Faysal Bank: Unconsolidated Accounts For The Third Quarter 2017

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2. CONTENTS Corporate Information 2 Directors ' Review 4 Condensed Interim Statement of Financial Position 10 Condensed Interim Profit and Loss Account 11 Condensed Interim Statement of Comprehensive Income 12 Condensed Interim Statement of Changes in Equity 13 Condensed Interim Cash Flow Statement 14 Notes to and Forming part of the Condensed Interim Financial Information 15 Registered Office Faysal House, St-02, Sharah-e-Faisal, Karachi Tel: 021-32795200 Fax: 021-32795226 Third Quarter September 30, 2017 1
3. CORPORATE INFORMATION Board of Directors Mr . Farooq Rahmatullah Khan Mr. Ahmed Abdulrahim Mohamed Abdulla Bucheery Mr. Yousaf Hussain Mian Muhammad Younis Mr. Imtiaz Ahmad Pervez Mr. Juma Hasan Ali Abul Mr. Abdulelah Ebrahim Mohamed AlQasimi Mr. Abdulla Abdulaziz Ali Taleb Mr. Fuad Azim Hashimi Mr. Ali Munir Chairman/Non-Executive Director Vice Chairman/Non-Executive Director President & CEO Independent Director Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director Independent Director Independent Director Board Audit & Corporate Governance Committee Mian Muhammad Younis Mr. Juma Hasan Ali Abul Mr. Ali Munir Chairman Member Member Board Risk Management Committee Mr. Imtiaz Ahmad Pervez Mr. Abdulelah Ebrahim Mohamed AlQasimi Mr. Abdulla Abdulaziz Ali Taleb Mr. Yousaf Hussain Chairman Member Member Member Recruitment Nomination and Remuneration Committee Mr. Ahmed Abdulrahim Mohamed Abdulla Bucheery Mr. Juma Hasan Ali Abul Mian Muhammad Younis Mr. Fuad Azim Hashimi Mr. Ali Munir Chairman Member Member Member Member Board Strategy Committee Mr. Farooq Rahmatullah Khan Mr. Ahmed Abdulrahim Mohamed Abdulla Bucheery Mr. Juma Hasan Ali Abul Mr. Fuad Azim Hashimi Mr. Yousaf Hussain 2 Chairman Member Member Member Member Third Quarter September 30, 2017
4. CORPORATE INFORMATION Board IT Committee * Mr. Ali Munir Mr. Abdulelah Ebrahim Mohamed AlQasimi Mr. Abdulla Abdulaziz Ali Taleb Mr. Yousaf Hussain Chairman Member Member Member (*Constituted on October 16, 2017) Syed Majid Ali Chief Financial Officer Mr. Aurangzeb Amin Company Secretary & Head of Legal M/s. A.F. Ferguson & Co, Chartered Accountants Auditors M/s. Mohsin Tayebaly & Co, Advocate Legal Advisors Registered Office Share Registrar Faysal Bank Limited Faysal House, St-02, Commercial Lane, Main Shahrah-e-Faisal, Karachi-Pakistan M/s. Central Depository Company of Pakistan Limited (Share Registrar Department) CDC House, 99-B, Block-B, SMCHS, Main Shahra-e-Faisal, Karachi-74400 UAN : (92-21) 111-747-747 Tel : (92-21) 3279-5200 Fax : (92-21) 3279-5226 Website: www.faysalbank.com Third Quarter Tel: (92-21) 111-111-500 Fax: (92-21) 34326053 Email: info@cdcpak.com September 30, 2017 3
5. DIRECTORS ’ REVIEW On behalf of the Board of Directors, we are pleased to present the Directors’ Report of Faysal Bank Limited along with financial statements for nine months ended September 30, 2017. Economic Update: 2016-2017 was the first fiscal year Pakistan completed after exiting the IMF program. The authorities declared that the country may not need the IMF. However, the fears of reverting to economic indiscipline without the IMF supervision have materialized as many budgetary benchmarks were missed, the most notable being the current account and the fiscal deficit targets which have broader implications for the economy. The current account deficit for FY17 was recorded at USD 12.1 bln as compared to USD 4.87 bln in the preceding year. Fiscal deficit was recorded at 5.8% of GDP as compared to an initial target of 3.8%. The only silver lining in terms of economy was CPI inflation that averaged at 4.15% comfortably below the revised 4.5 ~ 5.5% target (SBP’s state of the economy report). In contrast to FY17, 1st Qtr FY18 has witnessed a mix of economic ups and downs. The deterioration in the current account deficit has continued; recording USD 2.6 bln in the first two months of the current fiscal year vis-a-vis USD 1.29 bln during the corresponding period last year. In stark contrast to the current account deficit, the fiscal deficit for the first quarter of FY18 was recorded at 0.9% of GDP as compared to 1.3% of GDP this time last year. This was achieved primarily because of significant growth in tax collection. Inflation as highlighted by SBP in its recent monetary policy is also set to remain manageable. It is definitely off to a good start as the reading for the first quarter, as per SBP, has been recorded at 3.39% - well below the annual target of 4.5%-5.5%. Furthermore, SBP has projected the fiscal account deficit of 5-6% and current account deficit of 4-5% of GDP compared to the targets of 4.1% and 2.6%, respectively. The Pakistan Stock Exchange has suffered losses, having fallen about 25% from its pinnacle of 52,876 in May 2017 to 40,000 level in October 2017. Going forward it would be critical that the external account is managed carefully. Decline of foreign currency reserves at the current rate is unsustainable and may lead to another currency crisis and push towards IMF. Company Profile Faysal Bank Limited (FBL) was incorporated in Pakistan on 3rd October, 1994 as a public limited company. The Bank’s shares are listed on the Pakistan Stock Exchange. Its footprint spreads over more than 114 cities with 376 branches and 372 ATM’s all over the country. Bank’s total assets are in excess of PKR 472 billion. FBL is engaged in Commercial, Retail, Corporate and Islamic banking activities. Its ambition is to meet the financial needs of the customers while providing them high quality of service. Branches have been transformed to multiproduct selling hub. Cross sell opportunities are being pursued through synergies and partnerships between business segments within the Bank. 4 Third Quarter September 30, 2017
6. DIRECTORS ’ REVIEW FBL is on the path of transforming the bank into an Islamic Financial Institution. This will be done after careful evaluation of the conversion progress while ensuring that the interest of all stakeholders are sufficiently protected. Bank is also in the process of developing Digital Banking strategy so as to provide secured, state of art and user friendly banking services to its customers. Bank foresees gradual resurgence in inflation due to growing aggregate demand and fiscal deficit. The USD/PKR parity and KIBOR will remain under pressure. Main positive factor that may boost Pakistan’s economy among others is the CPEC. In a low interest rate environment, the Bank has extended its branch network to generate low cost deposits, increase its core business on selective basis within chosen segments, rationalize its administrative & distribution cost and recovery of non-performing loans from delinquent clients so as to maintain profitability. The increase in branch network is expected to create sustainable value in terms of future profitability of the Bank. The Bank is aware of its responsibilities with regard to environment protection and has undertaken the task of developing a comprehensive environment policy. To support environment, in case of load shedding, FBL has shifted all its night branch network operations to heavy duty UPS instead of generators, thereby reducing environmental hazards. Also strict working hours are observed to benefit from natural light and save precious energy resources. Bank’s Performance: The Bank is pursuing a well-defined strategy with focus on technological advancement to support digital banking, asset growth, cost efficiency and transformation to Islamic Banking. Some of the notable milestones achieved during the period under review are as follows: Project Financing & Syndication Ÿ FBL acted as Joint Lead Arranger and Shariah Structuring Advisor for PKR 1,000 million syndicated facility arranged under mix of Islamic & Conventional modes of financing. The facility is being utilized to finance the procurement and installation of waste heat recovery system at a leading cement manufacturer’s plant. Ÿ FBL acted as Shariah Structuring Advisor for PKR 3,450 million syndicated facility arranged under mix of Islamic & Conventional modes of financing. The facility is being utilized to finance the Balancing, Modernization, Rehabilitation and Expansion (BMRE) requirements of a leading cement plant. Ÿ FBL acted as Joint Arranger and Shariah Structuring Advisor for PKR 4,480 million syndicated facility arranged under mix of Islamic & Conventional modes of financing. The facility is being utilized to partially finance acquisition of tangible assets of a sugar mill. Third Quarter September 30, 2017 5
7. DIRECTORS ’ REVIEW Product Development & New Initiatives Ÿ New home improvement proposition by the name of ‘Home Styles’ comprising of 16 partners and 1000+ products was introduced for credit card customers. Ÿ Shariah compliant product “Barkat LifePlus Saving Account” catering specifically to the financial needs of our senior citizen clients was launched. Ÿ Barkat Kamil Business saving account product was revamped by adding Takaful coverage. Ÿ Internet Banking has shown significant growth, 39,733 subscribers using this facility and 365,605 transactions worth PKR 10.3 bln were executed against 195,716 transactions worth PKR 5.3 bln in 2016 making a total of 54% growth in usage. Ÿ ATM transactions registered 28% growth in volume to PKR 130 bln. Credit Card spend witnessed 32% increase over same period last year. Ÿ Faysal bank E-Banking team has teamed up with 1LINK (Guarantee) Limited to launch Pakistan’s First Domestic Payment Scheme “PayPak Debit Card”. This new card offers low cost, easy and affordable solution to customers. Training & Development Ÿ 7,543 participants were trained in 3rd quarter with a total of 42,518 training man hours. Ÿ Business continuity plan (BCP) operational readiness training was conducted to all relevant stake holders. Ÿ The online Islamic Banking training has been completed by 86% of our Bank staff. Ÿ More than 1,000 staff members were imparted regulatory trainings as part of our annual refreshers in 3rd quarter of 2017. Ÿ 65 Branch Service (Trainee) Officers graduated after completing their on job trainings and were placed in branches. Ÿ Soft Skills training has been initiated for Branch Operations and Distribution teams. Corporate Social Responsibility: Ÿ President & CEO celebrated the independence day with young cancer patients of Child Aid Association at National Institute of Child Health. Donation was also given to the hospital. Ÿ New relationship with Bait ul Sukoon Cancer Hospital has been established. 6 Third Quarter September 30, 2017
8. DIRECTORS ’ REVIEW Future Outlook: In line with Bank’s strategic decision of gradual transformation into an Islamic Bank, 50 new Islamic branches are being opened in 2017. Bank is in the process of developing a seamless end-to-end branch technology based conversion solution for swift and efficient branch conversions to Islamic Banking. The Bank will continue with its growth momentum in terms of ramping up its loan book, with primary focus on SME segment through branch led model, consumer finance and new customer inductions within both Commercial & Corporate business segments. Focus on internal controls & compliance with both regulatory guidelines and adherence to best practices would remain a centerpiece of the strategy. The Bank will also remain focused on its sound risk management framework, including credit, operational and IT risk management practices. Financial Highlights: September September 2017 2016 PKR in Million Operating Profit 5,585 Reversal / ( provision) for non -performing advances 764 6,084 (295) Reversal for diminution in value of investments 1 4 Reversal against off balance sheet obligations - 6 765 (285) Profit before tax 6,350 5,799 Provision for taxation (2,525) (2,051) Profit after tax 3,825 3,748 2.90 2.84 Earnings per share – Rupees Bank earned Profit after Tax of PKR 3.825 bln as against PKR 3.748 bln of corresponding period of the last year, registering an improvement of 2.0%. This growth in profitability is despite of the fact that 2016 nine months profit included capital gain on PIB’s amounting to PKR 1.5 bln which was not available in the current period. Bank improved its net margins by reducing cost of deposits and increasing its lending book. Recoveries of non-performing loans resulted in a netreversal of provisions to the tune of PKR 765 mln against charge of PKR 285 mln in the corresponding period last year. As a result, EPS of the Bank increased to PKR 2.90 from Third Quarter September 30, 2017 7
9. DIRECTORS ’ REVIEW PKR 2.84. The Bank was able to maintain growth momentum in profitability despite challenging business environment, low interest rates and below par stock exchange performance. Deposits increased to PKR 358.8 bln and total assets were in excess of PKR 472 bln. The Bank is focusing on mobilization of low-cost CASA deposits to protect and improve its profit margins. Branch network expansion has started to yield results. Strict watch over administrative expenses has assisted in rationalizing expenses to just 8% increase, including branch network expansion cost and inflation which is hovering around 5%. Strict credit monitoring and aggressive follow up from delinquent clients led to reversal of provisions. Provisions coverage of Non-Performing Loans (NPL) portfolio stands at 86.2% as compared to 81.7% of December 31, 2016. This ratio shows that Bank carries adequate provision against non-performing portfolio. The Bank is also focusing on non-funded income through increase in trade & consumer products volumes and as a result, a 12% increase in commissions and fee based income was witnessed. On the balance sheet, the Bank’s Capital base stood at PKR 32.9 bln, while Capital Adequacy Ratio of 15.9% is well above SBP’s minimum requirement. Credit Rating: JCR-VIS Credit Rating Company Limited (JCR) and Pakistan Credit Rating Agency Limited (PACRA) have re-affirmed the following entity ratings as of December 31, 2016: Long-Term Short-Term AA A1+ Stable outlook has been assigned to the ratings by both the rating agencies. Definitions of JCR-VIS for the assigned ratings are reproduced below: “AA: High credit quality. Protection factors are strong. Risk is modest but may vary slightly from time to time because of economic conditions. A1+: High certainty of timely payment. Short term liquidity including internal operating factors and/or access to alternative sources of funds is outstanding and safety is just below risk free Government of Pakistan short-term obligations.” Definitions of PACRA for the assigned ratings are reproduced below: “AA: Very high credit quality. AA rating denotes a very low expectation of credit risk. It indicates very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A1+: Obligations supported by the highest capacity for timely repayment.” 8 Third Quarter September 30, 2017
10. DIRECTORS ’ REVIEW Acknowledgement: On behalf of the Board and Management of the bank, we would like to take this opportunity to express our sincere thanks to the shareholders for the trust they have reposed in the Bank. We are also grateful to the State Bank of Pakistan and Securities and Exchange Commission of Pakistan for their continued support and guidance and the customers for their patronage. We would also like to express sincere appreciation for the employees of the Bank for their dedication and hard work. On behalf of the board of Directors President & CEO Chairman Karachi Dated: October 25, 2017 Third Quarter September 30, 2017 9
11. CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION AS AT SEPTEMBER 30 , 2017 Note Un-audited Audited September 30, December 31, 2017 2016 ------------- Rupees '000 ------------ASSETS Cash and balances with treasury banks 31,879,375 37,239,302 9 1,710,649 1,139,375 Lendings to financial institutions 10 8,576,656 5,000,000 Investments 11 190,661,425 170,210,137 Advances 12 214,274,772 204,830,997 Operating fixed assets 13 12,114,738 12,111,881 Balances with other banks Deferred tax assets - net Other assets 2,133,324 2,264,212 11,360,902 11,668,757 472,711,841 444,464,661 LIABILITIES Bills payable 5,984,806 5,982,285 Borrowings 57,629,925 52,806,084 358,825,985 340,306,404 748,500 1,497,000 Deposits and other accounts 14 Sub-ordinated loans Liabilities against assets subject to finance lease - Deferred tax liabilities - net - Other liabilities NET ASSETS - 11,536,353 8,864,563 434,725,569 409,456,336 37,986,272 35,008,325 13,197,361 11,997,601 7,064,598 7,158,248 REPRESENTED BY Share capital Reserves Unappropriated profit Surplus on revaluation of assets - net of tax CONTINGENCIES AND COMMITMENTS 12,663,800 9,985,870 32,925,759 29,141,719 5,060,513 5,866,606 37,986,272 35,008,325 15 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. PRESIDENT & CEO 10 CHIEF FINANCIAL OFFICER DIRECTOR DIRECTOR Third Quarter DIRECTOR September 30, 2017
12. CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UN-AUDITED) FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017 Quarter ended Note September 30, September 30, 2017 2016 Nine months ended September 30, September 30, 2017 2016 ------------------------------------------------ Ru pees '000 -------------------------------------------------- 7,125,767 3,776,634 3,349,133 6,279,094 3,440,950 2,838,144 21,306,501 10,947,317 10,359,184 19,559,699 10,660,217 8,899,482 12.2 (259,168) (166,476) (769,092) 336,792 12.3 41,350 - 15,234 (2,435) 85,863 - 16,454 (6,521) 4,428 (26,621) (240,011) 3,589,144 5,183 (7,632) (156,126) 2,994,270 (1,418) (80,129) (764,776) 11,123,960 (3,682) (58,296) 284,747 8,614,735 733,123 29,428 342,911 (50,704) 542,327 44,029 385,045 271,842 2,115,872 109,747 928,029 979,912 1,884,598 224,395 907,248 2,382,615 (10,760) 48,278 1,092,276 4,681,420 (14,936) 66,600 1,294,907 4,289,177 (7,418) 199,606 4,325,748 15,449,708 (8,744) 222,052 5,612,164 14,226,899 3,140,682 30,931 3,171,613 1,509,807 (1,421) 1,508,386 2,826,269 2,461 25,774 2,854,504 1,434,673 1,434,673 8,948,725 131,157 9,079,882 6,369,826 (19,375) 6,350,451 8,293,039 12,481 112,644 8,418,164 5,808,735 (9,797) 5,798,938 529,557 14,500 (1,312) 542,745 965,641 441,707 (533,010) 596,072 504,769 929,904 2,245,612 (316,099) 595,871 2,525,384 3,825,067 2,039,582 (926,138) 937,474 2,050,918 3,748,020 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income (Reversal of provision) / provision against non-performing loans and advances - net Provision for consumer and small enterprise loans - general Reversal against off balance sheet obligations (Reversal of provision) / provision for diminution in value of investments - net Recoveries against written-off debts - net 11.4 Net mark-up / interest income after provisions Non mark-up / interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies (Loss) / gain on sale of securities - net Unrealised loss on revaluation of investments classified as held for trading - net Other income Total non mark-up / interest income Non mark-up / interest expenses Administrative expenses Other provisions - net Other charges Total non mark-up / interest expenses 11.3.1 Share of loss of associate Extraordinary / unusual items Profit before taxation Taxation - Current Taxation - Prior years Taxation - Deferred Profit after taxation --------------------------------------------------- Ru pees ----------------------------------------------------- Basic earnings per share 16 0.73 0.70 2.90 2.84 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. PRESIDENT & CEO CHIEF FINANCIAL OFFICER Third Quarter September 30, 2017 DIRECTOR DIRECTOR DIRECTOR 11
13. CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UN-AUDITED) FOR THE QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2017 Quarter ended Nine months ended September 30, September 30, September 30, September 30, 2017 2016 2017 2016 --------------------------------------- Rupees '000 --------------------------------------- Profit after taxation for the period 965,641 929,904 3,825,067 3,748,020 Other comprehensive income: Items that will not be reclassified to profit and loss account Comprehensive income transferred to equity - - - - 965,641 929,904 3,825,067 3,748,020 (278,582) 12,384 (1,184,450) (769,547) 97,505 (181,077) (2,336) 10,048 414,558 (769,892) 271,340 (498,207) 3,055,175 3,249,813 Items that may be reclassified subsequently to profit and loss account Components of comprehensive income not reflected in equity - Net change in value of available for sale securities - Deferred tax asset on change in value of available for sale securities Total comprehensive income 784,564 939,952 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. PRESIDENT & CEO 12 CHIEF FINANCIAL OFFICER DIRECTOR DIRECTOR Third Quarter DIRECTOR September 30, 2017
14. CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30 , 2017 Reserves Capital Nondistributable UnapproReserve capital Statutory priated Total reserve Share arising on Sub Total reserve profit premium (NCR) - gain amalgamaon bargain tion purchase (note 3.7) ------------------------------------------------------------------------ Rupees '000 ----------------------------------------------------------------------Share capital Particulars Balance as at January 1, 2016 (audited) Reserve for issue of bonus shares 11,997,601 - 10,131 1,006,607 23,952 5,382,071 6,422,761 7,638,330 26,058,692 Total comprehensive income for the period from January 1, 2016 to September 30, 2016 Profit after taxation for the period ended September 30, 2016 Other comprehensive income for the period Total comprehensive income for the period - - - - - - - 3,748,020 3,748,020 3,748,020 3,748,020 Amortisation of intangible assets - customer relationship - net of tax - - - (93,650) - - (93,650) - (93,650) Transfer from surplus on revaluation of fixed assets - net of tax - - - - - - - 75,626 75,626 - - - - - - - - 10,131 Transactions with owners directly recognised in equity Final cash dividend - December 31, 2015 declared subsequent to the year end at Rs. 1 per share 11,997,601 Balance as at September 30, 2016 (un-audited) 912,957 23,952 5,382,071 (1,199,760) (1,199,760) 6,329,111 10,262,216 28,588,928 Total comprehensive income for the period from October 1, 2016 to December 31, 2016 Profit after taxation for the period October 1, 2016 to December 31, 2016 Other comprehensive income for the period Total comprehensive income for the period - - - - - Amortisation of intangible assets - customer relationship - net of tax - - - (31,217) - Transfer to statutory reserve - - - - - Transfer from surplus on revaluation of fixed assets - net of tax - - - - - 11,997,601 (31,217) 860,354 - - - 13,537 13,537 10,131 - - - - - - Amortisation of intangible assets - customer relationship - net of tax - - - (93,650) - - (93,650) - (93,650) Transfer from surplus on revaluation of fixed assets - net of tax - - - - - - - 52,623 52,623 - - - - - - - - 13,197,361 Balance as at September 30, 2017 (un-audited) - 10,131 788,090 23,952 6,242,425 7,158,248 (31,217) (860,354) - 1,199,760 1,199,760 (1,199,760) 1,199,760 - 6,242,425 - 553,752 16,719 570,471 - Transactions with owners recognised directly in equity - Transfer to reserve for issue of bonus shares - Bonus shares issued 23,952 860,354 553,752 16,719 570,471 Profit after taxation for the nine months ended September 30, 2017 Other comprehensive income for the period Total comprehensive income for the period Balance as at December 31, 2016 (audited) 881,740 - - 9,985,870 29,141,719 3,825,067 3,825,067 1,199,760 (1,199,760) (1,199,760) (1,199,760) 3,825,067 3,825,067 - 7,064,598 12,663,800 32,925,759 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. PRESIDENT & CEO CHIEF FINANCIAL OFFICER Third Quarter September 30, 2017 DIRECTOR DIRECTOR DIRECTOR 13
15. CONDENSED INTERIM CASH FLOW STATEMENT (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 September 30, 2017 September 30, 2016 -----------------Rupees '000----------------- CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income 6,350,451 (109,747) 6,240,704 5,798,938 (224,395) 5,574,543 566,347 134,468 10,423 130,939 (769,092) 85,863 (1,418) 7,418 (17,063) 85,961 6,977 (80,129) 19,375 180,069 6,420,773 481,137 163,004 118,926 336,792 16,454 (3,682) 12,481 (6,521) 8,744 (56,149) 67,053 19,118 (58,296) 9,797 1,108,858 6,683,401 (3,576,656) (46,263,373) (8,702,631) 197,705 (58,344,955) 250,000 (10,350,917) 65,151 1,721,805 (8,313,961) Income tax paid Net cash (used in) / generated from operating activities 2,521 5,209,235 18,519,581 2,660,500 26,391,837 (25,532,345) (2,000,575) (27,532,920) (1,107,943) (66,839,895) 22,336,243 607,159 (45,004,436) (46,634,996) (744,408) (47,379,404) CASH FLOWS FROM INVESTING ACTIVITIES Net divestment / (investment) in available for sale securities Net investment in held to maturity securities Dividend income received Investment in operating fixed assets Proceeds realised on disposal of operating fixed assets Net cash generated from / (used in) investing activities 17,004,008 7,598,252 106,771 (855,726) 25,039 23,878,344 48,819,671 6,602,526 195,391 (689,062) 540,740 55,469,266 (748,500) (183) (748,683) (748,500) (1,191,402) (1,939,902) Adjustments for non-cash and other items: Depreciation Amortisation Depriciation on non-banking assets Workers' Welfare Fund (Reversal of provision) / provision against non-performing loans and advances - net Provision for consumer and small enterprise loans - general Reversal of provision for diminution in value of investments - net Charge of other provisions - net Reversal of provision against off balance sheet obligations Unrealised loss on revaluation of investments classified as held for trading Net profit on disposal of property and equipment Charge for defined benefit plan Amortisation of prepaid employee benefits Recoveries against written-off debts Share of loss of associate (Increase) / decrease in operating assets Lendings to financial institutions Held for trading securities Advances Other assets Increase / (decrease) in operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities CASH FLOWS FROM FINANCING ACTIVITIES Payments of sub-ordinated loan Dividends paid Net cash used in financing activities (Decrease) / increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period (4,403,259) 37,855,935 6,149,960 26,335,872 Cash and cash equivalents at the end of the period 33,452,676 32,485,832 The annexed notes 1 to 22 form an integral part of this condensed interim financial information. PRESIDENT & CEO 14 CHIEF FINANCIAL OFFICER DIRECTOR DIRECTOR Third Quarter DIRECTOR September 30, 2017
16. NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 1 STATUS AND NATURE OF BUSINESS 1.1 Faysal Bank Limited (the Bank) was incorporated in Pakistan on October 3, 1994 as a public limited company under the provisions of the Companies Ordinance, 1984. Its shares are listed on the Pakistan Stock Exchange Limited. The Bank is mainly engaged in Corporate, Commercial and Consumer banking activities. The Bank has a network of 376 branches (December 31, 2016: 355); including 168 Islamic banking branches (December 31, 2016: 146) and 1 Islamic sub-branch (December 31, 2016: 1) in Pakistan. The Registered Office of the Bank is located at Faysal House, ST-02, Shahra-e-Faisal, Karachi. IB Bank B.S.C (closed)- a wholly owned subsidiary of Ithmaar Holding Company B.S.C, is the parent company of the Bank, holding directly and indirectly 66.78% (December 31, 2016: 66.78%) of the shareholding of the Bank. Dar AlMaal Al-Islami Trust (DMIT), (ultimate parent of the Bank) is the holding company of Ithmaar Holding Company B.S.C. 1.2 Based on the financial statements of the Bank for the year ended December 31, 2016, the Pakistan Credit Rating Agency Limited (PACRA) and JCR-VIS Credit Rating Company Limited have determined the Bank's long-term rating as 'AA' (December 31, 2015: 'AA') and the short term rating as 'A1+' (December 31, 2015: 'A1+'). 2 BASIS OF PRESENTATION 2.1 In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan (SBP) has issued various circulars from time to time. Permissible forms of trade related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in this condensed interim financial information as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. 2.2 The results of the Islamic banking branches have been consolidated in this condensed interim financial information for reporting purposes only. Inter branch transactions and balances have been eliminated. In accordance with the directives issued by the SBP, the key financial figures of Islamic banking branches are disclosed in note 20 to this condensed interim financial information. 3 STATEMENT OF COMPLIANCE 3.1 This condensed interim financial information has been prepared in accordance with the approved accounting standards as applicable in Pakistan. The approved accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) and Islamic Financial Accounting Standards (IFASs) issued by the Institute of Chartered Accountants of Pakistan, as are notified under the Companies Ordinance, 1984, the requirements of the Companies Ordinance, 1984, the requirements of the Banking Companies Ordinance, 1962, or the directives issued by the Securities & Exchange Commission of Pakistan (SECP) and the SBP. Wherever the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, the IFASs notified under the Companies Ordinance, 1984 or the directives issued by the SECP and the SBP differ with the requirements of IFRSs, the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, IFASs notified under the Companies Ordinance, 1984 or the requirements of the said directives issued by the SECP and the SBP prevail. The Companies Ordinance, 1984 has been repealed after the enactment of the Companies Act, 2017. However, as allowed by the SECP vide its circular no 23 dated October 04, 2017, this condensed interim financial information has been prepared in accordance with the provisions of the repealed Companies Ordinance, 1984. 3.2 The SBP 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 through BSD Circular Letter No. 10 dated August 26, 2002 till further instructions. Further, the SECP has also deferred the applicability of International Financial Reporting Standard (IFRS) 7, 'Financial Instruments: Disclosures' through its S.R.O. 633(I)/2014 dated July 10, 2014. Accordingly, the requirements of these standards have not been considered in the preparation of this condensed interim financial information. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars. 3.3 IFRS 8, 'Operating Segments' is effective for the Bank's accounting period beginning on or after January 1, 2009. All banking companies in Pakistan are required to prepare their condensed interim financial information in line with the format prescribed by the SBP. The management of the Bank believes that as the SBP has defined the segment categorisation in the above mentioned format, the SBP's requirements prevail over the requirements specified in IFRS 8. Accordingly, segment information disclosed in this condensed interim financial information is based on the requirements laid down by the SBP. Third Quarter September 30, 2017 15
17. NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 3.4 The SBP vide its BSD Circular No. 07 dated April 20, 2010 has clarified that for the purpose of preparation of financial statements in accordance with International Accounting Standard - 1 (Revised), 'Presentation of Financial Statements', two statement approach shall be adopted i.e. separate 'Profit and Loss Account' and 'Statement of Comprehensive Income' shall be presented, and Balance Sheet shall be renamed as 'Statement of Financial Position'. Furthermore, only the surplus / (deficit) on revaluation of available for sale (AFS) securities, may be included in the 'Statement of Comprehensive Income'. However, it should continue to be shown separately in the statement of financial position below equity. Accordingly, the above requirements have been adopted in the preparation of this condensed interim financial information. 3.5 The SECP has directed that the requirements of IFRS 10, 'Consolidated Financial Statements' are not applicable in case of investments by Companies in mutual funds established under Trust Deed structure. Accordingly, implications of IFRS 10 in respect of mutual funds are not considered in the preparation of this condensed interim financial information. 3.6 The disclosures made in this condensed interim financial information have been limited based on the format prescribed by the State Bank of Pakistan through BSD Circular Letter No. 2 dated May 12, 2004 and the requirements of International Accounting Standard 34, "Interim Financial Reporting". They do not include all of the information required for the full annual financial statements and this condensed interim financial information should be read in conjunction with the financial statements of the Bank for the year ended December 31, 2016. 3.7 As per the directive of the SBP through its letter BPRD (R&P-02)/625-99/2011/3744 dated March 28, 2011, gain arising on bargain purchase of Pakistan operations of Royal Bank of Scotland (ex-RBS Pakistan) was credited directly into equity as Non-Distributable Capital Reserve (NCR). The SBP allowed the Bank to adjust the amortisation of intangible assets against the portion of reserve which arose on account of such assets. Accordingly, during the period ended September 30, 2017 the Bank has adjusted amortisation of intangible assets amounting to Rs. 93.650 million (net of tax) from the Non-distributable Capital Reserve. 3.8 The SBP vide its BPRD Circular No. 04 dated February 25, 2015 has clarified that the reporting requirements of IFAS3 for Institutions offering Islamic Financial Services (IIFS) relating to annual, half yearly and quarterly financial statements would be notified by SBP through issuance of specific instructions and uniform disclosure formats in consultation with (IIFS). These reporting requirements have not been ratified to date. Accordingly, the disclosure requirements under IFAS 3 have not been considered in this condensed interim financial information. 4 BASIS OF MEASUREMENT This condensed interim financial information has been prepared under the historical cost convention, except that certain fixed assets and non-banking assets acquired in satisfaction of claims are carried at revalued amounts and certain investments and derivative contracts have been marked to market and are carried at fair value. In addition, obligation in respect of staff retirement benefit is carried at present value. 5 FUNCTIONAL AND PRESENTATION CURRENCY Items included in this condensed interim financial information are measured using the currency of the primary economic environment in which the Bank operates. This condensed interim financial information is presented in Pakistani Rupees, which is the Bank's functional and presentation currency. 6 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies applied in the preparation of this condensed interim financial information are the same as those applied in the preparation of the annual financial statements of the Bank for the year ended December 31, 2016. 7 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS The basis and the methods used for critical accounting estimates and judgments adopted in this condensed interim financial information are the same as those applied in the preparation of the annual financial statements of the Bank for the year ended December 31, 2016. 8 FINANCIAL RISK MANAGEMENT The Bank's Financial Risk Management objectives and policies are consistent with those disclosed in the annual financial statements for the year ended December 31, 2016. 16 Third Quarter September 30, 2017
18. NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 9 Un-audited Note September 30, 2017 BALANCES WITH OTHER BANKS ----------------------Rupees '000-------------------- In Pakistan - Current accounts Outside Pakistan - Current accounts 10 Audited December 31, 2016 1,227,660 699,488 482,989 1,710,649 439,887 1,139,375 1,500,000 3,000,000 4,076,656 8,576,656 5,000,000 5,000,000 LENDINGS TO FINANCIAL INSTITUTIONS Call money lending Repurchase agreement lendings Bai Muajjal with State Bank of Pakistan 10.1 10.1 Bai Muajjal placements - gross Less: deferred income Less: profit receivable shown in other assets Bai Muajjal placements - net 11 INVESTMENTS 11.1 Investments by type Note 11.2 1,082,858 - 36,557,759 11,396,147 533,530 1,170,038 - 533,530 1,170,038 13,035 46,884,083 1,082,858 13,035 47,966,941 1,703,568 - 1,703,568 51,875,977 25,519,376 6,312,593 5,118,895 34,852,283 - 86,728,260 25,519,376 6,312,593 5,118,895 59,502,461 41,351,395 4,474,967 2,900,000 37,480 257,544 680,606 189,432 15,000 37,480 257,544 680,606 189,432 - 3,696,836 22,490 687,419 94,413,648 2,107,588 14,542,747 16,650,335 11.3 26,657 157,974,723 Investments at cost Less: Provision for diminution in the value of investments Investments (net of provisions) Surplus on revaluation of investments classified as held for trading - net Surplus / (deficit) on revaluation of investments classified as available for sale - net Total investments - net Audited December 31, 2016 Held by Given as Total Bank collateral 35,474,901 11,396,147 37,480 257,544 680,606 189,432 15,000 Held to maturity securities Pakistan Investment Bonds Term finance certificates Sukuk Bonds Associate * Fully paid up ordinary shares of Faysal Asset Management Limited Un-audited September 30, 2017 Held by Given as Total Bank collateral - ------------------------------------------------ Rupees '000 -------------------------------------------------------- Held for trading securities Market Treasury Bills Pakistan Investment Bonds Fully paid up ordinary shares / certificates of closed end mutual funds Available for sale securities Market Treasury Bills Pakistan Investment Bonds Ijara Sukuk Bonds Sukuk Bonds Units of open end mutual funds - Faysal Balanced Growth Fund * - Faysal Income Growth Fund * - Faysal Savings Growth Fund * - Faysal Islamic Savings Growth Fund * - Faysal Financial Sector Opportunity Fund * Fully paid up ordinary shares / modaraba certificates / certificates of closed end mutual funds Fully paid up preference shares Term finance certificates 4,188,664 (49,577) (62,431) 4,076,656 11.4 &12.2.1 (3,264,415) 154,710,308 (7,005) 20,978 154,724,281 - 3,696,836 4,370,242 22,490 22,490 687,419 762,149 34,852,283 129,265,931 114,548,766 - 2,107,588 14,542,747 16,650,335 9,931,757 2,455,213 11,861,617 24,248,587 - 26,657 46,032 35,935,141 193,909,864 140,546,953 - (3,264,415) (3,265,833) 35,935,141 190,645,449 137,281,120 48 1,955 (6,957) 461 22,933 1,227,520 35,937,144 190,661,425 138,509,101 29,646,237 2,074,936 - 89,148,698 43,426,331 4,474,967 2,900,000 37,480 257,544 680,606 189,432 - 4,370,242 22,490 762,149 31,721,173 146,269,939 - 9,931,757 2,455,213 11,861,617 24,248,587 - 46,032 31,721,173 172,268,126 - (3,265,833) 31,721,173 169,002,293 (20,137) 461 1,207,383 31,701,036 170,210,137 * related parties Third Quarter September 30, 2017 17
19. NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 11.2 These include an investment of the Bank in unlisted shares of DHA Cogen Limited (DHA) (a related party of the Bank) representing 19.1% (December 31, 2016: 19.1%) equity holding of DHA. 11.3 Investment of the Bank in Faysal Asset Management Limited (FAML) has been accounted for under the equity method of accounting as per the requirement of IAS 28 - Investment in associates and joint ventures. The Bank's share of post acquisition profit or loss is recognised using the latest available un-audited financial statements of FAML which relate to the period ended September 30, 2017 with a corresponding adjustment to the carrying amount of investment. The details of the Bank's investment, post acquisition changes and certain other details relating to FAML are as under: Note Un-audited Audited September 30, December 31, 11.3.1 Faysal Asset Management Limited 2017 2016 ----------------------Rupees '000-------------------percentage holding 30% (December 31, 2016: 30%) At January 1 Post acquisition changes during the period / year - recognised in the profit and loss account 46,032 68,082 (19,375) (22,050) Closing Balance 26,657 46,032 Cost of investment 45,000 45,000 Revenue for the period / year 32,942 139,032 Net Loss for the period / year (10,071) (73,499) Assets 129,114 166,896 11.3.2 Summary of the financial information of the associate Liabilities 40,255 13,456 Net Assets 88,859 153,440 30% Percentage (%) holding of the Bank Share of net assets of the Bank 11.4 46,032 3,265,833 3,282,763 Particulars of provision for diminution in the value of investments Opening balance 57,501 (58,919) (1,418) Charge for the period / year Reversals during the period / year 75,478 (92,408) (16,930) 3,264,415 3,265,833 185,488,607 9,061,423 194,550,030 180,518,663 10,431,613 190,950,276 2,655,086 910,227 3,565,313 40,274,939 5,289,466 909,279 6,198,745 32,588,297 Margin financing / reverse repo transactions Gross advances 88,200 238,478,482 88,200 229,825,518 Provision against non-performing advances 12.1 & 12.2 Provision against consumer and small enterprise loans - general 12.3 (23,653,590) (550,120) (24,203,710) 214,274,772 (24,530,264) (464,257) (24,994,521) 204,830,997 Closing balance 12 30% 26,657 ADVANCES Loans, cash credits, running finances, etc. – in Pakistan Net investment in finance lease – in Pakistan Bills discounted and purchased (excluding government treasury bills) - Payable in Pakistan - Payable outside Pakistan Islamic financing and related assets Advances - net of provision 18 Third Quarter September 30, 2017
20. NOTES TO AND FORMING PART OF THE CONDENSED INTERIM FINANCIAL INFORMATION (UN-AUDITED) FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2017 12.1 Advances includes Rs 27,455 million (December 31, 2016: Rs 30,036 million) which have been placed under nonperforming status as detailed below: Particulars Note Category of classification Other Assets Especially Mentioned (OAEM) Substandard Doubtful Loss Particulars September 30, 2017 (Un-audited) Provision required Domestic Overseas Total Provision held Domestic Overseas Total ----------------------------------------------------------- Rupees '000 ---------------------------------------------------------12.1.1 Note Category of classification Other Assets Especially Mentioned (OAEM) Substandard Doubtful Loss Classified Advances Domestic Overseas Total 293,417 1,018,367 1,086,581 25,056,933 27,455,298 - 293,417 1,018,367 164,592 1,086,581 333,883 25,056,933 23,155,115 27,455,298 23,653,590 Classified Advances Domestic Overseas Total - 164,592 333,883 23,155,115 23,653,590 December 31, 2016 (Audited) Provision required Domestic Overseas Total 164,592 333,883 23,155,115 23,653,590 - 164,592 333,883 23,155,115 23,653,590 Provision held Domestic Overseas Total ----------------------------------------------------------- Rupees '000 ---------------------------------------------------------12.1.1 351,337 2,201,772 1,822,574 25,660,377 30,036,060 - 351,337 2,201,772 403,413 1,822,574 552,258 25,660,377 23,574,593 30,036,060 24,530,264 - 403,413 552,258 23,574,593 24,530,264 403,413 552,258 23,574,593 24,530,264 - 403,413 552,258 23,574,593 24,530,264 12.1.1 This represents non-performing portfolio of agricultural, housing and small enterprise financing classified as OAEM as per the requirements of the Prudential Regulations for agricultural, housing and small enterprise financing issued by the SBP. 12.2 Particulars of provision against non-performing advances Opening balance Recognised in the profit & loss account Charge for the period / year Reversals during the period / year Net charge Transfer of provision Amounts written off Closing balance Un-audited September 30, 2017 Audited December 31, 2016 ----------------------Rupees '000--------------------- 24,530,264 24,101,547 713,519 (1,482,611) (769,092) 22,214 (129,796) 23,653,590 1,991,115 (1,365,302) 625,813 (197,096) 24,530,264 12.2.1 As allowed by the SBP the Bank has availed benefit of Forced Sale Value (FSV) of collaterals held as security of Rs 1,962.640 million (December 31, 2016: Rs 2,193.458 million) relating to advances and Rs Nil (December 31, 2016: Rs 2.884 million) relating to investments while determining the provisioning requirement against non-performing financing (including investments) as at September 30, 2017. The additional profit arising from availing the FSV benefit - net of tax as at September 30, 2017 which is not available for distribution as either cash or stock dividend to shareholders and bonus to employees amounted to approximately Rs 1,275.716 million (December 31, 2016: Rs 1,427.622 million). 12.3 Particulars of provision against consumer loans and small enterprise - general September 30, 2017 Audited December 31, 2016 ----------------------Rupees '000--------------------- 464,257 85,863 550,120 Opening balance Charge during the period / year Closing balance Third Quarter Un-audited September 30, 2017 432,672 31,585 464,257 19