Bank Alfalah: Financial Statements For The Quarter and Nine Months - 30 September 2017

Transcription

1. Financial Statements for the Quarter and Nine Months Period Ended 30 September 2017 (Un-audited) Way Forward
2. 1 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Contents Company Information 2 Directors’ Review 4 Unconsolidated Condensed Interim Statement of Financial Position 9 Unconsolidated Condensed Interim Profit and Loss Account (Un-audited) 10 Unconsolidated Condensed Interim Statement of Comprehensive Income (Un-audited) 11 Unconsolidated Condensed Interim Cash Flow Statement (Un-audited) 12 Unconsolidated Condensed Interim Statement of Changes in Equity (Un-audited) 13 Notes to and Forming Part of the Unconsolidated Condensed Interim Financial Information (Un-audited) 14 Consolidated Condensed Interim Statement of Financial Position 31 Consolidated Condensed Interim Profit and Loss Account (Un-audited) 32 Consolidated Condensed Interim Statement of Comprehensive Income (Un-audited) 33 Consolidated Condensed Interim Cash Flow Statement (Un-audited) 34 Consolidated Condensed Interim Statement of Changes in Equity (Un-audited) 35 Notes to and Forming Part of the Consolidated Condensed Interim Financial Information (Un-audited) 36 Branch Network 50
3. 2 Company Information Board of Directors Board Strategy and Finance Committee HH Sheikh Nahayan Mabarak Al Nahayan Chairman Abdulla Khalil Al Mutawa Chairman Abdulla Nasser Hawaileel Al-Mansoori Director Khalid Mana Saeed Al Otaiba Director Abdulla Khalil Al Mutawa Director Efstratios Georgios Arapoglou Director Khalid Mana Saeed Al Otaiba Director Khalid Qurashi Director Efstratios Georgios Arapoglou Director Nauman Ansari President /CEO and Director Khalid Qurashi Director M.Iftikhar Shabbir Secretary Kamran Y. Mirza Director Board Risk Management Committee Nauman Ansari President/CEO and Director Khalid Mana Saeed Al Otaiba Chairman Board Audit Committee Abdulla Khalil Al Mutawa Director Kamran Y. Mirza Chairman Khalid Qurashi Director Abdulla Khalil Al Mutawa Director Nauman Ansari President/CEO and Director Khalid Mana Saeed Al Otaiba Director Farhan Ali Secretary Efstratios Georgios Arapoglou Director Board Human Resources and Nomination Committee Tahir Khurshid Secretary Abdulla Khalil Al Mutawa Chairman Khalid Mana Saeed Al Otaiba Director Kamran Y. Mirza Director Nauman Ansari President/CEO and Director Mian Ejaz Ahmad Secretary
4. 3 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Central Management Committee Board Compensation Committee Nauman Ansari Chairman Abdulla Khalil Al Mutawa Chairman Suhail Yaqoob Khan Member Khalid Mana Saeed Al Otaiba Director Mirza Zafar Baig Member Kamran Y. Mirza Director Faisal Farooq Khan Member Mian Ejaz Ahmad Secretary Khurram Hussain Member Chief Financial Officer Mehreen Ahmed Member Rizwan Ata Member Saad Ur Rahman Khan Member Aly Mustansir Member Syed Ali Sultan Member Aasim Wajid Jawad Member Mirza Zafar Baig Company Secretary Mian Ejaz Ahmad Auditors KPMG Taseer Hadi & Co. Chartered Accountants Registered/Head Office B. A. Building I. I. Chundrigar Road Karachi, Pakistan bankalfalah.com Imran Zafar Member Share Registrar Khawaja Muhammad Ahmad Member F.D. Registrar Services (SMC-Pvt) Limited 1705, 17th Floor, Saima Trade Tower-A I. I. Chundrigar Road Karachi, Pakistan Mohib Hasan Khan Member
5. 4 Directors ’ Review On behalf of the Board of Directors, I am pleased to present the interim financial statements of the Bank for the nine months period ended September 30, 2017. Nine months period ended September 30, September 30, 2017 2016 (Rupees in ’000) Profit before provisions and taxation (Reversal) / Provision against loans and advances – net Provision for diminution in the value of investments Profit before Taxation Taxation Profit after taxation Earnings per share – basic 11,601,468 (645,056) 109,112 (535,944) 12,137,412 4,962,051 7,175,361 10,956,055 267,108 67,849 334,957 10,621,098 4,354,849 6,266,249 Rs. 4.47 Rs. 3.90 Performance Review The Bank’s performance for the nine months period ended September 30, 2017 remained impressive, with Profit before taxation improving by 14 percent as against the corresponding prior period to end at Rs.12.137 billion. Earnings per share for the nine months were reported at Rs. 4.47. The Bank’s Net Interest Income (NII) was maintained at the same level as that for the corresponding prior period, with NII reported at Rs. 21.685 billion. Sustaining NII levels amidst a consistently low interest rate regime is reflective of the Bank’s prudent and effective Balance Sheet management strategy. Non-fund based income was reported at Rs. 7.966 billion, improving 15 percent against the level reached for the corresponding period last year. Main contributions came from core fee, commission and brokerage income, which grew by Rs. 855 million, while Income from dealing in foreign currencies also improved by 47 percent, against the prior period. Growth under Administrative Expenses was restricted to 2 percent as against the corresponding period last year, as all non-essential costs were continually kept in check. The Bank intends to pursue a stricter discipline of cost control to further identify and curb its controllable cost base. Following the trend followed in the earlier quarters of the year, recoveries continued to outpace the charge considered against NPLs in the third quarter as well. Overall reversals considered over the nine month period amounted to Rs.1.906 billion, as against a charge against NPLs of Rs. 1.268 billion. This resulted in an overall net reversal of Rs.645.056 million for the current period as against a net charge of Rs. 267.108 million considered in the corresponding prior period. The Bank’s total assets were reported at Rs. 969.808 billion at September 2017 end, improving by 6 percent against December 2016 closing levels. Net Advances at the nine months period end were reported at Rs. 397.852 billion, indicating a growth of 5.1 percent against December 2016. The Bank’s coverage ratio at the period end improved to 89.8 percent, whereas the Bank’s NPL ratio is at 4.2 percent. With total deposits at the period end reported at Rs. 661.223 billion, the Bank’s Gross ADR ratio remains at a healthy 63 percent. As at the period end, the Bank’s CASA mix stands at 80.4 percent. Economic Review The overall macroeconomic environment remains conducive to growth. With positive outlooks for real, industrial and agricultural sectors, the annual target of 6.0 percent for GDP growth in FY18 appears achievable. Challenges however, continue to remain, with pressure on the external front and expansionary fiscal policy measures being undertaken. Moving into FY18, manufacturing activity is expected to benefit from higher development spending, ongoing investments in CPEC-related projects, improvement in security conditions and the continuing trend of stable and low cost of borrowing.
6. Bank Alfalah Quarter and Nine Months Report September 30 , 2017 5 Large Scale Manufacturing (LSM) indicated a healthy growth of 5.7 percent in FY17, surpassing the initial estimates of 4.9 percent. The same trend is expected to continue going forward. The current account deficit for the first two months of FY18 widened to US$ 2.6 billion, mainly due to higher imports of productive goods, especially machinery, metal and petroleum products. This has outpaced the combined positive influence of strong growth in exports, foreign direct investments (US$ 456 million) and workers’ remittances during Jul-Aug FY18. Improvement in the external account and foreign exchange reserve shall rely upon timely realization of financial inflows along with adequate structural reforms for improving trade competitiveness. Incentives given to the export industry, favourable global economic conditions, and improvement in domestic energy and security situations are likely to lead to a gain in exports, while adequate growth in workers’ remittances remains a challenge. The State Bank of Pakistan has kept the policy rate unchanged at 5.75 percent. With interest rates at a historic low, demand for credit has continued to pick up. Healthy growth in banking sector deposits has improved the supply of funds available for lending for the banking sector, and market rates have generally remained stable. Average CPI Inflation of 3.2 percent in July-August FY18, indicated a downward trend as against 3.8 percent during the same period last year. Based on the current assessment of the demand and supply side dynamics, average CPI inflation is expected to remain well below FY18 target of 6.0 percent. Credit Rating At the start of the year, JCR-VIS Credit Rating Company Limited assigned the Bank an entity rating of ‘AA+’ (Double A Plus) for the long term and ‘A1+’ (A-One Plus) for the Short Term, with outlook assigned as ‘Stable’, which was reaffirmed by them during their interim review in August 2017 . At June 2017, PACRA has also upgraded the Bank’s rating to ‘AA+’ (Double A Plus) for the long-term and ‘A1+’ (A-One Plus) for the short-term, with outlook assigned as ‘Stable’, while the credit rating of the Bank’s outstanding unsecured subordinated TFCs has been upgraded to AA (Double A). The assigned improved ratings reflect the Bank’s diversified operations, healthy financial risk profile, strong sponsors and existing market presence. These ratings denote a very low expectation of credit risk, a strong capacity for timely payment of financial commitments in the long term and the highest capacity for timely repayment in the short term, respectively. Acknowledgment On behalf of the Board, I thank the State Bank of Pakistan, the Ministry of Finance and other regulatory authorities for their guidance and cooperation extended to the Bank. At the same time, I would also like to express my sincere gratitude to our shareholders, our customers, business partners and staff for their continued support, loyalty and trust. A momentous milestone was achieved by the Bank recently, as we were recognized as the “Best Customer Franchise” – for the second year running, and more importantly - the “Best Bank” in Pakistan, at the prestigious Pakistan Banking Awards. These accolades are testament to the hard work, zeal, and commitment of our management team and staff, and the confidence reposed in us by our valued customers. We constantly strive to live our values to the fullest, with an aim to deliver unparalleled services to our customers. NAUMAN ANSARI Director & Chief Executive Officer Date: October 25, 2017 Place: Abu Dhabi
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8. Bank Alfalah Quarter and Nine Months Report September 30 , 2017 7
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10. 9 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Unconsolidated Condensed Interim Statement of Financial Position As at September 30, 2017 Note September 30, December 31, 2017 2016 (Un-audited) (Audited) ----------- (Rupees in ‘000) ----------- ASSETS Cash and balances with treasury banks 71,519,724 74,071,384 Balances with other banks 13,105,795 9,373,123 Lendings to financial institutions 7 53,979,617 30,149,029 Investments - net 8 400,526,685 389,092,637 Advances - net 9 397,851,993 378,720,349 Operating fixed assets 10 17,918,283 18,133,267 Deferred tax assets - Other assets 14,906,052 17,917,264 969,808,149 917,457,053 LIABILITIES Bills payable 11,110,253 12,886,990 Borrowings 11 207,840,220 178,311,035 Deposits and other accounts 12 661,223,465 640,944,254 Sub-ordinated loans 6,653,340 8,317,670 Liabilities against assets subject to finance lease - Deferred tax liabilities 1,028,442 2,650,428 Other liabilities 17,440,463 14,221,914 905,296,183857,332,291 NET ASSETS 64,511,966 60,124,762 REPRESENTED BY Share capital 16,075,720 15,952,076 Reserves 17,409,603 15,895,652 Unappropriated profit 23,102,000 17,337,458 Surplus on revaluation of assets - net of tax 56,587,323 7,924,643 49,185,186 10,939,576 64,511,96660,124,762 CONTINGENCIES AND COMMITMENTS 13 The annexed notes 1 to 19 and Annexure I form an integral part of the unconsolidated condensed interim financial information. Chief Executive Officer Director Director Director
11. 10 Unconsolidated Condensed Interim Profit and Loss Account (Un-audited) For the quarter and nine months period ended September 30, 2017 Note Mark-up / return / interest earned Mark-up / return / interest expensed Quarter Nine months Quarter Nine months ended period ended ended period ended September September 30, September 30, September 30, 30, 2017 2017 2016 2016 -------------------------- (Rupees in ‘000) ------------------------14,032,559 7,168,237 42,081,950 20,397,463 13,735,289 6,702,127 43,447,882 21,761,153 Net mark-up / interest income 6,864,322 21,684,487 7,033,162 21,686,729 (Reversal) / provision against non-performing loans and advances - net (378,083) (645,056) (76,467) 267,108 Provision for diminution in value of investments - net (21,776) 109,112 2,962 67,849 Bad debts written-off directly - - - (399,859) (535,944) (73,505) 334,957 Net mark-up / interest income after provisions 7,264,181 22,220,431 7,106,667 21,351,772 Non mark-up / interest income Fee, commission and brokerage income 1,411,870 4,221,410 992,825 3,366,369 Dividend income 102,482 269,754 147,910 450,901 Income from dealing in foreign currencies 561,483 1,304,924 274,856 888,133 Gain on sale of securities - net 284,227 1,786,621 369,364 1,699,179 Unrealised loss on revaluation of investments - classified as held for trading - net (1,726) (6,116) (40,643) (16,632) Other income 125,533 389,901 178,052 538,973 Total non mark-up / interest income 2,483,869 7,966,494 1,922,364 6,926,923 9,748,050 30,186,925 9,029,031 28,278,695 Non mark-up / interest expenses Administrative expenses 5,996,946 17,810,099 5,927,709 17,458,956 Provision / (reversal) against off-balance sheet obligations 5,341 (7,782) (5,446) 9,643 Provision / (reversal) against other assets 3,576 (12,594) 3,599 (41,024) Other charges 74,538 259,790 74,046 230,022 Total non mark-up / interest expenses 6,080,401 Extra ordinary / unusual items 3,667,649 - 18,049,513 12,137,412 - 5,999,908 3,029,123 - 17,657,597 10,621,098 - Profit before taxation 3,667,649 12,137,412 3,029,123 10,621,098 Taxation 16 Current 1,272,421 4,414,671 1,309,358 4,018,458 Deferred 100,813 (37,054) (192,952) (226,609) Prior years - 584,434 - 563,000 1,373,234 4,962,051 1,116,406 Profit after taxation 2,294,415 7,175,361 1,912,717 (Rupees) 4,354,849 6,266,249 (Rupees) Basic earnings per share 14 1.434.47 1.193.90 Diluted earnings per share 14 1.424.45 1.19 3.90 The annexed notes 1 to 19 and Annexure I form an integral part of the unconsolidated condensed interim financial information. Chief Executive Officer Director Director Director
12. 11 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Unconsolidated Condensed Interim Statement of Comprehensive Income (Un-audited) For the quarter and nine months period ended September 30, 2017 Quarter Nine months Quarter Nine months ended period ended ended period ended September September September September 30, 2017 30, 2017 30, 2016 30, 2016 ----------------------- (Rupees in ‘000) ---------------------Profit after taxation 2,294,415 7,175,361 1,912,717 6,266,249 Other comprehensive income Items that are or may be reclassified subsequently to profit and loss account Exchange differences on translation of net investment in foreign branches (29,153) (40,180) 6,486 13,783 Comprehensive income - transferred to unconsolidated condensed interim statement of changes in equity 2,265,262 7,135,181 1,919,203 6,280,032 Components of comprehensive income not reflected in equity (Deficit) / surplus on revaluation of available-for-sale (2,579,565) (4,559,872) (940,543) 1,243,801 Related deferred tax liability 1,261,211 1,584,180 329,190 (435,330) (1,318,354) (2,975,692) (611,353) 808,471 The annexed notes 1 to 19 and Annexure I form an integral part of the unconsolidated condensed interim financial information. Chief Executive Officer Director Director Director
13. 12 Unconsolidated Condensed Interim Cash Flow Statement (Un-audited) For the nine months period ended September 30, 2017 Nine Months period ended __________________________________ Note September 30, September 30, 2017 2016 (Un-audited) (Audited) ----------- (Rupees in ‘000) ----------- CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation 12,137,412 10,621,098 Less: Dividend income (269,754) (450,901) 11,867,658 10,170,197 Adjustments for: Depreciation 1,352,662 1,258,394 Amortisation 320,900 255,553 (Reversal) / provision against non-performing loans and advances - net (645,056) 267,108 Provision for diminution in the value of investments - net 109,112 67,849 (Reversal) / provision against off-balance sheet obligations (7,782) 9,643 Provision / (reversal) against other assets (12,594) (41,024) Unrealised loss on revaluation of investments classified as held for trading - net 6,116 16,632 Gain on sale of operating fixed assets - net (6,763) (19,272) Charge for defined benefit plan 210,949 211,678 1,327,544 2,026,561 13,195,202 12,196,758 (Increase) / decrease in operating assets Lendings to financial institutions (19,546,261) (5,419,174) Held-for-trading securities (2,567,263) (2,471,794) Advances (18,486,588) 6,173,518 Other assets (excluding tax recoverable and dividend receivable) 3,085,589 5,182,607 (37,514,523) 3,465,157 Increase / (decrease) in operating liabilities Bills payable (1,776,737) 1,685,798 Borrowings 29,529,185 (44,307,879) Deposits and other accounts 20,279,211 1,252,504 Other liabilities 1,004,775 1,337,027 49,036,434 (40,032,550) 24,717,113 (24,370,635) Income tax paid (3,004,921) (2,807,427) Net cash generated from / (used in) operating activities 21,712,192 (27,178,062) CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securities (15,156,119) (15,404,241) Net investments in held-to-maturity securities 1,136,660 32,484,527 Disposal / (investment) in subsidiaries and associates 511,397 95,790 Dividend income received 226,270 402,172 Investments in operating fixed assets (1,515,199) (2,094,115) Proceeds from sale of operating fixed assets 63,384 28,073 Net cash (used in) / generated from investing activities (14,733,607) 15,512,206 CASH FLOW FROM FINANCING ACTIVITIES Redemption of sub-ordinated loans (1,664,330) (3,000) Proceeds from issue of shares 191,722 84,895 Dividend paid (458) (1,585,285) Net cash (used in) / generated from financing activities (1,473,066) (1,503,390) Exchange difference on translation of the net investments in foreign branches (40,180) 13,783 Increase / (decrease) in cash and cash equivalents 5,465,339 (13,155,463) Cash and cash equivalents at beginning of the period 88,864,916 93,459,547 Effect of exchange rate changes on cash and cash equivalents (113,819) 136,174 88,751,097 93,595,721 Cash and cash equivalents at end of the period 15 94,216,436 80,440,258 The annexed notes 1 to 19 and Annexure I form an integral part of the unconsolidated condensed interim financial information. Chief Executive Officer Director Director Director
14. 13 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Unconsolidated Condensed Interim Statement of Changes in Equity (Un-audited) For the nine months period ended September 30, 2017 Capital Reserves Revenue Reserves Employee Share Option Unappropriated Total Compensation profit Reserve ----------------------------------------------------(Rupees in '000)---------------------------------------------------Share Capital Share Premium Statutory Reserve* Exchange Translation Reserve Balance as at January 1, 2016 15,898,062 4,329,648 8,140,904 1,572,966 120,602 12,362,596 42,424,778 Changes in equity for the nine months period ended September 30, 2016 Total comprehensive income for the period Profit after taxation for the nine months period ended September 30, 2016 - - - - - 6,266,249 6,266,249 Other comprehensive income for the nine months period ended September 30, 2016 Exchange differences on translation of net investment in foreign branches - - - 13,783 - - 13,783 --- 13,783- 6,266,249 6,280,032 Transfer to statutory reserve - - 1,253,250 - - (1,253,250) Transfer from surplus on revaluation of fixed assets - net of tax - - - - - 24,328 24,328 Transactions with owners, recorded directly in equity Final cash dividend for the year ended December 31, 2015 @ 10% - - - - - (1,589,806) (1,589,806) Shares issued during the period 54,014 30,881 - - - - 84,895 Recognition of fair value of share based payments on grant date during the period - - - - 126,102 - 126,102 Unamortised portion of deferred employee compensation expense - - - - (38,754) - (38,754) Transfer of Share Premium on issuance of shares under Stock Option Scheme - 56,597 - - (56,597) - Balance as at September 30, 2016 15,952,076 4,417,126 9,394,154 1,586,749 151,353 15,810,117 47,311,575 Changes in equity for the quarter ended December 31, 2016 Total comprehensive income for the period Profit after taxation for the quarter ended December 31, 2016 - - - - - 1,633,659 1,633,659 Other comprehensive income for the quarter ended December 31, 2016 Exchange differences on translation of net investment in foreign branches - - - (2,729) - - (2,729) Remeasurement of defined benefit plans - - - - - 309,314 309,314 Related tax charge - - - - - (108,260) (108,260) - - - (2,729) - 1,834,713 1,831,984 Transfer to statutory reserve - - 326,732 - - (326,732) Transfer from surplus on revaluation of fixed assets - net of tax - - - - - 19,360 19,360 Transactions with owners, recorded directly in equity Recognition of fair value of share based payments on grant date during the period - - - - 5,924 - 5,924 Unamortised portion of deferred employee compensation expense - - - - 16,343 - 16,343 Balance as at December 31, 2016 15,952,076 4,417,126 9,720,886 1,584,020 173,620 17,337,458 49,185,186 Changes in equity for the nine months period ended September 30, 2017 . Total comprehensive income for the period Profit after taxation for the nine months period ended September 30, 2017 - - - - - 7,175,361 7,175,361 Other comprehensive income for the nine months period ended September 30, 2017 Exchange differences on translation of net investment in foreign branches - - - 40,180) - - (40,180) - - - (40,180) - 7,175,361 7,135,181 Transfer to statutory reserve - - 1,435,072 - - (1,435,072) Transfer from surplus on revaluation of fixed assets - net of tax - - - - - 24,253 24,253 Transactions with owners, recorded directly in equity Shares issued during the period 123,644 68,078 - - - - 191,722 Amortisation of deferred employee compensation expense - - - - 50,981 - 50,981 Transfer of Share Premium on issuance of shares under Stock Option Scheme - 127,787 - - (127,787) - Balance as at September 30, 2017 16,075,720 4,612,991 11,155,958 1,543,840 96,814 23,102,000 56,587,323 * This represents reserve created under section 21(i) (a) of the Banking Companies Ordinance, 1962. The annexed notes 1 to 19 and Annexure I form an integral part of the unconsolidated condensed interim financial information. Chief Executive Officer Director Director Director
15. 14 Notes to and Forming Part of the Unconsolidated Condensed Interim Financial Information (Un-audited) For the nine months period ended September 30, 2017 1. STATUS AND NATURE OF BUSINESS Bank Alfalah Limited (the Bank) is a banking company incorporated in Pakistan on June 21, 1992 as a public limited company under the Companies Ordinance, 1984. It commenced its banking operations on November 1, 1992. The Bank’s registered office is located at B. A. Building, I. I. Chundrigar Road, Karachi and is listed on the Pakistan Stock Exchange (formerly Karachi, Lahore and Islamabad Stock Exchanges). The Bank is engaged in banking services as described in the Banking Companies Ordinance, 1962 and is operating through 472 conventional banking branches including 20 sub branches (2016: 475 branches including 18 sub branches), 10 overseas branches (2016: 10 branches), 151 Islamic banking branches (2016: 153 branches) and 1 offshore banking unit (2016: 1 unit). PACRA has upgraded the long term credit rating of the Bank to AA+ [Double A plus] and assigned a short term credit rating of A1+ (A one plus) to the Bank as at June 2017 with a stable outlook (2016: AA [Double A] for long term and A1+ [A one plus] for short term with a positive outlook). JCR-VIS has assigned a long term credit rating of AA+ [Double A plus] and a short term credit rating of A1+ (A one plus) as at February 2017 with a stable outlook, which was reaffirmed at August 2017. 2 BASIS OF PRESENTATION 2.1 The unconsolidated condensed interim financial information represents separate financial information of Bank Alfalah Limited in which investments in subsidiaries and associates are accounted on the basis of direct equity interest rather than on the basis of reported results. 2.2In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. Permissible form of trade-related modes of financing includes purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in this unconsolidated condensed interim financial information as such, but are restricted to the amount of facility actually utilised and the appropriate portion of markup thereon. The Islamic Banking branches of the Bank have complied with the requirements set out under the Islamic Financial Accounting Standards issued by the Institute of Chartered Accountants of Pakistan and notified under the provisions of the repealed Companies Ordinance, 1984. 2.3Key financial figures of the Islamic Banking branches are disclosed in Annexure I to this unconsolidated condensed interim financial information. 2.4The disclosures made in this unconsolidated condensed interim financial information have been limited based on the format prescribed by the State Bank of Pakistan through BSD Circular Letter No. 2 dated May 12, 2004 and the requirements of International Accounting Standard 34, “Interim Financial Reporting”. They do not include all of the information required for the full annual financial statements and this unconsolidated condensed interim financial information should be read in conjunction with the financial statements of the Bank for the year ended December 31, 2016. 3 STATEMENT OF COMPLIANCE 3.1 This unconsolidated condensed interim financial information has been prepared in accordance with the requirements of International Accounting Standard 34 “Interim Financial Reporting”, the provisions of repealed Companies Ordinance, 1984, Banking Companies Ordinance, 1962 and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP). In case where requirements differ, provisions of the repealed Companies Ordinance, 1984, Banking Companies Ordinance, 1962 and the said directives have been followed.
16. Bank Alfalah Quarter and Nine Months Report September 30 , 2017 15 The Companies Ordinance, 1984 was repealed by enactment of the Companies Act 2017 on May 30, 2017. SECP vide its Circular No. 17 of 2017 and press release of July 20, 2017, initially clarified that all those companies whose financial year, including quarterly and other interim period, closes on or before June 30, 2017 can prepare financial statements in accordance with the provisions of repealed Companies Ordinance, 1984. The relaxation was further extended for financial reporting periods ending on or before December 31, 2017 by the SECP vide its Circular No. 23 of 2017 dated October 04, 2017. The Companies Act 2017 requires enhanced disclosures and has also enhanced the definition of related parties. 4 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies and the methods of computation adopted in the preparation of this unconsolidated condensed interim financial information are same as those applied in the preparation of the financial statements of the Bank for the year ended December 31, 2016. 5 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS The basis and methods used for critical accounting estimates and judgements adopted in this unconsolidated condensed interim financial information are same as those applied in the preparation of the annual financial statements of the Bank for the year ended December 31, 2016. 5.1 During the current period, the management of the Bank has revised its estimate of the useful life of ATM machines, which have been increased from 5 years to 8 years. The revision has been made after taking into account the expected pattern of recovery of economic benefits associated with the use of these assets. The revision has been accounted for as a change in accounting estimate as defined in International Accounting Standards. Had the revision in useful life of ATMs not been made, depreciation expense for the nine month period would have been higher by Rs. 27.665 million and consequently profit before taxation would have been lower by the same amount. 6 FINANCIAL RISK MANAGEMENT The Bank’s Financial Risk Management objectives and policies are consistent with those disclosed in the annual financial statements for the year ended December 31, 2016. 7 LENDINGS TO FINANCIAL INSTITUTIONS Note September 30, December 31, 2017 2016 (Un-audited) (Audited) (Rupees in ‘000) Call money lendings 7.1 9,590,917 5,306,590 Bai Muajjal 7.2 28,998,425 24,497,227 Repurchase agreement lendings 7.3 15,390,275 345,212 53,979,617 30,149,029 7.1 These represent lendings to financial institutions at interest rates ranging from 3.60% to 8.00% per annum (December 2016: 0.25% to 9.00% per annum) having maturities upto February 2018 (December 2016: March 2017). 7.2 This represents Bai Muajjal agreements entered into with State Bank of Pakistan (SBP) and other commercial banks, whereby the Bank sold Sukuks having carrying value of Rs. 28,998 million (December 2016: 24,497 million) on deferred payment basis. The rates of return range from 5.43% to 5.80% per annum (December 2016: 5.62% to 5.97% per annum), and these are due to mature by December 2017 (December 2016: June 2017). 7.3 These represent short term lending to financial institutions against investment securities. These carry markup rates ranging from 5.25% to 6.20% per annum (December 2016: 6.15% per annum) with maturities upto February 2018 (December 2016: January 2017).
17. 16 8 . INVESTMENTS - NET 8.1 Investments by types Note September 30, 2017 (Un-audited) Held by Bank Given as collateral Total December 31, 2016 (Audited) Held by Bank Given as collateral Total -----------------------------------(Rupees in '000) ---------------------------------Held-for-trading securities Market Treasury Bills 17,534,091 - 17,534,091 14,120,130 - Pakistan Investment Bonds - - - 20,207 - Overseas Bonds 28,921 - 28,921 549,615 - Fully paid up ordinary shares / units Listed 435,088 435,088 740,776 14,120,130 20,207 549,615 740,776 17,998,100 - 17,998,100 15,430,728 - 15,430,728 Available-for-sale securities Market Treasury Bills 84,048,541 62,211,275 146,259,816 38,584,821 - 38,584,821 Pakistan Investment Bonds 22,439,348 93,988,129 116,427,477 78,936,759 128,150,711 207,087,470 Fully paid up ordinary shares / units - Listed 6,348,423 - 6,348,423 6,223,937 - 6,223,937 Fully paid up ordinary shares - Unlisted 492,455 - 492,455 82,056 - 82,056 Term Finance Certificates 609,162 - 609,162 514,483 - 514,483 Preference Shares - Listed 108,835 - 108,835 108,835 - 108,835 Preference Shares - Unlisted 25,000 - 25,000 25,000 - 25,000 Redeemable Participating Certificates 1,062,426 - 1,062,426 501,938 - 501,938 Pakistan Euro Bonds 2,361,896 345,185 2,707,081 2,688,770 - 2,688,770 Overseas Bonds 4,467,422 3,283,702 7,751,124 7,819,677 4,839,993 12,659,670 Sukuk Bonds 38,956,356 6,572,276 45,528,632 38,663,395 5,023,937 43,687,332 160,919,864 166,400,567 327,320,431 174,149,671 138,014,641 312,164,312 Held-to-maturity securities Market Treasury Bills 1,894,757 - 1,894,757 1,995,857 - 1,995,857 Pakistan Investment Bonds 31,737,240 - 31,737,240 31,793,773 - 31,793,773 Term Finance Certificates 524,266 - 524,266 524,266 - 524,266 Pakistan Euro Bonds 711,523 - 711,523 706,255 - 706,255 Commercial Papers - - - 661,557 - 661,557 Overseas Bonds 8,986,079 1,045,214 10,031,293 9,714,052 1,036,079 10,750,131 Sukuk Bonds 4,243,373 - 4,243,373 3,847,273 - 3,847,273 48,097,238 1,045,214 49,142,452 49,243,033 1,036,079 50,279,112 Subsidiaries Alfalah Securities (Private) Limited 1,126,000 - 1,126,000 1,126,000 - 1,126,000 Alfalah GHP Investment Management Limited 130,493 - 130,493 130,493 - 130,493 - - - 525,474 - 525,474 Alfalah GHP Cash Fund 1,256,493 - 1,256,493 1,781,967 - 1,781,967 Associates Alfalah Insurance Limited 68,990 - 68,990 68,990 - 68,990 Sapphire Wind Power Company Limited 978,123 - 978,123 978,123 978,123 TriconBoston Consulting Corporation (Private) Limited 769,230 - 769,230 - - - Alfalah GHP Money Market Fund - - - 55,153 - 55,153 Alfalah GHP Income Multiplier Fund - - - 250,000 - 250,000 Alfalah GHP Sovereign Fund - - - 200,000 - 200,000 Alfalah GHP Islamic Stock Fund 250,000 250,000 1,816,343 - 1,816,343 1,802,266 - 1,802,266 Investments at cost 230,088,038 167,445,781 397,533,819 242,407,665 139,050,720 381,458,385 Provision for diminution in value of investments - net 8.2 (2,188,714) - (2,188,714) (2,079,781) - (2,079,781) Investments (net of provisions) 227,899,324 167,445,781 395,345,105 240,327,884 139,050,720 379,378,604 (Deficit) / surplus on revaluation of held for trading securities - net (6,116) - (6,116) 109 - 109 Surplus on revaluation of available for sale securities-net 2,695,527 2,492,169 5,187,696 7,636,113 2,077,811 9,713,924 Total investments 230,588,735 169,937,950 400,526,685 247,964,106 141,128,531 389,092,637
18. 17 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Note 8.2 Particulars of provision for diminution in value of investments - net Opening balance Exchange adjustment 2,079,781 (179) 6,345,811 - 120,800 (11,688) 109,112 - 100,766 100,766 (4,366,796) Closing balance 2,188,714 Charge for the period / year Reversals during the period / year Provision written off / (adjusted) during the period / year September 30, December 31, 2017 2016 (Un-audited) (Audited) (Rupees in ‘000) 2,079,781 8.3 Particulars of provision for diminution in value of investments by type and segment Available for sale securities Listed companies / mutual funds - Fully paid up ordinary shares / units - First Dawood Investment Bank Limited 15,000 15,000 - Preference shares - Agritech Limited 108,835 108,835 Unlisted companies - Fully paid up ordinary shares of Rs. 10 each - Pakistan Export Finance Guarantee Agency Limited 5,725 5,725 - Al-Hamra Avenue (Private) Limited 50,000 50,000 Pakistan Mobile Communications Limited (Related party) 3,936 3,936 Unlisted securities - Term finance certificates / sukuks - Azgard Nine Limited 76,220 76,220 - Security Leasing Corporation Limited I 6,418 6,418 - Security Leasing Corporation Limited II 23,105 23,105 - New Allied Electronics 2,185 2,185 - Fauji Akbar Portia Marine Terminals Limited 193,551 161,407 Quetta Textile Mills Limited 72,619 72,619 - Preference shares - Trust Investment Bank Limited 25,000 25,000 Held to maturity securities Unlisted securities - Term finance certificates / sukuk bonds - Agritech Limited 499,586 499,586 - BRR Guardian Modaraba 24,489 36,177 - Security Leasing Corporation Limited 29,245 29,245 - Sitara Peroxide (Private) Limited 118,052 113,643 24,680 24,680 - Zulekha Textile Mills Investment in subsidiaries Unlisted company - Fully paid up ordinary shares of Rs. 10 each - Alfalah Securities (Private) Limited 826,000 826,000 Regulatory general reserve held against overseas investments - Afghanistan 8.3.1 84,068 2,188,714 2,079,781 8.3.1 This represents general reserve (of at least one percent) for losses against performing investments - i.e. those classified as standard, under Asset Classification and Provisioning Regulations of DAB, Afghanistan. Note September 30, December 31, 2017 2016 (Un-audited) (Audited) 9 ADVANCES - NET (Rupees in ‘000) Loans, cash credits, running finances, etc. In Pakistan 330,640,154 309,121,955 Outside Pakistan 12,974,846 13,181,132 343,615,000 322,303,087 Net investment in finance lease In Pakistan 4,115,945 4,181,047 Outside Pakistan - 4,115,945 4,181,047 Islamic financing and related assets (gross) 9.1 54,092,976 57,908,118 Bills discounted and purchased (excluding market treasury bills) Payable in Pakistan 6,270,919 5,033,339 Payable outside Pakistan 6,109,298 6,437,718 12,380,217 11,471,057 414,204,138 395,863,309 Provision against advances Specific provision against non-performing advances 9.3 (15,586,998) (16,366,993) General provision against advances 9.3 (765,147) (775,967) (16,352,145) (17,142,960) 397,851,993 378,720,349
19. 18 9 .1 This represents financing and related assets placed under shariah permisible modes and presented in Annexure I to this unconsolidated interim financial information. 9.2 Advances include Rs. 17,356 million (December 31, 2016: Rs. 19,019 million) which have been placed under non-performing status as detailed below: September 30, 2017 (Un-audited) Classified Advances Provision Required Provision Held DomesticOverseas Total DomesticOverseas Total DomesticOverseas Total ------------------------------------------(Rupees in '000)----------------------------------------- Category of classification Other Assets Especially Mentioned (Agri Financing) 80,047 - 80,047 3,263 - 3,263 3,263 - 3,263 Substandard 1,996,922 - 1,996,922 527,372 - 527,372 527,372 - 527,372 Doubtful 1,436,729 - 1,436,729 1,222,256 - 1,222,256 1,222,256 - 1,222,256 Loss 13,550,444 292,285 13,842,729 13,584,729 249,378 13,834,107 13,584,729 249,378 13,834,107 17,064,142 292,285 17,356,427 15,337,620 249,378 15,586,998 15,337,620 249,378 15,586,998 December 31, 2016 (Audited) Classified Advances Provision Required Provision Held DomesticOverseas Total DomesticOverseas Total DomesticOverseas Total ------------------------------------------(Rupees in ‘000)----------------------------------------- Category of classification Other Assets Especially Mentioned (Agri Financing) 149,224 - 149,224 4,318 - 4,318 4,318 - 4,318 Substandard 2,336,995 - 2,336,995 577,634 - 577,634 577,634 - 577,634 Doubtful 1,990,208 - 1,990,208 1,483,906 - 1,483,906 1,483,906 - 1,483,906 Loss 14,223,167 318,921 14,542,088 14,061,997 239,138 14,301,135 14,061,997 239,138 14,301,135 18,699,594 318,921 19,018,515 16,127,855 239,138 16,366,993 16,127,855 239,138 16,366,993 9.3 Particulars of provisions against non-performing loans and advances Nine months period ended Year ended September 30, 2017 (Un-audited) December 31, 2016 (Audited) SpecificGeneral Total SpecificGeneral Total ---------------------------------------(Rupees in ‘000)------------------------------------- Opening balance 16,366,993 775,967 17,142,960 15,452,555 739,904 16,192,459 Exchange adjustment and other movements Charge for the period / year Reversals / recoveries Amounts written off (8,200) (4,033) (12,233) 347 (1,135) (788) 1,268,147 (1,906,416) (638,269) 106,388 (113,175) (6,787) 1,374,535 (2,019,591) (645,056) 3,408,125 (2,362,817) 1,045,308 157,643 (120,445) 37,198 3,565,768 (2,483,262) 1,082,506 (133,526) (131,217) (133,526) - - (131,217) Closing balance 15,586,998 765,147 16,352,145 16,366,993 775,967 17,142,960 9.3.1 The additional profit arising from availing the forced sales value (FSV) benefit - net of tax at September 30, 2017 which is not available for distribution as either cash or stock dividend to shareholders and bonus to employees amounted to Rs. 28.713 million (December 31, 2016: Rs. 95.817 million). 9.3.2 General provision against consumer loans represents provision maintained at an amount equal to 1.5% of the fully secured performing portfolio and 5% of the unsecured performing portfolio as required by the Prudential Regulations issued by the State Bank of Pakistan. General reserve of at least equivalent to 1% of the secured and performing SE portfolio and 2% of the unsecured and performing SE portfolio is also maintained as required under Prudential Regulations for Small and Medium Enterprise Financing. 9.3.3 Exposure amounting to Rs. 18.121 billion relating to certain facilities of Power Holding (Private) Limited, which is guaranteed by the Government of Pakistan, has not been classified as non-performing, pursuant to a relaxation given by SBP in this respect. The relaxation is valid upto October 31, 2017.
20. 19 Bank Alfalah Quarter and Nine Months Report September 30 , 2017 Note 10 OPERATING FIXED ASSETS September 30, December 31, 2017 2016 (Un-audited) (Audited) (Rupees in ‘000) Capital work-in-progress 685,861 775,408 Property and equipment 15,895,353 16,098,712 Intangible assets 1,337,069 1,259,147 17,918,283 18,133,267 Nine months period ended September 30, September 30, 2017 2016 (Un-audited) 10.1 Additions to operating fixed assets (Rupees in ‘000) Office premises 108,413 386,224 Leasehold improvements 217,648 88,419 Office equipment 761,971 387,606 Furniture and fixtures 15,805 30,919 Vehicles 113,578 16,550 10.2 Additions to Intangibles Computer software 398,891 148,611 10.3 Disposals of operating fixed assets Office premises 50,160 Leasehold improvements 64,801 10 Office equipment 192,226 67,385 Furniture and fixtures 10,272 11,147 Vehicles 20,220 25,227 September 30, December 31, 2017 2016 (Un-audited) (Audited) 11 BORROWINGS (Rupees in ‘000) Secured Borrowings from State Bank of Pakistan under ERF / LTF - EOP 23,828,002 21,668,916 Repurchase agreement borrowings 11.1 131,309,544 136,763,030 Borrowings from other central banks - 198,418 Bai Muajjal 11.2 35,127,188 Unsecured Call borrowings Bai Muajjal Trading liabilities 11.3 11.4 11.1 190,264,734 158,630,364 10,969,776 3,019,610 3,586,100 13,461,835 6,218,836 - 17,575,486 19,680,671 207,840,220 178,311,035 This represents repurchase agreement borrowing from SBP and other banks at the rate of 1.35%  and 5.93% per annum respectively (December 2016: 1.10% and 5.95% per annum) having maturities upto December 2017 (December 2016: February 2017). 11.2 This represents borrowings from financial institutions at mark-up rates ranging from 5.73% to 5.83% per annum (December 2016: Nil) having maturities upto August 2018 (December 2016: Nil). 11.3 This represents borrowings from financial institutions at mark-up rates ranging from 0.04% to 5.75% per annum (December 2016: 0.55% to 5.80% per annum) having maturities upto December 2017 (December 2016: March 2017). 11.4 This represents borrowings from financial institutions at mark-up rates ranging from 5.65% to 5.70% per annum (December 2016: 5.60% to 5.70% per annum) having maturities upto November 2017 (December 2016: May 2017).