signed by all the members of the SB. Further, the report shall also be placed before the BOD meeting for discussion and shall be published in English and Urdu translation in the Bank’s annual report. 25
30. Shariah Board Meetings During the year , four meetings of the Shariah Board were held and the attendance of each member was as follows: Name of Member Meetings Held Meetings Attended Mufti Ismatullah Hamdullah, Chairman 4 4 Mufti Mohib ul Haq, Member 4 4 Mufti Muhammad Sarfaraz Nihal, Outgoing Resident Member * 4 2 Mufti Sher Ali, Resident Member ** 4 2 Mufti Muhammad Hamza, Member ** 4 1 * Mufti Muhammad Sarfaraz Nihal ceased to be the members of the Shariah Board. He attended all Shariah Board meeting while he was a member. ** Mufti Sher Ali and Mufti Muhammad Hamza attended all meetings after they become Shariah Board member. The Bank had engaged KPMG Taseer Hadi & Co. to assist in developing the draft of remuneration policy, keeping in view the culture and values of the Bank, and other related matters. Additionally, performance evaluation of the Board is to be conducted by an external independent evaluator at least every three years. The Bank has appointed Pakistan Institute of Corporate Governance (PICG) for external independent evaluation of the full Board, Individual Directors, Board Committees, the Chairman, and the Chief Executive. There is no conflict of interest between the experts hired by the Bank and any Board member or Key Executive. Disclosure relating to the Remuneration Policy: Key objectives of Remuneration Policy are to: • • • • • • • Attract, retain, and develop competent employees. Identify senior Risk Takers and Controllers. Offer remuneration that is fair and competitive. Encourage behaviour and practices, consistent with the Bank’s Strategy, Vision, Mission, Values, and Guiding Principles. Discourage material risk taking. Avoid any conflict of interest between the employee and the Bank. Establish a management structure to administer and oversee implementation of this Policy. Bank AL Habib has low tolerance for risk and is averse to taking material risks, i.e., risks that can have a material adverse impact on its business and financial position. Therefore, the Bank does not have any defined Bonus Policy (in any form like cash, stocks, stock options, or other types of incentive pay) to incentivise achievement of performance targets, which may prompt material risk taking. Accordingly, a fundamental principle of the Bank is that employee remuneration is paid in the form of Fixed Remuneration. This has enabled the Bank to maintain sustainable growth and profitability over the years, with a low risk profile and low staff turnover. There are management committees/senior employees who are authorized to approve risk exposures involving large amounts and deal with other institutionally important matters. They are designated as Senior Risk Takers, who are responsible not only for taking risks, but also for mitigating, monitoring, and controlling the risks taken by the Bank. The Bank encourages and emphasizes risk control, rather than risk taking, which means that control responsibilities take precedence for employees at all levels. Therefore, in case of Senior Risk Takers also, their control responsibilities are paramount and take precedence over their other responsibilities. 26
31. Risk Controllers are employees whose professional activities include review , identification, mitigation, and control of risks to which the Bank may be exposed, or providing assistance or assurance related to such activities. Risk control is the responsibility of all functional units of the Bank, including various functions at Principal Office who provide input to line functions on risk management and control, assist them in designing and implementing adequate controls, and independently monitor that the prescribed controls and limits are being complied with. It is a key principle of employee appraisal that employees must not get penalized or suffer as a consequence of carrying out control activities for which they are institutionally responsible and duly authorized. Any deviation from this principle will be taken very seriously. Key criteria for evaluation of performance are as follows: • • • • • • • • • • Compliance with applicable laws and regulations. Commitment to the Bank’s Vision, Mission, and Values. Compliance with the Bank’s risk and control policies, procedures, and limits. Behaviour with customers and colleagues. Knowledge and quality of work. New ideas and suggestions. Growth of business and profitability vs. business objectives (as applicable). Persistence and productivity. Job performance. Teamwork and People Development. Fixed Remuneration is determined on the basis of role and responsibility of the individual, professional expertise and experience, job performance, and potential for growth. In addition, all employees of the Bank are required to carry out their duties with due care and in an ethical manner. They must act in accordance with the Bank’s Strategy, Vision, Mission, Values, Guiding Principles, Code of Conduct, Policies and Procedures, within the authorities and limits delegated to them. This means that protection of the Bank’s reputation, trustworthiness, and safety is of paramount importance and takes precedence over profit maximization. Risk management policies, together with the Risk Tolerance Statement, authorities, and limits approved by the Board, provide the necessary guidance on risk taking activities of the Bank. Actions taken and decisions made by the employees are institutionally owned and protected by the Bank, as long as these are within the ambit of the prescribed policies and procedures and there is no evidence of self-dealing. Governance of remuneration is accomplished through a formal structure which includes: Board of Directors; Human Resource & Remuneration Committee; Chief Executive; Human Resource Division; and Finance, Audit, Compliance, and Risk Management Divisions. 27
32. STATEMENT OF COMPLIANCE WITH LISTED COMPANIES (CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2019 FOR THE YEAR ENDED DECEMBER 31, 2021 The Bank has complied with the requirements of the Regulations in the following manner: 1. The total number of Directors are ten as per the following: • Male 09 • Female 01 2. The composition of the Board is as follows: Independent Directors Syed Hasan Ali Bukhari Mr. Arshad Nasar Mr. Safar Ali Lakhani Non - Executive Directors Mr. Abbas D. Habib Mr. Anwar Haji Karim Syed Mazhar Abbas Mr. Murtaza H. Habib Mr. Adnan Afridi Executive Director Mr. Qumail R. Habib Female Director - Non - Executive Ms. Farhana Mowjee Khan The Bank has Ten (10) elected Directors. The Independent Directors’ fraction of 0.33 is below half (0.50) and accordingly, the same has not been rounded up as one. Mr. Mansoor Ali Khan is the Chief Executive of the Bank. Being the CEO of the Bank, he is deemed to be a Director. 3. The directors have confirmed that none of them is serving as a director on more than seven listed companies, including the Bank. 4. The Bank has prepared a Code of Conduct and has ensured that appropriate steps have been taken to disseminate it throughout the Bank along with its supporting policies and procedures. 5. The Board has developed a vision / mission statement, overall corporate strategy and significant policies of the Bank. The Board has ensured that complete record of particulars of significant policies along with their 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 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. The Board has complied with the requirements of the Act and the Regulations with respect to frequency, recording and circulating minutes of meeting of Board. 8. The Board have a formal policy and transparent procedures for remuneration of Directors in accordance with the Act and these Regulations. 9. The Bank is compliant with the requirement of Directors’ Training Program provided in these Regulations. Directors have either attended the required training in prior years or stand exempted, as per criteria mentioned in the Code. 10. The Board has approved appointment of Chief Financial Officer, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment and complied with relevant requirements of the Regulations. 11. Chief Financial Officer and Chief Executive Officer duly endorsed the financial statements before approval of the Board. 28
33. 12 . The Board has formed six committees comprising of members given below: A. Audit Committee Position 1 Mr. Safar Ali Lakhani Chairman 2 Syed Mazhar Abbas Member 3 Mr. Anwar Haji Karim Member 4 Syed Hasan Ali Bukhari Member 5 Mr. Arshad Nasar Member B. Human Resource & Remuneration Committee Position 1 Syed Hasan Ali Bukhari Chairman 2 Syed Mazhar Abbas Member 3 Mr. Abbas D. Habib Member 4 Ms. Farhana Mowjee Khan Member 5 Mr. Arshad Nasar Member C. Credit Risk Management Committee Position 1 Syed Mazhar Abbas Chairman 2 Mr. Safar Ali Lakhani Member 3 Mr. Qumail R. Habib Member 4 Syed Hasan Ali Bukhari Member 5 Mr. Murtaza H. Habib Member D. Risk Management Committee Position 1 Mr. Adnan Afridi Chairman 2 Mr. Qumail R. Habib Member 3 Ms. Farhana Mowjee Khan Member 4 Mr. Anwar Haji Karim Member 5 Mr. Safar Ali Lakhani Member E. IT Committee Position 1 Mr. Abbas D. Habib Chairman 2 Mr. Qumail R. Habib Member 3 Mr. Arshad Nasar Member 4 Syed Mazhar Abbas Member 5 Mr. Mansoor Ali Khan Member 29
34. F . IFRS 9 Committee Position 1 Syed Hasan Ali Bukhari Chairman 2 Mr. Arshad Nasar Member 3 Mr. Qumail R. Habib Member 13. The terms of reference of the aforesaid committees have been formed, documented, and advised to the committees for compliance. 14. The frequency of meetings of Board’s Committees were as per following: Board’s Committees Frequency Audit Committee Human Resource & Remuneration Committee Eight meetings held in the year Four meetings held in the year Credit Risk Management Committee Four meetings held in the year Risk Management Committee Four meetings held in the year IT Committee Four meetings held in the year IFRS 9 Committee Four meetings held in the year 15. The Bank has an effective internal audit division that is manned by suitably qualified and experienced personnel. The audit team is 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 Act, 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. MANSOOR ALI KHAN Chief Executive ABBAS D. HABIB Chairman Board of Directors Karachi: February 09, 2022 30
35. INDEPENDENT AUDITORS ’ REVIEW REPORT To the members of Bank AL Habib Limited Review Report on the Statement of Compliance contained in Listed Companies (Code of Corporate Governance) Regulations, 2019 We have reviewed the enclosed Statement of Compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the Regulations) prepared by the Board of Directors of Bank AL Habib Limited (the Bank) for the year ended 31 December 2021 in accordance with the requirements of regulation 36 of the Regulations. The responsibility for compliance with the Regulations is that of the Board of Directors of the bank. Our responsibility is to review whether the Statement of Compliance reflects the status of the Bank’s compliance with the provisions of the Regulations and report if it does not and to highlight any non-compliance with the requirements of the Regulations. A review is limited primarily to inquiries of the Bank’s personnel and review of various documents prepared by the Bank to comply with the Regulations. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Bank’s corporate governance procedures and risks. The Regulations require the Bank to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions. 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. 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 2021. Karachi: February 28, 2022 EY Ford Rhodes Chartered Accountants UDIN: CR202110191Qim2cJzDL 31
36. STATEMENT ON INTERNAL CONTROLS The Management of the Bank 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 Internal Control System has evolved over the years, as it is an ongoing process and is included in the Bank’s policies, procedures, financial limits, etc., as detailed in various manuals, circulars and instructions issued by the Bank. This system continues to be reviewed, refined and improved from time to time and immediate corrective action is taken to minimize risks which are inherent in banking business and operations. The Internal Control System is reviewed by the Internal Auditors as well as External Auditors and their findings and recommendations are reported to the management and to the Audit Committee of the Board, and corrective action is taken to address control deficiencies and for improving procedures and systems as they are identified. The Board, acting through the Audit Committee, provides supervision and overall guidance in improving the effectiveness of the Internal Control System. 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. Accordingly, even an effective Internal Control System can only provide reasonable but not absolute assurance that the system’s objectives will be achieved. Internal Control over Financial Reporting (ICFR) aims to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the applicable financial reporting standards. During the year, Internal Auditors tested the Bank’s ICFR and reported their findings to the management and the Audit Committee of the Board. While no material deficiencies were detected, indicating that ICFR is effectively implemented in the Bank, it may be reiterated that any control system can provide reasonable but not absolute assurance that its objectives will be achieved. In accordance with the State Bank of Pakistan (SBP) directives, the Bank has completed all the stages of ICFR. Upon satisfactory completion of ICFR roadmap, the Bank has been granted exemption by SBP from the requirement of submission of Long Form Report by the External Auditors. The Bank has endeavored to follow the guidelines issued by SBP on internal controls. Updation and review of ICFR exercise for the year 2021 as per SBP Guidelines on Internal Controls has been successfully completed. In accordance with SBP directives, the annual assessment report for the year 2021 is being prepared. Evaluation and management of significant risks is an on-going process and we will make further efforts to improve our Internal Control System during 2022. ASHAR HUSAIN Chief Financial Officer ARIF SAEED KHAN Head of Internal Audit Karachi: February 09, 2022 BOARD OF DIRECTORS’ REMARKS ON THE MANAGEMENT’S EVALUATION OF INTERNAL CONTROLS Keeping in view the feedback received by the Board of Directors from the Audit Committee and the management, the Board of Directors endorse management’s evaluation of Internal Controls, including Internal Control over Financial Reporting. On behalf of the Board of Directors Karachi: February 09, 2022 ABBAS D. HABIB Chairman Board of Directors 32
37. INDEPENDENT AUDITORS ’ REPORT To the members of Bank AL Habib Limited Report on the Audit of the Financial Statements Opinion We have audited the annexed unconsolidated financial statements of Bank Al Habib Limited, which comprise the unconsolidated statement of financial position as at 31 December 2021, and the unconsolidated profit and loss account and the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated cash flows statement for the year then ended, along with unaudited certified returns received from the branches except for thirty branches which have been audited by us and notes to the 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, unconsolidated statement of profit and loss and the unconsolidated statement of comprehensive income, unconsolidated statement of changes in equity and 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 2021 and of the profit and other comprehensive income, the changes in equity and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the 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 financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 33
38. Following is the key audit matter : Key audit matter How the matter was addressed in our audit 1. Provision against non-performing loans and advances The Bank’s advances portfolio represents 39.67% of its total assets as of 31 December 2021. A substantial portion of the advances portfolio include corporate finances to public sector entities and large to small size businesses operating in diverse sectors of the economy. As per the Bank’s accounting policy (refer note 4.4 to the unconsolidated financial statements), the Bank determines provisions against non-performing advances exposures in accordance with the requirements of Prudential Regulations of State Bank of Pakistan (SBP) and also maintains general provision in respect of potential credit losses in the portfolio. The Prudential Regulations require specific provisioning for loan losses on the basis of an age-based criteria which should be supplemented by a subjective evaluation of Bank’s credit portfolio. The determination of loan loss provision therefore, involve use of management judgment, on a case to case basis, taking into account factors such as the economic and business conditions, borrowers repayment behaviors and realizability of collateral held by the Bank. In view of the significance of this area in terms of its impact on the unconsolidated financial statements and the level of involvement of management’s judgment, we identified adequacy and completeness of provision against advances as a significant area of audit judgment and a key audit matter. The accounting policy and disclosures relating to provisioning against non- performing advances are included in note 4.4 and 9 respectively to the unconsolidated financial statements. We applied a range of audit procedures including the following: - We reviewed the Bank’s process for identification and classification of non-performing advances. As part of such review we performed an analysis of the changes within the different categories of classified non-performing accounts from last year to the current reporting date. This analysis was used to gather audit evidence regarding downgrading of impaired advances and declassification of accounts from non-performing to regular and vice versa, as the case may be. - We performed independent checks on test basis for the computations of provisions to assess that the same is in line with the requirements of the applicable Prudential Regulations; - In addition, we selected a representative sample of borrowers from the advances portfolios including individually significant credit facilities and performed tests and procedures such as review of credit documentation, repayment history and past due status, financial condition as depicted by the borrowers’ financial statements, nature of collateral held by the Bank and status of litigation, if any, with the borrower; - In respect of the level of general provision maintained by the Bank, we discussed the approach and policy followed by the Bank with the management and the regulatory approvals in place for such policy. - We also assessed adequacy of disclosures as included in note 9 to the unconsolidated financial statements regarding the non-performing advances and provisions made for the same in the unconsolidated financial statements in accordance with the requirements of the applicable financial reporting framework. 34
39. Information Other than the Financial Statements and Auditors ’ Report Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors’ report thereon. Our opinion on the 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Board of Directors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. The Board of directors is responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the 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 financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. 35
40. • 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 financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide to the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. 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 statement of financial position, the statement of profit or loss, the statement of comprehensive income, statement of changes in equity and 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 and returns; 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. 2. 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 auditors’ report is Arslan Khalid. Karachi: February 28, 2022 EY Ford Rhodes Chartered Accountants UDIN: AR202110191SEBrPfL8y 36
41. UNCONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 Note 2021 2020 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 5 6 7 8 9 10 11 12 13 118,599,741 6,740,008 20,063,828 826,599,884 733,799,311 55,692,777 268,246 2,074,828 85,813,497 105,935,947 19,662,515 2,175,301 764,943,506 510,251,632 43,967,993 211,111 –000 74,943,322 1,849,652,120 1,522,091,327 LIABILITIES Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 15 16 17 18 12 19 29,803,755 31,013,221 302,212,902 211,599,405 1,309,823,329 1,099,686,361 –000 –000 15,995,200 14,989,600 –000 176,751 101,801,886 84,769,613 1,759,637,072 1,442,234,951 NET ASSETS 90,015,048 79,856,376 11,114,254 20,656,466 6,446,259 51,798,069 11,114,254 18,431,277 10,286,484 40,024,361 90,015,048 79,856,376 REPRESENTED BY Share capital Reserves Surplus on revaluation of assets Unappropriated profit 20 21 CONTINGENCIES AND COMMITMENTS 22 The annexed notes 1 to 47 and annexures I and II form an integral part of these unconsolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 37
42. UNCONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2021 Note Mark-up / return / interest earned Mark-up / return / interest expensed 24 25 Net mark-up / interest income 2021 2020 (Rupees in '000) 116,752,195 (61,143,480) 125,272,587 (67,652,611) 55,608,715 57,619,976 NON MARK - UP / INTEREST INCOME Fee and commission income Dividend income Foreign exchange income Income / (loss) from derivatives (Loss) / gain on securities-net Other income 26 27 28 9,304,850 655,075 2,969,917 –00 (41,146) 1,138,321 6,636,244 486,008 2,142,728 –00 185,622 780,255 Total non mark-up / interest income 14,027,017 10,230,857 Total income 69,635,732 67,850,833 (38,753,850) (620,060) (36,294) (33,997,952) (671,716) (56,672) (39,410,204) (34,726,340) 30,225,528 47,260 –00 33,124,493 (4,543,429) –00 30,272,788 28,581,064 (11,570,489) (10,769,528) 18,702,299 17,811,536 NON MARK-UP / INTEREST EXPENSES Operating expenses Workers welfare fund Other charges 29 30 Total non mark-up / interest expenses Profit before provisions Reversals / (provisions) and write offs-net Extra ordinary / unusual items 31 PROFIT BEFORE TAXATION Taxation 32 PROFIT AFTER TAXATION Basic and diluted earnings per share 33 (Rupees) 16.83 16.03 The annexed notes 1 to 47 and annexures I and II form an integral part of these unconsolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 38
43. UNCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 2021 2020 (Rupees in '000) Profit after taxation for the year 18,702,299 17,811,536 533,555 182,841 Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: Effect of translation of net investment in foreign branches Movement in (deficit) / surplus on revaluation of investments - net of tax (3,419,883 ) 1,222,568 (2,886,328 ) 1,405,409 Items that will not be reclassified to profit and loss account in subsequent periods: Remeasurement loss on defined benefit obligations-net of tax Movement in surplus on revaluation of operating fixed assets-net of tax Movement in surplus on revaluation of non banking assets-net of tax (177,387 ) Total comprehensive income (128,275) (260,923 ) 3,056,238 (38,979 ) 98,346 (477,289 ) 3,026,309 15,338,682 22,243,254 The annexed notes 1 to 47 and annexures I and II form an integral part of these unconsolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 39
44. UNCONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 Revenue Reserves Share Capital Statutory Reserve Foreign Currency Translation Reserve Special Reserve Surplus / (deficit) on revaluation of General Reserve Investments Fixed / Non Unappropriated Banking Assets Profit Total (Rupees in '000) Balance as at 01 January 2020 11,114,254 13,859,667 1,941,115 126,500 540,000 1,538,874 4,474,942 27,907,758 61,503,110 Profit after taxation –00 –00 –00 –00 –00 –00 –00 17,811,536 17,811,536 Other comprehensive income - net of tax –00 –00 182,841 –00 –00 1,222,568 3,154,584 Total comprehensive income for the year –00 –00 182,841 –00 –00 1,222,568 3,154,584 Transfer to statutory reserve –00 1,781,154 –00 –00 –00 –00 –00 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 11,114,254 15,640,821 2,123,956 126,500 540,000 2,761,442 Profit after taxation –00 –00 –00 –00 –00 –00 Other comprehensive income - net of tax –00 –00 533,555 –00 –00 (3,419,883 ) (299,902 ) Total comprehensive income for the year –00 –00 533,555 –00 –00 (3,419,883 ) (299,902 ) Transfer to statutory reserve –00 1,870,230 –00 –00 –00 –00 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax –00 –00 –00 –00 –00 –00 Exchange gain realised on closure of overseas branch - net of tax –00 –00 (178,596) –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 11,114,254 17,511,051 2,478,915 126,500 540,000 (104,484 ) (128,275 ) 17,683,261 4,431,718 22,243,254 (1,781,154 ) –00 104,484 –00 Transactions with owners, recorded directly in equity Final cash dividend (Rs. 3.5 per share) Balance as at 31 December 2020 (3,889,988 ) (3,889,988 ) 7,525,042 40,024,361 79,856,376 –00 18,702,299 18,702,299 –00 (120,440 ) (177,387 ) 18,524,912 (3,363,617 ) 15,338,682 (1,870,230 ) –00 120,440 –00 –00 (178,596 ) Transaction with owners, recorded directly in equity Final cash dividend (Rs. 4.5 per share) Balance as at 31 December 2021 (658,441 ) 7,104,700 (5,001,414 ) (5,001,414 ) 51,798,069 90,015,048 The annexed notes 1 to 47 and annexures I and II form an integral part of these unconsolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 40
45. UNCONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Note 2021 2020 (Rupees in '000) CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income 30,272,788 (655,075) 29,617,713 28,581,064 (486,008 ) 28,095,056 2,962,305 1,854,453 306,880 (47,260) (460,918) 41,146 155,639 1,124,704 (292,780) 5,644,169 35,261,882 2,787,181 1,661,393 287,387 4,543,429 (437,189 ) (185,622 ) 247,041 956,906 – 9,860,526 37,955,582 (17,888,527) 656 (223,754,717) (10,885,386) (252,527,974) (317,726 ) (85,792 ) (24,572,057 ) (13,843,443 ) (38,819,018 ) (1,209,466) 90,451,133 210,136,968 13,479,937 312,858,572 10,844,548 (16,439,509 ) 195,983,579 13,405,228 203,793,846 95,592,480 (10,511,307) 85,081,173 202,930,410 (12,095,087 ) 190,835,323 (49,058,361) (11,978,746) (5,710,108) – 666,539 (14,072,244) 436,082 354,959 (79,361,879) (160,952,824) (15,538,169) (890,390) (683,250) 471,651 (5,262,480) 596,045 182,841 (182,076,576) Receipts / (payments) of subordinated debt-net Dividend paid Payment against lease liabilities 1,005,600 (4,930,117) (2,215,854) (3,200) (3,841,582) (1,972,143) Net cash flow used in financing activities (6,140,371) (5,816,925) Adjustments: Depreciation Depreciation on right-of-use assets Amortisation (Reversals) / provisions and write - offs - net Gain on sale of fixed assets - net Loss / (gain) on sale / redemption of securities - net Charge for compensated absences Mark-up expense on lease liability against right-of-use assets Exchange gain realised on closure of overseas branch 31 (Increase) / decrease in operating assets Lendings to financial institutions Held - for - trading securities Advances Other assets (Decrease) / increase in operating liabilities Bills payable Borrowings from financial institutions Deposits and other accounts Other liabilities (excluding current taxation) Income tax paid Net cash flow generated from operating activities CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securities Net investments in held-to-maturity securities Net investments in associates Investment in subsidiary Dividends received Investments in operating fixed assets Proceeds from sale of fixed assets Exchange differences on translation of net investment in foreign branches Net cash flow used in investing activities CASH FLOW FROM FINANCING ACTIVITIES (Decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of the year 34 (421,077) 125,400,165 2,941,822 122,458,343 Cash and cash equivalents at end of the year 34 124,979,088 125,400,165 The annexed notes 1 to 47 and annexures I and II form an integral part of these unconsolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 41
46. NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 1 . STATUS AND NATURE OF BUSINESS Bank AL Habib Limited (the Bank) is a banking company incorporated in Pakistan on 15 October 1991 as a public limited company under repealed Companies Ordinance, 1984 (now the Companies Act, 2017) having its registered office at 126-C, Old Bahawalpur Road, Multan with principal place of business in Karachi. Its shares are listed on Pakistan Stock Exchange Limited. It is a scheduled bank principally engaged in the business of commercial banking with a network of 927 branches (2020: 818 branches), 29 sub-branches (2020: 32 sub-branches), 04 representative offices (2020: 04 representative offices) and 03 booths (2020: 02 booths). The branch network of the Bank includes 02 overseas branches (2020: 03 overseas branches) and 138 Islamic Banking branches (2020: 106 Islamic Banking branches). During the year, the Bank closed its branch in Seychelles. 2. BASIS OF PRESENTATION 2.1 These unconsolidated financial statements have been prepared in conformity with the format of financial statements prescribed by the State Bank of Pakistan (SBP) vide BPRD Circular No. 02, dated 25 January 2018. 2.2 In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing includes purchase of goods by banks from customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchase and resale arising under these arrangements are not reflected in these unconsolidated financial statements as such, but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. However, the Islamic Banking branches of the Bank have complied with the requirements set out under the Islamic Financial Accounting Standards (IFAS), issued by the Institute of Chartered Accountants of Pakistan (ICAP) as are notified under the provisions of the Companies Act, 2017. 2.3 Key financial information of the Islamic Banking branches is disclosed in annexure II to these unconsolidated financial statements. 2.4 These are separate financial statements of the Bank in which investments in subsidiaries and associates are stated at cost less provision for impairment, if any and are not consolidated or accounted for by using equity method of accounting. 2.5 The Bank believes that there is no significant doubt on the Bank’s ability to continue as a going concern. Therefore, the unconsolidated financial statements continue to be prepared on the going concern basis. 2.6 Statement of compliance 2.6.1 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; IFAS issued by ICAP, 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 SBP and the Securities and Exchange Commission of Pakistan (SECP). Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 or the directives issued by SBP and SECP differ with the requirements of the IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. 42
47. 2 .6.2 SBP has deferred the applicability of International Accounting Standard (IAS) 39, 'Financial Instruments: Recognition and Measurement' and IAS 40, 'Investment Property' for Banking Companies in Pakistan through BSD Circular Letter No. 10 dated 26 August 2002 till further instructions. Further, SBP vide its BPRD Circular Letter No. 24 of 2021 dated 05 July 2021 directed the banks in Pakistan to implement IFRS 9, 'Financial Instruments' with effect from 01 January 2022. SECP has deferred the applicability of IFRS 7, 'Financial Instruments: Disclosures' through its notification S.R.O 411 (I) / 2008 dated 28 April 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by SBP through various circulars. In case of overseas branches, IFRS 9 / respective foreign regulatory requirements are considered for recording, classification and valuation of investment. 2.6.3 SBP vide its BPRD Circular No. 04 dated 25 February 2015, has clarified that the reporting requirements of IFAS 3, 'Profit and Loss Sharing on Deposits' for Islamic Banking Institutions (IBIs) relating to annual, half yearly and quarterly financial statements would be notified by SBP though issuance of specific instructions and uniform disclosure formats in consultation with IBIs. These reporting requirements have not been ratified to date. Accordingly, the disclosure requirements under IFAS 3 have not been considered in the preparation of these unconsolidated financial statements. 2.6.4 IFRS 10, 'Consolidated Financial Statements' was made applicable from period beginning on or after 01 January 2015 vide S.R.O 633 (I) / 2014 dated 10 July 2014 by SECP. However, SECP has directed through S.R.O 56 (I) / 2016 dated 28 January 2016 that the requirement of consolidation under section 228 of the Companies Act, 2017 and IFRS 10, 'Consolidated Financial Statements' is not applicable incase of investment by companies in mutual funds established under trust structure. 2.7 Standards, interpretations of and amendments to published approved accounting standards that are effective in the current year The Bank has adopted the following accounting standards, interpretations and amendments of IFRSs and the improvements to accounting standards which became effective for the current year: COVID-19-Related Rent Concessions - Amendment to IFRS 16 The IASB has issued amendments to IFRS 16 (the amendments) to provide optional practical relief for lessees in accounting for rent concessions. Under the practical expedient, lessees are not required to assess whether eligible rent concessions are lease modifications, and instead are permitted to account for them as if they were not lease modifications. The practical expedient applies only to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all the conditions described in IFRS 16 paragraph 46B are met. Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free mark-up rate (RFR). The above mentioned accounting standards and amendments of IFRSs did not have any material impact on the unconsolidated financial statements of the Bank. 2.8 Standards, interpretations of and amendments to published approved accounting standards that are not yet effective 2.8.1 IFRS 9, 'Financial Instruments' IFRS 9, 'Financial Instruments' - IFRS 9 will replace 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. It 43
48. also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39 . SBP vide its BPRD Circular Letter No. 24 of 2021 dated July 05, 2021 has extended the implementation date of IFRS 9 to January 01, 2022 from an earlier implementation date of January 01, 2021. However, SBP has directed the banks in Pakistan to submit IFRS 9 parallel run and proforma financial statements on periodic basis based on the instructions issued by SBP for parallel run of IFRS 9 and the Bank has been complying with these requirements. 2.8.2 Further, the following IFRS as notified under the Companies Act, 2017 and the amendments thereto will be effective for future periods and not early adopted: Standards and amendments Effective date (accounting periods beginning on or after) - IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract (Amendments) January 01, 2022 - IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use (Amendments) January 01, 2022 - IFRS 3 - Reference to the Conceptual Framework January 01, 2022 - IAS 1 - Classification of liabilities as current or non-current (Amendments) January 01, 2022 - IFRS 9 - Financial Instruments - Fees in the '10 percent' test for derecognition of financial liabilities (Amendments) January 01, 2022 - IAS 8 - Definition of Accounting Estimates January 01, 2022 - IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies January 01, 2023 - IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments) Not yet announced The above standards, amendments and improvements are not expected to have any material impact on the unconsolidated financial statements of the Bank for the futures periods. Further, following new standards have been issued by IASB which are yet to be notified by SECP for the purpose of applicability in Pakistan. Standard - IFRS 1 – First time adoption of IFRSs - IFRS 17 – Insurance Contracts 2.9 IASB effective date (accounting periods beginning on or after) January 01, 2004 January 01, 2023 Critical accounting estimates, judgments and assumptions The preparation of financial statements requires management to make estimates, judgments and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making judgment about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in period of revision and future periods if the revision affects both current and future periods. The estimates and judgments that have a significant effect on the unconsolidated financial statements are in respect of the following: 44
49. Note Classification and provisioning against investments Classification and provisioning against loans and advances Useful lives of fixed , right of use assets and intangible assets, depreciation, amortisation and revaluation Determination of lease term and borrowing rate Non - banking assets acquired in satisfaction of claims Defined benefit plan related assumptions Provisions against off-balance sheet obligations Current and deferred taxation 3. 4.3, 4.13 & 31 4.4, 9 & 31 4.5, 10 & 11 4.5, 10 & 19 4.6 & 13 4.9 & 36 4.15, 19 & 31 4.12, 12 & 32 BASIS OF MEASUREMENT These unconsolidated financial statements have been prepared under the historical cost convention except for certain investments and derivative financial instruments which are carried at fair value, certain land and buildings, and non-banking assets acquired in satisfaction of claims are carried at revalued amount. Employee benefits and lease liability against right-of-use assets are carried at present value. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these unconsolidated financial statements are consistent with those of the previous financial year. 4.1 Cash and cash equivalents Cash and cash equivalents as referred to in the unconsolidated cash flow statement comprise cash and non restricted balances with treasury and other banks less overdrawn nostros accounts. Restricted balances not available for use if any, are excluded from cash and cash equivalents. 4.2 Lendings to / borrowings from financial institutions The Bank enters into transactions of lendings and borrowings at contracted rates for a specified period of time. These are recorded as under: Sale under repurchase obligation Securities sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognised in the statement of financial position and are measured in accordance with accounting policies for investments. Amounts received under these agreements are recorded as repurchase agreement borrowings. The difference between sale and repurchase price is amortised as expense over the term of the repo agreement. These are initially recognised at amount of funds received and subsequently reported as payable under the contractual terms. Purchase under resale obligation Securities purchased with a corresponding commitment to resale at a specified future date (reverse repos) are not recognised as investments in the statement of financial position. Amounts paid under these arrangements are included in repurchase agreement lendings. The difference between purchase and resale price is accrued as income over the term of the reverse repo agreement. These are initially recognised at amount of funds disbursed and subsequently reported as receivable under the contractual terms. Bai Muajjal In Bai Muajjal, the Bank sells sukuk on credit to other financial institutions. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. 4.3 Investments Subsidiaries Subsidiaries are entities over which the Bank has control. Investment in subsidiaries is stated at cost less provision for impairment, if any. 45
50. Associates Associates are all entities over which the Bank has significant influence but not control . Investment in associates is stated at cost less provision for impairment, if any. Certain mutual funds are managed by the subsidiary company of the Bank and hence, the Bank has significant influence over such funds and therefore, investments in these mutual funds are considered as investment in associates. Held-for-trading These are investments acquired principally for the purpose of generating profits from short-term fluctuations in price or dealer’s margin or are securities included in a portfolio in which a pattern of short-term trading exists. Held-to-maturity These are investments with fixed or determinable payments and fixed maturities which the Bank has the intention and ability to hold till maturity. In Bai Muajjal, the Bank sells sukuk on credit to Government of Pakistan. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. Available-for-sale These are investments which do not fall under held for trading and held to maturity categories. All purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognised at the trade date. Trade date is the date on which the Bank commits to purchase or sell the investments. Investments (other than held for trading) are initially measured at fair value plus transaction cost associated with the investment. Investments classified as held for trading are initially measured at fair value, and transaction costs are expensed in the profit and loss account. After initial recognition, quoted securities (other than those classified as held to maturity) are carried at market value. Unquoted securities are valued at cost less impairment in value, if any. Held to maturity securities are carried at amortised cost. Surplus / (deficit) arising on revaluation of quoted securities which are classified as 'available-for-sale', is included in the statement of comprehensive income and is shown in the statement of financial position as part of equity. The surplus / (deficit) arising on these securities is taken to the profit and loss account when actually realised upon disposal or in case of impairment of securities. The unrealised surplus / (deficit) arising on revaluation of quoted securities which are classified as held for trading is taken to the profit and loss account. Premium or discount on debt securities classified as available for sale and held to maturity is amortised using effective interest method and taken to the profit and loss account. Details of valuation techniques used in determination of fair value is included in note 39 of unconsolidated financial statements. 4.4 Advances Loans and advances These are stated net of provisions for non-performing advances. Receivables against lease finance where Bank is a lessor (other than Ijarah) Leases where the Bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payments including any guaranteed residual value. Islamic Financing and Related Assets Ijarah finance Assets leased out under ijarah arrangements are stated at cost less accumulated depreciation and impairment, if any. Such assets are depreciated over the terms of ijarah contracts. 46
51. Murabaha Funds disbursed under murabaha arrangements for purchase of goods are recorded as advance for murabaha . On culmination of murabaha i.e. sale of goods to customers, murabaha receivables are recorded at the sale price net of deferred income. Goods purchased but remaining unsold at the reporting date are recorded as inventories. Inventory The Bank values its inventories at the lower of cost and net realisable value. The net realisable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale. Cost of inventories represents actual purchases made by the Bank / customers as an agent of the Bank for subsequent sale. Inventory against each contract is maintained on specific identification method. Istisna In Istisna financing, the Bank places an order to purchase some specific goods / commodities from its customers to be delivered to the Bank within an agreed time. The goods are then sold and the amount hence financed is paid back to the Bank. Diminishing Musharaka In Diminishing Musharaka financing, the Bank enters into Musharaka based on Shirkat-ul-milk for financing an agreed share of fixed asset (e.g. house, land, plant or machinery) with its customers and enters into periodic rental payment agreement for the utilisation of the Bank’s Musharaka share by the customer. The customer purchases the Bank's share gradually as per his undertaking. Running Musharaka In Running Musharaka financing, the Bank enters into financing with the customer based on Shirkat-ul-Aqd or Business Partnership in customers operating business. Under this mechanism the customer can withdraw and return funds to the Bank subject to his Running Musharakah Financing limit during the Musharakah period. At the end of each quarter / half year the customer pays the provisional profit as per the desired profit rate which is subject to final settlement based on the relevant quarterly / half-yearly / annual accounts of the customer. Musawama In Musawama financing, the Bank purchases specific goods / commodities on cash basis from its customer for onward sale. Upon realisation of sale proceeds, the finance is adjusted. Provision for non-performing advances Provision for non-performing advances is determined in accordance with the requirements of the Prudential Regulations for domestic branches, whereas requirements of respective central banks is followed in respect of overseas branches and is charged to the profit and loss account. The Bank also maintains general provision in addition to the requirements of the Prudential Regulations on the basis of the management's risk assessment. The Bank reviews its loan portfolio to assess amount of non-performing loans and determine provision required there against. While assessing this requirement various factors including the past dues, delinquency in the account, financial position and future business / financial plan of the borrower, value of collateral held and requirements of Prudential Regulations are considered. The Bank is allowed to consider the effect of Forced Sale Value (FSV) of collaterals in determining the amount of provision, however, no benefit of FSV of collateral is taken in determining provisioning amount. The amount of general provision against domestic consumer and SME advances is determined in accordance with the relevant \ Prudential Regulations and SBP directives. For overseas operations, the Bank records an allowance for Expected Credit Loss (ECL) for all loans and other debt financial assets not held at Fair Value through Profit and Loss (all referred to as ‘financial instruments’). The ECL allowance is based on the credit losses expected to arise over the life of the asset (the Lifetime Expected Credit Losses or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ Expected Credit Losses (12mECL). The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. 47
52. Advances are written-off when there are no realistic prospects of recovery . 4.5 Operating fixed assets and depreciation Capital work in progress Capital work in progress is stated at cost less impairment, if any. Property and equipment - owned Land is measured at cost at the time of initial recognition and is subsequently carried at revalued amount less impairment, if any. Buildings are initially measured at cost and upon revaluation, are carried at revalued amount less accumulated depreciation and impairment, if any. All other operating fixed assets are stated at cost less accumulated depreciation and impairment, if any. Depreciation is charged to profit and loss account on straight line basis so as to charge the assets over their expected useful lives at the rates specified in note 10.2. The depreciation charge is calculated after taking into account residual value, if any. The residual values, useful lives and depreciation method are reviewed annually and adjusted, if appropriate. Depreciation is charged on prorata basis, i.e., full month charge in the month of purchase and no charge in the month of disposal. Land and buildings are revalued by independent professionally qualified valuers with sufficient regularity to ensure that the net carrying amount does not differ materially from the fair value. The valuations involve estimates / assumptions and various market factors and conditions. Any revaluation surplus is credited to the surplus on revaluation of land and buildings, except to the extent that it reversal of a deficit already charged to profit and loss account on the same asset. Any revaluation deficit is recognised in profit and loss account, except for a deficit directly offsetting a previous surplus on the same asset recognised in the asset revaluation surplus. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposal of fixed assets are included in income currently, except that the related surplus on revaluation of land and buildings (net of deferred tax) is transferred directly to unappropriated profit. Leases The Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Bank as a lessee The Bank applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Bank recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets The Bank recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term. The right-of-use assets are presented within note 10 fixed assets and are subject to impairment in line with the Bank’s policy as described in note 4.13 impairment of non-financial assets. 48
53. Lease liabilities At the commencement date of the lease , the Bank recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The Bank determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Bank reassesses the lease term if there is a significant event or change in circumstances that is within its control that affects its ability to exercise or not to exercise the option to renew or to terminate. The Bank cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental lending rate to measure lease liabilities. Intangible assets Intangible assets having a finite useful life are stated at cost less accumulated amortisation and impairment, if any. Amortisation is based on straight line method by taking into consideration the estimated useful life of assets at the rates specified in note 11. Intangible assets are amortised on prorata basis i.e. full month amortisation in the month of purchase and no amortisation in the month of disposal. 4.6 Non-banking assets acquired in satisfaction of claims Non-banking assets acquired in satisfaction of claims are initially measured at settlement amount and upon revaluation, are carried at revalued amounts less accumulated depreciation and impairment, if any. The useful lives and depreciation method are reviewed annually and adjusted, if appropriate. These assets are revalued as per SBP's requirement by independent professionally qualified valuers to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of assets is credited to the 'surplus on revaluation of non-banking assets acquired in satisfaction of claims' account and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title of assets is charged to profit and loss account and not capitalised. 4.7 Borrowings / deposits Borrowings / deposits are recorded at the amount of proceeds received. The cost of borrowings / deposits is recognised on an accrual basis as an expense in the period in which it is incurred. 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 / Current remunerative deposits’. 4.8 Subordinated debt Subordinated debt is initially recorded at the amount of proceeds received and subsequently reported at outstanding amounts as a financial liability. Mark-up accrued on subordinated debt is recognised separately as part of other liabilities and is charged to the profit and loss account over the period on an accrual basis. 4.9 Employees' benefits Defined benefit plan The Bank operates an approved gratuity fund for all its confirmed employees, which is administered by the Trustees. The Bank's costs and contributions are determined based on actuarial valuation carried out at each year end using Projected Unit Credit Actuarial Method. All actuarial gains and losses are recognised in 'other comprehensive income' as they occur and are not reclassified to profit and loss in subsequent periods. The liabilities for employees' benefits plans are determined using actuarial valuations. The actuarial valuations involve assumptions about discount rates, expected rates of return on assets and future salary increases as disclosed in note 36. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. 49
54. Defined contribution plan The Bank operates an approved provident fund scheme for all its regular permanent employees , administered by the Trustees. Equal monthly contributions are made both by the Bank and its employees to the fund at the rate of 10% of the basic salary in accordance with the terms of the scheme. Compensated absences The Bank accounts for all accumulating compensated absences when employees render service that increases their entitlement to future compensated absences. The liability is determined based on actuarial valuation carried out using the Projected Unit Credit Method. 4.10 Foreign currencies Functional and presentation currency These financial statements are presented in Pak Rupees which is the Bank's functional and presentation currency. Transactions and balances in foreign currencies Foreign currency transactions are translated into Pak Rupees at the exchange rates prevailing on the date of transaction. Monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing at the reporting date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the fair value was determined. Exchange gains or losses are included in income currently. Foreign operations The assets and liabilities of foreign operations are translated to Pak Rupees at exchange rates prevailing at the reporting date. The income and expense of foreign operations are translated at rate of exchange prevailing during the year. Exchange gain or loss on such translation is taken to equity through statement of other comprehensive income under "foreign currency translation reserve". Commitments Commitments for outstanding forward foreign exchange contracts are translated at forward rates applicable to their respective maturities. Contingent liabilities / commitments for letter of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the exchange rates ruling on the reporting date. Translation gains and losses are included in the profit and loss account. 4.11 Revenue recognition (a) Mark-up / return / interest on advances and investments is recognised on accrual basis, except in case of advances classified under the Prudential Regulations on which mark-up is recognised on receipt basis. Mark-up / return / interest on rescheduled / restructured loans and advances and investments is recognised as permitted by the regulations of SBP. (b) Financing method is used in accounting for income from lease financing. Under this method, the unrealised lease income 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. Gain / loss on termination of lease contracts, front end fee and other lease income are recognised as income on receipt basis. (c) The rentals from ijarah are recognised as income over the term of the contract net of depreciation expense relating to the ijarah assets. 50
55. (d) Income from murabaha is accounted for on a time proportionate basis over the period of murabaha transaction. (e) Income from istisna and musawama is recognised on time proportionate basis commencing from the time of sale of goods till the realisation of sale proceeds. (f) Income from diminishing musharaka is recognised on time proportionate basis over the term of contract. (g) Income from running musharaka financing is recognised on time proportionate basis and is subject to adjustment upon declaration of profit by musharaka partners. (h) Income from Bai-Muajjal is recognised on time proportionate basis from the date of disbursement to the due date of payment. (i) Dividend income is recognised when the right to receive is established. (j) Gain or loss on sale of investments are recognised in profit and loss account in the year in which they arise. (k) The Bank earns fee and commission income from a diverse range of financial services it provides to its customers. Fee and commission income is recognised at an amount that reflects the consideration to which the Bank expects to be entitled in exchange for providing the services. The Bank recognises fees earned on transaction-based arrangements at a point in time when the Bank has provided the service to the customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the related services. Unearned fee and commission are included under Other Liabilities. 4.12 Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit and loss account except to the extent that it relates to the items recognised directly in equity or surplus on revaluation of assets, in which case it is recognised in equity or surplus on revaluation of assets. Current Provision for current tax is based on the taxable income for the year, using tax rates enacted or substantively enacted at the statement of financial position date and any adjustments to the tax payable in respect of previous years. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. Deferred Deferred tax is provided on all temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilised. Deferred tax liabilities are recognised for all taxable temporary differences, except in respect of taxable temporary differences associated with investment in foreign operations, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. The carrying amount of deferred income tax assets are reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit or taxable temporary differences will be available to allow all or part of the deferred income tax asset to be utilised. 51
56. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled , based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. In making the estimates for current and deferred taxes, the management looks at the income tax law and the decisions of appellate authorities on certain issues in the past. There are certain matters where the Bank’s view differs with the view taken by the income tax department and such amounts are shown as contingent liability. 4.13 Impairment Investments Provision for diminution in the investments classified as available-for-sale and held-to-maturity (except for debt securities) is recognised after considering impairment, if any, in their value and is taken to profit and loss account. Impairment is booked when there is an objective evidence of significant or prolonged decline in the value of such securities. This determination of what is significant or prolonged requires judgment. Provision for impairment against debt securities (other than government securities) is made in accordance with the requirements of the Prudential Regulations of SBP. In case of unquoted equity securities, the breakup value of the security is considered to determine impairment amount. Associates and subsidiaries The carrying values of investments in associates and subsidiaries are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the investments are written down to their recoverable amounts and the resulting impairment loss is taken to profit and loss account. Non-financial assets The carrying values of assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amounts and the resulting impairment loss is taken to profit and loss account except for impairment loss on revalued assets which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the relevant surplus. 4.14 Contingent assets / liabilities Contingent assets are not recognised, and are also not disclosed unless an inflow of economic benefits is probable. Contingent liabilities are not recognised and are disclosed unless the probability of an outflow of resources embodying economic benefits are remote. 4.15 Provisions against off - balance sheet obligations The Bank, in the ordinary course of business, issues letters of credit, guarantees, bid bonds, performance bonds etc. The commission against such contracts is recognised in the profit and loss account under "fees and commission income" over the period of contracts. The Bank's liability under such contracts is measured at the higher of the amount representing unearned commission income at the reporting date and the best estimate of the amount expected to settle any financial obligation arising under such contracts. 4.16 Off setting Financial assets and financial liabilities are only off-set and the net amount is reported in the financial statements when there is a legally enforceable right to set-off the recognised amount and the Bank intends either to settle on a net basis, or to realise the assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also off-set and the net amount is reported in the financial statements. Income and expenses are presented on a net basis only when permitted by the approved accounting standards as applicable in Pakistan. 52
57. 4 .17 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 derecognised when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of ownership of the asset. Financial liabilities are derecognised when obligation is discharged, cancelled or expired. Any gain or loss on derecognition of the financial asset and liability is recognised in the profit and loss account of the current period. 4.18 Derivative financial instruments Derivative financial instruments are initially recognised at their fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivative financial instruments are carried as asset when fair value is positive and liabilities when fair value is negative. Any change in the value of derivative financial instruments is taken to the profit and loss account. 4.19 Dividend and reserves Dividend declared and appropriations, except for transfer to statutory reserve, made subsequent to the date of statement of financial position are considered as non adjusting events and are recorded as a liability in the financial statements in the year in which these are approved by shareholders / directors as appropriate. 4.20 Earnings per share The Bank presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year. 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. There were no convertible dilutive potential ordinary shares in issue at 31 December 2021. 4.21 Segment reporting A segment is a distinguishable component of the Bank that is engaged in providing products and services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risk and rewards that are different from those of other segments. The Bank's primary format of reporting is based on business segments. 4.22 Business segments Retail banking It consists of retail lending, deposits and banking services to private individuals and small businesses. The retail banking activities include provision of banking and other financial services, such as current and savings accounts, credit cards, consumer banking products etc., to individual customers, small merchants and small and medium enterprises. Commercial banking Commercial banking represents provision of banking services including treasury and international trade related activities to large corporate customers, multinational companies, government and semi government departments and institutions and small and medium enterprises treated as corporate under the Prudential Regulations. 53
58. 4 .23 Geographical segments The Bank operates in four geographic regions, being: - 4.24 Pakistan Middle East Asia Pacific Africa Statutory / special reserve Every bank incorporated in Pakistan is required to transfer 20% of its profit to a statutory reserve until the reserve equals share capital, thereafter 10% of the profit of the Bank is to be transferred to this reserve. Special reserve was created to meet regulatory requirements. 4.25 Provisions against liabilities These are recognised when the Bank has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provision against contingencies is determined based on the management judgement regarding the probability of future out flows of resources embodying economic benefits to settle an obligation arising from past events. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate. 4.26 Clients' assets The Bank provides services that result in the holding of assets on behalf of its clients. Such assets are not reported in the financial statements, as they are not the assets of the Bank. 4.27 Acceptances Acceptances comprise undertakings by the Bank to pay bill 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. 54
59. Note 5 . 2021 2020 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand: Local currency Foreign currencies 25,102,090 1,731,629 23,716,890 4,761,414 26,833,719 28,478,304 230,555 422 600,285 4,412 230,977 604,697 5.1 5.1 53,360,569 5,651,972 44,211,071 3,339,015 5.1 3,733,261 3,508,365 5.1 5.1 5.2 408,717 7,466,521 786,071 299,769 7,016,730 99,696 71,407,111 58,474,646 19,846,650 16,110,129 281,284 2,268,171 118,599,741 105,935,947 In transit: Local currency Foreign currencies With State Bank of Pakistan in: Local currency current accounts Local currency current accounts - Islamic Banking Foreign currency deposit accounts Cash reserve account Cash reserve / special cash reserve account - Islamic Banking Special cash reserve account Local US Dollar collection account With National Bank of Pakistan in: Local currency current account Prize bonds 5.1 These deposits and reserves are maintained by the Bank to comply with the statutory requirements. The special cash reserve carries interest rate of Nil (2020: upto 0.76%) per annum. 5.2 This represents US Dollar collection account maintained with SBP. Note 6. 2021 2020 (Rupees in '000) BALANCES WITH OTHER BANKS In Pakistan: In current accounts In deposit accounts Outside Pakistan: In current accounts In deposit accounts Less: impairment against IFRS 9 in overseas branches 6.1 6.2 6.3 229,228 557,419 131,311 184,012 786,647 315,323 4,131,543 1,821,822 5,965,561 13,381,635 5,953,365 19,347,196 6,740,012 (4) 19,662,519 (4) 6,740,008 19,662,515 55
60. 6 .1 These carry expected profit rates ranging from 2.32% to 7.26% (2020: 2.32% to 11.28%) per annum. 6.2 These carry interest rates upto 0.75% (2020: upto 0.75%) per annum. 6.3 These carry interest rates of Nil (2020: upto 1.32%) per annum. 2021 2020 (Rupees in '000) 7. LENDING TO FINANCIAL INSTITUTIONS In local currency: Repurchase agreement lendings (Reverse Repo) Bai Muajjal receivable from the State Bank of Pakistan 7.1 20,063,828 –00 –00 2,175,301 20,063,828 2,175,301 Securities held as collateral against amounts due from financial institutions 2021 2020 Held by Further given Held by Further given Bank as collateral Total Bank as collateral (Rupees in '000) Market Treasury Bills 18,343,998 Pakistan Investment Bonds 1,719,830 20,063,828 –00 –00 –00 18,343,998 1,719,830 20,063,828 –00 –00 –00 –00 –00 –00 Total –00 –00 –00 7.1.1 Repurchase agreement lendings carry mark-up at rates ranging from 10.00% to 10.75% per annum (2020: Nil). 7.1.2 The market value of securities held as collateral against repurchase agreement lendings amounted to Rs. 20,120.78 million (2020: Nil). 8. 8.1 INVESTMENTS Note Investments by type: 2021 Surplus / (deficit) Carrying value Cost / amortised cost Provision for diminution 2020 Surplus / (deficit) Carrying value 771 96,549 (Rupees in '000) Held-for-trading securities Shares Available-for-sale securities 8.3 & 8.4 Federal Government Securities Shares Non Government Debt Securities Foreign Securities Units of Mutual Funds Held-to-maturity securities Federal Government Securities Foreign Securities Other Cost / Provision amortised for cost diminution 96,835 –00 594,514,031 4,541,805 29,941,356 6,718,457 2,176,022 637,891,671 1,641 98,476 95,778 –00 (224,825 ) (1,781,770 ) –00 (947,343 ) (365,225 ) (3,319,163 ) (1,277,763 ) 593,011,443 614,262 3,374,297 141,257 30,082,613 (853,977 ) 4,917,137 296,808 2,107,605 (1,079,413 ) 633,493,095 548,726,362 4,376,102 26,645,389 6,891,856 2,125,000 588,764,709 (226,825 ) (1,791,073 ) –00 (909,432 ) (444,440 ) (3,371,770 ) 182,347,089 2,191,873 4,481 184,543,443 (100,982 ) (77,573 ) (4,481 ) (183,036 ) –00 182,246,107 –00 2,114,300 –00 –00 –00 184,360,407 170,825,082 1,708,659 4,481 172,538,222 (130,790 ) (127,901 ) (4,481 ) (263,172 ) –00 –00 –00 –00 170,694,292 1,580,758 –00 172,275,050 2,047,346 –00 –00 2,047,346 –00 883,250 883,250 (1,077,772 ) 826,599,884 764,329,305 –00 (3,634,942 ) –00 4,249,143 883,250 764,943,506 8.3 & 8.5 Associates 8.6 7,764,656 –00 Subsidiaries Total Investments 8.7 883,250 831,179,855 –00 (3,502,199 ) –00 7,764,656 4,578,492 553,078,029 580,654 3,165,683 (46,105 ) 26,599,284 (1,215,066 ) 4,767,358 350,397 2,030,957 4,248,372 589,641,311 56
61. 2020 2021 Cost / Provision amortised for cost diminution 8.2 Surplus / (deficit) Carrying value Cost / amortised cost Provision for diminution Surplus / (deficit) Carrying value Investments by segments: (Rupees in '000) Federal Government Securities Market Treasury Bills Pakistan Investment Bonds Foreign Currency Bonds Ijarah Sukuks Sukuks Naya Pakistan Certificates Term Finance Certificates - Unlisted (374,150 ) 123,617,075 143,416,675 (591,411 ) 533,478,819 515,252,493 165,736 17,855,350 10,724,047 (489,423 ) 86,477,100 26,952,616 11,485 13,022,054 22,919,899 –00 807,152 –00 –00 –00 285,714 –00 –00 (292,213 ) –00 (65,402 ) –00 –00 490,699 4,083,498 198,212 (209,517 ) 15,600 –00 –00 143,907,374 519,335,991 10,630,046 26,743,099 22,870,097 –00 285,714 719,551,444 (357,615 ) 4,578,492 723,772,321 3,324,237 148,536 4,317,644 154,236 (1,785,373 ) (5,700 ) 581,425 –00 3,113,696 148,536 615,903 3,472,773 4,471,880 (1,791,073 ) 581,425 3,262,232 –00 –00 141,257 –00 24,909,693 5,172,920 24,420,449 2,224,940 –00 –00 (46,105 ) –00 24,374,344 2,224,940 29,941,356 –00 141,257 30,082,613 26,645,389 –00 (46,105 ) 26,599,284 4,481 (4,481 ) –00 –00 4,481 (4,481 ) –00 –00 Foreign Securities Government Securities 8,910,330 (1,024,916 ) (853,977 ) 7,031,437 8,600,515 (1,037,333 ) (1,215,066 ) 6,348,116 Associates Habib Sugar Mills Limited AL Habib Money Market Fund AL Habib Islamic Cash Fund AL Habib Islamic Savings Fund First Habib Income Fund First Habib Stock Fund First Habib Cash Fund First Habib Islamic Stock Fund First Habib Islamic Income Fund First Habib Asset Allocation Fund –00 100,000 100,000 100,000 400,000 10,000 7,000,000 10,000 24,656 20,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 100,000 100,000 100,000 400,000 10,000 7,000,000 10,000 24,656 20,000 182,690 –00 –00 –00 150,000 10,000 1,650,000 10,000 24,656 20,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 182,690 –00 –00 –00 150,000 10,000 1,650,000 10,000 24,656 20,000 7,764,656 –00 –00 7,764,656 2,047,346 –00 –00 2,047,346 200,000 683,250 883,250 –00 –00 –00 –00 –00 –00 200,000 683,250 883,250 200,000 683,250 883,250 –00 –00 –00 –00 –00 –00 200,000 683,250 883,250 2,176,022 (365,225 ) 296,808 2,107,605 2,125,000 (444,440 ) 350,397 2,030,957 831,179,855 (3,502,199 ) (1,077,772 ) 826,599,884 764,329,305 (3,634,942 ) 4,249,143 764,943,506 Shares Listed Companies Unlisted Companies Non Government Debt Securities Listed Unlisted Others Unlisted Company Subsidiaries AL Habib Capital Markets (Private) Limited AL Habib Asset Management Limited Units of Mutual Funds Total Investments 123,991,225 534,070,230 18,002,018 86,966,523 13,023,972 807,152 –00 –00 –00 (312,404 ) –00 (13,403 ) –00 –00 776,861,120 (325,807 ) 4,484,404 154,236 (1,776,070 ) (5,700 ) 615,903 –00 4,638,640 (1,781,770 ) 24,768,436 5,172,920 (1,277,763 ) 775,257,550 57
62. 2021 2020 (Rupees in '000) 8.2.1 Investments given as collateral Market Treasury Bills Pakistan Investment Bonds 8.3 34,993,379 84,993,500 98,427,365 –00 119,986,879 98,427,365 3,634,942 2,211,794 144,654 3,978 –00 295,807 Provision for diminution in value of investments Opening balance Exchange adjustments against IFRS 9 in overseas branches (Reversals) / charge Charge for the year (Reversals) / charge of impairment as per IFRS 9 in overseas branches Reversal on disposal (188,882) (88,515) (277,397) –00 Others Closing balance 8.4 3,502,199 1,120,117 (1,235) 1,414,689 4,481 3,634,942 Quality of Available for Sale Securities Details regarding quality of available-for-sale securities are as follows: Cost 2021 2020 (Rupees in '000) 8.4.1 Federal Government Securities - Government guaranteed Market Treasury Bills Pakistan Investment Bonds Foreign Currency Bonds Ijarah Sukuks Sukuks Naya Pakistan Certificates Term Finance Certificates-Unlisted 8.4.2 123,991,225 367,146,464 12,155,197 86,966,523 3,447,470 807,152 –00 143,416,675 360,611,418 6,510,541 26,952,616 10,949,398 –00 285,714 594,514,031 548,726,362 199,842 292,921 150,024 923,380 23,211 29,975 92,509 788,541 38,264 21,775 1,590,653 13,140 40,644 182,690 4,387,569 199,842 292,921 150,024 923,380 23,211 29,975 92,509 788,541 38,264 21,775 1,607,640 13,140 40,644 –00 4,221,866 Shares 8.4.2.1 Listed companies Automobile Assembler Cement Commercial Banks Fertiliser Food and Personal Care Products Insurance Securities Companies Oil and Gas Marketing Companies Paper and Board Pharmaceuticals Power Generation and Distribution Technology and Communication Textile Composite Sugar and Allied Industries 58
63. 2021 8 .4.2.2 Unlisted Companies Break up value Khushhali Bank Limited December 31, 2020 Pakistan Export Finance Guarantee Agency Limited – Society for Worldwide Interbank Financial Telecommunication (S.W.I.F.T) – Pakistan Mortgage Refinance Company Limited December 31, 2020 1LINK (Guarantee) Limited December 31, 2020 Cost 2020 Breakup Cost value (Rupees in '000) Breakup value 30,000 189,922 30,000 165,372 5,700 –00 5,700 –00 18,536 –00 18,536 –00 50,000 50,000 83,892 267,895 50,000 50,000 64,183 202,032 154,236 541,709 154,236 431,587 The above breakup values are based on the latest available audited financial statements of the unlisted companies. Cost 2021 2020 (Rupees in '000) 8.4.3 Non Government Debt Securities 8.4.3.1 Listed AA+ AA AAA+ A AGovernment Guaranteed 1,086,038 200,000 1,029,894 1,000,000 300,000 50,000 21,102,504 1,267,724 200,000 500,000 –00 1,300,000 50,000 21,102,725 24,768,436 24,420,449 1,798,000 1,450,000 –00 1,550,000 75,000 200,000 99,920 –00 –00 1,200,000 750,000 75,000 100,000 99,940 5,172,920 2,224,940 50,000 550,000 200,000 –00 1,376,022 50,000 550,000 200,000 100,000 1,225,000 2,176,022 2,125,000 8.4.3.2 Unlisted AAA AA+ AA AAA+ A BBB+ 8.4.4 Mutual Funds AAA(f) AA(f) AA-(f) A+(f) Unrated 59
64. 2021 8 .4.5 Foreign Securities Cost 2020 Rating Cost (Rupees in '000) Rating Government Securities Bahrain Egypt Srilanka Turkey –00 2,309,504 3,570,661 838,292 – B+ CC BB- 6,718,457 319,668 2,097,411 3,723,756 751,021 B+ B+ CCC BB- 6,891,856 Cost 2021 2020 (Rupees in '000) 8.5 Particulars relating to Held to Maturity securities are as follows: Federal Government Securities - Government guaranteed Pakistan Investment Bonds Foreign Currency Bonds Sukuks 166,923,766 5,846,821 9,576,502 154,641,075 4,213,506 11,970,501 182,347,089 170,825,082 4,481 4,481 Others Pakistan Corporate Restructuring Company Limited (PCRCL) 2021 Foreign Securities Cost 2020 Rating Cost (Rupees in '000) Rating Government Securities Egypt Srilanka 531,5550 1,660,3180 2,191,8730 8.5.1 B+ CC 482,090 1,226,569 B+ CCC 1,708,659 The market value of securities classified as held to maturity at 31 December 2021 amounted to Rs. 181,472 million (2020: Rs. 168,809 million). 60
65. 8 .6 Associates 2021 2020 Name of company / funds No. of ordinary shares / units –00 9,415,312 1,000,000 –00 1,000,000 –00 1,000,000 –00 3,788,497 1,363,808 100,000 100,000 69,271,923 16,288,303 100,929 100,929 250,421 250,421 200,149 200,149 Habib Sugar Mills Limited AL Habib Money Market Fund % of holding 22.14% (2020: Nil) Average cost per unit: Rs. 100 (2020: Nil) Net asset value Rs. 100 (2020: Rs. Nil) AL Habib Islamic Cash Fund % of holding 22.19% (2020: Nil) Average cost per unit: Rs. 100 (2020: Nil) Net asset value Rs. 100 (2020: Rs. Nil) AL Habib Islamic Saving Fund % of holding 5.54% (2020: Nil) Average cost per unit: Rs. 100 (2020: Rs. Nil) Net asset value Rs. 100 (2020: Rs. Nil) First Habib Income Fund % of holding: 24.65% (2020: 17.86%) Average cost per unit: Rs. 105.58 (2020: Rs. 109.99) Net asset value: Rs. 105.02 (2020: Rs. 103.48) First Habib Stock Fund % of holding: 2.81% (2020: 7.09%) Average cost per unit: Rs. 100 (2020: Rs. 100) Net asset value: Rs. 87.92 (2020: Rs. 86.07) First Habib Cash Fund % of holding: 24.52% (2020: 12.47%) Average cost per unit: Rs. 101.05 (2020: Rs. 101.30) Net asset value: Rs. 102.21 (2020: Rs. 100.98) First Habib Islamic Stock Fund % of holding: 2.61% (2020: 8.23%) Average cost per unit: Rs. 99.08 (2020: Rs. 99.08) Net asset value: Rs. 80.13 (2020: Rs. 84.99) First Habib Islamic Income Fund % of holding: 0.39% (2020: 0.22%) Average cost per unit: Rs. 98.46 (2020: Rs. 98.46) Net asset value: Rs. 101.15 (2020: Rs. 100.58) First Habib Asset Allocation Fund % of holding: 19.22% (2020: 19.75%) Average cost per unit: Rs. 99.93 (2020: Rs. 99.93) Net asset value: Rs. 103.47 (2020: Rs. 101.98) 2021 2020 (Rupees in '000) –00 182,690 100,000 –00 100,000 –00 100,000 –00 400,000 150,000 10,000 10,000 7,000,000 1,650,000 10,000 10,000 24,656 24,656 20,000 20,000 7,764,656 2,047,346 8.6.1 The place of incorporation and business of associates is Pakistan. 8.6.2 All of the above funds are managed by AL Habib Asset Management Limited (the subsidiary company). The Chief Executive of the Management Company is Mr. Kashif Rafi. 8.6.3 During the year, the Bank reclassified Habib Sugar Mills Limited from associates to available-for-sale investments due to change in directorship structure. 61
66. 8 .6.4 Associates - Key Information First Habib Income Fund First Habib Stock Fund 1,436,424 240,141 Liabilities 23,862 5,668 53,605 Total income 80,647 36,617 Profit before taxation 65,321 Profit after taxation 65,321 Assets 8.7 First Habib First Habib Cash Islamic Fund Stock Fund (Rupees in '000) 16,952,954 294,039 First Habib First Habib Islamic Income Asset Allocation Fund Fund 14,184,707 110,998 5,671 54,930 2,049 568,923 29,221 888,016 19,111 30,629 513,010 21,113 768,015 14,788 30,629 513,010 21,113 768,015 14,788 Subsidiaries 2021 2020 No. of ordinary shares Name of companies 2021 2020 (Rupees in '000) 20,000,000 20,000,000 AL Habib Capital Markets (Private) Limited % of holding: 66.67% (2020: 66.67%) Par value per share: Rs. 10 Break up value per share: Rs. 11.56 based on audited financial statements for the year ended 31 December 2020 Chief Executive: Mr. Aftab Q. Munshi 200,000 200,000 75,000,000 75,000,000 AL Habib Asset Management Limited % of holding: 100% (2020: 100%) Par value per share: Rs. 10 Break up value per share: Rs. 10.18 based on audited financial statements for the year ended 31 December 2021 Chief Executive: Mr. Kashif Rafi 683,250 683,250 883,250 883,250 8.7.1 The place of incorporation and business of subsidiaries is Pakistan. 9. ADVANCES Note Performing 2021 Loans, cash credits, running finances, etc. Islamic financing and related assets Bills discounted and purchased Advances - gross Provision against advances - Specific - General as per regulations - General - As per IFRS 9 in overseas branches Advances-net of provision 2020 Non-Performing 2021 2020 (Rupees in '000) Total 2021 2020 9.1 602,544,792 84,965,477 51,632,418 739,142,687 429,521,092 58,248,930 27,742,924 515,512,946 7,123,857 410,650 212,428 7,746,935 6,970,943 218,174 192,356 7,381,473 609,668,649 85,376,127 51,844,846 746,889,622 436,492,035 58,467,104 27,935,280 522,894,419 –00 369,390 5,750,000 476,792 –00 267,290 5,750,000 128,018 6,494,129 –00 –00 –00 6,497,479 –00 –00 –00 6,494,129 369,390 5,750,000 476,792 6,497,479 267,290 5,750,000 128,018 6,596,182 6,145,308 6,494,129 6,497,479 13,090,311 12,642,787 732,546,505 509,367,638 1,252,806 883,994 733,799,311 510,251,632 62
67. 9 .1 Includes net investment in finance lease as disclosed below: Not later than one year Not later than one Total year (Rupees in '000) 2020 Later than one and less than five years Total Lease rentals receivable Residual value 9,110,176 1,598,147 12,824,748 21,934,924 5,211,797 6,809,944 7,448,062 12,376,700 19,824,762 1,707,629 2,978,287 4,685,916 Minimum lease payments 10,708,323 18,036,545 28,744,868 9,155,691 15,354,987 24,510,678 (1,734,744) (1,522,420) (3,257,164) 8,973,579 16,514,125 25,487,704 (1,059,738) (1,702,182) (2,761,920) 8,095,953 13,652,805 21,748,758 Financial charges for future periods Present value of minimum lease payments 9.2 2021 Later than one and less than five years Particulars of advances (Gross) 2021 2020 (Rupees in '000) In local currency In foreign currencies 9.3 621,968,544 124,921,078 453,533,720 69,360,699 746,889,622 522,894,419 Advances include Rs. 7,746.935 million (2020: Rs. 7,381.473 million) which have been placed under non-performing status as detailed below: 2021 2020 Category of classification Domestic Other assets especially mentioned Substandard Doubtful Loss Overseas Overdue by: 181 to 365 days > 365 days Total Non Performing Loans Provision Non Performing Loans (Rupees in '000) 47,122 1,352,895 222,455 4,028,738 1,887 331,166 105,141 3,960,210 62,671 165,014 1,118,292 3,987,501 292 33,385 499,908 3,965,101 5,651,210 4,398,404 5,333,478 4,498,686 85,363 2,010,362 85,363 2,010,362 136,600 1,911,395 87,398 1,911,395 2,095,725 2,095,725 2,047,995 1,998,793 7,746,935 6,494,129 7,381,473 6,497,479 Provision 63
68. 9 .4 Particulars of provision against advances Note Specific 2021 General 6,497,479 6,145,308 12,642,787 6,201,412 3,389,309 9,590,721 223,681 17,349 241,030 68,496 5,158 73,654 - Specific provision 807,714 - General provision as per regulations –00 - As per IFRS 9 in overseas branches –00 - General provision for loans and advances 9.4.2 –00 Reversals (1,034,201) –00 807,714 887,878 –00 887,878 102,100 102,100 –00 4,000 4,000 331,425 331,425 –00 (3,159) (3,159) –00 –00 –00 (1,034,201) –00 (648,847) 2,750,000 –00 2,750,000 (648,847) (226,487) (544) 433,525 –00 207,038 (544) 239,031 (6,979 ) 2,750,841 –00 2,989,872 (6,979) –00 –00 –00 (4,481 ) –00 (4,481) 6,494,129 6,596,182 13,090,311 6,145,308 12,642,787 Opening balance Exchange adjustments Total Specific (Rupees in '000) 2020 General Total Charge for the year Amounts written off 9.5 Others Closing balance 6,497,479 9.4.1 Particulars of provision against advances In local currency In foreign currencies Specific 2021 General 2020 General 4,398,404 2,095,725 6,119,390 476,792 10,517,794 2,572,517 4,498,686 1,998,793 6,017,290 128,018 10,515,976 2,126,811 6,494,129 6,596,182 13,090,311 6,497,479 6,145,308 12,642,787 Total Specific (Rupees in '000) Total 9.4.2 In line with its prudent policies, the Bank also makes general provision against its loans and advances portfolio. This general provision is in addition to the requirements of the Prudential Regulations and as of 31 December 2021 amounts to Rs. 5,750 million (2020: Rs. 5,750 million). 9.4.3 For the purposes of determining provision against non-performing advances, the Bank has not taken into account the Forced Sales Value of pledged stock and mortgaged properties held as collateral against non-performing advances. 9.5 PARTICULARS OF WRITE OFFs Note 2021 2020 (Rupees in '000) 9.5.1 Against Provisions Directly charged to Profit and Loss account 9.5.2 Against Provisions Write Offs of below Rs. 500,000 Write Offs of Rs. 500,000 and above 9.4 9.6 544 –00 6,979 –00 544 6,979 544 –00 2,619 4,360 544 6,979 64
69. 9 .6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962 the statement in respect of written-off loans or any other financial relief of rupees five hundred thousand or above allowed to a person(s) during the year ended is given in Annexure I. Note 10. FIXED ASSETS Capital work-in-progress Property and equipment 2021 2020 (Rupees in '000) 10.1 10.2 10.1 Capital work-in-progress Civil works Advance payment for purchase of equipments Advance payment towards suppliers, contractors and property Consultants’ fee and other charges 10.2 Property and Equipment At 01 January 2021 Cost / Revalued amount Accumulated depreciation Net book value 1,738,112 53,954,665 2,279,324 41,688,669 55,692,777 43,967,993 595,516 125,432 1,015,099 2,065 454,808 51,867 1,740,546 32,103 1,738,112 2,279,324 2021 Leasehold Building on land Leasehold land Furniture Electrical, office Improvements Right of use and and computer Vehicles to leasehold assets fixture equipment building (Rupees in '000) 12,850,032 12,082,997 –00 (284,535 ) 12,850,032 11,798,462 1,681,760 (694,593 ) 987,167 10,117,278 (6,686,117) 3,431,161 3,731,350 (1,755,689) 1,975,661 3,114,048 (2,208,605 ) 905,443 Total 12,652,438 56,229,903 (2,911,695 ) (14,541,234 ) 9,740,743 41,688,669 Year ended 31 December 2021 Opening net book value Additions Additions to ROUs Movement in surplus on assets revalued during the year Disposals Depreciation charge Other adjustments / transfers Closing net book value 11,798,462 6,188,274 –00 987,167 329,501 –00 3,431,161 2,234,677 –00 1,975,661 921,689 –00 905,443 1,009,595 –00 9,740,743 –00 3,184,111 41,688,669 14,249,441 3,184,111 –00 –00 –00 (2,226 ) –00 (583,277 ) –00 4,406 16,415,737 17,405,639 –00 (3,365 ) (154,430 ) –00 1,158,873 –00 (6,720) (1,134,945) –00 4,524,173 –00 (35,494) (684,373) –00 2,177,483 –00 (6,652 ) (397,980 ) (4,406 ) 1,506,000 –00 (335,406 ) (1,854,453 ) 31,765 10,766,760 –00 (389,863 ) (4,809,458 ) 31,765 53,954,665 At 31 December 2021 Cost / Revalued amount Accumulated depreciation Net book value 16,415,737 18,321,869 –00 (916,230 ) 16,415,737 17,405,639 1,994,269 (835,396 ) 1,158,873 12,140,362 (7,616,189) 4,524,173 4,296,594 (2,119,111) 2,177,483 4,025,751 (2,519,751 ) 1,506,000 14,928,314 72,122,896 (4,161,554 ) (18,168,231 ) 10,766,760 53,954,665 10% 20% 20% 20% Rate of depreciation (percentage) 12,850,032 3,565,705 –00 –00 2.08% - 20% As per lease term 65
70. 2020 Leasehold land At 01 January 2020 Cost / Revalued amount Accumulated depreciation Net book value Building on Leasehold land Furniture and fixture 10,724,438 10,083,880 –00 (779,371 ) 10,724,438 9,304,509 1,420,179 (576,463 ) 843,716 8,831,843 (5,761,312) 3,070,531 3,390,210 (1,601,324) 1,788,886 2,766,206 (1,732,020 ) 1,034,186 9,594,046 46,810,802 (1,395,355 ) (11,845,845 ) 8,198,691 34,964,957 Improvements Right of use to leasehold assets building Total Year ended 31 December 2020 Opening net book value Additions Additions to ROUs Movement in surplus on assets revalued during the year Disposals Depreciation charge Other adjustments / transfers Closing net book value 9,304,509 1,100,546 –00 843,716 274,354 –00 3,070,531 1,439,840 –00 1,788,886 947,251 –00 1,034,186 394,308 –00 8,198,691 –00 3,224,658 34,964,957 4,447,637 3,224,658 1,703,806 1,914,291 –00 (14,051 ) –00 (434,007 ) 130,450 (72,826 ) 12,850,032 11,798,462 –00 (2,207 ) (128,696 ) –00 987,167 –00 (3,680) (1,075,530) –00 3,431,161 –00 (137,195) (623,281) –00 1,975,661 –00 (1,723 ) (518,608 ) (2,720 ) 905,443 –00 –00 (1,661,393 ) (21,213 ) 9,740,743 3,618,097 (158,856 ) (4,441,515 ) 33,691 41,688,669 At 31 December 2020 Cost / Revalued amount Accumulated depreciation Net book value 12,850,032 12,082,997 –00 (284,535 ) 12,850,032 11,798,462 1,681,760 (694,593 ) 987,167 10,117,278 (6,686,117) 3,431,161 3,731,350 (1,755,689) 1,975,661 3,114,048 (2,208,605 ) 905,443 10% 20% 20% 20% 10,724,438 291,338 –00 Rate of depreciation (percentage) 10.3 Electrical, office and computer Vehicles equipment (Rupees in '000) –00 2.22% - 12.5% 12,652,438 56,229,903 (2,911,695 ) (14,541,234 ) 9,740,743 41,688,669 As per lease term In accordance with the Bank's accounting policy, the Bank's leasehold land and buildings on leasehold land were revalued at 01 June 2020. The revaluation was carried out by an independent valuer, M/s. Iqbal A. Nanjee & Co. on the basis of present physical condition and location of leasehold land and buildings on leasehold land. Fair values were ascertained by the independent valuer under market approach through various enquiries conducted by them at site from real estate agents and brokers. The revaluation resulted in surplus of Rs. 3,618.097 million over the book value of the respective properties and also net deficit of Rs. 122.190 million on certain properties. Had the leasehold land and buildings on leasehold land not been revalued, the total carrying amounts of revalued properties as at 31 December 2021 would have been as follows: 2021 2020 (Rupees in '000) 10.4 Leasehold land 12,474,150 8,908,446 Buildings on leasehold land 13,053,397 7,253,599 257,991 5,058,620 660,814 1,606,236 7,583,661 225,879 4,099,451 514,711 1,330,514 6,170,555 The gross carrying amount of fully depreciated assets still in use is as follows: Furniture and fixture Electrical, office and computer equipment Vehicles Improvements to leasehold buildings 66
71. 10 .5 Details of disposal of fixed assets during the year: Particulars Cost Habib Insurance Company Limited (Related Party - Karachi) Furniture and fixture 11. 2,137 1,227 3,239 Electrical, office and computer equipment 14,024 5,084 11,886 Vehicles 13,664 7,420 13,735 INTANGIBLE ASSETS 2021 2020 (Rupees in '000) Computer software At 01 January, Cost Accumulated amortisation and impairment Net book value Year ended 31 December, Opening net book value Additions - directly purchased Amortisation charge Closing net book value At 31 December, Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Useful life 11.1 12. 2021 Book Insurance value claim (Rupees in '000) 1,412,077 (1,200,966) 211,111 1,279,007 (913,579 ) 365,428 211,111 364,015 (306,880) 268,246 365,428 133,070 (287,387 ) 211,111 1,776,092 (1,507,846) 268,246 1,412,077 (1,200,966 ) 211,111 50% 50% 2 years 2 years As at 31 December 2021, the gross carrying amount of fully amortised intangible assets still in use amounted to Rs. 1,507.846 million (2020: Rs. 867.542 million). DEFERRED TAX ASSET / (LIABILITIES) As at 01 January 2021 Deductible Temporary Differences on Provision against diminution in the value of investments Provision against loans and advances, off-balance sheet, etc. Workers’ welfare fund Taxable Temporary Differences on Accelerated tax depreciation Surplus on revaluation of fixed assets / non-banking assets Remeasurement of defined benefit plan Surplus on revaluation of available-for-sale investments Surplus on revaluation of held-for-trading securities 2021 Recognised Recognised in profit and in other loss account comprehensive income (Rupees in '000) As at 31 December 2021 1,270,805 1,725,436 848,152 3,844,393 93,402 358,170 338,756 790,328 –00 –00 –00 –00 1,364,207 2,083,606 1,186,908 4,634,721 (927,430) (1,606,514) –00 (1,486,930) (270) (4,021,144) (219,219) 77,005 –00 –00 (370) (142,584) –00 (304,067) –00 1,907,902 –00 1,603,835 (1,146,649) (1,833,576) –00 420,972 (640) (2,559,893) (176,751) 647,744 1,603,835 2,074,828 67
72. 2020 As at 01 January 2020 Recognised in profit and loss account Recognised in other comprehensive income As at 31 December 2020 (Rupees in '000) Deductible Temporary Differences on Provision against diminution in the value of investments Provision against loans and advances, off-balance sheet, etc. Workers’ welfare fund Taxable Temporary Differences on Accelerated tax depreciation Surplus on revaluation of fixed assets / non-banking assets Remeasurement of defined benefit plan Surplus on revaluation of available-for-sale investments Surplus on revaluation of held-for-trading securities 13. 772,704 785,860 –00 1,558,564 498,101 939,576 848,152 2,285,829 –00 –00 –00 –00 1,270,805 1,725,436 848,152 3,844,393 (960,038) (984,461) (165,629) (828,625) –00 (2,938,753) 32,608 56,261 165,629 –00 (270) 254,228 –00 (678,314) –00 (658,305) –00 (1,336,619) (927,430) (1,606,514) –00 (1,486,930) (270) (4,021,144) (1,380,189) 2,540,057 (1,336,619) (176,751) OTHER ASSETS Note Income / mark-up accrued in local currency - net of provision Income / mark-up accrued in foreign currencies - net of provision Advances, deposits, advance rent and other prepayments Non-banking assets acquired in satisfaction of claims Mark to market gain on forward foreign exchange contracts Acceptances Stationery and stamps on hand Receivable from SBP on encashment of Government Securities ATM settlement account Others 19,758,226 1,174,158 1,161,812 13.1 811,454 2,993,003 55,030,553 436,018 150,135 –00 4,166,147 Less: Provision held against other assets 13.2 Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 13.1 Other Assets-total 13.1 Market value of non-banking assets acquired in satisfaction of claims 2021 2020 (Rupees in '000) 16,941,538 691,713 672,169 814,912 931,153 52,522,498 393,693 33,013 943,062 867,290 85,681,506 (7,497 ) 74,811,041 (6,884 ) 85,674,009 74,804,157 139,488 139,165 85,813,497 74,943,322 1,016,627 957,093 Market value of the non-banking assets acquired in satisfaction of claims has been carried out by independent valuers, M/s. K.G.Traders (Pvt.) Ltd. and M/s. MYK Associates (Pvt.) Ltd. based on present physical condition and location of non-banking assets. Fair values were ascertained by the independent valuers under market approach through various enquiries conducted by them at site from real estate agents and brokers. 68
73. 2021 2020 (Rupees in '000) 13.1.1 Non-banking assets acquired in satisfaction of claims Opening balance Revaluations Transferred to fixed assets Depreciation Closing balance 954,077 4,165 –00 (7,300) 950,942 Provision held against other assets Receivable against consumer loans 13.2.1 Movement in provision held against other assets Opening balance Charge for the year Reversals 909,382 106,658 (54,904) (7,059) 954,077 13.2 16. 6,884 2,740 (2,127) 7,383 6,080 (5,255) 825 (1,324) Closing balance 7,497 CONTINGENT ASSETS There were no contingent assets of the Bank as at 31 December 2021 (2020: Nil). 6,884 Note 15. 6,884 613 –00 Amount written off 14. 7,497 BILLS PAYABLE In Pakistan 2021 2020 (Rupees in '000) 29,803,755 31,013,221 16.1 16.2 72,330,093 13,588,833 58,086,099 8,958,686 16.3 16.4 16.5 16.6 16.7 16.8 16.9 31,605,152 566,723 26,893 735,467 7,842,569 32,012,142 100,000 25,128,756 331,848 26,957 416,073 15,720,186 4,387,473 –00 158,807,872 16.10 119,942,164 16.11 23,102,205 113,056,078 98,345,030 –00 301,852,241 211,401,108 360,661 302,212,902 198,297 211,599,405 BORROWINGS Secured Borrowings from the State Bank of Pakistan Under export refinance scheme Under renewable energy Under long term financing for imported and locally manufactured plant and machinery Under modernisation of small and medium enterprises Under women entrepreneurship Under financing facility for storage of agricultural produce Under refinance scheme for payment of wages and salaries Under temporary economic refinance facility Under refinance facility for combating COVID-19 Repurchase agreement borrowings Borrowings from financial institutions Total secured Unsecured Overdrawn nostro accounts 16.1 These carry mark-up rates ranging from 1% to 2% (2020: 1% to 2%) per annum, payable quarterly at the time of partial payment or upon maturity of loan, whichever is earlier. 16.2 These carry mark-up rates of 2% to 3% (2020: 2% to 3%) per annum having maturity periods over ten years. 69
74. 16 .3 These carry mark-up rates ranging from 2% to 6% (2020: 2% to 6%) per annum having maturity periods upto ten years. 16.4 These carry mark-up rates of 2% (2020: 2%) per annum having maturity periods upto ten years. 16.5 These carry mark-up rate of Nil (2020: Nil) per annum having maturity periods upto five years. 16.6 These carry mark-up rates from 2.0% to 3.5% (2020: 2.5% to 3.5%) per annum having maturity periods upto seven years. 16.7 These carry mark-up rates upto 1% (2020: 1%) per annum having maturity periods upto three years. 16.8 These carry mark-up rates of 1% (2020: 1%) per annum having maturity periods upto ten years. 16.9 These carry mark-up rates of Nil (2020: Nil) per annum having maturity periods upto five years. 16.10 These repurchase agreement borrowings are secured against Pakistan Investment Bonds and Market Treasury Bills. These carry effective mark-up rates ranging from 9.89% to 10.70% (2020: 7.05%) per annum, having maturity periods upto two months. 16.11 These borrowings from financial institutions carry mark - up rates ranging from 0.95% to 1.64% per annum having maturity periods upto one year. 16.12 Particulars of borrowings with respect to currencies 278,750,036 23,462,866 302,212,902 In local currency In foreign currencies 17. 2021 2020 (Rupees in '000) 211,401,108 198,297 211,599,405 DEPOSITS AND OTHER ACCOUNTS In local currency Customers Current deposits Savings deposits Term deposits Current deposits - remunerative Others Financial institutions Current deposits Savings deposits Term deposits Current deposits - remunerative Others 2021 In foreign currencies In local Total currency (Rupees in '000) 2020 In foreign currencies Total 451,790,944 331,340,746 204,273,302 50,037,483 47,617,002 38,981,706 501,828,427 378,957,748 243,255,008 351,389,228 283,179,499 177,719,569 40,963,348 43,773,628 40,377,454 392,352,576 326,953,127 218,097,023 117,604,631 20,969,061 3,844,969 8,647,765 121,449,600 29,616,826 120,360,146 15,419,195 2,247,064 7,337,309 122,607,210 22,756,504 1,125,978,684 149,128,925 1,275,107,609 948,067,637 134,698,803 1,082,766,440 4,373,863 10,929,524 1,363,787 361,260 18 193,282 4,735,123 10,929,542 1,557,069 3,568,698 576,096 1,335,500 203,742 18 135,060 3,772,440 576,114 1,470,560 17,195,258 13,850 33,876,282 284,878 –00 839,438 17,480,136 13,850 34,715,720 10,381,784 21,286 15,883,364 697,737 –00 1,036,557 11,079,521 21,286 16,919,921 1,159,854,966 149,968,363 1,309,823,329 963,951,001 135,735,360 1,099,686,361 70
75. 2021 2020 (Rupees in '000) 17.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 17.2 805,485,582 42,529,298 53,091,501 240,760 34,474,960 374,001,228 694,690,728 43,377,359 52,701,961 341,145 16,578,776 291,996,392 1,309,823,329 1,099,686,361 Deposits includes eligible deposits covered under deposit protection mechanism as required by the Deposit Protection Act, 2016 amounting to Rs. 903,117.371 million (2020: Rs. 787,834.683 million). Note 18. 2021 2020 (Rupees in '000) SUBORDINATED DEBT - Unsecured Term Finance Certificates (TFCs) - V - (Unquoted) Term Finance Certificates (TFCs) - VI - (Unquoted) Term Finance Certificates (TFCs) - VII - (Unquoted) Term Finance Certificates (TFCs) - VIII - (Unquoted) 18.1 18.2 18.3 18.4 –00 7,000,000 3,995,200 5,000,000 15,995,200 3,992,800 7,000,000 3,996,800 –00 14,989,600 18.1 During the period, the Bank exercised the call option of Term Finance Certificates - V in accordance with the Trust Deed and Terms and Conditions for the TFC issue, after completing the regulatory requirements. Accordingly, the said TFCs were redeemed in full on 17 March 2021. 18.2 Term Finance Certificates - VI (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 7,000 million December 2017 Perpetual AA semi-annually No fixed or final redemption date. Payable six monthly at six months KIBOR (ask side) plus 1.50% without any floor or cap. The Issuer will have full discretion over the amount and timing of profit distribution and waiver of any profit distribution or other payment will not constitute an event of default. On or after five years with prior SBP approval. As per SBP's requirement, the Bank shall not exercise call option unless the called instrument is replaced with capital of same or better quality. No profit may be paid if such payment will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a point of non-viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 71
76. 18 .3 Term Finance Certificates - VII (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 4,000 million December 2018 December 2028 AA+ semi-annually 6th - 108th month: 0.02% per each semi-annual period; 114th and 120th month: 49.82% each. 6 - Months KIBOR (ask side) + 1.00% per annum. On or after five years with prior SBP approval. Neither profit nor principal may be paid if such payments will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a Point of Non-Viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 18.4 Term Finance Certificates - VIII (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 5,000 million September 2021 September 2031 AA+ semi-annually 6th - 108th month: 0.02% per each semi-annual period; 114th and 120th month: 49.82% each. 6 - Months KIBOR (ask side) + 0.75% per annum. On or after five years with prior SBP approval. Neither profit nor principal may be paid if such payments will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a Point of Non-Viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 72
77. Note 19 . OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Unearned commission income Accrued expenses Acceptances Unclaimed / dividend payable Mark to market loss on forward foreign exchange contracts Branch adjustment account Payable to defined benefit plan Charity payable Provision against off - balance sheet items Security deposits against leases / ijarah Provision for compensated absences Other security deposits Workers’ welfare fund Payable to SBP / NBP Payable to supplier against murabaha Insurance payable Lease liability against right-of-use assets Current taxation (payments less provisions) ATM settlement account Others 19.1 2021 2020 (Rupees in '000) 2,045,632 302,370 1,416,819 2,942,988 55,030,553 546,228 787,128 5,764,199 974,313 12,978 19.1 173,319 7,174,202 19.2 1,127,704 765,531 3,043,353 1,323,252 223,202 610,916 12,235,539 2,043,762 1,729,169 1,528,729 1,683,612 196,066 304,009 2,532,647 52,522,498 474,931 490,822 2,639,104 683,514 41,298 146,692 5,690,619 969,754 647,203 2,423,293 455,014 166,017 470,883 10,526,139 450,248 –00 1,255,250 101,801,886 84,769,613 146,692 129,369 4,141 1,470 60,763 (38,277 ) 19,748 (3,895 ) 22,486 15,853 173,319 146,692 Provision against off - balance sheet obligations Opening balance Exchange adjustment against IFRS 9 in overseas branches Charge for the year Reversals Closing balance 19.1.1 The provision against off-balance sheet obligations includes provision in respect of letter of guarantees and shipping guarantee. 19.2 Provision for compensated absences has been determined on the basis of independent actuarial valuation. The significant assumptions used for actuarial valuation were as follows: 2021 2020 (% per annum) Discount rate 12.25% 10.25% Expected rate of increase in salary in future years 11.25% 9.25% 73
78. 20 . SHARE CAPITAL 20.1 Authorised Capital 2021 2020 Number of shares 1,500,000,000 1,500,000,000 20.2 2021 2020 (Rupees in '000) Ordinary shares of Rs. 10 each 15,000,000 15,000,000 300,000 10,814,254 11,114,254 300,000 10,814,254 11,114,254 Issued, subscribed and paid up capital 2021 2020 Number of shares 30,000,000 1,081,425,416 1,111,425,416 20.3 30,000,000 1,081,425,416 1,111,425,416 Fully paid in cash Issued as bonus shares As of statement of financial position date 162,731,961 (2020: 162,818,503) ordinary shares of Rs. 10/- each were held by the related parties. Note 21. 2021 2020 (Rupees in '000) SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of: - Available for sale securities - Fixed Assets - Non-banking assets acquired in satisfaction of claims 8.1 21.1 21.2 (1,079,413 ) 8,869,136 139,488 4,248,372 9,062,739 139,165 7,929,211 13,450,276 (420,972 ) 1,849,120 54,804 1,482,952 1,486,930 1,663,701 13,161 3,163,792 6,446,259 10,286,484 Surplus on revaluation of fixed assets as at 01 January Surplus on revaluation of the Bank’s fixed assets during the year Transferred to unappropriated profit in respect of incremental depreciation charged during the year 9,062,739 –00 5,495,269 3,726,240 Surplus on revaluation of fixed assets as at 31 December 8,869,136 9,062,739 1,663,701 260,923 (75,504 ) 1,049,269 670,002 (55,570 ) 1,849,120 1,663,701 7,020,016 7,399,038 Deferred tax on surplus / (deficit) on revaluation of: - Available for sale securities - Fixed Assets - Non-banking assets acquired in satisfaction of claims 21.1 21.1 21.2 Surplus on revaluation of fixed assets (193,603 ) (158,770 ) Less: related deferred tax liability on: - revaluation as at 01 January - adjustment / revaluation recognised during the year - incremental depreciation charged during the year 74
79. Note 21 .2 2021 2020 (Rupees in '000) Surplus on revaluation of non - banking assets acquired in satisfaction of claims Surplus on revaluation of non-banking assets as at 01 January Surplus on revaluation of non-banking assets during the year Transferred to unappropriated profit in respect of incremental depreciation charged during the year 139,165 4,165 Surplus on revaluation of non-banking assets as at 31 December 139,488 (3,842 ) 34,482 106,658 (1,975 ) 139,165 Less: related deferred tax liability on: - revaluation as at 01 January - adjustment / revaluation recognised during the year - incremental depreciation charged during the year 22. 5,540 8,312 (691) 54,804 13,161 84,684 126,004 126,082,119 438,585,630 2,030,711 92,814,672 351,718,547 1,537,827 566,698,460 446,071,046 24,274,161 101,807,958 126,082,119 20,716,906 72,097,766 92,814,672 301,891,236 207,740,057 22.2.1 131,220,965 22.2.2 4,717,424 128,823,137 7,124,914 756,005 438,585,630 8,030,439 351,718,547 72,497,648 58,723,317 75,472,905 53,350,232 131,220,965 128,823,137 CONTINGENCIES AND COMMITMENTS - Guarantees - Commitments - Other contingent liabilities 22.1 13,161 43,144 (1,501 ) 22.1 22.2 22.3 Guarantees: Financial guarantees Performance guarantees 22.2 Commitments: Documentary credits and short term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts - forward lending Commitments for acquisition of: - operating fixed assets 22.2.1 Commitments in respect of forward foreign exchange contracts Purchase Sale The maturities of above contracts are spread over the periods upto two years. 22.2.2 Commitments in respect of forward lending 4,717,424 7,124,914 These represent commitments that are irrevocable because they cannot be withdrawn at the discretion of the Bank without the risk of incurring significant penalty or expense. 75
80. 2021 2020 (Rupees in '000) 22.3 22.4 Claims against the Bank not acknowledged as debts 2,030,711 1,537,827 Other contingent liabilities Income tax returns of the Bank have been submitted upto and including the Bank’s financial year 2020 (Tax Year 2021). The income tax assessments of the Bank have been finalized upto and including tax year 2018. Matters of disagreement exist between the Bank and tax authorities for various tax years and are pending with the Commissioner Inland Revenue (Appeals) and Income Tax Appellate Tribunal (ITAT). These issues mainly relate to addition of general provision (specific), reversal of provision for non-performing loans, charge for defined benefit plan and provision for compensated absences. For tax year 2012 and 2013, the Additional Commissioner Inland Revenue (ACIR) passed an amended order u/s. 122(5A) of the Income Tax Ordinance, 2001 resulting in an impact of Rs. 482.233 million. Subsequently, Commissioner Inland Revenue (Appeals) has passed order by allowing Rs. 134.616 million resulting in an aggregate net tax impact of Rs. 347.617 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned orders. Commissioner Inland Revenue (Appeals) passed an appellate order against Deputy Commissioner Inland Revenue (DCIR) order for Tax Year 2014 (Accounting Year 2013) by allowing certain expenses resulting in an impact of Rs. 25.300 million and remanded back certain expenses to DCIR. The resulted aggregate net tax impact stands at Rs. 125.469 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2015 (Accounting Year 2014) by allowing certain expenses resulting in an impact of Rs. 75.256 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 226.599 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2016 (Accounting Year 2015) by allowing certain expenses resulting in an impact of Rs. 138.418 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 69.261 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2017 (Accounting Year 2016) by allowing certain expenses resulting in an impact of Rs. 94.672 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 103.844 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2018 (Accounting Year 2017) by allowing certain expenses resulting in an impact of Rs. 65.722 million. The resulted aggregate net tax impact stands at Rs. 194.376 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) has remanded back the order of Deputy Commissioner Inland Revenue (DCIR) against Federal Excise Duty levy on certain items for the period January 2013 to December 2015. The resulted aggregate net tax impact stands at Rs. 80.766 million. Commissioner (HQ), Punjab Revenue Authority has passed order for the period from January to December 2016 levying Punjab Sales Tax on services on certain items resulting in an impact of Rs. 112.641 million. Appellate Tribunal – Punjab Revenue Authority has remanded back the order of Commissioner (HQ), Punjab Revenue Authority. Commissioner Inland Revenue (Appeals) has passed orders for tax years 2009 and 2011 confirming disallowance of provision for non-performing loans, other provisions and amortization of intangible assets having an aggregate tax impact of Rs. 15.372 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned orders. Commissioner Inland Revenue (Appeals), Mirpur AJ&K has annulled the amendments made by Assistant Commissioner Inland Revenue, Mirpur AJ&K for Tax Year 2014 to 2018. This resulted in a favorable aggregate net tax impact of Rs. 93.443 million. Assistant Commissioner Inland Revenue, Mirpur AJ&K has finalized audit of the Bank’s Azad Kashmir operations for Tax Year 2019 by disallowing certain expenses resulting in an impact of Rs. 92.311 million. The Bank has filed an appeal before Commissioner Inland Revenue (Appeals), Mirpur AJ&K. The management, based on the opinion of its tax advisor, is confident about the favorable outcome of the above matters. 76
81. 23 . DERIVATIVE INSTRUMENTS The Bank deals in derivative financial instruments namely forward foreign exchange contracts and foreign currency swaps with the principal view of hedging the risks arising from its trade business. As per the Bank’s policy, these contracts are reported on their fair value at the statement of financial position date. The gains and losses from revaluation of these contracts are included under “income from dealing in foreign currencies”. Unrealised gains and losses on these contracts are recorded in the statement of financial position under “other assets / other liabilities”. These products are offered to the Bank’s customers to protect from unfavourable movements in foreign currencies. The Bank hedges such exposures in the inter-bank foreign exchange market. 23.1 Product Analysis Counter Parties Banks Hedging CONTRACT Notional Mark to Principal Market gain / (loss) 2021 SWAP Notional Mark to Principal Market gain / (loss) (Rupees in '000) TOTAL Notional Mark to Principal Market gain / (loss) 7,709,331 (24,745) 62,902,410 (368,653) 70,611,741 (393,398) Other Entities Hedging 60,609,224 2,599,273 –000 –000 60,609,224 2,599,273 Total Hedging 68,318,555 2,574,528 62,902,410 (368,653) 131,220,965 2,205,875 2020 Banks Hedging 23.2 9,107,115 (27,012) 68,172,458 372,325 77,279,573 345,313 Other Entities Hedging 51,543,564 95,018 –000 –000 51,543,564 95,018 Total Hedging 60,650,679 68,006 68,172,458 372,325 128,823,137 440,331 Number of Contracts Notional Principal Maturity Analysis 2021 Mark to Market Negative Positive (Rupees in '000) Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 220 494 470 254 1 1,439 18,737,362 59,723,927 37,622,436 15,044,175 93,065 131,220,965 (100,927) (402,549) (229,758) (53,894) –00 (787,128) Net 257,804 921,515 1,215,887 595,124 2,673 2,993,003 156,877 518,966 986,129 541,230 2,673 2,205,875 296,381 340,228 161,815 132,729 –00 931,153 183,532 121,492 32,986 102,321 –00 440,331 2020 Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 297 412 352 177 –0 1,238 51,974,821 46,596,575 19,991,703 10,260,038 –00 128,823,137 (112,849) (218,736) (128,829) (30,408) –00 (490,822) 77
82. Note 24 . 25. 26. 27. 27.1 28. 28.1 MARK-UP / RETURN / INTEREST EARNED On loans and advances On investments On deposits with financial institutions On securities purchased under resale agreements On lending to financial institutions On call money lendings MARK-UP / RETURN / INTEREST EXPENSED Deposits Borrowings from SBP Subordinated debt Cost of foreign currency swaps Repurchase agreement borrowings Mark-up expense on lease liability against right-of-use assets Other borrowings FEE AND COMMISSION INCOME Branch banking customer fees Investment banking fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Commission on trade Commission on guarantees Commission on cash management Commission on home remittances Others (LOSS) / GAIN ON SECURITIES Realised Unrealised-held for trading 27.1 Realised (loss) / gain on: Federal Government Securities Shares Mutual Funds OTHER INCOME Rent on property Gain on sale of fixed assets-net Recovery of expenses from customers Lockers rent Exchange gain realised on closure of overseas branch Others 28.1 2021 2020 (Rupees in '000) 39,771,828 76,469,461 253,845 241,458 15,233 370 116,752,195 43,412,475 81,094,310 350,731 198,514 216,003 554 125,272,587 43,251,869 2,310,305 1,178,571 1,511,934 11,530,205 1,124,704 235,892 61,143,480 48,041,028 1,616,923 1,753,337 1,165,922 13,923,326 956,906 195,169 67,652,611 1,309,872 72,167 80,006 1,376,752 333,942 5,132,467 592,864 221,048 149,562 36,170 9,304,850 1,054,380 127,450 48,499 491,655 153,330 4,046,591 406,053 176,337 118,958 12,991 6,636,244 (42,016 ) 870 (41,146 ) 184,851 771 185,622 5,199 470 (47,685 ) (42,016 ) 5,494 10,960 168,397 184,851 11,036 460,918 355,536 15,846 292,780 2,205 5,990 437,189 322,776 13,176 –00 1,124 1,138,321 780,255 Includes courier, SWIFT, postage and other charges recovered from customers. 78
83. Note 29 . 2021 2020 (Rupees in '000) OPERATING EXPENSES Total compensation expenses 29.1 Property expenses Rent and taxes Insurance Utilities cost Security (including guards) Repair and maintenance (including janitorial charges) Depreciation Information technology expenses Software maintenance Hardware maintenance Depreciation Amortisation Network charges Other operating expenses Directors’ fees and allowances Fees and allowances to Shariah Board Insurance Legal and professional charges Outsourced services costs Travelling and conveyance NIFT and other clearing charges Depreciation Repair and maintenance Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement and publicity Donations Auditors remuneration Commission and brokerage Entertainment and staff refreshment Vehicle running expenses Subscriptions and publications CNIC verification charges Security charges Others 29.2 29.3 29.4 17,073,534 15,442,454 314,726 14,830 1,522,002 1,289,995 390,784 2,843,008 310,778 19,265 1,094,841 1,029,806 326,252 2,621,067 6,375,345 5,402,009 5,367 1,308,829 370,878 306,880 559,819 2,551,773 4,667 1,194,369 223,401 287,387 430,124 2,139,948 40,770 14,779 519,064 305,256 1,819,571 282,181 193,036 1,602,872 1,570,464 47,460 265,970 498,510 844,312 460,293 244,407 9,187 611,636 385,803 1,599,765 224,562 169,702 473,360 570,238 35,037 12,679 494,678 171,636 1,639,293 188,097 136,532 1,604,106 1,453,085 27,116 231,505 344,705 782,915 628,577 157,132 8,117 408,345 285,541 1,097,251 209,754 92,171 311,961 693,308 12,753,198 11,013,541 38,753,850 33,997,952 79
84. 2021 2020 (Rupees in '000) 29.1 Total compensation expense Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Charge for employees compensated absences Social security Staff indemnity 1,136,888 10,173,036 491,348 703,596 3,070,940 767,899 553,727 155,639 6,330 14,131 17,073,534 663,964 9,748,008 424,170 600,454 2,592,508 648,628 505,450 247,041 1,477 10,754 15,442,454 The compensation provided by the Bank to employees is composed of fixed pay structures and do not include any variable element that varies based on performance benchmarks or targets. 29.2 Total cost for the year included in other operating expenses relating to material outsourced activities is Rs. 38.575 million (2020: Rs. 35.885 million) paid to a company incorporated outside Pakistan. Material outsourcing arrangements are as follows: S.No. Name of material outsourced activity Name of service provider Nature of service 1. Point of Sale (POS) Acquiring M/s. Wemsol (Private) Limited 2. Vision Plus-Credit Card System M/s. Arab Financial Services (AFS) Terminal Management & Merchant On Boarding Credit Card 2021 2020 (Rupees in '000) 29.3 The detail of donations is given below: Al-Sayyeda Benevolent Trust Childlife Foundation Habib Education Trust* Habib Medical Trust Habib Poor Fund** Masoomeen Hospital Patients’ Aid Foundation Prime Minister’s Corona Philanthropy Drive Rahmatbai Habib Food and Clothing Trust Rahmatbai Habib Widows and Orphans Trust The Citizens Foundation The Health Foundation The Indus Hospital The Kidney Centre 6,000 15,000 6,000 6,000 6,000 –00 146,207 –00 6,000 6,000 6,200 1,000 40,000 –00 244,407 3,000 10,000 3,000 3,000 3,000 13,000 50,000 25,532 3,000 3,000 5,600 –00 10,000 25,000 157,132 * Mr. Qumail R. Habib, Executive Director, is Managing Trustee of Habib Education Trust. ** Mr. Murtaza H. Habib, Director, is Trustee of Habib Poor Fund. 29.4 Auditors’ remuneration Audit fee Half yearly review Other certifications Gratuity fund Out of pocket expenses 30. 3,135 990 3,459 109 1,494 9,187 3,135 990 2,759 109 1,124 8,117 36,294 56,672 OTHER CHARGES Penalties imposed by the State Bank of Pakistan 80
85. Note 31 . (REVERSALS) / PROVISIONS AND WRITE OFFS-NET (Reversal) / provision for diminution in value of investments - net 8.3 Provision against loans and advances - net 9.4 Provision against other assets 13.2.1 Provision against off-balance sheet items 19.1 Deficit on revaluation of fixed asset - net 32. (277,397 ) 207,038 613 22,486 – (47,260 ) 1,414,689 2,989,872 825 15,853 122,190 4,543,429 TAXATION Current Prior years Deferred 32.1 2021 2020 (Rupees in '000) 12,218,233 –00 (647,744 ) 11,570,489 13,300,165 9,420 (2,540,057 ) 10,769,528 Profit before taxation 30,272,788 28,581,064 Tax at the applicable rate of 35% (2020: 35%) Tax effects of: Expenses that are not deductible in determining taxable income Tax effect of super tax Others 10,595,476 10,003,372 (278,139 ) 1,253,152 –00 11,570,489 (715,091 ) 1,351,810 129,437 10,769,528 Relationship between tax expense and accounting profit The effective tax rate for the year is 38% (2020: 38%). 2021 2020 (Rupees in '000) 33. BASIC AND DILUTED EARNINGS PER SHARE Profit for the year 18,702,299 17,811,536 (Number) Weighted average number of ordinary shares 1,111,425,416 1,111,425,416 (Rupees) Basic and diluted earnings per share 16.83 Note 34. 16.03 2021 2020 (Rupees in '000) CASH AND CASH EQUIVALENTS Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 5 6 16 118,599,741 6,740,008 (360,661) 105,935,947 19,662,515 (198,297) 124,979,088 125,400,165 81
86. 34 .1 Reconciliation of movement of liabilities to cash flows arising from financing activities 2021 Subordinated Lease Dividend debt liability payable (Rupees in '000) Balance as at 01 January 2021 14,989,600 10,526,139 Changes from financing cash flows Receipts / (payments) against subordinated debt-net Payment against lease liability Dividend paid 1,005,600 –00 –00 –00 (2,215,854) –00 –00 –00 (4,930,117 ) Total changes from financing cash flows 1,005,600 (2,215,854) (4,930,117 ) Other changes Addition to right-of-use-assets-net Mark-up expense on lease liability against right-of-use assets Final cash dividend (Rs. 4.50 per share) Balance as at 31 December 2021 474,931 –00 2,800,550 –00 –00 –00 1,124,704 –00 –00 5,001,414 –00 3,925,254 5,001,414 15,995,200 12,235,539 546,228 2020 Subordinated Lease Dividend debt liability payable (Rupees in '000) Balance as at 01 January 2020 14,992,800 8,316,718 426,525 Changes from financing cash flows Payments against subordinated debt Payment against lease liability Dividend paid (3,200 ) –00 –00 –00 (1,972,143) –00 –00 –00 (3,841,582 ) Total changes from financing cash flows (3,200 ) (1,972,143) (3,841,582 ) Other changes Addition to right-of-use-assets Mark-up expense on lease liability against right-of-use assets Final cash dividend (Rs. 3.50 per share) Balance as at 31 December 2020 –00 3,224,658 –00 –00 –00 956,906 –00 –00 3,889,988 –00 4,181,564 3,889,988 14,989,600 10,526,139 474,931 82
87. 2021 2020 (Number) 35. STAFF STRENGTH Permanent Temporary / on contractual basis Bank’s own staff at end of the year Outsourced 14,767 281 15,048 3,087 12,485 243 12,728 2,768 Total staff strength 18,135 15,496 35.1 Domestic Offshore 18,085 50 18,135 15,443 53 15,496 36. DEFINED BENEFIT PLAN 36.1 General description The Bank operates an approved gratuity fund for all its confirmed employees, which is administered by the Trustees. The benefits under the gratuity scheme are payable on retirement at the age of 60 years or on earlier cessation of service as under: Number of years of eligible service completed: Amount of gratuity payable: Less than 5 years 5 years or more but less than 10 years 10 years or more but less than 15 years 15 years or more Nil 1/3rd of basic salary for each year served 2/3rd of basic salary for each year served Full basic salary for each year served The Bank's costs and contributions are determined based on actuarial valuation carried out at each year end using Projected Unit Credit Actuarial Method. All actuarial gains / losses are recognised in 'other comprehensive income' as they occur and are not reclassified to profit and loss account in subsequent periods. 36.2 Number of employees under the scheme The number of employees covered under the defined benefit scheme are 14,718 (2020: 12,459). 36.3 Principal actuarial assumptions The latest actuarial valuation of the scheme was carried out on 31 December 2021 and the significant assumptions used for actuarial valuation were as follows: 2021 Discount Rate Expected rate of return on plan assets Expected rate of salary increase : Year 1 Year 2 Mortality rates (for death in service) Rates of employee turnover 2020 11.75% 10.25% 11.03% 14.83% 10.75% 9.25% 10.75% 9.25% SLIC(2001-05)-1 SLIC(2001-05)-1 Moderate Moderate 83
88. 36 .4 Reconciliation of payable to defined benefit plan Note Present value of obligations Fair value of plan assets 2021 2020 (Rupees in '000) 5,252,581 (4,278,268 ) Payable 4,323,932 (3,640,418 ) 974,313 683,514 Obligation at the beginning of the year Current service cost Interest cost Benefits paid during the year Remeasurement loss / (gain) 4,323,932 424,622 451,993 (141,808 ) 193,842 3,590,184 369,454 450,696 (72,206 ) (14,196 ) Obligation at the end of the year 5,252,581 4,323,932 3,640,418 385,267 491,348 (141,808 ) (96,957 ) 3,116,957 395,980 424,170 (72,206 ) (224,483 ) 4,278,268 3,640,418 36.5 Movement in defined benefit obligations 36.6 Movement in fair value of plan assets Fair value at the beginning of the year Interest income on plan assets Contribution by the Bank-net Actual benefits paid during the year Remeasurement loss on plan assets 36.8.2 Fair value at the end of the year 36.7 Movement in payable under defined benefit scheme Opening balance Charge for the year Contribution by the Bank Remeasurement loss recognised in Other Comprehensive Income during the year Closing Balance 36.8.2 683,514 491,348 (491,348 ) 473,227 424,170 (424,170 ) 290,799 210,287 974,313 683,514 424,622 66,726 369,454 54,716 491,348 424,170 36.8 Charge for defined benefit plan 36.8.1 Cost recognised in profit and loss Current service cost Net interest on defined benefit liability 84
89. 2021 2020 (Rupees in '000) 36.8.2 Re-measurements recognised in OCI during the year Loss / (gain) on obligation - Financial assumptions - Experience assumptions Actuarial loss on plan assets 42,818 (47,418 ) 151,024 33,222 193,842 (14,196 ) 96,957 224,483 290,799 210,287 180,052 30,183 Government securities 4,098,214 3,610,235 Total fair value of plan assets 4,278,266 3,640,418 Total Remeasurement loss recognised in OCI 36.9 Components of plan assets Cash and cash equivalents-net 36.10 Sensitivity analysis 2021 (Rupees in '000) 1% increase in discount rate 4,767,772 1% decrease in discount rate 5,819,239 1% increase in expected rate of salary increase 5,845,452 1% decrease in expected rate of salary increase 4,738,066 2022 (Rupees in '000) 36.11 Expected contributions to be paid to the funds in the next financial year 628,504 36.12 Expected charge for the next financial year 628,504 2021 (Rupees in '000) 36.13 Maturity profile The weighted average duration of the obligation is 9.95 years. Distribution of timing of benefit payments within the next 12 months (next annual reporting period) between 1 and 5 years between 6 and 10 years 256,599 1,984,973 4,749,447 6,991,019 85
90. 36 .14 Funding Policy The Bank will fund the yearly contribution to the defined benefit plan each year, as per the amount calculated by the valuer. 36.15 Significant Risk Asset Volatility The Defined Benefit Gratuity Fund is almost entirely invested in Government Bonds with mostly fixed income bonds. Almost 32.29% of the total Investments (Rs. 1,323 billion) is invested in PIB's. This gives rise to significant reinvestment risk. The remaining fund is invested in Treasury Bills. The T-Bills exposure is almost 67.71% (Rs. 2,775 billion). The asset class is volatile with reference to the yield on this class. This risk should be viewed together with change in the bond yield risk. Changes in Bond Yields There are two dimensions to the changes in bond yields: first, as described above; second, the valuation of the gratuity liability is discounted with reference to these bond yields. So any increase in bond yields will lower the gratuity liability and vice versa, but, it will also lower the asset values. Inflation Risk The salary inflation is the major risk that the gratuity fund liability carries. In a general economic sense and in a longer view, there is a case that if bond yields increase, the change in salary inflation generally offsets the gains from the decrease in discounted gratuity liability. But viewed with the fact that asset values will also decrease, the salary inflation does, as an overall affect, increases the net liability of the Bank. Life Expectancy / Withdrawal Rate The gratuity is paid off at the maximum of age 60. The life expectancy is in almost minimal range and is quite predictable in the ages when the employee is in the accredited employment of the Bank for the purpose of the gratuity. Thus, the risk of life expectancy is almost negligible. However, had a post retirement benefit been given by the Bank like monthly pension, post retirement medical etc., this would have been a significant risk which would have been quite difficult to value even by using advance mortality improvement models. The withdrawal risk is dependent upon the: benefit structure; age and retention profile of the staff; the valuation methodology; and long-term valuation assumptions. Other Risks Though, not imminent and observable, over long term there are some risks that may crystallise. This includes: 86
91. Model Risk The defined benefit gratuity liability is usually actuarially valued each year . Further, the assets in the gratuity fund are also marked to market. This two-tier valuation gives rise to the model risk. Retention Risk The risk that employee will not be motivated to continue the service or start working with the Bank if no market comparable retirement benefit is provided. Final Salary Risk The risk, for defined benefit gratuity, that any disproportionate salary merit increases in later service years will give rise to multiplicative increase in the gratuity liability as such increase is applicable to all the past years of service. Operational Risk related to a Separate Entity Retirement benefits are funded through a separate trust fund which is a different legal entity than the Bank. Generally, the protocols, processes and conventions used throughout the Bank are not applicable or are not actively applied to the retirement benefit funds. This gives rise to some specific operational risks. Compliance Risk The risk that retirement benefits offered by the Bank does not comply with minimum statutory requirements. Legal / Political Risk The risk that the legal / political environment changes and the Bank is required to offer additional or different retirement benefits than what the Bank projected. 37. DEFINED CONTRIBUTION PLAN The general description of the plan is included in note 4.9. Contributions made during the year : 2021 (Rupees in '000) Employer’s contribution 703,596 Employees’ contribution 703,596 The number of employees covered under the defined contribution plan are 12,280 (2020: 11,110). 87
92. 38 . COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 38.1 Total Compensation Expense 2021 Chairman Directors Executives Non(other than Executives CE) Members Shariah Board Chief Executive Key Other Risk Management Takers / Personnel Controllers (Rupees in '000) Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others 11,520 –00 –00 –00 32,670 –00 29,250 –00 –00 –00 9,628 88 –00 71,333 22,793 –00 –00 360,325 1,548,808 61,981 232,694 –00 –00 –00 –00 –00 –00 10,406 2,602 –00 –00 –00 –00 –00 –00 –00 109 3,766 942 118 128 5,733 22,933 5,734 –00 –00 21,866 115,752 28,938 1,136 4,936 Total 11,520 45,678 29,250 14,779 128,526 1 1 8 5 1 Number of persons 118,783 498,649 124,662 37,065 42,039 594,934 2,602,700 37 1,057 2020 Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others Total Number of persons 6,720 –00 –00 –00 33,550 –00 24,400 –00 –00 –00 8,316 255 –00 66,333 29,839 –00 –00 396,585 1,401,108 98,138 270,256 –00 –00 –00 –00 3,917 –00 9,460 2,374 22 –00 –00 –00 –00 –00 –00 212 3,030 758 108 –00 4,600 18,400 5,480 –00 –00 22,850 112,795 28,199 1,299 5,074 10,637 45,406 24,400 12,679 124,652 1 1 8 3 1 94,759 402,379 100,595 30,896 25,653 664,940 2,325,646 40 879 88
93. Chief Executive , Executive Director, Members Shariah Board, Key Management Personal and Other Risk Takers / Controllers are entitled to Bank's maintained cars with fuel in accordance with the terms of their employment and are entitled to medical and life insurance benefits in accordance with the policy of the Bank. In addition, the Chief Executive and Executive Director are also provided with drivers, security arrangements and payment of travel bills in accordance with their terms of employment. Chairman of the Board is also entitled to Bank’s maintained cars with fuel, security guard services, payment of utility bills, club and entertainment bills, travelling bills, appropriate office, staff, and administrative support. 38.2 Remuneration paid to Directors for participation in Board and Committee Meetings 2021 Meeting Fees and Allowances Paid For Board Committees S.No. Name of Director For Board Meetings Human Resource & Risk Credit Risk Audit Remuneration Management Management Committee Committee Committee Committee IFRS 9 Committee IT Committee Total Amount Paid (Rupees in '000) 1. 2. 3. 4. 5. 6. 7. 8. 9. Mr. Abbas D. Habib Mr. Anwar Haji Karim Ms. Farhana Mowjee Khan Syed Mazhar Abbas Mr. Safar Ali Lakhani Syed Hasan Ali Bukhari Mr. Murtaza H. Habib Mr. Arshad Nasar Mr. Adnan Afridi 3,840 1,000 1,000 1,000 750 750 1,000 750 1,000 –00 1,750 –00 2,000 1,500 1,500 –00 1,500 –00 3,840 –00 1,000 1,000 –00 750 –00 750 –00 –00 750 1,000 –00 750 –00 –00 –00 1,000 –00 –00 –00 1,000 750 750 1,000 –00 –00 –00 –00 –00 –00 –00 750 –00 750 –00 3,840 –00 –00 1,000 –00 –00 –00 750 –00 11,520 3,500 3,000 6,000 3,750 4,500 2,000 4,500 2,000 11,090 8,250 7,340 3,500 3,500 1,500 5,590 40,770 89
94. 2020 Meeting Fees and Allowances Paid For Board Committees S .No. Name of Director For Board Meetings Audit Committee Human Resource & Risk Credit Risk Remuneration Management Management Committee Committee Committee IFRS 9 Committee IT Committee Total Amount Paid (Rupees in '000) 1. 2. 3. 4. 5. 6. 7. 8. 9. 38.3 Mr. Abbas D. Habib Mr. Anwar Haji Karim Ms. Farhana Mowjee Khan Syed Mazhar Abbas Mr. Safar Ali Lakhani Syed Hasan Ali Bukhari Mr. Murtaza H. Habib Mr. Arshad Nasar Mr. Adnan Afridi 2,880 900 900 900 900 900 900 900 900 –00 1,550 –00 1,400 1,550 1,550 –00 1,550 –00 1,920 –00 650 650 –00 650 –00 650 –00 –00 400 650 –00 650 –00 –00 –00 650 –00 –00 –00 650 400 650 650 –00 –00 –00 –00 –00 –00 –00 500 –00 500 –00 1,920 –00 –00 650 –00 –00 –00 650 –00 6,720 2,850 2,200 4,250 3,500 4,250 1,550 4,250 1,550 10,080 7,600 4,520 2,350 2,350 1,000 3,220 31,120 Remuneration paid to Shariah Board Members Items Chairman 2021 Resident Members Non-Resident Members Chairman 2020 Resident Member Non-Resident Member (Rupees in '000) Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others 4,600 –00 –00 1,840 460 36 –00 1,882 88 109 667 167 35 128 3,146 –00 –00 1,259 315 47 –00 3,400 –00 –00 1,360 340 36 –00 2,516 255 212 710 178 36 –00 2,400 –00 –00 960 240 36 –00 Total 6,936 3,076 4,767 5,136 3,907 3,636 1 2 2 1 1 1 Number of persons 90
95. 39 . FAIR VALUE MEASUREMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's length transaction. Fair value of financial instruments is based on: Federal Government securities Foreign securities Listed securities Mutual funds Unlisted equity investments PKRV rates (Reuters page) Market prices / Mashreqbank PSC Prices quoted at Pakistan Stock Exchange Limited Net asset values declared by respective funds Break-up value as per latest available audited financial statements Fair value of fixed term advances of over one year, staff loans and fixed term deposits of over one year cannot be calculated with sufficient reliability due to non - availability of relevant active market for similar assets and liabilities. The provision for impairment of debt securities and loans and advances has been calculated in accordance with the Bank's accounting policies as stated in notes 4.13 and 4.4. 39.1 Fair value of financial assets The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). There were no transfers between levels 1 and 2 during the year. 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: Level 1 On balance sheet financial instruments Financial assets-measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Mutual Funds 2021 Level 2 Level 3 (Rupees in '000) Total –00 3,324,237 24,909,693 –00 –00 593,011,443 –00 5,172,920 4,917,137 2,107,605 –00 –00 –00 –00 –00 593,011,443 3,324,237 30,082,613 4,917,137 2,107,605 Financial assets-disclosed but not measured at fair value Investments Federal Government Securities Non-Government Debt Securities Associates Listed Shares Mutual Funds –00 –00 00 –00 –00 179,649,767 1,822,342 –00 –00 179,649,767 1,822,342 –00 7,841,384 –00 –00 –00 7,841,384 Off-balance sheet financial instruments measured at fair value Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts –00 –00 75,147,663 58,279,177 –00 –00 75,147,663 58,279,177 91
96. 2020 Level 1 On balance sheet financial instruments Financial assets-measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Mutual Funds Financial assets-disclosed but not measured at fair value Investments Federal Government Securities Non-Government Debt Securities Associates Listed Shares Mutual Funds Off-balance sheet financial instruments measured at fair value Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts Level 2 Level 3 (Rupees in '000) Total –00 3,113,696 24,374,344 –00 –00 553,078,029 –00 2,224,940 4,767,358 2,030,957 –00 –00 –00 –00 –00 553,078,029 3,113,696 26,599,284 4,767,358 2,030,957 –00 –00 00 319,273 –00 167,023,775 1,785,063 –00 –00 167,023,775 1,785,063 –00 1,848,641 –00 –00 319,273 1,848,641 –00 –00 75,583,711 53,679,757 –00 –00 75,583,711 53,679,757 39.2 Certain fixed assets and non banking assets acquired in satisfaction of claims have been carried at revalued amounts determined by professional valuer (level 3 measurement) based on their assessment of the market value. 39.3 Foreign exchange contracts are valued using exchange rates declared by the State Bank of Pakistan. 40. TRUST ACTIVITIES The Bank is not engaged in any trust activities other than holding investments of individuals and entities in its IPS account maintained with the State Bank of Pakistan. 92
97. 41 . 41.1 SEGMENT INFORMATION Segment Details with respect to Business Activities The segment analysis with respect to business activity is as follows: 2021 Commercial banking Retail banking (Rupees in '000) Total Profit and loss account Mark-up / return / profit Inter segment revenue - net Non mark-up / return / interest income Total income 105,243,360 –00 4,415,340 109,658,700 11,508,835 27,848,015 9,611,677 48,968,527 116,752,195 27,848,015 14,027,017 158,627,227 Segment direct expenses Inter segment expense allocation (66,865,761) (27,848,015) (33,687,923) –00 (100,553,684 ) (27,848,015 ) Total expenses Reversals / (provisions) (94,713,776) 157,945 (33,687,923) (110,685) (128,401,699 ) 47,260 15,102,869 15,169,919 30,272,788 105,483,009 826,599,884 –00 20,063,828 616,311,521 1,236,861 121,126,947 19,856,740 –00 743,304,470 –00 116,234,984 15,945 22,722,401 125,339,749 826,599,884 743,304,470 20,063,828 732,546,505 1,252,806 143,849,348 1,690,822,050 902,134,540 2,592,956,590 302,212,902 15,995,200 504,337,747 743,304,470 50,673,775 –00 –00 805,485,582 –00 80,931,866 302,212,902 15,995,200 1,309,823,329 743,304,470 131,605,641 Total liabilities Equity 1,616,524,094 74,297,952 886,417,448 15,717,092 2,502,941,542 90,015,048 Total equity and liabilities 1,690,822,050 902,134,540 2,592,956,590 419,856,696 8,116,659 427,973,355 Profit before tax Statement of financial position Cash and bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non-performing Others Total assets Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others Contingencies and commitments 93
98. Commercial banking 2020 Retail banking (Rupees in '000) Total Profit and loss account Mark-up / return / profit Inter segment revenue-net Non mark-up / return / interest income Total income 107,083,569 –00 2,925,253 110,008,822 18,189,018 29,560,092 7,305,604 55,054,714 125,272,587 29,560,092 10,230,857 165,063,536 Segment direct expenses Inter segment expense allocation (68,239,144) (29,560,092) (34,139,807) –0000 (102,378,951 ) (29,560,092 ) Total expenses Provisions (97,799,236) (4,511,744) (34,139,807) (31,685) (131,939,043 ) (4,543,429 ) Profit before tax 7,697,842 20,883,222 28,581,064 108,376,778 764,943,506 –0000 2,175,301 439,429,041 858,418 102,788,717 17,221,684 –0000 663,583,850 –0000 69,938,597 25,576 16,333,709 125,598,462 764,943,506 663,583,850 2,175,301 509,367,638 883,994 119,122,426 1,418,571,761 767,103,416 2,185,675,177 211,599,405 14,989,600 412,837,148 663,583,850 43,715,576 –0000 –0000 686,849,213 –0000 72,244,009 211,599,405 14,989,600 1,099,686,361 663,583,850 115,959,585 Total liabilities Equity 1,346,725,579 71,846,182 759,093,222 8,010,194 2,105,818,801 79,856,376 Total equity and liabilities 1,418,571,761 767,103,416 2,185,675,177 300,377,484 177,245 300,554,729 Statement of financial position Cash and bank balances Investments Net inter segment lending Lendings to financial institutions Advances-performing -non-performing Others Total assets Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others Contingencies and commitments 94
99. 41 .2 Segment details with respect to geographical locations GEOGRAPHICAL SEGMENT ANALYSIS 2021 Pakistan Middle East Asia Pacific Africa Total (Rupees in '000) Profit and loss account Mark-up / return / profit 112,812,466 1,691,982 2,134,728 113,019 116,752,195 13,090,804 449,371 403,358 83,484 14,027,017 Total income 125,903,270 2,141,353 2,538,086 196,503 130,779,212 Segment direct expenses (98,644,466) (885,976) (931,798) 178,839 (117,829) (73,793) 60,043 47,260 27,437,643 1,137,548 1,532,495 165,102 30,272,788 Cash and bank balances 124,685,948 621,887 31,914 –00 125,339,749 Investments 800,931,505 14,218,541 11,449,838 –00 826,599,884 6,884,028 18,366,725 1,235,596 –00 26,486,349 20,063,828 –00 –00 –00 20,063,828 28,652,979 29,915,273 –00 732,546,505 –00 –00 1,252,806 143,849,348 Non mark-up / return / interest income Reversals / (provisions) Profit before tax (91,444) (100,553,684) Statement of financial position Net inter segment lendings Lending to financial institutions Advances-performing -non-performing 673,978,253 1,252,806 –00 Others 123,891,057 3,243,433 16,714,858 –00 Total assets 1,751,687,425 65,103,565 59,347,479 –00 1,876,138,469 Borrowings 288,818,938 13,393,964 –00 –00 302,212,902 –00 –00 15,995,200 Subordinated debt Deposits and other accounts 15,995,200 –00 1,251,166,020 36,504,392 22,152,917 1,588,748 6,707,512 18,190,089 –00 26,486,349 Others 112,198,326 3,255,029 16,152,286 –00 131,605,641 Total liabilities 1,669,767,232 59,860,897 56,495,292 –00 1,786,123,421 90,015,048 Net inter segment borrowings Equity –00 1,309,823,329 81,920,193 5,242,668 2,852,187 –00 Total equity and liabilities 1,751,687,425 65,103,565 59,347,479 –00 1,876,138,469 Contingencies and commitments 418,518,577 8,375,380 1,079,398 –00 427,973,355 95
100. 2020 Pakistan Middle East Asia Pacific Africa Total (Rupees in '000) Profit and loss account Mark-up / return / profit 122,501,000 1,268,780 1,372,606 130,201 125,272,587 9,661,787 388,209 181,411 (550) 10,230,857 Total income 132,162,787 1,656,989 1,554,017 129,651 135,503,444 Segment direct expenses (100,591,177) (794,621) (887,256) Provisions (3,422,585) (576,013) (528,892) (15,939) (4,543,429) Profit before tax 28,149,025 286,355 137,869 7,815 28,581,064 Cash and bank balances 125,387,063 160,218 47,955 3,226 125,598,462 Investments Non mark-up / return / interest income (105,897) (102,378,951) Statement of financial position 745,208,314 10,132,651 7,503,288 2,099,253 764,943,506 Net inter segment lendings 4,489,540 7,006,181 829,541 2,552 12,327,814 Lending to financial institutions 2,175,301 –00 –00 –00 2,175,301 474,619,293 18,747,396 15,967,837 33,112 509,367,638 834,792 49,202 –00 –00 883,994 98,626,780 2,462,635 17,992,718 40,293 119,122,426 Total assets 1,451,341,083 38,558,283 42,341,339 2,178,436 1,534,419,141 Borrowings 211,599,405 –00 –00 –00 211,599,405 14,989,600 –00 –00 –00 14,989,600 1,049,290,270 27,167,746 23,137,597 5,143,103 5,307,456 394,791 1,482,464 12,327,814 95,778,810 2,363,473 17,805,707 11,595 115,959,585 1,376,801,188 34,838,675 41,338,095 1,584,807 1,454,562,765 74,539,895 3,719,608 1,003,244 593,629 79,856,376 Total equity and liabilities 1,451,341,083 38,558,283 42,341,339 2,178,436 1,534,419,141 Contingencies and commitments 294,581,495 5,157,900 815,334 –00 300,554,729 Advances - performing - non-performing Others Subordinated debt Deposits and other accounts Net inter segment borrowings Others Total liabilities Equity 42. 90,748 1,099,686,361 RELATED PARTY TRANSACTIONS Related parties of the Bank comprise subsidiaries, associates, directors, key management personnel and other related parties. Transactions with related parties of the Bank are carried out on arm's length basis in terms of the policy as approved by the Board of Directors. The transactions with employees of the Bank are carried out in accordance with the terms of their employment. 96
101. Transactions with related parties , other than those disclosed in note 10.5, 20.3 and 38 are summarised as follows: Directors Investments Opening balance Investment made during the year Investments adjusted / redeemed / disposed off during the year Surplus / (deficit) on revaluation Closing balance 2021 Key management Subsidiaries personnel Associates Other related Directors parties (Rupees in '000) Key Management personnel 2020 Subsidiaries Associates Other related parties –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 883,250 –00 –00 –00 883,250 2,047,346 10,200,000 (4,482,690 ) –00 7,764,656 –00 182,690 –00 123,308 305,998 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 200,000 683,250 –00 –00 883,250 Advances Opening balance Addition during the year Repaid during the year Closing balance 332 76,666 (75,378 ) 1,620 171,544 235,679 (211,741 ) 11195,482 201,173 26,196,301 (25,934,049 ) 463,425 –00 –00 –00 –00 2,217,749 57,968,205 (57,768,669) 2,417,285 1,487 35,349 (36,504 ) 332 76,626 333,923 (239,005 ) 171,544 15,622 16,369,273 (16,183,722 ) 201,173 –00 –00 –00 –00 3,015,256 56,387,053 (57,184,560) 2,217,749 Operating fixed assets Right of use –00 –00 –00 –00 786 –00 –00 –00 –00 3,931 Other assets Interest / mark-up accrued L/C acceptance Other receivable –00 –00 –00 120 –00 –00 –00 –00 –00 –00 –00 118 –00 –00 –00 –00 –00 –00 118 –00 –00 –00 –00 3,890 –00 –00 –00 1,289 1,090,910 –00 Subordinated debt Opening balance Issued / purchased during the year Redemption / sold during the year Closing balance –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 75,000 (75,000 ) –00 44,000 –00 –00 44,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 44,000 –00 –00 44,000 1,072,684 6,376,086 (6,678,852) 769,918 720,918 3,125,505 (3,071,987) 774,436 476,584 21,273,904 (21,660,404) 90,084 739,762 83,337,951 (84,018,330 ) 59,383 3,619,310 63,034,965 (59,718,023) 6,936,252 955,078 6,891,056 (6,773,450 ) 1,072,684 624,163 3,205,958 (3,109,203 ) 720,918 111,826 20,436,016 (20,071,258 ) 476,584 Other liabilities Interest / mark-up payable Payable to staff retirement fund L/C acceptance Unrealised loss on forward exchange contracts Other liabilities 404 –00 –00 –00 –00 1,327 –00 –00 –00 2 –00 –00 –00 –00 908 725 –00 –00 –00 –00 30,043 974,312 –00 –00 –00 305 –00 –00 –00 –00 508 –00 –00 –00 4 –00 –00 –00 –00 1,353 2,359 –00 –00 –00 –00 14,567 683,514 1,090,910 922 –00 Contingencies and commitments –00 –00 –00 –00 918,205 –00 –00 –00 –00 2,022,871 Other transactions - Investor Portfolio Securities Opening balance Increased during the year Decreased during the year Closing balance –00 –00 –00 –00 –00 –00 –00 –00 85,000 75,000 (85,000) 75,000 –00 –00 –00 –00 6,120,840 7,725,000 (9,054,040) 4,791,800 –00 –00 –00 –00 –00 –00 –00 –00 85,000 –00 –00 85,000 –00 –00 –00 –00 4,986,840 3,562,000 (2,428,000) 6,120,840 Deposits and other accounts Opening balance Received during the year Withdrawn during the year Closing balance 1,153,346 1,500,000 (606,000 ) –00 2,047,346 –00 –00 –00 –00 –00 1,289,465 2,761,222 147,123,023 50,717,883 (147,672,726) (49,859,795) 739,762 3,619,310 97
102. 42 .1 RELATED PARTY TRANSACTIONS 2021 Directors Key Subsidiaries 2020 Associates management Other related Directors parties Key Subsidiaries Associates Management personnel Other related parties personnel (Rupees in '000) Income Mark-up / return / interest earned Fee and commission income –00 10,175 21,880 –00 110,324 5 6,479 4,555 –00 203,818 39 225 15 116 13,622 21 65 16 85 14,534 –00 –00 –00 187,766 –00 –00 –00 –00 56,400 –00 –00 –00 –00 7,201 –00 –00 –00 –00 –00 5,442 Rental Income –00 –00 11,036 –00 –00 –00 –00 5,990 –00 –00 Other income –00 –00 784 30 406 –00 –00 782 50 372 Dividend income Net gain / (loss) on sale / redemption of securities and units of mutual funds Expense Mark-up / return / interest expensed 58,576 48,425 15,882 38,763 245,699 79,997 58,180 12,578 251,681 255,463 Operating expenses –00 –00 –00 –00 4,528 –00 –00 –00 –00 5,491 Brokerage commission –00 –00 12,600 –00 –00 –00 –00 8,230 –00 –00 Salaries and allowances –00 625,972 –00 –00 –00 –00 541,938 –00 –00 –00 Bonus –00 100,101 –00 –00 –00 –00 154,824 –00 –00 –00 Contribution to defined contribution plan –00 28,137 –00 –00 –00 –00 24,211 –00 –00 –00 Contribution to defined benefit plan –00 82,334 –00 –00 –00 –00 76,250 –00 –00 –00 Staff provident fund –00 –00 –00 –00 703,596 –00 –00 –00 –00 600,454 Staff gratuity fund –00 –00 –00 –00 491,348 –00 –00 –00 –00 424,170 38,770 –00 –00 –00 –00 33,487 –00 –00 –00 –00 Donation –00 –00 –00 –00 12,000 –00 –00 –00 –00 6,000 Insurance premium paid –00 –00 –00 –00 142,646 –00 –00 –00 –00 133,244 Insurance claims settled –00 –00 –00 –00 78,101 –00 –00 –00 –00 41,925 Directors’ fees 98
103. 43 . CAPITAL ADEQUACY, LEVERAGE RATIO AND LIQUIDITY REQUIREMENTS 2021 2020 (Rupees in '000) Minimum Capital Requirement (MCR): Paid-up capital 11,114,254 11,114,254 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital 80,641,265 6,570,734 67,035,260 6,676,269 Total Eligible Tier 1 Capital Eligible Tier 2 Capital 87,211,999 25,750,539 73,711,529 23,890,019 Total Eligible Capital (Tier 1 + Tier 2) 112,962,538 97,601,548 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 703,135,583 17,023,428 117,517,781 539,058,015 9,834,577 97,721,745 Total 837,676,792 646,614,337 9.627% 10.367% Tier 1 Capital Adequacy Ratio 10.411% 11.400% Total Capital Adequacy Ratio 13.485% 15.094% Capital Adequacy Ratio (CAR): Common Equity Tier 1 Capital Adequacy Ratio Minimum Capital Requirement (MCR) The MCR standard sets the paid-up capital that the Bank is required to hold at all times. As of the statement of financial position date, the Bank's paid-up capital stands at Rs. 11.114 billion as against the required MCR of Rs. 10 billion. Minimum Capital Adequacy Ratio (CAR) The CAR on the basis of above framework works out to be as follows: 2021 2020 Required CAR 11.500% 11.500% CAR on Bank level 13.485% 15.094% The Bank calculates capital requirement as per Basel III regulatory framework, using the following approaches: Credit Risk Market Risk Operational Risk Standardised Approach Standardised Approach Basic Indicator Approach 99
104. 2021 2020 (Rupees in '000) Leverage Ratio (LR): Eligible Tier 1 Capital Total Exposures Leverage Ratio Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding Net Stable Funding Ratio 87,211,999 2,334,221,910 3.736% 73,711,529 1,852,877,396 3.978% 631,288,320 244,836,260 257.841% 490,128,291 187,207,371 261.810% 1,379,682,140 825,749,841 167.082% 999,714,329 702,593,516 142.289% 43.1 The full disclosures on the CAPITAL ADEQUACY, LEVERAGE RATIO AND LIQUIDITY REQUIREMENTS as per SBP instructions issued from time to time have been placed on the Bank's website. The link to the full disclosure is available at https://www.bankalhabib.com/capitaladequacy/leverage/liquidityratio-banklevel2021. 44. RISK MANAGEMENT The Bank has a risk management framework commensurate with its size and the nature of its business. The Board of Directors has approved risk management policies covering key areas of activities for the guidance of management and committees of the Board, management committees, and Divisions / Departments of the Bank. This section presents information about the Bank’s exposure to and its management and control of risks, in particular the primary risks associated with its use of financial instruments. 44.1 Credit Risk Credit risk is the risk of loss arising from failure by a client or counterparty to meet its contractual obligation. It emanates from loans and advances, commitments to lend, contingent liabilities such as letters of credit and guarantees, and other similar transactions both on and off balance sheet. These exclude investments and treasury-related exposures, which are covered under market risk. It is the Bank’s policy that all credit exposures shall be adequately collateralised, except when specially exempted by SBP as in case of personal loans and credit cards, and those at overseas branches where the accepted local banking practice is followed. The objective of credit risk management is to keep credit risk exposure within permissible level, relevant to the Bank’s risk capital, to maintain the soundness of assets and to ensure returns commensurate with risk. Credit risk of the Bank is managed through the credit policy approved by the Board, a well defined credit approval mechanism, prescribed documentation requirement, post disbursement administration, review and monitoring of all credit facilities; and continuous assessment of credit worthiness of counterparties. Decisions regarding the credit portfolio are taken mainly by the Central Credit Committee. Credit Risk Management Committee of the Board provides overall guidance in managing the Bank's credit risk. Counterparty exposure limits are approved in line with the Prudential Regulations and the Bank's own policies, by taking into account both qualitative and quantitative criteria. There is an established system for continuous monitoring of credit exposures and follow - up of any past due loans with the respective business units. All past due loans, including trade bills, are reviewed on fortnightly basis and pursued for recovery. Any non-performing loans are classified and provided for as per Prudential Regulations. The Bank has also established a mechanism for independent post - disbursement review of large credit risk exposures. 100
105. Credit facilities , both fund based and non - fund based, extended to large customer groups and industrial sectors are regularly monitored. The Bank has concentration of credit in textile which is the largest sector of Pakistan's economy. Concentration risk is managed by diversification within sub - sectors like spinning, weaving and composites, credit worthiness of counterparties, and adequate collateralisation of exposures. Credit administration function has been placed under a centralised set - up. Its main focus is on compliance with terms of sanction of credit facilities and the Bank’s internal policies and procedures, scrutiny of documentation, monitoring of collateral, and maintenance of borrowers’ limits, mark-up rates, and security details. The Bank has implemented its own internal risk rating system for the credit portfolio, as per guidelines of SBP. Credit ratings by external rating agencies, if available, are also considered. The Bank lends primarily against the cash flow of the business with recourse to the assets being financed as primary security. Collaterals in the form of liquid securities, tangible securities, and other acceptable securities are obtained to hedge the risk, as deemed appropriate. Main types of collaterals taken by the Bank include charge on stock - in - trade, receivables, machinery, mortgage of properties, pledge of goods, shares and other marketable securities, government securities, government guarantees, bank guarantees and cash margins and bank deposits. Specific provisions on credit portfolio are determined in accordance with the Prudential Regulations. General provision on the consumer and SEs portfolios is also determined as per Prudential Regulations. The Bank maintains additional general provision in line with its prudent policies and as per IFRS 9 for overseas branches. Particulars of provisions against advances are given in note 9.4. The Bank uses the Standardised Approach to calculate capital charge for credit risk as per Basel regulatory framework, with comprehensive approach for credit risk mitigation. Stress testing for credit risk is carried out regularly to estimate the impact of increase in non - performing loans and downward shift in these categories. 44.1.1 Lendings to financial institutions Credit risk by public / private sector Public / Government Private Gross lendings 2021 2020 Non-performing lendings 2021 2020 (Rupees in '000) Provision held 2021 2020 –00 20,063,828 2,175,301 –00 –00 –00 –00 –00 –00 –00 –00 –00 20,063,828 2,175,301 –00 –00 –00 –00 44.1.2 Investment in debt securities Credit risk by industry sector Power (electricity), gas, water, sanitary Financial Iron and steel Oil refinery / marketing Credit risk by public / private sector Public / Government Private Gross investments 2021 2020 Non-performing investments 2021 2020 (Rupees in '000) Provision held 2021 2020 26,966,592 25,442,218 786,496,214 728,355,130 1,000,000 1,000,000 1,250,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 1,350,723 –00 –00 –00 1,394,948 –00 –00 815,712,806 754,797,348 –00 –00 1,350,723 1,394,948 776,861,120 719,551,444 38,851,686 35,245,904 –00 –00 –00 –00 325,807 1,024,916 357,615 1,037,333 815,712,806 754,797,348 –00 –00 1,350,723 1,394,948 101
106. 44 .1.3 Advances Gross advances Credit risk by industry sector Agriculture, forestry, hunting and fishing Mining and quarrying Textile Chemical and pharmaceuticals Cement Sugar Footwear and leather garments Automobile and transportation equipment Electronics and electrical appliances Construction Power (electricity), gas, water, sanitary Wholesale and retail trade Transport, storage and communication Financial Insurance Services (other than financial services) Individuals Food and allied Iron and steel Oil refinery / marketing Paper and board Plastic products Others 2021 Non-performing advances 2020 2021 2020 (Rupees in '000) Provision held 2021 2020 18,197,880 11,982,018 135,313 86,946 237,019,393 163,702,549 19,082,769 16,796,308 6,833,811 8,847,702 10,984,011 6,952,458 4,077,672 3,608,526 8,083,375 3,726,079 5,885,392 5,323,013 23,288,386 7,802,038 47,024,486 48,335,823 114,747,695 79,543,240 11,242,380 10,543,770 13,514,777 10,603,805 294,275 475,167 16,786,483 14,524,500 42,210,644 23,863,779 90,055,992 62,311,964 39,040,954 23,895,854 2,634,814 2,005,943 5,671,358 2,662,909 9,075,520 6,388,435 21,002,242 8,911,593 305,781 –00 1,690,844 5,791 –00 –00 –00 826 247,814 302,504 –00 1,340,453 63,990 101,949 61,180 45,762 83,610 17,432 1,066,177 –00 7,431 385,843 2,019,548 300,284 –00 1,824,246 5,891 –00 –00 –00 –00 –00 194,339 155,883 1,494,236 70,175 101,949 128,426 112,896 90,956 43,773 992,229 354,082 3,098 54,253 1,454,757 242,351 –00 1,671,265 4,397 –00 –00 –00 103 61,953 177,501 –00 1,291,922 35,823 84,845 61,180 125 67,353 17,432 1,066,177 –00 3,132 137,866 1,570,704 149,088 –00 1,753,709 4,423 –00 –00 –00 –00 –00 192,103 100,810 1,361,415 27,853 86,587 31,108 33,502 63,427 27,353 992,229 178,367 3,098 54,253 1,438,154 746,889,622 522,894,419 7,746,935 7,381,473 6,494,129 6,497,479 58,448,122 55,368,812 688,441,500 467,525,607 –00 7,746,935 –00 7,381,473 –00 6,494,129 –00 6,497,479 746,889,622 522,894,419 7,746,935 7,381,473 6,494,129 6,497,479 Credit risk by public / private sector Public / Government Private 102
107. 44 .1.4 Contingencies and Commitments Credit risk by industry sector 2021 2020 (Rupees in '000) Agriculture, forestry, hunting and fishing Mining and quarrying Textile Chemical and pharmaceuticals Cement Sugar Footwear and leather garments Automobile and transportation equipment Electronics and electrical appliances Construction Power (electricity), gas, water, sanitary Wholesale and retail trade Transport, storage and communication Financial Insurance Services (other than financial services) Individuals Food and allied Iron and steel Oil refinery / marketing Paper and board Plastic products Others 1,815,024 209 91,451,426 16,097,626 3,680,905 1,194,779 2,939,561 22,228,569 7,250,575 10,708,668 20,026,883 68,530,385 1,454,475 17,959,726 120,470 51,058,164 8,116,659 40,727,640 17,817,723 6,978,651 8,964,522 17,609,850 11,240,865 1,201,754 –00 60,886,061 10,560,544 1,681,965 445,917 2,400,625 18,054,588 5,306,142 8,396,568 8,008,957 52,552,907 415,645 12,384,053 26,841 41,166,805 177,245 36,490,464 16,689,629 3,016,513 2,129,946 11,584,210 6,977,350 427,973,355 300,554,729 66,085,881 361,887,474 41,435,912 259,118,817 427,973,355 300,554,729 Credit risk by public / private sector Public / Government Private 44.1.5 Concentration of Advances The Bank’s top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs. 203,461 million (2020: Rs. 150,619 million) are as following: 2021 2020 (Rupees in '000) Funded Non Funded Total Exposure 99,235,533 104,225,085 203,460,618 87,140,927 63,477,948 150,618,875 The sanctioned limits against these top 10 exposures aggregated to Rs. 226,451 million (2020: Rs. 179,596 million). Provision against top 10 exposures amounts to be Nil (2020: Nil). 103
108. 44 .1.6 Advances - Province / Region - wise Disbursement and Utilization 2021 Disbursements Utilization Province / Region Punjab Sindh KPK including FATA (Rupees in '000) Balochistan AJK including GilgitIslamabad Baltistan Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit - Baltistan 278,555,414 297,374,464 6,658,000 1,287,778 44,360,457 910,260 274,912,036 2,156,339 –0 –0 9,005 –0 452,150 293,052,373 1,296 207,440 20,103 242 93,962 1,654,607 6,299,401 –0 133,925 6,119 40,394 511,145 –0 1,080,338 –0 –0 3,007,506 –0 357,303 –0 44,197,424 52,723 49,366 –0 –0 –0 –0 851,176 Total 629,146,373 277,077,380 293,733,604 8,188,014 1,631,877 47,614,956 900,542 2020 Disbursements Utilization Province / Region Punjab Sindh KPK including FATA (Rupees in '000) Balochistan AJK including GilgitIslamabad Baltistan Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit - Baltistan 201,150,395 210,692,996 4,547,764 828,144 35,398,979 639,146 199,695,718 2,259,607 6,476 –0 34,931 392 202,288 206,820,742 10,079 106,412 16,888 –0 222,110 1,066,542 4,232,515 –0 15,497 2,692 33,345 543,154 5,053 721,732 –0 –0 980,461 2,830 293,641 –0 35,331,663 25,064 16,473 121 –0 –0 –0 610,998 Total 453,257,424 201,997,124 207,156,409 5,539,356 1,303,284 36,633,659 627,592 44.2 Market Risk Market risk is the risk of loss arising from movements in market rates or prices, such as interest rates, foreign exchange rates, and equity prices. The Bank takes positions in securities for the purpose of investment and not to run a trading book, except to a very limited extent (maximum of Rs. 300 million) for trading in equities. As regards foreign exchange positions, the purpose is to serve the needs of clients. Except as aforesaid, the Bank does not engage in trading or market making activities. Market risk is managed through the market risk policy approved by the Board, approval of counterparty and dealer limits, specific senior management approval for each investment and regular review and monitoring of the investment portfolio by the Asset Liability Management Committee (ALCO). A key element of the Bank’s market risk management is to balance safety, liquidity, and income in that order of priority. Another key element is separation of functions and reporting lines for the Treasury Division and Equity Market Department, which undertake dealing activities within the limits and parameters set by ALCO, Settlements Department which confirms and settles the aforesaid deals, and Middle Office which independently monitors and analyses the risks inherent in treasury operations. Risk Management Committee of the Board provides overall guidance in managing the Bank’s market risk. Dealing activities of the Bank include investment in government securities, term finance certificates, sukuks / bonds, shares and mutual funds, money market transactions and foreign exchange transactions catering to the needs of its customers. All such activities are carried out within the prescribed limits. Any excess over limits noted by the Settlements Department and / or the Middle Office is reported to senior management and ALCO. Stress testing is performed as per guidelines of SBP as well as Bank's internal policy. Portfolio risks arising in banking book is also measured through Value at Risk (VAR). 104
109. 44 .2.1 Balance sheet split by trading and banking books 2021 Trading book Banking book Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Banking Total book (Rupees in '000) 2020 Trading book Total 118,599,741 6,740,008 20,063,828 826,501,408 733,799,311 55,692,777 268,246 2,074,828 85,813,497 –00 –00 –00 98,476 –00 –00 –00 –00 –00 118,599,741 6,740,008 20,063,828 826,599,884 733,799,311 55,692,777 268,246 2,074,828 85,813,497 105,935,947 19,662,515 2,175,301 764,846,957 510,251,632 43,967,993 211,111 –00 74,943,322 –00 –00 –00 96,549 –00 –00 –00 –00 –00 105,935,947 19,662,515 2,175,301 764,943,506 510,251,632 43,967,993 211,111 –00 74,943,322 1,849,553,644 98,476 1,849,652,120 1,521,994,778 96,549 1,522,091,327 44.2.2 Foreign Exchange Risk Foreign exchange risk is the risk of loss from adverse changes in currency exchange rates. The Bank’s foreign exchange exposure comprises forward contracts, purchase of foreign bills, foreign currency loans and investments, foreign currency cash in hand, balances with banks abroad, foreign currency deposits and foreign currency placements with SBP and other banks. Focus of the Bank’s foreign exchange activities is on catering to the needs of its customers, both in spot and forward markets. Foreign exchange risk exposures of the Bank are controlled through dealer limits, open foreign exchange position limits, counterparty exposure limits, and country limits. The Bank manages its foreign exchange exposure by matching foreign currency assets and liabilities within strict limits. The net open position in any single currency and the overall foreign exchange exposure are both managed within the statutory limits as prescribed by SBP as well as the internal limits set by the Bank itself. Stress testing for foreign exchange risk is carried out regularly to estimate the impact of adverse changes in foreign exchange rates. 2021 Foreign currency assets United States Dollar Great Britain Pound Japanese Yen Euro Other currencies 182,442,901 1,652,971 6,782 4,231,547 945,356 189,279,557 Foreign currency Off-balance liabilities sheet items (Rupees in '000) 177,522,831 12,805,309 363,092 6,846,326 534,954 198,072,512 4,779,180 7,489,831 357,519 1,842,032 (694,227) 13,774,335 Net foreign currency exposure 9,699,250 (3,662,507) 1,209 (772,747) (283,825) 4,981,380 105
110. 2020 Foreign currency assets United States Dollar Great Britain Pound Japanese Yen Euro Other currencies 135 ,869,498 1,660,711 44,539 4,389,562 858,737 142,823,047 Foreign currency Off-balance liabilities sheet items (Rupees in '000) 141,123,136 11,828,815 15,462 6,272,656 481,319 159,721,388 10,832,719 10,088,312 (20,792) 1,898,410 (675,976) 22,122,673 2021 Banking book Impact of 1% change in foreign exchange rates on – Profit and loss account – Other comprehensive income –0 22,220 Net foreign currency exposure 5,579,081 (79,792) 8,285 15,316 (298,558) 5,224,332 2020 Trading Banking book book (Rupees in ‘000) –0 –0 –0 9,729 Trading book –0 –0 44.2.3 Equity Position Risk Equity position risk is the risk of loss from adverse movements in equity prices. The Bank’s policy is to take equity positions for investment purposes and not to run a trading book, except to a very limited extent (maximum of Rs. 300 million) for trading in equities. Equity position risk of the Bank is controlled through equity portfolio limits, sector limits, scrip limits, and future contracts limits. Direct investment in equities and mutual funds is managed within the statutory limits as prescribed by SBP as well as the internal limits set by the Bank itself. Stress testing for equity price risk is carried out regularly to estimate the impact of decline in stock prices. The Bank invests mainly in blue chip securities. 2021 2020 Banking book Impact of 5% change in equity prices on – Profit and loss account – Other comprehensive income –0 213,585 Trading Banking book book (Rupees in ‘000) 4,885 –0 –0 227,609 Trading book 4,827 –0 44.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB) - Basel II Specific Interest rate risk is the risk of loss from adverse movements in interest rates. ALCO monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the profitability of the Bank arising from fluctuation in the market interest rates and mismatching or gaps in the amount of financial assets and financial liabilities in different maturity time bands. The Bank's interest rate exposure is calculated by categorising its interest sensitive assets and liabilities into various time bands based on the earlier of their contractual repricing or maturity dates. 106
111. Interest rate risk exposures of the Bank are controlled through dealer limits , counter - party exposure limits and (when necessary) type-of-instrument limits. Outright purchase and sale of securities are also approved by ALCO. Duration and modified duration of various types of debt securities as well as their entire portfolio are also calculated, and the impact of adverse change in interest rates on the market value of the securities is estimated. Stress testing for interest rate risk is carried out regularly to estimate the impact of adverse changes in the interest rates. Interest rate / yield risk in the banking book – Basel Specific The Bank holds financial assets and financial liabilities with different maturities or repricing dates and linked to different benchmark rates, thus creating exposure to unexpected changes in the level of interest rates. Interest rate risk in the banking book refers to the risk associated with interest-bearing financial instruments that are not held in the trading book of the Bank. Repricing gap analysis presents the Bank’s Interest Sensitive Assets (ISA) and Interest Sensitive Liabilities (ISL), categorised into various time bands based on the earlier of their contractual repricing or maturity dates (or settlement dates for off-balance sheet instruments). Deposits with no fixed maturity dates (for example, saving deposits and treasurer’s call deposits) are included in the lowest, one-month time band, but these are not expected to be payable within a one-month period. The difference between ISA and ISL for each time band signifies the gap in that time band, and provides a workable framework for determining the impact on net interest income. The Bank reviews the repricing gap analysis periodically to monitor and manage interest rate risk in the banking book. 2021 2020 Banking Trading Banking Trading book book book book (Rupees in ‘000) Impact of 1% change in interest rates on – Profit and loss account – Other comprehensive income –0 5,702,612 –0 –0 –0 6,113,382 –0 –0 107
112. 44 .2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Effective Yield / Interest Rate Total Upto 1 month Over 1 to 3 months 2021 Exposed to Yield / Interest risk Over 3 Over 6 Over 1 Over 2 to 6 months to 1 to 2 to 3 months year years years Over 3 to 5 years Over 5 to 10 years Above 10 years Non interest bearing financial instruments (Rupees in '000) On-balance sheet financial instruments Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets –00 118,599,741 8,475,529 –00 –00 –00 –00 0.46% 6,740,008 4,358,454 –00 –00 –00 –00 10.60% 20,063,828 20,063,828 –00 –00 –00 –00 9.93% 826,599,884 150,428,818 95,743,854 314,734,525 79,112,792 9102,760,235 7.21% 733,799,311 401,011,429 117,203,571 91,802,847 30,011,024 16,295,778 –00 83,264,725 –00 –00 –00 –00 –00 1,789,067,497 584,338,058 212,947,425 406,537,372 109,123,816 119,056,013 –00 –00 –00 38,705,182 22,354,796 –00 61,059,978 –00 –00 –00 9,681,128 20,069,057 –00 29,750,185 –00 –00 –00 21,200,587 25,864,446 00–00 47,065,033 –00 110,124,212 –00 2,381,554 –00 –00 –00 14,232,763 9,176,575 9,788 –00 83,264,725 9,176,575 210,013,042 –00 29,803,755 –00 4.97% 302,212,902 130,540,002 7.15% 1,309,823,329 635,347,974 11.54% 15,995,200 –00 –00 75,997,191 –00 Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Other liabilities On-balance sheet gap –00 55,284,225 42,492,322 5,000,000 –00 –00 32,529,294 26,302,731 10,995,200 –00 –00 11,403,231 51,151,535 –00 –00 –00 9,542,625 2,894,746 –00 –00 –00 10,585,069 12,103,107 –00 –00 –00 19,745,203 3,309,696 –00 –00 –00 32,324,292 16,099 –00 –00 –00 29,803,755 258,961 –00 10,893 536,194,226 –00 –00 –00 75,997,191 1,733,832,377 765,887,976 102,776,547 69,827,225 62,554,766 12,437,371 22,688,176 23,054,899 32,340,391 269,854 641,995,172 46,569,050 106,618,642 38,371,802 6,695,286 14,724,642 8,906,721 (431,982,130 ) 55,235,120 (181,549,918 ) 110,170,878 336,710,147 Off-balance sheet financial instruments Documentary credits and short term trade related transactions 301,891,236 34,172,931 34,369,615 4,102,708 –00 –00 –00 –00 Commitments in respect of: Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts Forward commitments to extend credit 72,497,648 11,062,507 26,511,686 23,742,935 11,087,455 (58,723,317) (11,276,267) (30,040,434) (14,937,676) (2,468,940) 4,717,424 857,164 1,456,170 809,660 1,594,430 93,065 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 Off-balance sheet gap 18,491,755 93,065 –00 –00 –00 –00 –00 90,954,926 141,081,322 42,474,510 6,695,286 14,724,642 81,149,692 107,059,657 643,404 (2,072,578 ) 41,036,633 9,614,919 10,212,945 Total Yield / Interest Risk Sensitivity Gap (99,756,822 ) 215,157,957 387,361,699 8,906,721 (431,982,130 ) Cumulative Yield / Interest Risk Sensitivity Gap (99,756,822 ) 115,401,135 502,762,834 593,717,760 734,799,082 777,273,592 783,968,878 798,693,520 807,600,241 375,618,111 108
113. Effective Yield / Interest Rate Total Upto 1 month Over 1 to 3 months 2020 Exposed to Yield / Interest risk Over 3 Over 6 Over 1 Over 2 to 6 months to 1 to 2 to 3 months year years years Non interest Above bearing 10 years financial instruments Over 3 to 5 years Over 5 to 10 years –00 –00 –00 29,215,595 10,164,684 –00 39,380,279 –00 –00 –00 44,087,033 12,231,329 –00 56,318,362 –00 –00 –00 19,599,391 12,759,516 00–00 32,358,907 –00 98,656,011 –00 2,003,240 –00 –00 –00 8,219,302 6,371,366 6,274 –00 72,923,383 6,371,366 181,808,210 (Rupees in '000) On-balance sheet financial instruments Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets –00 105,935,947 7,279,936 –00 –00 –00 –00 0.05% 19,662,515 17,659,275 –00 –00 –00 –00 8.98% 2,175,301 2,175,301 –00 –00 –00 –00 9.30% 764,943,506 72,567,717 75,117,948 300,591,571 125,011,937 990,533,012 6.60% 510,251,632 275,925,509 100,524,346 54,004,723 23,795,801 14,468,084 –00 72,923,383 –00 –00 –00 –00 –00 1,475,892,284 375,607,738 175,642,294 354,596,294 148,807,738 105,001,096 Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Other liabilities On-balance sheet gap –00 31,013,221 –00 4.21% 211,599,405 145,735,236 5.66% 1,099,686,361 549,241,575 8.50% 14,989,600 –00 –00 67,310,374 –00 –00 4,863,416 35,539,084 3,992,800 –00 –00 10,624,222 24,076,408 10,996,800 –00 –00 6,040,892 48,951,961 –00 –00 –00 12,927,163 6,657,497 –00 –00 –00 5,891,219 2,446,852 –00 –00 –00 10,195,980 13,835,518 –00 –00 –00 14,808,462 22,127 –00 –00 –00 31,013,221 512,815 –00 12,532 418,902,807 –00 –00 –00 67,310,374 1,424,598,961 694,976,811 44,395,300 45,697,430 54,992,853 19,584,660 8,338,071 24,031,498 14,830,589 525,347 517,226,402 51,293,323 (319,369,073 ) 131,246,994 308,898,864 93,814,885 85,416,436 31,042,208 32,286,864 17,528,318 5,846,019 (335,418,192 ) 11,498,706 –00 –00 –00 –00 –00 –00 Off-balance sheet financial instruments Documentary credits and short term trade related transactions 207,740,057 133,608,804 Commitments in respect of: Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts Forward commitments to extend credit 75,472,905 19,581,701 29,570,273 (53,350,232) (32,391,396) (17,028,027) 7,124,914 483,281 4,729,763 17,076,813 9,244,118 (2,914,889) (1,015,920) 242,759 1,669,111 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 Off-balance sheet gap 29,247,587 (12,326,414) 14,404,683 9,897,309 –00 –00 –00 –00 –00 –00 Total Yield / Interest Risk Sensitivity Gap (198,086,683 ) 200,029,177 334,425,920 115,210,900 85,416,436 31,042,208 32,286,864 17,528,318 Cumulative Yield / Interest Risk Sensitivity Gap (198,086,683 ) 51,510,174 17,272,009 11,122,373 5,846,019 (335,418,192 ) 1,942,494 336,368,414 451,579,314 536,995,750 568,037,958 600,324,822 617,853,140 623,699,159 288,280,967 109
114. 44 .2.5.1 Reconciliation of Financial Assets and Liabilities 2021 2020 (Rupees in '000) Assets as per statement of financial position 1,849,652,120 1,522,091,327 55,692,777 268,246 2,074,828 43,967,993 211,111 –00 1,161,812 950,942 436,018 672,169 954,077 393,693 2,548,772 2,019,939 Interest Rate Sensitive Assets 1,789,067,497 1,475,892,284 Liabilities as per statement of financial position 1,759,637,072 1,442,234,951 –00 176,751 1,416,819 5,764,199 173,319 1,127,704 3,043,353 12,235,539 2,043,762 304,009 2,639,104 146,692 969,754 2,423,293 10,526,139 450,248 25,804,695 17,459,239 1,733,832,377 1,424,598,961 Less: Fixed assets Intangible assets Deferred tax assets Advances, deposits, advance rent and other prepayments Non-banking assets acquired in satisfaction of claims Stationery and stamps on hand Less: Deferred tax liabilities Unearned commission income Branch adjustment account Provision against off - balance sheet items Provision for compensated absences Workers’ welfare fund Lease liability against right-of-use assets Current taxation (payments less provisions) Interest Rate Sensitive Liabilities 44.3 Operational Risk Operational risk is the risk of loss resulting from in adequate or failed internal processes, people, and systems or from external events. This definition includes legal risk but excludes strategic and reputational risks. Bank classifies operational loss / near miss incidents into seven loss incidents types, which are Internal Fraud, External Fraud, Employment Practice & Workplace Safety, Client, Product & Business Practice, Damage to Physical Assets, Business Disruption & System Failure, and Execution, Delivery & Process Management. Operational risk is managed through the Operational Risk Policy, Audit Policy, Compliance Policy & Programme, Information Technology (I.T.) Policy, I.T. Governance Framework, I.T. Security Policy, Human Resource Policy, Consumer Protection Framework, KYC / CDD Policy, AML / CFT Policy, Fraud Prevention Policy, Consumer Grievance Handling Policy and Outsourcing Policy approved by the Board, along with the operational manuals and procedures issued from time to time; system of internal controls; Business Continuity Plan, Disaster Recovery Plan for I.T.; and regular audit of the branches and divisions. Operational risk related matters are discussed in the operations committee, compliance committee of management and I.T. steering committee. Audit Committee of the Board provides overall guidance in managing the Bank’s operational risk. The Bank’s operational risk management framework, as laid down in the operational risk policy, permits the overall risk management approach to evolve in the light of organisational learning and the future needs of the Bank. The Bank places a high priority on conducting all business dealings with integrity and fairness, as laid down in the Code of Conduct, which is required to be complied with by all employees. 110
115. Internal controls are an essential feature of risk reduction in operational risk management and the Bank continues to improve its internal controls . Business Continuity Plan of the Bank pays special attention to identification of potential threats and associated risks in critical business processes by carrying out Business Impact Analysis and Risk Assessment including those which are dependent on external vendors or third parties, identification of alternative mechanisms for timely resumption of services, with special focus on critical business processes, location of off-site backup & regular review and testing of the plan. Bank has devised and implemented IT Project Management and IT Risk Management Frameworks. Bank is also CMMI Maturity (Level - 3) certified. Bank AL Habib’s website for Conventional and Islamic banking has been revamped with dynamic features. Furthermore, OBDX (Oracle Banking Digital Experience) web and mobile application have been commercially launched. Bank has taken various measures to strengthen I.T. Security, which includes implementation of Cyber Security Strategy and Action Plan, Vulnerability Management Program, virtual patching and database activity monitoring solution on critical systems, 24/7 Security Operation centre (SOC), regular Internal and external penetration testing of applications, anti malware and antivirus security solution, subscription to I.T. security threat intelligence service and recertification of controls as per SWIFT customer Security Program. 44.3.1 Operational Risk-Disclosures Basel II Specific The Bank uses Basic Indicator Approach to calculate capital charge for operational risk as per Basel regulatory framework. This approach is considered to be most suitable in view of the business model of the Bank which relies on an extensive network of branches to offer one - stop, full – service banking to its clients. The Bank has developed and implemented an Operational Loss Database. Operational loss and "near miss" events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve security and control procedures. Key Risk Indicators have also been developed along with thresholds which are being closely monitored for breaches. Risk Evaluation exercise is carried out for new products, processes and systems or any significant change in the existing product, processes and systems as per the operational risk policy of the Bank. 44.4 Liquidity Risk Liquidity risk is the risk of loss to a bank arising from its inability to meet obligations as they fall due or to fund growth in assets, without incurring unacceptable cost or losses. Key elements of the Bank’s liquidity risk management are as follows: - To maintain a comfortable margin of excess liquidity in the form of cash and readily marketable assets to meet the Bank’s funding requirements at any time. - To keep a strong focus on mobilization of low-cost core deposits from customers. - To maintain a realistic balance between the behavioral maturity profiles of assets and liabilities. - To maintain excellent credit rating (as borrowing cost and ability to raise funds are directly affected by credit rating). - To have a written contingency funding plan to address any hypothetical situations when access to normal sources of funding is constrained. 44.4.1 Liquidity Coverage Ratio SBP issued BPRD Circular No. 08 dated June 23, 2016 advising implementation of Basel III liquidity standards that constitute two ratios, i.e., Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), and five monitoring tools. LCR is the measure of conversion capability of the Bank’s High Quality Liquid Assets (HQLAs) into cash to meet immediate liquidity requirements over a 30 days horizon. The Bank calculates Liquidity Coverage Ratio (LCR) on monthly basis as per the guidelines given in the above mentioned circular. The objective of LCR is to ensure the short-term resilience of the liquidity risk profile which requires the Bank to maintain sufficient High Quality Liquid Assets (HQLAs) to meet stressed cash outflows over a prospective 30 calendar - days period. As of 31 December 2021, the Bank’s LCR stood at 251% against the SBP’s minimum requirement of 100%. 111
116. 44 .4.2 Governance of Liquidity Risk Management Liquidity risk is managed through the liquidity risk policy approved by the Board. The Bank has “zero tolerance” for liquidity risk and will continue to maintain a comfortable margin of excess liquidity in the form of cash and readily marketable assets to meet its funding requirements at any time. Management of liquidity risk is accomplished through a formal structure which includes: - Board of Directors (BOD) - Risk Management Committee - Asset Liability Management Committee (ALCO) - Treasury Division - Risk Management Division and Middle Office - Finance Division - Information Technology Division The Board of Directors approves the liquidity risk policy and ensures, through quarterly reviews by the Risk Management Committee of the Board, that the Bank’s liquidity risk is being managed prudently. Risk Management Committee of the Board provides overall guidance in managing the Bank’s liquidity risk. Liquidity position is monitored daily by the Treasury Division and the Middle Office and reviewed regularly by ALCO. 44.4.3 Funding Strategy The Bank’s prime source of liquidity is the customers' deposit base. Within deposits, the Bank strives to maintain core deposit base in form of current and saving deposits and avoids concentration in particular products, tenors and dependence on large fund providers. As a general rule, the Bank will not depend on borrowings in the inter-bank market, including repos, to be a part of its permanent pool of funds for financing of loans, but will use these as a source for obtaining moderate amounts of additional funds to meet temporary liquidity needs in the normal course of business or for money market operations. 44.4.4 Liquidity Risk Mitigation Techniques Various tools and techniques are used to measure and monitor the possible liquidity risk. These include monitoring of different liquidity ratios like core deposits to total deposits, advances to deposits, liquid assets to total deposits, Interbank borrowing to total deposits, which are monitored on regular basis against limits. Further, the Bank also prepares the maturity profile of assets and liabilities to monitor the liquidity gaps over different time bands. For maturity analysis, behavioral study is carried out to determine the behavior of non - contractual assets and liabilities. The Bank also ensures that statutory cash and liquidity requirements are maintained at all times. In addition, LCR, NSFR and Monitoring Tools of Basel III framework further strengthen liquidity risk management of the Bank. 44.4.5 Liquidity Stress Testing As per SBP FSD Circular No. 01 of 2020, Liquidity stress testing is being conducted under various stress scenarios. Shocks include the withdrawals of deposits, withdrawals of wholesale / large deposits & interbank borrowing, withdrawal of top deposits, etc. Results of stress testing are presented to ALCO and Risk Management Committee. The Bank’s liquidity risk management addresses the goal of protecting solvency and the ability to withstand stressful events in the market place. Stress testing for liquidity as prescribed in the liquidity risk policy is carried out regularly to estimate the impact of decline in liquidity on the ratio of liquid assets to deposits plus borrowings. 44.4.6 Contingency Funding Plan Contingency Funding Plan (CFP) is a part of liquidity risk policy of the Bank which identifies the trigger events that could cause a liquidity contingency and describes the actions to be taken to manage it. The contingency funding plan highlights liquidity management actions that needs to be taken to deal with the contingency. Responsibilities and response levels are also incorporated in order to tackle the contingency. Moreover, CFP highlights possible funding sources, in case of a liquidity contingency. 44.4.7 Main Components of LCR Main components of LCR are High Quality Liquid Assets and Net Cash Outflows. Outflows are mainly deposit outflows net of cash inflows which consist of inflows from financing and money market placements up to 1 month. The inputs for calculation of LCR are based on SBP BPRD Circular No. 08 dated 23 June 2016. 112
117. 44 .4.8 Composition of HQLAs High Quality Liquid Assets consist of Level 1 Assets which are included in the stock of liquid assets at 100% weightage of their market value i.e., Cash & Treasury balances, Conventional Government Securities, GOP Ijarah Sukuks, Foreign Currency Sukuks & Bonds issued by sovereigns. While Level 2 Assets comprise all equity shares (excluding shares of Financial Institutions) listed on PSX 100. 44.4.9 Concentration of Funding Sources The Bank relies on customers' deposits as its key source of funding, specially current and saving deposits and time deposits of small / medium denominations, and avoids concentration of large deposits. Share of core deposits in total deposits and of large deposits in total deposits are regularly monitored. In particular the Bank does not depend on large depositors or borrowings from SBP and financial institutions to meet its funding requirements. 44.4.10 Currency Mismatch in the LCR About 90% of the Bank's assets and liabilities are in local currency. Currency mismatch in other currencies is regularly monitored. 44.4.11 Centralisation of Liquidity Management Overall liquidity management of the Bank is centralised in Treasury Division at Principal Office. The Bank mobilises deposits through its branch network. It also uses the branch network to grant loans to customers. Branches that have more deposits than loans, transfer (“lend”) their excess deposits to the Principal Office. Branches that do not have enough deposits to fund their loans, acquire (“borrow”) additional funds from the Principal Office. 44.4.12 Other Inflows & Outflows Benefit of pledged deposits (deposits under lien) are not accounted for in calculation of LCR. 44.4.13 Net Stable Funding Ratio (NSFR) NSFR is the ratio of the amount of Available Stable Funding (ASF) - source of funds, capital and liabilities relative to the amount of Required Stable Funding (RSF) - use of funds, assets and off - balance sheet exposures. The objective of NSFR is to ensure the availability of stable funds that a bank must hold to enable it to build and maintain its assets, investments and off balance sheet portfolio on an ongoing basis for longer term, i.e., over a one year horizon. NSFR reduces maturity mismatches between the asset and liability items on the balance sheet and thereby reduces funding and roll - over risk. The Bank’s NSFR stood at 167% as on 31 December 2021. 113
118. 44 .5 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Bank The following maturity profile is based on contractual maturities for assets and liabilities that have a contractual maturity. Assets and liabilities that do not have a contractual maturity have been categorised in the shortest maturity band. Total 2021 Upto 1 day Over 1 to 7 days Over 7 to 14 days Over 14 days to 1 month Over 1 to 2 months Over 2 to 3 months Over 3 Over 6 to 6 to 9 months months (Rupees in '000) Over 9 months to 1 year Over 1 to 2 years Over 2 to 3 years Over 3 to 5 years Over 5 years Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 118,599,741 118,599,741 6,740,008 6,740,008 20,063,828 –00 826,599,884 12,939,210 733,799,311 62,322,894 55,692,777 22,506,089 268,246 –00 2,074,828 2,693,262 85,813,497 16,784,590 –00 –00 –00 –00 20,063,828 –00 (175,858 ) 24,857,332 16,559,970 25,896,302 –00 –00 –00 –00 –00 –00 5,142,949 6,220,977 –00 –00 –00 –00 –00 –00 26,170,521 56,009,462 52,410,345 94,703,829 438,826 429,554 43,454 42,783 (22,701) (27,442) 13,547,227 14,422,657 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 27,486,128 (410,686 ) 79,072,916 314,565 207,940,176 94,964,569 127,675,042 39,097,554 24,479,731 48,372,383 574,611 1,101,378 1,215,390 001,184,060 4,395,192 22,693 55,879 49,822 0040,686 12,929 (27,442 ) (79,880 ) (52,930) 00(70,296) (249,744) 9,760,794 7,770,376 4,117,500 007,835,258 112,638 –00 –00 –00 –00 –00 –00 –00 –00 –00 40,353,512 193,664,781 158,377,825 48,828,863 48,004,081 50,483,748 3,660,512 5,284,010 14,903,155 –00 –00 –00 (80,264 ) 287,705 (295,440 ) 68,849 18,117 11,565 1,849,652,120 242,585,794 41,590,889 56,974,611 92,587,672 165,580,843 132,781,353 136,112,109 123,500,252 33,784,004 260,583,574 92,831,472 247,258,694 223,480,853 29,803,755 29,803,755 302,212,902 537,376 1,309,823,329 1,077,838,256 –00 72,474,365 16,117,169 –00 1,094,262 26,665,733 –00 2,336,666 50,921,042 –00 75,846,330 18,700,448 –00 23,083,908 23,791,875 –00 –00 42,619,114 7,519,175 26,302,731 20,686,097 –00 4,245,556 30,465,438 –00 9,542,625 2,894,746 –00 10,585,069 12,103,107 –00 –00 19,745,203 32,583,253 3,309,696 26,991 –00 –00 –00 30,523,057 –00 –00 –00 5,162,952 –00 –00 –00 4,852,827 –00 –00 –00 9,938,161 –00 –00 –00 12,314,874 –00 1,000 –00 7,175,748 –00 800 –00 5,302,990 –00 1,000 –00 6,644,426 –00 800 –00 8,570,540 –00 3,600 –00 1,326,302 –00 3,600 –00 1,154,690 –00 –00 7,200 15,977,200 –00 –00 2,384,506 6,450,813 1,759,637,072 1,138,702,444 93,754,486 32,612,822 63,195,869 106,861,652 54,052,531 74,225,635 34,850,698 43,282,334 13,767,273 23,846,466 25,446,605 55,038,257 29,391,803 78,728,822 61,886,474 88,649,554 (9,498,330) 246,816,301 –00 15,995,200 –00 101,801,886 Net assets 90,015,048 (896,116,650 ) (52,163,597 ) 24,361,789 Share capital Reserves Surplus on revaluation of assets Unappropriated profit 11,114,254 20,656,466 6,446,259 51,798,069 58,719,191 68,985,006 221,812,089 168,442,596 90,015,048 114
119. Total 2020 Upto 1 day Over 1 to 7 days Over 7 to 14 days Over 14 days to 1 month Over 1 to 2 months –00 –00 (2,966) (341,794) 7,371,280 –00 –00 –00 2,013,296 –00 –00 –00 –00 –00 –00 (3,461) 2,182,222 –00 (398,760) (648,823) 48,629,312 9,070,048 33,016,839 59,638,378 –00 382,876 376,200 –00 22,627 22,627 –00 –00 –00 7,406,967 9,134,405 11,636,343 Over 2 to 3 months Over 3 Over 6 to 6 to 9 months months (Rupees in '000) Over 9 months to 1 year Over 1 to 2 years Over 2 to 3 years Over 3 to 5 years Over 5 years Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 105,935,947 19,662,515 2,175,301 764,943,506 510,251,632 43,967,993 211,111 –00 74,943,322 105,935,947 19,662,515 (494) 11,484,141 53,335,773 19,674,219 –00 –00 10,902,949 1,522,091,327 220,995,050 Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 9,039,816 16,074,794 44,090,146 120,302,860 108,809,260 135,532,975 137,762,611 44,450,679 139,714,597 141,782,292 206,426,919 197,109,328 31,013,221 31,013,221 –00 211,599,405 320,328 98,718,568 1,099,686,361 892,095,621 25,825,810 –00 –00 14,989,600 –00 176,751 (261,424) 84,769,613 20,763,276 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 13,809,722 42,481,419 105,260,936 19,857,075 90,042,620 108,105,472 170,789,915 155,872,271 82,793,789 79,781,992 23,793,801 22,992,880 44,412,146 30,614,506 31,490,891 31,939,309 506,268 936,966 1,021,036 00996,376 3,601,624 3,054,538 4,120,142 9,297,748 22,622 62,059 23,260 0017,007 40,909 –00 –00 –00 –00 –00 –00 00–00 –00 –00 –00 –00 11,676,859 12,270,539 7,663,578 00587,341 1,617,298 7,776 25,971 –00 –00 –00 –00 1,979,114 –00 –00 –00 545,085 2,144,448 18,910,564 9,876,099 40,346,851 12,476,736 –00 –00 –00 3,200,147 –00 –00 –00 –00 37,094 34,482 6,856,769 11,263,412 1,442,234,951 943,931,022 126,523,492 13,621,331 49,385,162 42,685,194 Net assets 79,856,376 (722,935,972 ) (117,483,676) Share capital Reserves Surplus on revaluation of assets Unappropriated profit 11,114,254 18,431,277 10,286,484 40,024,361 2,453,463 (5,295,016) 77,617,666 –00 –00 –00 –00 –00 22,939,478 17,644,403 2,944,525 3,096,367 12,927,163 23,062,348 24,076,408 25,029,560 23,922,401 6,657,497 –00 –00 –00 800 800 800 34,482 97,114 72,985 9,148,184 11,052,652 8,215,432 –00 800 65,683 792,640 –00 3,200 204,367 2,754,422 55,185,292 52,871,377 36,263,302 27,877,891 22,546,649 –00 –00 –00 5,891,219 10,195,980 15,321,277 2,446,852 13,835,519 34,659 –00 3,200 182,160 1,259,471 –00 –00 6,400 14,973,600 (216,962 ) (73,230) 2,154,287 5,329,807 9,782,902 25,975,224 35,586,113 53,623,968 82,661,598 101,499,309 16,572,788 117,167,948 131,999,390 180,451,695 161,523,215 79,856,376 115
120. 44 .6 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Bank For assets and liabilities that have a contractual maturity, the expected maturity is considered to be the same as contractual maturity. Assets and Liabilities that do not have a contractual maturity have been categorised on the basis of expected maturities as determined by ALCO. In case of saving and current accounts, their historical net withdrawal pattern over the next one year was reviewed, based on year - end balances for the last three years. Thereafter, taking a conservative view, ALCO categorised these deposits in various maturity bands. Other assets and liabilities have been categorised on the basis of assumptions / judgments that are believed to be reasonable. Total 2021 Upto 1 month Over 1 to 3 months Over 3 to 6 months Over 6 Over 1 months to 2 to 1 year years (Rupees in '000) Over 2 to 3 years Over 3 to 5 years Over 5 to 10 years Above 10 years 118,599,741 6,740,008 20,063,828 826,599,884 733,799,311 55,692,777 268,246 2,074,828 85,813,497 118,599,741 6,740,008 20,063,828 51,588,076 157,189,511 529,625 43,454 3,268,620 40,228,849 –00 –00 –00 83,187,790 189,668,398 1,921,326 65,476 47,652 24,256,741 –00 –00 –00 (409,505 ) 127,675,042 1,338,918 55,879 (101,422 ) 7,927,102 –00 –00 –00 92,640,504 63,577,285 3,320,713 90,508 222,871 12,172,629 –00 –00 –00 207,866,320 48,372,383 12,260,368 12,929 (1,939,116 ) 248,217 –00 –00 –00 40,129,080 48,828,863 3,660,512 –00 7,264 68,849 –00 –00 –00 192,321,659 48,004,081 5,284,010 –00 811,703 18,117 –00 –00 –00 155,947,899 37,530,239 5,787,232 –00 917,429 11,566 –00 –00 –00 3,328,061 12,953,509 21,590,073 –00 (1,160,173 ) 881,427 1,849,652,120 398,251,712 299,147,383 136,486,014 172,024,510 266,821,101 92,694,568 246,439,570 200,194,365 37,592,897 29,803,755 302,212,902 1,309,823,329 29,803,755 76,442,669 213,032,074 –00 98,930,238 148,993,447 –00 42,619,114 132,803,856 –00 11,764,731 157,652,660 –00 9,542,625 162,646,434 –00 10,585,069 171,854,795 –00 19,745,203 163,061,384 –00 32,327,849 159,767,786 –00 255,404 10,893 –00 15,995,200 –00 101,801,886 –00 –00 –00 41,720,363 –00 1,000 –00 19,490,621 –00 800 –00 5,302,990 –00 1,800 –00 15,214,966 –00 3,600 –00 1,326,302 –00 3,600 –00 1,154,690 –00 7,200 –00 9,132,049 –00 8,977,200 –00 5,182,995 –00 7,000,000 –00 3,276,910 1,759,637,072 360,998,861 267,415,306 180,726,760 184,634,157 173,518,961 183,598,154 191,945,836 206,255,830 10,543,207 Net assets 90,015,048 37,252,851 31,732,077 (44,240,746 ) (12,609,647) 93,302,140 (90,903,586) 54,493,734 Share capital Reserves Surplus on revaluation of assets Unappropriated profit 11,114,254 20,656,466 6,446,259 51,798,069 90,015,048 Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities (6,061,465) 27,049,690 116
121. Total 2020 Upto 1 month Over 1 to 3 months Over 3 to 6 months Over 6 Over 1 months to 2 to 1 year years (Rupees in '000) Over 2 to 3 years Over 3 to 5 years Over 5 to 10 years Above 10 years 105,935,947 19,662,515 2,175,301 764,943,506 510,251,632 43,967,993 211,111 –00 74,943,322 105,935,947 19,662,515 2,175,301 (1,350,589 ) 102,793,940 428,001 22,627 –00 28,082,038 –00 –00 –00 62,899,171 142,432,167 1,945,378 45,249 –00 23,379,236 –00 –00 –00 42,492,324 79,781,992 1,601,060 62,059 –00 12,369,589 –00 –00 –00 132,508,160 46,786,681 2,563,364 40,267 –00 8,449,019 –00 –00 –00 91,579,088 44,412,146 3,950,045 40,909 –00 1,753,753 –00 –00 –00 108,936,020 30,614,505 11,153,810 –00 –00 7,776 –00 –00 –00 171,274,822 31,490,892 4,120,142 –00 –00 25,971 –00 –00 –00 153,093,362 24,104,075 4,408,160 –00 –00 –00 –00 –00 –00 3,511,148 7,835,234 13,798,033 –00 –00 875,940 1,522,091,327 257,749,780 230,701,201 136,307,024 190,347,491 141,735,941 150,712,111 206,911,827 181,605,597 26,020,355 31,013,221 211,599,405 1,099,686,361 31,013,221 101,728,429 176,037,480 –00 41,850,042 123,550,962 –00 17,644,403 112,088,286 –00 6,040,892 136,963,839 –00 12,927,163 165,078,877 –00 5,891,219 160,868,233 –00 10,195,980 181,058,087 –00 14,808,462 44,028,065 –00 512,815 12,532 –00 800 236,066 20,411,596 –00 800 110,015 11,052,652 –00 1,600 (130,643) 9,008,071 –00 3,200 780,634 2,754,422 –00 3,200 1,991,335 1,259,471 –00 6,400 (47,244) 7,400,106 –00 7,973,600 (679,113) 4,267,763 –00 7,000,000 449,174 2,770,895 Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities –00 14,989,600 176,751 84,769,613 –00 –00 (2,533,473 ) 25,844,637 1,442,234,951 332,090,294 186,049,466 140,896,156 151,883,759 181,544,296 170,013,458 198,613,329 70,398,777 10,745,416 Net assets 79,856,376 (74,340,514) 44,651,735 (4,589,132 ) 38,463,732 (39,808,355) (19,301,347) 8,298,498 111,206,820 15,274,939 Share capital Reserves Surplus on revaluation of assets Unappropriated profit 11,114,254 18,431,277 10,286,484 40,024,361 79,856,376 117
122. 45 . EVENTS AFTER THE REPORTING DATE Subsequent to the year end, the Board of Directors proposed a final cash dividend of Rs. 7.0 (2020: Rs. 4.5) per share. 46. GENERAL 46.1 Captions, as prescribed by BPRD Circular No. 02 of 2018 issued by SBP, in respect of which there are no amounts, have not been reproduced in these unconsolidated financial statements, except for captions of the statement of financial position and profit and loss account. 46.2 Figures have been rounded off to the nearest thousand rupees, unless otherwise stated. 46.3 Comparative information has been re-classified, re-arranged or additionally incorporated in these unconsolidated financial statements wherever necessary to facilitate comparison and better presentation. 47. DATE OF AUTHORISATION These unconsolidated financial statements were authorised for issue in the Board of Directors' meeting held on 09 February 2022. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 118
123. Annexure I STATEMENT SHOWING WRITTEN-OFF LOANS OR ANY OTHER FINANCIAL RELIEF OF RUPEES FIVE HUNDRED THOUSAND OR ABOVE PROVIDED DURING THE YEAR ENDED 31 DECEMBER 2021 (Rupees in '000) Outstanding liabilities at beginning of the year S. No. Name and address of the borrower(s) Name of individuals / partners / directors (with CNIC Nos.) Father's / Husband's Name Principal Interest / Mark-up Other Charges Total 1 2 3 4 5 6 7 8 Fazal Muhammad Khan 66,711 8,165 – 74,876 – 5,911 – 5,911 Muhammad Ali (CNIC: 34101-4602895-1) Interest / Principal Mark-up Written Written off off 9 10 Other Charges Total written (9+10+11) off 11 12 1. Fazal Centre Rahwali G. T Road Cantt Gujranwala 2. Mukhtar Ali Alwani Mukhtar Ali Alwani Fatima Manzil, Flat No. 20 (CNIC: 42301-4605058-9) 5th Floor, Near HBL Kharadar Branch, Kharadar, Karachi. Sher Ali Alwani 1,275 88 751 2,114 475 88 751 1,314 3. Inayatullah Memon Inayatullah Memon Flat # 25, 3rd Floor, Hashim (CNIC: 42201-4006030-9) Galleria, Commercial Housing Scheme, Qasimabad, Hyderabad. Khuda Dino 2,668 2,129 – 4,797 69 2,360 266 2,695 70,654 10,382 75100 81,787 544 8,359 1,01700 9,920 Total 119
124. Annexure II ISLAMIC BANKING BUSINESS The Bank is operating 138 (2020: 106) Islamic banking branches and 145 (2020: 143) Islamic banking windows at the end of the year. Note 2021 2020 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments Islamic financing and related assets-net Fixed assets Intangible assets Due from Head Office Other assets Total Assets 1 2 8,423,970 6,633 –000 126,593,021 85,209,570 691,623 –000 –000 8,215,798 229,140,615 5,727,007 6,557 2,175,301 71,453,147 58,304,712 479,006 –000 –000 5,167,572 143,313,302 306,474 30,479,303 128,090,092 39,305,108 –000 16,989,976 137,796 18,962,087 93,238,405 14,457,740 –000 6,315,054 215,170,953 133,111,082 13,969,662 10,202,220 LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Due to Head Office Subordinated debt Other liabilities 3 NET ASSETS REPRESENTED BY Islamic Banking Fund Reserves Deficit on revaluation of assets Unappropriated profit 5 7,600,000 –000 (238,060) 6,607,722 13,969,662 CONTINGENCIES AND COMMITMENTS 7,600,000 –000 (142,701) 2,744,921 10,202,220 6 120
125. The profit and loss account of the Bank 's Islamic banking branches for the year ended 31 December 2021 is as follows: Note 2021 2020 (Rupees in '000) Profit / return earned Profit / return expensed Net Profit / return 7 8 10,936,284 (4,829,642) 6,106,642 8,493,424 (4,047,777) 4,445,647 675,695 6,115 145,850 –00 10,123 42,498 880,281 6,986,923 310,209 94,448 97,171 –00 169,484 95,723 767,035 5,212,682 Other expenses Operating expenses Other charges (3,129,078) (180) (2,349,393) (44) Total other expenses (3,129,258) (2,349,437) Profit before provisions Reversals / (provisions) and write offs-net 3,857,665 5,136 2,863,245 (118,324) Profit for the year 3,862,801 2,744,921 Other income Fee and commission income Dividend income Foreign exchange income Income / (loss) from derivatives Gain on securities Other income Total other income Total income 2020 2021 Cost / Provision amortised for (Deficit) / cost diminution surplus 1. Carrying value Cost / amortised cost Provision for diminution (Deficit) / surplus Carrying value Investments by segments (Rupees in '000) Federal Government Securities - Ijarah Sukuks - Neelum Jhelum Hydropower Co Ltd. Sukuk - Bai Muajjal with Government of Pakistan - Islamic Naya Pakistan Certificate Shares - Listed Companies Non Government Debt Securities - Listed - Unlisted Units of Mutual Funds Associates - AL Habib Islamic Cash Fund - AL Habib Islamic Savings Fund Total Investments 86,966,521 3,093,750 9,222,783 807,152 100,090,206 –00 –00 –00 –00 –00 (489,423 ) –00 –00 –00 (489,423 ) 86,477,098 3,093,750 9,222,783 807,152 99,600,783 31,954,335 3,781,250 11,328,818 –00 47,064,403 –00 –00 –00 –00 –00 (208,246 ) 31,746,089 –00 3,781,250 –00 11,328,818 –00 –00 (208,246 ) 46,856,157 80,455 (54,083 ) 11,665 38,037 97,442 (63,384 ) 15,861 49,919 22,243,347 3,973,000 26,216,347 –00 –00 –00 215,177 –00 215,177 22,458,524 3,973,000 26,431,524 22,425,254 2,025,000 24,450,254 –00 –00 –00 27,418 –00 27,418 22,452,672 2,025,000 24,477,672 351,022 (52,866 ) 24,521 322,677 100,000 (52,866 ) 22,265 69,399 100,000 100,000 200,000 –00 –00 –00 –00 –00 –00 100,000 100,000 200,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 126,938,030 (106,949 ) (238,060 ) 126,593,021 71,712,099 (116,250 ) (142,702 ) 71,453,147 121
126. Note 2 . Islamic financing and related assets Ijarah Murabaha Diminishing Musharaka Islamic Long Term Financing Facility (ILTFF) Istisna Islamic Refinance for Renewable Energy (IFRE) Islamic Refinance for Wages & Salaries (IRWS) Islamic Refinance for Temporary Economic Refinance Facility (ITERF) Islamic Export Refinance - Istisna Musawamah Islamic Export Refinance-Musawamah Running Musharaka Islamic Export Refinance-Running Musharaka Financing against Bills-Musawamah Staff Financing Musawamah Inventory Advance against Istisna Advance against Istisna - IERF Advance against Ijarah Advance against Diminishing Musharaka Advance against ILTFF Advance against IFRE Advance against ITERF Advance against IRF SME 2.1 2.2 Gross Islamic financing and related assets Less: provision against Islamic financings - Specific - General Islamic financing and related assets-net of provision 2.1 2021 2020 (Rupees in '000) 1,510,759 10,763,354 14,068,266 2,354,060 5,342,869 36,245 1,220,603 908,150 1,116,424 4,583,663 529,750 326,612 5,263,500 1,580,871 1,025,435 2,290,127 7,974,093 9,475,930 505,797 4,440,130 1,756,300 2,161,708 6,101,556 39,925 1,656,565 9,148,387 11,404,565 1,737,762 2,364,376 14,035 2,355,044 –00 1,083,650 3,710,693 826,500 84,799 6,270,000 293,805 594,202 1,700,257 5,702,233 4,829,300 735,441 1,083,563 1,082,706 875,000 914,221 –00 85,376,127 58,467,104 (123,001) (43,556) (135,936) (26,456) (166,557) (162,392) 85,209,570 58,304,712 Ijarah 2021 Cost As at 01 January 2021 Plant and Machinery Vehicles Equipment Total 404,078 2,227,410 286,147 2,917,635 Accumulated depreciation Additions / As at 31 (deletions) December 2021 348,701 (169,375) 540,587 (630,478 ) 106,718 (189,457 ) 996,006 (989,310 ) As at 01 Charge for January the year / 2021 (deletions) (Rupees in '000) 583,404 179,121 2,137,519 891,153 203,408 190,796 2,924,331 1,261,070 191,555 (76,346) 490,799 (409,391 ) 91,675 (135,790 ) 774,029 (621,527 ) Book value As at 31 December 2021 as at 31 December 2021 294,330 289,074 972,561 1,164,958 146,681 56,727 1,413,572 1,510,759 122
127. 2020 Cost Plant and Machinery Vehicles Equipment Total 2 .1.1 Accumulated depreciation As at 01 January 2020 Additions / (deletions) As at 31 December 2020 934,345 169,556 (699,823) 546,978 (726,312 ) –00 (321,736 ) 404,078 358,906 2,227,410 890,722 286,147 334,105 2,917,635 1,583,733 2,406,744 607,883 3,948,972 716,534 (1,747,871 ) As at 01 Charge for January the year / 2020 (deletions) (Rupees in '000) 218,211 (397,996) 467,430 (466,999 ) 123,163 (266,472 ) 808,804 (1,131,467 ) Not later Later than than 1 1 year and less year than 5 years Ijarah rental receivables 2.2.2 2.2.4 224,957 891,153 1,336,257 190,796 95,351 1,261,070 1,656,565 160,721 1,192,485 Not later Later than than 1 1 year and less Total year than 5 years (Rupees in '000) 1,353,206 Murabaha Murabaha financing Advances for Murabaha 2.2.1 Murabaha receivable-gross Less: Deferred murabaha income Profit receivable shown in other assets Murabaha financings 2.2.2 2.2.4 The movement in Murabaha financing during the year is as follows: Opening balance Sales during the year Adjusted during the year Closing balance 2.2.3 179,121 2020 Note 2.2.1 as at 31 December 2020 Future ijarah payments receivable 2021 2.2 Book value As at 31 December 2020 Murabaha sale price Murabaha purchase price 685,438 871,283 Total 1,556,721 2021 2020 (Rupees in '000) 7,685,008 3,078,346 10,763,354 7,020,386 2,128,001 9,148,387 7,929,218 (130,922 ) (113,288 ) 7,202,836 (75,641 ) (106,809 ) 7,685,008 7,020,386 7,202,836 32,356,284 (31,629,902 ) 7,212,743 26,037,743 (26,047,650 ) 7,929,218 7,202,836 32,281,567 (31,578,935 ) 25,990,650 (25,303,306 ) 702,632 687,344 Deferred murabaha income Opening balance Arising during the year Less: Recognised during the year (75,641 ) (704,180 ) 648,899 (125,034 ) (694,160 ) 743,553 Closing balance (130,922 ) (75,641 ) 123
128. 3 . Deposits and other accounts In local currency Customers Current deposits Savings deposits Term deposits Financial institutions Current deposits Savings deposits 2021 In foreign currencies Total (Rupees in '000) In local currency 2020 In foreign currencies Total 51,080,914 44,206,742 19,890,218 115,177,874 1,753,634 1,946,099 –00 3,699,733 52,834,548 46,152,841 19,890,218 118,877,607 34,780,071 33,690,149 21,354,917 89,825,137 1,476,398 1,458,082 –00 2,934,480 36,256,469 35,148,231 21,354,917 92,759,617 18,895 9,193,590 –00 –00 18,895 9,193,590 62,908 415,880 –00 –00 62,908 415,880 9,212,485 –00 9,212,485 478,788 –00 478,788 124,390,359 3,699,733 128,090,092 90,303,925 2,934,480 93,238,405 2021 2020 (Rupees in '000) 3.1 Composition of deposits - Individuals - Government / Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 3.1.1 76,106,049 1,491,016 46 9,212,439 41,280,542 128,090,092 58,871,300 2,096,892 46 478,742 31,791,425 93,238,405 Deposits includes eligible deposits covered under deposit protection mechanism as required by the Deposit Protection Act, 2016 amounting to Rs. 107,417.050 million (2020: Rs. 75,124.486 million). 2021 2020 (Rupees in '000) 4. Charity Fund Opening balance Additions during the year Received from customers on account of delayed payment Charity accrued but not yet received Dividend purification amount Other Non - Shariah compliant income Profit on charity saving account Payments / utilization during the year Health Social Welfare Education Closing balance 41,298 43,474 232 478 825 942 1,032 3,509 26,975 5,072 205 2,330 2,314 36,896 (19,131) (12,698) –00 (31,829) 12,978 (26,144) (10,428) (2,500) (39,072) 41,298 124
129. 2021 2020 (Rupees in '000) 4.1 Detail of charity is as follows: Afzaal Memorial Thalassemia Foundation Al Mustafa Trust ASF Foundation Bait-ul-Sukun Child Aid Association Dar-ul-Sukun Edhi Foundation Gawadar Development Authority Hospital Green Crescent Trust IDA RIEU Welfare Association Indus Hospital Jinnah Foundation Karachi Down Syndrome Program Lady Dufferin Hospital National Institute of Child Health Osmania Hospital Pakistan Children’s Heart Foundation Pakistan Foundation Fighting Blindness Panah Trust Pink Ribbon SIUT The Cancer Foundation The Kidney Centre 5. 6. 31,829 38,572 Opening balance Add: Islamic Banking profit for the year Less: Remitted to Head Office 2,744,921 3,862,801 –00 2,551,373 2,744,921 (2,551,373) Closing balance 6,607,722 2,744,921 10,930,898 27,490,079 4,415,658 17,468,898 38,420,977 21,884,556 3,999,268 6,915,752 21,264 4,389,705 3,712,628 391,091 10,936,284 8,493,424 3,601,731 403,087 824,824 4,829,642 3,594,464 259,532 193,781 4,047,777 Contingencies and Commitments Profit / Return Earned on Financing, Investments and Placement Profit earned on: Financing Investments Placements 8. –00 1,607 –00 1,607 3,607 3,607 3,607 5,494 1,607 1,607 3,615 2,000 –00 –00 3,000 1,607 1,000 –00 –00 –00 3,607 –00 1,000 Islamic Banking Business Unappropriated Profit - Guarantees - Commitments 7. 3,000 1,500 939 1,939 1,000 1,939 1,939 –00 1,939 1,939 1,939 –00 1,000 1,000 1,000 1,000 1,939 1,000 1,000 1,000 1,939 939 1,939 Profit on Deposits and Other Dues Expensed Deposits and other accounts Due to Financial Institutions Due to Head Office 125
130. 9 . Profit and Loss Distribution and Pool Management 9.1 The number and nature of pools maintained by the Islamic Banking Branches along with their key features and risk and reward characteristics: General Pool PKR (Mudaraba) Deposits which assume minimal risk of loss due to diversified assets being tagged thereto are parked in the general pool. In case of loss in general pool, the loss will be borne by the general pool members. Special Pool(s) PKR (Mudaraba) Special pool(s) are created where the customers desire to invest in high yield assets. In case of loss in a special pool the loss will be borne by the special pool members. General Pool FCY (Mudaraba) In FCY pool, all FCY deposits and Investments are parked to share the return among the FCY deposit holders. In case of loss in a FCY General Pool, the loss will be borne by the FCY general pool members. Special Pool FCY (Mudaraba) Special pool(s) are created where the customers desire to invest in high yield assets. In case of loss in a special pool the loss will be borne by the special pool members. Islamic Export Refinance Scheme (IERS) Pool PKR (Musharaka) IERS pool is required by the SBP to facilitate the exporters under Islamic Export Refinance Scheme. Equity Pool Investments with relatively higher risks such as investment in shares and mutual funds are tagged to the equity pool in order to safeguard the interest of depositors. The Bank as Mudarib in the general pool is responsible for administrative costs and cost of operating fixed assets, which are financed from equity. Furthermore, subsidized financing to employees are also financed from equity as per SBP guidelines. Parameters associated with risk and rewards: Following are the key considerations attached with risk and reward of the pool: - Period, return, safety, security and liquidity of investment. - Maturities of funds obtained from Principal Office, Islamic Banking Institutions and Shariah compliant organisations as regulated in Pakistan. - Element of risk attached to various types of investments. - SBP rules and Shariah clearance. 9.2 Avenues / sectors of economy / business where Mudaraba based deposits have been deployed: The Mudaraba based funds have been deployed in the following avenues / sectors / business: - Chemical and pharmaceuticals Agribusiness Textile Sugar Shoes and leather garments Investment in sukuks, shares and mutual funds Production and transmission of energy Food and allied except sugar Cement Financial Wheat Individuals Others (domestic whole sale, engineering goods, plastic product, etc.) 126
131. 9 .3 Parameters used for allocation of profit, charging expenses and provisions etc. along with a brief description of their major components: The Bank’s Islamic Banking Division (IBD) is accepting Term Deposits and Saving Deposits under Mudaraba arrangements, wherein the Bank is Mudarib and depositors are Rab-Ul-Maal. The Bank with the prior approval of Depositors also commingles its funds with those of depositors. The funds so generated are invested by the Bank in Shariah compliant modes of financing and investments such as Murabaha, Ijarah, Istisna, Diminishing Musharakah, Running Musharakah, Musawama, Shares, Mutual Funds and Sukuks etc. The Bank calculates the profit of the pool at every month. Profit is distributed at the net income level. Net income is calculated after deducting direct costs such as cost of Murabaha, cost of Takaful, depreciation on Ijarah Assets, and amortization of premium on sukuks and loss of investments directly incurred in deriving that Income. The net income / loss is being allocated between the Bank’s equity and the depositors’ fund in proportion to their respective share in pool. The Bank’s profit sharing ratio during the year was 50% (2020: 50%) of Net Income and the depositors’ profit sharing ratio was 50% (2020: 50%) of net income. After the allocation of Income between the equity holder and depositors the profit is distributed among the account holders on the basis of predetermined weightages, announced by the Bank at the beginning of the month based on their respective category / tiers. In case of loss, Rab-ul-Maal has to bear the loss in the ratio of its investment. In case of provisioning, the general and specific provisions created against non-performing financing and diminution in the value of investments as under prudential regulations and other SBP directives shall be borne by the IBIs as Mudarib. However, write-offs of financings and loss on sale of investments shall be charged to the pool along with other direct expenses. 9.4 Mudarib share and HIBA distributed to depositor’s pool and specific pool 2021 Distributable Mudarib Income Share (Rupees in '000) LCY Pool FCY Pool 6,921,290 85,200 2,821,081 79,472 Mudarib Share (Percentage) HIBA Amount (Rupees in '000) 40.76% 93.28% HIBA (Percentage) 342,246 8,594 12.13% 10.81% 413,276 8,754 19.51% 14.21% 2020 LCY Pool FCY Pool 6,354,802 96,447 2,118,598 61,600 33.34% 63.87% 2021 2020 (Percentage) 9.5 Profit rate earned vs. profit rate distributed to the depositors during the year Profit rate earned Profit rate distributed 7.21% 3.34% 9.99% 4.69% 127
132. Complaint Handling The Bank has a comprehensive Customer Grievances Handling Policy , which is based on the principles of fairness, promptness, and customer’s right to approach alternate remedial avenues in case of need. Customers may register their complaints through Call Center, Bank’s Website, direct emails, Social Media and letters through drop-boxes or directly to Customer Services Division/CEO’s Office, which are promptly logged and acknowledged. The complaints are tracked for end-to-end resolution within regulatory timelines and escalated to Senior Management, as required. In case a complainant is not satisfied with the resolution provided by the Bank, he may escalate his complaint to Banking Mohtasib Pakistan. This process is communicated to customers through notices in Branches and the Website. During 2021, Bank’s Customer Complaint Unit has been further strengthened to ensure quick resolution of customers’ complaints. Further, training on complaints handling guidelines was also provided to a large number of staff. In 2021, the Bank received 216,799 complaints which were investigated and closed within an average turnaround time of 4 working days. 128
133. Report of Shariah Board for the year ending December 31 , 2021 In the name of Allah, the Beneficent, the Merciful 1. While the Board of Directors and Executive Management are solely responsible to ensure that the operations of Bank AL Habib – Islamic Banking Division (BAHL-IBD) are conducted in a manner that comply with Shariah principles and guidelines issued by the Shariah Board of the BAHL-IBD at all times. The Shariah Governance Framework issued by the State Bank of Pakistan, required from the Shariah Board (SB) to submit a report on the overall Shariah compliance environment of BAHL-IBD. 2. To form the opinion as expressed in this report, the Shariah Compliance Department carried out Shariah Reviews, on test check basis, of each class of transactions, the relevant documentation and process flows. Further, during the last year, Shariah Board reviewed the Internal Shariah Audit and External Shariah Audit Reports. Based on above, we are of the view that: I. BAHL-IBD has complied with Shariah rules and principles in the light of fatawa, rulings and guidelines issued by its Shariah Board. II. BAHL-IBD has complied with directives, regulations, instructions and guidelines i.e. related to Shariah compliance issued by SBP in accordance with the rulings of SBP’s Shariah Board. III. BAHL-IBD has complied with the SBP instructions on profit and loss distribution and Pool Management. On recommendations of Shariah Board measures are being taken to further strengthen the Pool Management system. IV. BAHL-IBD has a comprehensive mechanism in place to ensure Shariah Compliance in its overall operations. V. The Shariah Board appreciates the view and commitment of BOD towards ensuring the Shariah Compliance in the products, processes and operations of the BAHL-IBD. Improvement is required in level of awareness of Islamic Banking staff as well Executive Management in order to improve their understanding on the importance of Shari’ah Compliance in their respective areas, particularly in Foreign Trade Department. VI. The Management has provided adequate resources to Shariah Compliance Department and also committed to provide further staff enabling them to discharge their duties effectively. VII. The Bank has a well-defined mechanism in place which is sound enough to ensure that any earnings realized from sources or by means prohibited by Shariah have been credited to charity account and are being properly utilized. In year 2021, charity amount of Rs. 12.499 Million has been realized, out of which an income of Rs. 0.941 Million was credited to charity due to Shariah non-compliance as per instructions of Shariah Board. An amount of Rs. 31.823 Million has been granted to various charitable institutions against previous year’s balances. Mufti Sher Ali Resident Shariah Board Member Mufti Muhammad Hamza Shariah Board Member Mufti Mohib ul Haq Siddiqui Shariah Board Member Mufti Ismatullah Hamdullah Chairman Shariah Board Karachi: 07 February, 2022 129
134. Notice of Annual General Meeting Notice is hereby given that the Thirty-first Annual General Meeting of Bank AL Habib Limited will be held at the Registered Office of the Bank located at 126-C , Old Bahawalpur Road, Multan, on Tuesday, March 29, 2022 at 10:30 a.m. to transact the following business. The shareholders may also attend the meeting through electronic means as advised by Securities and Exchange Commission of Pakistan (SECP). 1. To receive and adopt the Audited Annual Accounts and Consolidated Accounts of the Bank for the year ended December 31, 2021 together with the Reports of Chairman, Directors and Auditors. 2. To consider and approve payment of cash dividend @ 70%, i.e., Rs. 7.0 per share of Rs. 10/- each for the year ended December 31, 2021 as recommended by the Board of Directors. 3. To appoint auditors for the year 2022 and to fix their remuneration. EY Ford Rhodes, Chartered Accountants, being eligible, offer themselves for re-appointment. 4. To elect Directors of the Bank in accordance with Section 159(1) of the Companies Act, 2017. The number of Directors to be elected pursuant to Section 159(1) of the Companies Act, 2017 has been fixed at 10 (ten) by the Board of Directors including one female Director in compliance with clause 7 of the Listed Companies (Code of Corporate Governance) Regulations, 2019. The following are the retiring Directors, who may offer themselves for election: Mr. Abbas D. Habib, Mr. Anwar Haji Karim, Ms. Farhana Mowjee Khan, Syed Mazhar Abbas, Mr. Qumail R. Habib, Mr. Safar A. Lakhani, Syed Hasan Ali Bukhari, Mr. Murtaza H. Habib, Mr. Arshad Nasar, and Mr. Adnan Afridi - NIT Nominee. 5. To consider any other business of the Bank with the permission of the Chair. Special Business 6. To Consider and approve increase in Authorized Capital of the Bank from Rs. 15,000,000,000 (Rupees Fifteen Billion) to Rs. 25,000,000,000 (Rupees Twenty Five Billion). 7. To consider and approve the conversion terms of Tier 2 Term Finance Certificates of the Bank, issued in 2021 in the amount of Rs. 5,000,000,000 (Rupees Five Billion) into Ordinary Shares of the Bank upon occurrence of a conversion event if so required by the State Bank of Pakistan. 8. To consider and approve the conversion terms of Tier 1 Term Finance Certificates of the Bank, intended to be issued in 2022 in the amount of Rs. 7,000,000,000 (Rupees Seven Billion) into Ordinary Shares of the Bank upon occurrence of a conversion event if so required by the State Bank of Pakistan. 9. To consider and approve remuneration payable to Executive Director of the Bank. Statements under Section 166(3) for Item No. 4, and under Section 134(3) of the Companies Act, 2017 in respect of special business contained in Items Nos. 6, 7, 8 & 9 are annexed By order of the Board Karachi: March 08, 2022 MOHAMMAD TAQI LAKHANI Company Secretary Notes: 1. Participation in the Annual General Meeting (AGM) through Electronic Means: The entitled shareholders who are interested to attend AGM through online platform and whose names appeared in the Books of the Bank by the close of business on March 18, 2022 are hereby requested to get themselves registered with the Company Secretary Office by providing the following details at the earliest but not later than 48 hours before the time of AGM (no account shall be taken of any part of the day that is not a working day) at agm@bankalhabib.com. 130
135. Name of Shareholder CNIC No . Folio Number /CDC No. Cell Number Email Address Upon receipt of the above information from interested shareholders, the Bank will send the login details at their email addresses. On the AGM day, shareholders will be able to login and participate in the AGM proceedings through their smartphones or computer devices from any convenient location. The login facility will be opened 30 minutes before the meeting time to enable the participants to join the meeting after identification and verification process. The entitled shareholders (whose names appeared in the Books of the Bank by the close of business on March 18, 2022) along with the details mentioned above may send their comments/suggestions for the proposed Agenda items at the above email address atleast 48 hours before the time of AGM (no account shall be taken of any part of the day that is not a working day). 2. Any member desirous to contest the election of Directors shall file the following with Company Secretary of the Bank at its Registered Office located at 126-C, Old Bahawalpur Road, Multan, not later than 14 days before the day of the above said meeting: (a) His/Her intention to offer himself/herself for the election in terms of Section 159(3) of the Companies Act, 2017. He/She should also confirm that: (i) He/She is not ineligible to become a director of the Bank under any applicable laws and regulations. (ii) Neither he/she nor his/her spouse is engaged in the business of brokerage or is a sponsor, director or officer of a corporate brokerage house. (iii) He/She is not serving as a director in more than seven listed companies simultaneously. Provided that this limit shall not include the directorships in the listed subsidiaries of a listed holding company. (iv) In case of Independent Director, a declaration of Independence in terms of Section 166(2) of the Companies Act, 2017 as required under clause 6(3) of Listed Companies (Code of Corporate Governance) Regulations, 2019. (b) Consent to act as Director in Form 28 under Section 167 of the Companies Act, 2017. (c) Fit and Proper Test Proforma, Affidavit, Declarations, and Questionnaire as provided in “Corporate Governance Regulatory Framework” issued by SBP vide BPRD Circular No. 5 dated November 22, 2021. 3. In terms of the criteria prescribed by SBP, a person shall not be eligible to become a Director of a bank, if the person: (a) is disqualified/ineligible under Banking Companies Ordinance 1962, Companies Act 2017, and other applicable laws, rules and regulations; (b) is in default of payment of dues owed to any financial institution in personal capacity; (c) is associated as executive director/sponsor director/nominee of the sponsor and/or President/CEO of a proprietary concern, partnership firm, or corporate body excluding public sector organization, which is in default of dues owed to any financial institution; (d) has contravened any of the requirements and standards of SBP or equivalent standards/requirements of other local or foreign regulatory authorities, professional bodies, or government bodies/agencies of such a nature that makes such person’s association with the bank/DFI undesirable; (e) is a designated person / proscribed person or is associated directly or indirectly with any designated person / proscribed person; (f) is convicted of or is associated directly or indirectly with any person convicted of any serious offence, including any Money Laundering/ Terrorism Financing offence or any predicate offence set out in Schedule I of the Anti-Money Laundering Act, 2010. 131
136. It should also be noted that under SBP regulations a person is not permitted to be a Director of more than one financial institution , and the Directors will not assume the charge of their respective offices until their appointments are approved in writing by SBP. 4. A copy of relevant documents may be obtained from the office of the Company Secretary of the Bank or may be downloaded from the website of SBP. 5. A detailed profile along with office address will be available on website as required under SECP’s SRO 1196 (I)/2019, dated October 03, 2019. 6. The share transfer book of the Bank will remain closed from March 21, 2022 to March 29, 2022 (both days inclusive). Transfers received in order at the office of our Share Registrar, CDC Share Registrar Services Limited, located at CDC House, 99-B, Block B, S.M.C.H.S., Main Shahra-e-Faisal, Karachi – 74400, by the close of business on March 18, 2022 will be treated in time for payment of cash dividend (subject to approval of the members). Members are requested to promptly communicate any change in their addresses to our above-mentioned Share Registrar. 7. A member entitled to attend and vote at this meeting is entitled to appoint a proxy to attend, speak and vote on his/her behalf. A proxy (except for a corporation) must be a member of the Bank. Proxy form, in order to be effective, must be received at the Registered Office of the Bank located at 126-C, Old Bahawalpur Road, Multan, duly stamped and signed not less than 48 hours before the time of meeting (no account shall be taken of any part of the day that is not a working day). 8. The entitled shareholders are requested to keep with them their original Computerized National Identity Cards (CNICs) / Passport along with their folio numbers / participant(s) ID numbers and CDC account numbers at the time of attending the Annual General Meeting in order to facilitate identification of the respective shareholders. The proxy shall also produce his/her original CNIC or Passport at the time of the meeting. In case of a corporate entity, the Board of Directors’ Resolution/Power of Attorney with specimen signatures shall be submitted along with Proxy Form in the Bank. 9. Payment of Cash Dividend through Electronic Mode Under the provision of Section 242 of Companies Act, 2017 and Companies (Distribution of Dividends) Regulations, 2017, it is mandatory for a listed company to pay cash dividend to their shareholders only through electronic mode directly into the bank account designated by the entitled shareholders instead of issuing physical dividend warrants. In order to receive cash dividend directly into the designated bank account, members who have not yet provided the bank account details are requested to fill and sign the “E-Dividend Bank Mandate Form” available on the Bank’s website link, https://www.bankalhabib.com/download-forms, and send to the relevant Participants/Investor Account Services of the CDC/Share Registrar of the Bank (as the case may be) latest by March 18, 2022 along with a copy of their valid CNICs. The aforesaid form is also available in the Annual Report of the Bank. In case of non-receipt or incorrect International Bank Account Number (IBAN) with other related details or non-availability of valid CNICs, the Bank will withhold cash dividend of such members. 10. The Government of Pakistan through Finance Act, 2021 has made certain amendments in Section 150 of the Income Tax Ordinance, 2001 whereby different rates are prescribed for deduction of withholding tax on the amount of cash dividend paid by the companies/banks. These tax rates are as follows: (a) For filers of income tax returns (b) For non-filers of income tax returns 15% 30% To enable the Bank to make tax deduction on the amount of cash dividend @ 15% instead of 30% all the shareholders whose names are not entered into the Active Tax-payers List (ATL) provided on the website of Federal Board of Revenue (FBR), despite the fact that they are filers, are advised to make sure that their names are entered into ATL before the date of payment of cash dividend i.e., March 29, 2022; otherwise tax on their cash dividend will be deducted @ 30% instead of 15%. According to FBR, withholding tax will be determined separately on ‘Filer/Non-Filer’ status of principal shareholder as well as joint-shareholder(s) based on their shareholding proportions, in case of joint accounts. Members that hold shares with joint-shareholder(s) are requested to provide shareholding proportions of principal shareholder and joint-shareholder(s) in respect of shares held by them to the Bank’s Share Registrar in writing in the following format. 132
137. Principal Shareholder Bank Name Folio /CDC Account No. Total Shares Name and CNIC Shareholding Proportion (No. of Shares) Joint-Shareholder(s) Name and CNIC Shareholding Proportion (No. of Shares) In case the required information is not provided to our Share Registrar latest by March 18, 2022, it will be assumed that the shares are equally held by them. In case of corporate entity, withholding tax exemption from dividend income shall only be allowed if copy of valid tax exemption certificate is made available to our Share Registrar latest by March 18, 2022. As per instructions of Securities & Exchange Commission of Pakistan (SECP) and Central Depository Company of Pakistan (CDC) circular No. 6 of 2018, the shareholders are hereby informed that the CDC has developed Centralized Cash Dividend Register (CCDR) on eServices Web Portal which contains details of cash dividend such as either paid or unpaid, withheld by the Bank, total amount of cash dividend, tax and zakat deductions and net amount credited into designated bank account of shareholders. The shareholders are requested to register themselves to CDC's eServices Portal link, https://eservices.cdcaccess.com.pk to obtain the aforesaid information. 11. Audited Financial Statements through e-mail SECP through its Notification SRO 787(I)/2014 dated September 8, 2014 has allowed the circulation of Audited Financial Statements along with Notice of Annual General Meeting to the members through e-mail. Soft copies of Annual Report 2021 including Audited Financial Statements and Notice of Annual General Meeting are being e-mailed to the members who have provided their e-mail addresses for the said purpose. Other members of the Bank who wish to receive soft copy of Annual Report are requested to send their e-mail addresses to our Share Registrar through consent form. The said consent form for electronic transmission can be downloaded from the Bank’s website link, https://www.bankalhabib.com/reports Audited Financial Statements and reports are being placed on the aforesaid link. Members are also requested to intimate change (if any) in their registered e-mail addresses to our Share Registrar for the above-mentioned purpose. Additional Information for Shareholders: a. Unclaimed / Unpaid Cash dividend and Share Certificates: In compliance of Section 244 of the Act, the Bank has already requested through individual letters to shareholders and also through newspaper dated May 25, 2021 to collect their unclaimed shares / unpaid cash dividend, if any. Shareholders are once again requested to lodge a claim for unclaimed shares / unpaid cash dividends with the Bank’s Share Registrar i.e. CDC Share Registrar Services Limited. b. Deposit / Conversion of Physical shares into Book-Entry form: The shareholders having shares in physical share certificates of the Bank are advised to place / convert their physical shares into Book-Entry form in CDC as required under the provisions of Section 72 of the Companies Act, 2017. 133
138. Statement under Section 166 (3) of the Companies Act, 2017 Item No. 4 of the Agenda Statement under Section 166(3) of the Companies Act, 2017 in respect of Election of Independent Directors of the Bank: Independent Directors will be elected through the process of election of directors in terms of Section 159 of the Companies Act, 2017 and they shall meet the criteria laid down under Section 166 (2) of the Companies Act, 2017. Statement under Section 134(3) of the Companies Act, 2017 The statement is annexed to the Notice of the Thirty-first (31st) Annual General Meeting of Bank AL Habib Limited at which a special business is to be transacted. The purpose of this statement is to set forth the material fact concerning such special business. Item No. 6 of the Agenda As recommended by the Board of Directors in their meeting held on February 09, 2022, it is proposed to increase the Authorised Capital of the Bank from Rs. 15,000,000,000 (Rupees Fifteen Billion) to Rs. 25,000,000,000 (Rupees Twenty Five Billion) to meet the future requirements of paid-up capital and to pass the following resolutions as a Special Resolutions: “RESOLVED THAT the Authorised Capital of the Bank be and is hereby increased from Rs. 15,000,000,000 (Rupees Fifteen Billion) to Rs. 25,000,000,000 (Rupees Twenty Five Billion) by the creation of 1,000,000,000 Ordinary Shares of Rs. 10/- each. FURTHER RESOLVED THAT the figures and words “Rs. 15,000,000,000 (Rupees Fifteen Billion) divided into 1,500,000,000 (One Billion Five Hundred Million) ordinary shares of Rs. 10/- each” appearing in Clause V of the Memorandum of Association and that the figures and words “Rs. 15,000,000,000 (Rupees Fifteen Billion) divided into 1,500,000,000 (One Billion Five Hundred Million) ordinary shares of Rs. 10/- each” in Article 4 of the Articles of Association of the Bank be and are hereby substituted by the figures and words “Rs. 25,000,000,000 (Rupees Twenty Five Billion) divided into 2,500,000,000 (Two Billion Five Hundred Million) ordinary shares of Rs. 10/- each”. Item No. 7 of the Agenda In order to contribute towards its Tier 2 Capital, Bank AL Habib Limited (the “Bank”) has issued redeemable capital in the form of Term Finance Certificates (“TFCs”) amounting to Rs. 5,000,000,000/- (Rupees Five Billion), pursuant to the terms of the TFC Issuance Agreement dated September 24, 2021 in accordance with the Basel III Capital Instructions issued by SBP vide BPRD Circular No. 6 dated August 15, 2013. Pursuant to the Basel III Capital Instructions, if SBP determines that a Point of Non-Viability (“PONV”) has occurred, it may direct a bank to convert its Tier 2 Capital instruments (or any part thereof), including TFCs, into ordinary shares of the bank at such time or times and for such consideration and on such terms and conditions as may be determined by SBP, under and pursuant to and in accordance with the Basel III Capital Instructions and any other instructions issued by SBP. 134
139. Additional information required as per applicable laws and regulations is as follows : Name of the persons to whom shares will be issued Price at which the proposed shares will be issued The shares will be issued to the TFC Holders (at that time). At a price equivalent to market value of the shares of the Bank on the date of trigger of PONV as declared by SBP. Purpose of the issue, utilization of the proceeds of the issue and benefits to the Bank and its shareholders with necessary details To convert the outstanding TFC amount (in whole or part) into shares of the Bank. Existing shareholding of the persons to whom the proposed shares will be issued Total shareholding of the persons after the proposed issue of shares Not Applicable Whether the persons have provided written consent for purchase of such shares The terms of the TFC Issuance Agreement for the TFC issue contain the details regarding such conversion. This is in accordance with the requirements of SBP vide its Circular No. 6 of Banking Policy and Regulation Department (“BPRD”) dated August 15, 2013. Justification as to why proposed shares are to be issued otherwise than rights and not as rights shares Justification, with details of the latest available market price and break-up value per share, if such price differs from par value Details of the average market price during the last 3 (three) months and 6 (six) months preceding the Board announcement as well as the latest available market price Not Applicable Not Applicable Not Applicable Therefore, for the purpose of the above, the Board of Directors has recommended that members may pass the following resolution as a Special Resolutions: “RESOLVED THAT the Term Finance Certificates (“TFCs”) of Bank AL Habib Limited in the amount of Rs. 5,000,000,000/- (Rupees Five Billion) issued pursuant to the terms of the TFC Issuance Agreement dated September 24, 2021 for the purpose of Tier 2 Capital under Basel III Capital Instructions of the State Bank of Pakistan (“SBP”), may be converted into ordinary shares of the Bank subject to a maximum of 80,000,000 (Eighty Million) additional ordinary shares being issued upon such conversion, if so directed by SBP on the occurrence of a point of non-viability as determined by SBP, at a price equivalent to the market value of the shares of the Bank on the date of trigger of the point of non-viability as declared by SBP, in accordance with the applicable rules and regulations of SBP, and all such ordinary shares shall be issued other than by way of rights in accordance with Section 83(1)(b) of the Companies Act, 2017 and shall further be subject to the approval of Securities and Exchange Commission of Pakistan in accordance with Section 83(1)(b) of the Companies Act, 2017. “FURTHER RESOLVED THAT the Board of Directors of the Bank (“the Board”) or such officers or officers of the Bank as may be authorized by the Board, be and are hereby authorized to take all steps necessary, ancillary, and incidental to the above-mentioned conversion, as and when required, and are further authorized to sign, execute, and deliver all necessary documents, agreements, and letters on behalf of the Bank, as may be deemed appropriate and as may be required for the purposes above-mentioned.” The ordinary shares issued will rank pari passu in all respects with the existing shares of the Bank. The Directors of the Bank have no direct or indirect interest in the above-mentioned resolutions except in their capacity as shareholders of the Bank to the extent of their respective shareholding. 135
140. Item No . 8 of the Agenda In order to contribute towards its Additional Tier 1 Capital, Bank AL Habib Limited (the “Bank”) intends to issue perpetual, rated, unsecured, non-cumulative and subordinated Term Finance Certificates (“TFCs”) amounting up to Rs. 7,000,000,000/ (Rupees Seven Billion) inclusive of a green shoe option of Rs. 3,000,000,000/(Rupees Three Billion), in accordance with the Basel III Capital Instructions issued by SBP vide BPRD Circular No. 6 dated August 15, 2013. The Bank may at its option, have the TFCs subsequently listed on the Pakistan Stock Exchange Limited pursuant to the Privately Placed Debt Securities Listing Regulations of the Pakistan Stock Exchange Limited. The aforesaid TFCs may be converted into ordinary shares of the Bank in accordance with the applicable rules and regulations of SBP, subject to a maximum of 118,574,000 (One Hundred Eighteen Million Five Hundred Seventy Four Thousand) additional ordinary shares being issued upon such conversion, (i) if so directed by SBP on the occurrence of a point of non-viability as determined by SBP or (ii) at the option of the Bank upon the occurrence of a pre-specified trigger point pursuant to Basel III Capital Instructions of SBP, or (iii) due to any inability to exercise the Lock-in Clause or Non-Cumulative features of the TFCs, subject to such terms and conditions as may be determined by SBP. All such ordinary shares shall be issued other than by way of rights in accordance with Section 83(1)(b) of the Companies Act, 2017. Additional information required as per applicable laws and regulations is as follows. Name of the person to whom shares will be issued The shares will be issued to the TFC holders (at that time). Prices at which the proposed shares will be issued (i) Purpose of the issue, utilization of the proceeds of the issue and benefits to the Company and its shareholders with necessary details Existing shareholding of the persons to whom the proposed shares will be issued To convert the outstanding TFC amount (in whole or part) into shares of the Bank. Total shareholding of the persons after the proposed issue of shares Not Applicable Whether the person have provided written consent for purchase of such shares The terms of the TFC Issuance Agreement for the TFC issue shall contain the details regarding such conversion. This is in accordance with the requirements of SBP vide its Circular No. 6 of Banking Policy & Regulations Department (“BPRD”) dated August 15, 2013. Justification as to why proposed shares are to be issued otherwise than rights and not as rights shares Justification, with details of the latest available market price and break-up value per share, if such price differs from par value Point of non-viability: at a price equivalent to market value of the shares of the Bank (ii) Pre-specified trigger point: at a price equivalent to market value of the shares of the Bank (iii) Inability to exercise the Lock-in Clause or Non-Cumulative features: at the discretion of SBP Not Applicable Not Applicable. 136
141. Therefore , for the purpose of the above, the Board of Directors has recommended that members may pass the following resolution as a Special Resolutions: “RESOLVED THAT the perpetual Term Finance Certificates (“TFCs”) of Bank AL Habib Limited (the “Bank”) in the amount of up to Rs. 7,000,000,000/= (Rupees Seven Billion) (inclusive of a green shoe option of PKR 3,000,000,000/- (Pak Rupees Three Billion) for the purpose of Additional Tier 1 Capital under Basel III Capital Instructions of the State Bank of Pakistan (“SBP”), may be converted into ordinary shares of the Bank subject to a maximum of 118,574,000 (One Hundred Eighteen Million Five Hundred Seventy Four Thousand) additional ordinary shares being issued upon such conversion, (i) if so directed by SBP on the occurrence of a point of non-viability as determined by SBP, at a price equivalent to the market value of the shares of the Bank on the date of trigger of the point of non-viability as declared by SBP or (ii) at the option of the Bank upon the occurrence of a pre-specified trigger point pursuant to Basel III Capital Instructions of SBP, at a price equivalent to the market value of the shares of the Bank on the date of occurrence of the pre-specified trigger point, or (iii) due to any inability to exercise the Lock-in Clause or Non-Cumulative features of TFCs, subject to such terms and conditions as may be determined by SBP, in accordance with the applicable rules and regulations of SBP, and all such ordinary shares shall be issued other than by way of rights in accordance with Section 83(1)(b) of the Companies Act, 2017 and shall further be subject to the approval of Securities and Exchange Commission of Pakistan in accordance with Section 83(1)(b) of the Companies Act, 2017. “FURTHER RESOLVED THAT the Board of Directors of the Bank (“the Board”) or such officers or officers of the Bank as may be authorized by the Board, be and are hereby authorized to take all steps necessary, ancillary, and incidental to the above-mentioned conversion, as and when required, and are further authorized to sign, execute, and deliver all necessary documents, agreements, and letters on behalf of the Bank, as may be deemed appropriate and as may be required for the purposes above-mentioned.” The ordinary shares issued will rank pari passu in all respects with the existing shares of the Bank. The Directors of the Bank have no direct or indirect interest in the above-mentioned resolutions except in their capacity as shareholders of the Bank to the extent of their respective shareholding. Item No.9 of the Agenda As recommended by the Board of Directors in their meeting held on February 09, 2022, it is intended to propose the following resolution to be passed as an Ordinary Resolution: “RESOLVED THAT the remuneration of Mr. Qumail R. Habib, Executive Director shall not exceed Rs. 3,750,000/- per month exclusive of perquisites, benefits and other allowances to which he is entitled under the terms of his employment.” 137
142. Pattern of Shareholding as at December 31 , 2021 Number of Shareholders 506 842 587 2,045 604 334 1,145 97 72 64 88 87 55 89 59 93 76 38 28 20 101 46 144 Total Shares Held Size of Shareholding From From From From From From From From From From From From From From From From From From From From From From From 1 101 501 1,001 5,001 10,001 15,001 20,001 25,001 30,001 35,001 40,001 50,001 60,001 80,001 100,001 150,001 200,001 250,001 300,001 350,001 600,001 1,000,001 To To To To To To To To To To To To To To To To To To To To To To To 100 500 1,000 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 50,000 60,000 80,000 100,000 150,000 200,000 250,000 300,000 350,000 600,000 1,000,000 100,000,000 7,220 Categories of Shareholders 20,259 275,816 478,915 5,600,003 4,543,191 4,175,150 20,985,919 2,190,873 2,000,433 2,095,064 3,293,209 4,043,442 3,011,898 6,185,290 5,439,116 11,053,693 13,546,818 8,359,870 7,690,959 6,481,605 47,238,802 35,577,298 917,137,793 1,111,425,416 Number of Shareholders Number of Shares Held Percentage Individuals Investment & Insurance Companies Joint Stock Companies Financial Institutions Modaraba & Mutual Funds Foreign Companies Pension Funds Others 6,854 600,666,290 54.05 14 136 12 38 17 27 122 109,704,394 167,700,496 11,278,034 90,625,476 29,481,562 34,637,665 67,331,499 9.87 15.09 1.01 8.15 2.65 3.12 6.06 TOTAL 7,220 1,111,425,416 100.00 138
143. Pattern of Shareholding as at December 31 , 2021 Additional Information Shareholders' Category Associated Companies Habib Insurance Co. Ltd. Habib Sugar Mills Limited Number of Shareholders Number of Shares Held 1 1 2,000,000 24,136,691 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 1,904 5,001 15,800 20,000 34,314 36,500 40,290 45,500 47,747 58,000 92,000 119,000 120,000 156,301 180,032 192,961 273,020 290,000 293,000 302,134 302,246 307,000 334,400 349,250 407,317 468,650 849,383 864,489 900,847 935,500 1,583,600 1,675,929 2,182,467 4,204,495 5,501,438 10,290,200 57,144,749 Mutual Funds TRI-STAR MUTUAL FUND LIMITED SAFEWAY FUND (PVT) LTD. CDC - TRUSTEE UBL DEDICATED EQUITY FUND CDC-TRUSTEE NITPF EQUITY SUB-FUND CDC - TRUSTEE NBP PAKISTAN GROWTH EXCHANGE TRADED FUND CDC - TRUSTEE FIRST HABIB ASSET ALLOCATION FUND CDC - TRUSTEE NIT PAKISTAN GATEWAY EXCHANGE TRADED FUND CDC - TRUSTEE FIRST HABIB STOCK FUND CDC - TRUSTEE LAKSON TACTICAL FUND CDC - TRUSTEE HBL PF EQUITY SUB FUND CDC - TRUSTEE JS PENSION SAVINGS FUND - EQUITY ACCOUNT CDC - TRUSTEE HBL - STOCK FUND CDC - TRUSTEE NIT ASSET ALLOCATION FUND CDC - TRUSTEE ALFALAH GHP VALUE FUND CDC - TRUSTEE AKD INDEX TRACKER FUND CDC - TRUSTEE UBL ASSET ALLOCATION FUND CDC - TRUSTEE JS LARGE CAP. FUND CDC - TRUSTEE APF-EQUITY SUB FUND CDC - TRUSTEE ALLIED FINERGY FUND CDC - TRUSTEE UNIT TRUST OF PAKISTAN CDC - TRUSTEE ALFALAH GHP ALPHA FUND CDC - TRUSTEE PICIC INVESTMENT FUND CDC - TRUSTEE NBP BALANCED FUND CDC - TRUSTEE LAKSON EQUITY FUND CDC - TRUSTEE PICIC GROWTH FUND CDC - TRUSTEE NBP SARMAYA IZAFA FUND CDC - TRUSTEE NBP FINANCIAL SECTOR FUND CDC - TRUSTEE NIT-EQUITY MARKET OPPORTUNITY FUND CDC - TRUSTEE ALFALAH GHP STOCK FUND CDC - TRUSTEE UBL RETIREMENT SAVINGS FUND - EQUITY SUB FUND MC FSL - TRUSTEE JS GROWTH FUND CDC - TRUSTEE ABL STOCK FUND CDC - TRUSTEE UBL FINANCIAL SECTOR FUND CDC - TRUSTEE UBL STOCK ADVANTAGE FUND CDC - TRUSTEE ATLAS STOCK MARKET FUND CDC - TRUSTEE NBP STOCK FUND CDC - TRUSTEE NATIONAL INVESTMENT (UNIT) TRUST National Bank of Pakistan, Trustee Dept. 139
144. Shareholders ' Category Number of Shareholders Number of Shares Held Directors Abbas D. Habib Qumail R. Habib Anwar Haji Karim Murtaza H. Habib Syed Mazhar Abbas Syed Hasan Ali Bukhari Arshad Nasar Safar Ali Lakhani Farhana Mowjee Khan 1 1 1 1 1 1 1 1 1 42,450,257 17,522,296 6,349,159 13,698,691 18,474 15,092 500 116,840 25,180 Chief Executive Officer Mansoor Ali Khan – NIL 1 4,818,197 52 9,073,910 135 143,563,805 52 80,184,951 1 73,435,154 6,792 506,577,694 139 96,813,061 7,220 1,111,425,416 Directors' Spouses Mrs. Niamet Fatima W/o. Mr. Abbas D. Habib Executives Joint Stock Companies and Corporations Banks, Development Financial Institutions, Non - Banking Finance Companies, Insurance Companies, Takaful, Modarabas and Pension Funds Shareholders holding five percent or more voting rights State Life Insurance Corporation of Pakistan National Investment (Unit) Trust (included in the list above under Mutual Funds) Individuals Others (including foreign companies) TOTAL 140
145. Consolidated Financial Statements Bank AL Habib Limited and Subsidiary Companies 141
146. Bank AL Habib Limited and its Subsidiary Companies Directors ’ Report on Audited Consolidated Financial Statements The Directors are pleased to present the Audited Consolidated Financial Statements of Bank AL Habib Limited and the Bank’s Subsidiaries AL Habib Capital Markets (Private) Limited and AL Habib Asset Management Limited for the year ended December 31, 2021. (Rupees in '000) Profit for the year before tax 30,217,136 Taxation (11,620,151 ) Profit for the year after tax 18,596,985 Share of profit attributable to non-controlling interest (13,665 ) Profit attributable to shareholders of Holding Company 18,583,320 Un-appropriated profit brought forward 40,416,713 Transfer from surplus on revaluation of fixed assets-net of tax Other comprehensive income-net of tax 120,440 (177,387 ) 40,359,766 Profit available for appropriation 58,943,086 Appropriations: Transfer to Statutory Reserve (1,870,230 ) Cash dividend – 2020 (5,001,414 ) (6,871,644 ) Un-appropriated profit carried forward 52,071,442 Earnings per share (after tax) – Holding Company Rs. 16.72 Pattern of Shareholding The pattern of shareholding as at December 31, 2021 is annexed with the financial statements of Bank AL Habib Limited. MANSOOR ALI KHAN Chief Executive ABBAS D. HABIB Chairman Board of Directors Karachi: February 09, 2022 142
147. INDEPENDENT AUDITORS ’ REPORT INDEPENDENT AUDITORS’ REPORT To the members of Bank Al Habib Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the annexed consolidated financial statements of Bank Al Habib Limited (the Bank), and its subsidiary companies, (the Group) which comprise the consolidated statement of financial position as at 31 December 2021, and the consolidated profit and loss account and the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2021, and 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 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 financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. 143
148. Following is the key audit matter : Key audit matter How the matter was addressed in our audit 1. Provision against non-performing loans and advances The Group’s advances portfolio represents 39.64% of its total assets as of 31 December 2021. A substantial portion of the advances portfolio include corporate finances to public sector entities and large to small size businesses operating in diverse sectors of the economy. As per the Group’s accounting policy (refer note 4.5 to the consolidated financial statements), the Group determines provisions against non-performing advances exposures in accordance with the requirements of Prudential Regulations of State Bank of Pakistan (SBP) and also maintains general provision in respect of potential credit losses in the portfolio. The Prudential Regulations require specific provisioning for loan losses on the basis of an age-based criteria which should be supplemented by a subjective evaluation of Group’s credit portfolio. The determination of loan loss provision therefore, involve use of management judgment, on a case to case basis, taking into account factors such as the economic and business conditions, borrowers repayment behaviors and realizability of collateral held by the Group. In view of the significance of this area in terms of its impact on the consolidated financial statements and the level of involvement of management’s judgment, we identified adequacy and completeness of provision against advances as a significant area of audit judgment and a key audit matter. The accounting policy and disclosures relating to provisioning against non-performing advances are included in note 4.5 and 9 respectively to the consolidated financial statements. We applied a range of audit procedures including the following: - We reviewed the Group’s process for identification and classification of non-performing advances. As part of such review we performed an analysis of the changes within the different categories of classified non-performing accounts from last year to the current reporting date. This analysis was used to gather audit evidence regarding downgrading of impaired advances and declassification of accounts from non-performing to regular and vice versa, as the case may be. - We performed independent checks on test basis for the computations of provisions to assess that the same is in line with the requirements of the applicable Prudential Regulations; - In addition, we selected a representative sample of borrowers from the advances portfolios including individually significant credit facilities and performed tests and procedures such as review of credit documentation, repayment history and past due status, financial condition as depicted by the borrowers’ financial statements, nature of collateral held by the Group and status of litigation, if any, with the borrower; - In respect of the level of general provision maintained by the Group, we discussed the approach and policy followed by the Group with the management and the regulatory approvals in place for such policy. - We also assessed adequacy of disclosures as included in note 9 to the consolidated financial statements regarding the non-performing advances and provisions made for the same in the consolidated financial statements in accordance with the requirements of the applicable financial reporting framework. 144
149. Information Other than the Financial Statements and Auditors ’ Report Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the financial statements and our auditors’ report thereon. Our opinion on the 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 financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and the Board of Directors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the 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 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 financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the 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 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. 145
150. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide 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 financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partner on the audit resulting in this independent auditors’ report is Arslan Khalid. Karachi: February 28, 2022 EY Ford Rhodes Chartered Accountants UDIN: AR202110191GHMFkzDsq 146
151. CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2021 Note 2021 2020 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 5 6 7 8 9 10 11 12 13 118,599,792 6,803,572 20,063,828 826,698,791 733,335,453 55,701,205 354,580 2,103,393 86,548,232 105,936,009 19,681,362 2,175,301 765,318,984 510,050,394 43,976,664 294,862 –000 75,345,810 1,850,208,846 1,522,779,386 LIABILITIES Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 15 16 17 18 12 19 29,803,755 302,212,902 1,309,734,964 –000 15,995,200 –000 102,042,740 31,013,221 211,627,267 1,099,223,458 –000 14,989,600 139,836 85,342,289 1,759,789,561 1,442,335,671 NET ASSETS 90,419,285 80,443,715 11,114,254 20,656,466 6,453,983 52,071,442 11,114,254 18,431,277 10,366,693 40,416,713 90,296,145 80,328,937 123,140 114,778 90,419,285 80,443,715 REPRESENTED BY Share capital Reserves Surplus on revaluation of assets Unappropriated profit 20 21 Equity attributable to the shareholders of the Holding Company Non-controlling interest 22 Total equity CONTINGENCIES AND COMMITMENTS 23 The annexed notes 1 to 48 and annexures I and II form an integral part of these consolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 147
152. CONSOLIDATED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2021 Note Mark-up / return / interest earned Mark-up / return / interest expensed 25 26 Net mark-up / interest income 2021 2020 (Rupees in '000) 116,747,434 (61,138,242) 125,290,292 (67,649,002) 55,609,192 57,641,290 NON MARK-UP / INTEREST INCOME Fee and commission income Dividend income Foreign exchange income Income / (loss) from derivatives (Loss) / gain on securities-net Share of profit from associates Other income 27 28 29 9,559,133 475,443 2,969,917 –00 (38,253) 372,034 1,151,803 6,777,694 432,360 2,142,728 –00 182,013 114,337 821,385 Total non mark-up / interest income 14,490,077 10,470,517 Total income 70,099,269 68,111,807 (34,125,725) (673,046) (56,672) (34,855,443) NON MARK-UP / INTEREST EXPENSES Operating expenses Workers welfare fund Other charges Total non mark-up / interest expenses 30 31 (38,907,744) (623,615) (36,294) (39,567,653) Profit before provisions Provisions and write offs-net Extra ordinary / unusual items 32 30,531,616 (314,480) –00 33,256,364 (4,546,944) –00 30,217,136 28,709,420 (11,620,151) (10,751,960) 18,596,985 17,957,460 18,583,320 13,665 17,947,732 9,728 18,596,985 17,957,460 PROFIT BEFORE TAXATION Taxation 33 PROFIT AFTER TAXATION Attributable to: Shareholders of the Holding Company Non-controlling interest (Rupees) Basic and diluted earnings per share attributable to equity holders of the Holding Company 34 16.72 16.15 The annexed notes 1 to 48 and annexures I and II form an integral part of these consolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 148
153. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2021 2021 2020 (Rupees in '000) Profit after taxation for the year 18,596,985 17,957,460 533,555 182,841 Other comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: Effect of translation of net investment in foreign branches Movement in (deficit) / surplus on revaluation of investments - net of tax (3,497,671 ) 1,234,402 (2,964,116 ) 1,417,243 Items that will not be reclassified to profit and loss account in subsequent periods: Remeasurement loss on defined benefit obligations-net of tax Movement in surplus on revaluation of operating fixed assets-net of tax Movement in surplus on revaluation of non banking assets-net of tax (177,387 ) (128,275) (260,923 ) 3,056,238 (38,979 ) 98,346 (477,289 ) 3,026,309 Total comprehensive income 15,155,580 22,401,012 Attributable to: Shareholders of the Holding Company Non-controlling interest 15,160,883 (5,303 ) 22,401,472 (460) 15,155,580 22,401,012 The annexed notes 1 to 48 and annexures I and II form an integral part of these consolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 149
154. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2021 Balance as at 01 January 2020 Share Capital Statutory Reserve Attributable to shareholders of the Holding Company Revenue Reserves Surplus / (deficit) on revaluation of Foreign Currency Fixed / Non Translation Special General Investments Banking Unappropriated Reserve Reserve Reserve Assets Profit (Rupees in '000) Sub Total Non-controlling Interest Total 11,114,254 13,859,667 1,941,115 126,500 540,000 1,606,789 4,474,942 28,163,914 61,827,181 105,510 61,932,691 Profit after taxation –00 –00 –00 –00 –00 –00 –00 17,947,732 17,947,732 9,728 17,957,460 Other comprehensive income - net of tax –00 –00 182,841 –00 –00 1,234,862 3,154,584 (128,275) 4,444,012 (460) 4,443,552 Total comprehensive income for the year –00 –00 182,841 –00 –00 1,234,862 3,154,584 17,819,457 22,391,744 9,268 22,401,012 Transfer to statutory reserve –00 1,781,154 –00 –00 –00 –00 –00 (1,781,154) –00 –00 –00 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax –00 –00 –00 –00 –00 –00 (104,484 ) 104,484 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 (3,889,988) (3,889,988 ) –00 (3,889,988) Transactions with owners, recorded directly in equity Final cash dividend (Rs. 3.5 per share) Balance as at 31 December 2020 11,114,254 15,640,821 2,123,956 126,500 540,000 2,841,651 7,525,042 40,416,713 80,328,937 114,778 80,443,715 Profit after taxation –00 –00 –00 –00 –00 –00 –00 18,583,320 18,583,320 13,665 18,596,985 Other comprehensive income - net of tax –00 –00 533,555 –00 –00 (3,492,368 ) (299,902) (177,387) (3,436,102 ) (5,303) (3,441,405) Total comprehensive income for the year –00 –00 533,555 –00 –00 (3,492,368 ) (299,902 ) 18,405,933 15,147,218 8,362 15,155,580 Transfer to statutory reserve –00 1,870,230 –00 –00 –00 –00 –00 (1,870,230) –00 –00 –00 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax –00 –00 –00 –00 –00 –00 (120,440 ) 120,440 –00 –00 –00 Exchange gain realised on closure of overseas branch - net of tax –00 –00 (178,596) –00 –00 –00 –00 –00 (178,596 ) –00 (178,596) –00 –00 –00 –00 –00 –00 –00 (5,001,414) (5,001,414 ) –00 (5,001,414) 11,114,254 17,511,051 2,478,915 126,500 540,000 7,104,700 52,071,442 90,296,145 123,140 90,419,285 Transactions with owners, recorded directly in equity Final cash dividend (Rs. 4.5 per share) Balance as at 31 December 2021 (650,717 ) The annexed notes 1 to 48 and annexures I and II form an integral part of these consolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 150
155. CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2021 Note CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less : Dividend income 2021 2020 (Rupees in '000) 30,217,136 (475,443) 29,741,693 28,709,420 (432,360) 28,277,060 2,965,066 1,854,453 307,372 314,480 (467,551) (372,034) 38,253 155,639 1,124,704 (292,780) 5,627,602 35,369,295 2,789,676 1,661,393 288,379 4,546,944 (440,311) (114,337) (182,013) 248,264 956,906 –00 9,754,901 38,031,961 (17,888,527) (23,996) (223,492,097) (11,217,718) (252,622,338) (317,726) (85,792) (24,387,418) (14,183,514) (38,974,450) Income tax paid Net cash flow generated from operating activities (1,209,466) 90,423,271 210,511,506 13,131,441 312,856,752 95,603,709 (10,533,792) 85,069,917 10,844,548 (16,411,647) 195,630,478 13,863,126 203,926,505 202,984,016 (12,198,036) 190,785,980 CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securities Net investments in held to maturity securities Net investments in associates Dividends received Investments in operating fixed assets Proceeds from sale of fixed assets Exchange differences on translation of net investment in foreign branches Net cash flow used in investing activities (48,977,289) (11,978,746) (5,556,710) 486,991 (14,077,982) 442,860 354,959 (79,305,917) (160,929,584) (15,538,169) (1,478,845) 417,919 (5,264,293) 599,433 182,841 (182,010,698) CASH FLOW FROM FINANCING ACTIVITIES Receipts / (payments) of subordinated debt-net Dividend paid Payment against lease liabilities Net cash flow used in financing activities (Decrease) / increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 1,005,600 (4,930,117) (2,215,854) (6,140,371) (376,371) 125,419,074 125,042,703 (3,200) (3,841,582) (1,972,143) (5,816,925) 2,958,357 122,460,717 125,419,074 Adjustments: Depreciation Depreciation on right-of-use assets Amortisation Provisions and write-offs-net Gain on sale of fixed assets-net Share of profit from associates Loss / (gain) on sale / redemption of securities-net Charge for compensated absences Mark-up expense on lease liability against right-of-use assets Exchange gain realised on closure of overseas branch 32 Increase in operating assets Lendings to financial institutions Held-for-trading securities Advances Other assets (Decrease) / increase in operating liabilities Bills payable Borrowings from financial institutions Deposits and other accounts Other liabilities (excluding current taxation) 35 35 The annexed notes 1 to 48 and annexures I and II form an integral part of these consolidated financial statements. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 151
156. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2021 1 . STATUS AND NATURE OF BUSINESS 1.1 The Group comprises of: Holding Company - Bank AL Habib Limited Subsidiaries - AL Habib Capital Markets (Private) Limited - AL Habib Asset Management Limited 1.2 Bank AL Habib Limited (the Bank) is a banking company incorporated in Pakistan on 15 October 1991 as a public limited company under repealed Companies Ordinance, 1984 (now the Companies Act, 2017) having its registered office at 126-C, Old Bahawalpur Road, Multan with principal place of business in Karachi. Its shares are listed on Pakistan Stock Exchange Limited. It is a scheduled bank principally engaged in the business of commercial banking with a network of 927 branches (2020: 818 branches), 29 sub-branches (2020: 32 sub-branches), 04 representative offices (2020: 04 representative offices) and 03 booths (2020: 02 booths). The branch network of the Bank includes 02 overseas branches (2020: 03 overseas branches) and 138 Islamic Banking branches (2020: 106 Islamic Banking branches). During the year, the Bank closed its branch in Seychelles. 1.3 The Bank has invested in 66.67% shares of AL Habib Capital Markets (Private) Limited. The Company was incorporated in Pakistan on 23 August 2005 as a private limited company under repealed Companies Ordinance, 1984 (now the Companies Act, 2017). The Company is a corporate member of the Pakistan Stock Exchange Limited and is engaged in equity, money market and foreign exchange brokerage services, equity research, corporate financial advisory and consultancy services. 1.4 The Bank has invested in 100% shares of AL Habib Asset Management Limited. The Company was incorporated in Pakistan on 30 September 2005 as an unquoted public limited company under repealed Companies Ordinance, 1984 (now the Companies Act, 2017). The Company has been issued a license by the Securities and Exchange Commission of Pakistan (SECP) to undertake asset management services as a Non-Banking Finance Company. The principal business of the Company is to provide Investment Advisory Services and Asset Management Services. The Company is managing following funds: - AL Habib Islamic Cash Fund - AL Habib Islamic Savings Fund - AL Habib Money Market Fund - First Habib Asset Allocation Fund - First Habib Cash Fund - First Habib Income Fund - First Habib Islamic Income Fund - First Habib Islamic Stock Fund - First Habib Stock Fund 2. BASIS OF PRESENTATION 2.1 These consolidated financial statements have been prepared in conformity with the format of financial statements prescribed by the State Bank of Pakistan (SBP) vide BPRD Circular No. 02, dated 25 January 2018. 2.2 In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing includes purchase of goods by banks from customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchase and resale arising under these arrangements are not reflected in these consolidated financial statements as such, but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. However, the Islamic Banking branches of the Bank have complied with the requirements set out under the Islamic Financial Accounting Standards (IFAS), issued by the Institute of Chartered Accountants of Pakistan (ICAP) as are notified under the provisions of the Companies Act, 2017. 152
157. 2 .3 Key financial information of the Islamic Banking branches is disclosed in annexure II to these consolidated financial statements. 2.4 The Group believes that there is no significant doubt on the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the going concern basis. 2.5 Statement of compliance 2.5.1 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; IFAS issued by ICAP, 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 SBP and the Securities and Exchange Commission of Pakistan (SECP). Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 or the directives issued by SBP and SECP differ with the requirements of the IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. 2.5.2 SBP has deferred the applicability of International Accounting Standard (IAS) 39, 'Financial Instruments: Recognition and Measurement' and IAS 40, 'Investment Property' for Banking Companies in Pakistan through BSD Circular Letter No. 10 dated 26 August 2002 till further instructions. Further, SBP vide its BPRD Circular Letter No. 24 of 2021 dated 05 July 2021 directed the Banks in Pakistan to implement IFRS 9, 'Financial Instruments' with effect from 01 January 2022. SECP has deferred the applicability of IFRS 7, 'Financial Instruments: Disclosures' through its notification S.R.O 411 (I) / 2008 dated 28 April 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by SBP through various circulars. In case of overseas branches, IFRS 9 / respective foreign regulatory requirements are considered for recording, classification and valuation of investment. 2.5.3 SBP vide its BPRD Circular No. 04 dated 25 February 2015, has clarified that the reporting requirements of IFAS 3, 'Profit and Loss Sharing on Deposits' for Islamic Banking Institutions (IBIs) relating to annual, half yearly and quarterly financial statements would be notified by SBP though issuance of specific instructions and uniform disclosure formats in consultation with IBIs. These reporting requirements have not been ratified to date. Accordingly, the disclosure requirements under IFAS 3 have not been considered in the preparation of these consolidated financial statements. 2.5.4 IFRS 10, 'Consolidated Financial Statements' was made applicable from period beginning on or after 01 January 2015 vide S.R.O 633 (I) / 2014 dated 10 July 2014 by SECP. However, SECP has directed through S.R.O 56 (I) / 2016 dated 28 January 2016 that the requirement of consolidation under section 228 of the Companies Act, 2017 and IFRS 10, 'Consolidated Financial Statements' is not applicable incase of investment by companies in mutual funds established under trust structure. 2.6 Standards, interpretations of and amendments to published approved accounting standards that are effective in the current year The Group has adopted the following accounting standards and amendments of IFRSs and the improvements to accounting standards which became effective for the current year: COVID-19-Related Rent Concessions - Amendment to IFRS 16 The IASB has issued amendments to IFRS 16 (the amendments) to provide optional practical relief for lessees in accounting for rent concessions. Under the practical expedient, lessees are not required to assess whether eligible rent concessions are lease modifications, and instead are permitted to account for them as if they were not lease modifications. The practical expedient applies only to rent concessions occurring as a direct consequence of the COVID-19 pandemic and only if all the conditions described in IFRS 16 paragraph 46B are met. 153
158. Interest Rate Benchmark Reform - Phase 2 - Amendments to IFRS 9 , IAS 39, IFRS 7, IFRS 4 and IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free mark-up rate (RFR). The above mentioned accounting standards and amendments of IFRSs did not have any material impact on the consolidated financial statements of the Group. 2.7 Standards, interpretations of and amendments to published approved accounting standards that are not yet effective 2.7.1 IFRS 9, 'Financial Instruments' IFRS 9, 'Financial Instruments' - IFRS 9 will replace 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. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. SBP vide its BPRD Circular Letter No. 24 of 2021 dated July 05, 2021 has extended the implementation date of IFRS 9 to January 01, 2022 from an earlier implementation date of January 01, 2021. However, SBP has directed the banks in Pakistan to submit IFRS 9 parallel run and proforma financial statements on periodic basis based on the instructions issued by SBP for parallel run of IFRS 9 and the Bank has been complying with these requirements. 2.7.2 Further, the following IFRS as notified under the Companies Act, 2017 and the amendments thereto will be effective for future periods and not early adopted: Standards and amendments Effective date (accounting periods beginning on or after) - IAS 37 - Onerous Contracts – Cost of Fulfilling a Contract (Amendments) January 01, 2022 - IAS 16 - Property, Plant and Equipment: Proceeds before Intended Use (Amendments) January 01, 2022 - IFRS 3 - Reference to the Conceptual Framework January 01, 2022 - IAS 1 - Classification of liabilities as current or non-current (Amendments) January 01, 2022 - IFRS 9 - Financial Instruments - Fees in the '10 percent' test for derecognition of financial liabilities (Amendments) January 01, 2022 - IAS 8 - Definition of Accounting Estimates January 01, 2022 - IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies January 01, 2023 - IFRS 10 and IAS 28 - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments) Not yet announced The above standards, amendments and improvements are not expected to have any material impact on the consolidated financial statements of the Group for the futures periods. Further, following new standards have been issued by IASB which are yet to be notified by SECP for the purpose of applicability in Pakistan. Standard - IFRS 1 – First time adoption of IFRSs - IFRS 17 – Insurance Contracts IASB effective date (accounting periods beginning on or after) January 01, 2004 January 01, 2023 154
159. 2 .8 Critical accounting estimates, judgments and assumptions The preparation of financial statements requires management to make estimates, judgments and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the result of which forms the basis of making judgment about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revision to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in period of revision and future periods if the revision affects both current and future periods. The estimates and judgments that have a significant effect on the consolidated financial statements are in respect of the following: Classification and provisioning against investments Classification and provisioning against loans and advances Useful lives of fixed, right of use assets and intangible assets, depreciation, amortisation and revaluation Determination of lease term and borrowing rate Non - banking assets acquired in satisfaction of claims Defined benefit plan related assumptions Provisions against off-balance sheet obligations Current and deferred taxation 3. Note 4.4, 4.14 & 32 4.5, 9 & 32 4.6, 10 & 11 4.6, 10 & 19 4.7 & 13 4.10 & 37 4.16, 19 & 32 4.13, 12 & 33 BASIS OF MEASUREMENT These consolidated financial statements have been prepared under the historical cost convention except for certain investments and derivative financial instruments which are carried at fair value, certain land and buildings, and non-banking assets acquired in satisfaction of claims are carried at revalued amount. Employee benefits and lease liability against right-of-use assets are carried at present value. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these consolidated financial statements are consistent with those of the previous financial year. 4.1 Basis of consolidation These consolidated financial statements include the financial statements of the Holding Company and its subsidiaries. The financial statements of the subsidiaries are included in the consolidated financial statements from the date the control commences until the date the control ceases. In preparing consolidated financial statements, the financial statements of the Holding Company and subsidiaries are consolidated on a line by line basis by adding together like items of assets, liabilities, income and expenses. Significant inter - company transactions have been eliminated. Non-controlling interest are part of results of operations and net assets of the subsidiary companies attributable to interests which are not owned by the Group. Interest in the equity of the subsidiaries not attributable to the Holding Company is reported in the consolidated statement of changes in equity as non - controlling interest. Profit or loss attributable to non - controlling interest is reported in the consolidated profit and loss account as profit or loss attributable to non - controlling interest. 4.2 Cash and cash equivalents Cash and cash equivalents as referred to in the consolidated cash flow statement comprise cash and non restricted balances with treasury and other banks less overdrawn nostros accounts. Restricted balances not available for use if any, are excluded from cash and cash equivalents. 155
160. 4 .3 Lendings to / borrowings from financial institutions The Bank enters into transactions of lendings and borrowings at contracted rates for a specified period of time. These are recorded as under: Sale under repurchase obligation Securities sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognised in the statement of financial position and are measured in accordance with accounting policies for investments. Amounts received under these agreements are recorded as repurchase agreement borrowings. The difference between sale and repurchase price is amortised as expense over the term of the repo agreement. These are initially recognised at amount of funds received and subsequently reported as payable under the contractual terms. Purchase under resale obligation Securities purchased with a corresponding commitment to resale at a specified future date (reverse repos) are not recognised as investments in the statement of financial position. Amounts paid under these arrangements are included in repurchase agreement lendings. The difference between purchase and resale price is accrued as income over the term of the reverse repo agreement. These are initially recognised at amount of funds disbursed and subsequently reported as receivable under the contractual terms. Bai Muajjal In Bai Muajjal, the Bank sells sukuk on credit to other financial institutions. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. 4.4 Investment Investments (other than associates) are classified as follows: Held-for-trading These are investments acquired principally for the purpose of generating profits from short-term fluctuations in price or dealer’s margin or are securities included in a portfolio in which a pattern of short-term trading exists. Held-to-maturity These are investments with fixed or determinable payments and fixed maturities which the Group has the intention and ability to hold till maturity. In Bai Muajjal, the Bank sells sukuk on credit to Government of Pakistan. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. Available-for-sale These are investments which do not fall under held for trading and held to maturity categories. All purchases and sales of investments that require delivery within the time frame established by regulations or market convention are recognised at the trade date. Trade date is the date on which the Group commits to purchase or sell the investments. Investments (other than held for trading) are initially measured at fair value plus transaction cost associated with the investment. Investments classified as held for trading are initially measured at fair value, and transaction costs are expensed in the profit and loss account. After initial recognition, quoted securities (other than those classified as held to maturity) are carried at market value. Unquoted securities are valued at cost less impairment in value, if any. Held to maturity securities are carried at amortised cost. Surplus / (deficit) arising on revaluation of quoted securities which are classified as 'available-for-sale', is included in the statement of comprehensive income and is shown in the statement of financial position as part of equity. The surplus / (deficit) arising on these securities is taken to the profit and loss account when actually realised upon disposal or in case of impairment of securities. The unrealised surplus / (deficit) arising on revaluation of quoted securities which are classified as held for trading is taken to the profit and loss account. 156
161. Premium or discount on debt securities classified as available for sale and held to maturity is amortised using effective interest method and taken to the profit and loss account . Details of valuation techniques used in determination of fair value is included in note 40 of consolidated financial statements. Investments in associates Under the equity method, the investment in an associate is initially recognised at cost. The carrying amount of the investment is adjusted to recognise changes in the Group’s share of net assets of the associate since the acquisition date. The profit and loss account reflects the Group’s share of the results of operations of the associate. Any change in OCI of associates is presented as part of the Group’s OCI. In addition, when there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes, when applicable, in the statement of changes in equity. 4.5 Advances Loans and advances These are stated net of provisions for non-performing advances. Receivables against lease finance where Bank is a lessor (other than Ijarah) Leases where the Bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payments including any guaranteed residual value. Islamic Financing and Related Assets Ijarah finance Assets leased out under ijarah arrangements are stated at cost less accumulated depreciation and impairment, if any. Such assets are depreciated over the terms of ijarah contracts. Murabaha Funds disbursed under murabaha arrangements for purchase of goods are recorded as advance for murabaha. On culmination of murabaha i.e. sale of goods to customers, murabaha receivables are recorded at the sale price net of deferred income. Goods purchased but remaining unsold at the reporting date are recorded as inventories. Inventory The Bank values its inventories at the lower of cost and net realisable value. The net realisable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale. Cost of inventories represents actual purchases made by the Bank / customers as an agent of the Bank for subsequent sale. Inventory against each contract is maintained on specific identification method. Istisna In Istisna financing, the Bank places an order to purchase some specific goods / commodities from its customers to be delivered to the Bank within an agreed time. The goods are then sold and the amount hence financed is paid back to the Bank. Diminishing Musharaka In Diminishing Musharaka financing, the Bank enters into Musharaka based on Shirkat-ul-milk for financing an agreed share of fixed asset (e.g. house, land, plant or machinery) with its customers and enters into periodic rental payment agreement for the utilisation of the Bank’s Musharaka share by the customer. The customer purchases the Bank's share gradually as per his undertaking. Running Musharaka In Running Musharaka financing, the Bank enters into financing with the customer based on Shirkat-ul-Aqd or Business Partnership in customers operating business. Under this mechanism the customer can withdraw and return funds to the Bank subject to his Running Musharakah Financing limit during the Musharakah period. At the end of each quarter / half year the customer pays the provisional profit as per the desired profit rate which is subject to final settlement based on the relevant quarterly / half-yearly / annual accounts of the customer. 157
162. Musawama In Musawama financing , the Bank purchases specific goods / commodities on cash basis from its customer for onward sale. Upon realisation of sale proceeds, the finance is adjusted. Provision for non-performing advances Provision for non-performing advances is determined in accordance with the requirements of the Prudential Regulations for domestic branches, whereas requirements of respective central banks is followed in respect of overseas branches and is charged to the profit and loss account. The Bank also maintains general provision in addition to the requirements of the Prudential Regulations on the basis of the management's risk assessment. The Bank reviews its loan portfolio to assess amount of non-performing loans and determine provision required there against. While assessing this requirement various factors including the past dues, delinquency in the account, financial position and future business / financial plan of the borrower, value of collateral held and requirements of Prudential Regulations are considered. The Bank is allowed to consider the effect of Forced Sale Value of collaterals in determining the amount of provision, however, no benefit of FSV of collateral is taken in determining provisioning amount. The amount of general provision against domestic consumer and SME advances is determined in accordance with the relevant \ Prudential Regulations and SBP directives. For overseas operations, the Bank records an allowance for Expected Credit Loss (ECL) for all loans and other debt financial assets not held at Fair Value through Profit and Loss (all referred to as ‘financial instruments’). The ECL allowance is based on the credit losses expected to arise over the life of the asset (the Lifetime Expected Credit Losses or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ Expected Credit Losses (12mECL). The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument. Advances are written-off when there are no realistic prospects of recovery. 4.6 Operating fixed assets and depreciation Capital work in progress Capital work in progress is stated at cost less impairment, if any. Property and equipment - owned Land is measured at cost at the time of initial recognition and is subsequently carried at revalued amount less impairment, if any. Buildings are initially measured at cost and upon revaluation, are carried at revalued amount less accumulated depreciation and impairment, if any. All other operating fixed assets are stated at cost less accumulated depreciation and impairment, if any. Depreciation is charged to profit and loss account on straight line basis so as to charge the assets over their expected useful lives at the rates specified in note 10.2. The depreciation charge is calculated after taking into account residual value, if any. The residual values, useful lives and depreciation method are reviewed annually and adjusted, if appropriate. Depreciation is charged on prorata basis, i.e., full month charge in the month of purchase and no charge in the month of disposal. Land and buildings are revalued by independent professionally qualified valuers with sufficient regularity to ensure that the net carrying amount does not differ materially from the fair value. The valuations involve estimates / assumptions and various market factors and conditions. Any revaluation surplus is credited to the surplus on revaluation of land and buildings, except to the extent that it reversal of a deficit already charged to profit and loss account on the same asset. Any revaluation deficit is recognised in profit and loss account, except for a deficit directly offsetting a previous surplus on the same asset recognised in the asset revaluation surplus. 158
163. Subsequent costs are included in the asset ’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. Gains and losses on disposal of fixed assets are included in income currently, except that the related surplus on revaluation of land and buildings (net of deferred tax) is transferred directly to unappropriated profit. Leases The Bank assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Bank as a lessee The Bank applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Bank recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. Right-of-use assets The Bank recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the lease term. The right-of-use assets are presented within note 10 fixed assets and are subject to impairment in line with the Bank’s policy as described in note 4.14 impairment of non-financial assets. Lease liabilities At the commencement date of the lease, the Bank recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The Bank determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be exercised. After the commencement date, the Bank reassesses the lease term if there is a significant event or change in circumstances that is within its control that affects its ability to exercise or not to exercise the option to renew or to terminate. The Bank cannot readily determine the interest rate implicit in the lease, therefore, it uses its incremental lending rate to measure lease liabilities. Intangible assets Intangible assets having a finite useful life are stated at cost less accumulated amortisation and impairment, if any. Amortisation is based on straight line method by taking into consideration the estimated useful life of assets at the rates specified in note 11. Intangible assets are amortised on prorata basis i.e. full month amortisation in the month of purchase and no amortisation in the month of disposal. 4.7 Non-banking assets acquired in satisfaction of claims Non-banking assets acquired in satisfaction of claims are initially measured at settlement amount and upon revaluation, are carried at revalued amounts less accumulated depreciation and impairment, if any. The useful lives and depreciation method are reviewed annually and adjusted, if appropriate. These assets are revalued as per SBP's requirement by independent professionally qualified valuers to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of assets is credited to the 'surplus on revaluation of non-banking assets acquired in satisfaction of claims' account and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title of assets is charged to profit and loss account and not capitalised. 159
164. 4 .8 Borrowings / deposits Borrowings / deposits are recorded at the amount of proceeds received. The cost of borrowings / deposits is recognised on an accrual basis as an expense in the period in which it is incurred. 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 / Current remunerative deposits’. 4.9 Subordinated debt Subordinated debt is initially recorded at the amount of proceeds received and subsequently reported at outstanding amounts as a financial liability. Mark - up accrued on subordinated debt is recognised separately as part of other liabilities and is charged to the profit and loss account over the period on an accrual basis. 4.10 Employees' benefits Defined benefit plan The Bank operates an approved gratuity fund for all its confirmed employees, which is administered by the Trustees. The Bank's costs and contributions are determined based on actuarial valuation carried out at each year end using Projected Unit Credit Actuarial Method. All actuarial gains and losses are recognised in 'other comprehensive income' as they occur and are not reclassified to profit and loss in subsequent periods. The liabilities for employees' benefits plans are determined using actuarial valuations. The actuarial valuations involve assumptions about discount rates, expected rates of return on assets and future salary increases as disclosed in note 37. Due to the long term nature of these plans, such estimates are subject to significant uncertainty. Defined contribution plan The Bank operates an approved provident fund scheme for all its regular permanent employees, administered by the Trustees. Equal monthly contributions are made both by the Bank and its employees to the fund at the rate of 10% of the basic salary in accordance with the terms of the scheme. AL Habib Capital Markets (Private) Limited provides provident fund benefits to all its permanent employees. Contributions are made by the Company and the employees at the rate of 10% of the basic salary in accordance with the terms of scheme. AL Habib Asset Management Limited operates approved funded contributory provident fund for all its permanent employees. Equal monthly contributions are made both by the Company and the employees which is equivalent to one basic salary of employees. Compensated absences The Bank accounts for all accumulating compensated absences when employees render service that increases their entitlement to future compensated absences. The liability is determined based on actuarial valuation carried out using the Projected Unit Credit Method. 4.11 Foreign currencies Functional and presentation currency These financial statements are presented in Pak Rupees which is the Group’s functional and presentation currency. Transactions and balances in foreign currencies Foreign currency transactions are translated into Pak Rupees at the exchange rates prevailing on the date of transaction. Monetary assets and liabilities in foreign currencies are translated into Pak Rupees at the exchange rates prevailing at the reporting date. Non - monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non - monetary items measured at fair value in a foreign currency are translated using exchange rates at the date when the fair value was determined. Exchange gains or losses are included in income currently. 160
165. Foreign operations The assets and liabilities of foreign operations are translated to Pak Rupees at exchange rates prevailing at the reporting date . The income and expense of foreign operations are translated at rate of exchange prevailing during the year. Exchange gain or loss on such translation is taken to equity through statement of other comprehensive income under "foreign currency translation reserve". Commitments Commitments for outstanding forward foreign exchange contracts are translated at forward rates applicable to their respective maturities. Contingent liabilities / commitments for letter of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the exchange rates ruling on the reporting date. Translation gains and losses are included in the profit and loss account. 4.12 Revenue recognition (a) Mark-up / return / interest on advances and investments is recognised on accrual basis, except in case of advances classified under the Prudential Regulations on which mark-up is recognised on receipt basis. Mark-up / return / interest on rescheduled / restructured loans and advances and investments is recognised as permitted by the regulations of SBP. (b) Financing method is used in accounting for income from lease financing. Under this method, the unrealised lease income 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. Gain / loss on termination of lease contracts, front end fee and other lease income are recognised as income on receipt basis. (c) The rentals from ijarah are recognised as income over the term of the contract net of depreciation expense relating to the ijarah assets. (d) Income from murabaha is accounted for on time proportionate basis over the period of murabaha transaction. (e) Income from istisna and musawama is recognised on time proportionate basis commencing from the time of sale of goods till the realisation of sale proceeds. (f) Income from diminishing musharaka is recognised on time proportionate basis over the term of contract. (g) Income from running musharaka financing is recognised on time proportionate basis and is subject to adjustment upon declaration of profit by musharaka partners. (h) Income from Bai-Muajjal is recognised on time proportionate basis from the date of disbursement to the due date of payment. (i) Dividend income is recognised when the right to receive is established. (j) Gain or loss on sale of investments are recognised in profit and loss account in the year in which they arise. (k) The Bank earns fee and commission income from a diverse range of financial services it provides to its customers. Fee and commission income is recognised at an amount that reflects the consideration to which the Bank expects to be entitled in exchange for providing the services. The Bank recognises fees earned on transaction-based arrangements at a point in time when the Bank has provided the service to the customer. Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the related services. Unearned fee and commission are included under Other Liabilities. 4.13 Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognised in profit and loss account except to the extent that it relates to the items recognised directly in equity or surplus on revaluation of assets, in which case it is recognised in equity or surplus on revaluation of assets. 161
166. Current Provision for current tax is based on the taxable income for the year , using tax rates enacted or substantively enacted at the statement of financial position date and any adjustments to the tax payable in respect of previous years. Current tax assets and liabilities are measured at the amount expected to be recovered from or paid to taxation authorities. Deferred Deferred tax is provided on all temporary differences at the statement of financial position date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax assets are recognised for all deductible temporary differences and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and unused tax losses can be utilised. Deferred tax liabilities are recognised for all taxable temporary differences, except in respect of taxable temporary differences associated with investment in foreign operations, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. The carrying amount of deferred income tax assets are reviewed at each statement of financial position date and reduced to the extent that it is no longer probable that sufficient taxable profit or taxable temporary differences will be available to allow all or part of the deferred income tax asset to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the statement of financial position date. In making the estimates for current and deferred taxes, the management looks at the income tax law and the decisions of appellate authorities on certain issues in the past. There are certain matters where the Bank’s view differs with the view taken by the income tax department and such amounts are shown as contingent liability. 4.14 Impairment Investments Provision for diminution in the investments classified as available-for-sale and held-to-maturity (except for debt securities) is recognised after considering impairment, if any, in their value and is taken to profit and loss account. Impairment is booked when there is an objective evidence of significant or prolonged decline in the value of such securities. This determination of what is significant or prolonged requires judgment. Provision for impairment against debt securities (other than government securities) is made in accordance with the requirements of the Prudential Regulations of SBP. In case of unquoted equity securities, the breakup value of the security is considered to determine impairment amount. Associates The carrying values of investments in associates are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the investments are written down to their recoverable amounts and the resulting impairment loss is taken to profit and loss account. Non-financial assets The carrying values of assets are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets are written down to their recoverable amounts and the resulting impairment loss is taken to profit and loss account except for impairment loss on revalued assets which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the relevant surplus. 162
167. 4 .15 Contingent assets / liabilities Contingent assets are not recognised, and are also not disclosed unless an inflow of economic benefits is probable. Contingent liabilities are not recognised and are disclosed unless the probability of an outflow of resources embodying economic benefits are remote. 4.16 Provisions against off - balance sheet obligations The Bank, in the ordinary course of business, issues letters of credit, guarantees, bid bonds, performance bonds etc. The commission against such contracts is recognised in the profit and loss account under "fees and commission income" over the period of contracts. The Bank's liability under such contracts is measured at the higher of the amount representing unearned commission income at the reporting date and the best estimate of the amount expected to settle any financial obligation arising under such contracts. 4.17 Off setting Financial assets and financial liabilities are only off - set and the net amount is reported in the financial statements when there is a legally enforceable right to set - off the recognised amount and the Group intends either to settle on a net basis, or to realise the assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also off - set and the net amount is reported in the financial statements. Income and expenses are presented on a net basis only when permitted by the approved accounting standards as applicable in Pakistan. 4.18 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 derecognised when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of ownership of the asset. Financial liabilities are derecognised when obligation is discharged, cancelled or expired. Any gain or loss on derecognition of the financial asset and liability is recognised in the profit and loss account of the current period. 4.19 Derivative financial instruments Derivative financial instruments are initially recognised at their fair value on the date on which the derivative contract is entered into and are subsequently remeasured at fair value. All derivative financial instruments are carried as asset when fair value is positive and liabilities when fair value is negative. Any change in the value of derivative financial instruments is taken to the profit and loss account. 4.20 Dividend and reserves Dividend declared and appropriations, except for transfer to statutory reserve, made subsequent to the date of statement of financial position are considered as non adjusting events and are recorded as a liability in the financial statements in the year in which these are approved by shareholders / directors as appropriate. 4.21 Earnings per share The Group presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the 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. There were no convertible dilutive potential ordinary shares in issue at 31 December 2021. 4.22 Segment reporting A segment is a distinguishable component of the Group that is engaged in providing products and services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risk and rewards that are different from those of other segments. The Group's primary format of reporting is based on business segments. 163
168. 4 .23 Business segments Retail banking It consists of retail lending, deposits and banking services to private individuals and small businesses. The retail banking activities include provision of banking and other financial services, such as current and savings accounts, credit cards, consumer banking products etc., to individual customers, small merchants and small and medium enterprises. Commercial banking Commercial banking represents provision of banking services including treasury and international trade related activities to large corporate customers, multinational companies, government and semi government departments and institutions and small and medium enterprises treated as corporate under the Prudential Regulations. Retail brokerage Retail brokerage activities include the business of equity, money market and foreign exchange brokerage, equity research and corporate financial advisory and consultancy services. Asset management It includes asset management activities through the subsidiary AL Habib Asset Management Limited. 4.24 Geographical segments The Group operates in four geographic regions, being: - 4.25 Pakistan Middle East Asia Pacific Africa Statutory / special reserve Every Bank incorporated in Pakistan is required to transfer 20% of its profit to a statutory reserve until the reserve equals share capital, thereafter 10% of the profit of the Bank is to be transferred to this reserve. Special reserve was created to meet regulatory requirements. 4.26 Provisions against liabilities These are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provision against contingencies is determined based on the management judgement regarding the probability of future out flows of resources embodying economic benefits to settle an obligation arising from past events. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimate. 4.27 Clients' assets The Group provides services that result in the holding of assets on behalf of its clients. Such assets are not reported in the financial statements, as they are not the assets of the Group. 4.28 Acceptances Acceptances comprise undertakings by the Bank to pay bill 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. 164
169. Note 5 . 2021 2020 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand: Local currency Foreign currencies 25,102,141 1,731,629 23,716,952 4,761,414 26,833,770 28,478,366 230,555 422 600,285 4,412 230,977 604,697 5.1 5.1 53,360,569 5,651,972 44,211,071 3,339,015 5.1 3,733,261 3,508,365 5.1 5.1 5.2 408,717 7,466,521 786,071 299,769 7,016,730 99,696 71,407,111 58,474,646 19,846,650 16,110,129 281,284 2,268,171 118,599,792 105,936,009 In transit: Local currency Foreign currencies With State Bank of Pakistan in: Local currency current accounts Local currency current accounts - Islamic Banking Foreign currency deposit accounts Cash reserve account Cash reserve / special cash reserve account - Islamic Banking Special cash reserve account Local US Dollar collection account With National Bank of Pakistan in: Local currency current account Prize bonds 5.1 These deposits and reserves are maintained by the Bank to comply with the statutory requirements. The special cash reserve carries interest rate of Nil (2020: upto 0.76%) per annum. 5.2 This represents US Dollar collection account maintained with SBP. Note 6. 2021 2020 (Rupees in '000) BALANCES WITH OTHER BANKS In Pakistan: In current accounts In deposit accounts Outside Pakistan: In current accounts In deposit accounts Less: impairment against IFRS 9 in overseas branches 6.1 6.2 6.3 231,604 618,607 132,466 201,704 850,211 334,170 4,131,543 1,821,822 5,965,561 13,381,635 5,953,365 19,347,196 6,803,576 (4) 19,681,366 (4) 6,803,572 19,681,362 165
170. 6 .1 These carry expected profit rates ranging from 2.32% to 8.25% (2020: 2.32% to 11.28%) per annum. 6.2 These carry interest rates ranging upto 0.75% (2020: upto 0.75%) per annum. 6.3 These carry interest rates of Nil (2020: upto 1.32%) per annum. 2021 2020 (Rupees in '000) 7. LENDING TO FINANCIAL INSTITUTIONS In local currency: Repurchase agreement lending (Reverse Repo) Bai Muajjal receivable from the State Bank of Pakistan 7.1 20,063,828 –00 –00 2,175,301 20,063,828 2,175,301 Securities held as collateral against amounts due from financial institutions 2021 2020 Held by Further given Held by Further given Bank as collateral Total Bank as collateral (Rupees in '000) Market Treasury Bills 18,343,998 Pakistan Investment Bonds 1,719,830 20,063,828 –00 –00 –00 18,343,998 1,719,830 20,063,828 –00 –00 –00 –00 –00 –00 Total –00 –00 –00 7.1.1 Repurchase agreement lendings carry mark-up at rates ranging from 10.00% to 10.75% per annum (2020: Nil). 7.1.2 The market value of securities held as collateral against repurchase agreement lendings amounted to Rs. 20,120.78 million (2020: Nil). 8. 8.1 INVESTMENTS Note Investments by type: Available-for-sale securities 8.3 & 8.4 Federal Government Securities Shares Non Government Debt Securities Foreign Securities Units of Mutual Funds Associates Total Investments 2021 Surplus / (deficit) Carrying value Cost / amortised cost Provision for diminution 2020 Surplus / (deficit) Carrying value 771 96,549 (Rupees in '000) Held-for-trading securities Shares Held-to-maturity securities Federal Government Securities Foreign Securities Other Cost / Provision amortised for cost diminution 134,937 –00 594,584,144 4,637,052 29,941,356 6,718,457 2,176,022 638,057,031 (3,067 ) 131,870 95,778 –00 (224,825 ) (1,799,946 ) –00 (947,343 ) (365,225 ) (3,337,339 ) (1,276,341 ) 593,082,978 615,637 3,452,743 141,257 30,082,613 (853,977 ) 4,917,137 296,808 2,107,605 (1,076,616 ) 633,643,076 548,875,321 4,473,575 26,645,389 6,891,856 2,125,000 589,011,141 (226,825 ) (1,794,587 ) –00 (909,432 ) (444,440 ) (3,375,284 ) 182,347,089 2,191,873 4,481 184,543,443 (100,982 ) (77,573 ) (4,481 ) (183,036 ) –00 182,246,107 –00 2,114,300 –00 –00 –00 184,360,407 170,825,082 1,708,659 4,481 172,538,222 (130,790 ) (127,901 ) (4,481 ) (263,172 ) –00 –00 –00 –00 170,694,292 1,580,758 –00 172,275,050 8,563,438 –00 3,058,005 –00 –00 3,058,005 831,298,849 (3,520,375 ) (1,079,683 ) 826,698,791 764,703,146 (3,638,456 ) 4,254,294 765,318,984 8.3 & 8.5 8.6 –00 8,563,438 4,589,209 553,237,705 575,088 3,254,076 (46,105 ) 26,599,284 (1,215,066 ) 4,767,358 350,397 2,030,957 4,253,523 589,889,380 166
171. 2020 2021 Cost / Provision amortised for cost diminution 8.2 Surplus / (deficit) Carrying value Cost / amortised cost Provision for diminution Surplus / (deficit) Carrying value Investments by segments: (Rupees in '000) Federal Government Securities Market Treasury Bills Pakistan Investment Bonds Foreign Currency Bonds Ijarah Sukuks Sukuks Naya Pakistan Certificates Term Finance Certificates - Unlisted (374,150) 123,617,075 143,416,675 (589,989) 533,550,354 515,401,452 165,736 17,855,350 10,724,047 (489,423) 86,477,100 26,952,616 11,485 13,022,054 22,919,899 –00 807,152 –00 –00 –00 285,714 –00 –00 (292,213 ) –00 (65,402 ) –00 –00 490,699 4,094,215 198,212 (209,517 ) 15,600 –00 –00 143,907,374 519,495,667 10,630,046 26,743,099 22,870,097 –00 285,714 719,700,403 (357,615 ) 4,589,209 723,931,997 3,436,077 148,536 4,415,117 154,236 (1,788,887 ) (5,700 ) 575,859 –00 3,202,089 148,536 612,570 3,584,613 4,569,353 (1,794,587 ) 575,859 3,350,625 –00 –00 141,257 –00 24,909,693 5,172,920 24,420,449 2,224,940 –00 –00 (46,105 ) –00 24,374,344 2,224,940 29,941,356 –00 141,257 30,082,613 26,645,389 –00 (46,105 ) 26,599,284 4,481 (4,481 ) –00 –00 4,481 (4,481 ) –00 –00 Foreign Securities Government Securities 8,910,330 (1,024,916 ) (853,977 ) 7,031,437 8,600,515 (1,037,333 ) (1,215,066 ) 6,348,116 Associates Habib Sugar Mills Limited AL Habib Money Market Fund AL Habib Islamic Cash Fund AL Habib Islamic Savings Fund First Habib Income Fund First Habib Stock Fund First Habib Cash Fund First Habib Islamic Stock Fund First Habib Islamic Income Fund First Habib Asset Allocation Fund –00 350,697 425,638 100,100 423,435 8,793 7,080,581 28,184 65,573 80,437 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 350,697 425,638 100,100 423,435 8,793 7,080,581 28,184 65,573 80,437 570,080 –00 –00 –00 141,131 8,608 2,194,250 48,910 25,186 69,840 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 570,080 –00 –00 –00 141,131 8,608 2,194,250 48,910 25,186 69,840 8,563,438 –00 –00 8,563,438 3,058,005 –00 –00 3,058,005 2,176,022 (365,225 ) 296,808 2,107,605 2,125,000 (444,440 ) 350,397 2,030,957 831,298,849 (3,520,375 ) (1,079,683 ) 826,698,791 764,703,146 (3,638,456 ) 4,254,294 765,318,984 Shares Listed Companies Unlisted Companies Non Government Debt Securities Listed Unlisted Others Unlisted Company Units of Mutual Funds Total Investments 123,991,225 534,140,343 18,002,018 86,966,523 13,023,972 807,152 –00 –00 –00 (312,404 ) –00 (13,403 ) –00 –00 776,931,233 (325,807 ) 4,617,753 154,236 (1,794,246 ) (5,700 ) 612,570 –00 4,771,989 (1,799,946 ) 24,768,436 5,172,920 (1,276,341) 775,329,085 167
172. 2021 2020 (Rupees in '000) 8.2.1 Investments given as collateral Market Treasury Bills Pakistan Investment Bonds 8.3 34,993,379 84,993,500 98,427,365 –00 119,986,879 98,427,365 3,638,456 2,216,156 144,653 3,978 –00 294,959 Provision for diminution in value of investments Opening balance Exchange adjustments against IFRS 9 in overseas branches (Reversals) / charge Charge for the year (Reversal) / charge of impairment as per IFRS 9 in overseas branches Reversal on disposal (174,219) (88,515) (262,734) –00 Others Closing balance 8.4 3,520,375 1,120,117 (1,235) 1,413,841 4,481 3,638,456 Quality of Available for Sale Securities Details regarding quality of available-for-sale securities are as follows: Cost 2021 2020 (Rupees in '000) 8.4.1 Federal Government Securities - Government guaranteed Market Treasury Bills Pakistan Investment Bonds Foreign Currency Bonds Ijarah Sukuks Sukuks Naya Pakistan Certificates Term Finance Certificates-Unlisted 8.4.2 123,991,225 367,216,577 12,155,197 86,966,523 3,447,470 807,152 –00 143,416,675 360,760,377 6,510,541 26,952,616 10,949,398 –00 285,714 594,584,144 548,875,321 199,842 292,921 164,773 933,455 23,211 29,975 106,222 27,713 793,159 38,264 21,775 1,615,032 13,140 40,644 182,690 4,482,816 199,842 292,921 164,773 933,455 23,211 29,975 106,222 27,696 793,159 38,264 21,775 1,634,091 13,140 40,815 –00 4,319,339 Shares 8.4.2.1 Listed companies Automobile Assembler Cement Commercial Banks Fertiliser Food and Personal Care Products Insurance Securities Companies Oil and Gas Exploration Companies Oil and Gas Marketing Companies Paper and Board Pharmaceuticals Power Generation and Distribution Technology and Communication Textile Composite Sugar and Allied Industries 168
173. 2021 8 .4.2.2 Unlisted companies Break up value Khushhali Bank Limited December 31, 2020 Pakistan Export Finance Guarantee Agency Limited – Society for Worldwide Interbank Financial Telecommunication (S.W.I.F.T) – Pakistan Mortgage Refinance Company Limited December 31, 2020 1LINK (Guarantee) Limited December 31, 2020 Cost 2020 Breakup Cost value (Rupees in '000) Breakup value 30,000 189,922 30,000 165,372 5,700 –00 5,700 –00 18,536 –00 18,536 –00 50,000 50,000 83,892 267,895 50,000 50,000 64,183 202,032 154,236 541,709 154,236 431,587 The above breakup values are based on the latest available audited financial statements of the unlisted companies. Cost 2021 2020 (Rupees in '000) 8.4.3 Non Government Debt Securities 8.4.3.1 Listed AA+ AA AAA+ A AGovernment Guaranteed 1,086,038 200,000 1,029,894 1,000,000 300,000 50,000 21,102,504 24,768,436 1,267,724 200,000 500,000 –00 1,300,000 50,000 21,102,725 24,420,449 1,798,000 1,450,000 –00 1,550,000 75,000 200,000 99,920 5,172,920 –00 –00 1,200,000 750,000 75,000 100,000 99,940 2,224,940 50,000 550,000 200,000 –00 1,376,022 2,176,022 50,000 550,000 200,000 100,000 1,225,000 2,125,000 8.4.3.2 Unlisted AAA AA+ AA AAA+ A BBB+ 8.4.4 Mutual Funds AAA(f) AA(f) AA-(f) A+(f) Unrated 169
174. 2021 8 .4.5 Foreign Securities Cost 2020 Rating Cost (Rupees in '000) Rating Government Securities Bahrain Egypt Srilanka Turkey –00 2,309,504 3,570,661 838,292 – B+ CC BB- 6,718,457 319,668 2,097,411 3,723,756 751,021 B+ B+ CCC BB- 6,891,856 Cost 2021 2020 (Rupees in '000) 8.5 Particulars relating to Held to Maturity securities are as follows: Federal Government Securities-Government guaranteed Pakistan Investment Bonds Foreign Currency Bonds Sukuks 166,923,766 5,846,821 9,576,502 154,641,075 4,213,506 11,970,501 182,347,089 170,825,082 4,481 4,481 Others Pakistan Corporate Restructuring Company Limited (PCRCL) 2021 Foreign Securities Cost 2020 Rating Cost (Rupees in '000) Rating Government Securities Egypt Srilanka 531,5550 1,660,3180 2,191,8730 8.5.1 B+ CC 482,090 1,226,569 B+ CCC 1,708,659 The market value of securities classified as held to maturity at 31 December 2021 amounted to Rs. 181,472 million (2020: Rs. 168,809 million). 170
175. 8 .6 Associates 2021 2020 Name of company / funds No. of ordinary shares / units –00 9,415,312 3,506,970 –00 4,256,381 –00 1,001,001 –00 4,031,784 1,363,808 557,697 100,000 69,271,923 16,288,303 351,713 100,929 250,421 250,421 777,428 200,149 Habib Sugar Mills Limited AL Habib Money Market Fund % of holding 77.64% (2020: Nil) Average cost per unit: Rs. 100 (2020: Nil) Net asset value Rs. 100 (2020: Rs. Nil) AL Habib Islamic Cash Fund % of holding 94.43% (2020: Nil) Average cost per unit: Rs. 100 (2020: Nil) Net asset value Rs. 100 (2020: Rs. Nil) AL Habib Islamic Saving Fund % of holding 5.55% (2020: Nil) Average cost per unit: Rs. 100 (2020: Rs. Nil) Net asset value Rs. 100 (2020: Rs. Nil) First Habib Income Fund % of holding: 26.23% (2020: 17.86%) Average cost per unit: Rs. 105.55 (2020: Rs. 109.99) Net asset value: Rs. 105.02 (2020: Rs. 103.48) First Habib Stock Fund % of holding: 15.69% (2020: 7.09%) Average cost per unit: Rs. 89.65 (2020: Rs. 100) Net asset value: Rs. 87.92 (2020: Rs. 86.07) First Habib Cash Fund % of holding: 24.52% (2020: 12.47%) Average cost per unit: Rs. 101.05 (2020: Rs. 101.30) Net asset value: Rs. 102.21 (2020: Rs. 100.98) First Habib Islamic Stock Fund % of holding: 9.08% (2020: 8.23%) Average cost per unit: Rs. 85.30 (2020: Rs. 99.08) Net asset value: Rs. 80.13 (2020: Rs. 84.99) First Habib Islamic Income Fund % of holding: 0.39% (2020: 0.22%) Average cost per unit: Rs. 98.46 (2020: Rs. 98.46) Net asset value: Rs. 101.15 (2020: Rs. 100.58) First Habib Asset Allocation Fund % of holding: 74.67% (2020: 19.75%) Average cost per unit: Rs. 102.06 (2020: Rs. 99.93) Net asset value: Rs. 103.47 (2020: Rs. 101.98) 2021 2020 (Rupees in '000) –00 570,080 350,697 –00 425,638 –00 100,100 –00 423,435 141,131 8,793 8,608 7,080,581 2,194,250 28,184 48,910 65,573 25,186 80,437 69,840 8,563,438 3,058,005 8.6.1 The place of incorporation and business of associates is Pakistan. 8.6.2 All of the above funds are managed by AL Habib Asset Management Limited (the subsidiary company). The Chief Executive of the Management Company is Mr. Kashif Rafi. 8.6.3 During the year, the Bank reclassified Habib Sugar Mills Limited from associates to available-for-sale investments due to change in directorship structure. 171
176. 8 .6.4 2021 2020 (Rupees in '000) Movement of investments in associates Opening balance Share of profit Investment - net Dividend received Capital gain Adjustment Unrealised gain routed to OCI Reclassification Closing balance 8.6.5 3,058,005 372,034 5,986,178 (217,532) (24,792) (4,143) 3,760 (610,072) 8,563,438 1,472,165 110,441 1,609,946 (66,569 ) (21,402 ) (60,636 ) 14,060 –00 3,058,005 Associates-Key information 2021 Name of associates Assets Liabilities Equity Revenue Profit / (loss) OCI (Rupees in '000) 9. First Habib Cash Fund First Habib Income Fund First Habib Stock Fund First Habib Islamic Stock Fund First Habib Islamic Income Fund First Habib Asset Allocation Fund 16,952,954 1,436,424 240,141 294,039 14,184,707 110,998 53,605 16,899,349 23,862 1,412,562 5,668 234,473 5,671 288,368 54,930 14,129,777 2,049 108,949 Habib Sugar Mills Limited First Habib Cash Fund First Habib Income Fund First Habib Stock Fund First Habib Islamic Stock Fund First Habib Islamic Income Fund First Habib Asset Allocation Fund 11,106,205 2,483,243 4,540,353 903,419 1,507,587 384,865 111,069 6,227 119,489 16,084 9,050,920 20,828 107,688 1,136 568,923 513,010 80,647 65,321 36,617 30,629 29,221 21,113 888,016 768,015 19,111 14,788 –00 –00 –00 –00 –00 –00 2020 8,622,962 10,138,211 694,295 3,636,934 280,375 254,764 1,122,722 100,485 85,788 104,842 3,020 (1,564) 103,405 3,806 (355) 9,030,092 470,279 425,663 106,552 3,792 (314) 265,474 –00 –00 –00 –00 –00 –00 ADVANCES Note Performing 2021 Loans, cash credits, running finances, etc. Islamic financing and related assets Bills discounted and purchased Advances - gross Provision against advances - Specific - General as per regulations - General - As per IFRS 9 in overseas branches Advances-net of provision 2020 Non-Performing 2021 2020 (Rupees in '000) Total 2021 2020 9.1 602,080,934 84,965,477 51,632,418 738,678,829 429,319,854 58,248,930 27,742,924 515,311,708 7,123,857 410,650 212,428 7,746,935 6,970,943 218,174 192,356 7,381,473 609,204,791 85,376,127 51,844,846 746,425,764 436,290,797 58,467,104 27,935,280 522,693,181 –00 369,390 5,750,000 476,792 –00 267,290 5,750,000 128,018 6,494,129 –00 –00 –00 6,497,479 –00 –00 –00 6,494,129 369,390 5,750,000 476,792 6,497,479 267,290 5,750,000 128,018 6,596,182 6,145,308 6,494,129 6,497,479 13,090,311 12,642,787 732,082,647 509,166,400 1,252,806 883,994 733,335,453 510,050,394 172
177. 9 .1 Includes net investment in finance lease as disclosed below: Not later than one year Not later than one Total year (Rupees in '000) 2020 Later than one and less than five years Total Lease rentals receivable Residual value 9,110,176 1,598,147 12,824,748 21,934,924 5,211,797 6,809,944 7,448,062 12,376,700 19,824,762 1,707,629 2,978,287 4,685,916 Minimum lease payments 10,708,323 18,036,545 28,744,868 9,155,691 15,354,987 24,510,678 (1,734,744) (1,522,420) (3,257,164) 8,973,579 16,514,125 25,487,704 (1,059,738) (1,702,182) (2,761,920) 8,095,953 13,652,805 21,748,758 Financial charges for future periods Present value of minimum lease payments 9.2 2021 Later than one and less than five years Particulars of advances (Gross) 2021 2020 (Rupees in '000) In local currency In foreign currencies 9.3 621,504,686 124,921,078 453,332,482 69,360,699 746,425,764 522,693,181 Advances include Rs. 7,746.935 million (2020: Rs. 7,381.473 million) which have been placed under non-performing status as detailed below: 2021 2020 Category of classification Domestic Other assets especially mentioned Substandard Doubtful Loss Overseas Overdue by: 181 to 365 days > 365 days Total Non Performing Loans Provision Non Performing Loans (Rupees in '000) 47,122 1,352,895 222,455 4,028,738 1,887 331,166 105,141 3,960,210 62,671 165,014 1,118,292 3,987,501 292 33,385 499,908 3,965,101 5,651,210 4,398,404 5,333,478 4,498,686 85,363 2,010,362 85,363 2,010,362 136,600 1,911,395 87,398 1,911,395 2,095,725 2,095,725 2,047,995 1,998,793 7,746,935 6,494,129 7,381,473 6,497,479 Provision 173
178. 9 .4 Particulars of provision against advances Note Specific 2021 General 6,497,479 6,145,308 12,642,787 6,201,412 3,389,309 9,590,721 223,681 17,349 241,030 68,496 5,158 73,654 - Specific provision 807,714 - General provision as per regulations –00 - As per IFRS 9 in overseas branches –00 - General provision for loans and advances 9.4.2 –00 Reversals (1,034,201) –00 807,714 887,878 –00 887,878 102,100 102,100 –00 4,000 4,000 331,425 331,425 –00 (3,159) (3,159) –00 –00 –00 (1,034,201) –00 (648,847) 2,750,000 –00 2,750,000 (648,847) (226,487) (544) 433,525 –00 207,038 (544) 239,031 (6,979 ) 2,750,841 –00 2,989,872 (6,979) –00 –00 –00 (4,481 ) –00 (4,481) 6,494,129 6,596,182 13,090,311 6,145,308 12,642,787 Opening balance Exchange adjustments Total Specific (Rupees in '000) 2020 General Total Charge for the year Amounts written off 9.5 Others Closing balance 6,497,479 9.4.1 Particulars of provision against advances In local currency In foreign currencies Specific 2021 General 2020 General 4,398,404 2,095,725 6,119,390 476,792 10,517,794 2,572,517 4,498,686 1,998,793 6,017,290 128,018 10,515,976 2,126,811 6,494,129 6,596,182 13,090,311 6,497,479 6,145,308 12,642,787 Total Specific (Rupees in '000) Total 9.4.2 In line with its prudent policies, the Bank also makes general provision against its loans and advances portfolio. This general provision is in addition to the requirements of the Prudential Regulations and as of 31 December 2021 amounts to Rs. 5,750 million (2020: Rs. 5,750 million). 9.4.3 For the purposes of determining provision against non-performing advances, the Bank has not taken into account the Forced Sales Value of pledged stock and mortgaged properties held as collateral against non-performing advances. 9.5 PARTICULARS OF WRITE OFFs Note 2021 2020 (Rupees in '000) 9.5.1 Against Provisions Directly charged to Profit and Loss account 9.5.2 Against Provisions Write Offs of below Rs. 500,000 Write Offs of Rs. 500,000 and above 9.4 9.6 544 –00 6,979 –00 544 6,979 544 –00 2,619 4,360 544 6,979 174
179. 9 .6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962 the statement in respect of written-off loans or any other financial relief of rupees five hundred thousand or above allowed to a person(s) during the year ended is given in Annexure I. Note 10. FIXED ASSETS Capital work-in-progress Property and equipment 2021 2020 (Rupees in '000) 10.1 10.2 10.1 Capital work-in-progress Civil works Advance payment for purchase of equipments Advance payment towards suppliers, contractors and property Consultants’ fee and other charges 10.2 Property and Equipment At 01 January 2021 Cost / Revalued amount Accumulated depreciation Net book value 1,738,112 53,963,093 2,279,324 41,697,340 55,701,205 43,976,664 595,516 125,432 1,015,099 2,065 454,808 51,867 1,740,546 32,103 1,738,112 2,279,324 2021 Leasehold Building on land Leasehold land Furniture Electrical, office Improvements Right of use and and computer Vehicles to leasehold assets fixture equipment building (Rupees in '000) 12,850,032 12,084,529 –00 (282,443 ) 12,850,032 11,802,086 1,682,269 (694,593 ) 987,676 10,119,610 (6,686,117) 3,433,493 3,733,556 (1,755,689) 1,977,867 3,114,048 (2,208,605 ) 905,443 Total 12,652,438 56,236,482 (2,911,695 ) (14,539,142 ) 9,740,743 41,697,340 Year ended 31 December 2021 Opening net book value 12,850,032 11,802,086 Additions 3,565,705 6,188,274 Acquisition through business combination –00 –00 Additions to ROUs –00 –00 Movement in surplus on assets revalued during the year –00 –00 Disposals –00 (2,226 ) Depreciation charge –00 (584,002 ) Other adjustments / transfers –00 4,406 Closing net book value 16,415,737 17,408,538 987,676 329,501 –00 –00 3,433,493 2,237,040 –00 –00 1,977,867 921,989 –00 –00 905,443 1,009,595 –00 –00 9,740,743 –00 –00 3,184,111 41,697,340 14,252,104 –00 3,184,111 –00 (3,365 ) (154,504 ) –00 1,159,308 –00 (6,771) (1,136,106) –00 4,527,656 –00 (35,588) (685,174) –00 2,179,094 –00 (6,652 ) (397,980 ) (4,406 ) 1,506,000 –00 (335,406 ) (1,854,453 ) 31,765 10,766,760 –00 (390,008 ) (4,812,219 ) 31,765 53,963,093 At 31 December 2021 Cost / Revalued amount Accumulated depreciation Net book value 1,996,702 (837,394 ) 1,159,308 12,161,113 (7,633,457) 4,527,656 4,303,341 (2,124,247) 2,179,094 4,025,751 (2,519,751 ) 1,506,000 14,928,314 72,167,326 (4,161,554 ) (18,204,233 ) 10,766,760 53,963,093 10% 20% 20% 20% Rate of depreciation (percentage) 16,415,737 18,336,368 –00 (927,830 ) 16,415,737 17,408,538 –00 2.08% - 20% As per lease term 175
180. Leasehold land At 01 January 2020 Cost / Revalued amount Accumulated depreciation Net book value Building on Leasehold land Furniture and fixture 10,724,438 10,098,380 –00 (789,522 ) 10,724,438 9,308,858 1,422,561 (578,316 ) 844,245 8,844,776 (5,773,122) 3,071,654 3,394,955 (1,602,933) 1,792,022 2,766,206 (1,732,020 ) 1,034,186 9,594,046 46,845,362 (1,395,355 ) (11,871,268 ) 8,198,691 34,974,094 844,245 274,407 –00 –00 3,071,654 1,441,233 751 –00 1,792,022 947,305 44 –00 1,034,186 394,308 –00 –00 8,198,691 –00 –00 3,224,658 34,974,094 4,449,137 795 3,224,658 –00 (2,207 ) (128,769 ) –00 987,676 –00 (3,857) (1,076,288) –00 3,433,493 –00 (137,284) (624,220) –00 1,977,867 –00 (1,723 ) (518,608 ) (2,720 ) 905,443 –00 –00 (1,661,393 ) (21,213 ) 9,740,743 3,618,097 (159,122 ) (4,444,010 ) 33,691 41,697,340 1,682,269 (694,593 ) 987,676 10,119,610 (6,686,117) 3,433,493 3,733,556 (1,755,689) 1,977,867 3,114,048 (2,208,605 ) 905,443 10% 20% 20% 20% Year ended 31 December 2020 Opening net book value 10,724,438 9,308,858 Additions 291,338 1,100,546 Acquisition through business combination –00 –00 Additions to ROUs –00 –00 Movement in surplus on assets revalued during the year 1,703,806 1,914,291 Disposals –00 (14,051 ) Depreciation charge –00 (434,732 ) Other adjustments / transfers 130,450 (72,826 ) Closing net book value 12,850,032 11,802,086 At 31 December 2020 Cost / Revalued amount Accumulated depreciation Net book value 2020 Electrical, office and computer Vehicles equipment (Rupees in '000) 12,850,032 12,084,529 –00 (282,443 ) 12,850,032 11,802,086 Rate of depreciation (percentage) –00 2.22% - 20% Improvements Right of use to leasehold assets building Total 12,652,438 56,236,482 (2,911,695 ) (14,539,142 ) 9,740,743 41,697,340 As per lease term 10.3 In accordance with the Bank's accounting policy, the Bank's leasehold land and buildings on leasehold land were revalued at 01 June 2020. The revaluation was carried out by an independent valuer, M/s. Iqbal A. Nanjee & Co. on the basis of present physical condition and location of leasehold land and buildings on leasehold land. Fair values were ascertained by the independent valuer under market approach through various enquiries conducted by them at site from real estate agents and brokers. The revaluation resulted in surplus of Rs. 3,618.097 million over the book value of the respective properties and also net deficit of Rs. 122.190 million on certain properties. Had the leasehold land and buildings on leasehold land not been revalued, the total carrying amounts of revalued properties as at 31 December 2021 would have been as follows: 2021 2020 (Rupees in '000) Leasehold land 12,474,150 8,908,446 Buildings on leasehold land 13,056,296 7,257,224 259,691 5,072,815 663,809 1,606,236 227,579 4,110,076 517,461 1,330,514 7,602,551 6,185,630 10.4 The gross carrying amount of fully depreciated assets still in use is as follows: Furniture and fixture Electrical, office and computer equipment Vehicles Improvements to leasehold buildings 176
181. 10 .5 Details of disposal of fixed assets during the year: Particulars Cost Habib Insurance Company Limited (Related Party-Karachi) Furniture and fixture 2021 Book Insurance value claim (Rupees in '000) 2,137 1,227 3,239 Electrical, office and computer equipment 14,024 5,084 11,886 Vehicles 13,664 7,420 13,735 2021 Computer TRE Management software certificates rights (Rupees in '000) 11. Total INTANGIBLE ASSETS At 01 January 2021 Cost Accumulated amortisation and impairment Net book value Year ended 31 December 2021 Opening net book value Additions-directly purchased Amortisation charge Closing net book value At 31 December 2021 Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Useful life 1,420,792 (1,209,100) 211,692 211,692 367,090 (307,372) 271,410 1,787,882 (1,516,472) 271,410 34,750 (32,250) 2,500 80,670 –00 80,670 1,536,212 (1,241,350) 294,862 2,500 –00 –00 2,500 80,670 –00 –00 80,670 294,862 367,090 (307,372) 354,580 34,750 (32,250) 2,500 80,670 –00 80,670 1,903,302 (1,548,722) 354,580 50% –00 –00 2 years –00 –00 2020 At 01 January 2020 Cost Accumulated amortisation and impairment Net book value Year ended 31 December 2020 Opening net book value Additions-directly purchased Business combination Amortisation charge Closing net book value At 31 December 2020 Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Useful life 1,287,061 (920,721) 366,340 34,750 (32,250) 2,500 366,340 133,383 348 (288,379) 211,692 1,420,792 (1,209,100) 211,692 –00 –00 –00 1,321,811 (952,971) 368,840 2,500 –00 –00 –00 2,500 –00 –00 80,670 –00 80,670 368,840 133,383 81,018 (288,379) 294,862 34,750 (32,250) 2,500 80,670 –00 80,670 1,536,212 (1,241,350) 294,862 50% –00 –00 2 years –00 –00 177
182. 11 .1 12. As at 31 December 2021, the gross carrying amount of fully amortised intangible assets still in use amounted to Rs. 1,519.281 million (2020: Rs. 878.525 million). DEFERRED TAX ASSET / (LIABILITIES) 2021 As at 01 January 2021 Deductible Temporary Differences on Provision against diminution in the value of investments Provision against loans and advances, off-balance sheet, etc. Workers’ welfare fund Provision for compensated absences Recognised tax losses Others Taxable Temporary Differences on Accelerated tax depreciation Surplus on revaluation of fixed assets / non-banking assets Remeasurement of defined benefit plan Surplus on revaluation of available-for-sale investments Surplus on revaluation of held-for-trading securities Taxable Temporary Differences on Accelerated tax depreciation Surplus on revaluation of fixed assets / non-banking assets Remeasurement of defined benefit plan Surplus on revaluation of available-for-sale investments Surplus on revaluation of held-for-trading securities Recognised Recognised in profit and in other loss account comprehensive income (Rupees in '000) As at 31 December 2021 1,270,805 1,725,436 848,152 1,742 33,824 2,774 3,882,733 –00 –00 –00 –00 –00 –00 –00 93,402 358,170 338,756 (1,191) (20,670) 10,537 779,004 –00 –00 –00 –00 –00 –00 –00 1,364,207 2,083,606 1,186,908 551 13,154 13,311 4,661,737 (927,891) (1,606,514) –00 (1,487,188) (976) (4,022,569) (139,836) –00 –00 –00 –00 –00 –00 –00 (218,919) 77,005 –00 –00 151 (141,763) 637,241 –00 (304,067) –00 1,910,055 –00 1,605,988 1,605,988 (1,146,810) (1,833,576) –00 422,867 (825) (2,558,344) 2,103,393 As at 01 January 2020 Deductible Temporary Differences on Provision against diminution in the value of investments Provision against loans and advances, off-balance sheet, etc. Workers’ welfare fund Provision for compensated absences Recognised tax losses Others On business combination On business combination 2020 Recognised Recognised in profit and in other loss account comprehensive income As at 31 December 2020 772,704 785,860 –00 292 2,863 627 1,562,346 –00 –00 –00 230 –00 2,032 2,262 498,101 939,576 848,152 1,220 30,961 115 2,318,125 –00 –00 –00 –00 –00 –00 –00 1,270,805 1,725,436 848,152 1,742 33,824 2,774 3,882,733 (960,906) (984,461) (165,629) (829,057) –00 132 –00 –00 –00 (706) 32,883 56,261 165,629 –00 (270) –00 (678,314) –00 (658,131) –00 (927,891) (1,606,514) –00 (1,487,188) (976) (2,940,053) (574) 254,503 (1,336,445) (4,022,569) (1,377,707) 1,688 2,572,628 (1,336,445) (139,836) 178
183. 13 . OTHER ASSETS Note 2021 2020 (Rupees in '000) Income / mark - up accrued in local currency - net of provision 19,755,175 Income / mark - up accrued in foreign currencies - net of provision 1,174,158 Advances, deposits, advance rent and other prepayments 1,176,105 Non - banking assets acquired in satisfaction of claims 13.1 811,454 2,993,003 Mark to market gain on forward foreign exchange contracts Acceptances 55,030,553 Stationery and stamps on hand 436,018 150,135 Receivable from SBP on encashment of Government Securities ATM settlement account –00 Receivable against securities 505,505 Others 4,384,135 Less: Provision held against other assets Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 13.2 13.1 Other Assets-total 13.1 Market value of non-banking assets acquired in satisfaction of claims 16,945,436 691,713 776,481 814,912 931,153 52,522,498 393,693 33,013 943,062 218,199 943,369 86,416,241 (7,497 ) 75,213,529 (6,884 ) 86,408,744 75,206,645 139,488 139,165 86,548,232 75,345,810 1,016,627 957,093 Market value of the non-banking assets acquired in satisfaction of claims has been carried out by independent valuers, M/s. K.G.Traders (Pvt.) Ltd. and M/s. MYK Associates (Pvt.) Ltd. based on present physical condition and location of non-banking assets. Fair values were ascertained by the independent valuers under market approach through various enquiries conducted by them at site from real estate agents and brokers. 2021 2020 (Rupees in '000) 13.1.1 Non - banking assets acquired in satisfaction of claims Opening balance Revaluations Transferred to fixed assets Accumulated depreciation Closing balance 13.2 954,077 4,165 –00 (7,300) 950,942 909,382 106,658 (54,904) (7,059) 954,077 Provision held against other assets Receivable against consumer loans 7,497 6,884 6,884 2,740 (2,127) 7,383 6,080 (5,255) 13.2.1 Movement in provision held against other assets Opening balance Charge for the year Reversals Amount written off Closing balance 14. 613 –00 825 (1,324) 7,497 6,884 CONTINGENT ASSETS There were no contingent assets of the Group as at 31 December 2021 (2020: Nil). 179
184. Note 15 . BILLS PAYABLE 16. BORROWINGS In Pakistan Secured Borrowings from the State Bank of Pakistan Under export refinance scheme Under renewable energy Under long term financing for imported and locally manufactured plant and machinery Under modernisation of small and medium enterprises Under women entrepreneurship Under financing facility for storage of agricultural produce Under refinance scheme for payment of wages and salaries Under temporary economic refinance facility Repurchase agreement borrowings Borrowings from financial institutions Others Total secured Unsecured Overdrawn nostro accounts 2021 2020 (Rupees in '000) 29,803,755 31,013,221 16.1 16.2 72,330,093 13,588,833 58,086,099 8,958,686 16.3 16.4 16.5 16.6 16.7 16.8 16.9 31,605,152 566,723 26,893 735,467 7,842,569 32,012,142 100,000 25,128,756 331,848 26,957 416,073 15,720,186 4,387,473 –00 158,807,872 16.10 119,942,164 16.11 23,102,205 –00 301,852,241 113,056,078 98,345,030 –00 27,862 211,428,970 360,661 302,212,902 198,297 211,627,267 16.1 These carry mark-up rates ranging from 1% to 2% (2020: 1% to 2%) per annum, payable quarterly at the time of partial payment or upon maturity of loan, whichever is earlier. 16.2 These carry mark-up rates of 2% to 3% (2020: 2% to 3%) per annum having maturity periods over ten years. 16.3 These carry mark-up rates ranging from 2% to 6% (2020: 2% to 6%) per annum having maturity periods upto ten years. 16.4 These carry mark-up rates of 2% (2020: 2%) per annum having maturity periods upto ten years. 16.5 These carry mark-up rate of Nil (2020: Nil) per annum having maturity periods upto five years. 16.6 These carry mark-up rates from 2.0% to 3.5% (2020: 2.5% to 3.5%) per annum having maturity periods upto seven years. 16.7 These carry mark-up rates upto 1% (2020: 1%) per annum having maturity periods upto three years. 16.8 These carry mark-up rates of 1% (2020: 1%) per annum having maturity periods upto ten years. 16.9 These carry mark-up rates of Nil (2020: Nil) per annum having maturity periods upto five years. 16.10 These repurchase agreement borrowings are secured against Pakistan Investment Bonds and Market Treasury Bills. These carry effective mark-up rates ranging from 9.89% to 10.70% (2020: 7.05%) per annum, having maturity periods upto two months. 16.11 These borrowings from financial institutions carry mark-up rates ranging from 0.95% to 1.64% per annum having maturity periods upto one year. 180
185. 16 .12 Particulars of borrowings with respect to currencies In local currency In foreign currencies 17. 2021 2020 (Rupees in '000) 278,750,036 23,462,866 302,212,902 211,428,970 198,297 211,627,267 DEPOSITS AND OTHER ACCOUNTS Customers Current deposits Savings deposits Term deposits Current deposits - remunerative Others In local currency 2021 In foreign currencies 451,790,944 331,340,746 204,273,302 50,037,483 47,617,002 38,981,706 In local Total currency (Rupees in '000) 2020 In foreign currencies Total 501,828,427 378,957,748 243,255,008 351,389,228 283,179,499 177,719,569 40,963,348 43,773,628 40,377,454 392,352,576 326,953,127 218,097,023 117,604,631 3,844,969 121,449,600 20,969,061 8,647,765 29,616,826 1,125,978,684 149,128,925 1,275,107,609 120,360,146 15,419,195 2,247,064 7,337,309 122,607,210 22,756,504 Financial institutions Current deposits Savings deposits Term deposits Current deposits - remunerative Others 948,067,637 134,698,803 1,082,766,440 4,373,862 10,843,950 1,363,787 361,260 18 193,282 4,735,122 10,843,968 1,557,069 3,568,698 113,638 1,335,500 203,742 18 135,060 3,772,440 113,656 1,470,560 17,192,468 13,850 33,787,917 284,878 –00 839,438 17,477,346 13,850 34,627,355 10,381,339 21,286 15,420,461 697,737 –00 1,036,557 11,079,076 21,286 16,457,018 1,159,766,601 149,968,363 1,309,734,964 963,488,098 135,735,360 1,099,223,458 2021 2020 (Rupees in '000) 17.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 17.2 805,485,582 42,529,298 53,091,501 240,760 34,386,595 374,001,228 694,690,728 43,377,359 52,701,961 341,145 16,115,873 291,996,392 1,309,734,964 1,099,223,458 Deposits includes eligible deposits covered under deposit protection mechanism as required by the Deposit Protection Act, 2016 amounting to Rs. 903,117.371 million (2020: Rs. 787,834.683 million). 181
186. Note 18 . 2021 2020 (Rupees in '000) SUBORDINATED DEBT - Unsecured Term Finance Certificates (TFCs) - V - (Unquoted) Term Finance Certificates (TFCs) - VI - (Unquoted) Term Finance Certificates (TFCs) - VII - (Unquoted) Term Finance Certificates (TFCs) - VIII - (Unquoted) 18.1 18.2 18.3 18.4 –00 7,000,000 3,995,200 5,000,000 3,992,800 7,000,000 3,996,800 –00 15,995,200 14,989,600 18.1 During the year, the Bank exercised the call option of Term Finance Certificates - V in accordance with the Trust Deed and Terms and Conditions for the TFC issue, after completing the regulatory requirements. Accordingly, the said TFCs were redeemed in full on 17 March 2021. 18.2 Term Finance Certificates - VI (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 7,000 million December 2017 Perpetual AA semi-annually No fixed or final redemption date. Payable six monthly at six months' KIBOR (ask side) plus 1.50% without any floor and cap. The issuer will have full discretion over the amount and timing of profit distribution, and waiver of any profit distribution or other payment will not constitute an event of default. On or after five years with prior SBP approval. As per SBP's requirement, the Bank shall not exercise call option unless the called instrument is replaced with capital of same or better quality. No profit may be paid if such payment will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a point of non-viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 182
187. 18 .3 Term Finance Certificates - VII (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 4,000 million December 2018 December 2028 AA+ semi-annually 6th - 108th month: 0.02% per each semi-annual period; 114th and 120th month: 49.82% each. 6 - Months KIBOR (ask side) + 1.00% per annum. On or after five years with prior SBP approval. Neither profit nor principal may be paid if such payments will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a Point of Non-Viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 18.4 Term Finance Certificates - VIII (Unquoted) Issue amount Issue date Maturity date Rating Profit payment frequency Redemption Mark-up Call option Lock-in-clause Loss absorbency clause Rupees 5,000 million September 2021 September 2031 AA+ semi-annually 6th - 108th month: 0.02% per each semi-annual period; 114th and 120th month: 49.82% each. 6 - Months KIBOR (ask side) + 0.75% per annum. On or after five years with prior SBP approval. Neither profit nor principal may be paid if such payments will result in shortfall (or increase the shortfall) in the Bank’s Minimum Capital Requirement (“MCR”), Leverage Ratio ("LR") or Capital Adequacy Ratio (“CAR”). The instrument will be subject to loss absorption and / or any other requirements under SBP’s Basel III Capital Rules. Upon the occurrence of a Point of Non-Viability event as defined by SBP's Basel III Capital Rules, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank (subject to a cap) at a price equivalent to the market value of shares of the Bank on the date of trigger, and / or have them immediately written off (either partially or in full). 183
188. Note 19 . OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Unearned commission income Accrued expenses Acceptances Unclaimed / dividend payable Mark to market loss on forward foreign exchange contracts Branch adjustment account Payable to defined benefit plan Charity payable Provision against off - balance sheet items Security deposits against leases / ijarah Provision for compensated absences Other security deposits Workers’ welfare fund Payable to SBP / NBP Payable to supplier against murabaha Insurance payable Lease liability against right-of-use assets Payable against sale of marketable securities on behalf of customers Current taxation (payments less provisions) ATM settlement account Others 19.1 2021 2020 (Rupees in '000) 2,045,653 302,370 1,416,819 2,952,562 55,030,553 546,228 787,128 5,764,199 974,313 12,978 19.1 173,319 7,174,202 19.2 1,127,704 765,531 3,048,747 1,323,252 223,202 610,916 12,235,539 230,415 2,028,365 1,729,169 1,539,576 1,684,024 196,066 304,009 2,541,572 52,522,498 474,931 490,822 2,639,104 683,514 41,298 146,692 5,690,619 974,095 647,203 2,425,132 455,014 166,017 470,883 10,526,139 567,235 418,177 –00 1,277,245 102,042,740 85,342,289 146,692 129,369 4,141 1,470 60,763 (38,277 ) 19,748 (3,895 ) 22,486 15,853 173,319 146,692 Provision against off - balance sheet obligations Opening balance Exchange adjustment against IFRS 9 in overseas branches Charge for the year Reversals Closing balance 19.1.1 The provision against off-balance sheet obligations includes provision in respect of letter of guarantees and shipping guarantees. 19.2 Provision for compensated absences has been determined on the basis of independent actuarial valuation. The significant assumptions used for actuarial valuation were as follows: 2021 2020 (% per annum) Discount rate 12.25% 10.25% Expected rate of increase in salary in future years 11.25% 9.25% 184
189. 20 . SHARE CAPITAL 20.1 Authorised Capital 2021 2020 Number of shares 1,500,000,000 1,500,000,000 20.2 2021 2020 (Rupees in '000) Ordinary shares of Rs. 10 each 15,000,000 15,000,000 300,000 10,814,254 11,114,254 300,000 10,814,254 11,114,254 Issued, subscribed and paid up capital 2021 2020 Number of shares 30,000,000 1,081,425,416 1,111,425,416 20.3 30,000,000 1,081,425,416 1,111,425,416 Fully paid in cash Issued as bonus shares As of statement of financial position date 162,731,961 (2020: 162,818,503) ordinary shares of Rs. 10/- each were held by the related parties. Note 21. 2021 2020 (Rupees in '000) SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of: - Investments - Fixed Assets - Non - banking assets acquired in satisfaction of claims 21.1 21.2 21.3 (1,071,388 ) 8,869,136 139,488 4,329,994 9,062,739 139,165 7,937,236 13,531,898 (420,671 ) 1,849,120 54,804 1,483,253 1,488,343 1,663,701 13,161 3,165,205 6,453,983 10,366,693 Deferred tax on surplus / (deficit) on revaluation of: - Available for sale securities - Fixed Assets - Non - banking assets acquired in satisfaction of claims 21.1 21.1 21.2 21.3 Investments Available for sale securities Unrealised surplus on equity accounting Non-controlling interest Less: related deferred tax (1,076,616 ) –00 5,228 (1,071,388 ) (420,671 ) (650,717 ) 4,253,523 76,546 (75 ) 4,329,994 1,488,343 2,841,651 185
190. Note 21 .2 2021 2020 (Rupees (Rupees in '000) Surplus on revaluation of fixed assets Surplus on revaluation of fixed assets as at 01 January Surplus on revaluation of the Bank’s fixed assets during the year Transferred to unappropriated profit in respect of incremental depreciation charged during the year 9,062,739 –00 Surplus on revaluation of fixed assets as at 31 December 8,869,136 9,062,739 1,663,701 260,923 (75,504 ) 1,049,269 670,002 (55,570 ) 1,849,120 1,663,701 7,020,016 7,399,038 Surplus on revaluation of non-banking assets as at 01 January Surplus on revaluation of non-banking assets during the year Transferred to unappropriated profit in respect of incremental depreciation charged during the year 139,165 4,165 34,482 106,658 Surplus on revaluation of non-banking assets as at 31 December 139,488 (193,603 ) 5,495,269 3,726,240 (158,770 ) Less: related deferred tax liability on: - revaluation as at 01 January - revaluation recognised during the year - incremental depreciation charged during the year 21.3 Surplus on revaluation of non - banking assets acquired in satisfaction of claims (3,842 ) (1,975 ) 139,165 Less: related deferred tax liability on: - revaluation as at 01 January - revaluation recognised during the year - incremental depreciation charged during the year 22. 23. 13,161 43,144 (1,501 ) 5,540 8,312 (691) 54,804 13,161 84,684 126,004 Opening balance Profit attributable to non-controlling interest Loss on equity attributable to non-controlling interest 114,778 13,665 (5,303 ) 105,510 9,728 (460) Closing balance 123,140 114,778 126,082,119 438,585,630 2,030,711 92,814,672 351,718,547 1,537,827 566,698,460 446,071,046 NON - CONTROLLING INTEREST CONTINGENCIES AND COMMITMENTS - Guarantees - Commitments - Other contingent liabilities 23.1 23.2 23.3 186
191. Note 23 .1 2021 2020 (Rupees in '000) Guarantees: Financial guarantees Performance guarantees 23.2 24,274,161 101,807,958 126,082,119 20,716,906 72,097,766 92,814,672 301,891,236 207,740,057 23.2.1 131,220,965 23.2.2 4,717,424 128,823,137 7,124,914 756,005 438,585,630 8,030,439 351,718,547 72,497,648 58,723,317 75,472,905 53,350,232 131,220,965 128,823,137 Commitments: Documentary credits and short term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts - forward lending Commitments for acquisition of: - operating fixed assets 23.2.1 Commitments in respect of forward foreign exchange contracts Purchase Sale The maturities of above contracts are spread over the periods upto two years. 23.2.2 Commitments in respect of forward lending 4,717,424 7,124,914 These represent commitments that are irrevocable because they cannot be withdrawn at the discretion of the Bank without the risk of incurring significant penalty or expense. 23.3 Claims against the Bank not acknowledged as debts 23.4 Other contingent liabilities 2,030,711 1,537,827 Income tax returns of the Bank have been submitted upto and including the Bank’s financial year 2020 (Tax Year 2021). The income tax assessments of the Bank have been finalized upto and including tax year 2018. Matters of disagreement exist between the Bank and tax authorities for various tax years and are pending with the Commissioner Inland Revenue (Appeals) and Income Tax Appellate Tribunal (ITAT). These issues mainly relate to addition of general provision (specific), reversal of provision for non-performing loans, charge for defined benefit plan and provision for compensated absences. For tax year 2012 and 2013, the Additional Commissioner Inland Revenue (ACIR) passed an amended order u/s. 122(5A) of the Income Tax Ordinance, 2001 resulting in an impact of Rs. 482.233 million. Subsequently, Commissioner Inland Revenue (Appeals) has passed order by allowing Rs. 134.616 million resulting in an aggregate net tax impact of Rs. 347.617 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned orders. Commissioner Inland Revenue (Appeals) passed an appellate order against Deputy Commissioner Inland Revenue (DCIR) order for Tax Year 2014 (Accounting Year 2013) by allowing certain expenses resulting in an impact of Rs. 25.300 million and remanded back certain expenses to DCIR. The resulted aggregate net tax impact stands at Rs. 125.469 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. 187
192. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2015 (Accounting Year 2014) by allowing certain expenses resulting in an impact of Rs. 75.256 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 226.599 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2016 (Accounting Year 2015) by allowing certain expenses resulting in an impact of Rs. 138.418 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 69.261 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2017 (Accounting Year 2016) by allowing certain expenses resulting in an impact of Rs. 94.672 million and remanded back certain expenses to ACIR. The resulted aggregate net tax impact stands at Rs. 103.844 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) passed an appellate order against Additional Commissioner Inland Revenue (ACIR) order for Tax Year 2018 (Accounting Year 2017) by allowing certain expenses resulting in an impact of Rs. 65.722 million. The resulted aggregate net tax impact stands at Rs. 194.376 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned order. Commissioner Inland Revenue (Appeals) has remanded back the order of Deputy Commissioner Inland Revenue (DCIR) against Federal Excise Duty levy on certain items for the period January 2013 to December 2015. The resulted aggregate net tax impact stands at Rs. 80.766 million. Commissioner (HQ), Punjab Revenue Authority has passed order for the period from January to December 2016 levying Punjab Sales Tax on services on certain items resulting in an impact of Rs. 112.641 million. Appellate Tribunal – Punjab Revenue Authority has remanded back the order of Commissioner (HQ), Punjab Revenue Authority. Commissioner Inland Revenue (Appeals) has passed orders for tax years 2009 and 2011 confirming disallowance of provision for non-performing loans, other provisions and amortization of intangible assets having an aggregate tax impact of Rs. 15.372 million. The Bank has filed an appeal before Income Tax Appellate Tribunal (ITAT) against the above mentioned orders. Commissioner Inland Revenue (Appeals), Mirpur AJ&K has annulled the amendments made by Assistant Commissioner Inland Revenue, Mirpur AJ&K for Tax Year 2014 to 2018. This resulted in a favorable aggregate net tax impact of Rs. 93.443 million. Assistant Commissioner Inland Revenue, Mirpur AJ&K has finalized audit of the Bank’s Azad Kashmir operations for Tax Year 2019 by disallowing certain expenses resulting in an impact of Rs. 92.311 million. The Bank has filed an appeal before Commissioner Inland Revenue (Appeals), Mirpur AJ&K. The management, based on the opinion of its tax advisor, is confident about the favorable outcome of the above matters. 188
193. 24 . DERIVATIVE INSTRUMENTS The Bank deals in derivative financial instruments namely forward foreign exchange contracts and foreign currency swaps with the principal view of hedging the risks arising from its trade business. As per the Bank’s policy, these contracts are reported on their fair value at the statement of financial position date. The gains and losses from revaluation of these contracts are included under “income from dealing in foreign currencies”. Unrealised gains and losses on these contracts are recorded in the statement of financial position under “other assets / other liabilities”. These products are offered to the Bank’s customers to protect from unfavourable movements in foreign currencies. The Bank hedges such exposures in the inter-bank foreign exchange market. 24.1 Product Analysis Counter Parties Banks Hedging CONTRACT Notional Mark to Principal Market gain / (loss) 2021 SWAP Notional Mark to Principal Market gain / (loss) (Rupees in '000) Notional Principal TOTAL Mark to Market gain / (loss) 7,709,331 (24,745) 62,902,410 (368,653) 70,611,741 (393,398) Other Entities Hedging 60,609,224 2,599,273 –000 –000 60,609,224 2,599,273 Total Hedging 68,318,555 2,574,528 62,902,410 (368,653) 131,220,965 2,205,875 2020 Banks Hedging 24.2 9,107,115 (27,012) 68,172,458 372,325 77,279,573 345,313 Other Entities Hedging 51,543,564 95,018 –000 –000 51,543,564 95,018 Total Hedging 60,650,679 68,006 68,172,458 372,325 128,823,137 440,331 Number of Contracts Notional Principal Maturity Analysis 2021 Mark to Market Negative Positive (Rupees in '000) Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 220 494 470 254 1 1,439 297 412 352 177 –00 1,238 Net 18,737,362 59,723,927 37,622,436 15,044,175 93,065 131,220,965 (100,927) (402,549) (229,758) (53,894) –00 (787,128) 257,804 921,515 1,215,887 595,124 2,673 2,993,003 156,877 518,966 986,129 541,230 2,673 2,205,875 51,974,821 46,596,575 19,991,703 10,260,038 –00 128,823,137 2020 (112,849) (218,736) (128,829) (30,408) –00 (490,822) 296,381 340,228 161,815 132,729 –00 931,153 183,532 121,492 32,986 102,321 –00 440,331 189
194. Note 25 . 26. 27. 28. 28.1 29. 29.1 MARK-UP / RETURN / INTEREST EARNED On loans and advances On investments On deposits with financial institutions On securities purchased under resale agreements On lending to financial institutions On call money lendings MARK-UP / RETURN / INTEREST EXPENSED Deposits Borrowings from SBP Subordinated debt Cost of foreign currency swaps Repurchase agreement borrowings Mark-up expense on lease liability against right-of-use assets Other borrowings FEE AND COMMISSION INCOME Branch banking customer fees Investment banking fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Commission on trade Commission on guarantees Commission on cash management Commission on home remittances Others (LOSS) / GAIN ON SECURITIES Realised Unrealised-held for trading 28.1 Realised (loss) / gain on: Federal Government Securities Shares Mutual Funds OTHER INCOME Gain on sale of fixed assets-net Recovery of expenses from customers Lockers rent Exchange gain realised on closure of overseas branch Income on margin financing Gain on disposal of associate Bargain purchase on acquisition Others 29.1 2021 2020 (Rupees in '000) 39,751,634 76,483,891 254,848 241,458 15,233 370 116,747,434 43,408,133 81,113,900 353,188 198,514 216,003 554 125,290,292 43,244,860 2,310,305 1,178,571 1,511,934 11,530,205 1,124,704 237,663 61,138,242 48,036,958 1,616,923 1,753,337 1,165,922 13,923,326 956,906 195,630 67,649,002 1,309,872 72,167 80,006 1,376,752 333,942 5,132,467 592,864 221,048 149,562 290,453 9,559,133 1,054,380 127,450 48,499 491,655 153,330 4,046,591 406,053 176,337 118,958 154,441 6,777,694 (34,415 ) (3,838 ) (38,253 ) 181,242 771 182,013 5,199 15,272 (54,886 ) (34,415 ) 5,494 10,960 164,788 181,242 467,551 355,536 15,846 292,780 11,174 –00 –00 8,916 1,151,803 440,311 322,776 13,176 –00 1,626 4,614 37,734 1,148 821,385 Includes courier, SWIFT, postage and other charges recovered from customers. 190
195. Note 30 . 2021 2020 (Rupees in '000) OPERATING EXPENSES Total compensation expenses 30.1 Property expenses Rent and taxes Insurance Utilities cost Security (including guards) Repair and maintenance (including janitorial charges) Depreciation Information technology expenses Software maintenance Hardware maintenance Depreciation Amortisation Network charges Other operating expenses Directors’ fees and allowances Fees and allowances to Shariah Board Insurance Legal and professional charges Outsourced services costs Travelling and conveyance NIFT and other clearing charges Depreciation Repair and maintenance Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement and publicity Donations Auditors remuneration Commission and brokerage Entertainment and staff refreshment Vehicle running expenses Subscriptions and publications CNIC verification charges Security charges Others 30.2 30.3 30.4 17,221,602 15,533,126 315,370 14,842 1,525,027 1,290,994 391,341 2,843,733 312,348 19,265 1,096,909 1,030,702 327,167 2,621,792 6,381,307 5,408,183 5,367 1,310,768 371,602 307,372 561,396 2,556,505 4,667 1,196,384 223,815 288,379 431,212 2,144,457 41,040 14,779 521,817 312,454 1,819,571 282,755 204,452 1,604,184 1,571,567 47,460 265,970 500,613 845,276 461,851 244,407 10,049 611,117 386,605 1,610,924 229,753 169,702 473,360 518,624 35,217 12,679 496,088 174,099 1,639,793 188,468 144,846 1,605,462 1,453,539 27,116 231,596 346,653 783,365 629,188 157,132 9,103 408,118 285,755 1,100,461 217,551 92,171 311,961 689,598 12,748,330 11,039,959 38,907,744 34,125,725 191
196. 2021 2020 (Rupees in '000) 30.1 Total compensation expense Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Charge for employees compensated absences Social security Staff indemnity 1,136,888 10,272,992 491,348 709,870 3,100,741 775,350 558,313 155,639 6,330 14,131 17,221,602 663,964 9,805,388 424,170 604,552 2,611,202 653,301 510,054 248,264 1,477 10,754 15,533,126 The compensation provided by the Bank to employees is composed of fixed pay structures and do not include any variable element that varies based on performance benchmarks or targets. 30.2 Total cost for the year included in other operating expenses relating to material outsourced activities is Rs. 38.575 million (2020: Rs. 35.885 million) paid to a company incorporated outside Pakistan. Material outsourcing arrangements are as follows: S.No. Name of material outsourced activity Name of service provider Nature of service 1. Point of Sale (POS) Acquiring M/s. Wemsol (Private) Limited 2. Vision Plus-Credit Card System M/s. Arab Financial Services (AFS) Terminal Management & Merchant On Boarding Credit Card 2021 2020 (Rupees in '000) 30.3 The detail of donations is given below: Al-Sayyeda Benevolent Trust Childlife Foundation Habib Education Trust* Habib Medical Trust Habib Poor Fund** Masoomeen Hospital Patients’ Aid Foundation Prime Minister’s Corona Philanthropy Drive Rahmatbai Habib Food and Clothing Trust Rahmatbai Habib Widows and Orphans Trust The Citizens Foundation The Health Foundation The Indus Hospital The Kidney Centre 6,000 15,000 6,000 6,000 6,000 –00 146,207 –00 6,000 6,000 6,200 1,000 40,000 –00 244,407 3,000 10,000 3,000 3,000 3,000 13,000 50,000 25,532 3,000 3,000 5,600 –00 10,000 25,000 157,132 * Mr. Qumail R. Habib, Executive Director, is Managing Trustee of Habib Education Trust. ** Mr. Murtaza H. Habib, Director, is Trustee of Habib Poor Fund. 30.4 31. Auditors’ remuneration Audit fee Half yearly review Other certifications Gratuity fund Out of pocket expenses OTHER CHARGES Penalties imposed by the State Bank of Pakistan 3,668 990 3,730 109 1,552 10,049 3,711 990 3,115 109 1,178 9,103 36,294 56,672 192
197. Note 32 . PROVISIONS AND WRITE OFFS - NET (Reversal) / provisions for diminution in value of investments - net 8.3 Provision against loans and advances - net 9.4 Provision against other assets 13.2.1 Provision against off - balance sheet items 19.1 Loss on disposal of associate Deficit on revaluation of fixed asset - net 33. (262,734 ) 207,038 613 22,486 347,077 – 314,480 1,418,204 2,989,872 825 15,853 –00 122,190 4,546,944 TAXATION Current Prior years Deferred 33.1 2021 2020 (Rupees in '000) 12,258,817 (1,425 ) (637,241 ) 11,620,151 13,319,509 5,079 (2,572,628 ) 10,751,960 Profit before taxation 30,217,136 28,709,420 Tax at the applicable rate of 35% (2020: 35%) Tax effects of: Expenses that are not deductible in determining taxable income Tax effect of super tax Others 10,575,998 10,048,297 (278,139 ) 1,253,152 69,140 11,620,151 (715,091 ) 1,351,810 66,944 10,751,960 Relationship between tax expense and accounting profit The effective tax rate for the year is 38% (2020: 37%). 2021 2020 (Rupees in '000) 34. BASIC AND DILUTED EARNINGS PER SHARE ATTRIBUTABLE TO EQUITY HOLDERS OF THE HOLDING COMPANY Profit for the year - attributable to equity holders of the Holding Company 18,583,320 17,947,732 (Number) Weighted average number of ordinary shares 1,111,425,416 1,111,425,416 (Rupees) Basic and diluted earnings per share 16.72 Note 35. 16.15 2021 2020 (Rupees in '000) CASH AND CASH EQUIVALENTS Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 5 6 16 118,599,792 6,803,572 (360,661) 105,936,009 19,681,362 (198,297) 125,042,703 125,419,074 193
198. 35 .1 Reconciliation of movement of liabilities to cash flows arising from financing activities 2021 Subordinated Lease Dividend debt liability payable (Rupees in '000) Balance as at 01 January 2021 14,989,600 10,526,139 Changes from financing cash flows Receipts / (payments) against sub-ordinated debt-net Payment against lease liability Dividend paid 1,005,600 –00 –00 –00 (2,215,854) –00 –00 –00 (4,930,117 ) Total changes from financing cash flows 1,005,600 (2,215,854) (4,930,117 ) Other changes Addition to right-of-use-assets-net Mark-up expense on lease liability against right-of-use assets Final cash dividend (Rs. 4.50 per share) Balance as at 31 December 2021 474,931 –00 2,800,550 –00 –00 –00 1,124,704 –00 –00 5,001,414 –00 3,925,254 5,001,414 15,995,200 12,235,539 546,228 2020 Subordinated Lease Dividend debt liability payable (Rupees in '000) Balance as at 01 January 2020 14,992,800 8,316,718 426,525 Changes from financing cash flows Payments against subordinated debt Payment against lease liability Dividend paid (3,200 ) –00 –00 –00 (1,972,143) –00 –00 –00 (3,841,582 ) Total changes from financing cash flows (3,200 ) (1,972,143) (3,841,582 ) Other changes Addition to right-of-use-assets Mark-up expense on lease liability against right-of-use assets Final cash dividend (Rs. 3.50 per share) Balance as at 31 December 2020 –00 3,224,658 –00 –00 –00 956,906 –00 –00 3,889,988 –00 4,181,564 3,889,988 14,989,600 10,526,139 474,931 194
199. 2021 2020 (Number) 36. STAFF STRENGTH Permanent Temporary / on contractual basis Group’s own staff at end of the year Outsourced 14,830 282 15,112 3,090 12,540 244 12,784 2,771 Total staff strength 18,202 15,555 36.1 Domestic Offshore 18,152 50 18,202 15,502 53 15,555 37. DEFINED BENEFIT PLAN 37.1 General description The Bank operates an approved gratuity fund for all its confirmed employees, which is administered by the Trustees. The benefits under the gratuity scheme are payable on retirement at the age of 60 years or on earlier cessation of service as under: Number of years of eligible service completed: Amount of gratuity payable: Less than 5 years 5 years or more but less than 10 years 10 years or more but less than 15 years 15 years or more Nil 1/3rd of basic salary for each year served 2/3rd of basic salary for each year served Full basic salary for each year served The Bank's costs and contributions are determined based on actuarial valuation carried out at each year end using Projected Unit Credit Actuarial Method. All actuarial gains and losses are recognised in 'other comprehensive income' as they occur and are not reclassified to profit and loss in subsequent periods. 37.2 Number of employees under the scheme The number of employees covered under the defined benefit scheme are 14,718 (2020: 12,459). 37.3 Principal actuarial assumptions The latest actuarial valuation of the scheme was carried out on 31 December 2021 and the significant assumptions used for actuarial valuation were as follows: 2021 Discount Rate Expected rate of return on plan assets Expected rate of salary increase : Year 1 Year 2 Mortality rates (for death in service) Rates of employee turnover 2020 11.75% 10.25% 11.03% 14.83% 10.75% 9.25% 10.75% 9.25% SLIC(2001-05)-1 SLIC(2001-05)-1 Moderate Moderate 195
200. 37 .4 Reconciliation of payable to defined benefit plan Note Present value of obligations Fair value of plan assets 2021 2020 (Rupees in '000) 5,252,581 (4,278,268 ) Payable 4,323,932 (3,640,418 ) 974,313 683,514 Obligation at the beginning of the year Current service cost Interest cost Benefits paid during the year Remeasurement loss / (gain) 4,323,932 424,622 451,993 (141,808 ) 193,842 3,590,184 369,454 450,696 (72,206 ) (14,196 ) Obligation at the end of the year 5,252,581 4,323,932 3,640,418 385,267 491,348 (141,808 ) (96,957 ) 3,116,957 395,980 424,170 (72,206 ) (224,483 ) 4,278,268 3,640,418 37.5 Movement in defined benefit obligations 37.6 Movement in fair value of plan assets Fair value at the beginning of the year Interest income on plan assets Contribution by the Bank-net Actual benefits paid during the year Remeasurement loss on plan assets 37.8.2 Fair value at the end of the year 37.7 Movement in payable under defined benefit scheme Opening balance Charge for the year Contribution by the Bank Remeasurement loss recognised in Other Comprehensive Income during the year Closing Balance 37.8.2 683,514 491,348 (491,348 ) 473,227 424,170 (424,170 ) 290,799 210,287 974,313 683,514 424,622 66,726 369,454 54,716 491,348 424,170 37.8 Charge for defined benefit plan 37.8.1 Cost recognised in profit and loss Current service cost Net interest on defined benefit liability 196
201. 2021 2020 (Rupees in '000) 37.8.2 Re-measurements recognised in OCI during the year Loss / (gain) on obligation - Financial assumptions - Experience assumptions Actuarial loss on plan assets 42,818 (47,418 ) 151,024 33,222 193,842 (14,196 ) 96,957 224,483 290,799 210,287 180,052 30,183 Government securities 4,098,214 3,610,235 Total fair value of plan assets 4,278,266 3,640,418 Total Remeasurement loss recognised in OCI 37.9 Components of plan assets Cash and cash equivalents-net 37.10 Sensitivity analysis 2021 (Rupees in '000) 1% increase in discount rate 4,767,772 1% decrease in discount rate 5,819,239 1% increase in expected rate of salary increase 5,845,452 1% decrease in expected rate of salary increase 4,738,066 2022 (Rupees in '000) 37.11 Expected contributions to be paid to the funds in the next financial year 628,504 37.12 Expected charge for the next financial year 628,504 2021 (Rupees in '000) 37.13 Maturity profile The weighted average duration of the obligation is 9.95 years. Distribution of timing of benefit payments within the next 12 months (next annual reporting period) between 1 and 5 years between 6 and 10 years 256,599 1,984,973 4,749,447 6,991,019 197
202. 37 .14 Funding Policy The Bank will fund the yearly contribution to the defined benefit plan each year, as per the amount calculated by the valuer. 37.15 Significant Risk Asset Volatility The Defined Benefit Gratuity Fund is almost entirely invested in Government Bonds with mostly fixed income bonds. Almost 32.29% of the total investments (Rs. 1,323 billion) is invested in PIB's. This gives rise to significant reinvestment risk. The remaining fund is invested in Treasury Bills. The T-Bills exposure is almost 67.71% (Rs. 2,775 billion). The asset class is volatile with reference to the yield on this class. This risk should be viewed together with change in the bond yield risk. Changes in Bond Yields There are two dimensions to the changes in bond yields: first, as described above; second, the valuation of the gratuity liability is discounted with reference to these bond yields. So any increase in bond yields will lower the gratuity liability and vice versa, but, it will also lower the asset values. Inflation Risk The salary inflation is the major risk that the gratuity fund liability carries. In a general economic sense and in a longer view, there is a case that if bond yields increase, the change in salary inflation generally offsets the gains from the decrease in discounted gratuity liability. But viewed with the fact that asset values will also decrease, the salary inflation does, as an overall affect, increases the net liability of the Bank. Life Expectancy / Withdrawal Rate The gratuity is paid off at the maximum of age 60. The Life expectancy is in almost minimal range and is quite predictable in the ages when the employee is in the accredited employment of the Bank for the purpose of the gratuity. Thus, the risk of life expectancy is almost negligible. However, had a post retirement benefit been given by the Bank like monthly pension, post retirement medical etc., this would have been a significant risk which would have been quite difficult to value even by using advance mortality improvement models. The withdrawal risk is dependent upon the: benefit structure; age and retention profile of the staff; the valuation methodology; and long-term valuation assumptions. Other Risks Though, not imminent and observable, over long term there are some risks that may be crystallise. This includes: 198
203. Model Risk The defined benefit gratuity liability is usually actuarially valued each year . Further, the assets in the gratuity fund are also marked to market. This two-tier valuation gives rise to the model risk. Retention Risk The risk that employee will not be motivated to continue the service or start working with the Bank if no market comparable retirement benefit is provided. Final Salary Risk The risk, for defined benefit gratuity, that any disproportionate salary merit increases in later service years will give rise to multiplicative increase in the gratuity liability as such increase is applicable to all the past years of service. Operational Risk related to a Separate Entity Retirement benefits are funded through a separate trust fund which is a different legal entity than the Bank. Generally, the protocols, processes and conventions used throughout the Bank are not applicable or are not actively applied to the retirement benefit funds. This gives rise to some specific operational risks. Compliance Risk The risk that retirement benefits offered by the Bank does not comply with minimum statutory requirements. Legal / Political Risk The risk that the legal / political environment changes and the Bank is required to offer additional or different retirement benefits than what the Bank projected. 38. DEFINED CONTRIBUTION PLAN The general description of the plan is included in note 4.10. Contributions made during the year : 2021 (Rupees in '000) Employer’s contribution 709,870 Employees’ contribution 709,870 The number of employees covered under the defined contribution plan are 12,343 (2020: 11,165). 199
204. 39 . COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 39.1 Total Compensation Expense 2021 Chairman Directors Executives Non(other than Executives CE) Members Shariah Board Chief Executive Key Other Risk Management Takers / Personnel Controllers (Rupees in '000) Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others 11,575 –00 –00 –00 32,670 –00 29,250 –00 –00 –00 9,628 88 80 71,333 22,793 –00 –00 389,086 1,548,808 61,981 232,694 –00 –00 –00 –00 –00 –00 10,406 2,602 –00 –00 –00 –00 –00 –00 –00 109 3,766 942 118 128 5,733 22,933 5,734 –00 –00 23,963 120,057 30,014 2,069 5,616 Total 11,575 45,678 29,250 14,779 128,606 1 1 8 5 1 Number of persons 118,783 498,649 124,662 37,065 42,039 632,786 2,602,700 39 1,057 2020 (Rupees in '000) Fees and allowances etc. Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others Total Number of persons 6,740 –00 –00 –00 33,550 –00 24,400 –00 –00 –00 8,316 255 40 66,333 29,839 –00 –00 411,328 1,401,108 98,138 270,256 –00 –00 –00 –00 3,917 –00 9,460 2,374 22 –00 –00 –00 –00 –00 –00 212 3,030 758 108 –00 4,600 18,400 5,480 –00 –00 24,236 118,692 29,673 1,770 7,065 10,657 45,406 24,400 12,679 124,692 1 1 8 3 1 94,759 402,379 100,595 30,896 25,653 690,902 2,325,646 42 879 200
205. Chief Executive , Executive Director, Members Shariah Board, Key Management Personal and Other Risk Takers / Controllers are entitled to Group's maintained cars with fuel in accordance with the terms of their employment and are entitled to medical and life insurance benefits in accordance with the policy of the Group. In addition, the Chief Executive and Executive Director are also provided with drivers, security arrangements and payment of travel bills in accordance with their terms of employment. Chairman of the Board is also entitled to Bank’s maintained cars with fuel, security guard services, payment of utility bills, club and entertainment bills, travelling bills, appropriate office, staff, and administrative support. 39.2 Remuneration paid to Directors for participation in Board and Committee Meetings 2021 Meeting Fees and Allowances Paid For Board Committees S.No. Name of Director For Board Meetings Human Resource & Risk Credit Risk Audit Remuneration Management Management Committee Committee Committee Committee IFRS 9 Committee IT Committee Total Amount Paid (Rupees in '000) 1. 2. 3. 4. 5. 6. 7. 8. 9. Mr. Abbas D. Habib Mr. Anwar Haji Karim Ms. Farhana Mowjee Khan Syed Mazhar Abbas Mr. Safar Ali Lakhani Syed Hasan Ali Bukhari Mr. Murtaza H. Habib Mr. Arshad Nasar Mr. Adnan Afridi 3,895 1,000 1,000 1,000 750 750 1,000 750 1,000 –00 1,750 –00 2,000 1,500 1,500 –00 1,500 –00 3,840 –00 1,000 1,000 –00 750 –00 750 –00 –00 750 1,000 –00 750 –00 –00 –00 1,000 –00 –00 –00 1,000 750 750 1,000 –00 –00 –00 –00 –00 –00 –00 750 –00 750 –00 3,840 –00 –00 1,000 –00 –00 –00 750 –00 11,575 3,500 3,000 6,000 3,750 4,500 2,000 4,500 2,000 11,145 8,250 7,340 3,500 3,500 1,500 5,590 40,825 201
206. 2020 Meeting Fees and Allowances Paid For Board Committees S .No. Name of Director For Board Meetings Audit Committee Human Resource & Risk Credit Risk Remuneration Management Management Committee Committee Committee IFRS 9 Committee IT Committee Total Amount Paid (Rupees in '000) 1. 2. 3. 4. 5. 6. 7. 8. 9. 39.3 Mr. Abbas D. Habib Mr. Anwar Haji Karim Ms. Farhana Mowjee Khan Syed Mazhar Abbas Mr. Safar Ali Lakhani Syed Hasan Ali Bukhari Mr. Murtaza H. Habib Mr. Arshad Nasar Mr. Adnan Afridi 2,900 900 900 900 900 900 900 900 900 –00 1,550 –00 1,400 1,550 1,550 –00 1,550 –00 1,920 –00 650 650 –00 650 –00 650 –00 –00 400 650 –00 650 –00 –00 –00 650 –00 –00 –00 650 400 650 650 –00 –00 –00 –00 –00 –00 –00 500 –00 500 –00 1,920 –00 –00 650 –00 –00 –00 650 –00 6,740 2,850 2,200 4,250 3,500 4,250 1,550 4,250 1,550 10,100 7,600 4,520 2,350 2,350 1,000 3,220 31,140 Remuneration paid to Shariah Board Members Items Chairman 2021 Resident Members Non-Resident Members Chairman 2020 Resident Member Non-Resident Member (Rupees in '000) Managerial remuneration Charge for defined benefit plan Contribution to defined contribution plan Rent and house maintenance Utilities Medical Others 4,600 –00 –00 1,840 460 36 –00 1,882 88 109 667 167 35 128 3,146 –00 –00 1,259 315 47 –00 3,400 –00 –00 1,360 340 36 –00 2,516 255 212 710 178 36 –00 2,400 –00 –00 960 240 36 –00 Total 6,936 3,076 4,767 5,136 3,907 3,636 1 2 2 1 1 1 Number of persons 202
207. 40 . FAIR VALUE MEASUREMENTS Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm's length transaction. Fair value of financial instruments is based on: Federal Government securities PKRV rates (Reuters page) Foreign securities Market prices / Mashreqbank PSC Listed securities Prices quoted at Pakistan Stock Exchange Limited Mutual funds Net asset values declared by respective funds Unlisted equity investments Break - up value as per latest available audited financial statements Fair value of fixed term advances of over one year, staff loans and fixed term deposits of over one year cannot be calculated with sufficient reliability due to non - availability of relevant active market for similar assets and liabilities. The provision for impairment of debt securities and loans and advances has been calculated in accordance with the Group's accounting policies as stated in notes 4.14 and 4.5. 40.1 Fair value of financial assets The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). There were no transfers between levels 1 and 2 during the year. 203
208. 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 : Level 1 On balance sheet financial instruments Financial assets-measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Mutual Funds 2021 Level 2 Level 3 (Rupees in '000) Total –00 3,436,075 24,909,693 –00 –00 593,082,978 –00 5,172,920 4,917,137 2,107,605 –00 –00 –00 –00 –00 593,082,978 3,436,075 30,082,613 4,917,137 2,107,605 Financial assets-disclosed but not measured at fair value Investments Federal Government Securities Non-Government Debt Securities Associates Listed Shares Mutual Funds –00 –00 00 –00 –00 179,649,767 1,822,342 –00 –00 179,649,767 1,822,342 –00 8,563,436 –00 –00 –00 8,563,436 Off-balance sheet financial instruments measured at fair value Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts –00 –00 75,147,663 58,279,177 –00 –00 75,147,663 58,279,177 2020 Level 1 Level 2 Level 3 Total On balance sheet financial instruments Financial assets-measured at fair value Investments Federal Government Securities Shares Non-Government Debt Securities Foreign Securities Mutual Funds –00 3,202,089 24,374,344 –00 –00 553,237,705 –00 2,224,940 4,767,358 2,030,957 –00 –00 –00 –00 –00 553,237,705 3,202,089 26,599,284 4,767,358 2,030,957 –00 –00 00 570,080 –00 167,023,775 1,785,063 –00 –00 167,023,775 1,785,063 –00 2,485,926 –00 –00 570,080 2,485,926 –00 –00 75,583,711 53,679,757 –00 –00 75,583,711 53,679,757 Financial assets-disclosed but not measured at fair value Investments Federal Government Securities Non-Government Debt Securities Associates Listed Shares Mutual Funds Off-balance sheet financial instruments measured at fair value Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts 40.2 Certain fixed assets and non banking assets acquired in satisfaction of claims have been carried at revalued amounts determined by professional valuer (level 3 measurement) based on their assessment of the market value. 40.3 Foreign exchange contracts are valued using exchange rates by the State Bank of Pakistan. 204
209. 41 . TRUST ACTIVITIES The Bank is not engaged in any trust activities other than holding investments of individuals and entities in its IPS account maintained with the State Bank of Pakistan. 42. 42.1 SEGMENT INFORMATION Segment Details with respect to Business Activities The segment analysis with respect to business activity is as follows: 2021 Commercial banking Retail banking Profit and loss account Mark-up / return / profit Inter segment revenue-net Non mark-up / return / interest income Total income 105,214,471 34,725 4,531,685 109,780,881 11,508,835 27,848,015 9,611,677 48,968,527 23,573 –00 169,091 192,664 555 –00 177,624 178,179 116,747,434 27,882,740 14,490,077 159,120,251 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax (66,824,241) (27,848,015) (94,672,256) (203,795) 14,904,830 (33,687,923) –00 (33,687,923) (110,685) 15,169,919 (135,942) (6,626) (142,568) –00 50,096 (57,789) (28,099) (85,888) –00 92,291 (100,705,895) (27,882,740) (128,588,635) (314,480) 30,217,136 Statement of financial position Cash and bank balances Investments Net inter segment lending Lending to financial institutions Advances-performing -non-performing Others Total assets 105,394,644 825,785,140 926,859 20,063,828 615,847,512 1,236,861 121,201,684 1,690,456,528 19,856,740 –00 743,304,470 –00 116,234,984 15,945 22,722,401 902,134,540 149,160 191,598 –00 –00 151 –00 723,145 1,064,054 2,820 125,403,364 722,053 826,698,791 –00 744,231,329 –00 20,063,828 –00 732,082,647 –00 1,252,806 60,180 144,707,410 785,053 2,594,440,175 Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others Total liabilities Equity Total equity and liabilities 301,748,893 15,995,200 504,249,382 743,304,470 50,668,147 1,615,966,092 74,490,436 1,690,456,528 –00 –00 805,485,582 –00 80,931,866 886,417,448 15,717,092 902,134,540 464,009 –00 –00 176,859 228,147 869,015 195,039 1,064,054 –00 302,212,902 –00 15,995,200 –00 1,309,734,964 750,000 744,231,329 18,335 131,846,495 768,335 2,504,020,890 16,718 90,419,285 785,053 2,594,440,175 419,856,696 8,116,659 –00 Contingencies and commitments Retail brokerage (Rupees in '000) Asset management –00 Total 427,973,355 205
210. 2020 Commercial banking Retail banking Profit and loss account Mark-up / return / profit Inter segment revenue - net Non mark-up / return / interest income Total income 107,073,105 41,661 2,983,606 110,098,372 18,189,018 29,560,092 7,305,604 55,054,714 27,341 –00 100,609 127,950 828 –00 80,698 81,526 125,290,292 29,601,753 10,470,517 165,362,562 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit / (loss) before tax (68,222,463) (29,560,092) (97,782,555) (4,511,744) 7,804,073 (34,139,807) –00 (34,139,807) (31,685) 20,883,222 (92,950) (8,251) (101,201) (3,515) 23,234 (49,225) (33,410) (82,635) –00 (1,109) (102,504,445) (29,601,753) (132,106,198) (4,546,944) 28,709,420 Statement of financial position Cash and bank balances Investments Net inter segment lending Lending to financial institutions Advances-performing -non-performing Others Total assets 107,913,875 764,423,410 935,223 2,175,301 439,227,671 858,418 102,863,677 1,418,397,575 17,221,684 –00 663,583,850 –00 69,938,597 25,576 16,333,709 767,103,416 481,329 256,289 –00 –00 132 –00 404,651 1,142,401 483 639,285 –00 –00 –00 –00 15,299 655,067 125,617,371 765,318,984 664,519,073 2,175,301 509,166,400 883,994 119,617,336 2,187,298,459 Borrowings Subordinated debt Deposits and other accounts Net inter segment borrowing Others Total liabilities Equity Total equity and liabilities 211,398,036 14,989,600 412,374,245 663,583,850 43,710,174 1,346,055,905 72,341,670 1,418,397,575 –00 –00 686,849,213 –00 72,244,009 759,093,222 8,010,194 767,103,416 229,231 –00 –00 185,223 566,352 980,806 161,595 1,142,401 –00 211,627,267 –00 14,989,600 –00 1,099,223,458 750,000 664,519,073 (25,189) 116,495,346 724,811 2,106,854,744 (69,744) 80,443,715 655,067 2,187,298,459 300,377,484 177,245 –00 Contingencies and commitments Retail brokerage (Rupees in '000) Asset management –00 Total 300,554,729 206
211. 42 .2 Segment details with respect to geographical locations Geographical Segment Analysis 2021 Pakistan Middle East Asia Pacific Africa Total (Rupees in '000) Profit and loss account Mark-up / return / profit 112,807,705 1,691,982 2,134,728 113,019 116,747,434 13,553,864 449,371 403,358 83,484 14,490,077 Total income 126,361,569 2,141,353 2,538,086 196,503 131,237,511 Segment direct expenses (98,796,677) (885,976) (931,798) (182,901) (117,829) (73,793) 60,043 (314,480) 27,381,991 1,137,548 1,532,495 165,102 30,217,136 Cash and bank balances 124,749,563 621,887 31,914 –00 125,403,364 Investments 801,030,412 14,218,541 11,449,838 –00 826,698,791 6,884,028 18,366,725 1,235,596 –00 26,486,349 20,063,828 –00 –00 –00 20,063,828 673,514,395 28,652,979 29,915,273 –00 732,082,647 1,252,806 –00 –00 –00 1,252,806 124,749,119 3,243,433 16,714,858 –00 144,707,410 1,752,244,151 65,103,565 59,347,479 –00 1,876,695,195 288,818,938 13,393,964 –00 –00 302,212,902 –00 15,995,200 Non mark-up / return / interest income Reversals / (provisions) Profit before tax (91,444) (100,705,895) Statement of financial position Net inter segment lendings Lending to financial institutions Advances - performing - non - performing Others Total assets Borrowings Subordinated debt 15,995,200 –00 –00 Deposits and other accounts 1,251,077,655 36,504,392 22,152,917 –00 1,309,734,964 Net inter segment borrowing 1,588,748 6,707,512 18,190,089 –00 26,486,349 112,439,180 3,255,029 16,152,286 –00 131,846,495 1,669,919,721 59,860,897 56,495,292 –00 1,786,275,910 82,324,430 5,242,668 2,852,187 1,752,244,151 65,103,565 59,347,479 418,518,577 8,375,380 1,079,398 Others Total liabilities Equity Total equity and liabilities Contingencies and commitments –00 90,419,285 –00 1,876,695,195 –00 427,973,355 207
212. 2020 Pakistan Middle East Asia Pacific Africa Total (Rupees in '000) Profit and loss account Mark-up / return / profit 122,518,705 1,268,780 1,372,606 130,201 125,290,292 9,901,447 388,209 181,411 (550) 10,470,517 Total income 132,420,152 1,656,989 1,554,017 129,651 135,760,809 Segment direct expenses (100,716,671) (794,621) (887,256) (105,897) (102,504,445) Provisions (3,426,100) (576,013) (528,892) (15,939) (4,546,944) Profit before tax 28,277,381 286,355 137,869 7,815 28,709,420 Cash and bank balances 125,405,972 160,218 47,955 3,226 125,617,371 Investments 745,583,792 10,132,651 7,503,288 2,099,253 765,318,984 Net inter segment lendings 4,489,540 7,006,181 829,541 2,552 12,327,814 Lending to financial institutions 2,175,301 –00 –00 –00 2,175,301 474,418,055 18,747,396 15,967,837 33,112 509,166,400 834,792 49,202 –00 –00 883,994 99,121,690 2,462,635 17,992,718 40,293 119,617,336 Total assets 1,452,029,142 38,558,283 42,341,339 Borrowings 211,627,267 –00 –00 –00 211,627,267 14,989,600 –00 –00 –00 14,989,600 Deposits and other accounts 1,048,827,367 27,167,746 23,137,597 Net inter segment borrowing 5,143,103 5,307,456 394,791 1,482,464 12,327,814 96,314,571 2,363,473 17,805,707 11,595 116,495,346 1,376,901,908 34,838,675 41,338,095 75,127,234 3,719,608 1,003,244 1,452,029,142 38,558,283 42,341,339 294,581,495 5,157,900 815,334 Non mark-up / return / interest income Statement of financial position Advances-performing -non-performing Others Subordinated debt Others Total liabilities Equity Total equity and liabilities Contingencies and commitments 43. 2,178,436 1,535,107,200 90,748 1,099,223,458 1,584,807 1,454,663,485 593,629 80,443,715 2,178,436 1,535,107,200 –00 300,554,729 RELATED PARTY TRANSACTIONS Related parties of the Group comprise associates, directors, key management personnel and other related parties. Transactions with related parties of the Group are carried out on arm's length basis in terms of the policy as approved by the Board of Directors. The transactions with employees of the Group are carried out in accordance with the terms of their employment. 208
213. Transactions with related parties , other than those disclosed in note 10.5, 20.3 and 39 are summarised as follows: Directors Investments Opening balance Investment made during the year Investment adjusted / redeemed / disposed off during the year Surplus / (deficit) on revaluation Closing balance Advances Opening balance Addition during the year Repaid during the year Closing balance Key management personnel 2021 Associates 2020 Other related Directors parties (Rupees in '000) Key Management personnel Associates Other related parties –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 3,058,005 5,986,178 (480,745 ) –00 8,563,438 –00 182,690 –00 123,308 305,998 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 1,472,165 1,609,946 (24,106) –00 3,058,005 –00 –00 –00 –00 –00 332 76,666 (75,378) 1,620 171,544 235,679 (211,741) 195,482 –00 –00 –00 –00 2,217,749 57,968,205 (57,768,669 ) 2,417,285 1,487 35,349 (36,504 ) 332 76,626 333,923 (239,005) 171,544 –00 –00 –00 –00 3,015,256 56,387,053 (57,184,560) 2,217,749 –00 –00 –00 786 –00 –00 –00 3,931 –00 –00 –00 120 –00 –00 –00 –00 118 –00 –00 –00 –00 –00 –00 118 –00 –00 –00 –00 –00 1,289 1,090,910 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 75,000 (75,000 ) –00 44,000 –00 –00 44,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 44,000 –00 –00 –00 1,072,684 6,376,086 (6,678,852) 769,918 720,918 3,125,505 (3,071,987) 774,436 739,762 83,337,951 (84,018,330 ) 59,383 3,619,310 63,034,965 (59,718,023 ) 6,936,252 955,078 6,891,056 (6,773,450 ) 1,072,684 624,163 3,205,958 (3,109,203) 720,918 1,289,465 147,123,023 (147,672,726) 739,762 2,761,222 50,717,883 (49,859,795) 3,619,310 404 –00 –00 –00 –00 1,327 –00 –00 –00 2 725 –00 –00 –00 –00 30,043 974,312 –00 –00 –00 305 –00 –00 –00 –00 508 –00 –00 –00 4 2,359 –00 –00 –00 –00 14,567 683,514 1,090,910 922 –00 Contingencies and commitments Other transactions - Investor Portfolio Securities Opening balance Increased during the year Decreased during the year –00 –00 –00 918,205 –00 –00 –00 2,022,871 –00 –00 –00 –00 –00 –00 –00 –00 –00 6,120,840 7,725,000 (9,054,040 ) –00 –00 –00 –00 –00 –00 –00 –00 –00 4,986,840 3,562,000 (2,428,000) Closing balance –00 –00 –00 4,791,800 –00 –00 –00 6,120,840 Operating fixed assets Right of use Other assets Interest / mark - up accrued L/C acceptances Other receivable Subordinated debt Opening balance Issued / purchased during the year Redemption / sold during the year Closing balance Deposits and other accounts Opening balance Received during the year Withdrawn during the year Closing balance Other liabilities Interest / mark - up payable Payable to staff retirement fund L/C acceptances Unrealised loss on forward exchange contracts Other liabilities 209
214. 43 .1 RELATED PARTY TRANSACTIONS 2021 Directors Key 2020 Associates management Other related Directors Key parties Associates Management personnel Other related parties personnel (Rupees in '000) Income Mark-up / return / interest earned Fee and commission income –00 10,175 –00 110,324 5 6,479 –00 203,818 39 225 131,076 13,622 21 65 85 14,534 Net gain / (loss) on sale / redemption of –00 –00 –00 –00 –00 –00 –00 5,442 Share of profit from associates –00 –00 372,034 –00 –00 –00 114,337 –00 Other income –00 –00 30 406 –00 –00 50 372 58,576 48,425 38,763 245,699 79,997 58,180 251,681 255,463 securities and units of mutual funds Expense Mark-up / return / interest expensed Operating expenses –00 –00 –00 4,528 –00 –00 –00 5,491 Salaries and allowances –00 661,727 –00 –00 –00 563,507 –00 –00 Bonus –00 101,732 –00 –00 –00 154,824 –00 –00 Contribution to defined contribution plan –00 30,234 –00 –00 –00 25,533 –00 –00 Contribution to defined benefit plan –00 82,334 –00 –00 –00 76,250 –00 –00 Staff provident fund –00 –00 –00 709,870 –00 –00 –00 604,551 Staff gratuity fund –00 –00 –00 491,348 –00 –00 –00 424,170 Directors’ fees 38,825 –00 –00 –00 33,487 –00 –00 –00 Donation –00 –00 –00 12,000 –00 –00 –00 6,000 Insurance premium paid –00 –00 –00 142,646 –00 –00 –00 133,786 Insurance claims settled –00 –00 –00 78,101 –00 –00 –00 41,925 210
215. 44 . CAPITAL ADEQUACY, LEVERAGE RATIO AND LIQUIDITY REQUIREMENTS 2021 2020 (Rupees in '000) Minimum Capital Requirement (MCR): Paid-up capital 11,114,254 11,114,254 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital 80,838,923 6,237,950 67,350,151 6,658,103 Total Eligible Tier 1 Capital Eligible Tier 2 Capital 87,076,873 25,758,263 74,008,254 24,026,053 Total Eligible Capital (Tier 1 + Tier 2) 112,835,136 98,034,307 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 701,423,647 17,154,366 118,070,472 537,583,556 10,243,551 98,014,443 Total 836,648,485 645,841,550 9.662% 10.428% Tier 1 Capital Adequacy Ratio 10.408% 11.459% Total Capital Adequacy Ratio 13.487% 15.179% Capital Adequacy Ratio (CAR): Common Equity Tier 1 Capital Adequacy Ratio Minimum Capital Requirement (MCR) The MCR standard sets the paid-up capital that the Bank is required to hold at all times. As of the statement of financial position date, the Bank's paid - up capital stands at Rs. 11.114 billion as against the required MCR of Rs. 10 billion. Minimum Capital Adequacy Ratio (CAR) The CAR on the basis of above framework works out to be as follows: 2021 2020 Required CAR 11.500% 11.500% CAR on Bank level 13.485% 15.094% CAR on Group level 13.487% 15.179% The Bank calculates capital requirement as per Basel III regulatory framework, using the following approaches: Credit Risk Market Risk Operational Risk Standardised Approach Standardised Approach Basic Indicator Approach 211
216. 2021 2020 (Rupees in '000) Leverage Ratio (LR): Eligible Tier 1 Capital Total Exposures Leverage Ratio Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding Net Stable Funding Ratio 87,076,873 2,334,597,071 74,008,254 1,853,426,344 3.730% 3.993% 631,444,235 244,934,742 490,289,815 187,165,770 257.801% 261.955% 1,379,398,079 827,532,194 999,664,575 703,064,108 166.688% 142.187% 44.1 The full disclosures on the CAPITAL ADEQUACY, LEVERAGE RATIO AND LIQUIDITY REQUIREMENTS as per SBP instructions issued from time to time have been placed on the website. The link to the full disclosure is available at https://www.bankalhabib.com/capitaladequacy/leverage/liquidityratio-grouplevel2021. 45. RISK MANAGEMENT The Bank has a risk management framework commensurate with its size and the nature of its business. The Board of Directors has approved risk management policies covering key areas of activities for the guidance of management and committees of the Board, management committees, and Divisions / Departments of the Bank. This section presents information about the Bank’s exposure to and its management and control of risks, in particular the primary risks associated with its use of financial instruments. 45.1 Credit Risk Credit risk is the risk of loss arising from failure by a client or counterparty to meet its contractual obligation. It emanates from loans and advances, commitments to lend, contingent liabilities such as letters of credit and guarantees, and other similar transactions both on and off balance sheet. These exclude investments and treasury - related exposures, which are covered under market risk. It is the Bank’s policy that all credit exposures shall be adequately collateralised, except when specially exempted by SBP as in case of personal loans and credit cards, and those at overseas branches where the accepted local banking practice is followed. The objective of credit risk management is to keep credit risk exposure within permissible level, relevant to the Bank’s risk capital, to maintain the soundness of assets and to ensure returns commensurate with risk. Credit risk of the Bank is managed through the credit policy approved by the Board, a well defined credit approval mechanism, prescribed documentation requirement, post disbursement administration, review and monitoring of all credit facilities; and continuous assessment of credit worthiness of counterparties. Decisions regarding the credit portfolio are taken mainly by the Central Credit Committee. Credit Risk Management Committee of the Board provides overall guidance in managing the Bank's credit risk. Counterparty exposure limits are approved in line with the Prudential Regulations and the Bank's own policies, by taking into account both qualitative and quantitative criteria. There is an established system for continuous monitoring of credit exposures and follow - up of any past due loans with the respective business units. All past due loans, including trade bills, are reviewed on fortnightly basis and pursued for recovery. Any non - performing loans are classified and provided for as per Prudential Regulations. The Bank has also established a mechanism for independent post - disbursement review of large credit risk exposures. 212
217. Credit facilities , both fund based and non - fund based, extended to large customer groups and industrial sectors are regularly monitored. The Bank has concentration of credit in textile which is the largest sector of Pakistan's economy. Concentration risk is managed by diversification within sub - sectors like spinning, weaving and composites, credit worthiness of counterparties, and adequate collateralisation of exposures. Credit administration function has been placed under a centralised set - up. Its main focus is on compliance with terms of sanction of credit facilities and the Bank’s internal policies and procedures, scrutiny of documentation, monitoring of collateral, and maintenance of borrowers’ limits, mark - up rates, and security details. The Bank has implemented its own internal risk rating system for the credit portfolio, as per guidelines of SBP. Credit ratings by external rating agencies, if available, are also considered. The Bank lends primarily against the cash flow of the business with recourse to the assets being financed as primary security. Collaterals in the form of liquid securities, tangible securities, and other acceptable securities are obtained to hedge the risk, as deemed appropriate. Main types of collaterals taken by the Bank include charge on stock - in - trade, receivables, machinery, mortgage of properties, pledge of goods, shares and other marketable securities, government securities, government guarantees, bank guarantees and cash margins and bank deposits. Specific provisions on credit portfolio are determined in accordance with the Prudential Regulations. General provision on the consumer and SEs portfolios is also determined as per Prudential Regulations. The Bank maintains additional general provision in line with its prudent policies and as per IFRS 9 for overseas branches. Particulars of provisions against advances are given in note 9.4. The Bank uses the Standardised Approach to calculate capital charge for credit risk as per Basel regulatory framework, with comprehensive approach for credit risk mitigation. Stress testing for credit risk is carried out regularly to estimate the impact of increase in non - performing loans and downward shift in these categories. 45.1.1 Lendings to financial institutions Credit risk by public / private sector Public / Government Private Gross lendings 2021 2020 Non-performing lendings 2021 2020 (Rupees in '000) Provision held 2021 2020 –00 20,063,828 2,175,301 –00 –00 –00 –00 –00 –00 –00 –00 –00 20,063,828 2,175,301 –00 –00 –00 –00 45.1.2 Investment in debt securities Credit risk by industry sector Power (electricity), gas, water, sanitary Financial Iron and steel Oil refinery / marketing Credit risk by public / private sector Public / Government Private Gross investments 2021 2020 Non-performing investments 2021 2020 (Rupees in '000) Provision held 2021 2020 26,966,592 25,442,218 786,566,327 728,504,089 1,000,000 1,000,000 1,250,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 1,350,723 –00 –00 –00 1,394,948 –00 –00 815,782,919 754,946,307 –00 –00 1,350,723 1,394,948 776,931,233 719,700,403 38,851,686 35,245,904 –00 –00 –00 –00 325,807 1,024,916 357,615 1,037,333 815,782,919 754,946,307 –00 –00 1,350,723 1,394,948 213
218. 45 .1.3 Advances Gross advances Credit risk by industry sector Agriculture, forestry, hunting and fishing Mining and quarrying Textile Chemical and pharmaceuticals Cement Sugar Footwear and leather garments Automobile and transportation equipment Electronics and electrical appliances Construction Power (electricity), gas, water, sanitary Wholesale and retail trade Transport, storage and communication Financial Insurance Services (other than financial services) Individuals Food and allied Iron and steel Oil refinery / marketing Paper and board Plastic products Others 2021 Non-performing advances 2020 2021 2020 (Rupees in '000) Provision held 2021 2020 18,197,880 11,982,018 135,313 86,946 237,019,393 163,702,549 19,082,769 16,796,308 6,833,811 8,847,702 10,984,011 6,952,458 4,077,672 3,608,526 8,083,375 3,726,079 5,885,392 5,323,013 23,288,386 7,802,038 47,024,486 48,335,823 114,747,695 79,543,240 11,242,380 10,543,770 13,050,767 10,402,567 294,275 475,167 16,786,483 14,524,500 42,210,796 23,863,779 90,055,992 62,311,964 39,040,954 23,895,854 2,634,814 2,005,943 5,671,358 2,662,909 9,075,520 6,388,435 21,002,242 8,911,593 305,781 –00 1,690,844 5,791 –00 –00 –00 826 247,814 302,504 –00 1,340,453 63,990 101,949 61,180 45,762 83,610 17,432 1,066,177 –00 7,431 385,843 2,019,548 300,284 –00 1,824,246 5,891 –00 –00 –00 –00 –00 194,339 155,883 1,494,236 70,175 101,949 128,426 112,896 90,956 43,773 992,229 354,082 3,098 54,253 1,454,757 242,351 –00 1,671,265 4,397 –00 –00 –00 103 61,953 177,501 –00 1,291,922 35,823 84,845 61,180 125 67,353 17,432 1,066,177 –00 3,132 137,866 1,570,704 149,088 –00 1,753,709 4,423 –00 –00 –00 –00 –00 192,103 100,810 1,361,415 27,853 86,587 31,108 33,502 63,427 27,353 992,229 178,367 3,098 54,253 1,438,154 746,425,764 522,693,181 7,746,935 7,381,473 6,494,129 6,497,479 58,448,122 55,368,812 687,977,642 467,324,369 –00 7,746,935 –00 7,381,473 –00 6,494,129 –00 6,497,479 746,425,764 522,693,181 7,746,935 7,381,473 6,494,129 6,497,479 Credit risk by public / private sector Public / Government Private 214
219. 45 .1.4 Contingencies and Commitments Credit risk by industry sector 2021 2020 (Rupees in '000) Agriculture, forestry, hunting and fishing Mining and quarrying Textile Chemical and pharmaceuticals Cement Sugar Footwear and leather garments Automobile and transportation equipment Electronics and electrical appliances Construction Power (electricity), gas, water, sanitary Wholesale and retail trade Transport, storage and communication Financial Insurance Services (other than financial services) Individuals Food and allied Iron and steel Oil refinery / marketing Paper and board Plastic products Others 1,815,024 209 91,451,426 16,097,626 3,680,905 1,194,779 2,939,561 22,228,569 7,250,575 10,708,668 20,026,883 68,530,385 1,454,475 17,959,726 120,470 51,058,164 8,116,659 40,727,640 17,817,723 6,978,651 8,964,522 17,609,850 11,240,865 1,201,754 –00 60,886,061 10,560,544 1,681,965 445,917 2,400,625 18,054,588 5,306,142 8,396,568 8,008,957 52,552,907 415,645 12,384,053 26,841 41,166,805 177,245 36,490,464 16,689,629 3,016,513 2,129,946 11,584,210 6,977,350 427,973,355 300,554,729 66,085,881 361,887,474 41,435,912 259,118,817 427,973,355 300,554,729 Credit risk by public / private sector Public / Government Private 45.1.5 Concentration of Advances The Bank’s top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs. 203,461 million (2020: Rs. 150,619 million) are as following: 2021 2020 (Rupees in '000) Funded Non Funded Total Exposure 99,235,533 104,225,085 203,460,618 87,140,927 63,477,948 150,618,875 The sanctioned limits against these top 10 exposures aggregated to Rs. 226,451 million (2020: Rs. 179,596 million). Provision against top 10 exposures amounts to be Nil (2020: Nil). 215
220. 45 .1.6 Advances - Province / Region-wise Disbursement and Utilization 2021 Disbursements Utilization Province / Region Punjab Sindh KPK including FATA (Rupees in '000) Balochistan AJK including GilgitIslamabad Baltistan Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan 278,555,414 297,374,464 6,658,000 1,287,778 44,360,457 910,260 274,912,036 2,156,339 –0 –0 9,005 –0 452,150 293,052,373 1,296 207,440 20,103 242 93,962 1,654,607 6,299,401 –0 133,925 6,119 40,394 511,145 –0 1,080,338 –0 –0 3,007,506 –0 357,303 –0 44,197,424 52,723 49,366 –0 –0 –0 –0 851,176 Total 629,146,373 277,077,380 293,733,604 8,188,014 1,631,877 47,614,956 900,542 2020 Disbursements Utilization Province / Region Punjab Sindh KPK including FATA (Rupees in '000) Balochistan AJK including GilgitIslamabad Baltistan Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan 201,150,395 210,692,996 4,547,764 828,144 35,398,979 639,146 199,695,718 2,259,607 6,476 –0 34,931 392 202,288 206,820,742 10,079 106,412 16,888 –0 222,110 1,066,542 4,232,515 –0 15,497 2,692 33,345 543,154 5,053 721,732 –0 –0 980,461 2,830 293,641 –0 35,331,663 25,064 16,473 121 –0 –0 –0 610,998 Total 453,257,424 201,997,124 207,156,409 5,539,356 1,303,284 36,633,659 627,592 45.2 Market Risk Market risk is the risk of loss arising from movements in market rates or prices, such as interest rates, foreign exchange rates, and equity prices. The Bank takes positions in securities for the purpose of investment and not to run a trading book, except to a very limited extent (maximum of Rs. 300 million) for trading in equities. As regards foreign exchange positions, the purpose is to serve the needs of clients. Except as aforesaid, the Bank does not engage in trading or market making activities. Market risk is managed through the market risk policy approved by the Board, approval of counterparty and dealer limits, specific senior management approval for each investment and regular review and monitoring of the investment portfolio by the Asset Liability Management Committee (ALCO). A key element of the Bank’s market risk management is to balance safety, liquidity, and income in that order of priority. Another key element is separation of functions and reporting lines for the Treasury Division and Equity Market Department, which undertake dealing activities within the limits and parameters set by ALCO, Settlements Department which confirms and settles the aforesaid deals, and Middle Office which independently monitors and analyses the risks inherent in treasury operations. Risk Management Committee of the Board provides overall guidance in managing the Bank’s market risk. Dealing activities of the Bank include investment in government securities, term finance certificates, sukuks / bonds, shares and mutual funds, money market transactions and foreign exchange transactions catering to the needs of its customers. All such activities are carried out within the prescribed limits. Any excess over limits noted by the Settlements Department and / or the Middle Office is reported to senior management and ALCO. Stress testing is performed as per guidelines of SBP as well as Bank's internal policy. Portfolio risks arising in banking book is also measured through Value at Risk (VAR). 216
221. 45 .2.1 Balance sheet split by trading and banking books 2021 Trading book Banking book Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Banking Total book (Rupees in '000) 2020 Trading book Total 118,599,792 6,803,572 20,063,828 826,566,921 733,335,453 55,701,205 354,580 2,103,393 86,548,232 –00 –00 –00 131,870 –00 –00 –00 –00 –00 118,599,792 6,803,572 20,063,828 826,698,791 733,335,453 55,701,205 354,580 2,103,393 86,548,232 105,936,009 19,681,362 2,175,301 765,222,435 510,050,394 43,976,664 294,862 –00 75,345,810 –00 –00 –00 96,549 –00 –00 –00 –00 –00 105,936,009 19,681,362 2,175,301 765,318,984 510,050,394 43,976,664 294,862 –00 75,345,810 1,850,076,976 131,870 1,850,208,846 1,522,682,837 96,549 1,522,779,386 45.2.2 Foreign Exchange Risk Foreign exchange risk is the risk of loss from adverse changes in currency exchange rates. The Bank’s foreign exchange exposure comprises forward contracts, purchase of foreign bills, foreign currency loans and investments, foreign currency cash in hand, balances with banks abroad, foreign currency deposits and foreign currency placements with SBP and other banks. Focus of the Bank’s foreign exchange activities is on catering to the needs of its customers, both in spot and forward markets. Foreign exchange risk exposures of the Bank are controlled through dealer limits, open foreign exchange position limits, counterparty exposure limits, and country limits. The Bank manages its foreign exchange exposure by matching foreign currency assets and liabilities within strict limits. The net open position in any single currency and the overall foreign exchange exposure are both managed within the statutory limits as prescribed by SBP as well as the internal limits set by the Bank itself. Stress testing for foreign exchange risk is carried out regularly to estimate the impact of adverse changes in foreign exchange rates. 2021 Foreign currency assets Foreign currency liabilities Off-balance sheet items Net foreign currency exposure (Rupees in '000) United States Dollar Great Britain Pound Japanese Yen Euro Other currencies 182,442,901 1,652,971 6,782 4,231,547 945,356 189,279,557 177,522,831 12,805,309 363,092 6,846,326 534,954 198,072,512 4,779,180 7,489,831 357,519 1,842,032 (694,227) 13,774,335 9,699,250 (3,662,507) 1,209 (772,747) (283,825) 4,981,380 217
224. 45 .2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Effective Yield / Interest Rate Total Upto 1 month Over 1 to 3 months 2021 Exposed to Yield / Interest risk Over 3 Over 6 Over 1 Over 2 to 6 months to 1 to 2 to 3 months year years years Over 3 to 5 years Over 5 to 10 years Above 10 years Non interest bearing financial instruments (Rupees in '000) On - balance sheet financial instruments Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets –00 118,599,792 8,475,580 –00 –00 –00 –00 0.46% 6,803,572 4,422,018 –00 –00 –00 –00 10.60% 20,063,828 20,063,828 –00 –00 –00 –00 9.93% 826,698,791 150,455,926 95,743,329 314,733,737 79,111,216 9102,834,923 7.21% 733,335,453 401,011,438 117,203,589 91,802,874 29,547,069 16,295,821 –00 83,985,167 –00 –00 –00 –00 –00 1,789,486,603 584,428,790 212,946,918 406,536,611 108,658,285 119,130,744 –00 –00 –00 38,705,182 22,354,796 –00 61,059,978 –00 –00 –00 9,681,128 20,069,057 –00 29,750,185 –00 –00 –00 21,200,587 25,864,446 00–00 47,065,033 –00 110,124,212 –00 2,381,554 –00 –00 –00 14,232,763 9,176,575 9,788 –00 83,985,167 9,176,575 210,733,484 –00 29,803,755 –00 4.97% 302,212,902 130,540,002 7.15% 1,309,734,964 635,259,609 11.54% 15,995,200 –00 –00 76,248,048 –00 Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Other liabilities On - balance sheet gap –00 55,284,225 42,492,322 5,000,000 –00 –00 32,529,294 26,302,731 10,995,200 –00 –00 11,403,231 51,151,535 –00 –00 –00 9,542,625 2,894,746 –00 –00 –00 10,585,069 12,103,107 –00 –00 –00 19,745,203 3,309,696 –00 –00 –00 32,324,292 16,099 –00 –00 –00 29,803,755 258,961 –00 10,893 536,194,226 –00 –00 –00 76,248,048 1,733,994,869 765,799,611 102,776,547 69,827,225 62,554,766 12,437,371 22,688,176 23,054,899 32,340,391 269,854 642,246,029 46,103,519 106,693,373 38,371,802 6,695,286 14,724,642 8,906,721 (431,512,545 ) 55,491,734 (181,370,821 ) 110,170,371 336,709,386 Off - balance sheet financial instruments Documentary credits and short term trade related transactions 301,891,236 34,172,931 34,369,615 4,102,708 –00 –00 –00 –00 Commitments in respect of: Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts Forward commitments to extend credit 72,497,648 11,062,507 26,511,686 23,742,935 11,087,455 (58,723,317) (11,276,267) (30,040,434) (14,937,676) (2,468,940) 4,717,424 857,164 1,456,170 809,660 1,594,430 93,065 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 Off - balance sheet gap 18,491,755 93,065 –00 –00 –00 –00 –00 90,489,395 141,156,053 42,474,510 6,695,286 14,724,642 81,149,692 107,059,657 643,404 (2,072,578 ) 41,036,633 9,614,919 10,212,945 Total Yield / Interest Risk Sensitivity Gap (99,577,725 ) 215,157,450 387,360,938 8,906,721 (431,512,545 ) Cumulative Yield / Interest Risk Sensitivity Gap (99,577,725 ) 115,579,725 502,940,663 593,430,058 734,586,111 777,060,621 783,755,907 798,480,549 807,387,270 375,874,725 220
225. Effective Yield / Interest Rate Total Upto 1 month Over 1 to 3 months 2020 Exposed to Yield / Interest risk Over 3 Over 6 Over 1 Over 2 to 6 months to 1 to 2 to 3 months year years years Over 3 to 5 years Over 5 to 10 years Above 10 years Non interest bearing financial instruments (Rupees in '000) On - balance sheet financial instruments Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets –00 0.05% 8.98% 9.30% 6.60% –00 105,936,009 19,681,362 2,175,301 765,318,984 510,050,394 73,221,559 1,476,383,609 7,279,936 –00 –00 –00 –00 –00 –00 –00 17,676,967 –00 –00 –00 –00 –00 –00 –00 2,175,301 –00 –00 –00 –00 –00 –00 –00 72,567,393 75,117,948 300,591,571 125,011,937 90,618,012 29,215,595 44,162,033 19,599,391 275,724,271 100,524,346 54,004,723 23,795,801 14,468,084 10,164,684 12,231,329 12,759,516 –00 –00 –00 –00 –00 –00 –00 00–00 375,423,868 175,642,294 354,596,294 148,807,738 105,086,096 39,380,279 56,393,362 32,358,907 –00 4.21% 5.66% 8.50% –00 31,013,221 –00 –00 –00 –00 –00 211,627,267 145,763,098 4,863,416 10,624,222 6,040,892 12,927,163 1,099,223,458 548,778,671 35,539,084 24,076,408 48,951,961 6,657,497 14,989,600 –00 3,992,800 10,996,800 –00 –00 67,908,941 –00 –00 –00 –00 –00 1,424,762,487 694,541,769 44,395,300 45,697,430 54,992,853 19,584,660 –00 98,656,073 –00 2,004,395 –00 –00 –00 8,435,104 6,371,366 6,274 –00 73,221,559 6,371,366 182,323,405 Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Other liabilities On - balance sheet gap –00 –00 –00 5,891,219 10,195,980 14,808,462 2,446,852 13,835,518 22,127 –00 –00 –00 –00 –00 –00 8,338,071 24,031,498 14,830,589 51,621,122 (319,117,901 ) 131,246,994 308,898,864 93,814,885 85,501,436 31,042,208 32,361,864 17,528,318 –00 512,815 12,532 –00 –00 525,347 31,013,221 –00 418,902,808 –00 67,908,941 517,824,970 5,846,019 (335,501,565 ) Off - balance sheet financial instruments Documentary credits and short term trade related transactions 207,740,057 133,608,804 51,510,174 11,122,373 11,498,706 –00 –00 –00 –00 –00 –00 Commitments in respect of: Forward purchase of foreign exchange contracts Forward sale of foreign exchange contracts Forward commitments to extend credit 75,472,905 19,581,701 29,570,273 17,076,813 9,244,118 (53,350,232) (32,391,396) (17,028,027) (2,914,889) (1,015,920) 7,124,914 483,281 4,729,763 242,759 1,669,111 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 Off - balance sheet gap 29,247,587 (12,326,414 ) 17,272,009 14,404,683 –00 –00 –00 –00 –00 –00 9,897,309 Total Yield / Interest Risk Sensitivity Gap (197,835,511 ) 200,029,177 334,425,920 115,210,900 85,501,436 31,042,208 32,361,864 17,528,318 Cumulative Yield / Interest Risk Sensitivity Gap (197,835,511 ) 5,846,019 (335,501,565 ) 2,193,666 336,619,586 451,830,486 537,331,922 568,374,130 600,735,994 618,264,312 624,110,331 288,608,766 221
226. 45 .2.5.1 Reconciliation of Financial Assets and Liabilities 2021 2020 (Rupees in '000) Assets as per statement of financial position 1,850,208,846 1,522,779,386 55,701,205 354,580 2,103,393 43,976,664 294,862 –00 1,176,105 950,942 436,018 776,481 954,077 393,693 2,563,065 2,124,251 Interest Rate Sensitive Assets 1,789,486,603 1,476,383,609 Liabilities as per statement of financial position 1,759,789,561 1,442,335,671 –00 139,836 1,127,704 5,764,199 3,048,747 173,319 1,416,819 12,235,539 2,028,365 974,095 2,639,104 2,425,132 146,692 304,009 10,526,139 418,177 25,794,692 17,433,348 1,733,994,869 1,424,762,487 Less: Fixed assets Intangible assets Deferred tax assets Advances, deposits, advance rent and other prepayments Non-banking assets acquired against claims Stationery and stamps on hand Less: Deferred tax liabilities Provision for compensated absences Branch adjustment account Unearned commission income Workers’ welfare fund Provision against off - balance sheet obligations Lease liability against right-of-use assets Current taxation (payments less provisions) Interest Rate Sensitive Liabilities 45.3 Operational Risk Operational risk is the risk of loss resulting from in adequate or failed internal processes, people, and systems or from external events. This definition includes legal risk but excludes strategic and reputational risks. Bank classifies operational loss / near miss incidents into seven loss incidents types, which are Internal Fraud, External Fraud, Employment Practice & Workplace Safety, Client, Product & Business Practice, Damage to Physical Assets, Business Disruption & System Failure, and Execution, Delivery & Process Management. Operational risk is managed through the Operational Risk Policy, Audit Policy, Compliance Policy & Programme, Information Technology (I.T.) Policy, I.T. Governance Framework, I.T. Security Policy, Human Resource Policy, Consumer Protection Framework, KYC / CDD Policy, AML / CFT Policy, Fraud Prevention Policy, Consumer Grievance Handling Policy and Outsourcing Policy approved by the Board, along with the operational manuals and procedures issued from time to time; system of internal controls; Business Continuity Plan, Disaster Recovery Plan for I.T.; and regular audit of the branches and divisions. Operational risk related matters are discussed in the operations committee, compliance committee of management and I.T. steering committee. Audit Committee of the Board provides overall guidance in managing the Bank’s operational risk. The Bank’s operational risk management framework, as laid down in the operational risk policy, permits the overall risk management approach to evolve in the light of organisational learning and the future needs of the Bank. The Bank places a high priority on conducting all business dealings with integrity and fairness, as laid down in the Code of Conduct, which is required to be complied with by all employees. 222
227. Internal controls are an essential feature of risk reduction in operational risk management and the Bank continues to improve its internal controls . Business Continuity Plan of the Bank pays special attention to identification of potential threats and associated risks in critical business processes by carrying out Business Impact Analysis and Risk Assessment including those which are dependent on external vendors or third parties, identification of alternative mechanisms for timely resumption of services, with special focus on critical business processes, location of off-site backup & regular review and testing of the plan. Bank has devised and implemented IT Project Management and IT Risk Management Frameworks. Bank is also CMMI Maturity (Level - 3) certified. Bank AL Habib’s website for Conventional and Islamic banking has been revamped with dynamic features. Furthermore, OBDX (Oracle Banking Digital Experience) web and mobile application have been commercially launched. Bank has taken various measures to strengthen I.T. Security, which includes implementation of Cyber Security Strategy and Action Plan, Vulnerability Management Program, virtual patching and database activity monitoring solution on critical systems, 24/7 Security Operation centre (SOC), regular Internal and external penetration testing of applications, anti malware and antivirus security solution, subscription to I.T. security threat intelligence service and recertification of controls as per SWIFT customer Security Program. 45.3.1 Operational Risk-Disclosures Basel II Specific The Bank uses Basic Indicator Approach to calculate capital charge for operational risk as per Basel regulatory framework. This approach is considered to be most suitable in view of the business model of the Bank which relies on an extensive network of branches to offer one - stop, full – service banking to its clients. The Bank has developed and implemented an Operational Loss Database. Operational loss and "near miss" events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve security and control procedures. Key Risk Indicators have also been developed along with thresholds which are being closely monitored for breaches. Risk Evaluation exercise is carried out for new products, processes and systems or any significant change in the existing product, processes and systems as per the operational risk policy of the Bank. 45.4 Liquidity Risk Liquidity risk is the risk of loss to a bank arising from its inability to meet obligations as they fall due or to fund growth in assets, without incurring unacceptable cost or losses. Key elements of the Bank’s liquidity risk management are as follows: - To maintain a comfortable margin of excess liquidity in the form of cash and readily marketable assets to meet the Bank’s funding requirements at any time. - To keep a strong focus on mobilization of low-cost core deposits from customers. - To maintain a realistic balance between the behavioral maturity profiles of assets and liabilities. - To maintain excellent credit rating (as borrowing cost and ability to raise funds are directly affected by credit rating). - To have a written contingency funding plan to address any hypothetical situations when access to normal sources of funding is constrained. 45.4.1 Liquidity Coverage Ratio SBP issued BPRD Circular No. 08 dated June 23, 2016 advising implementation of Basel III liquidity standards that constitute two ratios, i.e., Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR), and five monitoring tools. LCR is the measure of conversion capability of the Bank’s High Quality Liquid Assets (HQLAs) into cash to meet immediate liquidity requirements over a 30 days horizon. The Bank calculates Liquidity Coverage Ratio (LCR) on monthly basis as per the guidelines given in the above mentioned circular. The objective of LCR is to ensure the short-term resilience of the liquidity risk profile which requires the Bank to maintain sufficient High Quality Liquid Assets (HQLAs) to meet stressed cash outflows over a prospective 30 calendar - days period. As of 31 December 2021, the Bank’s LCR stood at 251% against the SBP’s minimum requirement of 100%. 223
228. 45 .4.2 Governance of Liquidity Risk Management Liquidity risk is managed through the liquidity risk policy approved by the Board. The Bank has “zero tolerance” for liquidity risk and will continue to maintain a comfortable margin of excess liquidity in the form of cash and readily marketable assets to meet its funding requirements at any time. Management of liquidity risk is accomplished through a formal structure which includes: - Board of Directors (BOD) - Risk Management Committee - Asset Liability Management Committee (ALCO) - Treasury Division - Risk Management Division and Middle Office - Finance Division - Information Technology Division The Board of Directors approves the liquidity risk policy and ensures, through quarterly reviews by the Risk Management Committee of the Board, that the Bank’s liquidity risk is being managed prudently. Risk Management Committee of the Board provides overall guidance in managing the Bank’s liquidity risk. Liquidity position is monitored daily by the Treasury Division and the Middle Office and reviewed regularly by ALCO. 45.4.3 Funding Strategy The Bank’s prime source of liquidity is the customers' deposit base. Within deposits, the Bank strives to maintain core deposit base in form of current and saving deposits and avoids concentration in particular products, tenors and dependence on large fund providers. As a general rule, the Bank will not depend on borrowings in the inter-bank market, including repos, to be a part of its permanent pool of funds for financing of loans, but will use these as a source for obtaining moderate amounts of additional funds to meet temporary liquidity needs in the normal course of business or for money market operations. 45.4.4 Liquidity Risk Mitigation Techniques Various tools and techniques are used to measure and monitor the possible liquidity risk. These include monitoring of different liquidity ratios like core deposits to total deposits, advances to deposits, liquid assets to total deposits, Interbank borrowing to total deposits, which are monitored on regular basis against limits. Further, the Bank also prepares the maturity profile of assets and liabilities to monitor the liquidity gaps over different time bands. For maturity analysis, behavioral study is carried out to determine the behavior of non - contractual assets and liabilities. The Bank also ensures that statutory cash and liquidity requirements are maintained at all times. In addition, LCR, NSFR and Monitoring Tools of Basel III framework further strengthen liquidity risk management of the Bank. 45.4.5 Liquidity Stress Testing As per SBP FSD Circular No. 01 of 2020, Liquidity stress testing is being conducted under various stress scenarios. Shocks include the withdrawals of deposits, withdrawals of wholesale / large deposits & interbank borrowing, withdrawal of top deposits, etc. Results of stress testing are presented to ALCO and Risk Management Committee. The Bank’s liquidity risk management addresses the goal of protecting solvency and the ability to withstand stressful events in the market place. Stress testing for liquidity as prescribed in the liquidity risk policy is carried out regularly to estimate the impact of decline in liquidity on the ratio of liquid assets to deposits plus borrowings. 45.4.6 Contingency Funding Plan Contingency Funding Plan (CFP) is a part of liquidity risk policy of the Bank which identifies the trigger events that could cause a liquidity contingency and describes the actions to be taken to manage it. The contingency funding plan highlights liquidity management actions that needs to be taken to deal with the contingency. Responsibilities and response levels are also incorporated in order to tackle the contingency. Moreover, CFP highlights possible funding sources, in case of a liquidity contingency. 224
229. 45 .4.7 Main Components of LCR Main components of LCR are High Quality Liquid Assets and Net Cash Outflows. Outflows are mainly deposit outflows net of cash inflows which consist of inflows from financing and money market placements up to 1 month. The inputs for calculation of LCR are based on SBP BPRD Circular No. 08 dated 23 June 2016. 45.4.8 Composition of HQLAs High Quality Liquid Assets consist of Level 1 Assets which are included in the stock of liquid assets at 100% weightage of their market value i.e., Cash & Treasury balances, Conventional Government Securities, GOP Ijarah Sukuks, Foreign Currency Sukuks & Bonds issued by sovereigns. While Level 2 Assets comprise all equity shares (excluding shares of Financial Institutions) listed on PSX 100. 45.4.9 Concentration of Funding Sources The Bank relies on customers' deposits as its key source of funding, specially current and saving deposits and time deposits of small / medium denominations, and avoids concentration of large deposits. Share of core deposits in total deposits and of large deposits in total deposits are regularly monitored. In particular the Bank does not depend on large depositors or borrowings from SBP and financial institutions to meet its funding requirements. 45.4.10 Currency Mismatch in the LCR About 90% of the Bank's assets and liabilities are in local currency. Currency mismatch in other currencies is regularly monitored. 45.4.11 Centralisation of Liquidity Management Overall liquidity management of the Bank is centralised in Treasury Division at Principal Office. The Bank mobilises deposits through its branch network. It also uses the branch network to grant loans to customers. Branches that have more deposits than loans, transfer (“lend”) their excess deposits to the Principal Office. Branches that do not have enough deposits to fund their loans, acquire (“borrow”) additional funds from the Principal Office. 45.4.12 Other Inflows & Outflows Benefit of pledged deposits (deposits under lien) are not accounted for in calculation of LCR. 45.4.13 Net Stable Funding Ratio (NSFR) NSFR is the ratio of the amount of Available Stable Funding (ASF) - source of funds, capital and liabilities relative to the amount of Required Stable Funding (RSF) - use of funds, assets and off - balance sheet exposures. The objective of NSFR is to ensure the availability of stable funds that a bank must hold to enable it to build and maintain its assets, investments and off balance sheet portfolio on an ongoing basis for longer term, i.e., over a one year horizon. NSFR reduces maturity mismatches between the asset and liability items on the balance sheet and thereby reduces funding and roll - over risk. The Bank’s NSFR stood at 167% as on 31 December 2021. 225
230. 45 .5 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Group The following maturity profile is based on contractual maturities for assets and liabilities that have a contractual maturity. Assets and liabilities that do not have a contractual maturity have been categorised in the shortest maturity band. Total 2021 Upto 1 day Over 1 to 7 days Over 7 to 14 days Over 14 days to 1 month Over 1 to 2 months Over 2 to 3 months Over 3 Over 6 to 6 to 9 months months (Rupees in '000) Over 9 months to 1 year Over 1 to 2 years Over 2 to 3 years Over 3 to 5 years Over 5 years Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 118,599,792 118,599,792 6,803,572 6,803,572 20,063,828 –00 826,698,791 12,967,986 733,335,453 62,322,894 55,701,205 22,506,089 354,580 –00 2,103,393 2,694,975 86,548,232 17,516,514 –00 –00 –00 –00 20,063,828 –00 (175,919 ) 24,857,271 16,559,970 25,896,302 –00 –00 –00 –00 –00 –00 5,142,949 6,220,977 –00 –00 –00 –00 –00 –00 26,170,390 56,009,199 52,410,354 94,703,838 439,056 429,784 43,495 42,824 (22,673) (27,414) 13,547,227 14,422,657 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 27,485,865 (411,474 ) 79,072,128 313,777 208,013,450 94,964,578 127,675,070 39,097,582 24,015,747 48,372,426 574,841 1,102,068 1,216,080 001,184,750 4,397,940 22,734 55,993 49,889 0040,748 13,146 (27,414 ) (78,859 ) (27,499) 00(70,214) (249,413) 9,760,794 7,770,376 4,120,311 007,835,258 112,638 –00 –00 –00 –00 –00 –00 –00 –00 –00 40,353,512 193,664,781 158,377,825 48,828,863 48,004,081 50,483,748 3,662,170 5,285,103 14,903,324 216 433 85,102 (80,296 ) 287,640 (295,440 ) 68,849 18,117 11,565 1,850,208,846 243,411,822 41,590,828 56,974,550 92,587,849 165,580,888 132,781,398 136,113,174 123,528,491 33,320,066 260,660,187 92,833,314 247,260,155 223,566,124 29,803,755 29,803,755 302,212,902 537,376 1,309,734,964 1,077,749,891 –00 72,474,365 16,117,169 –00 1,094,262 26,665,733 –00 2,336,666 50,921,042 –00 75,846,330 18,700,448 –00 23,083,908 23,791,875 –00 –00 42,619,114 7,519,175 26,302,731 20,686,097 –00 4,245,556 30,465,438 –00 9,542,625 2,894,746 –00 10,585,069 12,103,107 –00 –00 19,745,203 32,583,253 3,309,696 26,991 –00 –00 –00 30,763,911 –00 –00 –00 5,162,952 –00 –00 –00 4,852,827 –00 –00 –00 9,938,161 –00 –00 –00 12,314,874 –00 1,000 –00 7,175,748 –00 800 –00 5,302,990 –00 1,000 –00 6,644,426 –00 800 –00 8,570,540 –00 3,600 –00 1,326,302 –00 3,600 –00 1,154,690 –00 –00 7,200 15,977,200 –00 –00 2,384,506 6,450,813 1,759,789,561 1,138,854,933 93,754,486 32,612,822 63,195,869 106,861,652 54,052,531 74,225,635 34,850,698 43,282,334 13,767,273 23,846,466 25,446,605 55,038,257 29,391,980 78,728,867 61,887,539 88,677,793 (9,962,268) 246,892,914 –00 15,995,200 –00 102,042,740 Net assets 90,419,285 (895,443,111 ) (52,163,658 ) 24,361,728 Share capital Reserves Surplus on revaluation of assets Unappropriated profit Non - controlling interest 11,114,254 20,656,466 6,453,983 52,071,442 123,140 90,419,285 58,719,236 68,986,848 221,813,550 168,527,867 226
231. Total 2020 Upto 1 day Over 1 to 7 days Over 7 to 14 days Over 14 days to 1 month Over 1 to 2 months Over 2 to 3 months Over 3 Over 6 to 6 to 9 months months (Rupees in '000) Over 9 months to 1 year Over 1 to 2 years Over 2 to 3 years Over 3 to 5 years Over 5 years Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 105,936,009 19,681,362 2,175,301 765,318,984 510,050,394 43,976,664 294,862 –00 75,345,810 105,936,009 –00 –00 –00 –00 19,681,362 –00 –00 –00 –00 (494 ) (2,966 ) (3,461) 2,182,222 –00 12,582,868 (341,794 ) (398,760) (648,823 ) 48,629,312 53,134,403 7,371,280 9,070,048 33,016,839 59,638,378 19,674,219 –00 –00 382,971 376,295 –00 –00 –00 22,651 22,652 –00 –00 –00 –00 –00 11,302,990 2,013,296 7,406,967 9,135,331 11,636,343 1,522,779,386 222,311,357 Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 13,809,722 42,481,419 105,260,936 19,857,075 90,127,620 108,105,472 170,864,915 154,989,022 82,793,789 79,781,992 23,793,933 22,992,880 44,412,146 30,614,506 31,490,891 31,939,309 506,363 937,251 1,021,321 996,661 3,602,764 3,055,678 4,121,980 9,301,161 22,647 62,132 23,332 0017,079 41,199 –00 –00 83,170 –00 –00 –00 00–00 –00 –00 –00 –00 11,676,859 12,270,539 7,663,578 00588,862 1,617,298 7,776 25,971 –00 9,039,816 16,074,794 44,091,191 120,302,980 108,809,380 135,533,333 137,763,100 44,452,557 139,801,027 141,783,432 206,503,757 196,312,662 31,013,221 31,013,221 –00 211,627,267 348,190 98,718,568 1,099,223,458 891,632,718 25,825,810 –00 –00 –00 545,085 2,144,448 18,910,564 9,876,099 40,346,851 12,476,736 –00 –00 –00 –00 –00 22,939,478 17,644,403 2,944,525 3,096,367 12,927,163 23,062,348 24,076,408 25,029,560 23,922,401 6,657,497 –00 –00 –00 5,891,219 10,195,980 15,321,277 2,446,852 13,835,519 34,659 –00 –00 –00 –00 –00 –00 14,989,600 –00 –00 –00 –00 –00 139,836 (261,424 ) –00 –00 37,094 34,482 85,342,289 20,800,376 2,546,349 3,200,147 6,857,181 11,263,412 1,442,335,671 943,533,081 127,090,727 13,621,331 49,385,574 42,685,194 –00 –00 –00 –00 –00 800 800 800 800 3,200 34,482 97,114 36,070 65,683 204,367 9,148,184 11,052,652 8,183,361 792,640 2,754,422 55,185,292 52,871,377 36,194,316 27,877,891 22,546,649 –00 –00 –00 3,200 6,400 14,973,600 182,160 (216,962 ) (73,230 ) 1,259,471 2,154,287 5,329,807 9,782,902 25,975,224 35,586,113 Net assets 80,443,715 (721,221,724 ) (118,050,911 ) 2,453,463 (5,294,383 ) 77,617,786 Share capital Reserves Surplus on revaluation of assets Unappropriated profit Non - controlling interest 11,114,254 18,431,277 10,366,693 40,416,713 114,778 53,624,088 82,661,956 101,568,784 16,574,666 117,254,378 132,000,530 180,528,533 160,726,549 80,443,715 227
232. 45 .6 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Group For assets and liabilities that have a contractual maturity, the expected maturity is considered to be the same as contractual maturity. Assets and Liabilities that do not have a contractual maturity have been categorised on the basis of expected maturities as determined by ALCO. In case of saving and current accounts, their historical net withdrawal pattern over the next one year was reviewed, based on year - end balances for the last three years. Thereafter, taking a conservative view, ALCO categorised these deposits in various maturity bands. Other assets and liabilities have been categorised on the basis of assumptions / judgments that are believed to be reasonable. Total 2021 Upto 1 month Over 1 to 3 months Over 3 to 6 months Over 6 Over 1 months to 2 to 1 year years (Rupees in '000) Over 2 to 3 years Over 3 to 5 years Over 5 to 10 years Above 10 years 118,599,792 6,803,572 20,063,828 826,698,791 733,335,453 55,701,205 354,580 2,103,393 86,548,232 118,599,792 6,803,572 20,063,828 51,621,207 157,189,520 529,855 43,495 3,268,463 40,963,584 –00 –00 –00 83,187,265 189,668,416 1,921,786 65,558 47,707 24,256,741 –00 –00 –00 (410,293 ) 127,675,070 1,339,608 55,993 (100,401 ) 7,927,102 –00 –00 –00 93,516,156 63,113,329 3,322,093 90,637 250,283 12,172,629 –00 –00 –00 207,941,008 48,372,426 12,263,117 98,897 (1,938,785 ) 248,217 –00 –00 –00 40,129,080 48,828,863 3,662,170 –00 7,232 68,849 –00 –00 –00 192,321,659 48,004,081 5,285,103 –00 811,638 18,117 –00 –00 –00 155,947,899 37,530,239 5,787,400 –00 917,429 11,566 –00 –00 –00 2,444,810 12,953,509 21,590,073 –00 (1,160,173 ) 881,427 1,850,208,846 399,083,316 299,147,473 136,487,079 172,465,127 266,984,880 92,696,194 246,440,598 200,194,533 36,709,646 29,803,755 302,212,902 1,309,734,964 29,803,755 76,442,669 213,023,237 –00 98,930,238 148,984,610 –00 42,619,114 132,795,019 –00 11,764,731 157,643,823 –00 9,542,625 162,630,529 –00 10,585,069 171,838,890 –00 19,745,203 163,044,595 –00 32,327,849 159,763,368 –00 255,404 10,893 –00 15,995,200 –00 102,042,740 –00 –00 –00 41,961,217 –00 1,000 –00 19,490,621 –00 800 –00 5,302,990 –00 1,800 –00 15,214,966 –00 3,600 –00 1,326,302 –00 3,600 –00 1,154,690 –00 7,200 –00 9,132,049 –00 8,977,200 –00 5,182,995 –00 7,000,000 –00 3,276,910 1,759,789,561 361,230,878 267,406,469 180,717,923 184,625,320 173,503,056 183,582,249 191,929,047 206,251,412 10,543,207 Net assets 90,419,285 37,852,438 31,741,004 (44,230,844 ) (12,160,193) 93,481,824 (90,886,055) 54,511,551 (6,056,879) 26,166,439 Share capital Reserves Surplus on revaluation of assets Unappropriated profit Non - controlling interest 11,114,254 20,656,466 6,453,983 52,071,442 123,140 90,419,285 Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 228
233. Total 2020 Upto 1 month Over 1 to 3 months Over 3 to 6 months Over 6 Over 1 months to 2 to 1 year years (Rupees in '000) Over 2 to 3 years Over 3 to 5 years Over 5 to 10 years Above 10 years –00 –00 –00 42,492,324 79,781,992 1,601,345 62,059 –00 12,369,589 –00 –00 –00 133,255,216 46,786,813 2,563,934 40,267 –00 8,449,019 –00 –00 –00 91,579,088 44,412,146 3,951,185 41,490 –00 1,753,753 –00 –00 –00 109,010,681 30,614,505 11,154,950 –00 –00 7,776 –00 –00 –00 171,274,822 31,490,892 4,121,980 –00 –00 25,971 –00 –00 –00 153,093,362 24,104,075 4,409,762 –00 –00 –00 –00 –00 –00 3,064,909 7,835,234 13,799,844 83,170 –00 977,602 Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets 105,936,009 19,681,362 2,175,301 765,318,984 510,050,394 43,976,664 294,862 –00 75,345,810 105,936,009 –00 19,681,362 –00 2,175,301 –00 (1,350,589 ) 62,899,171 102,592,570 142,432,167 428,096 1,945,568 22,627 45,249 –00 –00 28,382,864 23,379,236 1,522,779,386 257,868,240 230,701,391 136,307,309 191,095,249 141,737,662 150,787,912 206,913,665 181,607,199 25,760,759 31,013,221 211,627,267 1,099,223,458 31,013,221 101,756,291 175,991,190 –00 41,850,042 123,504,672 –00 17,644,403 112,041,996 –00 6,040,892 136,917,549 –00 12,927,163 164,995,554 –00 5,891,219 160,784,910 –00 10,195,980 180,970,135 –00 14,808,462 44,004,920 –00 512,815 12,532 –00 800 236,066 20,411,596 –00 800 109,641 11,052,652 –00 1,600 (167,184) 8,976,000 –00 3,200 780,634 2,754,422 –00 3,200 1,991,335 1,259,471 –00 6,400 (47,244 ) 7,400,106 –00 7,973,600 (679,113) 4,267,763 –00 7,000,000 449,174 2,775,236 332,672,272 186,003,176 140,849,492 151,768,857 181,460,973 169,930,135 198,525,377 70,375,632 10,749,757 (74,804,032 ) 44,698,215 (4,542,183 ) 39,326,392 (39,723,311 ) (19,142,223) 8,388,288 111,231,567 15,011,002 Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities –00 14,989,600 139,836 85,342,289 1,442,335,671 Net assets 80,443,715 Share capital Reserves Surplus on revaluation of assets Unappropriated profit Non - controlling interest 11,114,254 18,431,277 10,366,693 40,416,713 114,778 80,443,715 –00 –00 (2,533,473 ) 26,445,043 229
234. 46 . EVENTS AFTER THE REPORTING DATE Subsequent to the year end, the Board of Directors proposed a final cash dividend of Rs. 7.0 (2020: Rs. 4.5) per share. 47. GENERAL 47.1 Captions, as prescribed by BPRD Circular No. 02 of 2018 issued by SBP, in respect of which there are no amounts, have not been reproduced in these consolidated financial statements, except for captions of the statement of financial position and profit and loss account. 47.2 Figures have been rounded off to the nearest thousand rupees, unless otherwise stated. 47.3 Comparative information has been re-classified, re-arranged or additionally incorporated in these consolidated financial statements wherever necessary to facilitate comparison and better presentation. 48. DATE OF AUTHORISATION These consolidated financial statements were authorised for issue in the Board of Directors' meeting held on 09 February 2022. MANSOOR ALI KHAN ASHAR HUSAIN Chief Executive Chief Financial Officer SYED HASAN ALI BUKHARI ANWAR HAJI KARIM ABBAS D. HABIB Director Director Chairman 230
235. Annexure I STATEMENT SHOWING WRITTEN-OFF LOANS OR ANY OTHER FINANCIAL RELIEF OF RUPEES FIVE HUNDRED THOUSAND OR ABOVE PROVIDED DURING THE YEAR ENDED 31 DECEMBER 2021 (Rupees in '000) Outstanding liabilities at beginning of the year S. No. Name and address of the borrower(s) Name of individuals / partners / directors (with CNIC Nos.) Father's / Husband's Name Principal Interest / Mark-up Other Charges Total 1 2 3 4 5 6 7 8 Fazal Muhammad Khan 66,711 8,165 – 74,876 – 5,911 – 5,911 Muhammad Ali (CNIC: 34101-4602895-1) Interest / Principal Mark-up Written Written off off 9 10 Other Charges Total written (9+10+11) off 11 12 1. Fazal Centre Rahwali G. T Road Cantt Gujranwala 2. Mukhtar Ali Alwani Mukhtar Ali Alwani Fatima Manzil, Flat No. 20 (CNIC: 42301-4605058-9) 5th Floor, Near HBL Kharadar Branch, Kharadar, Karachi. Sher Ali Alwani 1,275 88 751 2,114 475 88 751 1,314 3. Inayatullah Memon Inayatullah Memon Flat # 25, 3rd Floor, Hashim (CNIC: 42201-4006030-9) Galleria, Commercial Housing Scheme, Qasimabad, Hyderabad. Khuda Dino 2,668 2,129 – 4,797 69 2,360 266 2,695 70,654 10,382 75100 81,787 544 8,359 1,01700 9,920 Total 231
236. Annexure II ISLAMIC BANKING BUSINESS The Bank is operating 138 (2020: 106) Islamic banking branches and 145 (2020: 143) Islamic banking windows at the end of the year. Note 2021 2020 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions Investments Islamic financing and related assets-net Fixed assets Intangible assets Due from Head Office Other assets Total Assets 1 2 8,423,970 6,633 –000 126,593,021 85,209,570 691,623 –000 –000 8,215,798 229,140,615 5,727,007 6,557 2,175,301 71,453,147 58,304,712 479,006 –000 –000 5,167,572 143,313,302 306,474 30,479,303 128,090,092 39,305,108 –000 16,989,976 137,796 18,962,087 93,238,405 14,457,740 –000 6,315,054 215,170,953 133,111,082 13,969,662 10,202,220 LIABILITIES Bills payable Due to financial institutions Deposits and other accounts Due to Head Office Subordinated debt Other liabilities 3 NET ASSETS REPRESENTED BY Islamic Banking Fund Reserves Deficit on revaluation of assets Unappropriated profit 5 7,600,000 –000 (238,060) 6,607,722 13,969,662 CONTINGENCIES AND COMMITMENTS 7,600,000 –000 (142,701) 2,744,921 10,202,220 6 232
237. The profit and loss account of the Bank 's Islamic banking branches for the year ended 31 December 2021 is as follows: Note 2021 2020 (Rupees in '000) Profit / return earned Profit / return expensed Net Profit / return 7 8 10,936,284 (4,829,642) 6,106,642 8,493,424 (4,047,777) 4,445,647 675,695 6,115 145,850 –00 10,123 42,498 880,281 6,986,923 310,209 94,448 97,171 –00 169,484 95,723 767,035 5,212,682 Other expenses Operating expenses Other charges (3,129,078) (180) (2,349,393) (44) Total other expenses (3,129,258) (2,349,437) Profit before provisions Reversals / (provisions) and write offs-net 3,857,665 5,136 2,863,245 (118,324) Profit for the year 3,862,801 2,744,921 Other income Fee and commission income Dividend income Foreign exchange income Income / (loss) from derivatives Gain on securities Other income Total other income Total income 2020 2021 Cost / Provision amortised for (Deficit) / cost diminution surplus 1. Carrying value Cost / amortised cost Provision for diminution (Deficit) / surplus Carrying value Investments by segments (Rupees in '000) Federal Government Securities - Ijarah Sukuks - Neelum Jhelum Hydropower Co Ltd. Sukuk - Bai Muajjal with Government of Pakistan - Islamic Naya Pakistan Certificate Shares - Listed Companies Non Government Debt Securities - Listed - Unlisted Units of Mutual Funds Associates - AL Habib Islamic Cash Fund - AL Habib Islamic Savings Fund Total Investments 86,966,521 3,093,750 9,222,783 807,152 100,090,206 –00 –00 –00 –00 –00 (489,423 ) –00 –00 –00 (489,423 ) 86,477,098 3,093,750 9,222,783 807,152 99,600,783 31,954,335 3,781,250 11,328,818 –00 47,064,403 –00 –00 –00 –00 –00 (208,246 ) 31,746,089 –00 3,781,250 –00 11,328,818 –00 –00 (208,246 ) 46,856,157 80,455 (54,083 ) 11,665 38,037 97,442 (63,384 ) 15,861 49,919 22,243,347 3,973,000 26,216,347 –00 –00 –00 215,177 –00 215,177 22,458,524 3,973,000 26,431,524 22,425,254 2,025,000 24,450,254 –00 –00 –00 27,418 –00 27,418 22,452,672 2,025,000 24,477,672 351,022 (52,866 ) 24,521 322,677 100,000 (52,866 ) 22,265 69,399 100,000 100,000 200,000 –00 –00 –00 –00 –00 –00 100,000 100,000 200,000 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 –00 126,938,030 (106,949 ) (238,060 ) 126,593,021 71,712,099 (116,250 ) (142,702 ) 71,453,147 233
238. Note 2 . Islamic financing and related assets Ijarah Murabaha Diminishing Musharaka Islamic Long Term Financing Facility (ILTFF) Istisna Islamic Refinance for Renewable Energy (IFRE) Islamic Refinance for Wages & Salaries (IRWS) Islamic Refinance for Temporary Economic Refinance Facility (ITERF) Islamic Export Refinance-Istisna Musawamah Islamic Export Refinance-Musawamah Running Musharaka Islamic Export Refinance-Running Musharaka Financing against Bills-Musawamah Staff Financing Musawamah Inventory Advance against Istisna Advance against Istisna-IERF Advance against Ijarah Advance against Diminishing Musharaka Advance against ILTFF Advance against IFRE Advance against ITERF Advance against IRF SME 2.1 2.2 Gross Islamic financing and related assets Less: provision against Islamic financings - Specific - General Islamic financing and related assets-net of provision 2.1 2021 2020 (Rupees in '000) 1,510,759 10,763,354 14,068,266 2,354,060 5,342,869 36,245 1,220,603 908,150 1,116,424 4,583,663 529,750 326,612 5,263,500 1,580,871 1,025,435 2,290,127 7,974,093 9,475,930 505,797 4,440,130 1,756,300 2,161,708 6,101,556 39,925 1,656,565 9,148,387 11,404,565 1,737,762 2,364,376 14,035 2,355,044 –00 1,083,650 3,710,693 826,500 84,799 6,270,000 293,805 594,202 1,700,257 5,702,233 4,829,300 735,441 1,083,563 1,082,706 875,000 914,221 –00 85,376,127 58,467,104 (123,001) (43,556) (135,936) (26,456) (166,557) (162,392) 85,209,570 58,304,712 Ijarah 2021 Cost As at 01 January 2021 Plant and Machinery Vehicles Equipment Total 404,078 2,227,410 286,147 2,917,635 Accumulated depreciation Additions / As at 31 (deletions) December 2021 348,701 (169,375) 540,587 (630,478 ) 106,718 (189,457 ) 996,006 (989,310 ) As at 01 Charge for January the year / 2021 (deletions) (Rupees in '000) 583,404 179,121 2,137,519 891,153 203,408 190,796 2,924,331 1,261,070 191,555 (76,346) 490,799 (409,391 ) 91,675 (135,790 ) 774,029 (621,527 ) Book value As at 31 December 2021 as at 31 December 2021 294,330 289,074 972,561 1,164,958 146,681 56,727 1,413,572 1,510,759 234
239. 2020 Cost Plant and Machinery Vehicles Equipment Total 2 .1.1 Accumulated depreciation As at 01 January 2020 Additions / (deletions) As at 31 December 2020 934,345 169,556 (699,823) 546,978 (726,312 ) –00 (321,736 ) 404,078 358,906 2,227,410 890,722 286,147 334,105 2,917,635 1,583,733 2,406,744 607,883 3,948,972 716,534 (1,747,871 ) As at 01 Charge for January the year / 2020 (deletions) (Rupees in '000) 218,211 (397,996) 467,430 (466,999 ) 123,163 (266,472 ) 808,804 (1,131,467 ) Not later Later than than 1 1 year and less year than 5 years Ijarah rental receivables 2.2.2 2.2.4 224,957 891,153 1,336,257 190,796 95,351 1,261,070 1,656,565 160,721 1,192,485 Not later Later than than 1 1 year and less Total year than 5 years (Rupees in '000) 1,353,206 Murabaha Murabaha financing Advances for Murabaha 2.2.1 Murabaha receivable-gross Less: Deferred murabaha income Profit receivable shown in other assets Murabaha financings 2.2.2 2.2.4 The movement in Murabaha financing during the year is as follows: Opening balance Sales during the year Adjusted during the year Closing balance 2.2.3 179,121 2020 Note 2.2.1 as at 31 December 2020 Future ijarah payments receivable 2021 2.2 Book value As at 31 December 2020 Murabaha sale price Murabaha purchase price 685,438 871,283 Total 1,556,721 2021 2020 (Rupees in '000) 7,685,008 3,078,346 10,763,354 7,020,386 2,128,001 9,148,387 7,929,218 (130,922 ) (113,288 ) 7,202,836 (75,641 ) (106,809 ) 7,685,008 7,020,386 7,202,836 32,356,284 (31,629,902 ) 7,212,743 26,037,743 (26,047,650 ) 7,929,218 7,202,836 32,281,567 (31,578,935 ) 25,990,650 (25,303,306 ) 702,632 687,344 Deferred murabaha income Opening balance Arising during the year Less: Recognised during the year (75,641 ) (704,180 ) 648,899 (125,034 ) (694,160 ) 743,553 Closing balance (130,922 ) (75,641 ) 235
240. 3 . Deposits and other accounts In local currency Customers Current deposits Savings deposits Term deposits Financial institutions Current deposits Savings deposits 2021 In foreign currencies Total (Rupees in '000) In local currency 2020 In foreign currencies Total 51,080,914 44,206,742 19,890,218 115,177,874 1,753,634 1,946,099 –00 3,699,733 52,834,548 46,152,841 19,890,218 118,877,607 34,780,071 33,690,149 21,354,917 89,825,137 1,476,398 1,458,082 –00 2,934,480 36,256,469 35,148,231 21,354,917 92,759,617 18,895 9,193,590 –00 –00 18,895 9,193,590 62,908 415,880 –00 –00 62,908 415,880 9,212,485 –00 9,212,485 478,788 –00 478,788 124,390,359 3,699,733 128,090,092 90,303,925 2,934,480 93,238,405 2021 2020 (Rupees in '000) 3.1 Composition of deposits - Individuals - Government / Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 3.1.1 76,106,049 1,491,016 46 9,212,439 41,280,542 128,090,092 58,871,300 2,096,892 46 478,742 31,791,425 93,238,405 Deposits includes eligible deposits covered under deposit protection mechanism as required by the Deposit Protection Act, 2016 amounting to Rs. 107,417.050 million (2020: Rs. 75,124.486 million). 2021 2020 (Rupees in '000) 4. Charity Fund Opening balance Additions during the year Received from customers on account of delayed payment Charity accrued but not yet received Dividend purification amount Other Non - Shariah compliant income Profit on charity saving account Payments / utilization during the year Health Social Welfare Education Closing balance 41,298 43,474 232 478 825 942 1,032 3,509 26,975 5,072 205 2,330 2,314 36,896 (19,131) (12,698) –00 (31,829) 12,978 (26,144) (10,428) (2,500) (39,072) 41,298 236
241. 2021 2020 (Rupees in '000) 4.1 Detail of charity is as follows: Afzaal Memorial Thalassemia Foundation Al Mustafa Trust ASF Foundation Bait-ul-Sukun Child Aid Association Dar-ul-Sukun Edhi Foundation Gawadar Development Authority Hospital Green Crescent Trust IDA RIEU Welfare Association Indus Hospital Jinnah Foundation Karachi Down Syndrome Program Lady Dufferin Hospital National Institute of Child Health Osmania Hospital Pakistan Children’s Heart Foundation Pakistan Foundation Fighting Blindness Panah Trust Pink Ribbon SIUT The Cancer Foundation The Kidney Centre 5. 6. 31,829 38,572 Opening balance Add: Islamic Banking profit for the year Less: Remitted to Head Office 2,744,921 3,862,801 –00 2,551,373 2,744,921 (2,551,373) Closing balance 6,607,722 2,744,921 10,930,898 27,490,079 4,415,658 17,468,898 38,420,977 21,884,556 3,999,268 6,915,752 21,264 4,389,705 3,712,628 391,091 10,936,284 8,493,424 3,601,731 403,087 824,824 4,829,642 3,594,464 259,532 193,781 4,047,777 Contingencies and Commitments Profit / Return Earned on Financing, Investments and Placement Profit earned on: Financing Investments Placements 8. –00 1,607 –00 1,607 3,607 3,607 3,607 5,494 1,607 1,607 3,615 2,000 –00 –00 3,000 1,607 1,000 –00 –00 –00 3,607 –00 1,000 Islamic Banking Business Unappropriated Profit - Guarantees - Commitments 7. 3,000 1,500 939 1,939 1,000 1,939 1,939 –00 1,939 1,939 1,939 –00 1,000 1,000 1,000 1,000 1,939 1,000 1,000 1,000 1,939 939 1,939 Profit on Deposits and Other Dues Expensed Deposits and other accounts Due to Financial Institutions Due to Head Office 237
242. 9 . Profit and Loss Distribution and Pool Management 9.1 The number and nature of pools maintained by the Islamic Banking Branches along with their key features and risk and reward characteristics: General Pool PKR (Mudaraba) Deposits which assume minimal risk of loss due to diversified assets being tagged thereto are parked in the general pool. In case of loss in general pool, the loss will be borne by the general pool members. Special Pool(s) PKR (Mudaraba) Special pool(s) are created where the customers desire to invest in high yield assets. In case of loss in a special pool the loss will be borne by the special pool members. General Pool FCY (Mudaraba) In FCY pool, all FCY deposits and Investments are parked to share the return among the FCY deposit holders. In case of loss in a FCY General Pool, the loss will be borne by the FCY general pool members. Special Pool FCY (Mudaraba) Special pool(s) are created where the customers desire to invest in high yield assets. In case of loss in a special pool the loss will be borne by the special pool members. Islamic Export Refinance Scheme (IERS) Pool PKR (Musharaka) IERS pool is required by the SBP to facilitate the exporters under Islamic Export Refinance Scheme. Equity Pool Investments with relatively higher risks such as investment in shares and mutual funds are tagged to the equity pool in order to safeguard the interest of depositors. The Bank as Mudarib in the general pool is responsible for administrative costs and cost of operating fixed assets, which are financed from equity. Furthermore, subsidized financing to employees are also financed from equity as per SBP guidelines. Parameters associated with risk and rewards: Following are the key considerations attached with risk and reward of the pool: - Period, return, safety, security and liquidity of investment. - Maturities of funds obtained from Principal Office, Islamic Banking Institutions and Shariah compliant organisations as regulated in Pakistan. - Element of risk attached to various types of investments. - SBP rules and Shariah clearance. 9.2 Avenues / sectors of economy / business where Mudaraba based deposits have been deployed: The Mudaraba based funds have been deployed in the following avenues / sectors / business: - Chemical and pharmaceuticals Agribusiness Textile Sugar Shoes and leather garments Investment in sukuks, shares and mutual funds Production and transmission of energy Food and allied except sugar Cement Financial Wheat Individuals Others (domestic whole sale, engineering goods, plastic product, etc.) 238
244. Complaint Handling The Bank has a comprehensive Customer Grievances Handling Policy , which is based on the principles of fairness, promptness, and customer’s right to approach alternate remedial avenues in case of need. Customers may register their complaints through Call Center, Bank’s Website, direct emails, Social Media and letters through drop-boxes or directly to Customer Services Division/CEO’s Office, which are promptly logged and acknowledged. The complaints are tracked for end-to-end resolution within regulatory timelines and escalated to Senior Management, as required. In case a complainant is not satisfied with the resolution provided by the Bank, he may escalate his complaint to Banking Mohtasib Pakistan. This process is communicated to customers through notices in Branches and the Website. During 2021, Bank’s Customer Complaint Unit has been further strengthened to ensure quick resolution of customers’ complaints. Further, training on complaints handling guidelines was also provided to a large number of staff. In 2021, the Bank received 216,799 complaints which were investigated and closed within an average turnaround time of 4 working days. 240
245. Report of Shariah Board for the year ending December 31 , 2021 In the name of Allah, the Beneficent, the Merciful 1. While the Board of Directors and Executive Management are solely responsible to ensure that the operations of Bank AL Habib – Islamic Banking Division (BAHL-IBD) are conducted in a manner that comply with Shariah principles and guidelines issued by the Shariah Board of the BAHL-IBD at all times. The Shariah Governance Framework issued by the State Bank of Pakistan, required from the Shariah Board (SB) to submit a report on the overall Shariah compliance environment of BAHL-IBD. 2. To form the opinion as expressed in this report, the Shariah Compliance Department carried out Shariah Reviews, on test check basis, of each class of transactions, the relevant documentation and process flows. Further, during the last year, Shariah Board reviewed the Internal Shariah Audit and External Shariah Audit Reports. Based on above, we are of the view that: I. BAHL-IBD has complied with Shariah rules and principles in the light of fatawa, rulings and guidelines issued by its Shariah Board. II. BAHL-IBD has complied with directives, regulations, instructions and guidelines i.e. related to Shariah compliance issued by SBP in accordance with the rulings of SBP’s Shariah Board. III. BAHL-IBD has complied with the SBP instructions on profit and loss distribution and Pool Management. On recommendations of Shariah Board measures are being taken to further strengthen the Pool Management system. IV. BAHL-IBD has a comprehensive mechanism in place to ensure Shariah Compliance in its overall operations. V. The Shariah Board appreciates the view and commitment of BOD towards ensuring the Shariah Compliance in the products, processes and operations of the BAHL-IBD. Improvement is required in level of awareness of Islamic Banking staff as well Executive Management in order to improve their understanding on the importance of Shari’ah Compliance in their respective areas, particularly in Foreign Trade Department. VI. The Management has provided adequate resources to Shariah Compliance Department and also committed to provide further staff enabling them to discharge their duties effectively. VII. The Bank has a well-defined mechanism in place which is sound enough to ensure that any earnings realized from sources or by means prohibited by Shariah have been credited to charity account and are being properly utilized. In year 2021, charity amount of Rs. 12.499 Million has been realized, out of which an income of Rs. 0.941 Million was credited to charity due to Shariah non-compliance as per instructions of Shariah Board. An amount of Rs. 31.823 Million has been granted to various charitable institutions against previous year’s balances. Mufti Sher Ali Resident Shariah Board Member Mufti Muhammad Hamza Shariah Board Member Mufti Mohib ul Haq Siddiqui Shariah Board Member Mufti Ismatullah Hamdullah Chairman Shariah Board Karachi: 07 February, 2022 241
246. 07 242
247. 30 ,217,136 (11,620,151) 18,596,985 (13,665) 18,583,320 40,416,713 120,440 (177,387) 40,359,766 58,943,086 (1,870,230) (5,001,414) (6,871,644) 52,071,442 16.72 243
248. 244
249. 140 139 138 245
250. 32 246
251. 247
252. 248
253. 249
254. 250
255. 251
256. 252
257. 2021 253
258. Branch Network The Bank has a network of 956 branches including 29 sub-branches , 02 overseas branches and 138 Islamic Banking branches. The Bank also has 04 representative offices and 03 booths. The Bank has branches / sub-branches / representative offices in the following cities: • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Aadha Abbotabad Adda Ghulam Hussain Adda Mirza Tahir Adda Pahrianwali Ahmed Nagar Ahmed Pur East Ajnala Akbarpura Ali Pur Chatta Ali Pur,Islamabad Alipur Amin Pur Bangla Arif Wala Athara Hazari Attock Badin Bagh (A.K.) Bagh-o-Bahar Bahawalnagar Bahawalpur Balakot Bampokha Bannu Bara Basti Malook Batkhela Battagram Bhakkar Bhalwal Bhan Saeedabad Bhaun Bhawana Bhera Bhiria Road Burewala Chakdara Chaksawari (A.K.) Chakwal Chaman Chamber Charsadda Chenab Nagar Chichawatni Chillas Chiniot Chishtian Chitral Chiwanda Choa Saiden Shah Chowk Bahadurpur Chowk Sarwar Shaheed Chunian Dadu Dadyal (A.K.) Daharki Dalbandin Danyour Daragai Malakand Dari Dholay Wali Darya Khan Darya Khan Mari Daska Daulat Nagar Deh 75 Nusrat Deh Gad Deh Noonari Deh taib Dehlra Depalpur Dera Ghazi Khan Dera Ismail Khan Dera Murad Jamali Derianwala Dhamtal Dhudhial Digri Dina • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Dinga Domala Dunyapur Dureji Ellahabad Eshanpur Faisalabad Faqirwali Fateh Jang Fatehpur Fazil Pur Feroza Ferozewatoan Fort Abbas Gaggo Mandi Gambat Garha Mor Gawadar Ghakhar Gharo Ghotki Ghulmat Gilgit Gojra Golarchi Gujar Khan Gujranwala Gujrat Gulyana Hafizabad Haidra Hala Hangu Harapa Haripur Haroonabad Hasan Abdal Hasilpur Hattar Havellian Hazro Head Bakaini Head Rajkan Hingorja Hub Hyderabad Inayat Kalay Islamabad Jacobabad Jahanian Jalalpur Jattan Jalalpur Pirwala Jampur Jandanwala Jaranwala Jatoi Jehangira Jehlum Jhang Joharabad Kabal Kabirwala Kacha Pakka Kahror Pacca Kahuta Kala Shah Kaku Kalakot Kalam Kalat Kalaya Kallar Syedan Kallur Kot Kamalia Kamar Mushani Kamoke Kamra Kandhkot Kandiaro • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Kankowai Karachi Karak Karianwala Karkhana Bazar Vehari Kashmore Kassowal Kasur Khairpur Khairpur Nathanshah Khairpur Tamewali Khanbela Khanewal Khanpur Khar, Bajaur Agency Kharan Kharian Khichiwala Khipro Khoi Ratta Khudian Khas Khurrianwala Khushab Khuzdar Khwazakhela Killa Saifullah Kohat Kot Abdul Malik Kot Addu Kot Chutta Kot Ghulam Muhammad Kot Radha Kishan Kot Samaba Kotla Arab Ali Khan Kotli Kotri Kumber Kunjah Kunri Ladhaywala Lahore Lala Musa Larkana Latifabad Layyah Liaqatpur Liaquatabad Thal Lodhran Loralai Mailsi Malakwal Malka Mandi Bahauddin Mandi Faizabad Mandra Manga Mandi Mangowal Mansehra Mardan Maroot Mastung Mathanichangan Swabi Matiari Matli Mattani Mehar Mehrabpur Mian Channu Miani Adda Mianwali Mingora Mirpur (A.K.) Mirpur Mathelo Mirpurkhas Mithi More Eminabad Moro Mulhal Mughlan Principal Office Mackinnons Building, I. I. Chundrigar Road, Karachi. Phones: (92-21) 32412421, 32446916 & 111-786-110 Fax: (92-21) 32419752 SWIFT CODE : BAHLPKKA • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Multan Multan, khurd Muradabad Muridke Murree Muslim bagh Mustafabad Muzaffarabad (A.K.) Muzaffargarh Naal Naar Nankhana Sahib Narang Mandi Narowal Naseerabad Nassarpur Naukot Naushero Feroze Nawabshah Nawan Kot Noonawali Nooriabad Noushki Nowshera Nowshera Virkan Okara Ormara Pabbi Painsera Pakpattan Panjgur Panu Aqil Parachinar Pasni Pasrur Pattoki Peshawar Phalia, Mandi Bahauddin Phool Nagar Pindi Bhattian Pindi Bohri Pindi Gheb Pir Mahal Pishin Pull Kharan Pull Manda (A.K.) Pull sunny Qambar Ali Khan Qambar Bypass Qasba Gujrat Qazi Ahmed Qila Didar Singh Quaidabad Quetta Radhan Rahim Yar Khan Rahwali Raiwand Raja Ram Rajanpur Rajoya Sadat Rakhni Rangpur Adda Rawalakot (A.K.) Rawalpindi Renala Khurd Rohaillan Wali Rohri Sadda Sadiqabad Sahib Nagar Sahiwal Sakhakot Sakrand Saleh Khana Samar Bagh Sambrial Sanghar Sangla Hill • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • • Sara e Alamgir Sargodha Satyana Bangla Sawabi Shabqadar Shahdadkot Shahdadpur Shaher Sultan Shahi Wala Shahkas Shahkot Shahpur Chakar Shakargarh Shakrila Sharaqpur Sheikh Wahan Sheikhupura Shikarpur Shorkot Shujabad Sialkot Sibi Skardu Sorab Sowari Sujawal Sukkur Sultan Colony Sumandari Takhtbhai Talagang Talbani Tanda Tandlianwala Tando Adam Tando Allah yar Tando Bagho Tando Jam Tando Muhammad Khan Tangi Tank Taranada Muhammad Pannah Tarnol Tausna Sharif Taxila Thari Mirwah Tharu Shah Thatta Thull Tibba Sultanpur Timergara Toba Tek Singh Tootkay Turbat Ubauro Uch Sharif Ugoki Umerkot Usman Shah Huri Usta Muhammad Wah Cantt Warri Wazirabad Winder , Lasbela Yazman Zafarwal Zahir Pir Zhob Overseas Branches • Manama (Bahrain) • Labuan (Malaysia) • • • • Representative Offices Bejing, China Dubai, U.A.E. Istanbul, Turkey Nairobi, Kenya Registered Office 126-C, Old Bahawalpur Road, Multan. Phones: (92-61) 4580314-16, & 111-786-110 Fax: (92-61) 4582471 website : www.bankalhabib.com 254
259. E - DIVIDEND BANK MANDATE FORM Mandatory Requirements of Bank Account Details with International Bank Account Number (IBAN) for Electronic Credit of Cash Dividend Payment as per Companies Act 2017 I, Mr. / Ms. / Mrs. ____________________________ S/o, D/o, W/o, _____________________________________ hereby authorize Bank AL Habib Limited (the Bank) to send / directly credit cash dividends declared by the Bank, in my bank account as detailed below: Details of Shareholder of Bank AL Habib Limited Name of the Shareholder Father /Husband Name Folio No. /CDC Account and Participant’s I.D CNIC No. / NICOP No. Passport No. (in case of foreign shareholder) NTN (in case of corporate shareholder) Cell number of shareholder Landline number of shareholder (if any) E-mail address of shareholder Shareholder’s Bank Account Details: Title of Bank Account (the bank account title must be in the name of the title holder/principal holder of the shares) International Bank Account Number (IBAN) –24 digits “ Mandatory” P K (Kindly provide your accurate IBAN number after consulting with your respective bank branch since in case of any error or omission in given IBAN, the Bank AL Habib Limited and Central Depository Company of Pakistan Limited (CDC) will not be held responsible, in any manner, for any loss or delay in your cash dividend payment) Bank’s name Branch name Branch address It is stated that the above-mentioned information is valid and correct and in case of any change therein, I/we will immediately intimate the Bank’s Share Registrar accordingly. Signature of Shareholder (For individual shareholder, signature must be as per specimen signature registered with Bank AL Habib Limited, please also enclose legible copy of CNIC/NICOP as applicable. In case of corporate entity, signature of authorized person with company stamp is required) Please note that: The shareholders who hold shares in Physical Form are requested to fill the above mentioned E-Dividend Bank Mandate Form and send it to the Bank’s Share Registrar address; i.e.; CDC Share Registrar Services Limited, CDC House, 99-B, Block B, Main Shahrah-e-Faisal, Karachi-74400, Pakistan. Tel: 0800-23275 The shareholders who hold shares in Book-Entry Form are requested to fill the above mentioned E-Dividend Bank Mandate Form and send it to the relevant Broker/Participants/Investor Account Services of the Central Depository Company of Pakistan Limited where the shareholders’ CDC account is being dealt. Bank AL Habib Limited and CDC shall not be responsible for any loss, damage, liability or claim arising, directly or indirectly, from any error, or failure in performance of any of its obligations whatsoever, caused due to incorrect payment instructions provided by the shareholder and/or due to any event beyond the control of the Bank. In case of non-receipt of IBAN with bank details, as requested above, future cash dividend, if any, could be withheld according to the directives of Securities and Exchange Commission of Pakistan.
260. Form of Proxy The Company Secretary Bank AL Habib Limited 126-C , Old Bahawalpur Road, MULTAN. I/We___________________________________________________of ___________________________ being a member(s) of Bank AL Habib Limited and holding ______________________________________ ordinary shares, as per Register Folio No./CDC Account and Participant's I.D. No.___________________ do hereby appoint ________________________________ Folio No./CDC Account and Participant's I.D. No. ___________________of ____________________________________________________________ or failing him/her __________________________________ Folio No./CDC Account and Participant's I.D. No. ___________________of ____________________________________________________________ another member of the Bank as my/our proxy to vote for me/us and on my/our behalf at the Thirty-first Annual General Meeting of the Bank to be held on Tuesday, March 29, 2022 and at any adjournment thereof. As witness my/our hand this__________________day of_________________2022. REVENUE STAMP RS. 5 SIGNATURE OF MEMBER (S) (The signature of the shareholder should agree with the specimen signature registered with the Bank or as per CNIC / Passport in case the share(s) is / are registered in CDC account). Witnesses: 1. Signature Name Address CNIC/Passport No. _____________________ _____________________ _____________________ _____________________ 2. Signature _____________________ Name _____________________ Address _____________________ CNIC/Passport No._____________________ A member entitled to attend the Annual General Meeting is entitled to appoint a proxy to attend, speak and vote instead of him/her. No person shall act as proxy (except for a corporation) unless he/she is entitled to be present and vote in his/her own right. CDC account holder or sub-account holder appointing a proxy should furnish attested copies of his / her own as well as the proxy’s CNIC / Passport with the proxy form. The proxy shall also produce his / her original CNIC / Passport at the time of the meeting. In case of corporate entity, the Board of Directors resolution / power of attorney with specimen signature shall be submitted along with proxy form. The instrument appointing a proxy should be signed by the member or by his/her attorney duly authorised in writing. If the member is a corporation, its common seal (if any) should be affixed to the instrument. The proxy forms, together with the power of attorney (if any), under which it is signed or a notarially certified copy thereof, shall be deposited at the Registered Office of the Bank not less than 48 hours before the time of the meeting (no account shall be taken of any part of the day that is not a working day).