Bank of Punjab: Half Yearly Report (Un-audited) January - June 2019

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1. HALF YEARLY REPORT 2019 (Un-audited) JANUARY - JUNE
2. CONTENTS Corporate Information 2 Directors ’ Review 3 Auditors’ Review Report to the Members 6 Unconsolidated Condensed Interim Financial Statements of The Bank of Punjab 7 Consolidated Condensed Interim Financial Statements of The Bank of Punjab and its subsidiaries 45 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 1
3. Corporate Information Board of Directors Dr . Pervez Tahir Mr. Khalid S. Tirmizey Mr. Mohammad Jehanzeb Khan Mr. Muhammad Abdullah Khan Sumbal Khawaja Farooq Saeed Mr. Saeed Anwar Dr. Muhammad Amjad Saqib Mr. Raza Saeed Chairman Acting President / CEO Director Director Director Director Director Secretary to the Board Central Audit Committee (CAC) Khawaja Farooq Saeed Mr. Saeed Anwar Chairman Member Board Risk Management Committee (BRMC) Mr. Mohammad Jehanzeb Khan Mr. Saeed Anwar Dr. Muhammad Amjad Saqib Chairman Member Member Human Resource & Remuneration Committee (HR&RC) Khawaja Farooq Saeed Mr. Mohammad Jehanzeb Khan Dr. Muhammad Amjad Saqib Chairman Member Member Research Development & Islamic Banking Committee Dr. Muhammad Amjad Saqib Dr. Pervez Tahir Khawaja Farooq Saeed Mr. Khalid S. Tirmizey Chairman Member Member Member Auditors EY Ford Rhodes, Chartered Accountants Registered Office BOP Tower, 10-B, Block-E-II, Main Boulevard, Gulberg-III, Lahore. Telephones: +92 42 35783700–10 Fax No. +92 42 35783975 UAN: 111 200 100 Registrar M/s. Corplink (Pvt) Limited Wings Arcade, 1-K, Commercial, Model Town, Lahore. Telephones: +92 42 35916714, 35916719, 35839182 Fax No. +92 42 35869037 Website www.bop.com.pk 2 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
4. Directors ’ Review Half Yearly Financial Statements – June 30, 2019 On behalf of the Board of Directors, I am pleased to present Un-audited Condensed Interim Financial Statements of The Bank of Punjab for the six months period ended June 30, 2019. The Government of Pakistan has passed FY20 budget that seeks to credibly improve fiscal sustainability by focusing on revenue measures to widen the tax base. Adjustments in utility prices and other measures in the budget are expected to lead to a one-time increase in prices in the first half of FY20. On the other hand, the government has also committed to cease borrowing from the State Bank that would qualitatively improve the inflation outlook. The outlook for external financing has further strengthened with the disbursement of the first tranche associated with the IMF Extended Fund Facility, activation of the Saudi oil facility, and other commitments of support from multilateral and bilateral partners. The current account deficit has also continued to fall suggesting that external pressures continue to decline. On the other hand, the depreciation in the exchange rate has added to inflationary pressures but exchange rate is now stabilizing. Business confidence is returning. During 1st half of year 2019, the Bank has maintained its growth trends. The financial results for the half year ended June 30, 2019 well and truly portray a bright picture: Financial Highlights: Rs. in Million Profit before taxation 6,927 Taxation2,918 Profit after taxation 4,009 Earnings per share (Rupees) 1.52 During 1st Half of year 2019, Bank’s Net Interest Margin significantly improved to Rs. 13,084 million as against Rs. 9,187 million for the corresponding period last year, thereby registering a rise of 42%. Non Mark-up/Interest Income and Non Mark-up/Interest Expenses remained at Rs. 1,838 million and Rs. 6,960 million, respectively. Accordingly, the Bank was able to post a pre-tax profit of Rs. 6,927 million as against Rs. 6,149 million for corresponding period last year thereby registering a rise of 13%. The Earnings per Share improved to Rs. 1.52 as against Rs. 1.43 for corresponding period last year. As on June 30, 2019, the Deposits stood at Rs. 665.2 billion, while Total Assets stood at Rs. 802.2 billion. Investments and Gross Advances stood at Rs. 302.5 billion and Rs. 425.4 billion, respectively. The Tier-I Equity stood at Rs. 36.5 billion as on June 30, 2019. As on June 30, 2019, the Bank stands compliant with the Capital Adequacy Ratio (CAR) requirement prescribed by SBP. The CAR improved to 13.40% as against 13.17% as on December 31, 2018. The Bank has been assigned long term entity rating of “AA” by M/s PACRA with short term rating being at the highest rank of “A1+”. Further, the Bank has planned to expand its outreach during the year. The Bank currently has a network of 587 online branches, including 76 Taqwa Islamic Banking Branches, strategically located across the country. Further, the Bank has a vast network of 537 ATMs providing 24/7 banking services to the customers I am grateful to our valued customers and shareholders for their untiring support and assure that the Bank would continue its efforts for further accelerating the current growth trends. I wish to extend my heartiest gratitude to the Government of the Punjab and State Bank of Pakistan for their support and guidance. I also highly appreciate the Bank’s management and all staff members for their contribution towards the progress and prosperity of the Bank. For and on behalf of the Board Dr. Pervez Tahir Chairman HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 3
5. 4 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
6. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 5
7. Building a better working world EY Ford Rhodes Chartered Accountants 96-B-I . 4th Floor, Pace Mall Building M. M. Alam Road, Gulberg-II P.O. Box 104, Lahore-54660 Tel: +9242 3577 8402-11 Fax: +9242 3577 8412-13 ey.lhr@pk.ey.com ey.com/pk INDEPENDENT AUDITOR’S REVIEW REPORT To the members of The Bank of Punjab Report on review of unconsolidated Condensed Interim Financial Statements Introduction We have reviewed the accompanying unconsolidated condensed interim statement of financial position of The Bank of Punjab (the Bank) as at 30 June 2019, and the related unconsolidated condensed interim profit and loss account, unconsolidated condensed interim statement of comprehensive income, unconsolidated condensed interim statement of changes in equity, and unconsolidated condensed interim cash flow statement and notes to the unconsolidated condensed interim financial statements for the six month period then ended (here-in-after referred to as the “unconsolidated condensed interim financial statements”). Management is responsible for the preparation and presentation of these unconsolidated condensed interim financial statements in accordance with accounting and reporting standards as applicable in Pakistan for interim financial reporting. Our responsibility is to express a conclusion on these financial statements based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying unconsolidated condensed interim financial statements are not prepared, in all material respects, in accordance with the accounting and reporting standards as applicable in Pakistan for interim financial reporting. Other Matters The figures of the unconsolidated condensed interim profit and loss account and unconsolidated condensed interim statement of comprehensive income for the three month period ended 30 June 2019 and 30 June 2018 have not been reviewed, as we are required to review only the cumulative figures for the six month period ended 30 June 2019. The engagement partner on the audit resulting in this independent auditor’s report is Mr. Farooq Hameed. EY Ford Rhodes Chartered Accountants Lahore: August 23, 2019 6 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
8. Unconsolidated Condensed Interim Financial Information for the period ended June 30 , 2019 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 7
9. Unconsolidated Condensed Interim Statement of Financial Position As at June 30 , 2019 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ ASSETS Cash and balances with treasury banks 7 54,574,947 43,589,007 Balances with other banks 8 11,022,377 5,802,312 Lendings to financial institutions 9 28,203,503 27,843,153 Investments - net 10 274,320,715 210,071,483 Advances - net 11 380,679,464 381,877,256 Fixed assets 12 13,833,021 8,787,928 Intangible assets 13 858,170 891,489 Deferred tax assets - net 14 8,057,982 7,965,267 Other assets - net 15 30,689,986 27,551,697 802,240,165 714,379,592 LIABILITIES Bills payable 17 4,154,644 3,577,677 Borrowings 18 49,852,926 41,793,201 Deposits and other accounts 19 665,164,462 595,581,962 Liabilities against assets subject to finance lease - Subordinated debts 20 8,795,780 8,797,140 Deferred tax liabilities - Other liabilities 21 35,293,736 26,909,321 763,261,548 676,659,301 NET ASSETS 38,978,617 37,720,291 REPRESENTED BY Share capital - net 26,173,766 26,173,766 Reserves 4,990,570 4,990,570 Surplus on revaluation of assets - net of tax 22 2,457,205 3,260,312 Unappropriated profit 5,357,076 3,295,643 38,978,617 37,720,291 CONTINGENCIES AND COMMITMENTS 23 The annexed notes from 1 to 41 form an integral part of these unconsolidated condensed interim financial statements. Chief Financial Officer 8 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
10. Unconsolidated Condensed Interim Profit and Loss Account For the Six Months Ended June 30 , 2019 (Un-audited) Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Note Rupees in ‘000’ Mark-up / return / interest earned 24 18,031,462 10,619,490 34,118,455 20,405,914 Mark-up / return / interest expensed 25 11,463,595 6,108,248 21,034,761 11,219,133 Net mark-up / interest income 6,567,867 4,511,242 13,083,694 9,186,781 NON MARK-UP / INTEREST INCOME Fee and commission income 26 907,834 839,622 1,675,016 1,606,412 Dividend income 29,616 15,179 57,821 35,362 Foreign exchange income 33,451 56,914 30,761 124,720 Income / (loss) from derivatives - - - Gain / (loss) on securities - net 27 19,928 (7,877) 33,918 18,171 Other income - net 28 35,147 9,934 40,058 44,264 Total non-markup / interest income 1,025,976 913,772 1,837,574 1,828,929 Total income 7,593,843 5,425,014 14,921,268 11,015,710 NON MARK-UP / INTEREST EXPENSES Operating expenses 29 3,455,717 3,115,935 6,957,802 5,850,867 Workers welfare fund - - - Other charges 30 1,642 - 2,663 Total non-markup / interest expenses Profit before provisions Provisions / (reversals) and write offs - net 31 Extra ordinary / unusual items 3,457,359 3,115,935 6,960,465 5,850,867 4,136,484 783,751 - 2,309,079 (831,588) - 7,960,803 1,033,913 - 5,164,843 (984,648) - PROFIT BEFORE TAXATION3,352,733 3,140,667 6,926,890 6,149,491 Taxation - net 32 1,309,157 1,296,515 2,917,827 2,365,087 PROFIT AFTER TAXATION 2,043,576 1,844,152 4,009,063 3,784,404 Basic earnings per share - Rupees 33 0.78 0.70 1.52 1.43 Diluted earnings per share - Rupees 34 0.78 0.70 1.52 1.43 The annexed notes from 1 to 41 form an integral part of these unconsolidated condensed interim financial statements. Chief Financial Officer President Director HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 9
11. Unconsolidated Condensed Interim Statement of Comprehensive Income For the Six Months Ended June 30 , 2019 (Un-audited) RestatedRestated Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Rupees in ‘000’ Profit after taxation for the period 2,043,576 1,844,152 4,009,063 3,784,404 Other comprehensive income: Items that will not be reclassified to profit and loss account in subsequent periods: Remeasurement loss on defined benefit obligations - - - Movement in surplus on revaluation of fixed / non-banking assets - net of tax - - - - - - - 2,043,576 1,844,152 4,009,063 3,784,404 Items that may be reclassified to profit and loss account in subsequent periods: Movement in surplus on revaluation of investments - net of tax (752,363) 3,852 (767,968) (81,810) Total comprehensive income for the period1,291,213 1,848,004 3,241,095 3,702,594 The annexed notes from 1 to 41 form an integral part of these unconsolidated condensed interim financial statements. Chief Financial Officer 10 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
12. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 11 - - - - - - - - - - - - 26 ,173,766 - - - - - - - 26,173,766 - - - - - - - 2,215,040 - - - - - - - 2,215,040 - - - - - - - 2,775,530 - - - - 1,512,739 - - 1,262,791 - - - - - - (767,968) (11,369) - - - 123,940 - - 123,940 (135,309) - - - - - - 3,271,681 (47,546) (1,388) (22,710) 509,790 - - 509,790 2,833,535 (3,978) (77,594) (2,052) (22,942) - - - 2,940,101 4,009,063 - 3,295,643 51,035 1,388 22,710 3,606,558 (1,512,739) 3,779,289 (172,731) 1,126,691 4,357 119,375 2,052 22,942 3,784,404 3,784,404 - (2,806,439) 4,009,063 (767,968) 37,720,291 3,489 - - 4,240,288 - 3,779,289 460,999 33,476,514 379 41,781 - - 3,702,594 3,784,404 (81,810) 29,731,760 Total - - - - - - - (1,982,769) (1,982,769) Chief Financial Officer President Director Balance as on June 30, 2019 26,436,924 (263,158) 26,173,766 2,215,040 2,775,530 (779,337) 3,236,542 5,357,076 38,978,617 The annexed notes from 1 to 41 form an integral part of these unconsolidated condensed interim financial statements. Total comprehensive income for the six months ended June 30, 2019 - - - - - (767,968) - 4,009,063 3,241,095 Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax - - - - - - (21,520) 21,520 Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax - - - - - - (8,536) 8,536 Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal - - - - - - (5,083) 5,083 Transactions with owners recognized directly in equity : Final cash dividend - December 31, 2018 declared subsequent to year end at 7.5% per share - - - - - - - (1,982,769) (1,982,769) Profit after taxation for the six months ended June 30, 2019 Other comprehensive loss (263,158) - - 26,436,924 - - Balance as on December 31, 2018 - - - - Total comprehensive income for the six months ended December 31, 2018 Transfer to statutory reserve Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal - - - - (263,158) Profit after taxation for the six months ended December 31, 2018 Other comprehensive income / (loss) 26,436,924 - - Balance as on June 30, 2018 - as restated - - (81,810) - - Total comprehensive income for the six months ended June 30, 2018 Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) on disposal Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal - - - (81,810) - - (53,499) - - - - Profit after taxation for the six months ended June 30, 2018 Other comprehensive loss - - R u p e e s i n ‘000’ Balance as on January 01, 2018 - as restated 26,436,924 (263,158) 26,173,766 2,215,040 1,262,791 Share Discount on Share Share Statutory Investments Fixed / non Unappropriated capital issue of capital premium reserve banking profit / shares - net assets (accumulated loss) Surplus / (Deficit) - net of tax on revaluation of For the Six Months Ended June 30, 2019 (Un-audited) Unconsolidated Condensed Interim Statement of Changes in Equity
13. Unconsolidated Condensed Interim Cash Flow Statement For the Six Months Ended June 30 , 2019 (Un-audited) Six Months Ended June 30, June 30, 20192018 Note Rupees in ‘000’ CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 6,926,890 6,149,491 Less: Dividend income (57,821) (35,362) 6,869,069 6,114,129 Adjustments: Depreciation on fixed assets 29 515,262 449,375 Depreciation on non banking assets acquired in satisfaction of claims 29 37,052 38,339 Depreciation on ijarah assets under IFAS - 2 29 151,036 193,552 Depreciation on right of use assets 29 367,927 Amortization on intangible assets 29 84,878 26,276 Amortization of (discount) / premium on debt securities - net (433,391) 342,414 Mark-up on lease liability against right of use assets 329,336 Unrealized loss on revaluation of investments classified as held for trading 27 10,230 5,040 Provision / (reversal) and writeoffs - net 31 1,033,913 (984,648) (Gain) / loss on sale of fixed assets - net 28 (34,108) 419 Gain on sale of non banking assets - net (67) (36,335) Gain on securities - net 27 (33,918) (18,171) Provision for employees compensated absences 5,231 4,930 Provision for gratuity 57,399 53,804 2,090,780 74,995 8,959,849 (Increase) / Decrease in operating assets: Lendings to financial institutions (360,350) Held for trading securities 314,862 Advances - net 191,795 Others assets - net (4,145,009) 6,189,124 (3,998,702) Increase / (Decrease) in operating liabilities: Bills Payable 576,967 Borrowings from financial institutions 8,148,103 Deposits 69,582,500 Other liabilities 2,470,193 Income tax paid 80,777,763 (1,749,546) 1,602,512 13,380,376 (62,550,623) (584,024) (48,151,759) 252,495 (5,267,970) 36,438,873 2,075,268 33,498,666 (2,178,334) Net cash flow from / (used in) operating activities 83,989,364 (10,642,303) 12 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
14. Six Months Ended June 30 , June 30, 20192018 Rupees in ‘000’ CASH FLOWS FROM INVESTING ACTIVITIES Net investments in available for sale securities (45,795,718) 7,937,936 Net investments in held to maturity securities (19,606,306) Dividends received 51,040 46,510 Investments in fixed assets (427,536) (619,225) Investments in intangible assets (51,559) (212,616) Proceeds from sale of fixed assets 34,854 141,673 Proceeds from sale of non banking assets 63,612 233,551 Net cash (used in) / flow from investing activities (65,731,613) 7,527,829 CASH FLOW FROM FINANCING ACTIVITIES Repayment of subordinated debts (1,360) (500) Dividend paid (1,962,008) Issuance of privately placed term finance certificates - II - 4,300,000 Net cash (used in) / flow from financing activities (1,963,368) 4,299,500 Increase in cash and cash equivalents Cash and cash equivalents at beginning of the period 16,294,383 49,180,556 1,185,026 53,299,968 Cash and cash equivalents at end of the period 65,474,939 54,484,994 Cash and cash equivalents : Cash and balances with treasury banks 54,574,947 47,833,984 Balances with other banks 11,022,377 6,663,866 Overdrawn nostro accounts (122,385) (12,856) 65,474,939 54,484,994 The annexed notes from 1 to 41 form an integral part of these unconsolidated condensed interim financial statements. Chief Financial Officer President Director HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 13
15. Notes to the Unconsolidated Condensed Interim Financial Statements For the Six Months Ended June 30 , 2019 (Un-audited) 1. STATUS AND NATURE OF BUSINESS The Bank of Punjab (the Bank) was constituted in Pakistan pursuant to The Bank of Punjab Act, 1989. It was given the status of a scheduled bank by the State Bank of Pakistan (SBP) on September 19, 1994. It is principally engaged in commercial banking and related services with its registered office at BOP Tower, 10-B, Block E-II, Main Boulevard, Gulberg III, Lahore. The Bank has 587 branches including 14 sub branches and 74 Islamic banking branches (December 31, 2018: 576 branches including 13 sub branches and 72 Islamic banking branches) in Pakistan and Azad Jammu and Kashmir at the period end. The Bank is listed on Pakistan Stock Exchange. The majority shares of the Bank are held by Government of the Punjab (GoPb). 2. BASIS OF PRESENTATION In accordance with the directives of the Government of Pakistan regarding the conversion of the Banking system to Islamic modes, the SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by the Banks from their customers and immediate resale to them at appropriate marked-up price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these unconsolidated condensed interim financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon. These unconsolidated condensed interim financial statements are separate financial statements of the Bank in which the investment in subsidiaries is stated at cost less impairment losses (if any) and has not been accounted for on the basis of reported results and net assets of the investee. Consolidated condensed interim financial statements of the Group are being issued separately. The financial results of Islamic Banking business have been consolidated in these unconsolidated condensed interim financial statements for reporting purposes, after eliminating inter-branch transactions / balances. Key financial figures of the Islamic Banking business are disclosed in note 39 of these unconsolidated condensed interim financial statements. 2.1 STATEMENT OF COMPLIANCE 2.1.1 These unconsolidated condensed interim financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - Directives issued by the SBP and the Securities Exchange Commission of Pakistan (SECP). - Requirements of The Bank of Punjab Act, 1989; - Provisions of and directives issued under the Banking Companies Ordinance, 1962 and the Companies Act, 2017; - International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board as are notified under the Companies Act, 2017; and - Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017. Wherever the requirements of the directives issued by the SBP and Securities and Exchange Commission of Pakistan (SECP), The Bank of Punjab Act, 1989, the Banking Companies Ordinance, 1962 and the Companies Act, 2017 differ with the requirements of these IFRS or IFAS, the requirements of the said directives, The Bank of Punjab Act, 1989, the Banking Companies Ordinance, 1962 and the Companies Act, 2017 take precedence. 14 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
16. 2 .1.2 The disclosures made in these unconsolidated condensed interim financial statements have been limited based on SBP BPRD Circular Letter No. 05 of 2019 and IAS 34 “Interim Financial Reporting”. Accordingly, these unconsolidated condensed interim financial statements do not include all the information and disclosures required for annual unconsolidated financial statements and should be read in conjunction with the unconsolidated financial statements of the Bank for the year ended December 31, 2018. SBP through its BPRD Circular No. 5 dated March 22, 2019 has amended the format of quarterly and half yearly financial statements of banks. All banks are directed to prepare their quarterly financial statements on the revised format effective from accounting year starting from January 1, 2019. Accordingly, the Bank has prepared these unconsolidated condensed interim financial statements on the new format prescribed by the SBP. 2.1.3 SBP as per BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard (IAS) 39, “Financial Instruments: Recognition and Measurement” and International Accounting Standard (IAS) 40, “Investment Property” for banking companies till further instructions. Further, according to the notification of SECP dated April 28, 2008, the IFRS – 7 “Financial Instruments: Disclosures” has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated condensed interim financial statements. 2.1.4 The State Bank of Pakistan through BPRD Circular No. 04 of 2015 dated February 25, 2015 has deferred applicability of Islamic Financial Accounting Standard - 3 for Profit & Loss Sharing on Deposits (IFAS 3) issued by the Institute of Chartered Accountants of Pakistan and notified by the SECP, vide their SRO No. 571 of 2013 dated June 12, 2013 for Institutions offering Islamic Financial Services (IIFS). The standard will result in certain new disclosures in these unconsolidated condensed interim financial statements of the Bank. 2.1.5 New accounting standards/ amendments and IFRS interpretations that are effective for the current period: During the period, certain amendments to standards, interpretations and improvements to accounting standards became effective, however the amendments, interpretations and improvements are considered not to be relevant or do not have any significant effect on the Bank’s operations and therefore not detailed in these unconsolidated condensed interim financial statements. During the period, IFRS 16 - Leases, became effective from January 01, 2019, the impact of adoption of this standard is disclosed in note 4.1 to these unconsolidated condensed interim financial statements. 2.1.6 New accounting standards and IFRS interpretations that are not yet effective: The following standards, amendments and interpretations are only effective for accounting periods, beginning on or after the date mentioned against each of them. The Bank considers that the following standards and interpretations are either not relevant or will not have any material impact on its financial statements in the period of initial application other than IFRS 9. The SECP, through SRO 229(I)/2019 dated February 14, 2019, has notified that IFRS 9, Financial Instruments, is applicable for accounting periods ending on or after June 30, 2019. However, based on the guidance received from the SBP, the requirements of IFRS 9 have not been considered in preparation of these unconsolidated condensed interim financial statements. Standard or Interpretations IFRS 3 IAS 1 & 8 Amendments to IFRS 3 (Definition of a Business) Amendments to IAS 1 and IAS 8 (Definition of Material) IFRS 9 Effective date (accounting periods beginning on or after) January 01, 2020 January 01, 2020 Effective date (accounting periods ending on or after) Financial Instruments : Classification and Measurement June 30, 2019 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 15
17. 3 . 3.1 3.2 4. 4.1 16 BASIS OF MEASUREMENT These unconsolidated condensed interim financial statements have been prepared under the historical cost convention, except for revaluation of freehold land and buildings on freehold land, revaluation of non banking assets acquired in satisfaction of claims, valuation of certain investments and commitments in respect of forward exchange contracts at fair value, right of use assets, lease liability and certain staff retirement benefits at present value. These unconsolidated condensed interim financial statements are presented in Pak Rupees, which is the Bank’s functional and presentation currency. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these unconsolidated condensed interim financial statements are consistent with those applied in the preparation of the annual unconsolidated financial statements of the Bank for the year ended December 31, 2018, except for the following : Impact of IFRS 16 - Leases During the period, IFRS 16 - Leases became applicable to the Banks. IFRS 16 replaces IAS 17Leases, existing interpretations and guidance on accounting for leases. IFRS 16 introduces an on-balance sheet lease accounting model for leases entered by the lessee. A lessee recognizes a right of use assets representing its right of using the underlying assets and a corresponding lease liability representing its obligations to make lease payments. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as either finance or operating leases. The Bank has adopted IFRS 16 from January 1, 2019 thereby recognizing right of use assets and lease liability , in respect of leased properties, there-against on January 01, 2019 using modified retrospective restatement approach, as permitted under the specific transitional provisions in the standard, and has not restated comparatives for the corresponding reporting period of 2018. Previously, these leases were accounted for as operating leases. As at January 01, 2019, these liabilities were initially measured at the present value of the remaining lease payments discounted using Bank’s incremental weighted average borrowing rate of 14.33% per annum. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The associated right of use assets were measured at the amount equal to the lease liability, adjusted by the amount of prepaid lease payments recognized in the unconsolidated financial statements of financial position immediately before the date of initial application. The right of use assets recognized subsequent to the adoption are measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The right of use assets are depreciated over the lease term using a straight line basis as it closely reflects the expected pattern of consumption of future economic benefits. The right of use assets are reduced by impairment losses, if any, and adjusted for certain re-measurements of lease liability. BOP HALF YEARLY REPORT JANUARY - JUNE 2019
18. The effect of this change in accounting policy is as follows : June 30, January 1, 2019 2019 Rupees in ‘000’ Impact on unconsolidated condensed interim statement of financial position: Increase in fixed assets - right of use assets 5,133,568 5,169,679 Decrease in advances, deposits, advance rent and other prepayments (83,881) (187,014) Increase in other assets - advance taxation 65,980 - Net increase in total assets Increase in other liabilities - lease liability against right of use assets 5,115,667 4,982,665 5,218,866 4,982,665 Net increase/(decrease) in net assets (103,199) Impact on unconsolidated condensed interim profit and loss account: January 01 – June 30, 2019 Rupees in ‘000’ Increase in mark-up/interest expensed Increase/(Decrease) in operating expenses: Amortization on right of use assets Rent expense 329,336 367,927 (528,084) Decrease in profit before tax Decrease in taxation 169,179 65,980 Decrease in profit after taxation 103,199 Decrease in earnings per share for the six months ended June 30, 2019 is 0.04 per share. While applying IFRS 16, the Bank has used the following practical expedients, as permitted by the standard, and significant judgements: - Use of a single discount rate for leases with similar characteristics; and - 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. 5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The basis for accounting judgments and key estimates adopted in preparation of these unconsolidated condensed interim financial statements are consistent with those applied in the preparation of the annual unconsolidated financial statements of the Bank for the year ended December 31, 2018 except for judgements and estimates as explained in note 4.1 to these unconsolidated condensed interim financial statements. 6. FINANCIAL RISK MANAGEMENT The financial risk management objectives and policies of the Bank are consistent with those disclosed in the annual unconsolidated financial statements of the Bank for the year ended December 31, 2018. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 17
19. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 7. CASH AND BALANCES WITH TREASURY BANKS In hand: Local currency 12,090,159 8,558,512 Foreign currencies 1,519,139 1,567,982 13,609,298 With SBP in : Local currency current accounts 24,899,868 Foreign currency current accounts 473,755 Foreign currency deposit accounts 1,493,943 10,126,494 19,249,466 431,861 1,283,551 26,867,566 20,964,878 With National Bank of Pakistan in : Local currency current account 11,605,112 12,451,416 Prize bonds 2,492,971 46,219 54,574,947 43,589,007 8. BALANCES WITH OTHER BANKS In Pakistan : Current accounts 7,375,923 3,747,534 Deposit accounts 1,674,167 1,517,470 9,050,090 5,265,004 Outside Pakistan : Current accounts 483,060 435,886 Deposit accounts 1,489,227 101,422 1,972,287 537,308 11,022,377 5,802,312 9. LENDINGS TO FINANCIAL INSTITUTIONS Repurchase agreement lendings (Reverse Repo) 9.2 23,401,545 22,093,153 Bai muajjal receivable from SBP 511,958 Placements 9.3 4,290,000 5,750,000 28,203,503 27,843,153 9.1 Particulars of lending In local currency 28,203,503 27,843,153 In foreign currencies - 18 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 28,203,503 27,843,153
20. 9 .2 Securities held as collateral against lendings to financial institutions (Un-audited)(Audited) June 30, 2019 December 31, 2018 Held by bank Further Held by Further given as Total bank given as collateralcollateral R u p e e s i n ‘ 0 0 0 ’ Market treasury bills 22,855,300 - 22,855,300 - Pakistan investment bonds 546,245 - 546,245 22,093,153 - - Total 22,093,153 23,401,545 - 23,401,545 22,093,153 - 22,093,153 9.3 Market value of securities held as collateral as at June 30, 2019 amounted to Rs. 23,426,267 thousand (December 31, 2018: Rs. 21,350,630 thousand). These carry mark-up at rate ranging from 12.35% to 12.75% per annum (December 31, 2018: 10.00% to 10.50% per annum) with maturities upto July 23, 2019. These carry profit rates ranging from 9.00% to 12.75% per annum (December 31, 2018: 9.00% to 9.80% per annum) with maturities upto August 26, 2019. 10. INVESTMENTS - NET 10.1 Investments by type: (Un-audited) (Audited) June 30, 2019 December 31, 2018 Cost / Provision Surplus / Carrying Cost / Provision Amortized for (Deficit) value Amortized for cost diminution costdiminution Surplus / (Deficit) Carrying value Note R u p e e s i n ‘ 0 0 0 ’ Held-for-trading securities Federal government securities 10.1.1 24,769,895 - (10,230) 24,759,665 25,075,868 - (1,892) 25,073,976 Ordinary shares - - - - 12,630 - (1,849) 10,781 24,769,895 - (10,230) 24,759,665 25,088,498 - (3,741) 25,084,757 Available-for-sale securities Federal government securities 10.1.1 & 10.2 221,911,941 - (1,091,761) 220,820,180 177,736,092 - (44,199) 177,691,893 Shares and certificates 2,616,856 (1,123,089) (109,284) 1,384,483 2,122,045 (1,024,880) 24,614 1,121,779 Non government debt securities 9,697,073 (2,235,125) 2,065 7,464,013 8,119,488 (2,236,623) 2,094 5,884,959 Foreign securities 4,019 - - 4,019 4,019 - - 4,019 234,229,889 (3,358,214) (1,198,980) 229,672,695 187,981,644 (3,261,503) (17,491) 184,702,650 Held-to-maturity securities Federal government securities 10.1.1 & 10.4 19,856,306 - - 19,856,306 250,329 - - 250,329 WAPDA bonds 400 (400) - - 400 (400) - 19,856,706 (400) - 19,856,306 250,729 (400) - 250,329 Subsidiaries 164,945 (132,896) - 32,049 164,945 (131,198) - 33,747 Total investments 279,021,435 (3,491,510) (1,209,210) 274,320,715 213,485,816 (3,393,101) (21,232) 210,071,483 10.1.1 Market treasury bills and Pakistan investment bonds are eligible for re-discounting with SBP. 10.1.2 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 19
21. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 10.2 Investments given as collateral Market treasury bills 25,253,187 19,829,188 10.3 Provision for diminution in value of investments 10.3.1 Opening balance 3,393,101 3,145,347 Charge / reversals : Charge for the period / year 115,018 247,754 Reversals for the period / year (1,498) Reversal on disposal during the period / year Closing balance 113,520 (15,111) 247,754 - 3,491,510 3,393,101 10.3.2 Particulars of provision against debt securities Category of classification (Un-audited) June 30, 2019 (Audited) December 31, 2018 NPIProvisionNPI Provision Rupees in ‘000’ Domestic Other assets especially mentioned - - - Substandard - - - Doubtful - - - Loss 2,235,525 2,235,525 2,237,023 2,237,023 Total 2,235,525 2,235,525 2,237,023 2,237,023 10.4 Market value of held to maturity investments amounted to Rs. 19,240,920 thousand (December 31, 2018: Rs. 248,902 thousand). 11. ADVANCES - NET Performing Non Performing Total (Un-audited)(Audited)(Un-audited)(Audited) (Un-audited)(Audited) June 30, December 31, June 30, December 31, June 30, December 31, 2019201820192018 20192018 Rupees in ‘000’ Loans, cash credits, running finances, etc. 325,958,174 324,864,552 48,970,241 Net book value of assets in ijarah under IFAS 2 - In Pakistan 384,605 337,920 216,404 Islamic financing and related assets 22,890,385 19,584,952 86,840 Bills discounted and purchased 26,889,361 31,583,488 16,992 49,076,188 374,928,415 215,000 76,882 16,992 601,009 22,977,225 26,906,353 373,940,740 552,920 19,661,834 31,600,480 Advances - gross 376,122,525 376,370,912 49,290,477 49,385,062 425,413,002 425,755,974 Provision against advances: - Specific - - (44,349,711) (43,530,419) (44,349,711) (43,530,419) - General (383,827) (348,299) - - (383,827) (348,299) Advances - net of provision (348,299) (44,349,711) 375,738,698 376,022,613 (383,827) 4,940,766 (43,530,419) (44,733,538) (43,878,718) 5,854,643 380,679,464 381,877,256 20 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
22. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 11.1 Particulars of advances (gross) In local currency 425,280,835 425,610,828 In foreign currencies 132,167 145,146 425,413,002 425,755,974 Advances include Rs. 49,290,477 thousand (December 31, 2018: Rs. 49,385,062 thousand) which have been placed under non-performing status as detailed below: (Un-audited) (Audited) June 30, 2019 December 31, 2018 11.2 Non Non performing Provision performing Provision loans loans Rupees in ‘000’ Domestic Other assets especially mentioned 205,777 13,929 52,234 801 Substandard 579,436 103,521 351,004 65,741 Doubtful 7,781,073 4,587,867 9,722,789 5,247,064 Loss 40,724,191 39,644,394 39,259,035 38,216,813 Total 49,290,477 44,349,711 11.3 Particulars of provision against advances June 30, 2019 (Un-audited) Specific General Total 49,385,062 43,530,419 December 31, 2018 (Audited) Specific General Total Rupees in ‘000’ Opening balance 43,530,419 348,299 43,878,718 45,558,411 425,283 45,983,694 2,440,015 (1,585,054) 2,350,848 (4,372,439) - (76,984) 2,350,848 (4,449,423) 854,961 (141) (2,021,591) (6,401) (76,984) - (2,098,575) (6,401) 44,733,538 43,530,419 348,299 43,878,718 Charge for the period / year Reversals for the period / year Amounts written off Closing balance 2,404,487 35,528 (1,585,054) 819,433 (141) 44,349,711 35,528 - 383,827 11.3.1 Particulars of provision against advances with respect to currencies In local currency 44,349,711 383,827 44,733,538 43,530,419 348,299 43,878,718 In foreign currencies - - - - - 44,349,711 383,827 44,733,538 43,530,419 348,299 43,878,718 11.3.2 General provision represents provision against consumer financing portfolio as required by Prudential Regulations issued by the SBP. 11.3.3 The Bank has availed the benefit of Forced Sale Value (FSV) of collateral against non-performing advances as allowed vide BSD Circular No.1 dated October 21, 2011. This has resulted in decrease in provision against non-performing advances by Rs. 1,372,927 thousand (December 31, 2018: Rs 1,186,127 thousand). The FSV benefit availed is not available for cash or stock dividend. 11.3.4 Exposure amounting to Rs. 2,524,603 thousand relating to certain facilities of Power Holding (Pvt.) Limited, which is a government guaranteed loan, has not been classified as non-performing, pursuant to a relaxation given by SBP in this respect. The relaxation is valid upto June 30, 2019. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 21
23. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 12. FIXED ASSETS Capital work-in-progress 126,349 231,947 Right of use assets 4.1 5,133,568 Property and equipment 8,573,104 8,555,981 13,833,021 8,787,928 12.1 Capital work-in-progress Civil works 95,839 201,487 Equipment 30,510 30,460 126,349 231,947 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 12.2 Additions to fixed assets The following additions / (transfers) have been made to fixed assets during the period: Capital work-in-progress (105,598) 295,943 Right of use assets 5,501,495 Property and equipment : Freehold land - 8,466 Building on freehold land 93,519 495,507 Furniture and fixture 20,712 23,303 Office equipment 123,486 132,018 Computer equipment 67,458 108,429 Lease hold improvements 214,128 49,151 Vehicles 13,831 1,915 533,134 818,789 5,929,031 1,114,732 12.3 Disposal of property and equipment: The net book value of property and equipment disposed off during the period is as follows: Building on freehold land - 140,471 Furniture and fixture 281 603 Office equipment 465 542 Computer equipment - 476 Vehicles - 746 142,092 Gross carrying amount of vehicles disposed off during the period was Rs. 40,704 thousand (June 30, 2018: nil). 22 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
24. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 13. INTANGIBLE ASSETS Intangible in progress 155,582 129,279 Softwares 702,588 762,210 858,170 891,489 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 13.1 Additions to intangible assets The following additions have been made to intangible assets during the period: Intangible in progress 26,303 105,144 Intangible assets purchased during the period 25,256 107,472 51,559 212,616 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 14. DEFERRED TAX ASSETS - NET Deductible temporary differences on : Deficit on revaluation of investments Provision against advances, off balance sheet etc. 419,643 8,565,450 6,122 8,926,570 8,985,093 8,932,692 Taxable temporary differences on : Surplus on revaluation of fixed assets (451,905) (463,493) Accelerated tax depreciation (295,952) (320,081) Surplus on revaluation of non banking assets (179,254) (183,851) (927,111) (967,425) 8,057,982 7,965,267 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 23
25. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 15. OTHER ASSETS - NET Income / mark-up accrued in local currency 13,045,951 8,629,336 Income / mark-up accrued in foreign currency 963 1,961 Profit paid in advance on pehlay munafa scheme 3,580 8,027 Advances, deposits, advance rent and other prepayments 451,125 881,805 Advance taxation (payments less provisions) 2,782,766 3,630,240 Non-banking assets acquired in satisfaction of claims 7,385,423 7,467,804 Acceptances 4,752,056 4,888,386 Branch adjustment account 211,757 180,704 Mark to market gain on forward foreign exchange contracts 442,007 146,431 Stock of stationery 151,746 108,048 Suspense account 6,771 5,044 Zakat recoverable from NITL 36,790 36,790 Unrealized gain on revaluation of foreign bills and trade loans 133,587 78,013 Fraud and forgeries 172,525 121,806 Unearned income on sale of sukuk on bai-muajjal basis 880,133 1,044,888 Others 823,921 829,881 Less: Provision held against other assets 15.1 31,281,101 (2,117,712) 28,059,164 (2,052,280) 29,163,389 26,006,884 1,526,597 1,544,813 Other assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims Other assets - total 30,689,986 27,551,697 15.1 Provision held against other assets Advances, deposits, advance rent & other prepayments 35,723 35,723 Non banking assets acquired in satisfaction of claims 1,575,670 1,575,670 Zakat recoverable from NITL 36,790 36,790 Fraud and forgeries 165,196 101,364 Others 304,333 302,733 2,117,712 2,052,280 16. CONTINGENT ASSETS Contingent assets Nil 24 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 Nil
26. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 17. BILLS PAYABLE In Pakistan 4,154,644 3,577,677 Outside Pakistan - 4,154,644 3,577,677 18.BORROWINGS Secured Borrowings from SBP under: Export refinance scheme (ERF) 15,245,623 13,451,606 Long term financing facility (LTFF) 7,135,047 6,219,303 Finance facility for storage of agricultural produce (FFSAP) 44,478 25,991 Finance facility for renewable energy performance platform (REPP) 1,060,310 1,025,036 Repurchase agreement borrowings Call borrowings 23,485,458 - 24,644,562 20,721,936 2,497,905 17,251,702 Total secured 48,130,020 40,471,543 Unsecured Overdrawn nostro accounts 122,385 210,763 Foreign placement 1,600,521 1,110,895 Total unsecured 1,722,906 1,321,658 49,852,926 41,793,201 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 25
27. 19 . DEPOSITS AND OTHER ACCOUNTS June 30, 2019 (Un-audited) In local In foreign Total currencycurrencies December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Customers: Current deposits 134,946,954 2,979,260 137,926,214 119,614,715 2,343,451 121,958,166 Savings deposits 303,514,406 2,767,639 306,282,045 253,500,729 2,413,949 255,914,678 Term deposits 187,868,728 3,481,055 191,349,783 181,768,000 3,496,387 185,264,387 Others 22,607,107 - 22,607,107 25,541,626 - 25,541,626 648,937,195 9,227,954 658,165,149 580,425,070 8,253,787 588,678,857 Financial institutions: Current deposits 3,603,982 346,637 3,950,619 3,610,496 188,548 3,799,044 Savings deposits 2,082,659 212 2,082,871 2,186,683 186 2,186,869 Term deposits 730,000 - 730,000 755,000 - 755,000 Others 235,823 - 235,823 162,192 - 162,192 6,652,464 346,849 6,999,313 6,714,371 188,734 6,903,105 655,589,659 9,574,803 665,164,462 587,139,441 8,442,521 595,581,962 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 20. SUBORDINATED DEBTS Loan from GoPb 20.1 2,000,000 2,000,000 Privately placed term finance certificates - I 20.2 2,497,500 2,498,000 Privately placed term finance certificates - II 20.3 4,298,280 4,299,140 8,795,780 8,797,140 20.1 Loan from GoPb The GoPb extended loan of Rs. 2,000,000 thousand to support capital structure of the Bank for the purpose of the regulatory capital requirement. The loan is unsecured and sub-ordinated to all other indebtedness including deposits. The salient features of the loan are as follows: Tenor: 07 Years. Issue date December 31, 2014 Maturity date December 30, 2021 Rating Unrated Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Average SBP discount rate. (Average shall be calculated on daily basis) Conversion option: May be converted, subject to consent of the parties and necessary regulatory approvals, after a period of five years into ordinary shares at the rate of Rs. 15 per share. Repayment: Bullet repayment after lapse of 07 years. Call / Put option: Callable after a period of 05 years. However no put option is available to GoPb. Lock in clause: Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. Loss absorbency clause: May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. 26 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
28. 20 .2 Privately placed term finance certificates - I The Bank has issued rated, unsecured and subordinated term finance certificates under section 120 of the Companies Ordinance, 1984, in a set of twenty (20) scrips, corresponding to the redemption dates of the TFC and representing the TFC Holders entitlement to the redemption amount on the each such redemption date; and registered book entry securities in accordance with the CDC regulations, as outlined by SBP under BPRD Circular No. 06 dated August 15, 2013; with each TFC having a face value of PKR 100,000 or multiples thereof. Issue amount: Rupees 2,500,000 thousand Issue date: December 23, 2016 Maturity date: December 22, 2026 Rating: AA Tenor: 10 Years. Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Floating rate of return at base rate plus 100 bps p.a. (Base rate will be the average rate ‘Ask side of the six month Karachi Inter Bank Offered Rate set at 1 (one business) day prior to the redemption date for the redemption amount payable on the immediately following redemption date). Repayment: The TFC has been structured to redeem 0.02% of the issue amount semi-annually in the first 09 years after the issue and the remaining issue amount in two equal semi-annual installments of 49.82% each, in the 10th year. Call / Put option: Callable after a period of 05 years. However no put option is available to the investors. Lock in clause: Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. Loss absorbency clause: May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. 20.3 Privately placed term finance certificates - II The Bank has issued rated, unsecured and subordinated term finance certificates under section 66 of the Companies Act, 2017, in a set of twenty (20) scrips, corresponding to the redemption dates of the TFC and representing the TFC Holders entitlement to the redemption amount on the each such redemption date and registered book entry securities in accordance with the CDC regulations, as outlined by SBP under BPRD Circular No. 06 dated August 15, 2013 with each TFC having a face value of PKR 100,000 or multiples thereof. Issue amount: Rupees 4,300,000 thousand Issue date: April 23, 2018 Maturity date: April 23, 2028 Rating: AA Tenor: 10 Years. Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Floating rate of return at base rate plus 125 bps p.a. (Base rate will be the average rate ‘Ask side of the six month Karachi Inter Bank Offered Rate set at 1 (one business) day prior to the redemption date for the redemption amount payable on the immediately following redemption date). Repayment: The TFC has been structured to redeem 0.02% of the issue amount semi-annually in the first 09 years after the issue and the remaining HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 27
29. Call / Put option: Lock in clause: Loss absorbency clause: issue amount in two equal semi-annual installments of 49.82% each, in the 10th year. Callable after a period of 05 years. However no put option is available to the investors. Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 21. OTHER LIABILITIES Mark-up / return / interest payable in local currency 10,571,263 7,260,038 Mark-up / return / interest payable in foreign currency 61,349 44,506 Lease key money 12,258,816 11,567,270 Sundry creditors and accrued expenses 667,788 999,519 Acceptances 4,752,056 4,888,386 Mark-up payable on subordinated debts 109,265 97,913 Unclaimed dividends 2,590 2,599 Dividend payable 20,761 Payable to gratuity fund 57,390 287,512 Gratuity payable to key management personnel 40,027 100,403 Payable to charity fund - 114 Provision against off-balance sheet obligations 21.1 62,183 62,183 Provision for employees compensated absences 106,222 102,294 Taxes / zakat / import fee payable 224,324 193,646 Lease liability against right of use assets 4.1 5,218,866 Deferred income on sale of sukuk on bai - muajjal basis 880,133 1,044,888 Others 260,703 258,050 35,293,736 26,909,321 21.1 Provision against off-balance sheet obligations 62,183 The above provision has been made against letters of guarantee issued by the Bank. 28 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 62,183
30. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 22. SURPLUS ON REVALUATION OF ASSETS - NET OF TAX Surplus / (deficit) on revaluation of : - Available for sale securities 10.1 (1,198,980) (17,491) - Fixed assets 2,341,104 2,374,212 - Non-banking assets acquired in satisfaction of claims 15 1,526,597 1,544,813 2,668,721 Deferred tax on (surplus) / deficit on revaluation of : - Available for sale securities 419,643 - Fixed assets (451,905) - Non-banking assets acquired in satisfaction of claims (179,254) 3,901,534 6,122 (463,493) (183,851) (211,516) (641,222) 2,457,205 3,260,312 23. CONTINGENCIES AND COMMITMENTS Guarantees 23.1 56,242,580 52,561,155 Commitments 23.2 121,199,053 91,782,505 Other contingent liabilities 23.3 8,975 1,464,824 177,450,608 145,808,484 23.1Guarantees: Financial guarantees 18,659,993 18,743,220 Performance guarantees 17,415,383 18,257,988 Other guarantees 20,167,204 15,559,947 56,242,580 52,561,155 23.2Commitments: Documentary credits and short-term trade-related transactions - letters of credit 57,512,169 44,778,499 Commitments in respect of: - forward foreign exchange contracts 23.2.1 51,155,903 22,172,986 - forward lending 23.2.2 12,423,948 14,675,323 - operating leases 23.2.3 - 9,937,311 Commitments for acquisition of: - fixed assets 67,442 56,437 - intangible assets 39,591 161,949 121,199,053 91,782,505 23.2.1 Commitments in respect of forward foreign exchange contracts Purchase 27,634,708 13,420,469 Sale 23,521,195 8,752,517 51,155,903 22,172,986 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 29
31. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 23.2.2 Commitments in respect of forward lending Undrawn formal standby facilities, credit lines and other commitments to lend 23.2.2.1 12,423,948 14,675,323 23.2.2.1These 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. In addition, the Bank makes revocable commitments that do not attract any significant penalty or expense if the facility is unilaterally withdrawn. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 23.2.3 Commitments in respect of operating leases Not later than one year Later than one year and not later than five years Later than five years - - - 878,342 3,357,036 5,701,933 - 9,937,311 23.3 Other contingent liabilities 8,975 1,464,824 23.3.1 For the tax year 2007, the Income Tax Department concluded proceedings under section 161/205 and created a default of Rs. 8,975 thousand. The Bank filed appeal before CIR (A), however the same was not allowed. Now, the Bank has filled appeal against the said order of CIR (A) with ATIR. The expected tax liability for the said year amounts to Rs. 8,975 thousand. However, the management of the Bank, as per opinion of its tax consultant, is confident that the decision for the aforementioned tax year will be decided in Bank’s favor. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 23.4 Claims against the Bank not acknowledged as debts 23.4.1 56,195,082 57,231,157 23.4.1 The amounts involved in the claims filed against the Bank are yet to be adjudicated by the concerned Courts as the same have been filed as outburst to our recovery suits. Uptill now, in no case, any claim has been adjudicated, determined or decreed by the Courts against the Bank. Moreover, there is no likelihood of decreeing the suits against the Bank because, the claims are frivolous. 30 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
32. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ 24. MARK-UP / RETURN / INTEREST EARNED a) On loans and advances 21,201,465 12,383,681 b) On investments: Available for sale securities 9,365,702 6,404,456 Held for trading securities 1,134,167 870,934 Held to maturity securities 573,139 10,309 c) On lendings to financial institutions: Securities purchased under resale agreements 1,553,197 352,523 Call lending 2,062 24,394 Letters of placement 229,076 345,138 d) On balances with banks 59,647 14,479 34,118,455 20,405,914 25. MARK-UP / RETURN / INTEREST EXPENSED Deposits and other accounts 18,993,734 10,155,873 Borrowings: Securities sold under repurchase agreements 244,194 103,261 Foreign placements 27,525 Call borrowings 714,923 536,944 SBP refinance borrowing 219,855 197,347 Subordinated debts: Mark-up on subordinated loan from GoPb 112,055 65,014 Mark-up on privately placed term finance certificates 393,139 160,694 Mark-up on lease liability against right of use assets 329,336 21,034,761 11,219,133 26. FEE AND COMMISSION INCOME Branch banking customer fees 306,925 309,946 Consumer finance related fees 117,262 133,198 Card related fees 249,870 179,030 Credit related fees 231,862 275,428 Branchless banking fees 44,010 903 Commission on trade 262,204 274,781 Commission on guarantees 122,052 152,445 Commission on cash management 50,178 26,220 Commission on remittances including home remittances 122,597 117,445 Commission on bancassurance 45,512 72,878 Commission on wheat financing 1,257 1,066 SMS banking income 121,287 63,072 1,675,016 1,606,412 27. GAIN ON SECURITIES - NET Realized gain on sale of securities - net 27.1 44,148 23,211 Unrealized loss - held for trading (10,230) (5,040) 33,918 18,171 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 31
33. (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 27.1 Realized gain on sale of securities - net: Federal Government 6,312 (6,716) Shares and certificates 28,579 31,122 Term finance certificates 9,257 (1,195) 44,148 23,211 28. OTHER INCOME - NET Rent on property 1,169 2,346 Gain / (loss) on sale of fixed assets - net 34,108 (419) Gain on sale of non banking assets - net 67 36,335 Notice pay on resignations 4,714 6,002 40,058 29. OPERATING EXPENSES 44,264 Total compensation expense 3,657,766 2,918,545 Property expense: Rent and taxes 32,422 452,224 Insurance 9,486 6,861 Utilities cost 241,870 196,961 Security 644 766 Repair and maintenance including janitorial charges 8,747 10,875 Depreciation 265,567 221,386 Depreciation on right of use assets 367,927 Others 2,851 929,514 Information technology expenses: Software maintenance 163,578 Hardware maintenance 48,627 Depreciation on computer equipment 110,775 Amortization on intangible assets 84,878 Network charges 117,018 889,073 79,348 54,544 106,154 26,276 144,427 524,876 410,749 Other operating expenses: Directors’ fees and allowances 4,505 1,900 Fees and allowances to shariah board 2,335 1,305 Legal and professional charges 45,580 99,201 Subscription charges 9,142 8,221 Outsourced staff services costs 125,786 148,111 Travelling and conveyance 263,942 220,089 NIFT clearing charges 28,096 27,072 Depreciation 138,920 121,835 Depreciation on non banking assets 37,052 38,339 Depreciation on ijarah assets 151,036 193,552 Training and development 7,748 6,992 Postage and courier charges 57,470 57,485 Stationery and printing 107,399 88,052 32 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
34. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ Marketing, advertisement and publicity Donations 29.1 Insurance Deposit protection fee Repair and maintenance Entertainment expenses Fuel for generator Commission and brokerage Bank charges SMS banking charges ATM charges including ATM maintenance charges Cash remittance charges Branch license fee CNIC verification / ECIB charges Miscellaneous expenses 45,748 1,000 63,755 168,688 79,441 47,466 47,958 68,652 44,109 13,825 67,446 93,632 12,855 19,929 92,131 77,570 44,569 61,585 46,194 42,415 60,303 38,543 12,998 32,219 99,931 12,219 16,992 74,808 1,845,646 1,632,500 6,957,802 5,850,867 29.1 This represents donation paid to Institute of Business Administration in accordance with the approval of Board of Directors of the Bank. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ 30. OTHER CHARGES Penalties imposed by SBP 2,663 31. PROVISIONS AND WRITE OFFS - NET Provisions for diminution in value of investments 10.3.1 113,520 14,298 Provisions / (reversal) against advances 11.3 854,961 (1,040,302) Provision against other assets - net 15.1 65,432 41,356 1,033,913 (984,648) 32. TAXATION Current 32.1 2,346,672 1,374,801 Prior years 32.2 250,348 Deferred 320,807 990,286 2,917,827 2,365,087 32.1 This includes provision for super tax for the period in accordance with Income Tax Ordinance, 2001. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 33
35. The Finance supplementary (second Amendment) Act, 2019 has levied super tax @ 4% on taxable income for the tax year 2018 (accounting year 2017) retrospectively . Accordingly, in addition to the current tax charge of super tax, provision amounting to Rs 250,348 thousand also made for tax year 2018 (accounting year 2017) in these unconsolidated condensed interim financial statements. (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 32.2 33. BASIC EARNINGS PER SHARE Profit after taxation for the period (Rs in ‘000’) 4,009,063 3,784,404 Weighted average number of ordinary shares (No.) 2,643,692,380 2,643,692,380 Basic earnings per share (Rs). 1.52 1.43 34. DILUTED EARNINGS PER SHARE There is no dilution effect on basic earnings per share. 35. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of quoted securities other than those classified as held to maturity, is based on quoted market price. Quoted securities classified as held to maturity are carried at cost. The fair value of unquoted equity securities, other than investments in subsidiaries, is determined on the basis of the break-up value of these investments as per their latest available audited financial statements. The fair value of unquoted debt securities, fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to the absence of a current and active market for these assets and liabilities and reliable data regarding market rates for similar instruments. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since these are either short-term in nature or, in the case of customer loans and deposits, are frequently reprised. 35.1 The Bank measures fair vale 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 measurement using inputs other than quoted prices included within Level 1 that are observable for the asset 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). 34 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
36. 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 categorized : June 30, 2019 (Un-audited) Fair value Carrying value Level 1 Level 2 Level 3 Total Rupees in ‘000’ On balance sheet financial instruments Financial assets measured at fair value: Government securities 245,579,845 - 245,579,845 - 245,579,845 Shares and certificates 1,303,125 1,287,135 - 15,990 1,303,125 Non-Government debt securities 2,070,214 - 2,070,214 - 2,070,214 Foreign securities 4,019 - - 4,019 4,019 Subsidiary company 32,049 - - 32,049 32,049 Financial assets disclosed but not measured at fair value : Government securities 19,856,306 - 19,240,920 - 19,240,920 Financial liabilities measured at fair value: Payable to gratuity fund 97,417 - 97,417 - 97,417 Provision for employees compensated absences 106,222 - 106,222 - 106,222 Off balance sheet financial instruments: Forward purchase of foreign exchange contracts 29,556,388 - 29,556,388 - 29,556,388 Forward sale of foreign exchange contracts 25,000,868 - 25,000,868 - 25,000,868 D ecember 31, 2018 (Audited) Carrying value Level 1 Fair value Level 2 Level 3 Total Rupees in ‘000’ On balance sheet financial instruments Financial assets measured at fair value : Government securities 202,765,869 - 202,765,869 - 202,765,869 Shares and certificates 1,051,202 1,035,212 - 15,990 1,051,202 Non-Government debt securities 852,320 - 852,320 - 852,320 Foreign securities 4,019 - - 4,019 4,019 Subsidiary Company 33,747 - - 33,747 33,747 Financial assets disclosed but not measured at fair value : Government securities 250,329 - 248,902 - 248,902 Financial liabilities measured at fair value: Payable to gratuity fund 287,512 - 287,512 - 287,512 Provision for employees compensated absences 102,294 - 102,294 - 102,294 Off balance sheet financial instruments: Forward purchase of foreign exchange contracts 13,823,439 - 13,823,439 - 13,823,439 Forward sale of foreign exchange contracts 9,009,056 - 9,009,056 - 9,009,056 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 35
37. 35 .2 Fair value of non financial assets June 30, 2019 (Un-audited) Fair value Carrying value Level 1 Level 2 Level 3 Total Rupees in ‘000’ Non Financial assets measured at fair value : Fixed assets (land & building) 5,915,002 - 5,915,002 - 5,915,002 Non banking assets acquired in satisfaction of claims 7,336,350 - 7,336,350 - 7,336,350 D ecember 31, 2018 (Audited) Carrying value Fair value Level 1 Level 2 Level 3 Total Rupees in ‘000’ Non Financial assets measured at fair value : Fixed assets (land & building) 5,912,918 - 5,912,918 - 5,912,918 Non banking assets acquired in satisfaction of claims 7,436,947 - 7,436,947 - 7,436,947 36. SEGMENT INFORMATION 36.1 Segment details with respect to business activities Wholesale Retail (Un-audited) June 30, 2019 Consumer & agri Treasury Islamic Others Total Rupees in ‘000’ Profit & loss Net mark-up / return / profit 17,003,535 700,271 2,169,812 12,068,895 2,066,196 109,746 34,118,455 Inter segment revenue - net (14,301,103) 23,776,809 (1,516,069) (10,542,853) (7,993) 2,591,209 Non mark-up / return / interest income 684,751 227,315 75,304 675,783 39,576 134,845 1,837,574 Total income 3,387,183 24,704,395 729,047 2,201,825 2,097,779 2,835,800 35,956,029 Segment direct expenses 1,600,968 22,742,494 281,172 1,142,210 1,567,823 660,559 27,995,226 Inter segment expense allocation - - - - - - Total expenses Provisions 1,600,968 22,742,494 556,146 225,435 281,172 72,437 1,142,210 113,520 1,567,823 13,506 660,559 52,869 27,995,226 1,033,913 Profit / (loss) before tax 1,230,069 1,736,466 375,438 946,095 516,450 2,122,372 6,926,890 Balance sheet Cash & bank balances 10,478,893 28,790,411 - 20,410,302 5,917,718 - 65,597,324 Investments - net 2,687,851 - - 262,985,168 8,647,696 - 274,320,715 Net inter segment lending - 550,758,052 - - 2,990,660 54,468,484 608,217,196 Lendings to financial institutions - - - 23,801,545 4,401,958 - 28,203,503 Advances - performing 297,003,328 12,177,016 39,795,179 - 23,274,907 3,488,184 375,738,614 - non-performing - net 4,083,122 418,433 361,767 - 70,694 6,834 4,940,850 Others 12,845,899 5,048,343 1,196,521 3,944,716 3,213,137 27,190,543 53,439,159 Total assets 327,099,093 597,192,255 41,353,467 311,141,731 48,516,770 85,154,045 1,410,457,361 Borrowings 23,380,210 105,248 - 26,367,468 - - 49,852,926 Subordinated debts - - - - - 8,795,780 8,795,780 Deposits & other accounts 39,502,029 581,695,347 1,034,565 10,109 42,820,508 101,904 665,164,462 Net inter segment borrowing 294,603,550 - 28,830,578 284,783,068 - - 608,217,196 Others 8,797,476 15,593,559 12,331,409 195,204 2,799,720 (268,988) 39,448,380 Total liabilities Equity 366,283,265 597,394,154 42,196,552 311,355,849 45,620,228 8,628,696 1,371,478,744 (39,184,172) (201,899) (843,085) (214,117) 2,896,542 76,525,348 38,978,617 Total equity & liabilities 327,099,093 597,192,255 41,353,467 311,141,732 48,516,770 85,154,044 1,410,457,361 36 Contingencies & commitments 122,808,310 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 731,245 - 51,155,903 2,639,142 116,008 177,450,608
38. Wholesale Retail (Un-audited) June 30, 2018 Consumer & Agri Treasury Islamic Others Total Rupees in ‘000’ Profit & loss Net mark-up / return / profit 9,651,729 178,546 1,799,652 7,395,702 1,278,421 101,864 20,405,914 Inter segment revenue - net (8,340,338) 15,778,447 (964,418) (6,191,916) (35,474) (246,301) Non mark-up / return / interest income 713,083 377,461 99,367 526,463 32,157 80,398 1,828,929 Total income 2,024,474 16,334,454 934,601 1,730,249 1,275,104 (64,039) 22,234,843 Segment direct expenses 1,197,183 13,582,661 219,475 772,065 1,042,236 256,380 17,070,000 Inter segment expense allocation - - - - - - Total expenses Provisions 1,197,183 13,582,661 (370,728) (558,287) 219,475 (219,597) 772,065 14,298 1,042,236 103,916 256,380 17,070,000 45,750 (984,648) Profit / (loss) before tax 1,198,019 3,310,080 934,723 943,886 128,952 (366,169) 6,149,491 (Audited) December 31, 2018 Balance sheet Cash & bank balances 7,331,424 22,778,391 - 14,885,330 4,396,174 - 49,391,319 Investments - net 1,299,368 - - 199,172,955 9,599,160 - 210,071,483 Net inter segment lending - 498,991,218 - - - 49,898,663 548,889,881 Lendings to financial institutions - - - 22,493,153 5,350,000 - 27,843,153 Advances - performing 302,205,740 11,840,351 39,641,148 - 19,922,874 2,412,499 376,022,612 - non-performing 5,255,890 291,565 199,217 - 72,752 35,220 5,854,644 Others 11,302,445 1,793,055 1,398,214 500,819 2,039,876 28,161,972 45,196,381 Total assets 327,394,867 535,694,580 41,238,579 237,052,257 41,380,836 80,508,354 1,263,269,473 Borrowings 20,616,688 105,248 - 21,071,265 - - 41,793,201 Subordinated debts - - - - - 8,797,140 8,797,140 Deposits & other accounts 29,800,663 528,081,227 1,062,397 10,109 36,501,111 126,455 595,581,962 Net inter segment borrowing 305,080,375 - 28,190,518 214,631,140 987,848 - 548,889,881 Others 7,593,106 8,671,896 11,665,892 83,333 1,500,040 972,731 30,486,998 Total liabilities Equity 363,090,832 536,858,371 40,918,807 235,795,847 38,988,999 9,896,326 1,225,549,182 (35,695,965) (1,163,791) 319,772 1,256,410 2,391,837 70,612,028 37,720,291 Total equity & liabilities 327,394,867 535,694,580 41,238,579 237,052,257 41,380,836 80,508,354 1,263,269,473 Contingencies & commitments 37. RELATED PARTY TRANSACTIONS Related parties comprise subsidiary, key management personnel and entities in which key management personnel are office holders / members. The Bank in the normal course of business carries out transactions with various related parties on arm’s length basis. Amounts due from and due to related parties are shown under receivables and payables. In addition key management personnel are paid terminal and short-term terminal benefits. 108,373,498 10,482,058 - 22,172,986 3,096,732 1,683,210 145,808,484 June 30, 2019 (Un-audited)December 31, 2018 (Audited) Key Subsidiary Employee Other Key Subsidiary Employee Other managementcompany funds related management companyfundsrelated personneland partiespersonnel and parties managed managed modaraba modaraba Rupees in ‘000’ Rupees in ‘000’ Lendings to financial institutions : Opening balance - 400,000 - - - 400,000 - Addition during the period - 800,000 - - - 1,600,000 - Repaid during the period - 800,000 - - - 1,600,000 - Closing balance - 400,000 - - - 400,000 - Investments (gross) : - 164,945 - - - 164,945 - Provision for diminution in value of investments - 132,896 - - - 131,198 - HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 37
39. June 30 , 2019 (Un-audited)December 31, 2018 (Audited) Key Subsidiary Employee Other Key Subsidiary Employee Other managementcompany funds related management companyfundsrelated personneland partiespersonnel and parties managed managed modaraba modaraba Rupees in ‘000’ Rupees in ‘000’ Advances : Opening balance 197,801 1,287,780 - - 182,129 1,199,047 - Addition during the period 93,177 551,555 - - 90,341 1,132,228 - Repaid during the period 104,335 567,030 - - 74,669 1,043,495 - - Closing balance 186,643 1,272,305 - - 197,801 1,287,780 - Provision held against advances - 53,683 - - - 46,199 Advance Rent - - - - - - 67,317 Right of use asset - - - 94,397 - - - - - Lease liability against right of use asset - - - 34,279 - - - - Deposits and other accounts : Opening balance 37,682 19,999 2,398,389 7,753 24,414 98,198 2,770,528 2,396 Received during the period 303,171 638,362 694,982 61,611 553,084 1,236,350 791,508 156,480 Withdrawn during the period 306,865 655,080 162,811 50,645 539,816 1,314,549 1,163,647 151,123 Closing balance 33,988 3,281 2,930,560 18,719 37,682 19,999 2,398,389 7,753 June 30, 2019 (Un-audited) June 30, 2018 (Un-audited) Rupees in ‘000’ Rupees in ‘000’ Income : Mark-up / return / interest earned 5,102 92,114 - - 4,227 49,323 - Net gain on sale of fixed assets - - - - - - - 6,505 Mark-up on lease liability against right of use asset - - - 2,203 - - - Expense : Mark-up / return / interest paid 817 - 130,129 740 490 - 76,772 100 Depreciation on right of use asset - - - 2,531 - - - Compensation expense 164,968 - - - 182,262 - - Commission expense - 36 - - - 363 - Provision : Reversal / (Charge) of provision - investment - 1,698 - - - - - Reversal / (Charge) of provision - advances - 7,484 - - - - - - 37.1 37.2 37.3 37.4 37.5 38 Balances pertaining to parties that were related at the beginning of the year but ceased to be so related during any part of the current period are not reflected as part of the closing balance. The same are accounted for through movement presented above. The GoPb holds controlling interest (57.47% shareholding) in the Bank and therefore entities which are owned and / or controlled by the GoPb, or where the GoPb may exercise significant influence, are related parties of the Bank. The Bank in the ordinary course of business enters into transaction with Government- related entities. Such transactions include lending to, deposits from and provision of other banking services to Government-related entities. As at Statement of Financial Position date the loans and advances, deposits and contingencies relating to GoPb and its related entities amounted to Rs. 56,078,740 thousand (December 31, 2018: Rs. 55,256,269 thousand), Rs. 356,471,445 thousand (December 31, 2018: Rs. 306,110,933 thousand) and Rs. 33,200,739 thousand (December 31, 2018: Rs. 30,682,028 thousand) respectively. Further, during the period, the Bank has incurred markup expense of Rs. 112,055 thousand (June 30, 2018: Rs. 65,014 thousand) on subordinated debt of Rs. 2,000,000 thousand received from GoPb in year 2014. The Bank made contribution of Rs. 85,914 thousand (June 2018: Rs. 66,101 thousand) to employees provident fund during the period. Subsidiary company and managed modaraba are provided with office space within the premises. Advances to employees as at June 30, 2019, other than key management personnel, amounts to Rs. 5,193,589 thousand (December 31, 2018: Rs. 3,914,070 thousand). BOP HALF YEARLY REPORT JANUARY - JUNE 2019
40. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 38. CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 28,388,806 28,388,806 Capital Adequacy Ratio (CAR): Eligible Common Equity Tier 1 (CET 1) Capital 31,103,280 28,930,901 Eligible Additional Tier 1 (ADT 1) Capital - - Total Eligible Tier 1 Capital Eligible Tier 2 Capital 31,103,280 9,085,840 28,930,901 9,731,042 Total Eligible Capital (Tier 1 + Tier 2) 40,189,120 38,661,943 Risk Weighted Assets (RWAs): Credit risk 260,808,542 255,252,014 Market risk 3,233,141 2,335,178 Operational risk 35,907,591 35,907,591 Total 299,949,274 293,494,783 Common equity tier I capital adequacy ratio 10.37% 9.86% Tier I CAR (%) 10.37% 9.86% Total CAR (%) 13.40% 13.17% 38.1 Leverage Ratio (LR): Eligible Tier-I Capital 31,103,280 28,930,901 Total exposures 984,873,913 851,906,956 LR (%) 3.16% 3.40% 38.2 Liquidity Coverage Ratio (LCR): Total high quality liquid assets 335,801,112 272,221,864 Total net cash outflow 239,564,562 203,539,146 LCR (%) 140.17% 133.74% Net Stable Funding Ratio (NSFR): Total available stable funding 457,508,448 417,010,019 Total required stable funding 376,197,210 371,740,462 NSFR (%) 39. ISLAMIC BANKING BUSINESS The Bank has started Islamic banking operations in the year 2013. As at close of the June 30, 2019, the Bank is operating 74 Islamic banking branches and 02 sub Islamic banking branches (December 31, 2018: 72 Islamic banking branches and 02 sub Islamic banking branches). 121.61% 112.18% HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 39
41. STATEMENT OF FINANCIAL POSITION As At June 30 , 2019 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ ASSETS Cash and balances with treasury banks 3,874,443 Balances with other banks 2,043,275 Due from financial institutions 39.1 4,401,958 Investments - net 39.2 8,647,696 Islamic financing and related assets - net 39.3 23,345,601 Fixed assets 1,259,251 Due from head office 2,990,660 Other assets 1,953,886 2,753,286 1,642,888 5,350,000 9,599,160 19,995,626 309,063 1,730,813 Total assets 48,516,770 41,380,836 LIABILITIES Bills payable 287,106 209,762 Due to financial institutions - Deposits and other accounts 39.4 42,820,508 36,501,111 Due to head office - 187,187 Subordinated debt - Other liabilities 2,512,614 2,085,897 45,620,228 38,983,957 NET ASSETS 2,896,542 2,396,879 REPRESENTED BY Islamic banking fund 1,500,000 1,500,000 Reserves 16,940 7,313 (Deficit) / surplus on revaluation of assets (6,042) 20,372 Unappropriated profit 39.5 1,385,644 869,194 2,896,542 2,396,879 CONTINGENCIES AND COMMITMENTS 39.6 40 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
42. ISLAMIC BANKING BUSINESS Profit and Loss Account For the Six Months Ended June 30 , 2019 (Un-audited) Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Note Rupees in ‘000’ Profit / return earned 39.7 1,093,398 650,638 2,066,196 1,278,421 Profit / return expensed 39.8 488,842 214,165 886,064 458,779 Net profit / return 604,556 436,473 1,180,132 819,642 Fee and commission income 18,428 15,751 37,809 32,082 Dividend income - - - Foreign exchange income 753 140 839 51 Income / (loss) from derivatives - - - Loss on securities - - (634) Other income (6) (13) 1,562 24 19,175 15,878 39,576 32,157 Total income 623,731 452,351 1,219,708 851,799 Other expenses Operating expenses 343,625 325,506 689,057 618,931 Workers welfare fund - - - Other charges 10 - 695 343,635 325,506 689,752 618,931 Profit before provisions Provisions against advances - net 280,096 15,098 126,845 103,916 529,956 13,506 232,868 103,916 Profit before taxation 264,998 22,929 516,450 128,952 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 41
43. 39 .1 DUE FROM FINANCIAL INSTITUTIONS June 30, 2019 (Un-audited) In local In foreign Total currencycurrencies December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Placements 3,890,000 - 3,890,000 Bai muajjal receivable from SBP 511,958 - 511,958 5,350,000 - - - 5,350,000 - 5,350,000 - 5,350,000 39.2 INVESTMENTS - NET Investments by segment: 4,401,958 - 4,401,958 (Un-audited) (Audited) June 30, 2019 December 31, 2018 Cost / Provision for Surplus / Carrying Cost / Amortized diminution (Deficit) value Amortized cost cost R u p e e s i n Provision for diminution Surplus / (Deficit) Carrying value ‘000’ Federal government securities: -Ijarah sukuks 1,500,000 - (58,500) 1,441,500 2,623,602 - (32,086) -Sale of sukuk- bai muajjal 2,756,196 - - 2,756,196 2,756,196 - - 2,591,516 2,756,196 4,256,196 - (58,500) 4,197,696 5,379,798 - (32,086) Non government debt securities 5,347,712 -Unlisted 4,450,000 - - 4,450,000 4,251,448 - - Total investments 8,706,196 - (58,500) 8,647,696 9,631,246 - (32,086) 4,251,448 9,599,160 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 39.3 ISLAMIC FINANCING AND RELATED ASSETS Ijarah 601,009 552,920 Murabaha 1,151,370 1,004,602 Musharaka 11,547,782 8,340,625 Diminishing musharaka 6,940,798 7,630,222 Istisna 3,337,275 2,686,385 Gross islamic financing and related assets 23,578,234 20,214,754 Less: provision against islamic financings - Specific 232,633 219,128 - General - 42 Islamic financing and related assets - net of provision BOP HALF YEARLY REPORT JANUARY - JUNE 2019 232,633 219,128 23,345,601 19,995,626
44. 39 .4 DEPOSITS AND OTHER ACCOUNTS June 30, 2019 (Un-audited) In local In foreign Total currencycurrencies December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Customers : Current deposits 9,156,949 302,311 9,459,260 7,797,340 119,378 7,916,718 Savings deposits 31,096,130 74,056 31,170,186 26,557,886 7,704 26,565,590 Term deposits 741,555 - 741,555 771,556 - 771,556 Others 1,202,592 - 1,202,592 1,031,913 - 1,031,913 42,197,226 376,367 42,573,593 36,158,695 127,082 36,285,777 Financial institutions : Current deposits 122,236 - 122,236 100,024 - 100,024 Savings deposits 124,679 - 124,679 115,310 - 115,310 246,915 42,444,141 - 376,367 246,915 215,334 42,820,508 36,374,029 - 127,082 215,334 36,501,111 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 39.5 UNAPPROPRIATED PROFIT - ISLAMIC BANKING BUSINESS Opening balance 869,194 420,873 Islamic banking profit for the period 516,450 448,321 Closing balance 1,385,644 869,194 39.6 CONTINGENCIES AND COMMITMENTS -Guarantees 1,499,180 1,420,734 -Commitments 1,139,962 2,981,746 2,639,142 4,402,480 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 39.7 PROFIT / RETURN EARNED OF FINANCING, INVESTMENTS AND PLACEMENT Profit earned on: Financing 1,336,866 697,108 Investments 512,521 248,799 Placements 206,774 332,384 Deposits with financial institutions 10,035 130 2,066,196 1,278,421 39.8 PROFIT ON DEPOSITS AND OTHER DUES EXPENSED Deposits and other accounts 821,645 423,305 Markup on lease liability against right-of-use asset 56,426 Profit on deposits from conventional head office 7,993 35,474 886,064 458,779 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 43
45. 39 .9 40. There has been no material change in the existing islamic pools. Further, no new pool has been established in islamic banking operations of the Bank during the Six months ended June 30, 2019. DATE OF AUTHORIZATION FOR ISSUE These unconsolidated condensed interim financial statements were authorized for issue on August 23, 2019 by the Board of Directors of the Bank. 41.GENERAL 41.1 Figures have been rounded off to the nearest thousand rupees. 41.2 Under BPRD circular letter No. 05 of 2019 dated March 22, 2019 comparative information has been reclassified, rearranged in these unconsolidated condensed interim financial statements. However, no other significant reclassifications have been made. Chief Financial Officer 44 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
46. Consolidated Condensed Interim Financial Statements for the period ended June 30 , 2019 (The Bank of Punjab & Its Subsidiaries) HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 45
47. Consolidated Condensed Interim Statement of Financial Position As at June 30 , 2019 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ ASSETS Cash and balances with treasury banks 7 54,574,949 43,589,610 Balances with other banks 8 11,075,037 5,837,962 Lendings to financial institutions 9 27,803,503 27,443,153 Investments - net 10 274,303,558 210,052,628 Advances - net 11 380,958,876 382,109,763 Fixed assets 12 13,837,825 8,793,191 Intangible assets 13 864,936 897,990 Deferred tax assets - net 14 8,119,816 8,027,104 Other assets - net 15 31,110,228 27,965,012 802,648,728 714,716,413 LIABILITIES Bills payable 17 4,154,644 3,577,677 Borrowings 18 49,898,445 41,801,240 Deposits and other accounts 19 665,161,181 595,561,963 Liabilities against assets subject to finance lease - Subordinated debts 20 8,795,780 8,797,140 Deferred tax liabilities - Other liabilities 21 35,499,627 27,102,649 763,509,677 676,840,669 NET ASSETS 39,139,051 37,875,744 REPRESENTED BY Share capital - net 26,173,766 26,173,766 Reserves 5,074,930 5,074,930 Surplus on revaluation of assets - net of tax 22 2,457,205 3,260,312 Non controlling interest 384,106 328,052 Unappropriated profit 5,049,044 3,038,684 39,139,051 37,875,744 CONTINGENCIES AND COMMITMENTS 23 The annexed notes from 1 to 41 form an integral part of these consolidated condensed interim financial statements. Chief Financial Officer 46 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
48. Consolidated Condensed Interim Profit and Loss Account For the Six Months Ended June 30 , 2019 (Un-audited) Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Note Rupees in ‘000’ Mark-up / return / interest earned 24 18,053,448 10,639,756 34,161,810 20,439,520 Mark-up / return / interest expensed 25 11,463,829 6,108,663 21,033,787 11,219,548 Net mark-up / interest income 6,589,619 4,531,093 13,128,023 9,219,972 NON MARK-UP / INTEREST INCOME Fee and commission income 26 913,166 849,202 1,687,554 1,617,313 Dividend income 29,616 15,179 57,821 35,362 Foreign exchange income 33,451 56,914 30,761 124,720 Income / (loss) from derivatives - - - Gain / (loss) on securities - net 27 19,928 (7,877) 33,918 18,171 Other income - net 28 37,698 5,480 43,752 44,094 Total non-markup / interest income 1,033,859 918,898 1,853,806 1,839,660 Total income 7,623,478 5,449,991 14,981,829 11,059,632 NON MARK-UP / INTEREST EXPENSES Operating expenses 29 3,492,993 3,140,482 7,025,982 5,895,100 Workers welfare fund - - - Other charges 30 1,642 - 2,663 Total non-markup / interest expenses 3,494,635 3,140,482 7,028,645 Profit before provisions Provisions / (reversals) and write offs - net 31 Extra ordinary / unusual items 4,128,843 774,738 - 2,309,509 (895,125) - 7,953,184 5,164,532 1,020,731 (1,051,663) - - 5,895,100 PROFIT BEFORE TAXATION 3,354,105 3,204,634 6,932,453 6,216,195 Taxation - net 32 1,309,191 1,297,169 2,918,409 2,366,035 PROFIT AFTER TAXATION 2,044,914 1,907,465 4,014,044 3,850,160 Basic earnings per share - Rupees 33 0.78 0.73 1.52 1.46 Diluted earnings per share - Rupees 34 0.78 0.73 1.52 1.46 PROFIT ATTRIBUTEABLE TO : Equity holders of the parent 2,016,387 1,898,622 3,957,990 3,838,501 Non-controlling interest 28,527 8,843 56,054 11,659 2,044,914 1,907,465 4,014,044 3,850,160 The annexed notes from 1 to 41 form an integral part of these consolidated condensed interim financial statements. Chief Financial Officer President Director HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 47
49. Consolidated Condensed Interim Statement of Comprehensive Income For the Six Months Ended June 30 , 2019 (Un-audited) RestatedRestated Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Rupees in ‘000’ Profit after taxation for the period 2,044,914 1,907,465 4,014,044 3,850,160 Other comprehensive income: Items that will not be reclassified to profit and loss account in subsequent periods: Remeasurement loss on defined benefit obligations - - - Movement in surplus on revaluation of fixed / non-banking assets - net of tax - - - - - - - 2,044,914 1,907,465 4,014,044 3,850,160 Items that may be reclassified to profit and loss account in subsequent periods: Movement in surplus on revaluation of investments - net of tax (752,363) 3,852 (767,968) (81,810) Total comprehensive income for the period 1,292,551 1,911,317 3,246,076 3,768,350 The annexed notes from 1 to 41 form an integral part of these consolidated condensed interim financial statements. Chief Financial Officer 48 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
50. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 49 - - - - - - - - - - - - 26 ,173,766 - - - - - - - - 26,173,766 - - - - - - - - - 2,215,040 - - - - - - - - 2,215,040 - - - - - - - - - - 2,859,890 - - - - - 1,514,991 - - 1,344,899 - - - - - - - (767,968) - (767,968) (11,369) - - - - 123,940 - - 123,940 (135,309) - - - - (5,083) (8,536) (21,520) - - - 3,271,681 (47,546) - (1,388) (22,710) 509,790 - - 509,790 2,833,535 (77,594) (3,978) (2,052) (22,942) - - - 2,940,101 265,979 - - - - 11,659 11,659 - 254,320 Non- controlling interest 5,083 8,536 21,520 3,957,990 3,957,990 - 3,038,684 51,035 - 1,388 22,710 3,526,064 (1,514,991) - - - 56,054 56,054 - 328,052 - (10,350) - - 72,423 - 3,698,795 72,423 (172,731) 952,478 119,375 4,357 2,052 22,942 3,838,501 3,838,501 - (3,034,749) Fixed / non Unappropriated banking profit / assets (accumulated loss) - - - 3,246,076 4,014,044 (767,968) 37,875,744 3,489 (10,350) - - 4,232,217 - 3,771,218 460,999 33,650,388 41,781 379 - - 3,768,350 3,850,160 (81,810) 29,839,878 Total - - - - - - - (1,982,769) - (1,982,769) Chief Financial Officer President Director Balance as on June 30, 2019 26,436,924 (263,158) 26,173,766 2,215,040 2,859,890 (779,337) 3,236,542 5,049,044 384,106 39,139,051 The annexed notes from 1 to 41 form an integral part of these consolidated condensed interim financial statements. Transactions with owners recognized directly in equity : Final cash dividend - December 31, 2018 declared subsequent to year end at 7.5% per share - - - - - - - (1,982,769) - (1,982,769) - - Total comprehensive income for the six months ended June 30, 2019 Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal - - (263,158) - - 26,436,924 - - - - Profit after taxation for the six months ended June 30, 2019 Other comprehensive loss Balance as on December 31, 2018 - - - - - - - - Total comprehensive income for the six months ended December 31, 2018 Transfer to statutory reserve Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal Final dividend for the year ended June 30, 2018 at Rs .5 per certificate by subsidiary - - (263,158) - - Profit after taxation for the six months ended December 31, 2018 Other comprehensive income / (loss) 26,436,924 - - - - Balance as on June 30, 2018 - as restated - - - - (81,810) - - - - - - - - - - - - - - Total comprehensive income for the six months ended June 30, 2018 Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) - net of tax Transfer from surplus on revaluation of fixed assets to unappropriated profit / (accumulated loss) on disposal Transfer from surplus on revaluation of non banking assets to unappropriated profit / (accumulated loss) on disposal Investments Surplus / (Deficit) - net of tax on revaluation of Statutory reserve (53,499) Share premium - (81,810) Share capital - net - - Discount on issue of shares Profit after taxation for the six months ended June 30, 2018 Other comprehensive loss R u p e e s i n ‘000’ Balance as on January 01, 2018 - as restated 26,436,924 (263,158) 26,173,766 2,215,040 1,344,899 Share capital For the Six Months Ended June 30, 2019 (Un-audited) Consolidated Condensed Interim Statement of Changes in Equity
51. Consolidated Condensed Interim Cash Flow Statement For the Six Months Ended June 30 , 2019 (Un-audited) Six Months Ended June 30, June 30, 20192018 Note Rupees in ‘000’ CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 6,932,453 6,216,195 Less: Dividend income (57,821) (35,362) 6,874,632 6,180,833 Adjustments: Depreciation on fixed assets 29 515,842 450,086 Depreciation on non banking assets acquired in satisfaction of claims 29 37,052 38,339 Depreciation on ijarah assets under IFAS - 2 29 187,456 211,487 Depreciation on right of use assets 29 367,927 Amortization on intangible assets 29 84,878 26,276 Amortization of (discount) / premium on debt securities - net (433,391) 342,414 Mark-up on lease liability against right of use assets 329,336 Provision / (reversal) and writeoffs - net 31 1,020,731 (1,051,663) (Gain) / loss on sale of fixed assets - net 28 (37,802) (732) Gain on sale of non banking assets - net (67) (36,335) Gain on securities - net 27 (33,918) (18,171) Provision for employees compensated absences 5,231 4,930 Provision for gratuity 57,399 53,804 2,100,674 20,435 8,975,306 (Increase) / Decrease in operating assets: Lendings to financial institutions (360,350) Held for trading securities 325,092 Advances - net 119,954 Others assets - net (4,155,266) 6,201,268 (4,070,570) Increase / (Decrease) in operating liabilities: Bills Payable 576,967 Borrowings from financial institutions 8,185,583 Deposits 69,599,218 Other liabilities 2,482,756 1,602,512 13,365,484 (62,890,449) (322,339) (48,244,792) 252,495 (5,268,139) 36,497,878 2,088,603 80,844,524 33,570,837 Income tax paid (1,746,794) (2,179,282) Net cash flow from / (used in) operating activities 84,002,466 (10,651,969) 50 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
52. Six Months Ended June 30 , June 30, 20192018 Rupees in ‘000’ CASH FLOWS FROM INVESTING ACTIVITIES Net investments in available for sale securities (45,795,718) 7,957,870 Net investments in held to maturity securities (19,606,306) Dividends received 51,040 46,510 Investments in fixed assets (427,657) (620,518) Investments in intangible assets (51,824) (212,616) Proceeds from sale of fixed assets 38,547 142,764 Proceeds from sale of non banking assets 63,612 233,551 Net cash (used in) / flow from investing activities (65,728,306) 7,547,561 CASH FLOW FROM FINANCING ACTIVITIES Repayment of subordinated debts (1,360) (500) Dividend paid (1,962,008) Dividend paid to non-controlling interest - (677) Issuance of privately placed term finance certificates - II - 4,300,000 Net cash (used in) / flow from financing activities (1,963,368) 4,298,823 Increase in cash and cash equivalents Cash and cash equivalents at beginning of the period 16,310,792 49,216,809 1,194,415 53,339,141 Cash and cash equivalents at end of the period 65,527,601 54,533,556 Cash and cash equivalents : Cash and balances with treasury banks 54,574,949 47,833,984 Balances with other banks 11,075,037 6,712,428 Overdrawn nostro accounts (122,385) (12,856) 65,527,601 54,533,556 The annexed notes from 1 to 41 form an integral part of these consolidated condensed interim financial statements. Chief Financial Officer President Director HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 51
53. Notes to the Consolidated Condensed Interim Financial Statements For the Six Months Ended June 30 , 2019 (Un-audited) 1. STATUS AND NATURE OF BUSINESS The Bank of Punjab Group (“the Group”) comprises of The Bank of Punjab (“the Bank”) (“BOP”) (“the Parent”), Punjab Modaraba services (Private) Limited (“PMSL”) (the Management Company), First Punjab Modaraba (“FPM”) (“the Modaraba”), Punjab Capital Securities (Private) Limited (“PCSL”) (100% owned by First Punjab Modaraba). For the purpose of these financial statements, The Bank of Punjab and consolidated subsidiaries are referred to as the Group. 1.1 The Group consists of: Parent The Bank of Punjab Subsidiary Companies % age of % age of holding-2019 holding-2018 Punjab Modaraba Service (Private) Limited First Punjab Modaraba Punjab Capital Securities (Private) Limited The subsidiary company of the Group, Punjab Modaraba services (Private) Limited exercises control over First Punjab Modaraba, as its management company and also has a direct economic interest in it. Further, Punjab Capital Securities (Private) Limited is a 100% subsidiary of FPM. The Group has consolidated the financial statements of the modaraba and PCSL as the ultimate parent. The Group is principally engaged in commercial banking, modaraba management, leasing, brokerage, etc. Brief profile of the Bank and subsidiaries is as follows: 52 100.00% 39.16% 39.16% 100.00% 39.16% 39.16% The Bank of Punjab (the Bank) was constituted in Pakistan pursuant to The Bank of Punjab Act, 1989. It was given the status of a scheduled bank by the State Bank of Pakistan (SBP) on September 19, 1994. It is principally engaged in commercial banking and related services with its registered office at BOP Tower, 10-B, Block E-II, Main Boulevard, Gulberg III, Lahore. The Bank has 587 branches including 14 sub branches and 74 Islamic banking branches (December 31, 2018: 576 branches including 13 sub branches and 72 Islamic banking branches) in Pakistan and Azad Jammu and Kashmir at the period end. The Bank is listed on Pakistan Stock Exchange. The majority shares of the Bank are held by Government of the Punjab (GoPb). Punjab Modaraba Service (Private) Limited Punjab Modaraba services (Private) Limited was incorporated in Pakistan on October 19, 1991 under the Companies Ordinance, 1984 as a private limited company. It is wholly owned by The Bank of Punjab and is primarily engaged in the business of floating and managing Modarabas. First Punjab Modaraba First Punjab Modaraba was formed under the Modaraba Companies and Modaraba (Flotation and Control) Ordinance, 1980 and rules framed there under and is managed by Punjab Modaraba Services (Private) Limited (wholly owned subsidiary of The Bank of Punjab). The Modaraba commenced its operations on 23 December 1992. The Modaraba is listed on Pakistan Stock Exchange. Punjab Capital Securities (Private) Limited Punjab Capital Securities (Private) Limited is registered under the Companies Ordinance, 1984 as company limited by shares from the 29th day of November 2016. PCSL is mainly engaged in BOP HALF YEARLY REPORT JANUARY - JUNE 2019
54. 1 .2 business of brokerage services, portfolio management and consultancy services. The registered office of the company is situated at Room No 319, 3rd Floor, LSE Building, Lahore. The Company is wholly-owned subsidiary of First Punjab Modaraba. Basis of Consolidation Subsidiaries are all entities over which the bank has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Parent controls another entity. The Bank also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de-facto control. De-facto control may arise in circumstances where the size of the Bank’s voting rights relative to the size and dispersion of holdings of other shareholders give the Bank the power to govern the financial and operating policies, etc. The Group financial statements include the financial statements of the Bank and its subsidiaries. Subsidiaries are fully consolidated from the date on which control is transferred to the Bank. They are deconsolidated from the date that control ceases. The financial statements of subsidiaries have been consolidated on line by line basis. All significant inter-company transactions, balances, income and expenses on transactions between group companies are eliminated. Profits and losses resulting from inter-company transactions that are recognized in assets are also eliminated. The Bank applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The Bank recognizes any non-controlling interest in the acquiree on an acquisition- by-acquisition basis, at the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s identifiable net assets. The Financial Statements of the Bank and its subsidiaries are prepared upto the same reporting date using consistent accounting policies. Acquisition-related costs are expensed as incurred. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through income statement. Any contingent consideration to be transferred by the Bank is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlement is accounted for within equity. Goodwill, if any, is initially measured as the excess of the aggregate of the consideration transferred and the fair value of non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognized in income statement. After initial recognition, is measured at carrying value i.e. cost at the date of acquisition less any accumulated impairment. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 53
55. 2 When the Bank ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost , with the change in carrying amount recognized in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognized in other comprehensive income in respect of that entity are accounted for as if the Bank had directly disposed of the related assets or liabilities. This may mean that amounts previously recognized in other comprehensive income are reclassified to profit or loss. BASIS OF PRESENTATION These consolidated condensed interim financial statements are the consolidated financial statements of the Group in which investments in subsidiaries is accounted for on the basis of acquisition method. Standalone financial statements of the Group and its subsidiaries are prepared separately. In accordance with the directives of the Government of Pakistan regarding the conversion of the Banking system to Islamic modes, the SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by the Banks from their customers and immediate resale to them at appropriate marked-up price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these consolidated condensed interim financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon. The financial results of Islamic Banking business have been consolidated in these consolidated financial statements for reporting purposes, after eliminating inter-branch transactions / balances. Key financial figures of the Islamic Banking business are disclosed in note 39 of these consolidated condensed interim financial statements. 2.1 Statement of compliance 2.1.1 These consolidated condensed interim financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: - Directives issued by the SBP and the Securities and Exchange Commission of Pakistan (SECP); - Requirements of The Bank of Punjab Act, 1989; - Provisions of and directives issued under the Banking Companies Ordinance, 1962 and the Companies Act, 2017; - International Financial Reporting Standards (IFRS) issued by the International Accounting Standard Board as are notified under the Companies Act, 2017; and - Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017. Wherever the requirements of the directives issued by the SBP and Securities and Exchange Commission of Pakistan (SECP), The Bank of Punjab Act, 1989, the Banking Companies Ordinance, 1962 and the Companies Act, 2017 differ with the requirements of these IFRS or IFAS, the requirements of the said directives, The Bank of Punjab Act, 1989, the Banking Companies Ordinance, 1962 and the Companies Act, 2017 take precedence. 2.1.2 The disclosures made in these consolidated condensed interim financial statements have been limited based on SBP BPRD circular letter No. 05 of 2019 and IAS 34 “Interim Financial Reporting”. Accordingly, these consolidated condensed interim financial statements do not include all the information and disclosures required for annual consolidated financial statements and should be read 54 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
56. in conjuction with the consolidated financial statements of the Bank for the year ended December 31 , 2018. 2.1.3 SBP as per BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard (IAS) 39, “Financial Instruments: Recognition and Measurement” and International Accounting Standard (IAS) 40, “Investment Property” for banking companies till further instructions. Further, according to the notification of SECP dated April 28, 2008, the IFRS – 7 “Financial Instruments: Disclosures” has not been made applicable for banks. Accordingly, the requirements of these Standards have not been considered in the preparation of these consolidated condensed interim financial statements. 2.1.4 The State Bank of Pakistan through BPRD Circular No. 04 of 2015 dated February 25, 2015 has deferred applicability of Islamic Financial Accounting Standard - 3 for Profit & Loss Sharing on Deposits (IFAS 3) issued by the Institute of Chartered Accountants of Pakistan and notified by the SECP, vide their SRO No. 571 of 2013 dated June 12, 2013 for Institutions offering Islamic Financial Services (IIFS). The standard will result in certain new disclosures in these consolidated condensed interim financial statements of the Bank. 2.1.5 New accounting standards/ amendments and IFRS interpretations that are effective for the current period: During the period, certain amendments to standards, interpretations and improvements to accounting standards became effective, however the amendments, interpretations and improvements are considered not to be relevant or do not have any significant effect on the Groups’s operations and therefore not detailed in these consolidated condensed interim financial statements. During the period, IFRS 16 - Leases, became effective from January 01, 2019, the impact of adoption of this standard is disclosed in note 4.1 to these consolidated condensed interim financial statements. 2.1.6 New accounting standards and IFRS interpretations that are not yet effective: The following standards, amendments and interpretations are only effective for accounting periods, beginning on or after the date mentioned against each of them. The Group considers that the following standards and interpretations are either not relevant or will not have any material impact on its financial statements in the period of initial application other than IFRS 9. The SECP, through SRO 229(I)/2019 dated February 14, 2019, has notified that IFRS 9, Financial Instruments, is applicable for accounting periods ending on or after June 30, 2019. However, based on the guidance received from the SBP, the requirements of IFRS 9 have not been considered in preparation of these consolidated condensed interim financial statements. Standard or Interpretations IFRS 3 IAS 1 & 8 Amendments to IFRS 3 (Definition of a Business) Amendments to IAS 1 and IAS 8 (Definition of Material) IFRS 9 Effective date (accounting periods beginning on or after) January 01, 2020 January 01, 2020 Effective date (accounting periods ending on or after) Financial Instruments : Classification and Measurement June 30, 2019 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 55
57. 3 . 3.1 3.2 4. 4.1 56 BASIS OF MEASUREMENT These consolidated condensed interim financial statements have been prepared under the historical cost convention, except for revaluation of freehold land and buildings on freehold land, revaluation of non banking assets acquired in satisfaction of claims, valuation of certain investments and commitments in respect of forward exchange contracts at fair value and certain staff retirement benefits at present value. These consolidated condensed interim financial statements are presented in Pak Rupees, which is the Group’s functional and presentation currency. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these consolidated condensed interim financial statements are consistent with those applied in the preparation of the annual consolidated financial statements of the Group for the year ended December 31, 2018. Impact of IFRS 16 - Leases During the period, IFRS 16 - Leases became applicable. IFRS 16 replaces IAS 17- Leases, existing interpretations and guidance on accounting for leases. IFRS 16 introduces an on-balance sheet lease accounting model for leases entered by the lessee. A lessee recognizes a right of use asset representing its right of using the underlying asset and a corresponding lease liability representing its obligations to make lease payments. Lessor accounting remains similar to the current standard i.e. lessors continue to classify leases as either finance or operating leases. The Group has adopted IFRS 16 from January 1, 2019 thereby recognizing right of use assets and lease liability there-against on January 01, 2019 using modified retrospective restatement approach, as permitted under the specific transitional provisions in the standard, and has not restated comparatives for the corresponding reporting period of 2018. Previously, these leases were accounted for as operating leases. As at January 01, 2019, these liabilities were initially measured at the present value of the remaining lease payments discounted using Group’s incremental weighted average borrowing rate of 14.33% per annum. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The associated right of use assets were measured at the amount equal to the lease liability, adjusted by the amount of prepaid lease payments recognized in the consolidated financial statements of financial position immediately before the date of initial application. The right of use assets recognized subsequent to the adoption are measured based on the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The right of use assets are amortized over the lease term using a straight line basis as it closely reflects the expected pattern of consumption of future economic benefits. The right of use assets are reduced by impairment losses, if any, and adjusted for certain re-measurements of lease liability. BOP HALF YEARLY REPORT JANUARY - JUNE 2019
58. The effect of this change in accounting policy is as follows : June 30, January 1, 2019 2019 Rupees in ‘000’ Impact on Consolidated condensed interim statement of financial position: Increase in fixed assets - right of use assets 5,133,568 5,688,509 Decrease in advances, deposits, advance rent and other prepayments (83,881) (187,014) Increase in other assets - advance taxation 65,980 Net increase in total assets Increase in other liabilities - lease liability against right of use assets 5,115,667 5,501,495 5,218,866 5,501,495 Net increase/(decrease) in net assets (103,199) Impact on Consolidated condensed interim profit and loss account: January 01 – June 30, 2019 Rupees in ‘000’ Increase in mark-up/interest expensed Increase/(Decrease) in operating expenses: Amortization on right of use assets Rent expense 329,336 367,927 (528,084) Decrease in profit before tax Decrease in taxation 169,179 65,980 Decrease in profit after taxation 103,199 Decrease in earnings per share for the six months ended June 30, 2019 is 0.04 per share. While applying IFRS 16, the Group has used the following practical expedients, as permitted by the standard, and significant judgements: - Use of a single discount rate for leases with similar characteristics; - 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. 5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The basis for accounting judgments and key estimates adopted in preparation of these consolidated condensed interim financial statements are consistent with those applied in the preparation of the annual consolidated financial statements of the Group for the year ended December 31, 2018 except for note 4.1 to these consolidated condensed interim financial statements. 6. FINANCIAL RISK MANAGEMENT The financial risk management objectives and policies of the Bank are consistent with those disclosed in the annual consolidated financial statements of the Group for the year ended December 31, 2018. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 57
59. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 7. CASH AND BALANCES WITH TREASURY BANKS In hand: Local currency 12,090,161 8,558,995 Foreign currencies 1,519,139 1,567,982 13,609,300 With SBP in : Local currency current accounts 24,899,868 Foreign currency current accounts 473,755 Foreign currency deposit accounts 1,493,943 10,126,977 19,249,586 431,861 1,283,551 26,867,566 20,964,998 With National Bank of Pakistan in : Local currency current account 11,605,112 12,451,416 Prize bonds 2,492,971 46,219 54,574,947 43,589,610 8. BALANCES WITH OTHER BANKS In Pakistan : Current accounts 7,405,479 3,759,621 Deposit accounts 1,697,271 1,541,033 9,102,750 5,300,654 Outside Pakistan : Current accounts 483,060 435,886 Deposit accounts 1,489,227 101,422 1,972,287 537,308 11,075,037 5,837,962 9. LENDINGS TO FINANCIAL INSTITUTIONS Repurchase agreement lendings (Reverse Repo) 9.2 23,401,545 22,093,153 Bai muajjal receivable from SBP 511,958 Placements 9.3 3,890,000 5,350,000 27,803,503 27,443,153 9.1 Particulars of lending In local currency 28,203,503 27,843,153 In foreign currencies - 58 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 28,203,503 27,843,153
60. 9 .2 Securities held as collateral against repurchase agreement lendings (reverse repo) (Un-audited)(Audited) June 30, 2019 December 31, 2018 Held by bank Further Held by Further given as Total bank given as collateralcollateral R u p e e s i n ‘ 0 0 0 ’ Market treasury bills 22,855,300 - 22,855,300 - Pakistan investment bonds 546,245 - 546,245 22,093,153 - - Total 22,093,153 23,401,545 - 23,401,545 22,093,153 - 22,093,153 9.3 Market value of securities held as collateral as at June 30, 2019 amounted to Rs. 23,426,267 thousand (December 31, 2018: Rs. 21,350,630 thousand). These carry mark-up at rate ranging from 12.35% to 12.75% per annum (December 31, 2018: 10.00% to 10.50% per annum) with maturities upto July 23, 2019. These carry profit rates ranging from 9.00% to 12.75% per annum (December 31, 2018: 9.00% to 9.80% per annum) with maturities upto August 26, 2019. 10. INVESTMENTS - NET 10.1 Investments by type: (Un-audited) (Audited) June 30, 2019 December 31, 2018 Cost / Provision Surplus / Amortized for (Deficit) cost diminution Carrying value Cost / Provision Amortized for costdiminution Surplus / (Deficit) Carrying value Note R u p e e s i n ‘ 0 0 0 ’ Held-for-trading securities Federal government securities 10.1.1 24,769,895 - (10,230) 24,759,665 25,075,868 - (1,892) 25,073,976 Ordinary shares - - - - 12,630 - (1,849) 10,781 24,769,895 - (10,230) 24,759,665 25,088,498 - (3,741) 25,084,757 Available-for-sale securities Federal government securities 10.1.1 & 10.2 221,911,941 - (1,091,761) 220,820,180 177,736,092 - (44,199) 177,691,893 Shares and certificates 2,631,748 (1,123,089) (109,284) 1,399,375 2,136,937 (1,024,880) 24,614 1,136,671 Non government debt securities 9,697,073 (2,235,125) 2,065 7,464,013 8,119,488 (2,236,623) 2,094 5,884,959 Foreign securities 4,019 - - 4,019 4,019 - - 4,019 234,244,781 (3,358,214) (1,198,980) 229,687,587 187,996,536 (3,261,503) (17,491) 184,717,542 Held-to-maturity securities Federal government securities 10.1.1 & 10.4 19,856,306 - - 19,856,306 250,329 - - 250,329 WAPDA bonds 400 (400) - - 400 (400) - 19,856,706 (400) - 19,856,306 250,729 (400) - 250,329 Total investments 278,871,382 (3,358,614) (1,209,210) 274,303,558 213,335,763 (3,261,903) (21,232) 210,052,628 10.1.1 Market treasury bills and Pakistan investment bonds are eligible for re-discounting with SBP. 10.1.2 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 59
61. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 10.2 Investments given as collateral Market treasury bills 25,253,187 19,829,188 10.3 Provision for diminution in value of investments 10.3.1 Opening balance 3,261,903 3,014,149 Charge / reversals : Charge for the period 113,320 247,754 Reversals for the period (1,498) Reversal on disposal during the period Closing balance 10.3.2 Particulars of provision against debt securities 111,822 (15,111) 247,754 - 3,358,614 3,261,903 (Audited) December 31, 2018 (Un-audited) June 30, 2019 Category of classification NPI ProvisionNPI Provision Rupees in ‘000’ Domestic Other assets especially mentioned - - - Substandard - - - Doubtful - - - Loss 2,235,525 2,235,525 2,237,023 2,237,023 Total 2,235,525 2,235,525 2,237,023 2,237,023 10.4 Market value of held to maturity investments amounted to Rs. 19,240,920 thousand (December 31, 2018: Rs. 248,902 thousand). 11. ADVANCES - NET Performing Non Performing Total (Un-audited)(Audited)(Un-audited)(Audited) (Un-audited)(Audited) June 30, December 31, June 30, December 31, June 30, December 31, 2019 2018 2019 2018 2019 2018 Rupees in ‘000’ Loans, cash credits, running finances, etc. 326,223,493 324,935,141 49,206,421 Net book value of assets in ijarah under IFAS 2 - In Pakistan 384,605 337,920 216,404 Islamic financing and related assets 22,890,385 19,584,952 86,840 Bills discounted and purchased 26,889,361 31,583,488 16,992 49,471,677 375,429,914 215,000 76,882 16,992 601,009 22,977,225 26,906,353 374,406,818 552,920 19,661,834 31,600,480 Advances - gross 376,387,844 376,441,501 49,526,657 49,780,551 425,914,501 426,222,052 Provision against advances: - Specific - - (44,571,798) (43,763,990) (44,571,798) (43,763,990) - General (383,827) (348,299) - - (383,827) (348,299) Advances - net of provision (348,299) (44,571,798) 376,004,017 376,093,202 (383,827) 4,954,859 (43,763,990) (44,955,625) (44,112,289) 6,016,561 380,958,876 382,109,763 60 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
62. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 11.1 Particulars of advances (gross) In local currency 425,782,334 426,076,906 In foreign currencies 132,167 145,146 425,914,501 426,222,052 Advances include Rs. 49,526,657 thousand (December 31, 2018: Rs. 49,780,551 thousand) which have been placed under non-performing status as detailed below: (Un-audited) (Audited) June 30, 2019 December 31, 2018 11.2 Non Non Category of Classification performing Provision performing Provision loans loans Rupees in ‘000’ Domestic Other assets especially mentioned 205,777 13,929 52,234 801 Substandard 579,436 103,521 351,004 65,741 Doubtful 7,781,073 4,587,867 9,722,789 5,247,064 Loss 40,960,371 39,866,481 39,654,524 38,450,384 Total 49,526,657 44,571,798 11.3 Particulars of provision against advances June 30, 2019 (Un-audited) Specific General Total 49,780,551 43,763,990 December 31, 2018 (Audited) Specific General Total Rupees in ‘000’ Opening balance 43,763,990 348,299 44,112,289 45,842,665 425,283 46,267,948 2,440,015 (1,596,538) 2,364,557 (4,436,831) - (76,984) 2,364,557 (4,513,815) 843,477 (141) (2,072,274) (6,401) (76,984) - (2,149,258) (6,401) 44,955,625 43,763,990 348,299 44,112,289 Charge for the period Reversals for the period Amounts written off Closing balance 2,404,487 35,528 (1,596,538) 807,949 (141) 44,571,798 35,528 - 383,827 11.3.1 Particulars of provision against advances with respect to currencies In local currency 44,571,798 383,827 44,955,625 43,763,990 348,299 44,112,289 In foreign currencies - - - - - 44,571,798 383,827 44,955,625 43,763,990 348,299 44,112,289 11.3.2 General provision represents provision against consumer financing portfolio as required by Prudential Regulations issued by the SBP. 11.3.3 The Bank has availed the benefit of Forced Sale Value (FSV) of collateral against non-performing advances as allowed vide BSD Circular No.1 dated October 21, 2011. This has resulted in decrease in provision against non-performing advances by Rs. 1,372,927 thousand (December 31, 2018: Rs 1,186,127 thousand). The FSV benefit availed is not available for cash or stock dividend. 11.3.4 Exposure amounting to Rs. 2,524,603 thousand relating to certain facilities of Power Holding (Pvt.) Limited, which is a government guaranteed loan, has not been classified as non-performing, pursuant to a relaxation given by SBP in this respect. The relaxation is valid upto June 30, 2019. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 61
63. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 12. FIXED ASSETS Capital work-in-progress 126,349 231,947 Right of use assets 5,133,568 Property and equipment 8,577,908 8,561,244 13,837,825 8,793,191 12.1 Capital work-in-progress Civil works 95,839 201,487 Equipment 30,510 30,460 126,349 231,947 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 12.2 Additions to fixed assets The following additions / (transfers) have been made to fixed assets during the period: Capital work-in-progress (105,598) 295,943 Right of use assets 5,501,495 Property and equipment : Freehold land - 8,466 Building on freehold land 93,519 495,507 Furniture and fixture 20,712 37,654 Office equipment 123,486 132,018 Computer equipment 67,458 108,429 Lease hold improvements 214,128 49,151 Vehicles 13,831 1,915 533,134 833,140 5,929,031 1,129,083 12.3 Disposal of property and equipment: The net book value of property and equipment disposed off during the period is as follows: Building on freehold land - 140,471 Furniture and fixture 281 603 Office equipment 465 542 Computer equipment - 476 Vehicles - 746 142,092 Gross carrying amount of vehicles disposed off during the period was Rs. 40,704 thousand (June 30, 2018: nil) 62 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
64. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 13. INTANGIBLE ASSETS Intangible in progress 155,582 129,279 Softwares 709,354 768,711 864,936 897,990 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 13.1 Additions to intangible assets The following additions have been made to intangible assets during the period: Intangible in progress 26,303 105,144 Intangible assets purchased during the period 25,521 107,472 51,824 212,616 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 14. DEFERRED TAX ASSETS - NET Deductible temporary differences on : 419,643 61,834 8,565,450 6,122 61,834 8,926,570 9,046,927 Taxable temporary differences on : 8,994,526 Deficit on revaluation of investments Business loss, tax credits, etc. Provision against advances, off balance sheet etc. Surplus on revaluation of fixed assets Accelerated tax depreciation Surplus on revaluation of non banking assets (451,905) (295,952) (179,254) (463,493) (320,078) (183,851) (927,111) (967,422) 8,119,816 8,027,104 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 63
65. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 15. OTHER ASSETS - NET Income / mark-up accrued in local currency 13,045,951 8,896,935 Income / mark-up accrued in foreign currency 963 1,961 Profit paid in advance on pehlay munafa scheme 3,580 8,027 Advances, deposits, advance rent and other prepayments 577,563 816,682 Advance taxation (payments less provisions) 2,782,766 3,633,574 Non-banking assets acquired in satisfaction of claims 7,385,423 7,467,804 Acceptances 4,752,056 4,888,386 Branch adjustment account 211,757 180,704 Mark to market gain on forward foreign exchange contracts 442,007 146,431 Stock of stationery 151,746 108,048 Suspense account 6,771 1,710 Zakat recoverable from NITL 36,790 36,790 Unrealized gain on revaluation of foreign bills and trade loans 133,587 78,013 Fraud and forgeries 172,525 121,806 Unearned income on sale of sukuk on bai-muajjal basis 880,133 1,044,888 Others 1,272,957 1,195,952 Less: Provision held against other assets 15.1 31,856,575 (2,272,944) 28,627,711 (2,207,512) Other assets (net of provision) 29,583,631 Surplus on revaluation of non-banking assets acquired in satisfaction of claims 1,526,597 26,420,199 1,544,813 Other assets - total 31,110,228 27,965,012 15.1 Provision held against other assets Advances, deposits, advance rent & other prepayments 35,723 35,723 Non banking assets acquired in satisfaction of claims 1,575,670 1,575,670 Zakat recoverable from NITL 36,790 36,790 Fraud and forgeries 165,196 101,364 Others 459,565 457,965 2,272,944 2,207,512 16. CONTINGENT ASSETS Contingent assets Nil 64 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 Nil
66. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 17. BILLS PAYABLE In Pakistan 4,154,644 3,577,677 Outside Pakistan - 4,154,644 3,577,677 18. BORROWINGS Secured Borrowings from SBP under: Export refinance scheme (ERF) 15,245,623 Long term financing facility (LTFF) 7,135,047 Finance facility for storage of agricultural produce (FFSAP) 44,478 Finance facility for renewable energy performance platform (REPP) 1,060,310 Repurchase agreement borrowings Call borrowings 23,485,458 - 24,644,562 13,451,606 6,219,303 25,991 1,025,036 20,721,936 2,497,905 17,251,702 Total secured 48,130,020 40,471,543 Unsecured Overdrawn nostro accounts 122,385 210,763 Redeemable capital - Musharika certificates 45,519 8,039 Foreign placement 1,600,521 1,110,895 Total unsecured 1,768,425 1,329,697 49,898,445 41,801,240 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 65
67. 19 . DEPOSITS AND OTHER ACCOUNTS June 30, 2019 (Un-audited) In local currency In foreign currencies Total December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Customers: Current deposits 134,946,954 2,979,260 137,926,214 119,614,715 2,343,451 121,958,166 Savings deposits 303,514,406 2,767,639 306,282,045 253,500,729 2,413,949 255,914,678 Term deposits 187,868,728 3,481,055 191,349,783 181,768,000 3,496,387 185,264,387 Others 22,607,107 - 22,607,107 25,541,626 - 25,541,626 Financial institutions: Current deposits Savings deposits Term deposits Others 648,937,195 3,600,701 2,082,659 730,000 235,823 9,227,954 658,165,149 580,425,070 346,637 212 - - 3,947,338 2,082,871 730,000 235,823 3,610,496 2,166,684 755,000 162,192 8,253,787 588,678,857 188,548 186 - - 3,799,044 2,166,870 755,000 162,192 6,649,183 346,849 6,996,032 6,694,372 188,734 6,883,106 655,586,378 9,574,803 665,161,181 587,119,442 8,442,521 595,561,963 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 20. SUBORDINATED DEBTS Loan from GoPb 20.1 2,000,000 2,000,000 Privately placed term finance certificates - I 20.2 2,497,500 2,498,000 Privately placed term finance certificates - II 20.3 4,298,280 4,299,140 8,795,780 8,797,140 20.1 Loan from GoPb The GoPb extended loan of Rs. 2,000,000 thousand to support capital structure of the Bank for the purpose of the regulatory capital requirement. The loan is unsecured and sub-ordinated to all other indebtedness including deposits. The salient features of the loan are as follows: Tenor: 07 Years. Issue date December 31, 2014 Maturity date December 30, 2021 Rating Unrated Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Average SBP discount rate. (Average shall be calculated on daily basis) Conversion option: May be converted, subject to consent of the parties and necessary regulatory approvals, after a period of five years into ordinary shares at the rate of Rs. 15 per share. Repayment: Bullet repayment after lapse of 07 years. Call / Put option: Callable after a period of 05 years. However no put option is available to GoPb. Lock in clause: Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. Loss absorbency clause: May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. 66 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
68. 20 .2 Privately placed term finance certificates - I The Bank has issued rated, unsecured and subordinated term finance certificates under section 120 of the Companies Ordinance, 1984, in a set of twenty (20) scrips, corresponding to the redemption dates of the TFC and representing the TFC Holders entitlement to the redemption amount on the each such redemption date; and registered book entry securities in accordance with the CDC regulations, as outlined by SBP under BPRD Circular No. 06 dated August 15, 2013; with each TFC having a face value of PKR 100,000 or multiples thereof. Issue amount: Rupees 2,500,000 thousand Issue date: December 23, 2016 Maturity date: December 22, 2026 Rating: AA Tenor: 10 Years. Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Floating rate of return at base rate plus 100 bps p.a. (Base rate will be the average rate ‘Ask side of the six month Karachi Inter Bank Offered Rate set at 1 (one business) day prior to the redemption date for the redemption amount payable on the immediately following redemption date). Repayment: The TFC has been structured to redeem 0.02% of the issue amount semi-annually in the first 09 years after the issue and the remaining issue amount in two equal semi-annual installments of 49.82% each, in the 10th year. Call / Put option: Callable after a period of 05 years. However no put option is available to the investors. Lock in clause: Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. Loss absorbency clause: May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. 20.3 Privately placed term finance certificates - II The Bank has issued rated, unsecured and subordinated term finance certificates under section 66 of the Companies Act, 2017, in a set of twenty (20) scrips, corresponding to the redemption dates of the TFC and representing the TFC Holders entitlement to the redemption amount on the each such redemption date and registered book entry securities in accordance with the CDC regulations, as outlined by SBP under BPRD Circular No. 06 dated August 15, 2013 with each TFC having a face value of PKR 100,000 or multiples thereof. Issue amount: Rupees 4,300,000 thousand Issue date: April 23, 2018 Maturity date: April 23, 2028 Rating: AA Tenor: 10 Years. Security: Unsecured and subordinated to all other indebtedness of the Bank including deposits. Profit payment & frequency: Profit payable on half yearly basis in arrears on the outstanding principal amount. Profit rate: Floating rate of return at base rate plus 125 bps p.a. (Base rate will be the average rate ‘Ask side of the six month Karachi Inter Bank Offered Rate set at 1 (one business) day prior to the redemption date for the redemption amount payable on the immediately following redemption date). Repayment: The TFC has been structured to redeem 0.02% of the issue amount semi-annually in the first 09 years after the issue and the remaining HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 67
69. Call / Put option: Lock in clause: Loss absorbency clause: issue amount in two equal semi-annual installments of 49.82% each, in the 10th year. Callable after a period of 05 years. However no put option is available to the investors. Neither profit nor principal may be paid (even at maturity) if such payments would result in a shortfall in the Bank’s Minimum Capital Requirement (MCR) or Capital Adequacy Ratio (CAR) or increase any existing shortfall in MCR or CAR. May be converted into ordinary shares or written off immediately (either partially or in full) at the discretion of the SBP, upon the occurrence of a point of non-viability (“PONV”) event as defined in the Basel III guidelines, at the market value of the shares on the date of trigger of PONV as declared by the SBP. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 21. OTHER LIABILITIES Mark-up / return / interest payable in local currency 10,571,263 7,234,452 Mark-up / return / interest payable in foreign currency 61,349 44,506 Lease key money 12,258,816 11,567,270 Sundry creditors and accrued expenses 873,679 999,519 Acceptances 4,752,056 4,888,386 Mark-up payable on subordinated debts 109,265 97,913 Unclaimed dividends 2,590 2,599 Dividend payable 20,761 Payable to gratuity fund 57,390 287,512 Gratuity payable to key management personnel 40,027 100,403 Payable to charity fund - 114 Provision against off-balance sheet obligations 21.1 62,183 62,183 Provision for employees compensated absences 106,222 102,294 Taxes / zakat / import fee payable 224,324 193,646 Lease liability against right of use assets 5,218,866 Deferred income on sale of sukuk on bai - muajjal basis 880,133 1,044,888 Others 260,703 476,964 35,499,627 27,102,649 21.1 Provision against off-balance sheet obligations 62,183 The above provision has been made against letters of guarantee issued by the Bank. 68 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 62,183
70. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 22. SURPLUS ON REVALUATION OF ASSETS - NET OF TAX Surplus / (deficit) on revaluation of : - Available for sale securities 10.1 (1,198,980) (17,491) - Fixed assets 2,341,104 2,374,212 - Non-banking assets acquired in satisfaction of claims 15 1,526,597 1,544,813 2,668,721 Deferred tax on (surplus) / deficit on revaluation of : - Available for sale securities 419,643 - Fixed assets (451,905) - Non-banking assets acquired in satisfaction of claims (179,254) 3,901,534 6,122 (463,493) (183,851) (211,516) (641,222) 2,457,205 3,260,312 23. CONTINGENCIES AND COMMITMENTS Guarantees 23.1 56,242,580 52,717,758 Commitments 23.2 121,199,053 91,698,462 Other contingent liabilities 23.3 8,975 1,464,824 177,450,608 145,881,044 23.1 Guarantees: Financial guarantees 18,659,993 18,743,220 Performance guarantees 17,415,383 18,257,988 Other guarantees 20,167,204 15,716,550 56,242,580 52,717,758 23.2 Commitments: Documentary credits and short-term trade-related transactions - letters of credit 57,512,169 44,621,896 Commitments in respect of: - forward foreign exchange contracts 23.2.1 51,155,903 22,172,986 - forward lending 23.2.2 12,423,948 14,747,883 - operating leases 23.2.3 - 9,937,311 Commitments for acquisition of: - fixed assets 67,442 56,437 - intangible assets 39,591 161,949 121,199,053 91,698,462 23.2.1 Commitments in respect of forward foreign exchange contracts Purchase 27,634,708 13,420,469 Sale 23,521,195 8,752,517 51,155,903 22,172,986 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 69
71. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 23.2.2 Commitments in respect of forward lending Undrawn formal standby facilities, credit lines and other commitments to lend 23.2.2.1 12,423,948 14,747,883 23.2.2.1These 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. In addition, the Bank makes revocable commitments that do not attract any significant penalty or expense if the facility is unilaterally withdrawn. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 23.2.3 Commitments in respect of operating leases Not later than one year Later than one year and not later than five years Later than five years - - - 878,342 3,357,036 5,701,933 - 9,937,311 23.3 Other contingent liabilities 8,975 1,464,824 23.3.1 For the tax year 2007, the Income Tax Department concluded proceedings under section 161/205 and created a default of Rs. 8,975 thousand. The Bank filed appeal before CIR (A), however the same was not allowed. Now, the Bank has filled appeal against the said order of CIR (A) with ATIR. The expected tax liability for the said year amounts to Rs. 8,975 thousand. However, the management of the Bank, as per opinion of its tax consultant, is confident that the decision for the aforementioned tax year will be decided in Bank’s favor. (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ 23.4 Claims against the Bank not acknowledged as debts 23.4.1 56,195,082 57,300,059 23.4.1 The amounts involved in the claims filed against the Bank are yet to be adjudicated by the concerned Courts as the same have been filed as outburst to our recovery suits. Uptill now, in no case, any claim has been adjudicated, determined or decreed by the Courts against the Bank. Moreover, there is no likelihood of decreeing the suits against the Bank because, the claims are frivolous. 70 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
72. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ 24. MARK-UP / RETURN / INTEREST EARNED a) On loans and advances 21,267,121 12,430,041 b) On investments: Available for sale securities 9,365,702 6,404,456 Held for trading securities 1,134,167 870,934 Held to maturity securities 573,139 10,309 c) On lendings to financial institutions: Securities purchased under resale agreements 1,553,197 352,523 Call lending 2,062 24,394 Letters of placement 206,775 332,384 d) On balances with banks 59,647 14,479 34,161,810 20,439,520 25. MARK-UP / RETURN / INTEREST EXPENSED Deposits and other accounts 18,992,760 10,156,288 Borrowings: Securities sold under repurchase agreements 244,194 103,261 Foreign placements 27,525 Call borrowings 714,923 536,944 SBP refinance borrowing 219,855 197,347 Subordinated debts: Mark-up on subordinated loan from GoPb 112,055 65,014 Mark-up on privately placed term finance certificates 393,139 160,694 Mark-up on lease liability against right of use assets 329,336 21,033,787 11,219,548 26. FEE AND COMMISSION INCOME Branch banking customer fees 311,364 310,838 Consumer finance related fees 118,179 133,198 Card related fees 249,870 179,030 Credit related fees 234,269 282,884 Branchless banking fees 44,010 903 Commission on trade 262,204 274,781 Commission on guarantees 122,052 152,445 Commission on cash management 50,178 26,220 Commission on remittances including home remittances 122,597 117,445 Commission on bancassurance 45,512 72,878 Commission on wheat financing 1,257 1,066 SMS banking income 121,287 63,072 Others 4,775 2,553 1,687,554 1,617,313 27. GAIN ON SECURITIES - NET Realized gain on sale of securities - net 27.1 44,148 23,211 Unrealized loss - held for trading (10,230) (5,040) 33,918 18,171 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 71
73. (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 27.1 Realized gain on sale of securities - net: Federal Government 6,312 (6,716) Shares and certificates 28,579 31,122 Term finance certificates 9,257 (1,195) 44,148 23,211 28. OTHER INCOME - NET Rent on property 1,169 2,346 Gain / (loss) on sale of fixed assets - net 37,802 (732) Gain on sale of non banking assets - net 67 36,335 Notice pay on resignations 4,714 6,145 43,752 29. OPERATING EXPENSES 44,094 Total compensation expense 3,679,249 2,935,599 Property expense: Rent and taxes 32,829 452,224 Insurance 9,486 6,861 Utilities cost 242,432 197,508 Security 644 766 Repair and maintenance including janitorial charges 8,747 10,875 Depreciation 265,567 221,386 Depreciation on right of use assets 367,927 Others 2,851 930,483 889,620 Information technology expenses: Software maintenance 163,578 79,348 Hardware maintenance 48,627 54,544 Depreciation on computer equipment 110,775 106,154 Amortization on intangible assets 84,878 26,276 Network charges 117,018 144,427 524,876 410,749 Other operating expenses: Directors’ fees and allowances 4,505 1,900 Fees and allowances to shariah board 2,335 1,305 Legal and professional charges 46,303 100,520 Subscription charges 10,888 8,878 Outsourced staff services costs 125,786 148,111 Travelling and conveyance 265,725 220,478 NIFT clearing charges 28,096 27,072 Depreciation 139,500 122,546 Depreciation on non banking assets 37,052 38,339 Depreciation on ijarah assets 187,456 211,487 Training and development 7,748 6,992 Postage and courier charges 57,707 57,775 Stationery and printing 107,798 88,814 72 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
74. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ Marketing, advertisement and publicity Donations 29.1 Insurance Deposit protection fee Repair and maintenance Entertainment expenses Fuel for generator Commission and brokerage Bank charges SMS banking charges ATM charges including ATM maintenance charges Cash remittance charges Branch license fee CNIC verification / ECIB charges Miscellaneous expenses 45,748 1,000 64,554 168,688 79,890 48,674 47,958 69,032 44,109 13,825 67,446 93,632 12,855 19,929 93,135 77,570 44,844 61,959 47,191 42,415 60,791 38,543 12,998 32,219 99,931 12,219 16,992 77,243 1,891,374 1,659,132 7,025,982 5,895,100 29.1 This represents donation paid to Institute of Business Administration in accordance with the approval of Board of Directors of the Bank. (Un-audited)(Un-audited) June 30, June 30, 20192018 Note Rupees in ‘000’ 30. OTHER CHARGES Penalties imposed by SBP 2,663 31. PROVISIONS AND WRITE OFFS - NET Provisions for diminution in value of investments 10.3.1 111,822 14,298 Provisions / (reversal) against advances 11.3 843,477 (1,107,317) Provision against other assets - net 15.1 65,432 41,356 1,020,731 (1,051,663) 32. TAXATION Current 32.1 2,347,254 1,375,749 Prior years 32.2 250,348 Deferred 320,807 990,286 2,918,409 2,366,035 32.1 This includes provision for super tax for the period in accordance with Income Tax Ordinance, 2001. HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 73
75. The Finance supplementary (second Amendment) Act, 2019 has levied super tax @ 4% on taxable income for the tax year 2018 (accounting year 2017) retrospectively . Accordingly, in addition to the current tax charge of super tax, provision amounting to Rs 250,348 thousand also made for tax year 2018 (accounting year 2017) in these consolidated condensed interim financial statements. (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 32.2 33. BASIC EARNINGS PER SHARE Profit after taxation for the period (Rs in ‘000’) 4,014,044 3,850,160 Weighted average number of ordinary shares (No.) 2,643,692,380 2,643,692,380 Basic earnings per share (Rs). 1.52 1.46 34. DILUTED EARNINGS PER SHARE There is no dilution effect on basic earnings per share. 35. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of quoted securities other than those classified as held to maturity, is based on quoted market price. Quoted securities classified as held to maturity are carried at cost. The fair value of unquoted equity securities, other than investments in subsidiaries, is determined on the basis of the break-up value of these investments as per their latest available audited financial statements. The fair value of unquoted debt securities, fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to the absence of a current and active market for these assets and liabilities and reliable data regarding market rates for similar instruments. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since these are either short-term in nature or, in the case of customer loans and deposits, are frequently reprised. 35.1 The Bank measures fair vale using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: 74 Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Fair value measurement using inputs other than quoted prices included within Level 1 that are observable for the asset 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). BOP HALF YEARLY REPORT JANUARY - JUNE 2019
76. 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 categorized : June 30, 2019 (Un-audited) Fair value Carrying value Level 1 Level 2 Level 3 Total Rupees in ‘000’ On balance sheet financial instruments Financial assets measured at fair value: Government securities 245,579,845 - 245,579,845 - 245,579,845 Shares and certificates 1,318,017 1,302,027 - 15,990 1,318,017 Non-Government debt securities 2,070,214 - 2,070,214 - 2,070,214 Foreign securities 4,019 - - 4,019 4,019 Financial assets disclosed but not measured at fair value : Government securities 19,856,306 - 19,240,920 - 19,240,920 Financial liabilities measured at fair value: Payable to gratuity fund 97,417 - 97,417 - 97,417 Provision for employees compensated absences 106,222 - 106,222 - 106,222 Off balance sheet financial instruments: Forward purchase of foreign exchange contracts 29,556,388 - 29,556,388 - 29,556,388 Forward sale of foreign exchange contracts 25,000,868 - 25,000,868 - 25,000,868 D ecember 31, 2018 (Audited) Carrying value Level 1 Fair value Level 2 Level 3 Total Rupees in ‘000’ On balance sheet financial instruments Financial assets measured at fair value : Government securities 202,765,869 - 202,765,869 - 202,765,869 Shares and certificates 1,066,094 1,050,104 - 15,990 1,066,094 Non-Government debt securities 852,320 - 852,320 - 852,320 Foreign securities 4,019 - - 4,019 4,019 Financial assets disclosed but not measured at fair value : Government securities 250,329 - 248,902 - 248,902 Financial liabilities measured at fair value: Payable to gratuity fund 287,512 - 287,512 - 287,512 Provision for employees compensated absences 102,294 - 102,294 - 102,294 Off balance sheet financial instruments: Forward purchase of foreign exchange contracts 13,823,439 - 13,823,439 - 13,823,439 Forward sale of foreign exchange contracts 9,009,056 - 9,009,056 - 9,009,056 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 75
77. 35 .2 Fair value of non financial assets June 30, 2019 (Un-audited) Fair value Carrying value Level 1 Level 2 Level 3 Total Rupees in ‘000’ Non Financial assets measured at fair value : Fixed assets (land & building) 5,915,002 - 5,915,002 - 5,915,002 Non banking assets acquired in satisfaction of claims 7,336,350 - 7,336,350 - 7,336,350 D ecember 31, 2018 (Audited) Carrying value Fair value Level 1 Level 2 Level 3 Total Rupees in ‘000’ Non Financial assets measured at fair value : Fixed assets (land & building) 5,912,918 - 5,912,918 - 5,912,918 Non banking assets acquired in satisfaction of claims 7,436,947 - 7,436,947 - 7,436,947 36. SEGMENT INFORMATION 36.1 Segment details with respect to business activities Wholesale Retail (Un-audited) June 30, 2019 Consumer & agri Treasury Islamic Others Total Rupees in ‘000’ Profit & loss Net mark-up / return / profit 17,046,890 700,271 2,169,812 12,068,895 2,066,196 109,746 34,161,810 Inter segment revenue - net (14,301,103) 23,776,809 (1,516,069) (10,542,853) (7,993) 2,591,209 Non mark-up / return / interest income 700,983 227,315 75,304 675,783 39,576 134,845 1,853,806 Total income 3,446,770 24,704,395 729,047 2,201,825 2,097,779 2,835,800 36,015,616 Segment direct expenses 1,668,174 22,742,494 281,172 1,142,210 1,567,823 660,559 28,062,432 Inter segment expense allocation - - - - - - Total expenses Provisions 1,668,174 22,742,494 542,964 225,435 281,172 72,437 1,142,210 113,520 1,567,823 13,506 660,559 28,062,432 52,869 1,020,731 Profit / (loss) before tax 1,235,632 1,736,466 375,438 946,095 516,450 2,122,372 6,932,453 Balance sheet Cash & bank balances 10,531,555 28,790,411 - 20,410,302 5,917,718 - 65,649,986 Investments - net 2,670,694 - - 262,985,168 8,647,696 - 274,303,558 Net inter segment lending - 550,758,052 - - 2,990,660 54,937,558 608,686,270 Lendings to financial institutions - - - 23,401,545 4,401,958 - 27,803,503 Advances - performing 297,282,740 12,177,016 39,795,179 - 23,274,907 3,488,184 376,018,026 - non-performing - net 4,083,122 418,433 361,767 - 70,694 6,834 4,940,850 Others 13,339,545 5,048,343 1,196,521 3,944,716 3,213,137 27,190,543 53,932,805 Total assets 327,907,656 597,192,255 41,353,467 310,741,731 48,516,770 85,623,119 1,411,334,998 Borrowings 23,425,729 105,248 - 26,367,468 - - 49,898,445 Subordinated debts - - - - - 8,795,780 8,795,780 Deposits & other accounts 39,498,748 581,695,347 1,034,565 10,109 42,820,508 101,904 665,161,181 Net inter segment borrowing 294,603,550 - 28,830,578 284,783,068 - 469,074 608,686,270 Others 9,003,367 15,593,559 12,331,409 195,204 2,799,720 (268,988) 39,654,271 76 Total liabilities Equity 366,531,394 597,394,154 42,196,552 311,355,849 45,620,228 9,097,770 1,372,195,947 (38,623,738) (201,899) (843,085) (614,117) 2,896,542 76,525,348 39,139,051 Total equity & liabilities 327,907,656 597,192,255 41,353,467 310,741,732 48,516,770 85,623,118 1,411,334,998 Contingencies & commitments 122,808,310 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 731,245 - 51,155,903 2,639,142 116,008 177,450,608
78. Wholesale Retail (Un-audited) June 30, 2018 Consumer & Agri Treasury Islamic Others Total Rupees in ‘000’ Profit & loss Net mark-up / return / profit 9,685,335 178,546 1,799,652 7,395,702 1,278,421 101,864 20,439,520 Inter segment revenue - net (8,340,338) 15,778,447 (964,418) (6,191,916) (35,474) (246,301) Non mark-up / return / interest income 723,814 377,461 99,367 526,463 32,157 80,398 1,839,660 Total income 2,068,811 16,334,454 934,601 1,730,249 1,275,104 (64,039) 22,279,180 Segment direct expenses 1,241,830 13,582,661 219,475 772,065 1,042,236 256,381 17,114,648 Inter segment expense allocation - - - - - - Total expenses Provisions 1,241,830 13,582,661 (437,743) (558,287) 219,475 (219,597) 772,065 14,298 1,042,236 103,916 256,381 17,114,648 45,750 (1,051,663) Profit / (loss) before tax 1,264,724 3,310,080 934,723 943,886 128,952 (366,170) 6,216,195 (Audited) December 31, 2018 Balance sheet Cash & bank balances 7,362,336 22,778,391 - 14,890,671 4,396,174 - 49,427,572 Investments - net 1,299,368 - - 199,154,100 9,599,160 - 210,052,628 Net inter segment lending - 498,991,218 - - - 49,898,663 548,889,881 Lendings to financial institutions - - - 22,093,153 5,350,000 - 27,443,153 Advances - performing 302,276,330 11,840,351 39,641,148 - 19,922,874 2,412,499 376,093,202 - non-performing 5,161,190 291,565 199,217 256,617 72,752 35,220 6,016,561 Others 11,302,445 1,793,055 1,398,214 987,735 2,039,876 28,161,972 45,683,297 Total assets 327,401,669 535,694,580 41,238,579 237,382,276 41,380,836 80,508,354 1,263,606,294 Borrowings 20,624,727 105,248 - 21,071,265 - - 41,801,240 Subordinated debts - - - - - 8,797,140 8,797,140 Deposits & other accounts 29,780,664 528,081,227 1,062,397 10,109 36,501,111 126,455 595,561,963 Net inter segment borrowing 305,080,375 - 28,190,518 214,631,140 987,848 - 548,889,881 Others 7,772,375 8,671,896 11,665,892 97,392 1,500,040 972,731 30,680,326 Total liabilities Equity 363,258,141 536,858,371 40,918,807 235,809,906 38,988,999 9,896,326 1,225,730,550 (35,856,472) (1,163,791) 319,772 1,572,370 2,391,837 70,612,028 37,875,744 Total equity & liabilities 327,401,669 535,694,580 41,238,579 237,382,276 41,380,836 80,508,354 1,263,606,294 Contingencies & commitments 108,446,058 10,482,058 - 22,172,986 3,096,732 1,683,210 145,881,044 37. RELATED PARTY TRANSACTIONS Related parties comprise subsidiary, key management personnel and entities in which key management personnel are office holders / members. The Bank in the normal course of business carries out transactions with various related parties on arm’s length basis. Amounts due from and due to related parties are shown under receivables and payables. In addition key management personnel are paid terminal and short-term terminal benefits. June 30, 2019 (Un-audited) December 31, 2018 (Audited) Key Employee Other Key Employee Other management fund relatedmanagement funds related personnel partiespersonnel parties Rupees in ‘000’ Rupees in ‘000’ Advances: Opening balance 210,446 - - 189,636 - Addition during the period 99,453 - - 98,028 - Repaid during the period 107,131 - - 77,218 - Closing balance 202,768 - - 210,446 - Provision held against advances - - - - - Advance Rent - - - - - 67,317 Right of use asset - - 94,397 - - - Lease liability against right of use asset - - 34,279 - - - Deposits and other accounts : Opening balance 38,172 2,398,389 7,753 24,423 2,770,528 2,396 Received during the period 313,108 694,982 61,611 561,535 791,508 156,480 Withdrawn during the period 317,171 162,811 50,645 547,786 1,163,647 151,123 Closing balance 34,109 2,930,560 18,719 38,172 2,398,389 7,753 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 77
79. June 30 , 2019 (Un-audited) June 30, 2018 (Un-audited) Key Employee Other Key Employee Other management fund relatedmanagement funds related personnel partiespersonnel parties Rupees in ‘000’ Rupees in ‘000’ Income : Mark-up / return / interest earned 5,112 - - 4,642 - Net gain on sale of fixed assets - - - - - 6,505 Mark-up on lease liability against right of use asset - - 2,203 - - Expense : Mark-up / return / interest paid 822 130,129 740 490 76,772 100 Depreciation on right of use asset - - 2,531 - - Compensation expense 164,968 - - 182,262 - Commission expense - - - - - 37.1 37.2 37.3 37.4 78 Balances pertaining to parties that were related at the beginning of the year but ceased to be so related during any part of the current period are not reflected as part of the closing balance. The same are accounted for through movement presented above. The GoPb holds controlling interest (57.47% shareholding) in the Bank and therefore entities which are owned and / or controlled by the GoPb, or where the GoPb may exercise significant influence, are related parties of the Bank. The Bank in the ordinary course of business enters into transaction with Government- related entities. Such transactions include lending to, deposits from and provision of other banking services to Government-related entities. As at Statement of Financial Position date the loans and advances, deposits and contingencies relating to GoPb and its related entities amounted to Rs. 56,078,740 thousand (December 31, 2018: Rs. 55,256,269 thousand), Rs. 356,471,445 thousand (December 31, 2018: Rs. 306,110,933 thousand) and Rs. 33,200,739 thousand (December 31, 2018: Rs. 30,682,028 thousand) respectively. Further, during the period, the Bank has incurred markup expense of Rs. 112,055 thousand (June 30, 2018: Rs. 65,014 thousand) on subordinated debt of Rs. 2,000,000 thousand received from GoPb in year 2014. The Bank made contribution of Rs. 85,914 thousand (June 30, 2018: Rs. 66,101 thousand) to employees provident fund during the period. Advances to employees as at June 30, 2019, other than key management personnel, amounts to Rs. 5,193,589 thousand (December 31, 2018: Rs. 3,914,070 thousand). BOP HALF YEARLY REPORT JANUARY - JUNE 2019
80. (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 38. CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 28,388,806 28,388,806 Capital Adequacy Ratio (CAR): Eligible Common Equity Tier 1 (CET 1) Capital 30,787,966 28,672,062 Eligible Additional Tier 1 (ADT 1) Capital - - Total Eligible Tier 1 Capital Eligible Tier 2 Capital 30,787,966 9,090,829 28,672,062 9,616,982 Total Eligible Capital (Tier 1 + Tier 2) 39,878,795 38,289,044 Risk Weighted Assets (RWAs): Credit risk 261,141,168 255,838,950 Market risk 3,387,115 2,364,970 Operational risk 36,075,151 36,075,151 Total 300,603,434 294,279,071 Common equity tier I capital adequacy ratio 10.24% 9.74% Tier I CAR (%) 10.24% 9.74% Total CAR (%) 13.27% 13.01% 38.1 Leverage Ratio (LR): Eligible Tier-I Capital 30,787,966 28,672,062 Total exposures 985,190,829 852,478,531 LR (%) 3.13% 3.36% 38.2 Liquidity Coverage Ratio (LCR): Total high quality liquid assets 335,801,112 272,221,864 Total net cash outflow 239,564,562 203,539,146 LCR (%) 140.17% 133.74% Net Stable Funding Ratio (NSFR): Total available stable funding 457,508,448 417,010,019 Total required stable funding 376,197,210 371,740,462 NSFR (%) 39. ISLAMIC BANKING BUSINESS The Bank has started Islamic banking operations in the year 2013. As at close of the June 30, 2019, the Bank is operating 74 Islamic banking branches and 02 sub Islamic banking branches (December 31, 2018: 72 Islamic banking branches and 02 sub Islamic banking branches). 121.61% 112.18% HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 79
81. STATEMENT OF FINANCIAL POSITION As At June 30 , 2019 (Un-audited)(Audited) June 30, December 31, 20192018 Note Rupees in ‘000’ ASSETS Cash and balances with treasury banks 3,874,443 Balances with other banks 2,043,275 Due from financial institutions 39.1 4,401,958 Investments - net 39.2 8,647,696 Islamic financing and related assets - net 39.3 23,345,601 Fixed assets 1,259,251 Due from head office 2,990,660 Other assets 1,953,886 2,753,286 1,642,888 5,350,000 9,599,160 19,995,626 309,063 1,730,813 Total assets 48,516,770 41,380,836 LIABILITIES Bills payable 287,106 209,762 Due to financial institutions - Deposits and other accounts 39.4 42,820,508 36,501,111 Due to head office - 187,187 Subordinated debt - Other liabilities 2,512,614 2,085,897 45,620,228 38,983,957 NET ASSETS 2,896,542 2,396,879 REPRESENTED BY Islamic banking fund 1,500,000 1,500,000 Reserves 16,940 7,313 (Deficit) / surplus on revaluation of assets (6,042) 20,372 Unappropriated profit 39.5 1,385,644 869,194 2,896,542 2,396,879 CONTINGENCIES AND COMMITMENTS39.6 80 BOP HALF YEARLY REPORT JANUARY - JUNE 2019
82. ISLAMIC BANKING BUSINESS Profit and Loss Account For the Six Months Ended June 30 , 2019 (Un-audited) Three Months Three Months Six Months Six Months EndedEndedEndedEnded June 30, June 30, June 30, June 30, 2019201820192018 Note Rupees in ‘000’ Profit / return earned 39.7 1,093,398 650,638 2,066,196 1,278,421 Profit / return expensed 39.8 488,842 214,165 886,064 458,779 Net profit / return 604,556 436,473 1,180,132 819,642 Fee and commission income 18,428 15,751 37,809 32,082 Dividend income - - - Foreign exchange income 753 140 839 51 Income / (loss) from derivatives - - - Loss on securities - - (634) Other income (6) (13) 1,562 24 19,175 15,878 39,576 32,157 Total income 623,731 452,351 1,219,708 851,799 Other expenses Operating expenses 343,625 325,506 689,057 618,931 Workers welfare fund - - - Other charges 10 - 695 343,635 325,506 689,752 618,931 Profit before provisions Provisions against advances - net 280,096 15,098 126,845 103,916 529,956 13,506 232,868 103,916 Profit before taxation 264,998 22,929 516,450 128,952 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 81
83. 39 .1 DUE FROM FINANCIAL INSTITUTIONS June 30, 2019 (Un-audited) In local currency In foreign currencies Total December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Placements 3,890,000 - 3,890,000 Bai muajjal receivable from SBP 511,958 - 511,958 5,350,000 - - - 5,350,000 - 5,350,000 - 5,350,000 39.2 4,401,958 - 4,401,958 INVESTMENTS - NET (Un-audited) (Audited) June 30, 2019 December 31, 2018 Cost / Provision for Surplus / Carrying Cost / Investments by segment: Amortized diminution (Deficit) value Amortized cost cost R u p e e s i n Provision for diminution Surplus / (Deficit) Carrying value ‘000’ Federal government securities: -Ijarah sukuks 1,500,000 - (58,500) 1,441,500 2,623,602 - (32,086) -Sale of sukuk- bai muajjal 2,756,196 - - 2,756,196 2,756,196 - - 4,256,196 - (58,500) 4,197,696 5,379,798 - (32,086) Non government debt securities -Unlisted 4,450,000 - - 4,450,000 4,251,448 - - Total investments 8,706,196 - (58,500) 8,647,696 9,631,246 - (32,086) 2,591,516 2,756,196 5,347,712 4,251,448 9,599,160 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 39.3 ISLAMIC FINANCING AND RELATED ASSETS Ijarah 601,009 552,920 Murabaha 1,151,370 1,004,602 Musharaka 11,547,782 8,340,625 Diminishing musharaka 6,940,798 7,630,222 Istisna 3,337,275 2,686,385 Gross islamic financing and related assets 23,578,234 20,214,754 Less: provision against islamic financings - Specific 232,633 219,128 - General - 82 Islamic financing and related assets - net of provision BOP HALF YEARLY REPORT JANUARY - JUNE 2019 232,633 219,128 23,345,601 19,995,626
84. 39 .4 DEPOSITS AND OTHER ACCOUNTS June 30, 2019 (Un-audited) In local currency In foreign currencies Total December 31, 2018 (Audited) In local In foreign currencycurrencies Total Rupees in ‘000’ Customers : Current deposits 9,156,949 302,311 9,459,260 7,797,340 119,378 7,916,718 Savings deposits 31,096,130 74,056 31,170,186 26,557,886 7,704 26,565,590 Term deposits 741,555 - 741,555 771,556 - 771,556 Others 1,202,592 - 1,202,592 1,031,913 - 1,031,913 42,197,226 376,367 42,573,593 36,158,695 127,082 36,285,777 Financial institutions : Current deposits 122,236 - 122,236 100,024 - 100,024 Savings deposits 124,679 - 124,679 115,310 - 115,310 246,915 42,444,141 - 376,367 246,915 215,334 42,820,508 36,374,029 - 127,082 215,334 36,501,111 (Un-audited)(Audited) June 30, December 31, 20192018 Rupees in ‘000’ 39.5 UNAPPROPRIATED PROFIT - ISLAMIC BANKING BUSINESS Opening balance 869,194 420,873 Islamic banking profit for the period 516,450 448,321 Closing balance 1,385,644 869,194 39.6 CONTINGENCIES AND COMMITMENTS -Guarantees 1,499,180 1,420,734 -Commitments 1,139,962 2,981,746 2,639,142 4,402,480 (Un-audited)(Un-audited) June 30, June 30, 20192018 Rupees in ‘000’ 39.7 PROFIT / RETURN EARNED OF FINANCING, INVESTMENTS AND PLACEMENT Profit earned on: Financing 1,336,866 697,108 Investments 512,521 248,799 Placements 206,774 332,384 Deposits with financial institutions 10,035 130 2,066,196 1,278,421 39.8 PROFIT ON DEPOSITS AND OTHER DUES EXPENSED Deposits and other accounts 821,645 423,305 Markup on lease liability against right-of-use asset 56,426 Profit on deposits from conventional head office 7,993 35,474 886,064 458,779 HALF YEARLY REPORT JANUARY - JUNE 2019 BOP 83
85. 39 .9 40. There has been no material change in the existing islamic pools. Further, no new pool has been established in islamic banking operations of the Bank during the Six months ended June 30, 2019. DATE OF AUTHORIZATION FOR ISSUE These consolidated condensed interim financial statements were authorized for issue on August 23, 2019 by the Board of Directors of the Bank. 41.GENERAL 41.1 Figures have been rounded off to the nearest thousand rupees. 41.2 Under BPRD circular letter No. 05 of 2019 dated March 22, 2019 comparative information has been reclassified, rearranged in these consolidated condensed interim financial statements. However, no other significant reclassifications have been made. Chief Financial Officer 84 BOP HALF YEARLY REPORT JANUARY - JUNE 2019 President Director
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