MCB Bank Limited: Annual Report 2021

Transcription

1. MERA PAIGHAM PAKISTAN ANNUAL REPORT 2021
4. 2 Unconsolidated Financial Statements
5. Annual Report 2021 CELEBRATING THE JOURNEY As one of Pakistan 's leading and most trusted financial institutions, MCB Bank shares a unique bond with Pakistan that can be traced back 75 years ago, when both came into existence in the same year. MCB Bank and Pakistan have filled the pages of history together through a journey of growth and prosperity - and the best is yet to come. Annual Report 2019 3
6. About the Report Adoption and Statement of Adherence with the International Integrated Reporting Framework In the course of its operations a commercial organization receives various inputs and converts them into value for itself and its stakeholders . This value creation can be over different time frames; short, medium and long. An integrated report describes this value creation process concisely including the business model, strategies, governance, processes, risks and opportunities. Since MCB is one of the largest Commercial Bank and plays a vital role in the economy of the country. It also makes its presence felt at the grassroots level with its sprawling network of branches and its wide customer base. Therefore, it has an impact far beyond the bottom line. Being the Bank with one of the largest customer base it is imperative; therefore, that the Bank reassures its stakeholders that it is safeguarding the public interest. Adoption of International Integrated Reporting Framework depends on the individual circumstances of an entity. The Bank has adopted the Integrated Reporting Framework to give an overview of Bank’s philosophy to explain connection between its financial and non-financial information, which would enhance the user’s understanding as to how the Bank is working to improve its performance keeping in view the stakeholder’s interests. The business strategy information is linked directly to business activities and non-financial information,and provides explanations accordingly. Integrated framework is still considered to be a practice in its early stages. We will continue to improve the information produced to make it even easier to understand, while taking into account the opinion of stakeholders reading this report. Scope and Boundary of Reporting Boundary Contents Scope Integrated Reporting boundary • • • • • • • • Organizational Overview Performance & Position Strategic & Resource Allocation Risk and Opportunities Corporate Governance Sustainability & Corporate Social Responsibility Stakeholders Relationship & Engagement Excellence in Corporate Reporting • • • Unconsolidated financial statements Consolidated Financial Statements • Financial Reporting Boundary • • • • • • Integrated reporting framework Banking Companies Ordinance 1962 Companies Act,2017 Listed Companies (code of corporate governance) Regulations, 2019. International Financial Reporting Standards Banking Companies Ordinance 1962 Companies Act, 2017 Directives issued by SBP & SECP Reporting Period The Bank’s Annual Report 2021 covers the 12-month period from January 01, 2021 to December 31, 2021 and is consistent with our usual annual reporting cycle for financial and integrated reporting. Material events, if any, after this date and up to the board approval date of 10th February, 2022 have also been included. The most recent previous report was dated December 31, 2020. External Assurance Independent External Auditors, Messrs A.F. Ferguson & Co have assured the MCB Bank Financial Statements. As required by the regulators, these Auditors are rotated every five years to ensure their independence and objectivity. 4 Unconsolidated Financial Statements
7. Annual Report 2021 Key Concepts • Materiality and material matters The Bank applies the principle of materiality in assessing what information should be included in its integrated report. This report therefore focuses particularly on those issues, opportunities and challenges that impact materially on MCB and its ability to be a sustainable business that consistently delivers value to shareholders and key stakeholders. Identifying our potential material matters is a bank wide responsibility and requires input from all business units and divisions and an assessment of the risks and opportunities in our operating environment. • Our CAPITALs Our relevance as a bank today and in the future and our ability to create long-term value are interrelated and fundamentally dependent on the forms of capital available to us (inputs), how we use them (value-adding activities), our impact on them and the value we deliver (outputs and outcomes) oFinancial oManufactured o Intellectual o Social and relationships oHuman oNatural CONTACT For further clarification and feedback on this report, please contact vide email: investor.relations@mcb.com.pk Annual Report 2019 5
8. CONTENTS TABLE OF Vision , Mission & Values 08. 08. 11. 22. 24. Vision Mission Strategic Objectives Core Values Awards Organizational Overview 26. 42. 44. 45. 55. 56. 58. 60. 61. 63. 65. Products and Services Corporate Information Board of Directors Profile of the Board of Directors Organizational Structure Leadership Team Other Senior Management Entity Credit Rating Corporate Profile of the Bank Chairman’s Review President’s Review Performance, Position & Outlook 67. 68. 69. 70. 76. 77. 77. 78. 80. 82. 83. 84. 85. 86. 87. 88. 89. 90. 92. 93. 96. 97. 98. 99. 100. 100. 101. 102. 103. 104. MCB Overview Highlights 2021 Financial Performance 2011 - 2021 Forward Looking Statement Graphical Presentation of Financial Statements Maturities of Assets and Liabilities Key Interest Bearing Assets and Liabilities Analyses of Financial Performance Analyses of Non-Financial Performance Non-Performing Loans Non-Performing Assets Deposits & Advances - Sector Wise Deposits & Advances - Group Wise Investments Capital Structure Quarterly Performance - 2021 & 2020 Quarterly Performance Analysis - 2021 & 2020 Six Years’ - Financial Performance / Financial Ratios 2016 - 2021 Six Years’ - Non-Financial Performance 2016 - 2021 Six Years’ - Performance Commentary Six Years’ - Graphical Summary of Ratios Six Years’ - Concentration of Advances, NPLs and Off Balance Sheet Items Six Years’ - Maturities of Assets & Liabilities DuPont Analysis Summary of Cash Flows Free Cash Flows Cash Flow Statement Direct Method Markup & Non Markup Income Operating Expenses Economic Value Added Statement
9. 104 . 105. 106. 107. 109. 110. 111. 112. 113. 114. 116. 124. 125. Capital Expenditure Six Years’ - Vertical Analysis Six Years’ - Horizontal Analysis Commentary on Six Years’ Horizontal & Vertical Analysis Segment Analysis Product Revenue Analysis Statement of Charity and Donation Market Statistics of MCB’s Share Share Price Sensitivity Analysis Other Information BCR Criteria Mapping MCB Calendar of Major Events during 2021 Historical Major Events Strategic & Resource Allocation 126. Strategic Objectives 127. Strategies in Place 127. Methods and Assumptions in Compiling Indicators 127. Change in Indicators & Performance Measures 129. Resource Allocation Plan 133. Business Model 134. SWOT Analysis 135. Value Chain 136. Comparative Landscape and Market Positioning Risk and Opportunities 137. Risk Management Framework 140. Risk and Opportunity Report Directors Report & Groups Review 147. Directors Report 155. Groups Review Corporate Governance & Stakeholders Engagement 167. 171. 176. 188. 189. 190. 191. 192. 197. 198. 209. 210. 212. Board Composition Board Committees Management Committee Pandemic Recovery Plan by the Management and Policy Statement IT Governance Profile of Shari’ah Advisor Board Role Shari’ah Advisor Board Report of Shari’ah Board - English Report of Shari’ah Board - Urdu Sustainability & Corporate Social Responsibility Certifications Acquired and International Standards Adopted Green Banking Initiative Stakeholders Identification, Engagement Process and Frequency 214. Investor Relation Section on Corporate Website 214. Steps to Encourage Minority Shareholders Participation in AGM 214. Stakeholder Engagement Policy & Summary of Analyst Briefing 215. Issues Raised in Last AGM 216. Statement of Value Added 217. Code of Conduct 221. Statement on Internal Controls 222. Statement of Compliance with the Code of Corporate Governance 225. Review Report to the Members on Statement of Compliance with the Code of Corporate Governance 226. Report of the Audit Committee Unconsolidated Financial Statements 230. 234. 235. 236. 237. 238. 239. Auditors’ Report to the Members Statement of Financial Position Profit and Loss Account Statement of Comprehensive Income Statement of Changes in Equity Cash Flow Statement Notes to the Unconsolidated Financial Statements 315. Annexures Consolidated Financial Statements 336. Directors’ Report on Consolidated Financial Statements 338. Auditors’ Report to the Members 342. Consolidated Statement of Financial Position 343. Consolidated Profit and Loss Account 344. Consolidated Statement of Comprehensive Income 345. Consolidated Statement of Changes in Equity 346. Consolidated Cash Flow Statement 347. Notes to the Consolidated Financial Statements 428. Annexures Other Information 441. 444. 444. 448. 453. 457. Branch Network Pattern of Shareholding Categories of Shareholders Notice of 74th Annual General Meeting Glossary of Terms Form of Proxy Investors’ Awareness
10. Vision To be the leading financial services provider , partnering with our customers for a more prosperous and secure future. Mission We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us.
13. STRATEGIC OBJECTIVES Delivering remarkable returns to stakeholders , sustainable performance, exceeding market and shareholder expectations. Providing value added services through operational expansion, geography and upgraded system. Building a corporate culture of equality, trust and team spirit as we remain dedicated to being a socially responsible organization.
15. CELEBRATING VISION MCB Bank has a progressive vision that looks to the future of banking , recognizing the technological revolution in the world around us. We are proud to be a proponent of digital transformation in the Pakistani banking industry, leading the upgrade to the digital era of banking and providing our customers with a cutting-edge digital experience.
16. CELEBRATING PROSPERITY As we approach the milestone of 75 years of excellence , our history tells the story of our success as evident from the numerous awards and accolades we’ve received over the years for our financial performance in Pakistan. Coupled with a growing network of branches and increasing deposits and accounts, our shining performance is a testament to how far we have truly come. 14 Unconsolidated Financial Statements
17. Annual Report 2021 Annual Report 2019 15
19. CELEBRATING INCLUSIVITY MCB Bank strives to be inclusive to all , following a no-discrimination policy and extending the same care and devotion to each customer and employee irrespective of gender, caste or creed. We cherish the diversity of our customers and employees, celebrating people from different backgrounds to create an environment where all individuals are valued equally.
20. CELEBRATING PEACE & HARMONY As the heart of the South Asian Subcontinent, Pakistan is home to a rich and diverse population with roots that go back over thousands of years. MCB Bank has always endeavored to foster peace and harmony by working together for the betterment of our society and our country and unifying a single brotherhood under the flag of Pakistan.
23. CELEBRATING PARTNERSHIPS A fundamental belief imbued in the philosophy of MCB Bank is the strength of partnerships . Over the years, we have nurtured existing relationships and forged new alliances to create a network of successful partnerships. From partnerships to facilitate national progress, to CSR programs for creating social impact, and collaborations with national and international organizations to provide exclusive opportunities to customers, our network continues to grow stronger
24. Core Values Integrity We are the trustees of public funds and serve our community with integrity . We believe in being the best at always doing the right thing. We deliver on our responsibilities and commitments to our customers as well as our colleagues. Innovation We encourage and reward people who challenge the status quo and think beyond the boundaries of the conventional. Our teams work together for the smooth and efficient implementation of ideas and initiatives. Excellence We take personal responsibility for our role as leaders in the pursuit of excellence. We are a performance driven, result oriented organization where merit is the only criterion for reward. Customer Centricity Our customers are at the heart of everything we do. We thrive on the challenge of understanding their needs and aspirations, both realized and unrealized. We make every effort to exceed customer expectations through superior services and solutions. Respect We respect our customers’ values, beliefs, culture and history. We value the equality of gender and diversity of experience and education that our employees bring with them. We create an environment where each individual is enabled to succeed.
26. Awards 2021 Asset AAA Sustainable Capital Markets Country 2021 Asset AAA Sustainable Capital Markets Country 2021 Asset AAA Sustainable Capital Markets Country 2021 FinanceAsia ’s Country Awards 2021 ICAP and ICMAP 2021 ICAP and ICMAP 2021 SAFA Awards Best loan adviser in South Asian Region & Regional Awards Best Structured Finance Deal in South Asian Region & Regional Awards Best equity-Linked Deal & Regional Awards Best Bank in Pakistan Best Corporate Report Award 2020 – Winner Overall Best Corporate Report Award 2020 – Winner Joint 2nd Runner up Best Presented Annual Report 2020 - Banking Sector 2020 ABF Corporate & Investment Banking Awards 2020 ABF Corporate & Investment Banking Awards 2020 Asset AAA Infrastructure Awards 2020 Asset AAA Islamic Finance Awards 2020 Asset AAA Islamic Finance Awards 2020 Asset AAA Islamic Finance Awards 2020 Asiamoney Awards 2020 Asiamoney Awards 2020 ICAP and ICMAP 2020 SAFA Awards Best Equity Deal of the Year- Pakistan Syndication Loan of the Year- Pakistan Telecom Deal of the Year in Pakistan Best Corporate Sukuk Best Acquisition Financing Best Syndicated Loan Overall Most Outstanding Company in Pakistan Most Outstanding Company – Financials Sector in Pakistan Best Corporate Report Award 2019 – Winner Joint 1st Runner up Best Presented Annual Accounts 2019 - Banking Sector 2019 Asset Triple A Infrastructure Awards 2019 Asset Triple A Infrastructure Awards 2019 Asian Banking & Finance Corporate & Investment Banking Awards 2019 Asian Banking & Finance Corporate & Investment Banking Awards 2019 Asiamoney 2019 FinanceAsia 2019 ICAP and ICMAP 2019 SAFA Awards Transport Deal of the Year Utility Deal of the Year Equity Deal of the Year – Pakistan Mergers and Acquisitions Deal of the Year – Pakistan Most Outstanding Company in Pakistan – Financial Sector FinanceAsia Country Awards – Best Bank Pakistan Best Corporate Report Award 2018 – Winner Certificate of Merit 2018 – Private Bank Category 2018 Asset Triple A Islamic Finance Awards 2018 Asset Triple A Infrastructure Awards 2018 Asset Triple A Infrastructure Awards 2018 Asset Triple A Infrastructure Awards 2018 Asset Triple A Infrastructure Awards 2018 Asiamoney Best Bank Awards 2018 FinanceAsia Country Awards for Achievement 2018 ICAP & ICMAP Best Islamic Loan Adviser, Pakistan Project Finance House of the Year, Pakistan Renewable Energy Deal of the Year – Solar, Pakistan to MCB Bank Limited, MCB Bahrain & MCB Dubai Oil and Gas Deal of the Year, Pakistan Telecom Deal of the Year, Pakistan Best Domestic Bank Best Bank in Pakistan Best Corporate Report Award 2017 - Winner 2017 Euromoney Awards 2017 ICAP and ICMAP 2017 Assets AAA Islamic Finance Awards 2017 Assets AAA Infrastructure Awards 2017 Assets AAA Infrastructure Awards 2017 Assets AAA Infrastructure Awards 2017 Asiamoney Silk Road Finance Awards 2017 Asiamoney Silk Road Finance Awards 2017 Asian Banker Awards 2017 FinanceAsia Achievement Awards 2017 Assets AAA Country Awards 2017 CFA 14th Excellence Awards 2017 SAFA Awards 2017 SAFA Awards Best Investment Bank in Pakistan Best Corporate Report Award 2016 - Winner Best Project Finance House in Pakistan Project Finance House of the Year in Pakistan Renewable Energy Deal of the Year Transport Deal of the Tear Best Regional Bank in South Asia for Belt & Road Initiative (BRI) Best Bank in South Asia for Belt & Road Initiative (BRI) Strongest Bank in Pakistan Best Pakistan Deal, IPO of Pakistan Stock Exchange Best Equity Pakistan IPO of Pakistan Stock Exchange Runner Up - Corporate Finance House of the Year Certificate of Merit Best Presented Accounts 2016 - Banking Sector Certificate of Merit SAARC Anniversary Awards for Corporate Governance 2016 Euromoney Awards 2016 1st Pakistan Banking Awards 2016 Finance Asia Country Awards 2016 ICAP and ICMAP 2016 First Global Awards 2016 Assets AAA Country Awards 2016 SAFA Awards 2016 SAFA Awards Best Bank in Pakistan 2016 Best Bank for Corporate Finance & Capital Market Development Best Bank in Pakistan 2016 Best Corporate Report Award 2015 - Winner Most Innovative Investment Bank for Islamic Finance Best Micro Finance Deal for National Rural Support Programme Certificate of Merit Best Presented Accounts 2015 - Banking Sector Certificate of Merit SAARC Anniversary Awards for Corporate Governance 2015 CFA 12th Excellence Awards 2015 Finance Asia Country Awards 2015 ICAP and ICMAP 2015 SAFA Awards Most Stable Bank of the Year 2014 Best Bank in Pakistan 2015 Best Corporate Report Award 2014 - Winner Winner of Best Presented Annual Accounts 2014 - Banking Sector 2014 The Asset Triple A 2014 The Asset Triple A 2014 CFA 11th Excellence Awards 2014 CFA 11th Excellence Awards 2014 Asiamoney Awards 2014 The Asian Banker (USA) 2014 ICAP and ICMAP 2014 SAFA Awards Best Bank - Pakistan Best Domestic Bank - Pakistan Best Bank of the Year 2013 – Large Bank Most Stable Bank of the Year 2013 Best of the Best Domestic Bank Strongest Bank in Pakistan 2014 Best Corporate Report Award 2013 - Winner 1st Runner up Best Presented Annual Accounts 2013 - Banking Sector 2013 The Asset Triple A 2013 The Asset Triple A 2013 ICAP and ICMAP 2013 LK Domain Registry Sri Lanka 2013 Lanka Clear Pvt. Limited 2013 SAFA Awards Best Domestic Bank - Pakistan Best Islamic Deal Best Corporate Report Award 2012 - Winner Best Website Award T+1 Cheque Clearing Award Certificate of Merit Best Presented Annual Accounts 2012 - Banking Sector
27. 2012 The Asset Triple A 2012 Euromoney 2012 NFEH 2012 ICAP and ICMAP 2012 World Finance 2012 Pakistan Centre for Philanthropy 2012 SAFA Awards Best Domestic Bank - Pakistan Best Bank in Pakistan CSR Business Excellence Award “Best Media Coverage” 2nd Best Corporate Report Award 2011 - Banking Sector Best Commercial Bank - Pakistan PCP Corporate Philanthropy Award 2nd Runner up Best Presented Annual Accounts 2011 - Banking Sector 2011 CFA Association Pakistan 2011 CFA Association Pakistan 2011 Euromoney 2011 ICAP / ICMAP 2011 SAFA Awards Most Stable Bank of the Year Best Bank of the Year Best Bank in Pakistan Best Corporate Report Award 2010 - Winner Joint 2nd Runner up Best Presented Annual Accounts 2010 - Banking Sector 2010 The Asian Banker 2010 The Asian Banker 2010 MMT 2010 ICAP / ICMAP 2010 SAFA Awards Strongest Bank in Pakistan Leadership Achievement Award Best Bank Led MMT Service Best Corporate Report Award 2009 - Winner Certificate of Merit Best Presented Annual Accounts 2009 - Banking Sector 2009 Asiamoney 2009 The Asset Best Domestic Bank in Pakistan Best Domestic Bank in Pakistan 2008 Euromoney 2008 Euromoney 2008 Asiamoney Best Bank in Asia Best Bank in Pakistan Best Domestic Bank in Pakistan 2006 Asiamoney 2006 Euromoney Best Domestic Bank in Pakistan Best Bank in Pakistan 2005 Asiamoney 2005 Euromoney Best Domestic Bank in Pakistan Best Bank in Pakistan 2004 Euromoney 2004 Asiamoney Best Bank in Pakistan Best Domestic Bank in Pakistan 2003 Euromoney Best Bank in Pakistan 2001 Euromoney Best Bank in Pakistan 2000 Euromoney Best Bank in Pakistan
28. Products & Services MCB Digital Account opening for Resident Pakistanis In line with Bank’s core strategy and in compliance with State Bank of Pakistan's digital onboarding framework, the bank has introduced digital account opening solution (MCB e-Account) for Resident Pakistani individuals to enhance digital financial services. By following a few simple steps on the Digital portal, potential customers can submit an account opening application. Through this service, the bank offers a wide range of existing segmentbased products alongside of introducing digital liability products (MCB Asaan Digital, MCB Asaan Digital remittance and MCB Freelancer Digital Account). We believe that addition of this new value stream will help the bank in meeting growing digital demands and will play its role in progression in the days ahead. MCB Liability Products MCB Bank offers a wide variety of products and services, hence ensuring ease and freedom for the customer to bank from its branch network compromising of 1,400+ locations geographically spread across the country. The product suite caters to all types of customer segments’ banking needs ranging from individuals to corporate entities. Below are the main categories of liability products followed by product wise details. MCB Current Deposit Products Category For complete day-to-day banking needs, MCB Current Deposit menu is offered in local and foreign currency and is designed to provide valued customers with transactional accessibility and flexibility for all their financial dealings. MCB Savings Deposit Products Category MCB Bank offers a wide array of local and foreign currency savings products that cater to their daily saving and transactional needs. With multiple profit payment options, the savings deposit menu offers attractive profit rates on various savings products. MCB Term Deposit Products Category MCB Term Deposits offer attractive short / medium / long term investment options with flexibility, convenience and security. With various tenors, multiple currency and profit payout options, customers can choose the one that best suits their needs. For further convenience, facility of rollover and renewal is also available. Additionally, these term deposits can also be collateralized to avail credit facilities. In order to meet the needs of MCB Bank’s diverse clientele, the Bank is offering a plethora of products perfectly suited for each segment’s needs: • MCB One Current Account: A unique all-in-one tiered product that caters to the checking account needs of all customer segments and demographics. MCB One Current Account is a holistic financial solution that provides free services (banker’s cheque, cheque book, debit card, intercity transactions, SMS facility, e-statement). These unique benefits vary based on average monthly account balances. This has become one of our most iconic products and is making significant contributions to our current deposit growth.
30. •Roshan Digital Account: Roshan Digital Account (RDA) is a flagship initiative of State Bank of Pakistan. It is a tailor-made digital financial solution, designed to facilitate Non-Resident Pakistanis (NRPs) and Resident Pakistanis (with declared foreign assets). The account provides innovative banking services in Pakistan including but not limited to digital payments, savings investments (Naya Pakistan Certificates) and donations (Roshan Samaji Khidmat). MCB Bank is offering both current and savings variants to its customers. For the first time in Pakistan, NRPs are being provided the opportunity to remotely open an account through a digital process without the need to visit a bank/ branch in-person. Enhancement in RDA proposition is a continuous objective of the regulator and MCB Bank. Introduction of Roshan Apni Car and Roshan Apna Ghar initiatives have empowered Resident Pakistanis to fulfill their dreams. MCB Bank, alongside of the framework, is offering most of the products and services free to its RDA customers which makes our proposition more lucrative. • MCB Smart Business Account: A business account variant offering free services & transaction facilities without any balance maintenance requirement. The account is targeted towards business entities in a more segmented and focused manner. • MCB Salary Club Account: A unique product offering targeted towards institutions / companies to manage payroll by getting employee accounts opened with MCB Bank. MCB Salary Club Account has both Current and Savings variants through which employees can avail various free benefits including insurance coverage & discounts on different services. •MCB Ladies Account: MCB Ladies Account is targeted specifically towards women with the main objective to create a niche for females of Pakistan and give them the freedom of managing their own finances with a sense of security and independence. This product offers various benefits including free insurance with a unique blend of health, accident, critical illness and death coverage along with attractive discounts on other services. The merchandise is feminist in its design / colors and the customer is given multiple options to choose a cheque book or a debit card of choice. • MCB Senior Citizens Account: MCB Senior Citizens Account comes in both Current and Savings variants and aims to provide exclusive privileges in order for our elderly customers to take care of their financial needs with ease, while providing discounts on a wide array of services. 50% discount on numerous services can be availed by opening up a MCB Senior Citizens Account 28 Unconsolidated Financial Statements • MCB Pensioners Account: MCB Pensioners Account comes in both Current and Savings variants and allows account holders to live their lives to the fullest and face the future with confidence. This account is designed especially to cater to the financial needs of pensioners and is in compliance with regulatory governance. 50% discount on numerous services can be availed by opening up a MCB Pensioners Account. • MCB Asaan Account: A current deposit account with simplified account opening requirements is designed to extend benefits of financial services to unbanked segments of society. This product aims to improve economic growth of potential customers under the financial inclusion initiative of State Bank of Pakistan. •MCB 365 Savings Gold Account: This account enables customers to enjoy attractive returns on their deposits on a monthly basis. Special saving rates are offered to entities / institutions / corporates on maintaining large deposits intermittently. •MCB Burqraftaar Remittance Account: This is a promising product to serve home remittance consumers with security, convenience, and accessibility. Remitters from various countries are provided access to multiple money exchange companies from where they can remit directly in MCB Burqraftaar Remittance Account instantly. Also, the bank provides more than 100 dedicated remittance centers across the country where the beneficiaries can collect cash in person. Further, the account offers withholding tax exemptions on cash withdrawal, free debit card, insurance coverage to both the remitter and beneficiary. •MCB Asaan Remittance Account is another initiative by the SBP under the financial inclusion program to provide secure home remittance inflows. The account is available in the Current variant only and is targeted towards unbanked/under-banked remittance beneficiaries of Pakistan, with simplified account opening requirements. This product not only increases the Bank’s product portfolio but also fulfills its fiduciary responsibility of documenting the economy and inculcating a saving habit in its customers. •MCB E-Statements: MCB Bank’s E-Statement initiative adds an additional layer of convenience for our digital savvy customers. This service is free for all customers and provides easier access to banking information when needed without visiting the branch. This service also augments Bank efforts to reduce use of paper and facilitate Green Banking guidelines issued by SBP.
31. Annual Report 2021 MCB Privilege Banking Privilege Banking takes pleasure in taking you on a journey of superior high-end customer services , a rewarding in branch experience, a wide array of financial services, investment opportunities and transactional convenience, via dedicated, contemporary and serviceoriented sales force. These multi-dimensional banking relationships experience positions privilege segment customers at unparalleled advantages that put them ahead of others. The Privilege relationship managers are skilled personalized bankers, geared to manage, grow and retain customer’s wealth and focuses on increasing the customer relationship span. MCB Bank has eight dedicated Privilege Centers waiting to welcome you in Karachi, Lahore, Islamabad, Faisalabad, Rawalpindi and Multan with plans to expand to even more locations. MCB Agri Financing Products Agriculture finance business of the Bank has embraced a new & progressive outlook as a result of various initiatives. The bank has strengthened its Agri. financing structure in terms of required delegation of approving authority and deployment of dedicated Human Resources at the branch level. A well-equipped, trained & experienced team of agriculture marketing officers has been put in place to facilitate farmers on their door steps, for completion of documents and revenue related formalities, along with providing them awareness on banking facilities, products and financial management. The performance and size of the Bank’s Agri. portfolio is gradually expanding with a focus on encouraging mechanized farming. Moreover, insurance arrangements are in place to provide risk coverage to crops/tractors & equipment. Farmers are availing credit facilities to meet input needs for poultry, dairy and fish farms apart from crops. All credit proposals are processed as per standard guidelines of credit policy of the bank and approved on merit. MCB Bank fully supports all Government and State Bank of Pakistan initiatives for promotion and steady flow of credit to the farmers. This lends support to the national cause of food security for the people of Pakistan and to exploit the potential of agriculture sector. Efforts are made to enhance outreach to growers through innovative lending including value chains and processing units. MCB Bank will continue to support agriculture sector in line with its policy by remaining an active partner supporting progressive farmers by providing credit for all types of farm and non-farm activities. The microcredit needs of small farmers are met through extending credit lines to NGOs/ MFIs supported through digital services, thus serving the cause of financial inclusion. The Agri. financing products offered cover requirements of both production and development needs of farm & non-farm activities. The farmers may need long term finance to undertake development projects or there may be working capital requirements. Long term financing needs are met through Term Finance whereas working capital requirements are met by production finance. Shadabi Plan: Covers agriculture loan products for the production requirements of farm & non-farm activities of the farming community. Financing products extended under this category are Agriculture Running FinanceRevolving (ARF-R), Agriculture Production Finance (APF) and Agriculture Production Finance-Growers (APF-G). All working capital needs of non-farm are also covered under Shahdabi Plan through APF/ARF. Khushali Plan: Agri Development Finance (ADF) caters to the credit needs of farmers, generally long term, pertaining to the development projects related to both farm & non-farm sectors. Under Khushali Plan, different products are offered to cater to sector specific credit needs. The products offered are ADF (Tractor Finance), ADF (Aabiari Finance), ADF (Dairy & Meat finance), ADF (Murghbani Finance), ADF (Baghbani Finance), ADF (Mahigeri Finance) and ADF (Zari Technology Finance). The amount of finance sanctioned depends upon the genuine credit requirement of the farmer and collateral. Non-farm credit (poultry, dairy[including value chains], fisheries, & others) and financing for land leveling/ development, heavy equipment, agriculture machinery, vehicles/transport for Agriculture purpose are covered under this plan. High Efficiency Irrigation System (HEIS): The Financing Product for “High Efficiency Irrigation System (HEIS)” facilitates farmers in availing the subsidy provided under the provincial government schemes aimed at conservation of water and avoiding wastage of the precious resource. Drip and sprinkler irrigation systems are referred to as High Efficiency Irrigation Systems, (HEIS) which enable timely application of water and other inputs i.e. fertilizers, nutrients etc. as per plant requirements at various stages of growth. The HEISs are versatile in their applicability and provide complete control in irrigation operations. HEISs can be practiced on a variety of soil conditions e.g. uneven topography, odd field configurations, rolling sandy areas, etc. and are best suited for variety of crops such as orchards, vegetables, cotton, maize, sugarcane, wheat, fodder, gram etc. Governments of Punjab and Sindh are subsidizing these high efficiency irrigation systems to farmers by contributing 60% of the total project cost and remaining 40% cost sharing by the farmers. Under HEIS Financing, Annual Report 2019 29
32. MCB will provide financing to the extent of 80 % of farmer’s share towards installation of HEIS. The purpose of HEIS financing scheme is to facilitate farmers in adoption of high efficiency irrigation system, which in turn would help them in efficient utilization of water & other resources to improve per acre yield. The solar/renewable energy requirements of farmers for agriculture purposes are also fully supported. There may be other development projects proposed by the farmers falling within the ambit of agriculture financing. MCB Bank is fully committed to meet all type of genuine credit needs of the farmers as a strong financial institution, concerned for and aligned with, the national cause of supporting Agriculture Sector of Pakistan. Prime Minister’s Kamyab Jawan Entrepreneurship Scheme (PMKJYES): Youth In order to provide self-employment opportunities to unemployed youth and to enable youth to avail affordable financing from banks for establishing new business or strengthening their existing business, Government of Pakistan has launched Prime Minister’s Kamyab Jawan Lending Program across the country. MCB is also offering different agricultural products under the scheme. Mainly Tractor Finance (ADF-Tractor-Kamyab Jawan) is being offered for purchase of tractor for farm mechanization. Other financing products under this scheme are ADFDairy-Kamyab Jawan and ADF-General-Kamyab Jawan. Short to Long Term Loan for Purchase of Dairy Animals, purchase of farm machinery & equipment’s etc. is being financed under ADF-General-Kamyab Jawan where cash flows meet the repayment requirement of debt on quarterly & monthly basis as admissible under PM-KJYES are being considered. Digital Access to record of Punjab Land Record Authority (PLRA): MCB has signed a Service Level Agreement with Punjab Land Record Authority (PLRA) to provide online access to data for a defined scope of services under the SLA. Digital access is aimed at enabling the fast track provision of documents/information related to land record of farmers for quick decision making and sanctioning of financing facilities. The scope of services covers issuance of Fard, charge creation, and redemption. The branches are being equipped with necessary infrastructure/equipment in a phased manner for availability of online access to PLRA records. The initiative has been implemented and major Agri lending branches have started providing services to farmers. As a result of this initiative, the dream of a strong digitalized platform for dedicated support to famers of Punjab Province for quick access to banking facilities is close to realization. MCB Bank is one of the leading banks which have started offering services to the farmers under the digitalized access to PLRA record. 30 Unconsolidated Financial Statements Loan Origination System: MCB Bank has procured and implemented a Loan Origination System (LOS), a parameterized solution for efficient processing in order to automate the endto-end credit approval process, optimize the loan processing activity and to gain efficiencies. LOS has been implemented for Agri. Financing across the bank covering all Agri. Lending Branches. This has greatly helped in the fast processing and approval of farmers’ requests for finance. MCB is fully committed to support agriculture financing in line with SBP/Government policies and taking steps to enhance credit flow to the farming community through strengthening of internal systems and to ensure availability of required resources. MCB-Signed MOU with Millat Tractors: In order to jointly facilitate the farming community for providing finance facility for purchase of Millat tractors and implements MCB has signed MOU with Millat Tractors Limited. Under this MOU Bank will provide fast track finance facility to Millat tractor’s client & Millat will provide fast track delivery for MCB booked Tractors. Millat & Bank will jointly advertise/promote their products as per mutual understanding. MCB Consumer Lending Products MCB Consumer Banking offers a full suite of consumer lending products to its valued customers. The Bank’s current product portfolio consists of credit cards, auto loans, Fleet4U, home loans (including Mera Pakistan Mera Ghar Scheme & Low Cost Housing Scheme for Special Segments), personal loans, secured personal loans, unsecured overdraft facility and student personal loan (for LUMS MBA and MPHIL ELM students), Roshan Apni Car and Roshan Apna Ghar financing. At MCB Bank, the ideology behind our innovative Consumer financing products focuses on meeting three of our client’s objectives simultaneously, i.e. affordability, convenience and lifestyle. MCB Consumer Finance products enhance the overall life experience of our customers. MCB Bank works to collaborate with targeted brands and organizations to ensure that we provide premium value added services to our clients. MCB Consumer Banking is ably assisted by strong back office support which includes Operations, Service Quality, Internal Audit, Compliance and a Legal Team that work together to ensure that the Bank operates efficiently and in the best interest of its customers under the regulatory framework. MCB Car4U The Bank’s auto financing product, MCB Car4U, provides a one-stop financing solution to help our customers obtain the automobile of their dreams. Customers are free
33. Annual Report 2021 to choose between used and new vehicles , manufactured locally on flexible tenors. MCB Car4U also allows customers to finance up to three cars simultaneously from MCB Bank in line with their unique needs and requirements. Both finance and lease variants are offered under Car4U financing. MCB Car4U offers auto loans to customers in 1,400+ of our branches across 85 cities. Both self-employed and salaried customers can apply for a MCB Car4U Loan with ease. The Bank offers a competitive markup rate to all customers and also offers a discounted markup rate to its existing Branch Customers. Over the years, the Bank has formed a strong network of auto-dealers, engaged in sale of both new/used cars enabling us to facilitate our customers evolving needs. MCB Bank values its credible and expansive dealer network as one of the key pillars of its success in the auto finance business. MCB Fleet4U: MCB Fleet4U provides financing solutions to help SE, ME, corporate and commercial entities on a limit sharing basis under the umbrella of consumer lending. Customers have an option of leasing local private vehicles, imported vehicles (new & used) (SUV), MPVs, commercial vehicles & light commercial vehicles. Credit Cardholders now can activate and generate their Credit Card PINs via IVR Self Service and MCB Live 24/7 hours. Besides transactional convenience, these cards also offer payment flexibility / financial convenience to the customer via MCB Live, Utility, Telcos Other bank Credit Card payment via 1bill in addition to 0% service fee on Installment Plans, the ability to transfer balances on a lower rate or even request for a Banker’s Cheque in the customer’s own name or direct credit in their own MCB account & accounts in other Banks. Credit Card Bill payments are made more convenient for customers, who can now make their Credit Card bill payments through Cash, MCB Cheque, Cheques of other Banks, over the MCB Branch counters and MCB Contact Center. They can also make payments through MCB Bank and other Bank’s Digital Banking & ATM services. MCB Personal Loan: MCB Personal Loan is a fast, affordable and easy option to meet our customers’ immediate financing needs. This is an unsecured product and does not require any security. This product is only available to salaried customers. MCB Home Loan Roshan Digital Account – Value Added Services: Owning a home is a dream for many. At MCB Bank, we aim to help our customers fulfill this lifelong ambition and turn their dream into reality. MCB Home Loans provides financing solutions for the purchase of a home as well as for plots and construction thereon. MCB Bank also offers a subsidized home loan product under the Government’s Mera Pakistan Mera Ghar scheme and Low Cost Housing Scheme for Special Segments. Customers also have an opportunity to transfer their existing loan from any other bank to MCB Bank through a balance transfer facility. MCB Home Loan product also caters to housing needs of non-resident Pakistanis in Pakistan. MCB Home Loan product is now available across country through a network of over 700 branches supported by a team of skilled home finance specialists placed at multiple locations in the country. Roshan Apni Car and Roshan Apna Ghar products have been launched in line with the directives of State Bank of Pakistan to offer value added lending facilities to Roshan Digital Account holders with the ambition to provide non-resident Pakistanis more avenues of lending and investment in Pakistan. Through Roshan Apni Car product, vehicle financing facility has been offered on lien and non-lien basis on reduced markup rates (fixed & floating), priority deliveries, attractive comprehensive insurance rates. However, Roshan Apna Ghar facility is being offered to non-resident Pakistanis to purchase their own home in Pakistan. This facility is available under both variants i.e. standard and Mera Pakistan Mera Ghar scheme on lien and non-lien basis. Roshan Apna Ghar loan is being offered at very competitive/reduced markup rates. MCB Credit Cards MCB Wealth Management: MCB Credit Cards are secured with Chip & PIN & contactless functionality and carry world class features that provide transactional & payment convenience to our customers across the globe. Online purchases are now more secure with 3D Secure protocol. The instant SMS and E-Alert facility enables our customers to monitor their credit card transactions and be alert of potential misuse of their Credit Card. The cards are available in three different variants i.e. Classic, Gold and Platinum that cater to the diverse needs of our distinguished customers. MCB Visa MCB Bank is among the market leaders in providing Wealth Management Services to its customers. The business is constantly evolving and expanding its product suite for both Insurance and Investment products to cater to our clients’ financial requirements. We are partners with some of the leading Insurance and Asset Management companies in Pakistan to deliver innovative solutions based on customer needs, future plans and risk appetite. Annual Report 2019 31
34. MCB Bancassurance : MCB Bank strives to help the dreams of its customers come true. Your dreams may be to give your child the best education, live a dignified life after retirement or to keep your loved ones financially secure and protected. MCB Bancassurance plans provide you with the underlying financial security you and your family deserve. We work with our insurance partners to understand your needs based on your stage in life and provide tailor-make plans which are affordable and realistic. In addition, you and your family enjoy the peace of mind which comes from being ‘Har Pal Mehfooz’ in case of any unforeseen eventuality. Together with our insurance partners, we have a wide range options available which ensure that you and your funds are in good hands. All plans are underwritten by leading insurance providers and all funds are managed by experts in the field to give you the optimal returns based on your risk preferences and stage of life. Combining the best of banking and financial solutions, MCB Bancassurance provides a one-stop solution for your convenience and security. MCB ATMs MCB Bank has one of the largest ATM networks in the country with 1,450+ ATMs which includes 164 offsite ATMs placed at commercial locations like malls, workplaces and hospitals etc. The network covers 500+ cities across the country and is steadily growing. MCB Bank has one of the best ATM uptime availability across the industry, ensured by the presence of ATM monitoring teams working 24/7, periodic ATM health checks and hardware replacements. MCB ATMs provide our customer with convenience to withdraw cash, make utility bill payments, mobile top-ups, funds transfer through its countrywide network. MCB Investment Services: Omni Channel Digital Experience - MCBLive Investment Services operate with the aim to help you make the most of your wealth with investment opportunities that match your unique financial objectives. MCB Investment Services offers mutual funds managed by leading fund managers. We offer products most suited for your needs, or work with you to create a personalized solution completely focused on your expectations whilst keeping in view your risk tolerance. These products designed to offer financial liquidity/capital appreciation and assist you to meet both short- and long-term investment needs. The Bank offer a world class Oracle-based platform MCB Live – an Omni-channel digital banking platform equipped with advanced mobile and online banking features to its customers. MCB Live provides our customers, an easy and secure way to transfer money, carry out balance inquiries, check mini-statements, buy top-ups, pay bills, and much more from the comfort of their homes 24/7/365. The new digital banking application facilitates its customers to manage and control their bank accounts, debit & credit cards; whenever and wherever they want. The launch of MCB Live marks the start of a new digital era of MCB Bank. MCB Digital Banking Products and Services MCB Debit Card With global acceptance at more than 20 million merchants and 1.5 million ATMs worldwide; MCB Debit Cards is a way forward into the changing future of payments. MCB Bank is proud to have the latest dynamic Chip & PIN based Debit Cards which allow customers to have unmatched convenience, enhanced security and roundthe-clock accessibility to their funds. MCB Debit Cards are accepted at 12,000+ ATMs and 45,000+ merchants nationwide, with promotional discount schemes designed to reward our users for shopping, dining, fuel, travel, health and much more. With an MCB Debit Card, one can forget the need to carry cash. The product proposition has been further enhanced with the launch of card variants like Visa Platinum, Gold, Gold Local and supplementary cards. MCB Debit card also offers multiple international and local payment scheme cards which include Visa, MasterCard and PayPak fulfilling various customer segment needs, 32 MCB Bank is proud to be chosen as one of the main banks to provide services to overseas Pakistani through Roshan Digital Account (RDA). MCB has started issuance of debit cards to RDA account holders as well. MCB Bank is one of the handful of banks in Pakistan who have ventured to comply themselves with the PCI DSS which is considered to be the international benchmark for card data security thus improving the overall product value proposition. Unconsolidated Financial Statements MCB Lite MCB Bank received its branchless banking license 8 years ago, and formally started its branchless journey with the launch of MCB Lite in 2014. MCB Lite mobile wallet allows customers to handle their daily transactions and payments in an efficient and real time manner from one’s mobile phone. Wallet can be linked with any Lite debit card (local or international payment scheme) for local, international and E-commerce use. Moreover, to support foreign remittances, the enablement of Lite Remit feature has allowed customers to receive money directly into their Lite mobile wallet from anywhere in the world. MCB Lite is all set to explore new fronts and expand its overall footprint across the branchless banking arena. MCB Card Discounts Caring for and giving back to our esteemed customers is what MCB Card Discounts is all about. MCB Bank is
35. Annual Report 2021 proud to have the best discount offers for our prized MCB (Debit, Credit, Prepaid and Lite) cardholders. MCB offers a wide variety of discounts across all top retail merchants and brands ranging from dining, shopping and lodging. MCB Bank’s motto i.e. ‘Bank for Life’ is truly personified through our MCB Card Discounts program. MCB Alerts MCB Bank is proud to offer its valued customers with alerts services that comprise of SMS alerts. This service allows customers to keep track of all of their banking transactions through SMS notifications. By applying to this service, customers receive real time updates whenever they conduct a transaction on any of their MCB bank accounts. It is a great way of staying updated about transactions conducted on one’s account(s). Card Acquiring (POS) MCB Bank has a network of approximately 9,000 POS terminals deployed at key merchant locations across Pakistan. Our Point of Sale (POS) network is fully EMV compliant and accepts Visa, MasterCard, UPI, JCB and Pay-Pak card transactions from all over the world. MCB’s POS Acquiring business continues to grow due to deepening of merchant relationships, round the clock support, increased POS productivity and quality of deployments. Internet Acquiring (MCB eGate) MCB e-Gate is a world-class online payment gateway service, formed as a result of MCB’s partnership with MasterCard International. MCB e-Gate equips online businesses to accept payments reliably and securely from both credit as well as debit cards and currently facilitates more than 600+ online merchants, directly and indirectly. The online card acquisition footprint has grown and continues to grow substantially worldwide and MCB Bank is playing an integral part in developing the e-commerce market in the country. Further, to improve online shopping and merchant experience for e-commerce, MCB e-Gate payment system has now been upgraded from Mastercard Internet Gateway Service (MIGS) to Mastercard Payment Gateway Services (MPGS) which is fast, reliable and supports multiple payment modes. It also comes with the range of other value added features including Real time fraud prevention and supports Mobile Commerce. MCB Contact Center The human voice is still valued as the most trusted and relevant form of communication medium by a majority of our clients. This has inspired us to constantly improve our service and upgrade our MCB Contact Center to the world’s best CISCO Platform. This proactive upgrade has enabled us to enhance service delivery across multiple channels while allowing us to address specific needs of our esteemed customers. MCB Contact Center is equipped with a team of trained professionals who offer a wide array of financial and non-financial services in multiple regional languages around the clock. The customers are further facilitated through self-services modes like Interactive Voice Response (IVR), Self Service Channel and our Live Chat facility. The Contact Center not only serves and strives to retain MCB Bank customers but also cross-sells and up-sells a number of products and services as well. CFIBG Products and Services MCB Bank’s Home Remittance brand, MCB Burqraftaar was amongst the largest remittance payout brands in Pakistan in 2021. Our contribution through MCB Burqraftaar is not only limited to the bank’s growth but we are also proud to be one of the biggest contributors to the national interest of the country by promoting remittances through legal channels. MCB Bank has managed to build an extensive network of partners across the globe to ensure overseas Pakistanis can send money to their families back home. • MCB Burqraftaar Cash (Cash in Hand) is available via MCB Bank’s entire branch network. Payments can be made from any of MCB’s 1,400+ branches to walkin customers. • MCB Burqraftaar Transfer (Straight to Account) enables overseas Pakistanis to send their remittances to their loved ones in Pakistan through our hassle-free straight to account credit service. • MCB Lite Remit allows beneficiaries to receive money from their loved ones directly into their Mobile Wallet, from our global network of remittance partners. Money can be conveniently withdrawn from MCB Lite Card through MCB Bank branches, MCB ATMs, 1Link ATMs, or use the funds through the MCB Lite mobile App and POS terminals. • MCB Asaan Remittance Account is targeted towards unbanked / under-banked Remittance Beneficiaries of Pakistan with simplified/relaxed account opening requirements and procedures. • MCB Burqraftaar Remittance Account is targeted towards inward remittance beneficiaries in Pakistan with a unique feature of exemption on withholding tax on all cash withdrawal transactions of any amount via cheques from all MCB Bank branches & country-wide ATMs. MCB Home Remittance is continuously working to design new products and facilities for the ease and convenience of remitters and beneficiaries. MCB Transaction Banking: Transaction Banking (TBD) provides a wide range of value-added collection and payment services to large corporations through Annual Report 2019 33
36. the Bank ’s vast network of real-time branches. TBD provides structured and customized collection products enabling customers to realize their sales proceeds swiftly from across the country, supported by real-time MIS reports. Corporate Collection and Payment - Convenient and user friendly interface •MCB CollectPlus: Collection through a deposit of cash, same branch and local clearing instruments in designated MCB Bank Branches. - Secure online viewing of electronic Bank Guarantees by company’s authorized staff through TBD portal • MCB RemitPlus: Collection through a confirmed and secured receipt, without the involvement of the clearing process. •SIDA: Collection through direct debit of dealers’ accounts maintained at the branch. •MCB DebitPlus: Collection through direct debit of dealers’ account maintained at the branch by TBD via a one-time instruction from the dealer/distributor and email instruction from the customer. •MCB PayPlus: Payment by IFT/IBFT/Bankers cheques/RTGS by emailing the relevant file/instructions to TBD. • TBD - FI Cash Management: We offer unique cash management solutions to our local Correspondent Banks and Non-Bank Financial Institutions to meet their particular requirements for fund collection, payment, reconciliation, and reporting. • Online Fund Transfer (OFT): This web-based electronic fund transfer facility has been designed to enable a large network of franchises/dealers/distributors to conduct real-time branchless transactions through a secured MCB Bank website. • Dividend Warrant Management: The Bank provides a complete and comprehensive dividend solution to customers through electronic transfers to shareholders accounts & processing of warrants through MCB Bank branches, followed by complete reconciliation. Foreign dividends are also managed end to end by TBD • Sub Clearing Arrangement: MicroFinance banks that do not have operating licenses for clearing can now rely on MCB Bank to act as their sub-clearing agent for processing transactions through NIFT • Payment Station: Corporate Payment Station “MCB Pay Direct” offers a real-time comprehensive payment and transfer mechanism for corporate and large business entities. This allows our customers to virtually execute A2A, Cash Payments, Bankers Cheque, IBFT, RTGS, and Report Printing. • Viewing Module for Electronic Bank Guarantees: A viewing module that will enable corporates to view Electronic Bank Guarantees of their dealers/distributors issued in their favor via SWIFT MT-760. Corporates will 34 have the option to view the reports on their personal devices. The corporates can view swift message MT-760 & reports any time through the given portal. Only authorized individuals of corporates can view the reports to ensure confidentiality. The benefits of the system include:- Unconsolidated Financial Statements - Complete and verified detail of Electronic Bank Guarantees along with swift message MT-760 • Sub Collection Account (SCA): An account which facilitates the dealers/distributors of our corporate clients who do not have an account with MCB bank. Dealers/Distributors who are maintaining their accounts at other banks will be able to deposit to MCB Bank through online mode i.e. IFT/ IBFT/RTGS/ATM and the respective information will also be available on a realtime basis for corporates. All funds available in SCA will be transferred to Main Collection Account (MCA) of TBD customer by day end (or on a regular interval during the day). The benefits of sub collection account include:- Real time MIS Reports - Funds identification of dealers/distributors who do not have an account with MCB Bank. - Online method so dealers/distributors need not need to go to MCB branch to deposit. •Digital Debit Plus: An innovative digital banking solution where SIDA instructions of companies can now be done online for corporate convenience. Using this facility corporates can access TBD’s system through which they can execute their SIDA and obtain real time MIS of their transactions. They can process orders placed by dealers/distributors across Pakistan through any MCB accounts using TBD portal with convenience from their office premises. The facility will be provided to only the authorized users of the company for them to conduct their transactions. The benefits of Digital Debit Plus include:- Real time MIS Reports for corporates - SMS alerts for the dealers once Digital SIDA executed - No need for corporates to visit MCB branch to execute SIDA Our Corporate Banking team works in conjunction with Transaction Banking to facilitate customer requirements for collections, payments, dealer finance, electronic dividends, and bulk salary processing. •Corporate IVR for Collections: MCB introduced a new platform for Dealers, Distributors, and Franchisees to conduct transactions without the need to visit
37. Annual Report 2021 MCB branches , by using our existing CRM and IVR channel. The product provides security in terms of cash-carrying and also allows the dealers/distributors to conduct transactions even after banking hours i.e. 24/7. It ensures a smooth flow of regular transactions and provides the bank with higher profits and lower operational expenses and transaction costs. The addition of this channel has also helped us in reducing our cash handling cost and will subsequently encourage dealers to open accounts with MCB. • Tax & Duties Payments to FBR: Now MCB Customers can pay their FBR Tax and Duties securely and conveniently through MCB Transaction Banking “Overthe-Counter” at any MCB branch as well as through “TBD MCB PayPlus” by sending us their tax payment details on a secured file. Our Corporate customers can also pay their taxes and duties through “TBD MCB PayDirect” 24x7 and from anywhere in the world. Under FBR payments, MCB offers real-time integration with 1-Link and CBS with complete security and a two-step authorization process. Complete transaction details are ensured through computer-processed receipt, instant SMS alert, and detailed MIS for the branch / back office. Banker to the Issue for IPO/SPO’s & Right Shares: We provide efficient & effective processing for both IPO/ SPOs & Right Share Mandates. Our branches are welltrained in handling collections for both these products. The information mentioned in the forms is matched with funds collected and after reconciliation; these are transferred to the respective company. MCB Bank’s TBD team works jointly with Investment Banking Team on various IPO/SPOs & Rights Shares to facilitate clients. MCB Corporate Banking Finance: MCB Bank’s Corporate Banking Finance is equipped with a professional and devoted relationship management team having a presence in 5 cities (namely Karachi, Multan, Faisalabad, Lahore, and Islamabad) across Pakistan is providing structured financial services through dedicated Corporate Centers/Branches. The corporate Team operates in 3-dimensional approaches within the defined goals of the organization. Providing Financial Solution and Service Broadening Bankable Base by channelizing multiple service ranging from Advisory to Retail to Consumer & Cash Management Focus on Service •Financial Services and Solutions: MCB Corporate Banking provides access to diversified financing options, including working capital loans, term loans, trade based finance services (bank guarantees, Import Letter of Credits, import and export services, bill discounting / negotiation, Export finance both in USD and PKR, State Bank of Pakistan export refinance and Long Term Finance, Import finance both in USD and PKR), dollar-based loans, financing under SBP schemes and depository options are also offered under various schemes. • Broadening Bankable Base: Our Corporate Banking team works in close liaison with our Investment Banking team to facilitate clients with advisory and arrangement services for equity, debt and project finance offered through our Investment Banking Division. Similarly, our Corporate Banking team works in conjunction with Transaction Banking, Retail, and Consumer Team to facilitate their requirements for collections, payments, dealer finance, electronic dividends, bulk salary processing, and various consumer-related products for their employees and shareholders. • Focus on Service: Dedicated Corporate Branches are available in 5 cities Karachi, Multan, Faisalabad, Lahore, and Islamabad to cater business needs of corporate relationships through the support of the Corporate Relationship Management Team. MCB Investment Banking: MCB Investment Banking offers a full suite of Investment Banking services ranging from equity & advisory, syndications and debt capital markets to Project and structured finance. MCB Investment Banking works in close coordination with Corporate and Retail Banking to facilitate their clients with its services. MCB Project and Structured Finance: MCB Project and Structured Finance is a ‘Non-recourse’ or ‘Limited Recourse’ financing, where the lenders base their credit decision primarily on the cash flows of the project, concerning repayment of the project debts. Risks are carefully allocated amongst various stakeholders. MCB Syndicated Loans and Debt Capital Markets: MCB Syndicated Loans and Debt Capital Markets involve arrangement, underwriting and placement services for debt financing requirements by large corporate and institutional clients to other financial institutions or through the debt capital markets. MCB Quasi Equity / Hybrid Instruments: MCB Quasi Equity/Hybrid Instruments are structured and tailor-made products incorporating specific customer requirements based on debt and/or equity components including unsecured nature instruments, subordinated nature types, cumulative/noncumulative dividend payments types, equity play component instruments, etc. MCB Equity Capital Raising: MCB Equity Capital Raising relates to raising capital for our clients by offering Annual Report 2019 35
38. common or preferred equity to the public or private investors , through initial public offers, offers for sale, rights issues and private equity placements and underwriting of equity issues in the Capital Market. • Avalization (Import): A product which facilitates delivery of import documents (and goods) against importer’s acceptance under contracts (without opening of LC) hence offers savings associated with fees and commissions. MCB Advisory Services: Financial and Capital Raising Advisory provides our clients with financial advisory services for mergers and acquisitions, privatization, project finance, commercial structuring support and access to capital resources to assist companies successfully finance their business/project. • China LC Confirmation Programme: Under this program the branches of MCB’s partner bank located in Hong Kong and China add “Confirmation” to MCB LCs on “Free of Cost” basis thus increasing acceptability of MCB’s Import LCs and facilitate import customers. Strategic Investments and Acquisitions Division evaluates potential investments, both minority and majority stakes in different financial institutions, and then proceeds with the execution on the advice of the Board of Directors. Strategic acquisitions also evaluate operations of different subsidiaries/businesses and with the Board of Directors' consent can proceed with divestments of businesses that are deemed non-core businesses. This Division also maintains a relationship with strategic investors. MCB Trade Products Trade Products provide a wide range of standard as well as tailor-made products and solutions to trade customers from all walks of life. Despite having an inventory of standard to market products in refined shape, specific new-to-market products include: •Quick-LC: A simple and easy to use mechanism, internal design of desktop application, allowing customers to type-in, e-mail and print out an LC application form, reducing cost and hassle while improving TAT and input accuracy. •X-Flex: A solution which facilitates external export business for customers in cases where transport documents (Bill of Lading) are not available at the counters of MCB’s discounting / financing branch on the date of extending financing. •TRIMS: Facilitates the financing of inland trade through the involvement of MCB Bank at both ends thereby allowing an exporter to get receivables discounted on non-recourse basis, i.e. the exporter receives payment in a given time (in less than 48 hours) after performing obligations. •Econ-LC: A product program which allows drafts/bills of exchange to be waived as a requirement under LCs available by negotiation resulting in reduction in overall transaction cost for importers. • Avalization (Export): A global product designed to facilitate the financing of export by allowing an Exporter (Seller) to discount the receivables under credit granted to a counter party, i.e. Importer (Buyer), without taking payment risk on the Importer (Buyer) under a contract (non-LC transactions). 36 Unconsolidated Financial Statements •Europe LC Routing Program: Under this program the branches of MCB’s partner bank located in UK will be handling LC transaction originated by MCB under special arrangements which includes advising, confirmations, bill discounting and UPAS transactions. MCB Sri Lanka - Products and Services Current Account - Take account of things that matter! MCB Bank Current account allows our customers to distinguish themselves in the financial market with a secure and faster cheque clearing process, allowing them to carry out their transactions with a greater level of confidence. Privilege Current Account – Feel prioritized and privileged! MCB Bank Privilege Current Account offers a range of personal and business banking solutions that are specially tailored to meet our customers’ emerging needs. Savings Account - The smarter your savings, the higher your returns! MCB Savings Account is designed to encourage customers to maintain a healthy account balance, which keeps growing day by day. Tier based interest rates enable customers to enjoy an attractive return on their funds. Customers have the freedom to utilize their funds to meet their day to day financial needs with no restrictions to the number of transactions they perform. Fixed Deposits -The safe way to save! Fixed Deposit Accounts are designed to suit the diversified investment requirements of our customers. Starting from 7 Days Call Deposits, our product range extends to Term Deposits that can be fixed up to 4 years. Further, we offer the option of obtaining the interest at maturity or specific interim periods (monthly/quarterly) depending on the customer’s requirement for funds. MCB Kidz Club - Pave the future for your child! Children are the wealth of our nation. We offer ample encouragement and incentives to assure them of a secure future. MCB Kidz Club Account offers an attractive interest
39. Annual Report 2021 rate coupled with a wonderful gift scheme based on the account balance . This encourages parents and children to grow their account balance to enjoy the financial return, as well as to collect gift items on reaching specific account balances. Foreign Currency Accounts - When you need financial diversity! MCB customers can save in any designated foreign currency and enjoy attractive returns. Further, we offer a wide range of account types for personal and business clients under special schemes approved by the Department of Foreign Exchange of the Central Bank of Sri Lanka. Bank Pakistan), we ensure the fastest and safest money transfer. Trade Services – Trading becomes convenient & faster! MCB Trade Services empower individuals and businesses to reach their highest potential by streamlining and customizing processes and product portfolio. We ensure that a comprehensive range of trade products and services will enable you to do your business successfully. A specialized product called ‘Avalization Imports’ is also available under trade services portfolio to facilitate trade transactions under Collection terms. SME & Corporate Banking MCB Debit Card – Introducing more convenience! MCB Bank has been providing financial services to its valued customers since 1994. To further enhance this relationship, MCB signed up with the partnership of Lanka Pay and JCB for the introduction of Debit Card, providing our valuable customers the facility to shop with convenience. Debit Card also provides access to customer accounts through a shared network of over 4,500 ATMs Island wide. Virtual Banking – Smart & secure access 24/7! Virtual Banking helps customers stay updated on their account activities from wherever they are, and carry out their banking transactions at a time that is convenient for them, instead of restricting themselves to standard banking hours. We offer diversified finance options for Small/Medium Entrepreneurs and Corporate customers to achieve success in their business. These financing options range from Overdrafts, Leasing for vehicle and machinery, Working Capital Loans, Term Loans, Trade Finance, and Structured Project Financing to cater to the evolving needs of our Business Banking customers. A wide range of Treasury products including Forward Contracts, Repurchase Agreements, Spot Contracts, and Treasury Bills are also offered under investment options. UAE - Products and Services MCB UAE has an array of customized business products for its wholesale customers that include Business Accounts, Finance & Trade products. These services are aimed at fulfilling the day to day needs of the businesses at competitive yet flexible prices. MCB Mobile – Upgrade to the future MCB Mobile is the flagship technology product of MCB Bank’s innovative digital banking services. MCB Mobile App is designed with a user-friendly interface to provide convenience in conducting payments and secured financial and non-financial transactions. Safe Deposit Lockers - Where safety is a promise! We pride ourselves in offering our customers ease of mind and this is yet another service that highlights our commitment to providing everything necessary to accommodate their needs. We offer various types of lockers depending on customer requirements that may include protecting their documents, jewelry, or any other valuables. Home Remittance – Transferring happiness to your Homeland! MCB Home Remittance is a simple and dependable way of sending money to your loved ones in Sri Lanka from anywhere in the world. With a wide network of worldwide remittance partners (including the partners of MCB Avalization The "Avalization (Export)" product has been designed to facilitate the financing of exports by allowing an Exporter (Seller) to discount its receivables under credit granted to a counterparty i.e. Importer (Buyer), without taking payment risk on the Importer (Buyer); through the involvement of banks at both ends, the Exporter (Seller) receives its payment a few days after performing its obligations under a contract (and not under a letter of credit) entered into with the Importer (Buyer) instead of waiting for the full tenor of the credit period granted to the Importer (Buyer). The receivables are secured by a bill of exchange or promissory note accepted by the obligor (the person who is liable for the payment of the receivable). By way of credit enhancement, these receivables are further backed by the guarantee or commitment of the obligor's bank who becomes the end obligor. MCB Current Deposit Account It is designed to provide our wholesale customers with transactional convenience and flexibility. Choices of local Annual Report 2019 37
40. (AED) and International currencies (USD/GBP/EUR) are available at attractive options for our business customers with a low minimum balance. The customer simply has to submit a Trust Receipt (TR) Letter which contains a statement of receiving goods on the Bank’s behalf and promising to pay the Bank on a deferred basis. 365 Savings Business Gold Account Transactional flexibility in a Savings account, 365 days Gold Account provides the choice of local (AED) and International currencies (USD/GBP/EUR). This account will grow savings at an attractive interest rate for 365 days while giving the flexibility to use these funds for business transactional needs as well. This is an attractive option for business customers with a high balance and with requirements of transactional flexibility. Term Deposit Term Deposit products are available in a choice of local (AED) and International currencies (USD/GBP/EUR). Tenor options can be chosen between 1, 3, 6, and 12 months. It is an attractive option for our business customers with short to mid-term investment opportunities. Demand Finance It is financing for a fixed period repayable either in periodic installments or in a lump sum, at a future date. An attractive option for business customers that require financing against fixed assets such as plant and machinery, land, building, etc. Overdraft Overdraft facility allows businesses to access additional funds for day to day business expenses. The overdraft facility will charge interest only on the daily outstanding balance from the Current Account above the credit amount available. Bills Discounting Our discounting solution is for clients who are looking to fund their working capital requirements. While discounting, the bank buys the bill (i.e. bill of exchange or promissory note) before it is due. The transaction is practically an advance against the security of the bill and the discount represents the interest on the bill from the date of purchase of the bill until it is due for payment. Post-dated Cheque Discount Facility Cheque Purchase Discount Facility from MCB Bank takes away the hassle of waiting for post-dated cheques (30120 days) to clear while letting businesses concentrate on completing their transactions. Finance against Trust Receipts (FATR) Financing against Trust Receipts enables our customers to honor payments to their suppliers by letting the bank pay on their behalf without reducing customer’s credibility. 38 Unconsolidated Financial Statements Financing against Receivables Financing against Receivables is available in the form of Invoice discounting. Invoice Discounting is a form of asset based finance that enables a business with evidence to release cash tied up in an invoice to its debtors/buyers. • Discounting of Export Bills for Collection – A borrowing mechanism available to raise finances for an agreed specific tenor. Where the bank buys the export bill at a discounted price, the exporter gets the amount from the bank while submitting export documents. • Discounting of Bills under Export LC - A borrowing mechanism available to raise finances against documents drawn on buyers for an agreed specific tenor. Discounting of Bills under Export LC is available for customers who wish to sell such bills to the bank at a discount rate under the condition of not claiming anything from customers (without recourse). Guarantees The Bank stands as a guarantor for its client ensuring that the liabilities of a debtor will be met. Generally, a Guarantee is issued on cash collateral or against some security as collateral. Letter of Credits A bank guaranteeing on behalf of its customer that a buyer’s payment to a seller will be received on time and for the correct amount. Generally, a Letter of Credit is issued for Sight and Usance terms against some security/ collateral. Internet Banking MCB Bank has implemented Oracle’s Flex Cube Direct Banking which comes with enhanced securities, a user friendly interface, and a host of functionalities/services. Our state of the art Internet Banking allows clients, through a maker checker concept, the convenience of conducting Inter-Bank Funds Transfer as well as Cross Border Funds Transfer at anytime from anywhere in the world simply by logging on to www.online.mcbae.com. Wages Protected System MCB Bank offers a Wages Protected system (WPS) in MCB UAE that enables our customers to route their salary transactions for their employees by using MCB’s services. Bahrain – Products and Services MCB Bahrain started its operations with limited business activities in 1995 to focus mainly on LC reimbursements.
41. Annual Report 2021 Subsequently , the Unit diversified its business activities in different areas. At present, MCB Bahrain engages in the following activities. MCB Current Account MCB Bahrain’s Current Account is structured to provide our customers with transactional convenience and flexibility. Accounts are opened in international currencies (USD/GBP/EUR) with a low minimum balance. MCB Savings Account MCB Bahrain offers saving accounts in International currencies (USD/GBP/EUR) to customers. It offers an attractive interest rate on deposits while giving them the flexibility to use the funds for transactional needs. It is an attractive option for customers that have a high balance and a requirement for transactional flexibility. Term Deposit Term Deposits are available in international currencies (USD/GBP/EUR). Customers can choose tenor based on their needs. It is an attractive option for customers with short to mid-term investment opportunities. placements, and forwards can be inquired from the treasury front office. MCB Islamic Bank Limited Products and Services: MCB Islamic Bank Ltd. offers a wide array of Halal and RIBA free Islamic Banking products and services to meet the requirements of individuals and businesses alike. Deposit Products: The Bank offers a wide variety of Current, Saving and Term Deposit accounts such as the following: Current MCB Islamic Hidayat Current Account MCB Islamic Basic Banking Account MCB Islamic Asaan Current Account MCB Islamic Asaan Remittance Current Account MCB Islamic Asaan Remittance Current Account MCB Islamic Asaan Digital Current Account* MCB Islamic Asaan Digital Remittance Current Account* MCB Islamic Niswaan Current Account Syndicated Transactions MCB Islamic Freelancer Digital Current Account* MCB Bahrain can participate in both Islamic and conventional syndicated transactions. The branch participates in various regional transactions for corporates, financial institutions, and sovereign entities. Moreover, the bank is engaged in risk-sharing transactions with other reputed banks in the region for confirmation/discounting of trade instruments. MCB Islamic Freelancer Digital Foreign Currency Current Account* Loans and Advances MCB Islamic Barkat Saving Premium Account MCB Bahrain provides loans and trade facilities to its bilateral clients. MCB Bahrain financed short-term or long-term funded facilities to its clients. Also, the branch can structure project-specific financing for its clients in the region. MCB Islamic Barkat Super Saving Account Saving MCB Islamic Imaan Saving Account MCB Islamic Barkat Saving Account MCB Islamic Asaan Current Account MCB Islamic Asaan Saving Account MCB Islamic Asaan Remittance Saving Account MCB Islamic Asaan Digital Saving Account* MCB Islamic Shandaar Account Trade Finance MCB Bahrain provides all types of funded & non-funded trade finance facilities to its clients including all types of letters of Credit, advising, confirmation, discounting of credit, documentary collection, bill discounting, and issuance of bank guarantees. Treasury MCB Bahrain has been an active treasury investing in various fixed income securities. The branch can invest in both Islamic and conventional instruments. Our portfolio traded sovereign euro bonds, International Sukuk, and Treasury bills. Bahrain branch can provide plain-vanilla FX solutions to its trade clients. Quote for other liquidity instruments such as SWAPS, short term borrowing/ MCB Islamic Rozana Bachat Saving Account MCB Islamic Rozana Bachat Saving Plus Account MCB Islamic Rozana Bachat Saving Premium Account MCB Islamic Rozana Bachat Super Saving Account MCB Islamic Atfaal Saving Account MCB Islamic Niswaan Saving Account MCB Islamic Freelancer Digital Saving Account* MCB Islamic Imaan Foreign Currency Saving Account MCB Islamic Freelancer Digital Foreign Currency Saving Account* Annual Report 2019 39
42. Term Deposits 3 .Trade Finance MCB Islamic Na'mat Term Deposit 4.Bank Guarantee MCB Islamic Na'mat Plus Term Deposit 5.Risk participation arrangement with financial partners MCB Islamic Na’mat Premium Plus Term Deposit 6.SBP refinance schemes MCB Islamic Aasoodgi Term Deposit 7.‘Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme’ to enable youth to avail affordable financing for establishing new business or strengthening an existing one MCB Islamic Financial Institutions Term Deposit MCB Islamic Na'mat Plus Foreign Currency Term Deposit *These accounts are available for Resident Pakistani Individuals only and can only be opened through the Bank’s available customer digital on-boarding platform(s) Commercial Banking: Digital Banking: In order to meet growing needs of customers, MCB Islamic Bank offers the following Digital Banking products and services: MCB Islamic Qadar Debit Cards MCB Islamic Phone Banking MCB Islamic Internet Banking MCB Islamic Mobile App SMS Notification Service MCB Islamic ATMs network Loyalty & Alliances NIFT ePay Consumer Finance: MCB Islamic Bank offers Halal and RIBA Free Housing Finance (Rihayesh Finance) and Car Finance (MICAR) products to provide Shari'ah compliant housing and vehicle financing solutions to individuals. Under the ‘Mera Pakistan Mera Ghar Scheme’, an initiative by the Government of Pakistan, MCB Islamic Bank Limited is also offering Diminishing Musharakah based Shari’ah compliant convenient and subsidized housing finance options to its customers at affordable rates. Microfinance: For fulfilling the needs of growing small / micro businesses in both Urban and Rural areas of Pakistan, the Bank offers Murabaha Microfinance (Sharai Karobar) for men and women operating small businesses in diverse sectors. Through this financing facility, they can avail financing of up to PKR 500,000/-. SME Financing: MCB Islamic Bank offers Shari'ah Compliant financing solutions for Small and Medium sized enterprises. These products have been designed to cater to the specific needs of SME industry. These products include Murabaha, Musawamah, Ijarah, Diminishing Musharakah, Istisna, Finished Goods Financing, and Commodity Salam. The Bank offers following SME Banking services: 1.Short Term / Working Capital Financing 2.Medium / Long Term Financing 40 Unconsolidated Financial Statements 8.Awareness sessions for SME Customers on financial and non-financial advisory services with SMEDA, Chamber of commerce and trade associations. Commercial Financing segment focuses on building strong and long-lasting relationships with its customers by delivering satisfactory Shari'ah compliant solutions. To deliver excellent services, commercial financing segment facilitates its valued customers by synergizing its specialized team's effort with bank's outreach across the country for increased product servicing range for branch customers. Commercial financing business offers following range of products to its customers: • Trade based financing for import and export (funded & non-funded). • Cash Management & Remittance services. • Financing under SBP’s refinance schemes. • Working capital financing. • Medium & Long Term financing. •Guarantees. • Trade services without involving bank’s exposure. Agriculture Financing: MCB Islamic Bank is extending Agriculture financing to its customers by leveraging existing financing channels. Corporate Banking: MCB Islamic Bank’s Corporate Banking team is focused on providing a range of diverse financial services (including tailor made customer’s specific solutions) to corporate clients (including multinational and public entities) by partnering with them and building long-term sustainable relationships. Our dedicated teams within Corporate Banking are situated in offices located in Karachi, Lahore, Islamabad and Faisalabad. Our in-house expertise of product specialists and Shari'ah scholars are well versed in providing Shari'ahcompliant financing solutions to meet our customer's financing, trade, foreign exchange, investment banking and various other business requirements in a hassle free,
43. Annual Report 2021 effective and efficient manner across a diverse range of industries . • Islamic Refinance Facility for Modernization of SMEs (IRFMS) Our Corporate Banking relationship teams in liaison with Product Management & Shari’ah Structuring, Treasury, Cash Management, Trade, Investment Banking and Consumer Banking departments develop and deliver offerings that are used across diverse businesses. • Islamic Financing Facility for Renewable Energy (IFRE) The Bank offers a complete range / array of Shari'ah compliant products for both Corporate and Commercial banking sectors which can be classified as follow: • Trade Services MCB Islamic Bank also offers a range of import and export services to effectively manage local and global supply chain needs of our customers and provides them a competitive edge. These facilities extend for both raw materials and fixed assets. Services that are offered under the umbrella of Trade Finance includes: i. Export Services • Bills for Collection under Export • Islamic Refinance and Credit Guarantee Scheme for Women Entrepreneurs (IRCGS-WE) Liquidity Management / Treasury Products • Mudarabah-based Acceptance / Placement Under Mudarabah based acceptance and placement, special pool is created on the basis of Mudarabah in which the partner (placement) will invest. Based on the expected return, a profit sharing ratio will be agreed beforehand for distribution of profit. The risk and rewards are shared as per the rules of Mudarabah. Financial Institution(s) / investor(s) / customers will invest (place funds) in the Musharakah based as sleeping partner(s) whereas MCB Islamic Bank (which accept investment) will act as a working partner (and vice versa). • Musharakah-based Acceptance / Placement • Letter of Credit – Sight / Usance Under Musharakah based acceptance and placement, special pool is created on the basis of Musharakah in which both the partners will invest. Based on the expected return, a profit sharing ratio will be agreed beforehand for distribution of profit. The risk and rewards are shared as per the rules of Musharakah. Financial Institution(s) / investor(s) / customers will invest (place funds) in the Musharakah based as sleeping partner(s) whereas MCB Islamic Bank (which accept investment) will act as a working partner (and vice versa). • Advance Payment against Import • Wakalah-based Acceptance / Placement • Shipping Guarantee Under Wakalah based acceptance and placement, special pool is created on the basis of Wakalah in which the Principal (placement) will invest, whereas the Agent (acceptance) will invest / manage the funds and is entitled to Agency Fee as per terms of Wakalah Agreement. The risk and rewards will be borne by the Principal. • Letter of Credit Advising & Confirmation services • Currency Salam (Shari’ah compliant alternate for Export Bill Discounting) • Islamic Export Refinance Scheme • Pre-Shipment and Post-Shipment financing on Islamic modes of financing ii.Import Services • Open Account Payment SBP Financing / Refinancing Schemes: State Bank of Pakistan (SBP) offers various Financing / Refinancing facilities to support industrial growth and exports with the aim to promote the overall economic development of the country. These schemes provide financing to targeted industries at subsidized rates for increasing their production capacity and meeting their working capital requirements. Moreover, SBP also introduced certain schemes to support the industry with regards to the challenges being faced in post-pandemic scenario. Accordingly, the Schemes available through MCB Islamic Bank are: • Islamic Export Refinance Scheme (IERS) • Islamic Long Term Financing Facility (ILTFF) • Islamic Refinance Scheme for Working Capital Financing of Small Enterprises and Low-End Medium Enterprises (IWCF) •Islamic Financing Facility for Storage of Agricultural Produce (IFFSAP) • Foreign Currency Transaction – Ready & Forward Islamic Banks are also involved in foreign currency transactions whereby they either buy foreign currency in exchange of local currency or vice versa. These transactions are necessary to both accommodate the exporters’ and importers’ businesses as well as to secure the risk of the bank against foreign exchange (FX) rate fluctuations. There are two type of foreign currency transaction: 1.Ready Transaction – Deal Date and Maturity Date are same. 2.Forward Transaction – based on Wa’ad (unilateral Promise) If the Deal Date & Maturity Date are different, then the transaction will be considered as forward as per the rules of Shari’ah. Annual Report 2019 41
44. 42 Unconsolidated Financial Statements
45. Annual Report 2021 Corporate Information Board of Directors Mian Mohammad Mansha Mr . S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mrs. Iqraa Hassan Mansha Mr. Muhammad Ali Zeb Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Masood Ahmed Puri Mr. Shahzad Hussain Mr. Shariffuddin Bin Khalid Mr. Shoaib Mumtaz Chairman Vice-Chairman Director Director Director Director Director Director Director Director Director Director President & CEO Audit Committee: Mr. Shahzad Hussain Mian Umer Mansha Mr. Muhammad Ali Zeb Mr. Shariffuddin Bin Khalid Chairman Member Member Member Chief Financial Officer: Mr. Hammad Khalid Company Secretary (Acting): Mr. Farid Ahmad Auditors: M/s. A.F. Ferguson & Co. Chartered Accountants Legal Advisors: M/s. Khalid Anwer & Co. Advocates & Legal Consultants Registered /Principal Office: MCB Building, 15-Main Gulberg, Jail Road, Lahore, Pakistan. Contact us: Registrar’s and Share Registration Office(s): UAN: + 92 42 111 000 622 E-mail: investor.relations@mcb.com.pk Visit us: www.mcb.com.pk M/s. THK Associates (Pvt.) Limited Plot No. 32-C, Jami Commercial Street 2, D.H.A., Phase VII, Karachi, Pakistan. M/s. THK Associates (Pvt.) Limited Siddique Trade Centre, Office No. PL-29, PL Floor, 72 Main Boulevard Gulberg -2, Lahore, Pakistan. Head Office: Branch Office: Annual Report 2019 43
46. Board of Directors 44 Unconsolidated Financial Statements
47. Annual Report 2021 Mian Mohammad Mansha Chairman Mian Mohammad Mansha started his career at the age of 24 as the CEO for Nishat Mills Limited . At present, the business group is one of the leading and most diversified in South East Asia, having presence in Textile, Cement, Insurance, Banking, Financial Services, Power Generation, Hotel & Hospitality, Dairy, Paper Products, Retail Commerce, Real Estate, Agriculture, Aviation and Automotive sectors. It operates in various countries across the globe including Sri Lanka, Azerbaijan, UAE, USA, Hong Kong and Bahrain. The Nishat Group is one of the largest private sector employers, exporters and tax contributors in Pakistan. Mr. Mansha has served as Chairman of MCB Bank, after its privatization, from 1991 to mid-1995 and then from 1997 till date. Presently, he is also a member of the Board’s Human Resource & Remuneration Committee, Business Strategy & Development Committee and Committee on Physical Planning & Contingency Arrangements at MCB Bank Limited. Previously, he was associated with Punjab Mineral Company (Pvt) Limited, Civil Aviation Authority, Pakistan International Airlines, Board of Investment, Punjab Board of Investment & Trade, Pakistan Industrial Development Corporation, Commonwealth Business Council UK, Int’l Advisory Board Babson College USA, National Management Foundation, Textile College Faisalabad and Government College of Faisalabad. He has also served as the Chairman for All Pakistan Textile Mills Association (APTMA) and APTMA, Punjab. Mr. Mansha is currently serving on the Board of the Atlantic Council and is the Chair of the British Asian Trust’s Advisory Council in Pakistan. Mr. Mansha is a committed philanthropist and provides support to a number of causes, such as healthcare, education, sustainable tourism, sports, poverty alleviation and social uplift. He has provided financial assistance and support to the Punjab Institute of Cardiology, Children’s Hospital & The Institute of Child Health in Lahore and Saleem Memorial Trust Hospital, besides supporting Government of Punjab in their fight against COVID-19. Pakistan’s Civil Award, the Sitara-e-Imtiaz was conferred upon him in 2004 for his contributions to industrial development of Pakistan. Other Directorships: • MCB Non-Bank Azerbaijan. Credit Organization, CJSC, Annual Report 2019 45
48. S . M. Muneer Vice Chairman With experience in sectors ranging from Tanneries, Textiles and Banking, Mr. Muneer is a consummate industrialist and a certified director. He has been awarded with The Best Export Performance trophy by the Federation of Pakistan Chamber of Commerce & Industry (FPCCI), the Gold Medallion Award by the International Export Association, UK and the Best Businessman of the Year Award by Federation of Pakistan Chamber of Commerce & Industry (FPCCI). He is also a former President of FPCCI. In addition, he has received the ‘Sitara-e-Isaar’ and the ‘Sitara-e-Imtiaz’ in 2006 and 2007 respectively by the President of Pakistan in recognition of his outstanding public services for the cause of humanity. His contributions and achievements go beyond the economic sphere and include education as well as health-care sectors. He was awarded an Honorary Ph.D. degree (doctorate of philosophy) in January, 2009 by the Governor of Sindh. He has also been appointed as a member of the Advisory Board of Citizen Police Laison Committee (CPLC) by the Honourable Governor Sindh. Mr. S. M. Muneer also serves as member of Board of various educational institutions, such as Institute of Business Management and Greenwich University, Karachi, Din College, Chiniot, College of Business Management, Karachi and Institute of Behavioral Sciences (IBS), Karachi and Professional Education Foundation. He is also a member of Advisory Council of Institute of Business Administration (IBA). 46 Unconsolidated Financial Statements He is on the Board of Shaukat Khannum Memorial Trust, Lahore, The Kidney Centre Post Graduate Training Institute and Fatimid Foundation. He is Patron-inChief, Korangi Association of Trade and Industry (KATI), Kashif Iqbal Thalassemia Care Centre, Trust (KITCC). Mr. Muneer is the Chairman of Chiniot Anjuman Islamia, running many hospitals, maternity homes, schools and colleges in Karachi, Faisalabad and Chiniot. He is also the Chairman of Husain Foundation (a not-forprofit organization working for improvement of cricket in Pakistan). He is also on the boards of Make-a-Wish Foundation, Legend Trust and is MCB’s Nominee on the Board of Arabian Sea Country Club. Mr. S. M. Muneer was awarded “Life Time Achievement Award” by the President of Pakistan, in 2012, and was also awarded Life Time Achievement Award in the same year in the City of Markham (Canada) by its Mayor Mr. Frank Scarpitti in the presence of members of the Parliament. He has also been awarded Who’s Who recognition of Achievement Award in the field of Trade Politics by the National Council of Who’s Who Pakistan in Karachi on December 29, 2018. Other Directorships: • Din Textile Mills Limited; • Din Leather (Pvt) Limited; • Din Farm Products (Pvt) Limited; • Din Industries Limited; • Din Global Investments Inc.
49. Annual Report 2021 Muhammad Tariq Rafi Director Mian Umer Mansha Director Mr . Tariq Rafi is the Chairman of Siddiqsons Group and is a recipient of the coveted Civil Award Sitara-e-Imtiaz. He was awarded the prestigious Best Businessman award for the year 1999 and 2012, best Export Trophies between years 1980 to 2005. Mr. Tariq Rafi has been awarded the Privilege Card by the Prime Minister of Islamic Republic of Pakistan for being one of the top tax payers. He is also the Honorary Consul General of Republic of Serbia. Mian Umer Mansha was co-opted as a Director on the Board of MCB Bank in November 1997 and served till September 2007. Then he was elected as a Director in the Bank’s 61st AGM held in March, 2009. He is on the board of MCB Bank since its privatization and presently is the member of Board’s Write-off & Waiver Committee. Other Directorships: • Siddiqsons Limited; • Siddiqsons Tin Plate Limited; • Siddiqsons Energy Limited; • TSM Mining (Pvt) Limited; • Central Depository Co. of Pakistan Limited. Presently, at MCB Bank he is the Chairman of the Board’s Business Strategy & Development Committee, Information Technology Committee, Committee on Physical Planning & Contingency Arrangements and Write-off & Waiver Committee and is also a member of Audit Committee and Risk Management & Portfolio Review Committee. In addition, he has been serving on the board of various other businesses. Mr. Umer received his Bachelor’s degree from Babson College, Boston, USA. Other Directorships: • Nishat Mills Limited; • Adamjee Insurance Company Limited; • Adamjee Life Assurance Company Limited; • Nishat Hotels & Properties Limited; • Nishat Developers (Pvt) Limited; • Nishat Dairy (Pvt) Limited; • Nishat (Raiwind) Hotels and Properties Limited; • Nishat Agriculture Farming (Pvt) Limited; • Hyundai Nishat Motor (Pvt) Limited; • Nishat Agrotech Farms (Pvt) Limited; • Nishat Sutas Dairy Limited; • National Textile Foundation. Annual Report 2019 47
50. Iqraa Hassan Mansha Director Muhammad Ali Zeb Director Mrs . Iqraa Hassan Mansha has more than 13 years diversified professional experience in Hotel Industry. She received her B.Sc. degree in International Politics from London School of Economics and M.Sc. degree in International Relations from the University of London School of Oriental and African Studies (SOAS). Mr. Zeb is currently the CEO and Managing Director of Adamjee Insurance Company Limited. He is a fellow member of the Institute of Chartered Accountants of Pakistan and has over 24 years of diversified professional experience in the fields of Finance, Insurance & Manufacturing. He also served as council member of Insurance Association of Pakistan and Pakistan Insurance Institute. Insurance Association of Pakistan elected him as the Chairman for the year 2014 in terms of its Constitution. She is serving in the capacity of Executive Director of Nishat Hotels and Properties Limited. She is also serving as Director on the Board of the following companies: Other Directorships: • Nishat (Raiwind) Hotels and Properties Limited; • Nishat Real Estate Development Company (Pvt) Limited; • Emporium Properties (Pvt) Limited. He was co-opted as a Director on the Board of MCB Bank in June 2013. At MCB Bank, presently he is Chairman of the Board’s Risk Management & Portfolio Review Committee and a member of Board’s Audit Committee, Human Resource & Remuneration Committee, Compliance Review & Monitoring Committee, Committee on Physical Planning & Contingency Arrangements and Write-Off & Waiver Committee. Other Directorships: • Adamjee Insurance Company Limited; • Adamjee Life Assurance Company Limited; • Nishat Sutas Dairy Limited. 48 Unconsolidated Financial Statements
51. Annual Report 2021 Yahya Saleem Director Salman Khalid Butt Director After graduating from the Lahore University of Management Sciences (LUMS), Mr. Yahya Saleem joined the family business as director of the Nishat Chunian Group with setting up a spinning mill in 1990. The company has since diversified into weaving, home textile, power generation and entertainment sectors. NCL ranks amongst the top 5 textile companies in Pakistan. Mr. Salman Butt is an accomplished international business executive and ex-banker. He is currently a Dubai, U.A.E. based Entrepreneur. The group ventured into the power business in 2007 with a 200 MW Independent Power Plant (IPP), Nishat Chunian Power Ltd. The IPP provides electricity to the national grid. Both the companies are listed on Pakistan Stock Exchange. Together with his family, he has set up a Trust which is in memory of Sheikh Mohammad Saleem and has initiated setting up of a 200 bed tertiary care not-forprofit hospital in Lahore. The hospital will be built to state of the art international standards and will provide subsidized health care to the under privileged section of the city. In 2015 he started a company by the name of NC Trading USA that is a Cotton trading company based in USA and actively sells US cotton to the leading textile mills in Pakistan. Mr. Salman Butt started his career with Citibank N.A. in 1985 and worked for 20 years as an international banker with Citibank N.A. and Samba Financial Group, holding several senior positions in Corporate and Investment Banking in Pakistan, Hong Kong, UK, Egypt and Saudi Arabia. Mr. Salman Butt joined Orascom Construction Industries, Egypt (OCI Egypt) as Group CFO in 2005. OCI Egypt was a leading Egyptian multinational listed on Cairo Stock Exchange and involved in Construction, Fertilizers and Cement operations. In 2013, OCI Egypt was re-domiciled as OCI N.V. Netherlands and listed on Amsterdam Stock Exchange, where he continued as Executive Director and Group CFO from 2013 to 2017. Mr. Salman Butt holds Masters of Business Administration degree from the University of Texas at Austin, Texas, U.S. and B.Sc. Industrial Engineering degree from Middle East Technical University, Ankara, Turkey. In 2019, he was appointed as CEO and Director of NC Entertainment Private Limited which owns two Multiplexes, widely known as “Universal Cinemas”, including largest multiplex in Pakistan. Annual Report 2019 49
52. Mohd Suhail Amar Suresh Bin Abdullah Director Mr . Suhail has over 30 years of combined global experience in the telecommunications and financial services sector specialising in IT architecture, systems and application development, regional implementation and business development. His passion in technology drives him to effectively utilise technology as a competitive advantage for enhanced customer experience. Mr. Suhail is currently the Group Chief Technology Officer for Maybank, Malaysia’s largest Financial Services Institution. His previously held positions include Managing Director of Bank Negara Malaysia’s wholly-owned subsidiary Malaysian Electronic Clearing Corporation Sdn Bhd (MyClear) and Group Managing Director of Malaysian Electronic Payment System Sdn Bhd (MEPS). Presently, Mr. Suhail is a Director on the Board of MCB Bank Limited and a member of the Board’s Business Strategy & Development Committee, Risk Management & Portfolio Review Committee and Information Technology Committee. Other directorships include Maybank Shared Services Sdn Bhd, MBB Labs Pvt. Ltd. and Technology Park Malaysia Corporation, Sdn. Bhd. Notable awards received include CIO Excellence Award 2016 by PIKOM, Bank Technology Leadership Achievement in Asia Pacific by The Asian Banker, 2017 and in December 2021, he was ranked as the top 3 CIOs in ASEAN – amongst the prestige CIO75 club awarded by (IDG) CIO.com. 50 Unconsolidated Financial Statements His is a Fellow of the Malaysian Institute of Management, an Associate of the Asian Institute of Chartered Bankers Association and a Chartered Banker from the Asian Institute of Chartered Banker. He holds a Master of Business Administration from Charles Sturt University, Australia and an Advanced Management Program from Harvard Business School, Boston, USA.
53. Annual Report 2021 Shahzad Hussain Director Masood Ahmed Puri Director After passing the final exam of England Institute of Chartered Accountants , i.e., The Institute of Chartered Accountants in England and Wales (ICAEW), Mr. Shahzad Hussain returned to Pakistan from UK, in early 1980s. In Pakistan, he became a member of the Institute of Chartered Accountants of Pakistan i.e. ICAP. Later, he was elected as a member of its Council for a term of four years and also served as Vice President (North), where he chaired the ICAP’s Discipline Committee, reporting to the Council. Mr. Masood Ahmed Puri is a multifaceted and accomplished senior executive with competencies in strategic and business planning, risk management and sound decision-making. He is a CEO and owner of different conglomerates in the field of logistics, shipping, supply chain, restaurants and textile within the GCC region for almost 45 Years. He started his career with Vegetable Ghee Industry in Pakistan but later on switched to logistics and shipping in the year 1976. He was hired as General Manager Finance in a logistics company in Saudi Arabia from where he took off and managed the overall operations of the Company. One after another, he kept on developing new businesses in the same field as well as diversified into textiles and restaurants all within the GCC region. Overall, he carries immense experience and exposure in various fields such as finance, corporate strategy, management, operations and most importantly on business start-ups. In 1980, after serving briefly in SNGPL, he joined A. F. Ferguson and Co., a network firm of Price Waterhouse Coopers (PwC). In early 1990’s he was admitted to partnership and served the firm in Audit, Tax and consultancy. In 2003, he was made Partner In-Charge of Lahore Office, where he served until his retirement in 2015. He has vast experience in Audit, Tax practice and in consultancy. He headed many assignments, including Asian Development Bank funded assignment for Punjab Government Resource Mobilization, where he gained considerable experience in Provincial Government organization structures and procedures in various fields. Annual Report 2019 51
54. Shariffuddin bin Khalid Director Mr . Shariffuddin Khalid was appointed as an Independent Non-Executive Director of Maybank on June 14, 2018. He also serves as Chairman of the Audit Committee and member of the Compliance Committee and Sustainability Committee of the Board. He is a Fellow Member of the Chartered Institute of Management Accountants, United Kingdom. He has over 30 years’ experience in the banking and corporate sector. He had served in key positions in the corporate services, business development, corporate communications and human resource functions. He was part of the pioneer management team tasked with the establishment of Pengurusan Danaharta Nasional Berhad (“Danaharta”) during the 1998 Asian financial crisis. He served as General Manager, Communications and Human Resource, Danaharta, from its establishment in 1998 until 2005. He joined Bank Negara Malaysia (BNM), the Malaysian Central Bank and banking industry regulator in 2008, as the pioneer Director of the Malaysia International Islamic Finance Center. In this position, he was responsible for planning and execution of strategies to position and brand Malaysia as an international Islamic financial center. He spent nearly 10 years at BNM and his final position was Director, Strategic Communications. This entailed the provision of strategic communication advice to the BNM Governor and senior leaders, planning and execution of major media and PR campaigns as well as Parliamentary responses and all media relations and e-communications work. 52 Unconsolidated Financial Statements His current directorship within the Maybank Group includes Maybank (Cambodia) Plc and Maybank Islamic Bhd. Currently he also sits on the Board of Marine & General Berhad, a public company listed on the Main Market of Bursa Malaysia.
55. Annual Report 2021 Shoaib Mumtaz President & CEO Mr. Shoaib Mumtaz is the President & Chief Executive Officer of MCB Bank Limited. He is a seasoned professional Banker with over twenty-nine years of experience in the Industry. After having graduated from the National University (U.S.), he started his professional career at MCB Bank Limited and had progressed within the Bank to senior strategic level positions since 1992. Mr. Mumtaz has comprehensive managerial work experience and excelled in various areas including Branch Operations, Credit & Risk Management, Corporate Finance, and International Banking. Before his elevation as President & Chief Executive Officer of MCB Bank Limited, Mr. Mumtaz was leading the Bank’s Domestic Corporate Banking and its International operations. Mr. Shoaib Mumtaz also serves as Chairman Board of Trustees of MCB Employees Foundation. Annual Report 2019 53
57. Organizational Structure Chairman / Board of Directors Audit Committee President & CEO Corporate Affairs Division Audit & RAR Group Consumer & Digital Banking Group Retail Banking Group Compliance & Controls Group Financial Control Group Security & Marketing Group Legal Affairs Group Risk Management Group Treasury & Forex Group Corporate Finance & International Banking Group Operations Group Human Resources Management Group Oversight & Monitoring Group Information Technology Group Capital Markets Division - - - - Administrative Reporting ––––– Functional Reporting Special Assets Management Consumer & Retail Division Special Assets Management Corporate & Commercial Division
58. Leadership Team Front Row (Left to Right): Centre Row (Left to Right): Row (Left toStatements Right): Unconsolidated Financial 56 Back Farid Ahmad, Malik Abdul Waheed, Shoaib Mumtaz Salman Y. Zaidi, Muhammad Ali, Shahzad Ishaq Muhammad Haris Hasan, Usman Hassan, Muhammad Nauman Chughtai
59. Annual Report 2021 Front Row (Left to Right): Centre Row (Left to Right): Back Row (Left to Right): Zargham Khan Durrani, Hassan Nawaz Tarar, Natasha Ahmed Hammad Khalid, Adnan Rashid, Kashif Ali Abrar Aleem, Muhammad Farooq Wasi, Omair Safdar, Syed Mudassar Hussain Annual Report 2019 Naqvi 57
60. Other Senior Management Tahir Riaz Country General Manager , Sri Lanka Syed Faheem Ahmed Country Manager, Bahrain Aamir Khanzada Country Manager, UAE
62. Entity Credit Rating Long Term Short Term AAA A1 +
63. Corporate Profile of the Bank MCB Bank is one of the oldest banks of Pakistan , incorporated in private sector in 1947. It was nationalized in 1974 and privatized in 1991. MCB Bank’s major shareholding is owned by Nishat group a prominent business conglomerate, having diversified interests in Textiles, Cement, Banking, Insurance, Power Generation, Hotel Business, Agriculture, Dairy, Auto Manufacturing and Paper Products. To enter in international capital markets, the Bank launched its Global Depositary Receipts (GDRs) in 2006. It was the first Pakistani Bank that got its GDRs listed on the London Stock Exchange. In 2008, the Bank entered into a strategic partnership with Maybank, Malaysia, which owns 18.78% stake in MCB through Maybank International Trust (Labuan) Berhad. In 2017, Fullerton Financial Holdings (International) of Singapore through Bugis Investments (Mauritius) Pte Ltd acquired 5.49% stake in MCB under merger scheme of NIB Bank with and into MCB Bank Limited. MCB is the first Pakistani Bank which incorporated a wholly owned Islamic Banking subsidiary, MCB Islamic Bank Limited, to meet requirements of a significant segment of society for financial solutions that conform to Shariah rulings and demonstrate our confidence in the potential of the Islamic Banking industry in the country. The Bank operates a strong and vast network of over 1400 Branches and over 1450 ATMs in Pakistan and 11 branches overseas with a footprint in UAE, Bahrain and Sri Lanka. With a customer base of over 7 million, MCB leads the banking & financial services sector in Pakistan and customers across the globe have 24/7 access to MCB Bank via our World Class Internet Banking. The Bank on consolidated basis is operating the 2nd largest network of more than 1,600 branches in Pakistan. The Bank enjoys highest local credit ratings of AAA / A1+ categories for long term and short term respectively, based on PACRA notification dated June 23, 2021. Subsidiaries Associates MCB Islamic Bank Limited With reference to significant holding, the following entities are associates of the Bank: Holding: 100% Profile: Objective of the Bank is to carry on Islamic Banking Business in Pakistan in accordance and in conformity with the principles of Islamic Shari'ah and in accordance with regulations and guidelines of the State Bank of Pakistan. MCB - Arif Habib Savings & Investments Limited Holding: 51.33% Profile: Asset management, investment advisory, portfolio management, equity research and underwriting. MCB Non-Bank Credit Organization Closed Joint Stock Company Holding: 99.94% Profile: It leases various types of industrial equipment, public transports, real estate and retail auto. Financial & Management Services Pvt. Limited Holding: 95.90% Profile: The Company is in dormant status and transferred to MCB from Ex. NIB under merger scheme. The Bank’s investment in the company is fully provided. Adamjee Insurance Company Limited Holding: 20% Profile: The Company is engaged in the general insurance business. Euronet Pakistan (Private) Limited Holding: 30% Profile: To provide outsourcing services to banks and financial institutions for Automated Teller Machine (ATM) network and managed services for Point of Sales (POS) terminal networks.
65. Chairman ’s Review I am pleased to present this report to the shareholders of MCB Bank Limited on the effectiveness of the role played by the Board and overall performance of the Board of Directors in achieving Bank’s strategic objectives. The Board set the Bank’s strategic aims to uphold and oversee the implementation of our vision, mission and core values. It demonstrated high standards of business and professional conduct in supervising and managing the affairs of the Bank. During the year, the Bank conducted an in-house performance evaluation of the Board as a whole, its Committees, the Chairman, the President & CEO and Individual Directors. The overall rating of the Board is highly encouraging, particularly in respect to its composition, expertise, effective risk management, adequate system of internal controls and audit function. In 2019, performance evaluation was made by external independent evaluator, M/s Pakistan Institute of Corporate Governance (“PICG”), as independent external evaluation is required once every three years. The Board has always focused on the preservation of the best interests of the Bank’s shareholders and has strived to maintain a balance between regulatory obligations and operational requirements. As part of this effort, the Board’s properly structured Committees are in place, with each one having welldefined objectives and appropriate Terms of Reference; performing their respective roles effectively and efficiently. Having an effective Board and professional management team is of vital importance, especially given the prevailing macroeconomic environment which is still in a state of recovery due to the enduring pandemic. While the 2nd and 3rd waves of COVID-19 brought unique challenges, which have been devastating for countries around the globe, Pakistan fared much better due to prudent and proactive policy measures followed by a managed vaccination drive. At MCB Bank, we supported the government’s vaccination efforts and are proud to state that all Bank employees are now vaccinated. It is the hallmark of the MCB Bank team to rise to the challenge and demonstrate fortitude & resilience in the face of odds. The Bank posted its highest ever Profit Before Tax of PKR 51.989 Billion in 2021 and continued its trend of declaring the highest dividend per share in Pakistan’s banking industry. This is indicative of the unwavering trust of our customers and confidence of our investors and shareholders. At MCB Bank, we are in a constant state of self-reflection, self-improvement and evolution, be it in our products and services, our management team or the way we conduct our business. The Bank has taken measured steps towards the digital transformation of our operations and service delivery. From the introduction of a new omni-channel digital banking platform, MCB Live, to providing branch staff with digital solutions to better serve our valued customers, we are striving to provide our stakeholders with agile, modern and innovative financial solutions that provide convenience and enhance their banking experience with MCB Bank. 2022 will be yet another milestone year for the Bank, as it is the year that we commemorate our 75th Anniversary which coincides with the 75th Anniversary of Pakistan from whose success we derive our own. We are confident that our best is yet to come and with our industry leading service quality and our focus on innovation and convenience, we are steadfast in our determination to strive for excellence and deliver to our stakeholders. Mian Mohammad Mansha Chairman MCB Bank Limited
67. President ’s Review 2021 was another year of extraordinary global instability, presenting a mixed bag of optimism and challenges related to the recovery from COVID-19 across the globe. While the vaccines continued to offer improved immunity, the effect of Covid on the global economy continued to wreak havoc especially in the developing world as they struggled to balance budgets, while continuing to work towards economic growth and offer relief to those affected. The impact of the pandemic has touched so many throughout this period, yet has shone a bright light on our resilience as a community. As we close out this financial year, we are proud of the fortitude with which our Bank responded to the challenges, keeping a strong focus on our customers, employees, and other stakeholders. Despite all the tribulations, MCB Bank has again demonstrated itself to be one of the best banks in the country with strong financial resilience, operational excellence, and as a responsible corporate citizen. Our bank’s strength and stability are anchored by the fundamental insight - resilience and sustainability go hand in hand. Our focus on customers, our strong risk and financial discipline, and our diversified business model has helped us produce another year of outstanding financial performance in terms of profitability and asset base growth despite navigating the prolonged pandemic generated pressures; particularly a volatile interest rate environment and high inflation. The Bank reported its highest Profit Before Tax of Rs. 51.99 billion (+8%) and declared a 190% cash dividend for the year, continuing with its offering of the highest dividend per share in the banking sector. Assets of the Bank grew by 12% over last year to Rs. 1.97 trillion. Strong growth in average current deposits kept compression in NIM at a minimal despite a 19% decline in the average policy rate. The fee, commission, and brokerage income registered a growth of 14% whereas dividend and foreign exchange revenue streams increased by 86% and 48% respectively. Despite sustained inflationary pressures, the Bank continues to manage an efficient operating expense base with a moderate increase of 8% over last year. Return on Assets and Return on Equity were reported at 1.65% and 19.11% respectively. Our lending growth has been the highest in our Bank’s history. The gross advances of the Bank registered historic growth of Rs. 122 billion (+24%), which was above industry growth level, to close the year at Rs. 636 billion. The corporate lending book grew by Rs. 106 billion (+31%) whereas the consumer loan portfolio attracted significant interest and grew by Rs. 9.5 billion (+32%) on the back of significant activity in the construction and auto segments. In 2021, several strategies were adopted, including the setting of group limits for large corporates, limit review exercise, and Risk Asset Acceptance Criteria (RAAC) to strengthen our credit underwriting standards and risk appetite. The Bank successfully advised and arranged one of the largest Syndicated Term Finance Facilities for Pak Telecom Mobile Ltd. of PKR 21 Billion. During the year, MCB Bank attracted home remittance inflows of USD 3.527 billion to further consolidate its position as an important contributor to the national cause of improving flow of remittances through banking channels. As one of the leading banks in cash management, MCB Bank crossed the annual throughput milestone of Rs. 3.0 trillion in 2021. Achieving growth in a no-cost current account base remained a key strategic objective of the Bank. Non-remunerative deposits grew by 15% to close at Rs. 563 billion; improving their mix in total deposits to 40% in absolute terms as of December 31, 2021. Current Account-Savings Account (CASA) concentration was reported at 93% whereas the total deposits of the Bank grew by 9% to close out the year at Rs. 1,412 billion, demonstrating the loyalty of our customers, earned through sustained provision of quality services. MCB Bank continued its participation in the State Bank of Pakistan’s policy measures to support the economy during COVID-19, by offering loan deferment and/or loan rescheduling and offering liquidity in Rozgar Scheme. MCB also partnered with the Central Bank to extend concessionary “Temporary Economic Refinance Facility” (TERF) for facilitation of investment in new industrial projects, as well as, capacity expansion. Apart from relief measures, to propel the construction related segments of the economy, the mandated program of Mera Pakistan Mera Ghar gained serious traction during the calendar year. The introduction of Roshan Digital Account was another key drive undertaken by the industry to facilitate our Non-Resident Pakistani segment. The inflows at MCB under the Roshan Digital Account (RDA) initiative summed up to approximately USD 216 million. 2021, targeted as the year of “History In The Making” in MCB’s Digital Platform journey, witnessed the launch of “MCB Live”; a-state- of- the- art platform for providing the next generation financial services. Initially, the Bank has enriched its digital offerings for the Retail segment which would be followed by a Corporate rollout.
68. The Bank along with its wholly-owned Islamic Bank subsidiary is operating the 2nd largest network of branches across Pakistan . During the year, our Customer Base grew to 8.4 million accounts demonstrating our customer’s confidence in MCB. We continued to offer accessible banking infrastructure for differently–abled persons to support equitable access to banking and financial services. Strenuous training programs were conducted through our ‘Learning and Development Centers’ as employee development and training remained a priority area. Our strong financial position was reinforced through long and short-term credit ratings of AAA [Triple A] and A1+ [A one plus], respectively, by PACRA. Our performance and customer focus earned us external recognition in many ways during 2021. The Bank’s exceptional performance was recognized by the globally coveted Finance Asia’s Country Awards wherein MCB Bank was declared as the “Best Bank in Pakistan” in 2021. The Annual report of MCB Bank was also adjudged 1st by the joint committee of the Institute of Chartered Accountants of Pakistan & Institute of Cost and Management Accountants of Pakistan (ICAP/ICMAP) in the financial sector category. MCB has won this award 11 times in the last 12 years, with 9 consecutive wins. For the very first time in 2021, the MCB Annual Report 2020 was also adjudged “Overall Best Corporate Report” across all industry segments. The rise in tech- prone cyber-crime has heightened end-user fears of loss of data and money. We make no compromise on customer data security and remain engaged in raising awareness about cybersecurity and malicious activity. The Bank has also enforced and ensured compliance screening of every customer, vendor, and counterpart to safeguard its business practices. The challenges of the current macroeconomic structure, intense pressure on volumes and cyber-attacks did not stop us from playing our due role in the economic development of the country. We maintain an ethical and diverse culture because we have leaders who set a clear compelling direction and engage employees who work hard for the organization. At MCB we are building an inclusive organization to address the gender gap and allow everyone an opportunity to fulfill their career aspirations and professional goals. All this is achieved through a systematic hierarchy that enables twoway communications, programs that recognize high performance, and extensive trainings to develop and turn workers into champions and champions into Leaders. This continuous development coupled with compensation and benefits, comprising almost half of all operating expenses, shows that we highly value our employees. Our results demonstrate that we have the right strategy and have the right talent in place to deliver consistent value for our stakeholders. MCB is well-positioned to benefit from the transformation that is taking place in the banking landscape with rising interest rates, intense pressure on volumes, and exciting technology- driven developments. However, challenges are still ahead that drive us to become faster, more responsive, and more innovative in serving our customers. We have always believed that our team members are our most valuable resource and we want them to be with us for the long term. We invest in them by offering competitive salaries, professional training and development, leadership opportunities, and by giving them the support they need to build a career, achieve their goals, and have the resources they need to improve their lives and the lives of their families. I want to thank them for their hard work and dedication. This year will mark our 75th Anniversary- a proud history of 75 years of service and commitment to our valued customers. We will put in our best to meet our customer’s expectations, as well as, of those of our shareholders, employees and regulators. The confidence of our customers is our pride, and we are passionate to serve them with increased diligence and interest. I would like to acknowledge the leadership of our Chairman, and Board of Directors for making 2021 yet another profitable year under their guidance. I am also grateful to our shareholders who continue to show their trust by investing in and recognizing us as a strong financial services provider and a partner. We are committed to maintaining this trust in years to come with outstanding financial performance, and work on further strengthening the culture of compliance to ethical, regulatory standards and reputational values. Shoaib Mumtaz President & CEO MCB Bank Limited 66 Unconsolidated Financial Statements
69. Annual Report 2021 MCB Overview Branches Global Presence Customers 1426 Domestic Branches across Pakistan (EPZ: 1) 10 International branches in 3 countries Over 8 million customer accounts ATMs Market Share Deposits Market Share Advances 6.41% of Domestic Industry Deposits 5.98% of Domestic Industry Advances Market Share – Home Remittance Market Share – Trade Credit Rating 11.40% 5.52% Over 1450 ATMs all across Pakistan Dividends Branch Network Rs. 19/share. Highest dividend per share across industry 2nd highest branch network on group basis (including MIB branches) Long Term - AAA Market Capitalization 2nd highest market capitalization in industry Annual Report 2019 67
70. Highlights 2021 PBT PKR 51 .99 billion (+8%) Advances (Gross) PKR 20.07 billion Assets Investments (+11%) PKR 1,970 billion Market Capitalization Winner of Best Bank in Pakistan PKR 182 billion (December 31, 2021) ROA 1.65% Unconsolidated Financial Statements PAT PKR 30.81 billion PKR 636 billion (+24%) 68 Non-Markup Income (+12%) 2021 FinanceAsia’s Country Awards Deposits PKR 1,412 billion (+9%) (+6%) PKR 1,036 billion (+2%) Winner of BCR - 2020 by ICAP/ICMAP (Banking Sector & overall) ROE 19.11%
71. Annual Report 2021 Financial Performance 2011 - 2021 10 Years Trend - Rupees in Billion Total Assets Deposits CAGR 11 .7% 2,200 CAGR 11.1% 1,500 1.970.5 1,411.9 1,289.5 1,757.5 1,760 1,144.8 1,515.2 1,498.1 1,049.0 968.5 1,000 1,343.2 1,320 1,072.4 781.4 1,004.4 696.8 934.6 815.5 880 688.3 632.3 545.1 767.1 653.2 500 491.2 440 0 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 0 Gross Advances 2019 2018 2017 2016 2015 555.9 565.7 2014 2013 2012 2011 CAGR 12.6% 1,200 635.6 1,035.5 600 513.6 540.0 1,015.9 1,000 546.8 515.1 500 800 400 748.8 749.4 657.0 367.7 322.5 600 322.3 300 268.2 262.4 511.1 449.0 249.9 400 200 402.1 316.7 200 100 0 2020 Investments CAGR 9.8% 700 2021 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 0 Fund Based Income 2021 2020 2019 2018 2017 2016 2015 16.2 16.6 2014 2013 2012 2011 Non Markup Income CAGR 3.7% CAGR 9.5% 80 25 71.3 70 20.1 64.0 20 59.6 60 18.1 16.7 17.2 18.1 49.3 50 46.0 42.7 43.8 44.5 43.5 37.9 40 40.9 15 12.9 11.2 9.2 10 30 20 8.1 5 10 0 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 0 Profit Before Tax 2021 2020 2019 2018 2017 2016 22.5 21.9 2015 2014 2013 2012 2011 Profit After Tax CAGR 5.1% CAGR 4.7% 60 35 30.8 52.0 42.3 40.1 40 29.0 30 48.2 50 32.1 21.4 32.3 31.0 25.5 24.0 25 36.7 36.1 31.6 31.5 24.3 21.5 20.7 20 19.4 30 15 20 10 10 0 5 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 0 2021 2020 2019 2018 2017 2016 2015 2014 2013 2012 2011 Annual Report 2019 69
72. Forward Looking Statement The Annual Report of MCB Bank Limited carries forward looking statements in its different sections ; since there are uncertainties related to the occurrence of future events, these should be read in conjunction for decision making by the users of the Annual Report. Forward looking statements contain words such as expect, anticipate, believe, seek, will, may, would, presume, assure, hope, so on and so forth. A forward-looking statement naturally addresses matters that are, to certain degrees, uncertain and may not happen. In most cases, a forward-looking statement is made in respect of Bank’s expected income, earnings, business growth, horizontal expansion, cost structure, capital structure, dividends etc. Pakistan’s Economic Outlook For the fiscal year 2022, real sector growth is being projected to recede within the range of 4-5% as the risks emanating from the wave of Omicron variant persist and the domestic demand indicators witness moderation on the back of monetary policy tightening and fiscal consolidation measures undertaken by the Government of Pakistan for countering rapidly accelerating inflation and sustaining fiscal and external imbalances. The external outlook continues to remain uncertain and largely dependent on the eventual path of possible economic and geopolitical scenarios; on the one hand, the external account deficit could be larger if the recently witnessed resurgence in global economic activity and the ongoing conflict between Russia and Ukraine keep the commodity prices inflated while on the other hand, the deficit could subside if the home remittances sustain their traction, structural reforms boosting Pakistan’s export competitiveness materialize and the fiscal consolidation associated with Finance (Supplementary) Act has a faster and more pronounced impact on import/consumer demand than anticipated. The recently completed 6th review under IMF’s extended fund facility (EFF) program bodes well for international confidence in Pakistan and adds to the government’s capability to tap international markets. However, the country still remains vulnerable to the possible flare-ups of the pandemic, tighter international financial conditions as well as delayed implementation of structural reforms, hence, further re-enforcing the need for timely and consistent implementation of policy reforms to lay the ground for stronger and more sustainable growth. MCB’s Future Outlook Enhancement of digital infrastructure Expanding branch network Increase in current deposit MCB Future Improve asset quality & recovery of NPLs Development of Human capital Pakistan’s banking sector will continue to face some headwinds in 2022, on the back of slowing economic growth and rising interest rates impacting quality of assets. Considering the existing disruptions, complexities and uncertainties, the socio-economic and regulatory landscape will continue to transform rapidly; hence, further exacerbating the challenges surrounding the operating environment. Irrespective of these facts, the Bank is committed to delivering remarkable results to its investors for the year 2022. The Bank’s strategic plan, centered on the key pillars of customer centricity, geographical expansion, technology and cyber security and people development (among others), takes into consideration the evolving operating and economic scenario and paves Bank’s future road map. 70 Unconsolidated Financial Statements
73. Annual Report 2021 The outbreak of COVID-19 pandemic has further accentuated the need on banks to expedite digital adoption required for reshaping the banking services architecture in Pakistan ; the transformation is imperative to support enhanced customer experiences deducible from the adoption of advanced e-banking avenues. At MCB, our proactive stance to further augment branch outreach while sustaining parallel focus on creating secure digital and alternative banking channels, by leveraging emerging technologies, shall hold us in good stead for the digital age. We would continue to improve our asset quality, increase low cost deposit base, inculcate operational efficiencies across the entire spectrum, diversify revenue streams through continuous enrichment of service suite and leverage cross sell business opportunities with corporate client relationships to increase contribution from non-markup segment. Credit appetite being a mainstream business line of the Bank, instigates us to avail all righteous credit extension opportunities that fall within the defined risk appetite of the institution; while proactively monitoring watch listed portfolio of the bank to minimize any further infection and ensure that recoveries are made in line with the agreements. On the investments side, the Bank is committed to optimally manage excess liquidity through strategic re-profiling of the investment book in an evolving yield curve scenario. We would continue to lead the market position through focused initiatives encompassing launch of innovative and customer centric solutions, penetration of emerging markets, adoption of digital banking avenues and instilling effective cost management techniques. The Bank is also investing in developing a workforce for the ‘Digital Banking Age’ by attracting and retaining the right skillset and competence; hence, aligning it with the evolving business dynamics. Driving customer centricity remains a key area of focus for the next year; we will direct investments towards empowering employees to drive a pleasant service experience across all customer touch points. Also, in all our capacity and skills enhancement programs for the employees, we will continue emphasizing the need for the staff to serve customers as a means of consolidating our position as the most sought after bank in the industry. To sum up, employees’ development and trainings would remain at the forefront of our strategic focus. We would acutely remain conscious in attracting and retaining the best talent pool in the industry. We are committed in maintaining our unique positioning as a diversified financial institution with a robust heritage and strong reputation through enriched service offerings and financially viable products tailored to meet requirements of our esteemed customers; hence, enabling us to serve both our existing and next-generation customers in the coming years while simultaneously translating the underlying financial strength of the entity into profits. Key Projects to Support Future Performance Details of Projects Point of Sale procurement and deployment Image base clearing operations ATM go green optional receipt printing ON-US & OFF-US QR code – acquiring & digital onboarding Enterprise CRM solution Implementation of Enterprise Workflow System Development of domestic & NRP digital account opening on MCB Live Launch of high end credit card variants New HSM for debit and credit cards Conversational banking Simplify Platform for E-commerce acquiring Enrichment of MCB Live Platform offering Corporate, Trade solutions Annual Report 2019 71
74. Quantitative Projections Outlook Key Risks Going Forward Deposit mobilization to exceed growth level achieved in Increased competitive landscape in the industry for 2021 . mobilizing deposits amidst low differentiation and switching costs; leading to an inability to capitalize on the expected increase in industry deposit base on the back of increasing interest rates. Net Interest Margin (NIM) to increase from the 2021 level. Risk of slower than expected deposit mobilization and advances growth; increase in net interest margin not realized in line with the expected yield curve movements. Non Markup Income to achieve double digit growth. Risk of lower than anticipated growth as transactional volumes decline and market activities slow down due to lowering domestic demand and a resurgence in the spread of COVID-19 virus; resulting in branch closures and reduced physical interaction with the clients. Expenses growth to be contained in single-digits. Risk of cost-push pressures emanating from currency devaluation and higher commodity prices to translate into higher than expected growth in expenditures. However, the Bank remains committed to managing expenditures through rationalization of discretionary spend and inculcation of operational efficiencies through business process automation and implementation of strong budgetary controls. CET1 ratio to be adequately kept within prescribed Higher Risk Weighted Assets (RWA’s). regulatory limits. Minimizing credit infection and realizing recoveries in line Moderation in credit growth and increased risks to asset with contractual stipulations. quality due to slowdown in economic activity. Constant / stable dividend payout to be maintained. Regulatory restrictions impacting dividend payout. Uncertainties that could affect the Bank’s Resource, Revenues and Operations Uncertainties inflation corporate tax discount rate political stability All forward-looking statements are, by nature, subject to risks and uncertainties, many of which are beyond control. Major factors that can affect the Bank’s resource, revenues and operations are given below: Discount rate / Monetary Policy: Based on different assessment parameters, the State Bank of Pakistan may change the monetary policy rate. Any further increase in the discount rate will initially have an adverse impact on Bank’s net interest income due to the repricing lag between earning assets and liabilities. However, as the rate stabilizes, the net interest margins will improve and have a positive impact on Bank’s profitability. The impact of interest rate sensitivity on the banks profitability has been disclosed in note 45.2.4 of the financial statements. Inflation: Inflation is considered to be a key determinant of the policy rate change. Any uptick in inflation statistics will have a material impact on the monetary policy stance along with other drivers. 72 Unconsolidated Financial Statements
75. Annual Report 2021 Political Stability & Law and order situation: Political stability and controlled law & order situation is a pre-requisite for any economy. This, in turn, reposes investor confidence in the soils of Pakistan, making our corporates a potential investment opportunity. However, any act of terrorism or political instability can negatively impact the economy /equity market, thus resulting in decreased profitability. Corporate Tax rate: Any increase in the corporate tax rate or imposition of an additional tax will adversely impact the profitability of the Bank. External Environment The Bank’s external environment, including political, economic, social, technological, environmental and legal factors have an impact on business performance, strategic objectives and availability, quality and affordability of capitals. Details have been disclosed in the risks and opportunities and SWOT section of this report. Status of Projects Disclosed in the Forward-Looking Statement of Previous Year: Detail of last year projects Status Compliance Risk Management -For Domestic Operations. Completed MPG – Micro Payment Gateway Completed CAMS Upgrade (New Loan Origination System for Auto Loan) Completed AIMS (Audit Interactive Management System) Completed FCCM Upgrade & TBML Implementation Completed 3D card security protocol implementation In Process Compliance Risk Management for Overseas Operations In Process e-kyc application updating with respect to Trade Based Money Laundering In Process ATM Insourcing Project (ATM Migration & Payment Scheme Certifications) In Process iSheild - Fraud management system. In Process Rosetta Integration with Safewatch In Process Performance of the Bank against Forward-Looking disclosure of 2021 as Presented in the Annual Report 2020 Forward-looking disclosure for 2021 as presented in Performance of the Bank in 2021 against forwardannual report 2020 looking disclosure Pakistan’s banking sector will continue to navigate through the tough economic situation in the year 2021 on account of falling earning margins due to current policy rate regime and compounding risks to the asset quality given a subdued outlook for business activity and uncertainty surrounding the COVID-19 outbreak. Considering the existing disruptions, complexities and uncertainties, the socio-economic and regulatory landscape will continue to transform rapidly; hence, further exacerbating the challenges surrounding the operating environment. Irrespective of the above captioned challenges, the Bank will strive hard to deliver results for its stakeholders in 2021. The Bank’s strategic plan, centered on the key pillars of customer centricity, geographical expansion, technology and cyber security and people development (among others), takes into consideration the evolving operating and economic scenario and paves Bank’s future road map. MCB posted it highest ever profit before tax of Rs. 51.989 billion for the year ended December 31, 2021. The Profit After Tax (PAT) registered a growth of 6% to reach Rs. 30.81 billion while the earnings per share (EPS) were reported at Rs. 26.00. The key drivers for the reported performance included: • strategic alignment of growth in average current deposits and structured rebalancing of the earning assets mix to derive optimum margins; • a remarkable growth of 11% in the non-markup income block; • efficient management of the operating expenditure base; and • provision reversal against non-performing loans through proactive monitoring and concerted recovery efforts. Over the past few years, a dearth of quality credit lending avenues in the market had resulted in surplus liquidity in the sector being diverted towards Government papers in order to fulfill Government’s borrowing appetite; which continued to grow amidst persisting fiscal imbalances. Annual Report 2019 73
76. Forward-looking disclosure for 2021 as presented in Performance of the Bank in 2021 against forwardannual report 2020 looking disclosure The widespread norms to contain the spread of COVID-19 , including social distancing and limiting the size of gatherings, is expected to fundamentally alter the consumer behavior of banking customers. At MCB, our proactive stance to further augment branch outreach while sustaining parallel focus on creating safe and secure digital and alternative banking channels shall hold us in good stead as the customers increasingly look to access non-physical banking modes. We would continue to improve our asset quality, increase low cost deposit base, inculcate operational efficiencies and increase contribution from the nonmarkup segment through materialization of cross sell business opportunities with corporate clients. However, during the year under review, a pickup in domestic activity and resurgence of key economic sectors translated into a broad-based growth in advances across the entire industry. MCB’s gross advances also registered an exceptional growth of 24% to close the year at Rs. 636 billion and provided the major impetus to growth in Bank’s outstanding asset base. The corporate lending book grew by Rs. 106 billion (31%) whereas the consumer loan portfolio garnered significant interest and increased by Rs. 9.5 billion (32%) on the back of significant activity in the construction and auto segment. In 2021, a growth of 35% was registered with 18,828 credit cards issued while registering 8,706 auto loans (+57%). The Bank also remained aligned with organizational direction of adding substantial resources to drive Government’s Mera Pakistan Mera Ghar (MPMG) Scheme, thereby disbursing 576 loans with volume of Rs. 2.1 Billion. Credit appetite being a mainstream business line of the Bank, instigates us to avail all righteous credit extension opportunities that fall within the defined risk appetite of the institution; while proactively monitoring watch listed portfolio of the bank to minimize any further infection and An analysis of the interest earning assets highlights that ensure that recoveries are made in line with the agreements. while the average volumes posted a growth, the earning margins subsided due to a decline of 19% (166bps) in the On the investments side, the Bank is committed to optimally average policy rate (from an average of from an average manage excess liquidity through strategic re-profiling of of 8.95% in 2020 to 7.29% in 2021). the investment book in an evolving yield curve scenario. On the liabilities side, non-remunerative deposits grew by We would continue to lead the market position 15.1% reach Rs. 563 billion; improving their mix in the through focused initiatives targeting new products, total deposits to 40% in absolute terms as at December new markets, branchless banking and effective cost 31, 2021. The total deposit base of the Bank grew by management. The Bank is investing in developing a 9% to close out the year at Rs. 1,412 billion. The cost of workforce for the ‘Digital Banking Age’ by attracting deposits decreased by 109bps over the corresponding and retaining the right skillset and competence; year. Net interest income for the year hence fell to Rs. hence, aligning it with the evolving business dynamics. 63.987 billion in 2021 as compared to Rs. 71.33 billion Driving customer centricity remains a key area of focus reported in 2020. for the next year; we will direct investments towards The non-markup income block of the Bank grew by a empowering employees to drive a pleasant customer remarkable 11% and aggregated to reach Rs. 20.1 billion. experience across all customer touch points. Also, The major contributions came in from fee & commission, in all our capacity and skills enhancement programs dividend and FX income which grew by 14%, 86% and for the employees, we will continue emphasizing the 48% respectively primarily on the back of improved need for the staff to serve customers as a means of transactional volumes, surge in business activities and consolidating our position as the most sought after bank prudent positioning of Bank’s FOREX assets and liabilities in the industry. To sum up, employees’ development amidst a volatile market. and trainings would remain at the forefront of our strategic focus. We would acutely remain conscious MCB Home Remittances surged to generate a volume of in attracting and retaining the best talent pool. USD 3.527 billion, registering a growth of 8.5% over last year while MCB Cash Management crossed the annual We are committed in maintaining our unique positioning volume milestone of Rs. 3.0 trillion in 2021, thereby as a diversified financial institution with a robust retaining its status as one of the leading Banks in cash heritage and strong reputation through enriched service management. offerings and financially viable tailored products to meet requirements of our esteemed customers; hence, MCB remained active throughout Pakistan, UAE and Sri enabling us to serve both our existing and next-generation Lanka through its diverse network of 1,451 branches customers in 2021 and beyond while translating the (including 14 sub-branches) and more than 1,450 ATMs. underlying financial strength of the entity into profits The Bank’s strategic focus on achieving broad based digitalization and transformation through adoption of cutting-edge technologies transcribed in the launch of MCB Live during the year under review and led to the further augmentation Bank’s digital product base. 74 Unconsolidated Financial Statements
77. Annual Report 2021 Forward-looking disclosure for 2021 as presented in Performance of the Bank in 2021 against forwardannual report 2020 looking disclosure MCB Live , a flagship omni-channel digital banking platform, has been consciously designed to offer a host of enhanced features and improved services to a wide range of customers. The platform has attracted great customer response since its launch; with the total number of registrations exceeding 100,000 during a short span of 2 weeks after its commercial launch. Despite the inflationary surge during the year, growth in the operational network and constant investment in digital, cyber security and information technology related platforms, the growth in operating expenses was contained at 8%; indicative of Banks circumspect approach to manage tradeoff between short term tactical cost reductions and long term cost initiatives. On the provision side, Bank made continued progress on its strategic path and recorded a cumulative recovery of Rs.2.67 billion by settling a large number of hardcore and protracted defaults. Return on Assets and Return on Equity reported at 1.65% and 19.11% respectively, whereas the book value per share was reported at Rs. 135.13. To enhance the knowledge and skillset of its work force, a number of trainings were held during the year. Participants from all over the country were trained through different programs including in-house, ex-house, mobile, and E-learning training programs. A segment comprising of Bank’s senior management was engaged in a Management Development Program as part Bank’s Talent Management Scheme. Detailed analysis covering performance and achievements of respective groups against their targets for 2021 is included in the Groups’ review section of this annual report. Sources of Information and Assumptions used for Projections and Forecast The Bank gathers and compiles internal business data, external economic indicators and industry specific analysis from various sources and utilizes in-house developed tools and functional expertise to process these items through a calculation; in turn laying the foundation for its operational and financial forecasts and projections. The Bank assumes a further modest tightening of the monetary policy stance, by the State Bank of Pakistan, in order to anchor country’s inflationary outlook and keep real interest rates at the appropriate level to support growth and maintain external stability. With respect to PKR parity, we expect the currency to devalue further by 5%, however, the volatility observed in 2021 is not expected to be repeated and the exchange rate movements shall be comparatively stable. Our Response to Critical Challenges and Uncertainties MCB remains well poised to respond to all critical challenges and uncertainties emanating from the realization of various systematic and idiosyncratic risks by capitalizing on its stable funding structure, ample liquidity buffers, resilient capital base and a pragmatic business strategy. For details on Bank’s readiness to respond to critical challenges and uncertainties, please refer to the Risk Management Framework, Business Continuity Management and Pandemic Recovery Plan section in the Annual Report. Annual Report 2019 75
78. Graphical Presentation of Financial Statements Statement of Financial Position (Rupees in Million) 174,407 Variance from YE 2020 1,970,468 Net Assets -8.26% 14.59% 1,796,061 Liabilities Assets 12.12% -15 Liabilities Net Assets -10 -5 0 5 10 15 Assets Profit & Loss Account (Rupees in Million) 30,811 63,987 Variance from YE 2020 51,989 PAT 6.11% PBT 7.75% Provision 20,074 -165.95% Non Markup Expenses 8.81% Non Markup Income 10.69% Net Markup Income 4,823 -10.30% -260 36,894 PBT PAT Net Markup income Non Markup income Non Markup Expenses Provision Cash Flows 2021 -170 -80 Cash Flows 2020 (Rupees in Million) 10 (Rupees in Million) (13,433) (35,722) 285,808 (39,027) (270,459) 110,719 Operating 76 Investing Unconsolidated Financial Statements Financing Operating Investing Financing 100
79. Annual Report 2021 Maturities of Assets and Liabilities Rs . in Million Upto 3M to 1Y to 3Y to 5Y & 20213M1Y 3Y5Y above Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Fixed assets Intangible assets Other assets - net 164,613 18,830 42,467 1,035,585 589,712 57,328 979 60,954 164,613 17,779 42,467 280,035 170,212 1,042 187 37,758 – – – – 1,051 – – – – – – – 163,342 302,483 92,720 197,005 83,194 168,334 92,270 75,702 3,041 6,744 3,259 43,242 560 232 – – 5,745 11,447 6,004 – Liabilities 1,970,468 714,093 256,933 Bills payable Borrowings Deposits and other accounts Deferred tax liabilities Other liabilities 24,590 269,526 1,411,852 729 89,365 24,590 170,235 170,471 (545) 38,163 – – – – 58,503 8,519 5,608 26,661 149,958 654,989 327,342 109,092 (1,135) 23 1,647 739 20,211 13,786 11,763 5,442 1,796,062 402,914 227,537 489,240 677,317 194,253 346,360 315,949 141,934 Key Interest Bearing Assets and Liabilities 20212020 Avg. Vol Effective Interest Avg. Vol Effective Interest (Mln)interest (Mln) (Mln)interest (Mln) rate % rate % Interest Earning Assets Lendings to Financial Institutions Gross Advances (excluding NPLs) Gross Investments (excluding equity investments) Interest Bearing Liabilities 23,701 458,979 1,077,977 2.39 7.22 8.30 567 33,123 89,523 13,735 459,219 854,012 7.27 9.34 10.77 998 42,879 91,983 Deposits (excl. current deposits) Borrowings 838,942 193,703 5.62 5.02 47,107 9,717 765,997 116,155 7.19 5.30 55,095 6,152 14.00% 13.00% 12.00% 11.21% 11.00% 10.04% 10.00% 9.00% 8.00% 7.00% 9.75% 8.44% 7.10% 7.31% 7.40% 7.63% 7.86% 7.39% 7.47% 7.44% 7.34% 7.29% 7.00% 7.00% 7.00% 7.00% May - 21 Jun - 21 Jul - 21 7.00% 7.00% 7.00% 7.00% 7.00% Dec - 20 Jan - 21 Feb - 21 Mar - 21 Apr - 21 8.75% 7.25% 7.25% Sep - 21 Oct - 21 6.00% KIBOR - 6 Month Aug - 21 Nov - 21 Dec - 21 SBP Policy Rate Annual Report 2019 77
80. Analyses of Financial Performance Gross markup income reported a decrease Rs . 12.740 billion for the year 2021 when compared with 2020. Income on advances decreased by Rs. 9.756 billion, primarily on account of decline in yield by 212 bps coupled with comparatively lower volumes realized in average advances The markup income on investments also reported a decrease, amounting to Rs. 2.460 billion, as the fall in investment yield by 247 bps diluted the volumetric growth of Rs. 223.965 billion achieved in average investments. Rs in million Fee Commission Income 2021 137 (Rupees in Million) 3,164 1,724 773 1,712 Variance Mark-Up/ Return / Interest Earned 2021 2020 Loans and advances Investments Lendings to financial institutions Balances with banks 33,123 89,523 567 122 42,879 91,983 998 215 123,335 136,075 Amount % age (9,756) (2,460) (431) (93) -23% -3% -43% -43% (12,740) -9% 2,946 1,983 Trade & Guarantee Others Cash Management/Home Remittance Branch Banking Banca & Investment Banking Advances Related The Bank reported a decrease of Rs. 5.393 billion over last year in markup expense. Mark up expense on deposits decreased by Rs. 7.988 billion, whereas markup expense on borrowings increased by 3.565 billion. Yield on deposits decreased by 108 bps due to the reduced average policy rate during the year (average policy rate registered a decline of 19% (166bps) from an average of 8.95% in 2020 to 7.29% in 2021). 2020 Cards related (Rupees in Million) 159 2,210 1,504 468 1,625 Rs in million Variance Mark-Up/Return/Interest Expensed 2021 2020 Amount Deposits Borrowings Subordinated debt Cost of foreign currency swaps Unwinding cost of liability against right-of-use assets 47,107 9,717 1,610 2,387 55,095 6,152 2,387 3,009 (7,988) 3,565 (777) (622) -14% 58% -33% -21% 914 1,107 (193) -17% 59,348 64,741 (5,393) -8% 1,840 The non-markup income block of the Bank was reported at Rs. 20.073 billion; with major contributions coming in from fee commission, foreign exchange and dividend income. Fee income reported an increase of 14% for the year, primarily due to improved transaction volumes and surging business activity amidst lifting of lockdowns; increasing its concentration in the total non-markup income block to 62%. Aforementioned resurgence in key economic sectors led to 86% rise in dividend income while prudent positioning of Bank’s foreign exchange assets and liabilities, amidst a volatile FOREX market, supported a notable growth of 48% in income from dealing in foreign currencies Rs in million Variance 78 3,131 % age Non Mark-Up / Interest Income 2021 2020 Fee and commission income Dividend income Foreign exchange income Income from derivatives Gain on securities Other income 12,440 2,251 3,734 14 811 823 10,936 1,210 2,525 4 3,332 128 1,504 1,041 1,209 10 (2,521) 695 14% 86% 48% 250% -76% 543% Total non-markup / interest Income 20,073 18,135 1,938 11% Unconsolidated Financial Statements Amount % age Trade & Guarantee Others Cash Management/Home Remittance Branch Banking Banca & Investment Banking Advances Related Cards related The Bank continues to prudently manage its operating expenditures with a circumspect approach for balancing short term tactical cost reductions with long term cost initiatives; hence, restricting the increase to a moderate 8% for the current year despite sustained inflationary pressures amidst currency devaluation and rising commodity prices, higher compliance related regulatory charges, expansion in branch outreach and regular performance and merit adjustments of the Human Capital. Performance against Targets During 2021, the Bank has achieved budget of deposits, advances and profit. Further, Bank’s current year’s performance against targets disclosed in the Annual Report of 2020 is covered in the “Forward Looking” section of the Annual Report.
81. Annual Report 2021 Objectives to Assess Stewardship of Management The Bank strives to maximize shareholder value through delivering remarkable returns and achieving sustainable performance that exceeds market and shareholder expectations . Key Performance Indicators (KPI’s) to measure Bank’s performance against its short, medium and long term objectives along with corresponding strategies have been disclosed in the “Strategic and Resource Allocation” section of the Annual Report. Future Prospects for Profit Future prospects about Bank’s profitability have been covered in the Directors Reports and “Forward Looking” section of the Annual Report. Explanation of negative change in the performance against prior year In 2021, profit before tax of the Bank increased by 8% over last year despite a decrease in net interest income (NII) by Rs. 7.347 billion. In an evolving yield curve scenario, subsiding earning spreads on the back of 166bps decrease in the average policy rate, during the year under review, diluted impact of positive volumetric growth achieved by the Bank in its average earning assets and consequently translated into the captioned decline in NII. Annual Report 2019 79
82. Analyses of Non Financial Performance Non-Financial Highlights Number of Branches - 1 ,437 Number of ATMs - 1,454 (Absolute) Number of accounts - 8,372,786 (Absolute) Training days - 28,092 (Absolute) 80 Unconsolidated Financial Statements (Absolute) Human Resources - 13,849 (Absolute) Training Participant - 39,030 (Absolute) CSR Investments - 21,278 Rs. in mln
83. Annual Report 2021 Human capital Total number Investment in Total days New of training of Training Recruitments employees (Rs. in Mln) Capital expenditure Branches ATMs Internet Banking Mobile Banking Promotions 13,849 35.4128,0922,075 2,248 Our employees, numbering 13,849 receive well remunerated, secure and satisfying employment with generous retirement benefits. Our strategy is to align what is best for the employees with what is best for the Bank. Our performance management system has been designed to motivate employees to pursue goals that will enable the Bank to achieve its strategic objectives. Our development and training activities also contribute to the same objective in the longer term. Thus, we have built a performancebased culture that will support both short term and longterm value creation. Our human resources remain the key asset to our success and growth which is evident from the below mentioned analysis. 2021 2020 Staff strength New recruitments Average number of employees Promotions Investment in training Number of training participants Training days Absolute 13,849 13,643 Absolute 2,075 1,430 Absolute 13,605 13,345 Absolute2,248 2,356 Rs. In Mln35.4136.51 Absolute 39,030 30,163 Absolute 28,092 25,277 Manufactured Capital C apital expenditures Branches ATMs on physical & excluding digital infrastructure sub-branches Internet Banking customers Mobile Banking customers PKR 3,121 million1,437 204,071 1,456,681 1,454 Manufactured capital consists of our physical branch network and other tangible and intangible items that support our operations outreach such as equipment, IT systems and network. During the year, Bank has expanded its network by 8 branches. In 2021, account base of the Bank expanded to 8.3 million accounts. The banking model is in gradual transformation from traditional banking to digital era. Hence, to cater to the growing segment of millennials among our customers, the Bank has been continuously investing on the digital banking platforms. We are increasing our digital touch points on a gradual pace, providing our customers transactional convenience while ensuring financial security. 2021 2020 Rs. In Mln 3,121 3,090 Absolute 1,4371,429 Absolute 1,4541,434 Absolute 204,071 198,939 Absolute 1,456,681 1,396,475 Intellectual capital Cumulative service experience of more than 74 years Strong Governance One of the most valuable brand Intangibles associated with the Bank – culture, ethics, values, organizational knowledge, systems, procedures and brand value. These intangibles, while not reflected in the balance sheet, are indeed the real assets of the Bank. They permeate the Bank’s operations at all levels – whether it is high level decision-making or day-to-day functions. In 2021 we have focused on following points to enhance of our intellectual capital: • Explore customers’ views and expectations with regard to selected Deposit products on features, processes and service delivery • Evaluate customer satisfaction to understand the service level of the Bank • Explore the new trends in consumer banking to ascertain future banking preferences During the year, the total investment on intangible assets is Rs. 356.679 million as compared to Rs. 298.880 million in FY20. Social and Relationship Capital No. of accounts Dividends to CSR funds shareholders (Rs. in Mln) ( Rs. In Mln) 22,516 21,278 8,372,786 The Pakistan banking industry is more competitive than it has ever been, and factors such as customer service and convenience are distinguishing features that customers look for. With a strong network of branches across the Country, MCB maintains strength in geographic reach that few can match. Analysis of social and relationship capital as compared to prior year is as follows: 20212020 No of accounts Dividends to Shareholders CSR funds Absolute 8,372,786 8,217,065 22,516 23,701 (Rs. In Mln) (Rs. In Mln) Education Allowance Staff Capacity Building & Trainings Contribution to National Exchequer Contribution To Staff Welfare Fund Donation Plantation Total 29 33 35 37 21,178 19,212 5 5 8113 2322 21,27819,422 Annual Report 2019 81
84. Non - Performing Loans Rs . in Million 2021 NPLs 2020 Provision NPLs Variance Provision NPLs 2021 Provision Coverage Categorywise OAEM 49 1 44 2 13.4% -32.4% 2.7% Substandard 303 75 214 53 41.2% 41.4% 24.7% Doubtful 231 116 285 142 -18.8% -18.8% 50.0% Loss 49,908 43,965 50,646 44,946 -1.5% -2.2% 88.1% Total 50,491 44,156 51,189 45,143 -1.4% -2.2% 87.5% NPLs Provision NPLs Provision NPLs Provision Coverage Groupwise Commercial 3,741 3,517 4,344 4,172 -13.9% -15.7% 94.0% Consumer 1,891 1,799 2,106 1,928 -10.2% -6.7% 95.1% Corporate 3,132 3,106 4,695 4,692 -33.3% -33.8% 99.2% Overseas Others 9,393 3,828 8,444 3,470 11.2% 10.3% 40.8% 32,334 31,907 31,601 30,880 2.3% 3.3% 98.7% 50,491 44,156 51,189 45,143 -1.4% -2.2% 87.5% Non - Performing Loans (2016-2021) (Rupees in Billion) 60 51.2 50.5 50 49.4 49.0 48.8 40 30 21.7 20 10 0 2021 2020 2019 2018 2017 2016 *Infection and Coverage Ratios (2016-2021) 100 91.46% 87.45% 88.19% 84.85% 85.68% 7.94% 9.97% 9.15% 8.95% 9.47% 2021 2020 2019 2018 2017 90 87.32% 80 70 60 50 40 30 20 10 0 Coverage Ratio * Based on specific provision only 82 Unconsolidated Financial Statements Infection Ratio 5.90% 2016
85. Annual Report 2021 Non - Performing Assets 1 . Movements in NPA Rs. in Million Non-performingNon-performing Non-performing AdvancesInvestments Assets (Debt Securities only) 202120202021202020212020 Opening balance Exchange adjustments 51,189 822 49,424 247 491 – 607 – 51,680 822 50,031 247 Additions Recovery / declassification 2,254 (3,378) 4,403 (2,556) – (13) – (116) 2,254 (3,391) 4,403 (2,672) Amounts written off (1,124) (396) 1,847 (329) (13) – (116) – (1,137) (396) 1,731 (329) Closing balance 50,491 51,189 478 491 50,969 51,680 2. Sector-wise breakup of NPA Non-performingNon-performing Non-performing AdvancesInvestments Assets (Debt Securities only) 202120202021202020212020 Agriculture, forestry and fishing Construction Energy Production, Steam and air conditioning supply Financials Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of food & beverages products Manufacture of sugar Manufacture of textiles Transportation and storage Services Wholesale and retail traders Others 419 351 469 301 3,825 3,980 393 477 290 479 463 4,316 3,028 393 – – – – – – 285 – – – – – – 285 419 351 469 301 3,825 3,980 678 477 290 479 463 4,316 3,028 678 232 3,067 4,420 12,734 373 430 13,042 6,456 276 3,274 4,658 13,475 434 464 12,522 6,639 – – 146 41 – – – 6 – 232 – 3,067 146 4,565 54 12,774 – 373 – 430 – 13,042 6 6,462 276 3,274 4,804 13,529 434 464 12,522 6,645 50,491 51,189 478 491 51,680 50,969 3. Movement of provisions made against NPA Non-performingNon-performing Non-performing AdvancesInvestments Assets (Specific Provision only) (Debt Securities only) 202120202021202020212020 Opening balance Exchange adjustments 45,143 320 41,934 51 490 – Charge for the year Reversals 2,341 (3,251) 5,703 (2,216) – (13) Amounts written off (910) (396) 3,487 (329) (13) – 44,156 45,143 478 Closing balance 534 45,634 – 320 73 (116) 42,468 51 2,341 (3,264) 5,776 (2,332) (43) – (923) (396) 3,444 (329) 491 44,635 45,634 4. Details of accounts restructured as per regulatory guidelines The outstanding amount against restructured accounts in NPA amounts to Rs. 9,806.093 Million as at December 31, 2021: (December 31, 2020: 6,634.906 Million) Annual Report 2019 83
86. Deposits & Advances - Sector wise December 31, 2021 Rupees in Million Sector DepositsAdvances Agriculture, forestry and fishing Construction Energy Production, Steam and air conditioning supply Financials Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and chemical and pharmaceutical products Manufacture of food & beverages products Manufacture of sugar Manufacture of textiles Transportation and storage Telecommunications Services Wholesale and retail traders Others 25,984 37,970 79,172 28,809 912,825 2,407 5,111 11,731 22,273 5,139 12,633 3,124 5,802 34,636 50,786 173,450 6,296 14,213 33,914 32,744 51,084 19,214 16,801 60,149 49,347 39,229 114,258 61,873 23,856 14,907 45,170 52,519 1,411,852 635,574 Deposits Agriculture, forestry and fishing Individuals Manufacture of food & beverages products Telecommunications Construction Manufacture of basic metals and metal products Manufacture of sugar Services Electricity, gas, steam and air codnditioning supply Manufacture of Cement Manufacture of Textile Wholesale and retail traders Financial Manufacture of chemicals and chemical and pharmaceutical products Transportation and storage Others Advances 84 Agriculture, forestry and fishing Individuals Manufacture of food & beverages products Telecommunications Construction Manufacture of basic metals and metal products Manufacture of sugar Services Electricity, gas, steam and air codnditioning supply Manufacture of Cement Manufacture of Textile Wholesale and retail traders Financial Manufacture of chemicals and chemical and pharmaceutical products Transportation and storage Others Unconsolidated Financial Statements
87. Annual Report 2021 Deposits & Advances - Group wise Rs. in Billion Groupwise Deposits 2021 2020 Groupwise Gross Advances Variance Amount 2021 % Variance 2020 Amount % 1,261.9 1,147.5 114.4 9.97% 91.3 84.5 6.8 8.09% Consumer 24.2 21.3 2.9 13.75% 38.5 28.9 9.6 33.22% Corporate 59.2 66.3 (7.2) -10.79% 445.0 338.8 106.2 31.35% Overseas 66.5 54.4 12.2 22.42% 28.9 30.1 -1.2 -4.08% - - - - 31.9 31.3 0.6 1.92% 1,411.9 1,289.5 122.3 9.49% 635.6 513.6 122.0 23.76% Commercial Others Total CASA Mix Weighted Average Cost of Deposits 95.00 94.13% 92.96% 92.93% 92.86% 5.96% 6 5 4.53% 91.02% 4 90.42% 90.00 3.49% 3.18% 3 2.53% 2.48% 2017 2016 2 85.00 2021 2020 2019 2018 2017 2016 1 2021 2020 2019 2018 Weekly Trend of MCB Deposits and Advances - 2021 Advances - Rs. in Billion 1,400 600 1,350 550 1,300 500 1,250 450 Deposits- Rs. in Billion 1,450 650 1,200 1,150 400 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Weekly Deposits Weekly Advances MCB's Industry Share in Deposits and Advances - 2021 6.00% 7.60% 7.00% Deposits Advances 7.30% 5.70% 6.70% 5.40% 6.40% 5.10% 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Deposit Share of MCB 2021 6.10% Advances Share of MCB 2021 Annual Report 2019 85
88. Investments Rupees in Million Treasury Bills Pakistan Investment Bonds TFCs , Debentures and Certificates Other government securities / Sukuks / Euro Bonds Shares in Listed, Unlisted Co.s & Mutual funds Subsidiaries & Associated Undertakings Investments at cost 2021 2020 325,536 660,198 5,468 18,774 31,019 13,019 598,470 349,739 7,325 18,703 26,589 13,019 1,054,014 1,013,846 40,168 4% (10,660) (7,768) (10,653) 12,676 (7) (20,445) 0% -161% 1,035,585 1,015,869 19,716 2% Provision for diminution in value of investments Surplus / (deficit) on revaluation of investments Investments at revalued amount - net of provision Var. % Var. (272,934) 310,459 (1,857) 71 4,430 – -46% 89% -25% 0% 17% 0% Non-Statutory Investment Portfolio* 688,242 629,122 *Maintained in excess of Statutory Liquidity Requirement Category of Investments (2016-2021) (Rupees in Billion) 660 700 598 578 600 500 402 400 384 350 326 297 293 300 223 200 100 0 24 31 26 2021 27 20 2020 25 12 2019 T-Bills PIBs 25 10 2018 25 12 2017 Debt Securities Investments to Deposits Ratio (2016-2021) 22 2016 Equity Securities Investments to Total Assets (2016-2021) 60.0% 100.0% 57.8% 58.0% 80.0% 213 128 73.3% 78.8% 71.4% 65.4% 67.8% 71.1% 56.0% 54.0% 60.0% 52.6% 51.8% 52.0% 40.0% 50.0% 49.4% 50.0% 48.9% 48.0% 20.0% 0.0% 86 46.0% 2021 2020 2019 Unconsolidated Financial Statements 2018 2017 2016 44.0% 2021 2020 2019 2018 2017 2016
89. Annual Report 2021 Capital Structure Rupees in Million 20212020 Capital Structure Tier 1 Capital Shareholders equity /assigned capital Share premium Reserves Unappropriated profits 11,851 23,751 56,242 63,683 11,851 23,751 53,160 69,835 Deductions: 155,527 158,597 Book value of intangible and advances given for intangible Defined benefit pension fund assets - net Other deductions 979 1,963 2,231 938 2,191 2,566 5,173 5,695 Total Tier 1 capital 150,354 152,901 Qualifying Tier 2 capital instruments General provisions subject to 1.25% of total risk weighted assets Revaluation reserves Foreign exchange translation reserves – 1,706 13,842 3,701 – 5,465 27,165 2,876 Deductions: 19,250 35,507 Other deductions – – Tier 2 Capital Total Tier 2 Capital 19,250 35,507 Total Regulatory Capital Base 169,604 188,409 Risk Weighted Assets Credit Risk Market Risk Operational Risk 711,304 132,895 153,080 635,599 122,604 139,735 Total RWA 997,279 897,938 Total eligible regulatory capital held Total Risk Weighted Assets 169,604 997,279 188,409 897,938 17.01% 20.98% Capital Adequacy Capital Adequacy Ratio Capital Adequacy Ratio Capital Adequacy Ratio (2016-2021) 711,304 635,599 638,493 633,998 637,481 19.33% 20.98% 18.86% 452,949 18.13% 17.01% 16.44% 132,895 153,080 122,604 114,786 139,735 112,882 108,276 120,887 116,631 107,443 106,803 54,814 2021 2020 Credit RWA - Rs. in Million 2019 Market RWA - Rs. in Million 2018 Operational RWA - Rs. in Million 2017 2016 CAR - % Annual Report 2019 87
90. Quarterly Performance - 2021 & 2020 Rupees in Million 20212020 Profit & Loss Account Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total Income Non-mark-up expenses Profit before provisions (Provisions) / Reversals Profit before taxation Taxation 4th 3rd 2nd 1st 4th 3rd 2nd 1st QuarterQuarterQuarterQuarterQuarterQuarter QuarterQuarter Profit after taxation Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 33,431 (17,189) 16,242 5,691 21,933 (9,538) 12,395 1,324 13,719 (5,464) 31,702 (15,506) 16,195 4,884 21,080 (9,321) 11,759 1,499 13,257 (5,444) 29,854 (13,545) 16,309 4,750 21,058 (9,144) 11,914 1,823 13,737 (5,784) 28,347 (13,107) 15,240 4,749 19,989 (8,891) 11,099 177 11,276 (4,486) 29,040 (13,052) 15,988 4,577 20,565 (8,465) 12,100 (2,204) 9,895 (3,793) 31,824 (12,490) 19,333 6,476 25,810 (8,565) 17,245 (1,145) 16,099 (6,374) 36,112 (16,407) 19,705 3,195 22,900 (8,290) 14,610 (3,221) 11,389 (4,699) 39,100 (22,792) 16,308 3,888 20,195 (8,588) 11,607 (742) 10,865 (4,346) 8,255 7,813 7,953 6,790 6,102 9,725 6,690 6,519 164,613 119,779 142,191 111,838 122,181 18,830 15,322 14,222 20,895 24,030 42,467 26,028 32,494 17,238 17,139 1,035,585 1,176,246 1,096,213 1,090,917 1,015,869 589,711 481,778 462,538 429,357 462,942 57,328 57,573 57,588 57,658 58,028 979 998 956 1,000 938 60,955 53,372 54,722 48,059 56,334 127,513 29,693 2,140 964,412 445,039 57,739 836 47,498 144,168 14,701 2,057 928,708 460,611 57,586 881 58,893 94,130 15,170 9,577 836,660 480,925 58,020 941 59,795 Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loan Deferred tax liabilities Other liabilities 1,970,468 1,931,097 1,860,923 1,776,962 1,757,462 1,674,869 1,667,604 1,555,216 1,796,061 1,753,455 1,682,305 1,602,238 1,567,361 1,489,494 1,482,719 1,376,570 24,590 12,287 12,929 11,285 23,981 9,951 10,504 7,972 269,526 191,237 139,594 190,058 164,002 112,373 113,230 88,652 1,411,852 1,456,581 1,441,208 1,313,702 1,289,502 1,274,870 1,274,682 1,184,139 - - - - - - - 729 4,639 6,989 5,003 6,975 6,497 11,804 10,425 89,365 88,711 81,585 82,190 82,901 85,803 72,498 85,382 Net assets Represented by: Share capital Reserves Unappropriated profit Surplus on revaluation of assets - net of tax 174,407 177,642 178,618 174,724 190,102 185,376 184,886 178,646 11,851 84,602 63,683 14,272 11,851 83,443 61,239 21,110 11,851 81,745 60,084 24,939 11,851 80,577 58,268 24,028 11,851 80,696 69,835 27,720 11,851 80,558 62,924 30,043 11,851 79,712 54,122 39,201 11,851 78,843 55,742 32,211 174,407 177,642 178,618 174,724 190,102 185,376 184,886 178,646 Quarterly PBT Quarterly NIM (Rupees in Billion) 18 (Rupees in Billion) 19.7 20 19.3 16.1 16.3 13.7 12 11.3 10.9 13.3 13.7 15 16.3 15.2 16.2 16.2 16.0 11.4 9.9 10 6 5 0 Q1 Q2 2021 88 Unconsolidated Financial Statements Q3 2020 Q4 0 Q1 Q2 2021 Q3 2020 Q4
91. Annual Report 2021 Quarterly Performance Analysis - 2021 & 2020 Quarter Net Interest Income Non Markup Income Non Markup Expenses Profit Quarter 1 During the 1st quarter of 2021, Net Interest Income (NII) of the Bank fell by 7% and was reported at Rs. 15.240 billion. The markup income was concentrated by markup from investments which amounted to Rs. 20.621 billion and constituted 73% of the gross amount while the markup income from advances was reported at Rs. 7.60 billion. The decline in gross markup income was broad based as the subsiding interest rate margins, in a downward sloping yeild curve, diluted the impact of volumetric growth achieved in earning assets. Non Markup Income for the 1st quarter of 2021 was reported at Rs. 4.749 billion against Rs. 3.888 billion reported in the corresponding period; representing an increase of 22%. The lower fee income base in 2020 owing to realization of various systematic and idiosyncratic factors amidst the COVID-19 outbreak, including branch closures and a slowing economic activity, together with higher realized gain on sale of securities in 2021 were the major reasons for the increase; contributing 57% and 32% to the gross increase respectively. Non Markup expenses grew by 4% in the 1st quarter of 2021 over the corresponding period. Despite surge in inflationary pressures, the Bank was able to contain growth in non HR related operating expenses to 4% through effective expense management whereas the regular performance and merit adjustments of the Human Capital meant that HR related operating expenses grew by 7%. Declining net interest income due to a moderation in earning margins on the back of expansionary monetary policy stance adopted by the State Bank of Pakistan was set off by a significant growth of 22% reported in the Non Markup Income block. Non Mark up Income for the 2nd quarter of 2021 was reported at Rs. 4.750 billion; posting a rise of 28% over the corresponding period. The increase was broad based with fee & commission (16%), dividend income (81%), gain on sale of securities (198%) and other income (3449%) all registering significant growth. Non Markup expenses witnessed a surge in the 2nd quarter of 2021 owing primarily to the higher compliance related regulatory charges booked during the quarter. The remaining increase in the operating expenses was in line with the trend reflected during the 1st quarter. On the markup expense side, Rs. 10.473 billion was reported on account of markup on deposits; representing a decline of 47% over the corresponding period owing primarily to lower minimum saving rate applicable during the quarter under review. Quarter 2 NII during the 2nd quarter was reported at Rs. 16.309 billion; lower by 17% as compared to the corresponding period on the back of subsiding net interest margins (the average policy rate in Q2' 2021 was reported at 7% compared to 8.79% in Q2' 2020 and depicted a decline of 179 bps on an average basis) Disposal of equity scrips resulted in impairment reversal of Rs. 570 million during the 1st quarter. Hence, the provision expense reported a net reversal of Rs. 177 million against a charge of Rs. 742 million reported in the corresponding period. Profit before tax resultantly grew by 4% in the 1st quarter of 2021.. The declining NII was offset by a broad based growth of 28% in Non Markup Income block and the higher general provision charge taken in comparative period to combat economic stress posed by COVID-19 outbreak and improve banks insulation and loss absorption capacity in case of any unforeseen deterioration in asset quality. Resultantly, profit before tax for the 2nd quarter was reported at Rs. 13.737 billion as compared to Rs. 11.389 billion for the corresponding period; posting a growth of 21%. Quarter 3 Quarter 4 NII during the 3rd quarter was reported at Rs.16.195 billion; lower by 16% as compared to the corresponding period of 2020. Markup expense on deposits and borrowings rose by 15.1% and 235.3% respectively and contributed majority share to the total increase. Non Mark up Income declined during the 3rd quarter of 2021, by 25%, owing primarily to the high capital gains of Rs. 2.861 billion realized in the comparative period through proactive duration management and reprofiling of the investment portfolio. The last quarter of the year witnessed a trend reversal as the State Bank of Pakistan adopted a contractionary monetary policy stance to combat persisting inflationary pressures due to hike in global commodity prices and higher than expected demand activity on the back domestic economic recovery witnessed across key segments. Non Mark up Income posted a growth of 24% to report at Rs. 5.691 billion for the 4th quarter of 2021. Prime contributions were lent by foreign exchange income which grew by 132% amidst continued volatility in the FOREX market, dividend income which grew by 68% amidst recovery in key economic sectors and receding of exogenous risks and fee & commission income which posted a note worthy growth of 13%. On the back of evolving yield curve scenario, unfavorable repricing lag between earning assets and liabilities meant that the rise in markup expense on interest bearing liabilities was disparate to the increase reported in markup income on advances and hence the NII grew only by 2% during the quarter and was reported at Rs. 16.242 billion. Non Markup Expense 10 8.9 8.6 8.3 Non markup expenses closed the period in line with the 3rd quarter; posting a growth of 13% to report at Rs. 9.538 billion. During the last quarter quarter of the year the Bank registered a significant growth of 39% in its profit before tax to post Rs. 13.719 billion compared to Rs. 9.895 billion posted in the comparative period. Total income increased by 7% on the back of a registered increase of 2% and 24% in NII and Non Markup Income respectively. The increase was slightly offset by a 13% rise in Non Markup expenses while the net provision charge posted a decline of 160%. (Rupees in Billion) 8.5 8 6.5 5.7 6 4.7 6 4 4.9 4.7 4.6 3.9 3.2 4 2 2 0 The significant factors contributing to the lower profit were moderating NII, a broad based increase in Non Markup expenses and declining Non Markup Income due to realization of capital gains on the investment portfolio in the comparative period. 8 9.5 8.6 Profit before tax reported a decline of 18% in the 3rd quarter of 2021 to post Rs. 13.257 billion as compared to Rs. 16.099 billion in the comparative period. While, profit after tax was reported at Rs. 7.813 billion with a decline of 20%. Non Markup Income (Rupees in Billion) 9.3 9.1 Prudent positioning of foreign currency assets amidst a volatile FOREX market and surging domestic economic activity led to a respective increase of 90% and 138% in foreign exchange and dividend income while the fee & commission income continued on the path of its upwards trajectory to post a growth of 9%. On the back of rapidly accelerating inflationary pressures amidst currency devaluation and rising commodity prices, Non Markup expenses reported a more broad based increase during the 3rd quarter of 2021; the total growth percentage hence rising to 9%. Q1 Q2 2021 Q3 2020 Q4 0 Q1 Q2 2021 Q3 Q4 2020 Annual Report 2019 89
92. Six Years ’ Financial Performance / Financial Ratios 2016 - 2021 202120202019 20182017 2016 Profit and loss account Mark-up/ return earned Mark-up/ return expensed Fund based income Fee, Commission, brokerage & FX income Dividend and capital gains Total income Operating expenses Operating profit before tax and provision Provisions / (Reversals) Profit before tax Profit after tax Cash Dividends Statement of financial position Authorised capital Paid up capital Reserves Unappropriated Profit Shareholder's equity Surplus on revaluation of assets - net of tax Net Assets Total Assets Earning Assets Gross Advances Advances - net of provisions Non-Performing Loans (NPLs) Investments Total Liabilities Deposits & other accounts Current & Saving Deposits (CASA) Borrowings Interest bearing Liabilities Contingencies and Commitments Rs. Mln " " " " " " " " " " " " " " " " " " " " " " 123,334 59,347 63,987 17,011 3,062 84,061 36,894 47,167 (4,823) 51,989 30,811 22,516 136,076 64,741 71,334 13,594 4,542 89,470 33,908 55,562 7,313 48,249 29,037 23,701 138,292 78,676 59,616 14,469 2,210 76,295 33,709 42,586 2,484 40,102 23,977 20,146 83,319 37,305 46,014 14,625 2,573 63,212 32,902 30,310 (1,753) 32,064 21,360 18,961 74,091 31,429 42,662 11,435 6,682 60,780 28,721 32,059 1,045 31,014 22,459 18,673 67,400 23,586 43,814 9,040 7,135 59,989 22,989 36,999 925 36,075 21,891 17,808 " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " 15,000 11,851 84,602 63,683 160,136 14,272 174,407 1,970,468 1,732,055 635,574 589,711 50,491 1,035,585 1,796,061 1,411,852 1,312,059 269,526 1,118,182 619,187 15,000 11,851 80,696 69,835 162,382 27,720 190,102 1,757,462 1,544,536 513,550 462,942 51,189 1,015,869 1,567,361 1,289,502 1,198,785 164,002 964,119 714,038 15,000 11,851 77,591 55,777 145,219 23,695 168,915 1,515,152 1,294,096 540,037 496,679 49,424 748,765 1,346,237 1,144,763 1,035,063 89,506 809,717 851,147 15,000 11,851 74,148 53,532 139,531 9,747 149,278 1,498,130 1,343,378 546,792 503,581 48,956 749,369 1,348,852 1,049,038 954,813 216,019 867,048 584,434 15,000 11,851 70,866 53,776 136,493 17,073 153,566 1,343,238 1,175,352 515,058 469,356 48,753 656,964 1,189,672 968,483 899,364 133,070 728,361 448,135 15,000 11,130 53,347 53,469 117,946 23,680 141,627 1,072,365 911,163 367,678 348,117 21,688 555,929 930,739 781,430 735,550 74,515 557,913 307,566 Profitability ratios: Profit before tax ratio % 42.15% 35.46% 29.00% 38.48% 41.86% 53.52% Gross Yield on Average Earning Assets " " 7.53% 9.59% 10.49% 6.41% 7.10% 7.56% Gross Yield on Avg. Earning Assets (incl. dividend & capital gains) " " 7.72% 9.91% 10.65% 6.61% 7.74% 8.36% Gross Spread " " 51.88% 52.42% 43.11% 55.23% 57.58% 65.01% Cost to income ratio " " 42.09% 36.49% 42.82% 50.77% 46.00% 36.80% Return on average equity (ROE) " " 19.11% 18.88% 16.84% 15.48% 17.65% 18.94% Return on average assets (ROA) " " 1.65% 1.77% 1.59% 1.50% 1.86% 2.16% Return on Capital Employed (ROCE) " " 19.11% 18.88% 16.84% 15.48% 17.65% 18.94% Shareholder Funds " " 8.85%10.82%11.15% 9.96%11.43% 13.21% Return on Shareholder Funds " " 16.91% 16.18% 15.07% 14.11% 15.22% 15.67% Non interest income to total income " " 23.88% 20.27% 21.86% 27.21% 29.81% 26.96% Admin Exp to Profit before Tax " " 68.05% 67.66% 81.47% 100.08% 90.15% 61.19% Investment ratios\Market Ratios: Earnings per share (after tax) Rs. 26.00 24.50 20.23 18.02 19.56 19.67 Earnings per share (before tax) " " 43.87 40.71 33.84 27.06 27.02 32.41 Breakup value per share - without surplus on revaluation of fixed assets & investments " " 135.13 137.02 122.54 117.74 115.18 105.97 - without surplus on revaluation of fixed assets " " 131.49 144.45 126.47 115.68 119.17 116.10 " " 147.17 160.42 142.54 125.97 129.59 127.24 - with surplus on revaluation of fixed assets & investments - with surplus on revaluation of fixed assets & investments & investment in related party at fair / market value " " 149.82 162.80 144.89 128.41 132.90 132.90 Cash Dividend % 190%200%170% 160%160% 160% " " 12.39% 10.79% 8.30% 8.27% 7.54% 6.73% Dividend Yield ratio (based on cash dividend) " " 73.08% 81.62% 84.02% 88.77% 81.86% 81.35% Dividend Payout ratio Price to book value ratio Times 1.13 1.35 1.67 1.64 1.84 2.24 Price to earning ratio " " 5.90 7.56 10.13 10.74 10.85 12.09 Dividend cover ratio " " 1.37 1.23 1.19 1.13 1.18 1.23 90 Unconsolidated Financial Statements
93. Annual Report 2021 Six Years ’ Financial Performance / Financial Ratios 2016 - 2021 202120202019 20182017 2016 Share Information: Market value per share - Dec 31 High - during the year Low - during the year Market Capitalisation Asset Quality and Liquidity ratios: Gross Advances to deposits ratio Net Advances to deposits ratio Investments to deposits ratio Weighted Average Cost of Deposits CASA to total deposits NPLs to Gross advances ratio NPLs to Shareholders Equity Coverage Ratio (specific provision/ NPLs) Coverage Ratio (total provision/ NPLs) Earning assets to total assets ratio Investments to total assets ratio Cash & Cash Equvilants to Total Assets Cash to Current Liabilities Efficiency Ratio Cash Reserve Ratio Liquid Assets to Total Assets Ratio Gross Non Performing Assets to Gross Advances & Investments Earning assets to interest bearing Liabilities Deposits to shareholder equity Assets to Equity Current / Quick Ratio Risk Adequacy: Tier I Capital Total Eligible Capital Risk Weighted Assets (RWA) Tier I to RWA RWA to total assets Capital Adequacy Ratio Net Return on Average RWA Duo Pont Analysis: Net Operating Margin Asset Utilization Leverage Ratio / Equity Multiplier Industry Share: Deposits* Advances* Market Capitalisation *based on economic data released by State Bank of Pakistan Consolidated: Total Assets Shareholders' Equity Net Assets Profit before tax Profit after tax Return on Average Assets Return on Average Equity Earnings per share Breakup value per share Capital Adequacy Ratio Per Branch: Gross Advances Deposits CASA PBT Rs. " " " " Rs. Mln 153.35 202.40 146.00 181,729 % " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " " Times " " " " " " 45.02% 39.83% 47.17% 52.12% 53.18% 47.07% 41.77% 35.90% 43.39% 48.00% 48.46% 44.55% 73.35% 78.78% 65.41% 71.43% 67.83% 71.14% 3.49% 4.53% 5.70% 3.18% 2.53% 2.48% 92.93% 92.96% 90.42% 91.02% 92.86% 94.13% 7.94% 9.97% 9.15% 8.95% 9.47% 5.90% 31.53% 31.52% 34.03% 35.09% 35.72% 18.39% 87.45% 88.19% 84.85% 85.68% 91.46% 87.32% 90.83% 98.87% 87.73% 88.26% 93.74% 90.82% 87.90% 87.88% 85.41% 89.67% 87.50% 84.98% 52.56% 57.80% 49.42% 50.02% 48.91% 51.84% 9.23% 8.30% 9.50% 7.55% 8.16% 7.31% 4.49% 6.34% 5.39% 3.44% 5.07% 7.78% 70.96%70.28%84.06%102.61%92.61% 63.73% 5.09% 5.02% 5.02% 5.02% 5.03% 5.02% 54.10% 50.99% 43.74% 43.18% 38.18% 40.07% 3.05% 3.38% 3.88% 3.82% 4.20% 2.36% 1.55 1.60 1.60 1.55 1.61 1.63 8.82 7.94 7.88 7.52 7.10 6.63 12.30 10.82 10.43 10.74 9.84 9.09 1.53 2.38 2.29 1.91 2.01 3.05 Rs. Mln "" "" % " " " " " " 150,354 169,604 997,279 15.08% 50.61% 17.01% 3.25% % % Times 36.65%32.45%31.43% 33.79%36.95% 36.49% 4.51% 5.47% 5.06% 4.45% 5.03% 5.78% 11.56 10.64 10.58 10.29 9.49 8.99 % " " " " 185.28 224.53 132.89 219,568 152,901 188,409 897,938 17.03% 51.09% 20.98% 3.29% 204.94 216.20 154.04 242,866 136,257 163,611 867,478 15.71% 57.25% 18.86% 2.87% 193.57 236.56 177.16 229,392 128,999 145,987 805,177 16.02% 53.75% 18.13% 2.51% 212.32 262.10 190.43 251,612 129,130 147,227 895,415 14.42% 66.66% 16.44% 2.87% 237.82 244.82 190.20 264,701 111,999 128,968 667,195 16.79% 62.22% 19.33% 3.40% 6.41%6.91%7.45% 7.57%7.59% 6.79% 5.98%5.69%6.21% 6.57%7.46% 6.24% 13.03%16.08%16.87% 17.17%17.85% 14.86% Rs. Mln 2,122,121 1,891,276 1,612,215 1,585,210 1,389,492 1,097,281 " " 161,592 163,409 145,854 140,196 138,100 120,152 " " 177,569 192,991 171,347 151,323 156,543 145,960 " " 53,275 49,318 40,154 30,806 30,614 36,721 " " 31,328 29,562 23,947 20,415 22,048 22,174 % 1.56% 1.69% 1.50% 1.37% 1.77% 2.14% " " 19.19% 19.02% 16.66% 14.60% 16.98% 19.18% Rs. 26.31 24.82 20.14 17.17 19.13 19.82 " " 149.84 162.85 144.59 127.69 132.10 131.14 % 15.98%19.69%17.84% 17.02%16.34% 19.68% Rs. Mln " " " " " " 442.29 982.50 913.05 36.18 359.38 902.38 838.90 33.76 383.01 811.89 734.09 28.44 394.23 756.34 688.40 23.12 356.69 670.69 622.83 21.48 297.10 631.20 594.14 29.14 Annual Report 2019 91
94. Six Years ’ Non-Financial Performance 2016 - 2021 202120202019 20182017 2016 92 No. of accounts No. of branches No. of permanent employees Staff turnover ratio Customer Satisfaction Index Employee Productivity Rate Deposits per Employee Advances per Employee PBT per Employee Digital Banking No. of ATMs No. of Debit cards/smart cards issued during the year Absolute 8,372,786 8,217,065 8,223,038 7,854,928 7,607,277 6,549,452 " 1,437 1,429 1,410 1,387 1,444 1,238 " 13,849 13,643 13,596 12,860 13,155 11,088 % 13.69%10.07%12.50% 14.04%14.40% 13.84% " 90%91%90% 85%85% 88% Rs. Mln Rs. Mln Rs. Mln 102 46 4 95 38 4 84 40 3 82 43 2 74 39 2 70 33 3 Absolute " 1,454 796,215 1,434 577,406 1,360 652,440 1,321 783,233 1,377 772,314 1,191 666,999 Internet Banking No. of customers No. of transactions Volume of transactions " " Rs. Mln 204,071 823,208 40,922 198,939 691,553 29,200 180,326 479,278 18,452 176,210 481,137 14,859 163,273 509,569 12,306 144,069 450,333 7,971 Absolute " Rs. Mln 1,456,681 4,006,237 166,403 1,396,475 2,793,156 78,674 1,909,712 2,074,367 50,261 1,363,304 2,354,765 48,623 1,232,258 1,689,324 24,597 931,965 1,487,899 15,018 Absolute " Rs. Mln 18,828 87,882 11,681 13,944 84,542 8,327 16,907 83,070 8,927 15,245 77,190 7,597 13,006 70,246 7,054 11,060 64,075 5,967 Absolute Rs. Mln 8,706 24,445 5,549 19,777 5,999 17,929 8,266 18,134 8,977 16,416 6,751 10,811 Absolute Rs. Mln 676 8,528 67 4,733 62 4,110 108 4,116 64 2,909 44 1,887 Absolute Rs. Mln 1,293 1,519 1,764 1,912 2,435 2,262 2,766 2,707 1,313 2,630 316 531 Absolute " " Rs. Mln 273,178 41,143 40,205 10,756 232,035 35,402 35,791 9,654 196,633 44,021 44,208 8,927 152,145 32,671 33,110 7,060 119,474 24,040 26,590 6,133 95,434 22,881 23,223 4,953 Mobile Banking No. of customers No. of transactions - financial Volume of transactions Credit Cards No. of new issuance No. of customers Total spend (transaction volume) Auto Loan No. of Loans disbursed Outstanding Volume Home Loan No. of Loans disbursed Outstanding Volume Personal Loan No. of Loans disbursed Outstanding Volume Bancassurance No. of customers No. of new customers No. of policies Bancassurance Premium Trade Imports - volume Exports - volume Home Remittance Volume of home remittance Volume of home remittance Home Remittance MCB Market Share Rs. Mln " 759,202 408,896 577,281 332,396 563,914 356,549 483,932 302,500 416,489 220,912 371,233 162,899 USD Mln Rs. Mln % 3,527 573,711 11.40% 3,206 518,882 12.35% 3,051 455,862 13.74% 3,064 374,431 14.88% 2,281 240,478 11.64% 2,220 232,340 11.30% Cash Management throughput of cash management Rs. Mln 3,020,171 2,082,095 1,884,135 1,673,812 1,500,553 1,210,303 Unconsolidated Financial Statements
95. Annual Report 2021 Six Years ’ - Performance Commentary 2016 - 2021 Statement of Financial Position Total Assets: The asset base of the Bank has registered a remarkable compounded annual growth rate (CAGR) of 12.94% over the last 6 years; growing to Rs. 1,970 billion as at December 31, 2021. Prime contributors to the said increase have been advances and investments; with investments growing annually by approximately 13.25% while gross advances growing by 11.57%. The earning asset mix of the Bank has been prudently managed to ensure maximization of returns to the stakeholders. In 2017, based on the strategic move, NIB Bank was merged with MCB Bank Limited resulting in a significant increase in assets of 25%. Furthermore in 2018, 90 branches of the Bank were transferred to a wholly owned subsidiary of the Bank i.e. MCB Islamic Bank Limited. In 2021, the Bank recorded a net growth of Rs. 213 billion in total assets (12.12%) over 2020. Advances: During the year under review, the economy witnessed a V shaped recovery. Improving operating scenario amidst uplifting of COVID-19 enforced lock downs, pickup in domestic activity and resurgence of key economic sectors laid the foundation for a broad based growth in advances across the entire banking industry. MCB capitalized on the emerging credit extension opportunities, within its defined risk appetite, and posted a remarkable growth of 24% in its credit book (on a gross basis) in 2021 on year on year basis. Over the cumulative period of 6 years, the expansionary economic cycle witnessed at the end of the time analysis improved MCB’s CAGR to 11.57 % over the last 6 years as compared to previously reported six year CAGR of 9.75%. 60% 1,600 1,412 52.12% 1,400 1,200 1,290 Rs. in Billions 47.17% 47.05% 50% 1,145 45.02% 1,049 1,000 800 53.18% 40% 968 39.83% 781 30% 636 600 514 540 547 515 20% 368 400 10% 200 0% 0 2021 2020 2019 Gross advances 2018 Deposits 2017 2016 ADR Non-performing Loans: Strengthened risk management policies coupled with refined credit appetite has enabled the Bank to keep a check on the quality of its assets. During 2021, the Bank continued with its trend of registering significant recoveries to post another year of historic performance; the total recoveries for the year amounted to Rs. 2.67 billion. The infection ratio of the Bank was 5.90% as at December 31, 2016, however, the transfer of NPL stock from NIB Bank i.e. Rs. 29.650 billion had increased the infection ratio to 9.47% as at December 31, 2017. In 2021, effective management of Bank’s credit risk by leveraging a robust risk management framework has enabled MCB to decrease its Non-performing loan (NPLs) base to the tune of Rs. 698 million. The lowering NPL base together with a growing credit book improved Bank’s infection ratio from 9.97% in 2020 to 7.74% in 2021. The coverage ratio of the Bank has improved slightly from 90.19% as at December 31, 2016 to 90.83% as at December 31, 2021. NPLs classified in “loss” category constitute more than 98.83% of the NPLs base as at December 31, 2021. This specifies the adequacy of provision held in the books of the Bank. 98.87% 60 93.74% 90.83% 51.19 50.61 50.49 50 87.73% 49.42 88.26% 48.96 45.86 43.36 100% 90.19% 48.75 43.21 90% 80% 45.70 70% 40 Rs. in Billions In this section, commentary on the six years’ performance of the Bank is being provided, covering key highlights; 60% 50% 30 21.69 20 40% 19.56 30% 20% 10 10% 0% 0 2021 2020 NPLs 2019 Provisions 2018 2017 2016 Coverage ratio Investments: Over the past few years, a dearth of quality credit extension opportunities resulted in the banking sector liquidity being deployed in Government Papers as Government’s borrowing appetite continued to grow. The year 2021 witnessed a trend reversal as advances made a notable contribution to expansion in Bank’s asset base on the back of economic recovery driven by improvement in LSM growth and a rise in business confidence index. However, with an average annual growth rate of 13.25% over the last six years, the investment base of the Bank has grown from Rs. 556 billion as at December 31, 2016 to Rs. 1,036 billion as at December 31, 2021 and still constitutes 52.56% of the total asset base (declining from 57.80% in 2020). The duration of the investment portfolio has been proactively monitored amidst the evolving yield curve scenario to maximize shareholder returns and optimize liquidity management. The equity book of the Bank consists of investments in diverse companies with strong fundamentals with a view to earn stable dividends Deposits: The deposit base of the Bank has nearly doubled over the last six years, surpassing the landmark of PKR 1 trillion in 2018, with the absolute number increasing from Rs. 781 billion as at December 31, 2016 to Rs. 1,412 billion as at December 31, 2021. CAGR of 12.56% has been maintained over the past 6 years. CASA base has registered a remarkable increase in the last 6 years, increasing from Rs. 736 billion as at December 31, 2016 to Rs. 1,312 billion as at December 31, 2021. This has been strategically achieved through service excellence, strategically placed touch points for the customers and transactional convenience provided through a vast range of diversified products. Annual Report 2019 93
96. 1 ,600 92.93% 92.96% 90.42% 1,412 1,400 92.86% 1,312 85% 1,145 1,035 1,049 955 Rs. in Billions 1,000 80% 968 899 781 800 75% 736 70% 600 65% 400 60% 200 55% 50% 0 2021 2020 Deposits whereas, the advances to total asset ratio has decreased by 2% from the base year. Gross yield on average assets has also improved over the years and closed at 8.15% in 2021. 95% 90% 1,290 1,199 1,200 94.13% 91.02% 2019 2018 CASA 2017 2016 • Achieving growth in no-cost current accounts to improve their contribution in the total deposit and align it with a balanced mix of earning assets base has remained at the forefront of MCB’s key strategic focus; in turn lending support to the Bank’s net interest margins. CASA base of the Bank has thereby remained above 90% throughout the period covered by the time analysis despite a CAGR of 12.56% achieved in the total deposit base. CASA Ratio Non-Markup Income • • The paid-up capital of the Bank has grown from Rs. 11.13 billion as at December 2015 to Rs. 11.8 billion as at December 31, 2021, meeting the statutory capital requirements set by the State Bank of Pakistan (SBP). In 2008, most affluent strategic partnership occurred in Pakistan where the largest Bank of Malaysia, Maybank Berhad, acquired 20% holding in MCB Bank Limited (current holding of 18.78%. Holding diluted due to issuance of shares under the merger scheme). In 2017, Fullerton Financial Holdings (International) of Singapore through Bugis Investments (Mauritius) Pte Ltd acquired 5.49% stake in MCB under merger scheme of NIB Bank with and into MCB Bank Limited. • The investment to total asset ratio has increased slightly from 51.84% in 2016 to 52.56% in 2021; 94 Unconsolidated Financial Statements 9,741 10,731 11,288 12,000 10,000 5,679 8,000 7,640 1,456 912 1,941 1,636 3,420 1,293 1,280 2,000 2,895 4,000 4,741 6,000 1,377 The composition of markup income has seen a shift in the last six years on the back of concentration shift in the earning asset base of the Bank. The contribution from markup income earned on advances in the total markup income mix had increased from 34.06% in 2016 to 41.46% in 2019 while the contribution from markup income on investments declined from 65.62% to 54.58% over the same period. However, diversion of excess liquidity towards the investment book due to lack of good credit opportunities in the subsequent years diluted concentration of advances related markup income in the income mix and led to a fall in their contribution to 26.86% in 2021. 833 • 10,936 Net Interest Margin Rs. in Millions 14,000 2,525 3,336 Profit and Loss account The equity book of the Bank consists of investments in diverse companies with strong fundamentals and has been a stable contributor to the non-markup income by providing outstanding dividend yields. During the past 6 years, above Rs. 26 billion have been realized by way of capital gains and dividend income. 1,210 The Bank has the highest cash dividend per share in the industry with regular interim dividends and remains one of the prime stocks preferred in the Pakistani equity markets. • 12,440 • • The fee, commission and brokerage block of the Bank have been constant contributors to its bottom line growth; major thrust to the income has been provided by commission earned on card business, bancassurance business, and remittances and intercity / intra-city cash transfers. 3,748 • The equity base of the Bank is reflective of the outstanding financial results achieved through consistent performance posted over the years. The capital base of the Bank is rated as strong which is substantiated by the reported CAR of 17.01% as at December 31, 2021 against the statutory requirement of 11.50%. The Shareholders’ equity has grown significantly from Rs. 118 billion as at December 31, 2016 to Rs. 160 billion as at December 31, 2021. 2,251 • During the last six years, fee & commission income and capital gains have been the major drivers behind non-fund income growth. Apart from the exception of 2020 wherein the realization of various systematic and idiosyncratic factors, emanating from the COVID-19 outbreak, impacted Banks income streams, the fee & commission income has witnessed a broad based growth over the years on the back of new products and services added to the menu coupled with remote banking and branchless initiatives taken by the Bank. The product development teams of the Bank have been tapping the unbanked segments of the population and offering them tailored products to meet their specific financial requirements. Different types of products have been offered in order to meet the needs of the time like credit card, mobile banking, visa debit card etc. 811 Equity and Dividends 0 2021 2020 2019 2018 2017 2016 Fee & commission income Foreign exchange income Dividend income Gain on securities
97. Annual Report 2021 Provisions and write offs The Bank ’s risk management platform is being driven by an augmented framework of sound risk principles, optimum organizational structure, robust risk assessment models and effective monitoring systems in an IT enabled environment to effectively identify, evaluate and mitigate all risks undertaken in the achievement of its long-term strategic objectives. The captioned platform has formed the basis for a declining trend in provision charge booked against advances over the years; in fact, the Bank’s has been able to post significant provision reversals up till year 2019 on the back of extensive recovery efforts undertaken. During 2020, however, the Bank has witnessed a trend reversal in recognition of provision against advances. The subjective classification of obligor accounts on a prudent basis coupled with an additional recognition of general provision charge, amounting to Rs. 4 billion, in anticipation of the impact realization of COVID-19 pandemic post expiration of SBP’s relaxations and waivers in 2021 were the prime contributors to the captioned increase. During 2021, as part of the continuous credit assessment process, the Bank, while creating specific provisions against exposures that reflected signs of financial distress, have reversed the general provision charge created in the preceding year as the systematic risks surrounding the economic recovery receded. The Bank has not taken any benefit of FSV in its provision calculation. Operating expense: Considering expansion in Bank’s branch outreach, continued investment in technological infrastructure, regular performance merit adjustments for the Human Capital, rising regulatory compliance costs and sustained inflationary patterns witnessed over the period of six years, the posted growth in the administrative block of the Bank has been kept in strict check through introduction of cost effective techniques/methods; automation led saving initiatives, centralization of operations and imposition of annual capping’s have been the key pillars of cost management drive undertaken by the Bank and have laid the basis for the Bank to boast one of the lowest cost to income ratios in the industry. Profit before tax and Profit after tax: • MCB Bank has been able to post outstanding profitability numbers over the period of last six years as substantiated by one of the highest industry EPS and a remarkable return on assets ratio. • The aggregate profit after tax for the last six years has approximated Rs. 150 billion. • Profitability ratios have been one of the best in the banking industry which are reflective of effective management of the affairs and adoption of prudent strategies. • With active participation in trade, MCB Bank has been able to improve its trade volumes in the last 6 years; the volumes have more than doubled as compared to the base year to reach Rs. 759 billion for imports and Rs. 409 billion for exports respectively. • The Bank has been able to increase its market share in the remittance business growing from Rs. 232 billion in 2016 to the volume of Rs. 574 billion in 2021. The home remittance inflows for 2021 stood at USD 3.527 billion and hence further consolidated MCB’s position as an active participant in SBP’s cause for improving flow of foreign reserves into the country through banking channels. • In 2008, the Bank launched Bancassurance which was a unique cross functional service to the customers of the Bank. With only 131 policies and 129 customers in 2008, MCB Bank has issued 40,205 new policies in 2021; with the premium underwritten amount exceeding Rs. 3 billion. • MCB Bank launched mobile banking in 2009 with approximately 53K customers reported by the end of the 2009. As of 2021, the mobile customers, including registered users on MCB Live, have grown to 1.45 million with a transaction volume of over Rs. 166 billion. • In 2015, MCB Annual Report had been honored to receive 1st place by South Asian Federation of Accountant (SAFA) for best presented Annual Accounts 2014. MCB was the 1st Pakistani bank to receive this accolade. In the past years, we have been awarded merit certificate and runner up awards for the same. • In 2016, the Bank was awarded Best Bank in the “Corporate Finance and Investment Banking” by Euro Money Awards. We have also been awarded Best Bank in the Finance Asia Country Awards during the recent past years. • The Bank has been continuously focusing on CPEC related infrastructure projects and has been able to achieve various awards on outstanding performance under CPEC arrangements. In this regard, the Bank received the award for Best Regional Bank in South Asia for BRI (Belt & Road Initiative) - Asiamoney New Silk Road Finance Awards 2017. • In 2019, the Bank was declared as the “Most Outstanding Company in Pakistan” in the financial sector category by Asiamoney. • In 2021, MCB’s Annual Report was adjudged winner of the “Best Corporate Report” award in the financial sector category for the 9th consecutive year. Moreover, for the very first time, MCB’s annual report was adjudged as the “Overall Best Corporate Report” across all industry sectors. • In 2021, The Bank’s exceptional performance has also been recognized by the globally coveted Finance Asia’s Country Awards wherein it has been bestowed with the “Best Bank in Pakistan” award. Other statistics • The Bank has added almost 2 million bank accounts to its base during the past 6 years with the current statistics highlighting the bank accounts to be over 8.3 million. Annual Report 2019 95
98. Six Years ’ - Graphical Summary of Ratios 2016 - 2021 25 95 18.88% 15 2021 15 65.01% 36.80% 53.52% 57.24% 46.94% 41.86% 55.23% 38.48% 43.40% 43.11% 29.00% 2020 Profit before tax ratio 30 36.87% 35.46% 25 36.87% 35 42.15% 45 52.42% 51.88% 55 49.75% 68.05% 65 2018 Cost to income ratio 2017 Admin exp to profit before tax 2016 Return on average equity (ROE) 24.50 3.5 20.23 20 18.02 19.56 19.67 2.16% 1.77% 1.65% 1.59% 1.50% 1.0 0.5 0.0 2021 2020 2019 Earnings per Share 92.93% 92.69% 90.42% 78.78% 65.41% 2018 2017 2016 Return on Assests (ROA) 91.02% 92.86% 94.13% 91 83 75 73.35% 71.43% 67.83% 71.14% 67 59 51 47.17% 45.02% 2021 2020 Gross advances to depoits ratio 96 52.12% 53.18% 47.07% 39.83% 43 35 2.5 1.5 5 99 3.0 2.0 1.86% 10 0 5 4.0 26.00 25 15 10 0 2019 Gross spread 20 18.94% 15.48% 67.66% 75 17.65% 81.47% 16.84% 61.19% 19.11% 85 90.15% 100.08% 105 Unconsolidated Financial Statements 2019 2018 Investments to deposits ratio 2017 CASA to total deposits 2016
99. Annual Report 2021 Six Years ’ - Concentration of Advances, NPLs and Off Balance Sheet Items 2016 - 2021 Gross Advances 100 80 60 40 20 0 2021 2020 2019 2018 2017 2016 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Classified Advances 100 80 60 40 20 0 2021 2020 2019 2018 2017 2016 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Off Balance Sheet Item 100 80 60 40 20 0 2021 2020 2019 2018 2017 2016 Agriculture, forestry, hunting and fishing Cement Construction, engineering and steel Transport, storage and communication Individuals Textile Sugar Power (electricity), gas, water, sanitary Financial Others Chemical, Petroleum and pharmaceuticals Electronics and electrical appliances Wholesale and Retail Trade Services Annual Report 2019 97
100. Six Years ’ - Maturities of Assets & Liabilities 2016 - 2021 Maturities of Assets 1,000 908 900 Rs. in Billions 800 804 714 699 700 560 600 545 489 500 400 335 316 257 300 289 264 266 265 155 134 252 223 201 194 200 148 199 152 103 119 139 144 104 85 100 0 2021 2020 Upto 3M 2019 3M to 1Y 2018 1Y to 3Y 2017 3Y to 5Y 79 2016 5Y & Above Maturities of Liabilites 800 677 700 658 559 Rs. in Billions 600 469 500 403 400 346 409 339 308 300 457 392 200 293 250 228 142 138 125 138 2021 2020 Upto 3M 107 *Based on expected maturities 98 Unconsolidated Financial Statements 2019 3M to 1Y 235 160 2018 1Y to 3Y 204 143 87 100 0 280 245 150 78 2017 3Y to 5Y 75 2016 5Y & Above 72
101. Annual Report 2021 DuPont Analysis 202120202019201820172016 Net Operating Margin PAT / Total Income Asset Utilization Total Income / Average AssetsB Return on Assets Equity Multiplier A 36.65% 1.65% Average Assets / Average Equity D C X D 31.43% 33.79% 36.95% 36.49% 4.51%5.47%5.06%4.45%5.03%5.78% C = A x B Return on Equity 32.45% 1.77% 1.59% 1.50% 1.86% 2.11% 11.5610.6410.5810.29 9.49 8.99 19.11% 18.88% 16.84% 15.48% 17.65% 18.94% Following are the main DuPont analysis highlights: 1) Net operating margin has dropped during 2016-2018; and improved in 2019 - 2021. 2) Asset utilization has dropped in 2021 due to falling total income on account of lower average yield on earning assets. 3) Equity Multiplier showing increasing trend since 2016 due to higher profits. 40% 36.65% 36.95% 35% 30% 31.43% 20% 19.11 % 25% 25% 36.49% 33.79% 32.45% 18.88 % 17.55% 16.84% 18.94% 15% 15.48% 20% 10% 15% 10% 5% 0% 4.51% 2021 5.47% 2020 5.06% 4.45% 2019 Net operating Margin 2018 Asset Utilization 5.06% 2017 5.78% 2016 5% 0% Return on Equity Annual Report 2019 99
102. Summary of Cash Flows Rupees in million 2021 2020 2019 2018 2017 2016 Cash flows from operating activities 110 ,719 285,808 48,192 143,221 121,010 21,593 Cash flows from / (used in) investing activities (39,027) (270,459) 6,681 (118,767) (72,671) 11,043 *Cash flows used in financing activities (35,722) (13,433) (20,603) (18,794) (22,777) (17,912) Cash and cash equivalents at beginning of the year 145,814 143,898 109,628 103,968 78,406 63,682 Cash and cash equivalents at end of the year 181,783 145,814 143,898 109,628 103,968 78,406 Commentary of Cash Flow Statement Operating cash flows depict cash inflows generated from core activities of the Bank i.e. Deposit generation. In 2021, cash flows generated from operating activities were Rs. 110.7 billion which had decreased significantly when compared with Rs. 285.8 billion in 2020; the deposit growth and net borrowings from financial institutions (net off of lending) contributed cash inflows of Rs. 201.2 billion which were mainly utilized to fund Bank’s advances. The investing activities posted a cash outflow for the 2nd straight year; however, the volume of outflows remained significantly lower than the preceding year as the majority of operating inflows were diverted towards augmenting the credit book of the Bank. Cash outflow from financing activities primarily reflect payments on account of dividends to the shareholders. During 2021, financing cash flows posted a significant rise, on a year on year basis, as a result of low dividend payout base in 2020 on the back of directives issued by the State Bank of Pakistan (SBP) to suspend dividend distribution for two quarters of the year as a precautionary measure to conserve capital and enhance liquidity and stress absorption capacity of the banks amidst the ongoing COVID-19 outbreak. MCB’s track record of paying the highest dividend per share in the financial sector has meant that the Bank has paid over Rs. 100 billion in quarterly and annual payouts over the last 5 years. 400 285.8 300 200 143.2 110.7 Rs. in Billions 100 121.0 48.2 21.6 6.7 0 (39.0) -100 (13.4) (35.7) (20.6) (18.8) 11.0 (17.9) (22.8) (72.7) (118.8) -200 (270.5) -300 -400 2021 2020 2019 Operating Activities 2018 2017 Investing Activities 2016 *Financing Activities *Net Cash from financing activities include effects of exchange rate changes Free Cash Flows Rupees in million Profit before taxation 2021 2020 2019 2018 2017 2016 51,989 48,249 40,102 32,064 31,014 36,075 Adjustment for non-cash items (1,833) 11,687 6,174 264 882 1,525 Operating assets/ liabilities changes 60,563 225,872 1,916 110,893 89,114 (16,007) 110,719 285,808 48,192 143,221 121,010 21,593 (3,121) (3,090) (5,022) (4,483) (4,745) (3,485) 107,598 282,718 43,170 138,738 116,265 18,108 Net cash generated from operating activities Capital expenditure Free cash flows Free cash flow is the cash a company produces through its operations, less the cost of expenditures on assets. In other words, free cash flow—or FCF—is the cash left over after a company pays for its operating expenses and capital expenditures, also known as CAPEX. 100 Unconsolidated Financial Statements
103. Annual Report 2021 Cash Flow Statement Direct Method 20212020 (Rupees in Million) Cash flows from operating activities Mark-up / return / interest and commission receipts Mark-up / return / interest payments Payments to employees, suppliers and others 136,175 (55,478) (30,968) 159,662 (84,595) (29,162) 49,729 45,905 Decrease / (increase) in operating assets Lendings to financial institutions Net investments in ‘held for trading’ securities Advances - net Other assets (25,328) 1,297 (121,905) (955) (16,049) 8,180 26,262 2,977 (146,891) 21,370 (Decrease) / increase in operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities 609 104,261 122,349 2,159 12,159 75,448 144,739 2,265 229,378 234,611 Income tax paid 132,215 (21,497) 301,886 (16,078) Net cash flows from operating activities 110,719 285,808 Cash flows from investing activities Net investments in ‘available for sale’ securities Net investments in ‘held to maturity’ securities Dividends received Investments in operating fixed assets Investments in intangible assets Sale proceeds of operating fixed assets and intangible assets disposed off Proceeds from sale of non-banking assets acquired in satisfaction of claims Proceeds from divestment in a subsidiary Exchange differences on translation of the net investment in foreign branches (35,187) (6,277) 2,281 (2,764) (357) 399 2,053 – 825 (286,438) 17,363 1,180 (2,791) (299) 187 39 100 201 Net cash flows from / (used in) investing activities (39,027) (270,458) (34,037) (1,685) (11,751) (1,682) Net cash flows used in financing activities (35,722) (13,433) Effects of exchange rate changes on cash and cash equivalents 5,342 Increase in cash and cash equivalents 41,311 1,595 Cash flows from financing activities Dividend paid Payment of lease liability against right-of-use-assets Cash and cash equivalents at beginning of the year 3,511 140,472 142,303 Cash and cash equivalents at end of the year 181,783 145,814 Cash flow statement in annual financial statement is required to be prepared in line with the format prescribed by State Bank of Pakistan under BPRD Circular No .2 dated 25, 2018, 'Revised Forms of Annual Financial statements. Annual Report 2019 101
104. Markup & Non Markup Income Rupees in Million 2021 202020192018 20172016 Markup Income Loans and advances Investments Lendings to Financial Institutions Balance with banks 33,123 89,523 567 122 42,879 91,983 998 215 57,330 75,481 4,982 499 36,964 44,719 1,390 246 26,931 46,876 174 111 22,956 44,226 122 97 123,334 136,076 138,292 83,319 74,091 67,400 32,081 4,253 308 22,105 8,837 138 18,313 4,556 – Markup Expense Deposits Borrowings Subordinated loan Unwinding cost of liability against right-of-use assets Others 47,107 9,717 – 55,095 6,152 – 65,344 8,977 214 1,610 914 2,387 1,107 1,132 3,009 59,347 64,741 78,676 37,305 31,429 23,586 63,987 71,334 59,616 46,014 42,662 43,814 Fee & commission Income Dividend Income Foreign exchange income Gain on securities Other Income 12,440 2,251 3,748 811 823 10,936 1,210 2,525 3,336 128 11,288 1,377 2,895 833 286 10,731 1,280 3,420 1,293 474 9,741 1,941 1,636 4,741 58 7,640 1,456 912 5,679 488 20,074 18,136 16,679 17,198 18,118 16,175 – 663 – 349 – 717 Net Markup Income Non Markup Income Markup Income from Advances and Investments (2016-2021) Income Composition (2016-2021) 100 65.01% 57.58% 55.23% 2018 2017 26.96% 29.81% 2019 21.86% 43.11% 21.86% 51.88% 52.42% 2020 20 0 2021 2020 2019 Income on Adances to Markup income 102 40 20.27% 34.06% 36.35% 60 20 0 80 23.88% 65.62% 63.27% 53.67% 54.58% 44.36% 31.51% 40 26.86% 60 41.46% 80 67.60% 72.59% 100 Unconsolidated Financial Statements 2018 2017 2016 Income on Investments to Markup income 2021 Net Markup Income to Gross Markup 2016 Net Markup Income to Net Revenue
105. Annual Report 2021 Operating Expenses Rupees in Million 2021 202020192018 20172016 16 ,940 15,806 14,585 193 21 1,567 414 1,506 716 1,202 710 161 23 1,218 335 1,240 653 1,217 642 227 21 1,203 534 1,382 812 1,162 504 1,959 26 1,095 514 1,603 945 - 458 1,526 27 911 459 1,392 790 - 383 1,047 24 739 368 1,178 660 385 Information technology expenses 6,329 5,488 5,845 6,599 5,487 4,400 Software maintenance Hardware maintenance Depreciation Amortization Network charges Insurance 1,097 185 619 317 518 3 1,148 212 548 318 598 4 1,188 299 616 301 601 3 1,151 364 721 256 616 4 863 349 690 244 621 5 763 239 644 366 554 6 Other operating expenses 2,740 2,829 3,009 3,112 2,772 2,572 Directors’ fees and allowances Legal & professional charges Outsourced services costs Travelling & conveyance NIFT clearing charges Depreciation Depreciation on non-banking assets Training & development Postage & courier charges Communication Stationery & printing Marketing, advertisement & publicity Donations Auditors Remuneration Cash transportation charges Repair & maintenance Subscription Entertainment Credit Card Related Expenses CNIC verification charges Insurance Others 46 268 766 272 154 847 36 35 236 365 587 778 8 57 860 445 13 203 992 262 1,668 474 50 268 692 261 166 816 30 37 234 326 563 695 113 30 709 402 21 184 829 129 1,483 486 57 350 690 321 152 797 45 57 303 373 639 625 0 30 799 416 20 232 1,182 207 1,441 493 41 302 1,119 343 146 802 49 51 271 317 704 518 1 34 744 460 24 233 738 138 821 473 39 328 1,167 293 136 656 30 60 323 384 646 531 12 41 631 513 18 235 562 107 254 431 35 265 818 396 126 544 29 51 247 306 543 483 13 24 551 403 27 186 415 76 236 215 9,372 8,523 9,232 8,327 7,397 5,991 Total compensation expense 14,053 12,301 9,111 Property expense Rent & taxes Insurance Utilities cost Fuel Expense Security (including guards) Repair & maintenance (including janitorial charges) Depreciation on right-of-use assets Depreciation Operating Expenses excluding compensation 18,441 16,840 18,086 18,038 15,657 12,963 Total operating expenses 35,381 32,646 32,671 32,091 27,958 22,074 Cost to income ratio 60 50.77% 50 46.00% 42.82% 42.09% 36.80% 36.49% 40 30 20 10 0 2021 2020 2019 2018 2017 2016 Annual Report 2019 103
106. Economic Value Added Statement 20212020 ( Rupees in Million) Invested Capital Average shareholders’ equity Add: Cumulative provisions against assets 161,259 59,232 153,800 63,844 Return on Invested Capital Profit after taxation Add: Provisions and write offs - net 220,491 217,644 30,811 (4,823) 29,037 7,313 Total return on invested capital Economic cost Opportunity cost of invested capital 25,988 36,350 8.38% 18,477 11.37% 24,746 Economic Value Added 7,511 11,604 (Rupees in Million) Economic Value Added Total Return on Invested Capital 2020 Opportunity Cost of Invested Capital 2021 Invested Capital 0 50,000 100,000 150,000 200,000 250,000 Comments: Decrease in EVA as compare to last year is due to reversal of provision in 2021 and decrease in economic cost due to lower average policy rate during the year. Capital expenditures Capital expenditure during the year: The total capital expenditure during 2021 was Rs. 3.12 billion for business expansion, renovation and improvement of IT infrastructure. Capital expenditures planned for next year: The Bank has budgeted capital expenditure of Rs. 8.7 billion for the next year. This would primarily be invested in increasing our operational outreach, continuous improvement in our Information Technology platforms, safeguarding our existing infrastructure / relationships from growing threats on cyber security front along with normal replacements to ensure smooth operations. 104 Unconsolidated Financial Statements
107. Annual Report 2021 Six Years ' Vertical Analysis Statement of Financial Position/Profit & Loss Rs. Mln 20212020201920182017 2016 % Rs. Mln % Rs. Mln % Rs. Mln % Rs. Mln % Rs. Mln % Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 164,613 18,830 42,467 1,035,585 589,711 57,328 979 60,955 8% 122,181 1% 24,030 2% 17,139 53% 1,015,869 30% 462,942 3% 58,028 0% 938 3% 56,334 7% 132,705 1% 12,542 1% 1,090 58% 748,765 26% 496,679 3% 58,271 0% 958 3% 64,143 9% 103,175 1% 11,879 0% 35,106 49% 749,369 33% 503,581 4% 40,812 0% 630 4% 53,578 7% 106,072 1% 4,579 2% 4,398 50% 656,964 34% 469,356 3% 39,170 0% 404 4% 62,295 8% 74,222 0% 4,344 0% 2,810 49% 555,929 35% 348,117 3% 32,409 0% 343 5% 54,191 7% 0% 0% 52% 32% 3% 0% 5% Liabilities 1,970,468 100% 1,757,462 100% 1,515,152 100% 1,498,130 100% 1,343,238 100% 1,072,365 100% Bills payable Borrowings Deposits Sub-ordinated loan Deferred tax liabilities Other liabilities 24,590 269,526 1,411,852 - 729 89,365 1% 23,981 14% 164,002 72% 1,289,502 - - 0% 6,975 5% 82,901 1% 11,822 9% 89,506 73% 1,144,763 - - 0% 5,851 5% 94,296 1% 15,699 6% 216,019 76% 1,049,038 - 3,891 0% 1,532 6% 62,673 1% 22,681 14% 133,070 70% 968,483 0% 3,893 0% 4,625 4% 56,921 2% 12,844 10% 74,515 72% 781,430 0% - 0% 11,260 4% 50,690 1% 7% 73% 1% 5% 1,796,061 91% 1,567,361 89% 1,346,237 89% 1,348,852 90% 1,189,672 89% 930,739 87% 174,407 9% 190,102 11% 168,915 11% 149,278 10% 153,566 11% 141,627 13% Net Assets Represented by Share capital Reserves Surplus on revaluation of assets - net of tax Unappropriated profit 11,851 84,602 1% 4% 11,851 80,696 1% 5% 11,851 77,591 1% 5% 11,851 74,148 1% 5% 11,851 70,866 1% 5% 11,130 53,347 1% 5% 14,272 63,683 1% 3% 27,720 69,835 2% 4% 23,695 55,777 2% 4% 9,747 53,532 1% 4% 17,073 53,776 1% 4% 23,680 53,469 2% 5% Profit & Loss Account 174,407 9% 190,102 11% 168,915 11% 149,278 10% 153,566 11% 141,627 13% Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total income Non-mark-up expenses Profit before provisions Provisions & write off Profit before taxation Taxation 123,334 (59,347) 63,987 20,074 84,061 (36,894) 47,167 4,823 51,989 (21,178) 86% 136,076 -41% (64,741) 45% 71,334 14% 18,136 59% 89,470 -26% (33,908) 33% 55,562 3% (7,313) 36% 48,249 -15% (19,212) 88% 138,292 -42% (78,676) 46% 59,616 12% 16,679 58% 76,295 -22% (33,709) 36% 42,586 -5% (2,484) 31% 40,102 -12% (16,125) 89% 83,319 -51% (37,305) 38% 46,014 11% 17,198 49% 63,212 -22% (32,902) 27% 30,310 -2% 1,753 26% 32,064 -10% (10,704) 83% 74,091 -37% (31,429) 46% 42,662 17% 18,118 63% 60,780 -33% (28,721) 30% 32,059 2% (1,045) 32% 31,014 -11% (8,555) 80% 67,400 -34% (23,586) 46% 43,814 20% 16,175 66% 59,989 -31% (22,989) 35% 36,999 -1% (925) 34% 36,075 -9% (14,184) 81% -28% 52% 19% 72% -28% 44% -1% 43% -17% 21% 19% 15% 21% 24% 26% Profit after taxation 30,811 29,037 23,977 21,360 22,459 21,891 Annual Report 2019 105
108. Six Years ' Horizontal Analysis Statement of Financial Position/ Profit & Loss 2021 21 vs 20 Rs. Mln % 2020 20 vs 19 Rs. Mln % 2019 19 vs 18 Rs. Mln % 2018 18 vs 17 Rs. Mln % 2017 17 vs 16 2016 16 vs 15 Rs. Mln % Rs. Mln % Statement of Financial Position Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Intangible assets Other assets 164,613 18,830 42,467 1,035,585 589,711 57,328 979 60,955 Liabilities 1,970,468 12.12% 1,757,462 15.99% 1,515,152 Bills payable Borrowings Deposits Sub-ordinated loan Deferred tax liabilities Other liabilities 24,590 269,526 1,411,852 - 729 89,365 3% 23,981 103% 11,822 -25% 15,699 64% 164,002 83% 89,506 -59% 216,019 9% 1,289,502 13% 1,144,763 9% 1,049,038 - - - - -100% 3,891 -90% 6,975 19% 5,851 282% 1,532 8% 82,901 -12% 94,296 50% 62,673 -31% 22,681 62% 133,070 8% 968,483 0% 3,893 -67% 4,625 10% 56,921 1,796,061 15% 1,567,361 16% 1,346,237 0% 1,348,852 13% 1,189,672 28% 930,739 7% 174,407 -8% 190,102 13% 168,915 13% 149,278 -3% 153,566 8% 141,627 3% Net Assets Represented by 29% 103,175 6% 11,879 -97% 35,106 0% 749,369 -1% 503,581 43% 40,812 52% 630 20% 53,578 -3% 106,072 159% 4,579 698% 4,398 14% 656,964 7% 469,356 4% 39,170 56% 404 -14% 62,295 43% 74,222 5% 4,344 57% 2,810 18% 555,929 35% 348,117 21% 32,409 18% 343 15% 54,191 23% 20% -9% -2% 14% 11% -53% 45% 1.14% 1,498,130 11.53% 1,343,238 25.26% 1,072,365 7% 77% 12,844 8% 79% 74,515 -37% 24% 781,430 12% 100% - -59% 11,260 -1% 12% 50,690 78% Share capital Reserves Surplus on revaluation of assets - net of tax Unappropriated profit 11,851 84,602 0% 5% 11,851 80,696 0% 4% 11,851 77,591 0% 5% 11,851 74,148 0% 5% 11,851 70,866 6% 33% 11,130 53,347 0% 4% 14,272 63,683 -49% -9% 27,720 69,835 17% 25% 23,695 55,777 143% 4% 9,747 53,532 -43% 0% 17,073 53,776 -28% 1% 23,680 53,469 -4% 5% Profit & Loss Account 174,407 -8% 190,102 13% 168,915 13% 149,278 -3% 153,566 8% 141,627 3% Mark-up earned Mark-up expensed Net mark-up income Non-mark-up income Total income Non-mark-up expenses Profit before provisions Provisions & write off Profit before taxation Taxation 123,334 (59,347) 63,987 20,074 84,061 (36,894) 47,167 4,823 51,989 (21,178) -9% 136,076 -8% (64,741) -10% 71,334 11% 18,136 -6% 89,470 9% (33,908) -15% 55,562 -166% (7,313) 8% 48,249 10% (19,212) -2% 138,292 -18% (78,676) 20% 59,616 9% 16,679 17% 76,295 1% (33,709) 30% 42,586 194% (2,484) 20% 40,102 19% (16,125) 66% 83,319 111% (37,305) 30% 46,014 -3% 17,198 21% 63,212 2% (32,902) 40% 30,310 -242% 1,753 25% 32,064 51% (10,704) 12% 74,091 19% (31,429) 8% 42,662 -5% 18,118 4% 60,780 15% (28,721) -5% 32,059 -268% (1,045) 3% 31,014 25% (8,555) 10% 67,400 33% (23,586) -3% 43,814 12% 16,175 1% 59,989 25% (22,989) -13% 36,999 13% (925) -14% 36,075 -40% (14,184) -16% -24% -11% -2% -9% 0% -14% 40% -15% -15% Profit after taxation 106 35% 122,181 -8% 132,705 -22% 24,030 92% 12,542 148% 17,139 1472% 1,090 2% 1,015,869 36% 748,765 27% 462,942 -7% 496,679 -1% 58,028 0% 58,271 4% 938 -2% 958 8% 56,334 -12% 64,143 Unconsolidated Financial Statements 30,811 6% 29,037 21% 23,977 12% 21,360 -5% 22,459 3% 21,891 -14%
109. Annual Report 2021 Commentary on Six Years ' Horizontal & Vertical Analysis Horizontal Analyses The asset base of the Bank has increased considerably over the past 6 years and has crossed multiple milestones; including the landmark achievement of crossing an asset base of Rs. 1.5 trillion in 2019. On an annualized basis, the asset base of the Bank has recorded an increase of 12.94% over the base year while the investments and gross advances have posted an increase of 13.25% and 11.57% respectively. Highest increase in the asset base has been observed in 2017 as the transfer of portfolio on account of merger of NIB Bank with and into MCB Bank Limited added to the asset base; the assets hence growing by 25% on a year on year (YoY) basis in 2017. 45% 36% 35% 35% 27% 25% 18% 13% 15% 13% 14% 7% 3% 2% 0% -1% -5% -8% -2% -3% -7% -15% 2021 2020 Investments 2019 2018 Advances The non-markup income block of the Bank has remained a steady contributor to its bottom line growth. On the other hand, growth in operating expenses has been kept in check through realization of various initiatives implemented as part of Bank’s cost management drive; hence depicting a moderate average growth of 9.92% over the period under review despite continuous investment in Banks digital and physical infrastructure along with sustained inflationary pressures. 14% 8% 5% in the earning assets base contributed to the significant rise. The increase in markup expense on deposits is on account of regulatory revisions by the Central Bank and volumetric increase achieved in the deposit base. The cost of deposit for the Bank has been strategically managed by maintaining appropriate CASA base to align it with the earning mix of the Bank. However, the total markup expense has increased by 20.27% over the six year period under coverage. 2017 2016 Net Assets The deposit base of the Bank has registered significant growth over the years; increasing from Rs. 781 billion in 2016 to Rs. 1,412 billion in 2021 and translating into a CAGR of 12.56% over the past 6 years. Highest increase has been reported in 2017, primarily on account of splendid volumetric growth coupled with deposits transferred under merger of NIB Bank with and into MCB Bank Limited. During the year 2018, MCB transferred business of its 90 branches to MCB’s wholly owned subsidiary i.e. MCB Islamic Bank Limited and deposits amounting to Rs. 21.9 billion were transferred under the de-merger scheme. Despite this transfer, the deposits grew by 8.32% in 2018 and have continued on the path of upward trajectory in subsequent years; posting a healthy CAGR of 11.05% from 2019 to 2021. One of the key strengths of the Bank has been the recovery of its classified portfolio which is clearly reflected in the reduced / reverse credit charge booked over the last few years barring the exception of 2020 wherein the management had proactively booked a general provision charge of Rs. 4.0 billion in anticipation that the customers affected by the pandemic might require provisioning once SBP’s relaxations and waivers expire post year end. This coupled with the subjective provisioning of obligor accounts on a prudent basis resulted in trend reversal for recognition of credit charge in 2020. In 2021, the Bank registered another year of significant recoveries against its classified portfolio. The historic recoveries coupled with the reversal of general provision charge, created in the preceding year, on the back of receding systematic risks surrounding the economic recovery led to a net reversal in credit charge for 2021. MCB enjoys one of the highest spreads in the banking industry which are duly reflected in the profitability ratios of the Bank. Equity base of the bank has also posted a healthy increase due to higher profitability in the past 6 years; translating into a CAGR of 6.31% over the base year. 52.0 2.16% 48.2 50 40 Rs. in Billions On the Profit and Loss side, gross markup earned has posted an average increase of 12.85% over a span of six years. This is due to the increase in mark up earned on investments and advances on the back of an ever increasing earning assets base and the evolving yield curve scenarios. The highest gross markup income over the span was reported in 2019; as the double digit policy rate coupled with healthy volumetric gains 2.5 60 30 2.0 1.65% 1.77% 30.8 29.0 1.59% 1.86% 36.1 1.50% 32.1 1.5 31.0 1.50% 24.0 21.4 22.5 21.9 1.0 20 0.5 10 0.0 0 2021 2020 PBT 2019 2018 PAT 2017 2016 RoA Annual Report 2019 107
110. Vertical Analyses Vertical analysis depicts higher concentration levels of investments and advances in the asset base of the Bank . The advances base of the Bank has grown steadily till 2019 with the concentration levels of advances in the total assets mix improving from 32% in 2016 to 33% in 2019. However, the decline in advances witnessed during 2020 due to lack of credit extension opportunities within the Bank’s defined risk appetite and the consequent diversion of excess liquidity towards the investment book has diluted advances concentration in the total asset mix; hence falling to 26% in 2020. In 2021, the V shaped recovery witnessed in key economic sectors laid the foundation for a broad based growth in Bank’s advances; improving concentration of advances in the asset base to 30%. Advances Concentration Level 40 34% 33% 32% 26% 20 10 0 2021 2020 2019 2018 2017 2016 The IDRs of the banking industry registered a huge spike in the earlier years of the time series analysis on account of higher yielding longer term bonds on offer. However, based on the call that interest rate cycle has bottomed out, a gradual shift to shorter term securities with increased focus on credit was observed. Resultantly, the concentration levels of investments declined from 52% in 2016 to 49% in 2019. In subsequent years, the deployment of excess liquidity in the investment portfolio initially increased its concentration levels in the asset base to 58% in 2020 while the V shaped economic recovery witnessed in 2021 resulted in a reversion of investments’ concentration level in the total asset base to 53%. Investments Concentration Level 60 58 53% 1.00% 56 52% 54 52 2021 108 Increase Unconsolidated Financial Statements Markup income growth has registered a steady rise over the last 6 years, barring the exception of 2021 wherein the earning margins have been adversely impacted by a reversion in yield curve and have diluted the impact of volumetric growth achieved in the Bank’s asset base. The contribution from markup income approximates 86% of the total revenue. Markup expense has increased over the last 6 years based on regulatory revisions enacted over the period and growth registered in the deposit base. 35% 30% 30 Corresponding to the technological, infrastructural and operational spend by the Bank; the deposit base has increased over the period of six years. Improved service quality levels and tailored products have earned the loyalty of our customers. This can be substantiated by the fact that the CASA base of the bank has remained over 90% over period under review; in turn reflecting management’s strategic focus of improving Bank’s deposit base and proactively monitoring its cost mix. 2016 Concentration of non-markup income in the total income has decreased from 19% in 2016 to 14% in 2021. This dilution has primarily been on account of rising gross markup income whose concentration level increased from 80% in 2016 to 86% in 2021. Non markup expense concentration level has declined from 50% in 2016 to 38% in 2021 despite of increase in business which is due to various cost control initiatives.
111. Annual Report 2021 Segment Analysis A segment is a distinguishable component of the Bank that is engaged in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Bank's primary format of reporting is based on business segments. Retail This includes retail lending and deposits, banking services, cards and branchless banking. Consumer This segment primarily constitutes consumer financing activities with individual customers of the Bank. Product suites offered to these customers include credit cards, auto loans, housing finance and personal loans. (Rupees in Million) 5,000 4,594 4,500 4,420 4,000 3,500 2,825 3,000 (Rupees in Million) 50,000 2,844 2,500 2,000 46,766 47,528 1,500 1,000 40,000 500 0 30,000 22,490 Total Income 24,762 2021 Profit before tax 2020 20,000 10,000 0 Total Income 2021 Profit before tax 2020 Corporate This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Bank’s corporate and public sector customers including the Bank’s overseas operation. Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making.Treasury (Rupees in Million) 25,000 19,499 20,000 15,000 14,760 19,161 14,402 (Rupees in Million) 10,000 10,000 9,007 8,372 7,887 5,000 8,000 5,657 6,000 0 Total Income 2021 Profit before tax 2020 4,000 2,000 0 Total Income 2021 Profit before tax 2020 International This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Bank’s corporate and public sector customers including the Bank’s overseas operation. (Rupees in Million) 2,500 2,004 2,090 2,000 1,500 1,000 573 650 500 0 Total Income 2021 Profit before tax 2020 Annual Report 2019 109
112. Geographical Segment The Bank operates in following geographic regions : Pakistan Middle East (Rupees in Million) (Rupees in Million) 100,000 82,064 1,400 87,324 80,000 1,184 1,200 1,113 1,000 60,000 51,328 47,539 800 604 40,000 600 406 400 20,000 200 0 Total Income 2021 Profit before tax 0 Total Income 2020 Profit before tax 2021 2020 South Asia (Rupees in Million) 1,200 1,033 1,000 813 800 600 400 304 200 58 0 Total Income 2021 Profit before tax 2020 Product Revenue Analysis 2021 Retail Consumer Corporate BankingBankingBankingTreasury ProductsProductsProductsProducts Others Total Mark-up / return / interest earned Mark-up / return / interest expensed 94,419 55,216 5,423 3,278 26,284 21,618 98,666 88,627 103,494 95,561 328,286 264,299 Net mark-up / interest income 39,204 2,145 4,666 10,039 7,933 63,987 Non Mark-Up / Interest Income 6,739 2,449 3,706 4,720 2,460 20,074 Total Income 45,942 4,594 8,372 14,760 10,393 84,061 Non Mark-Up / Interest Expenses 21,493 1,645 612 386 12,758 36,894 Profit Before Provision 24,450 2,949 7,759 14,374 (2,365) 47,167 Provisions Profit before tax 110 Rupees in Million Unconsolidated Financial Statements 1,147 124 (128) (28) (5,937) (4,823) 23,303 2,825 7,887 14,402 3,572 51,989
113. Annual Report 2021 Statement of Charity and Donation Statement of charity fund management by MCB Islamic Bank Limited ( Wholly owned subsidiary of MCB Bank Limited) 20212020 (Rupees in '000) Reconciliation of charity fund balance Opening balance Additions during the year - Received from customers against late payment - Dividend purification amount - Charity against other Non-Shariah compliant income - Profit on charity saving account 46,615 57,782 7,316 1,093 265 673 42,477 771 – 2,085 Charity paid during the year 9,347 (25,500) 45,333 (56,500) Charity reversed during the year (21,639) – Closing balance 8,823 46,615 1,000 2,000 1,000 1,000 – – 1,000 – 2,000 1,000 – 500 – 3,500 2,000 1,000 2,000 1,000 – 500 – – 2,000 2,000 2,000 – – 1,000 2,000 2,000 3,000 1,000 1,000 3,000 3,000 5,000 3,000 4,000 2,000 2,000 6,000 2,000 3,000 3,000 4,000 1,500 2,000 500 500 – – – 1,000 1,000 Charity was paid to the following institutions: The Patients' Bahbood Society for Aga Khan University Hospital Al-Khidmat Foundation Pakistan Arthritis Care Centre Aziz Jehan Begum Trust for the Blind Chiniot Anjuman Islamia Chiniot Blood Bank and Dialysis Centre Family Welfare Society Fatimid Foundation Indus Hospital Infaq Memorial Trust Layton Rehmatullah Benevolent Trust Mind Organization Pink Ribbon Saleem Memorial Trust Hospital Saylani Welfare Trust Shaukat Khanam Memorial Cancer Hospital and Research Centre Sindh Institute of Urology & Transplantation The Citizens Foundation Jahandad Society for Community Development The Lahore Hospital Welfare Society Al - Mustafa Welfare Society Frontier Foundation blood transfusion Centre The Hunar Foundation Alamgir Welfare Trust International Institute of Business Administration (Center of Excellence in Islamic Finance) Zubaida Medical Center Mofad e Amma Chiniot Sheikh Association 25,500 56,500 20212020 (Rupees in '000) In addition to the above charity, detail of donation by the Bank is given below: Murshid Hospital & Health Care Centre Saleem Memorial Trust Hospital Specialized Healthcare and Medical Education Department, Government of Punjab - (COVID 19 relief) Jahandad Society For Community Development Nigahban Welfare Association Ambulance donation to Sadiq Public School District Administration Lahore - (COVID 19 relief) 100 – – 95,000 – 1,500 5,000 1,565 – 9,996 5,000 – – 2,600 8,165 112,596 Annual Report 2019 111
114. Market Statistics of MCB Share Share Prices Free Float MCB Scrip (Rs.) 2021 Market Capitalisation Share ('000s) % Capital Value (Mln) (Mln) High Low Closing December 31, 2021 166.00 146.00 153.35 394,337 33.28% 11,851 181,729 September 30, 2021 169.00 148.10 150.69 395,526 33.38% 11,851 178,577 June 30, 2021 175.95 150.00 159.83 396,905 33.49% 11,851 189,408 March 31, 2021 202.40 164.00 172.15 403,360 34.04% 11,851 204,008 December 31, 2020 186.22 164.12 185.28 401,668 33.89% 11,851 219,568 September 30, 2020 183.29 160.33 173.82 402,073 33.93% 11,851 205,987 June 30, 2020 166.42 146.13 162.07 402,267 33.94% 11,851 192,063 March 31, 2020 224.53 132.89 149.28 401,560 33.89% 11,851 176,906 2020 2021 Dividend and Bonus Final cash dividend 2020 Mln % Mln % 5,925 50 17,775 150 3rd interim dividend 5,333 45 - - 2nd interim dividend 5,925 50 - - 1st interim dividend 5,333 45 5,925 50 48 1,800 1,650 40 1,500 1,200 1,050 24 900 750 16 600 450 300 8 150 0 MCB Turnover (Mln) Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 0 Sector Turnover (Mln) KSE 100 Index 50,000 47,000 43,500 40,000 36,500 33,000 29,500 KSE 100 Index 112 Unconsolidated Financial Statements Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 26,000 Sector Turnover MCB Turnover 1,350 32
115. Annual Report 2021 Share Price Sensitivity Analysis Factors that can influence the share price of MCB Bank Limited are given below : Discount rate / Monetary Policy Based on different assessment parameters, the State Bank of Pakistan can change the monetary policy rate. Any volatility in the interest rates might impact revenue and profitability of the Bank. Minimum Rate of Return on Deposits/Regulatory Risk Any upward revision in the minimum deposit rate will result in compression in net interest margins earned due to increased cost of deposits. Such revision can negatively impact the earning and correspondingly the share price of the scrip. Inflation Inflation is considered as a key determinant for policy rate change. Any uptick in the inflation statistics will have a corresponding impact on the monetary policy rate. With higher discount rates, the Banks will be able to invest in high yielding investments, thus resulting in increased profitability. This, in turn will have a positive impact on the share price. Political Stability & Law and order situation Political stability and controlled law & order situation is a pre-requisite for any economic development. This in turn reposes investor confidence in the soils of Pakistan, making our corporates a potential investment opportunity. However, any act of terrorism or political instability can negatively impact the equity market and share prices of traded stocks. Sensitivity Analysis of Change in Market Capitalization Share Price as of December 31, 2021 Rs. 153.35 Market Capitalization as of December 31, 2021 Rs. 181,729 Million Change in Market Capitalization Change in Share Price by +10%Rs. 18,173 Million -10% Rs. (18,173) Million 220 20 180 160 10 140 5 120 0 Share Price - Rupees Traded Volume - Million 200 15 100 Dec - 20 Jan - 21 Feb - 21 Mar - 21 Apr - 21 May - 21 Traded Volume Jun - 21 Jul - 21 Aug - 21 Sep - 21 Oct - 21 Nov - 21 Dec - 21 MCB Share Closing Price Annual Report 2019 113
116. Other Information Forced Sales Value in case of Revaluation of Property , Plant & Equipment The Bank engages professionally qualified and independent valuers, with sufficient regularity, for carrying out revaluation of its land and buildings in order to ensure that their net carrying amounts do not differ materially from their fair value. The latest of such exercises was conducted as at December 31, 2019, wherein an additional revaluation surplus of Rs. 7,290.966 million was recognized against land and buildings. The total market value and FSV of these land and buildings stood at Rs. 43,552.234 million and Rs. 34,841.787 million respectively. Particulars of Significant/Material Assets and Immovable Property MCB has sustained a strategic focus on strengthening its network, through branch expansion plan, in order to improve market coverage through increased customer touchpoints and widen the outreach of its service offerings; while simultaneously contributing towards the SBP’s objective of expanding financial inclusion in the underbanked and unbanked segments of the society. The Bank’s network, as at December 31, 2021, extends across more than 1,450 branches and offices. Of these, 311 premises are owned by the Bank and represent a material infrastructural investment of Rs. 44.349 billion towards immoveable properties (87% of total investment in Property and Equipment). Dividend Declaration and Future Prospects of Dividend: MCB remains on forefront of providing highest dividend per share in the financial sector with quarterly payouts. For the year 2021, the Board of Directors have declared a final cash dividend of Rs. 5.0 per share which is in addition to Rs. 14.0 per share interim dividends already paid to the shareholders; taking the dividend payout ratio for the year to 73%. Dividend payout is expected for the year 2022 as the Bank manages this from the profitability generated while ensuring that sufficient capital buffers are available with the institution to meet regulatory requirements. Future prospects on the Bank’s performance have been covered within the “Forward Looking” section of the Annual Report. Outstanding & Overdue Payments on account of Taxes, Duties, Levies etc: The Bank is a regular and timely payer of taxes, duties, levies etc. and there are no outstanding or overdue payments in regards thereof. Management's Assessment of Sufficiency of Tax The Bank maintains sufficient provision for taxation as required under the accounting standards and the relevant regulations. Contingencies with respect to the direct or indirect taxation have been disclosed in the Note 24 to these financial statements. Based on the comparisons of tax provision recognized in the financial statements for last three years vis-a-vis tax assessments, the management assesses that the provision of taxation maintained had been sufficient for its purposes. Particulars of Loans/Advances and Investments in Foreign Companies or Undertakings The Bank's overseas branches in Bahrain, UAE and Sri Lanka invest and lend to companies and undertakings operating in their respective jurisdictions. Details are given in note 42 of unconsolidated finance statements. Further the Bank hold 99.94% shareholding in MCB Non-Bank Credit Organization “Closed Joint Stock Company” Azerbaijan. Disclosures beyond BCR Criteria: Over the recent years, there have been significant developments in the corporate reporting domain, particularly in relation to the amount of details included in the entities’ annual reports, as well as the importance ascribed by users to the information beyond the audited financial statements and the auditor’s report thereon. There has been an evolution in the manner in which entities disseminate and communicate information to their stakeholders as users attach increasingly greater importance to supplementary information and look for better ways to inform their analysis and confirm understanding of more complex areas in the financial statements. Considering this emerging necessity, MCB strives to go beyond the realm of essential reporting requirements in order to disclose all relevant information that facilitates the stakeholders in understanding various aspects of the Bank’s operational and financial performance. Following is the list disclosures that have been made in addition to the BCR criteria: • • • • • • 114 President/CEO review Key interest bearing Assets and Liabilities Group-wise Advances and Deposits Quarterly Performance Analysis Six Years’ – Non Financial Performance 2016-2021 Six Years summary of operating expenses Unconsolidated Financial Statements
117. Annual Report 2021 • • • • • • • • Six Years summary of markup and non-markup income Statement on Internal Controls Groups’ Performance Reviews Detail of Management Committees & Other Senior Management Green Banking Staff Compensation/Remuneration Policy Statement of Charity & Donations Investor Awareness through Jama Punji Initiative by the Securities & Exchange Commission of Pakistan President's Review The President/CEO's video message on the Bank's business performance and strategy is available at: https://www. mcb.com.pk/investor-relations/ceo-message Group Structure MCB Bank Limited (Holding Company) Subsidiaries Associates MCB Islamic Bank Limited Holding: 100% Adamjee Insurance Company Limited Holding: 20% MCB - Arif Habib Savings & Investments Limited Holding: 51.33% Euronet Pakistan (Private) Limited Holding: 30% MCB Non-Bank Credit Organization Closed Joint Stock Company Holding: 99.94% Financial & Management Services Pvt. Limited Holding: 95.90% Annual Report 2019 115
118. BCR Criteria Mapping S . No 1 Page No. ORGANIZATIONAL OVERVIEW AND EXTERNAL ENVIRONMENT 1.01 Principal business activities and markets local and international including key brands, products and services. 28-41, 155-167 1.02 Geographical location and address of all business units including sales units and plants. 43, 441-443 1.03 Mission, vision, code of conduct, culture, ethics and values. 8, 217-220 1.04 Ownership, operating structure and relationship with group companies (i.e. subsidiary, associated undertaking etc.) and number of countries in which the organization operates. Also name and country of origin of the holding company/subsidiary company, if such companies are a foreign company. 61,115, 444-447 1.05 Organization chart indicating functional and administrative reporting, presented with legends. 55 1.06 Identification of the key elements of the business model of the company through simple diagram supported by a clear explanation of the relevance of those elements to the organization. (The key elements of business model are Inputs, Business activities, Outputs and Outcomes). 133 1.07 Key quantitative information (Number of persons employed as on the date of financial statements and average number of employees during the year, separately disclosing factory employees). 92 1.08 Position of the reporting organization within the value chain showing connection with other businesses in the upstream and downstream value chain. (This disclosure shall be provided by the companies in service and non-service sector organizations through graphical presentation). 135 1.09 Significant factors effecting the external environment and the associated organization’s response (external environment includes commercial, political, economic, social, technological, environmental and legal environment). Also describe the effect of seasonality on business in terms of production and sales. 141-145 1.10 Significant changes from prior years (regarding the information disclosed in this section). 187 1.11 Composition of local versus imported material and sensitivity analysis in narrative form due to foreign currency fluctuations. 139 1.12 Competitive landscape and market positioning (considering factors such as the threat of new competition and substitute products or services, the bargaining power of customers and suppliers, relative strengths and weaknesses of competitors and customer demand and the intensity of competitive rivalry). 136 2 STRATEGY AND RESOURCE ALLOCATION 2.01 Short, medium and long term strategic objectives. 126 2.02 Strategies in place or intended to be implemented to achieve those strategic objectives. 127 2.03 "Resource allocation plans to implement the strategy and financial capital structure. (Resource mean CAPITALS including financial capital (e.g. liquidity, cash flows, financing arrangements); human capital, manufactured capital (e.g. building, equipment, infrastructure); intellectual capital (e.g. patents, copyrights, software, licenses, knowledge, system, procedures); social and relationship capital and natural capital)." 129-130 2.04 The effect of technological change, societal issues such as (population and demographic changes, human rights, health, poverty, collective values and educational systems), environmental challenges, such as climate change, the loss of ecosystems, and resource shortages, on the company strategy and resource allocation. 130-131 2.05 Specific processes used to make strategic decisions and to establish and monitor the culture of the organization, including its attitude to risk and mechanisms for addressing integrity and ethical issues. 132 2.06 Key performance indicators (KPIs) to measure the achievement against strategic objectives including statement as to whether the indicators used will continue to be relevant in the future. 128-129 2.07 Strategy to overcome liquidity problem and the company's plan to manage its repayment of debts and meet operational losses. 132 2.08 Significant plans and decisions such as corporate restructuring, business expansion and discontinuance of operations etc. 132 2.09 Significant changes in objectives and strategies from prior years. 132 3 3.01 116 BCR criteria RISKS AND OPPORTUNITIES Key risks and opportunities effecting availability, quality and affordability of CAPITALS in the short, medium and long term. Unconsolidated Financial Statements 141-146
119. Annual Report 2021 S . No BCR criteria Page No. 3.02 Description of the Risk Management Framework including risk management methodology. 137-139 3.03 Sources of risks and opportunities (internal and external). 141-146 3.04 The initiatives taken by the company in promoting and enabling innovation. 131 3.05 Assessment of the ‘likelihood’ that the risk or opportunity will come to fruition and the ‘magnitude’ of its effect if it does. 142-145 3.06 Specific steps being taken to mitigate or manage key risks or to create value from key opportunities by identifying the associated strategic objectives, strategies, plans, policies, targets and KPIs. 141-146 3.07 Board’s efforts for determining the company’s level of risk tolerance by establishing risk management policies. 137-139 3.08 A statement from the board of directors that they have carried out a robust assessment of the principal risks facing the company, including those that would threaten the business model, future performance and solvency or liquidity. 142 3.09 Inadequacy in the capital structure and plans to address such inadequacy. 147 4 GOVERNANCE Board composition: a) Leadership structure of those charged with governance. 4.01 b) Name of independent directors indicating justification for their independence. 43-53, 167 c) Profile of each director including education, experience and involvement / engagement of in other entities as CEO, Director, CFO or Trustee etc. 4.02 Review Report by the Chairman of the company on the overall performance of the board and effectiveness of the role played by the board in achieving the company’s objectives. 63 4.03 A statement of how the board operates, including a high-level statement of which types of decisions are to be taken by the board and which are to be delegated to management. 179-180 4.04 Shariah Advisor Report and Profile of the Shariah Advisor / Members’ of the Shariah Board. 190-197 4.05 Annual evaluation of performance, along with description of criteria used for the members of the board and its committees, CEO and the Chairman. 178-179 4.06 Disclosure if the board’s performance evaluation is carried out by an external consultant once in three years. 177-178 4.07 Details of formal orientation courses for directors. 179 4.08 Directors’ Training Program (DTP) attended by directors, female executive and head of department from the institutes approved by the SECP and names of those who availed exemptions during the year. 179 4.09 Description of external oversight of various functions like systems audit / internal audit by an external specialist and other measures taken to enhance credibility of internal controls and systems. 182 4.10 a) Policy for remuneration to non-executive directors including independent directors. b) Policy of retention of board fee by the executive director earned by him against his services as non-executive director in other companies. 179 4.11 Policy for security clearance of foreign directors. 182 4.12 How the organization’s implemented governance practices exceeding legal requirements. 180 4.13 Board’s policy on diversity (including gender), any measurable objectives that it has set for implementing the policy, and progress on achieving the objectives. 182 4.14 No. of companies in which the executive director of the reporting organization is serving as non-executive director. 169-170 a) Names of related parties in Pakistan and outside Pakistan, with whom the company had entered into transactions or had agreements and / or arrangements in place during the financial year, along with the basis of relationship describing common directorship and percentage of shareholding. 4.15 b) Contract or arrangement with the related party other than in the ordinary course of business on an arm’s length basis, if any along with the justification for entering into such contract or arrangement. 183, 293-295,445,447 c) Approved policy for related party transactions including policy for disclosure of interest by directors in this regard. Annual Report 2019 117
120. 118 S . No BCR criteria Page No. 4.16 Details of board meetings held outside Pakistan during the year. 167 4.17 Disclosure of policy for actual and perceived conflicts of interest relating to members of the board of directors and a disclosure that how such a conflict is managed and monitored. 183-184 4.18 Investors’ grievance policy. 184 4.19 Policy for safety records of the company. 185 4.20 Disclosure of IT Governance Policy. 189 4.21 Disclosure of Whistle blowing policy established to receive, handle complains in a fair and transparent manner and providing protection to the complainant against victimization, and disclosure of the number of such incidences reported to the Audit Committee during the year. 186-187 4.22 Human resource management policies including preparation of a succession plan. 184-185 4.23 Social and environmental responsibility policy. 185-186 4.24 Review by the board of the organization’s business continuity plan or disaster recovery plan. 186 4.25 Disclosure of beneficial (including indirect) ownership and flow chart of group shareholding and relationship as holding company, subsidiary company or associated undertaking. 55, 115 4.26 Compliance with the Best Practices of Code of Corporate Governance (No marks in case of any non-compliance). 222-223 4.27 A brief description about role of the Chairman and the CEO. 181-182 4.28 Shares held by Sponsors / Directors / Executives. 444-447 4.29 Salient features of TOR and attendance in meetings of the board committees (Audit, Human Resource, Nomination and Risk management). 168-169, 171-176 4.30 Timely Communication Date of authorization of financial statements by the board of directors: within 40 days ---6 marks within 60 days ---3 marks (Entities requiring approval from a Regulator before finalization of their Financial Statements would be provided a 20 days relaxation, on providing evidence to the Committee). Results Communicated on: February 10, 2022 4.31 Audit Committee Report should describe the work of the committee in discharging its responsibilities. The report should include: a) Composition of the committee with at least one member qualified as “financially literate and all members are non-executive / Independent directors including the Chairman of the Audit Committee. b) Role of the committee in discharging its responsibilities for the significant issues in relation to the financial statements, and how these issues were addressed with details where particular attention was paid in this regard. c) Committee’s overall approach to risk management and internal control, and its processes, outcomes and disclosure. d) Role of Internal Audit to risk management and internal control, and approach to Internal Audit to have direct access to Audit Committee and evaluation of Internal Auditor’s performance. e) Review of arrangement for staff and management to report to Audit Committee in confidence, concerns, if any, about actual or potential improprieties in financial and other matters and recommended instituting remedial and mitigating measures. f) An explanation as to how it has assessed the effectiveness of the external audit process and the approach taken to the appointment or reappointment of the external auditor, and information on the length of tenure of the current statutory auditor; and if the external auditor provides non-audit services, an explanation as to how auditor’s objectivity and independence is safeguarded. g) If Audit Committee recommends external auditors other than the retiring external auditors, before the lapse of three consecutive years, reasons shall be reported. h) The Audit Committee’s views whether the Annual Report was fair, balanced and understandable and also whether it provided the necessary information for shareholders to assess the company’s position and performance, business model and strategy. i) Results of the self-evaluation of the Audit Committee carried out of its own performance. 226-227 4.32 Presence of the chairman of the Audit Committee at the AGM to answer questions on the Audit Committee’s activities and matters within the scope of the Audit Committee’s responsibilities. 187 4.33 Where an external search consultancy has been used in the appointment of the Chairman or a non-executive director, it should be disclosed if it has any other connection with the company. 177-178 Unconsolidated Financial Statements
121. Annual Report 2021 S . No BCR criteria Page No. 4.34 Chairman’s significant commitments and any changes thereto. 187 4.35 Disclosure about the Government of Pakistan policies related to company’s business/ sector in Directors’ Report and their impact on the company business and performance. 148 4.36 Pandemic Recovery Plan by the management and policy statement. 188 5 5.01 PERFORMANCE AND POSITION Analysis of the financial and non-financial performance using both qualitative and quantitative indicators showing linkage between: (a) Past and current performance; and (b) Performance against targets /budget (c) Objectives to assess stewardship of management. The analysis should cover significant deviations from previous year in operating results and the reasons for loss, if incurred and future prospects of profits. Note: Analysis of non-financial performance shall be presented for material non-financial KPIs relevant for the business and stakeholders around other forms of capitals as mentioned under International Integrated Reporting Framework <IR>, i.e. human capital, manufactured capital, intellectual capital, social and relationship capital and natural capital. Inspiration can also be taken from the Specific Standard Disclosures of G4 Guidelines of the Global Reporting Initiative (GRI) for measurement and reporting on non-financial KPIs. 78-81 Analysis of financial statements: 5.02 a) Financial Ratios (Refer Annexure ‘I’) 90,91 b) DuPont Analysis 99 c) Free Cash Flow 100 d) Economic Value Added (EVA) 104 5.03 Combined analysis both vertical and horizontal of the Balance Sheet and Profit and Loss Account for last 6 years. 105-108 5.04 Summary of Cash Flow Statement for last 6 years. 100 5.05 Graphical presentation of the Balance Sheet, Profit & Loss Account and analysis in 5.02, 5.03 and 5.04 above. 76,96,97,98 5.06 Explanation of negative change in the performance against prior year including analysis of variation in results reported in interim reports with the final accounts, including comments on the results disclosed as per 5.02, 5.03 and 5.04 above. 79,90-96 5.07 Information about defaults in payment of any debts and reasons thereof period. 146 5.08 Methods and assumptions used in compiling the indicators. 127 5.09 Cash Flow Statement based on Direct Method (separate Cash Flow for specific funds e.g. Zakat). 101 5.10 Segmental review of business performance. 109-110 5.11 Share price sensitivity analysis using key variables (i.e. selling price, raw material cost, interest rate and currency) with the consequent impact on the company’s earning. 113 5.12 History of major events during the year. 124-125 5.13 Business rationale of major capital expenditure /projects during the year and for those planned for next year. 104 5.14 Brief description and reasons; a) For not declaring dividend despite earning profits and future prospects of dividend. b) Where any payment on account of taxes, duties, levies etc. is overdue or outstanding. 114 5.15 CEO presentation video on the organization’s website explaining the business overview, performance, strategy and outlook. (Please provide reference / web link on company's annual report). 115 6 6.01 OUTLOOK Forward looking statement in narrative and quantitative form including projections or forecasts about known trends and uncertainties that could affect the entity’s resources, revenues and operations in the short, medium and long term. Also explaining the external environment including political, economic, social, technological, environmental and legal environment that is likely to be faced in the short, medium and long term and how it will affect the organization in terms of its business performance, strategic objectives and availability, quality and affordability of capitals. 70-72 Annual Report 2019 119
122. S . No BCR criteria Page No. 6.02 Explanation as to how the performance of the entity meets the forward looking disclosures made in the previous year. 73-75 6.03 Status of the projects in progress and were disclosed in the forward looking statement in the previous year. 73 6.04 Sources of information and assumptions used for projections / forecasts in the forward looking statement and assistance taken by any external consultant. 75 6.05 How the organization is currently equipped in responding to the critical challenges and uncertainties that are likely to arise. 75 7 How the company has identified its stakeholders. 212 7.02 Stakeholders’ engagement process and the frequency of such engagements during the year. Explanation on how these relationships are likely to affect the performance and value of the entity, and how those relationships are managed. These engagements may be with: a) Institutional investors; b) Customers & suppliers; c) Banks and other lenders; d) Media; e) Regulators; f) Local committees and g) Analysts. 212-213 7.03 Steps taken by the management to encourage the minority shareholders to attend the general meetings. 214 7.04 Investors' Relations section on the corporate website. 214 7.05 Issues raised in the last AGM, decisions taken and their implementation status. 215 7.06 Statement of value added and its distribution with graphical presentation: a) Employees as remuneration b) Government as taxes (separately direct and indirect) c) Shareholders as dividends d) Providers of financial capital as financial charges e) Society as donation; and f) Retained within the business 216 7.07 Stakeholders engagement policy and steps board has taken to solicit and understand the views of stakeholders through corporate briefing sessions and disclosure of brief summary of Analyst briefing conducted during the year. 212-213 7.08 Highlights about redressal of investors' complaints. 184 8 SPECIFIC DISCLOSURES OF THE FINANCIAL STATEMENTS 8.01 For Specific Disclosures of the Financial Statements please refer Annexure ‘II’. Refer below 8.02 Industry specific additional disclosures Banking Company - Annexure ‘IV’ Refer below 9 SUSTAINABILITY AND CORPORATE SOCIAL RESPONSIBILITY 9.01 Highlights of the entity's performance, policies, initiatives and plans in place relating to the various aspects of sustainability and corporate social responsibility (including environment related obligation applicable on the company and initiatives taken to fulfil during the year and company’s responsibility towards the staff, their health & safety). 198-208 9.02 Certifications acquired and international standards adopted for best sustainability and CSR practices. 209 10 10.1 11 120 STAKEHOLDERS RELATIONSHIP AND ENGAGEMENT 7.01 BUSINESS MODEL Describe the business model including inputs, business activities, outputs and outcomes in accordance with the guidance as set out under section 4C of the International Integrated Reporting Framework <IR>. 133 STRIVING FOR EXCELLENCE IN CORPORATE REPORTING 11.01 Statement by management of unreserved compliance of International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB). 186 11.02 Adoption of International Integrated Reporting Framework <IR> by fully applying the ‘Fundamental Concepts’ and ‘Guiding Principles’ of <IR> into their corporate reporting in addition to the ‘Content Elements’ (disclosures) of <IR>, as covered in this criteria. 4 11.03 Disclosures beyond BCR criteria (Note: The participating organization to send the list of additional disclosures to BCR Committee). 114-115 Unconsolidated Financial Statements
123. Annual Report 2021 S . No 12 12.01 13 BCR criteria Page No. ASSESSMENT BASED ON QUALITATIVE FACTORS Please refer Annexure ‘VI’ Various Sections OTHERS 13.01 BCR criteria cross referred with page numbers of the annual report. 116-123 13.02 Brief about contents, scope and boundaries of the annual report. 5 13.03 SWOT analysis. 134 ANNEXURE ‘I’ - FINANCIAL RATIOS - Financial Sector Page No. Profitability Ratios a) Profit before tax ratio 90-91 b) Gross Yield on Earning Assets 90-91 c) Gross Spread ratio 90-91 d) Cost/Income ratio 90-91 e) Return on Equity 90-91 f) Return on Capital employed 90-91 g) Shareholders' Funds 90-91 h) Return on Shareholders' Funds 90-91 Liquidity Ratios a) Advances to deposits ratio 90-91 b) Current ratio 90-91 90-91 c) Quick / Acid test ratio d) Cash to Current Liabilities 90-91 e) Net interest income as a percentage of working funds /Operating cost - Efficiency ratio 90-91 f) Cash Reserve Ratio / Liquid Asset ratio 90-91 g) Gross Non-Performing assets to gross advances 90-91 h) Non-Performing loans to Total Loans 90-91 Investment /Market Ratios a) Earnings per share (EPS) and diluted EPS 90-91 b) Price Earnings ratio 90-91 c) Price to Book ratio 90-91 d) Dividend Yield ratio 90-91 e) Dividend Payout ratio / Dividend Cover Ratio 90-91 f) Cash Dividend per share / Stock Dividend per share 90-91 g) Market value per share at the end of the year and high/low during the year 90-91 Breakup value per share 90-91 i. Without Surplus on Revaluation of property, plant and equipment 90-91 ii. With Surplus on Revaluation of property plant and equipment including the effect of all Investments 90-91 iii. Including Investment in Related Party at fair /market value and also with Surplus on Revaluation of property plant and equipment. 90-91 h) Capital Structure a) Capital Adequacy ratio 90-91 b) Earning assets to total assets ratio 90-91 c) Weighted Average cost of deposit 90-91 d) Net assets per share 90-91 e) Debt to Equity ratio (as per book and as per market value) 90-91 Non-Financial Ratios a) Staff turnover ratio 92 Annual Report 2019 121
124. ANNEXURE ‘I’ - FINANCIAL RATIOS - FINANCIAL SECTOR Page No. b) Customer Satisfaction Index 92 c) Employee Productivity Rate 92 ANNEXURE ‘II’ – SPECIFIC DISCLOSURES OF THE FINANCIAL STATEMENTS Page No. 1 Fair value of Property, Plant and Equipment. 114,261 2 Segment analysis of segment revenue, segment results and profit before tax. 291,292 3 Reconciliation of weighted average number of shares for calculating EPS and diluted EPS. 279 4 Particulars of significant/ material assets and immovable property including location and area of land. 261 5 Disclosure of product wise data mentioning, product revenue, profit etc. 110 6 Disclosure of discounts on revenue. Not Applicable 7 Sector wise analysis of deposits and advances. 84 8 Complete set of financial statements (Balance sheet, Income statement & Cash flow) for Islamic banking operations. 429-440 9 Status for adoption of Islamic Financial Accounting Standards (IFAS) issued by the ICAP. 239 10 Summary of significant transactions and events that have affected the company‘s financial position and performance during the year. 70-75 11 Forced sale value in case of revaluation of Property, Plant and Equipment or investment property. 114 12 Distribution of shareholders (Number of shares as well as category wise, e.g. Promoter, Directors/Executives or close family member of Directors/Executives etc.). 444-447 13 Particulars of major foreign shareholders, other than natural person, holding more than 5% of paid up capital in the company in Pattern of Shareholding. 444-447 14 Particulars where company has given loans or advances or has made investments in foreign companies or undertakings. 251-257 15 Accounts Receivable in respect of Export Sales - Name of company or undertaking in case of related party and in case of default brief description of any legal action taken against the defaulting parties. Not Applicable 16 Treasury shares in respect of issued share capital of a company. Not Applicable 17 In describing legal proceedings, under any court, agency or government authority, whether local or foreign, include name of the court, agency or authority in which the proceedings are pending, the date instituted, the principal parties thereto, a description of the factual basis of the proceeding and the relief sought. Not Applicable 18 Management assessment of sufficiency of tax provision made in the company’s financial statements shall be stated along with comparisons of tax provision as per accounts vis a vis tax assessment for last three years. 114 financial statements shall be stated along with comparisons of tax provision as per accounts vis a vis tax assessment for last three years. 122 19 Income tax reconciliation as required by IFRS and applicable tax regime for the year. 279 20 In respect of loans and advances, other than those to the suppliers of goods or services, the name of the borrower and terms of repayment if the loan or advance exceeds rupees one million, together with the collateral security, if any. Not Applicable 21 Disclosure about Human Resource Accounting (includes the disclosure of process of identifying and measuring the cost incurred by the company to recruit, select, hire, train, develop, allocate, conserve, reward and utilize human assets). 131 22 In financial statements issued after initial or secondary public offering(s) of securities or issuance of debt instrument(s) implementation of plans as disclosed in the prospectus/ offering document with regards to utilization of proceeds raised till full implementation of such plans. Not Applicable 23 Where any property or asset acquired with the funds of the company and is not held in the name of the company or is not in the possession and control of the company, this fact along with reasons for the property or asset not being in the name of or possession or control of the company shall be stated; and the description and value of the property or asset, the person in whose name and possession or control it is held shall be disclosed. 261,262 24 Standards, amendments and interpretations adopted during the current year along with their impact on the company's financial statements. 239 25 Standards, amendments and interpretations, not yet effective and not adopted along with their impact on the company's financial statements. 239 Unconsolidated Financial Statements
125. Annual Report 2021 ANNEXURE ‘IV’ - SPECIFIC DISCLOSURES FOR BANKING COMPANY Page No. a Disclosure of Ratings given by various rating agencies for the Bank and for its Instruments issued by /of Bank. For e.g. Tier I and Tier II. 60 b b. Details of Advances portfolio Classification wise as per the direction issued by SBP. 258-260 c c. Disclosure for Non-Performing Assets (NPA): i. Movements in NPA ii. Sector-wise breakup of NPA iii. Movement of Provisions made against NPA iv. Details of accounts restructured as per regulatory guidelines 83 d Maturity Pattern of Key Assets and Liabilities. 98 e Classification and valuation of investments as per SBP guidelines/ IAS/ IFRSs. 251-257 f Details of credit concentration / sector-wise exposure. 300 g Disclosures under regulatory requirements (for e.g. prudential regulations). Annexed Financial Statements h Details of Non statutory investment portfolio. 86 i Disclosures for derivative investments. 274 j Bank's Network : List of Bank’s Branches. 441-443 Annual Report 2019 123
126. MCB Calendar of Major Events February 10 , 2021 Annual Results - 2020 issued March 27, 2021 73rd Annual General Meeting held April 20, 2021 1st Quarter Results issued August 11, 2021 2nd Quarter Results issued October 27, 2021 3rd Quarter Results issued February 10, 2022 Annual Results issued March 29, 2022 74th Annual General Meeting scheduled 124 Unconsolidated Financial Statements
127. Annual Report 2021 Historical Major Events Incorporation 1947 Incorporation of MCB Trade Services Limited Nationalisation Investment in First Women Bank 1974 Investment in Adamjee Insurance Company Limited 1989 Incorporation of MNET Services (Private) Limited Privatisation 1991 Incorporation of MCB Finanical Services Limited 1992 Incorporation of MCB Asset Management Company Limited Change of name from Muslim Commercial Bank Limited 2005 2001 Strategic acquisition by Maybank Incorporation of MCB Leasing Closed Joint Stock Company 2005 2005 Issuance and Listing of Global Depository Receipts on London Stock Exchange 2006 Merger of MNET Services (Private) Limited with and into MCB Bank Limited Disposal of MCB Financial Services Limited 2004 2019 2008 Merger of NIB Bank with and into MCB Bank Limited 2017 2009 Incorporation of MCB Islamic Banking Limited - a subsidiary company 2014 2011 2011 Investment in Euronet Pakistan (Private) Limited Amalgamation of MCB Asset Management Company with Arif Habib Investment Limited 2020 Annual Report 2019 125
128. Strategic & Resource Allocation Execution of a well-defined strategy has been the key pillar for our growth momentum over the last many years. Our strategy broadly covers what we want to achieve in the short and long run duly focusing on the challenges posed by the macroeconomic imbalances; Strategic Objectives Short, medium and long term objectives of the Bank to meet its mission statements are as follows: Short term • • • • Increase focus on digitalization and automation of processes to enhance efficiency, reduce cost and improve customer satisfaction and improve risk/ compliance standards; To ensure quality asset retention with measures to constantly decrease the NPLs base of the Bank; Consistent improvement in service quality standards; To increase the current account concentration levels of the institution by capitalizing on the opportunities presented. Medium term • • • To be a top stakeholder value generator in Pakistan’s banking sector while remaining a socioenvironmentally conscious citizen; The Bank aims to increase its share in the domestic deposit pie; To maintain a strong capital base Long term • Delivering remarkable returns to stakeholders, sustainable performance exceeding market and shareholder expectations; • Providing value added services through operational expansion, geography and upgraded system; • Building a corporate culture of equality, trust and team spirit as we remain dedicated to being a socially responsible organization For strategy formulation, the Bank follows a structured approach to map itself in the industry / operating environment through detailed competitive position assessment, peer group analysis and macro-economic & thematic reviews; in turn laying the foundation for its future road map. Position assessment | Peer Group Review SWOT | Macro-economic & Thematic review Growth areas ‘scoped’ Business model review Strategic Thrusts identified Deploy Strategy Execution Plan Continuous Implementation monitoring and ‘compass correction’ against milestones 126 Unconsolidated Financial Statements
129. Annual Report 2021 Strategies in place From customer service standpoint , special focus remains on improving our service quality and service standards levels. We will integrate service standards across all the channels and outlets in the network to provide a uniform customer experience. We will endeavor to meet expectations of our valued customer base. Another important aspect remains credit quality and our refined risk appetite. We will thereby give value to our customers across the entire spectrum of retail, corporate and SME while improving our asset quality. Under the Corporate plan, we also intend to expand our geographical boundaries by being open to potential new business models, innovative processes and delivery channels, enabling provision of 24x7 customer services. Today, technology is a major component of the competitive edge of any bank. With millennial being an increasing percentage of our customer base, we have to cater to their expectations and it requires leveraging cutting edge technology. The other side of the coin however, is that technology brings risks with it. We will go the extra mile, to ensure our assets and those of our customers are secure and sensitive information is protected. To ensure efficient and effective operation of the Bank we need systems and processes that operate seamlessly. This is another focus area where we will concentrate on identifying pain points and gaps, and make the necessary modifications. To safeguard the financial stability and the reputation of the Bank, good governance and ethical conduct are imperative. While we already have high standards in these areas, we have set our benchmarks as the best in class practices in the country. We will renew and re-energize our focus on sustainability by ensuring that we continue to maintain a judicious balance between economic, social and environmental objectives. The end result of all the above will be the enhancement of our brand. The brand is a mirror of our image in the eyes of our customers, both legacy and millennials, and the general public. Through the strategies spelt out in our corporate plan we will forge ahead, building our brand, increasing our assets and profitability, while delivering increasing value to all our stakeholders. Method and Assumptions in Compiling Indicators The Bank identifies its indicators which effectively reflect Bank’s performance. The bank analyses its market positioning, competitors and general market conditions while compiling its indicators. The Bank analyses deposits, advances, capital and risk adequacy ratios, gross profit after tax and EPS on a regular basis to gauge its performance. These are the basic indicators of Bank’s financial performance and profitability. Market price is a measure of Bank’s perception in the market. The difference between book value and market value shows investor’s confidence on the script. The Bank manages its dividend payout in line with the profitability generated during the year while ensuring that sufficient capital buffers are available with the institution to meet regulatory requirements. Dividend is the amount allocated out of profit for paying cash to the shareholders. The dividend payment is an indicator of how well earnings support the dividends. The Bank takes its decisions of cash or stock dividend based on market conditions, share price and governing laws and regulations. Comparing cash flow from operating activities with profit before tax can give insights into how a Bank generates funds and manage the cash flows. The bank regularly analyses its cash flows and strives to keep it on positive side. Change in Indicators and Performance Measures Key performance indicators (KPIs) provide understanding of the Bank’s performance in key areas. These indicators are used as a gauge to analyze current standing of the Bank and likely path the Bank would follow. MCB has identified KPIs that are critical to its business. While identifying KPIs, the Bank analyzed various indicators, their interpretations and accordingly the extent to which they may correctly and clearly communicate the Bank’s performance. Change in important indicators is discussed in performance and position section of the Annual Report. Annual Report 2019 127
130. Key performance indicators to measure the objectives are as follows : Strategic objectives Strategies for Meeting Objectives KPI Future relevance Increase focus on digitalization and automation of process to enhance efficiency, reduce cost and improve customer satisfaction and improve risk and compliance standards. Centralization and monitoring of operating expenses to restrain them within conventional limits. Effective and efficient cost control while investing for growth The KPI will remain relevant in the future. Asset Quality Increased focus on quality asset growth while maintaining low infection ratio by continuously striving to manage risk through an augmented framework of sound risk principles; to be reinforced by optimum organizational structures, robust risk assessment models and effective monitoring systems in an automated environment. The KPI will remain relevant in the future. Work on automation of existing manual systems. Gradual investment on unified digital platform for an overwhelming customer experience. Manage Information security risks through development, documentation and implementation of policies, standards, procedures and guidelines that ensure confidentiality and integrity of sensitive information. To ensure quality asset retention with measures to constantly decrease the NPLs base of the Bank. Focus on recoveries of existing NPL stock. To maintain a strong capital base Healthy equity leading to maintain strong capital adequacy ratios. Capital ratios The KPI will remain relevant in the future. The Bank aims to increase its share in the domestic deposit pie; and Expansion/Increase in deposit base through new products and markets thereby increasing customer base beyond the prevalent organic growth. Deposit generation growth and mix The KPI will remain relevant in the future. Delivering remarkable returns to stakeholders, sustainable performance exceeding market and shareholder expectations. Higher profitability to pay higher returns to shareholders. Shareholder return Shareholder return Providing value added services through operational expansion, geography and upgraded system. Lead market position through focused initiatives encompassing launch of innovative and customer centric solutions, penetration of emerging markets, adoption of digital banking avenues and instilling effective cost management techniques. Improved services; broad-based increase in customer satisfaction across markets and segments The KPI will remain relevant in the future. To increase the current account Increased focus on current account growth. concentration levels of the institution by capitalizing on the opportunities presented Rationalize & optimize usage of existing branch network and network strengthening through branch expansion plan. Service portfolio enhancement of all digital products / channels i.e. call center, internet banking, mobile banking, mobile wallet, SMS alerts, E-statement, ATMs and Debit Cards to increase non markup income. Integrate service standards across all the channels and outlets in the network to provide a uniform customer experience. 128 Unconsolidated Financial Statements
131. Annual Report 2021 Strategic objectives Strategies for Meeting Objectives KPI Future relevance Building a corporate culture of equality , trust and team spirit as we remain dedicated to being a socially responsible organization. Improve governance structure and update existing policies as per industry dynamics. Corporate culture The KPI will remain relevant in the future. Corporate social responsibility The KPI will remain relevant in the future. Maintain employee engagement levels and provide opportunities for internal mobility to enhance professional and personal growth Generate economic activity through sustainable focused initiatives. To be a top stakeholder value generator in Pakistan’s banking sector while remaining a socioenvironmentally conscious citizen. Generate higher profitability to pay higher returns to the shareholders. Introduce socio environmental activities such as green banking to improve the brand name. Resource Allocation Plan The inputs to the Bank’s business processes are capitals, or stores of value, in various forms. Of these capitals, financial, manufactured and intellectual capitals are internal capitals owned by the Bank. The others, human, social, relationship and natural are external to the Bank. Bank has resources to meet its strategic objectives. The Bank utilizes and enhances its resources to differentiate itself and maximize value creation for its stakeholders in the long run. A transitory resource allocation plan is as follows: Nature of capital Resource allocation plan • Human Capital An agile and engaged workforce • enables MCB to be nimble and • react quickly to opportunities Redeploy human capital to enhance productivity through segmentation; Undertake human capital capacity enhancement and capability building by focusing on trainings, talent management and talent retention; Onboard versatile human resource that can multi task easily. • Manufactured Capital MCB’s best-in-class technology • and physical infrastructure allow it to be resilient. Branch layout improvement and widening of branch and ATM network; Re-align the business model through segmentation to increase the customer base. • Financial Capital MCB’s strong capital base • and diversified funding sources • allow it to support customers through good and bad times, and enables it to provide banking solutions competitively. Investment on process automation and IT network improvements; Invest on infrastructure including buildings and equipment; Invest in good quality asset base with high yield. • Natural Capital MCB impacts the natural environment directly in its • operations, as well as indirectly • through its customers and suppliers. Introduce green building concept to branch network by introducing paperless environment and install solar energy equipment in branches; Increase financing to renewable energy projects. Solar project deployments across network for energy generation; • Intellectual Capital MCB’s key intellectual capital • pertains to how it continuously re-engineers its business • processes and invests in technological transformation to lead into the digital age. Reengineering of processes to capture synergies and customer satisfaction; Improvement in governance culture by utilizing over 74 years of institutionalized knowledge; Introduce new products as per customer needs. Annual Report 2019 129
132. Nature of capital Social Capital and Resource allocation plan Relationship At MCB , customers are at the heart of business; enabling it to differentiate itself in the industry while also building lasting relationships to deepen wallet share. • • Invest in a series of initiatives that enhance collaboration and ongoing dialogue with our customers; Enhance brand image through public awareness campaigns. The Bank also recognizes that not all returns can monetized and its license to operate comes from the society at large Key Factors Impacting Strategy and Resource Allocation Factor Effect on Bank’s Strategy & Resource Bank Response to Align its Strategy & Allocation Resource allocation Technological Innovation and Evolving Consumer Behavior Technological innovation is having a profound impact on customer needs and habits, Bank’s business model, and the lives of its employees. New market players, such as startups and FinTechs, are disrupting the status quo and contributing to a reshaped competitive landscape that is generating challenges amidst newer ways of collaboration and innovation. At MCB, the focus on adopting emerging technologies by continuous upgrade of its infrastructure and leveraging market research through intelligent analytics is a powerful driver of innovation and prevents the Bank from losing its market relevance. The Bank also supports its employees so they can acquire new skills or fine tune existing ones thus continuing to contribute to the Bank’s digital and agile mission. Refer to the Group Review section of the Annual report and below section on Initiative towards promoting and enabling innovation for further details Societal Outlook An ever growing impact of corporates on the society at large is creating a moral obligation on businesses to play an active role in adeptly responding to a myriad of social issues when conducting its operations; including society’s expectations on ethics, compliance, respect for human rights, diversity, etc. MCB prides itself in conducting its affairs in a fair and responsible manner. This includes: • • • • • • advancing Government’s financial inclusion agenda; taking a proactive stance to protect our customers’ information and preventing financial crime; developing innovative and best-fit financing and investment solutions for customers that enable them in turn to make positive impact choices; providing an inclusive work environment for its employees; responsibly & actively contributing to Governments key pandemic responses and digitalization initiatives ; and ensuring seamless and uninterrupted provision of essential banking services to the general public at large. Refer to Group Review and Sustainability & Corporate Social Responsibility section of the Annual report for further details. 130 Unconsolidated Financial Statements
133. Annual Report 2021 Factor Effect on Bank ’s Strategy & Resource Bank Response to Align its Strategy & Allocation Resource allocation Climate and Ecosystem Changes Climate change poses an increasing threat to mankind and the global economy. Transitioning to a low-carbon economy may entail extensive policy, legal, technology and market changes. Physical risks such as frequent or severe weather events may also give rise to credit, operational and reputational risks MCB has incorporated responsible financing in its lending practices by capitalizing on its extensive environmental risk management framework. The Bank endeavors to support customers’ transition towards more sustainable lowcarbon business models and improve customers’ access to ESG investments. Refer to Group Review and Sustainability & Corporate Social Responsibility section of the Annual report for further details. Initiative towards Promoting and Enabling Innovation MCB’s “Mission Statement” embraces and encapsulates its commitment for providing innovative and efficient financial solutions to create and nurture long term relationships with its wide range of customers. The policy focus has in turn laid the foundation for a corporate culture that fosters and encourages organizational growth through promoting, enabling and driving innovation across the tiers. At MCB, we continue to emphasize on both strategy about exploring innovative ways to stay connected with our customers and investing into robust alternative online channels to accelerate rollout of digital engagement initiatives for driving digital user activation, transactions, digital sales acquisition and digital sales enablement; hence remaining agile and adaptive to the new “normal” amidst the evolving operating scenario and reshaping of customer behaviors. The Bank also continues to drive adoption and pervasiveness of core systems with a focus on improving frontline capability. Automation, especially across back-office operations, remains a critical component to improve our end-to-end capabilities, while also enabling us to meet our green banking objectives in lower paper consumption. Human Resource Accounting Policy At MCB Bank, Human Resource Accounting (HRA) encapsulates accounting of the bank’s management and employees as ‘human assets’ or ‘capital’ that provides future benefits, rather than them being considered as an expense which is what comprises a typical approach under traditional human resource accounting. The Bank has progressed forward to ensure that the people aspect of its business focuses on improving the standards and proficiency of employee skills and retaining talent for succession planning and expansion into new domains; thus generating greater contribution and improving returns through implementation of higher investment, efficiency and resource productivity initiatives. In fact, HRA has allowed the Bank to keep track of investments it is making in its human resources, and the specific returns it is generating from these investments, thus fostering a virtuous cycle of growth and returns. The Bank leverages its HRA strategically to drive positive change in its human resources, which comprises the most vital assets of the bank. Over time, through insights from its HRA, the Bank has been able to strategically reposition its human resources to face the rapid changes in the banking and financial services sector, especially now when digital banking is gaining fast credence. At the Bank, we have not only ensured that the skills and capabilities of our human resources are aligned to the times, but have also made sure that the bank always remains in a position of deep strength through its people resources, notwithstanding the challenges prevalent in the external environment. Refer to the “Sustainability & Corporate Social Responsibility”, “Group Review” and “Analyses of Non-Financial Performance” section of the annual report. Annual Report 2019 131
134. Strategy to Maintain and Monitor the Culture of Organization Fostering a culture supportive of MCB ’s growth journey is a critical component of its transformation process. As the Bank strives towards becoming a more customer centric, innovative and an employee friendly Bank for the future, its strategic plan paves the road map while laying the foundation for guiding values that shall support a more results oriented, open, caring and inclusive culture. Key Steps for Addressing Integrity and Ethical Issues • Ensuring that all members of the organization understand that they have a responsibility to promote integrity. • Conducting systemic integrity risk assessments on an ongoing basis. • Facilitating open communication about integrity-related issues; recognizing and rewarding ethical conduct. • Providing a mechanism for members to consult about integrity related issues. • Ensuring that performance management systems are in alignment with the organization’s ethical goals. • Providing ongoing training for integrity-related practices. Strategy to overcome liquidity problem Bank carries a substantial portfolio of marketable securities that can be easily traded and realized in known amounts of cash in the event of liquidity stress. Bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio are well over and above the regulatory requirement. The Bank maintains strong liquidity position which is regularly monitored by the respective units. The liquidity ratios indicate the strong liquidity position of the institution. Liquidity position of the bank is discussed in the risk management section of the financial statements. Significant Plans and Decisions There are no significant events to report for the year. Significant changes in objectives and strategies MCB Bank objectives & strategies are well planned and are persistently implemented. No significant change occurred during the year to affect the objective and business strategies. 132 Unconsolidated Financial Statements
135. Annual Report 2021 Business Model - A Total of 13 ,849 Employees that are: Skilled, Experienced and Highly Competent Client Driven & People Centric Increasingly Innovative & Competitive Strong in Compliance & Governance Reward Structures Linked to Performance. Training and Development Programs. Natural Capital Intellectual Capital Wide Outreach: 1,451 Branches Digital Touchpoints: 1,454 ATMs, POS, CDM, Call Centers etc. - Strong Core Banking Systems - Market Leading Digital Products, Services and Client Value Propositions - Other Assets Aligned & Empowered Management Team Responsive Operations and Supply Chain Insight Driven Strategies and Actions KEY ELEMENTS Improving Governance Culture by Capitalizing on Institutionalized Knowledge Outputs & Outcomes Financial Capital Human Capital Natural Capital Generating NIM on Earning Assets and Augmenting Non Markup Avenues for Maximizing Stakeholder Value. Profit after Tax: Rs. 31 billion Earning per share: 26.00 / Share Dividend per share: Rs. 19 / Share Dividend Payout ratio: 73.08% Return on Equity (p.a): 19.11% Return on Assets (p.a): 1.65% - Female Staff Ratio: 16.9% New Recruitments: 2,075 Employees Investment in Trainings: Rs. 35.41 Million No. of Training Participants: 39,030 No. of Promotions: 2,248 Employees - Improved Energy Mix and Conservation through reduction in Non-Renewable energy consumption World Wide Fund for Nature "Green Office Certification" - Head Office Building - Robust Heritage and a Strong Brand Image Strong Management Structure and Experienced Leadership Team - Systems, Processes and Procedures established by the Bank - No. of Accounts: 8.372 Million No. of Customers: 7 Million+ Banking Agents, Trade Partners and Merchants across a Diffused Geographical Presence - Robust relationships Created with all Stakeholders. Customer Centric Focus for an Enriched and Bespoke Experience. Increased Focus on Digitization and Process Automation BUSINESS ACTIVITIES Ensuring Quality Asset Retention through Robust Risk Management and Improving Deposit Mobilization - Green Banking Initiatives. Financing of Renewable Energy Projects. Renewable and Non-Renewable Resources used by the Bank i.e. Electricity, Fuel, Solar Powered installations (10 Branches) etc. - Social and Relationship Capital - Undertaking Human Capital Capacity Enhancement and Capability Building through Trainings, Talent Management and Talent Retention - Providing Value Added Services through Operational & Geographical Expansion, Data Analytics and System Upgrades. Building a Corporate Culture of Equality, Trust and Team Spirit to Remain a Socially Responsible Citizen Intellectual Capital Social and Relationship Capital Digitally Enabled Technology Architecture Manufactured Capital Share Holders Equity: Rs. 160 billion Customer Deposits: Rs. 1,412 billion Strong CET1 Capital Ratio: 15.08%; well above Minimum Regulatory Requirements. Integrated Partner and Alliance Ecosystem INPUTS Human Capital - Leading Market Innovation for Competitive Advantage Financial Capital - Digital Initiatves for all Customers :MCB Live Internet & Mobile Banking App Launched in December with more than 100,000+ customers onboarded. - Responsibly & Actively Contributed to Governments Key Pandemic Responses for Credit Extension, Spreading Digital Agenda and Provision of Essential Banking Services to the General Public. - Adjudged as the “Best Bank in Pakistan” by the globally coveted Finance Asia’s Country Awards. - Contribution to National Exchequer: Rs. 21.5 Billion. Continued Socio Economic Spending Deposit Mobilization: 9% Growth Long Term Entity Credit Rating: AAA Short Term Entity Credit Rating: A1+ Total Complaints Resolved: 262,778 Complaint Resolution Rate: 99.84% Low Infection Ratio: 7.94% Online Customers:4.3% Growth Annual Report 2019 133
136. SWOT Analysis Strengths Weaknesses Strong Financial Position and Pro fitablity. Need to further strenghthen market share in deposits Strong Capital Base Investments Concentration in Government Securities. Highest CASA ratio (>90%) in the Industry Lower International Presence / Global Footprint Compared to Peer Banks 2nd Lowest Infection Ratio among Peer Banks Offering of Comprehensive Solutions to Clients across Products (Debt, equity issuance, advisory and facility arrangement) Diversified Portfolio of Loans and Advances; and Diversified Income Streams Established Brand Name / Customer Loyalty Competent and Committed Human Capital High Levels of Visibility through Wide Customer Outreach across Multiple Channels Conservative and Sustainable Business Policy Opportunities Threats Undifferentiated Products Lines across the Banking Sector Dynamic competitive landscape including Growing Competition from Fintechs and other Emerging Entrants (refer to Comparative Landscape and Market Positioning section of the Annual Report for further Details) Emerging Trends in Consumer Behavior High Traditional and Digital Financial Exclusion Base Enhanced Market Scope for Service Offerings through Digital Products and Channels Forging Strategic Partnerships with Leading Technological Platforms Leveraging Retail and Corporate Relationships for Cross Sell Initiatives Deploying Intelligent Data Analytics' Tools to Identify Underlying Patterns and Drive Business Growth Exploiting Low Credit Penetration Ratio Exploiting Growth and Expansion Opportunities in Emerging Economies Expanding the Advisory and Other Services offered to Clients and Investors 134 Unconsolidated Financial Statements Unexpected Fluctuations in Discount Rates Rising Operating/Technology Costs Risks Arising from PESTEL Factors (refer to Risk and Opportunity Report section of the Annual Report for further Details)
137. Annual Report 2021 Value Chain Value Chain Framework Support Activities Primary Activities Governance and Risk Management : - Maintaining Regulatory compliance - Increased Corporate governance - Risk Management Framework - Implementation of Internal controls Technological developments: Deposit mobilization and distribution network: - Focus on low cost deposits and improving CASA mix - Diversified portfolio of products - Effective use of distribution outreach and customer touchpoints - Increased focus on digitization - Decision support system - Automation of existing manual systems - Highest security standards Asset Management and portfolio enhancement: Human Capital Management: - Workforce planning - Fair recruitment and selection policies - Employee training and development - Robust performance & reward system - Increased focus on quality asset growth - Recoveries of Non performing loans (NPL) - Maintaining low infection ratio - Service portfolio enhancement Value created for stakeholders: - Contribution to the national exchequer - Shareholder value maximization - Consistent payout ratio - Corporate social responsibility Finance and reporting: - Compliance with applicable Accounting standards - Financial reporting on regulatory guidelines - MIS for improved decision-makin Marketing, sales and transactions: - Strong frontline sales force - Marketing and communications - Customer service and complaint management Annual Report 2019 135
138. Competitive Landscape and Market Positioning Factor Threat of new entrants and substitute products or services Factor Bargaining power of customers Factor Bargaining power of suppliers Factor Intensity of competitive rivalry Implication The large amounts of capital required to setup a bank along with the length of time consumed to establish a signi ficant brand loyalty and the need to adhere to strict regulatory stipulations serve as strong entry barrier for new entrants. Implication It is reasonably easy for retail customers to switch to other banks fully, or even avail part of their service requirements alternatively due to the low switching costs involved, hence shrinking the size of banking engagement. However, their bargaining power stays limited due to the minimal impact on the Bank’s bottom line. Implication MCB’s suppliers primarily comprise of its deposit-holders who are the Bank’s key resource for capital and its employees, also known as the resource of labor. Implication Intensity of competition within the domestic banking sector has grown over the years. Banks have focused on developing a wide range of asset and liability product offerings at competitive rates in order to reinforce their customer acquisition strategies and attract existing market share. However, the domestic landscape has been evolving to include Fintech participants that are focusing on transactional services and innovative digital solutions for revolutionizing the customer banking experience. The bargaining power of larger groups, corporate clients and high net worth individuals is comparatively greater since the rising competition has increased customers price sensitivity and the loss of sizable accounts and sources of revenue from them can substantially impact bank's profitability In an industry scenario with low differentiation, it is easy for the primary deposit-holder group to switch to other banks, tempted by higher rates and better service standards. Further, share of deposits is highly concentrated, which gives them excess bargaining power. With a view to fund gaps in the Bank’s borrowings, MCB mobilizes debt from other financial institutions, with rates being largely market-driven. Hence, their bargaining power is often considered to be medium to high. When it comes to the bargaining power of suppliers of labor, individual employees baring major executives have little bargaining power. Corresponding Strategies Despite the imminent threat of new entrants and emerging Fintech disruptions, MCB is countering these threats by engaging in the following activities: • improving customer-brand relationship that goes beyond the minimum transactional services to retain customer loyalty; • investing substantially in digital platforms for improving customer convenience; • launching new products and services that cater to a diversified customer base; and • adhering with all regulatory guidelines with a view to ensure the highest levels of compliance. 136 Unconsolidated Financial Statements Corresponding Strategies MCB addresses the issue of customer bargaining power primarily by focusing on clearly directed customer retention and acquisition strategies; customer service standards are being continuously augmented, services are being tailored to suit individual needs, innovative solutions are being devised to make customer experiences more enjoyable, convenient and hassle-free and market competitive rates are being offered to effectively increase switching costs for customers. Corresponding Strategies MCB has embraced following strategies in order to derive an edge over its supplier relationships: • providing a high degree safety to its capital providers including investors, deposit-holders and other banking partners; A point further re-enforced by Bank’s highest local credit ratings of AAA/A1+ for long term and short term debt respectively; • creating mutually-beneficial solutions across the entire engagement spectrum; and • sustaining employee retention focus by offering a challenging, learning and conductive work environment which is duly complemented by career progression opportunities and market competitive salary and benefit packages. The relatively low switching cost from one bank to another has further intensified the importance of competition within the industry, especially in the retail and commercial banking spheres. Traditional banking operating models have been disrupted as the outbreak of COVID-19 has challenged the existing banking landscape and paved way for the industry to adopt emerging technologies in rendering digital financial services amidst responsibly enforced social distancing and containment measures. Corresponding Strategies MCB has initiated following measures with a view to consolidating and further improving its market share: • by distinguishing itself in the marketplace primarily on the basis of its history, experience and brand image; and • staying on the cutting edge of offering customer convenience and low-cost banking solutions.
139. Annual Report 2021 Risk Management Framework Risk is an inherent part of banking business activities . The risk management framework and governance structure at MCB helps to mitigate and counter any foreseeable risk in its various lines of business. Risk awareness forms an integral part of strategic and operational activities of risk management. Through its Global Risk Management Policy, Bank sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Bank's risk management structure is based on the following five guiding principles: • • • • • Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing & maintaining independent and properly resourced risk management function. Promoting an open risk culture Adopting international best practices in risk management The Bank executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors (BOD) at MCB Bank Limited actively drive the risk management framework. Under the valuable guidance of BOD, the Bank has a proactive approach in dealing with factors that influence the financial standing of the bank, to generate recurrent earnings and to maximize shareholder’s value by achieving an appropriate trade-off between risk and returns. An effective risk management framework along-with a robust risk governance structure, strong capital & liquidity coupled with a good quality of credit portfolio remains a cornerstone of the Bank’s risk management goals. Empowerment and independence are the basic principles in risk management and it is implemented as a fundamental part of BOD’s vision. Independence of areas that are responsible for measuring, analyzing, controlling and monitoring risk from the frontline risk takers (i.e. business soliciting groups) is ensured within the Bank. In line with this principle, Group Head-Risk Management functionally reports to the “Risk Management & Portfolio Review Committee” (RM&PRC) which is the sub-committee of the BOD and administratively to the President. Risk takers and Risk controllers have independent reporting lines, yet work together to increase Bank’s value via efficient utilization of capital. Through a four eye principle for credit approval levels for corporate and retail banking, all exposure related requests are approved with the formal consent of at least two authorized individuals including one from the business side having credit approval authority and the other from risk management side having credit review authority. The BOD and its RM&PRC have ensured formulation and implementation of a comprehensive risk management framework. Under the BOD’s guidance, the Bank executed an effective risk strategy and continued to undertake controlled risktaking activities within the risk management framework; combining core policies, procedures and process design with active portfolio management. The risk management framework requires strong integrated risk management practices in key strategic, capital and financial planning processes and day-to-day business processes across the organization, with a goal to ensure that risks are appropriately considered, evaluated and responded to in a timely manner. As a matter of principle, the Bank constantly endeavors to improve its risk management framework in the light of the international best practices and regulatory guidelines. Accordingly, all policies and procedural documents that form part of the Bank’s risk management framework are regularly reviewed to keep them aligned with changing market dynamics, regulatory environment and international standards. The RM & PRC guides the management on its risk taking activities within the policy framework approved by the BOD. Regular meetings of RM&PRC are convened to oversee the risk exposures and their trends as a result of the various initiatives undertaken by the Bank. The committee reviews different aspects of the loan portfolio which, among others, includes asset growth, credit quality, credit concentration, lending business trend and cross sectional analysis. Review of various aspects of country risk, liquidity risk, market risk covering interest rate risk, foreign exchange risk, equity price risk, technology risk along with the stress-testing is also a regular feature. Operational risk assessments, key risk indicators and major findings of Risk & Control Self Assessment (RCSA) pertaining to processes, people, systems, technology and reputation are also regularly reviewed by the committee. The committee also reviews in detail the Bank’s capital levels under Internal Capital Adequacy Assessment Process (ICAAP) and Capital Adequacy Ratio. The Management Credit & Risk Committee is the management platform for discussion and deliberation on key risk issues in the portfolio. Regular meetings of the committee are convened to oversee the risk exposures in the portfolio of the Bank. Annual Report 2019 137
140. Credit risk review ensures to minimize credit risk associated at account and portfolio level . During the year 2021, the Bank continued with the policy to remain selective in disbursing its loan to low risk customers across all the industries & maintains a fairly diversified loan portfolio. Risk Review successfully managed to evaluate and approve increased number of loan requests, within required turnaround time, both for domestic and international operations. An in-house request tracking & turnaround time monitoring software ensures tracking of proposals and monitoring of turnaround-time of credit proposals routed through the Risk Management Group. The Bank’s implemented Loan Origination System (LOS) for end to end automation of credit approval process, facilitates effective management of internal policies and controls as well as regulatory requirements while also contributing towards its transition to a paperless environment under the Green Banking initiative. For risk categorized as sovereign/ government risk, the lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that range from different development related works to utility distribution and production. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. In order to further enhance the credit risk analysis, the bank has in place a probability of default based Internal Credit Risk Rating (ICRR) system which is based on statistical modeling and validation in line with Basel principles. The ICRR is currently focused on corporate-commercial customer category. Furthermore; Scoring Models are also in place to calculate ICRR for Small Enterprise, Medium Enterprise, Agriculture Finance and Overseas exposures. An Internal Credit Risk Rating Model for facility risk rating has also been implemented which reflects expected loss rate of a credit facility. In addition to the credit risk, like all financial institutions, MCB is also exposed to market risk through its trading and other investment activities. A comprehensive control structure is in place to ensure that the Bank does not exceed its qualitative and quantitative tolerance for market risk. A number of metrics like VaR methodologies complemented by sensitivity measures, notional limits, stop loss triggers at portfolio level/asset class and stress testing are used to capture and report the multi-dimensional aspects of market risk. As an authorized derivatives dealer, the Bank is an active participant in the derivatives market. Overall limits in derivatives are approved by the BOD. Counter party limits structure for derivatives transactions is in place and exposures are monitored and reported on a continuous basis. Operational Risk is being managed professionally in accordance with the Global Risk Management Policy, Policy on Internal Controls, Operational Risk Management Framework and various regulatory instructions. Operational Risk Inventory database covering losses, control breaches and near miss events is being maintained using professionally developed software. Operational risk events and Key Risk Indicators (KRI’s) are captured and management reports are generated. A process of Risk and Control Self-Assessment (RCSA) is in place to assess the operating effectiveness of controls and to implement remedial measures as needed. Updates on operational risk events are presented to the senior management and RM&PRC of the BOD on quarterly basis. The Bank has developed Information Technology Risk Assessment Framework which enables better management of technology risk managed by IT Risk team. The IT Risk Assessment Framework helps the management to identify and manage the key security risks, threats and its associated vulnerabilities to the critical primary & secondary IT systems and applications of the Bank.The Bank has an internal operational risk awareness program which is aimed at building capacity and inculcating risk aware culture in the staff through workshops and on-job awareness. Capital Structure of the Bank The Bank remained a well-capitalized institution with a capital base well above the regulatory limits and capital requirements under BASEL frameworks. The Bank continues with a policy of sufficient profit retention to increase its risk absorption capacity. Bank’s total Capital Adequacy Ratio is 17.01% against the requirement of 11.50% (including capital conservation buffer of 1.50%). Quality of the capital is evident from Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 15.08% against the requirement of 6%. The Bank maintained the leverage ratio of 6.13% which is well above the regulatory limit of 3.0%. 138 Unconsolidated Financial Statements
141. Annual Report 2021 Liquidity Management and Strategy to Overcome Liquidity Position The Asset Liability Management Committee of the Bank has the responsibility for formulation of overall strategy and oversight of the Asset Liability Management (ALM) function. BOD has approved a comprehensive Liquidity Risk Policy (part of the Global Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences and evaluation of Banks’ liquidity under normal and stress scenarios. The underlying policies and procedures are reviewed and approved regularly at the senior management and BOD levels covering the Global Risk Management Policy, Global Treasury Policy, Investment Policy and Liquidity Strategy including Contingency Funding Plan. Bank’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing in order to ensure effective and timely decision making. The liquidity risk management approach at the Bank involves intra-day liquidity management, managing funding sources and evaluation of structural imbalances in the statement of financial position. A large and stable customer deposits base, along with a strong capital base provides strength and support for maintenance of a strong liquidity position. The Bank also has a substantial portfolio of marketable securities that can be realized in the event of liquidity stress. Further, in line with SBP’s directives, the Bank has fully implemented BASEL III required liquidity standards and maintains liquidity ratios. The Bank reported Liquidity Coverage Ratio (LCR) of 246.31% and Net Stable Funding Ratio (NSFR) of 155.00% against a requirement of 100%. Sensitivity Analysis due to Foreign Currency Fluctuation The PKR depreciated by around 10.44% against the US Dollar in 2021. Foreign exchange risk exposes the bank to changes in the value of exposure denominated in foreign currencies due to the exchange rate fluctuation and volatility. The types of the instruments exposed to this risk are mainly investments in foreign branches, advances and deposits denominated in foreign currency, cash flows in foreign currencies arising from foreign exchange transactions etc. The core objective of the foreign exchange risk management is to ensure that the foreign exchange exposure of the Bank remains within defined risk appetite and insulates the Bank against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage foreign exchange risk including gap limits in different tenors in major currencies are in place to control captioned risk. Bank's net open position and Foreign Exchange Exposure Limits (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR are generated and monitored on a daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the BOD is also a regular feature. Impact of 1% change in foreign exchange rates on the Profit and loss account and other comprehensive income is as follows: 2021 2020 Banking Book Trading Book Profit and loss account Other comprehensive income Banking Book Trading Book (Rs. 000) (66,007) 117,543 – – 1,792 106,202 – – Annual Report 2019 139
142. Risk and Opportunity Report At MCB , a comprehensive Risk Management Framework around an approved risk appetite is in place. Mechanisms are defined for every identified risk to ensure that the Bank continuously evaluates the associated risk and ensures presence of operational mitigating controls. The Bank remains committed to exploring every possible opportunity to translate it into revenues / returns for the stakeholders, while making sure that the related risk is adequately managed. Risk Governance Model • • • • Board of Directors (BOD) Risk Management & Portfolio Review Committee (RM&PRC) Management Credit & Risk Committee (MC&RC) Group Head – Risk Management Graphical presentation of risk governance structure is as follows: Three lines of Defence model The Bank has a well-structured Risk Management model based on three lines of defense which are independent of each other. Each line of defense is executed by different organizational units. The first line of defense consists of business divisions and support units from whose activities the risks arise. RM&PRC being the second line of defense develops frameworks, policies, procedures and establishes risk appetite. Periodical stress testing and continuous monitoring are also an integral part of the second line of defense. The third is the audit and compliance functions which offer an independent oversight. 140 Unconsolidated Financial Statements
143. Annual Report 2021 Assessment of the principal risks facing the Bank by the Board of Directors : The BOD’s have carried out a robust assessment of the principal risks facing the Bank, including those that would threaten the business model, future performance, solvency or liquidity. Bank has identified the following risks after analyzing the external and internal factors: Factors Source Risks Economic External Market risks: The risk of loss arising from potential adverse changes in the value of the Bank’s assets and liabilities from fluctuation in market variables including, but not limited to, interest rates, foreign exchange, equity prices, commodity prices, credit spreads, implied volatilities and asset correlations. External Capital adequacy risk: The risk that the Bank has an insufficient level or composition of capital to support its normal business activities and to meet its regulatory capital requirements under normal operating environments or stressed conditions. External Credit risk: The risk of loss to the bank from the failure of clients, customers or counterparties, including sovereigns, to fully honour their obligations, including the whole and timely payment of principal, interest, collateral and other receivables. External/Internal Liquidity risk: The risk that the bank is unable to meet its contractual or contingent obligations or that it does not have the appropriate amount, tenor and composition of funding and liquidity to support its assets. Internal/ External Technological /Information Security Risk: Technology risks having potential impact due to technology disruption or failure to disrupt bank’s business process posing adverse impact on Confidentiality, Integrity and Availability of MCB’s technology environment. Technology/ Systems Information Technology Risk Assessment helps the management to identify and manage the key risks, potential threats and associated vulnerabilities to the critical primary & secondary IT systems and applications of the Bank. Operational Risk The risk of loss to the Bank from inadequate or failed processes or systems, human factors or due to internal/external events (e.g. fraud) where the root cause is not due to credit or market risks. Political External Country risk: Political stability and controlled law & order situation is a pre-requisite for any economic development and reposes investor confidence in the country, providing corporates a potential investment opportunity. However, political instability can negatively impact the economy /equity market, thus resulting in decreased profitability. Regulator Internal/External Regulatory Risk: The risk of loss or imposition of penalties, damages or fines from the failure of the firm to meet its legal obligations including regulatory or contractual requirements. Key sources of uncertainty include expected regulatory requirements specifically implementation of IFRS 9 in Pakistan, which may have negative impact on the bottom line of the banks. Social Internal/External Reputation risk: The risk that an action, transaction, investment or event will reduce trust in the Bank’s integrity and competence by clients, counterparties, investors, regulators, employees or the public. Materiality Approach Matters are considered to be material if, individually or in aggregate, they are expected to significantly affect the reputation, performance and profitability of the Bank. The materiality process helps to navigate the complex landscape of stakeholder expectations, risks and opportunities. The BOD of the Bank has approved Materiality Policy for the Bank. Annual Report 2019 141
144. Summarized risks , opportunities and related mitigating factors are documented below:Risk type Materiality Rating Probability of Risk Occurrence Strategy Impacted CAPITAL Market Risk High Medium probability Measurement: Bank is exposed to market risk through Financial its trading and other investment activities. Metrics like VaR methodologies complemented by sensitivity measures, notional limits, loss triggers at a detailed portfolio level and stress testing are used to capture and report the multidimensional aspects of market risk. Monitoring: A comprehensive structure, ensuring the bank does not exceed its qualitative and quantitative tolerance for market risk, is in place. Management: The bank has followed a conservative and balanced approach towards risk taking in the market risk area. The robust risk management architecture ensures that the exposures remain within the defined risk appetite. Furthermore, a comprehensive control structure is in place to ensure that the Bank does not exceed its qualitative and quantitative tolerance for market risk. A number of metrics like VaR methodologies complemented by sensitivity measures, notional limits, stop loss triggers at portfolio level/asset class, and stress testing are used to capture and report the multidimensional aspects of market risk. Capital Adequacy Risk High Medium probability Measurement: The Bank is a well-capitalized institution with Financial a capital base well above the regulatory limits and Basel-III requirements. Monitoring: The Bank regularly assesses the capital requirements and ensures that the minimum capital requirements specified by the State Bank are adhered to. Internal Capital Adequacy Assessment is a regular activity. Stress levels of major risks are assessed against the minimum capital requirement. Regular assessment of capital enables an evaluation of the amount, type and distribution of capital required to cover these risks. Management: The Bank remained a well-capitalized institution with a capital base well above the regulatory limits and capital requirements under BASEL frameworks. The Bank continues with a policy of sufficient profit retention to increase its risk absorption capacity. Bank’s total Capital Adequacy Ratio is 17.01% against the requirement of 11.50% (including capital conservation buffer of 1.50%). Quality of the capital is evident from Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 15.08% against the requirement of 6%. The bank maintained a leverage ratio of 6.13% which is well above the regulatory limit of 3.0%. Going-concern capital requirements are assessed on a forward-looking basis – including as part of the annual budgeting process. These assessments consider the resilience of capital adequacy and leverage ratios under a range of hypothetical future states. The assessments incorporate assumptions regarding a range of regulatory and accounting aspects, such as IFRS 9, taking account of a number of factors including economic variables and impairments. The Bank will continue the policy of sufficient profit retention to increase its risk taking capacity and capitalize opportunities to protect the interests of stakeholders in the short, medium and long term. 142 Unconsolidated Financial Statements
145. Annual Report 2021 Risk type Materiality Rating Probability of Risk Occurrence Strategy Impacted CAPITAL Credit Risk High Medium probability Measurement : Credit Risk Management function identifies, Financial measures, manages, monitors and mitigates credit risk. Credit Risk is measured and estimated through detailed financial and non-financial analyses, internal and external credit risk ratings and customers’ behavior analysis. Stress testing of top customers in credit portfolio is also carried out regularly. Monitoring: Credit Risk Management organizational structure ensures pre and post-facto management of credit risk. Credit Review function carries out pre-fact evaluation of counterparties & the credit structures and hindsight reviews, the Credit Risk Control (CRC) function performs post-fact monitoring including security documentation and limits monitoring. Business side continuously keeps in touch with customers to have updated information about the clients. Management: Bank has been selective in taking exposure on good quality borrowers across all industry segments. Multiple factors in bank’s lending structure provide additional comfort and support in mitigating credit risk. These include quality of eligible collateral, pre-disbursement safety measures, post disbursement monitoring, etc. Bank has a fairly diversified loan portfolio. For risk categorized as sovereign/ government risk, MCB’s lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that ranges from different development related works to utility distribution and production. Credit Risk Review ensures to minimize credit risk associated at account and portfolio level. During the year, the Bank continued with the policy to remain selective in disbursing its loan to low risk customers across all the industries & maintains a fairly diversified loan portfolio. Risk Review successfully managed to evaluate and approve increased number of loan requests, within required turnaround time, both for domestic and international operations. Bank’s implemented Loan Origination System (LOS) for end to end automation of credit approval process facilitates effective management of Bank’s internal policies & controls as well as regulatory requirements. LOS has also contributed towards Bank’s transition to paperless environment under the Green Banking initiative. For risk categorized as sovereign/ government risk, the lending exposure is spread over multiple government owned or controlled organizations and departments which are engaged in a variety of tasks that range from different development related works to utility distribution and production. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, predisbursement safety measures to post disbursement monitoring. Through a four eye principle for credit approval levels for corporate and retail banking, all such exposure related requests are approved with the formal consent of at least two authorized individuals including one from business side having credit approval authority and other from risk management side having credit review authority. Annual Report 2019 143
146. Risk type Materiality Rating Probability of Risk Occurrence Strategy Impacted CAPITAL Credit Risk High Medium probability The MC &RC is the management platform for discussion and deliberation on key risk issues in the portfolio. Regular meetings of the committee are convened to oversee the risk exposures in the portfolio of the Bank. Financial In order to further enhance the credit risk analysis, the bank has in place a probability of default based Internal Credit Risk Rating (ICRR) system which is based on statistical modeling and validation in line with Basel principles. The ICRR is currently focused on corporate-commercial customer category. Furthermore; Scoring Models are also in place to calculate ICRR for Small Enterprise, Medium Enterprise, Agriculture Finance and Overseas exposure. An Internal Credit Risk Rating Model for facility risk rating has also been implemented which reflects expected loss rate of a credit facility. Liquidity Risk High Medium to Low probability Measurement: MCB regularly performs Liquidity Risk Financial Analysis and liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity risk assessments and stress tests is intended to ensure sufficient liquidity for the Bank under both idiosyncratic and systemic market stress conditions. Monitoring: Liquidity positions are regularly monitored through established early warning Indicators and liquidity risk analysis. Liquidity Coverage Ratio and Net Stable Funding Ratios are monitored regularly. Management: MCB’s Liquidity Risk Management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. The Bank’s large and stable base of customer deposits, along with Bank’s strong capital base, indicates strong liquidity position. Bank also has a substantial portfolio of marketable securities that can be realized in the event of liquidity stress. The Asset Liability Management Committee of the bank has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management (ALM) function. BOD has approved a comprehensive Liquidity Risk Policy (part of Global Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Banks’ liquidity under normal and stress scenarios. Underlying policies and procedures are reviewed and approved regularly at the senior management and BOD Levels including Global Risk Management Policy, Global Treasury Policy, Investment Policy and Liquidity Strategy. Further, in line with SBP’s directives, Bank has fully implemented BASEL III required liquidity standards and maintains liquidity ratios including LCR and NSFR with a considerable cushion over and above the regulatory requirement to mitigate any liquidity risk. 144 Unconsolidated Financial Statements
147. Annual Report 2021 Risk type Materiality Rating Probability of Risk Occurrence Strategy Technological / High Low probability Monitoring & Management: Through technology risk Financial, monitoring process, bank tracks and evaluates the levels of Intellectual technology and security risk as well as monitoring the risk itself. The findings produced by risk monitoring processes are used to create new risk mitigation and monitoring strategies considering the regulatory compliance in-line with the best practices . Information Security Risk Impacted CAPITAL The Bank has developed Information Technology Risk Assessment Framework which enables better management of technology risk properly. The Information Security Risk Division is headed by a Chief Information Security Officer (CISO) reporting to the Group Head Risk Management. Country Risk Low Medium to low probability Measurement: Bank’s Country Risk exposure is assessed against bank’s cross border trade and treasury activities. Financial Monitoring & Management: Monitoring of risk exposure is a regular activity. Country exposure limits both for trade and treasury exposures are in place, which broadly capture direct exposure on sovereigns and foreign domiciled counterparties. Operational Risk Medium Medium to low probability Measurement: A database covering losses, control breaches, near misses & KRIs is being maintained. Operational Effectiveness of controls is assessed using the Risk & Control Self-Assessment (RCSA) process. Financial, Intellectual Monitoring: Monthly/Quarterly updates on operational risk events are presented to senior management, MC&RC and the RM&PRC of the Board. Management: The bank has an internal Operational Risk awareness program which is aimed at building capacity and inculcating risk culture in the staff through workshops and on-job awareness. Banks’ capacity to capture & report operational risk events and KRIs is further enhanced by implementing more professionally developed Operational Risk Management Software. Bank uses RCSA as an important tool to assure control effectiveness and take timely corrective measures where required. Regulatory Risk Medium Medium probability Measurement: Management of regulatory risk entails early identification and effective management of changes in legislative and regulatory requirements that may affect the Bank. Financial, Intellectual Monitoring & Management: The Bank reviews key regulatory developments in order to anticipate changes and their potential impact on its performance. Bank endeavors to maintain healthy relationships with regulators and continued compliance with regulatory requirements. Reputation risk Low Low probability Monitoring & Management: Reputational risk is managed on an ongoing basis through a policy framework that details expected behavior of the business and employees. It guides us on the monitoring of employee behavior and specific client responses as well as to society in general. This includes precise and transparent reporting through our integrated annual report, annual financial statements and through other public statements. Our risk mitigation strategy includes: Financial, Intellectual, Social & Relationship Capital • a centralized policy on media; • an escalation process for complaints; and • clear relationships with stakeholders Annual Report 2019 145
148. Information about defaults in payment of any debts and reason thereof There is no default by the Bank in payments of any debts during the year . Inadequacy in the Capital structure and plans to address such inadequacy The Bank is not presently facing any kind of inadequacy in capital structure. Opportunities: Source Opportunity External Building strategic national/international alliances Re-aligning the business model through segmentation to contribute towards China Pakistan Economic and expansion of branch network. Corridor (CPEC) execution. Strategy to Materialize Internal Strong capital base and high Capital Adequacy Ratio Explore new markets after performing the feasibility provides the opportunity of exploring International studies. avenues in emerging/developed markets to expand Bank’s network. Internal Developing and launching new deposit products to Increase focus on digitalization and automation of align & strengthen the existing product menu and process. to capitalize on the growing branchless and mobile/ digital Banking opportunities. Introduce new products considering the needs of different segments of the population. Internal Increasing Bank’s advances portfolio with enhanced Widening the scope of branch network in potential / focus on agriculture, SME and other segments. untapped areas. Align product expertise with client domicile. Streamline and simplify processes for quick disbursement of advances External Facilitating non-resident Pakistanis to increase the flow of home remittances. Entering into new contracts with foreign agents. Placement of Bank representatives overseas and increase marketing activities. Explore new markets to increase customer base. 146 Unconsolidated Financial Statements
149. Annual Report 2021 Directors ’ Report We are pleased to present, on behalf of the Board of Directors, the annual report of MCB Bank Limited (MCB) for the year ended December 31, 2021. in average current deposits and a balanced mix of earning assets, net interest income of the Bank decreased by 10% only, from Rs. 71.33 billion to Rs. 63.99 billion. Profit and Appropriation Non-markup income registered a growth of 11% and aggregated to Rs. 20.1 billion against Rs. 18.1 billion in last year. Improved transactional volumes, surge in business activities, diversification of revenue streams through continuous enrichment of Bank’s product suite, investments towards digital transformation and an unrelenting focus on upholding the high service standards supplemented a growth of 14% in fee income whereas dividend and foreign exchange incomes increased by 86% & 48% respectively. The profit before and after taxation for the year ended December 31, 2021 together with appropriations is as under: Rs. in Million Profit Before Taxation Taxation 51,989 21,178 Profit After Taxation 30,811 Un-appropriated profit brought forward 69,835 Re-measurement gain on defined benefit obligations - net of tax 38 Surplus realized on disposal of revalued fixed assets - net of tax 115 Surplus realized on disposal of non-banking assets - net of tax 250 Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to un-appropriated profit - net of tax 82 70,320 Profit Available for Appropriation 101,131 Appropriations: Statutory Reserve Final Cash Dividend at Rs. 15.0 per share - December 31, 2020 First Interim Cash Dividend at Rs. 4.5 per share - March 31, 2021 Second Interim Cash Dividend at Rs. 5.0 per share - June 30, 2021 Third Interim Cash Dividend at Rs. 4.5 per share – September 30, 2021 3,081 17,776 5,333 On the provision front, proactive monitoring and recovery efforts led to a net reversal of Rs. 910 million in specific provision maintained against non-performing loans (NPL’s) while the general loss reserve of Rs. 4 billion created amidst the uncertainty surrounding the COVID-19 outbreak was reversed, as the systematic risks surrounding the economic recovery have receded and the Bank has created specific provision against exposures that reflected signs of financial distress. 5,925 5,333 Total Appropriations 37,448 Un-appropriated Profit Carried Forward 63,683 Earnings Per Share (Rs) The Bank continues to manage an efficient operating expense base and manage costs prudently with a moderate increase of 8%, despite sustained inflationary pressures amidst currency devaluation and rising commodity prices, higher compliance related regulatory charges, expansion in branch outreach and regular performance and merit adjustments of the Human Capital. 26.00 Dividends The Board of Directors declared a final cash dividend of Rs. 5.0 per share for the year ended December 31, 2021, which is in addition to Rs. 14.0 per share interim dividends already paid to the shareholders, taking the dividend payout ratio for 2021 to 73%. The effect of the final cash dividend declared is not reflected in the above appropriations. Performance Review MCB’s Profit After Tax (PAT) for the year ended December 31, 2021, posted a growth of 6% to reach Rs. 30.81 billion; translating into Earning Per Share (EPS) of Rs. 26.00 compared to EPS of Rs. 24.50 reported in last year. Average Policy rate registered a decline of 19% (166bps) from an average of 8.95% in last year to 7.29% in current year. However, on account of strategically aligned growth Persistent focus on maintaining a robust risk management framework encompassing structured assessment models, effective pre-disbursement evaluation tools and an array of post disbursement monitoring systems has enabled MCB to effectively manage its credit risk. The Non-performing loan (NPLs) base of the Bank recorded a decrease of Rs. 698 million and was reported at Rs. 50.49 billion. The Bank has not taken FSV benefit in calculation of specific provision and carries an un-encumbered general provision reserve of Rs. 636 million. The coverage and infection ratios of the Bank were reported at 90.83% and 7.94% respectively. On the financial position side, the total asset base of the Bank, on an unconsolidated basis, was reported at Rs. 1,970 billion (+12%). The gross advances of the Bank registered historic growth of Rs. 122 billion (+24%), above the industry growth, to close the year at Rs. 636 billion. The corporate lending book grew by Rs. 106 billion (31%) whereas the consumer loan portfolio garnered significant interest and increased by Rs. 9.5 billion (32%) on the back of significant activity in the construction and auto segment. Annual Report 2019 147
150. On the liabilities side , achieving growth in no-cost current account base remained a key strategic objective for the Bank. Thereby, non-remunerative deposits grew by 15.1% to close at Rs. 563 billion; improving their mix in the total deposits to 40% in absolute terms as at December 31, 2021. CASA mix was reported at 93% whereas the total deposits of the Bank grew by 9% to close out the year at Rs. 1,412 billion. Return on Assets and Return on Equity reported at 1.65% and 19.11% respectively, whereas the book value per share was reported at Rs. 135.13. During the year MCB attracted home remittance inflows of USD 3.527 billion to further consolidate its position as an active participant in SBP’s cause for improving flow of remittances into the country through banking channels. While complying with the regulatory capital requirements, the Bank’s total Capital Adequacy Ratio (CAR) is 17.01% against the requirement of 11.5% (including capital conservation buffer of 1.50% as reduced under the BPRD Circular Letter No. 12 of 2020). Quality of the capital is evident from Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 15.08% against the requirement of 6%. Bank’s capitalization also resulted in a Leverage Ratio of 6.13% which is well above the regulatory limit of 3.0%. The Bank reported Liquidity Coverage Ratio (LCR) of 246.31% and Net Stable Funding Ratio (NSFR) of 155.00% against requirement of 100%. The Bank’s exceptional performance has also been recognized by the globally coveted Finance Asia’s Country Awards wherein it has been bestowed with the “Best Bank in Pakistan” accolade in 2021. Impact of Government performance policies on the Bank The banking sector in Pakistan has exhibited operational resilience to the COVID-19 pandemic induced stress. Preemptive response by the State Bank of Pakistan (SBP) played a pivotal role in warding off outbreak’s adverse implications, through rollout of following key support measures: Reduction in the capital conservation buffer by 100 basis points to 1.5%; • Increasing the regulatory limit on extension of credit to SMEs to Rs 180 million; • Allowing banks to defer borrowers’ principal loan payments by one year and or restructure / reschedule loans for borrowers who require relief of principal repayment exceeding one year and / or mark-up with no reflection on credit history; and • Introduction of refinancing schemes for payment of wages and salaries. Apart from relief measures, to propel the construction related segments of the economy, the mandated program of Mera Pakistan Mera Ghar gained serious traction during the calendar year. The introduction of Roshan Digital Account was another key drive undertaken by the industry to facilitate our Non-resident Pakistani segment. The inflow at MCB has summed up to approximately USD 216 million under the Roshan Digital Account (RDA) initiative. From subsidized financing / re-finance perspective, “Temporary Economic Refinance Facility” (TERF) introduced to facilitate investment in new industrial projects as well as capacity expansion has contributed in an historic 24% growth in advances for the year. The Bank has also disbursed loans under Kamyab Jawan Program of the Government of Pakistan. The digital transformation drive of the country registered some major accomplishments during the year. Key initiatives include digitalization of FOREX regulatory approval system, introduction of Asaan Mobile account scheme in collaboration with NADRA & PTA, and ‘RAAST’ instant payment system; enabling it to push its digital agenda through multiple layers in the society. Economy Review Global Economy During the year in review, the global economic growth witnessed a resurgence following the COVID-19 caused downturn in 2020. Amidst the emergence of new variants, the inversion in economic headwinds was largely tied to the development, quick rollout and widespread deployment of COVID-19 vaccines; hence, the global economy is being projected to grow by 5.9% in 2021 as compared to a negative growth of 3.2% reported in 2020. While the broader global activity has grown, the prolonged nature of the health crisis has impacted economies beyond traditional measures, with potentially long-lasting and far reaching repercussions, and has led to the emergence of a disparate recovery trend between high income and low and middle income economies; partly due to the unequal access to vaccines. • 148 Unconsolidated Financial Statements A pent-up in consumer demand, fueled by increase in personal savings, together with supply side pressures due to lingering disruptions in labor and global energy markets, production and supply chain bottlenecks, and shipping and transportation constraints has propelled inflation at an extremely rapid pace. Amidst the evolution in economic scenarios through the various stages of pandemic-related health and economic crises, governments across the globe continue to respond with a number of policy initiatives that attempt to balance competing policy objectives and the ultimate outcome
151. Annual Report 2021 of these measures shall remain imperative in shaping the global economic outlook and ensuring recovery on a sustainable path . Domestic Economy In the backdrop of the global economic uncertainty caused by COVID-19 pandemic, in 2020, the State Bank of Pakistan had eased its monetary policy and introduced inexpensive financing schemes to support consumer and industrial demand in the economy. Resultantly, the first half of 2021 showed robust economic growth. In the second half of the year, the economy began experiencing higher-than-expected growth in aggregate demand from the easing measures introduced earlier. This coupled with rising international commodity prices resulted in higher import bills, causing the current account deficit to expand and introducing cost push inflationary risks to the economy. In the last quarter of 2021, SBP tightened the policy rate to moderate this heightened demand and pave the way for slow yet sustainable growth. The headline annual inflation rate picked up during 2021. From the low year-on-year reading of 5.65% in January, it reached 11.1% in April and continued its upward momentum to reach a twenty-one-month high of 12.28% in December 2021. Increased aggregate demand, higher commodity and energy prices, and disruptions in supply channels were major inflationary triggers as highlighted by SBP. On the external front, Pakistan reported a current account deficit of USD 9.092 billion for first half of FY22 as compared to a deficit of USD 1.916 billion in FY21 where the increased remittances and export numbers had kept the current account balance in check. As aggregate demand in the economy grew, imports started rising at a faster pace than exports. To support the Balance of Payments, the country issued EURO bonds in the international market. On March 30, 2021, Pakistan received USD 2.5 billion through these bonds. Moreover, SBP’s Roshan Digital Account (RDA) gained traction during the year crossing the USD 3.16 billion mark by December 2021. Pakistan also received USD 15.808 billion in workers’ remittances in July-Dec 21. Starting the calendar year at 159.8344 against USD, PKR depreciated by 10.4% to 176.5135 by the end of 2021. On December 31, 2021, Pakistan’s total liquid reserves stood at USD 23.883 billion. In the last four months of 2021, SBP began raising policy rate to counter inflationary pressures in the economy and ensure sustainable growth. By December 2021, the central bank had raised policy rate by a cumulative of 275 bps to 9.75%. According to the central bank, the economy was very close to achieving mildly positive real interest rates. Therefore, in the near-term, the SBP expected monetary settings to remain unchanged. On fiscal side, the government in its budget targeted tax revenue of Rs 5.829 trillion envisioning a budget deficit of Rs 3.42 trillion or 6.3% of GDP. On the behest of the IMF, the GOP has withdrawn sales tax exemptions of about Rs 343 billion with effect from 16th Jan, 2022. The FBR collected Rs 2.92 trillion in net taxes for the first half of FY22, exceeding its target by Rs 287 billion. Future Outlook of the Economy The highly contagious Omicron variant of COVID-19 is expected to have a negative impact on aggregate demand in the economy. Moreover, recent contractionary monetary policy adopted by the SBP is expected to further moderate growth in domestic demand. In response to such policies, the inflationary and external account pressures are likely to gradually lessen in the economy. On 2nd Feb, 2022, the IMF Executive Board approved sixth review of the Extended Fund Facility (EFF) which has resulted in the immediate disbursement of the equivalent of Special Drawing Rights (SDR) 750 million (about USD1bn) to Pakistan. The total disbursement under this program has now reached SDR 2,144 million (about USD3 billion). In their special report on Pakistan, the Fund noted that while economic activity rebounded strongly in 2021, external account and inflationary pressures also started to build. Pointing to recent monetary policy tightening by SBP and introduction of Finance (Supplementary) Bill by GOP, the Board stated that the policies “were appropriate to safeguard macroeconomic stability and debt sustainability.” The COVID-19 pandemic outbreak has further accentuated the need on the financial industry to expedite digital transformation required for reshaping the banking services architecture in Pakistan. Going forward, the ability of banks to launch innovative and customer centric solutions by leveraging technological progressions and intelligent analytics shall eventually enable the shift in horizon from traditional banking towards an increased adoption of advanced e-banking avenues for supporting enhanced customer experiences. Risk Management Framework The risk management framework has been separately disclosed in the Annual Report. Credit Rating The Bank enjoys highest local credit ratings of AAA / A1+ categories for long term and short term respectively, based on PACRA notification dated June 23, 2021. Annual Report 2019 149
152. Statement on Internal Control The Board is pleased to endorse the statement made by management relating to Internal Control over Financial Reporting (ICFR) and overall internal controls. The Management’s Statement on Internal Controls is included in the Annual Report. Statement under Code of Corporate Governance and section 227 of Companies Act 2017: The Board of Directors is committed to ensure that the requirements of Corporate Governance set by the Securities and Exchange Commission of Pakistan and requirements of Section 227 of Companies Act 2017 are fully met. The Bank has adopted good corporate governance practices and the Directors are pleased to report that: • The financial statements, prepared by the management of the Bank, present a fair state of its affairs, result of its operations, cash flows and changes in equity. • Proper books of account of the Bank have been maintained. •Appropriate accounting policies have been consistently applied in preparation of financial statements. Accounting estimates are based on reasonable and prudent judgment. • International Financial Reporting Standards, as applicable in Pakistan, have been followed in preparation of the financial statements and any departure there from has been adequately disclosed and explained in the Annual Accounts. • There has been no material departure from the best practices of corporate governance. • There are no significant doubts upon the Bank’s ability to continue as a going concern. • Profit amounting to Rs. 3.08 billion has been transferred to the Statutory Reserve for the year 2021. • The System of Internal Control is sound in design and has been effectively implemented and monitored. • Key operating and financial data of the last six years is presented in the stakeholder’s section of this Annual Report. • Pattern of Shareholding, complying with the requirements prescribed by the code is annexed with this Annual Report. • Statement of Compliance with Code of Corporate Governance is included in the Annual Report. • Composition of the Board is given in the Statement of Compliance with the Code of Corporate Governance in the corporate governance section of this Annual Report. • Names of the persons who, at any time during the year 2021, were directors of the Bank have been separately disclosed in the corporate governance section of this Annual Report. 150 Unconsolidated Financial Statements • The Committees of Board of Directors along with their terms of reference/charter have been separately disclosed in the corporate governance section of this Annual Report. • The number of Board and committees’ meetings held during the year and attendance by each Director has been separately disclosed in the corporate governance section of this Annual Report. • Details of directors’ training programs are given in the statement of compliance with the code of corporate governance. • The remuneration policy of non-executive directors, including independent directors, as approved by the Shareholders of the Bank is disclosed in the corporate governance section of this annual report. • Detail of remuneration of Chairman, President/CEO and non-executive directors is disclosed in note 40 of the unconsolidated financial statements. • The principal risks and uncertainties facing the Bank have been disclosed separately in this Annual Report. Corporate Social Responsibility (CSR) The Board acknowledges its rightful duty to operate as a highly socially responsible bank. The activities undertaken by the Bank with regard to CSR are disclosed in the Corporate Sustainability section of this annual report. External Auditors The retiring Auditors, M/s A. F. Ferguson & Co., Chartered Accountants, being eligible for the next term have offered themselves for reappointment. Therefore, upon recommendation of the Audit Committee, the Board recommends appointment of M/s A. F. Ferguson & Co., Chartered Accountants, as the statutory auditors of the Bank for the financial year 2022 in the forthcoming Annual General Meeting. Appreciation and Acknowledgements The Board of Directors of MCB Bank Limited would like to thank the Government of Pakistan, the State Bank of Pakistan, the Securities & Exchange Commission of Pakistan and other regulatory bodies for their continued support, all shareholders and customers of the Bank for their trust, and our employees for their continuous dedication and commitment. For and on behalf of the Board of Directors, Shoaib Mumtaz President & CEO MCB Bank Limited February 10, 2022 Shahzad Hussain Director MCB Bank Limited
153. Annual Report 2021 Annual Report 2019 151
154. 152 Unconsolidated Financial Statements
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156. 154 Unconsolidated Financial Statements
157. Annual Report 2021 Groups Review Wholesale Banking Group The Group remained focused on all business areas during 2021 Corporate Banking , Investment Banking and Transaction Banking contributed for another profitable year. The Corporate Portfolio grew exponentially through booking of a number of new loans to surpass previous levels. Bottom line contribution for the Bank was through increased fee income generation and a well-managed loan book; with no additional charge on the portfolio on net basis during 2021. In 2021, several strategies were adopted, including the setting of group limits for large corporates, limit review exercise, and Risk Asset Acceptance Criteria (RAAC) to strengthen our credit underwriting standards and risk appetite. The CFIBG team managed to use its relationship and resources to actively cross-sell various products including construction finance, as well as consumer products such as auto, home, personal loan to employees of Corporate Customers. The Bank’s Investment Banking team managed to successfully close several transactions during the year and posted highest fee-based revenue in the last four years. The team successfully advised and arranged one of the largest Syndicated Term Finance Facility for Pak Telecom Mobile Ltd. of PKR 21 Billion. In addition, various expansion and BMR projects were undertaken through SBP TERF and LTFF schemes. Investment Banking of MCB also received international recognition through the following awards: The Asset Triple A Sustainable Capital Markets Country & Regional Awards: o o o Best loan adviser in South Asian Region- 2021 Best Structured Finance Deal in South Asian Region for Pakistan Mobile Communications Syndicated Term Finance Facility of PKR 50 billion- 2021 Best equity-Linked Deal- Engro Polymer & Chemicals Limited US$19 million preference shares- 2020 The Cash Management business continues to remain one of the leading cash management solution providers in the country and with its growth momentum surpassed annual volume milestone of PKR 3 trillion in 2021. This was realized through focus on Initial Public Offerings (IPO), Right issues, E-Dividends and domestic payments’ modules to help meet the requirements of top Corporations across the country. During the year, Transaction Baking Division of MCB attracted home remittance inflows of USD 3.527 billion to further consolidate its position as an important contributor to the national cause of improving flow of remittances through banking channels. In 2021, Strategic Acquisitions and Investments Division (SAID) evaluated different acquisition and investment opportunities for the Bank. The Division strives to explore internal and external options for the Bank’s strategic growth. Globally, the banking industry continues to face novel challenges following rise of Fintechs. Technological advancements and industrial transformations of this kind are likely to flow into Pakistan. In view of this imminent disruptive phase, SAID explored options within the Fintech space and is in the process of conducting due diligence to better understand the intricacies within the space with the intent to make decisions in the best interest of the Bank. The business teams continue to remain geared up for growth strategy in 2022. International Banking Group MCB Bank has strategic footprints in the international arena and is working towards further expanding its global reach. The Bank has direct presence in Sri Lanka, Bahrain, and United Arab Emirates through a network of branches bringing its strengths and quality of service to its international customers. Sri Lanka Operations: Going back a quarter of a century, MCB bank has been serving the people of Sri Lanka. The bank established its operations in Sri Lanka in 1994 as a single branch with main focus on trade finance related business. Since then the bank has been growing steadily and at present caters to a variety of segments, such as, Corporate, SME, Retail and Islamic banking. The bank prides its self as holding the second-largest branch network amongst foreign banks in the Sri Lanka. Despite a sluggish business environment which prevailed due to Covid-19 pandemic, MCB Sri Lanka remained profitable for the year 2021. As a testimony to its prudent policies the bank was able to secure a local rating [SL] A+ (stable) by ICRA Lanka Limited, which point towards the prudent capital, risk and liquidity management of the bank. Valuing its commitment to its stakeholders, the Bank undertook all relevant health and safety measures to ensure the well-being of its staff and customers while ensuring its corporate objectives were met. During the year MCB Sri Lanka took steps to increase the digitalization of its services by launching Mobile Banking Application for individual customers and initiating the process to upgrade its Virtual Banking platform. This will enable the customers to carry-out banking transactions without their physical Annual Report 2019 155
158. presence at branches . During the year several strategic decisions have been taken to effectively manage the operating cost and mitigate credit and liquidity risk of the balance sheet. Further, Sri Lanka operations have been able to improve its CASA and AD Ratio to be in line with the bank’s strategic objective. UAE Operations: MCB Bank commenced its operations in Dubai, UAE as a wholesale banking branch in 2015. The franchise’s strategy of diversifying its portfolio on both the liability and asset front has resulted in a dynamic portfolio with an ability to adjust as per market challenges. By focusing on expansion in the Financial Institutions, and trade risk the branch was able to achieve its growth targets. The branch has been able to generate quality returns, by increasing its productivity. Despite the economic backdrop, the Branch was able to maintain its deposits base in 2021, through diversification of the liability portfolio, while maintaining a CASA base of over 84%. MCB UAE stood firm in its commitment to expanding its outreach and in achieving its objectives while safeguarding the interest of our shareholders through prudent policy and by relying on the Bank’s core strengths. Bahrain Operations: Mobilizing organic liquidity was a key focus for MCBBahrain during the year. By the year-end, all assets fund through organic liquidity. MCB Bahrain specifically designed a product for its customers to enhance their return on equity by leveraging their investment in approved fixed income products. Under the approved risk and reward, framework gaps are minimal while maximizing profits. It formulated a more natural balance sheet for the franchise. The franchise aims to develop and implement several policies and procedures to cover ever-evolving regulations. MCB Bahrain also remained focused on AML/ CFT and compliance areas. Gap assessments regarding internal policies and procedures were conducted and later approved for implementation. Creating a safe environment for its customers and employees - MCB Bahrain maintained strong customer and employee safety protocols during the pandemic. Retail Banking Group Retail Banking Group continues to be the face and core bloodline of the bank, strategically focused to provide a 156 Unconsolidated Financial Statements commendable mix of products and services to the length and breadth of the country. RBG with its 1,400+ locations, 9,700+ employees serves all economic geographies, customer and business segments. Key considerations in 2021 remained on financial inclusion, digital innovation, process reengineering, sales and service enrichment while maximizing stakeholders’ interests. RBG marked 2021 as another year of sustained historical growth, stellar financial results and accomplishment of major business objectives. With its passion, commitment and determination, the team generated highest ever current deposit that helped in achieving exceptional financial results during unprecedented macroeconomic challenges like inflation, volatile parity rates, upsurge in monetary policy, enhanced regulatory requirements as well as environmental challenges where multiple surges/ restriction related to COVID-19 were observed. Team RBG has established themselves as a core contributor in all value streams. 2021 was another successful year in terms of growth in core deposit, fee-based income, cross sell as well as considerable increment in advances portfolio without compromising on credit quality. Through a smart mix of innovative products, process re-engineering initiatives, sales support programs, service management activities, robust governance & untiring staff efforts; “The Best Selling Machine” has enabled the bank to celebrate another winning year. In order to ensure superior services to our customers, apart from inclusivity of all staff member through “Participation from All Initiative”, RBG continued to strengthen its franchise by adding new branches, relationship & service managers, operational staff as well as new business function / units during the year. RBG, being the biggest deposit and revenue contributor to the overall growth of MCB Bank, has always been instrumental in building “low-cost deposits” with CASA mix standing at 94.3% in 2021. The best part of this year has been our phenomenal ever highest growth in Current Deposit, thus contributing 57% of 2021’s total deposits. Growing fee income from diverse products and branch operations despite challenging conditions has been exceptional. On-going expense management including cost rationalization at all business functional levels has played its role in revenue maximization and profitability of the bank. Team RBG is at the forefront in delivering all regulator led initiatives. Enhancements in Roshan Digital Account (RDA) have made the enterprise more beneficial for overseas Pakistanis. MCB Bank is proud to be one of the leading participating banks of the initiative and is offering all valueadded services digitally. MCB Bank is the only bank offering RDA in 9 foreign currencies alongside with Pak Rupee. The addition of Roshan Apna Ghar, Roshan Apni
159. Annual Report 2021 Car , Roshan Samaaji Khidmat, Roshan Qurbani Service and many such endeavors opened new corridors for our overseas diaspora. MCB Bank continuously strives to add more value added services and investment opportunities in future. RBG with the collaborative support of other business groups has gained decent market share in important national socio development programmes, by facilitating customers under Mera Pakistan Mera Ghar (MPMG) and Kamyab Jawan Program Schemes. A devoted RBG team is assisting potential MPMG customers during their loan processing, identifying suitable properties and in the execution of purchase of property. Similarly, the team is making its utmost efforts in transmitting benefits of Kamyab Jawan Program to the target market. Our Agri financing and SME teams are constantly involved in identifying potential customers and facilitating loan disbursements. In order to ensure customer convenience, excellence and competitiveness, selected liability products were further improved. MCB Smart Business Account was one such product, perfectly suited for business entities and entrepreneurs with the addition of various new benefits have shown traction. Moreover, the need of payroll proposition has evolved in recent years; to address prevalent employee and employer considerations, RBG has further strengthened ‘MCB Salary Club’ which has been appreciated by our existing institutional clients and has helped the bank in soliciting new payroll mandates. RBG continued to enrich customer experience and fulfill ever evolving needs of its customers through use of latest technological advancements. Introduction of state of the art / new age online banking services, expansion of ATM network as well as introduction of digital account opening services are few examples Disciplined implementation of policies and procedures has helped in ensuring compliance and control culture, further strengthened operational efficiencies and overall governance. Complete focus on ‘Operation Excellence’ assisted in achieving improved sales, high quality service standards and enhanced levels of internal control. In continuation of branch network optimization strategy, a number of branches were merged, relocated or closed. While under the annual network expansion plan 10 new branches were opened during the year. RBG has established itself as a reliable contributor in terms of deposit and advances growth, revenue maximization and a facilitator of best in class services for our customers. We are confident that with determination, passion and capability to adapt ever-changing conditions, we will continue to grow even better in the months ahead. The growth of core deposit alongside of increase in assets to maintain stable loan to deposit ratio will be a primary objective in 2022. Facilitation of overseas Pakistanis under the RDA initiative, MPMG, Kamyab Jawan and other national financial inclusion / support initiatives will remain key focus areas. Channelizing of Home Remittances, soliciting NTBs, retention / deepening of existing deposits, on-boarding Cash Management, Payroll & Collection Mandates will also remain our business drivers. Our prime challenge remains maintaining and building upon the momentum we have created & improved during the past few years while remaining cognizant to environmental and socio-economic situation. With over 1,400+ branches network, catering to more than 8 million accounts of valued customers, Team RBG, with its zeal, passion and commitment followed by vigorous execution plan, is geared up to outperform in all deliverables and prepared to achieve greater results. Special Assets Management (SAM) During 2021, SAM Divisions recorded cumulative recovery figure of Rs. 2.67 Billion (2020: Rs. 2.41 Billion) and registered a growth of 11% over the corresponding year, despite pandemic and several other grave challenges. SAM Retail & Consumer Division contributed Rs. 1.27 Billion and surpassed the last year recovery figure by 25% and registered a handsome recovery yield of 14%. SAM Corporate & Commercial Division achieved Rs. 1.4 Billion and successfully restructured defaulted credits amounting to Rs. 5.2 Billion (2020: Rs. 1.6 Billion) by resolving various big ticket defaults during this year. SAM’s settlement coverage also exhibited significant improvement as recoveries were spread over 6,316 cases as compared to 4,360 cases in the preceding year. Besides, recovery from written-off portfolio also witnessed significant growth of 89% as compared to last year (Rs. 176 Million vs. Rs. 93 Million). This feat has been achieved with untiring dedication, hard work and efforts of highly self-motivated and focused SAM team. Mindful of enduring its legacy of working in an environment, acquiescent with the applicable laws & regulations and policies of the Bank; SAM not only succeeded in placing outstanding recovery numbers on the Board but also further improved its compliance to internal controls. Resultantly, all segments of SAM Divisions achieved highest Internal Audit Rating i.e. Satisfactory/A during the period under review. Lastly, it is pertinent to mention that owing to visible dismal spiral of Covid-19 pandemic coupled with micro & macroeconomic adversities, infected portfolio of banking sector has witnessed constant upsurge. Therefore, it is eminent that SAM continues its focus on remedial management to realize desired objectives of the sustained growth in an Annual Report 2019 157
160. efficient & effective manner notwithstanding the fact that worsening economic and political milieu will again pose a greater degree of challenge during 2022. Consumer Banking Group In 2021, MCB Bank aligned the consumer and digital banking businesses to deliver full blown digital banking of the future on the “built to last” principle. The core objectives of this alignment were, simpler and faster customer delivery, leaner and smarter orgs, and de-centralized / digital processes – all in line with bank of the future. Thus 2021 saw intense focus on two main drivers of customer centricity, product design and customer communication & dialogue enrichment by the business lines. Wealth Management and Privilege Banking: Bancassurance business continued a steady upward growth trajectory, started over the past years. In 2021, the business regained momentum after a pandemicchallenged 2020, and ended with a strong performance. Total sales volume in 2021 crossed PKR 3.0 billion. 2nd highest fresh premium volume since launch of the business in 2008, which was PKR 3.15 billion in 2019. This means that MCB is now at over 95% of our prepandemic peak, a stronger recovery than other industry player. Also putting MCB in a pole position to deliver new performance benchmarks in 2022. Investment Services posted impressive numbers in 2021 and outperformed by generating business of PKR 8.03 billion. Improvement over the previous year was even more dramatic, with volumes growing by 40% compared to 2020 (ending at PKR 5.7 billion). On the Privilege Banking, the business grew by 13.75% - PKR 24,186 million in 2021 versus PKR 21,263 million in 2020. Growth in current account book within Privilege was 32% over 2020, i.e. PKR 909 million - PKR 3,749 million in 2021 versus PKR 2,840 million in 2020. This reflects the potential of high net worth banking segment in the market, and a high potential to scale contribution to income and profitability from this business line. Consumer Lending: For past two years Consumer Lending has been earmarked as MCB’s engine for growth. Bank set out to replicate its success on the auto lending product line to rest of the consumer assets suite including, home loans, credit cards, and personal loans. In this spirit, the business line exhibited a significant growth of 32% in its book size year on year - closing at PKR 38.5 Billion. The business now serves over 140,000 customers across lending products. 158 Unconsolidated Financial Statements During the H1, 2021, market’s economic activity with low interest rates remained favorable to consumer assets. However, in the latter part of the year the business experienced pressure due to hike in interest rates and regulatory tightening to curb large ticket and imported vehicles auto financing. In line with SBP’s initiative to boost foreign currency inflow by providing investment opportunities to NRP’s, the consumer lending business launched two new products i.e. Roshan Apni Car and Roshan Apna Ghar. In addition, the business also spearheaded government’s initiative to provide low cost and affordable housing to the masses under Mera Pakistan Mera Ghar scheme. The business booked 576 loans acquiring PKR 2 Billion in new assets under the program. The business continued to form strategic alliances with Auto Manufacturers (OEMs) to provide value-added services to our auto customers and also offered high end tactical and regular discounts campaigns to its credit card customers. Lending businesses namely; Auto, home loan and credit card went on to register their best performances in terms of units, spend and volumes respectively. Capital Market The market started the year on a positive note, but worsening macros dampened the sentiments in the second half. As the world recovered from the pandemic, recovery in demand outpaced supply, leading to a boom in commodity prices. Resultantly, Pakistan faced pressure on its external account with sharp devaluation of local currency, depleting reserves, rising inflation and high interest rates. To make matters worse for the market, MSCI announced reclassification of Pakistan from Emerging Market to Frontier Market (FM). Pakistan’s downgrade to FM Index further aggravated foreign selling, with November 21 witnessing net foreign selling of $141 million. MCB’s Capital Market Division managed to outperform the market in these turbulent times. Going forward, international commodity prices will be critical in determining the overall performance of the macroeconomic indicators of the country, and, hence, direction of the market. Treasury and FX Group The Treasury & FX Group (TFXG) has a long history of successfully navigating the volatility in the market, while optimizing the risk return to its portfolio and this year was no exception. Despite the initial wave of hysteria regarding growth, the course correction and resultant volatility, and in the latter half of the year on key rates and economic direction the Group managed to successfully face the headwinds, and efficiently navigated through these unprecedented circumstances. The Group surpassed its performance targets for the year and made significant
161. Annual Report 2021 contribution to the Bank ’s mark-up and non-mark-up revenue this year. To recall, Pakistan’s economy rebounded strongly after taking a hard-hit in 2020 caused by the COVID-19 pandemic; the economy registered a 5.57% real GDP growth in the fiscal year 2021. However, pressures related to inflation and external account also started to emerge, resulting in widening of the current account deficit by the latter part of the year. In the final months of the year, spread of Omicron variant initiated a new wave of uncertainty in the markets. The unforeseen developments in inflation and current account balance caused the State Bank of Pakistan to raise its policy rate cumulatively by 275bps to 9.75% in the year under review. MCB Bank’s Treasury took proactive measures to close the year with significant increase the Bank’s revenue. On the external front, the imports grew faster than the exports, creating downward pressures on PKR against USD. PKR depreciated against the USD by 10.3% in the year 2021. MCB Bank’s Treasury was ahead of the curve and efficiently managed this FX volatility and generated record profits in exchange income. Our sales team remained committed to and fully engaged with our clientele to advise them during the period always keeping them abreast of the economic developments. As an Authorized Derivatives Dealer, our derivatives team engaged with suitable customers having FX or interest rate exposures to provide solutions using derivative products. This led to an increase in customer awareness with respect to the use of derivatives to manage the identified market risks. Through the financial and economic developments in 2021, MCB Treasury Research Desk worked to analyze the impact of changing market dynamics, and so, assisted the Bank in its decision-making. The Research Desk timely prepared economic forecasts of interest rates, inflation, foreign exchange rates, and other macroeconomic variables and shared the findings with the Bank’s internal and external stakeholders. The Research Desk published the MCB Purchasing Managers’ Index (MCB PMI) on a bi-monthly basis to help gauge the developments in the financial markets and the growth in the manufacturing sector of the economy. Information Technology Group Information Technology has transformed the banking industry worldwide for the better and has provided us with the necessary tools to manage the challenges of an ever growing economy. The integration of technology has been the cornerstone of recent financial sector reforms across industry aimed at increasing the productivity and efficiency of financial operations, strengthening the banking sector to meet high consumer expectations and to secure a leadership position amongst peers. However, the most challenging part of the ever changing world of ‘Technology’ is to neutralize the impact of obsolescence and advancements at a strategic level without compromising availability, security and reliability of the ‘Data and Information’. In MCB Bank, the entire management and the board is committed to enrich Information Technology infrastructure at the enterprise level which is clearly evident from the investments the bank chose to make in the recent past. We are committed in our mission “To be a leading bank in the Information Technology sphere, with our focus on digital transformation to enhance customer experience”. The multi-pronged approach comprises of but is not limited to one of the largest footprint of online branches with a centralized core and associated banking systems, strategic acceptance systems at both eCommerce and POS levels, robust Internet Banking and Mobile Banking platforms, revolutionary product and services offered through world class Digital Lounges, highly efficient & scalable Contact Centers, one of its kind state-of-theart Enterprise Data network, established International footprint, proactive controls to combat money laundering and frauds, interoperability with other financial entities and Branchless Banking solutions to facilitate the customers irrespective of their location. Information Technology Group (ITG) at MCB Bank is comprised of a team consisting of thorough professionals having a proven track record of project delivery and IT infrastructure management at an enterprise. The components of the organizational structure of ITG are included with IT Enterprise Infrastructure, IT Operations, IT Software Solutions, IT Support Services, IT Service Management, IT Information Security, IT Business Technology, IT Compliance and Internal Control, IT Business Continuity, IT Project Management, IT Procurement and IT Financial Services who are committed to servicing it’s consumers both internally and externally 24/7. Recently ITG successfully streamlined existing operations across board and recorded the highest ever uptime of core banking along with affiliated applications throughout the year. Nevertheless, the availability of Data Centers and the back-end systems along with all necessary services were remarkably remained at fivenines. In addition to operational achievements by ITG, new benchmarks were achieved to comply with the highlighted recommendations by external and internal audit committees and the SBP. ITG had also closely monitored Bank wide projects and had driven related technology functions with a motive to accomplish the assigned tasks within the agreed timelines. Close coordination and liaison with working Annual Report 2019 159
162. groups and vendor relationship management are the key factors in above achievements . various special offers and alliances according to category, country, city, discount percentage. Looking forward to 2022, IT Group is more committed towards: Building upon SBP’s vision of promoting Pakistan’s domestic payment scheme; Paypak Gold Debit Card was launched in 2021 giving customers a variety of card variants to choose from as per their unique needs. • Dynamic Customer Experience with CrossTouchPoints • Revolutionizing payments & Driving Financial Inclusion • Agile & Goal Oriented Product Service Road Map Delivery • Payment Card Industry : Compliance : PCI DSS Certification • Improving Information & Cyber Security ecosystem Apart from above commitments, IT Group shall continue to empower the staff with the requisite trainings and job enrichment plans to impart motivation and job success factors. Digital Banking The pandemic established a full blown case for a digital transformation in banking. In 2021, as the world started reopening, new avenues for digital innovation and experimentation emerged. MCB jumped to avail this opportunity by developing customer-centric design – encapsulating the needs & wants of our customers. Launch of MCB Live – Bank’s new mobile and internet banking was a true manifestation of it. Debit Card MCB’s diverse debit card portfolio comprises card variants by two international schemes, Visa and Mastercard, alongside one domestic payment scheme, Paypak. Staying the course on breaking previous records, MCB Bank accomplished highest ever card activations and issuance growth of 38% year on year. The total retail spend on Debit cards increased by 45% and total e-Commerce spend saw a tenfold increase by 135% year on year. The Bank executed multiple transformative projects including near-field-communication or contactless technology cards on international payment scheme cards and enhanced transaction security via 3D-Secure technology on Visa portfolio – thus delivering digital transactions growth and improved customer trust and confidence. In 2021 MCB Bank rejuvenated discounts and promotions proposition to its cardholders, offering exciting discounts on lifestyle products and round-the-clock services by enabling 1,450+ ATMs and POS networks across the country. A new and improved browsing experience was launched for MCB debit card customers by transforming the discounts section to enable the customers to filter 160 Unconsolidated Financial Statements To further facilitate Roshan Digital Account (RDA) customers, the debit card application process has been revamped, enabling digitization, customers can submit paperless digital applications for both basic & supplementary card from anywhere around at world at ease. Omni Channel Digital Experience 2021 was a year of mega transformational projects. The bank upgraded to a world class Oracle-based platform MCB Live – an Omni-channel digital banking platform equipped with advanced mobile and online banking features. MCB Live provides our customers, an easy and secure way to transfer money, carry out balance inquiries, check mini-statements, buy top-ups, pay bills, and much more from the comfort of their homes 24/7/365. The new digital banking application facilitates its customers to manage and control their bank accounts, debit & credit cards; whenever and wherever they want. The launch of MCB Live marks the start of a new digital era of MCB Bank. Automated Teller Machines ATM network witnessed a firm progression in terms of reach, reliability, and transactional volume. MCB’s network stands at 1,450+ ATMs one of the largest national ATM networks spread across 500+ cities generating over 57 million transactions. MCB Bank has an ATM uptime rate of 98.68%, ensured by the presence of ATM monitoring teams working 24/7. Merchant Acquiring Expanding its payment acceptance footprint in the market, MCB Bank has now deployed more than 9,000 POS terminals at multiple locations across the country that processed over PKR 27 billion volume in 2021. Moreover, certifications of 3 different POS terminal models with 5 payment schemes were also enabled. MCB eGate equips online businesses to accept payments reliably and securely from both credit and debit cards. During the year, approximately PKR 8 billion e-commerce transaction volume was processed through eGate. The online card acquisition footprint has grown and continues to grow exponentially worldwide. MCB Bank has an action plan to continue developing in the e-commerce space in 2022.
163. Annual Report 2021 Branchless Banking MCB Lite – our Branchless Banking Wallet offers customers ability to handle their financial transactions and payments in an efficient and real time manner. In 2021, MCB Lite undertook a substantial regulatory project with the launch of “Asaan Mobile Account” (AMA) Scheme to increase financial inclusion through enhanced access and usage of digital financial services. AMA scheme will facilitate the less privileged and marginalized sections of the society towards adopting digital payments even without internet and smartphones access and also transform banks to shift their focus from ‘Over-the-Counter’ (OTC) services to branchless banking (BB) accounts. MCB Branchless Banking also saw addition of reputable organizations on its funds/salary disbursement portfolio. MCB Lite is all set to explore new avenues while embracing the Digital revolution in 2022. Operations Group In its aspiration towards operational excellence, Operations Group has retained agility and flexibility in operational processes, discipline in internal controls, and dedicated focus on regulatory compliance, while continuing to be a key enabler of business growth and digital innovations for the Bank. While the world continues to navigate the new normal in the backdrop of COVID-19, Operations Group has emerged stronger and better through consistent efforts and optimized utilization of existing organizational, human and physical capacity. Simultaneously, the group has focused on tapping new opportunities for transformation and automation. OPG continued to create value and capability to meet the evolving needs of our external customers and frontend staff by prioritizing business growth and service efficiencies through automating and centralizing existing operational processes, strengthening controls and facilitating optimal service delivery. Business growth and controls are two of the most imperative objectives for attaining long term goals associated with sustainable competitiveness and leadership in the finance industry, and Operations Group has kept these objectives in mind when optimizing processes, systems and operational capacity through operational excellence and lean process management. Likewise, the group’s control-centric approach was pivotal in balancing regulatory requirements with process review practices. Projects that were predicated on process improvement include revamp of account activation process with special facilitation for overseas customers, RTGS Bulk Payment upload facility for corporate clients and introduction of enriched stage based SMS alerts for debit card delivery. Further, in order to improve account opening process, a detailed exercise has been conducted to improve Turn Around Time and customer onboarding journey. Functional support was also extended towards design ideation and process formulation for MCB Live – Bank’s digital platform. A comprehensive study was also conducted for MCB Call Centre in which improvement opportunities in processes and systems were identified besides capacity enhancement. Keeping system and process ingenuity at its heart, Operations Group pushed ahead with its vision of enriching customer experience by scaling digitization efforts to new heights. Consequently, functional support was provided in various projects having bank-wide significance including Image-based Clearing, Data Cleansing, automation of Personal Student Loan product, centralization of Asaan Accounts, Centralization of FCY Term Deposit with newly designed system mechanism, introduction of straight-through processing for RTGS transaction queries and advices module, centralization of Single Treasury Accounts, automation of pensioner account monitoring and automation of account certificates required by customers. Another landmark project was development of in-house deposit/withdrawal screen having added controls, more flexibility and automated deduction of charges. Maintaining steady progress towards cost optimization, various initiatives were undertaken for rationalizing administrative cost including a systematic effort to bring customers towards e-statement. On the people management front, Operations Group has remained cognizant of the effect of social distancing on the ability to have physical staff training sessions and workshops. Accordingly, digital channels have been utilized to the maximum and significant number of staff trainings have been conducted on data cleansing, business continuity and Green Banking. Meanwhile, staff participation in trainings of vital significance has also been ensured for Group’s own staff. Sustainability and continuity have also been at the back of the Operations Group’s vision for Green Banking and Business Continuity. Therefore, the Group preserved the integrity of the Green Banking vision by strengthening its partnership with environmental bodies and non-profit organizations in the year 2021 through the maintenance and achievement of an adequate surveillance audit score, and by scaling up dry waste recycling practices. Plantation drive was conducted with zeal and enthusiasm and various Business Continuity initiatives were met through effective execution of existing contingency planning and crisis management practices. In addition, Own Impact Reduction pilot initiative was implemented with an aim to scale it up to achieve carbon footprint reduction goal. Annual Report 2019 161
164. For 2022 , Operations Group sees plenty of opportunities that are compelling with promising business recoveries and accelerated digital adoptions across the ecosystem. Operations Group is excited about the prospects of the year 2022 and will continue to strike the right balance between the opportunities and risks that come along. Last year’s challenges made us all stronger, giving Operations Group too an opportunity to learn and grow. The group is committed to further capitalize on this learning and resilience by finding new ways to prioritize digitization and centralization endeavors while strengthening cost discipline and proactive engagements with stakeholders to improve process centralization and further automate manual products and processes. transactions from ML/ TF/ PF perspective as required under the updated AML/CFT/CPF Regulations, CCG developed a structured model of Internal Risk Assessment to continuously assess its inherent and residual Money Laundering, Terrorism Financing & Proliferation Financing risk based on threats and vulnerabilities. This activity also enables the bank to explore opportunities and strengthen its systems and controls to mitigate the residual risk. Compliance and Controls Group In order to remain abreast with regulatory requirements, CCG has pursued implementation of various dimensions of Compliance Risk Management (CRM) Guidelines issued by the regulator. In this perspective, CCG aims to inculcate a compliance culture in the bank wherein ongoing regulatory requirements and industry challenges can be managed effectively in all jurisdictions of MCB operations. The Compliance landscape and environment is becoming increasingly complex and challenging owing to enhanced Global focus on risks associated with Money laundering, Terrorist Financing, Proliferation Financing and direct exposure to embargoed jurisdictions. Consequently the Compliance function is continuously striving to keep up with these challenges through a well-integrated and robust risk mitigation framework in the aforesaid areas of our banking operations. As heightened focus continues on tackling these issues, CCG is committed towards investing more in resources, processes and technologies to combat these and other risk areas. CCG aims to ensure the highest standards of AML/ CFT/CPF and sanction risk compliance, which requires management and employees to adhere to these standards by preventing use of Bank’s delivery channels, products and services for money laundering and terrorist financing. The Group provides a structural base to enable all concerned stakeholders to monitor out of pattern/ unusual transactions to detect possible Money Laundering/ Terrorism Financing /Proliferation Financing activities through Transaction Monitoring Solution (FCCM). It also leads the Management Committee on AML/CFT/CPF for oversight of AML/CFT/CPF & Sanctioned compliance with respect to relevant regulations, policies and procedures and steering of various AML/CFT/CPF initiatives in the Bank, to mitigate the risk of such activities, for both domestic and overseas operations. Furthermore, CCG is also challenging all internal stakeholders to strengthen Bank’s monitors with regards to AML/CFT/CPF & direct exposure to embargoed jurisdictions risk emanating from Trade related business activities. Highlights of 2021 include successful completion of project on updation of Transaction Monitoring System, implementation of a new Risk Profiling System and Trade Based Money Laundering System and strengthening of CFT desk by inclusion of Regulatory Reviews under its ambit for provision of feedback on high risk accounts/ 162 Unconsolidated Financial Statements CCG also oversees adherence to the regulatory requirements through onsite reviews, with specific emphasis on Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (CFT)/ Countering Proliferation Financing (CPF). CCG ensures a professionally cordial working relationship with State Bank of Pakistan (SBP), Law Enforcement Agencies and other regulatory bodies in addition to coordination of SBP’s Inspections. The Fraud Risk Management Department (FRMD) is now completely consolidated on Pan Pakistan basis within FRMD. In addition to the management of Branch related fraud cases, FRMD started Preliminary Investigations of Consumer & Digital banking related frauds, hence adopting a more focused approach towards managing Fraud risk. Further, Implementation of ‘Internal Eye’, a tool for reviewing and monitoring of transactions associated with customers’ as well as employees’ accounts, through various predefined system based potential scenarios that will detect and manage the fraud risk encountered by the bank through timely highlighting suspicious and fraudulent activities. In addition, FRMD is leading Fraud Risk Assessment Exercise Bank wide with an objective to build new controls or reinforcement of existing controls in order to counter the potential frauds and safeguard Bank’s interest. Moreover, FRMD also spearheads the resolution of regulatory observations through a cross functional management committee. In compliance with the Regulatory requirements of Employee Due Diligence, FRMD has designed Know Your Employee (KYE) Program, whereby, it also conducts KYE review exercise on quarterly basis by reviewing credentials of newly hired regular employees. Our Service Quality (SQ) function, which is also part of CCG, continues its enhanced focus and rigor around customer
165. Annual Report 2021 experience through senior management oversight and continuous internal stakeholder engagement . Bank follows a multi-pronged approach to assess the quality of service standards for its customers. These measures include ongoing evaluation of our branch look & feel, speed of our product and service delivery and efficiency of our digital channels. The bank also seeks customer feedback on the same through its in-house Voice of Customer team. Weak areas identified through these initiatives are then worked upon to improve customer experience. Fair treatment of customers continued to remain a priority agenda item for the bank throughout 2021. In addition to the existing training module on “Fair Treatment of Customers”, an e-learning program took place in 2021 for frontline staff dealing with the customers in order to re-iterate the roles and responsibilities of bank’s staff in this regard. This training module will be gaining further momentum during 2022. Service Quality function is also the custodian of customers’ grievance handling and works in collaboration with all businesses / functions of the bank responsible for acknowledging, investigating, tracking, escalating and resolving customer complaints within specified turnaround times. Audit and Risk Assets Review Group Internal audit function plays critical role in the overall risk and control environment of any organization. The function provides assurance that is vital for the Board and management in assessing overall strength of an organization’s control environment. Furthermore this function also adds value to the aforesaid control environment by virtue of its consultative role. Audit & Risk Assets Review (Audit & RAR) Group is responsible for the internal audit function within MCB Bank Limited. Chief Internal Auditor functionally reports to the Board’s Audit Committee and administratively to the President. The Group conducts audits/reviews of various areas of the Bank under the globally recognized Risk Based Auditing Methodology whilst complying with the requirements of the International Standards for the Professional Practice of Internal Auditing issued by the Institute of Internal Auditors (USA) {IIA}. Audit & RAR Group continued to perform its role effectively on both the assurance and consultative fronts during 2021. The Group evaluated efficacy of Bank’s control systems by enhancing visibility of the management and the Board Audit Committee on the risk management and control related matters of the Bank (for Bank’s domestic and overseas operations). The Group also highlighted areas for improvement and worked closely with the management through regular engagement as well as consistent follow-up, monitoring and guidance towards resolution of significant issues. Staff training and development remained a focus area for the Group which helped in enabling the internal audit teams in performance of their duties objectively as well as with professional due care. With the zeal and commitment to play an effective role in the Bank’s endeavor for continuous improvement, Audit & RAR Group will persevere for further strengthening of its resources, processes and Framework in 2022. Legal Affairs Group The mission of the Legal Affairs Group is to further the strategic goals and to protect and preserve the legal, ethical and financial integrity and the reputation of MCB Bank. This is accomplished by providing strategic legal advice on contentious and non-contentious matters, thereby ensuring that businesses conduct their activities in accordance with applicable laws and bye laws consistent with the mission, vision, and values of the MCB Bank. Legal compliance is the process or procedure to ensure that an organization follows relevant laws, regulations and business rules. Legal Affairs Group comprises of two departments. • • Legal Affairs Department - Advisory Litigation Department Legal Affairs Department – Advisory The object of Legal Affairs Department – Advisory is to oversee the identified legal issues in all segments of business and their interrelation with, including marketing, sales, distribution, credit, finance, human resources, as well as corporate governance and business policy. This includes but is not limited to consultancy issues and adherence of processes for collateralization of finances. In this context, the Advisory Department analyses and reviews credits’ security documentation of all segments of the Bank, like Corporate, Commercial, Retail and Consumer Banking and provide advice on perfection of documentation to secure Bank’s interest. At the helms of the affairs, diversity of work is exhaustive and apart from the major chunk of advice on securitization of Collaterals, it also includes review of all sorts of Agreements (Finance Agreements, Service Agreements, IT Agreements, Distributions Agreements, Non-disclosure Agreements, Product Agreements, Lease Agreements, E-Commerce Agreements etc.), Bank Guarantees, Advance Payment Guarantees, Mobilization Advance Payment Guarantees, Foreign Bank Guarantees, Financial Guarantees, LCs / Standby LCs, review of Product Manuals and their processes; SLAs are framed and transformed as per vendor’s services across the board. Annual Report 2019 163
166. Corporate opinions are drafted and customer ’s relationship segments are assisted by review on the status of Corporate bodies, Partnership, Trust, Companies, funds etc. and Foreign Currency matters. Advisory Department is also supportive by its quick advice and crisis management for queries by law enforcement agencies and public sector financial organizations like FIA/NAB, Anti-Narcotics, Police, Anti-Corruption, NAB, Customs /Income Tax /Sales Tax Departments/FBR etc. More recently Advisory has also been actively engaged with SBP & PBA with regards to development of various upcoming laws and their amendments. This includes pragmatically reviewing and providing feedback/opinion on upcoming laws and their amendment with a view to secure the future interest of our business. By standardizing different banking documents, the Legal Affairs Group has helped to introduce symmetry of documentation at all levels. Standardized templates have been uploaded on MCB Portal. Further, newly updated templates are uploaded and shared /exchanged with relevant business for implementation as when there is any amendment in relevant law/regulations etc. During 2021, around 22,305 Opinions/Vettings were issued on collateral, security documents and allied legal issues raised by Business/Field, therefore advisory department has contributed in cost saving worth Millions of Rupees. Litigation Department The Litigation Department in coordination with businesses, oversees and handles bank wide litigation of different groups working within Bank and other litigation related proceedings pertaining to its customers or employees; Enlists Lawyers on panel in consultation and on the recommendation of relevant business/ Group after conducting a detailed scrutiny via market check etc.; Assigns cases in consultation and on the recommendation of relevant business/Group; Negotiates Fee with the assigned lawyers in the cases assigned to them; Evaluates lawyers and their performance in cases assigned to them on bi-annual basis through directly monitoring their performance and on the basis of feedback received from the businesses and presents the same to LRC (Litigation Review Committee); Follow ups with businesses and updates centralized data of court cases on the basis of feedback received through court coordinators of respective businesses/Groups; Maintains centralized MIS of Litigation data and disseminates information in advance regarding fixation of cases to relevant business groups on daily basis; Reviews drafts of plaints/Appeals/Applications/FIRs and Settlement/ Rescheduling Agreements etc.; Renders opinions on 164 Unconsolidated Financial Statements court orders, stay orders, Summons/Warrants etc. as well as notices received from NAB, FIA & other LEAs. This broad role encompasses Crisis Management for all segments of business for contentious and noncontentious matters of litigation and ancillary matters that arise directly or indirectly due to litigation. Following initiatives were taken by the Litigation Department during 2021: • Retrieval/Compilation of Pan Pakistan Litigation Data/Record & Digitizing/Scanning of the same. • Since Centralization of litigation expenses in June 2014, complete record with respect to litigation expenses is being maintained & shared with respective businesses on periodical basis. • Development of Shadow Filing System which is in data validation and bugs removal phase. Once the same will be fully functional/operational, it would enable litigation department to provide real time updates of court cases and will also have options for alerts/SMS regarding upcoming hearings & pending cases. It will also help in generating different reports for review of senior management and onward sharing with regulator and other departments/institutions. • As many as four meetings of Litigation Review Committee (LRC) were held during the year 2021 and in said meetings, twenty four (24) lawyers were enlisted on Bank’s Approved panel of lawyers. • The performance of three hundred & three (303) lawyers was evaluated and discussed during LRC meetings on the basis of feedback received from the relevant businesses. • In such meetings, the critical cases as well as recovery suits pending for decree for two years or more were discussed & the way forward/strategy for their expeditious disposal was also devised. • Overseas Litigation was also discussed in LRC Meetings & strategies were devised for expeditious disposal of pending cases. • Likewise, the cases where approvals have been accorded but cases have not been filed were also discussed, wherein the respective businesses briefed the Committee Members about the reasons for delay in filing of cases and accordingly the Committee advised the businesses to file the cases at the earliest. • As many as 805 cases, including recovery suits were filed during 2021 whereas 1038 cases were disposed of/decreed out of the entire pending Litigation Portfolio as a result of strong follow up with the assigned lawyers which in turn resulted in substantial recovery of Bank’s NPLs. • Moreover, with the dismissal of cases, where damages were claimed against the bank, the bank was able to secure not only a sizeable amount of money but
167. Annual Report 2021 • • • reputation of the bank was also safeguarded. Similarly, through the criminal litigation, especially in fraud & forgery incidents, the culprits were brought to book & were compelled to return the embezzled/ misappropriated amount and make good the bank’s loss. A Large number of opinions on different legal matters were rendered in addition to vetting of all the pleadings (plaints, written statements/PLAs, Replications, Criminal Complaints and misc. applications) filed during the year 2021. Besides this, Settlement Agreements to be executed with the Customers/ Defaulters were also reviewed/vetted. As a result of negotiations with the panel lawyers, a hefty amount was saved on account of professional fee. To strengthen itself, MCB Legal Affairs Group has shown significant growth in 2021 and is committed to perform up the curve in future to help the Bank to achieve better results. Human Resource MCB Bank follows the philosophy of working as an equal opportunity employer, in true spirit. The Bank is committed to create a congenial and efficient work environment in which the employees are assured a non-discriminatory, transparent, harassment free and respectful atmosphere regardless of their cast, creed, religion and gender.We believe in hiring and retaining talent who can contribute towards the achievement of all defined targets. The Bank adopts a transparent performance management system developed on a defined KPI based scorecard for various business functions. The scorecard helps management define prioritization vis a vis objectives and setting future goals of its employees. The bank has instituted a Talent Management program with a view to identify high potential individuals and to groom them as future leaders. To enhance the knowledge and skillset of its work force, a number of trainings were held during the year. Participants from all over the country were trained through different programs including in-house, ex-house, mobile, and E-learning training programs. A segment comprising senior management was engaged through a Management Development Program as part of the Talent Management Scheme of the Bank. Security The Security Division effectively managed to ensure the safety and security of the Bank’s physical assets during the year, despite numerous challenges. Based on industry intelligence, feedback of the management and analysis of the developing law & order situation, our security teams efficiently managed security arrangements, ensured vigilant monitoring and supervision of branch security across Pakistan with their persistent coordinated efforts, which provided safe and secure environment at branches and offices and ensured smooth operations of the Bank. The Bank’s Security Division foiled a number of criminal attempts. It also provided effective support and assistance to bank staff when flooding affected operations at a number of branches in Sindh. Regional Security Officers imparted training to branch staff and security guards in their respective circles. MCB Bank branches are equipped with modern security technology and systems that are operated by adequately skilled staff. During the year a comprehensive security health check of all branches was carried out, which helped upgrade the security apparatus. The branch staff and security teams work synergistically and our Security is all set to meet any challenge and ensure safety and security at all MCB premises. Marketing Division The Marketing Division is geared towards enhancing the positive image of the Bank through corporate brand building, promotion of Bank’s product & services on visible optimized mediums, standardization of corporate & brand communications, branch merchandizing, CSR and public relations. During 2021, Marketing Division launched new TVCs for its Home Remittance business, MCB Burqraftaar, where the focus was to highlight everyday scenarios that create the need for remittances. MCB One Current Account was another product that was launched in 2021 with a focus to create awareness of this special account designed on the premise ‘one for all, all for one’ where the average account balance determines specific free services and benefits that a customer qualifies for. Significant efforts were also undertaken to effectively support key regulator initiatives such as Roshan Digital Account, Mera Pakistan Mera Ghar, Kamyab Jawan Programme and Asaan Mobile Account among others. On the CSR front, key initiatives led by Marketing Division include development of Shahuda Public Park in Chakwal, K2 Hushe Expedition, Dubai Expo sponsorship and sponsorship of the Pakistan Tourism Festival amongst others. The Marketing Team also successfully managed and executed several internal events, such as celebration of the Bank’s yearly Anniversary and loan disbursement ceremony for Mera Pakistan Mera Ghar scheme. The team also managed the Illumination of MCB House in Lahore to commemorate Independence Day and Breast Cancer awareness activities for ‘Pinktober’. The Team revitalized its efforts to strengthen the Bank’s presence Annual Report 2019 165
168. on Social Media and used the communication channel effectively to create visibility for strategic brand alliances and regulator initiatives . The Division also took the initiative of creating tutorial and educational videos to encourage and facilitate the use of its financial solutions and services. Going forward, Marketing Division will continue to focus on enhancing Brand visibility through a combination of available mediums, thereby reinforcing brand presence and creating greater awareness of the Bank’s products and services. MCB Islamic Bank Limited MCB Islamic Bank Limited (the “Bank”) is the wholly owned subsidiary of MCB Bank Limited and commenced its operations in 2015 with a nation-wide network of branches. The aim of MCB Islamic Bank Limited is to be the first choice Shari’ah compliant financial services provider for the customers and to carry out business purely in accordance with Shari’ah principles with full conviction and devotion. Alhamdulillah, the Bank currently operates to provide Shari’ah compliant value added and innovative banking solutions for customers under the supervision of a Shari’ah Board chaired by the renowned Islamic scholar Professor Mufti Munib-Ur-Rehman. The Bank focuses on building strong and lasting relationships as well as delivering an experience that satisfies all types of customers across Corporate, Commercial, SME, Consumer, Agriculture and Micro sectors. The Bank offers wide range of Riba Free and Shari’ah compliant products for both personal and business needs. The Bank is using world’s renowned Core Banking Software solution. Different services and products offered by the bank are available to customers through a branch network of 175 plus branches backed by 175 plus ATMs (Onsite & Offsite). The Bank offers EMV enabled Debit Cards, IOS and Android based native Mobile Apps and Internet Banking services. Moreover, the Bank has also developed its suite of Cash Management services, including Payment upon Identification (PUI), Cash & Instrument Collection, Cash in Transit Services (CIT), Corporate Internet Banking by acquiring Oracle Banking Digital Experience (OBDX) and has also developed product suite of Employee Banking for our Corporate Customers. 166 Unconsolidated Financial Statements The Bank is committed to share in the mutual benefits with the customers, staff and shareholders who participate in our business success under the highly skilled and seasoned management with the prime objective of ensuring our customers’ satisfaction.
169. Annual Report 2021 Corporate Governance Corporate Governance at MCB Bank Limited (“MCB” or the “Bank”) refers to rights and responsibilities among different stakeholders of the Bank through a set of rules, policies and practices by focusing on proper delegation, transparency and accountability in the organization as a whole. Corporate Governance at MCB provides an essential foundation for sustainable corporate success and to build stakeholders’ confidence. It has been structured to ensure the regulatory compliance and to cater the maximum needs of Bank’s stakeholders. Board Composition: The Bank encourages representation of independent directors, non-executive directors and directors representing minority interests on its board of directors. At present the Board includes: Category Name Independent Directors Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Shahzad Hussain Mr. Masood Ahmed Puri Non-Executive Directors Mian Mohammad Mansha Mr. S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Muhammad Ali Zeb Mr. Shariffuddin bin Khalid Executive Director (President & CEO) Mr. Shoaib Mumtaz Female Director (Non-Executive) Mrs. Iqraa Hassan Mansha Independent Directors and their Independence: The Board has four (04) Independent Directors who meet the criteria of independence under the Companies Act, 2017 and the directives issued by the State Bank of Pakistan (“SBP”). Representation of Female Directors on Board: Mrs. Iqraa Hassan Mansha is representing female Director on the Board. Non-Executive Directors: All the directors on the Board are Non-Executive Directors except for the President & CEO of the Bank. The NonExecutive Directors provide an outside viewpoint to the Board of Directors and are neither involved in managing the affairs of the Bank nor form part of the Executive Management Team of the Bank. Change of President & CEO During the year, the term of President & CEO, Mr. Imran Maqbool was completed on December 20, 2021 and the Board appointed Mr. Shoaib Mumtaz, as Acting President & CEO of the Bank with effect from December 21, 2021 subject to his Fit and Proper Test (FPT) clearance by the State Bank of Pakistan (“SBP”). Subsequently, SBP has cleared FPT of Mr. Shoaib Mumtaz as President & CEO of the Bank on February 09, 2022. Casual Vacancies on the Board of Directors: No casual vacancy occurred on the Board of Directors during the year 2021 except change of the President & CEO of the Bank. Executive director serving on the Board of other companies/trust: President & CEO, the Executive Director is serving on the Board of a company as Non-Executive Director and also as a Chairman of the Board of Trustees of a trust. Detail of Board Meetings held outside Pakistan: During the year 2021, all the Board of Directors meetings were held in Pakistan. Annual Report 2019 167
170. Process of Appointment and Nomination of directors : As per the applicable provisions of the law, the directors are elected by the shareholders of the Bank, whereas, the casual vacancies arising on the Board, if any, are filled by the directors for the remaining term in accordance with the requirements of the Companies Act, 2017 and SBP regulations. Every director has to qualify the prior assessment criteria of ‘Fit and Proper Test’ as framed by the State Bank of Pakistan. At the time of election of directors, it is ensured that the Board is comprised of directors who have diversified experience, suitable knowledge, appropriate skill set/expertise and competency considered relevant in the context of the Bank's operations. It is also ensured that the Board has an appropriate mix of directors including female member(s), diversity, size and is well-structured to add value and to make the Board an effective decision making body. Independent Directors are elected through the process of election of directors and meet the criteria laid down by the State Bank of Pakistan as well as comply with the requirements of the relevant laws, rules and regulations. An independent director means a director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, subsidiaries, holding company or directors; and he can be reasonably perceived as being able to exercise independent business judgment without being subservient to any form of conflict of interest. At present, Independent Directors are selected from the data bank maintained by the Pakistan Institute of Corporate Governance. During the year, the Board of Directors completed its term and was reconstituted in the Annual General Meeting held on March 27, 2021. All the outgoing directors were re-elected unopposed including the Independent Directors. Connection of External Search Consultancy for Selection of Independent Directors The selection of independent directors as members of the Bank’s Board of Directors is carried out from a list maintained by the Pakistan Institute of Corporate Governance (PICG) under the Companies (Manner and Selection of Independent Directors) Regulations, 2018. PICG has no other connections with the Bank, except for providing access to the database on independent directors besides directors’ training and evaluation of Board and / or individual directors’ performance. Directors' Participation/Attendance in Board and Committee Meetings held during 2021 Sr. No. Member AC BS&DC Attended Member Attended 1 Mian Mohammad Mansha 5/5 – – 2 Mr. S. M. Muneer 4/5 – – 3 Mr. Muhammad Tariq Rafi 5/5 – – 4 Mian Umer Mansha 5/5 5 Mrs. Iqraa Hassan Mansha 5/5 6 Mr. Muhammad Ali Zeb 5/5 7 Mr. Mohd Suhail Amar Suresh 5/5 – – 8 Mr. Yahya Saleem 5/5 – – 9 Mr. Salman Khalid Butt 5/5 – – 10 Mr. Shahzad Hussain 5/5 11 Mr. Masood Ahmed Puri 5/5 12 Mr. Shariffuddin bin Khalid 5/5 13 Mr. Imran Maqbool (EX-President & CEO) 5/5 Total Number of Meetings Held Chairman 5 Member – 4/5 – Member Attended 2/2 – – – – – – 3/4 – – – – – – – – – – 4/4 – – Member PP&CA Attended Member WO&WC Attended Member Attended 1/1 – – – 4/4 1/4 – – – - – – – – – – – – – 5/5 – 3/4 – – – 2/3 – – – – – 1/4 1/3 4/4 – – 4/4 3/3 4/4 4/4 – 5 Attended 5/5 5/5 – Member – – HR&RC Attended 3/4 – ITC Member – – CR&MC Attended – 5/5 – RM&PRC 0/0 – – 0/0 4/4 – – 5/5 - – – – – – – – 1/4 2/2 – – – – 4/4 5/5 2/2 – – – – 4/4 – – 0/0 – – – – – – – – – – – – – 4/4 – – – – – – – – – – – – – – – – – – – – – – – – – 5/5 – – 3/3 – – 4/4 4 4/4 4 4/4 4 5 4 3 0 Member Audit Committee ITC: Information Technology Committee BS&DC: Business Strategy & Development Committee HR&RC: Human Resource & Remuneration Committee RM&PRC: Risk Management & Portfolio Review Committee PP&CA: Committee on Physical Planning & Contingency Arrangements CR&MC: Compliance Review & Monitoring Committee Wo&WC: Write-Off & Waiver Committee AC: 168 Number of Board Committees' Meetings Attended Board of Directors (BoD) Name of Director Unconsolidated Financial Statements
171. Annual Report 2021 Notes to Detail of Directors ' Participation/ Attendance in Board and Committee Meetings Name of Director Notes 1 Meetings of a particular forum attended by the concerned member during his/her tenure. Mian Mohammad Mansha Remained member of the Board’s Business Strategy & Development Committee and Committee on Physical Planning & Contingency Arrangements till April 20, 2021. His membership in these committees resumed w.e.f. December 08, 2021. Mr. Yahya Saleem Remained member of the Board’s Human Resource & Remuneration Committee and Information Technology Committee till October 27, 2021. Mr. Salman Khalid Butt Became member / Chairman of the Board’s Human Resource & Remuneration Committee on October 27, 2021. These notes are an integral part of the attendance sheet. The names of the persons who, at any time during the financial year, were directors of the Bank: • • • • • • Mian Mohammad Mansha Mr. S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha. Mrs. Iqraa Hassan Mansha Mr. Muhammad Ali Zeb • • • • • • Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Shahzad Hussain Mr. Masood Ahmed Puri Mr. Shariffuddin bin Khalid Disclosure on Board of Directors Sr. No. Name of Directors Date of Joining/ Leaving the Board Status of Director Member of Board Committees 1 Mian Mohammad Mansha 08/Apr/1991 Non-Executive Director - BS&DC HR&RC PP&CA Number of other Board Memberships along with Name of Company(ies) Number 1 Name of Company(ies) MCB Non-Bank Credit Organization, CJSC, Azerbaijan Arabian Sea Country Club Din Farm Products (Pvt) Limited 2 Mr. S. M. Muneer 08/Apr/1991 Non-Executive Director - BS&DC CR&MC 6 Din Global Investments Inc. Din Industries Limited Din Leather (Pvt) Limited Din Textile Mills Limited Central Depository Co. of Pakistan Limited Siddiqsons Energy Limited 3 Mr. Muhammad Tariq Rafi 08/Apr/1991 Non-Executive Director - WO&WC 6 Siddiqsons Limited Siddiqsons Tin Plate Limited Triple Tree Associates TSM Mining (Pvt) Limited Adamjee Insurance Company Limited Adamjee Life Assurance Company Limited Hyundai Nishat Motor (Pvt) Limited National Textile Foundation 4 Mian Umer Mansha 11-Nov-1997/ 08-Sep-2007 & 27-Mar-2009 Non-Executive Director - AC BS&DC RM&PRC PP&CA ITC WO&WC Nishat (Raiwind) Hotels and Properties Limited 12 Nishat Agriculture Farming (Pvt) Limited Nishat Agrotech Farms (Pvt) Limited Nishat Dairy (Pvt) Limited Nishat Developers (Pvt) Limited Nishat Hotels & Properties Limited Nishat Mills Limited Nishat Sutas Dairy Limited Annual Report 2019 169
172. Sr . No. Name of Directors Date of Joining/ Leaving the Board Status of Director Member of Board Committees Number of other Board Memberships along with Name of Company(ies) Number Name of Company(ies) Emporium Properties (Pvt) Limited 5 Mrs. Iqraa Hassan Mansha 03/May/2016 Non-Executive Director - HR&RC PP&CA Nishat (Raiwind) Hotels and Properties Limited 4 Nishat Hotels & Properties Limited Nishat Real Estate Development Company (Private) Limited 6 7 Mr. Muhammad Ali Zeb Mr. Mohd Suhail Amar Suresh bin Abdullah 27-Mar-2009/ 07-Apr-2011 & 17-Jun-2013 24-Feb-2014 Non-Executive Director Non-Executive Director - AC RM&PRC HR&RC CR&MC PP&CA WO&WC - BS&DC RM&PRC ITC Adamjee Insurance Company Limited 3 Adamjee Life Assurance Company Limited Nishat Sutas Dairy Limited Maybank Shared Services Sdn Bhd (a wholly owned subsidiary of Maybank) 3 MBB Labs Pvt Limited (a subsidiary of Maybank Shared Services) Technology Park Malaysia Corporation Sdn Bhd (TPM) NC Entertainment Private Limited NC Trading USA 8 Mr. Yahya Saleem 27-Mar-2018 Non-Executive (Independent) Director - 6 Saleem Memorial Trust Hospital YS Services Canada YS Services Private Limited YSG Trading Private Limited 9 10 11 Mr. Salman Khalid Butt Mr. Masood Ahmed Puri Mr. Shahzad Hussain 10-Nov-2018 31-May-2019 31-May-2019 New Heights Concepts Limited, a BVI Company - BS&DC RM&PRC CR&MC ITC HR&RC 4 Non-Executive (Independent) Director - BS&DC 3 Non-Executive (Independent) Director - Non-Executive (Independent) Director New Heights Management Limited, a BVI Company Next Commercial FZ LLC, a Ras El Khaimah (Rakez), U.A.E. Company Saleem Memorial Trust Hospital Jedex Logistics Pvt. Limited (Pakistan) Jedex Transport Company LLC (UAE) Transarab Trading Services (KSA) NAMAL Education Foundation AC 2 Punjab Healthcare Commission M&G Ship Management (L) Pte Limited (A subsidiary of Marine & General Berhad) 12 Mr. Shariffuddin bin Khalid 23-Jul-2019 Non-Executive Director Malayan Banking Berhad - AC 5 Marine & General Berhad Maybank (Cambodia) Plc (A subsidiary of Maybank) Maybank Islamic Berhad 13 170 Mr. Shoaib Mumtaz President & CEO 21-Dec-2021 Executive Director - BS&DC RM&PRC CR&MC ITC PP&CA MCB Non-Bank Credit Organization, CJSC, Azerbaijan 2 MCB Employees Foundation AC: Audit Committee ITC: Information Technology Committee BS&DC: Business Strategy & Development Committee PP&CA: Committee on Physical Planning & Contingency Arrangements RM&PRC: Risk Management & Portfolio Review Committee CR&MC: Compliance Review & Monitoring Committee HR&RC: Human Resource & Remuneration Committee WO&WC: Write-Off & Waiver Committee Unconsolidated Financial Statements
173. Annual Report 2021 Board Committees The Board has formed eight (8) sub-committees as given below: 1. Audit Committee; 2. Business Strategy & Development Committee; 3. Risk Management & Portfolio Review Committee; 4. Information Technology Committee; 5. Human Resource & Remuneration Committee; 6. Compliance Review & Monitoring Committee; 7. Committee on Physical Planning & Contingency Arrangements; and 8. Write-Off & Waiver Committee. Audit Committee Composition: 1. Mr. Shahzad Hussain - (Chairman, Independent Director) 2. Mian Umer Mansha - (Non-Executive Director) 3. Mr. Muhammad Ali Zeb - (Non-Executive Director) 4. Mr. Shariffuddin bin Khalid - (Non-Executive Director) Terms of Reference The main Terms of Reference/ roles & responsibilities of the Committee are: 1. Determination of appropriate measures to safeguard the bank’s assets; 2. Reviewing annual and interim financial statements of the bank, prior to their approval by the Board of Directors, focusing on: Major judgmental areas; Significant adjustments resulting from the audit; The going concern assumption; Any changes in accounting policies and practices; •Compliance with applicable accounting standards; • Compliance with listing regulations, other Statutory and regulatory requirements; and • All related party transactions. 3. Reviewing preliminary announcements of results prior to external communication and publication; 4. Facilitating the external audit and discussion with external auditors of major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary); 5. Reviewing Management Letter issued by External Auditors and management’s response thereto; 6. Ensuring coordination of internal auditors with external auditors of the Bank and SBP inspection team(s); • • • • 7. Making recommendations to the Board of Directors for the appointment of external auditors, their removal, audit fees, the provision of any service permissible to be rendered to the Bank by the external auditors in addition to audit of its financial statements, measures for redressal and rectification of non-compliances with the Regulations. The Board shall give due consideration to the recommendations of the audit committee and where it acts otherwise it shall record the reasons thereof; 8. Reviewing and recommending of the Internal Audit Framework i.e. internal audit function’s policies and manuals (also covering extent and nature of assignments/ engagements that can be provided to the management by internal audit function in its ‘Advisory / Consulting’ role) to the Board for approval. 9.Reviewing, internal audit strategy, reporting framework and procedures developed by Chief Internal Auditor and ensuring its fullest support to the internal audit function and internal auditors enabling them in performing their mandated activities independently and in objective manner; 10.Reviewing and approving scope and extent of internal audit as well as risk based annual audit plan. Furthermore, reviewing the implementation status of the approved audit plan on a quarterly basis. 11. Ensuring that the internal audit function has adequate resources (financial, human, operational, physical and technological), its staff is adequately trained and the function is appropriately placed within the bank with access to Bank’s people, information, processes, properties, records and systems. 12.Ensuring independence of internal audit function, independence & objectivity of internal auditors, optimal utilization of audit resources, effectiveness of the internal audit function in Bank’s overall governance and internal control framework and constructive engagement of internal audit function with senior management and audited units etc.; 13.Reviewing and recommending budget / resource requirement of Audit & RAR Group to the Board for approval. Further, reviewing, on a quarterly basis, the utilization of Audit & RAR Group’s assigned budget and if required, recommending provision of additional resource(s) to enable the Group in performance of its activities; 14.Formulating ‘Key Performance Indicators’ (KPIs) for the Chief Internal Auditor and evaluate his/her performance against set KPIs on an annual basis; Approving appointment/ re-hiring/ renewal of 15. contract and removal of Chief Internal Auditor along with his/her compensation package/remuneration (including performance based bonus, increments, cash rewards etc.), allied benefits (both financial/ non-financial), promotion/demotion and other terms of employment to the Board through Board’s Human Annual Report 2019 171
174. Resources & Remuneration Committee. However, recommendation of Board’s Human Resources & Remuneration Committee may be sought by the Audit Committee/ Board regarding compensation package of Chief Internal Auditor, keeping in view the institution-wide remuneration policy, formulated in terms of BPRD Circular No. 01 of 2017; 16. Consideration of major findings of internal investigations of activities characterized by fraud, corruption and abuse of power and management's response thereto; 17. Reviewing summaries of quarterly report on frauds/ forgeries/ dacoities; 18. Reviewing, on quarterly basis, summary of significant violations/observations, internal control deficiencies, organizational and personal material conflicts of interest etc. to have deep insights into state of internal controls and to set specific, time bound action points/indicators to monitor improvements. Further reviewing the management action plan to ensure that audit observations/ recommendations receive proper and timely attention by senior management; 19. Analyzing and identifying (for necessary action(s)), on a regular basis, ‘root cause(s)’ of control breaches of critical nature that keep on occurring in at-least two audit periods despite implementation of audit recommendations; 20.Obtaining Chief Internal Auditor’s independent annual assessment/opinion on the state of Bank’s internal controls based on the audits conducted over the period; 21.Ascertaining that the internal control systems including financial and operational controls, accounting systems for timely and appropriate recording of purchases and sales, receipts and payments, assets and liabilities and the reporting structure are adequate and effective; 22. Reviewing the Bank’s statement on internal control systems prior to endorsement by the Board of Directors and internal audit reports; 23. Instituting special projects, value for money studies or other investigations on any matter specified by the Board of Directors, in consultation with the Chief Executive Officer (“CEO”) and to consider remittance of any matter to the external auditors or to any other external body; 24. Determination of compliance with relevant statutory requirements; 25.Establishing, maintaining and promoting regular communication with senior management regarding deficiencies in internal controls; review actions taken by management to address identified deficiencies and ascertaining new developments to achieve a uniform organization-wide commitment/ buy-in for implementation of strong and effective internal controls; Reviewing effectiveness of Whistle Blowing 26. 172 Unconsolidated Financial Statements procedures for receiving (through internal or external sources) complaints/concerns regarding business ethics/conduct practices, governance & risk management practices, controls over financial reporting, auditing practices etc. Ensuring that such complaints / concerns are treated confidentially and that the reporting employee(s) are protected and not penalized in any manner whatsoever. Ensuring that employees remain aware of existence of such procedures including mechanism for utilizing them and are encouraged to be a ‘whistleblower’; 27. Review of arrangement for staff and management to report to audit committee in confidence, concerns, if any, about actual or potential improprieties in financial and other matters and recommend instituting remedial and mitigating measures; 28. Reviewing, on a periodic basis, the Internal Controls over Financial Reporting (ICFR) system for its effective implementation and its continuous up gradation. 29. Monitoring compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 and identification of significant violations thereof; 30. Consideration of any other issue or matter as may be assigned by the Board of Directors. Business Strategy & Development Committee Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mian Mohammad Mansha - (Non-Executive Director) 3. Mr. S. M. Muneer - (Non-Executive Director) 4. Mr. Mohd Suhail Amar Suresh - (Non-Executive Director) 5. Mr. Salman Khalid Butt - (Independent Director) 6. Mr. Masood Ahmed Puri - (Independent Director) 7. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are to: 1. Review and develop Vision & Mission statements and core values for MCB both from long and short-term perspective; 2. Develop Bank’s initiatives relating to business philosophy and acquisition, strategic investment and divestment, capital raising exercise, strategic alliances and brand management. In particular, review the following important matters: a. Policy initiatives; b. Business organization; c. Oversee expansion plans; and d. Contingency planning relating to business realignment. 3. Review and devise medium and long-term business plans and policies based on strategy, future direction
175. Annual Report 2021 and milestones set by the Board . 4. Monitor the progress of the key strategy initiatives undertaken by the Bank. 5. Keep oversight on Bank’s Overseas Operations. 6. Undertake such other tasks as may be delegated by the Board from time to time. Risk Management & Portfolio Review Committee Composition: 1. Mr. Muhammad Ali Zeb - (Chairman, Non-Executive Director) 2. Mian Umer Mansha - (Non-Executive Director) 3. Mr. Mohd Suhail Amar Suresh - (Non-Executive Director) 4. Mr. Salman Khalid Butt - (Independent Director) 5. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are to: 1. Review the Bank’s Risk Management Framework, in light of internal developments, guidelines issued by the regulators and international best practices, on as and when required basis and recommend to the Board for approval; 2. Ensure Bank’s compliance towards Capital Adequacy and other related Basel/ regulatory requirements on an on-going basis. Review Capital Adequacy Ratio (CAR) in detail on half yearly basis; 3. Review and recommend to Board, Bank’s Risk Appetite Statement on an annual basis; 4. Review various reports pertaining to the risk in the bank’s portfolio prepared by the Risk Management Group. The Committee shall also consider comments of the relevant senior management official/ Committee while reviewing such reports and communicate the planned/executed corrective actions to the Board, if required; 5. Review of any report/MIS specifically assigned by a regulator for Committee’s oversight. Information Technology Committee Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mr. Mohd Suhail Amar Suresh - (Non-Executive Director) 3. Mr. Salman Khalid Butt - (Independent Director) 4. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are: 1. To approve an overall plan for IT system for the Bank, prepared by the management; 2. To approve the organizational IT and Digital strategic plans to ensure an effective use of information technology and digital initiatives in the Bank by all Departments; 3. To approve and oversee the management’s program to automate the organization’s use of internal information to ensure that data is organized and shared in a manner that adds value and enhances productivity; 4. To approve and oversee a reliable and secure information security infrastructure with the capacity to address future threats; 5. To approve policies that promote development of information technology and Digital resources in an organized, deliberate, secured, and cost effective manner; review and approve management 6. To recommendations for IT standards for ensuring compliance with regulatory requirements and identifying and mitigating significant IT related risks; 7. To review and approve the technology procurements as per Bank’s approved IT Strategy. The Committee may further delegate the same to the management as and when deemed fit; 8. To undertake any other IT or Digital Banking related work assigned to the Committee by the Board. Human Resource & Remuneration Committee Composition: 1. Mr. Salman Khalid Butt - (Chairman, Independent Director) 2. Mian Mohammad Mansha - (Non-Executive Director) 3. Mrs. Iqraa Hassan Mansha - (Non-Executive Director) 4. Mr. Muhammad Ali Zeb - (Non-Executive Director) Terms of Reference The main Terms of Reference of the Committee shall be to ensure that: 1. The existing policies are reviewed periodically and as necessary, revised and recommended to the Board, in order to attract and retain highly qualified employees. This may include review of remuneration policy and remuneration setting mechanism at least once every three years. Among other factors, the review of remuneration framework shall include, but not limited to: a. The effectiveness of remuneration policy and mechanism i.e., whether it is providing the expected outcomes; b. Any necessary changes required; and c. Any unintended consequences. The findings of review and rectification measures shall be presented to the Board for approval. 2. The latest entry-level procedures are put in place for recruitment of entrants. 3. The existing training facilities for the new entrants as well as for up-gradation of skill level of all employees Annual Report 2019 173
176. are reviewed and revised , if required. 4. Proper classification & reclassification of employees’ pay scales, job description and methods of their periodical review are put in place. 5. The Bank-wide remuneration policy takes into account all cadres of employees along with the pay-gap between the highest paid and the lowest paid employees, across various levels as well as across the Bank. The pay-gap shall be based on the total compensation awarded to the employees and should be maintained at reasonable levels without allowing concentration of the benefits of Bank’s performance only to top level or certain class or group of employees. The pay structure for all employees should be fair, competitive and encourage performance and motivation. 6. That the remuneration policy of the Bank provides for reasonable levels of compensation for contractual employees of Bank and commensurate with their assignments. 7. That a separate structure of remuneration for Material Risk Controllers (“MRC”) and Material Risk Takers (“MRTs”) is developed as per remuneration policy. The MRTs should be identified as functions and designations rather than as individuals. The MRTs should have appropriate level of authority and control. 8. An objective criterion for work appraisal/performance is developed and linked with the annual merit increase. 9. A review is undertaken of the organizational structure to bring it in line with business strategy & development plan and approve an organizational set up or any revision in the existing set up taking into account the recommendations of the President & CEO. 10. An in-house human resource expertise is developed to undertake market analysis of above policies with a view to developing MCB policies. 11. If so required, the Committee can seek independent external advice/expert opinion for accomplishment of devising an effective and prudent remuneration framework. 12. Effective management information system is developed to monitor the implementation of policies as approved by the Board. 13.Recommendation to the Board for consideration and approval of a policy framework for determining remuneration of directors (both executive and non-executive directors) and members of Senior Management. The definition of senior management will be determined by the Board which shall normally include the first layer of management below the Chief Executive Officer. Selection, evaluation, compensation (including 14. retirement benefits) and succession planning of the CEO, COO, CFO, Company Secretary and Head of 174 Unconsolidated Financial Statements Internal Audit and recommendation to the Board. 15. The structure of compensation package of Executive Directors, CEO, Key Executives and any other employee or group of employees Bank-wide is recommended to the Board for its own approval or approval of the shareholders, according to legal and regulatory requirements. 16. The consideration and approval on recommendations of CEO on such matters for key management positions who report directly to CEO. 17.In devising the Remuneration setting policy and mechanism, the Committee can also seek internal inputs from any other Committee of the Board or directly from any department or official of the Bank. Compliance Review Composition: & Monitoring Committee 1. Mr. S. M. Muneer - (Chairman, Non-Executive Director) 2. Mr. Muhammad Ali Zeb - (Non-Executive Director) 3. Mr. Salman Khalid Butt - (Independent Director) 4. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are: 1. To review six monthly reports, prepared by the Compliance & Controls Group and routed through the President, on overall compliance risk management in the Bank (local as well as overseas operations) including the actions taken on the recommendations and observations of SBP in its Annual/Thematic Inspection Reports; 2. To evaluate the effectiveness of the Bank’s overall management of compliance risk, at least annually; keeping in view the regulatory observations in onsite examinations, regulatory enforcement actions, internal assessments/feedback from internal audit, compliance reviews, as well as interactions with the Chief Compliance Officer (“CCO”); 3. To carry on liaison between the Board and the management and make recommendations to the Board, if necessary, for taking decisions on expedient and appropriate disposal of compliance issues raised through Compliance Committee of Management (“CCM”) and SBP’s inspection reports and other AML/CFT related identified issues; 4. To oversee the effectiveness of Service Quality function of the Bank and to review the Bank’s performance against committed service deliverables. 5. To review/recommend Compliance Risk Strategy/ Policy, Compliance Program and allied policies and oversee its implementation across the Bank in letter and spirit; 6. To recommend appointment of CCO on the advice of the President and ensure that position of CCO
177. Annual Report 2021 does not remain vacant for more than 60 days . Furthermore, to approve any disciplinary action or termination of the CCO; 7. To ensure that CCO has appropriate stature, authority, resources (physical, financial and human), support to fulfill his duties, independence and capacity to offer his objective opinions and advise to senior management and Board on matters of compliance risks; 8. To ensure that Compliance Function (“CCG”) has subject experts on various critical areas such as risk management, credit operations, product compliance, customer service, international trade, outsourcing, corporate governance, financial disclosures, business continuity, information technology, general banking operations, AML/CFT etc. to provide guidance to business areas as and when required. 9. To ensure that Compliance Function (“CCG”), being the second line of defense, assists line managers/ departments in designing and implementing adequate controls to manage risks of non-compliance and monitors and assesses bank-wide compliance risk and reports risk profile to Board and Compliance Committee of Management. 10. To engage with the CCO on half yearly basis, for his feedback on issues faced by the Compliance Function (“CCG”) in the implementation of board approved compliance program; 11.To review the minutes of Compliance Committee of Management (CCM) meetings to ascertain its effectiveness in managing compliance risk; 12.To review the progress in implementing remedial actions taken with respect to instances of noncompliance or control weakness as identified by Compliance Function through its regular compliance reviews and / or various other sources; 13. To review the compliance risk relevant agenda items as required under SBP regulations/ instructions of overseas jurisdictions, AML/CFT perspective and SBP inspection reports’ observations as per their respective timelines/ frequencies (quarterly, semiannually or annually); 14. To satisfy itself of receiving the accurate as well as comprehensive information required to perform its compliance risk oversight responsibilities, including seeking assurances from Senior Management that the compliance risk controls have been implemented and are working effectively; 15.To ensure changes in the Rules/Regulations and Laws are reviewed on an ongoing basis in the existing policies or through introduction of new policies. 16. The Committee would recommend to the Management for updation of existing policies of the Bank’s local and overseas operations, if required, and/or determine the need for introduction of new policies, in accordance with the changes in the following: a. Local laws, including but not limited to the SBP Act, Banking Companies Ordinance, Prudential Regulations, Code of Corporate Governance, Securities & Exchange Commission of Pakistan Instructions, Rules, Regulations & Circulars and Listing Regulations of Stock Exchanges; b. Existing and prospective business environment; and c. Operational requirements. 17.To review Management’s updates on technology upgrades w.r.t. AML, Bank’s data quality/cleansing, delay in filing of Suspicious Transaction Report (“STR”) and delays / breaches in freezing of sanctioned accounts. 18. To ensure that Bank’s policies are placed before the Board for approval after recommendation by the respective Board Committees. 19.Any other issue that is deemed necessary and required by the regulations. Committee on Physical Planning & Contingency Arrangements Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mian Mohammad Mansha - (Non-Executive Director) 3. Mrs. Iqraa Hassan Mansha - (Non-Executive Director) 4. Mr. Muhammad Ali Zeb - (Non-Executive Director) 5. President & CEO - (Executive Director) Terms of Reference The main Terms of Reference of the Committee are: 1. To develop and devise an overall plan for physical infrastructure and contingency arrangements for the Bank; 2. To review and monitor all work in progress, including construction of premises and renovations, which shall, inter alia, be based on physical planning; 3. To review, monitor and recommend to the Board the building plans, master development agreements & contingency arrangements; 4. To review, from time to time, as the Committee deems appropriate, the administrative structures and plans in place to ensure the ongoing health and safety of utilities and physical assets, including land & buildings and recommend, as appropriate, changes in plans arising from this review; 5. To review updates on Bank’s property purchases. Write-Off & Waiver Committee Composition: 1. Mian Umer Mansha - (Chairman, Non-Executive Director) 2. Mr. Muhammad Tariq Rafi - (Non-Executive Director) 3. Mr. Muhammad Ali Zeb - (Non-Executive Director) Annual Report 2019 175
178. Terms of Reference The main Terms of Reference of the Committee are : 1. To review and approve write-off & waiver cases on behalf of the Board of Directors and; 2. To submit cases of write-off & waiver for post facto ratification by the Board. Management Committees Management committee 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. President & CEO – Chairman Group Head - Oversight & Monitoring Chief Financial Officer Group Head – Operations Chief Compliance Officer Group Head – Human Resource Management Group Head – Risk Management Group Head – Legal Affairs Group Head – Retail Banking Chief Information Officer Group Head – Security & Marketing Group Head – Consumer & Digital Banking Group Head - Treasury & FX Group Head - CFIBG Purchase & Expense Committee 1. 2. 3. 4. Group Head – Operations Chief Financial Officer Group Head – Security & Marketing Group Head – Human Resource Management Assets & Liabilities Committee 1. 2. 3. 4. 5. 6. 7. 8. President & CEO - Chairman Chief Financial Officer Group Head – Risk Management Group Head – Treasury & FX Group Head – Operations Group Head – Retail Banking Group Head – Consumer & Digital Banking Group Head – CFIBG Write off Committee 1. 2. 3. 4. 5. 6. 7. 8. 9. President & CEO - Chairman Chief Financial Officer Group Head – Risk Management Group Head – Retail Banking Group Head - CFIBG Group Head – Consumer & Digital Banking Head – Capital Markets Division Div Head - SAM Corporate & Commercial Div Head - SAM Secured & Retail Investment Committee 1. President & CEO - Chairman 2. Head – Capital Markets Division 176 Unconsolidated Financial Statements 3. 4. 5. 6. Group Head – Treasury & FX Chief Financial Officer Group Head – Risk Management Group Head – CFIBG IT Steering Committee 1. 2. 3. 4. 5. 6. 7. President & CEO - Chairman Chief Financial Officer Group Head – Risk Management Group Head – Operations Group Head – Retail Banking Chief Information Officer Group Head - CFIBG Disciplinary Action Committee 1. Group Head – Human Resource Management Chairman 2. Group Head – Operations 3. Chief Compliance Officer 4. Group Head – Risk Management 5. Group Head – Security & Marketing Litigation Review Committee 1. 2. 3. 4. 5. 6. 7. 8. 9. Group Head – Legal Affairs - Chairman Group Head - Oversight & Monitoring Div Head - SAM Corporate & Commercial Div Head - SAM Secured & Retail Group Head – Retail Banking Group Head – Consumer & Digital Banking Group Head – Human Resource Management Division Head – Legal Affairs Head - Litigation Department Management Credit & Risk Committee 1. 2. 3. President & CEO - Chairman Group Head – Risk Management Division Head - FIPS & MRMD– Acting member Overseas Monitoring Committee 1. 2. 3. 4. 5. 6. Group Head – Oversight & Monitoring - Chairman Chief Financial Officer Group Head – Risk Management Chief Compliance Officer Group Head – Operations Group Head – CFIBG Compliance Committee of Management 1. 2. 3. 4. 5. 6. 7. 8. President & CEO - Chairman Chief Compliance Officer Group Head - Oversight & Monitoring Group Head – Operations Group Head – Human Resource Management Group Head – Risk Management Group Head – Legal Affairs Group Head – Retail Banking
179. Annual Report 2021 9 . Chief Information Officer 10. Group Head – CFIBG 11. Group Head – Consumer & Digital Banking Cyber Security Committee 1. 2. 3. 4. 5. 6. 7. Group Head – Risk Management - Chairman Group Head – Consumer & Digital Banking Chief Compliance Officer Chief Information Officer Group Head – Operations Group Head - CFIBG Group Head – Retail Banking Outsourcing Relationship Review Committee 1. Group Head – Operations 2. Group Head – Risk Management 3. Chief Compliance Officer Management Sub-Committee for Resolution of Long Outstanding Audit Issues 1. 2. 3. 4. 5. 6. Group Head – Oversight & Monitoring - Chairman Group Head – Operations Chief Financial Officer Chief Information Officer Group Head - Retail Banking Group Head – Consumer & Digital Banking Management Sub-Committee on AML/CFT 1. 2. 3. 4. 5. 6. Chief Compliance Officer - Chairman Group Head - Oversight & Monitoring Group Head – Operations Group Head - Retail Banking Group Head - Risk Management Group Head - CFIBG Management Sub-Committee for Monitoring of Central Banks' Inspection Reports 1. 2. 3. 4. 5. Group Head - Oversight & Monitoring - Chairman Chief Compliance Officer Group Head – Operations Group Head - Risk Management Chief Information Officer Performance Evaluation of the Board of Directors, its Committees and Individual Directors: The Bank has developed a formal and effective mechanism for annual performance evaluation of the Board as a whole, its Committees, the Chairman, Individual Directors and the President & CEO in line with the regulatory requirements. This activity is performed annually, whereas, the same is undertaken by an external independent evaluator at least every three years. During the year, MCB Bank Limited performed in-house performance evaluation of the Board, the Chairman, Individual Directors including Independent Directors, the President & CEO and Board’s Committees in line with the ‘Guidelines on Performance Evaluation of the Board of Directors’ issued by the State Bank of Pakistan and the Listed Companies (Code of Corporate Governance) Regulations, 2019.The overall rating of the Board is highly encouraging, particularly in respect to its composition, expertise, effective risk management, adequate system of internal controls and audit function. Performance Evaluation through External Independent Evaluator: In order to bring objectivity to the Board’s annual performance evaluation process, third party assessments are separately carried out by the Bank once in every three years. The Bank has engaged the Pakistan Institute of Corporate Governance (PICG) as an Independent External Evaluator, who conducted the performance evaluation of the Board as a whole, its Committees and Individual Board Members in 2019. The Bank is also in process of conducting the said activity through independent evaluator for the year under review. Criteria for Annual Performance Evaluation of the Overall Board of Directors: While conducting the annual performance evaluation of the Board as a whole, the Bank in line with the SBP Guidelines adopted an in-house approach. The overall rating of the Board was found highly encouraging, particularly, in respect of its composition, expertise, effective risk management, adequate system of internal controls and audit function. The Board considers the long-term policyrelated matters and sets the Bank’s strategic aims to put them into effect and to uphold the vision, mission and core values of the Bank. It exhibits high standards of business and professional conduct in managing and supervising affairs of the Bank and reporting to shareholders on its stewardship. The Board acts on a fully informed basis in the best interest of the Bank and its stakeholders and set ‘tone at the top’ in order to promote a sound corporate culture. During the year, the overall performance evaluation of the Board was conducted by the Evaluation Committee of the Bank on basis of questionnaires broadly covered under below mentioned criteria: a) Is the composition of the board appropriate, having the right mix of knowledge, expertise and skills to maximize performance? b) How well the board exercises its role ensuring that the organization supports and upholds the vision and mission, core values etc.? c) Is the policy framework of bank/DFI developed appropriately? d) What has been the board’s contribution towards developing strategies? e) Is the board able to make timely strategic decisions Annual Report 2019 177
180. f ) g) h) i) j) k) l) ensuring operations are in line with strategies? Is the information provided to the board appropriate, accurate, timely and unbiased? What has been the board’s contribution in ensuring robust and effective risk management? Has the board ensured that internal control and the audit function are conducted in an effective manner? Has the board ensured timely and accurate disclosure on all material information? Is the board as a whole, up-to-date with latest developments in the regulatory environment? Are the board procedures conducive to effective performance and flexible enough to deal with all eventualities? Is the board effective in adherence to the code of conduct? Criteria for Annual Performance Evaluation of the Board Committees: The rationale for the formation of Board Committees is to assist it in the performance of its functions and enhance the efficiency by sharing the work load of the Board. MCB Board has formed eight (8) Committees assisting the Board in the area of audit, strategy setting, risk management, human resource management, physical planning & contingency arrangements, information technology, compliance reviews and write-offs & waivers. The size, structure and skill set of the Board Committees are in line with the applicable laws, rules and regulations as well as business needs of the Bank. The annual performance evaluation of the Board Committees was also performed by the Evaluation Committee by using in-house-approach on the basis of specific questions/criteria mentioned in the SBP Guidelines. The consolidated final ratings of the evaluation of the Board Committees were in line with the rating given by the PICG as an independent evaluator during the year 2018. The overall results showed that the Board Committees have well-defined objectives and have been properly structured with appropriate Terms of Reference and fulfilling their respective roles effectively and efficiently. During the year, the performance evaluation of the Board Committees was conducted by the Evaluation Committee of the Bank on basis of questionnaires broadly covered under below mentioned criteria: a) Are the size, structure and skill set of committees appropriate? b) Does each committee have adequate and appropriate written terms of reference? c) Are the committees effectively discharging their functions and duties as per terms of reference? d) Is the frequency of committee meetings adequate? e) Are the committee meetings organized properly with appropriate procedures? f) Are the committee meetings conducted in a manner that encourages open communication and 178 Unconsolidated Financial Statements meaningful participation of its members? g) How effectively and proactively committees have followed up with their areas of concern? h) Are the suggestions and recommendations of committees effective? Annual Performance Evaluation of the Chairman, Individual and Independent Directors: As per the requirements and criteria given by the SBP Guidelines, the performance evaluation of the Chairman of the Board was performed by the Independent Directors. Similarly, the performance evaluation of Individual Directors was conducted by the Chairman; however, Independent Directors are evaluated by all other Directors of the Bank excluding the Director being evaluated. Based on the results of the performance evaluation of the Chairman, Independent and other Non-Executive Directors, it was found that the individual Directors were making valuable contributions with proper commitment to their respective roles and responsibilities. Annual Performance Evaluation of the President & CEO of the Bank: The President & Chief Executive Officer (“CEO”) of the Bank is vested with the responsibility of managing overall affairs of the Bank. He through effective leadership and team building efforts achieved the maximum possible performance of the Bank and managed the affairs of the Bank in accordance with strategic and long term objectives of the Bank. He ensured that the Bank’s resources and budgetary targets are aligned with the strategic plan of the Bank and the best industry practices. He promoted the highest standards of integrity, probity and good governance within the Bank. He showed his commitment to stakeholders of the Bank in defining strategic planning with great emphasis on service quality, investment in network infrastructure and human capital, fortifying compliance & risk standards and also remained steadfast in maintaining Bank’s fortress balance sheet. The Senior Management under his leadership devised its goals in line with the strategic direction of the Bank. During the year, the performance evaluation of the President & CEO was conducted by all the Directors of the Bank on basis of below mentioned criteria: a) Were the financial/business targets set by the board achieved? b) Does he possess leadership qualities i.e. correct anticipation of business trends, opportunities and priorities affecting the institution’s prosperity and operations? c) Has he developed clear mission statement, policies, and strategic plans that harmoniously balance the needs of all the stakeholders? d) Does he ensure that company’s resources and budgets are aligned with the implementation of the organization’s strategic plan? e) Does he establish an effective organization structure
181. Annual Report 2021 to ensure management ’s focus on key functions? Does he timely and effectively execute strategies set by the board? g) Has he served as an effective representative while communicating with all the stakeholders? f) Directors’ Remuneration: The Board has approved the scale of remuneration to be paid to the Chairman and other Board Members excluding Executive Director(s) for attending the Board and its Committees meetings. The level of remuneration is determined in such a way that it encourages independence, motivation and retention of Board Members. No remuneration is paid to the Executive Director(s) except for traveling, boarding, lodging and/ or any other expenses incurred for attending Board and its Committees meetings. The Board may also determine additional remuneration for a director including the Chairman of Board and Chairman of any Sub-Committees of the Board for performing extra services. The scale of remuneration including additional remuneration is within the prescribed limits of the State Bank of Pakistan and it has been duly approved by the Shareholders of the Bank. Directors’ Remuneration Policy: The Board has framed and approved a comprehensive and transparent Directors’ Remuneration Policy (the Policy) for the Chairman and other Board Members in accordance with the provisions of applicable laws, rules and regulations as amended from time to time. The Policy aims to set out the requirements and methodology for determining the scale of remuneration and other allowable expenses to be paid, from time to time, to the Chairman and other Directors for attending the Board and its Committees meetings. The Policy ensures that the Board Members are fairly rewarded with regard to their respective responsibilities undertaken, and also to attract and retain high-calibre, experienced directors by offering appropriate remuneration levels commensurate with their expertise, skill and experience. The Policy has been formulated with clear mandate and charter, keeping in view the ownership structure, governance mechanism, risk profile, scope of operations and performance of the Bank. The Policy is applicable to Non-Executive/Independent Directors, Executive Director(s) and the Chairman of the Board of Directors. The Bank being financial services provider always adheres to practicing good governance, enabling to enhance its efficiency and footprints in financial sector. MCB’s Board is comprised of directors who have diversified experience, suitable knowledge, appropriate skill set/expertise and competencies considered relevant in the context of the Bank's operations and to make the Board an effective oversight and decision making body. Financial Statements of the Bank for the year ended December 31, 2021. Directors’ Orientation: Directors’ orientation enables the directors to have better understanding of specific context under which directors operate and comprehend their duties and responsibilities and also to acquaint them with wider scope of the responsibilities, propagate due diligence and acting in good faith while effectively managing the interests of the Bank. It continues through the orientation stage and leads to ongoing directors’ education as well as directors’ and Board’s assessment. An orientation program is aimed at increasing director's familiarity with the Bank, its industry as well as equipping the directors with sufficient information and resources that facilitate fully-informed decisions. In this connection, the Board Members are regularly provided with update on new applicable laws, rules and regulations including amendments thereto to apprise them with their powers, duties and responsibilities. At the time of induction of new director(s), he/ she is given orientation about the Bank’s corporate governance framework, its businesses, current issues, strategies and operations by the Management to acquaint them with the Bank’s overall operations in order to enable them to effectively govern the affairs of the Bank on behalf of shareholders. The directors are also provided with the detailed written material in shape of extracts from relevant laws, rules & regulations on powers, duties & responsibilities of the Board of Directors. Policy of retention of fee / remuneration from Nomination on the Board of other companies: The Directors have approved the Nomination Policy whereby Bank’s Executives are nominated on the Board of other Companies on behalf of the Bank. Nominee Directors who are employees of the Bank shall, however, have to surrender compensation such as meeting attendance fee to the Bank. Directors’ Training Program: All Board Members, either have minimum education and experience required for exemption from Directors Training Program (“DTP”) or have already undergone such training as narrated in the Listed Companies (Code of Corporate Governance) Regulations, 2019 and the Corporate Governance Regulatory Framework issued by SBP. MCB Board is fully adhered to directors training arrangements under the Regulations. Further, the Bank is also well ahead of the prescribed deadlines of DTP requirements as given by the Regulator. Payment of Directors’ Remuneration: Board’s Function and Decision Making: The detail of remuneration paid to the Executive Director and the Non-Executive Directors during the year 2021 has been disclosed in the Note No. 40 of the Unconsolidated MCB’s Board sets the Bank’s strategic aims to be put into effect and upholds the vision, mission and Annual Report 2019 179
182. core values of the Bank . It plays an effective role and provides entrepreneurial leadership and direction for the Management of the Bank. The Board considers longterm policy-related matters and exhibits high standards of business and professional conduct in managing and supervising affairs of the Bank. The Board comprises of local as well as foreign directors who have diversified experience, suitable knowledge, appropriate skills/ expertise and competency considered relevant in the context of the Bank's operations and to make the Board an effective decision making body. The collective wisdom of the Board is translated into its decisions which form the basis for Management to achieve its targets. The primary role of the Board of Directors of the Bank is to enhance shareholder value. The directions provided by the Board enable the Senior Management to deliver remarkable returns to stakeholders, sustainable performance and value added services. It also helps in building a corporate culture of equality, trust and team spirit. MCB Board is concerned with strategic matters and overseeing the business of the Bank in light of emerging risks and opportunities, on a regular basis and also involved in establishing and reviewing the strategies, yearly targets and financial objectives of the Bank. Significant Issues/Matters discussed/approved by the Board of Directors: During the year 2021, the Board of Directors deliberated/ approved the following Significant Issues/ Matters: • Annual Budget for the year 2022; • MCB’s Enterprise Digital Transformation Strategy 2021-2024; • Bank’s Policies including periodic reviews and amendments thereto; • Periodical review of Terms of Reference (“TORs”) of Board’s Committees; • Financial Results of MCB Bank and consolidated Financial Results with its subsidiaries on quarterly, halfyearly and annual basis together with Directors’ Report, Auditors’ Report and Chairman’s Review Report; • Declaration of Interim and Final Cash Dividends; • Related Party Transactions as recommended by Board’s Audit Committee; • Management Letter(s) issued by the External Auditors of the Bank and its compliance status; • Significant activities and achievements of Board’s Committees; • Complaints Received under Whistle Blowing Program and Action taken thereon; • Matters recommended by Board’s Committees; • Appointment/Engagement of External Auditors of the Bank as well as for Bank’s Overseas Operations and also to Perform Agreed upon Procedures as recommended by the Audit Committee; • Exception from Current and Linkage Ratio Policy Framework; • Performance Evaluation of the Board as a whole, its 180 Unconsolidated Financial Statements Committees and Individual Directors; Quarterly and Annual Reports on Fraud & Forgery Cases; •Consumer Lending Business and Wealth Management Business; and • Annual Branch Expansion Plan of the Bank. • Matters Delegated to the Management: The strategic direction provided by the Board enables the Senior Management to deliver remarkable returns to shareholders, sustainable performance and value added services to the stakeholders. It helps in building a corporate culture of equality, trust and team spirit within the Bank. The Board periodically reviews the financial and operational performance of the Bank and sets the budgetary targets for the Management. The Management is primarily responsible for implementing the strategies as approved by the Board of Directors in conducting the operations of the Bank effectively. Tactical and operational matters are delegated to the Management. Further, under the direction and oversight of the President & CEO of the Bank, the Senior Management carries out and manages the Bank’s activities in a manner consistent with the strategies, business goals, risk appetite, incentive compensation and other policies approved by the Board of Directors. Governance Practices Exceeding Legal Requirements: MCB Board as a whole respects the country laws and ensures meticulous compliance of applicable laws, rules & regulations and being a leading Bank always adheres to provide information and disclosures above the minimum regulatory requirements. The Board never gives the room for any sort of non-compliance and takes it as reputational risk for the Bank. The Management also regularly updates the Board with the latest development in the regulatory environment and maintains stringent control over regulatory compliance through designated resources. Following are some of the practices of the Bank which exceed the minimum legal requirements: • The Board has formed its eight sub-Committees as compared to the minimum regulatory requirement of four. • The Bank has only one Executive Director (President & CEO) though two executive directors are permitted by SBP and four (one third of the Board as executive directors) under the Listed Companies (Code of Corporate Governance) Regulations, 2019. • Voluntary adoption of best reporting practices as prescribed by ICAP/ICMAP/SAFA with a view to making the Bank’s financials more transparent. • The Bank reports additional information in the Annual Report for stakeholders which is not required by any laws.
183. Annual Report 2021 Roles and Responsibilities of the Chairman and the President & CEO of the Bank: The Roles and Responsibilities of the Chairman and the President & CEO of the Bank are described below: Roles and Responsibilities of the Chairman: The Chairman of the Board of Directors (“the Board”) shall be elected from amongst the non-executive directors of the Bank and shall not hold the office of Chief Executive Officer (“CEO”). He shall be responsible for leadership of the Board and shall ensure that the Board plays an effective role in fulfilling its responsibilities. The Chairman has responsibilities and powers as vested in him/her by law, Articles of Association of the Bank and/or assigned, from time to time, by the Board. In particular, the Chairman will coordinate the affairs of the Board and chair the meetings of the Bank; however, he shall not participate in day-to-day management affairs of the Bank. The Chairman shall ensure that: The composition of the Board is in accordance with legal and regulatory requirements; • The Board as a whole is functioning effectively in accordance with applicable laws, rules and regulations to inculcate sound business principles and prudent commercial practices; • The Board receives appropriate, accurate, timely and unbiased information, in particular, about the Bank’s affairs and performance to enable the Board to take sound and effective decisions; • The meetings of the Board and the Shareholders of the Bank are convened in compliance with legal and regulatory requirements; and proceedings of such meetings are accurately and fairly recorded. The agenda of the meetings take full account of applicable laws & regulations and the requirements of Bank’s business; • All Board Members are encouraged to participate and raise issues and concerns in the Board discussions, whilst promoting highest standards of Corporate Governance; • The Board is concentrating on relevant issues and conflicts (if any) are effectively resolved; • The Board sets the tone and values of the Bank; promotes a culture of openness and constructive debate and effective decision making; • The Board is periodically updated on its statutory and fiduciary duties, as required in relevant laws, rules and regulations enabling the Directors to perform their roles & responsibilities properly and prudently in the best interest of the Bank; • Good relationship is maintained with Board Members, the Management and the Shareholders; so that obligations to the Shareholders and other stakeholders are understood and met; and • Shareholders’ and other stakeholders’ interest is promoted in the decisions taken by the Board. • The Chairman and the Vice-Chairman are elected by the Board in accordance with the provisions of the Articles of Association of the Bank and hold the office for a period of three years. In the absence of the Chairman, the above mentioned role and responsibilities of the Chairman are performed by the Vice-Chairman of the Bank. Roles and Responsibilities of the President & CEO: The President & CEO of the Bank, subject to the control and directions of Board, is entrusted with the whole, or substantially the whole, of the power of the Management to direct, manage, administer and control the affairs of the Bank. He shall be responsible to the Board for the implementation of its strategies, policies and decisions. The terms and conditions of appointment of the President & CEO are determined by the Board of Directors. The President is to be deemed a director and also entitled to all the rights and privileges and be subject to all the liabilities of that office. He/she possess leadership qualities i.e. correct anticipation of business trends, opportunities and priorities affecting the institution’s prosperity and operations. The President & CEO of the Bank shall: • Set the appropriate performance standards to achieve financial/business targets set by the Board; • Ensure that Bank’s resources and budgets are aligned with the implementation of its strategic plan; • Ensure assessment, monitoring and effective management of the significant risks to the Bank; • Ensure that Bank maintains high standards of corporate citizenship and social responsibility wherever it operates; • Establish an effective organizational structure having appropriate resources/systems within the Bank, to ensure Management’s focus on key functions; • Timely and effectively execute strategies set by the Board; • Manage the affairs of the Bank in accordance with strategies and long term objectives approved by the Board; • Ensure effective communication with the Board, Shareholders, Employees, regulatory authorities and other stakeholders and serve as an effective representative of the Bank while communicating with all the stakeholders; • Ensure through effective leadership, team building and motivation that the maximum possible performance is achieved by the Bank and ensure that the affairs of the Bank are being managed in accordance with highest ethical standards, sound business principles and prudent commercial practices; • Exercise the overall control, discretion, administration and supervision for the sound and efficient management and conduct of the business of the Bank; • Monitor short term goals and ensure that the operating groups/divisions develop their own plans Annual Report 2019 181
184. for the future , which need to be quantified as far as possible with benchmarks established; • Conduct a periodic performance review of the Senior Management team so that major initiatives such as expansion strategies, acquisitions and capital investments should be finalized and adopted through major marketing and development exercises; • Provide the Board with the relevant information it needs to carry out its fiduciary responsibilities and to supervise the Senior Management; • Liaise between the Board and the staff, and communicate on a regular basis with both to promote understanding, cohesiveness and coordination for development of policies and their implementation; • Ensure the compliance of applicable laws, rules and regulations; • Ensure establishment of an effective information mechanism whereby internal and/or external significant/material items affecting Bank’s affairs are identified and shared with relevant stakeholders on timely basis; and • Maintain follow up on regulators’ observations and other lawful instructions and issues raised by external and/or internal auditors and to ensure their strict adherence/compliance in Bank’s operations. community standard assessment program for attestations against its customer security controls framework (CSCF). • External vulnerability assessments and penetration testing. • PCI DSS (Payment Card Industry Data Security Standard) compliance assessment. • External auditors of the Bank have carried out special review of the Bank’s Internal Control Programme relating to Internal Control over Financial Reporting (ICFR). • During the year 2021, in accordance with the regulatory requirements, the management of the Bank engaged the services of an external consultant to carry out independent assessment of its compliance of the eCIB data reporting mechanism. External Oversight of Functions and Measures Taken to Enhance the Credibility of Internal Controls and Systems Directors’ profile has been incorporated in the “Board of Directors” section. To ensure effectiveness, applicability and appropriateness of the implemented controls and systems, the management of the Bank engages external subject matter experts / consultants to conduct performance and quality assessments at regular intervals; or earlier, if warranted by significant changes occurring within the Bank control environment. Following is the summary of key measures undertaken to enhance the credibility of internal controls and systems through external oversight: • • 182 The Bank has an independent operational Audit and RAR Group (IA) responsible for providing a reasonable assurance to key stakeholders regarding compliance with control framework of the Bank. As part of IA’s overall quality assurance and improvement program, regular strategic assessments are executed, through an external assessor, to review conformance to regulatory framework and perform maturity assessment of IA’s operating practices against external performance benchmarks. The latest of the captioned external assessment exercises was concluded in 2020. The information and network security systems are periodically reviewed by the information systems auditors; in 2021, an independent external assessment was conducted as part of SWIFT’s Unconsolidated Financial Statements Code of Conduct & Ethical Standards for Directors: The Bank has also developed “Code of Conduct & Ethical Standards for Directors” as per the requirements of Code of Corporate Governance which is signed annually by every Director of the Bank. Directors’ Profile: Accessibility of Annual Report-2021: Annual Report-2021 and other information of the Bank are accessible on Bank’s Website: www.mcb.com.pk Security Clearance of Foreign Directors: Foreign Directors elected on the Board of Bank require security clearance from Ministry of Interior through SECP. All legal formalities and requirements have been met and fulfilled in this regard. Board’s Policy on Diversity: The Board of Directors firmly believes that the diverse mix of gender, knowledge, expertise and skill sets of the members / employees enhances the effectiveness of the Bank. MCB is committed in fostering, cultivating and preserving a culture of diversity and inclusion. Human capital is the most valuable asset the Bank has. The collective sum of the individual’s life experiences, knowledge, inventiveness, innovation, self-expression, unique capabilities and talent that employees invest in their work, represents a significant part of Bank’s culture, as well as reputation and achievement. The Bank embraces and encourages employees’ with a mix of age, physical disability, family ethnicity, language, political affiliation, religion, sexual orientation, socioeconomic status and other characteristics that make its employees unique.
185. Annual Report 2021 Related Parties and approved Policy for Related Party Transactions The Board of Directors has approved a Policy for Related Party Transactions . The Bank’s policy is to conduct all the related party transactions on an arm’s length basis in the normal course of business. If a transaction is not conducted on an arm’s length basis, then specific approvals or ratifications are required by the Board on recommendation of the Audit Committee of the Bank in order to avoid any potential conflict of interest. The policy specifies that all transactions entered into with related parties shall require Board’s approval on the recommendation of the Board Audit Committee of the Bank, which is chaired by an Independent Director of the Bank. Every director (including spouse, children, step children and parents) of the Bank who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank shall disclose the nature of his concern or interest at a meeting of the board. No director of the Bank shall, as a director, take any part in the discussion of, or vote on, any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank, if he/ she is in any way, whether directly or indirectly, concerned or interested in that contract or arrangement, nor shall his/ her presence count for the purpose of forming a quorum at the time of any such discussion or vote. During the year, the Bank has entered into transactions and contracts with the related parties i.e. subsidiary and associate companies, post-employment benefit plans for the Bank’s employees, Key Management Personnel (KMPs), Close Family Members (CFMs) of KMPs and other related entities. Those transactions include lending activities, acceptance and placements, off balance sheet transactions and provision of other banking and financial services that are carried out in the ordinary course of business on an arm’s length basis at commercial rates, except for the transactions that KMPs have availed under HR policy of the Bank. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. The Bank has made detailed disclosures about related party transactions in its financial statements annexed with this annual report. During the year, no contract or arrangement was entered into with related parties other than in the ordinary course of business on an arm’s length basis. Managing Conflict of Interest: Overview: A conflict of interest arises when a director, directly or indirectly, has an interest, pecuniary or otherwise, in performing his functions or duties and such interest could lead to impair his ability to consider and decide any matter impartially, without creating biasness in his or her own decision. The Board Members owe certain fiduciary duties, including the duties of loyalty, due diligence, and confidentiality to the Bank which require that a director must act in good faith in order to promote the objectives of the Bank. In this regard, the Bank has developed “Code of Conduct & Ethical Standards for Directors” which requires that every director of the Bank has to disclose potential or actual conflicts of interest with respect to his/her duties as soon as they arise or he/she becomes aware of them. All the Board Members take reasonable steps to avoid being in an actual, apparent or potential conflict of interest. The Board recognizes the responsibility to adhere to the defined policies of the Bank and avoid perceived conflicts of interest that may arise during the course of business. Disclosure of Interest by Director: Every director of the Bank who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the Bank discloses the nature of his/her concern or interest at a meeting of the Board in accordance with the regulatory requirements. Interested Director does not participate or vote in the proceedings of such Board meeting. Disclosure of Interest by Officers: No other Officer of the Bank who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the Bank shall, unless he discloses the nature and extent of his/her interest in the transaction and obtains the prior approval of the Board of Directors, enter into any such contract or arrangement. Exposure in Interested: Companies where Directors are The Bank does not enter into leasing, renting and sale/ purchase of any kind with their directors, officers, employees or such persons who either individually or in concert with family members beneficially own 5% or more of the equity of the Bank. The Bank does not take unsecured exposure on, or take exposure against the guarantee of any of its directors, any of the family members of any of directors and any firm or private company in which our directors are interested as director, proprietor and partner or public company in which such persons are substantially interested. Without the approval of the majority of the directors excluding the director concerned, the Bank does not Annual Report 2019 183
186. take any exposure on the companies in which directors (including their spouses, parents, and children) hold key management positions, or are interested as partner, director or guarantor, or shareholders holding 5% or more of the share capital of that concern. The financing facilities shall be extended at market terms and conditions and be dealt with on arm’s length basis. Conflicts of Interest Register: The Bank maintains a register of all contracts, arrangements or appointments in which directors are interested. Insider Trading: Directors being the insiders are prohibited by the law to indulge in insider trading. They shall not deal directly or indirectly in the securities of the Bank whether on their own account or their relative’s account, if they are in possession of any unpublished price sensitive/inside information, which if published or known, is likely to materially affect the price of Bank’s securities. Directors, who are usually considered to have such information, shall not communicate directly or indirectly the said information to others who might exploit such information while trading in the securities of the Bank. As per the regulatory requirements relating to Insiders’ trading, the Bank is maintaining the register of Insiders who have access to unpublished price sensitive/inside information and the said Register regularly updated by the authorized personnel of the Senior Management of the Bank. Whenever, the Bank or a person acting on its behalf, discloses any inside information to any third party in the normal exercise of employment, profession or duty; a complete and effective public disclosure of that information is made simultaneously unless such person owes a duty of confidentiality. Further, Bank has approved policy on Prohibition of Insider Trading which is effectively implemented throughout the Bank. Investor Grievances MCB Bank ensures safeguarding the interests of its stakeholders by effective communication at regular intervals through multiple mediums. However, the Bank acknowledges that there may be instances where the stakeholders may have unaddressed concerns which if unresolved may become a grievance. To timely address any untoward incident, the Bank has a well-functioning grievance resolution mechanism that provides a transparent and credible process resulting in outcomes that are seen as impartial, effective, and durable. Through this initiative the Bank is able to reduce investment risks, provide an effective avenue to express and resolve concerns, thereby substantiating positive relationship. The Bank ensures quality services with uncompromising focus on investors’ concerns and transparency in execution thereby extending respect to the trust placed. 184 Unconsolidated Financial Statements Redressal of investors’ complaints The Bank is rigorously following the complaints of investors received from any regulatory forum and designates exclusive resources to resolve the matter both effectively and efficiently. Further, a centralized function namely the Shares department in the Corporate Affairs Division strives hard to manage any such investor grievances in consultation with the share registrar. Investors can lodge complaints by contacting the shares registrar, or write a letter or send an email to the share department of the Bank. A designated e-mail address, (investor.relations@ mcb.com.pk) has been created to timely address the same and is readily available through our website and annual reports. Furthermore, in compliance with the regulatory requirements, the Bank has duly disclosed the link (https://sdms.secp.gov.pk/) to SECP’s Service Desk Managements System on its website; hence offering an additional outlet to the stakeholders for lodging their unresolved grievances and reinforcing its commitment to secure stakeholder interests. The Bank ensures resolution of any grievances within statutory timelines. Human resource management policies and succession planning Human Resource Policies have been approved by the Board of Directors of the Bank on the recommendation of Human Resource & Remuneration Committee (HR&RC) of the Board in order to provide clear and definitive directions on human resource (HR) related matters. MCB being an equal opportunity employer is committed to creating a congenial and efficient work environment in which the employees are assured a non-discriminatory, transparent, harassment free and respectful atmosphere regardless of their cast, creed, religion and gender. The Bank’s talent-acquisition policies provide unbiased criteria for hiring people through lateral and batch hiring from any background as long as they qualify for the professional criteria required by the Bank. The culture at MCB Bank also depicts a healthy, team based and cooperative environment. We value the unique talents and perspectives of our employees and strive to create a respectful workplace. The Bank is committed towards employee development practices which enable all its employees to reach their optimum potential, thereby creating a high performance organization. This belief is supported by the Bank's comprehensive approach towards performance management, career development and management training. The Bank affirms its belief in motivating its work force through positive reinforcement and opportunities in each of these key areas regarding employee development. The Bank has a transparent KPI based performance assessment and reward mechanism that allows front office employees to track their performance with their goal achievement throughout the year.
187. Annual Report 2021 Salient feature of Staff Compensation /Remuneration Policy The Remuneration Policy of the Bank is designed to promote a culture of sound compensation aligned with risk and responsibilities in a transparent manner for acquisition of talent, retention of employees and achievement of stakeholder expectations. MCB's remuneration policy applies to all staff. The policy covers identification of Material Risk Taker (MRT) and Material Risk Controllers (MRC), performance assessment through balanced scorecards, compensation structure and deferral mechanism. The responsibility for approving the remuneration policy rests with the Board of Directors. The Board has constituted Human Resource & Remuneration Committee (HR&RC) for recommending to the Board, the structure of the remuneration policy, including the remuneration setting mechanisms, composition of remuneration, and other related matters. HR&RC may take the support of Bank's functions (e.g. Finance, Risk, Audit, Compliance, and HR). At management level, HRMG leads the overall remuneration policy of MCB. All compensation provided to MCB staff can be divided into fixed remuneration or variable remuneration. Fixed remuneration is that part of the compensation which remains unaffected by the performance of the Bank or the individual employee. Fixed component of remuneration consists of basic salary and allowances that are part of the total compensation package of the employee. Variable remuneration is that part of the total compensation package of an employee which is linked with some predetermined measures of performance. Variable compensation is linked with the individual's performance and comprises of performance bonus, commissions, incentives and allowances. The Bank has identified functions and designations as MRTs/MRCs. These include, President/CEO, direct reportees to the President/CEO (members of management committee), Country heads of overseas branches, direct reportees to the members of senior management managing critical functions as determined by HR&RC and all other material Business units. Balanced scorecards are defined for all MRTs & MRCs for carrying out an objective and transparent performance assessment. The variable compensation for the MRTs and MRCs is linked to the performance result derived from the scorecard. The performance assessment for MRTs and MRCs is performed via the structured balanced scorecard mechanism that is in place to ensure that objective risk and return measures are duly taken into account for determining the bonuses and awards for MRTs and MRCs. The bonuses and awards for MRTs are determined based on the performance of the individual, their respective department and the overall Bank. MRCs in the Bank have suitable autonomy and authority to perform their tasks independently, without influence from the functions they are assigned to oversee and review. KPIs in the scorecards of MRCs are independent of the KPIs of the business functions that they oversee. This ensures that achievement of financial targets of the business functions are not considered for the performance assessment of the MRCs. For MCB employees’ classified as MRTs and MRCs, at least 25% of their variable remuneration shall be deferred. Minimum deferral period is three years with no vesting prior to year 1. Policy for Sustainability and Corporate Social Responsibility (CSR) Policy Sustainability and Corporate Social Responsibility (CSR) is detailed in Sustainability and Corporate Social Responsibility Section of this report. Responsibilities of Management and the Board of Directors toward the preparation and presentation of the financial statements Responsibilities of Management and the Board of Directors toward the preparation and presentation of the financial statements The Management is aware of its responsibility for the preparation and fair presentation of the financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as the management determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of directors is responsible for overseeing the Bank’s financial reporting process. Policy for Safety of Records of the Bank: Record management is a methodological approach to control the maintenance and disposition of organization’s record. Record management ensures that valuable record evidencing an organization’s activities that have legal, financial, administrative or historical value are protected and accessible while expired record is systematically destroyed. Thus MCB Bank has put in place comprehensive processes, controls and guidelines on handling, protection, retention, retrieval, and disposition of recorded business information generated daily which are of ongoing importance to MCB’s overall service capability and regulatory compliance. In its endeavor to comply these guidelines / processes, the Bank has already achieved major milestones. Social and Environmental Responsibility MCB Bank Limited undertakes its responsibility to be recognized as an organization that is aware of both its social and environmental obligation. The Bank continuously strives to inculcate the same by creating Annual Report 2019 185
188. awareness amongst stakeholders , streamlining its operational processes and reinforcing the same through various policies. The key areas that the Bank focuses upon are to provide a safe and healthy workplace, protect the environment and conserve energy through use of appropriate technology and management practices. Some of the salient features of the Bank policy are as follows: • Compliance with local, national and international laws and regulations as well as the spirit thereof and conduct of business operations with honesty and integrity • Promote and engage in social welfare activities that help strengthen communities and contribute to the enrichment of society • Provide innovative, safe and outstanding high quality banking products and services exceeding the expectations of customers • Significant investment to develop technological based ‘Alternative Delivery Channels’ for maximum ‘Financial inclusion’ • Sustainable development through building and maintaining sound relationships with our stakeholders through open and fair communication • Communication and dialogue with employees, to build and share the value of “Mutual Trust and Mutual Responsibility” and work together for the success of all of our stakeholders • Respect for people by honoring the culture, customs, history and laws of Pakistan. Constantly search for safer, cleaner and superior practices that satisfy the evolving needs of the society • Minimize the environmental impact of business operations, by working to reduce the wastage of all resources •Develop, establish and promote practices enabling the environment and economy to coexist harmoniously and build close and cooperative relationships with individuals and organizations involved in environmental preservation Review by the Board of the Bank’s Business Continuity Plan (BCP) Business Continuity Management (BCM) is a process that identifies and recognizes risks, threats and vulnerabilities that could impact Bank’s operations internally or externally. BCM provides framework and creates ability for an organization to mitigate risk, withstand changes in the environment and still perform its critical processes and functions. A robust Business Continuity Plan (BCP) outlines a range of disaster scenarios and the steps to be taken in order to minimize the potential harm to business during adverse situations. BCP's/system recovery procedures are written ahead of time therefore Bank endeavors to have sustainable, effective enterprise wide BCM program 186 Unconsolidated Financial Statements to provide seamless services and product reach to its customers/ stakeholders. The Board of Directors periodically reviews and gauges Banks preparedness to deal with any untoward situation. Furthermore the senior management of the Bank ensures to maintain an effective Business Continuity Policy & Framework to ascertain that clear and concise plans are maintained for all critical areas which encompasses strong remedial actions to reduce the risk of downtime in any contingency scenario. In these difficult times when the world was taken aback by COVID-19 and every segment of life got affected the Bank adopted a proactive approach and immediately arranged for the Personal Protective Equipment’s (PPEs) comprising of face masks, hand gloves, face shields, hand sanitizers etc. for its staff and visiting customers. Furthermore special screening arrangement, maintaining social distance, minimizing staff strength, periodic disinfection in branches and offices were the initiatives taken to ensure continuity of business and services, thus complying with Government and WHO precautionary instructions. Further to nurture and enhance the confidence on Bank’s system and processes; Business Continuity Plans are tested and updated on regular intervals. Since BCM is well knitted into the Banks structure and branch network, thus it gives confidence to its millions of customers, stakeholders and regulator that the Bank can live up-to the commitment and expectations by ensuring continued functionality of its critical businesses and functions in any circumstances. Stakeholders’ engagement Stakeholders’ engagement and the steps taken to solicit and understand the views of the shareholders is detailed in the stakeholders’ engagement section of this report. Statement by the Management of unreserved compliance of International Financial Reporting Standards (IFRS) The management of the Bank strongly believes in adherence to unreserved compliance with all the applicable International Financial Reporting Standards (IFRSs) issued by International Accounting Standards Board (IASB) for true and fair presentation of financial statements. Financial statements for the year have been prepared in accordance with the accounting and reporting standards issued by IASB as are applicable in Pakistan. IFRS adoption status is detailed in note 3 of the unconsolidated financial statements. Whistle Blowing Program Overview MCB Bank is committed to continually operate at the highest standards of conduct in our business. We are the trustees of public funds and it is our core value to serve
189. Annual Report 2021 our community with integrity . We endeavor to earn and uphold the trust of all our customers and stakeholders by serving and dealing with them lawfully, ethically and professionally. Purpose This program provides a channel to Bank’s staff and outside parties such as shareholders, vendors, customers etc. for raising concerns/complaints about any irregularities, AML/CFT/CPF related issues, impropriety, financial malpractices, frauds & forgeries, personnel harassment and improper conduct or wrongdoing without any fear of reprisal or adverse consequences. The objective of the program is to address/resolve these concerns/complaints to prevent and/or detect improper activities for safeguarding the interest and reputation of the Bank and its stakeholders. Scope The program covers deliberate, voluntary disclosure of individual or organizational impropriety by a person who has or had privileged access to data, information or event about an actual, suspected or anticipated wrongdoing within or by an organization that is within its ability to control. Protection of Whistle Blowers MCB Bank is committed for protection of genuine complainants against action(s) taken in reprisal for the making of protected disclosures. Confidentiality of the complainant’s identity, the nature of the report and the identity of the suspected person is strictly maintained. Number of instances reported to Audit Committee Number of whistle blowing incidents (wrongdoings) along with update on investigations/resolution reported to the Audit Committee and Board of Directors during the year 2021 was 36. Significant changes from prior years • • During the year, the term of President & CEO, Mr. Imran Maqbool was completed on December 20, 2021 and the Board appointed Mr. Shoaib Mumtaz, as Acting President & CEO of the Bank with effect from December 21, 2021 subject to his Fit and Proper Test (FPT) clearance by the State Bank of Pakistan (“SBP”). Subsequently, SBP has cleared FPT of Mr. Shoaib Mumtaz as President & CEO of the Bank on February 09, 2022. During the year one group head (Key Management Personnel) resigned from his position and the Board approved his replacement accordingly. Shares held by Directors, Chief Executive Officer, their Spouses and Minor Children Shares held by Directors, Chief Executive Officer, their Spouses and Minor Children have been disclosed in “Categories of Shareholders” section of the Annual Report. Presence of Chairman Committee at the AGM of Audit The Bank does not tolerate harassment or victimization and takes action, which could involve disciplinary proceedings, to protect complainants when they raise a concern in good faith. The Chairman of the Board’s Audit Committee was present at the AGM to answer questions on the Audit Committee’s activities and matters within the scope of the Audit Committee’s responsibilities. Incentives for Whistle Blowing Chairman's significant commitments Complainant may be awarded monetary benefit/career advancement depending upon the nature and gravity of the concerns/complaints Mian Mohammad Mansha has served as Chairman of MCB Bank, after its privatization, from 1991 to mid1995 and then from 1997 till date. Presently, he is also a member of the Board’s Human Resource & Remuneration Committee, Committee on Physical Planning & Contingency Arrangements and Business Strategy & Development Committee at MCB Bank Limited. He does not have any significant commitment other than the one mentioned in his profile under “Directors Profile” section of the Annual Report. Whistle Blowing Mechanism Employees or outside parties with concerns or complaints may report such concerns or complaints to Whistle Blowing Unit through any of the following means: • Landline • E-mail • Fax • Website • Regular Mail Concerns and complaints are investigated and findings are shared with the senior management for their necessary action. Information related to investigations is also shared with the Audit Committee and Board of Directors Annual Report 2019 187
190. Pandemic Recovery Plan by the Management and Policy Statement The emergence of COVID - 19 pandemic during 2020 inflicted an unprecedented global crisis ; taking a large toll on human lives, inducing a synchronized economic downturn and exerting long term socio-economic repercussions. The emanating uncertainty garnered emergency response from Governments’ across the globe in the form of multiple policy measures implemented on the economic, fiscal and monetary fronts. The unprecedented COVID-19 crisis had brought about many challenges for the financial sector and regulator. Responding to the challenge, MCB implemented comprehensive pandemic recovery plan based on guidelines by International and National authorities and a risk based focus to protect the staff from impact of pandemic illness and ensure information system uptime, data integrity, service availability and overall business resilience. Pandemic impacted several aspects of the bank’s operations such as shortage of staff, increase in use of ATMs, increase in volume of internet/mobile banking and call center services, delay in payments and increase in delinquencies etc. During pandemic, the Bank ensured that strategies and processes are in place to enable business continuity to provide critical services while ensuring the health and safety of employees, customers, and vendors. Technology played a major role in business continuity. 1. Ensured the health and safety of employees, customers and vendors During pandemic, the Bank implemented below measures to allow the continuity of operations with minimal contact between staff, customers, or suppliers for prolonged periods of time. 1. Redirected customers from branch/office visits to online banking services. Encouraged customers to use bank’s digital tools and other resources for self- service banking and 24/7 account access. 2. Reduce hours of operation and enabled employees to work from home or from alternative sites. 3. Used teleconference/videoconference for meetings (even for people in the same building). 4. Implemented restrictions on visitor access to the bank facilities and enforced quarantine for sick staff. 5. Installed sanitizing gel dispensers throughout all areas used by clients inside the branch and in internal areas for employees. 6. Rearranged furniture in order to allow more space between employees and between employees and clients or vendors. 7. Ensured the regular disinfection of sensitive areas and defined office hygiene procedures. 8. Regular temperature check was ensured at entry points of all locations and face masks made mandatory. 9. Strict protocols on social distancing were put in place. 2. Ensured continuity of the Bank’s operations With shortage of staff, decline in branch activities, and the reduction in human interaction in general, the use of technology played an extremely important role. 1. Identified which jobs and tasks can and cannot be done, even partially, without being physically present in the office. 2. Ensured employees know how to use the various hardware and software dedicated for remote working. 3. Ensured preparedness for a high absentee rate and make back-up arrangements for key staff and functions. 4. Cross-train employees and ensure that succession/replacement plans are in place. 5. Established procedures for safeguarding data, including backups. 6. Audited the technology used for remote access and check for the need of increasing capacity, bandwidth and authentication mechanisms. 7. Checked the capacity of networks to handle increase in traffic. 8. Ensured telecommunication structure can handle increase in call volume. 3. COVID-19 Vaccination Drive MCB Bank arranged vaccination drive for all its employees and their families at MCB House Lahore and MCB Tower Karachi. Along with safeguarding the health our employees and their families, this initiative this was an essential part of bank’s business continuity plan to ensure its commitment to smooth running of all its operations which were disturbed due to emergence pandemic last year. 188 Unconsolidated Financial Statements
191. Annual Report 2021 IT Governance BOD BITC President GH-RMG Chief Information O fficer / Head IT Division Head PMO Division Head IT Solutions Department Head IT BCP Department Head IT Procurement Department Head IT Compliance Department Head IT Finance Department Head IT Operation Division Head IT Enterprise Infrastructure Division Head IT Service Management IT Governance is an integral part of Enterprise Governance and consists of the leadership and organizational structures and processes that ensure that the Bank’s IT sustains and extends the Bank’s strategies and objectives. IT Governance systematically engages the Board members, executive management and underlying staff. It establishes a discipline used by the organization to measure transparent accountability of decisions, and ensures the traceability of decisions to assigned responsibilities. Well-structured IT Governance would assist in creating efficiencies, enhance conformity to internationally accepted best practices, improve overall IT performance and also enable better control and security. Information Technology Group is headed by CIO who in turn reports functionally and administratively to the President/CEO. The Office of the CIO provides the leadership for the development and delivery of worldclass technology services. The position is directly responsible for; a) Managing the operations of Information and Technology Services for efficient and smooth delivery; b) Recommending IT Strategy that is aligned with Bank’s overall Strategy; c)Encouraging technical innovation and the development of a robust and dependable technology infrastructure; d) Strengthening the IT Governance; e) Providing guidance, oversight, and strategic thinking on information technology; f) Setting the overall direction for IT Group to introduce and implement innovative technology solutions; g) Ensuring the availability of Bank’s services as up & running and active DR invocation mechanism at the time of disaster. Information Technology Group (ITG) has been taken care by teams of committed professionals, providing innovative and efficient solutions to achieve and nurture strategic objectives and goals of Business as well as other support Division Head IT Support Services Division Head Business Technology Division Head Information Security / CISO groups under the guidance of Board IT Committee (BITC) and management IT Steering Committee (ITSC). Group is further be strengthened by following functions: a. b. c. d. e. f. g. h. i. j. k. IT Enterprise Infrastructure IT Operations IT Software Solutions IT Service Management IT Support Services IT Business Technology IT Project Management IT Financial Services IT Procurement IT Compliances & Internal Control IT Business Continuity INTERNAL GOVERNANCE The Bank’s Management IT Steering Committee (ITSC) & Board IT Committee (BITC) are the governing bodies that review, monitor, prioritize and approve major IT projects. Key Objectives of these committees are: – To provide a forum for discussions, review and advice on Technology needs, Investments, Issues & Progress; – Prioritize, approve and monitor investments (projects & resource allocation), financial objectives and performance in order to review whether IT and Business strategies aligned with each other; – Assessment of IT capability and adequacy of the IT infrastructure & Guidance on strategic goals and direction to see if enterprise achieving the optimum use of the IT resources; – To review adoption of best practices, standardization and interoperability internally and externally; – To provide resolution of cross-function or intercompany critical issues; – Consideration of risk exposures and monitoring of risk management; – To review the communication path between the board/executive and middle management. Annual Report 2019 189
192. Profile of Shari ’ah Advisor Board (Annual Report – 2021) Prof. Mufti Munib-Ur-Rehman Chairman Shari’ah Board Prof. Mufti Munib-ur-Rehman, working with MCB Islamic Bank since September 2015, is a renowned Shari’ah scholar with a vast 49 years’ teaching and 34 years’ Fatawas issuance experience. He remained the member of Shari’ah Advisory Board of Securities and Exchange Commission of Pakistan (SECP) for three terms and the member of the Council of Islamic Ideology Pakistan (CIIP), he rendered voluntary services for the country since 2001 to 2020 as Chairman Central Moon Sighting Committee Pakistan. He served as Director of Islamic Studies, Hong Kong in 1985. He is the president of Tanzeem-ul-Madaris Ahle Sunnat Pakistan & Secretary General of Ittihad-eTanzeemat-e-Madaris Pakistan. He participated in international seminars in Saudi Arabia, UK, Norway, USA, Canada, Kazakhstan, Turkey and other Countries. He remained member of the Board of Studies of University of Karachi, Federal Urdu University & Board of Intermediate Karachi. He remained member of the syndicate of University of Karachi & PMAS Arid University, Rawalpindi. He is the member of National Curriculum Pakistan & National Education Task Force. He was Shari'ah Adviser of Federal Shariat Court Pakistan. The 11 Volumes of his Fatwas has already published and has vast acceptability amongst Ulama. He is the Principle & Managing Trustee of Jamia Naeemia Karachi. He is Chairman Shari'ah Advisory Committee of Dawood Family Takaful Ltd and remained Chairman Shari'ah Board of Burj Bank Ltd for more than a decade. Mufti Syed Sabir Hussain Resident Shari’ah Board Member/ Head-Shari’ah Compliance Department Mufti Syed Sabir Hussain, working with MCB Islamic Bank Ltd. since September 2015, is a prominent Shari’ah Scholar and experienced Islamic Banker with 22 years of teaching, 15 years of Fatawa and Islamic banking experience. He holds Shahadat-Al-Alimiyah & Takhassus-FilFiqh,  M.A Islamic Studies, M.Phil. in Islamic Banking & Finance and M.S (I.T) degrees. He is enrolled in Phd. on Islamic Banking and Finance from International Islamic University, Islamabad (IIUI). He is ex-member of Shari’ah Advisory Board of SECP, Member of the Committee on Accounting and Auditing Standards of ICAP and invitee participant of Shari’ah Advisory Committee of State Bank of Pakistan and Member of several committees constituted by SBP on AAOIFI Shari’ah standards. Further, he was member of review committee for Urdu translation of AAOIFI Shari’ah standards. He is author of 33 books on Islamic economics & banking and other social issues; He is also delivering lectures in different Dar-ul-Ulooms and Universities. Mufti Nadeem Iqbal Shari’ah Board Member Mufti Nadeem Iqbal is the Shari’ah Board Member. He is senior teacher and Mufti at Dar-ulUloom Amjadia, Karachi and currently heading Dar-ul-Ifta. He has 30 years’ experience of teaching Islamic Jurisprudence and 18 years’ experience of issuing Fatawa (Shari’ah Opinions). He has 16 years’ experience in Islamic Banking. He holds Master’s Degree in Islamic Studies from University of Karachi, Takhusus-Fil-Fiqh from Dar-ul-Uloom Amjadia, Karachi, Fazil Dars-eNizami, and Fazil Shahada-tul-Almia. He gave his services as Resident Shari’ah Board Member/ Shari’ah Advisor at Soneri Bank’s Islamic Banking Division for 13 years. He is visiting faculty member at Sheikh Zayed Islamic Centre, University of Karachi and Hamdard University, Karachi. He is writer of several books including Islamic Jurisprudence. 190 Unconsolidated Financial Statements
193. Annual Report 2021 Role of Shari ’ah Board i. ii. iii. iv. v. vi. vii. The Shari’ah Board (SB) shall advise the BOD and the executive management of the MCB Islamic Bank Ltd. (MIB) on all Shari'ah related matters. All the SB’s Decisions/Rulings/Fatawas shall be binding on the MIB whereas the Shari'ah Board shall be responsible and accountable for all its Shari'ah decisions. The SB shall cause to develop a comprehensive Shari'ah compliance framework for all areas of operations of the MIB and shall approve all products/services to be offered and/or launched by the MIB. The SB shall ensure that all the MIB's products and services and related agreements/ contracts, structures, process flows, product manuals, marketing advertisements, sales illustrations and brochures etc. are in conformity with the rules and principles of Shari'ah. The executive management while seeking the SB’s decision on any proposal shall ensure provision of all the necessary information, details and documents enabling the SB to have adequate understanding of the product, its process flows, business and economic outcomes and Shari'ah permissibility or impermissibility. The Shari'ah Board shall have unhindered access to all records, documents and information from all sources including professional advisors and MIB's employees in discharge of its duties. Considering the importance of the SB’s decisions and their binding nature, the SB shall rigorously deliberate on the proposals before giving any decision/fatwa; all such deliberations and rationale for allowing or disallowing a particular product/service etc. shall be duly recorded and documented. All the reports of internal/external Shari'ah audit and Shari'ah compliance reviews shall be submitted to the SB for prescribing appropriate enforcement action. SB shall take up the unresolved issues with the management and if warranted shall include the outstanding issues in their annual Shari'ah Board Report. Moreover, Head of SCD and RSBM shall discuss all the significant and unresolved issues with SBP inspection team during on-site inspection. The SB shall also specify the process/procedures for changing, modifying or revisiting Fatawas/Rulings/Guidelines etc. already issued by SB. Meetings of Shari’ah Board held in 2021 S. No Quarter Date of Meeting 1 Q1 2 Q2 3 4 Meeting Attended (Yes / No) Chairman Member RSBM 19-Mar-21 Yes Yes Yes 17-Jun-21 Yes Yes Yes Q3 27-Sep-21 Yes Yes Yes Q4 13-Dec-21 Yes Yes Yes Meetings of Shari’ah Board-Board of Directors held in 2021 Meeting Attended (Yes / No) S. No Half Year Date of Meeting Chairman Member RSBM 1 1st 09-Feb-21 Yes Yes Yes 2 2nd 26-Oct-21 Yes Yes Yes Membership on Shari’ah Board of other Companies Status of MemberChairman/ Resident member/ Non Resident Member Number of Other Board Memberships along with name of companies S. No Name of Members Date of Joining/ Leaving the Board 1 Mufti Munib-ur-Rehman 15-Sep-15 Chairman 1.Chairman Shari’ah Supervisory Board • Dawood Family Takaful 2 Mufti Syed Sabir Hussain 16-Sep-15 Resident Member 1. Shari’ah Supervisory Board Member / Consultancy • Dawood Family Takaful 3 Mufti Nadeem Iqbal 15-Oct-18 Non Resident Member • No other engagement Annual Report 2019 191
194. Report of Shari ’ah Board (For the Year ended December 31, 2021) The Shari’ah Board hereby present its annual report on the affairs of MCB Islamic Bank Ltd. The Shari’ah Board (SB) of MCB Islamic Bank Ltd. (the Bank) was constituted in September, 2015. Currently Shari’ah Board comprises of respected Professor Mufti Munib-ur-Rehman as Chairman Shari’ah Board, Mufti Syed Sabir Hussain as Resident Shari’ah Board Member (RSBM) and Mufti Nadeem Iqbal as Member Shari’ah Board. Despite the tough conditions of COVID all Shari’ah Board Members remain available throughout the year and many meetings were held through audio and video conferencing. In addition to that, four formal meetings of the Shari’ah Board were held during the year 2021 on the following dates to review various matters which apart from other matters, include new products and services, product modifications, transactions, structures, processes and Shari’ah issues, referred to them: • • • • First Shari’ah Board Meeting Second Shari’ah Board Meeting Third Shari’ah Board Meeting Fourth Shari’ah Board Meeting – – – – March 19, 2021 June 17, 2021 September 27, 2021 December 13, 2021 In order to assist the SB to supervise all these matters throughout the year, the Shari’ah Compliance Department (SCD) ensured that, apart from the SB meetings, it closely coordinate with SB. This resulted in the continuous involvement of SB on Shari’ah affairs of the Bank as well as enabled them to approve, by way of circulation, different matters in a timely manner. 1. While the Board of Directors and Executive Management are solely responsible to ensure that the operations of the Bank are conducted in a manner that comply with Shari’ah principles at all times, we are required to submit a report on the overall Shari’ah compliance environment of the Bank. During the year 2021 Shari’ah Board’s held meetings with Board of Directors on the following dates: • • First Shari’ah Board – Board of Directors’ Meeting Second Shari’ah Board – Board of Directors’ Meeting – – February 9, 2021 October 26, 2021 2. To form our opinion as expressed in this report, the Shari’ah Compliance Department (SCD) of the Bank carried out reviews of each type of transaction, product, process flow/modus operandi and concepts under the supervision of RSBM/Head Shari’ah Compliance. SCD kept Shari’ah board informed regarding Shari’ah compliance review activities of front and back offices of the Bank during tough conditions of COVID in the country. A list of branches for Shari’ah compliance review was approved by the Shari’ah Board. In this regard, 100 branches have been reviewed for Shari’ah compliance with strict compliance of COVID related SOPs and as far as Shari’ah compliance review of non-branch is concerned, it has been ensured to comply with the approved list of the Shari’ah Board. In order to enhance the Islamic Banking and Finance knowledge and expertise of branch & non-branch entities’ staff members; Shari’ah trainings were made mandatory for all staff of the Bank with the coordination of Learning & Development Department (L&D – HRG). Further RSBM/Head-SCD made surprise visit to 15 branches to ensure compliance of regulatory and Shari’ah requirements. 3. Four (4) Instructions & Guidelines and Four (4) Fatawas by the Shari’ah Board of the Bank are in vogue without any changes. All Fatawas & Instructions and Guidelines issued by Shari’ah Board of the Bank are being implemented in the Bank in true letter and spirit. 4. SCD with the coordination of management and under the supervision of RSBM/Head Shari’ah Compliance has reviewed various Product documents and SB reviewed and approved 63 modus operandi out of which 16 for Corporate Banking, 29 for Commercial Banking, 10 for SME Banking and there were 8 Standard process flows. As far as Products are concerned, SB issued 71 Shari’ah Vetting Certificates related to products, 22 for Liability products which also includes Roshan Digital Accounts, 16 Diminishing Musharakah mode of financing, 4 each for Takaful, Guarantee & Treasury, 3 each for Musharakah Term Financing & Murabaha and some other Product related documents in the year 2021. 5. SCD has also facilitated Islamic Banking training sessions for the front and back offices staff of the Bank For compliance with regulatory instructions. L&D not only arranged class room sessions but also uploaded Online Islamic Banking training modules at Learning Management Systems (LMS) for the easy access of Islamic Banking & Finance knowledge to staff. Despite the difficult conditions due to COVID, L&D was determined to adhere to cover 192 Unconsolidated Financial Statements
195. Annual Report 2021 the Islamic Banking & Finance trainings of its staff. Therefore, this year also, L&D had Virtual classroom session with facilitation of SCD for the safety of staff and it allows learning for all by overcoming geographical obstacles. Moreover, in view of COVID conditions L&D-HRG has taken initiatives to establish an effective and comprehensive Islamic Banking training mechanism in compliance with IBD Circular No. 02 of 2018, Dated: June 29, 2018, “Enhanced Training & Capacity Building Measures for Islamic Banking Institutions (IBIs)” issued by Islamic Banking Department, State Bank of Pakistan, for the Bank’s front and back offices staff at all levels. SCD’s staff facilitated as internal trainers on the Shari’ah related training initiatives during the year. Furthermore, alongside regulatory requirements of executive management Shari’ah trainings, L&D and SCD have jointly developed Islamic Banking & Finance Module and AAOIFI Shari’ah Standards Module for capacity building of Executive Management, which was launched during 2021. 6. SCD has taken all necessary required actions in order to comply with the SBP-IBD Circular No. 01 of 2021, Dated: June 14, 2021, Shari'ah Non-Compliance Risk Management (SNCRM). SCD has ensured that SNCRM should be an essential element of Bank’s overall Risk Management Framework. SCD shall report all Shari’ah Non-Compliance events and transactions to the Risk Management & Portfolio Review Committee of the Board as well as to the Board of Directors on a quarterly basis. As far as monitoring of SNCRM is concerned, a Management Committee with the title of Shari’ah Non-Compliance Risk Management Committee has been formed under Chair of President/CEO and representation form all Groups (Group Heads). TORs of the said committee has been approved by President/ CEO and regular meetings are being conducted. This committee is responsible for close monitoring of Shari’ah Non-Compliance Risk at the operational/management level. SCD reports all Shari’ah Non-Compliance events and transactions to the said committee. 7. Shari’ah Board praises and encourages the continuous, comprehensive & profound efforts and commitment of the Bank’s Board of Directors and the Management regarding implementation of all instructions and guidelines issued by the Shari’ah Board especially under the tough conditions of COVID. Recommendations: Based on the observations made through Shari’ah review reports and Shari’ah Compliance checks, it is recommended that: i. In future, there shall be more Shari’ah Trainings in compliance with regulatory requirements. There should be a continuity of comprehensive mechanism to cater situations like COVID to ensure continuity and compliance of Shari’ah Trainings. ii. More focus is needed on Product & Shari’ah trainings of Corporate, Commercial & SME banking and it is strongly recommended to ensure mandatory Product & Shari’ah trainings of the staff of Trade Operations, as some issues were found in its transactions during the Shari’ah Compliance review. iii. Arrange general public awareness programs like, Seminars, Workshops and Question & Answer Sessions from the Bank’s platform for building up the true image of Islamic Banking & Finance as well as creating awareness/ removing misconception about Islamic banking. iv. Continuity of Shari’ah trainings of the Bank’s higher management. v. Continue with Microfinance activities and the Bank should encourage the Islamic Microfinance due to its requirement in the country. Through Islamic Microfinance, Islamic Banking Industry can penetrate at grass-root level to facilitate micro level traders. vi. Usage of Islamic Banking terminologies must be ensured during the Bank’s activities. As far as internal environment of the Bank is concerned, all staff members of front and back offices are strongly recommended to follow the proper dress code strictly, which should be in line with the Bank Dress code policy, cultural norms, and reflect due modesty as required by the dictates of Shari’ah. Conclusion: Shari’ah Board has reviewed & advised corrective measures on SBP Inspection Report, the External & Internal Shari’ah Audit and Shari’ah Compliance Inspection reports and is of the view that: i. The Bank has complied with Shari’ah rules and principles in the light of Fatawa, Instructions and Guidelines issued by Shari’ah Board. ii. The Bank has complied with SBP Inspection report in true letter and spirit. Annual Report 2019 193
196. iii . The Bank has complied with directives, regulations, instructions and guidelines related to Shari’ah compliance issued by SBP in accordance with the rulings of SBP’s Shari’ah Advisory Committee. iv. The Bank has a comprehensive mechanism in place to ensure Shari’ah Compliance in their overall operations. v. As far as Charity fund is concerned, separate liability account (non-chequing) is opened in separate General Ledgers for each type of Charity Fund Collection a. Charity due to late payment, b. Charity against other Non-Shariah compliant income and c. Dividend purification amount. Funds cumulated in above mentioned each type of “Charity Collection Fund Account” is maintained in Shari’ah Compliant remunerative account at the discretion of Shari’ah Board/Resident Shari’ah Board Member. Charity Fund is utilized for charitable, social welfare, religious, educational or any other purposes approved by Charity Committee / Shari’ah Board. In the year 2021 the addition in the amount of Charity was PKR 9.347 million from different heads which was instructed to transfer to the Charity account. Additions in Charity account during the year(Rupees in 000) - Received from customers against late payment 7,316 - Dividend purification amount 1,093 - Charity against other Non-Shari’ah compliant income 265 - Profit on charity saving account 673 Total additions in Charity account during the year 9,347 The Bank has disbursed the Charity amount to Shari’ah approved charitable organizations as per Bank’s charity policy and SBP’s guidelines. Details of Charity account are available in the note # 19.2.1. Shari’ah Board would like to praise Shari’ah Compliance Department/RSBM for efforts made by SCD during tough times of COVID. vi. The Bank has complied with the SBP instructions on profit and loss distribution and pool management. vii. While the Bank is actively pursuing training of its human resources about various aspects of Islamic Banking & Finance through training sessions/seminars, however further improvement is required to enhance the level of awareness of Islamic Banking & Finance of the staff, management and the BOD through enhanced training mechanism for each level. The high level management and the BOD have made sincere efforts and appreciate the importance of Shari’ah compliance in overall operations of the Bank. viii. The Shari’ah Board has been provided adequate resources enabling it to discharge its duties effectively. Shari’ah Board praises and acknowledged the efforts of Shari’ah Compliance Department/RSBM of the Bank that besides Shari’ah Compliance environment of the bank in regulatory inspection there was no instance regarding Non-compliance of regulatory requirements as far as Shari’ah Governance Framework is concerned. Shari’ah Board would like to take this opportunity to offer praise to Almighty ALLAH and seek his guidance and Tauwfeeq, and to express its wishes for further progress, development and prosperity of Islamic Banking, under the sincere efforts of senior management, and Islamic Banking industry in Pakistan as a whole. Professor Mufti Munib-ur-Rehman Chairman Shari’ah Board Mufti Syed Sabir Hussain Resident Shari’ah Board Member Date of Report: January 21, 2022 194 Unconsolidated Financial Statements Mufti Nadeem Iqbal Member Shari’ah Board
197. Annual Report 2021 Annual Report 2019 195
198. 196 Unconsolidated Financial Statements
199. Annual Report 2021 Annual Report 2019 197
200. Sustainability & Corporate Social Responsibility As a leader in the Pakistan banking sector, MCB Bank has a great legacy in looking after the preservation of the interests of all our stakeholders. Our employees fully embody our values of service and quality. Through careful evaluation and selection, the Bank selects and promotes projects and services that benefit the Pakistani economy and society in the most effective manner. Particular emphasis is placed upon the need to promote environmental sustainability and social welfare. Our policy We ensure that CSR initiatives embody a vision of harmonious and sustainable development in Pakistani communities. Broadly speaking, the pillars of CSR activities undertaken by the Bank ensure: 1. 2. 3. 4. 5. Compliance with relevant laws and regulations both in letter and spirit Business operations with honesty and integrity Engagement in social welfare activities that help strengthen communities and contribute towards the uplift of society Support and promote financial inclusion and literacy To build and maintain sound relationships with customers and other stakeholders through open and fair communication in order to contribute towards sustainable image-building 6. Respect for culture, customs, history and laws as the Bank constantly searches for safer, cleaner and better practices that meet the growing needs of society 7. Minimize environmental footprint to coexist harmoniously whilst encouraging minimum wastage of resources Our approach to sustainability The Bank has focused on several key principles as an institution. It is committed towards fostering a better work place and cleaner environment through its varied initiatives. By committing to a culture of excellence, good governance, transparency and integrity, it ensures that all activities are conducted in a manner that is ethically responsible and beneficial for all stakeholders. MCB Bank has a well-defined Code of Ethics and Conduct policy that serves as a guideline for the behavior and ethics of employees. 198 Unconsolidated Financial Statements
201. Annual Report 2021 Contributing to sustainable economic growth MCB Bank uses its core business of banking to promote sustainable development in all the markets it operates in . Contribution to Economy & National Exchequer MCB Bank has the second highest market capitalization in the banking industry. In 2021, the Bank paid approximately PKR 21.49 billion on account of income taxes to Government Treasury and collected over PKR 17.36 billion for the National Exchequer as withholding tax agent under different provisions of Income Tax Ordinance 2001. In addition, the Bank has also paid PKR 1.66 billion in respect of sales tax and FED. The contribution by the Bank to the national economy by way of value addition was PKR 72.67 billion, out of which around PKR 16.94 Billion were distributed to employees and PKR 22.52 billion to shareholders. Zakat is an essential component in delivering assistance to those most in need. The Bank bolstered the zakat collection efforts of prominent public welfare organisations such as Shaukat Khanum and Edhi Welfare Organisation through its communication mediums such as MCB Mobile Banking, MCB Internet Banking and ATM Screens. MCB Bank also contributed to the national exchequer in Zakat Deductions to the sum of PKR 530 million. The Bank is making significant contribution to the development and growth of the country. An analysis of the Bank’s value creation and allocation of value among key stakeholder groups is represented in Statement of Value Added. Annual Report 2019 199
202. Key financial highlights Key financial figures and related ratios are discussed in financial performance section . Being a responsible organization: As a responsible corporate citizen, MCB Bank is congnizant of its obligations towards conducting its business operations in a sustainable and socially responsible way. MCB Bank’s foremost duty is to create a platform which reflects its values. The Bank has “Corporate Social Responsibility (CSR) Policy”, which is approved by MCB Board of Directors. It envisions the strategic guidelines of incorporating CSR into the very core of all our business practices across the Bank. The Bank’s CSR activities are centrally monitored throughout to ensure that the Bank invests in the right causes that magnify the goodwill of the Bank and our community at large. We do this by making the right investments in developing our human resources, protecting the interests of our customers, weighing environmental impact in our decision making and combating the scourge of corruption with our best practices. Sustainability is therefore embedded in all policies of the Bank through direct and indirect means. All groups of the Bank work together to not only educate all employees regarding various aspects of corporate sustainability and social responsibility, but also to ensure that the strategic CSR vision is aligned with operational objectives. The Bank’s policies therefore address these key aspects: • • • • • • • • • Measures for Unforeseen Events and Crisis Internship Program for Persons with Disabilities Financial Literacy for Un-banked Population / Gender equality and equal opportunity employment Occupational Health and Safety Business Continuity Management Business Ethics and Anti-Corruption Measures Quality Checks and Mystery Shopping/ Service Council Customer Experience Management, Consumer Protection Measures and Grievance Handling Investing in communities The Bank’s CSR goals are aligned with its operations for the betterment of all stakeholders. The aim of the Bank is to be well versed in CSR by being a sustainable organization. The performance against sustainability and integration of various groups in achieving this are explained through this report. Continued Measures to Combat Covid-19 Pandemic While ensuring business-as-usual for bank’s customers, the safety and security of all employees and valued customers remained a key priority. The following measures helped us brave COVID-19 throughout the year: • • • 200 Arranging On-Premises COVID-19 Vaccination camps at Lahore and Karachi for bank staff and their family members. Ongoing effective implementation of and follow up on Regulator directed SOPs at all back office buildings and branches (including but not limited to sanitizers, thermal guns, masks). Initiation of installation of face recognizing devices at major office buildings for attendance marking to minimize the probability of physical interaction. 6 devices were installed at MCB House and MCB Centre, Lahore. Unconsolidated Financial Statements
203. Annual Report 2021 Internship Program for Persons with Disabilities Talent , ability, skills, perseverance, commitment and loyalty are key personnel traits for any employee of a well reputed organization, which can’t be assessed at first glance. We at MCB Bank try to find these characteristics through our expertise and available key indicators during job interview & recruitment process. Persons with disabilities deserve the same chance to prove themselves but, too often, only their disability is seen at first glance. Despite the fact that employees with disabilities possess skills and experiences that can offer the industry a competitive edge, we can miss out on a vast untapped talent pool for the Bank. Hiring persons with disabilities conveys and promotes an inclusive work environment as they also have been solving problems for many years and tend to bring a strong sense of loyalty to the workplace. Therefore, we at MCB Bank are starting an Internship program for Persons with Disabilities along with the opportunity of permanent hiring upon satisfactory completion of internship tenure with the Bank. National Financial Literacy Program MCB Bank is committed to increase financial literacy in society and towards that aim; we have significantly contributed to SBP's National Financial Literacy Program (NFLP), which is now in its 5th year. In FY 2020-21 alone, MCB was able to conduct 900 training sessions to enlighten 26,875 participants, with a balanced 49% female participants coverage. These sessions have imbued financial literacy that is reflected in impressive participant-to-account conversion rate of 83% (unbanked population). Similarly during 1st quarter, 2021-22, MCB Bank has so far conducted 224 trainings, ensuring 93% female participation with 95% account opening rate. Occupational Health and Safety Through a healthy and safe work environment, MCB Bank is staunch in preserving its vision for the well-being of its employees, customers and visitors by being compliant with relevant health and safety standards. Every workplace is unique and the health and safety needs vary accordingly. Therefore, in order to be effective, the occupational health and safety policy and initiatives need to be wholeheartedly supported by every member that is directly and indirectly affected or is being affected by the occupational and health related factors of the organization’s workplace and its unique requirements. The staff at MCB Bank, under the direction provided by the Management, has shown great commitment towards constantly maintaining occupational health and safety standards. Based on expert medical advice and international best practices with respect to COVID-19, effective workplace guidelines have been implemented for the safety of all staff members, and precautionary steps from preceding year were maintained wherever applicable to counter the risks associated with the virus. The Bank also arranged a vaccination drive in different cities to safeguard its staff and their families against COVID-19. Other health related steps include the declaration of all Bank buildings as “No Smoking Zones”, and the internal communication of messages regarding safeguarding against Dengue epidemic. First Aid Kits are available for circumstances involving emergency medical care within the Bank’s premises. Annual Report 2019 201
204. Moreover , effective controls, processes, surveillance and security equipment pertaining to the physical security of employees, customers and visitors are in place while Facility Level Plan Regular Updates as to processes and procedures ensure readiness associated with possible eventualities. Trained security personnel at the Bank constantly supplement the controls, processes, and security equipment. A Safety and Security Audit of major iconic buildings through external consultants has also been conducted, and the Bank took up best possible measures as per the consultants’ recommendations regarding the iconic buildings. All iconic buildings and branches of the Bank are equipped with modern fire safety, surveillance and security equipment (as applicable). With respect to the facilitation of Persons with Disabilities (PWDs), Bank keeps on enhancing the availability of accessible infrastructure to PWDs through various measures vis-à-vis construction of ramps at the entrances of branch/office premises, provision of stationery forms/documents in braille scripts etc. This would promote safety and convenience of current and future staff members and customers who face physical constraints. Guidelines in the form of pictorial messages on Health and Safety are constantly circulated – whenever applicable – amongst the Bank staff and also to customers through different available mediums for best safety and health practices at and outside work. Business Continuity Management MCB maintains high standards of Business Continuity Management (BCM) with regard to protecting the Bank against any potential business continuity events. BCM at the Bank can be described as a multifaceted approach comprising of policy, procedures and plans for developing, driving, leveraging, and protecting business continuity at all times. Critical business processes, are therefore assessed time and again to ascertain the sustainability, adaptability and ingenuity for optimal business and operational outcomes. The Board of Directors approves the BCM policy and plans and also oversees their implementation. Subsequent to this, as a key component of MCB's Management's vision to maintain a Business Continuity strategy, Business Continuity Management Committee (BCMC) of the Bank translates the policy into executable action items so as to ensure the existence of an effective framework for all critical processes and systems. This, in turn, facilitates the flow of activities that are designed to safeguard the Bank during a business continuity event, and thus the BCM initiative serves as a way by which potential impacts on people, process and technology are positively funneled. The dedicated BCM staff undertakes crisis management and contingency planning activities for the effective coordination of the BCM initiatives with the necessary steps and overall direction being guided by the business strategy of the Bank. During the Covid-19 pandemic, the Bank continues to leverage its business continuity strength by tackling the impact of this catastrophe until the economy and the overall health situation improve. The Bank personnel are operationally ready and adaptive during this time owing to the strong commitment towards high quality customer and client service standards at all times. Special screening arrangements, the maintenance of social distance, periodic disinfection, and work-health advisories, along with the rationalization of seating arrangement for providing flexible service delivery methods have been made possible to sustain business and service continuity in light of Government of Pakistan and World Health Organization precautionary advice. Irrespective of the scope of disruption, the Bank management through its business continuity strategy, and the staff through the appropriate tactical measures, continuously aims to keep satisfying the needs of its valued stakeholders. Business Ethics and Anti-Corruption Measures The Bank actively identifies and addresses possible risk factors through the implementation of policies and procedures designed to reduce the possibility of such incidents. In this regard, it has fielded, alongside its Human Resource Policies and Procedures, a comprehensive “Code of Conduct and Business Ethics” which is disseminated to staff for information and sign off. This document is also readily available to all staff on MCB Bank’s Intranet Portal. The Bank continues to maintain a strong compliance culture across the board. Employees are expected to perform all tasks with diligence and honesty at all times. The Code of Conduct of the Bank comprehensively defines the values and minimum standards for ethical business conduct. Employees ensure that all interactions with clients, competitors, business partners, government and regulatory authorities, shareholders, or with one another, follow a vigorous ethical standard. The Bank's foremost effort is to ensure that the 202 Unconsolidated Financial Statements
205. Annual Report 2021 conduct of the employees is impeccable with the help of guidelines that ensure compliance with all applicable laws and regulations . MCB Bank strives to ensure a friendly and harassment free environment for all employees. The policy for protection of women harassment is also circulated bank-wide every year. The Bank has zero tolerance for any form of harassment or discrimination as covered in the Bank's existing Code of Conduct. The Disciplinary Action Committee (DAC) is tasked to address any violation of policies & procedures, acts of fraud & forgery, breaches of discipline and code of conduct, ethics and business practices, law of land and statutory regulations by an employee. These measures help us maintain a harmonious and efficient work environment in which employees are assured a nondiscriminatory, transparent, harassment free and respectful atmosphere regardless of their caste, religion and gender. Consumer Grievances Handling Mechanism Service Council Service Council is a monthly forum, chaired by the President, which brings together key stakeholders from across the bank with a view to place service on the forefront through thought leadership, collaborative discussions and creation of a clear service roadmap. Customer Experience Management Feedback is solicited from customers for all contact points via surveys and remedial actions are taken for identified areas. The end goal of these measures is to be the most preferred bank in Pakistan. Turnaround Time (TAT) Monitoring Monitoring and evaluation of service indicators is part of the belief in increasing and retaining one’s customer base. In order to maintain a strong hold on processes within the Bank, the Service Quality Division has devised several controllable measures at par with prevailing market practices. Against each measure, a tolerance level along with a timeline is set. Similar to Branch Banking, indicators for Consumer Assets, Credit Cards, Bancassurance, Agriculture Financing, MCB Lite, Contact Centre, Mobile Banking, Internet Banking and ATM Uptime are monitored on a monthly basis. Quality Checks and Mystery Shopping During 2021, 99% of total branches were monitored with respect to service parameters and protocols. The remaining branches were not visited owing to security concerns/remote locations and few were under renovation. Moreover, 942 branches were ‘Mystery Shopped’ by independent external agencies and results of this activity were shared with management for further improvement. Consumer Protection Measures The Bank is committed to provide quality products and services to its customers. It maintains a privacy statement for the usage of its products i.e. Credit Cards, ATM pins etc. To ensure a culture of ‘Quality Customer Service’ the Bank has a dedicated Service Quality Division with the objective of strengthening the Bank’s service culture. Regular training sessions are conducted in all Circles, Call Centers and other front-end staff offices regarding ‘Service Excellence’ & ‘Customer Satisfaction’. Customer Grievance Handling Bank considers complaints as opportunities for improvement and understands the link between complaint resolution and customer loyalty. We believe that complaints are a primary measure of customer dissatisfaction; thus, they should be taken seriously and staff should be encouraged to bring complaints to the forefront so that gaps can be identified and fixed. Service Quality (SQ) function is the custodian of customers’ grievance handling and works in collaboration with all businesses / functions of the bank responsible for acknowledging, investigating, tracking, escalating and resolving customer complaints within specified turnaround times. A centralized complaint resolution team manages all customer complaints through a Complaint Management System. Currently, all our customer touch points have access to this system so as to ensure that all complaints, whether verbal or written, are immediately captured in the system. Annual Report 2019 203
206. Following are the Channels through which complaints are received : • MCB Contact Center • MCB Branches • MCB E-mail • Social Media •Letter/Fax • Customer Service Centers • Banking Mohtasib Secretariat • State Bank of Pakistan • Management Committee (MANCOM) The Bank makes its best effort to ensure that resolution of complaints is comprehensive, appropriate and quick. The customer is kept informed on the status of their complaint, starting from complaint acknowledgement till its resolution. The escalation matrix for complaint resolution observed and designed in the system is such that a complaint, if not resolved within the specified turnaround time, gets escalated to the next senior level of management and keeps on escalating further till resolved. Service Quality Division also performs in-depth qualitative and quantitative complaints analysis followed by suggestions and recommendations in order to eliminate root causes of customer issues and drive continuous improvement. During 2021, a total of 263,212 complaints were logged in the system out of which 262,778 complaints have been resolved till date (resolution rate 99.84%). There was a 73 % increase in total logged complaints in 2021 as compared to the previous year. Total complaints logged during 2020 were 152,234. Statement of Complaints Numbers Percentage Total Complaints Received 263,212 – Closed 262,778 99.84% Open 434 Average time taken for resolution Total Login Details: 0.16% 13 Working Days Total Contribution Complaints 263,212 96% Request/Queries/Reversals 11,430 4% Total 274,642 100% Investing in Communities MCB Bank is committed to creating sustainable economic and social development for our stakeholders. All groups of the Bank work throughout to identify and execute opportunities that cover health, community, recycling, green banking and environment protection, education and empowerment etc. Following areas were addressed by the Bank in 2021: • Healthcare Sector • Community Development & Sports • International Outreach •Education • Equal Opportunity for All Employees • Energy Conservation • Environmental Protection • Environmental Cleanliness & Protective Measures • Green Banking 204 Unconsolidated Financial Statements
207. Annual Report 2021 Healthcare Sector The Bank seeks to support key initiatives that bolster the health care sector of Pakistan . During 2021, the coronavirus pandemic was a key area of focus. To help ensure the health and safety of those fighting at the frontline of the crisis, the Bank donated one lac rupees to Murshid Hospital & Healthcare Centre for the treatment of low income and needy patients. MCB Bank also donated PKR 5 million to Nigahban Welfare Association to support financing of their new endoscopy facility at Dr. Ruth KM PFAU Hospital Karachi. MCB Bank deepened its commitment to major health initiatives throughout the year. Comprehensive marketing collateral was deployed to raise awareness of breast cancer in collaboration with Pink Ribbon. The awareness campaign also supported Pink Ribbon in the NGO’s efforts to raise funds for Pakistan’s first ever Breast Cancer Hospital. The Bank also helped generate awareness for organizations like Edhi Welfare Organization, Sundus Foundation and Shaukat Khanum Memorial Cancer Hospital with its internal and external communication through platforms such as MCB Mobile Banking, MCB Internet Banking, ATMs, website, and internal communication, especially during the holy month of Ramadan. Annual Report 2019 205
208. Community Development & Sports MCB Bank understands that collective efforts are required to provide better facilities to our nation especially during the prolonged pandemic worldwide. During 2021, the Bank played its part by contributing PKR 1.5 million to Jahandad Society Community for Development for a campaign to distribute free food ration packs to daily wage earners. The Bank also donated two lac rupees to Thardeep Rural Development Programe (TDRP) for the purchase of 200 mosquito nets to facilitate the dengue vulnerable houses in rural areas. The Bank recognizes the important role played by sports in the well-being and health of the Nation. In this regard, it focused on encouraging local talent and avenues to make Pakistan’s name stand out in the world of sports. Major support by the Bank was extended to Pakistan’s porters for the K2 Hushe Expedition 2021. The Bank provided the talent team from Gilgit with financial support of PKR 5 million and continuously covered their expedition on social media. The successful expedition was also covered by local newspapers, electronic and social mediums. This support was aimed to encourage local talent and promote our competitive porters on the international scale, while promoting tourism in Pakistan. During the year, the Government of Pakistan also organized the Pakistan Tourism Festival 2021 in Islamabad to promote Pakistan’s landscape and tourism facilities which gained local and international coverage. MCB Bank was also one of its sponsors for the event with a contribution of PKR 1 million. Furthermore, another milestone of the Bank to encourage healthy outdoor activities for youth and general public at large was achieved by contributing PKR 57 million to fund the development of Shuhada Park Chakwal. This park shall serve as a great recreational spot for young and old in Chakwal while commemorating Bank’s tribute to the martyrs of the region who sacrificed their lives for the nation. MCB Bank also supported the 17th State Bank Governor‘s Cup Interbank Regional Cricket Tournament 2020-21. International Outreach – The Dubai Expo 2020 One of the key global events during the year was the Dubai Expo that attracted an influx of visitors from around the world. This festival, even during the pandemic restrictions, provided a huge international platform to thriving industries. MCB Bank also participated in the Dubai Expo through a sponsorship of PKR 50 million and the Bank presented itself as one of the leading financial institutions of Pakistan. Education Given the importance of the educational sector, MCB Bank fully supports its uplift. During 2021, the Bank donated an ambulance worth PKR 1.5 million to Sadiq Public School Bahawalpur for their in house hospital for students and staff members. 206 Unconsolidated Financial Statements
209. Annual Report 2021 Equal Opportunity for All Employees The Bank prides itself on providing equal employment opportunities , free of discrimination; by implementing a methodical merit based nondiscriminatory selection process. The Bank successfully closed the year 2021 with permanent staff strength of 13,612 employees and 106 contractual employees. The ratio of female staff members stood at 16.9% compared to 16.3% from the previous year. Energy Conservation MCB Bank is following a strict Policy to conserve energy, country-wide by exercising strict control over electricity lights discipline whether in the Bank Branches or Principal offices. MCB Bank accords priority to exercising national obligations. WWF certification of Green Banking to MCB Centre building is a big achievement which showcases our energy conservation credentials through Solar energy, LED Lights, Paperless work culture and Water conservation. The Bank also engages employees through its internal communication channels to follow best practices and initiatives to inculcate consciousness to save energy. Energy Saving Measures MCB Bank is already following the policy of exercising strict controls over the use of excessive lights in its offices / buildings and restricts the switching-on of lights to needed areas only, whereas unrequired lights / equipment are switched off in office areas / premises. Natural light is utilized instead of artificial lights during day time wherever possible in office buildings. Window / blinds are kept open to capture sunlight for heating during winters. Almost all Bank buildings have been switched over to LED Lights. The post office / late sitting is discouraged to exercise energy saving. To exercise maximum control over building energy resources, a BULDING MANAGEMENT SYSTEM (BMS) is installed at MCB Bank Principal Buildings i.e. MCB House Lahore, MCB Center Lahore and MCB Tower Karachi. The facility allows control of all the building fitted resources from a single point / place. Setting central heating / cooling system set points to maintain temperature at 24C degrees. Scheduled cleaning of air conditioner filters and air ducts is ensured. Building Management System (BMS), Waste Heat Recovery (Cogeneration-System) and Motion sensor lights system installed further support the conservation of energy. MCB Tower Karachi Captive power generation from Gas Generators are being replaced with KE Electric Power. This action will notably contribute to savings of natural gas resources but will also result in less harmfull gas emissions in future. The first of its class, waste heat from cogeneration plant is installed at one of MCB Bank's principal buildings i.e. MCB Centre, Lahore. A waste heat of gas engine (1555 KW) is also installed at MCB Principal building, MCB Tower Karachi, to produce hot water to be used in chiller with boiler. Almost 100 to 150 tons of extra cooling is generated through this process. Annual Report 2019 207
210. Environmental Cleanliness & Protective Measures MCB Management emphasises on “clean working environment” and invests to hire the best “Janitorial Companies” in our three Principal Buildings i.e. MCB House Lahore, MCB Centre Lahore and MCB Tower Karachi. Waste is a major hazard to health of employees and aesthetics of the organizations. MCB focuses on waste reduction, reuse and recycling, which are essentials for environmental improvement and workforce productivity. Therefore, MCB Bank has segregated the building waste into recyclable and non-recyclable waste, by converting waste into recycling mode. MCB Bank is moving towards paperless banking and resource efficiency in our operations. Some of our notable initiatives include reduction of environmental footprint in transportation and mobility of staff, energy efficiency in offices, greening of office premises and development of a culture of self-segregation of waste into dry and wet waste streams at source. We ensure that all our dry waste including paper and plastic streams are put back in the loop and reused in our corporate offices and bank branches through ethical recycling measures. We ensure our wet waste including kitchen and organic materials are responsibly led to the landfills with minimum impact to the natural environment. For this purpose, we use technology to monitor and track our sustainability drive to achieve zero waste objectives. To enhance awareness and behavior change of employees and staff, formal and informal channels of corporate communications and campaigns are run to encourage staff to take actions, such as tree plantation and awareness walks. Partnership building is very important for environmental sustainability. Therefore, we are keen to develop impactful collaboration with civil society organizations such as Amal who are facilitating us to run MCB Bank’s Green Office Program and achieve Net Zero objectives for the second consecutive year. With this collaboration, we intend to set new trends for sustainable banking in Pakistan. Our mutual objectives are in line with circular economy goals through voluntary actions with full top management commitment. Plantation within the commercial business premises / branches are encouraged by Senior Management. Emails through corporate communication are circulated to each staff to maintain high standard of cleanliness inside / outside office buildings / premises. The respective building Administrators & building floor coordinators periodically emphasize hygiene directives to maintain high quality cleanliness. During the pandemic all SOPs are religiously being followed and monitored by the administration which resulted in low number of affected staff. The staff are centrally monitored by the help of the Bank’s CCTV security system. HR department strictly imposes a culture of discipline to punish any violation in future. Some of our efforts resulted in following impact: • • Collection of dry waste for ethical recycling = 11.24 tons Reduction in CO2 emissions = 548 tons MCB Bank has taken these initiatives not only to meet legal requirements but as it’s corporate responsibility to address environmental concerns. We are proud that we remain ahead of our competitors as one of the first banks in Pakistan to adopt Green Banking Guidelines of the State Bank in letter and spirit. MCB Management appreciates the cooperation it received from its employees and staff and the interest shown by stakeholders in adopting their responsible and ethical business practices. 208 Unconsolidated Financial Statements
211. Annual Report 2021 Certifications Acquired and International Standards Adopted World Wide Fund for Nature (WWF) - Green Office Certification MCB has successfully attained ‘Green Office Certification’ from WWF for one of its iconic buildings; MCB Centre, Lahore. This certification represents a landmark achievement in MCB’s pursuit of reducing the ecological footprint at its workplace and has consequently placed the Bank in an exclusive club of domestic banks that have met the requirements of this rigorous assessment and certification program. International Standards of Sustainability adopted as per UN SDGs and UN Global Compact UN SDG Indicator UN Global Impact 3: Good Health and Well Being MCB Banks’ Alignment In addition to supporting employees’ health and wellbeing, the Bank also actively engages in community services within the health sector under its CSR Plan. The detailed initiatives have been disclosed in the Sustainability & Corporate Social Responsibility section of the Annual Report. 5: Gender Equality 6: Elimination of discrimination with respect to employment. The Bank prides itself on providing equal employment opportunities that are free of discrimination and are being implemented on a methodical and merit based selection process: • There has been a consistent growth in the number of female staff at the Bank (16.3% in 2020 to 16.9% in 2021). • The representation of women in the senior management positions with one women staff reporting to CEO and 12% reporting directly to the Head of Departments (HOD’s) who in turn report to the CEO. The Bank’s product portfolio has been deployed to foster the captioned goal by actively promoting the MCB Ladies Account portfolio, wherein a total of 3,482 Accounts were opened till 2021. 7: Affordable and Clean Energy 8: Initiatives to promote greater environmental responsibility 9: Fostering environment friendly practices 8: Decent Work and Economic Growth 3: Upholding freedom of association 10: Working against corruption. • MCB Bank has installed solar power systems in a few Branches/ ATMs to counter Greenhouse Gas (GHG) Emissions. These solar installations augmented the clean energy in the entire energy mix and led to the avoidance of Carbon Dioxide (CO2) emissions to the environment. • Green Banking Office has initiated the Own Impact Reduction initiative in compliance with SBP’s Green Banking guidelines. A detailed baseline scenario assessment was conducted to finalize the electricity/energy mix reduction targets for branches. Initially 5% Energy Mix (KWHs)/Carbon Footprint reduction targets were assigned to 65 branches as a pilot. Despite constraints created by the COVID-19 outbreak, the Bank continued to effectively play its role as a key service provider and intermediary in the financial market; hence, making a significant contribution to the country’s economic growth: • • • • • Created employment opportunities which led to the hiring of 2,075 employees. Contributed Rs. 21.5 billion to the national exchequer on account of income taxes to the Government Treasury. 37 differently abled people working for the bank as permanent staff. Extended finance to all key economic segments including the SME and Agriculture sector which cumulatively contribute above 50% to the domestic GDP. Played a central role in supporting Governments’ and Central Banks key pandemic responses for credit extension and uninterrupted provision of essential banking services to the general public. 9: Industry Innovation and Infrastructure The Bank continues to actively contribute to the Central Banks cause of improving financial inclusion in the country by extending branch outreach and customer digital touchpoints. 12: Responsible Consumption and Production MCB’s Green Banking Policy lays the foundation for safeguarding the Bank against environmental vulnerabilities and playing its due role in transforming the country towards a low carbon and climate resilient economy. The detailed policy has been disclosed in the Green Banking section of the Annual Report. Annual Report 2019 209
214. Identifying our key stakeholders We are committed to understanding each stakeholder ’s concerns and expectations and then applying the relevant inputs to our decision-making to ensure sustained value creation. We aggregate our material stakeholders in terms of their level of influence on us and our impact on them. Based on this broad-based assessment, we prioritize these relationships and while we engage with all our stakeholders, we have identified our key stakeholders as those with whom we need to collaborate with, consult and involve and as such have developed goals for each. Stakeholder Engagement The development of sustained stakeholder relationships is paramount to the performance of any institution. From short term assessments to long-term strategic relationship building, ‘Stakeholders’ Engagement’ lies at the core of our business practices to promote improved risk management, compliance with regulatory and lender requirements in addition to overall growth of the Bank. In achieving and entrenching its integrated approach to sustainability, MCB Bank takes a highly collaborative approach towards ensuring maximum interaction with, and input by all its stakeholders. At MCB, stakeholder engagement involves far more than merely communicating with its various stakeholder groups. The Bank regards its stakeholders as partners and makes every effort to use all possible mediums to ensure that they are abreast with disclosures, aware of forums to provide valuable input and feedback that can help the Bank to grow, strengthen relations and meet expectations to serve better. The following tables provide an overview of stakeholder engagements at MCB Bank 212 Stakeholders Stakeholder worthiness and reasons of engagement Institutional Investors / Shareholders / Analysts • To deliver relevant and Quarterly, semi-annually timeous information to and annually existing and potential shareholders When the need arises • To keep shareholders posted to ensure that our shares are traded at a fair value •To ensure that the image of the bank and the trust placed in by our valuable shareholders, continues to improve, thereby minimizing the potential for reputational risks •Quarter, semi-annual and annual financial statements • Annual General Meeting •Participation in local and international road shows •Press releases / Media announcements •Communications and answering investor / analyst questions Employees •Integral to deliver strategic Annual objectives •Our most important and When the need arises valued ambassador •To ensure that we remain an employer of choice by providing a safe, positive and inspiring working environment • To understand and respond the needs and concerns of our staff members To • educate our staff regarding strategic direction and to communicate the pertinent information relating to bank activities •Continuously encouraging employees and working towards creating a healthy, ethical and supportive work environment Investing in a wide range of training programs for every member of the human capital to ensure personal and professional development. Unconsolidated Financial Statements Engagement frequency Mode of consultation / interaction In addition to the regular communication that takes place with direct managers and teams through a range of interactive channels, specific employees engagement include: • Regular electronic and printed newsletters • Compliance letters • Annual conference • Strategy sessions • Grievance reporting procedure • One Bank, One Team sessions with senior management
215. Annual Report 2021 Stakeholders Stakeholder worthiness and reasons of engagement Engagement frequency Customers • win and maintain To customers by developing and providing products and services to improve the brand. • To understand the growing financial services needs of our customers. •To provide better solution and advice to our customers’ financial requirements • To ensure accuracy of our customers respective information. • Integral to achieve strategic objectives interaction of • Spreading the geographical Regular customers through branch staff boundaries through opening more branches across the Dependent on customers’ country. specific requirements •Continuously innovating in product suite and operational process to meet customer requirements in the most efficient manner. • Interaction through our branches, relationship managers, call centers, social media, surveys and various advertising activities Suppliers/Service Providers • Adhere to proper procurement regulations while maintaining a good business relationships with the service providers Routine basis/ When the need arises •Rigorously following internal procurement policy and upgrading the policy regularly to ensure strong control and fair treatment of suppliers. Regulator •To maintain open, honest and transparent relationships with regulator ensure meticulous • To compliance with legal and regulatory requirements • Develop legislation and policies that impact the environment in which we operate Daily, weekly, quarterly • Active engagement with regulator improves level of compliance these engagements include meetings with representative of regulator and written communications on need basis • One-on-one Meetings •Submission of applicable statutory returns Responding / enquiring various queries / information Communities When the need arises •To have best collaboration When the need arises with our community for delivering our social responsibilities • To obtain input from communities regarding key focus areas • To create awareness of our integrated sustainability commitments and initiatives •Conducting business without causing disruptions in the society Mode of consultation / interaction The Bank actively participates in various social work initiatives as part of its corporate social responsibility. Being a conscientious member of the corporate community, the bank contributes to various social and charitable causes including towards health, education and social sectors. The bank is consistent in support for community development projects and interaction with a wide range of non-profit organizations. Enhancing financial access to marginalized population and most importantly, adding value to the society by being a good and transparent corporate citizen. Government • To build strong and When the need arises or on constructive relationship request by either side with government, both as a partner in the development of our country and as a current / potential client •To contribute in legislative development for evolution in our activities and operations • To endorse our commitments for public sector business development • Understanding and ensuring all legal and regulatory requirements are complied with • Engaging with the government to address matters impacting business Media •To acknowledge the role When the need arises of media as a channel to communicate with relevant stakeholders and public at large •Advertisements through print, electronic, social media, website, interviews and capacity building seminars Annual Report 2019 213
216. Investors Relations section on Corporate Website The management of the Bank provides equal and fair treatment to all investors /shareholders through transparent investor relations, increased awareness, effective communication, and prompt resolution of investors’/ shareholders’ complaints. The Bank disseminates information to its investors and shareholders through a mix of information exchange platforms, including its corporate website, maintained in both English and Urdu Languages under the applicable regulatory framework. The website is updated regularly to provide detailed and latest Bank information including but not limited to financial highlights, investor information, dividend and other requisite information besides the link to SECP’s investor education portal, the ‘Jamapunji’. The “Investor Relations” section is also maintained on MCB website www.mcb.com. pk to promote investor relations and facilitate access to the Bank for grievance / other query registration. Steps to Encourage Minority Shareholders Participation in AGM Apart from being an event for decision making on important matters, General Meeting also provides a forum for twoway engagement with the shareholders, particularly the minority shareholders. Therefore, the Bank takes the following measures to ensure meaningful participation of minority shareholders in General meetings: • Notice of General meetings is sent to every member of the Bank at least 21 days before the meeting. The notice is also published in newspapers (both English & Urdu) having nationwide circulation. Moreover, the notice is also circulated from the forum of Pakistan Stock Exchange. • The Bank timely updates its website with respect to all notices of general meetings. • Annual Report of the Bank is sent to each member of the Bank before Annual General Meeting (AGM) • During AGM, a detailed briefing on the Bank’s performance and future plans is given to the shareholders in both Urdu and English • The shareholders are encouraged to raise queries and give suggestions relating to the Bank’s operations. Stakeholder Engagement Policy & Summary of the Analyst Briefings Analyst briefings are interactive sessions between the management of the Bank and the investor community whereby the Bank takes the opportunity to apprise the local and foreign investors about the business environment and economic indicators of the country, explain its financial performance, competitive environment in which the Bank operates, investment decisions, challenges faced as well as business outlook. The idea behind the Bank’s investor engagement through these briefings is to give the right perspective of the business affairs of the Bank to the investors (both existing and potential) which help them in making their investment decisions. The Bank conducts quarterly analyst briefings in order to share details pertaining to results announced and to respond to any queries of analysts relating to results and future prospects. Other than the quarterly analysts briefing, business analysts are provided with information and briefings as and when they require without compromising the confidentiality. Face to face discussions have also been arranged with foreign analysts as and when required. The briefing further envisages our transparent and continuously evolving stakeholders’ engagement approach. Briefing is being held as teleconferencing and during the year four analysts briefing were held on following dates; ResultsDate Annual Results 2020 1st Quarter Results 2021 2nd Quarter Results 2021 3rd Quarter Results 2021 February 18, 2021 April 28, 2021 August 24, 2021 November 09, 2021 In addition to the above mentioned regular teleconferencing sessions, during the year Bank also held Corporate Analyst Briefing Session which was held on August 24 2021 & November 09, 2021. Due to Covid-19 precautionary measures issued from time to time by local authorities, Corporate Briefing Sessions were held remotely. CFO of the bank presented a detailed analysis of Bank’s performance along with future outlook; session was followed by Q & A session. 214 Unconsolidated Financial Statements
217. Annual Report 2021 Issues Raised in the Last Annual General Meeting (AGM) The proceedings of the 73rd Annual General Meeting (AGM) of the shareholders of MCB Bank Limited was held on Saturday, March 27, 2021 at 11:00 am, through a video link facility. As per the notice of AGM circulated to members and published in the newspapers, the meeting was initially scheduled to be held physically at Nishat Hotel, Emporium Mall, Lahore; with the proceedings’ to be also covered by a video link. However, in view of the ban imposed on all types of indoor gatherings by the Government of Punjab due to the imminent threat of COVID-19 outbreak, the meeting convened digitally through a video link. Mian Mohammad Mansha, the Chairman of the Board of Directors, presided over the meeting. The meeting was attended by Board members of the Bank including the Chief Executive Officer along with the Chief Financial Officer (CFO) and the Company Secretary; through a video link. The Company Secretary invited the CFO to present key highlights of the audited financial statements for the year 2020 and elucidate on the salient features of the Banks’ performance. There were no significant issues raised in the last AGM that are pending implementation, however, the shareholders while appreciating the overall growth in Bank’s financial performance sought some general clarifications and comments on the progress of the Bank. One of the shareholders enquired about the reasons for significant increase reported in the net provision charge for the year. Responding to the shareholders query, the CFO updated the forum that although the management has been proactively monitoring the evolving macroeconomic and operating scenario amidst the COVID-19 outbreak, however, the eventual impact from the outbreak still remains extremely uncertain and largely dependent on the pandemics’ pathway given the elevated global cases, emergence of new virus strains and the lingering reservations about the roll-out of vaccines. Hence, given the apprehensive outlook for domestic growth that could put a liquidity strain on the solvency of borrowers and impact their repayment capacities, the Bank has exercised prudence and recognized a general provision charge of Rs. 4.0 billion during the year under review. The CEO informed the shareholders that the Bank remains a well-capitalized institution with a capital base well above the regulatory limits and Basel capital requirements. He also mentioned that the Bank had the highest cash dividend per share in the industry and also remained one of the prime stocks traded in the Pakistani equity markets which as appropriately reflected in its highest market capitalization in the financial institution category as at December 31, 2020. The shareholders appreciated the services of the Board of Directors for its visionary approach and collective wisdom reflecting in the sound financial performance of the Bank. Following businesses were also discussed during the AGM: • • • • Consideration and approval of Annual Accounts of 2020 Winding Up of Bank’s Subsidiary - M/s Financial & Management Services (Pvt.) Limited Approval of Final Cash dividend – 2020 Appointment of External Auditors Annual Report 2019 215
218. Statement of Value Added Value Added 20212020 PKR (mln) % PKR (mln) Net interest income Non interest income Operating expenses excluding staff costs, depreciation, amortization Provision against advances, investments & others % 63,987 20,074 71,334 18,136 (16,215) 4,823 (14,420) (7,313) 72,669 67,737 Remuneration, provident fund and other benefits To government 16,940 23.31% 15,806 23.33% Income tax To providers of capital 21,178 29.14% 19,212 28.36% Cash dividends to shareholders To Society 22,516 30.98% 23,701 34.99% 8 0.01% 113 0.17% Depreciation, amortization, Retained Earnings & Reserves 12,027 16.55% 8,906 13.15% 72,669 100% 67,737 100% Value added available for distribution Distribution of value added: To employees Donations To expansion and growth 2021 2020 23% 29% 17% 29% 13% 1% 216 23% 0.17% 31% To Society To employees To expansion and growth To government Unconsolidated Financial Statements To providers of capital 35% To Society To employees To expansion and growth To government To providers of capital
219. Annual Report 2021 Code of Conduct • The Code of Conduct spells out the behaviour expected from employees of MCB Bank Limited (MCB), reflecting fairness, transparency and accountability. The Code of Conduct gives a quick reference check for acceptable business practices. • However, the Code of Conduct does not replace defined and comprehensive HR Policies of MCB Bank Limited. • MCB Bank is committed to conduct its business in accordance with the applicable laws, rules and regulations as defined by the State Bank of Pakistan by adhering to high standards of business ethics which reflect our corporate values. • Adherence to the Code of conduct is mandatory for all employees of MCB Bank Ltd-Pakistan. In line with code of conduct the employees of the bank shall Abidance of Laws / Rules • Conform to and abide by the Bank rules and policies, wherever we operate and obey all lawful orders and directives which may from time to time be given by any person or persons under whose jurisdiction, superintendence or control, the persona will, for the time being, be placed. To undertake at all times compliance with and observation of all applicable laws, regulations and Bank policies, wherever the Bank operates. Integrity • Conduct the highest standards of ethics, professional integrity and dignity in all dealings with the public, customers, investors, employees, and government officials, State Bank of Pakistan and fellow Bankers and non-engagement in acts discreditable to the Bank, profession and nation • In case of awareness of any breaches of laws and regulations, frauds and other criminal activities or other similar serious incidents that might affect the interests of the Bank, the same shall be informed to the senior management immediately, including any issue, which may pose a reputational risk. • Not use this policy to raise grievances or act in bad faith against colleagues. Professionalism • Serve the Bank honestly and faithfully and strictly serve the Bank affairs and the affairs of its constituents, use utmost endeavor to promote the interest and goodwill of the Bank and show courtesy and attention in all transactions/ correspondence with officers of Government, State Bank of Pakistan, other Banks & Financial Institutions, other establishments dealing with the Bank, the Bank constituents and the public. • In case the employment is terminated for any reason, all rights to property and information generated or obtained as part of employment relationship will remain the exclusive property of MCB. • Comply with the laws and regulations on money laundering and fraud prevention and immediate reporting of all suspicions of money laundering as per the guidelines provided in CDD & AML/ CFT Handbook and Anti-fraud Framework Policy for the Management and the staff. • Not to engage in any act of violation of CDD & AML / CFT Handbook’s guidelines given by the State Bank of Pakistan and be extremely vigilant in protecting MCB Bank from being misused by anyone to launder money by violating these guidelines. • Ensure that all customer complaints are resolved quickly, fairly and recorded appropriately. Conflict of Interest • Avoid all such circumstances in which there is personal conflict of interest, or may appear to be in conflict, with the interest of the Bank or its customers. • In case of potential conflict of interest, the same should be declared immediately to senior management, action is taken to resolve and manage it in open manner and resolving the conflict of interest on their own would be avoided. • Report to the Company Secretary within three (3) days about any sale and purchase of MCB shares (own or spouse) in case the annual basic salary exceeds Rs. 500,000/-. • Not buy, sell or take position in any manner regarding MCB Bank shares during Closed Period, as announced by Company Secretary. Relatives and close friends • Avoid conflict of interest arising, where an employee makes or participates in a decision which affects another person with whom one has a personal relationship (such as a relative, parent, spouse, cousin, close friend or personal associate). In cases where a conflict may arise, employees must advise their immediate line manager. Wherever possible, employees should disqualify themselves from dealing with those persons in such situations. Annual Report 2019 217
220. Code of Conduct Political Participation • Not obtain membership of any political party, or take part in, subscribing in aid of, or assist in any way, any political movement in or outside of Pakistan or relating to the affairs of Pakistan. • Not express views detrimental to the ideology, sovereignty or integrity of Pakistan. • Not canvass or otherwise interfere or use influence in connection with or take part in any election as a candidate to a legislative/local body or issue an address to the electorate whether in Pakistan or elsewhere. However, the right to vote can be exercised. • Not bring or attempt to bring political or other pressure/ influence directly or indirectly to bear on the authorities/ superior officers or indulge in derogatory pamphleteering, contribute, or write letters to the newspapers, anonymously or in own name contribute or appear in media, with an intent to induce the authority/ superior officers to act in a manner inconsistent with rules, in respect of any matter relating to appointment, promotion, transfer, punishment, retirement or for any other conditions of service of employment. Financial Interest • Not indulge in any of the following activities without prior permission of competent authority (GH - HRM for VP & below and President for SVP & Above): • Borrow money from or in any way place myself under pecuniary obligation to a broker or moneylender or anyone, including but not limited to any firm, company or person having dealings with the Bank. • Buy or sell stock, shares or securities of any description without funds to meet the full cost in the case of purchase or scripts for delivery in the case of sale. However, a bona-fide investment of own funds in such stocks, shares and securities as wished can be made. • Lend money in private capacity to a constituent of the Bank or have personal dealings with a constituent in the purchase or sale of bills of exchange, Government paper or any other securities. • Act as agent for an insurance company otherwise than as agent for or on behalf of the Bank. • Be connected with the formation or management of a joint stock company or hold office of a director. • Engage in any other commercial business or pursuit, either on own account or as agent for another or others. 218 Unconsolidated Financial Statements • Engage in any outside employment or office whether stipendiary or honorary during my employment with MCB Bank. • Undertake part-time work for a private or public body or private person, or accept fee thereof. • Any kind of trading advice concerning the securities of MCB Bank or to third parties even when such director, officer or employee does not possess material nonpublic information about MCB Bank. • In reviewing or approving a loan application from a corporation wherein holding office as director, partner or guarantor. Gift, Favors Etc. • Not use the employment status to seek personal gain from those doing business or seeking to do business with MCB, nor accept such gain if offered. • Not accept any gift, favors, entertainment or other benefit the size or frequency of which exceeds normal business contacts from clients, stakeholders, colleagues of the Bank or from persons likely to have dealings with the Bank including candidates for employment in the Bank. • Reporting in writing to immediate supervisor within three working days in case any sizeable gift / favor is received from any third parties. Confidentiality • Maintain the privacy and confidentiality (during the course of employment and after its termination for whatever reason), of all the information acquired during the course of professional activities and refrain from disclosing the same unless otherwise required by statutory authorities / law. Inside information about Bank’s customers/affairs including customer data, product manuals, confidential financial and business information of the Bank etc., shall not be used for own gain or for that of others either directly or indirectly. • Not trade in relevant investments or indulge in giving tips to another person or dealing on behalf of relatives, friends or any other third parties, whilst in possession of non-public price sensitive information. • Not disclose to a customer or customers or to any irrelevant quarter(s) that a suspicious transaction or related information is being reported for investigation unless any law enforcement agency requires any lawful information. (Only authorized representatives can pass on information to Law enforcing agencies after obtaining clearance on information content from relevant GH / BH(for RBG) and LAG representative).
221. Annual Report 2021 Code of Conduct Data Security Personal Responsibility • Only access or update the system and data according to the authority given by the Bank. Any unauthorized access or updation will hold the person liable for a penal action by the Bank in accordance with HR policies. • Safeguard as a personal responsibility, both the tangible and intangible assets of MCB and its customer(s) that are under personal control and not to use Bank assets for personal benefits except where permitted by MCB. • Not compromise access to system by communicating identification and /or passwords to others. • Not use any Bank facilities including a car or telephone to promote trade union activities, or carry weapons into Bank premises unless so authorized by the management, or to carry on trade union activities during office hours, or in banking premises, or subject Bank officials to physical harassment or abuse. • Ensure that material non-public information is secure. Not discuss such information in public places where it can be overheard, such as elevators, restaurants, taxis and airplanes. Communication / Contact with Media • Be truthful in all advertisings and promotional efforts and to publish only accurate information about the Bank operations under valid authority as prescribed in the Bank policy. Punctuality • Ensure attendance and punctuality as per HR policies, departmental requirements & job standards and for any absence during working hours obtain written permission of the immediate supervisor. Dress Code • Not give any kind of confidential information or interview on behalf of the Bank or in my official capacity in the print/electronic media or road / talk shows or participate or act in television/stage plays or in any media or cinema without having permission from the Head of Corporate Communication & GH - HRM. Speak Up • To inform line management & HR of any perceived wrong doing / malpractice at any level, as an obligation to report it under the Bank whistle blowing program / policy. • Maintain a standard of personal hygiene / neatness and follow MCB Bank dress code policy in true spirit to promote a professional work environment during office hours. International Travel • Be culturally sensitive to the socio-cultural norms of the host country. • Represent Country and organization by conforming to high standards of personal and professional ethics at all times. Business / Work Ethics Work Environment • Respect fellow colleagues and work as a team. To be, at all times, courteous and not to let any personal differences affect work. • Cooperate in maintaining a healthy and productive work environment and not get engaged in the selling, manufacturing and distributing using any illegal substance or being under the influence of illegal drugs or alcohol while on the job. Customer Centricity • Treat every customer of the Bank with respect and courtesy. • Be responsive to customer complaints, and to feedback on products and services. • Provide relevant, complete and clear information to customers to the best of one’s knowledge. • Sell products or services to customers that are within the legitimate scope of one’s job. • Remain update with the latest products of the Bank, and provide all relevant information to the customers. • Ensure strict adherence to all policies of the Bank, as announced by the management from time to time and contribute utmost effort in maintaining a conductive work environment. Usage of Communication Tools • Ensure strict adherence to the use of internet, emails and telephone provided by the Bank for official use only. • Never use the Bank system to transmit or receive electronic images or text containing ethnic slurs, social epithets or anything that might be construed as harassing, offensive or insulting to others. Annual Report 2019 219
222. Code of Conduct • Never utilize Bank system to disseminate any material detrimental to the ideology, sovereignty or integrity of Pakistan. • Never indulge and /or utilize the Bank system for supporting any terrorist activity within and / or outside Pakistan. Reporting and Accountability • Maintain all books, data, information and records with scrupulous integrity, reflecting in an accurate and timely manner and to ensure that all business transactions are reported and documented correctly according to the business practices. Ensure facts are not misinterpreted / misused /tampered pertaining to: Harassment Against Women • Any type of harassment is not acceptable at MCB Bank. Harassment occurs when someone’s actions or words, based on gender, race, sexuality, caste, creed, and color are unwelcome, violate another person’s dignity and creates a hostile environment. (Reference to HR Policy Manual section 6, 6.2.5, Protection against harassment of women at the workplace Act, 2010) • Accordingly, not engage in harassment in any form. It may include objectionable epithets, threatened or actual physical harm and intimidating conduct directed against the individual that negatively affects the performance and well-being of an individual. Sexual Harassment • Issuing an incorrect account statement / any other information for any customer or fellow employees / management. • Placing a fake claim for reimbursement of any expenses (including medical insurance). • Unrecorded or recorded funds / assets or any other Bank’s documents. • Posting of false, artificial or misleading entries in the books or record of the Bank. • Intimate line management and HRM of any changes in the personal circumstances relating to service tenure and other related benefits, provided by the Bank. Ethics for Employees working with Female Gender Discrimination In Employment Training / Promotion • Ensure adherence to the guidelines of MCB Bank’s non-discrimination on the basis of gender which limits the individual’s right of recruitment, future training, promotion and any other related benefits. Zero Tolerance for Favoritism or Discrimination Communication • Not send sexually explicit or offensive communications and respect the privacy of fellow employee especially female employees. Following factors should be adhered to in order to maintain effective communication and ethical standards: 1. Not send any electronic mail that is abusive or threatens the safety of an Individual(s). 2. Always use a professional tone in all official communications. 3. Be careful when using sarcasm and humor Workplace bullying Refrain from any form of Workplace bullying: • Shouting or swearing at an employee or otherwise verbally abusing him / her. • Singling out an employee for excessive criticism/public humiliation. • Not be a part of any undue favor / discriminatory advantage to any colleague / subordinate staff. • Excluding an employee from company activities and undermining his / her work contributions. Personal Space • Language or actions that embarrass or humiliate an employee. • No right to intrude on the personal space / close proximity of any staff particularly females. Female Staff/Employee Privacy • Recognize that female staff have more privacy and sensitivity needs in keeping with our cultural norms. Therefore, behaviour towards them must reflect that sensitivity, respect and consideration. 220 • Keeping in mind the Bank’s policy with reference to the Protection against harassment of Women at the Workplace Act, 2010, adherence to all guidelines given by the Bank. Unconsolidated Financial Statements • Inappropriate practical jokes, especially if they are targeted. Insider Trading Comply with insider trading policy and to abide by all guidelines provided in the policy.
223. Annual Report 2021 Statement on Internal Controls The internal control structure of MCB Bank Limited (Bank) comprises the Board of Directors, Senior Management, Risk Management Group, Financial Control Group, Operations Group, Compliance & Controls Group, Audit & Risk Assets Review (Audit & RAR) Group, Internal Control Units (ICUs) within all Groups and the controls & selfassessment procedures implemented at other functions within the Bank. The Bank’s management is responsible to establish and maintain an adequate and effective system of internal controls and procedures under the policies approved by the Board. The management is also responsible for evaluating effectiveness of the Bank’s internal control system that covers material matters through identification of control objectives as well as review of significant policies and procedures. Bank’s internal control system has been designed to identify and mitigate the risk of failure to achieve overall business objectives of the Bank. Internal controls and policies are designed to provide reasonable assurance regarding the effectiveness and efficiency of the Bank’s operations, reliability of financial information and compliance with applicable laws & regulations. However, it needs to be stated that systems are designed to manage, rather than eliminate the risk of failure to achieve the business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. The management of the Bank has adopted the Integrated Framework on Internal Controls issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and has completed all the stages as set out in the roadmap provided by the State Bank of Pakistan (SBP) through the Guidelines on Internal Controls. Bank’s assessment included documenting, evaluating and testing of the design and operating effectiveness of its Internal Controls over Financial Reporting (ICFR). Bank has developed a management testing and reporting framework for monitoring ongoing operating effectiveness of key controls. Concerted efforts are made by every Group to improve the control environment at grass root level by regularly reviewing and streamlining procedures to prevent and rectify control lapses as well as imparting training for improvement at various levels. Compliance & Controls Group (CCG), through its specialized teams and centralized automated solutions, also oversees adherence to the regulatory requirements, with specific emphasis on Anti-Money Laundering (AML) / Combatting the Financing of Terrorism (CFT) / Countering Proliferation Financing (CPF). In addition, CCG also leads the Management’s Committee on AML/CFT/CPF for oversight of AML/CFT/ CPF compliance with respect to relevant laws, regulations, policies and procedures. The scope of Audit & RAR Group, independent from the management, inter alia includes, review and assessment of the adequacy and effectiveness of the control activities across the Bank as well as evaluation of compliance with the Bank’s prescribed policies and procedures. All significant / material findings of the internal audit activities are reported to the Board’s Audit Committee. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard interest of the Bank. All significant and material findings of the internal and external auditors as well as observations of the regulators are addressed on priority by the management and their status is reported periodically to the Board’s Audit Committee and the Board’s Compliance Review & Monitoring Committee respectively, which ensures that the management takes appropriate corrective actions and put in place a system to minimize repetition for strengthening of the control environment. Senior management team, through different Management Sub-Committees, monitors resolution / compliance of issues identified by the Regulators, Statutory Auditors as well as Audit & RAR Group. Periodic meetings of these Management Sub-committees are held to ensure expeditious resolution / compliance of aforementioned issues. The performance of the Sub-committees is monitored by the President / CEO of the Bank. In accordance with SBP’s directives and as stated earlier, the Bank has completed all stages of ICFR roadmap and a Long Form Report (LFR) on the assessment of Bank’s ICFR for the year 2020 issued by the statutory auditors has been submitted to SBP in compliance with its directives stated in OSED Circular No. 1 of 2014 dated February 07, 2014. None of the deficiencies identified had a material impact on Financial Reporting. Based upon the results derived through ongoing testing of financial reporting controls and internal audits carried out during the year, the management considers that the Bank’s existing internal control system is adequate and has been effectively implemented and monitored. The management will continue enhancing its coverage and compliance with the SBP Guidelines on Internal Controls and further strengthening its control environment on an ongoing basis. Based on the above, the Board of Directors has duly endorsed management’s evaluation of internal controls including ICFR in the Directors’ report. Farid Ahmad Chief Compliance Officer Hammad Khalid Chief Financial Officer Kashif Ali Group Head Operations Muhammad Farooq Wasi Chief Internal Auditor Annual Report 2019 221
224. Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2019 MCB Bank Limited For the year ended December 31, 2021 The Bank has complied with the requirements of the Regulations in the following manner: 1. Total number of Directors including the President & CEO are 13 as per the following: a.Male: b.Female: 12 01 2. The composition of the Board is as follows: Category Name Independent Directors Mr. Yahya Saleem Mr. Salman Khalid Butt Mr. Shahzad Hussain Mr. Masood Ahmed Puri Non-Executive Directors Mian Mohammad Mansha Mr. S. M. Muneer Mr. Muhammad Tariq Rafi Mian Umer Mansha Mr. Mohd Suhail Amar Suresh bin Abdullah Mr. Muhammad Ali Zeb Mr. Shariffuddin bin Khalid Executive Director (President & CEO) Mr. Shoaib Mumtaz Female Director (Non-Executive) Mrs. Iqraa Hassan Mansha During the year, the term of the Board of Directors was completed and reconstituted in the Annual General Meeting held on March 27, 2021. All the outgoing directors were re-elected. Moreover, the term of President & CEO, Mr. Imran Maqbool was completed on December 20, 2021 and the Board appointed Mr. Shoaib Mumtaz, as Acting President & CEO of the Bank with effect from December 21, 2021 subject to his Fit and Proper Test (FPT) clearance by the State Bank of Pakistan (“SBP”). Subsequently, SBP has cleared FPT of Mr. Shoaib Mumtaz as President & CEO of the Bank on February 09, 2022. As per the requirements of the Code of Corporate Governance, the independent directors constitute one third of the Board. Out of the total 12 elected directors and CEO (deemed director), the Bank has 4 independent directors, thereby resulting in 0.33 fraction higher than one third. The fraction of 0.33 is below half (0.50) and accordingly, the same has not been rounded up as one. 3. The directors have confirmed that none of them is serving as a director on more than seven listed companies, including the Bank; 4. The Bank has prepared a ‘Code of Conduct’ and has ensured that appropriate steps have been taken to disseminate it throughout the Bank along with its supporting policies and procedures; 5. The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Bank. The Board has ensured that complete record of particulars of the significant policies along with their date of approval or updation is maintained by the Bank; 6. All the powers of the Board have been duly exercised and decisions on relevant matters have been taken by the Board/ Shareholders as empowered by the relevant provisions of the Companies Act, 2017 (the “Act”) and the Regulations; 7. The meetings of the Board were presided over by the Chairman. The Board has complied with the requirements of the Act and the Regulations with respect to frequency, recording and circulating minutes of meeting of the Board; 8. The Board has a formal policy and transparent procedures for remuneration of directors in accordance with the Act and the Regulations and directives of the State Bank of Pakistan (SBP); 222 Unconsolidated Financial Statements
225. Annual Report 2021 9 . The Board Members either meet the minimum criteria of education and experience for exemption from Directors Training Program as required under Regulation 19 of the Regulations or have already undergone such training pursuant to the requirements of the Regulations; 10. The Board has approved the appointment of Chief Financial Officer, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment and complied with relevant requirements of the Regulations; 11. Chief Financial Officer and Chief Executive Officer duly endorsed the financial statements before approval of the Board; 12. The Board has formed committees comprising of members given below: 1. Audit Committee (AC): 2. Business Strategy & Development Committee (BS&DC): Mr. Shahzad Hussain Chairman Mian Umer Mansha Chairman Mian Umer Mansha Member Mian Mohammad Mansha Member Mr. Muhammad Ali Zeb Member Mr. S. M. Muneer Member Mr. Shariffuddin Bin Khalid Member Mr. Mohd. Suhail Amar Suresh Member Mr. Salman Khalid Butt Member Mr. Masood Ahmed Puri Member President & CEO Member 3. Risk Management & Portfolio Review Committee (RM&PRC): 4. Human Resource & Remuneration Committee (HR&RC): Mr. Muhammad Ali Zeb Chairman Mr. Salman Khalid Butt Chairman Mian Umer Mansha Member Mian Mohammad Mansha Member Mr. Mohd. Suhail Amar Suresh Member Mrs. Iqraa Hassan Mansha Member Mr. Salman Khalid Butt Member Mr. Muhammad Ali Zeb Member President & CEO Member 5. Committee on Physical Planning & Contingency Arrangements (PP&CA) 6. IT Committee (ITC) Mian Umer Mansha Chairman Mian Umer Mansha Chairman Mian Mohammad Mansha Member Mr. Mohd. Suhail Amar Suresh Member Mr. Muhammad Ali Zeb Member Mr. Salman Khalid Butt Member Mrs. Iqraa Hassan Mansha Member President & CEO Member President & CEO Member 7. Compliance Review & Monitoring Committee (CR&MC) 8. Write Off & Waiver Committee (WO&WC) Mr. S. M. Muneer Chairman Mian Umer Mansha Chairman Mr. Muhammad Ali Zeb Member Mr. Muhammad Tariq Rafi Member Mr. Salman Khalid Butt Member Mr. Muhammad Ali Zeb Member President & CEO Member Currently, the Board has not constituted a separate Nomination Committee and functions are being performed by the Board. 13. The Terms of Reference (“TORs”) of the aforesaid Committees have been formed, documented and advised to the respective committee for compliance; Annual Report 2019 223
226. 14 . The frequency of meetings of the respective committee were as follows: Name of Committee No. of Meetings held during the year, 2021 Audit Committee Five Business Strategy & Development Committee Four Risk Management & Portfolio Review Committee Four Human Resource & Remuneration Committee Four Committee on Physical Planning & Contingency Arrangements Three IT Committee Five Compliance Review & Monitoring Committee Four Write Off & Waiver Committee None 15. The Board has set up an effective internal audit function which is considered suitably qualified and experienced for the purpose and conversant with the policies and procedures of the Bank; 16. The statutory auditors of the Bank have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan and registered with Audit Oversight Board of Pakistan, that they and all their partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan and that they and the partners of the firm involved in the audit are not a close relative (spouse, parent, dependent and non-dependent children) of the President & Chief Executive Officer, Chief Financial Officer, Head of Internal Audit, Company Secretary or Director of the Bank; 17. The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the Act, these regulations or any other regulatory requirement and the auditors have confirmed that they have observed IFAC guidelines in this regard; 18. We confirm that all requirements of the regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Regulations have been complied with. For and on behalf of the Board of Directors Mian Mohammad Mansha Chairman MCB Bank Limited February 10, 2022 Lahore 224 Unconsolidated Financial Statements
227. Annual Report 2021 INDEPENDENT AUDITOR ’S REVIEW REPORT TO THE MEMBERS OF MCB BANK LIMITED REVIEW REPORT ON THE STATEMENT OF COMPLIANCE CONTAINED IN LISTED COMPANIES (CODE OF CORPORATE GOVERNANCE) REGULATIONS, 2019 We have reviewed the enclosed Statement of Compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019 (the Regulations) prepared by the Board of Directors of MCB Bank Limited (the Bank) for the year ended December 31, 2021, in accordance with the requirement of regulation 36 of the Regulations. The responsibility for compliance with the Regulations is that of the Board of Directors of the Bank. Our responsibility is to review whether the Statement of Compliance reflects the status of the Bank’s compliance with the provisions of the Regulations and report if it does not and to highlight any non-compliance with the requirements of the Regulations. A review is limited primarily to inquiries of the Bank’s personnel and review of various documents prepared by the Bank to comply with the Regulations. As a part of our audit of the financial statements we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board of Directors’ statement on internal control covers all risks and controls or to form an opinion on the effectiveness of such internal controls, the Bank’s corporate governance procedures and risks. The Regulations require the Bank to place before the Audit Committee, and upon recommendation of the Audit Committee, place before the Board of Directors for their review and approval, its related party transactions. We are only required and have ensured compliance of this requirement to the extent of the approval of the related party transactions by the Board of Directors upon recommendation of the Audit Committee. Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Bank's compliance, in all material respects, with the requirements contained in the Regulations as applicable to the Bank for the year ended December 31, 2021. A. F. Ferguson & Co Chartered Accountants Lahore Date: March 3, 2022 UDIN: CR202110092VTi7zqYan Annual Report 2019 225
228. Report of the Audit Committee The Audit Committee comprises four (4) non-executive directors including one Independent Director, being Chairman of the Audit Committee. Further, two qualified chartered accountants with diversified professional experience in various sectors are members of the Audit Committee. Moreover, one of the members is a fellow member of Chartered Institute of Management Accountants, United Kingdom. The members of the Audit Committee are qualified professionals and possess enriched experience of working at the Boards and Senior Management levels of entities operating in both banking and non-banking sectors. Role of Audit Committee to discharge its responsibilities towards financial statements and Committee overall approach to risk management: • In line with the requirements of Listed Companies (Code of Corporate Governance) Regulations – 2019 and Guidelines for Internal Audit Function issued by the State Bank of Pakistan, the Chief Internal Auditor functionally reports to the Board’s Audit Committee and administratively to Bank’s President / CEO. The Committee ensures staffing of the internal audit function with personnel of sufficient internal audit knowledge and experience, as well as equipping of the function with necessary resources and authority to execute their responsibilities independently and objectively. • The Committee approves and overseas the risk assessment, annual audit plan and related enablers/budget along with resource requirements of Audit & Risk Assets Review (Audit & RAR) Group. • All significant and material findings of the internal audit activities are reported to the Audit Committee. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard the interest of the Bank. • Audit Committee actively engages in the review of the Bank’s quarterly, half yearly and annual financial statements as well as oversight of internal audit activities in accordance with the requirements of Listed Companies (Code of Corporate Governance) Regulations – 2019 and the Charter of the Board Audit Committee, duly approved by the Board of Directors. • The Committee understands its responsibility to ensure that the significant issues in relation to financial statements are addressed properly by debating and challenging the critical judgments and estimates made by the management. Furthermore, Audit & RAR Group also reviews the Bank’s quarterly, half yearly and annual financial statements and discusses the significant matters with management. • The Committee ensures the independence of external auditor, effectiveness of external audit process and appointment / re-appointment of external auditor by performing the followings: o o o o o Review the terms of engagement and ensure that external auditor is independent to the Bank in terms of local regulatory requirements. Ensure that external auditors have resources and professional qualification to conduct the audit. The Auditors have been allowed direct access to the Audit Committee. Discuss external auditors’ feedback on the Bank’s critical accounting estimates and judgments. Discuss the significant control issues and significant audit matters identified by external auditors. Audit Committee held five (5) meetings, during the year 2021, and following matters (including significant matters) were discussed: • • • • • • • • • • • 226 Review of the Bank’s periodic financial statements, including disclosure of related party transactions prior to their approval by the Board of Directors (BOD). Review of status of compliance against observations highlighted by internal and external auditors, including regular updates on the rectification actions taken by the management in response to the audit findings. Review of status of implementation of decisions of BOD and its Sub-Committees. Review of significant issues (including critical repeated observation) highlighted by internal auditors during audits/ reviews of branches and other functions of the Bank along with management actions thereon. Review of analysis related to significant frauds and forgery incidents in the Bank, with specific focus on nature and reasons along with Management action(s) thereof. Review of annual fraud risk assessment along with action plan for strengthening of internal controls. Review, approval and oversight of Risk Assessment, Annual Audit Plan and related enablers/budget along with resource requirements of Audit & Risk Assets Review (Audit & RAR) Group. Review of status of trainings imparted to internal audit staff, along with status of activities under Quality Assurance & Improvement Program of Internal Audit. Review of resolution status of complaints lodged under the Bank’s Whistle Blowing Program. Review of performance of Chief Internal Auditor against Key Performance Indicators (KPIs) for Audit & RAR Group. Review and approval of KPIs of Chief Internal Auditor for2022. Review & approval of Audit Group's (including Chief Internal Auditor) increments, bonuses, promotions and performance appraisal of Chief Internal Auditor. Review of progress on Audit Group’s Strategic Initiatives and Milestones. Unconsolidated Financial Statements
229. Annual Report 2021 • • • • Recommendation of scope and appointment of external auditors, including audit and consultancy fee. Audit Committee further ensured coordination between internal and external auditors. The Committee reviewed Annual Assessment by Audit & RAR Group on adequacy & effectiveness of Bank’s processes for controlling and managing its risks in all core areas of the Bank’s operations. The Committee reviewed annual confirmation regarding organizational independence of Audit & RAR Group. In addition to the above, the Committee also reviewed and recommended the following to the Board for approval: - - - - - - - - - - Global Internal Audit Policy Version 4.0 IFRS-9 ECL Provisioning Policy MCB – Sri Lanka, Version 3.0 IFRS-9 ECL Provisioning Policy MCB – Bahrain, Version 3.0 IFRS-9 ECL Provisioning Policy MCB – UAE Operations, Version 3.0 Whistle Blowing Program, Version 8.0 Fraud Prevention Policy, Version 5.0 Related Party Transaction Policy, Version 8.0 Accounting and Disclosure Policy, Version 9.0 Policy on Internal Controls, Version 8.0 Policy for Appointment of External Auditors and Prohibition of Non-Audit Services - MCB UAE Operations Committee performance Performance of the Audit Committee is annually reviewed by the Board of Directors and Board appreciated the Committee’s role in thoroughly reviewing the financial statements and Bank’s internal audit function and other financial matters of critical importance. Internal Control Framework and role of Internal audit The Bank’s internal control structure comprises the Board of Directors, Senior Management, Risk Management Group, Compliance & Controls Group, Financial Control Group, the controls and self-assessment procedures implemented at other functions within the Bank; and Audit & Risk Assets Review (RAR) Group. The Management is responsible for establishing and maintaining a system of adequate and effective internal controls and procedures for implementing strategy and policies, as approved by the Board of Directors. The Bank has adopted integrated framework on Internal Controls issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and has completed all the stages, as set out in the roadmap provided by the State Bank of Pakistan (SBP) through the Guidelines on Internal Controls. Audit & RAR Group has performed its role effectively on both assurance and consultative fronts. The Group played pivotal role in evaluating the efficacy of Bank’s control systems and contributing towards their ongoing effectiveness by enhancing visibility of the Board and the management on the risk management and internal control matters of the Bank. All significant and material findings of the internal audit activities are reported to the Audit Committee of the Board of Directors. The Audit Committee actively monitors implementation of internal controls to ensure that identified risks are mitigated to safeguard the interest of the Bank. The Audit Committee will continue to provide guidance to the Audit & RAR Group and the Management for further strengthening of Bank’s risk management practices and internal control environment. Shahzad Hussain Chairman Audit Committee MCB Bank Limited Lahore Annual Report 2019 227
230. 228 Unconsolidated Financial Statements
231. Annual Report 2021 Unconsolidated Financial Statements MCB Bank Limited Annual Report 2019 229
232. Independent Auditor ’s Report To the members of MCB Bank Limited Report on the Audit of the Unconsolidated Financial Statements Opinion We have audited the annexed unconsolidated financial statements of MCB Bank Limited (the Bank), which comprise the unconsolidated statement of financial position as at December 31, 2021, and the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, the unconsolidated statement of changes in equity and the unconsolidated cash flow statement for the year then ended, along with unaudited certified returns received from the branches except for 52 branches which have been audited by us and notes to the unconsolidated financial statements, including a summary of significant accounting policies and other explanatory information and we state that we have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purposes of the audit. In our opinion and to the best of our information and according to the explanations given to us, the unconsolidated statement of financial position, unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, unconsolidated statement of changes in equity and unconsolidated cash flow statement together with the notes forming part thereof conform with the accounting and reporting standards as applicable in Pakistan, and, give the information required by the Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017), in the manner so required and respectively give a true and fair view of the state of the Bank’s affairs as at December 31, 2021 and of the profit and other comprehensive loss, the changes in equity and its cash flows for the year then ended. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements section of our report. We are independent of the Bank in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of Chartered Accountants of Pakistan (the Code) and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matter(s) Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the unconsolidated financial statements of the current period. These matters were addressed in the context of our audit of the unconsolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Following is the Key audit matter: S. No. 1 Key Audit Matter How the matter was addressed in our audit Provision against advances (Refer note 3.4, note 6.4 and note 11.4 to the Our audit procedures to verify provision against annexed unconsolidated financial statements) advances included, amongst others, the following: • We obtained an understanding of the design The Bank makes provision against advances of relevant controls established by the Bank extended in Pakistan on a time-based criteria that to identify loss events and for determining the involves ensuring that all non-performing advances extent of provisioning required against nonare classified in accordance with the ageing criteria performing advances. specified in the Prudential Regulations (PRs) issued by the State Bank of Pakistan (SBP). The testing of controls included testing of: In addition to the above time-based criteria, • controls over correct classification of nonperforming advances on time-based criteria; the PRs require a subjective evaluation of the credit worthiness of borrowers to determine the • controls over monitoring of advances with classification of advances. higher risk of default and correct classification of advances on subjective criteria; 230 Unconsolidated Financial Statements
233. Annual Report 2021 S . No. Key Audit Matter How the matter was addressed in our audit The PRs also require the creation of general • controls over accurate computation recording of provisions; and provision for certain categories of advances. and Provision against advances of overseas branches • controls over the governance and approval is made as per the requirements of the respective process related to provisions, including regulatory regimes. continuous reassessment by the management. Further, last year, several borrowers had availed the SBP enabled deferment / restructuring and rescheduling relief given as a result of the COVID-19 pandemic. The Bank had expected that the repayment capacity of borrowers could be impacted due to the pandemic and had accordingly recognised additional general provision against the domestic funded performing credit portfolio. The provision had been recognised based on management’s best estimate. We selected a sample of loan accounts and performed the following substantive procedures: • checked repayments of loan / mark-up installments and tested classification of nonperforming advances based on the number of days overdue; and • evaluated the management’s assessment for classification of a borrower’s loan facilities as performing or non-performing based on review of repayment pattern, inspection of As at December 31, 2021, the Bank holds a total credit documentation, discussions with the provision of Rs 45,863 million against advances in management and management’s consideration the unconsolidated financial statement of the Bank. of the impact of COVID-19 on the borrower. The determination of provision against advances based on the above criteria remains a significant area of judgement and estimation. Because of the significance of the impact of these judgements/ estimations and the materiality of advances relative to the overall unconsolidated statement of financial position of the Bank, we considered the area of provision against advances as a Key Audit Matter. We checked the accuracy of specific provision made against non-performing advances and of general provision made against performing advances in accordance with the requirements of PRs by recomputing the provision amount in accordance with the criteria prescribed under the PRs. We evaluated the management’s assessment with respect to general provision on account of the COVID-19 pandemic. We issued instructions to auditors of those overseas branches which were selected for audit, highlighting ‘Provision against advances’ as a significant risk. The auditors of those branches performed audit procedures to check compliance with regulatory requirements and reported the results thereof to us. We, as auditors of the Bank, evaluated the work performed by the component auditors and the results thereof. Information Other than the Unconsolidated and Consolidated Financial Statements and Auditor’s Reports Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the unconsolidated and consolidated financial statements and our auditor’s reports thereon. Our opinion on the unconsolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the unconsolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the unconsolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work Annual Report 2019 231
234. we have performed , we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of Management and Board of Directors for the Unconsolidated Financial Statements Management is responsible for the preparation and fair presentation of the unconsolidated financial statements in accordance with accounting and reporting standards as applicable in Pakistan, the requirements of Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and for such internal control as management determines is necessary to enable the preparation of unconsolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the unconsolidated financial statements, management is responsible for assessing the Bank’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Bank or to cease operations, or has no realistic alternative but to do so. The Board of directors is responsible for overseeing the Bank’s financial reporting process. Auditor’s Responsibilities for the Audit of the Unconsolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the unconsolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these unconsolidated financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the unconsolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. • Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Bank’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the unconsolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Bank to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the unconsolidated financial statements, including the disclosures, and whether the unconsolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 232 Unconsolidated Financial Statements
235. Annual Report 2021 We also provide to the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence , and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the unconsolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Report on Other Legal and Regulatory Requirements 1. Based on our audit, we further report that in our opinion: a) proper books of account have been kept by the Bank as required by the Companies Act, 2017 (XIX of 2017) and the returns referred above from the branches have been found adequate for the purpose of our audit; b) the unconsolidated statement of financial position, the unconsolidated profit and loss account, the unconsolidated statement of comprehensive income, unconsolidated statement of changes in equity and unconsolidated cash flow statement together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 and the Companies Act, 2017 (XIX of 2017) and are in agreement with the books of account and returns; c) investments made, expenditure incurred and guarantees extended during the year were in accordance with the objects and powers of the Bank and the transactions of the Bank which have come to our notice have been within the powers of the Bank; and d) zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance. 2. We confirm that for the purpose of our audit we have covered more than sixty per cent of the total loans and advances of the Bank. Other Matter The unconsolidated financial statements of the Bank for the year ended December 31, 2020 were audited by another firm of Chartered Accountants who expressed an unqualified opinion thereon vide their report dated February 26, 2021. The engagement partner on the audit resulting in this independent auditor’s report is Hammad Ali Ahmad. A. F. Ferguson & Co Chartered Accountants Lahore Date: March 7, 2022 UDIN: AR202110092ExjV7N54O Annual Report 2019 233
236. Unconsolidated Statement of Financial Position As at December 31 , 2021 Note 20212020 (Rupees in '000) ASSETS Cash and balances with treasury banks 7 Balances with other banks 8 Lendings to financial institutions 9 Investments 10 Advances 11 Fixed assets 12 Intangible assets 13 Deferred tax assets Other assets 14 164,613,179 18,830,310 42,467,110 1,035,585,496 589,711,091 57,327,871 978,785 – 60,954,606 122,180,839 24,030,328 17,139,453 1,015,869,448 462,941,787 58,027,904 938,458 – 56,334,253 1,970,468,448 1,757,462,470 Bills payable 16 Borrowings 17 Deposits and other accounts 18 Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities 19 Other liabilities 20 24,589,644 269,525,556 1,411,851,527 – – 729,424 89,364,889 23,980,692 164,001,533 1,289,502,304 – – 6,975,158 82,900,828 1,796,061,040 1,567,360,515 NET ASSETS 174,407,408 190,101,955 11,850,600 84,602,024 14,271,517 63,683,267 11,850,600 80,696,335 27,720,418 69,834,602 LIABILITIES REPRESENTED BY Share capital 21 Reserves 22 Surplus on revaluation of assets – net 23 Unappropriated profit 174,407,408 190,101,955 CONTINGENCIES AND COMMITMENTS24 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Shoaib Mumtaz President/Chief Executive 234 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
237. Annual Report 2021 Unconsolidated Profit and Loss Account For the year ended December 31 , 2021 Note Mark-up / return / interest earned Mark-up / return / interest expensed 26 27 20212020 (Rupees in '000) 123,334,306 59,347,404 136,075,705 64,741,214 Net mark-up / interest income NON MARK-UP / INTEREST INCOME 63,986,902 71,334,491 Fee and commission income 28 Dividend income Foreign exchange income Income from derivatives Gain / (loss) on securities 29 Other income 30 12,439,679 2,251,473 3,734,284 14,035 810,850 823,415 10,936,325 1,209,753 2,525,340 4,087 3,332,032 128,250 Total non-markup / interest Income 20,073,736 18,135,787 Total Income NON MARK-UP / INTEREST EXPENSES 84,060,638 89,470,278 Operating expenses 31 Workers welfare fund Other charges 32 35,380,554 1,039,786 473,716 32,645,782 964,978 297,397 Total non-markup / interest expenses 36,894,056 33,908,157 Profit before provisions (Reversals) / provisions and write offs - net 33 Extra ordinary / unusual items 47,166,582 (4,822,728) – 55,562,121 7,313,166 – PROFIT BEFORE TAXATION 51,989,310 48,248,955 Taxation 21,178,263 19,211,654 30,811,047 29,037,301 34 PROFIT AFTER TAXATION (Rupees) Basic and diluted earnings per share 35 26.00 24.50 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Shoaib Mumtaz President/Chief Executive Hammad Khalid Chief Financial Officer S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director Annual Report 2019 235
238. Unconsolidated Statement of Comprehensive Income For the year ended December 31 , 2021 20212020 (Rupees in '000) 30,811,047 29,037,301 Effect of translation of net investment in foreign branches Movement in (deficit) / surplus on revaluation of investments - net of tax 824,584 (12,978,358) 201,352 4,021,886 Items that will not be reclassified to profit and loss account in subsequent periods: (12,153,774) 4,223,238 37,922 (147,019) 124,017 (342,311) 119,544 14,920 (222,767) Profit after taxation for the year Other comprehensive income / (loss) Items that may be reclassified to profit and loss account in subsequent periods: Remeasurement gain / (loss) on defined benefit obligations - net of tax Movement in surplus on revaluation of operating fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Total comprehensive income 18,672,193 33,037,772 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Shoaib Mumtaz President/Chief Executive 236 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
239. – – – – – Annual Report 2019 Shoaib Mumtaz President/Chief Executive Hammad Khalid Chief Financial Officer S.M. Muneer Director 3,701,067 – – – – Balance as at December 31, 2021 11,850,600 23,751,114 908,317 For details of dividend declaration and appropriations, please refer note 46 to these unconsolidated financial statements. For details of reserves, please refer note 22 to these unconsolidated financial statements. The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. – – – – – – – – 824,584 – – 824,584 2,876,483 – – – – – – 201,352 – – 201,352 2,675,131 – – – – – – – – – – – – – – – – 908,317 – – – – – – – – – – 908,317 Revenue reserve Suplus/(deficit) on revaluation of 37,641,526 – – – – – – – – – 3,081,105 – – 34,560,421 – – – – – – – 2,903,730 – – 31,656,691 8,239,633 – – – – – – 4,021,886 – – 4,021,886 4,217,747 (4,738,725) – – – – – – – – (12,978,358) – Mian Umer Mansha Director 18,600,000 – – – – – – – – – – – – – (12,978,358) 18,600,000 – – – – – – – – – – 18,600,000 (Rupees in '000) (5,925,300) (5,925,300) 89,135 22,544 4,774 28,694,990 (2,903,730) 29,037,301 (342,311) (17,775,900) (5,332,770) (5,925,300) (5,332,770) 19,010,242 (34,366,740) (17,775,900) (5,332,770) (5,925,300) (5,332,770) – – – 18,672,193 – 30,811,047 (12,138,854) Shahzad Hussain Director 63,683,267 174,407,408 – (34,366,740) – – – – 82,067 115,263 250,211 (23,002) 30,848,969 – (3,081,105) (82,067) (115,263) (250,211) (11,850,600) (5,925,300) (5,925,300) – – – 33,037,772 – 29,037,301 4,000,471 69,834,602 190,101,955 – 30,811,047 (23,002) 37,922 19,480,785 Total 55,777,489 168,914,783 – (11,850,600) – – (89,135) (22,544) (4,774) 119,544 – – 119,544 19,477,694 Exchange Statutory General Unappropriated translation reserve reserve Investments Fixed / non - profit reserve banking assets – – – – – – – – – – – – – – – – 23,751,114 11,850,600 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 15.0 per share - December 31, 2020 Interim cash dividend at Rs. 4.5 per share - March 31, 2021 Interim cash dividend at Rs. 5.0 per share - June 30, 2021 Interim cash dividend at Rs. 4.5 per share - Sep 30, 2021 Balance as at December 31, 2020 Total comprehensive income for the year ended December 31, 2021 Profit after taxation for the year ended December 31, 2021 Other comprehensive loss - net of tax – – – – – – – – – – – – – – – 23,751,114 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of revalued non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 5.0 per share - December 31, 2019 Interim cash dividend at Rs. 5.0 per share - March 31, 2020 Balance as at December 31, 2019 Total comprehensive income for the year ended December 31, 2020 Profit after taxation for the year ended December 31, 2020 Other comprehensive income - net of tax 11,850,600 Non- distributable capital reserve Share Share capital premium Capital reserve Annual Report 2021 Unconsolidated Statement of Changes in Equity For the year ended December 31, 2021 237
240. Unconsolidated Cash Flow Statement For the year ended December 31 , 2021 Note CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income Adjustments: 12.2 Depreciation on fixed assets Depreciation on right of use assets 31 Depreciation on non-banking assets acquired in satisfaction of claims 31 Amortization 13 Provisions / (reversals) and write offs - net 33 Workers welfare fund Gain on sale of non-banking assets acquired in satisfaction of claims 30 Charge / (reversal) for defined benefit plan 31.1 Gain on sale of fixed assets 30 (Gain) / loss on termination of lease liability against right of use assets 30 Unrealized loss on revaluation of investments classified as held for trading 29 Interest expensed on lease liability against right-of-use assets 27 Gain on sale of shares in a subsidiary 29.1 20212020 (Rupees in '000) 51,989,310 (2,251,473) 48,248,955 (1,209,753) 49,737,837 47,039,202 2,176,394 1,201,974 35,544 316,984 (4,822,728) 1,039,786 (571,449) 289,144 (106,456) (54,854) 2,005,061 1,216,784 30,049 318,024 7,313,166 964,978 (3,976) 74,827 (72,601) 15,637 12 914,209 – 224 1,106,824 (72,194) 418,560 12,896,803 Decrease / (increase) in operating assets Lendings to financial institutions Held-for-trading securities Advances Others assets (excluding advance taxation) 50,156,397 59,936,005 (25,327,657) 1,296,425 (121,904,642) (5,202,789) (16,049,395) 8,179,715 26,262,334 9,710,281 (Decrease) / increase in operating liabilities Bills Payable Borrowings from financial institutions Deposits Other liabilities (excluding current taxation) (151,138,663) 28,102,935 608,952 104,261,218 122,349,223 6,229,912 12,158,994 75,447,775 144,739,045 (18,195,415) Defined benefits paid Income tax paid 233,449,305 (250,977) (21,496,866) 214,150,399 (302,940) (16,078,289) Net cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES Net investment in available-for-sale securities Net (investment) / divestment in held-to-maturity securities Dividends received Investments in fixed assets Investments in Intangible assets Proceeds from sale of fixed assets Proceeds from sale of non-banking assets acquired in satisfaction of claims Proceeds from divestment in a subsidiary Effect of translation of net investment in foreign branches 110,719,196 285,808,110 (35,187,427) (6,276,699) 2,281,375 (2,764,311) (356,679) 398,773 2,052,928 – 824,584 (286,438,369) 17,363,419 1,179,851 (2,791,537) (298,880) 186,909 39,000 99,694 201,352 Net cash flow used in investing activities CASH FLOW FROM FINANCING ACTIVITIES Dividend paid 36.1 Payment of lease liability against right-of-use-assets 36.1 (39,027,456) (270,458,561) (34,036,857) (1,685,366) (11,750,637) (1,682,647) Net cash flow used in financing activities Effects of exchange rate changes on cash and cash equivalents (35,722,223) (13,433,284) 5,341,973 1,595,436 Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year 41,311,490 140,471,881 3,511,701 142,302,153 Cash and cash equivalents at end of the year 36 181,783,371 145,813,854 The annexed notes 1 to 48 and annexures I to II form an integral part of these unconsolidated financial statements. Shoaib Mumtaz President/Chief Executive 238 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
241. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 1. STATUS AND NATURE OF BUSINESS MCB Bank Limited (the ‘Bank’) is a banking company incorporated in Pakistan and is engaged in commercial banking and related services. The Bank’s ordinary shares are listed on the Pakistan stock exchange. The Bank’s Registered Office and Principal Office are situated at MCB -15 Main Gulberg, Lahore. The Bank operates 1,426 branches (2020: 1,418 branches) within Pakistan and 11 branches (2020: 11 branches) outside Pakistan (including the Karachi Export Processing Zone branch). 2. BASIS OF PRESENTATION 2.1 2.2 2.3 2.4 3. These unconsolidated financial statements represent the separate financial statements of MCB Bank Limited. The consolidated financial statements of the Group are being issued separately. These unconsolidated financial statements have been prepared in conformity with the format of financial statements prescribed by the State Bank of Pakistan (SBP) vide BPRD Circular No. 02, dated January 25, 2018. In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate profit in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these unconsolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of profit thereon. The unconsolidated financial statements are presented in Pak Rupees, which is the Bank’s functional and presentation currency of its primary economic environment. The amounts are rounded off to the nearest thousand. STATEMENT OF COMPLIANCE 3.1 These unconsolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: – International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; – Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017; – Provisions of and directives issued under the Banking Companies Ordinance, 1962, the Companies Act, 2017; and – Directives issued by the SBP and the Securities and Exchange Commission of Pakistan (SECP). Whenever the requirements of the Banking Companies Ordinance, 1962, Companies Act, 2017 or the directives issued by the SBP and the SECP differ with the requirements of IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The State Bank of Pakistan has deferred the applicability of International Accounting Standards 40, ‘Investment Property’ for Banking Companies through BSD Circular No. 10 dated August 26, 2002. The Securities and Exchange Commission of Pakistan (SECP) has deferred applicability of IFRS-7 “Financial Instruments: Disclosures” on banks through S.R.O 411(1) /2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the State Bank of Pakistan through various circulars. IFRS 10 Consolidated Financial Statements was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O 56(I) /2016 dated January 28, 2016, that the requirements of consolidation under Annual Report 2019 239
242. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 section 237 of the repealed Companies Ordinance 1984 (Section 228 of Companies Act 2017) and IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under Trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. 3.2 3.3 Standards, interpretations and amendments to published approved accounting standards that are effective in the current year There are certain other new standards and interpretations of and amendments to existing accounting standards that have become applicable to the Bank for accounting periods beginning on or after January 1, 2021. These are considered either to not be relevant or not to have any significant impact on the Bank’s unconsolidated financial statements. Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following other standards, amendments and interpretations of approved accounting standards are effective for accounting periods beginning on or after January 1, 2022: Effective date (annual periods beginning on or after) Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16 Cost of Fulfilling an Onerous Contract – Amendments to IAS 37 Updating a Reference to the Conceptual Framework – Amendments to IFRS 3 Classification of Liabilities as Current or Non-current – Amendments to IAS 1 Amended Definition of Accounting Estimates – Amendments to IAS 8 Deferred tax related to assets and liabilities arising from a single transaction – Amendment to IAS 12 As per the SBP’s BPRD Circular Letter no. 24 dated July 5, 2021, the applicability of IFRS 9 to banks in Pakistan has been deferred to accounting periods beginning on or after January 1, 2022. The impact of the application of IFRS 9 in Pakistan on the Bank’s financial statements is being assessed as per aforementioned circular, however, SBP’s final instructions are awaited. January 1, 2022 January 1, 2022 January 1, 2022 January 1, 2024 January 1, 2023 January 1, 2023 IFRS 9, Financial Instruments: Classification and Measurement, addresses recognition, classification, measurement and derecognition of financial assets and financial liabilities. The standard has also introduced a new impairment model for financial assets which requires recognition of impairment charge based on an ‘Expected Credit Losses’ (ECL) approach rather than the ‘incurred credit losses’ approach as currently followed. The ECL approach has an impact on all assets of the Bank which are exposed to credit risk. These unconsolidated financial statements have been prepared in accordance with the existing prudential regime to the extent of the Bank’s domestic operations, whereas the requirements of this standard are incorporated for overseas jurisdictions where IFRS 9 has been adopted. Including the above, there are other new and amended standards and interpretations that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2022 but are considered not to be relevant or do not to have any significant impact on the Bank’s unconsolidated financial statements and are therefore not detailed in these unconsolidated financial statements. 3.4 Critical accounting estimates and judgements 240 The preparation of unconsolidated financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires the management to exercise its judgment in the process of applying the Bank’s accounting policies. Estimates and Unconsolidated Financial Statements
243. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 judgments are continually evaluated and are based on historical experiences, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to the Bank’s financial statements or where judgment was exercised in the application of accounting policies are as follows: a) Classification of investments In classifying investments, the Bank follows the guidance provided in SBP circulars: – Investments classified as ‘held for trading’, are securities which are acquired with an intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days of acquisition. – Investments classified as ‘held to maturity’ are non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investment to maturity. – The investments other than those in subsidiaries and associates which are not classified as ‘held for trading’ or ‘held to maturity’ are classified as ‘available for sale’. b) Provision against advances The Bank reviews its loan portfolio to assess the amount of non-performing advances and provision required there against on regular basis. While assessing this requirement, various factors including the delinquency in the account, financial position of the borrowers and the requirements of the Prudential Regulations are considered. The amount of general provision is determined in accordance with the relevant regulations and management’s judgment as explained in note 11.4.4. c) Impairment of ‘available for sale’ equity investments The Bank determines that ‘available for sale’ equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, the impairment may be appropriate when there is an evidence of deterioration in the financial health of the investee and sector performance, changes in technology and operational/financial cash flows. d)Taxation In making the estimates for income taxes currently payable by the Bank, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. e) Fair value of derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. f) Depreciation, amortization, impairment and revaluation of operating fixed assets The management reviews the useful lives and residual values of assets annually by considering expected pattern of economic benefit that the management expects to drive from the item and the maximum period up to which such benefits are expected to be available. Any change in estimates in future years might affect the carrying amounts of the respective items of assets with a corresponding effect on the depreciation charge and impairment. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard (IAS) 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. Further, the Bank estimates the revalued amount of land and buildings on a regular basis. The estimates are based on valuations carried out by independent professional valuers under the market conditions. Annual Report 2019 241
244. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 g) Staff retirement benefits Certain actuarial assumptions have been adopted as disclosed in note 38 of these unconsolidated financial statements for the actuarial valuation of staff retirement benefit plans. Actuarial assumptions are entity’s best estimates of the variables that will determine the ultimate cost of providing post employment benefits. Changes in these assumptions in future years may affect the liability / asset under these plans in those years. h) i) 4. The Bank applies judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Bank is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. Provision and contingent assets and liabilities Provisions are recognized when the Bank has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimates. Contingent assets are not recognized and are also not disclosed until an inflow of economic benefits is probable. Contingent liabilities are not recognized and are disclosed unless the probability of an outflow of resources embodying economic benefits is remote. BASIS OF MEASUREMENT These unconsolidated financial statements have been prepared under the historical cost convention except that certain classes of fixed assets and non-banking assets acquired in satisfaction of claims are stated at revalued amounts and certain investments and derivative financial instruments have been marked to market and are carried at fair value. In addition, obligations in respect of staff retirement benefits and lease liabilities which have been carried at present value and right of use assets which are initially measured at an amount equal to the corresponding lease liability and depreciated over the respective lease terms. 5. FINANCIAL RISK MANAGEMENT These risk management policies continue to remain robust and the Bank is reviewing its portfolio regularly and conducts rapid portfolio reviews in line with emerging risks. Detailed disclosure on financial risk management has been reported in Note 45 to the unconsolidated financial statements. 6. Lease term for lease liability and Right-Of-Use-Asset SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these unconsolidated financial statements are consistent with those of the previous financial year: 6.1 IFRS 16 - Lease Liability & Right of Use Assets The bank enters into leasing arrangements for its branches and offices. Rental contracts are typically for a fixed period and may have extension options. At inception of a contract, the Bank assesses whether a contract is, or contains, a lease based on whether the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Lease terms are negotiated on an individual basis and contain a wide range of different terms and conditions. The lease liability is initially measured at the present value of lease payments to be made over the term of the lease, discounted using the Banks’s incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The carrying amount is remeasured/adjusted if there are changes in the future cash flows or the lease term. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date. On subsequent measurement, right-of-use assets are stated at cost less any accumulated depreciation / accumulated impairment losses and are adjusted for any remeasurement of the lease liability. 242 Unconsolidated Financial Statements
245. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Right-of-use assets are depreciated on a straight line basis over the lease term as this method closely reflects the expected pattern of consumption of future economic benefits. Carrying amount of the lease liability is derecognized upon termination of the lease contract with corresponding adjustment to right-of-use asset. Gain or loss on termination of lease contract is recognized in the profit and loss account. The Bank has elected not to recognize a right-of-use asset and the corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Payments associated with these leases are recognized as an expense in the profit or loss account on a straightline basis. When there is a change in scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease is accounted for as a lease modification. The lease modification is accounted for as a separate lease if modification increase the scope of lease by adding the right to use one or more underlying assets and the consideration for lease increases by an amount that is commensurate with the stand-alone price for the increase in scope adjusted to reflect the circumstances of the particular contracts, if any. When the lease modification is not accounted for as a separate lease, the lease liability is remeasured and corresponding adjustment is made to right-ofuse asset. 6.2Investments The Bank classifies its investments as follows: Held for trading These are securities, which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. Held to maturity These are securities with fixed or determinable payments and fixed maturity in respect of which the Bank has the positive intent and ability to hold to maturity. Available for sale These are investments, other than those in subsidiaries and associates, that do not fall under the ‘held for trading’ or ‘held to maturity’ categories. Initial measurement Investments are initially recognized at cost which in case of investments other than ‘held for trading’ include transaction costs associated with the investment. Transaction costs on investments held for trading are expensed in the profit and loss account. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognized at the trade date. Trade date is the date on which the Bank commits to purchase or sell the investment. Subsequent measurement In accordance with the requirements of the SBP, quoted securities, other than those classified as ‘held to maturity’, investments in subsidiaries and investments in associates are subsequently re-measured to market value. Surplus / deficit arising on revaluation of quoted securities which are classified as ‘available for sale’, is taken to surplus / deficit on revaluation of investments through statement of comprehensive income in equity till disposal at which time it is recorded in profit and loss account. Surplus / deficit arising on revaluation of quoted securities which are classified as ‘held for trading’, is taken to the profit and loss account, currently. Unquoted equity securities (excluding investments in subsidiaries and associates) are valued at the lower of cost and break-up value. Break-up value of equity securities is calculated with reference to the net Annual Report 2019 243
246. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 assets of the investee company as per the latest available financial statements. Investments classified as ‘held to maturity’ are carried at amortized cost less accumulated impairment losses, if any. 6.3 Investments in Subsidiaries and Associates Associates are all entities over which the Bank has significant influence but not control. Subsidiaries are all entities over which the Bank has the power to govern the financial and operating policies accompanying a shareholding of more than one half of the voting rights. Investments in subsidiaries and investments in associates are carried at cost less accumulated impairment losses, if any. Impairment Provision for impairment in the values of securities (except debentures, participation term certificates and term finance certificates) is made currently. Impairment of ‘available for sale’ equity investments is discussed in 3.4(c). Provisions for impairment in value of debentures, participation term certificates and term finance certificates are made as per the requirements of the Prudential Regulations issued by the SBP. Impairment against investment in subsidiaries and associates is assessed as per the requirements of IAS 36. Sale and repurchase agreements Securities sold subject to a repurchase agreement (repo) are retained in these unconsolidated financial statements as investments and the counter party liability is included in borrowings. Securities purchased under an agreement to resell (reverse repo) are not recognized in these unconsolidated financial statements as investments and the amount extended to the counter party is included in lending’s to financial institutions. The difference between the purchase / sale and re-sale / re-purchase price is recognized as mark-up income / expense on a time proportion basis, as the case may be. 6.4Advances 6.5 Leases where the Bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognized at an amount equal to the present value of the lease payments including any guaranteed residual value. Finance lease receivables are included in advances to the customers. Fixed assets and depreciation Fixed assets other than land and buildings are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Buildings are carried at revalued amount less any accumulated depreciation and subsequent impairment losses, if any. Land is carried at revalued amount less any subsequent impairment losses, if any. Cost of property and equipment of foreign operations includes exchange differences arising on currency translation at year-end rates. Capital work-in-progress is stated at cost less accumulated impairment losses, if any. These are transferred to specific assets as and when assets become available for use. 244 Advances are stated net of specific and general provisions. Specific provision is determined on the basis of the Prudential Regulations and other directives issued by the SBP and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision in accordance with the applicable requirements of the Prudential Regulations for Consumer Financing and Prudential Regulations for Small and Medium Enterprise Financing issued by the SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Advances are written off when there is no realistic prospect of recovery. Depreciation on all fixed assets (excluding land) is charged using the straight line method in accordance with the rates specified in note 12.2 to these unconsolidated financial statements and after taking into account residual value, if any. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each reporting date. Unconsolidated Financial Statements
247. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 6.5.1 Depreciation on additions is charged from the month the assets are available for use while no depreciation is charged in the month in which the assets are disposed off. Land and buildings are revalued by independent, professionally qualified valuers with sufficient regularity to ensure that their net carrying amount does not differ materially from their fair value. An increase arising on revaluation is credited to the surplus on revaluation of fixed assets account. A decrease arising on revaluation of fixed assets is adjusted against the surplus of that asset or, if no surplus exists, is charged to the profit and loss account as an impairment of the asset. A surplus arising subsequently on an impaired asset is reversed through the profit and loss account up to the extent of the original impairment. Surplus on revaluation of fixed assets (net of associated deferred tax) to the extent of the incremental depreciation charged on the related assets is transferred to unappropriated profit. Gains / losses on sale of property and equipment are credited / charged to the profit and loss account currently, except that the related surplus on revaluation of land and buildings (net of deferred taxation) is transferred directly to unappropriated profit. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account. Intangible assets Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized from the month when these assets are available for use, using the straight line method, whereby the cost of the intangible assets are amortized over its estimated useful lives over which economic benefits are expected to flow to the Bank. The useful lives are reviewed and adjusted, if appropriate, at each reporting date. 6.6Impairment The carrying amount of assets are reviewed at each reporting date for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amounts. The resulting impairment loss is taken to the profit and loss account except for impairment loss on revalued assets, which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the surplus on revaluation of that asset. 6.7 Staff retirement benefits The Bank operates the following staff retirement benefits for its employees: a) For clerical / non-clerical staff who did not opt for the new scheme, the Bank operates the following: b) – an approved contributory provident fund; – an approved gratuity scheme; and – a contributory benevolent scheme For clerical / non-clerical staff who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1975, the Bank operates the following: – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund; and – contributory benevolent scheme Annual Report 2019 245
248. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 c) d) For officers who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1977, the Bank operates the following: – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund, and – contributory benevolent fund. However, the management has replaced the pension benefits for employees in the officer category with a contributory provident fund for services rendered after December 31, 2003. For executives and officers who joined the Bank on or after January 01, 2000, the Bank operates an approved contributory provident fund. e) Post retirement medical benefits to entitled employees. Annual contributions towards the defined benefit plans and schemes are made on the basis of actuarial advice using the Projected Unit Credit Method. The above benefits are payable to staff at the time of separation from the Bank’s services subject to the completion of qualifying period of service. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in other Comprehensive Income in the period of occurrence. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. The Bank recognizes past service cost as an expense at the earlier of the following dates: (i) when the plan amendment or curtailment occurs; and (ii) when the Bank recognizes related restructuring costs or termination benefits. Liability in respect of employees’ compensated absences is accounted for in the year in which these are earned on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in Profit and Loss account in the period of occurrence. Employees’ compensated absences 6.8Taxation Current and prior years Provision for current taxation is based on taxable income at the current rates of taxation after taking into consideration available tax credits and rebates. The charge for current tax also includes adjustments where considered necessary, relating to prior years which arise from assessments framed / finalized during the year. Deferred Deferred tax is recognized using the balance sheet liability method on all temporary differences between the amounts attributed to assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The Bank records deferred tax assets / liabilities using the tax rates, enacted or substantively enacted by the reporting date expected to be applicable at the time of its reversal. Deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Bank also recognizes deferred tax asset / liability on deficit / surplus on revaluation of securities and deferred tax liability on surplus on revaluation of fixed assets which is adjusted against the related deficit / surplus in accordance with the requirements of International Accounting Standard (IAS) 12, ‘Income Taxes’. 246 Unconsolidated Financial Statements
249. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Deferred tax liability is not recognized in respect of taxable temporary differences associated with exchange translation reserves of foreign operations, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 6.9Provisions 6.10 Provisions are recognized when the Bank has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimates. Foreign currencies 6.10.1 Foreign currency transactions Transactions in foreign currencies other than the results of foreign operations discussed in note 6.10.2 are translated to Pak Rupees at the foreign exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in Pak Rupee terms at the rates of exchange prevailing at the reporting date. Forward foreign exchange contracts are valued at the rates applicable to their respective maturities. 6.10.2 Foreign operations The assets and liabilities of foreign branches are translated to Pak Rupees at exchange rates prevailing at the statement of financial position date. The results of foreign operations are translated to Rupees at the average rate of exchange for the year. 6.10.3 Translation gains and losses Translation gains and losses are included in the profit and loss account, except those arising on the translation of the Bank’s net investment in foreign branches, which are taken to the capital reserve (exchange translation reserve) until the disposal of the net investment, at which time these are recognized in the profit and loss account. 6.10.4Commitments Commitments for outstanding forward foreign exchange contracts are disclosed in these unconsolidated financial statements at committed amounts. Contingent liabilities / commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in Pak Rupee terms at the rates of exchange prevailing at the statement of financial position date. 6.11Acceptances 6.12 Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be simultaneously settled with the reimbursement from the customers. Revenue recognition – Mark-up / interest on advances and returns on investments are recognized on a time proportion basis using the effective interest method except that mark-up / interest on non-performing advances and investments is recognized on a receipt basis, in accordance with the requirements of the Prudential Regulations issued by the SBP or as permitted by the regulations of the overseas regulatory authorities of countries where the branches operate. Where debt securities are purchased at premium or discount, such premium / discount is amortized through the profit and loss account over the remaining period of maturity. – Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Gains / losses on termination of lease contracts are recognized as income when these are realized. Annual Report 2019 247
250. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 6.13 6.14 6.15 – Fee, brokerage and commission income is recognised on an accrual basis. – Dividend income is recognized when the Bank’s right to receive dividend is established. – Gain / loss on sale of investments is credited / charged to profit and loss account. Assets acquired in satisfaction of claims Non-Banking Assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation and impairment loss. These assets are revalued by professionally qualified valuers with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of property is credited to the ‘surplus on revaluation of non banking assets’ account through statement of comprehensive income in equity and any deficit arising on revaluation is taken to profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title to property are charged to profit and loss account and not capitalized. Cash and cash equivalents Cash and cash equivalents include cash and balances with treasury banks and balances with other banks (net of overdrawn Nostro balances) in current and deposit accounts. Financial instruments 6.15.1 Financial assets and financial liabilities Financial instruments carried on the statement of financial position include cash and balances with treasury banks, balances with other banks, lendings to financial institutions, investments, advances, other assets, bills payable, borrowings, deposits and other liabilities. The particular recognition methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with these assets and liabilities. 6.15.2 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value using valuation techniques. All the derivative financial instruments are carried as an asset when the fair value is positive and as a liability when the fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account currently. 6.15.3 Off setting 6.16 248 Financial assets and financial liabilities are off set and the net amount is reported in these unconsolidated financial statements when there is a legally enforceable right to set off and the Bank intends either to settle on a net basis, or to realize the assets and settle the liabilities, simultaneously. Borrowings / deposits Borrowings / deposits are recorded at the proceeds received. The cost of borrowings / deposits is recognized as an expense in the period in which this is incurred. 6.17 Segment reporting A segment is a distinguishable component of the Bank that is engaged in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Bank’s primary format of reporting is based on business segments. Unconsolidated Financial Statements
251. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 6.17.1 Business segments Retail banking This includes retail lending and deposits, banking services, cards and branchless banking. This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Bank’s corporate and public sector customers. Corporate banking Consumer Banking This segment primarily constitutes consumer financing activities with individual customers of the Bank. Product suite offered to these customers include credit cards, auto loans, housing finance and personal loans. Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making. International Banking This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities by Bank’s overseas operations. Others This includes the head office related activities and other functions which cannot be classified in any of the above segments. 6.17.2 Geographical segments The Bank operates in three geographic regions being: –Pakistan 6.18 6.19 6.20 – South Asia – Middle East Dividend distribution and appropriation Dividends (including bonus dividend) and other appropriations (except appropriations which are required by law) are recognized in the period in which these are approved. Business combination Business combinations other than under common control transaction are accounted for by applying the acquisition method. The cost of acquisition is measured as the fair value of assets given, equity instruments issued and the liabilities incurred or assumed at the date of acquisition. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, if any. Acquisition-related costs are expensed as incurred. 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 excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets acquired in the case of a bargain purchase, the difference is recognized directly in the profit and loss account or as directed by the SBP. Earnings Per Share The Bank presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year. Annual Report 2019 249
252. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 7. 20212020 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand Local currency Foreign currencies 22,275,982 6,201,240 22,094,317 6,183,785 With State Bank of Pakistan in Local currency current accounts 7.1 Foreign currency current accounts 7.2 Foreign currency deposit accounts 7.3 28,477,222 28,278,102 82,766,108 2,315,211 10,550,168 47,257,342 1,966,635 10,215,984 With other central banks in Foreign currency current accounts 7.4 With National Bank of Pakistan in Local currency current accounts Prize bonds 95,631,487 59,439,961 6,728,135 11,851,311 33,521,087 255,248 21,673,576 937,889 164,613,179 122,180,839 7.1 This represents current accounts maintained with the SBP under the Cash Reserve Requirement of section 22 of the Banking Companies Ordinance, 1962. In addition, Rs. 979.736 million have been placed in a special account under SBP directive. 7.2 This represents foreign currencies settlement account maintained with SBP. 7.3 This represents account maintained with the SBP to comply with the Special Cash Reserve requirement. This includes balance of Rs. 7,033.445 million (2020: Rs. 6,810.656 million) which carries interest rate of 0% (2020: 0%) per annum as declared by SBP. 7.4 Foreign currency current account with other central banks are maintained to meet their minimum cash reserves and capital requirements pertaining to the foreign branches of the Bank. 20212020 Note (Rupees in '000) 8. BALANCES WITH OTHER BANKS Outside Pakistan In current account In deposit account 8.1 8,494,144 10,336,166 21,798,363 2,231,965 18,830,310 24,030,328 18,830,310 24,030,328 8.1 Balances with other banks outside Pakistan in deposit accounts carry interest rate of 0.40% to 6.00% (2020: 1.5%) per annum. 20212020 Note (Rupees in '000) 9. LENDINGS TO FINANCIAL INSTITUTIONS Call / clean money lendings Repurchase agreement lendings (Reverse Repo) 9.1 9.2 250 Unconsolidated Financial Statements 27,571,021 14,896,089 11,002,195 6,137,258 42,467,110 17,139,453
253. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 9.1 Call money lending carries mark-up rate ranging from 0.15% to 10.45% (2020: 0.1% to 4.55%) per annum and is due to mature in February 2022. 9.2 Repurchase agreement lendings carry mark-up rate ranging from 10.50% to 10.70% (2020: 6.40% to 7.10%) per annum and is due to mature in January 2022. 20212020 (Rupees in '000) 9.3 Particulars of lending In local currency In foreign currencies 18,396,089 24,071,021 6,137,258 11,002,195 42,467,110 17,139,453 2021 2020 Held by Further given Total Bank as collateral Held by Further given Bank as collateral Total (Rupees in '000) 9.4 Securities held as collateral against lendings to financial institutions Market Treasury Bills 14,896,089 – 14,896,089 6,137,258 – 6,137,258 10.INVESTMENTS 10.1 Investments by type: 20212020 Cost / Provision Surplus / Carrying Cost / Provision Surplus / Carrying Noteamortisedfor (Deficit)value amortisedfor (Deficit)value costdiminution costdiminution Held–for–trading securities Federal Government Securities (Rupees in '000) 12,467 – (12) 12,455 1,309,116 – (224) 1,308,892 12,467 – (12) 12,455 1,309,116 – (224) 1,308,892 Available–for–sale securities Federal Government Securities Shares and units Non Government Debt Securities 1,443,840 Foreign Securities 7,557,240 977,660,377 (22,288) 31,011,555 (10,096,489) – (1,748) 1,017,673,012 (10,120,525) (9,111,067) 968,527,022 946,641,148 1,342,189 1,797,840 (5,424) 7,550,068 7,463,939 Federal Government Securities 14,360,970 (52,637) Provincial Government Securities 118 (118) – Non Government Debt Securities 8,155,476 (477,541) – Foreign Securities 792,607 (8,632) – 23,309,171 (538,928) 700,401 Subsidiaries 10.11 12,319,037 Total Investments – (725) 1,054,014,088 (10,660,178) – (1,714) 2,252 1,800,092 17,509 7,479,734 (7,768,402) 999,784,085 982,485,015 (10,122,716) 12,676,354 985,038,653 10.11 3,119,160 19,584,965 1,449,740 Held–to–maturity securities Associates 9,537,433 956,173,862 5,900 (4,719) 22,257,255 26,582,088 (10,116,283) – 14,308,333 4,612,390 (11,542) 118 (118) 7,677,935 9,270,317 (490,341) – 8,779,976 783,975 3,149,647 (27,281) – 3,122,366 – 22,770,243 17,032,472 (529,282) – 16,503,190 – – 700,401 700,401 – 12,318,312 12,319,037 – 4,600,848 – – (725) – – 700,401 – 12,318,312 (7,768,414) 1,035,585,496 1,013,846,041 (10,652,723) 12,676,130 1,015,869,448 Annual Report 2019 251
254. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost / Provision Surplus / Carrying Cost / Provision Surplus / Carrying Noteamortisedfor (Deficit)value amortisedfor (Deficit)value costdiminution costdiminution (Rupees in '000) 10.2 Federal Government Securities: Investments by segments: Market Treasury Bills 325,536,276 – Pakistan Investment Bonds 660,197,527 – (8,648,559) 651,548,968 349,738,865 Sukuks bonds 434,622 Naya Pakistan Certificates 925,513 Euro Bonds 4,939,876 992,033,814 Provincial Government Securities Shares and units: Listed Companies Unlisted Companies 118 (1,410) 1,791,122 465,779 4,866,038 2,096,697 (13,389) (74,925) (9,111,079) 982,847,810 952,562,654 (16,261) (118) (172,591) 31,011,555 (10,096,489) Non Government Debt Securities Listed 4,234,441 (3,469) Unlisted 5,364,875 (474,072) 9,599,316 (477,541) Foreign Securities Government securities 8,342,536 (8,632) Unlisted equity securities 7,311 (1,748) 8,349,847 (10,380) – (323) – – 118 (2,872) – (118) 1,342,189 20,800,775 24,999,638 (9,946,958) – 1,456,480 35,195 – 65,166 1,823,445 465,779 2,148,474 9,537,209 962,083,602 – – 3,119,160 18,171,840 (169,325) – 1,413,125 1,342,189 22,257,255 26,582,088 (10,116,283) 3,119,160 19,584,965 5,900 1,582,450 256,237 598,726,428 – 9,180,611 358,919,476 925,513 (73,515) 16,014 – 449,226 – 29,382,484 (9,923,898) 1,629,071 (478,211) 325,058,065 598,470,191 4,236,872 5,064,730 (16,269) 7,918 5,056,379 – 4,890,803 6,003,427 (474,072) (5,666) 5,523,689 5,900 9,127,675 11,068,157 (490,341) 2,252 10,580,068 (5,424) 8,328,480 10,606,326 (27,281) 17,509 10,596,554 – (5,424) 5,563 7,260 (1,714) 8,334,043 10,613,586 (28,995) – 5,546 17,509 10,602,100 Associates – Adamjee Insurance 647,880 – – 647,880 647,880 – – 647,880 – Euronet Pakistan (Private) Limited 52,521 – – 52,521 52,521 – – 52,521 700,401 – – 700,401 700,401 – – 700,401 11,550,000 – – 11,550,000 11,550,000 – – 11,550,000 320,123 – – – – 320,123 – – – 448,189 Company Limited 10.8 Subsidiaries MCB Islamic Bank Limited MCB Arif Habib Savings and Investments Limited 320,123 320,123 Financial Management Services (Pvt) Limited 10.9 MCB Non–Bank Credit Organization Closed Joint Stock Company 725 448,189 (725) – – – – 448,189 725 448,189 (725) – 252 Total Investments Unconsolidated Financial Statements 12,319,037 (725) – 12,318,312 12,319,037 (725) – 12,318,312 1,054,014,088 (10,660,178) (7,768,414) 1,035,585,496 1,013,846,041 (10,652,723) 12,676,130 1,015,869,448
255. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) Note 10.2.1 Investments given as collateral - Market Treasury Bills - Pakistan Investment Bonds 107,136,184 53,303,403 91,279,273 1,000,283 10.3 Provision for diminution in value of investments 160,439,587 92,279,556 10.3.1 Opening balance Exchange and other adjustments 10,652,723 570 10,689,171 13,474 Charge / (reversals) Charge for the year Reversals for the year Reversal on disposals 935,164 (18,390) (909,889) 1,956,360 (1,529) (2,004,753) 6,885 (49,922) 10,660,178 10,652,723 Closing balance 10.3.3 10.3.2 Particulars of provision against debt securities Category of classification 20212020 NPIProvisionNPIProvision (Rupees in '000) Domestic Loss 477,659 477,659 490,459 490,459 477,659 477,659 490,459 490,459 10.3.3 This includes a general provision of Rs 83.557 million (December 31, 2020: Rs 43.542 million) held by overseas branches in accordance with the requirements of IFRS 9. 10.4 Quality of Available for Sale Securities Details regarding quality of Available for Sale (AFS) securities are as follows; 20212020 Cost Federal Government Securities - Government guaranteed (Rupees in '000) Market Treasury Bills Pakistan Investment Bonds Euro Bonds Sukuk Bonds Naya Pakistan Certificates 325,523,809 647,475,027 3,301,407 434,622 925,512 597,161,075 346,405,146 1,341,708 1,267,440 465,779 977,660,377 946,641,148 Annual Report 2019 253
256. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost (Rupees in '000) Listed Companies and mutual funds Automobile Assembler Automobile Part and Accessories Cable and Electrical Goods Cement Chemical Close end Mutual Fund Commercial Banks Engineering Fertilizer Food and Personal Care Products Glass and Ceramics Insurance Investment Banks / Companies NIT Units Oil and Gas Exploration Companies Oil and Gas Marketing Companies Open End Mutual Fund Paper and Board Pharmaceutical Power Generation and Distribution Refinery Technology and Communication Textile composite Textile spinning 1,551,062 413,930 536,448 2,333,482 634,587 1,186,851 3,897,895 1,550,301 2,800,992 1,122,096 89,048 753,786 585,624 5,253 3,968,160 683,965 96,361 543,706 1,048,524 3,454,440 684,113 1,296,309 129,382 16,169 1,418,843 413,930 536,448 2,050,172 285,638 1,186,851 3,002,215 1,574,425 2,754,405 1,229,398 – 599,364 585,624 5,253 2,873,812 452,460 190,083 340,473 941,959 2,516,198 887,318 707,827 430,773 16,169 29,382,484 24,999,638 20212020 Cost Cost Breakup value (Rupees in '000) Unlisted Companies Central Depository Company Limited First Capital Investment Private Limited First Women Bank Limited ISE Towers REIT Management Company Limited National Investment Trust Limited National Institutional Facilitation Technologies Pak Agro Storage And Service Corporation 1 Link Private Limited Naymat Collateral Management Company Pakistan Corporate Restructuring Company Arabian Sea Country Club* SME Bank Limited* Al–Ameen Textile Mills Limited* Custodian Management Services* Galaxy Textile Mills Limited* Pakistan Textile City Private Limited* Ayaz Textile Mills Limited* Musarrat Textile Mills Limited* Sadiqabad Textile Mills Limited* Al–Arabia Sugar Mills Limited – Preference shares* Pak Elektron Limited – Preference shares 254 Breakup value *These investments are fully provided. Unconsolidated Financial Statements 184,426 2,500 63,300 819,324 2,831 215,838 184,426 2,500 63,300 756,153 2,667 215,838 30,346 1,027,651 1,527 2,500 50,000 29,286 51,396 5,000 10,106 197 1,000 30,177 50,000 2,253 36,045 26,361 – 25,000 101,804 2,006,567 35,899 1,567,552 267,895 21,021 48,210 – – – – – – – – – – 25,000 30,346 1,027,651 1,527 2,500 50,000 29,285 – 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 4,775 25,000 93,780 1,661,565 51,998 1,239,050 202,032 25,876 – – – – – – – – – – – 25,000 1,629,071 5,111,941 1,582,450 4,273,959
257. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost (Rupees in '000) Non Government Debt Securities Listed - AA+, AA, AA- 1,193,840 1,547,840 250,000 250,000 Unlisted - AA+, AA, AA- 20212020 CostRatingCostRating (Rupees in '000) Foreign Securities Government debt Securities - Sri Lanka 7,549,929 Caa2 7,456,679 Caa1 20212020 Cost (Rupees in '000) Unlisted Equity Securities Lanka Clear (Private) Limited Credit Information Bureau of Sri Lanka Lanka Financial Services Bureau Limited Society for Worldwide Inter Fund Transfer (SWIFT) 874 26 1,748 4,663 857 26 1,714 4,663 10.5 Particulars relating to Held to Maturity securities are as follows: 7,311 7,260 Federal Government Securities - Government guaranteed Pakistan Investment Bonds Sukuk bonds Euro Bonds Provincial Government Securities 12,722,500 – 1,638,470 3,333,719 523,680 754,991 14,360,970 4,612,390 118 118 Annual Report 2019 255
258. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost (Rupees in '000) Non Government Debt Securities Listed - AAA - AA+, AA, AA- - Unrated – 2,387,280 49,851 1,796,250 1,644,520 66,120 Unlisted 2,437,131 3,506,890 - AA+, AA, AA- - A+, A, A- - Unrated 4,800,967 439,838 477,540 4,849,483 439,874 474,070 5,718,345 5,763,427 20212020 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Sri Lanka 792,607 Caa2 3,149,647 Caa1 10.5.1 The market value of securities classified as held-to-maturity as at December 31, 2021 amounted to Rs. 22,217.535 million (December 31, 2020: Rs. 17,002.908 million). 10.6 “Available for sale” Market Treasury Bills and Pakistan Investment Bonds are eligible for rediscounting with the State Bank of Pakistan. 10.7 Investments include Pakistan Investment Bonds amounting to Rs. 67.9 million (2020: Rs. 67.9 million) earmarked by the SBP against TT discounting facilities sanctioned to the Bank. In addition, Pakistan Investment Bonds amounting to Rs. 5 million (2020: Rs. 5 million) have been pledged with the Controller of Military Accounts on account of Regimental Fund account and Pakistan Investment Bonds amounting to Rs. 100 million (2020: Rs. Rs. 100 million) have been pledged with the National Clearing Company of Pakistan Limited (NCCPL) on account of removal of irrevocable undertaking as alternate option for collateral against participant’s exposure in stock market. 10.8 Investment of the Bank in Adamjee Insurance Company Limited is carried at cost amounting to Rs. 647.880 million (2020: Rs. 647.880 million) as at December 31, 2021. The market value of the investment in Adamjee Insurance Company Limited as at December 31, 2021 amounted to Rs. 2,800 million (2020: Rs. 2,752.400 million). 10.9 This investment is fully provided for. The company is dormant and has no asset and liability at the reporting dates. 10.10 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. 256 Unconsolidated Financial Statements
259. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 10.11 Summarized financial information of associates and subsidiaries Country of % of interest Revenue Name incorporation held 2021 Associates Euronet Pakistan (Private) Limited (unaudited based on December 31, 2021) Adamjee Insurance Company Limited (unaudited based on September 30, 2021) Subsidiaries MCB Islamic Bank Limited (audited based on December 31, 2021) MCB Arif Habib Savings and Investments Limited (audited based on June 30, 2021) MCB Non-Bank Credit Organization Closed Joint Stock Company (audited based on December 31, 2021) 2020 Associates Euronet Pakistan (Private) Limited (audited based on December 31, 2020) Adamjee Insurance Company Limited (unaudited based on September 30, 2020) Subsidiaries MCB Islamic Bank Limited (audited based on December 31, 2020) MCB Arif Habib Savings and Investments Limited (audited based on June 30, 2020) MCB Non-Bank Credit Organization Closed Joint Stock Company (audited based on December 31, 2020) Profit/ Total (loss) comprehensive after tax income / (loss) Assets Liabilities (Rupees in '000) Pakistan 30% 720,665 13,916 13,916 773,972 632,732 Pakistan 20% 23,530,811 2,408,605 1,217,969 116,278,938 93,385,707 Pakistan 100.00% 9,202,716 100,432 (123,217) 161,267,393 150,662,838 Pakistan 51.33% 993,695 376,434 376,434 2,375,511 772,381 Azerbaijan 99.94% 176,720 63,319 63,319 1,404,613 866,837 Pakistan 30% 718,076 (84,235) (79,622) 783,908 656,585 Pakistan 20% 20,596,203 1,319,951 439,880 95,997,472 74,918,209 Pakistan 100.00% 9,676,435 208,316 260,971 141,170,886 130,443,114 Pakistan 51.33% 835,520 257,669 257,669 2,265,572 714,877 Azerbaijan 99.94% 163,849 46,863 46,863 825,024 400,034 Annual Report 2019 257
260. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 11.ADVANCES Performing Non Performing Total Note 202120202021202020212020 (Rupees in '000) Loans, cash credits, running finances, etc. 11.1 Bills discounted and purchased 565,230,252 19,852,814 444,168,998 18,192,157 49,404,885 1,085,920 50,524,753 664,294 614,635,137 20,938,734 494,693,751 18,856,451 Advances - gross Provision against advances - Specific - General 11.4.4 585,083,066 462,361,155 50,490,805 51,189,047 635,573,871 513,550,202 – (1,706,309) – (5,465,459) (44,156,471) – (45,142,956) – (44,156,471) (1,706,309) (45,142,956) (5,465,459) (1,706,309) (5,465,459) (44,156,471) (45,142,956) (45,862,780) (50,608,415) Advances - net of provision 583,376,757 456,895,696 6,334,334 6,046,091 589,711,091 462,941,787 11.1 Includes net investment in finance lease as disclosed below: 20212020 Not later Later than Over five than one one and less years Total year than five years Total (Rupees in '000) Lease rentals receivable 1,494,858 1,495,106 853,040 3,843,004 1,521,860 1,436,815 1,133,794 4,092,469 Residual value 12,535 340,969 28,726 382,230 20,428 103,490 23,039 146,957 Minimum lease payments 1,507,393 1,836,075 881,766 4,225,234 1,542,288 1,540,305 1,156,833 4,239,426 Financial charges for future periods (5,382) (291,213) (397,000) (693,595) (3,770) (255,311) (418,859) (677,940) Present value of minimum lease payments 1,502,011 1,544,862 484,766 3,531,639 1,538,518 1,284,994 737,974 3,561,486 258 Not later Later than Over five than one one and less years year than five years 20212020 (Rupees in '000) 11.2 Particulars of advances (Gross) In local currency In foreign currencies 587,623,982 47,949,889 469,211,685 44,338,517 635,573,871 513,550,202 Unconsolidated Financial Statements
261. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 11.3 Advances include Rs. 50,490.805 million (2020: Rs. 51,189.047 million ) which have been placed under the non-performing status as detailed below: 20212020 Non performing Provision Non performing Provision Noteloans loans (Rupees in '000) Category of Classification Domestic Other Assets Especially Mentioned 11.3.1 Substandard Doubtful Loss Overseas 49,319 264,462 118,054 40,666,099 1,340 65,075 59,027 40,203,253 43,508 211,900 264,759 42,224,438 1,983 52,156 132,380 41,485,949 41,097,934 40,328,695 42,744,605 41,672,468 Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days >365 days 38,999 12,212 109,551 9,232,109 14,993 5,750 54,776 3,752,257 5,321 2,020 19,961 8,417,140 4,913 505 9,981 3,455,089 9,392,871 3,827,776 8,444,442 3,470,488 – – – – Total 50,490,805 44,156,471 51,189,047 45,142,956 11.3.1 This represents non-performing portfolio of agricultural and small enterprise financing classified as OAEM as per the requirements of the Prudential Regulation for Agricultural and Small Enterprise Financing issued by the State Bank of Pakistan. 11.4 Particulars of provision against advances 20212020 NoteSpecificGeneral Total SpecificGeneral Total (Rupees in '000) Opening balance Exchange adjustments Charge for the year Reversals 11.4.3 & 11.4.4 Amounts written off 11.5 Closing balance 45,142,956 319,945 5,465,459 18,623 50,608,415 338,568 41,934,421 50,555 1,423,921 7,065 43,358,342 57,620 2,340,739 (3,250,860) 179,944 (3,957,717) 2,520,683 (7,208,577) 5,703,057 (2,215,829) 4,097,524 (63,051) 9,800,581 (2,278,880) (3,777,773) – (4,687,894) (396,309) 3,487,228 (329,248) 4,034,473 – 7,521,701 (329,248) 1,706,309 45,862,780 45,142,956 5,465,459 (910,121) (396,309) 44,156,471 50,608,415 11.4.1 Particulars of provision against advances 20212020 SpecificGeneral Total SpecificGeneral Total (Rupees in '000) In local currency In foreign currencies 39,981,173 4,175,298 1,327,163 379,146 41,308,336 4,554,444 41,672,468 3,470,488 5,148,833 316,626 46,821,301 3,787,114 44,156,471 1,706,309 45,862,780 45,142,956 5,465,459 50,608,415 Annual Report 2019 259
262. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 11.4.2 State Bank of Pakistan vide BSD Circular No. 2 dated January 27, 2009, BSD Circular No. 10 dated October 20, 2009, BSD Circular No. 02 of 2010 dated June 03, 2010 and BSD Circular No. 1 of 2011 dated October 21, 2011 has allowed benefit of Forced Sale Value (FSV) of Plant & Machinery under charge, pledged stock and mortgaged residential, commercial & industrial properties (land and building only) held as collateral against Non Performing Loans (NPLs) for five years from the date of classification. However, management has not taken the FSV benefit in calculation of specific provision. 11.4.3 This includes reversal of provisions and reduction of non-performing loans amounting to Rs. Nil (2020: Rs. 84 Million) as a result of settlement on debt asset swap arrangement with customers. 11.4.4 General provision of Rs. 4.0 billion was created last year on account of uncertainty emanating from COVID-19 outbreak, as many of Bank’s borrowers had availed the SBP relief program relating to deferment/restructuring & rescheduling. During the current year, as part of the continuous credit assessment process, the Bank has created specific provision against exposures that reflected signs of financial distress. However, the Bank has reversed the general provision as the systematic risks surrounding the economic recovery have receded. The Bank maintains general reserve in accordance with the applicable requirements of the Prudential Regulations for Consumer Financing and Prudential Regulations for Small and Medium Enterprise Financing issued by the SBP. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries in which the overseas branches operate. In addition, the Bank also maintains a general provision against gross advances on a prudent basis. 20212020 Note (Rupees in '000) 11.5 PARTICULARS OF WRITE OFFs: 11.5.1 Against Provisions 11.4 396,309 329,248 396,309 329,248 384,417 10,108 1,784 299,535 – 29,713 396,309 329,248 11.5.2 Write Offs of Rs. 500,000 and above - Domestic 11.6 - Overseas 11.6 Write Offs of below Rs. 500,000 11.4 11.6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written-off loans or any other financial relief of Rupees five hundred thousand or above allowed to a person(s) during the year ended December 31, 2021 is given at Annexure I of the unconsolidated financial statements. However, this write off does not affect the Bank’s right to recover the debts from these customers. Note 12. FIXED ASSETS Capital work-in-progress Property and equipment Right-of-use assets 12.1 12.2 12.3 857,736 50,723,894 5,746,241 802,966 50,467,607 6,757,331 57,327,871 58,027,904 Civil works Equipment Advances to suppliers Others 431,382 1,922 417,309 7,123 418,187 98,383 283,029 3,367 857,736 802,966 12.1 Capital work-in-progress 260 20212020 (Rupees in '000) Unconsolidated Financial Statements
263. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 12.2 Property and Equipment 2021 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land Freehold Leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2021 Cost / Revalued amount Accumulated depreciation Net book value 26,313,272 – 2,900,078 14,770,261 – (485,921) 806,387 2,052,270 15,340,049 1,012,162 1,217,035 64,411,514 (28,590) (1,231,404) (11,167,356) (621,368) (409,268) (13,943,907) 26,313,272 2,900,078 14,284,340 777,797 820,866 4,172,693 390,794 807,767 50,467,607 26,313,272 2,900,078 14,284,340 777,797 820,866 4,172,693 390,794 807,767 50,467,607 26,474 159,332 1,243,228 170,782 242,458 Year ended December 31, 2021 Opening net book value Additions 183,549 Disposals (148,859) 2,310 681,408 – (115,378) – Depreciation charge – – (523,558) (36,178) Exchange rate adjustments – – 1,737 2,173 Transfers – – Closing net book value – (4,571) (10,777) (12,732) (149,236) (1,216,516) (100,718) 2,337 – – 3,317 – 26,347,962 2,902,388 14,328,549 770,266 828,728 4,191,945 26,347,962 2,902,388 15,331,276 835,142 2,148,120 16,173,830 1,580 – 449,706 – 2,709,541 (292,317) (150,188) (2,176,394) 4,313 15,457 – – 904,350 50,723,894 At December 31, 2021 Cost / Revalued amount Accumulated depreciation Net book value – 26,347,962 – (1,002,727) 2,902,388 14,328,549 1,123,000 1,470,318 66,332,036 (64,876) (1,319,392) (11,981,885) (673,294) (565,968) (15,608,142) 770,266 449,706 904,350 50,723,894 828,728 4,191,945 Rate of depreciation / estimated useful life – – 2.50%–5.0% 2.50%–5.0% 10% 10%–25% 20% Lease term – 2020 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land Freehold Leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 1, 2020 Cost / Revalued amount Accumulated depreciation Net book value 26,123,665 – 2,893,079 13,898,388 – – 637,102 1,860,523 14,508,613 1,070,928 854,594 61,846,892 – (1,107,450) (10,205,701) (603,975) (308,832) (12,225,958) 26,123,665 2,893,079 13,898,388 637,102 753,073 4,302,912 466,953 545,762 49,620,934 26,123,665 2,893,079 13,898,388 637,102 753,073 4,302,912 466,953 545,762 49,620,934 168,601 209,610 985,975 56,916 (488) (4,336) (23,938) (141,646) (1,112,379) (109,472) Year ended December 31, 2020 Opening net book value Additions 189,607 6,999 975,707 Disposal – – (85,546) Depreciation charge – – (487,380) (28,597) Exchange rate adjustments – – 413 691 Transfers – – (17,242) Closing net book value – – 256 582 61 (61) 26,313,272 2,900,078 14,284,340 777,797 820,866 4,172,693 26,313,272 2,900,078 14,770,261 806,387 2,052,270 15,340,049 335 – 390,794 370,722 – 2,964,137 (114,308) (125,587) (2,005,061) (372) 1,905 17,242 – 807,767 50,467,607 At December 31, 2020 Cost / Revalued amount Accumulated depreciation Net book value – 26,313,272 – (485,921) 1,012,162 1,217,035 64,411,514 (28,590) (1,231,404) (11,167,356) (621,368) (409,268) (13,943,907) 777,797 820,866 4,172,693 390,794 807,767 50,467,607 – 2.50%–5.0% 2.50%–5.0% 10% 10%–25% 2,900,078 14,284,340 Rate of depreciation / estimated useful life – 20% Lease term – Annual Report 2019 261
264. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 12.2.1 Leasehold land include a plot of land measuring 3,120.46 square yards having book value of Rs. 1,426.809 million situated at Railway Quarters, I.I. Chundrigar Road, Karachi, (the “Plot”), where a tenant is claiming for the possession of an insignificant area of only 18 square feet of the plot, however there is no dispute over the title of the subject property that would impact the right of the Bank. Both the Constitutional Petitions filed by the Bank have been dismissed by the Sindh High Court on 28 January 2016 against the Bank. The Bank has filed an appeal before the Supreme Court of Pakistan. 12.2.2 The land and buildings of the Bank were revalued as at December 31, 2019 by independent valuers (K.G. Traders (Pvt) Limited, Tristar International Consultant (Pvt) Limited & Sardar Enterprises), valuation and engineering consultants, on the basis of market value. The total surplus against revaluation of fixed assets as at December 31, 2021 amounts to Rs. 19,947.432 million (2020: Rs. 20,211.952 million). 12.2.3 Had the land and buildings not been revalued, the total carrying amounts of revalued properties as at the reporting dates would have been as follows: Land 20212020 (Rupees in '000) 12,806,111 12,676,870 Buildings 11,595,622 11,386,665 12.2.4 The gross carrying amount (cost) of fully depreciated assets that are still in use are as follows: 20212020 (Rupees in '000) Furniture and fixtures 642,688 604,447 Electrical, computers and office equipment 7,952,157 7,251,702 Vehicles 442,647 474,229 12.2.5 Carrying amount of temporarily idle property of the Bank is Rs. 44.479 million (2020: Rs. 436.136 million) 12.2.6 The information relating to disposal of operating fixed assets to related parties is given in Annexure II of these unconsolidated financial statements. 262 Note 12.3 Movement in right-of-use assets is as follows: Opening balance Additions / adjustments Derecognition Depreciation charge 31 20212020 (Rupees in '000) 6,757,331 405,848 (214,964) (1,201,974) 7,674,745 734,068 (434,698) (1,216,784) 5,746,241 6,757,331 13. Closing Net Book Value INTANGIBLE ASSETS Capital work-in-progress Computer software 13.1 429,453 549,332 394,643 543,815 978,785 938,458 Unconsolidated Financial Statements
265. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) Computer software 13.1 At January 01 Cost Accumulated amortisation and impairment 4,185,598 (3,641,783) 3,963,740 (3,322,930) Net Book Value 543,815 640,810 Year ended December 31 Opening net book value Additions Amortisation charge Exchange rate adjustments 543,815 321,869 (316,984) 632 640,810 220,979 (318,024) 50 Closing Net Book Value 549,332 543,815 Cost Accumulated amortisation and impairment 4,513,840 (3,964,508) 4,185,598 (3,641,783) Net Book Value 549,332 543,815 Rate of amortisation (percentage) 14% to 33.33% 14% to 33.33% Useful life 3 - 7 years 3 - 7 years 13.2 The gross carrying amount (cost) of fully amortised intangible assets that are still in use is Rs. 3,257.802 million (2020: Rs. 3,085.368 million). 20212020 Note (Rupees in '000) 14. At December 31 OTHER ASSETS Income/ mark-up accrued in local currency Income/ mark-up accrued in foreign currencies Advances, deposits, advance rent and other prepayments Compensation for delayed income tax refunds Non-banking assets acquired in satisfaction of claims 14.1 Branch adjustment account Mark to market gain on forward foreign exchange contracts Unrealized gain on derivative financial instruments 25 Acceptances 20 Receivable from the pension fund 38.4 Clearing and settlement accounts Claims receivable against fraud and forgeries Others 21,654,370 304,911 4,319,018 304,893 20,941,457 3,218,426 4,794,316 1,117,067 2,104,292 4,854,527 517,033 20,030,754 3,370,179 2,698,271 1,087,306 2,176,078 Less: Provision held against other assets 14.2 62,960,517 2,709,281 58,062,708 2,582,686 Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 60,251,236 55,480,022 703,370 854,231 Other Assets - total 60,954,606 56,334,253 14.1 Market value of Non-banking assets acquired in satisfaction of claims 2,785,535 4,036,914 1,897,020 133,809 2,170,938 – 17,085,615 305,759 2,249,497 133,809 3,277,778 276,102 Non-banking assets acquired in satisfaction of claims of the Bank are revalued as at December 31, 2021 by independent valuers (Material Design Services and J&M Associates) on the basis of market value. Annual Report 2019 263
266. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 14.1.1 Non-banking assets acquired in satisfaction of claims 4,036,914 – 259,321 (1,481,479) (35,544) 6,323 3,838,230 84,000 183,915 (35,024) (30,049) (4,158) Closing balance 14.1.2 Gain on disposal of non-banking assets acquired in satisfaction of claims 2,785,535 4,036,914 Disposal proceeds Less - Revalued amounts - Accumulated depreciation 2,052,928 39,000 1,493,844 (12,365) 35,820 (796) 1,481,479 35,024 571,449 3,976 Opening balance Additions Revaluation Disposals Depreciation 31 (Charge) / reversal of impairment Gain 30 Note 14.2 Provision held against other assets Non banking assets acquired in satisfaction of claims Claims receivable against fraud and forgeries Others 88,773 486,976 2,133,532 95,095 478,773 2,008,818 14.2.1 Movement in provision held against other assets 2,709,281 2,582,686 Opening balance 2,582,686 2,604,137 Charge for the year Reversals 56,128 (25,036) 54,269 (77,917) 31,092 (23,648) (991) 96,494 (16,591) 18,788 2,709,281 2,582,686 33 Amount written off Exchange and other adjustments 264 20212020 (Rupees in '000) 15. Closing balance CONTINGENT ASSETS There were no contingent assets of the Bank as at December 31, 2021 (2020: Nil). Unconsolidated Financial Statements
267. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 16. BILLS PAYABLE In Pakistan Outside Pakistan 24,541,023 48,621 23,912,803 67,889 17.BORROWINGS 24,589,644 23,980,692 17.1 17.2 17.3 17.4 17.5 17.6 17.7 44,958,974 22,532,703 1,443,069 5,683,739 24,881,195 18,357 147,260 34,998,802 22,150,335 74,760 10,074,011 1,694,659 – 191,254 Bai Muajjal 17.8 Repurchase agreement borrowings 17.9 99,665,297 44,809,236 116,920,102 69,183,821 – 92,225,530 Total secured 261,394,635 161,409,351 Unsecured Borrowings from other financial institution 17.10 Call borrowings 17.11 Overdrawn nostro accounts Others 41,365 6,267,152 1,660,118 162,286 1,712,914 319,669 397,313 162,286 Total unsecured 8,130,921 2,592,182 269,525,556 164,001,533 Secured Borrowings from State Bank of Pakistan Under Export Refinance Scheme Under Long Term Financing Facility Under Renewable Energy Performance Platform Under Refinance Scheme for Payment of Wages & Salaries Under Temporary Economic Refinance Facility Under Refinance Facility for combating COVID-19 Under Financing Facility for Storage of Agricultural Produce 17.1 17.2 17.3 17.4 17.12 The Bank has entered into agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within six months from the deal date. These carry mark up rates ranging from 1.0% to 2.0% per annum (2020: 1.0% to 2.0% per annum) These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.0% to 3.50% per annum (2020: 2.0% to 3.50% per annum) These borrowings have been obtained from the SBP for providing financing facilities to customers against renewable energy projects. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a maximum period of twelve years with two years of maximum grace period from date of disbursement. These carry mark up rate of 2% per annum (2020: 2.0% per annum) These borrowings have been obtained from the SBP for providing financing facilities to help businesses in payment of wages and salaries to their workers and employees for supporting continued employment. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowing are repayable in 8 equal quarterly installments beginning from January 2021. These carry mark up rates ranging from 0% to 2% per annum (2020: 0% to 2.0% per annum) Annual Report 2019 265
268. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 17.5 These borrowings have been obtained from the SBP for providing concessionary refinancing facility to the industry for purchase of new imported and locally manufactured plant & machinery to set up new projects. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a period of ten years including a grace period of upto 2 years. These carry mark up rate of 1% per annum (2020: 1.0% per annum). 17.6 These borrowings have been obtained from the SBP under a scheme to provide combat the emergency refinance facility to hospitals & medical centre to develop capacity for the treatment of COVID-19 patients. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These carry mark-up at 0% per annum and are due to mature latest by August 2025. 17.7 17.8 17.9 17.10 17.11 These borrowings have been obtained from SBP under “Financing Facility for Storage of Agricultural Produce (FFSAP)” to encourage Private Sector to establish Silos, Warehouses and Cold Storages. As per the agreements, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.50% to 3.50% per annum (2020: 2.50% to 3.50% per annum). These carry profit rates ranging from 7.30% to 7.35% per annum and are due to mature latest by June 2022. These are secured against government securities of carrying value of Rs. 43,930.974 million. These carry mark-up rates ranging from 5.10% to 10.70% per annum (2020: 6.15% to 7.25% per annum) and are secured against government securities of carrying value of Rs. 116,508.613 million (2020: Rs. 92,279.556 million). These are repayable latest by March 2022. These carry mark-up rates of 1% per annum (2020: 1.90% to 4.00% per annum). These are repayable latest by February 2023. These carry mark-up at the rate of 6.00% to 10.70% per annum (2020: 1.15% per annum). These are repayable by January 2022. 266 20212020 (Rupees in '000) 17.12 Particulars of borrowings with respect to currencies In local currency In foreign currencies 266,453,798 3,071,758 161,494,499 2,507,034 269,525,556 164,001,533 Unconsolidated Financial Statements
269. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 18. DEPOSITS AND OTHER ACCOUNTS 20212020 In Local In Foreign Total currencycurrencies In Local In Foreign currencycurrencies Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 454,999,719 692,860,151 80,826,341 25,795,729 1,254,481,940 Financial Institutions Current deposits Savings deposits Term deposits Others 68,396,660 44,991,159 12,107,066 3,062,911 523,396,379 737,851,310 92,933,407 28,858,640 397,258,854 649,410,009 71,492,234 23,319,545 53,823,514 451,082,368 45,805,328 695,215,337 14,103,734 85,595,968 3,218,232 26,537,777 128,557,796 1,383,039,736 1,141,480,642 116,950,808 1,258,431,450 9,064,099 10,894,817 539,968 – 1,472,720 117,898 6,319,339 402,950 10,536,819 11,012,715 6,859,307 402,950 10,885,621 14,068,212 1,030,968 – 659,092 115,935 4,090,613 220,413 11,544,713 14,184,147 5,121,581 220,413 20,498,884 8,312,907 28,811,791 25,984,801 5,086,053 31,070,854 1,274,980,824 136,870,703 1,411,851,527 1,167,465,443 122,036,861 1,289,502,304 20212020 (Rupees in '000) 18.1 Composition of deposits - Individuals 912,825,109 829,982,651 - Government (Federal and Provincial) 74,581,258 55,860,439 - Public Sector Entities 87,893,826 82,241,309 - Banking Companies 4,958,226 4,909,064 - Non-Banking Financial Institutions 23,853,565 26,161,790 - Private Sector 307,739,543 290,347,051 1,411,851,527 1,289,502,304 18.2 Deposits and other accounts include deposits eligible to be covered under the Deposits Protection insurance arrangements amounting to Rs 982,896.128 million (2020: Rs 895,879.416 million). Annual Report 2019 267
270. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 19. DEFERRED TAX LIABILITIES 2021 Note At January 01, 2021 Recognised in P&L A/C Recognised in OCI At December 31, 2021 (Rupees in '000) Taxable Temporary differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of Non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination 1,286,416 (67,190) 147,019 1,366,245 298,982 1,850,789 1,179,562 705,218 (159,971) 273,663 386,088 – 135,304 – (310,465) – 274,315 2,124,452 1,255,185 705,218 5,320,967 432,590 (28,142) 5,725,415 (2,782,530) 4,436,721 816,216 – – (7,466,398) (1,966,314) (3,029,677) 1,654,191 816,216 (7,466,398) (4,995,991) 6,975,158 1,248,806 (7,494,540) 729,424 Recognised in OCI At December 31, 2020 Deductible Temporary differences on - Provision against advances - Deficit on revaluation of investments 23 2020 Note Recognised in P&L A/C (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Surplus on revaluation of investments 23 1,346,550 (60,134) 237,181 1,754,097 1,261,793 705,218 2,271,094 Deductible Temporary Differences on 7,575,933 – 1,286,416 (2,570) 96,692 119,428 – – 64,371 – (201,659) – 2,165,627 298,982 1,850,789 1,179,562 705,218 4,436,721 153,416 2,028,339 - Provision against advances (1,725,288) (1,057,242) 5,850,645 (903,826) 268 At January 01, 2020 Unconsolidated Financial Statements – 2,028,339 9,757,688 (2,782,530) 6,975,158
271. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 20. OTHER LIABILITIES Mark-up/ return/ interest payable in local currency Mark-up/ return/ interest payable in foreign currencies Unearned commission and income on bills discounted Accrued expenses Provision for taxation ( provisions less payments) Workers’ Welfare Fund 20.1 Acceptances 14 Unclaimed/dividend payable Mark to market loss on forward foreign exchange contracts Unrealized loss on derivative financial instruments 25 Staff welfare fund Branch adjustment account 14 Provision for employees’ compensated absences 38.4 Provision for post retirement medical benefits 38.4 Provision for employees’ contributory benevolent scheme 38.4 Retention money Insurance payable against consumer assets Unclaimed balances Duties and taxes payable Provision against off-balance sheet obligations Security deposits against lease Lease liability against right of use assets Clearing and settlement accounts Others 5,303,967 171,780 807,468 6,420,208 8,641,789 9,878,470 20,941,457 2,022,825 4,388,436 302,365 4,755 78,348 1,100,865 1,982,169 197,712 12,473 736,768 755,141 3,868,463 46,319 799,331 7,399,921 6,234,150 7,269,709 2,272,650 247,926 212,337 5,898,224 10,185,375 8,838,684 20,030,754 1,692,942 4,485,302 513,343 5,598 – 919,407 2,004,122 222,084 20,657 698,949 877,552 1,846,580 46,189 499,089 8,035,048 7,421,975 5,926,041 89,364,889 82,900,828 20.1 21. Supreme Court of Pakistan vide its order dated November 10, 2016 has held that the amendments made in the law introduced by the Federal Government for the levy of Workers Welfare Fund were not lawful. The Federal Board of Revenue has filed review petitions against this order which are currently pending. Legal advice obtained on the matter indicates that consequent to filing of these review petitions the judgment may not currently be treated as conclusive. Accordingly, the Bank maintained its provision in respect of WWF. SHARE CAPITAL 21.1 Authorized Capital 20212020 (Number of shares) 1,500,000,000 1,500,000,000 Ordinary shares of Rs. 10 each 21.2 Issued, subscribed and paid up 20212020 (Rupees in ‘000) 15,000,000 15,000,000 20212020 (Number of shares) Ordinary shares 20212020 (Rupees in ‘000) 1,972,538 9,157,769 720,293 1,972,538 9,157,769 720,293 11,850,600 11,850,600 197,253,795 915,776,953 72,029,258 197,253,795 915,776,953 72,029,258 Fully paid in cash Issued as bonus shares Issued for consideration other than cash 1,185,060,006 1,185,060,006 Annual Report 2019 269
272. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 The movement in the issued, subscribed and paid-up capital during the year is as follows: 21.3 20212020 (Number of shares) 20212020 (Rupees in ‘000) 1,185,060,006 1,185,060,006 Opening balance at January 01 11,850,600 11,850,600 1,185,060,006 1,185,060,006 Closing balance at December 31 11,850,600 11,850,600 21.4 Number of shares held by the associated undertakings as at December 31, are as follows: Adamjee Insurance Company Limited Nishat Mills Limited Siddiqsons Limited Nishat (Aziz Avenue) Hotels and Properties Limited Nishat Real Estates Development Company (Private) Limited Adamjee Life Assurance Company Limited Note 20212020 (Number of shares) 55,196,435 88,015,291 11,271,920 434,176 68,900 1,200,000 47,827,287 88,015,291 14,276,462 141,950 54,500 – 156,186,722 150,315,490 20212020 (Rupees in '000) 22.RESERVES Share premium Non- distributable capital reserve - gain on bargain purchase option 22.1 Exchange translation reserve Statutory reserve 22.2 General reserve 23,751,114 23,751,114 908,317 3,701,067 37,641,526 18,600,000 908,317 2,876,483 34,560,421 18,600,000 84,602,024 80,696,335 22.1 Under IFRS-3 a bargain purchase represents an economic gain which should be immediately recognized by the acquirer as income. However, the amount of bargain purchase gain was not taken to the profit and loss account as the SBP, through its letter BPRD(R&PD)/2017/14330 dated June 13, 2017 recommended that the amount of gain may be routed directly into equity as a Non-distributable Capital Reserve (NCR). The NCR may become available for distribution through a stock dividend only with prior approval of the SBP. The Bank, before distribution of the gain as a stock dividend, may adjust any subsequent provisions/deficit, assessed by the Bank or recommended by the Banking Inspection Department of SBP, in the acquired assets and liabilities of NIB Bank Limited against the NCR. 22.2 270 Statutory reserve represents amount set aside as per the requirements of section 21 of the Banking Companies Ordinance, 1962. Unconsolidated Financial Statements
273. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 23. SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of - Available for sale securities - Fixed Assets - Non-banking assets acquired in satisfaction of claims 20212020 (Rupees in '000) 10.1 23.1 23.2 (7,768,402) 19,947,432 703,370 12,676,354 20,211,952 854,231 Deferred tax on surplus / (deficit) on revaluation of: - Available for sale securities 19 - Fixed Assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 12,882,400 33,742,537 (3,029,677) 1,366,245 274,315 4,436,721 1,286,416 298,982 (1,389,117) 6,022,119 14,271,517 27,720,418 20,211,952 – (115,263) 20,383,765 – (22,544) 23.1 Surplus on revaluation of fixed assets Surplus on revaluation of fixed assets as at January 01 Recognised during the year Realised on disposal during the year - net of deferred tax Transferred to unappropriated profit in respect of incremental depreciation charged during the year - net of deferred tax Related deferred tax liability on incremental depreciation charged during the year Related deferred tax liability on surplus realised on disposal Surplus on revaluation of fixed assets as at December 31 Less: Related deferred tax liability on: - revaluation as at January 01 - opening liability remeasurement - recognised during the year - surplus realised on disposal during the year - incremental depreciation charged during the year 19 23.2 Surplus on revaluation of non-banking assets acquired in satisfaction of claims (82,067) (89,135) (52,471) (14,719) (47,995) (12,139) 19,947,432 20,211,952 1,286,416 147,019 – (14,719) (52,471) 1,346,550 – – (12,139) (47,995) 1,366,245 1,286,416 18,581,187 18,925,536 Surplus on revaluation as at January 01 Recognised during the year Realised on disposal during the year - net of deferred tax Related deferred tax liability on surplus realised on disposal 854,231 259,321 (250,211) (159,971) 677,660 183,915 (4,774) (2,570) Surplus on revaluation as at December 31 Less: Related deferred tax liability on: 703,370 854,231 - revaluation as at January 01 - revaluation recognised during the year - opening liability remeasurement - surplus realised on disposal during the year 298,982 101,135 34,169 (159,971) 237,181 64,371 – (2,570) 274,315 298,982 429,055 555,249 19 Annual Report 2019 271
274. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 24. CONTINGENCIES AND COMMITMENTS - Guarantees - Commitments - Other contingent liabilities 24.1 24.2 24.3 20212020 (Rupees in '000) 186,607,084 406,841,074 25,738,784 178,571,960 507,506,107 27,960,316 619,186,942 714,038,383 Financial guarantees Performance guarantees Other guarantees 158,802,090 25,596,864 2,208,130 149,925,920 25,900,273 2,745,767 186,607,084 178,571,960 178,952,056 172,617,563 217,379,046 5,098,200 4,434,780 318,420,575 11,089,775 4,471,383 806,239 170,753 710,570 196,241 24.2.1 Commitments in respect of forward foreign exchange contracts Purchase Sale 406,841,074 507,506,107 119,831,839 97,547,207 168,432,858 149,987,717 24.2.2 Commitments in respect of government securities transactions 217,379,046 318,420,575 24.1Guarantees: 24.2Commitments: Documentary credits and short-term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts 24.2.1 - forward government securities transactions 24.2.2 - derivatives (notional) 24.2.3 Commitments for acquisition of: - operating fixed assets - intangible assets Purchase Sale 272 Unconsolidated Financial Statements 5,098,200 – 11,089,775 – 5,098,200 11,089,775
275. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) 24.2.3 Commitments in respect of derivatives FX options (notional) Purchase Sale 1,432,779 1,432,779 182,800 182,800 Cross Currency Swaps (notional) Purchase Sale 2,865,558 365,600 784,611 784,611 1,975,311 2,130,472 1,569,222 4,105,783 4,434,780 4,471,383 24.2.4 The Bank makes commitments to extend credit in the normal course of its business but these being revocable commitments do not attract any significant penalty or expense if the facility is unilaterally withdrawn. 20212020 Note (Rupees in '000) 24.3 Other contingent liabilities Claims against the Bank not acknowledged as debts 24.3.1 25,738,784 27,960,316 24.3.1 These mainly represent counter claims by borrowers for damages and other claims relating to banking transactions. Based on legal advice and / or internal assessments, management is confident that the matters will be decided in the Bank’s favour and the possibility of any adverse outcome is remote. Accordingly, no provision has been made in these unconsolidated financial statements. 24.4 For assessment year 1988-89 through tax year 2020, the tax department disputed Bank’s treatment on certain issues, where the Bank’s appeals are pending at various appellate forums, entailing an additional tax liability of Rs. 1,497 million (2020: Rs. 6,033 million). Such issues inter alia principally include disallowance of expenses for non deduction of withholding tax and non availability of underlying records, provision for non performing loans, attribution of expenses to heads of income other than income from business and disallowance of credit for taxes paid in advance / deducted at source. The Bank has filed appeals which are pending at various appellate forums. In addition, certain decisions made in favour of the Bank are being contested by the department at higher forums. No provision has been made in the financial statements regarding the aforesaid additional tax demand and already issued favourable decisions where the department is in appeal, as the management is of the view that the issues will be decided in the Bank’s favour as and when these are taken up by the Appellate Authorities. 24.5 Amortisation of goodwill and other intangibles amounting to Rs 28.08 billion of Ex. NIB Issue of goodwill and other related assets amortization for few years has been assessed in Bank’s favour at appellate forums during the year, however, the tax department has filed appeal against these decisions. The management has not recorded any tax benefit because the issue has not attained finality. Annual Report 2019 273
276. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 25. DERIVATIVE INSTRUMENTS 25.1 Product Analysis 2021 Cross Currency Swaps Interest Rate Swaps FX Options Notional Mark to Notional Mark to Notional Mark to principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) Counterparties With Banks for Hedging Market Making With other entities for Hedging Market Making Total Hedging Market Making 784,611 – 298,956 – – – – – 1,432,779 – 5,937 – – 784,611 – (296,428) – – – – – 1,432,779 – (5,937) 784,611 784,611 298,956 (296,428) – – – – 1,432,779 1,432,779 5,937 (5,937) 2020 Cross Currency Swaps Interest Rate Swaps FX Options Notional Mark to Notional Mark to Notional Mark to principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) Counterparties 274 With Banks for Hedging Market Making With other entities for Hedging Market Making Total Hedging Market Making Unconsolidated Financial Statements 1,975,311 – 512,508 – – – – – 182,800 – 4,525 – – 2,130,472 – (508,818) – – – – – 182,800 – (4,525) 1,975,311 2,130,472 512,508 (508,818) – – – – 182,800 182,800 4,525 (4,525)
277. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 25.2 Maturity Analysis 2021 No. of Mark to Market Notional contractsprincipalNegativePositive Remaining Maturity Net (Rupees in '000) Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 Year 2 to 3 Years 24 32 8 2 2 1,183,628 1,483,069 343,423 330,429 1,094,231 (843) (4,097) (40,122) (95,142) (162,161) 843 4,097 40,378 96,369 163,206 256 1,227 1,045 Total 68 4,434,780 (302,365) 304,893 2,528 – – 2020 No. of Notional Mark to Market contractsprincipalNegativePositive Remaining Maturity Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 Year 1 to 2 Years 3 to 5 Years Total 25.3 Net (Rupees in '000) 8 4 4 3 4 2 924,787 120,859 421,010 329,626 1,094,545 1,580,556 (54,638) (1,545) (71,467) (23,640) (220,328) (141,725) 54,840 1,545 71,915 18,177 226,567 143,989 202 448 (5,463) 6,239 2,264 25 4,471,383 (513,343) 517,033 3,690 – Risk management related to derivatives is discussed in note 45.5. 20212020 (Rupees in '000) 26. MARK-UP/RETURN/INTEREST EARNED Loans and advances Investments Lendings to financial institutions Balances with banks 33,123,048 89,523,092 566,646 121,520 42,879,345 91,983,471 998,236 214,653 123,334,306 136,075,705 Annual Report 2019 275
278. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 27. MARK-UP/RETURN/INTEREST EXPENSED Deposits Borrowings Cost of foreign currency swaps against foreign currency deposits / borrowings Unwinding cost of liability against right-of-use assets 47,106,616 9,716,805 55,095,363 6,152,383 1,609,774 914,209 2,386,644 1,106,824 28. 59,347,404 64,741,214 FEE & COMMISSION INCOME Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fee Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on utility bills Commission on Bancassurance Rent on lockers Commission on investments services Other commission 2,849,788 511,013 2,946,442 262,066 206,755 1,386,348 596,657 724,588 987,133 80,763 1,474,872 233,155 42,696 137,403 1,914,132 420,289 3,130,966 47,282 144,137 1,277,171 562,447 614,297 1,010,735 79,791 1,329,986 216,420 30,131 158,541 29. GAIN ON SECURITIES - NET 12,439,679 10,936,325 810,862 (12) 3,332,256 (224) 810,850 3,332,032 Realised Unrealised - Held For Trading 29.1 10.1 29.1 Realised gain / (loss) on: Federal Government Securities Subsidiary Non Government Debt Securities Shares and units 383,592 – 40 427,230 3,438,217 72,194 (76,169) (101,986) 810,862 3,332,256 Rent on property Gain on sale of fixed assets - net Gain / (loss) on termination of lease liability against right of use assets Gain on sale of non banking assets - net 14.1.2 90,656 106,456 67,310 72,601 54,854 571,449 (15,637) 3,976 823,415 128,250 30. 276 20212020 (Rupees in '000) OTHER INCOME Unconsolidated Financial Statements
279. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 31. OPERATING EXPENSES Total compensation expense 31.1 16,939,722 15,805,510 Property expense Rent and taxes Insurance Utilities cost Fuel expense generators Security (including guards) Repair and maintenance (including janitorial charges) Depreciation on right-of-use assets 12.3 Depreciation 12.2 193,157 21,091 1,567,229 413,518 1,505,660 716,289 1,201,974 709,924 160,642 23,197 1,218,168 334,634 1,240,298 653,082 1,216,784 641,564 6,328,842 5,488,369 1,096,825 184,802 619,329 316,984 518,317 3,425 1,148,436 212,381 547,930 318,024 598,380 3,850 2,739,682 2,829,001 Information technology expenses Software maintenance Hardware maintenance Depreciation 12.2 Amortisation 13.1 Network charges Insurance Other operating expenses Directors’ fees and allowances 40.2 Legal and professional charges Outsourced services costs 37.1 Travelling and conveyance NIFT clearing charges Depreciation 12.2 Depreciation on non-banking assets acquired in satisfaction of claims 14.1.1 Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement & publicity Donations 31.2 Auditors’ remuneration 31.3 Cash transportation charges Repair and maintenance Subscription Entertainment Remittance charges Brokerage expenses Card related expenses CNIC verification charges Insurance Others 46,300 267,642 766,445 271,750 154,329 847,141 50,060 268,451 691,787 260,676 166,175 815,567 35,544 35,410 235,818 364,519 586,848 778,223 8,165 56,724 860,210 445,056 12,994 203,250 209,080 36,364 992,445 262,250 1,667,611 228,190 30,049 36,791 233,891 326,441 563,090 695,291 112,596 29,720 709,262 401,826 20,637 183,703 211,631 36,124 829,055 128,614 1,483,323 238,142 9,372,308 8,522,902 35,380,554 32,645,782 Total cost for the year included in other operating expenses relating to outsourced activities is Rs 196.446 million (2020: Rs 275.517 million) which pertains to payments made to “Euronet Pakistan Private Limited” (a related party) incorporated in Pakistan. This includes payments other than outsourced services costs, which are disclosed above. Outsourcing shall have the same meaning as specified in BPRD Circular No. 06 of 2019. Annual Report 2019 277
280. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 31.1 20212020 (Rupees in '000) Total compensation expense Fees and allowances Managerial remuneration i) Fixed ii) Variable - cash bonus / awards Charge for defined benefit plan Contribution to defined contribution plan Commission Staff group insurance Rent and house maintenance Medical Conveyance 543,744 470,085 12,260,442 2,206,042 289,144 430,857 531,311 384,854 61,448 37,001 81,878 11,514,132 2,430,988 74,827 394,598 348,633 386,388 58,094 35,135 88,130 Sign-on bonus 31.1.1 Severance allowance 31.1.2 16,826,721 2,501 110,500 15,801,010 3,700 800 16,939,722 15,805,510 31.1.1 During the year sign on bonus was paid to 5 employees (2020: 4). 31.1.2 Severance allowance pertains to 6 employees (2020: 1). 31.2 Detail of donations made during the year is as follows: Murshid Hospital & Health Care Centre Saleem Memorial Trust Hospital Specialized Healthcare and Medical Education Department, Government of Punjab - (COVID 19 relief) Jahandad Society For Community Development Nigahban Welfare Association Ambulance donation to Sadiq Public School District Administration Lahore - (COVID 19 relief) 20212020 (Rupees in '000) 100 – – 95,000 – 1,500 5,000 1,565 – 9,996 5,000 – – 2,600 8,165 112,596 31.2.1 None of the directors, executives and their spouses had any interest in the donees to whom donations were given during the year. 31.3 Auditors’ remuneration Audit fee Fee for audit of foreign branches Special certifications and sundry advisory services Tax services Sales tax on audit fee Out-of-pocket expenses 16,500 11,514 – 26,235 825 1,650 16,500 10,272 473 – 825 1,650 56,724 29,720 278 20212020 (Rupees in '000) Unconsolidated Financial Statements
281. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 32. OTHER CHARGES Penalties of State Bank of Pakistan VAT & National Building tax & Crop Insurance Levy Education cess 399,873 49,907 23,936 191,766 92,502 13,129 473,716 297,397 6,600 (3,569) 6,885 (4,687,894) (2,643) 31,092 (176,768) (49,922) 7,521,701 (448) (23,648) (130,948) (4,822,728) 7,313,166 19,929,457 - 1,248,806 20,115,480 (903,826) 34.1 Relationship between tax expense and accounting profit Accounting profit for the year Tax rate Tax on income Tax effect of permanent differences Others 21,178,263 19,211,654 51,989,310 48,248,955 39% 20,275,831 155,950 746,482 39% 18,817,092 74,789 319,773 Tax charge for the year 21,178,263 19,211,654 33. PROVISIONS / (REVERSALS) & WRITE OFFS - NET Provisions / (reversals) against balance with Banks Provisions / (reversals) for diminution in value of investments 10.3.1 (Reversals) / provisions against loans & advances 11.4 (Reversals) against off balance sheet items Provisions / (reversals) against other assets 14.2.1 Recovery of written off / charged off bad debts 34.TAXATION 35. Current Prior years Deferred 19 (Rupees in '000) BASIC AND DILUTED EARNINGS PER SHARE Profit for the year after tax 30,811,047 29,037,301 (Number) Weighted average number of ordinary shares 1,185,060,006 1,185,060,006 (Rupees) Basic and diluted Earnings Per Share 26.00 24.50 Diluted Earnings Per Share has not been presented separately as the Bank does not have any convertible instruments in issue at the reporting dates. Annual Report 2019 279
282. 280 Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 7 8 17 Note Unconsolidated Financial Statements Liabilities Equity Opening Balance Changes from Financing cash flows Redemption of Subordinated loan Payment of lease liability against right –of–use–assets Dividend paid Total changes from financing cash flows Liability related Changes in Other liabilities – Cash based – Dividend payable – Non cash based Total liability related other changes Total equity related other changes Closing Balance Liabilities Equity 145,813,854 122,180,839 24,030,328 (397,313) – – – – 5,978,935 (329,883) – – 1,840,609 – – (329,883) 7,819,544 – 3,905,689 28,215,405 32,121,094 – – – – – (1,685,366) – – (34,036,857) (34,036,857) – (34,036,857) (35,722,223) – – – 89,364,889 11,850,600 84,602,024 63,683,267 249,500,780 – 8,149,427 – – – 5,978,935 – 329,883 – 1,840,609 – – – – (1,685,366) – – – (1,685,366) – – – – 82,900,828 11,850,600 80,696,335 69,834,602 245,282,365 (Rupees in '000) – – – (1,682,647) – – – – – (18,498,355) (99,963) – – 8,686,129 – (11,750,637) (11,750,637) – (11,750,637) (13,433,284) – – – – (99,963) (9,812,226) – 3,105,082 25,907,713 29,012,795 – – – – – – – – 82,900,828 11,850,600 80,696,335 69,834,602 245,282,365 – (9,712,263) – – – (18,498,355) – 99,963 – 8,686,129 – – – (1,682,647) – (1,682,647) – – 94,295,738 11,850,600 77,591,253 55,777,489 239,515,080 Sub-ordinated OtherShare Reserves Unappropriated Total Sub-ordinated OtherShare Reserves Unappropriated Total loan liabilitiescapital profit loan liabilitiescapital profit 181,783,371 164,613,179 18,830,310 (1,660,118) 20212020 (Rupees in '000) 20212020 Reconciliation of movement of liabilities to cash flows arising from financing activities 36.1 CASH AND CASH EQUIVALENTS 36. Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021
283. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 (Number) 37. STAFF STRENGTH Permanent On Bank contract 13,737 112 13,536 107 Bank’s own staff strength at end of the year 13,849 13,643 37.1 38. In addition to the above, 87 (2020: 118) employees of outsourcing services companies were assigned to the Bank as at the end of the year to perform services other than guarding, tea and janitorial services. Outsourced staff includes 80 (2020: 111) working domestically and 7 (2020: 7) working abroad. DEFINED BENEFIT PLAN 38.1 General description The Bank operates the following retirement benefits for its employees: 38.2 - Pension fund - funded - Benevolent scheme - unfunded - Post retirement medical benefits - unfunded - Employees compensated absence - unfunded The number of employees covered under the following defined benefit schemes are: The plan assets and defined benefit obligations are based in Pakistan. Number of Employees under the scheme 20212020 (Number) - Pension fund - funded 5,731 5,410 - Benevolent scheme - unfunded 1,002 1,108 - Post retirement medical benefits - unfunded 13,612 13,386 - Employees compensated absence - unfunded 13,612 13,386 38.3 Principal actuarial assumptions The latest actuarial valuations of the pension fund, employees’ contributory benevolent scheme, post retirement medical benefits and employee’s compensated absences were carried out at December 31, 2021. The principal actuarial assumptions used are as follows: Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 (%) Discount rate 11.759.75 11.759.7511.759.7511.759.75 Expected rate of return on plan assets 11.75 9.75 – – – – – – Expected rate of salary increase 9.75 7.75 9.75 7.75 – – 9.75 7.75 0-5 0-5 – – – – – – – – – – 9.75 7.75 – – Expected rate of increase in pension Expected rate of increase in medical benefit Annual Report 2019 281
284. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 38.4 Reconciliation of (receivable from) / payable to defined benefit plans Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Present value of obligations Fair value of plan assets 38.5 38.6 5,031,961 5,097,744 (8,250,387) (8,467,923) 197,712 – 222,084 1,982,169 2,004,122 1,100,865 – – – – 919,407 – (Receivable) / payable 38.7 (3,218,426) 197,712 222,084 919,407 38.5 Movement in defined benefit obligations (3,370,179) 1,982,169 2,004,122 1,100,865 Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Obligations at the beginning of the year Current service cost 38.8.1 Interest cost Benefits paid Re–measurement loss / (gain) 38.8.1 & 38.8.2 5,097,744 62,653 477,989 (390,586) (215,839) 5,182,991 64,350 560,303 (405,032) (304,868) 222,084 21,449 20,249 (28,812) (37,258) 221,193 21,742 22,931 (34,721) (9,061) 2,004,122 61,978 188,540 (140,756) (131,715) 1,921,348 53,018 208,381 (138,149) (40,476) 919,407 24,653 85,558 (83,768) 155,015 939,495 24,428 98,224 (132,782) (9,958) Obligations at end of the year 5,031,961 5,097,744 197,712 222,084 1,982,169 2,004,122 1,100,865 919,407 38.6 Movement in fair value of plan assets 38.4 Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Fair value at the beginning of the year 8,467,923 8,788,112 – – – – – – Interest income on plan assets 806,581 965,880 – – – – – – Benefits paid(390,586) (405,032)–––––– Re–measurement loss38.8.2 (633,531) (881,037)–––––– Fair value at end of the year 38.7 Movement in (receivable) / payable under defined benefit schemes 38.4 8,250,387 8,467,923 – – – – – – Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 282 2020 Note Opening balance Charge / (reversal) for the year 38.8.1 Employees’ contribution Re–measurement loss / (gain) recognised in OCI during the year 38.8.2 Benefits paid by the Bank (3,370,179) (3,605,121) (265,939) (341,227) – – Closing balance (3,218,426) Unconsolidated Financial Statements 38.4 2021 2020 2021 2020 20212020 (Rupees in '000) 417,692 – 576,169 – (3,370,179) 222,084 39,339 2,359 221,193 41,961 2,712 2,004,122 1,921,348 250,518 261,399 – – 919,407 265,226 – 939,495 112,694 – (37,258) (28,812) (9,061) (34,721) (131,715) (140,756) (40,476) (138,149) – (83,768) – (132,782) 197,712 222,084 1,982,169 2,004,122 1,100,865 919,407
285. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 38.8 Charge for defined benefit plans 38.8.1 Cost recognised in profit and loss Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note (Rupees in '000) Current service cost Net interest on defined 38.5 62,653 64,350 21,449 21,742 61,978 53,018 24,653 24,428 (328,592) (405,577) 20,249 22,931 188,540 208,381 85,558 98,224 (2,359) (2,712) benefit asset / liability Employees’ contribution – – Actuarial (gain) – – 38.5 38.7 (265,939) (341,227) – 39,339 – – – – 155,015 (9,958) 250,518 261,399 265,226 112,694 – 41,961 – – 38.8.2 Re–measurements recognised in OCI during the year Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note (Rupees in '000) Loss / (gain) on obligation – Financial assumptions Experience adjustments 38.5 (542,097) (389,052) (18,272) (17,065) (100,133) 107,752 – – 326,258 (693,920) (18,986) (26,126) (31,582) (148,228) – – 38.6 633,531 881,037 – – – – – – 38.7 417,692 576,169 (37,258) (9,061) (131,715) (40,476) – – Actual return on plan assets over expected interest income Re–measurement loss / (gain) recognised in OCI 38.9 Components of plan assets Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note (Rupees in '000) Cash and cash equivalents – net 133,780 24,451 – – – – – – Shares 7,929,453 8,129,575 – – – – – – Open ended mutual funds units 187,154 313,897 – – – – – – 8,250,387 8,467,923 – – – – – – 38.4 38.9.1 Significant risk associated with the plan assets The Fund’s investments in equity securities and units of mutual funds are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. Annual Report 2019 283
286. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 38.10 Sensitivity analysis Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligations under the various employee benefit schemes. The increase / (decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below: Approved Employees' Post Employees' Pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) 1% increase in discount rate (297,730) (12,761) (213,180) 1% decrease in discount rate 335,100 14,323 263,538 1 % increase in expected rate of salary increase 76,700 – – 1 % decrease in expected rate of salary increase (72,190) – – 1% increase in expected rate of pension increase 191,850 – – 1% decrease in expected rate of pension increase (291,090) – – 1% increase in expected rate of medical benefit increase – – 145,346 1% decrease in expected rate of medical benefit increase – – (124,096) 38.11 Expected contributions to be paid to the funds in the next financial year 38.12 (67,315) 75,043 75,809 (69,073) – – – – No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. No contribution to the pension fund is expected in the next year. Expected charge / (reversal) for the next financial year Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2022 would be as follows: Approved Employees' Post Employees' Pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) Expected charge / (reversal) for the next financial year 38.13 Maturity profile The weighted average duration of the obligation (in years) (312,272) 35,998 294,973 162,927 7.69 7.69 7.69 7.69 284 38.14 Funding Policy The Bank endeavours to ensure that liabilities under the various employee benefit schemes are covered by the Fund on any valuation date having regards to the various actuarial assumptions such as projected future salary increase, expected future contributions to the fund, projected increase in liability associated with future service and the projected investment income of the Fund. Unconsolidated Financial Statements
287. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 38.15 The defined benefit plans may expose the bank to actuarial risks such as longevity risk, investment risk, salary increase risk and withdrawal rate risk as described below; Investment risk The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall in the funding objectives. Longevity risk The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population. Salary increase risk The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual increases are higher than expectation and impacts the liability accordingly. Withdrawal rate The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of the liability can go either way. 39. DEFINED CONTRIBUTION PLAN The Bank operates an approved contributory provident fund for 11,570 (2020: 11,458) employees where contributions are made by the Bank at 8.33% (2020: 8.33%) and employees ranging from 8.33% to 15% per annum (2020: 8.33% to 15% per annum) of the basic salary. 40. The Bank also operates an approved non-contributory provident fund for 637 (2020: 687) employees who have opted for the new scheme, where contributions are made by the employees ranging from 8.33% to 15% per annum (2020: 8.33% to 15% per annum) of the basic salary. COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 40.1. Total compensation expense 2021 Directors Key Other material Chairman Executive Non President/ management risk takers/ (other than executive CEO* personnel controllers NoteCEO) (Rupees in '000) Fee and allowances 40.2 Managerial Remuneration i) Fixed ii) Cash Bonus / Awards 40.1.1 Contribution to defined contribution plan Rent & house maintenance Medical Severance allowance Overseas allowance Security Commission Club membership 5,500 Total Number of Persons – 40,800 – 10,668 304,376 152,046 750,890 240,940 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5,500 – 40,800 233,519 519,581 1,111,581 1 – 11 1 23 142 75,073 55,000 369 – 240 2,267 100,000 – 833 – 106 9,268 16,756 1,597 3,500 29,979 – 1,690 – 29,196 8,387 7,715 – 598 – 61,287 1,900 *Mr. Imran Maqbool completed his term as President & CEO on December 20, 2021 and Mr. Shoaib Mumtaz– Group Head CFIBG has taken charge as Acting President & CEO of the Bank effective from December 21, 2021. Annual Report 2019 285
288. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 2020 Directors Key Other material Chairman Executive Non President/ management risk takers/ (other than executive CEO personnel controllers CEO) (Rupees in '000) Fee and allowances Managerial Remuneration i) Fixed ii) Cash Bonus / Awards Contribution to defined contribution plan Rent & house maintenance Medical Severance allowance Overseas allowance Security Commission Club membership Total Number of Persons 7,210 – – – – – – – – – – – – – – – – – – 42,850 – 72,362 50,000 – 240 1,828 – – 804 – 1,872 10,111 – – – – – – – – – – 7,210 – 42,850 127,106 509,676 999,279 1 – 11 1 23 124 112 301,222 144,349 8,317 15,736 1,281 800 37,559 – 300 – 684,109 218,954 25,756 10,948 5,694 – – – 43,407 300 40.1.1 During the year 2021, Rs 34.20 million bonus has been deferred (2020: Rs. 20.60 million). 40.2 Remuneration paid to Directors for participation in Board and Committee meetings 2021 For Board Committee Board Board's BS & RM & HR & ITC meetingAudit DC PRC RC Committee (Rupees in '000) Mian Mohammad Mansha 4,800 – 200 – Mr. S. M. Muneer 1,600 – 300 – – – – Mr. Tariq Rafi 2,000 – – – – – Mian Umer Mansha 2,000 Mrs. Iqraa Hassan Mansha 2,000 Mr. Muhammad Ali Zeb 2,000 Mr. Mohd Suhail Amar Suresh 4,000 – Mr. Yahya Saleem 4,000 – Mr. Salman Khalid Butt 4,000 – 400 Mr. Masood Ahmed Puri 4,000 – 400 Mr. Shahzad Hussain 2,000 500 Mr. Shariffuddin Bin Khalid 4,000 500 36,400 1,900 286 PP & CR & Wo & As Board Total CA MC WC Chairman Unconsolidated Financial Statements 400 – 500 – 300 – – 400 – 300 – 400 400 – 400 400 – – 500 100 – – 5,500 – – 2,000 – – – 2,000 200 – – – 3,700 – – – 2,200 – – 4,000 100 – 100 400 – 300 – – 100 400 500 – – – – 5,300 200 100 – – – – 4,300 200 500 – – – 5,900 400 – – – – – – – 4,400 – – – – – – – – 2,500 – – – – – – – – 4,500 – – 46,300 2,000 1,500 1,300 1,600 700 900
289. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 2020 For Board Committee Board Board's BS & RM & HR & ITC meetingAudit DC PRC RC Committee PP & CR & Wo & *As Board Total CA MC WC Chairman (Rupees in '000) Mian Mohammad Mansha 3,840 – 300 – Mr. S. M. Muneer 1,700 – 100 – – – – Mr. Tariq Rafi 1,700 – – – – – Mian Umer Mansha 1,700 Mrs. Iqraa Hassan Mansha 1,200 Mr. Muhammad Ali Zeb 1,700 Mr. Mohd Suhail Amar Suresh 4,460 – Mr. Yahya Saleem 4,466 – Mr. Salman Khalid Butt 4,586 – 400 Mr. Masood Ahmed Puri 4,466 – 400 Mr. Shahzad Hussain 1,700 500 Mr. Shariffuddin Bin Khalid 4,472 500 35,990 2,000 500 – 500 – 400 – – 400 – 500 – 500 500 – 500 300 – – 500 400 2,370 7,210 – 1,900 – 1,900 400 – 300 – 4,300 – – 1,500 – 4,000 100 300 – 300 – – 200 – 300 – – 200 – – 100 400 – 300 500 – – – – 5,860 200 – – – – 4,966 500 – – – 6,386 400 – – – – – – – 4,866 – – – – – – – – 2,200 – – – – – – – – 4,972 2,000 2,000 1,100 1,700 1,200 900 800 2,370 50,060 40.3 *During the year 2020, the Board Chairman was paid a proportionate amount of Rs 2.370 million in lieu of fixed annual remuneration approved by the shareholders of the Bank in its 62nd Annual General Meeting held on March 26, 2010. Effective from February 05, 2020 in accordance with BPRD Circular No. 03 of 2019 dated August 19, 2019, the remuneration to the Chairman for attending the Board and committee meetings was paid inline with the remuneration scale approved by the shareholders of the Bank in its 72nd Annual General Meeting held on March 19, 2020. The Chairman has been provided with free use of the Bank maintained car. In addition to the above, the Chief Executive and certain executives are provided with free use of the Bank’s maintained cars and household equipment in accordance with the terms of their employment. 41. FAIR VALUE MEASUREMENTS The fair value of traded investments is based on quoted market prices, except for tradable securities classified by the Bank as ‘held to maturity’. Quoted securities classified as held to maturity are carried at amortised cost. Fair value of unquoted equity investments other than investments in associates and subsidiaries is determined on the basis of break up value of these investments as per the latest available financial statements. Fair value of fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to absence of current and active market for such assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of loans and advances has been calculated in accordance with the Bank’s accounting policy as stated in note 6.4 to these unconsolidated financial statements. The maturity and repricing profile and effective rates are stated in note 45. In the opinion of the management, the fair value of the financial assets and financial liabilities other than those carried at fair value and disclosed in note 41.1 are not significantly different from their carrying values since assets and liabilities are either short-term in nature or re-priced over short term. Annual Report 2019 287
290. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 41.1 The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Fair value of financial assets Level 1:Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2:Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). 288 Valuation techniques used in determination of fair valuation of financial instruments within level 2 Item Valuation approach and input used Federal Government securities The fair values of Treasury Bills and fixed rate Pakistan Investments Bonds are determined using the PKRV rates. Floating rate PIBs are revalued using PKFRV rates. Term Finance and Bonds Investments in debt securities (comprising term finance certificates, bonds and any other security issued by a company or a body corporate for the purpose of raising funds in the form of redeemable capital) are valued on the basis of the rates announced by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the Securities and Exchange Commission of Pakistan. Foreign exchange contracts The valuation has been determined by interpolating the mid rates announced by the State Bank of Pakistan. Derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Unlisted Shares Breakup value determined on the basis of NAV of the company using the latest available audited financial statements. Mutual Funds Units of mutual funds are valued using the Net Asset Value (NAV) announced by the Mutual Funds Association of Pakistan (MUFAP) Operating fixed assets (land and building) & Non-banking assets acquired in satisfaction of claims Land, buildings and non-banking assets acquired in satisfaction of claims are revalued on a periodic basis using professional valuers. The valuation is based on their assessment of the market value of the assets. The effect of changes in the unobservable inputs used in the valuations cannot be determined with certainty. Accordingly, a qualitative disclosure of sensitivity has not been presented in these unconsolidated financial statements. Unconsolidated Financial Statements
291. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 The table below analyses the financial and non-financial assets carried at fair values, by valuation methods. For financial assets, the Bank essentially carries its investments in debt and equity securities at fair values. Valuation of investments is carried out as per guidelines specified by the SBP. In case of non-financial assets, the Bank has adopted revaluation model (as per IAS 16) in respect of land and building. 2021 Carrying Level 1 Level 2 Level 3 value / Notional value Total (Rupees in '000) On balance sheet financial instruments Financial assets – measured at fair value Investments Federal Government Securities Shares Non–Government Debt Securities Foreign Securities Financial assets – disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, subsidiaries and associates) Non – Financial Assets measured at fair value Operating fixed assets (land and buildings) Non–banking assets Off–balance sheet financial instruments – measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange Derivatives purchase Derivatives sale 968,539,477 20,800,775 1,449,740 7,544,505 – 20,800,775 – – 968,539,477 – 1,449,740 7,544,505 37,250,999 – – 44,349,165 2,785,535 – – 119,831,839 97,547,207 2,217,390 2,217,390 – – – – 968,539,477 20,800,775 1,449,740 7,544,505 – – 44,349,165 2,785,535 – – 44,349,165 2,785,535 – 3,767,037 – 3,767,037 – – – 3,836,455 304,893 302,365 – – – 3,836,455 304,893 302,365 Annual Report 2019 289
292. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 2020 Carrying Level 1 Level 2 Level 3 value / Notional value Total (Rupees in '000) On balance sheet financial instruments Financial assets – measured at fair value Investments Federal Government Securities Shares Non–Government Debt Securities Foreign Securities Financial assets – disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares, subsidiaries and associates) Operating fixed assets (land and buildings) Non–banking assets Forward purchase of foreign exchange Forward sale of foreign exchange 957,482,754 18,171,840 1,800,092 7,474,188 – 18,171,840 – – 957,482,754 – 1,800,092 7,474,188 30,940,574 – – 44,275,487 4,036,914 – – 168,432,858 – – – – 957,482,754 18,171,840 1,800,092 7,474,188 – – 44,275,487 4,036,914 – – 44,275,487 4,036,914 – 3,902,198 – 3,902,198 149,987,717 – 4,271,423 – 4,271,423 2,158,111 2,313,272 – – 517,033 513,343 – – 517,033 513,343 Non – Financial Assets measured at fair value Off–balance sheet financial instruments – measured at fair value Derivatives purchase Derivatives sale The Bank’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. (a) Financial instruments in level 1 Financial instruments included in level 1 comprise of investments in listed ordinary shares and units of mutual funds. 290 (b) Financial instruments in level 2 Financial instruments included in level 2 comprise of Sukuk Bonds, Pakistan Investment Bonds, Market Treasury Bills, Term Finance certificates, FX options, Cross Currency Swaps, Interest Rate Swaps and Forward Exchange Contracts. (c) Financial instruments in level 3 Currently, no financial instruments are classified in level 3. Unconsolidated Financial Statements
293. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 42 SEGMENT INFORMATION 42.1 Segment details with respect to business activities The segment analysis with respect to business activity is as follows: 2021 Retail Consumer Corporate Treasury International Others Sub- Eliminations Total Banking Banking BankingBanking total (Rupees in '000) Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income (38,104,662) 77,312,373 7,557,975 2,780,007 (634,693) 2,449,023 19,317,165 (14,651,272) 3,705,780 78,719,819 (68,680,723) 4,720,484 1,274,573 (130,761) 860,667 – 6,785,076 779,807 63,986,902 – 20,073,736 – – – 63,986,902 – 20,073,736 Total Income Segment direct expenses 46,765,686 23,132,042 4,594,337 1,645,322 8,371,673 612,300 14,759,580 385,746 2,004,479 1,186,267 7,564,883 9,932,379 84,060,638 36,894,056 – – 84,060,638 36,894,056 Total expenses Provisions / (reversals) 23,132,042 1,143,188 1,645,322 123,809 612,300 (128,002) 385,746 (27,836) 1,186,267 245,033 9,932,379 (6,178,920) 36,894,056 (4,822,728) – – 36,894,056 (4,822,728) 22,490,456 2,825,206 7,887,375 14,401,670 573,179 3,811,424 51,989,310 – 51,989,310 Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances – performing – non performing – net Others 59,335,963 – 1,109,475,892 – 100,287,979 223,751 38,048,057 487,065 263,447 97,130,099 – 9,125,927 1,012,813,179 – – – – – 18,396,089 36,615,372 427,159,422 – 92,152 26,224 – 1,846,406 25,494,493 15,021,037 23,726,201 2,500,714 183,443,489 – 183,443,489 13,646,390 – 1,035,585,496 – 1,035,585,496 – 187,691,251 1,297,167,143 (1,297,167,143) – 24,071,021 – 42,467,110 – 42,467,110 19,313,984 – 583,376,757 – 583,376,757 5,565,096 427,111 6,334,334 – 6,334,334 1,897,356 36,953,913 119,261,262 – 119,261,262 Total Assets 1,307,371,642 39,040,995 88,220,048 Borrowings Deposits and other accounts Net inter segment borrowing Others 15,037,907 1,260,878,141 – 31,455,594 – 84,434,986 24,186,891 59,464,220 10,396,935 298,741,975 4,457,169 19,428,332 1,307,371,642 39,040,995 Total liabilities Equity Total Equity & liabilities Contingencies & Commitments – 1,307,371,642 64,622,665 – 39,040,995 462,069,513 1,143,360,404 167,180,272 – 973,411,802 2,768,330 462,069,513 1,143,360,404 – – 298,150,190 – 10,684 – 53,154,897 88,220,048 53,165,581 3,093,228,183 (1,297,167,143) 1,796,061,040 – 462,069,513 1,143,360,404 226,912,026 227,572,989 3,267,635,591 (1,297,167,143) 1,970,468,448 2,872,391 67,311,591 14,616,431 3,419,635 – 174,407,408 88,220,048 2,506,084 269,525,556 – 269,525,556 1,411,851,527 – 1,411,851,527 1,297,167,143 (1,297,167,143) – 114,683,957 – 114,683,957 174,407,408 – 174,407,408 227,572,989 3,267,635,591 (1,297,167,143) 1,970,468,448 26,995,977 619,186,942 – 619,186,942 2020 Retail Consumer Corporate Treasury International Others Sub– Eliminations Total Banking Banking BankingBanking total (Rupees in '000) Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income (44,807,213) 86,028,798 6,306,650 2,788,656 (486,242) 2,118,001 28,085,051 (22,360,468) 3,282,442 83,819,922 (69,939,999) 5,618,895 1,448,075 (171,994) 813,588 – 6,929,905 (3,789) 71,334,491 – 18,135,787 – – – 71,334,491 – 18,135,787 Total Income 47,528,235 4,420,415 9,007,025 19,498,818 2,089,669 6,926,116 89,470,278 – 89,470,278 Segment direct expenses 20,460,118 1,462,911 586,415 368,025 1,309,898 9,720,790 33,908,157 – 33,908,157 Total expenses Provisions / (reversals) 20,460,118 2,306,248 1,462,911 113,643 586,415 2,763,155 368,025 (31,111) 1,309,898 129,368 9,720,790 2,031,863 33,908,157 7,313,166 – 33,908,157 – 7,313,166 Profit before tax 24,761,869 2,843,861 5,657,455 19,161,904 650,403 (4,826,537) 48,248,955 – Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances – performing non performing – net Others 58,362,119 – 1,050,376,236 – 94,735,206 171,804 35,621,546 317,242 394,030 64,577,425 – 10,578,310 990,720,067 – – – – – 6,137,258 26,845,772 313,633,477 – 177,613 2,382 – 2,370,726 22,789,948 12,206,991 21,166,578 1,393,773 146,211,167 – 146,211,167 14,571,071 – 1,015,869,448 – 1,015,869,448 – 201,834,399 1,252,210,635 (1,252,210,635) – 11,002,195 – 17,139,453 – 17,139,453 21,681,241 – 456,895,696 – 456,895,696 4,973,954 720,338 6,046,091 – 6,046,091 4,580,374 37,731,030 115,300,615 – 115,300,615 Total Assets 1,239,266,911 29,711,353 77,975,413 Borrowings Deposits and other accounts Net inter segment borrowing Others 58,910,004 1,147,268,725 – 33,088,182 – 10,372,566 21,263,015 65,961,390 4,816,853 252,358,835 3,631,485 18,705,356 Total liabilities Equity 1,239,266,911 – 29,711,353 347,398,147 1,073,641,741 – – – 77,975,413 51,577,585 2,819,571,150 (1,252,210,635) 1,567,360,515 – 190,101,955 190,101,955 – 190,101,955 Total Equity & liabilities 1,239,266,911 29,711,353 77,975,413 Contingencies & Commitments 55,974,597 347,398,147 1,073,641,741 91,069,170 – 981,733,802 838,769 347,398,147 1,073,641,741 – 288,001,956 320,068,131 3,649,793 55,009,174 13,301,145 6,015,301 20,930,195 48,248,955 241,679,540 3,009,673,105 (1,252,210,635) 1,757,462,470 – – – 51,577,585 164,001,533 – 164,001,533 1,289,502,304 – 1,289,502,304 1,252,210,635 (1,252,210,635) – 113,856,678 – 113,856,678 241,679,540 3,009,673,105 (1,252,210,635) 1,757,462,470 29,063,504 714,038,383 – 714,038,383 Annual Report 2019 291
294. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 42.2 Segment details with respect to geographical locations GEOGRAPHICAL SEGMENT ANALYSIS 2021 Pakistan South Asia Middle East Sub–total Eliminations Total (Rupees in '000) Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income 62,725,653 111,365 19,226,781 679,587 (81,756) 215,132 581,662 (29,609) 631,823 Total Income Segment direct expenses 82,063,799 35,803,737 812,963 564,433 Total expenses Provisions / (reversals) 35,803,737 (5,067,762) Profit before tax 51,327,824 Balance Sheet Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing – non performing – net Others 160,029,793 1,021,939,106 12,542,106 18,396,089 565,099,463 6,249,090 117,400,599 3,174,556 8,242,882 – 42,821 10,411,911 85,244 1,035,061 20,239,140 5,403,508 – 24,028,200 7,865,383 – 825,602 183,443,489 1,035,585,496 12,542,106 42,467,110 583,376,757 6,334,334 119,261,262 – 183,443,489 – 1,035,585,496 (12,542,106) – – 42,467,110 – 583,376,757 – 6,334,334 – 119,261,262 Total Assets 1,901,656,246 22,992,475 58,361,833 1,983,010,554 (12,542,106) Borrowings Deposits and other accounts Net inter segment borrowing Others 266,653,164 1,347,695,134 – 112,900,540 1,411,639 14,187,721 6,246,496 1,146,619 1,460,753 49,968,672 6,295,610 636,798 269,525,556 1,411,851,527 12,542,106 114,683,957 – 269,525,556 – 1,411,851,527 (12,542,106) – – 114,683,957 Total liabilities Equity 1,727,248,838 174,407,408 22,992,475 – 58,361,833 – 1,808,603,146 174,407,408 (12,542,106) 1,796,061,040 – 174,407,408 Total Equity & liabilities 1,901,656,246 22,992,475 58,361,833 1,983,010,554 (12,542,106) Contingencies & Commitments 616,680,858 604,010 1,902,074 619,186,942 63,986,902 – 20,073,736 – – – 63,986,902 – 20,073,736 1,183,876 525,886 84,060,638 36,894,056 – – 84,060,638 36,894,056 564,433 190,868 525,886 54,166 36,894,056 (4,822,728) – – 36,894,056 (4,822,728) 57,662 603,824 51,989,310 – 51,989,310 – 1,970,468,448 1,970,468,448 619,186,942 2020 292 Pakistan South Asia Middle East Sub–total Eliminations Total (Rupees in '000) Profit & Loss Net mark–up/return/profit Inter segment revenue – net Non mark–up / return / interest income 69,887,495 111,160 17,325,905 862,868 (95,930) 265,900 584,128 (15,230) 543,982 Total Income 87,324,560 1,032,838 32,601,367 650,469 Total expenses Provisions / (reversals) 32,601,367 7,183,798 Profit before tax 47,539,395 Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances – performing – non performing – net Others 125,365,815 1,001,298,378 12,319,043 6,137,258 435,310,355 6,034,187 110,746,462 1,556,335 10,519,130 – 1,864,193 12,722,090 11,904 4,057,318 19,289,017 4,051,940 – 9,138,002 8,863,251 – 496,835 146,211,167 1,015,869,448 12,319,043 17,139,453 456,895,696 6,046,091 115,300,615 – 146,211,167 – 1,015,869,448 (12,319,043) – – 17,139,453 – 456,895,696 – 6,046,091 – 115,300,615 Total Assets 1,697,211,498 30,730,970 41,839,045 1,769,781,513 (12,319,043) Borrowings Deposits and other accounts Net inter segment borrowing Others 160,351,740 1,237,359,663 – 109,398,140 1,790,053 18,298,522 6,525,907 4,116,488 1,859,740 33,844,119 5,793,136 342,050 164,001,533 1,289,502,304 12,319,043 113,856,678 – 164,001,533 – 1,289,502,304 (12,319,043) – – 113,856,678 Total liabilities 1,507,109,543 30,730,970 41,839,045 1,579,679,558 (12,319,043) Equity 190,101,955 Total Equity & liabilities 1,697,211,498 30,730,970 41,839,045 1,769,781,513 Contingencies & Commitments 693,108,189 17,479,001 3,451,193 714,038,383 Segment direct expenses 71,334,491 – 18,135,787 – – – 71,334,491 – 18,135,787 1,112,880 89,470,278 – 89,470,278 656,321 33,908,157 – 33,908,157 650,469 78,422 656,321 50,946 33,908,157 7,313,166 – – 33,908,157 7,313,166 303,947 405,613 48,248,955 – 48,248,955 Balance Sheet – – 190,101,955 – (12,319,043) – 1,757,462,470 1,567,360,515 190,101,955 1,757,462,470 714,038,383 42.3 Transactions between reportable segments are based on an appropriate transfer pricing mechanism using agreed rates. Furthermore, segment assets and liabilities include inter segment balances. Costs which are not allocated to segments are included in the Head office. Income taxes are managed at bank level and are not allocated to operating segments. 42.4 No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2021 or 2020. Unconsolidated Financial Statements
295. The Bank has related party relationship with its subsidiaries , associates, employee benefit plans, its directors and key management personnel and their close family members. The Banks enters into transactions with related parties in the ordinary course of business and on substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. Details of transactions with related parties during the year, other than those which have been disclosed elsewhere in these unconsolidated financial statements are as follows: Annual Report 2019 – – – – – – – – – – – – 2,436 – 2,436 147,331 166,757 48,891 (53,410) (14,907) – – – – – 19,134 25,356 598,267 (604,489) 27,438 – 7,040 – 20,398 940,062 856,704 83,358 – – 725 12,319,037 12,319,037 – 3,500,000 – – – 103,400,000 – (99,900,000) – Closing balance Other assets 109 Closing balance 1,042 16,460 (16,576) (817) Opening balance Borrowings / exchange adjustment during the year Settled during the year Opening balance Addition / exchange adjustment during the year Repaid during the year Transfer in / (out) – net Advances – – Provision for diminution in value of investments – Borrowings Closing balance – – Closing balance Opening balance Investment disposed off during the year Investments – Closing balance – – – – Opening balance Addition during the year Repaid during the year Markup receivable Advances, deposits, advance rent and other prepayments Receivable from Pension Fund Unrealized gain on forward foreign exchange contracts – outstanding Lendings to Financial Institutions – – – – 199,621 – 182,467 – 17,154 1,018,449 356,898 1,390,000 (728,449) – – 700,401 700,401 – – – – – 103,120 77,139 25,981 – 3,279,058 – 44,060 3,218,426 16,572 3,084,862 152,147 3,103,637 (170,922) – 5,000 254,253 254,253 – – – – – – – – – – – – – – – – – – – – – – 1,042 1,722 18,202 (18,882) – (Rupees in '000) – – – – 3,149 – – – 3,149 166,757 129,048 60,257 (21,947) (601) – – – – – 25,356 3,902 482,356 (460,902) 54,468 39,415 12,715 – 2,338 856,704 889,811 – (33,107) – 725 12,319,037 12,346,537 (27,500) – – 880,853 – 23,703,928 – (24,584,781) – – – – 311,399 – 310,504 – 895 356,898 – 356,898 – – – 700,401 700,401 – – – – – 77,139 69,166 7,973 – 3,400,396 – 27,835 3,370,179 2,382 152,147 339,520 336,695 (303,183) (220,885) 5,000 254,253 254,253 – – – – – KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel Partiespersonnel parties 2021 2020 RELATED PARTY TRANSACTIONS 43 Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 293
296. 294 Unconsolidated Financial Statements Opening balance Received during the year Withdrawn during the year Transfer in / (out) – net Closing balance Other liabilities Markup payable Accrued expenses and other payable Payable to MCB Employee Security Services Advance received against sale of property Closing balance Contingencies and Commitments Letter of Credit Forward foreign exchange contracts (Notional) Bank guarantee Markup / return / interest expensed Closing balance Income Markup / return / interest earned Fee and commission income Dividend income Gain on forward foreign exchange contracts matured during the year Net gain / (loss) on sale of securities Gain on sale of assets Rent income Expense Deposits and other accounts – – 77 – – (13) – – 2,059 13,962 – – 23 – – 22,885 – – – – 3,500 – 3,500 – – 196,067 138,566 1,315,435 (1,256,285) (1,649) – – – – 101,575 1,475 100,100 – – 700,547 302,130 2,874,441 (2,468,887) (7,137) 2,452 – – – 50,892 172,491 48,228 184,784 35,276 – – 35,276 43,558 2 23,556 – 20,000 51,961 142,524 – (62) – 12,662 35,654 968,003 192,500 10,739 – – 10,739 85,108 18,219 66,889 – – 3,827,846 53,877 4,815,780 3,162,263 49,364,225 (3,164,179) (50,352,159) – – 647,484 44,830 (837) – 2,280 20,988 7,748 96,853 5,874,110 5,207,768 – 666,342 75,252 16,792 2,893 55,567 – 8,285,021 4,869,941 86,845,287 (83,429,013) (1,194) 30,257 – 72 – – – – – – – – – 50 50 – – – 302,130 602,381 669,282 (969,533) – (Rupees in '000) 2,626 – 40 98 – 13,098 – – – – – – 100 100 – – – 138,566 140,761 1,189,437 (1,163,832) (27,800) 2,008 – – – 41,739 143,011 30,253 120,109 1,444,144 – 1,342,106 102,038 42,850 – 22,850 – 20,000 53,878 223,767 – 3,836 – 8,808 1,809 1,177,371 192,500 10,512 10,512 – – 105,173 42,549 62,624 – – 4,815,780 54,482 3,657,552 2,349,111 44,628,206 (2,346,830) (43,469,978) (2,885) – 233,677 53,120 6,485 – 2,280 13,189 1,638 36,213 1,756,270 1,756,270 – – 37,717 10,654 32 27,031 – 4,869,941 4,179,849 76,375,987 (75,154,115) (531,780) KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel Partiespersonnel parties 2021 2020 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021
297. 77 – – – – – 33,431 – – – 519,581 – – – – – – – – – – 279,819 – – – – – – – – – – – – – – – – 903,221 26,076 – – – – – – – – – – – – – – – 23,435,469 13,597,031 4,701,212 43,048 – – – – – – – – – – 587 – – – – 11,787 – – – – – 18,782 – – – – 10,113,189 19,077,222 – 196,446 – – – – – – – 495,818 40,991 – – 55,945 – – – 5,527,242 – 33,245 – – – – 19,669,035 5,096,819 – – – 6,209 51,534 146 2,148 3,132 2,466 – – 154,329 430,857 47,990 99,821 259,775 354,797 – – – – – – – – – – – – – 268,847 19,827 177,166 – – – – – – – – – – (Rupees in '000) – 381 – – – – – 124,304 999 509,676 – – – – – – – – – – – – – – – – – – 1,550 45,457,828 35,244,343 3,898,627 27,289 – – – – – – – – – – – – – – – 10,715 – – – – – 3,277 – – – – 5,740,348 1,232,917 – 275,517 – – – – – – – 646,676 46,067 – – 42,264 – – – 11,446,226 – 5,712 – – – – 8,592,672 653,148 – – 95,000 4,757 38,507 3,410 1,989 7,308 3,225 – – 166,175 394,598 37,947 114,845 244,697 329,116 The Chairman has been provided with free use of the Bank maintained car. The Chief Executive and certain executives are provided with free use of the Bank’s maintained cars and household equipment in accordance with the terms of their employment. Proceeds from sale of assets Purchase of fixed assets Sale of foreign currency Purchase of foreign currency Payments against home remittances Reimbursement of other expenses Sale of government securities Purchase of government securities Forward exchange contracts matured during the year Other Transactions Clearing expenses paid to NIFT Contribution to provident fund Rent expenses Cash sorting expenses Stationery expenses Security guards expenses Remuneration to key executives and non–executive directors fee Outsourcing service expenses Donation Expense E–dividend processing fee and CDC charges Travelling expenses Hotel stay expenses Repair and maintenance charges Advertisement expenses Miscellaneous expenses and payments Insurance premium–net of refund Insurance claim settled Other Operating expenses KeyOtherKey Other Directors managementSubsidiaries Associates related Directors management Subsidiaries Associates related personnel Partiespersonnel parties 2021 2020 Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 295
298. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) 44 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 44.1 Capital Adequacy Minimum Capital Requirement (MCR): Paid-up capital (net of losses) Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital Total Eligible Tier 1 Capital Eligible Tier 2 Capital 150,353,964 19,249,838 152,901,428 35,507,111 Total Eligible Capital (Tier 1 + Tier 2) 169,603,802 188,408,539 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 711,304,243 132,894,633 153,080,409 635,599,185 122,603,850 139,735,092 Total 997,279,285 897,938,127 Common Equity Tier 1 Capital Adequacy ratio 15.08% 17.03% Tier 1 Capital Adequacy Ratio 15.08% 17.03% Total Capital Adequacy Ratio 17.01% 20.98% 11,850,600 150,353,964 152,901,428 Capital Adequacy Ratio (CAR): – – The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid up capital (net of losses) for all locally incorporated banks of Rs. 10 billion. The paid up capital of the Bank for the year ended December 31, 2021 stood at Rs. 11.851 billion (2020: Rs. 11.851 billion) and is in compliance with the SBP requirements. Further, under Basel III instructions, banks are required to maintain minimum Capital Adequacy Ratio (CAR) of 11.50% as at reporting dates (including a capital conservation buffer of 1.5% which has been revised downwards from 2.5% as per BPRD Circular No. 12 dated March 26, 2020), Common Equity Tier 1 (CET 1) ratio of 6.0% and Tier 1 ratio of 7.50% as at reporting dates. The Bank is fully compliant with prescribed ratios. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Bank’s exposures based on eligible collateral under simple approach. 44.2 Leverage Ratio (LR): 296 11,850,600 20212020 (Rupees in '000) Eligible Tier-1 Capital Total Exposures 150,353,964 2,451,779,962 152,901,428 2,174,932,446 Leverage Ratio 6.13% 7.03% Unconsolidated Financial Statements
299. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 44.3 Liquidity Requirements Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding 45 1,109,267,469 450,352,949 934,508,535 393,109,786 246.31% 237.72% 1,213,585,786 782,982,025 1,130,301,361 646,417,507 Net Stable Funding Ratio 155.00% 174.86% The full disclosures on the Capital Adequacy, Leverage Ratio & Liquidity Requirements as per SBP instructions issued from time to time are available at https://www.mcb.com.pk/investor-relations/ capital-adequacy-statements. RISK MANAGEMENT Risk is an inherent part of banking business activities. The risk management framework and governance structure at Bank helps to mitigate and counter any foreseeable risk in its various lines of business. Risk awareness forms an integral part of strategic and operational activities of risk management. Through its Global Risk Management Policy, the Bank sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Bank’s risk management structure is based on the following five guiding principles: • • • • • 20212020 (Rupees in '000) Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing independent and properly resourced risk management function. Promoting open risk culture Adopting international best practices in risk management Keeping in view dynamics of internal and external environment, the bank regularly reviews and updates policy manuals / frameworks and procedures in accordance with domestic regulatory environment and international standards. The Bank executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors and its relevant committee, i.e. the Risk Management & Portfolio Review Committee (RM&PRC), the senior management and its relevant committees, i.e. the Management Credit and Risk Committee (MC&RC), Asset Liability Committee (ALCO), etc., are responsible to ensure formulation and implementation of comprehensive Risk Management Framework. This framework is based on prudent risk identification, measurement, management and monitoring processes which are closely aligned with the activities of the bank. The framework combines core policies, procedures and process designs with broad oversight and is supported by an efficient monitoring mechanism across the bank to ensure that risks are kept within an acceptable level. The Bank ensures that not only the relevant risks are identified but their implications are also considered and basis provided for managing and measuring the risks. Through Internal Control units, the Bank ensures that effective controls are in place to mitigate each of the identified risk. Independent from business groups, Head of Risk Management reports functionally to the Risk Management & Portfolio Review Committee (RM&PRC) and administratively to the President; the RM&PRC convenes regular meetings to evaluate Bank’s risk and portfolio concentrations. The Risk Management Group performs the following critical functions: • • • • Risk Management Policy Formulation Credit Risk Management Credit Review Credit Risk Control Annual Report 2019 297
300. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 • Market Risk Management • Liquidity Risk Management • Operational Risk Management • IT Risk Management Keeping in view the international best practices and SBP requirements, Board of Directors of the Bank has approved a Risk Appetite Statement, which takes into account quantitative and qualitative risk indicators, covering target ratios, credit, market, operational, liquidity and business risks. 45.1 Credit Risk Credit risk arises from bank’s dealings with individuals, corporate borrowers, financial institutions, sovereigns etc. The Bank is exposed to credit risk through its lending and investment activities. Credit risk makes up the largest part of the Bank’s exposure and it stems from Bank’s both on and offbalance sheet activities. Purpose of Credit Risk Management function is to identify, measure, manage, monitor and mitigate credit risk. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Bank provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. The Bank has adopted Standardized Approach to measure Credit risk regulatory capital charge in compliance with Basel requirements. The approach mainly takes into account the assessment of external credit rating agencies. In line with SBP guidelines on Internal Credit Risk Rating Systems, the Bank has developed rating systems and all its borrowers are internally rated. In order to further enhance the credit risk analysis and the processes, Probability Default based Internal Credit Risk Rating (ICRR) system based on the statistical modeling and validation in line with Basel principles. The revamped ICRR is currently focused on Corporate Commercial and Corporate Large customer categories. The ICRR Model for rating of SME Customers has also been revamped to achieve more accurate results and to improve the quality of credit decisions. In order to manage bank’s credit risk, following policies and procedures are in place: • • • • • 298 Individuals who take or manage risks clearly understand them in order to protect the Bank from avoidable risks; The approval of credit limits to counter parties are subject to pre-fact review; Extension in credit facility or material change to the credit facility is subject to credit review; Approval and review process is reviewed by RM&PRC and internal audit; Management periodically reviews the powers of credit approving and credit reviewing authorities. Ongoing administration of the credit portfolio is an essential part of the credit process that supports and controls extension and maintenance of credit. The Bank’s Credit Risk Control is responsible for performing following activities: • Credit disbursement authorization • Collateral coverage and monitoring • Compliance of loan covenants/ terms of approval • Maintenance/ custody of collateral and security documentation • Credit Risk Limit Controls Credit Risk Monitoring is based on a comprehensive reporting framework. Continuous monitoring of the credit portfolio and the risks attached thereto are carried out at different levels including businesses, Audit & Risk Assets Review, Credit Risk Control, Credit Risk Management Division, etc. To ensure a prudent distribution of asset portfolio, the Bank manages its lending and investment activities within an appropriate limits framework. Per party exposure limit is maintained in accordance with SBP Prudential Regulations. The Bank creates specific provision against Non-Performing Loans (NPLs) in accordance with the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision against consumer loans and Small enterprise (SEs) made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to Unconsolidated Financial Statements
301. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Please refer note No. 11.4 for reconciliation of changes in specific and general provisions. The Risk Management function of the Bank has further strengthened its credit review procedures in the light of COVID-19 and is regularly conducting assessments of the credit portfolio to identify borrowers most likely to be affected due to changes in the business and economic environment. Management of Non Performing Loans The Bank has a Special Assets Management (SAM) function, which is responsible for management of non performing loans. SAM undertakes restructuring / rescheduling of problem loans, as well as litigation of both civil and criminal cases for collection of debt. Stress Testing Credit Risk stress testing is a regular exercise. Bank’s credit exposures including funded and nonfunded facilities are subjected to stress tests. This exercise is conducted on a quarterly basis through assigning shocks to all assets of the Bank and assessing its resulting affect on capital adequacy inline with SBP requirements. 45.1.1 Lendings to financial institutions Credit risk by public / private sector Gross lendings Non - performing lendings Provision held 202120202021202020212020 Note (Rupees in '000) Public/ Government Private 24,071,021 15,975,261 18,396,089 1,164,192 – – – – – – – – 42,467,110 17,139,453 – – – – 9 45.1.2 Investment in debt securities Credit risk by industry sector Gross Investments Non - performing Investments Provision held 202120202021202020212020 (Rupees in '000) Chemical and pharmaceuticals Financials including government securities Manufacture of cement Manufacture of sugar Manufacture of textiles Others 1,750,000 1,750,000 – – – – 1,007,748,243 971,996,915 285,000 285,000 145,656 145,656 40,732 53,531 6,153 6,153 118 285,000 145,656 40,732 6,153 118 285,000 145,656 53,531 6,153 118 285,000 145,656 40,732 6,153 118 285,000 145,656 53,532 6,153 1,009,975,784 974,237,255 477,659 490,458 477,659 490,459 Credit risk by public / private sector Public/ Government Private 1,000,376,469 9,599,315 963,820,326 10,416,929 – 477,659 – 490,459 – 477,659 – 490,459 1,009,975,784 974,237,255 477,659 490,459 477,659 490,459 Annual Report 2019 299
302. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 45.1.3Advances Credit risk by industry sector Gross Advances Non - performing Advances Provision held Note 20212020 20212020 20212020 (Rupees in '000) 300 Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 6,296,378 5,122,317 14,212,957 18,081,634 418,737 351,226 477,421 289,791 358,691 296,478 437,355 278,464 33,914,125 37,521,494 376,717 376,717 376,717 374,996 8,492,204 5,842,215 32,744,189 17,534,127 92,104 301,280 102,262 462,665 92,104 301,280 101,825 462,665 3,778,108 163,781 170,131 163,781 169,736 548,329 922,333 51,083,890 43,906,423 45,081 3,824,895 45,596 4,316,081 45,081 3,713,883 34,973 3,911,755 19,213,851 14,913,709 16,801,079 9,742,405 3,980,254 392,862 3,028,467 392,862 3,881,891 392,862 3,018,387 392,862 60,149,203 42,384,893 232,324 275,980 232,324 273,047 4,982,529 855,984 412,061 855,984 411,445 49,347,312 39,631,918 3,066,745 3,274,437 2,851,306 3,058,910 373,053 433,943 373,053 396,551 5,357,720 4,031,606 7,573,933 2,182,220 6,056,179 4,034,047 606,722 665,778 39,228,616 33,283,221 4,419,576 4,658,087 114,257,523 76,794,166 12,733,639 13,475,285 4,359,943 5,033,270 3,714 5,019 6,238,915 4,088,794 14,907,349 23,855,551 61,872,867 45,169,859 5,771,499 2,492,010 174,634 179,539 5,520,548 3,988,794 4,348,014 10,353,488 430,017 464,150 18,287,167 42,798 42,798 53,061,768 67,125 75,901 53,691,912 13,041,819 12,521,768 4,452,280 506,924 694,294 606,722 662,506 4,419,576 4,655,219 12,497,961 13,322,828 3,714 5,019 174,634 3,988,794 415,831 42,798 66,559 7,500,461 503,986 150,661 4,348,014 460,207 42,798 66,253 7,471,824 634,656 11 Credit risk by public / private sector Public/ Government Private 635,573,871 513,550,202 50,490,805 51,189,047 44,156,471 45,142,956 89,835,878 74,377,320 639,825 639,825 545,737,993 439,172,882 49,850,980 50,549,222 639,825 639,825 43,516,646 44,503,131 635,573,871 513,550,202 50,490,805 51,189,047 44,156,471 45,142,956 Unconsolidated Financial Statements 11
303. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 45.1.4 Contingencies and Commitments Credit risk by industry sector Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others Credit risk by public / private sector 24 Public/ Government Private 24 2,834,653 17,599,642 19,650,014 7,447,158 291,315,065 1,478,562 336,876 2,269,551 7,468,627 15,168,937 2,134,487 20,639,681 24,907,422 4,968,549 390,150,887 517,178 1,612,922 2,618,245 8,207,595 4,686,576 25,749,257 1,671,507 22,767,423 25,507,582 8,129,298 16,304,638 14,812,389 5,096,950 14,556,109 37,035,617 887,679 4,388,673 114,933 62,032,269 19,642,288 8,835,202 11,845,793 24,181,768 8,946,430 4,883,983 6,848,689 33,696,488 144,328 1,362,984 412,969 57,348,336 17,006,854 10,643,212 25,016,888 37,342,162 619,186,942 714,038,383 165,079,709 454,107,233 216,881,697 497,156,686 619,186,942 714,038,383 45.1.5 Concentration of Advances The bank top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs 250,579.571 million (2020: Rs. 235,823.259 million) are as following: 20212020 (Rupees in '000) Funded Non Funded 95,079,790 155,499,781 75,373,723 160,449,536 Total Exposure 250,579,571 235,823,259 The sanctioned limits against these top 10 exposures aggregated to Rs 296,220.092 million (2020: 311,201.617 million) There is no provision against these top 10 exposures. Annual Report 2019 301
304. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 45.1.6 Advances - Province/Region-wise Disbursement & Utilization 2021 DisbursementsUtilization KPK AJK Punjab Sindh including Balochistan Islamabad including Gilgit FATABaltistan (Rupees in '000) Province/Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit–Baltistan Total 495,695,792 387,450,221 5,699,929 2,396,999 24,269,595 467,859,096 13,081,055 19,418,862 343,177,444 – – – – 35,023 – 338,167 44,871 915,850,703 487,357,852 13,872,568 8,359,802 5,699,929 – 1,347,469 121,783 16,494,113 – 2,396,999 – 761,290 – – – 22,887,103 – – – – – – – – 293,296 – 356,258,499 29,279,768 19,012,895 23,648,393 293,296 2020 DisbursementsUtilization KPK AJK Punjab Sindh including Balochistan Islamabad including Gilgit FATABaltistan (Rupees in '000) Province/Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit–Baltistan Total 45.2 Market Risk 302 419,237,388 411,850,220 4,741,216 1,676,862 15,574,363 374,143,233 37,128,846 12,962,814 351,555,947 171,325 – – – 1,180,640 – 281,068 62,557 853,361,117 388,520,569 – 388,684,793 6,191,473 6,776,970 4,569,891 – 2,287,606 337,087 40,554,489 – 1,676,862 – 1,436,749 – – – 12,106,117 – – – – – – – – 218,511 19,825,940 42,568,438 13,542,866 218,511 Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. The Bank is exposed to market risk primarily through its trading activities, which are centered in the Treasury and Foreign Exchange Group and the Capital Market Division. Market risk also arises from market-making, facilitation of client business and proprietary positions in equities, fixed income and interest rate products and foreign exchange, which exposes bank to interest rate risk, foreign exchange risk and equity price risk. The Bank’s Market Risk Management structure consists of Risk Management & Portfolio Review Committee (RM&PRC) of the Board, Management Credit and Risk Committee, ALCO and independent Market Risk Management Division reporting directly to Group Head Risk Management. Market Risk function works in close partnership with the business segments to identify and monitor market risks throughout the Bank and to define market risk policies and procedures. Market Risk seeks to facilitate efficient risk/return management decisions, reduce volatility in operating performance and provide transparency into the Bank’s market risk profile for senior management, the Board of Directors and regulators. Market risk authority, including both approval of market risk limits and approval of market risks is vested in the ALCO. In line with regulatory requirements, the Bank has clearly defined, in its Global Risk Management policy, the positions which shall be subject to market risk. The definition covers the accounting classifications as well as positions booked by different business groups under “Available for Sale” category. The assets subject to trading book treatment are frequently, mostly on daily basis, valued and actively managed. The positions which does not fulfill the criteria of Trading book falls under the Banking Book and are treated as per SBP requirements. Unconsolidated Financial Statements
305. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 The Bank measures and manages Market Risk by using different risk parameters with combinations of various limits. Board approved Global Risk Management Policy provides guidelines for assuming controlled market risk, its monitoring and management. The approved limits are compared with the numbers generated by the market risk management systems based on the trading activity and the outstanding positions. Besides conventional methods, the Bank also uses VaR (Value at Risk) technique for market risk assessment of positions assumed by its treasury and capital market groups. In-house based solutions are used for calculating mark to market value of positions and generating VaR (value at risk) and sensitivity numbers. Thresholds for different positions are established to compare the expected losses at a given confidence level and over a specified time horizon. A framework of stress testing, scenario analysis and reverse stress tests covering both banking and trading books as per SBP guidelines is also in place. The results of the stress tests are reviewed by senior management and also reported to the SBP. The Bank is also exposed to interest rate risk both in trading and banking books. Risk parameters along with the marked to market values of government securities held by the Bank’s treasury are generated on daily basis. The risk parameters include duration, PVBP, and VaR on individual security basis as well as on portfolio basis. These reports are presented to the senior management for review on a daily basis. 45.2.1 Balance sheet split by trading and banking books 20212020 BankingTrading Total BankingTrading Total bookbook bookbook (Rupees in '000) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 164,613,179 18,830,310 42,467,110 35,788,956 589,711,091 57,327,871 978,785 60,954,606 - 164,613,179 - 18,830,310 - 42,467,110 999,796,540 1,035,585,496 - 589,711,091 - 57,327,871 - 978,785 - 60,954,606 122,180,839 24,030,328 17,139,453 29,521,903 462,941,787 58,027,904 938,458 56,334,253 - 122,180,839 - 24,030,328 - 17,139,453 986,347,545 1,015,869,448 - 462,941,787 - 58,027,904 - 938,458 - 56,334,253 970,671,908 999,796,540 1,970,468,448 771,114,925 986,347,545 1,757,462,470 45.2.2 Foreign Exchange Risk Foreign exchange risk exposes the bank to changes in the values of current holdings and future cash flows denominated in currencies other than home currency due to the exchange rate fluctuation and volatility. The types of instruments exposed to this risk include investments in foreign branches, foreign currency-denominated loans, foreign currency-denominated deposits, future cash flows in foreign currencies arising from foreign exchange transactions, etc. The core objective of foreign exchange risk management is to ensure the foreign exchange exposure of the Bank remain within defined risk appetite and insulate bank against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage Foreign exchange risk including gap limits on different tenors in major currencies are in place to control risk. Bank’s net open position and Foreign Exchange Exposure Limit (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR is generated and monitored on daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the Board is a regular feature. Annual Report 2019 303
306. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 20212020 Foreign Foreign Off-balance Net foreign Foreign Foreign Off-balance Net foreign currencycurrency sheet currencycurrencycurrency sheet currency assetsliabilitiesitems exposureassetsliabilities itemsexposure (Rupees in '000) United States Dollar Sri Lankan Rupees 33,031,553 55,915,494 15,257,912 676,927 Arab Emirates Dirham 197,995 97,575 Euro 3,077,040 7,312,669 4,217,347 (18,282) Great Britain Pound Sterling 4,039,717 6,855,354 2,716,087 (99,550) Japanese Yen Other currencies – 1,409,312 – (7,626,029) 44,103,967 54,985,985 10,749,737 – 676,927 – 100,420 144,228 – 144,228 2,433,944 6,576,870 4,143,526 600 2,474,888 6,151,953 3,637,777 (39,288) 20 22,007 44,214 47,086 370,823 (6,600,692) 49,502,990 67,963,473 18,639,731 179,249 823,221 39,535 22,226 (811,293) 326,287 323,737 – (209,047) 20212020 Banking book Trading book Banking book Trading book (Rupees in '000) 45.2.3 Impact of 1% change in foreign exchange rates on - Profit and loss account - Other comprehensive income Bank’s proprietary positions in the equity instruments exposes it to the equity price risk in its trading and banking books. Equity price risk is managed by applying trading limit, scrip-wise and portfolio wise nominal limits. VaR analysis and stress testing of the equity portfolio are also performed and reported to senior management on a daily basis. The stress test for equity price risk assesses the impact of the fall in the stock market index using certain assumptions. In addition to this stress testing, historical scenario analysis on equities is also performed periodically as advised by the State Bank of Pakistan through Guideline on Stress Testing. (66,007) 117,543 – – 1,792 106,202 – – Equity position Risk 20212020 AFSHFT AFSHFT (Rupees in '000) Impact of 5% change in equity prices on - Other comprehensive income – 1,040,039 45.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific – 908,592 Interest rate risk is the risk that fair value of a financial instrument will fluctuate as a result of changes in interest rates, including changes in the shape of yield curves. Interest rate risk is inherent in many of the Bank’s businesses and arises from mismatches between the contractual maturities or the repricing of on and off-balance sheet assets and liabilities. The interest rate sensitivity profile is prepared on a quarterly basis based on the re-pricing or contractual maturities of assets and liabilities. Interest rate risk is monitored and managed by performing periodic gap analysis, sensitivity analysis and stress testing and taking appropriate actions where required. The increase / (decrease) in earnings due to change in the interest rate is as follows: 20212020 Banking Book Trading Book 304 (132,281) 39,598 271,732 – 248,645 783,686 42,432,544 71,236,510 22,203,274 – Banking Book Trading Book (Rupees in '000) Impact of 1% increase in interest rates on - Profit and loss account - Other comprehensive income The Bank has classified Available for Sale investments as Trading in Basel-II. Unconsolidated Financial Statements (3,632,054) – (4) (7,457,483) (3,987,679) – 5,250,521 (7,497,582)
307. On –balance sheet financial instruments (Rupees in '000) 102,705,660 316,271,135 26,824,108 30,856,791 213,565,475 213,565,475 1,432,779 5,098,200 784,611 119,831,839 127,147,429 1,432,779 – 784,611 97,547,207 99,764,597 27,382,832 FX options sale Forward sale of Government securities Cross Currency Swaps sale Foreign exchange contracts sale Off–balance sheet gap Total Yield/Interest Risk Sensitivity Gap Cumulative Yield/Interest Risk Sensitivity Gap 591,814 – – 26,232,294 57,680,899 591,814 5,098,200 – 51,990,885 182,708,684 130,892,002 On–balance sheet gap Off–balance sheet financial instruments FX options purchase Forward purchase of Government securities Cross Currency Swaps purchase Foreign exchange contracts purchase (2,718,504) 34,932,469 741,535 – – 34,190,934 32,213,965 741,535 – – 31,472,430 105,424,164 104,114,304 864,971,342 1,773,452,263 – 76,884,401 27,229,903 – – 93,350,424 771,620,918 – Bills payable 24,589,644 Borrowings 5.02% 269,525,556 Deposits and other accounts 3.42% 1,411,851,527 Other liabilities 67,485,536 Annual Report 2019 378,385,101 62,113,966 544,465 21,976,144 99,430 – 72,281 21,804,433 22,520,609 99,430 – 72,281 22,348,898 61,569,501 73,545,495 – 53,887,609 19,657,886 – 135,114,996 7,033,445 – – 7,345,038 1,939,826 352,182 40,467,110 2,000,000 – 452,671,333 184,596,534 129,320,167 540,163,100 21,002,108 5,442,647 – – – 209,538,468 Cash and balances with treasury banks – 164,613,179 Balances with other banks 0.11% 18,830,310 Lending to financial institutions 2.39% 42,467,110 Investments 8.30% 1,035,585,496 Advances 7.22% 589,711,091 Other assets 53,137,079 1,904,344,265 1,047,680,026 Liabilities 353,213,640 (25,171,461) (1,299,920) 15,484,760 – – 165,214 15,319,546 14,184,840 – – 165,214 14,019,626 (23,871,541) 32,144,861 – 4,615,742 27,529,119 – 8,273,320 418,977,128 65,763,488 – – – – – – – – – – – 65,763,488 5,913,062 – 5,701,961 211,101 – 71,676,550 – – 699,120 – – – 4,363,410 69,431,247 3,210,790 2,245,303 – – Assets 473,605,329 54,628,201 – 547,116 – – 547,116 – 547,116 – – 547,116 – 54,628,201 4,311,876 – 2,816,770 1,495,106 – 58,940,077 – – – 54,078,471 4,861,606 – 506,567,257 32,961,928 – – – – – – – – – – – 32,961,928 6,308,444 – 5,607,738 700,706 – 39,270,372 – – – 37,596,845 1,673,527 – 550,403,953 43,836,696 – – – – – – – – – – – 43,836,696 26,872,911 – 26,660,911 212,000 – 70,709,607 – – – 68,245,970 2,463,637 – 254,492,476 53,137,079 157,579,734 8,494,144 – 35,281,519 559,052,326 8,648,373 – – – – – – – – – – – – – – – – – – – – – – 8,648,373 (400,777,492) – 655,269,968 – 24,589,644 – – – 563,194,788 – 67,485,536 8,648,373 – – – – 8,648,373 – Effective Non–interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Total interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 2021 Exposed to Yield/ Interest risk 45.2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 305
308. 306 Unconsolidated Financial Statements 4 ,408,312 397,871,227 212,703,038 (185,168,189) Cumulative Yield/Interest Risk Sensitivity Gap Off–balance sheet gap 60,574,266 28,729,055 152,300,989 60,430 – – 60,513,836 (185,168,189) 52,817,769 182,800 – 2,130,472 149,987,717 FX options sale Forward sale of Government securities Cross Currency Swaps – sale Foreign exchange contracts sale 64,982,578 29,379,755 122,370 – 340,109 52,355,290 181,680,744 60,430 – – – 64,922,148 Total Yield/Interest Risk Sensitivity Gap 81,546,824 182,800 11,089,775 1,975,311 – 168,432,858 FX options purchase Outright purchase of Government Securities Cross currency swaps – purchase Interest Rate Swaps – purchase Foreign exchange contracts purchase 122,370 11,089,775 339,938 – 69,994,741 29,457,912 393,462,915 1,538,215,685 851,949,780 On–balance sheet gap 150,213,922 (213,897,244) Off–balance sheet financial instruments – 8,214,674 21,243,238 – – 121,266,747 730,683,033 – Bills payable 23,980,692 Borrowings 5.30% 164,001,533 4.50% 1,289,502,304 Deposits and other accounts Other liabilities 60,731,156 359,882,784 147,179,746 1,854,518 23,300,121 – – 210,505 23,089,616 25,154,639 – – 210,505 – 24,944,134 18,675,110 145,325,228 – 5,044,522 13,630,588 – 164,000,338 638,052,536 1,688,429,607 Liabilities 422,920,827 6,810,656 – – 2,556,166 799,172 – 17,139,453 – – 179,084,505 415,139,293 160,598,685 432,461,756 6,982,362 3,401,653 – – – Cash and balances with treasury banks – 122,180,839 Balances with other banks 0.21% 24,030,328 Lending to financial institutions 7.27% 17,139,453 Investments 10.77% 1,015,869,448 Advances 9.34% 462,941,787 Other assets 46,267,752 Assets On-balance sheet financial instruments 385,503,645 25,620,861 (5,612,130) 14,271,283 – – 242,308 14,028,975 8,659,153 – – 87,318 – 8,571,835 32,357,774 31,232,991 – 1,813,871 30,543,903 – 63,590,765 – – – 61,659,011 1,931,754 – 401,658,475 16,154,830 – 547,272 – – 547,272 – 547,272 – – 547,272 – – 10,381,370 16,154,830 – 8,382,537 1,998,833 – 26,536,200 442,663,012 41,004,537 – – – – – – – – – – – – 2,686,943 41,004,537 – 2,571,133 115,810 – 43,691,480 471,739,729 29,076,717 – 790,278 – – 790,278 – 790,278 – – 790,278 – – 6,521,318 29,076,717 – 4,831,690 1,689,628 – 35,598,035 – – – – – – – 22,916,296 41,949,392 30,794,310 3,619,904 1,742,088 4,803,725 – – – (Rupees in '000) 532,629,853 60,890,124 – – – – – – – – – – – – 12,088,359 60,890,124 – 11,876,359 212,000 – 72,978,483 – – – 71,118,956 1,859,527 – 23,980,692 – 489,385,271 60,731,156 214,921,925 538,768,871 6,139,018 – – – – – – – – – – – – – – – – – – – – – – – – – 574,097,119 6,139,018 (359,175,194) – – – – 6,139,018 – 115,370,183 – 20,674,990 – – – 32,609,000 6,139,018 – – 46,267,752 Effective Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Total interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 2020 Exposed to Yield/ Interest risk Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021
309. 1 ,688,429,607 69,032,863 Total financial liabilities 58,027,904 Other liabilities 938,458 Deferred tax liability 10,066,501 1,773,452,263 22,608,777 21,879,353 729,424 1,538,215,685 29,144,830 22,169,672 6,975,158 1,567,360,515 Operational Risk Management helps the Bank understand risks and improve mitigating controls so as to minimize operational risks that are inherent in almost all areas of the Bank. Going forward, the Bank will further strengthen its risk function, policies and procedures to facilitate its operations and improve quality of assets to safeguard interest of depositors. The Bank’s operational risk management framework, as laid down in the Global Risk Management Policy, duly approved by BOD, is flexible enough to implement in stages and permits the overall risk management approach to evolve in the light of organizational learning and the future needs of the Bank. Operational loss events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve control procedures with respect to design and operative effectiveness. Currently, the bank is reporting operational risk capital charge under Basic Indicator Approach (BIA). The Bank took a number of initiative with respect to operational risk management like using Key Risk Indicators (KRIs), Loss events database and Risk & Control Self Assessments (ROSA) to manage its operational risk effectively. In accordance with the Operational Risk Management (OR) regulations, policy and framework, a database covering operational risk events is being maintained using a state of the art software solution, which has enhanced features and a better workflow management. This new software has further augmented bank’s capacity to capture and report operational risk events and KRIs. The software is also capable of generating periodical regulatory and management reports. Periodical updates on Operational Risk events are presented to senior management and the Risk Management and Portfolio Review Committee of the Board. 45.3.1 Operational Risk-Disclosures Basel II Specific 1,904,344,265 66,124,183 57,327,871 978,785 7,817,527 1,796,061,040 20212020 (Rupees in '000) Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risks but excludes strategic and reputational risks. Operational Risk 45.3 Total financial assets Fixed assets Intangible assets Other assets Less: Non financial assets Less: Non financial liabilities Balance as per balance sheet Balance as per balance sheet 1,970,468,448 1,757,462,470 Reconciliation to total assets Reconciliation to total assets 20212020 (Rupees in '000) Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 307
310. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 45.4 Liquidity Risk Liquidity represents the ability to fund assets and meet obligations as they become due. The Bank understands that liquidity does not come for free, and surplus liquidity has an opportunity cost which needs to be recognized. Liquidity risk is a risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Liquidity is essential to the ability to operate financial services businesses and, therefore, the ability to maintain surplus levels of liquidity through economic cycles is crucial. Particularly during periods of adverse conditions, liquidity management is among the most important activities that the Bank conducts during both normal and stress periods. The Bank recognizes that liquidity risk can arise from the Bank’s activities and can be grouped into three categories: - Inflows/Outflows from on-balance sheet items (other than marketable securities and wholesale borrowings) and off-balance sheet items; - Marketability of trading securities; and - Capacity to borrow from the wholesale markets for funding as well as trading activities. 308 Liquidity Management The Asset Liability Committee of the bank has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Banks’ liquidity under normal and stress scenarios. A framework to assess the maturity profile of non-contractual assets and liabilities is in place to supplement the liquidity management. Bank’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing, to ensure effective and timely decision making. The Bank’s liquidity risk management framework is designed to identify measure and manage in a timely manner the liquidity risk position of the Bank. The underlying policies and procedures include: Global Risk Management policy, Global Treasury Policy, Investment policy, Contingency Funding Plan, Liquidity Strategy and Limit Structure which are reviewed and approved regularly by the senior management / Board members. Moreover; the Bank also prepares a ‘Contingency Funding Plan’ (CFP) to address liquidity issues in time of stress/crises situation containing early warning indicators to preempt unforeseen liquidity crises. The Bank conducts Liquidity Risk Analysis on regular basis as well as Maturity of gaps are also reviewed in order to ensure diversification in terms of tenors. MCB liquidity risk framework envisages to project the Bank’s funding position during temporary and long-term liquidity changes, including those caused by liability erosion and explicitly identifying quantifying and ranking all sources of funding preferences, such as reducing assets, modifying or increasing liability structure; and using other alternatives for controlling statement of financial position changes. The Bank performs regular liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Bank under both idiosyncratic and systemic market stress conditions. The Bank’s liquidity risk management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. In view of the relaxation granted by SBP for deferral of principal and markup and for rescheduling / restructuring of loans there will be an impact on the maturity profile of the Bank. The Asset and Liability Committee (ALCO) of the Bank is monitoring the liquidity position and the Bank is confident that the liquidity buffer currently maintained is sufficient to cater to any adverse movement in the cash flow maturity profile. Intraday Liquidity Management Intraday liquidity management is about managing the daily payments and cash flows. Bank has policies to ensure that sufficient cash is maintained during the day to make payments through local payment system. The policy of the Bank is to maintain adequate liquidity at all times, in all geographical locations and for all currencies and hence to be in a position, in the normal course of business, to meet obligations, repay depositors and fulfill commitments. Managing Funding Sources Managing funding sources, as per policy the Bank maintain a portfolio of marketable securities that can either be sold outright or sold through a repurchase agreement to generate cash flows for meeting unexpected liquidity requirement. As a part of liquidity management the Bank maintains borrowing relationships to ensure the continued access to diverse market of funding sources. The Bank’s sound credit rating together with excellent market reputation has enabled the Bank to secure ample call lines with local and foreign banks. The level of liquidity reserves as per regulatory requirements also mitigates risks. The Bank’s investment in marketable securities is much higher than the Statutory Liquidity Requirements. Unconsolidated Financial Statements
311. 2021 Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Borrowings Deposits and other accounts Deferred tax liabilities – net Other liabilities Reserves Surplus on revaluation of Unappropriated profit assets – net Share capital Net assets Bills payable Liabilities Balances with other banks treasury banks Cash and balances with Assets 17,868,987 819,654 268,119,623 253,571 2,074 8,429 93,634,281 1,128,473 – 8,479,616 164,613,179 13,222,676 1,462 174,407,408 63,683,267 14,271,517 84,602,024 11,850,600 174,407,408 (1,076,816,305) 1,796,061,040 1,344,935,928 89,364,889 729,424 1,411,851,527 1,313,023,149 269,525,556 24,589,644 1,970,468,448 60,954,606 978,785 57,327,871 589,711,091 1,035,585,496 42,467,110 18,830,310 164,613,179 – (13,847,250) 87,158,106 3,018,501 (17,491) 5,560,757 73,678,410 4,917,929 73,310,856 1,770,106 12,441 50,569 26,981,914 1,910,677 38,967,110 3,618,039 – 13,802,529 14,374,176 2,641,074 (26,260) 4,888,942 1,132,836 5,737,584 28,176,705 4,486,335 14,514 58,997 17,982,637 3,251,786 1,500,000 882,436 – 194,605,946 32,473,992 7,543,912 (197,446) 11,342,858 670,191 13,114,477 227,079,938 7,877,570 33,175 229,569 54,776,059 161,304,474 – 2,859,091 – 9,444,232 62,203 346,910 67,216,112 91,714,919 – 1,939,826 45,258,936 28,167,729 6,766,989 (132,467) 6,906,515 14,626,692 – 83,345,820 87,378,382 4,970,156 (172,871) 20,323,388 62,257,709 – 73,426,665 170,724,202 13,926,658 62,203 347,223 36,344,294 20,746,287 2,000,000 – – – 43,512,978 76,194,863 3,041,626 (392,258) 19,657,886 53,887,609 – 119,707,841 2,280,659 186,609 1,025,704 59,118,178 56,744,509 – 352,182 (Rupees in '000) (52,520) 28,118,666 13,999,136 (354,339) 13,938,237 535,632 – 28,066,146 2,726,778 186,609 1,012,706 18,211,823 5,928,230 – – – 111,758,261 20,453,098 3,170,038 (387,932) 13,590,882 4,080,110 – 132,211,359 737,471 186,609 1,002,518 28,895,790 100,689,851 – 699,120 – 283,050,228 14,203,311 8,012,667 277,582 211,101 5,701,961 – 297,253,539 6,670,206 232,348 3,386,486 43,595,236 243,369,263 – – – Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 month 2 months 3 months 6 months 9 months months 2 years to 1 year 45.4.1 Maturities of Assets and Liabilities – based on contractual maturity of the assets and liabilities of the Bank 93,802,119 9,830,914 5,773,692 (254,654) 1,495,106 2,816,770 – 103,633,033 4,777,059 – 3,357,964 36,304,713 59,193,297 – – – Over 2 to 3 years 129,136,118 19,718,463 11,762,756 1,647,263 700,706 5,607,738 – 148,854,581 6,003,961 – 3,296,892 46,309,189 93,244,539 – – – Over 3 to 5 years – – – 266,850,548 33,053,412 5,441,666 738,835 212,000 26,660,911 – 299,903,960 – – 43,203,904 60,340,865 196,359,191 Over 5 years Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 309
312. 310 2020 Unconsolidated Financial Statements Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Bills payable Borrowings Deposits and other accounts Deferred tax liabilities – net Other liabilities Reserves Surplus on revaluation of Unappropriated profit assets – net Share capital Net assets Liabilities Balances with other banks treasury banks Cash and balances with Assets 27,145,780 799,357 216,430,060 115,353 1,979 7,799 69,434,527 1,032,330 1,864,192 21,793,041 122,180,839 11,993,186 25,551 190,101,955 69,834,602 27,720,418 80,696,335 11,850,600 190,101,955 (1,023,302,017) 1,567,360,515 1,239,732,077 82,900,828 6,975,158 1,289,502,304 1,199,768,203 164,001,533 23,980,692 1,757,462,470 56,334,253 938,458 58,027,904 462,941,787 1,015,869,448 17,139,453 24,030,328 122,180,839 – (66,642,612) 101,237,272 1,961,994 (10,573) 3,244,480 91,245,233 4,796,138 34,594,660 1,680,408 11,878 46,800 16,280,888 660,200 15,275,261 639,225 89,029,844 15,778,202 3,496,367 (23,334) 5,172,564 1,537,110 5,595,495 104,808,046 7,413,870 13,857 54,601 5,567,948 91,757,770 – – – – 70,193,156 31,032,561 5,147,109 (125,929) 11,883,056 1,338,623 12,789,702 101,225,717 6,023,597 31,674 218,707 21,964,456 72,188,252 – 799,031 – – 799,031 9,356,338 59,389 327,908 31,484,973 – 17,827,050 5,961,832 (215,952) 10,105,884 1,975,286 166,639,894 203,448,252 22,816,572 5,533,265 (93,436) 11,137,355 6,239,388 – 189,456,466 221,275,302 9,571,753 59,389 327,908 20,382,678 159,114,738 179,247,663 – – – – – – 139,867,400 31,500,772 13,433,608 (607,946) 13,630,588 5,044,522 – 171,368,172 1,992,478 178,167 983,725 53,402,604 114,811,198 (Rupees in '000) 76,760,383 20,356,383 2,147,942 25,284 17,258,524 924,633 – 97,116,766 579,658 178,167 983,725 34,512,637 60,862,579 – – – 18,888,213 15,765,007 2,087,801 (497,412) 13,285,379 889,239 – 34,653,220 83,001 178,167 983,725 28,348,910 5,059,417 – – – 70,373,667 14,916,821 3,880,245 655,206 1,998,833 8,382,537 – 85,290,488 2,260,624 225,791 3,528,643 51,224,268 28,051,162 – – – Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 month 2 months 3 months 6 months 9 months months 2 years to 1 year 109,279,974 12,554,714 7,956,617 1,911,154 115,810 2,571,133 – 121,834,688 6,419,673 – 3,562,702 36,344,592 75,507,721 – – – Over 2 to 3 years 83,538,940 24,364,293 15,387,832 2,455,143 1,689,628 4,831,690 – 107,903,233 10,837,500 – 4,097,577 56,301,425 36,666,731 – – – Over 3 to 5 years – – – 252,026,861 19,478,791 3,913,030 3,477,402 212,000 11,876,359 – 271,505,652 – – 42,904,084 37,691,881 190,909,687 Over 5 years Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021
313. 2021 Other assets Other liabilities Net assets Share capital Reserves Surplus on revaluation of assets – net Unappropriated profit Deposits and other accounts Deferred tax liabilities – net Bills payable Borrowings Liabilities Fixed assets Intangible assets Investments Advances Lending to financial institutions Balances with other banks treasury banks Cash and balances with Assets 174,407,408 63,683,267 14,271,517 84,602,024 11,850,600 174,407,408 1,796,061,040 89,364,889 729,424 1,411,851,527 269,525,556 24,589,644 1,970,468,448 60,954,606 978,785 57,327,871 589,711,091 1,035,585,496 42,467,110 18,830,310 164,613,179 274,539,869 233,636,230 26,426,163 (239,735) 89,509,734 93,350,424 24,589,644 508,176,099 14,387,582 62,203 347,563 104,876,503 167,582,777 40,467,110 15,839,182 164,613,179 – 36,639,465 169,277,381 11,737,145 (305,337) 80,961,172 76,884,401 – 205,916,846 23,370,890 124,406 694,134 65,335,048 112,452,542 2,000,000 1,939,826 – (68,176,129) 169,155,453 3,041,626 (392,258) 112,618,476 53,887,609 – 100,979,324 2,280,659 186,609 1,025,704 40,389,661 56,744,509 – 352,182 97,571,196 58,381,882 17,169,174 (742,272) 37,339,238 4,615,742 – 155,953,078 3,464,249 373,219 2,015,224 42,804,053 106,597,213 – 699,120 – – – – (338,775) 340,844,509 8,012,667 277,582 326,852,299 5,701,961 – 340,505,734 6,670,206 232,348 3,386,486 86,887,301 243,329,393 (Rupees in '000) (187,736,792) 336,472,112 5,773,692 (254,654) 328,136,304 2,816,770 – 148,735,320 4,777,059 – 3,357,964 81,446,869 59,153,428 – – – (152,106,702) 346,359,662 11,762,756 1,647,263 327,341,905 5,607,738 – 194,252,960 6,003,961 – 3,258,966 92,269,889 92,720,144 – – – 110,341,048 141,733,613 4,662,839 1,317,464 109,092,399 26,660,911 – 252,074,661 – – 7,023,734 63,560,997 181,489,930 – – – – – – 63,674,228 200,198 778,827 (578,629) – – – 63,874,426 – – 36,218,096 12,140,770 15,515,560 Upto 1 Over 1 to Over 3 to Over 6 Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year 45.4.2 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Bank Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 311
314. 312 2020 Unconsolidated Financial Statements Share capital Reserves Surplus on revaluation of assets - net Unappropriated profit 69 ,818,986 55,726,871 62,226,218 - 1,813,871 56,649,804 (473,200) 4,235,743 117,953,089 - - - 65,897,443 49,069,203 1,967,449 356,334 662,660 152,419,632 - - - 75,470,367 66,966,890 3,562,702 - 6,419,673 134,392,070 228,008,073 - - - - - - 36,564,210 175,676,689 82,943,687 46,065,324 4,046,673 6,266,060 - - 10,837,500 - (216,472,117) 330,010,537 (175,228,798) 327,648,430 (205,043,131) 339,435,201 105,725,342 122,282,731 - - - - 8,382,537 2,571,133 4,831,690 11,876,359 317,092,872 315,209,849 316,783,667 105,243,346 654,883 1,910,831 2,432,012 1,711,329 3,880,245 7,956,617 15,387,832 3,451,697 113,538,420 - - - 28,013,808 79,509,554 3,528,643 225,791 2,260,624 58,799,200 2,251,231 1,789,898 461,333 61,050,431 15,457,477 8,904,027 36,688,927 - Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years 30%30% 30%10% Over 1 to 2 Years When an asset or liability does not have any contractual maturity date, the period in which these are assumed to mature has been taken as the expected date of maturity. Bank regularly conducts an objective and systematic behavioral study using regression analysis technique to ascertain the maturity of its noncontractual assets and liabilities. Core and non-core parts of the non-contractual assets and liabilities are segregated through the behavioral study. Non Core part is placed among the short term maturity buckets i.e. up to 1 Year based on the model results, whereas core part is distributed among the longer terms buckets based on the discussion and decision by the ALCO. Following percentages are used to distribute the core assets and liabilities among longer term buckets: 323,132,921 75,820,237 - 5,044,522 57,946,390 (608,257) 13,437,582 145,639,223 - - - 114,805,937 27,668,757 983,725 178,167 2,002,637 Liquidity Gap Reporting 173,642,681 67,933,077 - 8,214,674 48,536,715 (309,434) 11,491,122 391,065,998 - 799,031 - 338,357,141 32,217,300 655,816 118,778 18,917,932 190,101,955 11,850,600 80,696,335 27,720,418 69,834,602 190,101,955 239,752,853 23,980,692 121,266,747 72,039,661 (132,904) 22,598,657 413,395,534 122,180,839 23,231,297 17,139,453 165,626,376 69,597,045 327,909 59,388 15,233,227 (Rupees in '000) Net assets 1,567,360,515 23,980,692 164,001,533 1,289,502,304 6,975,158 82,900,828 Bills payable Borrowings Deposits and other accounts Deferred tax liabilities Other liabilities 122,180,839 24,030,328 17,139,453 1,015,869,448 462,941,787 58,027,904 938,458 56,334,253 1,757,462,470 Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Liabilities Assets Upto 1 Over 1 to Over 3 to Over 6 Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year Notes To The Unconsolidated Financial Statements For the year ended December 31, 2021
315. Annual Report 2021 Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 45.5 Derivative Risk Most business clients have either interest rate exposures arising from debt financing or currency exposures arising out of commercial transactions from import and export of goods. Businesses face the risk of sudden movements in interest rates or foreign exchange rates that may adversely affect their profitability. The Bank provides solutions to this problem through its derivatives desk in major types of derivative instruments i.e.; forwards, futures, swaps and options. As an Authorized Derivative Dealer (ADD), the Bank is an active participant in Derivative market and has flexibility in providing a broad range of derivatives products covering both hedging and market making to satisfy customers’ needs. As an ADD, the bank offers derivative products which are permitted under the Financial Derivative Business Regulations (FDBR) or as permitted by the State Bank of Pakistan. Before executing Derivative transactions, the bank ensures that the clients understand the risk and reward associated with the derivative being offered. Derivative transactions are executed with appropriate clients only. Risk management activities take place at the following different levels. Strategic Level: By senior management Assets and Liabilities Committee (ALCO), Management Credit and Risk Committee (MC&RC) and the Board of Directors to institute a risk management framework and to ensure provision of all resources and support required for effective risk management on Bank-wide basis. The Board provides the overall limits/thresholds for derivatives business. Macro Level: By Treasury and FX Group and Risk Management Group, responsible for policy formulation, procedure development and implementation, monitoring and reporting. Micro Level: Treasury Derivatives and Structured Product Desk where risks are actually created and Treasury Operations for settlements of the transactions. Derivative Risk Management caters the following risks:Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. In line with SBP’s regulatory guidelines, Bank hedges backto-back all option transactions with other financial institutions. Bank minimizes the exchange rate risk on its Cross Currency Swap Portfolio by hedging the exposure in interbank market. Bank also manages interest rate risk on its Interest Rate Derivatives and Cross Currency Swaps through various sensitivity limits approved by ALCO. Marked to market positions and sensitivity of the derivatives transactions are monitored on regular basis. All individual deals are approved at the appropriate level of authority after analyzing the risk and benefits associated with the deals. Credit risk is a probable risk of loss resulting from customer’s inability to meet contractual obligation that may have adverse impact on Bank’s profitability. Bank manages the risk by setting policies and limits for counterparty based on a pre-defined criteria linked with financial health of the customer. The exposure of each counterparty is monitored by Risk Management Function of the Bank on daily basis. Considering small Derivative portfolio, bank is not exposed to any liquidity risk. However; Bank manages its liquidity risk through Bank’s liquidity risk framework which is defined in relevant Liquidity Risk Section. Bank has adequate system and controls for smooth execution of derivative transactions. Transactions are executed in line with well defined accounting and operational aspects to mitigate the operational risk. Policies and control functions are regularly reviewed on periodic basis. Annual Report 2019 313
316. Notes To The Unconsolidated Financial Statements For the year ended December 31 , 2021 The Bank uses a third party’s Super Derivative System which provides front end sales and structuring capabilities, end to end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. 46 The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. Due to thin liquidity in the derivative market, interest rate derivatives are not actively used to manage/alter the interest rate risk profile of the bank. EVENTS AFTER THE REPORTING DATE The Board of Directors in its meeting held on February 10, 2022 has announced a final cash dividend in respect of the year ended December 31, 2021 of Rs. 5.00 per share (2020: Rs. 15.00 per share). These unconsolidated financial statements for the year ended December 31, 2021 do not include the effect of these appropriations which will be accounted for subsequent to the year end. 47GENERAL Comparative information has been rearranged wherever necessary for better presentation of the financial statements. There have been no significant reclassifications during the year. 48 Figures have been rounded off to the nearest thousand of rupees unless otherwise stated. DATE OF AUTHORIZATION FOR ISSUE These unconsolidated financial statements were authorized for issue by the Board of Directors of the Bank in their meeting held on February 10, 2022. Shoaib Mumtaz President/Chief Executive 314 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
317. Name and address of the borrower ACMA International G .T. Road, Near Jamia Masjid Umar-e-Farooq, Behind Bhutta Centre, Gujranwala Muhammad Arshad Vanike Chowk, Tehsil & District Hafizabad Younas Commission Shop Mohallah Masoom Gunj, Kasesay, Jalalpur Bhattian, District Hafizabad Ittehad Commission Shop New Ghallah Mandi, Kamokey, Distt Gujranwala Hamid Sultan Corporation Vanikey Road, Jalalpur Bhattian, District Hafizabad Malik Cloth House Chak No.266/RB, Khurrianwala Faisalabad Akhlaq & Co House No.627-B Peoples Colony No.01, Faisalabad Muhammad Younas House No.P-14, Karim Block Doctor Street Muslim Town No.01, Faisalabad GN Fabrics 7- Chak Saim Nala Sargodha Road Faisalabad Al Meezan Steel Mills House # G-40, Sabzi Mandi, Mohallah Alam Khel, Mianwali Hassan Oil Mills House # L-8, Block # 8, L-type, Jahurabad, Tehsil & District Khushab 1 2 3 4 5 6 7 8 9 10 11 Domestic Sr. No. 34101-4531402-1 34101-8974256-9 34101-0681710-9 34301-1776599-3 34302-1221429-5 34102-0433291-7 34302-1201509-7 33104-4312180-3 33100-0898836-9 33100-8585636-3 33100-4686338-9 33100-8305200-3 33100-1949889-8 38302-1216171-1 38201-1224648-9 Muhammad Arshad Muhammad Younas Muhammad Afzal Umar Daraz Khadim Hussain Akhlaq Ahmed Muhammad Younas Niaz Ahmed Haroon Ahmed Rohina Niaz Imran Ahmed Khan Muhammad Azhar Malik NIC No. Muhammad Ashraf Kamboh Muhammad Ilyas Kamboh Muhammad Shabbir Ahmad Name Name of individuals/ partners/ directors Zafar Ullah Malik Abdul Razzaq Khan Ghulam Nabi Niaz Ahmed Niaz Ahmed Abdul Qayum Mushtaq Ahmed Mubarak Ali Sultan Ahmad Ali Hussan Muhammad Sharif Khadim Hussain Muhammad Abdullah Muhammad Abdullah Muhammad Abdullah Father's /Husband's name – – – – – – – – – – – Principal 1,002 1,348 3,496 2,188 2,046 579 2,758 1,191 1,165 600 1,503 Interest / mark up 31 67 – 117 49 30 72 117 74 57 82 Others 1,033 1,415 3,496 2,305 2,095 609 2,830 1,308 1,239 657 1,585 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – Principal Written off 1,002 1,348 3,496 2,188 2,046 579 2,758 1,191 1,165 600 1,503 Interest/ Markup Written off/ waived 31 67 – 117 49 30 72 117 74 57 82 Other Fin. Reliefs Provided 1,033 1,415 3,496 2,305 2,095 609 2,830 1,308 1,239 657 1,585 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 315
318. 316 Name and address of the borrower Sheikh Corporation House # 90/A, Mohallah Kotla Tolay Khan Multan Friends Iron Store Colony road near Shama Cinema Tehsil Mailsi & District Vehari Kaswa Agro Chemicals 294-C Khayaban-ESarwar, D.G Khan, Tehsil & District D.G Khan Advent Marketing & Company 294-C Khayaban-ESarwar, D.G Khan, Tehsil & District D.G Khan Manzoor Model Factory Basti Rahim Post Office Sehja Tehsil Khanpur District Rahim Yar Khan Muhammad Najamul Hassan Siddiqui House No. 6, Nazir Apartment, New Town, Chandni Chowk, Karachi Farooq Optical Co. 2nd Floor, Musarat Plaza Optical Market, Shah Alam Gate, Lahore Next Corporation 2 Noon Avenue, Old Muslim Town, Lahore Shabir Hussain Mohalla Rasoolabad, Maduni Road, Po Dhal Bagh, Chak Ghumnana, Jhang Waheed Brothers P-1/11, Street No.08-B, Yasrab Colony Faisalabad Muhammad Farooq Warriach House No.p-394, Street No.01 Madina Town Officer Colony Faisalabad Shahid Traders Main Kot Farid, Iqbal Colony Road, Mouza Chak No.44/NB Ikram Colony Sargodha 12 13 14 15 16 17 18 19 20 21 22 23 Domestic Sr. No. 36302-7235834-5 36602-4632499-5 32102-8444410-5 32102-0622620-8 32102-8444410-5 31301-0144282-1 31303-2796510-9 31303-3012436-5 42401-2004370-3 35201-4494526-7 34104-2324585-1 35202-2326647-9 35202-2241001-2 33202-1204366-1 33100-0986498-5 33100-7829391-9 38403-2049842-1 Shah Muhammad Shah Barkat Ahmad Nudrat Qasim Shah Barkat Ahmad Hafiz Manzoor Ahmad Muhammad Akar Muhammad Anwar Muhammad Najamul Hassan Siddiqui Chaudhry Muhammad Farooq Alam Chaudhry Muhammad Shahid Alam Fayyaz Kamal Aneela Fayyaz Shabir Hussain Abdul Waheed Muhammad Farooq Warriach Shahid Khan NIC No. Shahid Rasheed Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Manzoor Khan Muhammad Rafiq Abdul Qayum Shahid Muhammad Ameer Khan Mustafa Kamal Jarral Fayyaz Kamal Chaudhry Muhammad Alam Chaudhry Muhammad Alam Muhammad Abdul Qayyum Hafiz Yar Muhammad Hafiz Manzoor Ahmed Hafiz Manzoor Ahmed Mian Rasheed Ahmad Mian Rasheed Ahmad W/o Barkat Ahmad Syed Sattar Shah Abdul Rasheed Father's /Husband's name – – – – – – – – – – – – Principal 2,686 757 1,336 632 11,416 7,799 12,100 1,207 534 783 734 880 Interest / mark up 68 – 68 32 19 20 33 67 55 38 49 21 Others 2,754 757 1,404 664 11,435 7,819 12,133 1,274 589 821 783 901 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – – Principal Written off 2,686 757 1,336 632 11,416 7,799 12,100 1,207 534 783 734 880 Interest/ Markup Written off/ waived 68 – 68 32 19 20 33 67 55 38 49 21 Other Fin. Reliefs Provided 2,754 757 1,404 664 11,435 7,819 12,133 1,274 589 821 783 901 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
319. Name and address of the borrower Ashraf Billah Stainless Steel Pasban Colony Rajkot Gujranwala Muhammad Javed Khan House # 62-A, Multan Road Mailsi, Tehsil Dunyapur District Lodhran City Agro 102-104 1st Floor, Mall Plaza Multan Cantt Shahzad Asghar Sheikh Gate No. 01, House No. 3, Near Safari Hospital, Phase-VI, Mohallah Gulraiz Housing Scheme, Rawalpindi Sardar Muhammad Tariq Hayat Khan House No. 04, Street No. 07, Muzammil Town, Shakrial Rawalpindi Sadaat Enterprises Plot No. 390, Sector I-9, Industrial Area, Islamabad 28 29 30 31 32 33 Sohail Baloch Banglow # 1, Faraz Villas, Phase-I, Qasimabad, Hyderabad Usman Commission Shop Village & PO Kolo Tarar Tehsil & District Hafizabad 27 35 Zeeshan Traders Iqbal Pura, Town Committee Jalalpur Bhattian. 26 Islam Uddin House # 37, Block-5, Shah Faisal Colony, Karachi Khushab Oil Mills House # L-8, Block # 8, L-type, Jahurabad, Tehsil & District Khushab 25 34 Punjab Autos General Bus Stand 24 Domestic Sr. No. 34101-2562187-9 34101-2562190-9 34101-6393304-9 36201-0583856-9 36302-6934612-9 36302-6132586-1 36302-0469516-7 37405-0614490-5 37405-0374748-5 37405-0521349-1 Muhammad Ashraf Ansari Khurram Shahzad Tahir Tabbasum Muhammad Javed Khan Syed Hammad Raza Azhar Nawaz Ather Nawaz Shahzad Asghar Sheikh Sardar Muhammad Tariq Hayat Khan Tahammal Abbas Hamdani 41306-3534168-1 34301-1723806-9 Usman Sohail Baloch 34302-5823066-3 Khalil Ahmad 42201-1249961-7 38201-1224648-9 235-58-01513-8 61101-2008447-5 Muhammad Azhar Malik Farooq Malik Farhat Malik Islam Uddin 38403-2025496-5 NIC No. Shaukat Riaz Name Name of individuals/ partners/ directors Nizam Uddin Phelwan Fareed Uddin Shaukat Abbas Hamdani Sardar Muhammad Hayat Khan Muhammad Asghar Sheikh Syed Murtaza Shah Mazhar Nawaz Mazhar Nawaz Saif Ullah Rehmat Ali Ansari Muhammad Ashraf Muhammad Ashraf Rana Irshad Ullah Khushi Muhammad Zafar Ullah Malik Abdul Ghafoor Malik Abdul Ghafoor Malik Ghulam Hussain Father's /Husband's name – – – – – – – – – – – – Principal 1,898 1,262 22,117 621 7,894 7,359 660 1,292 995 1,749 1,924 1,335 Interest / mark up – – – 88 – 97 31 – 92 68 57 88 Others 1,898 1,262 22,117 709 7,894 7,456 691 1,292 1,087 1,817 1,981 1,423 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – – Principal Written off 1,898 1,262 22,117 621 7,894 7,359 660 1,292 995 1,749 1,924 1,335 Interest/ Markup Written off/ waived – – – 88 – 97 31 – 92 68 57 88 Other Fin. Reliefs Provided 1,898 1,262 22,117 709 7,894 7,456 691 1,292 1,087 1,817 1,981 1,423 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 317
320. 318 Name and address of the borrower 42101 –1465815–1 35202–2561094–5 35202–5522225–3 35202–0676798–7 35202–6374883–5 35202–9135980–9 35201–8390613–3 35202–5269188–9 35202–8934079–7 35201–2362090–3 33201–4127274–3 31303–7524582–3 42201–0559928–5 42201–0547606–5 42000–0503055–9 42000–0503449–9 42201–7410183–7 34101–2314715–7 34101–2545078–3 35202–2350603–3 35202–2969469–3 34603–2842530–5 Jahangir elahi Tanvir Elahi Amir Jahangir Shahrukh Elahi Muhammad Ashraf Tariq Latif Ashfaq Nadeem Qadeer Ahmad Muhammad Ghafoor Raheel Younis Tanveer Ahmed Farhan Ahmed Paracha M. Shafiq Faraz Shafiq Alam Adeel Shafiq Alam Hammad Shafiq Alam Zafar Ahmad Bajwa Malik Fazal Hussain" Ali Raza Sheikh M. Raza Abdul Qadeer Zaidi Taj Textile Mills Ltd House# 85–L Model Town Lahore Qadeer Ahmad 185 Qayyum Block Mustafa Town, Lahore Shalimar Shoes Haq Nawaz Road, Main Bazar, Haroon Market, Baghbanpura, Lahore Raheel Younis St No 02, Mohallah Khalza College, Faisalabad Tanveer Ahmed Kot Kamoh Shah, Dakkhana Bahader Pur, Rahim Yar Khan Farhan Ahmed Paracha House No 82–B/1 Khayaban E Sehar DHA Phase 7, Karachi Alam Cotton Mills (Pvt.) Limited A–201–B, 2nd Floor, City Tower, Lahore. Zafar Ahmad Bajwa & Co Mohallah Taj Pura Qila Didar Singh Dist. Gujranwala. Raza Steel 42– Peco Road Badami Bagh, Lahore VIP Motors 1– Ghalli Ghulam Mohammed Chakkiwa Fatehgarh, Sialkot 38 39 40 41 42 43 44 45 46 47 37 Muhammad Nadeem Alif Sani Industries Plot # 8,9,10, Korangi Industrial Area, Karachi 36 Muhammad Nadeem House # R–64, Block ‘H’, KDA Scheme # 2, North Nazimabad, Karachi NIC No. 42201–8297373–3 42201–2965802–1 42201–2975302–1 Name Name of individuals/ partners/ directors Abdul Razzak Muhammad Fahad Muhammad Faisal Domestic Sr. No. Unconsolidated Financial Statements Muhammed Shafi Sheikh Anwer Hussain Ali Raza Muhammad Sharif Naseer ud din Muhammad Rafiq M. Shafiq Alam M. Shafiq Alam M. Shafiq Alam Ghulam Fareed Paracha Mohammad Ramzan Muhammad Younis Muhammad Bashir Nazir Ahmad Aehsan Elahi Aehsan Elahi Jahangir Elahi Tanveer Elahi Sh. Naseer Ahmed Abdul Latif Muhammad Bashir Muhammad Ramzan Ghulam Nabi Abdul Razzak Abdul Razzak Father's /Husband's name – – 2,490 – 639 – – – 759 1,529 1,363 7,670 857 489 480 887 1,257 43,641 21,115 – 919 2,723 Interest / mark up – – Principal – – – 100 – – 71 56 – 17 17 33 Others 759 1,529 3,953 7,670 1,496 560 536 887 1,274 64,773 952 2,723 Total Outstanding liabilities at beginning of the year – – – – – – – – – 21,115 – – Principal Written off 759 1,529 1,377 7,670 1,102 489 480 887 1,257 43,641 919 2,723 Interest/ Markup Written off/ waived – – 100 – 34 71 56 – 17 17 33 – Other Fin. Reliefs Provided 759 1,529 1,477 7,670 1,136 560 536 887 1,274 64,773 952 2,723 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
321. Name and address of the borrower Habib Ur Rehman 68 –A, Satellite Town, Sargodha Rehmat Ali & Co. 1 – Link Mcleod Road, Lahore Muhammad Jamil Khan House No: 576, K Block, Sabzazar, Lahore. Haripur Food Industries (Pvt.) Ltd. (Formerly SDA Cold Storage, Haripur) 36–Nazimuddin Roa, F/8–4, Islamabad. Saim Mahmood Khan Baloch Colony Jhang Road Sahwial Dist Sargodha Ejaz Ahmad House# 247/C Officer Colony 2, Faisalabad Nasim Ul Ghani Khan I–G–4/21 Nazimabad N O.1, Karachi Sohail Shaikh R–595 Block–I,Sharifabad, F.B.Area, Karachi Lutufullah Mir Ali Bazar Khain Pur City Distt. Khair Pur Sultan Qamer 202E, E Market, Block–6, Commercial Area, PECHS, Karachi Muhammad Ahsan Raza Turabi House, D–Block, Al–Faisal Town, Lahore Cantt., Irfan Quddus Gali School Wali,Kot Ghulam Muhammad Khan, Kasur Hakim Ali C/O Luqum Din Unar, Sakrand, P.O.Nawabshah. 48 49 50 51 52 53 54 55 56 57 58 59 60 Domestic Sr. No. 42101–1494703–9 42101–1402686–3 45203–7298803–7 514–90–149064 35201–0747119–9 Nasim Ul Ghani Khan Sohail Shaikh Lutufullah Sultan Qamer Muhammad Ahsan Raza 42201–1997875–1 33100–7434532–7 Ejaz Ahmad Hakim Ali 38402–1577510–9 Saim Mahmood Khan 61101–8824847–1 Mian Manzoor Hussain Mian Manzoor Hussain Mian Abid Manzoor Khalid Manzoor 2201–0341248–5 42201–0588130–1 42201–0396564–0 42201–0547736–2 Mian Abid Manzoor Mian Tariq Manzoor Munazza Abid Asiya Khalid Irfan Quddus Muhammad Tufail 35202–2858208–9 Mr. Muhammad Jamil Khan Shafi Muhammad Chaudhary M Siddique Imdad Hussain Noor Muhammad Noor Muhammad Shaikh Shaikh Noor Muhammad A.Ghani Khan Mushtaq Ahmed Talib Hussain Khan Rehmat Ali Abdul Rauf Abdul Rauf Afzal Noor 35201–1360971–7 35201–4987340–1 35201–1276421–7 42201–0342422–8 Abdul Rauf Rashid Rauf Rehan Rauf Rumeza Rauf Mehr Allah Baksh Lak 38403–5214071–7 NIC No. Father's /Husband's name Habib Ur Rehman Name Name of individuals/ partners/ directors 622 1,210 499 375 725 1,331 214 342 – – – – – Principal 602 1,461 1,294 1,155 1,150 2,105 391 561 550 23,607 882 11,523 4,477 Interest / mark up – – – – – – – – 17 27 – 45 145 Others 1,224 2,671 1,793 1,530 1,875 3,436 605 920 577 23,607 927 11,668 4,477 Total Outstanding liabilities at beginning of the year 622 1,210 499 375 725 1,331 214 – – – – – – Principal Written off 602 1,461 1,294 1,155 1,167 2,105 391 556 550 23,607 882 11,523 4,477 Interest/ Markup Written off/ waived – – – – – – – 17 27 – 45 145 – Other Fin. Reliefs Provided 1,224 2,671 1,793 1,530 1,892 3,436 605 573 577 23,607 927 11,668 4,477 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 319
322. 320 Name and address of the borrower Muhammad Qasim 43 /2 20Th Street, Ph Ase–5, D.H.A. Karachi Nasreen Akhtar H.No.24, Pcfl Housing Colony, Hattar Road, Haripur. Syed Zaffar Hassan Naqvi Moza Bullah Shah, P/O. Mamu Kanjan, Dist: Faisalabad Aamir Khan Apt.101 Tower A, Shadman Residency,Block–2, Clifton, Karachi Muhammad Tariq House # 03, Street # 05, Old Thana Road, Hussainab Rahim Yar Khan Rahim Yar Khan Asim Shahzad House # 17/8–A, Kamalabad, Rawalpindi Faakhir Umair Mussori House, Faizil Pur Distt, Rajan Pur, Fazil Pur Zulfiqar Hussain A 71,Block R , North Nazimabad Karachi Aamir Mehmood Khan House No.01, Near Bilal Masjid Sahulat Market,Gik Road Gujranwala Rashid Amin H No 147 –D Vehari Fida Hussain Jatoi Village Thorha, Talka Moro, Distt Nowsheroferz Ahsan Ullah House No 41 A Street No 18 Railway Officers Colony, Walton Lahore Asif Ahmed Siddiqui House No 115 7/8 Jin Nah Housing Society Karachi 61 62 63 64 65 66 67 68 69 70 71 72 73 Domestic Sr. No. 41201–9748915–9 37405–3045484–0 33106–1800579–7 42301–7584979–7 31303–5075888–9 37405–0526645–9 32402–2262332–7 42101–0456961–7 34101–7750674–9 36603–5985734–7 42301–9277862–1 31304–2080133–9 42501–5326664–3 Nasreen Akhtar Syed Zaffar Hassan Naqvi Aamir Khan Muhammad Tariq Asim Shahzad Faakhir Umair Zulfiqar Hussain Aamir Mehmood Khan Rashid Amin Fida Hussain Jatoi Ahsan Ullah Asif Ahmed Siddiqui NIC No. Muhammad Qasim Name Name of individuals/ partners/ directors Unconsolidated Financial Statements M.Akbar Siddiqui Muhammad Ashraf M Ayaz Jatoi Muhammad Amin Sheikh Shoukat Ali khan Iftikhar Hussain Yaar Muhammad Ashiq Hussain Shabir Ahmed Iqbal A.Khan Syed Mohd Hassan Naqvi Muhammad Naem Haji Muhammad Hashim Father's /Husband's name 486 470 453 306 598 361 606 354 857 329 779 371 620 Principal 677 759 745 350 917 817 866 572 1,014 702 1,229 573 1,046 Interest / mark up Others – – – – – – – – – – – – – 1,163 1,229 1,198 656 1,515 1,178 1,472 926 1,871 1,031 2,008 944 1,666 Total Outstanding liabilities at beginning of the year 486 470 453 306 598 361 606 354 857 329 779 371 620 Principal Written off 677 759 745 350 917 817 866 572 1,014 702 1,229 573 1,046 Interest/ Markup Written off/ waived – – – – – – – – – – – – – Other Fin. Reliefs Provided 1,163 1,229 1,198 656 1,515 1,178 1,472 926 1,871 1,031 2,008 944 1,666 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
323. Name and address of the borrower Danish Jamal Hashmi 79 –2 Khy E Nishat D H A Phase 5 Karachi Nadeem Sajjad H No.49–C,Sc Lane #5 Sher Zaman,Tulsa Road, Lalazar Rwp Cantt Balouch Zari Services Basti Tariqabad, Mouza Lal Wah Jagguwala, Lodhran Jamal Automobile Industry House # 394, Ponch Road, Main Samanabad, Lahore Muhammad Jamil Akhtar Rai House # 10, Kiran Villas Aziz Avenue, Gulberg V, Lahore. Murtaza Nawaz Commission Shop Shope No. 06, New Ghalla Mandi Kamoki District Gujranwala Butt Dairy Farms Tehsil Tandlianwala District Faisalabad Al Umar Traders House No.311/D, Peoples Colony No.01, Post office Khas Faisalabad Haryali Traders New Grain Market Faisalabad Road Chiniot Ch. Noor Muhammad Main Road, House # 4–11, Noor Pur Basti Sargodha Asif Hosiery Store Talha Market, Block # 2, Sargodha 74 75 76 77 78 79 80 81 82 83 84 Domestic Sr. No. 35202–5025616–3 34101–8839481–1 33106–2848613–9 33106–0306449–5 33106–0289990–5 33106–6847106–3 33106–0310746–5 33106–7445690–9 33106–3026794–5 252–91–106525 33100–1026584–7 33100–4735042–1 Muhammad Jamil Akhtar Rai Muhammad Nawaz Muhammad Boota Butt Maqbool Ahmed Maqsood Ahmed Muhammad Ashfaq Muhammad Rafiq Muhammad Ramzan Mehmood Ahmed Muhammad Siddique Muhammad Farooq Azam Maqsood Ahmed 38403–7474795–9 35202–2458517–7 Danish Ahmed Muhammad Naeem 31202–1584584–1 Mr. Khalid Mehmood 38403–6863636–1 17301–0771171–9 Nadeem Sajjad Ch. Noor Muhammad 42301–6267600–9 NIC No. Danish Jamal Hashmi Name Name of individuals/ partners/ directors Muhammad Siddique Deewan Ali Bashir Ahmed Muhammad Hussain Imam Din Muhammad Siddique Muhammad Siddique Muhammad Boota Imam Din Imam Din Muhammad Siddique Imam Din Chaudhary Muhammad Sadiq Rai Ameer Ahmed Bhatti Muhammad Younas Khuda Buksh Khan M. Sajjad Younas Syed Yousuf Jamal Hashmi Father's /Husband's name 1,345 999 498 – – – – 697 – 576 702 Principal 724 809 1,302 1,288 5,772 1,721 4,590 2,005 2,127 871 1,116 Interest / mark up – – 45 49 92 37 169 – 17 95 83 Others 2,114 1,857 1,892 1,325 5,941 1,721 4,607 2,797 2,210 1,447 1,818 Total Outstanding liabilities at beginning of the year – – – – – – – – – 576 702 Principal Written off 581 618 1,307 1,288 5,772 1,721 4,590 1,879 2,127 871 1,116 Interest/ Markup Written off/ waived 45 49 92 37 169 – 17 95 83 – – Other Fin. Reliefs Provided 626 667 1,399 1,325 5,941 1,721 4,607 1,974 2,210 1,447 1,818 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 321
324. 322 Name and address of the borrower Ghulam Abbas New General Bus Stand , Bhowana, District Chiniot Ghousia Lasani Rice Mills Kassoki Road Kamonki Khalil Ullah International 1–2 Basement, Merah Hussain Center, Montgomery Road Lahore Abdullah Enterprises Fazal House Behind Faysal Bank, Khanewal Road Chowk Khumharanwala Multan Masetti Ladies Shoes Shop No. 06, Al–Habib Terrace, Block–09, Clifton, Karachi. and Shop No. 1, Plot No. 15– C, Zamzama Commercial Lane No. 02, Phase–V, DHA, Karachi. Integral Commodities Export 109, landmark Plaza M.Bin Qasim Road, I.I Chundrigar Road, Karachi Taj Weaving Factory P–1651/39, Street No. 07, New Millat colony Samundari Road Faisalabad ZML Printing Press Shop No.07, Ground Plaza Minshi Mohallah Amin Pur Bazar Faisalabad Sine International Pvt Limited CD–388 & 389 Gabol Town Sector 16, F.B. Area Karachi 85 86 87 88 89 90 91 92 93 Domestic Sr. No. 33201–5931531–1 34102–6510182–1 35200–1454285–5 36302–7039576–7 42101–7364610–1 42301–916970–4 33100–1853913–9 33100–2896020–7 42301–6003411–9 42301–6742580–7 42301–6727725–4 42301–2638693–8 42101–1557527–5 42201–3331659–9 42101–1950087–9 42101–9447644–1 Muhammad Sattar Khawaja Shakeel Sheikh Fazal Ellahi Waseem Riyaz Ahmed Farhan Ahmed Zulfiqar Ahmed Inam Ul Haq Muhammad Sultan Ahmed Abdul Qayyum Naseema Ahmed Andleeb Qayyum Safdar Sayeed Qaiser Sayeed Hyder Sayeed Shahid Jamil NIC No. Ghulam Abbas Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Muhammad Saeed Muhammad Saeed Sultan Ahmed Abdul Qayyum Muhammad Saeed Muhammad Saeed Muhammad Saeed Muhammad Saeed Ghulam Qadir Abdul Ghafoor Zafar Ahmed Riyaz Ahmed Sheikh Muhammad Shafi Khawaja Abdul Rasheed Muhammad Ramzan Muhammad Iqbal Khan Father's /Husband's name 108,888 2,506 2,246 8,898 4,990 20,147 31,959 5,910 – Principal 101,929 4,342 1,725 22,925 7,079 19,128 35,426 27,371 838 Interest / mark up – – – – – – – – 17 Others 210,817 6,848 3,971 31,823 12,069 39,275 67,385 33,281 855 Total Outstanding liabilities at beginning of the year 108,888 2,506 2,246 8,898 4,990 20,147 31,959 5,910 – Principal Written off 101,929 4,342 1,725 22,925 7,079 19,128 35,426 27,371 638 Interest/ Markup Written off/ waived – – – – – – – – 17 Other Fin. Reliefs Provided 210,817 6,848 3,971 31,823 12,069 39,275 67,385 33,281 655 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
325. Name and address of the borrower M .A. Enterprises P–20 Sheikhupura Road Opposite MCB Bank Limited Near Jalal Ice Factory Kausar Textile Industries Atlas Street Maqbool Road Faisalabad Muhammad Aslam Village and P.O Uppi, Tehsil Kotmoman Arslan Weaving Factory Chak No. 187/RB Tehsil Chak Jhumra District Faisalabad Barkaat Electronics Kaghan Colony, Near Elahi Masjid, Abbottabad. Mirza Zaheer Baig House # 44/4, Sakhi Sultan Colony, Suraj Miani Road, Multan. Indus Chemicals Multan Road, Opp, Main Market Khayaban E Sarwar D.G Khan. Rana Muhammad Afzal & Brothers Shop No.18 Ghallah Mandi Khanewal. Maher Iqbal Iron Store Chak # 386 WB P/o Makhdoom Aali Tehsil Dunyapur District Lodhran. Sheikh Qudrat Elahi 423/17–A Qurshi Colony, Ahmedpuri Gate Bahawalpur. Sheikh Mehboob Elahi 423/14–15 Qurshi Colony, Ahmedpuri Gate Bahawalpur. Khalid Brothers 9–A Mohafiz Town, Gujranwala. 94 95 96 97 98 99 100 101 102 103 104 105 Domestic Sr. No. 42501–3708351–1 36302–3356996–1 32102–8256634–3 32102–9983753–5 32102–2180086–5 32102–1704817–3 32102–4912040–5 32102–0965627–1 32102–0926245–1 36103–5588695–3 36201-5949652-7 31202–0265528–3 Munir Ahmad Mirza Zaheer Baig Ejaz Fareed Muhammad Baksh Khosa Fayyaz Fareed Zahid Fareed Mumtaz Fareed Abdul Majeed Mushtaq Ahmad Rana Muhammad Afzal Khan Muhammad Iqbal Sheikh Qudrat Elahi 34101–2203300–1 33101–1713988–5 Muhammad Boota Khalid Mehmood 38401–0267967–1 Muhammad Aslam 31202–0264427–7 33100–0666263–5 33100–7916767–4 Muhammad Idrees Lubna Idrees Sheikh Mehboob Elahi 33100–6090439–5 33100–0898955–7 NIC No. Sh. Muhammad Riaz Sheikh Muhammad Ijaz Name Name of individuals/ partners/ directors Annual Report 2019 Abdul Hameed Sheikh Riaz Ahmed Sheikh Riaz Ahmed Khuda Buksh Ghualm Nabi Khan Muhammad Buksh Muhammad Azeem Muhammad Buksh Muhammad Buksh Muhammad Buksh Muhammad Mitha Din Muhammad Mirza Naseeb Baig Gohar Rehman Bashir Ahmed Muhammad Anwar Ghulam Muhammad Muhammad Idrees Haji Sh. Muhammad Ilyas Haji Sh. Muhammad Ilyas Father's /Husband's name 7,911 998 1,397 794 – 3,375 1,586 4,994 – 998 10,567 3,319 Principal 14,829 1,247 1,617 508 1,669 956 2,505 371 712 857 22,037 1,714 Interest / mark up – – 23 49 57 44 16 80 70 45 57 32 Others 22,763 2,294 3,071 1,346 1,685 4,411 4,161 5,410 769 1,887 32,604 5,033 Total Outstanding liabilities at beginning of the year 7,911 – – – – – – – – – 10,567 3,319 Principal Written off 14,829 1,253 1,628 507 1,669 990 2,507 478 508 667 22,037 1,714 Interest/ Markup Written off/ waived 23 49 57 44 16 80 70 45 57 32 – – Other Fin. Reliefs Provided 22,763 1,302 1,685 551 1,685 1,070 2,577 523 565 699 32,604 5,033 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 323
326. 324 Name and address of the borrower Irfan & Co. 9–A Mohafiz Town, Gujranwala. Syed Abid Hussain House # R–102, Sector 15–B Buffer Zone, North Karachi Yasir Arfat House No: 290–J, Phase–I, DHA Housing Authority, Lahore Cantt. Lahore. EXIN Chemicals Corporation 33–B, Industrial Estate, Multan Road, Lahore Al–Khair Filling Station Main Harbanspura Road, Mouza Tajpura, Lahore Cantt. Saeed Ahmed Shafi House No. 217, Block–W, Phase–III, DHA, Lahore Data Paper Cone Factory 79/J.B Gojra Road Faisalabad. Sajawal Weaving Factory Chak No. 79/JB Adda Gojra Road Faisalabad Muhammad Shafiq Chak No.78 Javodi Post office Khas Faisalabad Shafiq Brothers House No. P–81, Street No. 04, main Bazar Dhobi Ghat Faisalabad Cast N Link Consortium Loan, Plot # C–133, Nooriabad Industrial Estate, Dadu Ittehad Enterprises Thatha Ghara, Hafizabad Ayub Enterprises 17–KM, Bank Stop, Ferozepur Road Lahore. 106 107 108 109 110 111 112 113 114 115 116 117 118 Domestic Sr. No. Malik Gulzar Ahmed Yasir Arfat Nazir Ahmed Ch. Chiragh Din Nazir Ahmed Ch. Bashir Ahmed 35201–6722419–3 35201–6221160–0 31205–3464301–9 36603–0346108–3 35201–8390365–9 36302–2784093–9 35201–9128780–5 35201–1538315–1 35201–9934830–3 33100–0651035–1 33100–1955966–9 33303–5711835–3 33303–5711835–3 33100–5557408–4 33303–5711835–3 33303–5711835–3 42301–3612315–7 343025–930321–5 343021–231363–9 35201–1621692–3 Yasir Arfat Shahzadi Yasir Muhammad Hanif Tariq Manzoor Ahmed Ch. Muhammad Latif Ch. Tuqeer Ahmed Hamid Sarwar Ghulam Dastagir Unconsolidated Financial Statements Saeed Ahmed Shafi Ehsan Ahmed Rana Muhammad Adnan Muhammad Shafiq Muhammad Shafiq Bushra Muhammad Shafiq Muhammad Shafiq Nisar Ahmed Israr Ahmad Ejaz Ahmad Tahair Ayub Muhammd Ayub Khan Ahmad Din Sher Muhammad Muhammad Yaqoob Muhammad Sharif Muhammad Sharif Muhammad Sharif Muhammad Shafiq Khan Ahmed Muhammad Shafiq Muhammad Sharif Sheikh Nazir Ahmed Shafi Ghulam Sarwar Rehmat Ali Syed Muhammad Hussain 42501–6789337–9 Syed Abid Hussain Abdul Hameed 34101–5794325–9 NIC No. Father's /Husband's name Irfan Tuheed Name Name of individuals/ partners/ directors 504 843 1,529 – 4,309 1,612 3,005 2,103 12,119 1,116 4,116 768 4,803 1,456 2,445 5,912 643 22,899 – – 2,484 701 10,817 4,337 515 7,911 Principal Interest / mark up 67 42 11 35 40 – 52 – 18 22 19 – 18 Others 12,690 2,001 5,656 803 9,152 3,068 5,502 8,015 661 22,921 6,840 1,216 18,746 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – – – Principal Written off 11,705 1,116 4,105 768 4,905 1,493 2,450 5,710 643 22,899 2,170 705 10,817 Interest/ Markup Written off/ waived 67 42 11 35 40 – 52 – 18 22 19 – 18 Other Fin. Reliefs Provided 11,772 1,158 4,116 803 4,945 1,493 2,502 5,710 661 22,921 2,189 705 10,835 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
327. Name and address of the borrower Fatima Enterprises Ltd . 487–A Vehari Road, Mumtazabad Multan Ahmed Shah Industries 40–KM Vehari Road Chowk Matla, Multan Sardar Muhammad Nawaz Mohallah Farooq Park, Peco Road, Near Multan Chungi, Lahore Asif Shahzad H No 6 St No 3 Mohalah New Shalimar Colony Bosan Road Multan Nadeem Traders 979/36,Shah Badar Road, Behind Eid Gah Multan. AK Traders House # 29 Mohallah New Mumtazabad Multan. Umar Hayat Bajwa Village Dilawar Bajwa Bhag,P.o Khas, Tehsil Pasrur Distt Sialkot Raushi Builders & Town Planners Dogah House Rehman Shaheed Road Gujrat M. Shafi Gulzaman House#40, Gosh–e– Ehbab, Phase–III, PECO Road, Lahore Grain Tech Pvt Ltd 99–C Model Town Lahore Zia ur Rehman Bukhari House No. 60, Model Town –B, Labour Colony, Bahawalpur Nadeem Ahmad MCB Gari K Hata Hyderabad. Dheri Zardad 119 120 121 122 123 124 125 126 127 128 129 130 Domestic Sr. No. 36302–0474444–3 36302–0408146–7 36302–4607310–7 36302–9521257–1 36302–0420122–3 61101–3583343–9 36302–2636750–3 36302–9267986–1 35202–0560068–3 36302–6490070–3 36302–2987306–9 36302–0752112–3 36302–5739058–1 34101–6320425–5 34201–9015793–1 35202–2970172–3 35202–2835900–7 35202–2667973–4 35202–2654126–4 31202–9059292–3 42101–5247735–9 Mehmood–ul–Hassan Shah Sardar Muhammad Nawaz Asif Shahzad Khawaja Nadeem Bashir Ahmad Malik Mushtaq Ahmad Muhammad Azam Khan Umar Hayat Bajwa Waheed uz Zaman Muhammad Shafi Gulzaman Syed Faisal Hasan Nosheen Faisal Feroza Bano Zia ur Rehman Bukhari Nadeem Ahmad NIC No. Kashif Tafazzal Warsi Muhammad Saeed Khan Muhammad Ibad Raja Nishat Ahmed Sh. Syed Arshad Hussain Shah Sh. Zafar Iqbal Muhammad Islam Name Name of individuals/ partners/ directors Abdul Hameed Abdur Rehman Mukhtar Husain Faisal Hassan Mukhtar Husain Ghulam Hussain Chaudhary Mohammad Zaman Doga Muhammad Hayat Bajwa Rustam Khan Khawaja Bashir Sahmad Siddiqui Malik Hayyat Muhammad Sheikh Habib Ur Rehman Muhammad Hanif Nawaz Manzoor Ahmad Shah Nasir Hussain Warsi Shareef Khan Sher Khan Sh. Fazal Rehman Syed Asghar Hussain Shah Sh. Fazal Rehman Muhammad Ramzan Father's /Husband's name 300 305 33,744 2,318 423 800 478 1,550 8,464 – 16,499 25,029 Principal 325 284 57,358 1,241 1,840 519 965 3,519 – 650 50,991 29,950 Interest / mark up – – 624 – 82 25 51 – – 16 75 679 Others 625 589 91,726 3,559 2,345 1,344 1,494 5,069 8,464 666 67,565 55,658 Total Outstanding liabilities at beginning of the year 300 305 8,744 – – – – – – – 16,499 25,029 Principal Written off 325 284 57,747 1,113 1,745 546 930 3,541 1,644 650 50,991 29,950 Interest/ Markup Written off/ waived – – 624 – 82 25 51 – 317 16 75 679 Other Fin. Reliefs Provided 625 589 67,115 1,113 1,827 571 981 3,541 1,961 666 67,565 55,658 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 325
328. 326 Name and address of the borrower Aftab Ali Khaskheli K – Old Golimar Bismillah Hotel Karachi Chaudhry Fakhar–Ul– Islam K–block Shah Rukan–E– Alam Multan Aziz Anwar Ali Nathani C– Dha. Karachi Karachi Muhammad Mushahid Khan House No.98, Mohalla Garden Road, Rawalpindi Cantt Ashfaque Ahmed Shaikh C.S No. / Shaikh Mohalla Shikarpur Shikarpur Jacobabad Saad Akhtar Qureshi Mouza Niaz Baig Mouza Niaz Baig Niaz Baig Lahore Malik Ehtisham Khair–Uddin High Sch Ahtisheen Street Bahr Mandi Road Lahore Lahore Ahmed Dawood Hashmi House # 1, Faisal St Reet, Bosan Road, Neelkot Karachi Muhammad Ittrat 24/A, Noor Ullah Colony, Multan Road, Lahore Imran Ali House.No.126 Street, No.4 Muslimabad Sahiwal Mehboob Ali Killi Bungalzai Near Wapda Gried Station, Saryab Road Quetta Abbas Raza Hussain Katchery Chowk Near T1/2.Phone Exchange Depalpur Okara Maqsood Ahmed H.No.5–7/4 Kaikabad Road, Quetta. Quetta Quetta 131 132 133 134 135 136 137 138 139 140 141 142 143 Domestic Sr. No. 41504–0418310–7 36302–6574889–7 45104–2311606–5 37405–9658869–3 43102–2477184–8 34603–5468990–3 274–89–388555 36302–3269195–9 35202–2971519–1 36502–1373719–3 55302–1775372–9 35301–1962238–1 54400–2852664–1 Chaudhry Fakhar–Ul– Islam Aziz Anwar Ali Nathani Muhammad Mushahid Khan Ashfaque Ahmed Shaikh Saad Akhtar Qureshi Malik Ehtisham Ahmed Dawood Hashmi Muhammad Ittrat Imran Ali Mehboob Ali Abbas Raza Hussain Maqsood Ahmed NIC No. Aftab Ali Khaskheli Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Abdul Sattar Syed Mumtaz Ali Shah Abdul Ghani Abdul Gohazoor Ashraf Nazir Zafar Iqbal Hashmi Malik Ahmad Ghulam Farid Qureshi Bashir Ahmed Shaikh Muhammad Hamid Khan Mir A Hussain Shah Ch. Faqeer Muhammad Imam Bux Khaskheli Father's /Husband's name 634 429 513 685 280 210 241 248 296 308 493 322 312 Principal 678 830 744 466 433 300 365 270 242 326 429 400 316 Interest / mark up Others – – – – – – – – – – – – – 1,312 1,259 1,257 1,151 713 510 606 518 538 634 922 722 628 Total Outstanding liabilities at beginning of the year 634 429 513 685 280 210 241 248 296 308 493 322 312 Principal Written off 705 848 766 495 445 309 365 270 242 326 429 400 316 Interest/ Markup Written off/ waived – – – – – – – – – – – – – Other Fin. Reliefs Provided 1,339 1,277 1,279 1,180 725 519 606 518 538 634 922 722 628 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
329. Name and address of the borrower Ali Raza House # 5C1 Sattlite Town, Rawalpindi, Qaisar Shahzad H–No–45, St # 35–A, 1–9/4 Islamabad Rao Naveed Ahmed P O Lar . Main Multan Bahawalpur Road Jaffar Hussain House # 322, Block 1, Zia Shaheed Road, Sillanwali, Sargodha Sajawal Sanitary Fittings Kacha Sheikhupura Road, Gujranwala. Madina Commission Shop Daera Khialeka, P/o Solengee Kharal , Jalal pur Bhattian Tehsil pindi Bhattian District Hafizabad Hamid Parvez & Qazi Muhammad Masood House No. 90, Block P ,Model Town Extension Scheme, Lahore Iqbal Baig Marbal Factory Talwara Mughlan Sialkot Sialkot" Qamar Abbas Tabbasum Chowk Sarwar Shaheed Road Rangpur, Tehsil & District Muzaffargarh. Ghulam Murtaza & Ghulam Mustafa Mouza Heela Watooan, PO Baonga Hayat, Tehsil & District Pakpattan Sharif. Ali Brothers Construction Company Pace N Pace, Chungi # 6 Multan. N. Brothers P/o Khas Chak # 135/9 AL, Tehsil & District Sahiwal. 144 145 146 147 148 149 150 151 152 153 154 155 Domestic Sr. No. 34102–7637089–5 34302–1570278–5 35202–7765404–7 35202–2540360–9 34603–2958630–5 34603–4823831–3 34603–5421666–1 34603–8801390–5 36103–4574161–7 32304–2302113–1 32304–2168022–5 36402–7733111–9 36402–7279330–1 Basharat Ali Sana Ullah Hamid Parvez Qazi Muhammad Masood Mirza Ejaz Baig Mirza Afzal Baig Mirza Sarfraz Baig Shahzad Baig Qamar Abbas Tabbasum Muhammad Nawaz Misry Ameer Hayder Ghulam Murtaza Ghulam Mustafa 36502–1288490–1 38405–5284274–9 Jaffar Hussain Muhammad Niaz 36303–9853090–5 Rao Naveed Ahmed 36302–3754518–9 36302–0430104–9 61101–4264678–5 Qaisar Shahzad Ali Murad Muhammad Imran 37405–0279824–9 NIC No. Ali Raza Name Name of individuals/ partners/ directors Abdul Aziz Karmani Haji Ghulam Akbar Siddiqui Haji Ghulam Akbar Siddiqui Ghulam Qadir Ghulam Qadir Muhammad Hussain Allah Dad Khan Muhammad Nawaz Mirza Iqbal Baig Mirza Iqbal Baig Mirza Iqbal Baig Mirza Iqbal Baig Qazi Muhammad Mehboob Qazi Muhammad Mehboob Muhammad Nazir Qaim Din Ch. Munir Ahmed Rao Abdul Sattar Abdul Hameed Raja Aman Ullah Father's /Husband's name 86 5,183 161 265 796 1,877 328 926 1,278 918 848 1,201 Principal 554 4,538 536 655 1,520 2,936 570 607 642 1,124 1,100 1,274 Interest / mark up – – – – 31 105 – 37 52 63 38 196 Others 671 9,826 697 957 2,368 4,876 936 1,729 1,920 2,042 1,948 2,475 Total Outstanding liabilities at beginning of the year – – – – – – – – – 918 848 1,201 Principal Written off 507 4,438 540 663 1,478 2,733 546 543 564 1,163 1,136 1,325 Interest/ Markup Written off/ waived 31 105 – 37 52 63 38 196 – – – – Other Fin. Reliefs Provided 538 4,543 540 700 1,530 2,796 584 739 564 2,081 1,984 2,526 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 327
330. 328 Name and address of the borrower Delta Agro Chemicals Trust Plaza Chowk Dera Adda Multan . Allah Rakha Mouza Lal Deh Tehsil & District Vehari. Mola Bux House # B–48, PH–II, Qasimabad, Hyderabad Mumtaz Electronic House # R–1020 Sector 15–B, Buffer Zone, North Karachi Muhammad Bashir House # 121, Block–6, E Market, PECHS, Karachi Syed Shan e Ali Naqvi House # R–1145, Block–20, Incholi Society, F.B. Area, Karachi Hassan Board Industries 22–Kilometer, Mannoabad G.T Road Muridke Diamond Paper Board Mills (Pvt) Ltd 8–Km Faisalabad Road, Opposite Mitha Masoon Darbar Sargodha Muhammad Imran Khan St# 31, Charaghia Chowk, Gulzaib Colony, Mumtaz Abad, Multan Malik Tashif Yousaf Pul Aik Habib Pura Pasrur Road C/O Muhammad Saleem Mir Timber Market Sialkot Sajjad Traders Ghalla Mandi Jhang AL Kisan Sizing Industries Qadirabad Ghulam Muhammadabad Faisalabad Wasif Mazhar House No. 1137, Street No. 26, Sector I–10/4, Islamabad 156 157 158 159 160 161 162 163 164 165 166 167 168 Domestic Sr. No. 36302–0038778–3 36603–6337806–1 41306–9318285–1 42101–5309082–5 42201–1900731–9 42101–1567806–9 34101–0264801–5 33100–0628011–5 34101–4139549–7 34101–6135784–5 36302–3589832–7 34603–2824318–7 33202–1771658–3 36501–4929276–3 33100–6446481–9 61101–4121015–3 Allah Rakha Mola Bux Syed Naeem Ahmed Muhammad Bashir Syed Shan e Ali Naqvi Chaudhary Muhammad Ramzan Muhammad Ashraf Muhammad Umair Asif Mian Maqsood ul Hassan Muhammad Imran Khan Malik Tashif Yousaf Sajjad Raza Khan Amjad Hussain Muhammad Ijaz Wasif Mazhar NIC No. Muhammad Mazhar Javed Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Mian Mazhar ul Haq Chaudhry Muhammad Saleem Muhammad Hussain Ahmed Raza Khan Malik Muhammad Yousaf Khan Muhammad Usman Khan Talib Hussain Muhammad Ramzan Mian Muhammad Hassan Muhammad Hassan Syed Shan e Muhammad Naqvi Muhammad Ali Syed Mumtaz Ahmed Balu Faqeer Sakandar Ali Khan Muhammad Sarwar Father's /Husband's name 512 19,327 3,442 404 160 – – 1,013 1,000 3,996 1,990 350 2,999 Principal 953 13,837 1,611 572 564 8,046 30,485 542 603 2,931 762 324 2,137 Interest / mark up – 28 65 17 30 8 8 – – – – 30 50 Others 1,465 33,192 5,118 993 754 8,054 30,493 1,555 1,603 6,927 2,752 704 5,186 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – – – Principal Written off 918 13,893 1,680 534 525 8,046 30,485 513 620 2,975 752 674 2,089 Interest/ Markup Written off/ waived – 28 65 17 30 8 8 – – – – 30 50 Other Fin. Reliefs Provided 918 13,921 1,745 551 555 8,054 30,493 513 620 2,975 752 704 2,139 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
331. Name and address of the borrower Super Master Industries Plot # 35, Sector 12/B, Industrial Area, North Karachi, Karachi F. Y. International Shop # 1, Ground Floor, Rehman Heights, Plot # PR–1/20/V–4–B–25, Preedy Quarters, Karachi Zafar Iqbal and Brothers Ghalla Mandi Jalalpur Bhattian District Hafizabad Muhammad Nawaz Khad Dealer Ghalla Mandi Ghakhar, Tehsil Wazirabad District Gujranwala. Wajid Traders Ghalla Mandi Ghakhar, Tehsil Wazirabad District Gujranwala. Qasim Brothers Ghalla Mandi Ghakhar, Tehsil Wazirabad District Gujranwala. Cherished Pharmaceutical (Pvt.) Ltd Office No.143, Street Nio.65, Sector F–10/3, Islamabad AZM Chemical Company Plot No. F–18, Block–06, P.E.C.H.S., Shahrah–e– Faisal, Karachi. Royal Cosmo Industries (Pvt.) Ltd Addha Town, Daska Road, Sialkot. Rahmz International 6 K.M. Daska Road, Sialkot. Sohail Siraj Shop # 3, Ground Floor, Kiran Hight, Bihar Muslim Co–operative Housing Society Ltd, Karachi 169 170 171 172 173 174 175 176 177 178 179 Domestic Sr. No. 34104–2280839–9 34104–5615422–5 61101–1903673–1 42201–0967845–9 34601–0733320–3 34601–0711490–0 Wajid Javed Qasim Javed Muhammad Azam Syed Wajahat Hussain Zaidi Mian Imran Saeed Shazia Saeed 42201–2919992–1 34104–2214278–9 Muhammad Nawaz Sohail Siraj 34302–1250301–9 Sana Ullah 34601–0733320–3 42101–3082237–5 Muhammad Younus Mian Imran Saeed 42101–4620989–9 NIC No. Aqeel Ahmed Name Name of individuals/ partners/ directors Siraj ul Arfin Mian Khalid Saeed Mian Khalid Saeed Mian Imran Saeed Syed Muhammad Aslam Zaidi Muhammad Hafeez Chaudhary Muhammad Javed Muhammad Javed Rehmat Khan Sher Muhammad Muhammad Yousuf Aziz Mohammad Father's /Husband's name 1,121 – 84,302 24,999 1,041 – – 1,147 250 750 4,210 Principal 1,506 26,849 174,932 30,240 968 647 878 965 1,149 1,207 15,490 Interest / mark up – – – 1,470 – – 17 17 58 33 34 Others 2,627 26,849 259,234 56,709 2,009 647 895 2,129 1,457 1,990 19,734 Total Outstanding liabilities at beginning of the year – – 84,302 – – – – – – – – Principal Written off 1,211 26,849 174,932 30,686 1,003 647 728 735 860 1,175 14,602 Interest/ Markup Written off/ waived – – – 1,470 – – 17 17 58 33 34 Other Fin. Reliefs Provided 1,211 26,849 259,234 32,156 1,003 647 745 752 918 1,208 14,636 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 329
332. 330 Name and address of the borrower New Malik Enterprises Street # 1, House # 1, Raza Abad, Suraj Miani Road, Multan. Saba Corporation Opposite Atta Faiz–e– Aam High School, Chowk Shahbaz, Vehari Road Multan. Fauji Brothers Rice Dealer Quaid–E–Azam Millat Road Khan Pur. Rana Muhammad Iqbal Shakir Mauza Jatoi Shumali Bismillah Colony, Tehsil Jatoi & District Muzaffargarh. Abbas Rice Mills House # 49–C–1, Nespak Housing Society, College Road Township Lahore & Faiz Pur Colony, Dakh Khana Mandi Faizabad, Tehsil Nankana Sahib, District Sheikhupura. Asif Yousaf House # 396, Block–Z, Phase–III, Lahore Al Hamd Commission Shop Main Lahore Jaranwala Road, Mandi Faizabad, Tehsil and Dist Nankana Sahab, Sheikhupura Muhammad Younis Bhatti Chak No. 106GB Tehsil Jaranwala distt Faisalabad Nawaz Ahmad Malik H#209 J2,Johar Town Near Expo Centre Lahore Muhammad Ishfaq Chak Kot Wala, Ward No 4, Shah Shakor, Jhang 180 181 182 183 184 185 186 187 188 189 Domestic Sr. No. 36103–2008740–9 36302–0366520–7 36302–0471008–9 31301–1287943–9 31301–3876499–4 31301–1429404–6 32302–1712274–9 32302–5901986–7 35402–7515531–1 35201–5979837–7 35402–1971810–9 33104–2194702–1 35202–2795373–3 33202–6962971–3 Tahir Hussain Kamran Ahmad Muhammad Farooq Toor Farzana Iqbal Rafiqan Bibi Rana Muhammad Iqbal Shakir Shafaqt Ali Ch. Jameel Ahmed Asif Yousaf Ashfaq Ahmed Muhammad younis Bhatti Nawaz Ahmad Malik Muhammad Ishfaq NIC No. Mumtaz Hussain Name Name of individuals/ partners/ directors Unconsolidated Financial Statements Bahadur Fayyaz Ahmad Malik Allah DAD Khan Muhammad Ashfaq Muhammad Yousaf Ch. Munir Ahmed 348 329 – 999 3,713 3,991 379 1,593 Ghulam Nabi Muhammad Farooq Hassan Ud Din Rana Naseer Liaqat Ali 5,997 1,435 Principal Malik Hussain Buksh Javed Hussain Ashiq Hussain Father's /Husband's name 169 427 663 1,605 2,482 15,313 589 1,190 4,647 1,834 Interest / mark up – 32 16 – – 17 20 27 100 66 Others 549 772 663 2,604 6,212 19,324 995 2,883 10,710 3,269 Total Outstanding liabilities at beginning of the year – – – – – – – – – – Principal Written off 531 506 663 1,635 2,581 15,302 582 1,222 4,847 1,887 Interest/ Markup Written off/ waived – 16 – – 17 20 27 100 66 – Other Fin. Reliefs Provided 531 522 663 1,635 2,598 15,322 609 1,322 4,913 1,887 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
333. Name and address of the borrower Inam Ur Rahim 162 –A Tnt Abpara Housing Society raiwind Road ,Lahore National Poultry Farm Machli Chowk, Pakpattan Sharif, Tehsil & District Pakpattan Sharif. Muhammad Akram Flat # 401, Block –20, Samama Corner , Gulistan–E–Johar Karachi Arshad Diyal Kiryana Store Shop No.26, Jaranwala Road Chak Jhumra District Faisalabad Hamid Nazir Chaudhry House No. P–57/2 Bilal Road Civil Line Faisalabad. A H Zed & Knitwear P–119/H Tahir Road Near Hashmat Chowk Gulistan Colony No.01 Faisalabad Sooban Cotton Industries (Pvt) Ltd (Borrower Code: 54847) Adda Sanjar Syyedan, Mouza Pridhan Sharqi, Tehsil Taunsa Sharif & District Dera Ghazi Khan. Yasir Saleem Traders Madni Colony Ghallah Mandi Bahawalnagar. Muhammad Akram & Co Ghallah Mandi Burewala District Vehari Amdani Medicine Co Office No. 303 3Rd Floor Makkah Medicine Market Kachi Gali Marriot Road Karachi Muhammad Shahnawaz Ahmed House # 343 Sector 14 Block I Sir Syed Colony Orangi Town Karachi 190 191 192 193 194 195 196 197 198 199 200 Domestic Sr. No. 35202–2909989–5 36402–0765986–5 36302–6439255–7 33101–8948485–5 33101–1687705–7 33100–0576921–5 33100–0576921–5 32303–8986094–5 32303–5416573–7 32303–4833161–7 31101–2517744–3 31101–4700105–4 31101–9398118–8 36601–8373179–5 36601–0559628–1 42201–0622163–1 42401–1849634–7 Fida Hussain Muhammad Akram Muhammad Arshad Muhammad Afzal Hamid Nazir Chaudhry Hamid Nazir Chaudhry Muhammad Rafi Manzoor Hussain Ahmad Yar Muhammad Naseem Akhtar Zubaida Begum Nusrat Parveen Muhammad Akram Munawar Khan Muhammad Farooq Amdani Muhammad Shahnawaz Ahmed NIC No. Inam Ur Rahim Name Name of individuals/ partners/ directors Ghulam Jillani Haji Ahmed Fateh Muhammad Farzand Ali Khan "Rao Ahmad Khan Muhammad Ameen Muhammad Naseem Akhtar Mehar Allah Yar Mehar Allah Yar Khuda Bux Haji Nazir Ahmed Haji Nazir Ahmed Muhammad Akbar Riyasat Ali Mian Muhammad Akbar Javed Iqbal Father's /Husband's name – – 406 81 1,721 – 3,746 1,499 8 499 3,865 Principal 3,608 1,700 757 527 7,224 1,046 5,486 741 492 654 590 Interest / mark up – 33 – 26 32 66 59 67 58 128 36 Others 3,641 1,700 1,189 640 9,011 1,105 9,299 2,298 628 1,189 4,455 Total Outstanding liabilities at beginning of the year – – – – – – – – – – – Principal Written off 3,458 1,700 641 499 7,289 1,046 5,596 790 596 674 579 Interest/ Markup Written off/ waived 33 – 26 32 66 59 67 58 – 36 – Other Fin. Reliefs Provided 3,491 1,700 667 531 7,355 1,105 5,663 848 596 710 579 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 331
334. 332 Name and address of the borrower Unconsolidated Financial Statements Tallat Mehmood House No 69 Block B –Iii Johar Town Lahore Rana Brothers Moulding Works 11– K.M G.T Road Soo Moria Pul Ferozwala Shahdara Lahore. Ch. Fazal Hussain House No. D–6/G. 7Th Road, D Block, Satellite Town, Rawalpindi H. No. 309 D, Satellite Town Rwp Syeda Zaheen Akhtar House No Na–85D Street No#9, Near 07Th Road New Malpur, Satellite Town, Rawalpindi 54/3C, School Road, Sector G–7/2, Islamabad Mr. Ghulam Abbas Chattha Muhallah Madni Town Near Unchy Minar Wali Masjid Rasool Nagar Road Alipur Chattha Awais Ashraf Commission Shop Mangta Wala Road Tehsil Pindi Bhattian Dist Hafizabad Al Mudassar Corporation Thatta Gahra Near Ali Rice Mills Tehsil Pindi Bhattian Distt Hafizabad 202 203 204 205 206 207 208 35202–6147786-9 35202–8437757–1 35202–8328320–9 37405–6946504–7 61101–1877240–8 34104–5188852–9 34302–3834624–1 34302–1252625–9 Tallat Mehmood Mushtaq Ahmed Salamat Ali Ch. Fazal Hussain Syeda Zaheen Akhtar Ghulam Abbas Muhammad Ashraf Ansar Iqbal 209 35404–2759799–7  35202–0217025–7  35202–3779689–2 35201–1221392–9 35202–6366524–1 35202–2367448–0  35202–1715045–6  35202–2559536–3  35202–4650926–3 34601–0336550–1 NIC No. Ch. Muhammad Shafique Mrs Sarwar Sultana Khalid Pervaiz Muhammad Umer Aniqa Shafique Shamsa Yaseen Muhammad Ilyas Butt  Ch. Yasin Mukhtar Waheed Akbar Name Name of individuals/ partners/ directors Umer Aslam Umer Aslam Haji Ghulam Muhallah Ram Garh Gujranwala Road Sheikhupura Chaudhry Steel Re– Rolling Mills (Pvt.) Ltd 79–Peco Road, Badami Bagh, Lahore 201 Domestic Sr. No. Mian Muhammad Aslam Nasar Ullah Khan Sai Muhammad Allah Ditta Syed Saleh Hussain Shah Ch. Muhammad Shafi Allah Rakha Ahmed Din Ch. Muhammad Alam Ch. Noor Muhammad Muhammad Shafique Abdul Rahim Muhammad Hussain Ch. Muhammad Shafique Ch. Yaseen Mukhtar Jamal Din Mukhtar Ahmed Muhammad Akbar Ali Father's /Husband's name 438 327 361 2,951 1,113 4,996 407 4,716 – Principal 488 467 547 355 1,202 1,381 11,516 2,446 61,225 Interest / mark up 32 78 168 52 – – – 25 15 Others 958 872 1,076 3,358 2,315 6,377 11,923 7,187 61,240 Total Outstanding liabilities at beginning of the year – – – – – – – – – Principal Written off 509 427 568 524 1,236 1,582 10,787 2,686 61,225 Interest/ Markup Written off/ waived 32 78 114 52 – – – 17 15 Other Fin. Reliefs Provided 541 505 682 576 1,236 1,582 10,787 2,703 61,240 Total (Rupees in '000) Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021
335. Name and address of the borrower Khursheed Towel House # 97–11, Sector 5–G, North Karachi Township, Karachi 211 N.B. Foods (Pvt) Ltd N0. 125, 5th Cross Street, Colombo–11, Sri Lanka Abi Trades No.25, I.X.Perera Street, Colombo –11. Arkem Pharmaceuticals No.12 1/1, Prince Of Wales Avenue, Colombo–14. Ulka Apparel Manuf. (P) Ltd 71/4–1/1, Temple Road, Nawala. Rajaah's Enterprises No.143, Bankshall Street, Colombo 11. 1 2 3 4 5 Overseas Asif Azhar VPO akwal tehsil Talagang Distt Chakwal 210 Domestic Sr. No. Syed Rehm Shah Syed Fateh Shah Asghar Ali Randhawa Haji Muhammad Akbar 662753491V 34202–8307644–5 228–91–092182 270–65–390326 61101–1863743–1 692453344V 4077318V 788020031V Ramasamy Sivaraj Syed Shafqat Hussain Shah Syed Abdullah Shah Asghar Ali Randhawa Ahmed Ali Randhawa Ejaz Ahmed Chaudry Mobeen Shahzad Chaudry A K Fernando M N A Fernando J F Machado Fernando Fernando Machado Sivaraj 665804143V Arokiaraj Ravi Premila Poobalarayen Suresh Perera Seneviratne Seneviratne Khursheed Ahmed Khan Lodhi 882341330V 792520030V 650422651V 655791884V 665661563V 42101–8574119–7 Dilshad Ahmed Khan Lodhi Zafar Iqbal Father's /Husband's name Andrew James Alston Poobalarayen Kannpathy Suresh Hewayalage Sunil Perera Asha Seneviratne Anusha Seneviratne 37203–8205476–3 NIC No. Asif Zafar Name Name of individuals/ partners/ directors 612,133 1,109 3,580 5,312 3,687 – – 1,646 Principal 1,400,864 12,465 15,804 62,961 64,749 31,797 499 689 Interest / mark up – 8,754 – – – – – 46 Others 2,021,751 13,574 19,384 68,273 68,436 31,797 545 2,335 Total Outstanding liabilities at beginning of the year 394,525 1,109 – 5,312 3,687 – – – Principal Written off 1,400,719 12,465 15,804 62,961 64,749 31,797 499 704 Interest/ Markup Written off/ waived 8,883 – – – – – 46 – Other Fin. Reliefs Provided 1,804,127 13,574 15,804 68,273 68,436 31,797 545 704 Total (Rupees in '000) Annual Report 2021 Annexure I Statement showing written-off loans or any other financial relief of five hundred thousand or above provided during the year 2021 Annual Report 2019 333
336. 334 Laptop Computers Description 268 268 268 – – Book value (Rupees in '000) Accumulated depreciation 268 Cost/ revalued amount Mode of disposal 54 54 As per Bank's policy Sales proceeds Kamran Zafar Muggo Particulars of buyers Lahore Location Annexure I I Disposal of fixed assets (refer note 12.2.6) Unconsolidated Financial Statements
337. Annual Report 2021 Consolidated Financial Statements MCB Bank Limited Annual Report 2019 335
338. Directors ’ Report On Consolidated Financial Statements The Board of Directors present the report on the consolidated financial statements of MCB Bank Limited and its subsidiaries namely MCB – Arif Habib Savings & Investments Limited, MCB Islamic Bank Limited, Financial & Management Services (Private) Limited and MCB Non-Banking Credit Organization Closed Joint Stock Company for the year ended December 31, 2021. Profit and Appropriation The profit before and after taxation for the year ended December 31, 2021 together with appropriations is as under: Profit Before Taxation Rs. in Million 53,275 Taxation(21,947) Profit After Taxation Profit attributable to non-controlling interest 31,328 (148) Profit attributable to Equity shareholders of the Bank Un-appropriated profit brought forward Re-measurement gain on defined benefit obligations – net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to un-appropriated profit - net of tax 31,180 70,499 38 115 250 83 70,985 Profit Available for Appropriation 102,165 Appropriations: Statutory Reserve Final Cash Dividend at Rs. 15.0 per share - December 31, 2020 First Interim Cash Dividend at Rs. 4.5 per share - March 31, 2021 Second Interim Cash Dividend at Rs. 5.0 per share - June 30, 2021 Third Interim Cash Dividend at Rs. 4.5 per share - September 30, 2021 3,101 17,776 5,333 5,925 5,333 Total Appropriations 37,468 Un-appropriated Profit Carried Forward 64,697 Earnings Per Share (Rs) 26.31 For and on behalf of the Board of Directors, Shoaib Mumtaz President & CEO MCB Bank Limited February 10, 2022 336 Unconsolidated Financial Statements Shahzad Hussain Director MCB Bank Limited
339. Annual Report 2021 Annual Report 2019 337
340. INDEPENDENT AUDITOR ’S REPORT To the members of MCB Bank Limited Opinion We have audited the annexed consolidated financial statements of MCB Bank Limited and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at December 31, 2021, and the consolidated profit and loss account, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated cash flow statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. In our opinion, consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at December 31, 2021 and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with the accounting and reporting standards as applicable in Pakistan. Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs) as applicable in Pakistan. Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants as adopted by the Institute of the Chartered Accountants of Pakistan (the Code), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matter(s) Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Following is the Key audit matter: S. No. 1 Key Audit Matter How the matter was addressed in our audit Provision against advances (Refer note 3.4, note 6.5 and note 11.4 to the Our audit procedures to verify provision against advances included, amongst others, the following: annexed consolidated financial statements) The Group makes provision against advances • We obtained an understanding of the design extended in Pakistan on a time-based criteria that of relevant controls established by the Group involves ensuring that all non-performing advances to identify loss events and for determining the are classified in accordance with the ageing criteria extent of provisioning required against nonspecified in the Prudential Regulations (PRs) issued performing advances. by the State Bank of Pakistan (SBP). The testing of controls included testing of: In addition to the above time-based criteria, the PRs require a subjective evaluation of the • controls over correct classification of noncredit worthiness of borrowers to determine the performing advances on time-based criteria; classification of advances. • controls over monitoring of advances with The PRs also require the creation of general higher risk of default and correct classification provision for certain categories of advances. of advances on subjective criteria; Provision against advances of overseas branches • controls over accurate computation and is made as per the requirements of the respective recording of provisions; and regulatory regimes. • controls over the governance and approval process related to provisions, including continuous reassessment by the management. 338 Unconsolidated Financial Statements
341. Annual Report 2021 S . No. Key Audit Matter How the matter was addressed in our audit Further, last year, several borrowers had availed We selected a sample of loan accounts and the SBP enabled deferment / restructuring performed the following substantive procedures: and rescheduling relief given as a result of the • checked repayments of loan / mark-up COVID-19 pandemic. The Group had expected that the repayment capacity of borrowers could be installments and tested classification of impacted due to the pandemic and had accordingly non-performing advances based on the recognised additional general provision against number of days overdue; and the domestic funded performing credit portfolio. The provision had been recognised based on • evaluated the management’s assessment management’s best estimate. for classification of a borrower’s loan facilities as performing or non-performing As at December 31, 2021, the Group holds a total based on review of repayment pattern, provision of Rs 46,052 million against advances in inspection of credit documentation, the consolidated financial statement of the Group. discussions with the management and management’s consideration of the impact The determination of provision against advances of COVID-19 on the borrower. based on the above criteria remains a significant area of judgement and estimation. Because of the We checked the accuracy of specific provision made significance of the impact of these judgements/ against non-performing advances and of general estimations and the materiality of advances relative provision made against performing advances to the overall consolidated statement of financial in accordance with the requirements of PRs by position of the Group, we considered the area of recomputing the provision amount in accordance provision against advances as a Key Audit Matter. with the criteria prescribed under the PRs. We evaluated the management’s assessment with respect to general provision on account of the COVID-19 pandemic. We issued instructions to auditors of those overseas branches which were selected for audit, highlighting ‘Provision against advances’ as a significant risk. The auditors of those branches performed audit procedures to check compliance with regulatory requirements and reported the results thereof to us. We, as auditors of the Group, evaluated the work performed by the component auditors and the results thereof. Information Other than the Consolidated and Unconsolidated Financial Statements and Auditor’s Reports Thereon Management is responsible for the other information. The other information comprises the information included in the Annual Report, but does not include the consolidated and unconsolidated financial statements and our auditor’s reports thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Annual Report 2019 339
342. Responsibilities of Management and Board of Directors for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting and reporting standards as applicable in Pakistan and Companies Act , 2017 and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The Board of Directors is responsible for overseeing the Group’s financial reporting process. Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs as applicable in Pakistan will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs as applicable in Pakistan, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal controls. • Obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. • Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with the Board of Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. 340 Unconsolidated Financial Statements
343. Annual Report 2021 We also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence , and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. Other Matter The consolidated financial statements of the Group for the year ended December 31, 2020 were audited by another firm of Chartered Accountants who expressed an unqualified opinion thereon vide their report dated February 26, 2021. The engagement partner on the audit resulting in this independent auditor’s report is Hammad Ali Ahmad. A. F. Ferguson & Co Chartered Accountants Lahore Date: March 7, 2022 UDIN: AR20211009261VnoGZoA Annual Report 2019 341
344. Consolidated Statement of Financial Position As at December 31 , 2021 Note 20212020 (Rupees in '000) ASSETS Cash and balances with treasury banks 7 Balances with other banks 8 Lendings to financial institutions 9 Investments 10 Advances 11 Fixed assets 12 Intangible assets 13 Deferred tax assets Other assets 14 175,922,469 22,554,329 40,617,110 1,062,568,511 686,388,652 62,351,545 1,838,136 – 69,880,727 132,053,041 29,011,521 17,968,243 1,036,217,535 547,685,708 63,679,312 1,867,244 – 62,793,791 LIABILITIES 2,122,121,479 1,891,276,395 Bills payable 16 Borrowings 17 Deposits and other accounts 18 Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities 19 Other liabilities 20 26,486,445 282,898,882 1,534,586,671 – – 1,578,782 99,002,039 26,451,513 184,577,340 1,388,737,961 – – 7,491,040 91,027,158 1,944,552,819 1,698,285,012 NET ASSETS 177,568,660 192,991,383 Share capital 21 Reserves 22 Surplus on revaluation of assets - net 23 Unappropriated profit 11,850,600 85,043,592 15,225,689 64,697,360 11,850,600 81,060,051 28,803,351 70,498,820 Non-controlling interest 176,817,241 751,419 192,212,822 778,561 CONTINGENCIES AND COMMITMENTS24 177,568,660 192,991,383 REPRESENTED BY The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Shoaib Mumtaz President/Chief Executive 342 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
345. Annual Report 2021 Consolidated Profit and Loss Account For the year ended December 31 , 2021 Note Mark-up / return / interest earned Mark-up / return / interest expensed 26 27 20212020 (Rupees in '000) 132,609,303 64,231,302 145,772,451 69,929,012 Net mark-up / interest income NON MARK-UP / INTEREST INCOME 68,378,001 75,843,439 Fee and commission income 28 Dividend income Foreign exchange income Income from derivatives Gain / (loss) on securities 29 Other income 30 13,691,432 1,955,213 3,847,755 14,035 262,835 883,253 11,971,491 969,322 2,735,228 4,087 3,396,296 192,103 Total non-markup / interest Income 20,654,523 19,268,527 Total Income 89,032,524 95,111,966 Operating expenses 31 Workers welfare fund 32 Other charges 40,589,732 1,058,419 525,339 37,763,917 974,808 297,987 Total non-markup / interest expenses Share of profit of associates 42,173,490 39,036,712 943,587 573,078 Profit before provisions 47,802,621 56,648,332 (Reversals) / provisions and write offs - net 33 Extra ordinary / unusual items (5,472,779) – 7,330,044 – PROFIT BEFORE TAXATION 53,275,400 49,318,288 Taxation 21,947,646 19,756,019 PROFIT AFTER TAXATION 31,327,754 29,562,269 Attributable to: Equity shareholders of the Bank Non-controlling interest 31,179,708 148,046 29,410,227 152,042 31,327,754 29,562,269 NON MARK-UP / INTEREST EXPENSES 34 (Rupees) Basic and diluted earnings per share attributable to ordinary shareholders 35 26.31 24.82 The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Shoaib Mumtaz President/Chief Executive Hammad Khalid Chief Financial Officer S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director Annual Report 2019 343
346. Consolidated Statement of Comprehensive Income For the year ended December 31 , 2021 20212020 (Rupees in '000) 31,327,754 29,562,269 - Equity shareholders of the Bank - Non-controlling interest 874,022 29 212,508 7 Share of exchange translation reserve of associate 874,051 212,515 8,328 7,321 - Equity shareholders of the Bank (13,196,825) 4,074,542 Movement in surplus on associated undertaking - net of tax 96,189 (24,823) (13,100,636) 4,049,719 Items that will not be reclassified to profit and loss account in subsequent periods: (12,218,257) 4,269,555 37,922 (152,202) 124,017 (342,311) – 119,544 9,737 (222,767) Total comprehensive income 19,119,234 33,609,057 - Equity shareholders of the Bank - Non-controlling interest 18,971,159 148,075 33,457,008 152,049 19,119,234 33,609,057 Profit after taxation for the year Other comprehensive income / (loss) Items that may be reclassified to profit and loss account in subsequent periods: Effect of translation of net investment in foreign branches and subsidiaries Movement in surplus/ (deficit) on revaluation of investments - net of tax Remeasurement gain / (loss) on defined benefit obligations - net of tax Movement in surplus on revaluation of operating fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Attributable to: The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Shoaib Mumtaz President/Chief Executive 344 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
347. Capital reserve Revenue reserveSurplus /(deficit) on revaluation of – – – – – – Share of dividend attributable to Non-controlling interest – – Share of dividend attributable to Non-controlling interest 11,850,600 23,973,024 – – 908,317 – – – – – – – – – – – – – 908,317 – – – – – – – – – – – 908,317 – – – – – – – – – – – – – – – – – – – – – – – – 4,074,542 – – – – – 4,074,542 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – (13,196,825) – – – – – (13,196,825) 3,832,533 37,729,718 18,600,000 (4,796,032) – – – – – – – – – 882,350 – – 3,101,191 – 882,350 2,950,183 34,628,527 18,600,000 8,400,793 – – – – – – – 219,829 – – 2,945,393 – 219,829 2,730,354 31,683,134 18,600,000 4,326,251 Annual Report 2019 Shoaib Mumtaz President/Chief Executive Hammad Khalid Chief Financial Officer S.M. Muneer Director 90,800 22,544 4,774 – – – – (11,850,600) (11,850,600) – – – – (5,925,300) (5,925,300) – (5,925,300) (5,925,300) (90,800) (22,544) (4,774) 119,544 29,067,916 33,457,008 – (2,945,393) – – 29,410,227 29,410,227 119,544 (342,311) 4,046,781 (17,775,900) (5,332,770) (5,925,300) (5,332,770) (17,775,900) (5,332,770) (5,925,300) (5,332,770) – (34,366,740) (34,366,740) – – – – – – – – – – Mian Umer Mansha Director – – – (17,775,900) (5,332,770) (5,925,300) (5,332,770) – – 751,419 177,568,660 – (34,366,740) (175,217) (175,217) – – – – – – – 148,075 19,119,234 – – 148,046 31,327,754 29 (12,208,520) 778,561 192,991,383 – (11,850,600) (113,891) (113,891) – (5,925,300) – (5,925,300) – – – 152,049 33,609,057 – – 152,042 29,562,269 7 4,046,788 740,403 171,346,817 Grand Total Shahzad Hussain Director 416,128 19,605,593 64,697,360 176,817,241 – – – – – – 83,370 115,260 250,211 (28,185) 31,217,630 18,971,159 – (3,101,191) – – 31,179,708 31,179,708 (28,185) 37,922 (12,208,549) – (83,370) – (115,260) – (250,211) 96,189 – – 96,189 319,939 20,082,619 70,498,820 192,212,822 – – – – – – – (24,823) – – (24,823) 344,762 20,081,193 56,108,779 170,606,414 (Rupees in '000) For details of dividend declaration and appropriations, please refer note 46 to these consolidated financial statements. For details of reserves, please refer note 22 to these consolidated financial statements. The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Balance as at December 31, 2021 – – – – – – – – – – – – – – – – – – – – – – 11,850,600 23,973,024 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 15.0 per share - December 31, 2020 Interim cash dividend at Rs. 4.5 per share - March 31, 2021 Interim cash dividend at Rs. 5.0 per share - June 30, 2021 Interim cash dividend at Rs. 4.5 per share - Sep 30, 2021 Balance as at December 31, 2020 Total comprehensive income for the year ended December 31, 2021 Profit after taxation for the year ended December 31, 2021 Other comprehensive loss - net of tax – – – – – – – – – – – – – – – – 11,850,600 23,973,024 Transfer to statutory reserve Transfer in respect of incremental depreciation from surplus on revaluation of fixed assets to unappropriated profit - net of tax Surplus realized on disposal of revalued fixed assets - net of tax Surplus realized on disposal of revalued non-banking assets - net of tax Transactions with owners, recorded directly in equity Final cash dividend at Rs. 5.0 per share - December 31, 2019 Interim cash dividend at Rs. 5.0 per share - March 31, 2020 Balance as at December 31, 2019 Total comprehensive income for the year ended December 31, 2020 Profit after taxation for the year ended December 31, 2020 Other comprehensive income - net of tax Share Share Non- Exchange Statutory General Fixed / Unappropriated Sub Non capital premium distributabletranslation reserve reserve Investments Associate non-banking profit Total controlling capital reserve reserve assets interest Annual Report 2021 Consolidated Statement of Changes in Equity For the year ended December 31, 2021 345
348. Consolidated Cash Flow Statement For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) CASH FLOW FROM OPERATING ACTIVITIES Profit before taxation Less: Dividend income and share of profit of associates 53,275,400 (2,898,800) 49,318,288 (1,542,400) Adjustments: 12.2 Depreciation on fixed assets Depreciation on right of use assets 31 Impairment on fixed assets Depreciation on non-banking assets acquired in satisfaction of claims 31 Amortization 13 Provisions / (reversals) and write offs - net 33 Workers Welfare Fund Gain on sale of non-banking assets acquired in satisfaction of claims 30 Gain on conversion of Ijarah agreements 30 Charge for defined benefit plan 31.1 Gain on sale of fixed assets 30 (Gain) / loss on termination of lease liability against right of use assets 30 Unrealized Loss / (gain) on revaluation of investments classified as held for trading 29 Interest expensed on lease liability against right-of-use assets 27 50,376,600 47,775,888 2,587,352 1,709,613 – 35,544 480,826 (5,472,779) 1,058,419 (571,449) (20,761) 289,144 (107,783) (149,129) 2,403,220 1,697,826 4,269 30,049 469,860 7,330,044 974,808 (3,976) (63,290) 74,827 (73,164) 15,637 7,026 1,257,256 (110,269) 1,495,614 1,103,279 14,245,455 Decrease / (increase) in operating assets Lendings to financial institutions Held-for-trading securities Advances Others assets (excluding advance taxation) 51,479,879 62,021,343 (22,648,867) 1,316,226 (133,965,474) (5,854,958) (11,907,374) 8,244,331 (6,724,193) 9,319,674 (Decrease) / increase in operating liabilities Bills Payable Borrowings from financial institutions Deposits Other liabilities (excluding current taxation) (161,153,073) (1,067,562) 34,932 97,007,799 145,848,710 6,448,651 13,656,188 92,691,055 162,144,936 (18,845,300) Defined benefits paid Income tax paid 249,340,092 (250,977) (21,722,469) 249,646,879 (302,940) (16,309,576) Net cash flow from operating activities CASH FLOW FROM INVESTING ACTIVITIES 117,693,452 293,988,144 Net investment in available-for-sale securities Net (investment) / divestment in held-to-maturity securities Dividends received Investments in fixed assets Investments in Intangible assets Proceeds from sale of fixed assets Proceeds from sale of non-banking assets acquired in satisfaction of claims Proceeds from divestment in a subsidiary Effect of translation of net investment in foreign branches & subsidiaries (41,999,823) (4,886,763) 2,177,615 (3,205,076) (451,086) 405,766 2,052,928 – 882,350 (297,967,382) 17,593,419 1,161,822 (3,051,399) (358,181) 191,342 39,000 99,694 212,515 Net cash flow used in investing activities CASH FLOW FROM FINANCING ACTIVITIES (45,024,089) (282,079,170) Dividend paid Payment of lease liability against right-of-use-assets (34,211,540) (2,359,330) (11,872,206) (2,327,634) Net cash flow used in financing activities Effects of exchange rate changes on cash and cash equivalents (36,570,870) (14,199,840) 5,341,973 1,595,436 Increase in cash and cash equivalents 41,440,466 (695,430) Cash and cash equivalents at beginning of the year 155,353,669 161,391,072 196,794,135 160,695,642 36.1 36.1 36 Cash and cash equivalents at end of the year The annexed notes 1 to 48 and annexures I to II form an integral part of these consolidated financial statements. Shoaib Mumtaz President/Chief Executive 346 Hammad Khalid Chief Financial Officer Unconsolidated Financial Statements S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director
349. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 1. STATUS AND NATURE OF BUSINESS The “Group” consists of – Holding company MCB Bank Limited (the ‘Bank’) is a banking company incorporated in Pakistan and is engaged in commercial banking and related services. The Bank’s ordinary shares are listed on the Pakistan stock exchange. The Bank’s Registered Office and Principal Office are situated at MCB -15 Main Gulberg, Lahore. The Bank operates 1,426 branches (2020: 1,418 branches) within Pakistan and 11 branches (2020: 11 branches) outside Pakistan (including the Karachi Export Processing Zone branch). – Subsidiary companies a) MCB - Arif Habib Savings and Investments Limited MCB - Arif Habib Savings and Investments Limited was incorporated on August 30, 2000, as an unquoted public limited company. During 2008, the company was listed on the Pakistan Stock Exchange by way of offer for sale of shares by a few of the existing shareholders of the company to the general public. The registered office of the company is situated at 2nd Floor, Adamjee House, I.I Chundrigar Road, Karachi, Pakistan. b) The Company is registered as a Pension Fund Manager under the Voluntary Pension System Rules, 2005, as an Asset Management Company and an Investment Advisor under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003. The Bank owns 51.33% shares of the company. MCB Non-Bank Credit Organization Closed Joint Stock Company MCB Non-banking Credit Organization Closed Joint Stock Company was incorporated on 16 October 2009 and domiciled in the Republic of Azerbaijan. The company is a closed joint stock company limited by shares and was set up in accordance with Azerbaijani regulations. The registered office of the company is located at 49B Tbilisi Ave. Baku AZ1065, Republic of Azerbaijan. The Bank owns 99.94% shares of the company. The Company’s principal business activity is provision of finance leases within the Republic of Azerbaijan. The Company leases out various types of automotive vehicles, industrial equipment, equipment used in medicine, health care, and for other business needs. In addition, the Company leases out cars and trucks. Further the Company is involved in real estate finance leases. During the year on November 12, 2021, the Central Bank of the Republic of Azerbaijan (CBAR) has issued nonbanking credit organization (NBCO) license (BKT-42) to the Company. c) MCB Islamic Bank Limited MCB Islamic Bank Limited (MCBIBL) was incorporated in Pakistan as an unlisted public limited company on May 15, 2014 to carry out the business of an Islamic Commercial Bank in accordance and in conformity with the principles of Islamic Shari’ah and in accordance with regulations and guidelines of the State Bank of Pakistan. The Securities and Exchange Commission of Pakistan granted “Certificate of Commencement of Business” to MCBIBL on January 30, 2015. MCBIBL is a wholly owned subsidiary of MCB Bank Limited (MCB). The State Bank of Pakistan (SBP) granted a “Certificate of Commencement of Banking Business” to MCBIBL on September 14, 2015 under Section 27 of the Banking Companies Ordinance, 1962. MCBIBL formally commenced operations as a Scheduled Islamic Commercial Bank with effect from October 15, 2015 upon receiving notification in this regard from SBP under section 37 of the State Bank of Pakistan Act, 1956. Currently, MCBIBL is engaged in corporate, commercial, consumer, micro finance, investment and retail banking activities. MCBIBL is operating through 176 branches in Pakistan (December 31, 2020: 187 branches). The Registered Office of the Bank is situated at 59 Block T, Phase II, DHA, Lahore Cantt and Principal Office is situated at 14-A Main Jail Road, Gulberg, Lahore. Annual Report 2019 347
350. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2. d) Financial & Management Services (Private) Limited Financial & Management Services (Private) Limited is fully provided subsidiary and the company is dormant and has no asset and liability. The Members and board of directors of the Bank has approved the winding up of Financial & Management Services (Private) Limited. The Bank holds 95.90% shareholding in this subsidiary. BASIS OF PRESENTATION 2.1 2.2 2.3 2.4 2.5 3. These consolidated financial statements include the financial statements of MCB Bank Limited and its subsidiary companies and share of the profit / reserves of associates (the “Group”). In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate profit in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these consolidated financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of profit thereon. The Islamic Banking operations of the Group have complied with the requirements set out under the Islamic Financial Accounting Standards issued by the Institute of Chartered Accountants of Pakistan and notified under the provisions of the Companies Act, 2017. Key financial figures of the MCBIBL are disclosed in Annexure II to these consolidated financial statements. Items included in these consolidated financial statements are measured using the currency of the primary economic environment in which the Holding Company operates. The consolidated financial statements are presented in Pak Rupees, which is the Group’s functional and presentation currency. The amounts are rounded off to the nearest thousand. These consolidated financial statements have been prepared in conformity with the format of financial statements prescribed by the State Bank of Pakistan (SBP) vide BPRD Circular No. 02, dated January 25, 2018. STATEMENT OF COMPLIANCE 3.1 These consolidated financial statements have been prepared in accordance with accounting and reporting standards as applicable in Pakistan. The accounting and reporting standards comprise of: – International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; – Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017; – Provisions of and directives issued under the Banking Companies Ordinance, 1962, the Companies Act, 2017; and – 348 Directives issued by the SBP and the Securities and Exchange Commission of Pakistan (SECP). Whenever the requirements of the Banking Companies Ordinance, 1962, Companies Act, 2017 or the directives issued by the SBP and the SECP differ with the requirements of IFRS or IFAS, requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The State Bank of Pakistan has deferred the applicability of International Accounting Standards 40, ‘Investment Property’ for Banking Companies through BSD Circular No. 10 dated August 26, 2002. The Securities and Exchange Commission of Pakistan (SECP) has deferred applicability of IFRS-7 “Financial Instruments: Disclosures” on banks through S.R.O 411(1) / 2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in Unconsolidated Financial Statements
351. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 3.2 3.3 accordance with the requirements prescribed by the State Bank of Pakistan through various circulars. IFRS 10 Consolidated Financial Statements was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O 56(I) /2016 dated January 28, 2016, that the requirements of consolidation under section 237 of the repealed Companies Ordinance 1984 (Section 228 of Companies Act 2017) and IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under Trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. The State Bank of Pakistan has deferred the applicability of IFAS 3 ‘Profit and Loss Sharing on Deposits’, through BPRD Circular No.04 dated February 25, 2015. Standards, interpretations and amendments to published approved accounting standards that are effective in the current year There are certain other new standards and interpretations of and amendments to existing accounting standards that have become applicable to the Group for accounting periods beginning on or after January 1, 2021. These are considered either to not be relevant or not to have any significant impact on the Group’s consolidated financial statements. Standards, interpretations and amendments to published approved accounting standards that are not yet effective The following other standards, amendments and interpretations of approved accounting standards are effective for accounting periods beginning on or after January 1, 2022: Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16 Cost of Fulfilling an Onerous Contracts – Amendments to IAS 37 Updating a Reference to the Conceptual Framework – Amendments to IFRS 3 Classification of Liabilities as Current or Non-current – Amendments to IAS 1 Amended by Definition of Accounting Estimates – Amendments to IAS 8 Deferred tax related to assets and liabilities arising from a single transaction – Amendment to IAS 12 Effective date (annual periods beginning on or after) January 1, 2022 January 1, 2022 January 1, 2022 January 1, 2024 January 1, 2023 January 1, 2023 IFRS 9, Financial Instruments: Classification and Measurement, addresses recognition, classification, measurement and derecognition of financial assets and financial liabilities. The standard has also introduced a new impairment model for financial assets which requires recognition of impairment charge based on an ‘Expected Credit Losses’ (ECL) approach rather than the ‘incurred credit losses’ approach as currently followed. The ECL approach has an impact on all assets of the Group which are exposed to credit risk. As per the SBP’s BPRD Circular Letter no. 24 dated July 5, 2021, the applicability of IFRS 9 to banks in Pakistan has been deferred to accounting periods beginning on or after January 1, 2022. The impact of the application of IFRS 9 in Pakistan on the Group’s financial statements is being assessed as per aforementioned circular, however, SBP’s final instructions are awaited. These consolidated financial statements have been prepared in accordance with the existing prudential regime to the extent of the Group’s domestic operations, whereas the requirements of this standard are incorporated for overseas jurisdictions where IFRS 9 has been adopted. Including the above, there are other new and amended standards and interpretations that are mandatory for the Group’s accounting periods beginning on or after January 1, 2022 but are considered not to be relevant or do not to have any significant impact on the Group’s consolidated financial statements and are therefore not detailed in these consolidated financial statements. Annual Report 2019 349
352. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 3.4 Critical accounting estimates and judgements The preparation of consolidated financial statements in conformity with the approved accounting standards requires the use of certain critical accounting estimates. It also requires the management to exercise its judgment in the process of applying the Group’s accounting policies. Estimates and judgments are continually evaluated and are based on historical experiences, including expectations of future events that are believed to be reasonable under the circumstances. Revisions to accounting estimates are recognized in the period in which the estimates are revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The areas where various assumptions and estimates are significant to the Group’s financial statements or where judgment was exercised in the application of accounting policies are as follows: a) Classification of investments In classifying investments, the Group follows the guidance provided in SBP circulars: b) c) – Investments classified as ‘held for trading’, are securities which are acquired with an intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days of acquisition. – Investments classified as ‘held to maturity’ are non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Group evaluates its intention and ability to hold such investment to maturity. – The investments other than those in associates which are not classified as ‘held for trading’ or ‘held to maturity’ are classified as ‘available for sale’. Provision against advances The Group reviews its loan portfolio to assess the amount of non-performing advances and provision required there against on regular basis. While assessing this requirement, various factors including the delinquency in the account, financial position of the borrowers and the requirements of the Prudential Regulations are considered. The amount of general provision is determined in accordance with the relevant regulations and management’s judgment as explained in note 11.4.4. Impairment of ‘available for sale’ equity investments The Group determines that ‘available for sale’ equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates among other factors, the normal volatility in share price. In addition, the impairment may be appropriate when there is an evidence of deterioration in the financial health of the investee and sector performance, changes in technology and operational/financial cash flows. d)Taxation e) 350 In making the estimates for income taxes currently payable by the Group, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. Judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level of future taxable profits, together with future tax planning strategies. Fair value of derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Unconsolidated Financial Statements
353. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 f) Depreciation, amortization, impairment and revaluation of operating fixed assets The management reviews the useful lives and residual values of assets annually by considering expected pattern of economic benefit that the management expects to drive from the item and the maximum period up to which such benefits are expected to be available. Any change in estimates in future years might affect the carrying amounts of the respective items of assets with a corresponding effect on the depreciation charge and impairment. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard (IAS) 8 “Accounting Policies, Changes in Accounting Estimates and Errors”. Further, the Group estimates the revalued amount of land and buildings on a regular basis. The estimates are based on valuations carried out by independent professional valuers under the market conditions. g) h) i) Staff retirement benefits Certain actuarial assumptions have been adopted as disclosed in note 38 of these consolidated financial statements for the actuarial valuation of staff retirement benefit plans. Actuarial assumptions are entity’s best estimates of the variables that will determine the ultimate cost of providing post employment benefits. Changes in these assumptions in future years may affect the liability / asset under these plans in those years. Lease term for lease liability and Right-Of-Use-Asset The Group applies judgment to determine the lease term for some lease contracts in which it is a lessee that include renewal options. The assessment of whether the Group is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognized. Provision and contingent assets and liabilities Provisions are recognized when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimates. Contingent assets are not recognized and are also not disclosed until an inflow of economic benefits is probable. Contingent liabilities are not recognized and are disclosed unless the probability of an outflow of resources embodying economic benefits is remote. 4. 5. 6. BASIS OF MEASUREMENT These consolidated financial statements have been prepared under the historical cost convention except that certain classes of fixed assets and non-banking assets acquired in satisfaction of claims are stated at revalued amounts and certain investments and derivative financial instruments have been marked to market and are carried at fair value. In addition, obligations in respect of staff retirement benefits and lease liabilities which have been carried at present value and right of use assets which are initially measured at an amount equal to the corresponding lease liability and depreciated over the respective lease terms. FINANCIAL RISK MANAGEMENT These risk management policies continue to remain robust and the Group is reviewing its portfolio regularly and conducts rapid portfolio reviews in line with emerging risks. Detailed disclosure on financial risk management has been reported in note 45 to the consolidated financial statements. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these consolidated financial statements are consistent with those of the previous financial year: Annual Report 2019 351
354. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.1 Basis of consolidation a) These consolidated financial statements include the financial statements of MCB Bank Limited and its subsidiary companies and share of the profit / reserves of associates are accounted for under the equity basis of accounting. b) c) d) 6.2 352 Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date when control ceases / the subsidiaries are disposed off. The assets and liabilities of subsidiary companies have been consolidated on a line by line basis based on the financial statements as at December 31, 2021 and the carrying value of investments held by the Bank is eliminated against the subsidiaries’ shareholders’ equity in these consolidated financial statement. Material intra-group balances and transactions have been eliminated. Associates are all entities over which the Group has significant influence but not control or joint control. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost, thereafter for the post-acquisition change in the Group’s share of net assets of the associate, the cumulative post-acquisition movements are adjusted in the carrying amount of the investment. Accounting policies of the associates have been changed where necessary to ensure consistency with the policies adopted by the Group. Non-controlling interest is that part of the net results of operations and of net assets of subsidiary companies attributable to interests which are not owned by the Group. IFRS 16 - Lease Liability & Right of Use Assets The lease liability is initially measured at the present value of lease payments to be made over the term of the lease, discounted using the Group’s incremental borrowing rate. The lease liability is subsequently measured at amortized cost using the effective interest rate method. The carrying amount is remeasured/adjusted if there are changes in the future cash flows or the lease term. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability, adjusted for, as applicable, any lease payments made at or before the commencement date. On subsequent measurement, right-of-use assets are stated at cost less any accumulated depreciation / accumulated impairment losses and are adjusted for any remeasurement of the lease liability. Right-of-use assets are depreciated on a straight line basis over the lease term as this method closely reflects the expected pattern of consumption of future economic benefits. Carrying amount of the lease liability is derecognized upon termination of the lease contract with corresponding adjustment to right-of-use asset. Gain or loss on termination of lease contract is recognized in the consolidated profit and loss account. The Group has elected not to recognize a right-of-use asset and the corresponding lease liability for short-term leases with terms of 12 months or less and leases of low-value assets. Payments associated with these leases are recognized as an expense in the consolidated profit or loss account on a straight-line basis. When there is a change in scope of a lease, or the consideration for a lease, that was not part of the original terms and conditions of the lease is accounted for as a lease modification. The lease modification is accounted for as a separate lease if modification increase the scope of lease by adding the right to use one or more underlying assets and the consideration for lease increases by an amount that is commensurate with the stand-alone price for the increase in scope adjusted to reflect the circumstances of the particular contracts, if any. When the lease modification is not accounted for as a separate lease, the lease liability is remeasured and corresponding adjustment is made to right-ofuse asset. Unconsolidated Financial Statements
355. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.3Investments The Group classifies its investments as follows: Held for trading These are securities, which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. Held to maturity These are securities with fixed or determinable payments and fixed maturity in respect of which the Group has the positive intent and ability to hold to maturity. Available for sale These are investments, other than those in subsidiaries and associates, that do not fall under the ‘held for trading’ or ‘held to maturity’ categories. Initial measurement Investments are initially recognized at cost which in case of investments other than ‘held for trading’ include transaction costs associated with the investment. Transaction costs on investments held for trading are expensed in the profit and loss account. All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognized at the trade date. Trade date is the date on which the Group commits to purchase or sell the investment. Subsequent measurement In accordance with the requirements of the State Bank of Pakistan, quoted securities, other than those classified as ‘held to maturity’, investments in subsidiaries and investments in associates are subsequently re-measured to market value. Surplus / deficit arising on revaluation of quoted securities which are classified as ‘available for sale’, is taken to surplus / deficit on revaluation of investments through statement of comprehensive income in equity till disposal at which time it is recorded in profit and loss account. Surplus / deficit arising on revaluation of quoted securities which are classified as ‘held for trading’, is taken to the profit and loss account, currently. Unquoted equity securities (excluding investments in subsidiaries and associates) are valued at the lower of cost and break-up value. Break-up value of equity securities is calculated with reference to the net assets of the investee company as per the latest available financial statements. Investments classified as ‘held to maturity’ are carried at amortized cost less accumulated impairment losses, if any. Investment in Associates Investment in associates are accounted for using the equity method of accounting, after initially being recognised at cost. Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafter to recognise the Group’s share of the post-acquisition profits or losses of the investee in profit or loss, and the Group’s share of movements in other comprehensive income of the investee in other comprehensive income. Dividends received or receivable from associates and joint ventures are recognised as a reduction in the carrying amount of the investment. Impairment Provision for impairment in the values of securities (except debentures, participation term certificates and term finance certificates) is made currently. Impairment of ‘available for sale’ equity investments is discussed in 4.2(c). Provisions for impairment in value of debentures, participation term certificates and term finance certificates are made as per the requirements of the Prudential Regulations issued by the State Bank of Pakistan. Impairment against investment in associates is assessed as per the requirements of IAS 36. Annual Report 2019 353
356. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.4 Sale and repurchase agreements Securities sold subject to a repurchase agreement (repo) are retained in these consolidated financial statements as investments and the counter party liability is included in borrowings. Securities purchased under an agreement to resell (reverse repo) are not recognized in these consolidated financial statements as investments and the amount extended to the counter party is included in lendings to financial institutions. The difference between the purchase / sale and re-sale / re-purchase price is recognized as mark-up income / expense on a time proportion basis, as the case may be. 6.5Advances 354 Advances are stated net of specific and general provisions. Specific provision is determined on the basis of the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision against Consumer and Small Enterprise (SEs) loans made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries. Advances are written off when there is no realistic prospect of recovery. Leases where the Group transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognized at an amount equal to the present value of the lease payments including any guaranteed residual value. Finance lease receivables are included in advances to the customers. In Murabaha transactions, the Group purchases the goods through its agent or client and after taking the possession, sells them to the customer on cost plus profit basis either in a spot or credit transaction. Under Murabaha financing, funds disbursed for purchase of goods are recorded as ‘Advance against Murabaha finance’. On culmination of Murabaha i.e. sale of goods to customers, Murabaha financing are recorded at the deferred sale price. Goods purchased but remaining unsold at the statement of financial position date are recorded as inventories. The Group values its inventories at the lower of cost and net realizable value. The net realizable value is the estimated selling price in the ordinary course of business less the estimated cost necessary to make the sale. Cost of inventories represents actual purchases made by the Group / customers as the agent of the Group for subsequent sale. In Ijarah financing, the Group provides the asset on pre-agreed rentals for specific tenors to the customers. Ijarah assets are stated at cost less depreciation and are disclosed as part of ‘Islamic financing and related assets’. The rental on Ijarah under Islamic Financial Accounting Standard - 2 Ijarah (IFAS 2) are recorded as income / revenue. The Group charges depreciation from the date of recognition of Ijarah of respective assets to Mustajir. Ijarah assets are depreciated over the period of Ijarah using the straight line method. Impairment of Ijarah assets is determined in accordance with the Prudential Regulations issued by the SBP. In Diminishing Musharaka based financing, the Group enters into Musharaka based on Shirkat-ul-Milk for financing and agreed share of fixed assets (example: house, land, plant, machinery or vehicle) with its customers and enters into period profit payment agreement for the utilization of the Group’s Musharaka share by the customer. In Istisna financing, the Group acquires the described goods to be manufactured by the customer from raw material of its own and deliver to the Group within an agreed time. The goods are then sold and the amount financed is received back by the Group along with profit. In Salam financing, the Group pays full in advance to its customer for buying specified goods / commodities to be delivered to the Group within an agreed time. The goods are then sold and the amount financed is received back by the Group along with profit. In Running Musharaka based financing, the Group enters into financing with the customer based on Shirkat-ul-Aqd or Business Partnership in the customer’s operating business where the funds can be withdrawn or refunded during the Musharakah period. Unconsolidated Financial Statements
357. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.6 Fixed assets and depreciation Fixed assets other than land and buildings are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Buildings are carried at revalued amount less any accumulated depreciation and subsequent impairment losses, if any. Land is carried at revalued amount less any subsequent impairment losses, if any. Cost of property and equipment of foreign operations includes exchange differences arising on currency translation at year-end rates. 6.6.1 Capital work-in-progress is stated at cost less accumulated impairment losses, if any. These are transferred to specific assets as and when assets become available for use. Depreciation on all fixed assets (excluding land) is charged using the straight line method in accordance with the rates specified in note 12.2 to these consolidated financial statements and after taking into account residual value, if any. The residual values, useful lives and depreciation methods are reviewed and adjusted, if appropriate, at each reporting date. Depreciation on additions is charged from the month the assets are available for use while no depreciation is charged in the month in which the assets are disposed off. Land and buildings are revalued by independent, professionally qualified valuers with sufficient regularity to ensure that their net carrying amount does not differ materially from their fair value. An increase arising on revaluation is credited to the surplus on revaluation of fixed assets account. A decrease arising on revaluation of fixed assets is adjusted against the surplus of that asset or, if no surplus exists, is charged to the profit and loss account as an impairment of the asset. A surplus arising subsequently on an impaired asset is reversed through the consolidated profit and loss account up to the extent of the original impairment. Surplus on revaluation of fixed assets (net of associated deferred tax) to the extent of the incremental depreciation charged on the related assets is transferred to unappropriated profit. Gains / losses on sale of property and equipment are credited / charged to the consolidated profit and loss account currently, except that the related surplus on revaluation of land and buildings (net of deferred taxation) is transferred directly to unappropriated profit. Subsequent costs are included in the asset’s carrying amount or are recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the consolidated profit and loss account. Intangible assets Intangible assets are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized from the month when these assets are available for use, using the straight line method, whereby the cost of the intangible assets are amortized over its estimated useful lives over which economic benefits are expected to flow to the Group. The useful lives are reviewed and adjusted, if appropriate, at each reporting date. 6.7Impairment The carrying amount of assets are reviewed at each reporting date for impairment whenever events or changes in circumstances indicate that the carrying amounts of the assets may not be recoverable. If such indication exists and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amounts. The resulting impairment loss is taken to the consolidated profit and loss account except for impairment loss on revalued assets, which is adjusted against the related revaluation surplus to the extent that the impairment loss does not exceed the surplus on revaluation of that asset. Annual Report 2019 355
358. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.8 Staff retirement benefits MCB Bank Limited (Holding Company) The Bank operates the following staff retirement benefits for its employees: a) For clerical / non-clerical staff who did not opt for the new scheme, the Bank operates the following: b) c) d) e) – an approved contributory provident fund; – an approved gratuity scheme; and – a contributory benevolent scheme For clerical / non-clerical staff who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1975, the Bank operates the following: – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund; and – contributory benevolent scheme For officers who joined the Bank after the introduction of the new scheme and for others who opted for the new scheme introduced in 1977, the Bank operates the following: – an approved non-contributory provident fund introduced in lieu of the contributory provident fund; – an approved pension fund, and – contributory benevolent fund. However, the management has replaced the pension benefits for employees in the officer category with a contributory provident fund for services rendered after December 31, 2003. For executives and officers who joined the Bank on or after January 01, 2000, the Bank operates an approved contributory provident fund. Post retirement medical benefits to entitled employees. Annual contributions towards the defined benefit plans and schemes are made on the basis of actuarial advice using the Projected Unit Credit Method. The above benefits are payable to staff at the time of separation from the Bank’s services subject to the completion of qualifying period of service. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in other Comprehensive Income in the period of occurrence. Past service cost is the change in the present value of the defined benefit obligation resulting from a plan amendment or curtailment. The Bank recognizes past service cost as an expense at the earlier of the following dates: (i) when the plan amendment or curtailment occurs; and (ii) when the Bank recognizes related restructuring costs or termination benefits. 356 Employees’ compensated absences Liability in respect of employees’ compensated absences is accounted for in the year in which these are earned on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains / losses arising from experience adjustments and changes in actuarial assumptions are recognized in Consolidated Profit and Loss account in the period of occurrence. MCB Islamic Bank Limited MCBIBL operates a recognised contributory provident fund scheme for all its permanent employees. Equal monthly contributions are made both by the Bank and its permanent employees, to the Fund at Unconsolidated Financial Statements
359. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 the rate of 8.33% of the basic salaries of employees. However, an employee has an option to increase his/her contribution upto 15% but the Bank will still contribute 8.33% of the employee’s basic salary. The Bank has no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due. 6.9Taxation Current and prior years Provision for current taxation is based on taxable income at the current rates of taxation after taking into consideration available tax credits and rebates. The charge for current tax also includes adjustments where considered necessary, relating to prior years which arise from assessments framed / finalized during the year. Deferred Deferred tax is recognized using the balance sheet liability method on all temporary differences between the amounts attributed to assets and liabilities for financial reporting purposes and amounts used for taxation purposes. The Bank records deferred tax assets / liabilities using the tax rates, enacted or substantively enacted by the reporting date expected to be applicable at the time of its reversal. Deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized. The Group also recognizes deferred tax asset / liability on deficit / surplus on revaluation of securities and deferred tax liability on surplus on revaluation of fixed assets which is adjusted against the related deficit / surplus in accordance with the requirements of International Accounting Standard (IAS) 12, ‘Income Taxes’. Deferred tax liability is not recognized in respect of taxable temporary differences associated with exchange translation reserves of foreign operations and subsidiary, where the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. 6.10Provisions 6.11 Provisions are recognized when the Group has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimates. Foreign currencies 6.11.1 Foreign currency transactions Transactions in foreign currencies other than the results of foreign operations discussed in note 6.11.2 are translated to Pak Rupees at the foreign exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in Rupee terms at the rates of exchange prevailing at the reporting date. Forward foreign exchange contracts are valued at the rates applicable to their respective maturities. 6.11.2 Foreign operations The assets and liabilities of foreign branches are translated to Pak Rupees at exchange rates prevailing at the statement of financial position date. The results of foreign operations and subsidiary are translated to Rupees at the average rate of exchange for the year. 6.11.3 Translation gains and losses Translation gains and losses are included in the profit and loss account, except those arising on the translation of the Group’s net investment in foreign branches and subsidiary, which are taken to the capital reserve (exchange translation reserve) until the disposal of the net investment, at which time these are recognized in the consolidated profit and loss account. Annual Report 2019 357
360. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.11.4Commitments Commitments for outstanding forward foreign exchange contracts are disclosed in these consolidated financial statements at committed amounts. Contingent liabilities / commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in Pak Rupee terms at the rates of exchange prevailing at the statement of financial position date. 6.12Acceptances 6.13 Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be simultaneously settled with the reimbursement from the customers. Revenue recognition – Mark-up / interest on advances and returns on investments are recognized on a time proportion basis using the effective interest method except that mark-up / interest on non-performing advances and investments is recognized on a receipt basis, in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan (SBP) or as permitted by the regulations of the overseas regulatory authorities of countries where the branches operate. Where debt securities are purchased at premium or discount, such premium / discount is amortized through the profit and loss account over the remaining period of maturity. – Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Gains / losses on termination of lease contracts are recognized as income when these are realized. – Fee, brokerage and commission income is recognised on an accrual basis. – Dividend income is recognized when the Group’s right to receive dividend is established. – Gain / loss on sale of investments is credited / charged to profit and loss account. – Profit on Salam financing is recognised on accrual basis. – Profit on Running Musharaka financing is booked on an accrual basis and is subject to adjustment (if any) upon declaration of profit by Musharakah partners. – Rental income from Ijarah financing is recognised on an accrual basis. Depreciation on Ijarah asset is charged to income (net of with rental income) over the period of Ijarah using the straight line method. – Profit from Bai-Mua’jjal is recognised on an accrual basis. – Profit on Diminishing Musharaka is recognised on an accrual basis. – Profit on Istisna financing is recognised on accrual basis. – Profit from Musharaka placements with financial institutions is recognised on accrual basis. – Profit from Murabaha financing is accounted for on culmination of Murabaha transaction. Profit on Murabaha is recognised on an accrual basis. Profit on Murabaha transactions for the period from the date of disbursement to the date of culmination of Murabaha is recognised immediately on the later date. – Revenue for acting as trustee is recognized on Net Assets Value (NAV) of respective funds. – Management / advisory fee is calculated on a daily / monthly basis by charging specified rates to the net assets value / income of the Collective Investment Schemes. Advisory fee from the discretionary portfolio is calculated in accordance with the respective agreements with the clients. Management fee from the pension funds is calculated by charging the specified rates to the average net assets value. – 358 Revenue from trusteeship and custodian is recognised when the Group satisfies a performance obligation by rendering promised services as per respective agreements. Unconsolidated Financial Statements
361. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.14 6.15 6.16 The income on Islamic financing is recognised in accordance with the principles of Islamic Shari’ah and in accordance with regulations and guidelines of the State Bank of Pakistan. However, income, if any, received which does not comply with the principles of Islamic Shari’ah is recognised as charity payable if so directed by the Shari’ah Board of the Group. Assets acquired in satisfaction of claims Non-Banking Assets (NBA) acquired in satisfaction of claims are carried at revalued amounts less accumulated depreciation and impairment loss. These assets are revalued by professionally qualified valuers with sufficient regularity to ensure that their net carrying value does not differ materially from their fair value. A surplus arising on revaluation of property is credited to the ‘surplus on revaluation of non banking assets’ account through statement of comprehensive income in equity and any deficit arising on revaluation is taken to consolidated profit and loss account directly. Legal fees, transfer costs and direct costs of acquiring title to property are charged to consolidated profit and loss account and not capitalized. Cash and cash equivalents Cash and cash equivalents include cash and balances with treasury banks and balances with other banks (net of overdrawn Nostro balances) in current and deposit accounts. Financial instruments 6.16.1 Financial assets and financial liabilities Financial instruments carried on the statement of financial position include cash and balances with treasury banks, balances with other banks, lendings to financial institutions, investments, advances, other assets, bills payable, borrowings, deposits and other liabilities. The particular recognition methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with these assets and liabilities. 6.16.2 Derivative financial instruments Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value using valuation techniques. All the derivative financial instruments are carried as an asset when the fair value is positive and as a liability when the fair value is negative. Any change in the fair value of derivative financial instruments is taken to the consolidated profit and loss account currently. 6.16.3 Off setting 6.17 Financial assets and financial liabilities are off set and the net amount is reported in these consolidated financial statements when there is a legally enforceable right to set off and the Group intends either to settle on a net basis, or to realize the assets and settle the liabilities, simultaneously. Borrowings / deposits Borrowings / deposits are recorded at the proceeds received. The cost of borrowings / deposits is recognized as an expense in the period in which this is incurred. Deposits, with respect to Islamic Banking operations, are generated on the basis of two modes i.e. Qard and Mudaraba. Deposits taken on Qard basis are classified as ‘Current accounts’ and Deposits generated on Mudaraba basis are classified as ‘Savings deposits’ or ‘Fixed deposits’. No profit or loss is passed to current account depositors. Profits realized in investment pools are distributed in pre-agreed profit sharing ratio. Rab-ul-Maal share is distributed among depositors according to weightages assigned at the inception of profit calculation period. Annual Report 2019 359
362. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.18 Profits are distributed from the pool such that the depositors (remunerative) only bear the risk of assets in the pool during the profit calculation period. In case of loss in a pool during the profit calculation period, the loss is distributed among the depositors (remunerative) according to their ratio of Investments. Asset pools may be created at the Group’s discretion and the Group may add, amend, and transfer an asset to any other pool in the interests of the deposit holders. Segment reporting A segment is a distinguishable component of the Group that is engaged in providing products or services (business segment) or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Group’s primary format of reporting is based on business segments. 6.18.1 Business segments Retail banking This includes retail lending and deposits, banking services, cards and branchless banking. This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities / with Group’s corporate and public sector customers. Corporate banking Consumer Banking This segment primarily constitutes consumer financing activities with individual customers of the Group. Product suite offered to these customers include credit cards, auto loans, housing finance and personal loans. Islamic Banking This segment includes Islamic Banking operations of the Group. Treasury This includes fixed income, equity, foreign exchange, credit, funding, own position securities, lendings and borrowings and derivatives for hedging and market making. Assets Management It includes asset management, investment advisory, portfolio management, equity research and underwriting. International Banking This comprises of loans, deposits, project financing, trade financing, investment banking and other banking activities by Group’s overseas operations. Others This includes the head office related activities and other functions which cannot be classified in any of the above segments. 6.18.2 Geographical segments The Group operates in four geographic regions being: –Pakistan – South Asia – Middle East –Eurasia 360 Unconsolidated Financial Statements
363. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.19 Dividend distribution and appropriation Dividends (including bonus dividend) and other appropriations (except appropriations which are required by law) are recognized in the period in which these are approved. 6.20 6.21 6.22 Business combination Business combinations other than under common control transaction are accounted for by applying the acquisition method. The cost of acquisition is measured as the fair value of assets given, equity instruments issued and the liabilities incurred or assumed at the date of acquisition. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement, if any. Acquisition-related costs are expensed as incurred. 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 excess of the consideration transferred over the fair value of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets acquired in the case of a bargain purchase, the difference is recognized directly in the consolidated profit and loss account or as directed by the SBP. Earnings per share The Group presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year. Pool Management The Group operates general and specific pools for deposits and inter-Group funds accepted / acquired under Mudaraba, Musharaka and Wakala modes. Under the general deposits pool, the Group accepts funds on Mudaraba basis from depositors (Rabb-ul-Maal) where the Group acts as Manager (Mudarib) and invests the funds in the Shari’ah Compliant modes of financings, investments and placements. When utilising investing funds, the Group prioritizes the funds received from depositors over the funds generated from own sources. Specific pools may be operated for funds acquired / accepted from the State Bank of Pakistan and other Groups for Islamic Export Refinance to Group’s customers and liquidity management respectively under the Musharaka / Mudaraba modes. The Group also maintains an Equity Pool which consists of Group’s equity and funds accepted on Qard (non-remunerative current deposit account) basis. The profit of each deposit pool is calculated on all the remunerative assets booked by utilizing the funds from the pool after deduction of expenses directly incurred in earning the income of such pool, if any. The directly related costs comprise of depreciation on Ijarah assets, takaful premium, documentation charges etc. No general or administrative nature of expense is charged to pool. No provision against any non-performing asset of the pool is passed on to the pool except on the actual loss / write-off of such non-performing asset. The profit of the pool is shared between equity and other members of the pool on the basis of Musharaka at gross level (before charging of Mudarib fee) as per the investment ratio of the equity. The profit of the pool is shared among the members of the pool on pre-defined mechanism based on the weightages announced before the profit calculation period after charging of Mudarib fee. The deposits and funds accepted under the above mentioned pools are provided to diversified sectors and avenues of the economy / business as mentioned in the notes and are also invested in Government of Pakistan backed Ijarah Sukuks. Staff financings are exclusively financed from the equity pool. The risk characteristic of each pool mainly depends on the assets and liability profile of each pool. Annual Report 2019 361
364. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 6.23 Funds due to / from financial institutions Bai Mu’ajjal In Bai Mu’ajjal, the Group sells sukuk on credit to other financial institutions. The credit price is agreed at the time of sale and such proceeds are received at the end of the credit period. Musharaka / Mudaraba / Wakala In Musharaka / Mudaraba / Wakala, the Group invests in the Shariah compliant business pools of the financial institutions at the agreed profit and loss sharing ratio / fees. Note 7. 20212020 (Rupees in '000) CASH AND BALANCES WITH TREASURY BANKS In hand Local currency Foreign currencies 24,962,316 6,622,320 25,039,386 7,088,257 With State Bank of Pakistan in Local currency current accounts 7.1 Foreign currency current accounts 7.2 Foreign currency deposit accounts 7.3 31,584,636 32,127,643 89,811,750 2,937,151 10,550,168 51,920,851 2,271,659 10,532,776 With other central banks in Foreign currency current accounts 7.4 With National Bank of Pakistan in Local currency current accounts Prize bonds 103,299,069 64,725,286 6,728,135 11,851,311 34,016,028 294,601 22,308,442 1,040,359 175,922,469 132,053,041 7.1 This represents current accounts maintained with the SBP under the Cash Reserve Requirement of section 22 of the Banking Companies Ordinance, 1962. In addition, Rs. 979.736 million (2020: Nil) have been placed in a special account under SBP directive. 7.2 This includes foreign currencies settlement account maintained with SBP along with Rs. 544.429 million (2020: 588.351 million) maintained to comply with the cash reserve and special cash reserve requirements by a subsidiary. 7.3 This represents account maintained with the SBP to comply with the Special Cash Reserve requirement. This includes balance of Rs. 7,033.445 million (2020: Rs. 6,810.656 million) which carries interest rate of 0% (2020: 0%) per annum as declared by SBP. 7.4 Foreign currency current account with other central banks are maintained to meet their minimum cash reserves and capital requirements pertaining to the foreign branches of the Group. 362 Unconsolidated Financial Statements
365. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 8. Note 20212020 (Rupees in '000) BALANCES WITH OTHER BANKS In Pakistan In current account In deposit account 8.1 27,123 71,563 9,190 1,554 Outside Pakistan In current account In deposit account 8.2 98,686 10,744 12,119,471 10,336,172 26,768,812 2,231,965 22,455,643 29,000,777 22,554,329 29,011,521 8.1 This represents saving accounts carrying profit at expected rates ranging from 2.35% to 6.00% per annum (2020: 2.13% to 6.00% per annum). 8.2 Balances with other banks outside Pakistan in deposit accounts carry interest rate of 0.40% to 6.00% (2020: 1.5%) per annum. Note 9. LENDINGS TO FINANCIAL INSTITUTIONS Call / clean money lendings 9.1 Repurchase agreement lendings (Reverse Repo) 9.2 Musharaka arrangements 9.3 Bai Muajjal receivable - with State Bank of Pakistan 20212020 (Rupees in '000) 24,071,021 14,896,089 1,650,000 – 11,002,195 6,137,258 – 828,790 40,617,110 17,968,243 9.1 Call money lending carries mark-up rate ranging from 0.15% to 10.45% (2020: 0.1% to 4.55%) per annum and is due to mature in February 2022. 9.2 Repurchase agreement lendings carry mark-up rate ranging from 10.50% to 10.70% per annum and is due to mature in January 2022. 9.3 This represents Musharaka placements with various financial institutions carrying average profit rate of 10.35% per annum (2020: Nil) and having maturity till January 04, 2022. 20212020 (Rupees in '000) 9.4 Particulars of lending In local currency In foreign currencies 16,546,089 24,071,021 6,966,048 11,002,195 40,617,110 17,968,243 Annual Report 2019 363
366. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2021 2020 Held by Further given Total Group as collateral Held by Further given Group as collateral Total (Rupees in '000) 9.5 Securities held as collateral against lendings to financial institutions Market Treasury Bills 14,896,089 – 14,896,089 6,137,258 – 6,137,258 10.INVESTMENTS 10.1 Investments by type: 20212020 Cost/ Provision Surplus/ Carrying Cost / Provision Surplus / Carrying Noteamortisedfor (Deficit)value amortisedfor (Deficit)value costdiminution costdiminution (Rupees in '000) Held-for-trading securities Federal Government Securities 12,467 – (12) 12,455 1,309,116 – (224) 1,308,892 Mutual Fund Units 1,249,644 – (7,014) 1,242,630 1,158,952 – 110,493 1,269,445 1,262,111 – (7,026) 1,255,085 2,468,068 – 110,269 2,578,337 Available-for-sale securities Federal Government Securities 1,008,297,650 (22,288) (9,216,775) 999,058,587 969,144,840 (4,719) Shares and units 31,651,347 (10,358,683) 1,342,018 22,634,682 28,398,065 (11,155,719) Non Government Debt Securities 2,342,840 17,833 2,360,673 2,841,840 Foreign Securities 7,557,240 (1,748) (5,424) 7,550,068 7,463,939 (1,714) 1,049,849,077 (10,382,719) (7,862,348) 1,031,604,010 1,007,848,684 (11,162,152) – 3,412,147 20,654,493 16,780 2,858,620 17,509 7,479,734 12,924,289 1,009,610,821 Held-to-maturity securities Federal Government Securities 15,901,861 (52,637) 7,313,217 (11,542) Provincial Government Securities 118 (118) – – 118 (118) Non Government Debt Securities 8,270,476 (477,541) – 7,792,935 9,615,317 (490,341) – 9,124,976 Foreign Securities 792,607 (8,632) – 783,975 3,149,647 (27,281) – 3,122,366 24,965,062 (538,928) – 24,426,134 20,078,299 (529,282) 5,283,282 – 4,479,360 – 1,081,359,532 (10,921,647) (7,869,374) 1,062,568,511 1,034,874,411 (11,691,434) Associates 10.2 Total Investments 364 – 9,477,853 978,617,974 Unconsolidated Financial Statements – 15,849,224 – 5,283,282 – – 7,301,675 – – 19,549,017 – 4,479,360 13,034,558 1,036,217,535
367. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 10.2 Investments by segments: 20212020 Cost/ Provision Surplus/ Carrying Cost / Provision Surplus / Carrying Noteamortisedfor (Deficit)value amortisedfor (Deficit)value costdiminution costdiminution (Rupees in '000) Federal Government Securities: Market Treasury Bills 325,536,276 – (478,211) 325,058,065 598,470,191 – 256,237 598,726,428 Pakistan Investment Bonds 660,197,527 – (8,648,559) 651,548,968 349,738,865 – 9,180,611 358,919,476 Sukuks bonds 31,071,895 (1,410) Naya Pakistan Certificates 925,513 – Euro Bonds 4,939,876 Bai Mu’ajjal 30,980,791 24,294,814 (2,872) – 925,513 465,779 – (73,515) – 4,866,361 2,096,697 (13,389) 65,166 2,148,474 1,540,891 – (323) 1,540,568 2,700,827 – – 2,700,827 1,024,211,978 (74,925) (9,216,787) 1,014,920,266 977,767,173 (16,261) 118 (118) – – 118 (118) – – 31,271,920 (10,186,092) Provincial Government Securities Shares and units: Listed Companies Unlisted Companies (89,694) (24,383) 24,267,559 – 465,779 9,477,631 987,228,543 1,335,004 22,420,832 27,974,567 (10,986,392) 3,522,638 20,510,813 (172,591) – 1,456,480 1,582,450 (169,325) – 1,413,125 32,900,991 (10,358,683) 1,335,004 23,877,312 29,557,017 (11,155,717) 3,522,638 21,923,938 1,629,071 Non Government Debt Securities Listed 4,478,441 (3,469) 10,222 4,485,194 5,613,730 (16,269) 12,037 5,609,498 Unlisted 6,134,875 (474,072) 7,611 5,668,414 6,843,427 (474,072) 4,743 6,374,098 10,613,316 (477,541) 17,833 10,153,608 12,457,157 (490,341) 16,780 11,983,596 17,509 10,596,554 Foreign Securities Government securities 8,342,536 (8,634) (5,424) 8,328,478 10,606,326 (27,281) Unlisted equity securities 7,311 (1,746) – 5,565 7,260 (1,716) 8,349,847 (10,380) (5,424) 8,334,043 10,613,586 (28,997) 5,240,911 – – 5,240,911 4,435,075 – – 4,435,075 42,371 – – 42,371 44,285 – – 44,285 5,283,282 – – 5,283,282 4,479,360 – – 4,479,360 (7,869,374) 1,062,568,511 1,034,874,411 (11,691,434) – 17,509 5,544 10,602,098 Associates - Adamjee Insurance Company Limited 10.9 - Euronet Pakistan (Private) Limited 10.10 Total Investments 1,081,359,532 (10,921,647) 13,034,558 1,036,217,535 20212020 (Rupees in '000) 10.2.1 Investments given as collateral - Market Treasury Bills - Pakistan Investment Bonds 107,136,184 53,303,403 91,279,273 1,000,283 160,439,587 92,279,556 Annual Report 2019 365
368. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 10.3 Provision for diminution in value of investments Note 20212020 (Rupees in '000) 11,691,434 11,747,618 Exchange and other adjustments Charge / (reversals) Charge for the year Reversals for the year Reversal on disposals 570 13,474 985,236 (18,390) (1,737,203) 1,993,335 (1,529) (2,061,464) (770,357) (69,658) 10,921,647 11,691,434 10.3.1 Opening balance Closing balance 10.3.3 10.3.2 Particulars of provision against debt securities Category of classification 20212020 NPIProvisionNPIProvision (Rupees in '000) Domestic Loss 477,659 477,659 490,459 490,459 477,659 477,659 490,459 490,459 10.3.3 This includes a general provision of Rs 83.557 million (December 31, 2020: Rs 43.542 million) held by overseas branches in accordance with the requirements of IFRS 9. 10.4 Quality of Available for Sale Securities Details regarding quality of Available for Sale (AFS) securities are as follows; 20212020 Cost (Rupees in '000) Federal Government Securities Government guaranteed Market Treasury Bills Pakistan Investment Bonds Euro Bonds Sukuk Bonds Naya Pakistan Certificates 325,523,809 647,475,027 3,301,407 31,071,895 925,512 597,161,075 346,405,146 1,341,708 23,771,132 465,779 1,008,297,650 969,144,840 366 Unconsolidated Financial Statements
369. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost Listed Companies and mutual funds (Rupees in '000) Automobile Assembler Automobile Part and Accessories Cable and Electrical Goods Cement Chemical Close end Mutual Fund Commercial Banks Engineering Fertilizer Food and Personal Care Products Glass and Ceramics Insurance Investment Banks / Companies NIT Units Oil & Gas Exploration Companies Oil & Gas Marketing Companies Open End Mutual Fund Paper and Board Pharmaceutical Power Generation and Distribution Refinery Technology and Communication Textile Composite Textile Spinning 1,607,719 413,930 573,042 2,333,482 634,587 1,186,851 3,897,895 1,550,301 2,957,126 1,122,096 89,048 753,786 585,624 5,253 4,084,865 886,817 96,361 543,706 1,048,524 3,525,290 684,113 1,296,309 129,382 16,169 1,573,156 413,930 672,851 2,050,172 285,638 1,186,851 3,002,215 1,840,590 2,925,460 1,229,398 – 599,364 585,624 5,253 2,990,518 760,532 190,083 648,581 1,103,229 2,616,001 981,399 707,827 430,774 16,169 30,022,276 26,815,615 20212020 Cost Breakup value Cost Breakup value (Rupees in '000) Unlisted Companies Central Depository Company Limited First Capital Investment (Private) Limited First Women Bank Limited ISE Towers REIT Management Company Limited National Investment Trust Limited National Institutional Facilitation Technologies Pak Agro Storage And Service Corporation 1 Link (Private) Limited Naymat Collateral Management Company Pakistan Corporate Restructuring Company Arabian Sea Country Club* SME Bank Limited* Al-Ameen Textile Mills Limited* Custodian Management Services* Galaxy Textile Mills Limited* Pakistan Textile City (Private) Limited* Ayaz Textile Mills Limited* Musarrat Textile Mills Limited* Sadiqabad Textile Mills Limited* Al-Arabia Sugar Mills Limited - Preference shares* Pak Elektron Limited - Preference shares *These investments are fully provided. 184,426 2,500 63,300 30,346 1,027,651 1,527 2,500 50,000 29,286 51,396 5,000 10,106 197 1,000 30,177 50,000 2,253 36,045 26,361 – 25,000 819,324 2,831 215,838 101,804 2,006,567 35,899 1,567,552 267,895 21,021 48,210 – – – – – – – – – – 25,000 184,426 2,500 63,300 30,346 1,027,651 1,527 2,500 50,000 29,285 – 5,000 10,106 197 1,000 30,178 50,000 2,253 36,045 26,361 4,775 25,000 756,153 2,667 215,838 93,780 1,661,565 51,998 1,239,050 202,032 25,876 – – – – – – – – – – – 25,000 1,629,071 5,111,941 1,582,450 4,273,959 Annual Report 2019 367
370. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost Non Government Debt Securities (Rupees in '000) Listed - AA+, AA, AA- - A+, A, A- 1,322,840 – 1,676,840 75,000 Unlisted 1,322,840 1,751,840 AAA - AA+, AA, AA- - A+, A, A- 920,000 100,000 990,000 100,000 1,020,000 1,090,000 20212020 CostRatingCostRating (Rupees in '000) Foreign Securities Government Debt Securities - Sri Lanka 7,549,929 Caa2 7,456,679 Caa1 20212020 Cost Note (Rupees in '000) Unlisted Equity Securities Lanka Clear (Private) Limited Credit Information Bureau of Sri Lanka Lanka Financial Services Bureau Limited Society for Worldwide Inter Fund Transfer (SWIFT) 874 26 1,748 4,663 857 26 1,714 4,663 10.5 Particulars relating to Held to Maturity securities are as follows: 7,311 7,260 12,722,500 – 1,638,470 1,540,891 3,333,719 523,680 754,991 2,700,827 15,901,861 7,313,217 118 118 Federal Government Securities Government guaranteed Pakistan Investment Bonds Sukuk Bonds Euro Bonds Bai Mu’ajjal 10.5.1 Provincial Government Securities 368 Unconsolidated Financial Statements
371. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 Cost (Rupees in '000) Non Government Debt Securities Listed - AAA - AA+, AA, AA- - Unrated – 2,502,280 49,851 1,796,250 1,989,520 66,120 Unlisted 2,552,131 3,851,890 - AA+, AA, AA- - A+, A, A- Unrated 4,800,967 439,838 477,540 4,849,483 439,874 474,070 5,718,345 5,763,427 20212020 CostRatingCostRating (Rupees in '000) Foreign Securities Government Securities - Sri Lanka 792,607 Caa2 3,149,647 Caa1 10.5.1 This represents receivable from Government of Pakistan against sale of GoP Ijarah Sukuk certificate (GIS - 18). The deferred price will be recovered at the time of maturity. 10.5.2 The market value of securities classified as held-to-maturity as at December 31, 2021 amounted to Rs. 22,233.571 million (December 31, 2020: Rs. 17,351.392 million). 10.6 Available for sale” Market Treasury Bills and Pakistan Investment Bonds are eligible for rediscounting with the State Bank of Pakistan. 10.7 Investments include Pakistan Investment Bonds amounting to Rs. 67.9 million (2020: Rs. 67.9 million) earmarked by the SBP against TT discounting facilities sanctioned to the Bank. In addition, Pakistan Investment Bonds amounting to Rs. 5 million (2020: Rs. 5 million) have been pledged with the Controller of Military Accounts on account of Regimental Fund account and Pakistan Investment Bonds amounting to Rs. 100 million (2020: Rs. 100 million) have been pledged with the National Clearing Company of Pakistan Limited (NCCPL) on account of removal of irrevocable undertaking as alternate option for collateral against participant’s exposure in stock market. 10.8 Certain approved / Government securities are kept with the SBP to meet statutory liquidity requirements calculated on the basis of domestic demand and time liabilities. 10.9 Investment of the Group in Adamjee Insurance Company Limited has been accounted for under the equity method of accounting in accordance with the treatment specified in International Accounting Standard 28, (IAS 28) ‘Accounting for Investments in Associates’. The market value of the investment in Adamjee Insurance Company Limited as at December 31, 2021 amounted to Rs. 2,800.000 million. (2020: Rs. 2,752.400 million). Annual Report 2019 369
372. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Investment in Adamjee Insurance Company Limited under equity method - holding 20.00% (2020: 20%) Note 20212020 (Rupees in '000) Opening balance 4,435,075 4,211,707 Share of profit for the year before tax Dividend from associate Share of tax 934,170 (192,500) (155,337) 585,968 (192,500) (143,175) 586,333 250,293 219,503 (26,925) 5,240,911 4,435,075 211,175 8,328 (34,246) 7,321 Share of other comprehensive income / (loss) 10.9.1 Closing balance 10.9.1 Share of other comprehensive income Share of unrealized (deficit) / surplus on assets -net of tax Share of exchange translation reserve of associate 219,503 (26,925) 10.10 Investment of the Group in Euronet Pakistan Private Limited has been accounted for under the equity method of accounting in accordance with the treatment specified in International Accounting Standard 28, (IAS 28) ‘Accounting for Investments in Associates’. Investment in Euronet Pakistan Private Limited under equity method - holding 30% (2020: 30.00%) Opening balance Share of (loss) / profit for the year before tax Share of tax 44,285 63,951 9,417 (11,331) (12,890) (6,776) Closing balance (1,914) (19,666) 42,371 44,285 370 20212020 (Rupees in '000) Unconsolidated Financial Statements
373. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 10.11 Summarized financial information of associates Country of % of interest Revenue Name incorporation held 2021 Associates Euronet Pakistan (Private) Limited (unaudited based on December 31, 2021) Profit/ Total (loss) comprehensive after tax income / (loss) Assets Liabilities (Rupees in '000) Pakistan 30% 720,665 13,916 13,916 773,972 632,732 Adamjee Insurance Company Limited (unaudited based on September 30, 2021) 2020 Associates Euronet Pakistan (Private) Limited (audited based on December 31, 2020) Pakistan 20% 23,530,811 2,408,605 1,217,969 116,278,938 93,385,707 Pakistan 30% 718,076 (84,235) (79,622) 783,908 656,585 Pakistan 20% 20,596,203 1,319,951 439,880 95,997,472 74,918,209 Adamjee Insurance Company Limited (unaudited based on September 30, 2020) 11.ADVANCES Performing Non Performing Total Note 202120202021202020212020 (Rupees in '000) Loans, cash credits, running finances, etc. 11.1 Islamic financing and related assets * Bills discounted and purchased 565,602,060 95,793,392 19,852,814 444,022,138 84,205,962 18,192,157 49,404,885 701,770 1,085,920 50,524,753 756,471 664,294 615,006,945 96,495,162 20,938,734 494,546,891 84,962,433 18,856,451 Advances - gross 681,248,266 546,420,257 51,192,575 51,945,518 732,440,841 598,365,775 Provision against advances - Specific - General 11.4.4 – (1,771,000) – (5,511,716) (44,281,189) – (45,168,351) – (44,281,189) (1,771,000) (45,168,351) (5,511,716) (1,771,000) (5,511,716) (44,281,189) (45,168,351) (46,052,189) (50,680,067) 679,477,266 540,908,541 6,911,386 6,777,167 686,388,652 547,685,708 Advances - net of provision *Details of Islamic financing and related assets have been mentioned in Annexure II of these consolidated financial statements. 11.1 Includes net investment in finance lease as disclosed below: 20212020 Not later Later than Over five than one one and less years Total year than five years Not later Later than Over five than one one and less years year than five years Total (Rupees in '000) Lease rentals receivable 2,047,805 1,935,215 853,040 4,836,060 2,022,558 1,835,337 1,133,794 4,991,689 Residual value 12,535 340,969 28,726 382,230 20,428 103,490 23,039 146,957 Minimum lease payments 2,060,340 2,276,184 881,766 5,218,290 2,042,986 1,938,827 1,156,833 5,138,646 Financial charges for future periods (111,377) (351,445) (397,000) (859,822) (99,749) (309,852) (418,859) (828,460) Present value of minimum lease payments 1,948,963 1,924,739 484,766 4,358,468 1,943,237 1,628,975 737,974 4,310,186 Annual Report 2019 371
374. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 11.2 Particulars of advances (Gross) In local currency In foreign currencies 20212020 (Rupees in '000) 683,535,698 48,905,143 554,179,378 44,186,397 732,440,841 598,365,775 11.3 Advances include Rs. 51,192.575 million (2020: Rs. 51,945.518 million) which have been placed under the non-performing status as detailed below: 20212020 Non performing Provision Non performing Provision Noteloans loans (Rupees in '000) Category of Classification Domestic Other Assets Especially Mentioned 11.3.1 Substandard Doubtful Loss Overseas 49,911 279,422 750,097 40,720,274 1,340 67,795 169,179 40,215,099 61,612 309,191 459,053 42,671,220 1,983 60,382 137,341 41,498,157 41,799,704 40,453,413 43,501,076 41,697,863 Not past due but impaired – – Overdue by: Upto 90 days 38,999 14,993 91 to 180 days 12,212 5,750 181 to 365 days 109,551 54,776 > 365 days 9,232,109 3,752,257 9,392,871 3,827,776 – – 5,321 2,020 19,961 8,417,140 – – 4,913 505 9,981 3,455,089 8,444,442 3,470,488 Total 51,192,575 44,281,189 51,945,518 45,168,351 11.3.1 This represents non-performing portfolio of agricultural and small enterprise financing classified as OAEM as per the requirements of the Prudential Regulation for Agricultural and Small Enterprise Financing issued by the State Bank of Pakistan. 11.4 Particulars of provision against advances 20212020 NoteSpecificGeneral Total SpecificGeneral Total (Rupees in '000) Opening balance Exchange adjustments Charge for the year Reversals11.4.3 & 11.4.4 Amounts written off 11.5 Closing balance 372 Unconsolidated Financial Statements 45,168,351 319,945 5,511,716 18,951 50,680,067 338,896 41,937,761 50,555 1,461,011 7,162 43,398,772 57,717 2,457,017 (3,258,052) 230,979 (3,990,646) 2,687,996 (7,248,698) 5,730,579 (2,215,829) 4,106,594 (63,051) 9,837,173 (2,278,880) (801,035) (406,072) (3,759,667) – (4,560,702) (406,072) 3,514,750 (334,715) 4,043,543 – 7,558,293 (334,715) 44,281,189 1,771,000 46,052,189 45,168,351 5,511,716 50,680,067
375. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 11.4.1 Particulars of provision against advances 20212020 SpecificGeneral Total SpecificGeneral Total (Rupees in '000) In local currency In foreign currencies 40,105,891 4,175,298 1,389,045 381,955 41,494,936 4,557,253 41,697,863 3,470,488 5,189,680 322,036 46,887,543 3,792,524 44,281,189 1,771,000 46,052,189 45,168,351 5,511,716 50,680,067 11.4.2 State Bank of Pakistan vide BSD Circular No. 2 dated January 27, 2009, BSD Circular No. 10 dated October 20, 2009, BSD Circular No. 02 of 2010 dated June 03, 2010 and BSD Circular No.1 of 2011 dated October 21, 2011 has allowed benefit of forced sale value (FSV) of Plant & Machinery under charge, pledged stock and mortgaged residential, commercial & industrial properties (land and building only) held as collateral against NPLs for five years from the date of classification. The Holding company has not taken the FSV benefit in calculation of specific provision. However, one of the subsidiaries has availed benefit of forced sale values amounting to Rs. 249.750 million (December 31, 2020: Rs. 543.151 million) in determining the provisioning against non-performing Islamic financing and related assets as at December 31, 2021. The additional benefit on the Bank’s statement of profit and loss arising from availing the FSV benefit - net of tax amounts to Rs 152.378 million as at December 31, 2021 (December 31, 2020: Rs. 353.048 million). However, the additional impact on profitability arising from availing the benefit of forced sales value is not available for payment of cash or stock dividends to shareholders. 11.4.3 This includes reversal of provisions and reduction of non-performing loans amounting to Rs. Nil (2020: Rs. 84 Million) as a result of settlement on debt asset swap arrangement with customers. 11.4.4 General provision of Rs. 4.0 billion was created last year on account of uncertainty emanating from COVID-19 outbreak, as many of Group’s borrowers had availed the SBP relief program relating to deferment/restructuring & rescheduling. During the current year, as part of the continuous credit assessment process, the Group has created specific provision against exposures that reflected signs of financial distress. However, the Group has reversed the general provision as the systematic risks surrounding the economic recovery have receded. The Group maintains general reserve in accordance with the applicable requirements of the Prudential Regulations for Consumer Financing and Prudential Regulations for Small and Medium Enterprise Financing issued by the SBP. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the respective countries in which the overseas branches operate. In addition, the Holding company also maintains a general provision against gross advances on a prudent basis. Note 11.5 20212020 (Rupees in '000) PARTICULARS OF WRITE OFFs: 11.5.1 Against Provisions 11.4 406,072 334,715 11.5.2 Write Offs of Rs. 500,000 and above - Domestic 11.6 - Overseas 11.6 Write Offs of below Rs. 500,000 406,072 334,715 384,417 10,108 11,547 299,532 – 35,183 406,072 334,715 11.4 Annual Report 2019 373
376. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 11.6 DETAILS OF LOAN WRITE OFF OF Rs. 500,000/- AND ABOVE In terms of sub-section (3) of Section 33A of the Banking Companies Ordinance, 1962, the statement in respect of written-off loans or any other financial relief of Rupees five hundred thousand or above allowed to a person(s) during the year ended December 31, 2021 is given at Annexure I of the unconsolidated financial statements. However, this write off does not affect the Bank’s right to recover the debts from these customers. 20212020 (Rupees in '000) Note 12. FIXED ASSETS Capital work-in-progress Property and equipment Right-of-use assets 12.1 12.2 12.3 928,545 53,472,833 7,950,167 871,274 53,190,768 9,617,270 62,351,545 63,679,312 12.1 Capital work-in-progress Civil works Equipment Advances to suppliers Others 483,986 15,180 422,256 7,123 472,314 98,383 296,456 4,121 928,545 871,274 12.2 Property and Equipment 2021 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 01, 2021 Cost / Revalued amount Accumulated depreciation – – (497,662) Accumulated Impairment – – – Net book value Year ended December 31, 2021 Opening net book value Additions 188,968 2,310 682,583 Disposals (148,859) – (115,378) – Depreciation charge – – (535,089) (36,178) Exchange rate adjustments – – 1,737 2,173 Transfers – – Closing net book value At December 31, 2021 Cost / Revalued amount 27,181,381 2,902,388 15,835,783 Accumulated depreciation – – (1,025,996) Accumulated Impairment – – Net book value Rate of depreciation / estimated useful life 374 Unconsolidated Financial Statements 27,141,272 27,141,272 27,141,272 27,181,381 27,181,381 – 2,900,078 15,273,596 2,900,078 14,775,934 2,900,078 14,775,934 – 2,902,388 14,809,787 – 2,902,388 14,809,787 806,387 2,239,957 16,995,598 (28,590) (1,297,854) (11,874,750) – (726) – 1,120,324 1,775,260 68,252,472 (673,674) – (681,889) (15,054,419) (6,559) (7,285) 777,797 941,377 5,120,848 446,650 1,086,812 53,190,768 777,797 941,377 5,120,848 446,650 1,086,812 53,190,768 26,474 191,163 1,433,068 – 186,005 437,234 3,147,805 (11,072) (12,732) (3,034) (297,983) (173,457) (1,457,297) (116,856) (6,908) 2,681 – 3,424 – 3,768 – (268,475) (2,587,352) 5,812 19,595 – – 770,266 954,856 5,088,971 506,835 1,258,349 53,472,833 835,142 2,361,270 18,013,550 1,243,942 2,204,571 70,578,027 (64,876) (1,405,688) (12,924,579) – 770,266 – 2.00%-5.0% 2.50%-5.0% (726) – 954,856 5,088,971 10% 10%-25% (737,107) – (939,663) (17,097,909) (6,559) (7,285) 506,835 1,258,349 53,472,833 20% Lease term –
377. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2020 Freehold Leasehold Building on Building on Furniture Electrical, Vehicles Leasehold land land freehold leasehold and fixtures office and improvements Total land land computer equipment (Rupees in '000) At January 01, 2020 Cost / Revalued amount Accumulated depreciation Net book value 26,951,665 – 26,951,665 2,893,079 14,400,594 – 637,102 (236) 2,893,079 14,400,358 2,047,789 15,989,634 – (1,159,800) (10,690,712) 1,176,389 1,352,983 65,449,235 (643,336) (488,611) (12,982,695) 637,102 887,989 5,298,922 533,053 864,372 52,466,540 864,372 52,466,540 Year ended December 31, 2020 Opening net book value Additions 637,102 887,989 5,298,922 533,053 189,607 6,999 976,836 168,601 228,078 1,174,108 60,767 443,560 3,248,556 Disposal – – (85,546) – (6,910) (23,938) (1,300) (120,273) Depreciation charge – – (498,884) (28,597) (172,075) (1,345,944) (125,219) Impairment – – – – (870) (561) – (2,838) (4,269) Exchange rate adjustments – – 412 691 773 1,294 1,987 (1,723) 3,434 Transfers – – (17,242) 61 (61) 17,242 – Closing net book value At December 31, 2020 Cost / Revalued amount Accumulated depreciation – – Accumulated Impairment – – Net book value Rate of depreciation / estimated useful life 26,951,665 27,141,272 27,141,272 27,141,272 – 2,893,079 14,400,358 2,900,078 14,775,934 2,900,078 15,273,596 (497,662) – (2,579) – (232,501) (2,403,220) 777,797 941,377 5,120,848 446,650 1,086,812 53,190,768 806,387 2,239,957 16,995,598 1,120,324 1,775,260 68,252,472 (28,590) (1,297,854) (11,874,750) – – 2,900,078 14,775,934 777,797 – 2.00%-5.0% 2.50%-5.0% (726) 941,377 5,120,848 10% (673,674) – – (681,889) (15,054,419) (6,559) (7,285) 446,650 1,086,812 53,190,768 10%-25% 20% Lease term – 12.2.1 Leasehold land include a plot of land measuring 3,120.46 square yards having book value of Rs. 1,426.809 million situated at Railway Quarters, I.I. Chundrigar Road, Karachi, (the “Plot”), where a tenant is claiming for the possession of an insignificant area of only 18 square feet of the plot, however there is no dispute over the title of the subject property that would impact the right of the Group. Both the Constitutional Petitions filed by the Group have been dismissed by the Sindh High Court on 28 January 2016 against the Group. The Group has filed an appeal before the Supreme Court of Pakistan. 12.2.2 The land and buildings of the Group were revalued as at December 31, 2019 by independent valuers (K.G. Traders (Pvt) Limited, Tristar International Consultant (Pvt) Limited & Sardar Enterprises), valuation and engineering consultants, on the basis of market value. The total surplus against revaluation of fixed assets as at December 31, 2021 amounts to Rs. 20,589.804 million (2020: Rs. 20,856.881 million). 12.2.3 Had the land and buildings not been revalued, the total carrying amounts of revalued properties as at the reporting dates would have been as follows: 20212020 (Rupees in '000) Land 13,407,405 13,007,065 Buildings 12,003,314 11,731,135 Annual Report 2019 375
378. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 12.2.4 The gross carrying amount (cost) of fully depreciated assets that are still in use are as follows: 20212020 (Rupees in '000) Furniture and fixtures 651,496 608,625 Electrical, computers and office equipment 8,146,030 7,347,691 Vehicles 460,238 488,175 Lease Hold Improvments 92,635 35,697 12.2.5 Carrying amount of temporarily idle property of the Group is Rs. 44.479 million (2020: Rs. 436.136 million) 12.2.6 The information relating to disposal of operating fixed assets to related parties is given in Annexure I of these consolidated financial statements. 12.3 Movement in right-of-use assets is as follows: Note 13. Opening balance Additions / adjustments Derecognition Depreciation charge 31 9,617,270 723,039 (680,529) (1,709,613) 10,666,838 1,263,307 (615,049) (1,697,826) Closing Net Book Value 7,950,167 9,617,270 INTANGIBLE ASSETS Capital work-in-progress Goodwill Management rights Computer software 13.1 376 20212020 (Rupees in '000) 468,679 82,127 192,000 1,095,330 435,330 82,127 192,000 1,157,787 1,838,136 1,867,244 20212020 (Rupees in '000) Computer software 13.1 At January 01 Cost Accumulated amortisation and impairment 5,262,979 (4,105,192) 4,865,584 (3,633,072) Net book value 1,157,787 1,232,512 Year ended December 31 Opening net book value Additions Amortisation charge Exchange rate adjustments 1,157,787 417,737 (480,826) 632 1,232,512 395,186 (469,860) (51) Closing net book value 1,095,330 1,157,787 At December 31 Cost Accumulated amortisation and impairment 5,687,650 (4,592,320) 5,262,979 (4,105,192) Net book value 1,095,330 1,157,787 Rate of amortisation (percentage) 14% to 33.33% 14% to 33.33% Useful life 3 - 7 years 3 - 7 years 13.2 The gross carrying amount (cost) of fully amortised intangible assets that are still in use is Rs. 3,260.094 million (2020: Rs. 3,085.368 million). Unconsolidated Financial Statements
379. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 14. OTHER ASSETS Income/ mark-up accrued in local currency Income/ mark-up accrued in foreign currencies Advances, deposits, advance rent and other prepayments Compensation for delayed income tax refunds Non-banking assets acquired in satisfaction of claims 14.1 Branch adjustment account Mark to market gain on forward foreign exchange contracts Unrealized gain on derivative financial instruments 25 Acceptances 20 Receivable from the pension fund 38.4 Clearing and settlement accounts Claims receivable against fraud and forgeries Others 24,316,843 313,062 2,253,754 133,809 2,170,938 – 4,335,561 304,893 25,430,129 3,218,426 5,553,219 1,117,067 2,738,937 19,451,779 311,024 2,524,851 133,809 3,277,778 421,204 4,847,284 517,033 22,747,369 3,370,179 2,698,271 1,087,306 3,134,359 Less: Provision held against other assets 14.2 71,886,638 2,709,281 64,522,246 2,582,686 Other Assets (net of provision) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 69,177,357 61,939,560 703,370 854,231 Other Assets - total 69,880,727 62,793,791 14.1 Market value of Non-banking assets acquired in satisfaction of claims 2,785,535 4,036,914 Non-banking assets acquired in satisfaction of claims of the Group are revalued as at December 31, 2021 by independent valuers (Material Design Services and J&M Associates) on the basis of market value. Note 20212020 (Rupees in '000) 14.1.1 Non-banking assets acquired in satisfaction of claims 4,036,914 – 259,321 (1,481,479) (35,544) 6,323 3,838,230 84,000 183,915 (35,024) (30,049) (4,158) Closing balance 14.1.2 Gain on disposal of non-banking assets acquired in satisfaction of claims 2,785,535 4,036,914 Disposal proceeds Less - Revalued amounts - Accumulated depreciation 2,052,928 39,000 1,493,844 (12,365) 35,820 (796) 1,481,479 35,024 571,449 3,976 Opening balance Additions Revaluation Disposals Depreciation 31 (Charge) / reversal of impairment  Gain 30 Annual Report 2019 377
380. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 14.2 Provision held against other assets Non banking assets acquired in satisfaction of claims Claims receivable against fraud and forgeries Others 20212020 (Rupees in '000) 88,773 486,976 2,133,532 95,095 478,773 2,008,818 14.2.1 Movement in provision held against other assets 2,709,281 2,582,686 Opening balance 2,582,686 2,604,137 Charge for the year Reversals 56,128 (25,036) 54,269 (77,917) 31,092 (991) 96,494 (23,648) (16,591) 18,788 2,709,281 2,582,686 33 Amount written off Exchange and other adjustments 15. Closing balance CONTINGENT ASSETS There were no contingent assets of the Group as at December 31, 2021 (2020: Nil). Note 20212020 (Rupees in '000) 16. BILLS PAYABLE In Pakistan Outside Pakistan 26,437,824 48,621 26,383,624 67,889 26,486,445 26,451,513 17.BORROWINGS Secured Borrowings from State Bank of Pakistan Under Export Refinance Scheme 17.1 Under Long Term Financing Facility 17.2 Under Renewable Energy Performance Platform 17.3 Under Refinance Scheme For Payment Of Wages & Salaries 17.4 Under Temporary Economic Refinance Facility 17.5 Under Refinance Facility For Combating Covid-19 17.6 Under Financing Facility For Storage Of Agricultural Produce 17.7 47,986,546 23,577,802 1,536,207 6,660,043 28,773,614 42,817 147,260 37,844,720 22,596,183 74,760 11,789,824 2,878,487 – 191,254 Bai Muajjal 17.8 Repurchase agreement borrowings 17.9 108,724,289 44,809,236 116,920,102 75,375,228 – 92,225,530 Total secured* 270,453,627 167,600,758 Unsecured Borrowings from other Financial Institution 17.10 Call Borrowings 17.11 Overdrawn Nostro Accounts Musharaka Arrangements 17.12 Others Total unsecured 464,272 2,767,152 1,682,663 7,368,882 162,286 1,720,341 319,669 368,920 14,405,366 162,286 12,445,255 16,976,582 17.13 282,898,882 184,577,340 *Details of secured balances due to financial institutions relating to MCB Islamic Bank Limited have been mentioned in Annexure II of these consolidated financial statements. 378 Unconsolidated Financial Statements
381. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 17.1 17.2 17.3 17.4 17.5 17.6 The Group has entered into agreements for financing with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Group with SBP. These borrowings are repayable within six months from the deal date. These carry mark up rates ranging from 1.0% to 2.0% per annum (2020: 1.0% to 2.0% per annum) These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.0% to 3.50% per annum (2020: 2.0% to 3.50% per annum) These borrowings have been obtained from the SBP for providing financing facilities to customers against renewable energy projects. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Group with SBP. These borrowings are repayable within a maximum period of twelve years with two years of maximum grace period from date of disbursement. These carry mark up rate of 2% per annum (2020: 2.0% per annum) These borrowings have been obtained from the SBP for providing financing facilities to help businesses in payment of wages and salaries to their workers and employees for supporting continued employment. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Group with SBP. These borrowing are repayable in 8 equal quarterly installments beginning from January 2021. These carry mark up rates ranging from 0% to 2% per annum (2020: 0% to 2.0% per annum) These borrowings have been obtained from the SBP for providing concessionary refinancing facility to the industry for purchase of new imported and locally manufactured plant & machinery to set up new projects. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable within a period of ten years including a grace period of upto 2 years. These carry mark up rate of 1% per annum (2020: 1.0% per annum). These borrowings have been obtained from the SBP under a scheme to provide combat the emergency refinance facility to hospitals & medical centre to develop capacity for the treatment of COVID-19 patients. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with SBP. These carry mark-up at 0% per annum and are due to mature latest by August 2025. 17.7 These borrowings have been obtained from SBP under “Financing Facility for Storage of Agricultural Produce (FFSAP)” to encourage Private Sector to establish Silos, Warehouses and Cold Storages. As per the agreements, the Group has granted SBP the right to recover the outstanding amount from the Group at the date of maturity of the finance by directly debiting the current account maintained by the Group with SBP. These borrowings are repayable within a period ranging from 3 years to 10 years. These carry mark up rates ranging from 2.50% to 3.50% per annum (2020: 2.50% to 3.50% per annum). 17.8 These carry profit rates ranging from 7.30% to 7.35% per annum and are due to mature latest by June 2022. These are secured against government securities of carrying value of Rs. 43,930.974 million. 17.9 These carry mark-up rates ranging from 5.10% to 10.70% per annum (2020: 6.15% to 7.25% per annum) and are secured against government securities of carrying value of Rs. 116,508.613 million (2020: Rs. 92,279.556 million). These are repayable latest by March 2022. Annual Report 2019 379
382. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 17.10 These carry mark-up rates of 1% per annum (2020: 1.90% to 4.00% per annum). These are repayable latest by February 2023. 17.11 These carry mark-up at the rate of 6.00% to 10.70% per annum (2020: 1.15% per annum). These are repayable by January 2022. 17.12 This includes Musharaka arrangements with banks carrying profit at expected rates ranging from 9.80% to 10.45% per annum (2020: 6.70% to 7.20% per annum) and having maturity till February 03, 2022. 18. 20212020 (Rupees in '000) 17.13 Particulars of borrowings with respect to currencies In local currency In foreign currencies 279,404,217 3,494,665 182,091,272 2,486,068 DEPOSITS AND OTHER ACCOUNTS 282,898,882 184,577,340 20212020 In local In foreign Total currencycurrencies In local In foreign currencycurrencies Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 489,666,685 738,874,979 109,600,671 30,673,250 1,368,815,585 Financial Institutions 71,126,591 46,969,241 12,107,066 3,062,911 560,793,276 785,844,220 121,707,737 33,736,161 425,760,845 689,241,146 89,353,999 26,013,457 55,999,023 481,759,868 47,759,213 737,000,359 14,182,837 103,536,836 3,218,232 29,231,689 133,265,809 1,502,081,394 1,230,369,447 121,159,305 1,351,528,752 Current deposits Savings deposits Term deposits Others 9,317,311 11,808,667 3,066,268 – 1,472,847 117,895 6,319,339 402,950 10,790,158 11,926,562 9,385,607 402,950 11,033,694 16,530,222 4,557,468 – 659,230 117,569 4,090,613 220,413 11,692,924 16,647,791 8,648,081 220,413 24,192,246 8,313,031 32,505,277 32,121,384 5,087,825 37,209,209 1,393,007,831 141,578,840 1,534,586,671 1,262,490,831 126,247,130 1,388,737,961 20212020 (Rupees in '000) 18.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 958,717,425 81,069,556 96,652,947 4,996,116 27,509,161 365,641,466 873,722,061 60,113,810 87,102,803 4,893,635 32,315,574 330,590,078 1,534,586,671 1,388,737,961 18.2 Deposits and other accounts include deposits eligible to be covered under the Deposits Protection insurance / takaful arrangements amounting to Rs 1,054,566.518 million (2020: Rs 957,118.596 million) 380 Unconsolidated Financial Statements
383. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 19. DEFERRED TAX LIABILITIES 2021 Note At January 01, 2021 Recognised in P&L A/C Recognised in OCI At December 31, 2021 (Rupees in '000) Taxable Temporary differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Investments in associated undertaking 1,329,511 (68,447) 152,202 1,413,266 298,982 2,054,509 1,179,562 705,218 1,325,520 (159,971) 242,881 386,088 – 350,777 135,304 – (310,465) – 114,984 274,315 2,297,390 1,255,185 705,218 1,791,281 Deductible Temporary differences on 6,893,302 751,328 92,025 7,736,655 (772,357) (2,786,856) 4,523,498 (366,547) 178,175 778,721 – (122,693) – – (7,589,814) – (594,182) (2,008,135) (3,066,316) (489,240) 834,203 (7,589,814) (6,157,873) 7,491,040 1,585,531 (7,497,789) 2020 1,578,782 - Tax losses carried forward - Provision against advances - Deficit on revaluation of investments 23 - Minimum Tax and WWF Note 597,738 At January 01, 2020 Recognised in P&L A/C Recognised in OCI At December 31, 2020 (Rupees in '000) Taxable Temporary Differences on - Surplus on revaluation of fixed assets 23.1 - Surplus on revaluation of non-banking assets 23.2 - Accelerated tax depreciation - Receivable from pension fund - Business combination - Investments in associated undertaking - Surplus on revaluation of investments 23 1,390,542 (61,031) – 1,329,511 237,181 1,961,113 1,261,793 705,218 1,247,340 2,329,519 (2,570) 93,396 119,428 – 87,603 – 64,371 – (201,659) – (9,423) 2,193,979 298,982 2,054,509 1,179,562 705,218 1,325,520 4,523,498 Deductible Temporary Differences on 9,132,706 236,826 2,047,268 11,416,800 - Tax losses carried forward - Provision against advances - Minimum Tax and WWF (949,800) (1,726,151) (242,532) 177,443 (1,060,705) (124,015) – – – (772,357) (2,786,856) (366,547) (2,918,483) (1,007,277) – (3,925,760) 6,214,223 (770,451) 2,047,268 7,491,040 Annual Report 2019 381
384. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 20. 20212020 (Rupees in '000) OTHER LIABILITIES Mark-up/ return/ interest payable in local currency Mark-up/ return/ interest payable in foreign currencies Unearned commission and income on bills discounted Accrued expenses Provision for taxation ( provisions less payments) Workers’ Welfare Fund 20.1 Acceptances 14 Unclaimed/dividend payable Mark to market loss on forward foreign exchange contracts Unrealized loss on derivative financial instruments 25 Staff welfare fund Branch adjustment account 14 Provision for employees’ compensated absences 38.4 Provision for post retirement medical benefits 38.4 Provision for employees’ contributory benevolent scheme 38.4 Retention money Insurance payable against consumer assets Unclaimed balances Duties and taxes payable Charity fund balance Provision against off-balance sheet obligations Security deposits against lease Lease liability against right of use assets Clearing and settlement accounts Others 6,100,587 178,437 862,173 6,905,279 8,627,030 9,931,139 25,430,129 2,027,825 2,884,255 254,433 252,312 6,888,435 10,130,229 8,838,684 22,747,369 1,697,408 4,397,120 302,365 4,755 238,420 1,100,865 1,982,169 4,618,138 513,343 5,598 – 919,407 2,004,122 197,712 12,473 736,768 755,141 4,344,738 8,823 46,319 1,506,241 10,059,815 6,234,150 7,011,566 222,084 20,657 698,949 877,552 1,860,730 46,615 46,188 1,283,999 11,268,508 7,421,975 5,526,168 99,002,039 91,027,158 20.1 Supreme Court of Pakistan vide its order dated November 10, 2016 has held that the amendments made in the law introduced by the Federal Government for the levy of Workers Welfare Fund were not lawful. The Federal Board of Revenue has filed review petitions against this order which are currently pending. Legal advice obtained on the matter indicates that consequent to filing of these review petitions the judgment may not currently be treated as conclusive. Accordingly, the Group maintained its provision in respect of WWF. 21. SHARE CAPITAL 21.1 Authorized Capital 20212020 (Number of shares) 1,500,000,000 1,500,000,000 Ordinary shares of Rs. 10 each 382 Unconsolidated Financial Statements 20212020 (Rupees in ‘000) 15,000,000 15,000,000
385. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 21.2 Issued, subscribed and paid up 20212020 (Number of shares) Ordinary shares 20212020 (Rupees in ‘000) 1,972,538 9,157,769 720,293 197,253,795 915,776,953 72,029,258 197,253,795 915,776,953 72,029,258 Fully paid in cash Issued as bonus shares Issued for consideration other than cash 1,972,538 9,157,769 720,293 1,185,060,006 1,185,060,006 11,850,600 11,850,600 21.3 The movement in the issued, subscribed and paid-up capital during the year is as follows: 20212020 (Number of shares) 1,185,060,006 1,185,060,006 Opening balance at January 01 11,850,600 11,850,600 11,850,600 11,850,600 21.4 1,185,060,006 1,185,060,006 Closing balance at December 31 20212020 (Rupees in ‘000) Number of shares held by the associated undertakings as at December 31, are as follows: Adamjee Insurance Company Limited Nishat Mills Limited Siddiqsons Limited Nishat (Aziz Avenue) Hotels and Properties Limited Nishat Real Estates Development Company (Private) Limited Adamjee Life Assurance Company Limited 55,196,435 88,015,291 11,271,920 434,176 68,900 1,200,000 47,827,287 88,015,291 14,276,462 141,950 54,500 – 156,186,722 150,315,490 Note 20212020 (Number of shares) 20212020 (Rupees in '000) 22.RESERVES Share premium Non- distributable capital reserve - gain on bargain purchase option 22.1 Exchange translation reserve Statutory reserve 22.2 General reserve 23,973,024 23,973,024 908,317 3,832,533 37,729,718 18,600,000 908,317 2,950,183 34,628,527 18,600,000 85,043,592 81,060,051 22.1 Under IFRS-3 a bargain purchase represents an economic gain which should be immediately recognized by the acquirer as income. However, the amount of bargain purchase gain was not taken to the profit and loss account as the SBP, through its letter BPRD(R&PD)/2017/14330 dated June 13, 2017 recommended that the amount of gain may be routed directly into equity as a Non-distributable Capital Reserve (NCR). The NCR may become available for distribution through a stock dividend only with prior approval of the SBP. The Group, before distribution of the gain as a stock dividend, may adjust any subsequent provisions/deficit, assessed by the Group or recommended by the Banking Inspection Department of SBP, in the acquired assets and liabilities of NIB Bank Limited against the NCR. 22.2 Statutory reserve represents amount set aside as per the requirements of section 21 of the Banking Companies Ordinance, 1962. Annual Report 2019 383
386. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 23. SURPLUS ON REVALUATION OF ASSETS Surplus / (deficit) on revaluation of - Available for sale securities 10.1 - Fixed Assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 - Associated undertaking 20212020 (Rupees in '000) (7,862,348) 20,589,804 703,370 788,174 12,924,291 20,856,881 854,231 577,001 14,219,000 35,212,404 - Available for sale securities 19 - Fixed Assets 23.1 - Non-banking assets acquired in satisfaction of claims 23.2 - Associated undertaking (3,066,316) 1,413,266 4,523,498 1,329,511 274,315 372,046 298,982 257,062 (1,006,689) 6,409,053 15,225,689 28,803,351 20,856,881 – (115,260) 21,031,256 – (22,544) Deferred tax on surplus / (deficit) on revaluation of: 23.1 Surplus on revaluation of fixed assets Surplus on revaluation of fixed assets as at January 01 Recognised during the year Realised on disposal during the year - net of deferred tax Transferred to unappropriated profit in respect of incremental depreciation charged during the year - net of deferred tax Related deferred tax liability on incremental depreciation charged during the year Related deferred tax liability on surplus realised on disposal Surplus on revaluation of fixed assets as at December 31 Less: Related deferred tax liability on: - revaluation as at January 01 - opening liability remeasurement - recognised during the year - surplus realised on disposal during the year - incremental depreciation charged during the year 19 (83,370) (90,800) (53,728) (14,719) (48,892) (12,139) 20,589,804 20,856,881 1,329,511 152,202 – (14,719) (53,728) 1,390,542 – – (12,139) (48,892) 1,413,266 1,329,511 19,176,538 19,527,370 23.2 Surplus on revaluation of non-banking assets acquired in satisfaction of claims Surplus on revaluation as at January 01 Recognised during the year Realised on disposal during the year - net of deferred tax Related deferred tax liability on surplus realised on disposal 854,231 259,321 (250,211) (159,971) 677,660 183,915 (4,774) (2,570) Surplus on revaluation as at December 31 703,370 854,231 Less: Related deferred tax liability on: - revaluation as at January 01 - revaluation recognised during the year - opening liability remeasurement - surplus realised on disposal during the year 298,982 101,135 34,169 (159,971) 237,181 64,371 – (2,570) 274,315 298,982 429,055 555,249 19 384 Unconsolidated Financial Statements
387. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 24. CONTINGENCIES AND COMMITMENTS - Guarantees - Commitments - Other contingent liabilities 24.1 24.2 24.3 20212020 (Rupees in '000) 194,370,616 422,956,200 26,189,566 186,572,634 525,404,920 28,397,749 643,516,382 740,375,303 Financial guarantees Performance guarantees Other guarantees 158,777,702 29,097,931 6,494,983 149,925,920 29,835,397 6,811,317 24.2Commitments: 194,370,616 186,572,634 192,773,466 180,272,534 218,878,371 5,098,200 4,434,780 708,954 327,646,242 11,089,775 4,471,383 1,007,451 836,275 225,794 710,570 206,965 24.2.1 Commitments in respect of forward foreign exchange contracts 422,955,840 525,404,920 Purchase Sale 120,320,899 98,557,472 172,137,589 155,508,653 24.2.2 Commitments in respect of government securities transactions 218,878,371 327,646,242 24.1Guarantees: Documentary credits and short-term trade-related transactions - letters of credit Commitments in respect of: - forward foreign exchange contracts 24.2.1 - forward government securities transactions 24.2.2 - derivatives (notional) 24.2.3 - commitments to extent credit 24.2.4 Commitments for acquisition of: - operating fixed assets - intangible assets Purchase Sale 5,098,200 – 11,089,775 – 5,098,200 11,089,775 Annual Report 2019 385
388. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) 24.2.3 Commitments in respect of derivatives FX options (notional) Purchase Sale 1,432,779 1,432,779 182,800 182,800 Cross Currency Swaps (notional) Purchase Sale 2,865,558 365,600 784,611 784,611 1,975,311 2,130,472 1,569,222 4,105,783 4,434,780 4,471,383 24.2.4 The Group makes commitments to extend credit in the normal course of its business but these being revocable commitments do not attract any significant penalty or expense if the facility is unilaterally withdrawn. Note 24.3 20212020 (Rupees in '000) Other contingent liabilities Claims against the Group not acknowledged as debts 24.3.1 26,189,566 28,397,749 24.3.1 These mainly represent counter claims by borrowers for damages and other claims relating to banking transactions. Based on legal advice and / or internal assessments, management is confident that the matters will be decided in the Group favour and the possibility of any adverse outcome is remote. Accordingly, no provision has been made in these consolidated financial statements. 24.4 For assessment year 1988-89 through tax year 2020, the tax department disputed Group treatment on certain issues, where the Group appeals are pending at various appellate forums, entailing an additional tax liability of Rs. 1,497 million (2020: Rs. 6,033 million). Such issues inter alia principally include disallowance of expenses for non deduction of withholding tax and non availability of underlying records, provision for non performing loans, attribution of expenses to heads of income other than income from business and disallowance of credit for taxes paid in advance / deducted at source. The Group has filed appeals which are pending at various appellate forums. In addition, certain decisions made in favour of the Group are being contested by the department at higher forums. No provision has been made in the consolidated financial statements regarding the aforesaid additional tax demand and already issued favourable decisions where the department is in appeal, as the management is of the view that the issues will be decided in the Group’s favour as and when these are taken up by the Appellate Authorities. 24.5 Amortisation of goodwill and other intangibles amounting to Rs 28.08 billion of Ex. NIB 386 Issue of goodwill and other related assets amortization for few years has been assessed in Holding company favour at appellate forums during the year, however, the tax department has filed appeal against these decisions. The management has not recorded any tax benefit because the issue has not attained finality. Unconsolidated Financial Statements
389. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 25. DERIVATIVE INSTRUMENTS 25.1 Product Analysis 2021 Cross currency swaps Interest rate swaps FX options Notional Mark to Notional Mark to Notional Mark to Counterparties principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) With Banks for Hedging Market Making With other entities for Hedging Market Making 784,611 – 298,956 – – – – – 1,432,779 – 5,937 – – 784,611 – (296,428) – – – – – 1,432,779 – (5,937) 784,611 784,611 298,956 (296,428) – – – – 1,432,779 1,432,779 5,937 (5,937) Total Hedging Market Making 2020 Cross currency swaps Interest rate swaps FX options Notional Mark to Notional Mark to Notional Mark to Counterparties principalmarket principalmarketprincipalmarket gain/lossgain/lossgain/loss (Rupees in '000) With Banks for Hedging Market Making With other entities for Hedging Market Making 1,975,311 – 512,508 – – – – – 182,800 – 4,525 – – 2,130,472 – (508,818) – – – – – 182,800 – (4,525) 1,975,311 2,130,472 512,508 (508,818) – – – – 182,800 182,800 4,525 (4,525) Total Hedging Market Making Annual Report 2019 387
390. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 25.2 Maturity Analysis 2021 No. of Notional Mark to Market contractsprincipalNegative Positive Remaining Maturity Upto 1 month 1 to 3 months 3 to 6 months 6 month to 1 Year 2 to 3 Years (843) (4,097) (40,122) (95,142) (162,161) 843 4,097 40,378 96,369 163,206 – – 256 1,227 1,045 Total 68 4,434,780 (302,365) 2020 304,893 2,528 24 32 8 2 2 1,183,628 1,483,069 343,423 330,429 1,094,231 No. of Notional Mark to Market contractsprincipalNegative Positive Remaining Maturity Upto 1 month 1 to 3 months 3 to 6 months 6 month to 1 Year 1 to 2 Years 3 to 5 Years Total 25.3 Net (Rupees in '000) 8 4 4 3 4 2 924,787 120,859 421,010 329,626 1,094,545 1,580,556 (54,638) (1,545) (71,467) (23,640) (220,328) (141,725) 54,840 1,545 71,915 18,177 226,567 143,989 202 – 448 (5,463) 6,239 2,264 25 4,471,383 (513,343) 517,033 3,690 Risk management related to derivatives is discussed in note 45.5. 388 Net (Rupees in '000) 20212020 (Rupees in '000) 26. MARK-UP/RETURN/INTEREST EARNED Loans and advances Investments Lendings to financial institutions Balances with banks 40,072,099 91,855,343 553,052 128,809 50,061,684 94,248,954 1,092,986 368,827 27. MARK-UP/RETURN/INTEREST EXPENSED 132,609,303 145,772,451 Deposits Borrowings Cost of foreign currency swaps against foreign currency deposits / borrowings Unwinding cost of liability against right-of-use assets 50,999,880 10,364,392 59,436,050 6,610,704 1,609,774 1,257,256 2,386,644 1,495,614 64,231,302 69,929,012 Unconsolidated Financial Statements
391. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 28. Note 20212020 (Rupees in '000) FEE & COMMISSION INCOME Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fee Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on utility bills Commission on Bancassurance Rent on lockers Commission on investments services Other commission 2,864,064 531,005 3,051,196 279,009 206,755 1,477,332 650,657 726,239 1,924,884 431,539 3,206,215 60,484 161,192 1,353,430 608,822 615,001 999,448 80,763 1,532,115 248,475 806,981 237,393 1,020,949 79,791 1,384,111 230,996 694,750 199,327 29. GAIN ON SECURITIES - NET 13,691,432 11,971,491 269,861 (7,026) 3,286,027 110,269 Realised Unrealised (Loss) / Gain - Held For Trading 29.1 10.1 29.1 Realised gain / (loss) on: Federal Government Securities Non Government Debt Securities Shares and units 262,835 3,396,296 383,592 40 (113,771) 3,438,493 (76,066) (76,400) 269,861 3,286,027 Rent on property Gain on sale of fixed assets - net Gain / (loss) on termination of lease liability against right of use assets Gain on conversion of Ijarah agreements Gain on sale of non banking assets - net 14.1.2 34,131 107,783 67,310 73,164 149,129 20,761 571,449 (15,637) 63,290 3,976 883,253 192,103 30. OTHER INCOME Annual Report 2019 389
392. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 31. OPERATING EXPENSES Total compensation expense 20212020 (Rupees in '000) 31.1 19,367,589 18,201,007 Property expense Rent and taxes Insurance/ Takaful Utilities cost Fuel expense generators Security (including guards) Repair and maintenance (including janitorial charges) Depreciation on right-of-use assets 12.3 Depreciation 12.2 214,326 57,399 1,698,101 439,089 1,724,713 822,431 1,709,613 946,628 214,770 66,237 1,350,228 334,634 1,444,492 758,318 1,697,826 845,654 7,612,300 6,712,159 1,349,334 215,094 759,076 480,826 628,853 5,728 1,304,566 342,392 688,155 469,860 705,798 6,294 3,438,911 3,517,065 46,300 10,433 310,962 902,214 345,446 172,508 881,648 50,060 9,417 312,026 892,810 322,162 186,480 869,411 35,544 41,787 278,075 399,504 656,178 804,122 8,165 72,449 860,210 447,841 36,862 251,200 209,080 77,053 992,445 262,250 1,773,782 294,874 30,049 43,062 286,548 353,513 624,477 713,479 112,596 41,295 709,262 404,247 43,581 225,692 211,631 69,542 829,055 128,614 1,570,511 294,166 10,170,932 9,333,686 Information technology expenses Software maintenance Hardware maintenance Depreciation 12.2 Amortisation 13.1 Network charges Insurance/ Takaful Other operating expenses Directors’ fees and allowances 40.2 Fees and allowances to Sharia Board members Legal and professional charges Outsourced services costs 37.1 Travelling and conveyance NIFT clearing charges Depreciation 12.2 Depreciation on non-banking assets acquired in satisfaction of claims 14.1.1 Training and development Postage and courier charges Communication Stationery and printing Marketing, advertisement & publicity Donations 31.2 Auditors’ remuneration 31.3 Cash transportation charges Repair and maintenance Subscription Entertainment Remittance charges Brokerage expenses Card related expenses CNIC verification charges Insurance/ Takaful Others 40,589,732 37,763,917 Total cost for the year included in other operating expenses relating to outsourced activities is Rs 217.816 million (2020: Rs 280.848 million) which pertains to payments to companies incorporated in Pakistan. Outsourcing shall have the same meaning as specified in BPRD Circular No. 06 of 2019. This includes cost of outsourcing pertaining to Euronet Private Limited (a related party) is Rs 196.446 million (2020: 275.517 million) 390 Unconsolidated Financial Statements
393. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 31.1 20212020 (Rupees in '000) Total compensation expense Fees and allowances Managerial remuneration i) Fixed ii) Variable - cash bonus / awards Charge / (reversal) for defined benefit plan Contribution to defined contribution plan Commission Staff group insurance Rent and house maintenance Medical Conveyance 543,744 488,500 13,763,999 2,344,413 289,144 491,210 547,162 436,506 428,386 70,096 339,928 12,914,590 2,640,316 74,827 455,012 350,803 433,891 419,324 68,143 351,101 Sign-on bonus 31.1.1 Severance allowance 31.1.2 19,254,588 2,501 110,500 18,196,507 3,700 800 19,367,589 31.1.1 During the year sign on bonus was paid to 5 employees (2020: 4). 31.1.2 Severance allowance pertains to 6 employees (2020: 1). 31.2 Detail of donations made during the year is as follows: 18,201,007 Murshid Hospital & Health Care Centre Saleem Memorial Trust Hospital Specialized Healthcare and Medical Education Department, Government of Punjab - (COVID 19 relief) Jahandad Society For Community Development Nigahban Welfare Association Ambulance donation to Sadiq Public School District Administration Lahore - (COVID 19 relief) 20212020 (Rupees in '000) 100 – – 95,000 – 1,500 5,000 1,565 – 9,996 5,000 – – 2,600 8,165 112,596 31.2.1 None of the directors, executives and their spouses had any interest in the donees to whom donations were given during the year. 20212020 (Rupees in '000) 31.3 Auditors’ remuneration Audit fee Fee for audit of foreign branches Fee for audit of subsidiaries Special certifications and sundry advisory services Tax services Sales tax on audit fee Out-of-pocket expenses 16,500 11,514 15,725 – 26,235 825 1,650 16,500 10,272 11,575 473 – 825 1,650 72,449 41,295 Annual Report 2019 391
394. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 32. OTHER CHARGES Penalties of State Bank of Pakistan VAT & National Building tax & Crop Insurance Levy Education cess 20212020 (Rupees in '000) 451,496 49,907 23,936 192,356 92,502 13,129 525,339 297,987 6,599 (770,357) (4,560,702) (2,643) 31,092 (176,768) (3,547) (69,658) 7,558,293 (448) (23,648) (130,948) (5,472,779) 7,330,044 20,202,269 (6,822) 1,585,531 166,668 20,384,542 (8,023) (770,451) 149,951 34.1 Relationship between tax expense and accounting profit Accounting profit for the year 21,947,646 19,756,019 53,275,400 49,318,288 Tax rate Tax on income Tax effect of permanent differences Tax effect of prior years reversals Others 39% 20,777,406 176,083 (6,822) 1,000,979 39% 19,234,132 75,019 (8,023) 454,891 Tax charge for the year 21,947,646 19,756,019 33. PROVISIONS / (REVERSALS) & WRITE OFFS - NET Provisions / (reversals) against balance with banks (Reversals) for diminution in value of investments 10.3.1 (Reversals) / provisions against loans & advances 11.4 (Reversals) against off balance sheet items Provisions / (reversals) against other assets 14.2.1 Recovery of written off / charged off bad debts 34.TAXATION Current Prior years Deferred 19 Share of tax of associates 35. BASIC AND DILUTED EARNINGS PER SHARE Profit for the year after tax attributable to ordinary shareholders (Rupees in '000) 31,179,708 29,410,227 (Number) Weighted average number of ordinary shares 1,185,060,006 1,185,060,006 (Rupees) Basic and diluted earnings per share 392 26.31 24.82 Diluted earnings per share has not been presented separately as the Group does not have any convertible instruments in issue at the reporting dates. Unconsolidated Financial Statements
395. Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 7 8 17 Note Redemption of Subordinated loan Payment of lease liability against Closing Balance Total equity related other changes Total liability related other changes - Non cash based - Dividend payable Changes in Other liabilities - Cash based Liability related Total changes from financing cash flows Dividend paid right-of-use-assets Changes from Financing cash flows Opening Balance Equity Liabilities 20212020 160 ,695,642 132,053,041 29,011,521 (368,920) Equity 196,794,135 175,922,469 22,554,329 (1,682,663) 20212020 (Rupees in '000) – – 330,417 – – – – – – – (330,417) – (330,417) – – (34,036,323) – (34,036,323) – – – 3,983,541 28,565,280 – – – – – – – – – 99,002,039 11,850,600 85,043,592 64,697,360 – – 10,334,211 – 3,806,120 – – 6,197,674 – (2,359,330) – – (2,359,330) – – 91,027,158 11,850,600 81,060,051 70,498,820 – – 751,419 261,345,010 148,075 32,696,896 – 10,003,794 – 3,806,120 – – 6,197,674 (175,217) (36,570,870) (175,217) (34,211,540) – (2,359,330) – 778,561 255,215,190 (Rupees in '000) – (2,327,634) – 92,285 – – – – – – – (92,285) – (92,285) – – (11,758,315) – (11,758,315) – – – 3,165,222 26,240,641 – – – – – – – – – 91,027,158 11,850,600 81,060,051 70,498,820 – – (9,050,721) – 10,005,234 – – (19,148,240) – – – (2,327,634) – – 102,405,513 11,850,600 77,894,829 56,108,779 – – 778,561 255,215,190 152,049 29,557,912 – (9,143,006) – 10,005,234 – – (19,148,240) (113,891) (14,199,840) (113,891) (11,872,206) – (2,327,634) – 740,403 249,000,124 Sub- Unappropriated Non- Sub- Unappropriated Non- ordinatedOther Share Reserves profitcontrollingTotal ordinated Other ShareReserves profitcontrollingTotal loan liabilitiescapital interest loan liabilitiescapital interest Liabilities Reconciliation of movement of liabilities to cash flows arising from financing activities 36.1 CASH AND CASH EQUIVALENTS 36. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 393
396. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 (Number) 37. STAFF STRENGTH Permanent On Bank contract Bank’s own staff strength at end of the year 15,961 15,567 37.1 In addition to the above, 339 (2020: 618) employees of outsourcing services companies were assigned to the Group as at the end of the year to perform services other than guarding, tea and janitorial services. Outsourced staff includes 332 (2020: 611) working domestically and 7 (2020: 7) working abroad. 38. DEFINED BENEFIT PLAN 15,529 432 15,437 130 38.1 General description The Group operates the following retirement benefits for its employees: 38.2 - Pension fund - funded - Benevolent scheme - unfunded - Post retirement medical benefits - unfunded - Employees compensated absence - unfunded The number of employees covered under the following defined benefit schemes are: The plan assets and defined benefit obligations are based in Pakistan. Number of Employees under the scheme 20212020 (Number) - Pension fund - funded 5,731 5,410 - Benevolent scheme - unfunded 1,002 1,108 - Post retirement medical benefits - unfunded 13,612 13,386 - Employees compensated absence - unfunded 13,612 13,386 38.3 Principal actuarial assumptions The latest actuarial valuations of the pension fund, employees’ contributory benevolent scheme, post retirement medical benefits and employee’s compensated absences were carried out at December 31, 2021. The principal actuarial assumptions used are as follows: Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 (%) Discount rate 11.759.75 11.759.7511.759.7511.759.75 Expected rate of return on plan assets 11.75 9.75 – – – – – – Expected rate of salary increase 9.75 7.75 9.75 7.75 – – 9.75 7.75 Expected rate of increase in pension 0-5 0-5 – – – – – – Expected rate of increase in medical benefit–––– 9.75 7.75–– 394 Unconsolidated Financial Statements
397. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 38.4 Reconciliation of (receivable from) / payable to defined benefit plans Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Present value of obligations Fair value of plan assets 38.5 38.6 5,031,961 5,097,744 (8,250,387) (8,467,923) 197,712 – 222,084 1,982,169 – – 2,004,122 1,100,865 – – 919,407 – (Receivable) / payable 38.7 (3,218,426) 197,712 222,084 2,004,122 919,407 (3,370,179) 1,982,169 1,100,865 38.5 Movement in defined benefit obligations Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Obligations at the beginning of the year Current service cost 38.8.1 Interest cost Benefits paid Re-measurement loss / (gain) 38.8.1 & 38.8.2 5,097,744 62,653 477,989 (390,586) (215,839) 5,182,991 64,350 560,303 (405,032) (304,868) 222,084 21,449 20,249 (28,812) (37,258) 221,193 21,742 22,931 (34,721) (9,061) 2,004,122 61,978 188,540 (140,756) (131,715) 1,921,348 53,018 208,381 (138,149) (40,476) 919,407 24,653 85,558 (83,768) 155,015 939,495 24,428 98,224 (132,782) (9,958) Obligations at end of the year 5,031,961 5,097,744 197,712 222,084 1,982,169 2,004,122 1,100,865 919,407 38.6 Movement in fair value of plan assets 38.4 Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Fair value at the beginning of the year 8,467,923 8,788,112 – – – – – – Interest income on plan assets 806,581 965,880 – – – – – – Benefits paid(390,586) (405,032)–––––– Re-measurement loss 38.8.2 (633,531) (881,037)–––––– Fair value at end of the year 38.7 Movement in (receivable) / payable under defined benefit schemes 38.4 8,250,387 8,467,923 – – – – – – Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 20212020202120202021202020212020 Note (Rupees in '000) Opening balance Charge / (reversal) for the year 38.8.1 Employees’ contribution Re-measurement loss / (gain) recognised in OCI 38.8.2 during the year Benefits paid by the Group (3,370,179) (265,939) – (3,605,121) (341,227) – 222,084 39,339 2,359 221,193 41,961 2,712 2,004,122 250,518 – 1,921,348 261,399 – 919,407 265,226 – 939,495 112,694 – 417,692 – 576,169 – (37,258) (28,812) (9,061) (34,721) (131,715) (140,756) (40,476) (138,149) – (83,768) – (132,782) (3,218,426) 197,712 222,084 1,982,169 2,004,122 1,100,865 919,407 Closing balance 38.4 (3,370,179) Annual Report 2019 395
398. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 38.8 Charge for defined benefit plans 38.8.1 Cost recognised in profit and loss Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note Current service cost Net interest on defined 38.5 benefit asset / liability (Rupees in '000) 62,653 64,350 21,449 21,742 61,978 53,018 24,653 24,428 (328,592) (405,577) 20,249 22,931 188,540 208,381 85,558 98,224 (2,359) (2,712) Employees’ contribution – – Actuarial loss / (gain) – – 38.5 38.7 (265,939) (341,227) – 39,339 – 41,961 – – – – 250,518 261,399 – – 155,015 (9,958) 265,226 112,694 38.8.2 Re–measurements recognised in OCI during the year Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note (Rupees in '000) Loss / (gain) on obligation – Financial assumptions Experience adjustments 38.9 38.5 (542,097) (389,052) (18,272) (17,065) (100,133) 107,752 – – 326,258 (693,920) (18,986) (26,126) (31,582) (148,228) – – 38.6 633,531 881,037 – – – – – – 38.7 417,692 576,169 (37,258) (9,061) (131,715) (40,476) – – Actual return on plan assets over expected interest income Re–measurement loss / (gain) recognised in OCI Components of plan assets Approved Employees' Post retirement Employees' Pension contributory medical compensated fund benevolent scheme benefits absences 2021 20202021 20202021 2020 2021 2020 Note (Rupees in '000) Cash and cash equivalents - net 133,780 24,451 – – – – – – Shares 7,929,453 8,129,575 – – – – – – Open ended mutual funds units 187,154 313,897 – – – – – – 8,250,387 8,467,923 – – – – – – 38.4 38.9.1 Significant risk associated with the plan assets 396 The Fund’s investments in equity securities and units of mutual funds are subject to price risk. These risks are regularly monitored by Trustees of the employee funds. Unconsolidated Financial Statements
399. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 38.10 Sensitivity analysis Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the impact on the present value of the defined benefit obligations under the various employee benefit schemes. The increase / (decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below: Approved Employees' Post Employees' Pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) 1% increase in discount rate (297,730) (12,761) (213,180) 1% decrease in discount rate 335,100 14,323 263,538 1 % increase in expected rate of salary increase 76,700 – – 1 % decrease in expected rate of salary increase (72,190) – – 1% increase in expected rate of pension increase 191,850 – – 1% decrease in expected rate of pension increase (291,090) – – 1% increase in expected rate of medical benefit increase – – 145,346 1% decrease in expected rate of medical benefit increase – – (124,096) 38.11 Expected contributions to be paid to the funds in the next financial year 38.12 (67,315) 75,043 75,809 (69,073) – – – – No contributions are being made to pension fund due to surplus of fair value of plan’s assets over present value of defined obligation. No contribution to the pension fund is expected in the next year. Expected charge / (reversal) for the next financial year Based on actuarial advice, management estimates that the charge / (reversal) in respect of defined benefit plans for the year ending December 31, 2022 would be as follows: Approved Employees' Post Employees' Pension fund contributory retirement compensated benevolentmedicalabsences schemebenefits (Rupees in '000) Expected charge / (reversal) for the next financial year 38.13 Maturity profile The weighted average duration of the obligation (in years) 38.14 Funding Policy (312,272) 35,998 294,973 162,927 7.69 7.69 7.69 7.69 The Group endeavours to ensure that liabilities under the various employee benefit schemes are covered by the Fund on any valuation date having regards to the various actuarial assumptions such as projected future salary increase, expected future contributions to the fund, projected increase in liability associated with future service and the projected investment income of the Fund. Annual Report 2019 397
400. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 38.15 The defined benefit plans may expose the Group to actuarial risks such as longevity risk, investment risk, salary increase risk and withdrawal rate risk as described below; Investment risk The risk arises when the actual performance of the investments is lower than expectation and thus creating a shortfall in the funding objectives. Longevity risk The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured at the plan level over the entire retiree population. Salary increase risk The most common type of retirement benefit is one where the benefit is linked with final salary. The risk arises when the actual increases are higher than expectation and impacts the liability accordingly. Withdrawal rate The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the benefit obligation. The movement of the liability can go either way. 39. DEFINED CONTRIBUTION PLAN MCB Bank Limited (holding company) The Holding company operates an approved contributory provident fund for 11,570 (2020: 11,458) employees where contributions are made by the Bank at 8.33% (2020: 8.33%) and employees ranging from 8.33% to 15% per annum (2020: 8.33% to 15% per annum) of the basic salary. The Bank also operates an approved non-contributory provident fund for 637 (2020: 687) employees who have opted for the new scheme, where contributions are made by the employees ranging from 8.33% to 15% per annum (2020: 8.33% to 15% per annum) of the basic salary. 40. 39.1 MCB Islamic Bank Limited (Subsidiary) The subsidiary operates an approved contributory provident fund for 1,189 (2020: 1,384) employees. Equal monthly contributions are made both by the Bank and its permanent employees to the Fund at the rate of 8.33% of the basic salaries of employees. However, an employee has an option to increase his / her contribution upto 15% of basic salary. COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL 40.1 Total compensation expense 2021 Directors Members Key Other material Chairman Executive Non shariah President / management risk takers / Note (other than executive board CEO* personnel controllers CEO) (Rupees in '000) Fee and allowances 40.2 5,500 – 40,800 – – 1,099 10,668 Managerial Remuneration – – i) Fixed – – – 6,321 75,073 350,420 942,308 ii) Cash Bonus / Awards 40.1.1 – – – 950 55,000 176,507 325,537 Contribution to defined contribution plan – – – 194 – 10,616 38,183 Rent & house maintenance – – – 1,047 240 30,256 90,592 Medical – – – – 2,267 2,979 15,461 Severance allowance – – – – 100,000 3,500 – Overseas allowance – – – – – 29,979 598 Security – – – – 833 – – Commission – – – – – 1,690 62,367 Utilities – – – 233 – 3,002 18,268 Special Pay – – – 241 – – 11,640 Conveyance – – – 1,129 – – 44,703 Charge allowance – – – – – – 2,017 Fuel Allowance – – – 318 – – 10,624 Leave fare assistance – – – – – 1,213 7,583 Club membership – – – – 106 – 1,900 Others – – – – – 8,438 56,312 Total 5,500 – 40,800 10,433 233,519 Number of Persons 1 – 11 3 1 619,699 1,638,761 34 208 *Mr. Imran Maqbool completed his term as President & CEO on December 20, 2021 and Mr. Shoaib MumtazGroup Head CFIBG has taken charge as Acting President & CEO of the MCB Bank (holding company) effective from December 21, 2021. 398 Unconsolidated Financial Statements
401. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2020 Directors Members Key Other material Chairman Executive Non shariah President/ management risk takers/ (other than executive board CEO personnel controllers CEO) (Rupees in '000) Fee and allowances Managerial Remuneration i) Fixed ii) Cash Bonus / Awards Contribution to defined contribution plan Rent & house maintenance Medical Severance allowance Overseas allowance Security Commission Utilities Special Pay Conveyance Club membership Fuel Allowance Leave fare assistance Others 7,210 Total 7,210 – 42,850 9,417 127,106 Number of Persons 1 – 11 3 1 – – – – – – – – – – – – – – – – – 42,850 – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – – 5,681 900 177 957 – – – – – 213 241 1,020 – 228 – – 72,362 50,000 – 240 1,828 – – 804 – – – – 1,872 – – – 942 10,111 342,162 170,969 9,608 28,190 2,414 800 37,559 – 300 2,767 – – – – 1,213 5,989 861,129 293,927 34,877 84,950 11,639 – – – 43,960 16,445 13,123 49,713 300 11,478 11,679 27,106 602,913 1,470,437 34 193 40.1.1 During the year 2021, Rs 34.20 million bonus has been deferred (2020: Rs. 26.06 million). 40.1.2 Key management personnel of subsidiaries have been presented as “Other material risk takers/ controllers.” 40.2 Remuneration paid to Directors of the Bank for participation in Board and Committee meetings 2021 For Board Committee Board Board's BS & RM & HR & ITC meetingAudit DC PRC RC Committee PP & CR & Wo & As Board Total CA MC WC Chairman (Rupees in '000) Mian Mohammad Mansha 4,800 – 200 – 400 – 100 – – – 5,500 Mr. S. M. Muneer 1,600 – 300 – – – – 100 – – 2,000 Mr. Tariq Rafi 2,000 – – – – – – – – – 2,000 Mian Umer Mansha 2,000 400 300 300 – 500 200 – – – 3,700 Mrs. Iqraa Hassan Mansha 2,000 – – 100 – 100 – – – 2,200 Mr. Muhammad Ali Zeb 2,000 500 400 400 – 300 400 – – Mr. Mohd Suhail Amar Suresh 4,000 – 400 – 500 – – – – Mr. Yahya Saleem 4,000 – – – 200 100 – Mr. Salman Khalid Butt 4,000 – 400 400 200 500 – Mr. Masood Ahmed Puri 4,000 – 400 – – – Mr. Shahzad Hussain 2,000 500 – – – Mr. Shariffuddin Bin Khalid 4,000 500 – – 36,400 1,900 2,000 1,500 - 400 – 4,000 5,300 – – – 4,300 400 – – 5,900 – – – – 4,400 – – – – – 2,500 – – – – – – 4,500 1,300 1,600 700 900 – – 46,300 Annual Report 2019 399
402. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2020 For Board Committee PP & CR & Wo & *As Board Total CA MC WC Chairman Board Board's BS & RM & HR & ITC meetingAudit DC PRC RC Committee (Rupees in '000) Mian Mohammad Mansha 3,840 – 300 – 400 – – Mr. S. M. Muneer 1,700 – 100 – – – – 100 – – 1,900 Mr. Tariq Rafi 1,700 – – – – – – – 200 – 1,900 Mian Umer Mansha 1,700 500 400 500 – 500 400 – 300 – 4,300 Mrs. Iqraa Hassan Mansha 1,200 – – – 200 – 100 – – – 1,500 Mr. Muhammad Ali Zeb 1,700 500 – 500 300 – 300 400 300 – 4,000 Mr. Mohd Suhail Amar Suresh 4,460 – 400 500 500 – – – – Mr. Yahya Saleem 4,466 – – 300 200 – – – – Mr. Salman Khalid Butt 4,586 – 400 500 – 500 – 400 – – Mr. Masood Ahmed Puri 4,466 – 400 – – – – – – – 4,866 Mr. Shahzad Hussain 1,700 500 – – – – – – – – 2,200 Mr. Shariffuddin Bin Khalid 4,472 500 – – – – – – – – 35,990 2,000 2,000 2,000 1,700 1,200 900 800 300 – – – 1,100 2,370 7,210 5,860 4,966 2,370 6,386 4,972 50,060 40.3 40.4 *During the year 2020, the Board Chairman was paid a proportionate amount of Rs 2.370 million in lieu of fixed annual remuneration approved by the shareholders of the Group in its 62nd Annual General Meeting held on March 26, 2010. Effective from February 05, 2020 in accordance with BPRD Circular No. 03 of 2019 dated August 19, 2019, the remuneration to the Chairman for attending the Board and committee meetings was paid inline with the remuneration scale approved by the shareholders of the Group in its 72nd Annual General Meeting held on March 19, 2020. The Chairman has been provided with free use of the Group maintained car. In addition to the above, the Chief Executive and certain executives are provided with free use of the Group's maintained cars and household equipment in accordance with the terms of their employment. Remuneration paid to Shariah Board Members 2021 ResidentNon- Chairmanmember Resident Total member 400 (Rupees in '000) Meeting Fees and Allowances Other Heads Basic salary House rent Utilities Conveyance Fuel Special pay Bonus Contribution to defined contribution plan 2,476 – – – – – – Total Amount 2,476 6,439 1,518 10,433 Total Number of Persons 1 1 1 3 Unconsolidated Financial Statements – – – 2,327 1,047 233 1,129 318 241 950 194 – – 1,518 – – – – – – – 6,321 1,047 233 1,129 318 241 950 194
403. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2020 ResidentNon- Chairmanmember Resident Total member (Rupees in '000) Meeting Fees and Allowances Other Heads Basic salary House rent Utilities Conveyance Fuel Special pay Bonus Contribution to defined contribution plan – – – 2,128 957 213 1,020 228 241 900 1,290 – – – – – – 2,263 – – – – – – Total Amount 2,263 5,864 1,290 9,417 Number of persons 1 1 1 3 – 177 – 5,681 957 213 1,020 228 241 900 – 177 41. FAIR VALUE MEASUREMENTS The fair value of traded investments is based on quoted market prices, except for tradable securities classified by the Group as ‘Held to Maturity’. Quoted securities classified as held to maturity are carried at amortised cost. Fair value of unquoted equity investments other than investments in associates is determined on the basis of break up value of these investments as per the latest available financial statements. Fair value of fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to absence of current and active market for such assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of loans and advances has been calculated in accordance with the Group accounting policy as stated in note 6.5 to these consolidated financial statements. The maturity and repricing profile and effective rates are stated in note 45. In the opinion of the management, the fair value of the financial assets and financial liabilities other than those carried at fair value and disclosed in note 41.1 are not significantly different from their carrying values since assets and liabilities are either short-term in nature or re-priced over short term. 41.1 Fair value of financial assets The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements: Level 1:Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2:Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: Fair value measurements using input for the asset or liability that are not based on observable market data (i.e. unobservable inputs). Valuation techniques used in determination of fair valuation of financial instruments within level 2 Item Valuation approach and input used Federal Government securities The fair values of Treasury Bills and fixed rate Pakistan Investments Bonds are determined using the PKRV rates. Floating rate PIBs are revalued using PKFRV rates. Fair values of GoP Ijarah Sukuks and other Ijarah Sukuks are derived using the PKISRV rates announced by the Financial Market Association (FMA) through Reuters. These rates denote an average of quotes received from eight different pre-defined / approved dealers / brokers. Annual Report 2019 401
404. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Item Valuation approach and input used Term Finance and Bonds Investments in debt securities (comprising term finance certificates, bonds and any other security issued by a company or a body corporate for the purpose of raising funds in the form of redeemable capital) are valued on the basis of the rates announced by the Mutual Funds Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the Securities and Exchange Commission of Pakistan. Foreign exchange contracts The valuation has been determined by interpolating the mid rates announced by the State Bank of Pakistan. Derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant underlying parameters including foreign currency involved, interest rates, yield curves, volatilities, contracts duration etc. Unlisted Shares Breakup value determined on the basis of NAV of the company using the latest available audited financial statements. Mutual Funds Units of mutual funds are valued using the Net Asset Value (NAV) announced by the Mutual Funds Association of Pakistan (MUFAP) Operating fixed assets (land and building) & Non-banking assets acquired in satisfaction of claims Land, buildings and non-banking assets acquired in satisfaction of claims are revalued on a periodic basis using professional valuers. The valuation is based on their assessment of the market value of the assets. The effect of changes in the unobservable inputs used in the valuations cannot be determined with certainty. Accordingly, a qualitative disclosure of sensitivity has not been presented in these consolidated financial statements. The table below analyses the financial and non-financial assets carried at fair values, by valuation methods. For financial assets, the Group essentially carries its investments in debt and equity securities at fair values. Valuation of investments is carried out as per guidelines specified by the SBP. In case of non-financial assets, the Group has adopted revaluation model (as per IAS 16) in respect of land and building. 2021 Carrying Level 1 Level 2 Level 3 value / Notional value On balance sheet financial instruments Financial assets - measured at fair value Investments Federal Government Securities Shares and Units Non-Government Debt Securities Foreign Securities Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares and associates) Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets Off-balance sheet financial instruments measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange Derivatives purchase Derivatives sale 402 Unconsolidated Financial Statements 999,071,042 22,420,832 2,360,673 7,544,503 (Rupees in '000) – 22,420,832 – – 31,171,461 – 45,663,822 2,785,535 – – 120,320,899 98,557,472 2,217,390 2,217,390 Total – – – – 999,071,042 – 2,360,673 7,544,503 – – – – 999,071,042 22,420,832 2,360,673 7,544,503 – – – 45,663,822 2,785,535 – – 45,663,822 2,785,535 4,272,640 4,855,404 304,893 302,365 – – – – 4,272,640 4,855,404 304,893 302,365
405. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 2020 Carrying Level 1 Level 2 Level 3 value / Notional value On balance sheet financial instruments Financial assets - measured at fair value Total (Rupees in '000) Investments Federal Government Securities Shares and Units 979,926,866 – 979,926,866 – 979,926,866 20,510,813 20,510,813 – – 20,510,813 Non-Government Debt Securities 2,858,620 – 2,858,620 – 2,858,620 Foreign Securities 7,474,190 – 7,474,190 – 7,474,190 Financial assets - disclosed but not measured at fair value Investments (HTM, unlisted ordinary shares and associates) 25,447,046 – – – – 45,595,081 – 45,595,081 – 45,595,081 4,036,914 – 4,036,914 – 4,036,914 Non - Financial Assets measured at fair value Operating fixed assets (land and buildings) Non-banking assets Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange 172,137,589 – 4,011,602 – 4,011,602 Forward sale of foreign exchange 155,508,653 – 4,240,748 – 4,240,748 Derivatives purchase 2,158,111 – 517,033 – 517,033 Derivatives sale 2,313,272 – 513,343 – 513,343 (a) (b) The Group policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. Financial instruments in level 1 Financial instruments included in level 1 comprise of investments in listed ordinary shares and units of mutual funds. Financial instruments in level 2 Financial instruments included in level 2 comprise of Sukuk Bonds, Pakistan Investment Bonds, Bai Muajjal, Euro Bonds, Market Treasury Bills, Term Finance certificates, FX options, Cross Currency Swaps, Interest Rate Swaps and Forward Exchange Contracts. (c) Financial instruments in level 3 Currently, no financial instruments are classified in level 3. Annual Report 2019 403
406. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 42. SEGMENT INFORMATION 42.1 Segment details with respect to business activities The segment analysis with respect to business activity is as follows: 2021 Ratail ConsumerCorporate TreasuryInternational Islamic Assets Others BankingBankingBanking Banking Banking Management Sub- Elimination Total total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income (38,104,662) 77,312,373 7,557,975 2,780,007 19,317,165 78,719,818 (634,693) (14,651,272) (68,680,723) 2,449,023 3,705,780 4,720,484 1,274,573 (130,761) 860,667 4,263,861 – 117,643 (4,956) – 692,797 132,195 68,378,001 6,785,076 – 1,493,741 21,598,110 – 68,378,001 – – – 21,598,110 Total Income Segment direct expenses 46,765,686 23,132,042 4,594,337 1,645,322 2,004,479 1,186,267 4,381,504 4,815,361 687,841 457,142 8,411,012 89,976,111 9,939,310 42,173,490 – 89,976,111 – 42,173,490 Total expenses Provisions / (reversals) 23,132,042 1,143,188 1,645,322 123,809 385,746 (27,836) 1,186,267 245,033 4,815,361 (647,121) 457,142 9,939,310 42,173,490 – (6,181,850) (5,472,779) – 42,173,490 – (5,472,779) 22,490,456 2,825,206 7,887,375 14,401,669 573,179 213,264 230,699 – 53,275,400 23,726,201 13,646,390 – 24,071,021 19,313,984 5,565,096 1,897,356 8,371,673 14,759,579 612,300 385,746 612,300 (128,002) Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non performing - net Others 59,335,963 487,065 263,447 97,130,099 – – 9,125,927 1,000,302,366 1,109,475,894 – – – – – – 14,896,089 100,287,979 36,615,373 426,219,357 – 223,751 92,152 26,224 – 38,048,057 1,846,406 26,434,560 15,021,037 15,005,358 33,475,816 – 1,650,000 95,731,510 577,052 13,820,699 44,580 2,484,085 198,476,798 – 198,476,798 1,242,631 4,775,381 1,062,568,511 – 1,062,568,511 – 187,703,715 1,297,179,609 (1,297,179,609) – – – 40,617,110 – 40,617,110 8,483 1,300,580 679,477,266 – 679,477,266 – 427,111 6,911,386 – 6,911,386 970,718 36,031,575 134,070,408 – 134,070,408 Total Assets 1,307,371,644 39,040,996 462,069,515 1,127,349,591 88,220,048 160,260,435 2,266,412 232,722,447 3,419,301,088 (1,297,179,609) 2,122,121,479 Borrowings Deposits and other accounts Net inter segment borrowing Others 15,037,907 – 1,260,865,507 24,186,891 – 10,396,935 31,468,230 4,457,170 16,472,906 122,747,778 10,604,555 10,435,196 – 775,934 282,898,882 – 282,898,882 – 10,684 1,534,586,671 – 1,534,586,671 1,543,207 – 1,297,179,609 (1,297,179,609) – 723,205 54,367,169 127,067,266 – 127,067,266 Total liabilities Equity 1,307,371,644 39,040,996 462,069,515 1,127,349,591 88,220,048 160,260,435 – – – – – – 2,266,412 55,153,787 3,241,732,428 (1,297,179,609) 1,944,552,819 – 177,568,660 177,568,660 – 177,568,660 Total Equity & liabilities 1,307,371,644 39,040,996 462,069,515 1,127,349,591 88,220,048 160,260,435 2,266,412 232,722,447 3,419,301,088 (1,297,179,609) 2,122,121,479 Contingencies & Commitments 64,622,665 84,434,986 163,304,758 2,872,391 59,464,220 – 67,311,591 298,741,978 961,276,503 14,616,431 19,428,331 2,768,330 3,419,635 – 298,150,190 226,887,638 2,506,084 24,353,828 4,653,552 53,275,400 – 26,995,977 643,516,382 – 643,516,382 2020 Ratail ConsumerCorporate TreasuryInternational Islamic Assets Others BankingBankingBanking Banking Banking Management 404 Sub- Elimination Total total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income (44,807,214) 86,028,798 6,306,651 2,788,656 28,085,051 83,819,922 (486,242) (22,360,468) (69,939,999) 2,118,001 3,282,442 5,618,895 1,448,075 (171,994) 813,588 4,395,446 – 678,153 (6,607) – 833,565 120,110 75,843,439 6,929,905 – 190,310 19,841,605 – 75,843,439 – – – 19,841,605 Total Income Segment direct expenses 47,528,235 20,460,118 4,420,415 1,462,911 9,007,025 19,498,818 586,415 368,025 2,089,669 1,309,898 5,073,599 4,665,250 826,958 407,873 7,240,325 95,685,044 9,776,222 39,036,712 – 95,685,044 – 39,036,712 Total expenses Provisions / (reversals) 20,460,118 2,306,248 1,462,911 113,643 586,415 2,763,155 368,025 (31,111) 1,309,898 129,368 4,665,250 15,270 407,873 – 9,776,222 39,036,712 2,033,471 7,330,044 – 39,036,712 – 7,330,044 Profit before tax 24,761,869 2,843,861 5,657,455 19,161,904 650,403 393,079 419,085 (4,569,368) 49,318,288 – 49,318,288 Balance Sheet Cash and Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing - non performing - net Others 58,362,119 317,242 394,030 64,577,425 – – 10,578,310 978,209,256 1,050,376,236 – – – – – – 6,137,258 94,735,206 26,845,772 313,362,719 – 171,804 177,613 2,382 – 35,621,546 2,370,727 23,382,913 12,206,991 14,868,799 27,617,997 – 828,790 84,165,115 731,076 12,079,087 25,853 1,269,444 – – 5,260 – 986,042 Total Assets 1,239,266,911 29,711,354 347,720,354 1,061,130,930 77,653,203 140,290,864 2,286,599 245,593,487 3,143,653,702 (1,252,377,307) 1,891,276,395 Borrowings Deposits and other accounts Net inter segment borrowing Others 58,910,004 – 1,147,251,222 21,263,015 – 4,816,853 33,105,685 3,631,486 – 327,096 184,577,340 – 184,577,340 – – 1,388,737,961 – 1,388,737,961 1,599,112 – 1,252,377,307 (1,252,377,307) – 687,487 52,275,008 124,969,711 – 124,969,711 Total liabilities Equity 1,239,266,911 29,711,354 347,720,354 1,061,130,930 77,653,203 140,290,864 – – – – – – 2,286,599 52,602,104 2,950,662,319 (1,252,377,307) 1,698,285,012 – 192,991,383 192,991,383 – 192,991,383 Total Equity & liabilities 1,239,266,911 29,711,354 347,720,354 1,061,130,930 77,653,203 140,290,864 2,286,599 245,593,487 3,143,653,702 (1,252,377,307) 1,891,276,395 Contingencies & Commitments Unconsolidated Financial Statements 55,974,597 21,166,578 14,571,071 – 11,002,195 21,361,572 4,973,954 4,577,833 10,694,773 90,718,570 3,330,124 20,596,773 65,961,390 – 55,009,174 99,253,160 252,358,835 969,573,590 13,301,145 10,727,772 18,705,356 838,770 6,012,760 9,713,159 – 288,001,956 320,068,131 20,930,195 29,021,132 1,352,516 161,064,562 – 161,064,562 3,971,457 1,036,217,535 – 1,036,217,535 202,001,071 1,252,377,307 (1,252,377,307) – – 17,968,243 – 17,968,243 432,897 540,908,541 – 540,908,541 720,338 6,777,167 – 6,777,167 37,115,208 128,340,347 – 128,340,347 – 26,379,292 740,375,303 – 740,375,303
407. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 42.2 Segment details with respect to geographical locations GEOGRAPHICAL SEGMENT ANALYSIS Pakistan South Asia Middle East Sub-total Eliminations Total (Rupees in '000) Profit & Loss Net mark-up/return/profit 66,984,558 679,587 581,662 Inter segment revenue - net 111,365 (81,756) (29,609) Non mark-up / return / interest income 20,731,783 215,132 631,823 132,194 – 19,372 68,378,001 – 21,598,110 – – – 68,378,001 – 21,598,110 Total Income Segment direct expenses 87,827,706 41,007,928 812,963 564,433 1,183,876 525,887 151,566 75,242 89,976,111 42,173,490 – – 89,976,111 42,173,490 Total expenses Provisions / (reversals) 41,007,928 (5,714,883) 564,433 190,868 525,887 54,165 75,242 (2,929) 42,173,490 (5,472,779) – – 42,173,490 (5,472,779) 52,534,661 57,662 603,824 79,253 53,275,400 – 53,275,400 198,476,798 1,062,568,511 – 40,617,110 679,477,266 6,911,386 134,070,408 Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing - net Others 175,044,611 1,048,922,121 12,542,107 16,546,089 659,899,392 6,826,142 132,124,204 3,174,556 8,242,882 – 42,821 10,411,911 85,244 1,035,061 20,239,139 5,403,508 – 24,028,200 7,865,383 – 825,601 18,492 198,476,798 – 1,062,568,511 – 12,542,107 – 40,617,110 1,300,580 679,477,266 – 6,911,386 85,542 134,070,408 – – (12,542,107) – – – – Total Assets 2,051,904,666 22,992,475 58,361,831 1,404,614 2,134,663,586 (12,542,107) 2,122,121,479 Borrowings Deposits and other accounts Net inter segment borrowing Others 279,250,558 1,470,430,278 – 125,192,946 1,411,640 14,187,721 6,246,495 1,146,619 1,460,750 49,968,672 6,295,612 636,797 775,934 282,898,882 – 1,534,586,671 – 12,542,107 90,904 127,067,266 – 282,898,882 – 1,534,586,671 (12,542,107) – – 127,067,266 1,874,873,782 22,992,475 58,361,831 866,838 1,957,094,926 (12,542,107) 1,944,552,819 177,030,884 – 2,051,904,666 22,992,475 58,361,831 641,010,298 604,010 1,902,074 Total liabilities Equity Total Equity & liabilities Contingencies & Commitments – 537,776 177,568,660 – 177,568,660 1,404,614 2,134,663,586 (12,542,107) 2,122,121,479 – 643,516,382 – 643,516,382 2020 Pakistan South Asia 2021 Eurasia Middle East Eurasia Sub-total Eliminations Total (Rupees in '000) Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income 74,278,382 111,160 19,024,163 862,868 (95,930) 265,900 584,128 (15,230) 543,982 118,061 – 7,560 75,843,439 – 19,841,605 – – – 75,843,439 – 19,841,605 Total Income Segment direct expenses 93,413,705 37,664,604 1,032,838 650,469 1,112,880 656,321 125,621 65,318 95,685,044 39,036,712 – – 95,685,044 39,036,712 Total expenses Provisions / (reversals) 37,664,604 7,199,068 650,469 78,422 656,321 50,946 65,318 1,608 39,036,712 7,330,044 – – 39,036,712 7,330,044 48,550,033 303,947 405,613 58,695 49,318,288 – 49,318,288 4,640 161,064,562 – 1,036,217,535 – 12,319,043 – 17,968,243 755,104 540,908,541 – 6,777,167 63,745 128,340,347 – – (12,319,043) – – – – 161,064,562 1,036,217,535 – 17,968,243 540,908,541 6,777,167 128,340,347 Profit before tax Balance Sheet Cash and Bank balances Investments Net inter segment lendings Lendings to financial institutions Advances - performing - non performing - net Others 140,214,571 1,021,646,465 12,319,043 6,966,047 518,887,766 6,765,263 123,724,991 1,556,335 10,519,130 – 1,864,193 12,402,421 11,904 4,054,777 19,289,016 4,051,940 – 9,138,003 8,863,250 – 496,834 Total Assets 1,830,524,146 30,408,760 41,839,043 823,489 1,903,595,438 (12,319,043) 1,891,276,395 Borrowings Deposits and other accounts Net inter segment borrowing Others 180,920,122 1,336,595,320 – 120,442,311 1,470,384 18,298,522 6,525,907 4,113,947 1,859,738 33,844,119 5,793,136 342,050 327,096 184,577,340 – 1,388,737,961 – 12,319,043 71,403 124,969,711 – 184,577,340 – 1,388,737,961 (12,319,043) – – 124,969,711 1,637,957,753 30,408,760 41,839,043 398,499 1,710,604,055 (12,319,043) 1,698,285,012 192,566,393 – – 1,830,524,146 30,408,760 41,839,043 719,445,109 17,479,001 3,451,193 Total liabilities Equity Total Equity & liabilities Contingencies & Commitments 424,990 192,991,383 – 192,991,383 823,489 1,903,595,438 (12,319,043) 1,891,276,395 – 740,375,303 – 740,375,303 42.3 Transactions between reportable segments are based on an appropriate transfer pricing mechanism using agreed rates. Furthermore, segment assets and liabilities include inter segment balances. Costs which are not allocated to segments are included in the Head office. Income taxes are managed by the respective entities of the group and are not allocated to operating segments. 42.4 No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Group’s total revenue in 2021 or 2020. Annual Report 2019 405
408. 406 Unconsolidated Financial Statements Details of transactions with related parties during the year , other than those which have been disclosed elsewhere in these consolidated financial statements are as follows: 239,706 1,018,449 5,395,022 1,262,995 8,800,185 (5,379,508) 711,350 Markup receivable Advances, deposits, advance rent and other prepayments Receivable from Pension Fund Closing balance – – – – 3,190 2,684 506 – 199,621 17,154 182,467 – 3,472,200 46,093 207,681 3,218,426 Other Assets 109 356,898 1,390,000 (728,449) – Closing balance 275,118 56,891 (63,324) (28,979) 5,000 1,042 16,460 (16,576) (817) – Opening balance Addition / exchange adjustment during the year Repaid during the year Transfer in / (out) – – Provision for diminution in value of investments 1,372,494 Advances 5,283,282 – 1,377,198 – 10,161,717 (10,166,421) – 4,479,360 803,922 – – Closing balance – – – – Opening balance Equity method adjustments Investment made during the year Investment disposed off during the year – – – – Investments (Rupees in '000) – – – – 1,042 1,722 18,202 (18,882) – – – – – – – 5,542 3,149 2,393 – 275,118 223,338 95,758 (40,170) (3,808) – – – – – – 311,399 895 310,504 – 356,898 – 356,898 – – – 4,479,360 4,275,658 203,702 – – 3,604,156 25,883 208,094 3,370,179 1,262,995 1,101,457 3,282,404 (3,365,263) 244,397 5,000 1,377,198 1,283,438 – 10,609,883 (10,516,123) KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors Partiesshariah advisors parties 2021 2020 The Group enters into transactions with related parties in the ordinary course of business and on substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. Remuneration to Chief Executive, Directors and Executives is disclosed in note 40 to the consolidated financial statements. The Group has related party relationship with associates, employee benefit plans, its directors and key management personnel and their close family members. The detail of associates are stated in note 10.11 to the consolidated financial statements. RELATED PARTY TRANSACTIONS 43. Notes To The Consolidated Financial Statements For the year ended December 31, 2021
409. Borrowings Opening balance Borrowings / exchange adjustment during the year Settled during the year Closing balance Deposits and other accounts Opening balance Received during the year Withdrawn during the year Transfer in / (out) - net Closing balance Other Liabilities Markup payable Accrued expenses and other payable Payable to MCB Employee Security Services Closing balance Contingencies and Commitments Letter of Credit Bank guarantee Closing balance Income Markup / return / interest earned Fee and commission income Dividend Income Gain on forward foreign exchange contracts matured during the year Net gain / (loss) on sale of securities Gain on sale of fixed assets Rent income and reimbursement of other expenses Management fee and Advisory income Expense Markup / return / interest expensed 45,334 – – 77 – – – (13) – – – 22,885 15,956 – – – – – 6,737 2,867 3,870 – 750,185 743,120 4,962,387 (4,953,673) (1,649) – – – – 23 – – – – – 101,575 1,475 100,100 – 700,547 302,130 2,874,441 (2,468,887) (7,137) – – – – 142,524 – (62) – 12,662 – 35,654 968,003 192,500 10,739 – 10,739 85,108 18,219 66,889 – 4,184,153 5,172,087 49,364,225 (50,352,159) – – – – – 718,756 44,830 (837) – 60,713 658,536 134,927 72,630 127,978 7,176,020 5,565,496 1,610,524 492,909 22,508 414,834 55,567 9,507,140 6,061,671 121,100,115 (117,685,670) 31,024 103,120 77,139 25,981 – (Rupees in '000) 30,257 – 72 – – – – – – – – – 50 50 – – 302,130 602,381 669,282 (969,533) – – – – – 43,279 – 40 98 18 – 18,298 – – – – – 3,159 3,159 – – 743,120 194,366 3,851,770 (3,257,022) (45,994) – – – - 223,767 – 3,836 – 8,808 – 1,809 1,177,371 192,500 10,512 – 10,512 105,173 42,549 62,624 – 5,172,087 4,013,859 44,628,206 (43,469,978) – – – – – 307,205 53,120 6,485 516 56,012 698,356 127,475 51,520 61,949 2,859,661 1,967,303 892,358 51,037 16,004 18,002 27,031 6,061,671 5,124,551 99,003,416 (97,417,931) (648,365) 77,139 69,166 7,973 – KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors Partiesshariah advisors parties 2021 2020 Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 407
410. 408 Unconsolidated Financial Statements – 18,782 10,113,189 19,077,222 – – – 196,446 – – – – – – – – – 495,818 40,991 – – 55,945 – – – 9 38,253 19,669,035 5,096,819 5,527,242 24,917 161,458 – – 6,209 51,534 146 2,148 3,132 3,252 259,866 8,857 96,452 – 154,329 491,210 69,605 99,821 259,775 405,507 – – 268,847 19,827 – – 177,166 – – – – – – – – – – – – – – – - – – 399 – 124,304 999 – – 612,330 – – – – – – – – – – – – – – – – – – – 3,277 5,740,348 1,232,917 – – – 275,517 – – – – – – – – – 646,676 46,067 – – 42,264 – – – – 6,150 8,592,672 653,148 11,446,226 – 160,475 – 95,000 4,757 38,507 3,410 1,989 7,308 3,243 287,916 2,458 116,502 6,420 166,175 455,012 53,224 114,845 244,697 381,267 The Chairman has been provided with free use of the Group maintained car. The Chief Executive and certain executives are provided with free use of the Group maintained cars and household equipment in accordance with the terms of their employment. 77 – 33,431 - – – 630,132 – – – – – – – 730 – – – – – – – – – – – – 903,221 26,076 – – 279,819 – – – – – – – – – – – – – – – – – – Proceeds from sale of fixed assets Purchase of fixed assets Sale of government securities Purchase of government securities Forward exchange contracts matured during the year Others Other Transactions Clearing expenses paid to NIFT Contribution to provident fund Rent expenses Cash sorting expenses Stationery expenses Security guards expenses Remuneration to key executives, shariah advisors and non-executive directors fee Outsourcing service expenses Donation during the year E-dividend processing fee and CDC charges Travelling Expenses Hotel stay expenses Repair & Maintenance Charges Advertisement Expenses Miscellaneous expenses and payments Selling & Marketing Sharia Fee Paid Insurance premium-net of refund Insurance claim settled Other Operating expenses (Rupees in '000) KeyKey management Othermanagement Other Directors personnel and Associates related Directors personnel and Associates related shariah advisors partiesshariah advisors parties 2021 2020 Notes To The Consolidated Financial Statements For the year ended December 31, 2021
411. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 (Rupees in '000) 44 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 44.1 Capital Adequacy Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 11,850,600 11,850,600 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital 146,487,908 – 149,417,496 – Total Eligible Tier 1 Capital Eligible Tier 2 Capital 146,487,908 20,400,167 149,417,496 36,710,001 Total Eligible Capital (Tier 1 + Tier 2) 166,888,075 186,127,497 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk 743,393,585 137,136,055 163,273,225 668,413,516 128,392,302 148,348,258 Total 1,043,802,865 945,154,076 Common Equity Tier 1 Capital Adequacy ratio 14.03% Tier 1 Capital Adequacy Ratio 14.03%15.81% Total Capital Adequacy Ratio 15.99%19.69% Capital Adequacy Ratio (CAR): 15.81% The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid up capital (net of losses) for all locally incorporated banks of Rs. 10 billion. The paid up capital of the Bank (holding company) for the year ended December 31, 2021 stood at Rs. 11.851 billion (2020: Rs. 11.851 billion) and is in compliance with the SBP requirements. Further, under Basel III instructions, banks are required to maintain minimum Capital Adequacy Ratio (CAR) of 11.50% as at reporting dates (including a capital conservation buffer of 1.5% which has been revised downwards from 2.5% as per BPRD Circular No. 12 dated March 26, 2020), Common Equity Tier 1 (CET 1) ratio of 6.0% and Tier 1 ratio of 7.50% as at reporting dates. The Group is fully compliant with prescribed ratios. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Group’s exposures based on eligible collateral under simple approach. 20212020 (Rupees in '000) 44.2 Leverage Ratio (LR): Eligible Tier-1 Capital Total Exposures 146,487,908 2,625,918,532 149,417,496 2,323,456,613 Leverage Ratio 5.58% 6.43% Annual Report 2019 409
412. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 44.3 Liquidity Requirements Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow 1,143,437,748 480,179,056 962,045,524 415,665,992 Liquidity Coverage Ratio 238.13% 231.45% Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding 1,312,628,842 862,352,888 1,212,910,470 715,405,667 Net Stable Funding Ratio 152.21% 169.54% The full disclosures on the Capital Adequacy, Leverage Ratio & Liquidity Requirements as per SBP instructions issued from time to time are available at https://www.mcb.com.pk/investor-relations/ capital-adequacy-statements. 45 RISK MANAGEMENT Risk is an inherent part of banking business activities. The risk management framework and governance structure at Group helps to mitigate and counter any foreseeable risk in its various lines of business. Risk awareness forms an integral part of strategic and operational activities of risk management. Through its Global Risk Management Policy, Group sets the best course of action under uncertainty by identifying, prioritizing, mitigating and monitoring risk issues, with the goal of enhancing shareholders’ value. Group’s risk management structure is based on the following five guiding principles: • • • • • Optimizing risk/return in a controlled manner Establishing clear responsibility and accountability Establishing independent and properly resourced risk management function. Promoting open risk culture Adopting international best practices in risk management Keeping in view dynamics of internal and external environment, the Group regularly reviews and updates policy manuals / frameworks and procedures in accordance with domestic regulatory environment and international standards. The Group executes its risk strategy and undertakes controlled risk-taking activities within its risk management framework. The Board of Directors and its relevant committee, i.e. the Risk Management & Portfolio Review Committee (RM&PRC), the senior management and its relevant committees, i.e. the Management Credit and Risk Committee (MC&RC), Asset Liability Committee (ALCO), etc., are responsible to ensure formulation and implementation of comprehensive Risk Management Framework. This framework is based on prudent risk identification, measurement, management and monitoring processes which are closely aligned with the activities of the bank. The framework combines core policies, procedures and process designs with broad oversight and is supported by an efficient monitoring mechanism across the bank to ensure that risks are kept within an acceptable level. The Group ensures that not only the relevant risks are identified but their implications are also considered and basis provided for managing and measuring the risks. Through Internal Control units, the Group ensures that effective controls are in place to mitigate each of the identified risk. Independent from business groups, Head of Risk Management reports functionally to the Risk Management & Portfolio Review Committee (RM&PRC) and administratively to the President; the RM&PRC convenes regular meetings to evaluate Group’s risk and portfolio concentrations. The Risk Management Group performs the following critical functions: • • • • • 410 20212020 (Rupees in '000) Risk Management Policy Formulation Credit Risk Management Credit Review Credit Risk Control Market Risk Management Unconsolidated Financial Statements
413. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 • • • Liquidity Risk Management Operational Risk Management IT Risk Management Keeping in view the international best practices and SBP requirements, Board of Directors of the Group has approved a Risk Appetite Statement, which takes into account quantitative and qualitative risk indicators, covering target ratios, credit, market, operational, liquidity and business risks. 45.1 Credit Risk Credit risk arises from Group’s dealings with individuals, corporate borrowers, financial institutions, sovereigns etc. The Group is exposed to credit risk through its lending and investment activities. Credit risk makes up the largest part of the Group’s exposure and it stems from Group’s both on and off-balance sheet activities. Purpose of Credit Risk Management function is to identify, measure, manage, monitor and mitigate credit risk. To manage adverse outcomes in terms of unfavorable scenarios, multiple control factors in the lending structure of the Group provide additional comfort and support. Such controls range from quality of eligible collateral, pre-disbursement safety measures to post disbursement monitoring. The Group has adopted Standardized Approach to measure Credit risk regulatory capital charge in compliance with Basel requirements. The approach mainly takes into account the assessment of external credit rating agencies. In line with SBP guidelines on Internal Credit Risk Rating Systems, the Group has developed rating systems and all its borrowers are internally rated. In order to further enhance the credit risk analysis and the processes, Probability Default based Internal Credit Risk Rating (ICRR) system based on the statistical modeling and validation in line with Basel principles. The revamped ICRR is currently focused on Corporate Commercial and Corporate Large customer categories. The ICRR Model for rating of SME Customers has also been revamped to achieve more accurate results and to improve the quality of credit decisions. In order to manage Group’s credit risk, following policies and procedures are in place: • • • • • Individuals who take or manage risks clearly understand them in order to protect the Group from avoidable risks; The approval of credit limits to counter parties are subject to pre-fact review; Extension in credit facility or material change to the credit facility is subject to credit review; Approval and review process is reviewed by RM&PRC and internal audit; Management periodically reviews the powers of credit approving and credit reviewing authorities. Ongoing administration of the credit portfolio is an essential part of the credit process that supports and controls extension and maintenance of credit. The Group’s Credit Risk Control is responsible for performing following activities: • • • • • Credit disbursement authorization Collateral coverage and monitoring Compliance of loan covenants/ terms of approval Maintenance/ custody of collateral and security documentation Credit Risk Limit Controls Credit Risk Monitoring is based on a comprehensive reporting framework. Continuous monitoring of the credit portfolio and the risks attached thereto are carried out at different levels including businesses, Audit & Risk Assets Review, Credit Risk Control, Credit Risk Management Division, etc. To ensure a prudent distribution of asset portfolio, the Group manages its lending and investment activities within an appropriate limits framework. Per party exposure limit is maintained in accordance with SBP Prudential Regulations. The Group creates specific provision against Non-Performing Loans (NPLs) in accordance with the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and charged to the profit and loss account. Provisions are held against identified as well as unidentified losses. Provisions against unidentified losses include general provision against consumer loans and Small enterprise (SEs) made in accordance with the requirements of the Prudential Regulations issued by SBP and provision based on historical loss experience on advances. General provisions pertaining to overseas advances are made in accordance with the requirements of the regulatory authorities of the Annual Report 2019 411
414. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 respective countries. Please refer note No. 11.4 for reconciliation of changes in specific and general provisions. The Risk Management function of the Group has further strengthened its credit review procedures in the light of COVID-19 and is regularly conducting assessments of the credit portfolio to identify borrowers most likely to be affected due to changes in the business and economic environment. Management of Non Performing Loans The Group has a Special Assets Management (SAM) function, which is responsible for management of non performing loans. SAM undertakes restructuring / rescheduling of problem loans, as well as litigation of both civil and criminal cases for collection of debt. Stress Testing Credit Risk stress testing is a regular exercise. Group’s credit exposures including funded and nonfunded facilities are subjected to stress tests. This exercise is conducted on a quarterly basis through assigning shocks to all assets of the Group and assessing its resulting affect on capital adequacy inline with SBP requirements. 45.1.1 Lendings to financial institutions Credit risk by public / private sector Gross lendings Non - performing lending Provision held Note 202120202021202020212020 (Rupees in '000) Public/ Government Private 9 24,071,021 16,804,051 16,546,089 1,164,192 – – – – – – – – 40,617,110 17,968,243 – – – – 45.1.2 Investment in debt securities Credit risk by industry sector Gross Investments Non - performing Investments Provision held 202120202021202020212020 (Rupees in '000) 412 Chemical and pharmaceuticals Electricity, gas, steam and air conditioning supply Financials including government securities Manufacture of cement Manufacture of sugar Manufacture of textiles Others 1,040,825,407 998,156,946 285,000 285,000 145,656 145,656 40,732 53,531 6,153 81,666 118 285,000 145,656 40,732 6,153 118 285,000 145,656 53,531 6,154 118 285,000 145,656 40,732 6,153 118 285,000 145,656 53,531 6,154 1,043,167,948 1,000,830,774 477,659 490,459 477,659 490,459 Credit risk by public / private sector Public/ Government 1,032,448,925 989,024,844 Private 10,719,023 11,805,930 – 477,659 – 490,459 – 477,659 – 490,459 477,659 490,459 477,659 490,459 Unconsolidated Financial Statements 1,750,000 1,750,000 – – – – 115,000 357,975 – – – – 1,043,167,948 1,000,830,774
415. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 45.1.3 Advances Credit risk by industry sector Gross Advances Non - performing Advances Provision held Note 202120202021202020212020 (Rupees in '000) Agriculture, forestry and fishing 7,102,391 6,212,703 575,837 1,001,746 Construction 16,806,556 20,255,633 393,250 289,791 Electricity, gas, steam and air conditioning supply 35,453,270 40,921,064 376,717 376,717 Electronics and electrical appliances 9,509,640 6,135,405 92,104 102,262 Financials 32,779,500 17,004,242 301,280 462,665 Footwear and Leather garments 5,617,274 3,972,108 163,781 170,131 Human health and social work activities 548,329 922,333 45,081 45,596 Individuals 59,793,229 49,897,371 3,862,897 4,371,180 Manufacture of basic metals and metal products 22,777,758 18,604,646 3,980,254 3,028,467 Manufacture of cement 20,336,468 12,103,828 392,862 392,862 Manufacture of chemicals and pharmaceutical products 61,821,940 44,424,431 232,324 275,980 Manufacture of coke and refined petroleum products 4,431,606 5,582,529 855,984 412,061 Manufacture of food & beverages products 57,548,236 46,620,208 3,304,245 3,432,991 Manufacture of machinery, equipment and transport Equipment 7,573,933 2,182,220 373,053 433,943 Manufacture of rubber and plastics products 6,798,847 4,562,138 606,722 665,778 Manufacture of sugar 43,226,078 38,895,908 4,419,576 4,658,087 Manufacture of textiles 123,677,939 86,056,461 12,733,639 13,475,285 Mining and quarrying 4,359,943 5,033,270 3,714 5,019 Manufacturing of Pulp, Paper, Paperboard 7,810,334 3,851,182 174,634 179,539 Ship Breaking 5,010,446 6,707,314 3,988,794 4,348,014 Services 18,742,855 15,202,429 435,104 480,993 Telecommunications 23,855,551 18,287,167 42,798 42,798 Transportation and storage 102,353,603 83,652,075 287,994 75,901 Wholesale and retail traders 46,655,658 54,747,657 13,042,336 12,522,417 Others 7,849,457 6,531,453 507,595 695,295 358,691 296,478 437,355 278,464 376,717 374,996 92,104 301,280 101,825 462,665 163,781 169,736 45,081 3,736,472 34,973 3,930,762 3,881,891 392,862 3,018,387 392,862 232,324 273,047 855,984 411,445 2,851,306 3,058,910 373,053 396,551 606,722 662,506 4,419,576 4,655,219 12,497,961 13,322,828 3,714 5,019 174,634 3,988,794 418,032 42,798 165,970 7,500,978 503,986 150,661 4,348,014 465,504 42,798 66,253 7,472,473 635,098 11 Credit risk by public / private sector Public/ Government Private 732,440,841 598,365,775 51,192,575 51,945,518 44,281,189 45,168,351 130,672,215 105,422,741 639,825 639,825 601,768,626 492,943,034 50,552,750 51,305,693 639,825 639,825 43,641,364 44,528,526 732,440,841 598,365,775 51,192,575 51,945,518 44,281,189 45,168,351 11 Annual Report 2019 413
416. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 Note 20212020 (Rupees in '000) 45.1.4 Contingencies and Commitments Credit risk by industry sector Agriculture, forestry and fishing Construction Electricity, gas, steam and air conditioning supply Electronics and electrical appliances Financials Footwear and Leather garments Human health and social work activities Individuals Manufacture of basic metals and metal products Manufacture of cement Manufacture of chemicals and pharmaceutical products Manufacture of coke and refined petroleum products Manufacture of food & beverages products Manufacture of machinery, equipment and transport Equipment Manufacture of rubber and plastics products Manufacture of sugar Manufacture of textiles Mining and quarrying Manufacturing of Pulp, Paper, Paperboard Ship Breaking Services Telecommunications Transportation and storage Wholesale and retail traders Others 3,164,773 20,086,561 21,056,984 7,833,104 293,031,681 2,177,403 336,876 2,457,649 10,547,856 16,164,335 2,148,032 22,705,666 25,280,013 6,827,749 399,373,812 517,178 1,612,922 2,671,529 10,694,842 4,755,354 26,655,833 1,671,507 24,248,574 26,547,957 8,329,298 20,251,341 14,893,316 5,144,805 15,340,817 40,773,357 887,679 4,531,008 1,738,857 63,792,489 19,642,288 8,840,716 13,599,970 24,897,944 8,946,430 4,968,143 4,623,950 37,630,523 144,328 1,616,529 556,614 58,522,756 17,006,854 10,648,735 26,096,091 37,898,657 Credit risk by public / private sector 643,516,382 740,375,303 168,313,358 475,203,024 229,256,802 511,118,501 643,516,382 740,375,303 24 Public/ Government Private 24 45.1.5 Concentration of Advances The Group top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs 250,579.571 million (2020: Rs. 235,823.259 million) are as following: 414 20212020 (Rupees in '000) Funded Non Funded 95,079,790 155,499,781 75,373,723 160,449,536 Total Exposure 250,579,571 235,823,259 The sanctioned limits against these top 10 exposures aggregated to Rs 296,220.092 million (2020: 311,201.617 million) There is no provision against these top 10 exposures. Unconsolidated Financial Statements
417. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 45.1.6 Advances - Province/Region-wise Disbursement & Utilization 2021 DisbursementsUtilization KPK AJK Province / Region Punjab Sindh including Balochistan Islamabad including Gilgit FATA Baltistan (Rupees in '000) Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Total 928,351,802 505,710,326 6,121,397 2,471,781 50,076,588 896,694,939 20,487,514 82,634 – 4,297,925 16,663,783 458,318,052 – 16,353 1,250 13,884,282 8,359,802 6,014,315 – 1,349,234 122,283 18,544,958 – 2,452,820 – 986,515 – 19,854 2,608 44,428,179 – – 4,594 – – 409,802 70,790 – – – 21,947 317,065 1,493,141,696 921,633,802 474,999,438 29,607,633 21,120,061 45,459,103 321,659 2020 DisbursementsUtilization KPK AJK Province / Region Punjab Sindh including Balochistan Islamabad including Gilgit FATA Baltistan (Rupees in '000) Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan 731,022,299 555,378,201 4,893,018 1,728,874 32,173,536 683,463,985 12,974,461 192,363 – 2,558,963 39,386,981 495,054,217 – 10,145 2,246 340,864 68,573 – 1,325,536,792 699,258,345 534,453,589 6,212,721 6,776,970 4,692,336 – 2,293,047 337,894 40,570,866 – 1,718,729 – 1,620,718 1,687 8,319 – 27,319,280 – – – – – – – 27,915 244,376 19,975,074 42,627,489 28,977,919 244,376 Total 45.2 Market Risk Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. Group is exposed to market risk primarily through its trading activities, which are centered in the Treasury and Foreign Exchange Group and the Capital Market Division. Market risk also arises from market-making, facilitation of client business and proprietary positions in equities, fixed income and interest rate products and foreign exchange, which exposes group to interest rate risk, foreign exchange risk and equity price risk. The Group’s Market Risk Management structure consists of Risk Management & Portfolio Review Committee (RM&PRC) of the Board, Management Credit and Risk Committee, ALCO and independent Market Risk Management Division reporting directly to Group Head Risk Management. Market Risk function works in close partnership with the business segments to identify and monitor market risks throughout the Group and to define market risk policies and procedures. Market Risk seeks to facilitate efficient risk/return management decisions, reduce volatility in operating performance and provide transparency into the Group’s market risk profile for senior management, the Board of Directors and regulators. Market risk authority, including both approval of market risk limits and approval of market risks is vested in the ALCO. In line with regulatory requirements, Group has clearly defined, in its Global Risk Management policy, the positions which shall be subject to market risk. The definition covers the accounting classifications as well as positions booked by different business groups under “Available for Sale” category. The assets subject to trading book treatment are frequently, mostly on daily basis, valued and actively managed. The positions which does not fulfill the criteria of Trading book falls under the Banking Book and are treated as per SBP requirements. Annual Report 2019 415
418. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 The Group measures and manages Market Risk by using different risk parameters with combinations of various limits. Board approved Global Risk Management Policy provides guidelines for assuming controlled market risk, its monitoring and management. The approved limits are compared with the numbers generated by the market risk management systems based on the trading activity and the outstanding positions. Besides conventional methods, the Group also uses VaR (Value at Risk) technique for market risk assessment of positions assumed by its treasury and capital market groups. In-house based solutions are used for calculating mark to market value of positions and generating VaR (value at risk) and sensitivity numbers. Thresholds for different positions are established to compare the expected losses at a given confidence level and over a specified time horizon. A framework of stress testing, scenario analysis and reverse stress tests covering both banking and trading books as per SBP guidelines is also in place. The results of the stress tests are reviewed by senior management and also reported to the SBP. The Group is also exposed to interest rate risk both in trading and banking books. Risk parameters along with the marked to market values of government securities held by the Group’s treasury are generated on daily basis. The risk parameters include duration, PVBP, and VaR on individual security basis as well as on portfolio basis. These reports are presented to the senior management for review on a daily basis. 45.2.1 Balance sheet split by trading and banking books 20212020 BankingTrading Total BankingTrading Total bookbook bookbook (Rupees in '000) Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Other assets 175,922,469 – 175,922,469 22,554,329 – 22,554,329 40,617,110 – 40,617,110 29,709,416 1,032,859,095 1,062,568,511 686,388,652 – 686,388,652 62,351,545 – 62,351,545 1,838,136 – 1,838,136 69,880,727 – 69,880,727 132,053,041 – 132,053,041 29,011,521 – 29,011,521 17,968,243 – 17,968,243 24,028,377 1,012,189,158 1,036,217,535 547,685,708 – 547,685,708 63,679,312 – 63,679,312 1,867,244 – 1,867,244 62,793,791 – 62,793,791 1,089,262,384 1,032,859,095 2,122,121,479 879,087,237 1,012,189,158 1,891,276,395 45.2.2 Foreign Exchange Risk 416 Foreign exchange risk exposes the Group to changes in the values of current holdings and future cash flows denominated in currencies other than home currency due to the exchange rate fluctuation and volatility. The types of instruments exposed to this risk include investments in foreign branches, foreign currency-denominated loans, foreign currency-denominated deposits, future cash flows in foreign currencies arising from foreign exchange transactions, etc. The core objective of foreign exchange risk management is to ensure the foreign exchange exposure of the Group remain within defined risk appetite and insulate Group against undue losses that may arise due to volatile movements in foreign exchange rates or interest rates. Limit structure to manage Foreign exchange risk including gap limits on different tenors in major currencies are in place to control risk. Group’s net open position and Foreign Exchange Exposure Limit (FEEL) is monitored and reported on intra-day and day end basis. Foreign exchange risk parameters including VaR is generated and monitored on daily basis. Stress testing of foreign exchange portfolio and its reporting to senior management and RM&PRC of the Board is a regular feature. Unconsolidated Financial Statements
419. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 20212020 Foreign Foreign Off-balance Net foreign Foreign Foreign Off-balance Net foreign currencycurrency sheet currencycurrencycurrency sheet currency assetsliabilitiesitems exposureassetsliabilities itemsexposure (Rupees in '000) United States Dollar Sri Lankan Rupees Arab Emirates Dirham Euro Great Britain Pound Sterling Japanese Yen Other currencies 37,366,203 59,553,342 14,729,917 (7,457,222) 49,879,275 58,098,426 8,304,216 676,927 – – 676,927 144,228 – – 197,995 97,575 – 100,420 – 248,645 39,598 3,658,013 7,827,669 4,160,827 (8,829) 2,846,513 7,017,270 4,194,638 4,645,917 7,451,659 2,716,087 (89,655) 2,780,633 6,826,427 4,016,794 – 829,527 885,473 55,946 34,647 160 22,007 1,468,902 271,732 (802,434) 394,736 384,723 – 47,086 85,065 144,228 (209,047) 23,881 (29,000) 56,494 431,809 48,013,957 76,031,504 21,689,870 (6,327,677) 56,070,019 72,190,928 16,624,339 503,430 20212020 Banking book Trading book Banking book Trading book (Rupees in '000) 45.2.3 Impact of 1% change in foreign exchange rates on - Profit and loss account - Other comprehensive income Group’s proprietary positions in the equity instruments exposes it to the equity price risk in its trading and banking books. Equity price risk is managed by applying trading limit, scrip-wise and portfolio wise nominal limits. VaR analysis and stress testing of the equity portfolio are also performed and reported to senior management on a daily basis. The stress test for equity price risk assesses the impact of the fall in the stock market index using certain assumptions. In addition to this stress testing, historical scenario analysis on equities is also performed periodically as advised by the State Bank of Pakistan through Guideline on Stress Testing. 20212020 (63,277) 117,543 – – 5,034 106,202 – – Equity position Risk Banking book Trading book Banking book Trading book (Rupees in '000) Impact of 5% change in equity prices on - Profit and loss account – 7,396 – - Other comprehensive income – 1,051,784 – 63,472 962,069 45.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific Interest rate risk is the risk that fair value of a financial instrument will fluctuate as a result of changes in interest rates, including changes in the shape of yield curves. Interest rate risk is inherent in many of the Group’s businesses and arises from mismatches between the contractual maturities or the repricing of on and off-balance sheet assets and liabilities. The interest rate sensitivity profile is prepared on a quarterly basis based on the re-pricing or contractual maturities of assets and liabilities. Interest rate risk is monitored and managed by performing periodic gap analysis, sensitivity analysis and stress testing and taking appropriate actions where required. The increase / (decrease) in earnings due to change in the interest rate is as follows: 20212020 Banking book Trading book Banking book Trading book (Rupees in '000) Impact of 1% increase in interest rates on - Profit and loss account (3,592,767) 85,568 (3,870,506) - Other comprehensive income – (7,457,483) – The Group has classified Available for Sale investments as Trading in Basel-II. 5,305,338 (7,497,582) Annual Report 2019 417
420. 418 On-balance sheet financial instruments Unconsolidated Financial Statements 277 ,079,824 – 79,769,610 27,229,903 – 2,033,226,072 1,053,003,573 Liabilities 127,636,489 1,432,779 – 784,611 98,557,472 100,774,862 26,861,627 FX options sale Forward sale of Government securities Cross Currency Swaps sale Foreign exchange contracts sale Off-balance sheet gap Total Yield/Interest Risk Sensitivity Gap Cumulative Yield/Interest Risk Sensitivity Gap 1,432,779 5,098,200 784,611 120,320,899 FX options purchase Forward purchase of Government securities Cross Currency Swaps purchase Foreign exchange contracts purchase 131,784,898 131,784,898 30,335,586 27,834,373 591,814 – – 27,242,559 58,169,959 591,814 5,098,200 – 52,479,945 101,449,312 112,820,783 On-balance sheet gap Off-balance sheet financial instruments 951,554,261 1,920,405,289 – 94,855,244 856,699,017 – Bills payable 26,486,445 Borrowings 5.02% 282,898,882 Deposits and other accounts 3.42% 1,534,586,671 Other liabilities 76,433,291 299,146,705 167,361,807 (2,718,504) 34,932,469 741,535 – – 34,190,934 32,213,965 741,535 – – 31,472,430 170,080,311 106,999,513 – 1,939,826 – 196,360,036 78,779,962 – 7,033,445 7,474,847 40,617,110 457,297,886 540,580,285 – Cash and balances with treasury banks – 175,922,469 Balances with other banks 0.11% 22,554,329 Lending to financial institutions 2.39% 40,617,110 Investments 8.30% 1,062,568,511 Advances 7.22% 670,501,571 Other assets 61,062,082 Assets 2021 381,679,088 82,532,383 544,465 21,976,144 99,430 – 72,281 21,804,433 22,520,609 99,430 – 72,281 22,348,898 81,987,918 74,429,422 – 54,771,536 19,657,886 – 156,417,340 – 352,182 – 147,271,132 8,794,026 – 361,165,311 (20,513,777) (1,299,920) 15,484,760 – – 165,214 15,319,546 14,184,840 – – 165,214 14,019,626 (19,213,857) 32,173,861 – 4,644,742 27,529,119 – 12,960,004 – 699,120 – 4,363,410 7,897,474 – 426,509,629 65,344,318 – – – – – – – – – – – 65,344,318 6,332,232 – 6,121,131 211,101 – 71,676,550 – – – 69,431,247 2,245,303 – (Rupees in '000) 481,065,915 54,556,286 – 547,116 – – 547,116 – 547,116 – – 547,116 – 54,556,286 4,383,791 – 2,888,685 1,495,106 – 58,940,077 – – – 54,078,471 4,861,606 – 513,979,013 32,913,098 – – – – – – – – – – – 32,913,098 6,357,274 – 5,656,568 700,706 – 39,270,372 – – – 37,596,845 1,673,527 – 550,118,135 36,139,122 – – – – – – – – – – – 36,139,122 34,403,366 – 34,191,366 212,000 – 70,542,488 – – – 68,078,851 2,463,637 – 284,687,471 558,766,508 8,648,373 – – – – – – – – – – – – – – – – – – – – – – 8,648,373 (419,084,098) – 703,771,569 – 26,486,445 – – – 600,851,833 – 76,433,291 8,648,373 – 168,889,024 – 12,088,354 – – – 28,090,633 8,648,373 14,557,378 – 61,062,082 Exposed to Yield/ Interest risk Effective Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Total interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 45.2.5 Mismatch of Interest Rate Sensitive Assets and Liabilities Notes To The Consolidated Financial Statements For the year ended December 31, 2021
421. On-balance sheet financial instruments 182 ,800 11,089,775 1,975,311 – 172,137,589 185,385,475 182,800 – 2,130,472 155,508,653 157,821,925 27,563,550 Off-balance sheet financial instruments FX options purchase Outright purchase of Government Securities Cross currency swaps - purchase Interest Rate Swaps - purchase Foreign exchange contracts purchase Total Yield/Interest Risk Sensitivity Gap Cumulative Yield/Interest Risk Sensitivity Gap Off-balance sheet gap FX options sale Forward sale of Government securities Cross Currency Swaps - sale Foreign exchange contracts sale Annual Report 2019 (256,928,542) (256,928,542) 22,349,097 59,197,727 122,370 – 340,109 58,735,248 81,546,824 122,370 11,089,775 339,938 – 69,994,741 130,021,025 (279,277,639) On-balance sheet gap 923,135,149 1,668,610,150 – 126,736,400 796,398,749 – Bills payable 26,451,513 Borrowings 5.30% 184,577,340 Deposits and other accounts 4.50% 1,388,737,961 Other liabilities 68,843,336 175,952,955 193,027,037 449,955,579 7,814,555 59,576,957 60,430 – – 59,516,527 67,391,512 60,430 – – – 67,331,082 442,141,024 40,468,460 352,563,177 159,536,140 3,012,028 23,438,408 – – 210,505 23,227,903 26,450,436 – – 210,505 – 26,239,931 156,524,112 19,428,843 – – 19,225,222 5,798,255 21,243,238 13,630,588 – – 482,609,484 6,810,656 – – 2,557,720 799,172 – 17,968,243 – – 183,723,956 426,084,702 170,130,910 432,796,935 55,725,610 5,822,045 – – – 643,857,510 Cash and balances with treasury banks – 132,053,041 Balances with other banks 0.21% 29,011,521 Lending to financial institutions 7.27% 17,968,243 Investments 10.77% 1,036,217,535 Advances 9.34% 530,862,738 Other assets 52,518,097 1,798,631,175 Liabilities Assets 390,084,872 37,521,695 (5,612,130) 14,271,283 – – 242,308 14,028,975 8,659,153 – – 87,318 – 8,571,835 43,133,825 32,443,863 – 1,899,960 30,543,903 – 75,577,688 407,347,051 17,262,179 – 547,272 – – 547,272 – 547,272 – – 547,272 – – 17,262,179 10,814,913 – 8,816,080 1,998,833 – 28,077,092 447,159,023 39,811,972 – – – – – – – – – – – – 39,811,972 3,879,508 – 3,763,698 115,810 – 43,691,480 – – – – – – – – – 62,818,947 24,457,188 41,949,392 12,758,741 3,619,904 1,742,088 – – – (Rupees in '000) 476,235,740 29,076,717 – 790,278 – – 790,278 – 790,278 – – 790,278 – – 29,076,717 6,521,318 – 4,831,690 1,689,628 – 35,598,035 – – – 30,794,310 4,803,725 – 535,496,188 59,260,448 – – – – – – – – – – – – 59,260,448 13,718,035 – 13,506,035 212,000 – 72,978,483 – – – 71,118,956 1,859,527 – 26,451,513 – 522,905,212 68,843,336 234,149,430 125,242,385 25,654,629 – 25,139,174 5,595,145 52,518,097 541,635,206 6,139,018 – – – – – – – – – – – – – – – – – – – – – – – – 6,139,018 (384,050,631) – 618,200,061 – – – – 6,139,018 – – – – 6,139,018 – Exposed to Yield/ Interest risk Effective Non-interest yield / Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Total interest Upto 1 to 3 to 6 months to 1 to 2 to 3 to 5 to 10 Above financial rate month months monthsyear years yearsyearsyears10 years instruments 2020 Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31, 2021 419
422. 420 Unconsolidated Financial Statements Operational Risk 45 .3 2,033,226,072 1,920,405,289 1,668,610,150 29,674,862 24,147,530 1,798,631,175 Total financial liabilities 7,491,040 22,183,822 1,698,285,012 1,578,782 22,568,748 1,944,552,819 20212020 (Rupees in '000) In accordance with the Operational Risk Management (OR) regulations, policy and framework, a database covering operational risk events is being maintained using a state of the art software solution, which has enhanced features and a better workflow management. This new software has further augmented group’s capacity to capture and report operational risk events and Kris. The software is also capable of generating periodical regulatory and management reports. Periodical updates on Operational Risk events are presented to senior management and the Risk Management and Portfolio Review Committee of the Board. Currently, the Group is reporting operational risk capital charge under Basic Indicator Approach (BIA). The Group took a number of initiative with respect to operational risk management like using Key Risk Indicators (KRIS), Loss events database and Risk & Control Self Assessments (ROSA) to manage its operational risk effectively. 45.3.1 Operational Risk-Disclosures Basel II Specific Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes legal risks but excludes strategic and reputational risks. The Group operational risk management framework, as laid down in the Global Risk Management Policy, duly approved by BOD, is flexible enough to implement in stages and permits the overall risk management approach to evolve in the light of organizational learning and the future needs of the Group. Operational loss events are reviewed and appropriate corrective actions taken on an ongoing basis, including measures to improve control procedures with respect to design and operative effectiveness. Operational Risk Management helps the Group understand risks and improve mitigating controls so as to minimize operational risks that are inherent in almost all areas of the Group. Going forward, the Group will further strengthen its risk function, policies and procedures to facilitate its operations and improve quality of assets to safeguard interest of depositors. Total financial assets 88,895,407 92,645,220 63,679,312 Deferred tax liability 1,867,244 10,275,694 62,351,545 1,838,136 8,818,645 Other liabilities 16,822,970 Less: Non financial liabilities Balance as per balance sheet Reconciliation to total assets 15,887,081 1,891,276,395 Less: Non financial assets Islamic financing and related assets Fixed assets Intangible assets Other assets Balance as per balance sheet 2,122,121,479 Reconciliation to total assets 20212020 (Rupees in '000) Notes To The Consolidated Financial Statements For the year ended December 31, 2021
423. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 45.4 Liquidity Risk Liquidity represents the ability to fund assets and meet obligations as they become due. The Group understands that liquidity does not come for free, and surplus liquidity has an opportunity cost which needs to be recognized. Liquidity risk is a risk of not being able to obtain funds at a reasonable price within a reasonable time period to meet obligations as they become due. Liquidity is essential to the ability to operate financial services businesses and, therefore, the ability to maintain surplus levels of liquidity through economic cycles is crucial. Particularly during periods of adverse conditions, liquidity management is among the most important activities that the Group conducts during both normal and stress periods. Group recognizes that liquidity risk can arise from the Group’s activities and can be grouped into three categories: - - - Inflows/Outflows from on-balance sheet items (other than marketable securities and wholesale borrowings) and off-balance sheet items; Marketability of trading securities; and Capacity to borrow from the wholesale markets for funding as well as trading activities. Liquidity Management The Asset Liability Committee of the Group has the responsibility for the formulation of overall strategy and oversight of the Asset Liability Management function. Board has approved a comprehensive Liquidity Risk Policy (part of Risk Management Policy), which stipulates policies regarding maintenance of various ratios, funding preferences, and evaluation of Groups’ liquidity under normal and stress scenarios. A framework to assess the maturity profile of non-contractual assets and liabilities is in place to supplement the liquidity management. Group’s comprehensive liquidity management framework assists it to closely watch the liquidity position through monitoring of early warning indicators and stress testing, to ensure effective and timely decision making. Group liquidity risk management framework is designed to identify measure and manage in a timely manner the liquidity risk position of the Group. The underlying policies and procedures include: Global Risk Management policy, Global Treasury Policy, Investment policy, Contingency Funding Plan, Liquidity Strategy and Limit Structure which are reviewed and approved regularly by the senior management /Board members. Moreover; the Group also prepares a ‘Contingency Funding Plan’ (CFP) to address liquidity issues in time of stress/crises situation containing early warning indicators to pre empt unforeseen liquidity crises. Group conducts Liquidity Risk Analysis on regular basis as well as Maturity of gaps are also reviewed in order to ensure diversification in terms of tenors. Group liquidity risk framework envisages to project the Group’s funding position during temporary and longterm liquidity changes, including those caused by liability erosion and explicitly identifying quantifying and ranking all sources of funding preferences, such as reducing assets, modifying or increasing liability structure; and using other alternatives for controlling statement of financial position changes. Group performs regular liquidity stress tests as part of its liquidity monitoring activities. The purpose of the liquidity stress tests is intended to ensure sufficient liquidity for the Group under both idiosyncratic and systemic market stress conditions. Group liquidity risk management approach involves intraday liquidity management, managing funding sources and evaluation of structural imbalances in balance sheet structure. In view of the relaxation granted by SBP for deferral of principal and markup and for rescheduling / restructuring of loans there will be an impact on the maturity profile of the Group. The Asset and Liability Committee (ALCO) of the Group is monitoring the liquidity position and the Group is confident that the liquidity buffer currently maintained is sufficient to cater to any adverse movement in the cash flow maturity profile Intraday Liquidity Management Intraday liquidity management is about managing the daily payments and cash flows. Group has policies to ensure that sufficient cash is maintained during the day to make payments through local payment system. The policy of the Group is to maintain adequate liquidity at all times, in all geographical locations and for all currencies and hence to be in a position, in the normal course of business, to meet obligations, repay depositors and fulfill commitments. Managing Funding Sources Managing funding sources, as per policy Group maintain a portfolio of marketable securities that can either be sold outright or sold through a repurchase agreement to generate cash flows for meeting unexpected liquidity requirement. As a part of liquidity management Group maintains borrowing relationships to ensure the continued access to diverse market of funding sources. Group’s sound credit rating together with excellent market reputation has enabled Group to secure ample call lines with local and foreign banks. The level of liquidity reserves as per regulatory requirements also mitigates risks. Group’s investment in marketable securities is much higher than the Statutory Liquidity requirements (SLR). Annual Report 2019 421
424. 422 2021 Unconsolidated Financial Statements Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Borrowings Deposits and other accounts Deferred tax liabilities-net Other liabilities Reserves Surplus on revaluation Minority interest Unappropriated profit of assets - net Share capital Net assets Bills payable Liabilities Balances with other banks treasury banks Cash and balances with Assets 17 ,870,450 882,881 278,125,497 739,446 2,074 9,705 96,210,425 1,519,706 – 12,203,635 167,440,506 177,568,660 751,419 64,697,360 15,225,689 85,043,592 11,850,600 (9,383,788) 177,568,660 (1,158,936,249) 3,671,351 (16,873) 6,812,357 90,942,534 13,849,202 1,550 75,178,410 5,297,289 81,558,746 2,285,047 12,441 58,222 30,147,047 1,993,519 40,617,110 3,618,039 2,827,321 1,944,552,819 1,437,061,746 99,002,039 1,578,782 1,534,586,671 1,404,457,663 282,898,882 26,486,445 2,122,121,479 69,880,727 1,838,136 62,351,545 686,388,652 1,062,568,511 40,617,110 22,554,329 175,922,469 15,895,432 18,170,529 5,000,998 (25,642) 5,880,323 1,134,679 6,180,171 34,065,961 6,698,898 14,514 67,926 20,226,431 3,348,435 – 882,436 2,827,321 192,196,408 40,633,079 8,476,540 (196,125) 17,554,855 671,705 14,126,104 232,829,487 8,652,768 46,982 286,894 56,631,045 161,525,386 – 2,859,091 2,827,321 – 10,544,541 76,319 419,268 73,725,767 93,727,521 – 1,939,826 42,046,307 38,347,029 6,884,488 (129,820) 14,442,113 17,150,248 – 88,848,810 91,584,432 5,199,413 (170,225) 23,935,882 62,619,362 – 80,393,336 180,433,242 14,406,813 76,027 418,521 44,331,478 21,160,497 – – – – 46,146,638 84,213,401 3,153,795 (384,312) 26,672,382 54,771,536 – 130,360,039 2,702,396 228,534 1,233,252 69,041,666 56,802,009 – 352,182 (Rupees in '000) 1,180,170 31,531,230 14,079,344 (388,214) 17,275,468 564,632 – 32,711,400 3,107,088 226,669 1,213,367 22,236,046 5,928,230 – - – 115,163,189 22,195,513 3,621,053 (379,989) 14,874,339 4,080,110 – 137,358,702 1,478,602 226,516 1,201,393 33,063,220 100,689,851 – 699,120 – 298,808,014 15,609,855 9,942,304 (709,013) 255,433 6,121,131 – 314,417,869 8,205,417 520,952 4,229,340 58,092,897 243,369,263 – – – Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 month 2 months 3 months 6 months 9 months months 2 years to 1 year 45.4.1 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Group 107,092,858 10,636,404 6,463,047 (222,864) 1,507,536 2,888,685 – 117,729,262 5,055,750 – 4,006,192 49,366,412 59,300,908 – – – Over 2 to 3 years 161,088,837 20,410,047 12,415,954 1,631,205 706,320 5,656,568 – 181,498,884 6,003,961 92,533 4,126,486 60,499,800 110,776,104 – – – Over 3 to 5 years – – – 277,422,034 43,217,020 6,244,550 2,569,104 212,000 34,191,366 – 320,639,054 – 314,575 45,080,979 72,816,418 202,427,082 Over 5 years Notes To The Consolidated Financial Statements For the year ended December 31, 2021
425. 2020 Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Borrowings Deposits and other accounts Deferred tax liabilities-net Other liabilities Surplus on revaluation Minority interest Unappropriated profit of assets - net Reserves Share capital Net assets Bills payable Liabilities Balances with other banks treasury banks Cash and balances with Assets 27 ,117,387 881,718 231,834,567 519,422 1,979 9,138 71,415,264 2,115,960 2,692,982 23,026,781 132,053,041 192,991,383 778,561 70,498,820 28,803,351 81,060,051 11,850,600 (68,024,947) 192,991,383 (1,086,313,036) 2,742,643 (10,026) 6,058,339 93,035,233 5,290,301 39,091,543 2,287,085 11,878 54,832 18,829,281 744,830 15,275,261 107,116,490 12,566,376 25,629 – 1,888,376 1,698,285,012 1,318,147,603 91,027,158 7,491,040 1,388,737,961 1,277,556,493 184,577,340 26,451,513 1,891,276,395 62,793,791 1,867,244 63,679,312 547,685,708 1,036,217,535 17,968,243 29,011,521 132,053,041 – 89,737,125 18,489,597 4,125,090 (22,787) 6,678,164 1,537,110 6,172,020 108,226,722 7,867,650 13,857 63,971 7,175,588 91,856,505 – 1,249,151 – 59,541,094 45,099,205 5,965,945 (118,603) 20,097,720 5,046,669 14,107,474 104,640,299 6,658,755 44,088 273,734 23,201,609 72,413,931 – 2,048,182 – – 799,031 10,344,951 72,153 398,581 34,544,271 – 21,239,256 6,105,290 (207,454) 11,274,222 4,067,198 163,987,195 204,648,043 36,739,234 5,729,410 (19,697) 15,871,497 15,158,024 – 200,726,429 225,887,299 10,076,645 87,266 501,067 30,523,564 159,537,887 179,728,312 – – – – – – 144,486,979 33,916,155 13,558,440 (594,756) 15,154,216 5,798,255 – 178,403,134 2,393,673 216,545 1,195,045 59,677,666 114,920,205 (Rupees in '000) 82,062,951 21,040,519 2,237,294 34,148 17,758,355 1,010,722 – 103,103,470 913,569 216,582 1,193,172 39,860,068 60,920,079 – – – 29,947,056 16,606,800 2,173,027 (481,104) 14,025,638 889,239 – 46,553,856 400,930 216,530 1,188,330 38,419,706 6,328,360 – – – 79,984,364 15,309,390 4,232,223 67,094 2,193,993 8,816,080 – 95,293,754 2,260,624 464,642 4,288,513 58,572,922 29,707,053 – – – Upto 1 Over 1 to Over 7 to Over 14 days Over 1 or Over 2 to Over 3 to Over 6 to Over 9 Over 1 to Total day 7 days 14 days to 1 month 2 months 3 months 6 months 9 months months 2 years to 1 year 120,801,655 15,261,134 9,889,368 1,449,272 158,796 3,763,698 – 136,062,789 7,954,884 45,265 4,258,016 48,296,903 75,507,721 – – – Over 2 to 3 years 106,796,975 25,528,434 16,491,972 2,506,244 1,698,528 4,831,690 – 132,325,409 11,115,603 159,143 5,135,853 69,731,805 46,183,005 – – – Over 3 to 5 years – – – 265,335,929 23,791,195 5,210,080 4,863,080 212,000 13,506,035 – 289,127,124 – 317,316 45,119,060 47,437,061 196,253,687 Over 5 years Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31, 2021 Annual Report 2019 423
426. 424 2021 Unconsolidated Financial Statements Other assets Other liabilities Reserves Surplus on revaluation of assets - net Unappropriated profit Minority interest Share capital Net assets Deposits and other accounts Deferred tax liabilities Bills payable Borrowings Liabilities Fixed assets Intangible assets Investments Advances Lending to financial institutions Balances with other banks treasury banks Cash and balances with Assets 177 ,568,660 751,419 64,697,360 15,225,689 85,043,592 11,850,600 177,568,660 1,944,552,819 99,002,039 1,578,782 1,534,586,671 282,898,882 26,486,445 2,122,121,479 69,880,727 1,838,136 62,351,545 686,388,652 1,062,568,511 40,617,110 22,554,329 175,922,469 276,402,698 261,311,914 30,998,092 (237,090) 109,209,223 94,855,244 26,486,445 537,714,612 18,376,157 76,011 422,746 114,716,561 168,020,357 40,617,110 19,563,201 175,922,469 – 32,304,356 189,716,180 11,992,103 (300,045) 98,254,512 79,769,610 – 222,020,536 24,334,042 152,346 837,790 79,831,887 114,924,645 – 1,939,826 – (65,519,823) 177,173,991 3,153,795 (384,312) 119,632,972 54,771,536 – 111,654,168 2,702,396 228,534 1,233,252 50,313,149 56,824,655 – 352,182 102,265,429 63,536,862 17,700,397 (768,203) 41,959,926 4,644,742 – 165,802,291 4,585,693 453,186 2,414,760 50,995,705 106,653,827 – 699,120 – – – – (3,167,302) 360,762,242 9,942,304 (709,013) 345,407,820 6,121,131 – 357,594,940 8,205,417 388,270 4,229,340 101,384,962 243,386,951 (Rupees in '000) (192,241,490) 355,880,588 6,554,844 (222,864) 346,659,923 2,888,685 – 163,639,098 5,673,061 132,681 4,006,192 94,508,568 59,318,596 – – – (138,607,614) 365,562,435 12,415,954 1,631,205 345,858,708 5,656,568 – 226,954,821 6,003,961 92,533 4,088,560 106,460,500 110,309,267 – – – 115,742,741 159,157,458 5,261,647 1,356,452 118,347,993 34,191,366 – 274,900,199 – 314,575 7,624,432 71,860,383 195,100,809 – – – – – – 50,389,665 11,451,149 982,903 1,212,652 9,255,594 – – 61,840,814 – – 37,494,473 16,316,937 8,029,404 Upto 1 Over 1 to Over 3 to Over 6 to Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year 45.4.2 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Group Notes To The Consolidated Financial Statements For the year ended December 31, 2021
427. 2020 Share capital Reserves Surplus on revaluation of assets - net Unappropriated profit Minority interest 269 ,783,869 91,031,873 78,344,520 74,393,837 72,248,712 63,752,147 – 1,899,960 57,889,894 (448,028) 4,410,321 136,000,859 – – – 67,384,316 64,487,430 2,381,501 433,112 1,314,500 (222,945,287) 346,695,341 – 8,816,080 333,580,267 66,771 4,232,223 123,750,054 – - – 29,832,802 86,858,208 4,288,513 509,907 2,260,624 (179,881,513) 346,647,084 – 3,763,698 331,545,069 1,448,949 9,889,368 166,765,571 – - – 75,633,470 78,919,201 4,258,016 - 7,954,884 (197,914,228) 356,891,577 – 4,831,690 333,084,802 2,483,113 16,491,972 158,977,349 109,092,216 142,887,370 – 13,506,035 121,535,581 3,097,007 4,748,747 251,979,586 – – - – – – 46,243,587 189,391,593 96,374,067 54,063,767 5,084,949 8,481,036 159,143 43,190 11,115,603 – 52,611,537 2,251,231 – – – 1,789,898 461,333 54,862,768 – – – 7,248,951 10,650,764 36,688,927 274,126 – Annual Report 2019 Over 2 to 3 Years Over 3 to 5 Years Over 5 to 10 Years 30%30% 30%10% Over 1 to 2 Years When an asset or liability does not have any contractual maturity date, the period in which these are assumed to mature has been taken as the expected date of maturity. Group regularly conducts an objective and systematic behavioral study using regression analysis technique to ascertain the maturity of its noncontractual assets and liabilities. Core and non-core parts of the non-contractual assets and liabilities are segregated through the behavioral study. Non Core part is placed among the short term maturity buckets i.e. up to 1 Year based on the model results, whereas core part is distributed among the longer terms buckets based on the discussion and decision by the ALCO. Following percentages are used to distribute the core assets and liabilities among longer term buckets: 316,044,426 – 5,798,255 59,578,918 (595,067) 13,562,414 152,738,357 – – – 114,979,116 33,943,819 1,195,045 216,545 2,403,832 169,341,683 – 19,225,222 60,203,123 (227,197) 11,830,725 407,076,299 – 799,031 – 339,389,280 45,417,484 899,648 159,419 20,411,437 Liquidity Gap Reporting 192,991,383 11,850,600 81,060,051 28,803,351 70,498,820 778,561 192,991,383 26,451,513 126,736,400 91,320,307 (124,406) 25,400,055 439,125,552 132,053,041 28,212,490 17,968,243 166,114,420 76,970,968 401,677 71,802 17,332,911 (Rupees in '000) Net assets 1,698,285,012 26,451,513 184,577,340 1,388,737,961 7,491,040 91,027,158 Bills payable Borrowings Deposits and other accounts Deferred tax liabilities Other liabilities 132,053,041 29,011,521 17,968,243 1,036,217,535 547,685,708 63,679,312 1,867,244 62,793,791 1,891,276,395 Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Fixed assets Intangible assets Other assets Liabilities Assets Upto 1 Over 1 to Over 3 to Over 6 to Over 1 to Over 2 to Over 3 to Over 5 to Above Total month 3 months 6 months months to 2 years 3 years 5 years 10 years 10 years 1 year Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31, 2021 425
428. Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 45.5 Derivative Risk Most business clients have either interest rate exposures arising from debt financing or currency exposures arising out of commercial transactions from import and export of goods. Businesses face the risk of sudden movements in interest rates or foreign exchange rates that may adversely affect their profitability. Group provides solutions to this problem through its derivatives desk in major types of derivative instruments i.e.; forwards, futures, swaps and options. As an Authorized Derivative Dealer (ADD), Group is an active participant in Derivative market and has flexibility in providing a broad range of derivatives products covering both hedging and market making to satisfy customers’ needs. As an ADD, the Group offers derivative products which are permitted under the Financial Derivative Business Regulations (FDBR) or as permitted by the State Bank of Pakistan. Before executing Derivative transactions, the Group ensures that the clients understand the risk and reward associated with the derivative being offered. Derivative transactions are executed with appropriate clients only. 426 Risk management activities take place at the following different levels. Strategic Level: By senior management Assets and Liabilities Committee (ALCO), Management Credit and Risk Committee (MC&RC) and the Board of Directors to institute a risk management framework and to ensure provision of all resources and support required for effective risk management on Group-wide basis. The Board provides the overall limits/thresholds for derivatives business. Macro Level: By Treasury and FX Group and Risk Management Group, responsible for policy formulation, procedure development and implementation, monitoring and reporting. Micro Level: Treasury Derivatives and Structured Product Desk where risks are actually created and Treasury Operations for settlements of the transactions. Derivative Risk Management caters the following risks:Market Risk arises from changes in market rates such as Interest Rates, Foreign Exchange Rates, Equity Prices, credit spreads and/or commodity prices as well as their correlations and volatilities resulting in a loss to earnings and capital. In line with SBP’s regulatory guidelines, Group hedges backto-back all option transactions with other financial institutions. Group minimizes the exchange rate risk on its Cross Currency Swap Portfolio by hedging the exposure in interbank market. Group also manages interest rate risk on its Interest Rate Derivatives and Cross Currency Swaps through various sensitivity limits approved by ALCO. Marked to market positions and sensitivity of the derivatives transactions are monitored on regular basis. All individual deals are approved at the appropriate level of authority after analyzing the risk and benefits associated with the deals. Credit risk is a probable risk of loss resulting from customer’s inability to meet contractual obligation that may have adverse impact on Group’s profitability. Group manages the risk by setting policies and limits for counterparty based on a pre-defined criteria linked with financial health of the customer. The exposure of each counterparty is monitored by Risk Management Function of the Group on daily basis. Considering small Derivative portfolio, Group is not exposed to any liquidity risk. However; Group manages its liquidity risk through Group’s liquidity risk framework which is defined in relevant Liquidity Risk Section. Group has adequate system and controls for smooth execution of derivative transactions. Transactions are executed in line with well defined accounting and operational aspects to mitigate the operational risk. Policies and control functions are regularly reviewed on periodic basis. Unconsolidated Financial Statements
429. Annual Report 2021 Notes To The Consolidated Financial Statements For the year ended December 31 , 2021 46 The Group uses a third party’s Super Derivative System which provides front end sales and structuring capabilities, end to end valuation solutions, risk management systems, back end processing and provides analytical tools to measure various risk exposures and carry out sensitivity analysis. The goal of asset/liability management (ALM) is to properly manage the risk related to changes in interest rates, the mix of balance sheet assets and liabilities, the holding of foreign currencies, and the use of derivatives. Due to thin liquidity in the derivative market, interest rate derivatives are not actively used to manage/alter the interest rate risk profile of the Group. EVENTS AFTER THE REPORTING DATE The Board of Directors in its meeting held on February 10, 2022 has announced a final cash dividend in respect of the year ended December 31, 2021 of Rs 5.00 per share (2020: Rs. 15.00 per share). These consolidated financial statements for the year ended December 31, 2021 do not include the effect of these appropriations which will be accounted for subsequent to the year end. 47GENERAL 48 Comparative information has been rearranged wherever necessary for better presentation of the consolidated financial statements. There have been no significant reclassifications during the year. Figures have been rounded off to the nearest thousand of rupees unless otherwise stated. DATE OF AUTHORIZATION FOR ISSUE These consolidated financial statements were authorized for issue by the Board of Directors of the Group in their meeting held on February 10, 2022. Shoaib Mumtaz President/Chief Executive Hammad Khalid Chief Financial Officer S.M. Muneer Director Mian Umer Mansha Director Shahzad Hussain Director Annual Report 2019 427
430. 428 Laptop Computers Description 268 268 268 – – Book value (Rupees '000) Accumulated depreciation 268 Cost/ revalued amount Mode of disposal 54 54 As per Bank's policy Sales proceeds Kamran Zafar Muggo Particulars of buyers Lahore Location Annexure I Disposal of fixed assets (refer note 12.2.6) Unconsolidated Financial Statements
431. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Statement of Financial Position AS AT DECEMBER 31, 2021 MCB Islamic bank ( the 'Bank') is operating 176 Islamic banking branches in Pakistan (December 31, 2020: 187 branches). Note 20212020 (Rupees in '000) ASSETS Cash and balances with treasury banks Balances with other banks Due from financial institutions 1 Investments - net 2 Islamic financing and related assets - net 3 Fixed assets Intangible assets Deferred tax assets - net Other assets - net 11,309,285 3,696,073 1,650,000 33,475,816 96,308,562 4,932,122 579,767 1,006,958 8,308,810 9,872,197 4,996,602 828,790 27,617,997 84,896,191 5,548,894 639,428 874,878 5,895,909 LIABILITIES 161,267,393 141,170,886 Bills payable Due to financial institutions 4 Deposits and other accounts 5 Liabilities against assets subject to finance lease Sub-ordinated debts Deferred tax liabilities - net Other liabilities 1,896,801 16,472,906 122,747,778 - - - 9,545,353 2,470,821 20,596,773 99,253,161 8,122,359 150,662,838 130,443,114 NET ASSETS 10,604,555 10,727,772 11,550,000 88,193 248,364 (1,282,002) 11,550,000 68,107 473,316 (1,363,651) 10,604,555 CONTINGENCIES AND COMMITMENTS8 10,727,772 REPRESENTED BY Share capital Reserves Surplus on revaluation of assets - net of tax Accumulated losses 7 Annual Report 2019 429
432. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Profit and Loss Account For the year ended December 31, 2021 The profit and loss account of the bank's branches for the year ended 176 (December 31, 2020: 187 branches). Note Profit / return earned Profit / return expensed 9 10 20212020 (Rupees in '000) 9,202,716 5,008,845 9,616,051 5,280,989 Net spread earned OTHER INCOME 4,193,871 4,335,062 Fee and commission income Dividend income Foreign exchange income (Loss) / gain on securities Other income 408,113 71,199 113,571 (593,936) 200,473 331,002 47,703 209,888 14,274 161,322 Total other income 199,420 764,189 Total income 4,393,291 5,099,251 OTHER EXPENSES 430 Operating expenses Workers welfare fund Other charges 4,753,602 10,136 51,623 4,680,482 9,830 590 Total other expenses Loss before provisions Provisions and write offs - net Extra ordinary / unusual items PROFIT BEFORE TAXATION 4,815,361 4,690,902 (422,070) (647,121) – 408,349 15,270 – 225,051 393,079 Taxation 124,619 184,763 PROFIT AFTER TAXATION 100,432 208,316 Unconsolidated Financial Statements
433. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 1 20212020 (Rupees in '000) Note DUE FROM FINANCIAL INSTITUTIONS Secured Bai Muajjal receivable - with State Bank of Pakistan 1.1 – 828,790 Musharaka arrangements 1,650,000 - 1,650,000 828,790 Unsecured 1.1 This represents Musharaka placements with various financial institutions carrying average profit rate of 10.35% per annum (2020: Nil) and having maturity till January 04, 2022. 20212020 (Rupees in '000) 1.2 Particulars of due from financial institutions - local currency 2INVESTMENTS 2.1 1,650,000 828,790 Investments by segments: 20212020 Cost/ Provision for Surplus / amortised cost diminution (deficit) Carrying Cost/ Provision for Surplus / value amortised cost diminution (deficit) Carrying value (Rupees in '000) Federal Government securities GOP Ijarah Sukuks WAPDA Sukuks Bai Mu’ajjal 30,637,273 – 1,540,891 – (105,708) 30,531,565 22,475,798 – – – 27,894 – – – 1,540,891 2,700,827 – – (58,797) 22,417,001 (781) 27,113 – 2,700,827 Shares Listed companies Non Government securities 639,792 262,194 (171) 377,427 1,815,977 1,039,436 292,987 1,069,528 Listed 244,000 – 4,322 248,322 549,000 – 4,119 553,119 Un listed 770,000 – 7,611 777,611 840,000 – 10,409 850,409 Total Investments 33,831,956 262,194 2.2 2.3 (93,946) 33,475,816 28,409,496 1,039,436 There were no investment given as collateral as at December 31, 2021 (2020: Nil). Provision for diminution in value of investments Opening balance Charge for the year Reversal on disposals 247,937 27,617,997 Closing balance 20212020 (Rupees in '000) 1,039,436 50,072 (827,314) 1,059,172 36,975 (56,711) 262,194 1,039,436 Annual Report 2019 431
434. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 Note 20212020 (Rupees in '000) 3 ISLAMIC FINANCING AND RELATED ASSETS - NET Murabaha 3.1 Istisna Salam Ijarah 3.2 Running Musharaka Diminishing Musharaka Staff finance 13,674,189 4,764,233 19,927 2,096,652 47,811,823 26,817,780 1,310,558 12,055,820 3,455,789 – 2,815,368 40,757,574 24,693,571 1,184,311 Islamic financing and related assets - gross Less: Provision against non-performing Islamic financing and related assets - Specific - General 96,495,162 84,962,433 (124,718) (61,882) (25,395) (40,847) (186,600) (66,242) Islamic financing and related assets - net of provisions 96,308,562 84,896,191 7,612,792 5,392,634 654,078 4,998,262 6,494,165 510,454 – – 5,000 20,000 14,685 27,939 13,674,189 12,055,820 8,031,953 5,232,085 419,161 233,823 7,612,792 4,998,262 Opening balance Sales during the year Adjusted during the year 5,232,085 33,340,738 (30,540,870) 5,005,449 20,865,558 (20,638,922) 8,031,953 5,232,085 3.1.1.2 Murabaha sale price during the year 33,340,738 20,865,558 Murabaha purchase price during the year (32,207,026) (19,838,369) 3.1.1.3 Deferred Murabaha income 1,133,712 1,027,189 Opening balance Arising during the year Recognised during the year 233,823 1,133,712 (948,374) 334,286 1,027,189 (1,127,652) 3.1.1.4Istisna 419,161 233,823 Istisna financing Istisna inventory Advances against Istisna financing Istisna financing under IERS Advances against Istisna financing under IERS Advances against Istisna financing under SBP’s IRSPWS 1,139,556 534,487 2,579,121 56,572 416,997 37,500 480,693 389,306 1,611,226 123,667 775,897 75,000 4,764,233 3,455,789 3.1Murabaha - Murabaha financing 3.1.1 - Murabaha inventory - Advances against Murabaha financing - Murabaha financing under Islamic export refinance scheme (IERS) - Advances against Murabaha financing under IERS - Murabaha inventory under SBP’s Islamic Refinance Scheme for Payment of Wages and Salaries (IRSPWS) 3.1.1 Murabaha receivable - gross 3.1.1.1 Less: Deferred Murabaha income 3.1.1.3 Murabaha financing 3.1.1.1 Movement in Murabaha receivable during the year 432 Unconsolidated Financial Statements
435. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 Note 20212020 (Rupees in '000) 3.1.1.5 Running Musharaka Running Musharaka financing Running Musharaka financing under IERS 45,098,823 2,713,000 38,592,574 2,165,000 3.1.1.6 Diminishing Musharaka 47,811,823 40,757,574 21,721,143 1,770,095 935,708 402,292 – 1,988,542 18,977,083 2,153,276 1,612,874 541,151 27,518 1,381,669 3.1.1.7 Staff finance 26,817,780 24,693,571 Staff vehicle finance under Diminishing Musharaka Staff housing finance under Diminishing Musharaka 296,527 1,014,031 245,136 939,175 3.2 Ijarah financing and related assets 1,310,558 1,184,311 2,025,690 70,962 2,783,440 31,928 2,096,652 2,815,368 Diminishing Musharaka financing Advances against Diminishing Musharaka financing Diminishing Musharaka financing under SBP’s IRSPWS Advances against Diminishing Musharaka under SBP’s ILTFF Advances against Diminishing Musharaka under SBP’s IRFCC Advances against Diminishing Musharaka under SBP’s ITERF - Net book value of assets in Ijarah under IFAS 2 - Advances against Ijarah 3.2.1 3.2.1 Net book value of assets in Ijarah under IFAS 2 2021 Cost Acc. Depreciation As at January 01, 2021 Addition/ (disposal) As at As at December 31, 2021 January 01, 2021 Charge (disposal) As at December Book Value as at 31, 2021 December 31, 2021 (Rupees in '000) Vehicles 2,970,391 Equipment and 1,186,171 Plant and Machinery 298,387 2,762,865 1,051,097 (505,913) 63,376 1,104,004 322,025 (145,543) 499,139 (252,276) 312,050 (90,856) 1,297,960 1,464,905 543,219 560,785 Total 4,156,562 361,763 3,866,869 1,373,122 (651,456) 811,189 (343,132) 1,841,179 2,025,690 2020 Cost Acc. Depreciation As at Addition/ January 01, 2020 (disposal) As at As at December 31, 2020 January 01, 2020 Charge As at December Book Value as at (disposal) 31, 2020 December 31, 2020 (Rupees in '000) Vehicles 3,999,646 Equipment and 1,689,096 Plant and Machinery 250,956 2,970,391 1,039,780 (1,280,211) 798,286 1,186,171 458,593 (1,301,211) 603,062 (591,745) 349,730 (486,298) 1,051,097 1,919,294 322,025 864,146 Total 5,688,742 1,049,242 4,156,562 1,498,373 (2,581,422) 952,792 (1,078,043) 1,373,122 2,783,440 Annual Report 2019 433
436. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 3.2.2 Future Ijarah payments receivable 2021 Not later Later than 1 than 1 year year and not later than 5 years Over 5 years (Rupees in '000) Ijarah rental receivables 930,364 969,762 2020 Total Not later Later than 1 than 1 year year and not later than 5 years – Over 5 years 1,900,126 Total (Rupees in '000) Ijarah rental receivables 1,100,022 Note 1,782,989 3,456 2,886,467 20212020 (Rupees in '000) 3.3 Particulars of Islamic financing and related assets - gross In local currency In foreign currency 96,490,270 4,892 84,918,786 43,647 96,495,162 84,962,433 Musharaka under Islamic Export Refinance Scheme (IERS) 4.1 Investment under Islamic Long Term Financing Facility (ILTFF) 4.2 Investment under Islamic Temporary Economic Refinance Facility (ITERF) for Plant and Machinery 4.3 Investment under Islamic Refinance Scheme for Payment of Wages and Salaries (IRSPWS) 4.4 Investment under Islamic Refinance Facility for Combating COVID-19 (IRFCC) Investment under Islamic Financing Facility for Renewable Energy (IFRE) 4.5 Unsecured 3,027,572 1,045,099 2,845,918 445,848 3,892,419 1,183,828 976,304 1,715,813 24,460 – 93,138 – 7,100,000 268,882 45,032 14,222,000 183,366 – 4 DUE TO FINANCIAL INSTITUTIONS Secured With the State Bank of Pakistan Musharaka arrangements with financial institutions 4.6 Musharaka arrangements with other institution Overdrawn nostro accounts 16,472,906 20,596,773 4.1 These Musharaka arrangements are on a profit and loss sharing basis maturing between February 09, 2022 to June 29, 2022 (2020: January 31, 2021 to June 29, 2021) and are secured against demand promissory notes executed in favour of the SBP. A limit of Rs. 3,884 million (2020: Rs. 3,884 million) has been allocated to the Bank by SBP under Islamic Export Refinance Scheme. 4.2 These arrangements are on a profit and loss sharing basis maturing between June 09, 2030 to December 08, 2031 (2020: June 30, 2030 to November 30, 2030). 434 Unconsolidated Financial Statements
437. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 4.3 4.4 4.5 4.6 5 These arrangements are on a profit and loss sharing basis maturing between August 11, 2024 to December 21, 2031 (2020: November 01, 2030 to December 05, 2030). These arrangements are on a profit and loss sharing basis maturing between January 29, 2022 to April 12, 2023 (2020: April 13, 2021 to April 12, 2023). These arrangements are on a profit and loss sharing basis maturing between June 29, 2022 to August 3, 2026 (2020: Nil). This represents Musharaka arrangements with banks carrying profit at expected rates ranging from 9.80% to 10.45% per annum (2020: 6.70% to 7.20% per annum) and having maturity till February 03, 2022. DEPOSITS AND OTHER ACCOUNTS 20212020 In Local In Foreign Total currencycurrencies In Local In Foreign currencycurrencies Total (Rupees in '000) Customers Current deposits Savings deposits Term deposits Others 34,666,966 46,014,828 28,774,330 4,877,521 2,729,931 1,978,082 – – 37,396,897 47,992,910 28,774,330 4,877,521 28,501,991 39,831,137 17,861,765 2,693,912 2,175,509 30,677,500 1,971,071 41,802,208 79,103 17,940,868 – 2,693,912 Financial Institutions Current deposits Savings deposits Term deposits 114,333,645 4,708,013 119,041,658 88,888,805 4,225,683 93,114,488 260,021 919,672 2,526,300 127 – – 260,148 919,672 2,526,300 148,391 2,462,010 3,526,500 138 1,634 – 148,529 2,463,644 3,526,500 3,705,993 127 3,706,120 6,136,901 1,772 6,138,673 118,039,638 4,708,140 122,747,778 95,025,706 4,227,455 99,253,161 20212020 (Rupees in '000) 5.1 Composition of deposits Individuals Government (Federal and Provincial) Public Sector Entities Banking Companies Non-Banking Financial Institutions Private Sector 45,892,319 6,488,298 8,759,121 50,521 3,655,598 57,901,921 43,739,410 4,253,371 4,861,494 2,075 6,136,598 40,260,213 122,747,778 99,253,161 5.2 This includes deposits eligible to be covered under takaful arrangements amounting to Rs. 71,670.390 million (2020: Rs. 61,239.189 million). Annual Report 2019 435
438. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 Note 6 CHARITY BALANCE Opening balance Additions during the year - Received from customers against late payment - Dividend purification amount - Charity against other Non-Shariah compliant income - Profit on charity saving account Charity paid during the year 6.1 Charity reversed during the year Closing balance 6.1 20212020 (Rupees in '000) 46,615 57,782 7,316 1,093 265 673 42,477 771 – 2,085 9,347 45,333 (25,500) (21,639) (56,500) – 8,823 46,615 1,000 2,000 1,000 1,000 – – 1,000 – 2,000 1,000 – 500 – 3,500 2,000 1,000 2,000 2,000 3,000 1,000 1,000 3,000 3,000 5,000 3,000 4,000 2,000 2,000 6,000 2,000 1,000 2,000 1,000 – 500 – – 2,000 2,000 3,000 3,000 4,000 1,500 2,000 500 500 – – 2,000 – – – 1,000 1,000 Charity was paid to the following institutions: The Patients’ Bahbood Society for Aga Khan University Hospital Al-Khidmat Foundation Pakistan Arthritis Care Centre Aziz Jehan Begum Trust for the Blind Chiniot Anjuman Islamia Chiniot Blood Bank and Dialysis Centre Family Welfare Society Fatimid Foundation Indus Hospital Infaq Memorial Trust Layton Rehmatullah Benevolent Trust Mind Organization Pink Ribbon Saleem Memorial Trust Hospital Saylani Welfare Trust Shaukat Khanam Memorial Cancer Hospital and Research Centre Sindh Institute of Urology & Transplantation The Citizens Foundation Jahandad Society for Community Development The Lahore Hospital Welfare Society Al - Mustafa Welfare Society Frontier Foundation blood transfusion Centre The Hunar Foundation Alamgir Welfare Trust International Institute of Business Administration (Center of Excellence in Islamic Finance) Zubaida Medical Center Mofad e Amma Chiniot Sheikh Association 25,500 56,500 6.2 Charity was not paid to any staff of the Bank or to any individual / organisation in which a director or his spouse had any interest at any time during the year. 436 Unconsolidated Financial Statements
439. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 Note 20212020 (Rupees in '000) 7 ISLAMIC BANKING BUSINESS ACCUMULATED LOSS Opening balance Islamic banking profit / loss for the year Transfer to statutory reserve Taxation Other adjustments (1,363,651) 225,051 (20,086) (124,619) 1,303 (1,531,969) 393,079 (41,663) (184,763) 1,665 8 Closing balance (1,282,002) (1,363,651) Guarantees 8.1 Commitments 8.2 Other contingent liabilities 7,787,920 16,115,126 450,782 8,000,674 20,583,025 437,433 24,353,828 29,021,132 Performance guarantees Other guarantees 3,501,067 4,286,853 3,935,124 4,065,550 8.2Commitments: 7,787,920 8,000,674 13,821,410 7,654,971 1,499,325 11,909,879 55,401 30,036 10,724 – 708,954 1,007,451 16,115,126 20,583,025 Purchase Sale 489,060 1,010,265 5,046,837 6,863,042 8.2.2 Other Commitments 1,499,325 11,909,879 CONTINGENCIES AND COMMITMENTS 8.1Guarantees: Documentary credits and short-term trade-related transactions Letters of credit Commitments in respect of: Forward foreign exchange contracts Commitments for acquisition of: Intangible assets Fixed assets Other commitments 8.2.1 8.2.2 8.2.1 Commitments in respect of forward foreign exchange contracts Commitments to extend credit 8.2.2.1 708,954 1,007,451 8.2.2.1 Other than those stated above, the Bank makes commitment(s) to extend credit in the normal course of business including related parties but these being revocable commitments do not attract any penalty or expense if the facility is unilaterally withdrawn. 8.3 Other contingent liabilities Claim against the Bank not acknowledged as debt 20212020 (Rupees in '000) 450,782 437,433 Annual Report 2019 437
440. Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 This includes claim by a third party against the Bank, amounting to Rs. 425.820 million (December 31, 2020: Rs. 425.820 million) which is being contested in the Court of law. The suit has been disposed off by the Court vide Order dated May 10, 2019 wherein the status quo has been ordered to be maintained with respect to bank guarantee and the matter has been referred to arbitration with the consent of the parties. However the Bank has not received any official notice to attend the arbitration proceedings till date. In addition to the above, this includes claim by different parties against the bank amounting to Rs. 24.962 million (December 31, 2020: Rs. 11.613 million) which is pending before the court. Based on legal advice and / or internal assessments, management is confident that the matters will be decided in the Bank’s favour and the possibility of any adverse outcome is remote. Accordingly, no provision has been made in these financial statements. The Sindh Revenue Board (SRB) has issued order under “Sindh Sales Tax on Services Act, 2011”, for the year 2018 thereby raising demand of Rs. 1.775 million. The Bank has filed appeal before Commissioner of Inland Revenue Appeals which is pending adjudication. The management of the Bank, in consultation with its tax advisor, is confident that the decision in respect of the above matter would be in the Bank’s favor and accordingly no provision has been made in these financial statements with respect thereto. 9 PROFIT / RETURN EARNED Financings Investments in - available for sale securities - held to maturity securities 6,793,308 7,044,066 1,962,671 369,580 1,853,889 411,594 Musharaka arrangements with financial institutions Deposits with financial institutions 2,332,251 70,147 7,010 2,265,483 215,060 91,442 9,202,716 9,616,051 Deposits and other accounts Musharaka arrangements with the State Bank of Pakistan under IERS Musharaka arrangements with other financial institutions Musharaka arrangements with other institution Unwinding of liability against right-of-use of asset 3,894,499 4,340,687 90,942 662,374 17,983 343,047 66,345 468,267 16,900 388,790 5,008,845 5,280,989 10 11 438 20212020 (Rupees in '000) PROFIT / RETURN EXPENSED PROFIT / (LOSS) DISTRIBUTION TO DEPOSITORS’ AND SPECIFIC POOLS 11.1 The Bank is maintaining the following types of pools for profit declaration and distribution: 1) General Pool 2) IERS Musharaka Pool 3) Treasury Musharaka / Mudaraba Pools 4) Special Musharaka Pool 5) Equity Pool Unconsolidated Financial Statements
441. Annual Report 2021 Annexure I I MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 Features, risks and rewards of each pool are given below: 1) General Pool The Bank manages one general pool for its depositors’ (Rabbul Mal) maintaining deposits under Mudaraba in both local and foreign currencies and also commingled its equity in this pool. The income (gross income less direct expenses) generated from the pool is distributed between Bank’s equity and depositors’ fund in proportion to their respective share in the pool. Under the Mudaraba mechanism, the income so distributed to depositors’ fund is shared between the Bank (Mudarib) and depositors’ (Rabbul Mal) according to the pre-agreed profit sharing ratios and assigned weightages. The deposits and funds accepted under the General Pool are deployed to diversified sectors and avenues of the economy / business mainly to ‘Agriculture, Forestry & Fishing’, ‘Textile & Allied’, ‘Food & Allied’, ‘Distribution & Trade’, ‘Investment in Government of Pakistan Ijarah Sukuk’, etc. Parameters associated with risk and rewards Following are the consideration attached with risk and reward of general pool: - Period, return, safety, security and liquidity of investment. - Financing proposals under process at various stages and likely to be extended in the near future. - Expected amount of procurement of deposit during coming days as a result of concerted marketing efforts of the Bank. - Element of risk attached to various types of investments. - SBP rules and Shari’ah clearance. 2) Islamic Export Refinance Scheme (IERS) Musharaka Pool The Bank manages IERS Musharaka Pool for funds accepted from SBP under IERS. Under the PLS mechanism, the Bank generates revenues from the pool funds which are shared with the SBP according to the pre-agreed profit sharing ratios. Musharaka investments from the SBP under IERS are channeled towards the export sector of the economy and other financings as per SBP guidelines. 3) Treasury Musharaka / Mudaraba Pools The Bank accepts funds from other banks to manage its liquidity under Musharaka / Mudaraba mode. The funds accepted are tagged to remunerative assets having maturity on or after the period for which funds are accepted. The revenue generated from the pool asset is shared between the bank and other member of the pool according to pre-agreed profit sharing ratios or assigned weightages accordingly. 4) 5) Special Musharaka Pool The Bank also accepts funds / deposits (other than Banks) under Musharaka mode. The comingled funds under this arrangement are deployed in remunerative assets as per the terms of agreement. The revenue generated from these assets are then shared as per pre-agreed profit sharing ratio. Equity Pool The Equity Pool consists of Bank’s equity and funds accepted on Qard (non-remunerative current deposit account) basis. The funds of this pool are invested in various assets or ventures which are higher in risk or having longer funding period. In addition to that all staff financings are financed by this pool. The risk of assets in the pool is borne by the Bank. Charging of expenses Direct expenses are being charged to respective pools, while indirect expenses such as general and administrative expenses are being borne by the Bank as Mudarib. No provision expense is charged to the pool unless it is written off. The direct expenses charged to the pool may include depreciation of Ijarah assets, premium amortization on Sukuk, impairment losses due to physical damages to specific assets in pools etc. However, this is not an exhaustive list; the Bank’s pool management framework and the respective pool creation memo may identify and specify these and any other similar expenses to be charged to the pool. Annual Report 2019 439
442. MCB Islamic Bank Limited (A Subsidiary of MCB Bank Limited) Notes to the Financial Statements For the year ended December 31, 2021 11.2 Following are the detail of profit distribution among different pool maintained by the Bank: 2021 Pool Description General Pool Pool Description Profit Rate & weightage announcement period Monthly Profit Rate & weightage announcement period Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee % % 8.58 50.00 Profit Rate Earned (Rupees in '000) 2,599,187 Profit Sharing Ratio of Mudarib Mudarib Fee % % (Rupees in '000) Profit Rate return distributed General Hiba % % 5.03 17.31 Profit Rate return distributed General Hiba % % Amount of General Hiba (Rupees in '000) 543,991 Amount of General Hiba (Rupees in '000) Islamic Export Refinance (IERS) Pool Monthly 4.39 – – 2.00 – – Treasury Musharaka/ Mudaraba Pool As required 8.29 – – 7.57 – – Equity Pool Monthly (1.63) – – – – – 2020 Pool Description General Pool Pool Description 440 Profit Rate & weightage announcement period Monthly Profit Rate & weightage announcement period Profit Rate Earned Profit Sharing Ratio of Mudarib Mudarib Fee % % 10.84 50.00 Profit Rate Earned Profit Sharing Ratio of Mudarib (Rupees in '000) 3,558,858 Mudarib Fee % % (Rupees in '000) Profit Rate return distributed General Hiba % % 6.53 20.30 Profit Rate return distributed General Hiba % % Amount of General Hiba (Rupees in '000) 722,410 Amount of General Hiba (Rupees in '000) Islamic Export Refinance (IERS) Pool Monthly 6.90 – – 2.00 – – Treasury Musharaka/ Mudaraba Pool As required 9.60 – – 7.25 – – Special Musharakh Pool Monthly 10.48 – – 9.21 – – Equity Pool Monthly 5.33 – – – – – Unconsolidated Financial Statements
443. Annual Report 2021 Branch Network 2021 As of December 31 , 2021 Retail Banking Group - Central No. of Branches No. of SubBranches Gujranwala 32 – Gujrat 28 – Mandi Bahauddin 28 – Sialkot 36 – Lahore Defence 25 – Lahore Gulberg 24 – Lahore Johar Town 22 – Lahore City 32 – Lahore The Mall 33 – Circle/ No. of Branches GUJRANWALA - 124 LAHORE EAST - 71 LAHORE WEST - 92 Region Shiekhupura 27 – 287 – No. of Branches No. of SubBranches Abbottabad 28 – Attock 20 – Muzaffarabad A.K. 23 – Swat 25 1 Fateh Jang 21 – Islamabad 26 – Rawalpindi Cantt 24 – Rawalpindi City 21 – Kohat 27 – Mardan 24 – Peshawar East 22 1 Total RBG - Central Retail Banking Group - North Circle/ No. of Branches ABBOTTABAD - 96 ISLAMABAD - 92 PESHAWAR - 99 Region Peshawar West 26 – 287 02 No. of Branches No. of SubBranches Faisalabad 30 – Faisalabad City 28 1 Toba Tek Singh 27 – Chakwal 26 – Jhelum 27 – Mirpur A.K. 26 – Jhang 28 2 Mianwali 31 – Sargodha 35 1 258 04 Total RBG - North Retail Banking Group - West Circle/ No. of Branches FAISALABAD - 85 JHELUM - 79 SARGODHA - 94 Total RBG - West Region Annual Report 2019 441
444. Branch Network 2021 As of December 31 , 2021 Retail Banking Group - East Circle/ No. of Branches BAHAWALPUR - 77 MULTAN - 71 SAHIWAL - 73 No. of Branches No. of SubBranches Bahawalnagar 18 – Bahawalpur 27 – Rahim Yar Khan 32 – Dera Ghazi Khan 20 – Multan 30 1 Muzaffargarh 21 – Okara 22 1 Sahiwal 24 – Vehari 27 2 221 02 No. of Branches No. of SubBranches Karachi City 28 1 Karachi North 26 – Karachi East 23 – Karachi South 25 – Karachi Central 24 – Region Total RBG - East Retail Banking Group - Karachi Circle/ No. of Branches KARACHI CITY - 54 KARACHI EAST - 48 KARACHI WEST - 48 Region Karachi West 24 – 150 01 No. of Branches No. of SubBranches Badin 17 – Hyderabad 22 – Mirpurkhas 18 1 Total RBG - Karachi Retail Banking Group - South Circle/ No. of Branches HYDERABAD - 77 QUETTA - 52 SUKKUR - 75 Total RBG - South Region Nawabshah 20 – Khuzdar 15 – Makran 10 1 Quetta 27 3 Larkana 24 – Naushero Feroze 24 – Sukkur 27 – 204 05 11* – 8 – Corporate Finance & International Banking Group Corporate Branches *EPZ not included Consumer & Digital Banking Group Privilege Banking 442 Unconsolidated Financial Statements
445. Annual Report 2021 Branch Network 2021 As of December 31 , 2021 Overseas Branches / International Banking No. of Branches Sri Lanka Colombo 1 Galle 1 Kandy 1 Kattankudy 1 Kollupitiya 1 Maradana 1 Pettah 1 Wellawatte 1 Bahrain MCB Offshore Banking Unit (OBU) Bahrain 1 UAE MCB Dubai Wholesale Branch (UAE) 1 Pakistan EPZ 1 TOTAL 11 Groupwise Circles Regions No. of Branches No. of SubBranches RBG–Central 3 10 287 – RBG–North 3 12 287 2 RBG–West 3 9 258 4 RBG–East 3 9 221 2 RBG–Karachi 3 6 150 1 RBG–South 3 10 204 5 CFIBG (Corporate Branches) 3 5 11 – C&DBG (Privilege Banking) – – 8 – 21 61 1,426 14 – – 10 – Group Total Overseas Branches / International Banking EPZ Grand Total – – 1 – 21 61 1,437 14 Branches Sub-Branches Total Province-Wise Provinces/Territories/AJK Azad Jammu & Kashmir 41 – 41 Balochistan 54 4 58 Federal Capital Territory 34 – 34 Gilgit–Baltistan 6 – 6 Khyber Pakhtunkhwa 156 2 158 Punjab 830 6 836 Sindh Domestic Total Overseas Branches / International Banking EPZ Grand Total 305 2 307 1,426 14 1,440 10 – 10 1 – 1 1,437 14 1,451 Complete list of Branches along with its contact details is available on below link: https://www.mcb.com.pk/branch-locator/branch-locator Annual Report 2019 443
446. Pattern of Shareholding As of December 31 , 2021 No. of Shareholders Shareholdings From Total Shares Held To 27,332 1 100 880,939 13,692 101 500 3,372,215 5,902 501 1,000 4,418,469 7,848 1,001 5,000 14,015,485 537 5,001 10,000 3,960,156 595 10,001 50,000 13,747,443 124 50,001 100,000 9,003,618 144 100,001 500,000 32,892,912 32 500,001 1,000,000 23,651,812 59 1,000,001 5,000,000 112,333,580 10 5,000,001 10,000,000 67,813,384 4 10,000,001 15,000,000 46,226,536 4 15,000,001 25,000,000 87,577,083 11 25,000,001 Above 765,166,374 56,294 1,185,060,006 Categories of Shareholders As of December 31, 2021 Categories of Shareholders Percentage Directors, Chief Executive Officer, and their Spouses and Minor Children 122,496,798 10.3368% Associated Companies, Undertakings and Related Parties 226,588,984 19.1205% 912 0.0001% 23,088,532 1.9483% 113,999,087 9.6197% NIT and ICP Banks, Development Financial Institutions, Non Banking Financial Institutions Insurance Companies Modarabas and Mutual Funds 10,239,590 0.8641% Shareholders Holding 10% 222,606,147 18.7844% General Public Local 152,704,961 12.8858% 8,012,113 0.6761% 305,322,882 25.7643% 1,185,060,006 100.0000% General Public Foreign Others Total 444 Shares Held Unconsolidated Financial Statements
447. Annual Report 2021 Categories of Shareholders As of December 31 , 2021 Categories of Shareholders Shares Held Directors, Chief Executive Officer, their Spouses and Minor Children Mian Mohammad Mansha Naz Mansha S. M. Muneer Muhammad Tariq Rafi Mrs. Nighat Tariq Mian Umer Mansha Iqraa Hassan Mansha Mian Hassan Mansha Muhammad Ali Zeb Mohd Suhail Amar Suresh Bin Abdullah Yahya Saleem Salman Khalid Butt Shahzad Hussain Masood Ahmed Puri Shariffuddin Bin Khalid Percentage 7,834 6,424,057 2,059 34,876,772 5,715,093 32,016,378 8,000 43,393,671 550 884 500 49,000 500 1,000 500 0.0007% 0.5421% 0.0002% 2.9430% 0.4823% 2.7017% 0.0007% 3.6617% 0.0000% 0.0001% 0.0000% 0.0041% 0.0000% 0.0001% 0.0000% 122,496,798 10.3368% 88,015,291 55,196,435 11,271,920 1,200,000 5,134,085 96 29,500 434,176 68,900 34,166,060 22,312,991 8,284,390 66,138 17,500 86,243 23,000 237,259 45,000 7.4271% 4.6577% 0.9512% 0.1013% 0.4332% 0.0000% 0.0025% 0.0366% 0.0058% 2.8831% 1.8829% 0.6991% 0.0056% 0.0015% 0.0073% 0.0019% 0.0200% 0.0038% 226,588,984 19.1205% NIT and ICP Investment Corporation of Pakistan 912 0.0001% 912 0.0001% 741 1,393 590 807,992 101 1 4 433 49 950 1,775,000 2,821,600 2,939,227 3,860,042 1,015,241 715,000 1,500,000 0.0001% 0.0001% 0.0000% 0.0682% 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 0.0001% 0.1498% 0.2381% 0.2480% 0.3257% 0.0857% 0.0603% 0.1266% Associated Companies, Undertakings and Related Parties Nishat Mills Limited Adamjee Insurance Company Limited Siddiqsons Limited Adamjee Life Assurance Company Limited Adamjee Life Assurance Company Ltd-IMF Adamjee Life Assurance Company Limited-NUIL Fund Adamjee Life Assurance Co.Ltd - DGF Nishat (Aziz Avenue) Hotels and Properties Limited Nishat Real Estates Development Company (Private) Limited Trustee - MCB Provident Fund Pak Staff Trustee - MCB Employees Pension Fund Nishat Mills Limited Employees Provident Fund Trust Trustees of Adamjee Insurance Company Ltd. Employees Provident Fund Adamjee Life Assurance Company Ltd. Employees Gratuity Fund CDC - Trustee MCB Pakistan Asset Allocation Fund CDC - Trustee Pakistan Capital Market Fund CDC - Trustee MCB Pakistan Stock Market Fund CDC - Trustee Pakistan Pension Fund - Equity Sub Fund Banks, Development Financial Institutions, Non Banking Financial Institutions The Bank of Punjab Prudential Investment Bank Ltd. Crescent Investment Bank Ltd. Saudi Pak Industrial & Agricultural Investment Co. (Pvt) Ltd Trust Leasing Corporation Ltd. Universal Leasing Corporation Ltd. Islamic Investment Bank Ltd. National Development Finance Corporation M/s. Al Faysal Investment Bank Ltd Interasia Leasing Company Limited Pakistan Kuwait Investment Co. (Pvt) Ltd. Allied Bank Limited Habib Bank Limited Faysal Bank Limited Habib Metropolitan Bank Limited Bank Al Habib Limited Soneri Bank Limited Annual Report 2019 445
448. Saudi Pak Leasing Company Limited Bank Alfalah Limited The Punjab Provincial Cooperative Bank Escorts Investment Bank Limited National Bank of Pakistan Askari Bank Limited House Building Finance Company Limited Pair Investment Company Limited Sindh Bank Limited Samba Bank Limited - MT Invest Capital Investment Bank Limited Falki Capital (Private) Limited Float Securities (Pvt.) Limited 495 2,450,000 1,558 225 2,559,436 1,034,100 41,951 375,000 1,020,530 78,873 77,000 1,000 10,000 0.0000% 0.2067% 0.0001% 0.0000% 0.2160% 0.0873% 0.0035% 0.0316% 0.0861% 0.0067% 0.0065% 0.0001% 0.0008% 23,088,532 1.9483% Insurance Companies National General Insurance Co. Ltd. Business & Industrial Insurance Co. Ltd. M/s. New Jubilee Insurance Co. Ltd. The South British Insurance Company Ltd. M/s. Beema Pakistan Company Ltd. E.F.U. General Insurance Ltd. Orient Insurance Co. Ltd. Premier Insurance Limited Jubilee General Insurance Company Limited State Life Insurance Corp. of Pakistan EFU Life Assurance Ltd. Pakistan Reinsurance Company Limited Allianz EFU Health Insurance Limited The Crescent Star Insurance Co.Ltd. Jubilee Life Insurance Company Limited East West Insurance Co.Ltd Century Insurance Company Ltd. GHAF Limited Security General Insurance Co Ltd. The Pakistan General Insurance Co. Limited IGI Life Insurance Limited Alfalah Insurance Company Limited Askari General Insurance Company 1,359 9 2 1,864 69 713 3 125,204 1,180,000 23,059,087 5,442,695 500,000 12,626 3 23,991,810 25,000 16,561 52,500 59,136,076 106 2,400 136,000 315,000 0.0001% 0.0000% 0.0000% 0.0002% 0.0000% 0.0001% 0.0000% 0.0106% 0.0996% 1.9458% 0.4593% 0.0422% 0.0011% 0.0000% 2.0245% 0.0021% 0.0014% 0.0044% 4.9901% 0.0000% 0.0002% 0.0115% 0.0266% 113,999,087 9.6197% 60 17 39 4,030 313 15 2 4 1,665 162 16 15 233 4 29 183,753 248,004 1,640,826 907,608 85,723 4 0.0000% 0.0000% 0.0000% 0.0003% 0.0000% 0.0000% 0.0000% 0.0000% 0.0001% 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 0.0000% 0.0155% 0.0209% 0.1385% 0.0766% 0.0072% 0.0000% Modarabas and Mutual Funds First Hajveri Modaraba Crescent Modaraba Managment Co. Ltd First Elite Capital Modaraba First Crescent Modaraba Trust Modaraba UNICAP Modaraba First Interfund Modaraba Industrial Capital Modaraba Safeway Fund (Pvt) Ltd Pak Asian Fund Limited Safeway Mutual Fund Ltd Golden Arrow Selected Stocks Fund Ltd Prudential Stocks Funds Limited M/s. Asian Stock Fund Ltd PICIC Benovelent Fund-2 CDC - Trustee PICIC Investment Fund CDC - Trustee PICIC Growth Fund CDC - Trustee Atlas Stock Market Fund CDC - Trustee Faysal Stock Fund CDC - Trustee Alfalah GHP Value Fund CDC - Trustee Unit Trust of Pakistan 446 Unconsolidated Financial Statements
449. Annual Report 2021 CDC - Trustee Akd Index Tracker Fund Tri-Star Mutual Fund Limited CDC - Trustee UBL Stock Advantage Fund Crescent Standard Business Management (Pvt) Limited CDC - Trustee NBP Stock Fund CDC - Trustee NBP Balanced Fund CDC - Trustee APF-Equity Sub Fund CDC - Trustee JS Pension Savings Fund - Equity Account CDC - Trustee HBL - Stock Fund CDC - Trustee HBL Multi - Asset Fund CDC - Trustee Alfalah GHP Stock Fund CDC - Trustee Alfalah GHP Alpha Fund CDC - Trustee NIT-Equity Market Opportunity Fund CDC - Trustee ABL Stock Fund CDC - Trustee Lakson Equity Fund CDC - Trustee NBP Sarmaya Izafa Fund CDC - Trustee HBL PF Equity Sub Fund CDC - Trustee UBL Asset Allocation Fund CDC - Trustee First Capital Mutual Fund CDC - Trustee UBL Retirement Savings Fund - Equity Sub Fund CDC - Trustee National Investment (Unit) Trust CDC - Trustee ABL Pension Fund - Equity Sub Fund CDC-Trustee NITPF Equity Sub-Fund Aba Ali Habib Securities (Pvt) Limited - MF CDC - Trustee Lakson Tactical Fund CDC - Trustee NBP Financial Sector Fund CDC - Trustee UBL Financial Sector Fund CDC - Trustee UBL Dedicated Equity Fund CDC - Trustee Allied Finergy Fund CDC - Trustee NIT Asset Allocation Fund CDC - Trustee NIT Pakistan Gateway Exchange Traded Fund CDC - Trustee NBP Pakistan Growth Exchange Traded Fund 103,468 754 984,248 1 284,351 22,500 77,500 15,700 68,964 22,900 435,762 149,204 1,168,176 391,126 717,665 86,800 40,600 52,000 30,000 145,000 1,005,735 22,219 26,000 300 63,626 82,000 933,432 3,700 125,939 62,500 23,226 21,672 0.0087% 0.0001% 0.0831% 0.0000% 0.0240% 0.0019% 0.0065% 0.0013% 0.0058% 0.0019% 0.0368% 0.0126% 0.0986% 0.0330% 0.0606% 0.0073% 0.0034% 0.0044% 0.0025% 0.0122% 0.0849% 0.0019% 0.0022% 0.0000% 0.0054% 0.0069% 0.0788% 0.0003% 0.0106% 0.0053% 0.0020% 0.0018% 10,239,590 0.8641% Share Holders Holding 10% Maybank International Trust (Labuan) Berhad 222,606,147 18.7844% 222,606,147 18.7844% General Public 160,717,074 13.5619% - Local - Foreign Others 152,704,961 8,012,113 12.8858% 0.6761% 305,322,882 25.7643% - Foreign Companies 63,427,525 5.3523% 74,596,850 6.2948% - Local Companies - D.G. Khan Cement Company Limited 102,277,232 8.6306% – – - Nishat Mills Limited (as disclosed in Associated Companies, Undertakings and Related Parties) 65,020,947 5.4867% - Bugis Investments (Mauritius) Pte Ltd 328 0.0000% - Executives (as per the threshold determined by Board of Directors) Total 1,185,060,006 100.0000% All the trades in shares carried out by Directors, CEO, CFO, Secretary, Executives, their Spouses and Minor during the year 2021 are given below: Name Muhammad Tariq Rafi Mian Umer Mansha Mian Hassan Mansha Status Director Director Spouse of Director No. of Shares 2,782,468 30,000 30,000 Purchase/Sale/Transfer Purchase Purchase Purchase Annual Report 2019 447
450. Notice of 74th Annual General Meeting Notice is hereby given that 74th Annual General Meeting of MCB Bank Limited (the “Bank”) will be held on Tuesday, March 29, 2022 at 11:00 AM (PST) at Imperial Ball Room, 4th Floor-Banquets, The Nishat Hotel, Emporium, Abdul Haq Road, Johar Town, Lahore, with Video Link facility to transact the following business: Ordinary Business: 1. To confirm/approve the Minutes of Annual General Meeting held on March 27, 2021. 2. To receive, consider and adopt the Annual Audited Separate and Consolidated Financial Statements of the Bank together with the Directors’ Report and Auditors’ Report thereon and the Chairman’s Review Report for the year ended December 31, 2021. 3. To appoint Auditors of the Bank and fix their remuneration. The Members are hereby notified that the Board’s Audit Committee and the Board of Directors have recommended the name of retiring auditors, namely, M/s A. F. Ferguson & Co., Chartered Accountants, being eligible, for re-appointment as auditors of the Bank. 4. To approve, as recommended by the Board of Directors, the payment of Final Cash Dividend @ 50% i.e., PKR 5.00 per share, having face value of PKR 10/- in addition to 140% i.e., PKR 14.00 per share Interim Cash Dividends already declared and paid, thus, total 190% i.e., PKR 19.00 per share for the year ended December 31, 2021. Special Business: 5. To consider and, if deemed fit, to pass an Ordinary Resolution as proposed in the Statement of Material Facts annexed to the Notice circulated to the members, to approve amendments in Directors’ Remuneration Policy of the Bank. Statement of Material Facts under Section 134(3) of the Companies Act, 2017 (“Act”) alongwith draft ordinary resolution pertaining to the abovementioned Special Business is annexed to this Notice of Annual General Meeting circulated to the Members of the Bank. By Order of the Board, March 07, 2022 Lahore. -Sd- FARID AHMAD Acting Company Secretary Notes: 1. Minutes of the Annual General Meeting (the “Meeting” or “AGM”) held on March 27, 2021 of MCB Bank Limited (the “Bank”) are available for inspection of Members. 2. The Shares Transfer Books of the Bank will remain closed from March 17, 2022 to March 29, 2022 (both days inclusive). Transfers received at office of the Share Registrar and Transfer Agent of the Bank at its below mentioned address, at close of business hours on March 16, 2022 will be treated as being in time for the purpose of entitlement of Final Cash Dividend and also to attend, speak and vote at the AGM of the Bank. 3. All Members are entitled to attend and vote at the Meeting. A member entitled to attend and vote at AGM may appoint another member as a proxy to attend and vote on his/her behalf. No person shall act as a proxy, who is not a member of the Bank. A corporate entity, being a member, may authorize through resolution of its board or other governing body, an individual to act as its representative and the individual so authorized shall be entitled to exercise the same powers on behalf of the corporate entity which he represents. 4. The proxies and in case of corporate entity, the power of attorney or resolution of the board of directors or other governing body (if any) under which it is signed, a notarized/certified copy of the same in order to be effective must be deposited at the Registered Office of the Bank not later than 48 hours (no account shall be taken of any part of the day that is not a working day) before the time for holding the Meeting, and must be duly stamped, signed and witnessed. 448 Unconsolidated Financial Statements
451. Annual Report 2021 5 . If a Member appoints more than one proxy, and more than one instrument of proxy is deposited by a Member, all such instruments of proxy shall be rendered invalid. 6. Members having physical scrip of shares are requested to immediately notify the change, if any, in their registered addresses and e-mails, in writing, to the Share Registrar and Transfer Agent of the Bank, whereas, CDC Account holders are requested to contact their CDC Participant/CDC Account Services. 7. Central Depository Company of Pakistan (“CDC”) Accountholders will further have to follow the under mentioned guidelines as laid down by Circular No. 01, dated January 26, 2000, issued by the Securities and Exchange Commission of Pakistan (“SECP”): For Attending the Meeting: i. ii. In case of individuals, the account-holder or sub-accountholder and/or the person whose securities are in group account and their registration details are uploaded as per the CDC Regulations, shall authenticate his identity by showing his original Computerized National Identity Card (“CNIC”) or original passport at the time of attending the Meeting. In case of corporate entity, the Board of Directors’ resolution/power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the Meeting. For Appointing of Proxies: i. In case of individuals, the account-holder or sub-accountholder and their registration details are uploaded as per the CDC Regulations, shall submit the Proxy Form as per the above requirement. ii. The Proxy Form shall be witnessed by the two persons whose names, addresses and CNIC numbers shall be mentioned on the Proxy Form. iii. Attested copy of CNIC or the passport of the beneficial owners and the proxy shall be furnished with the Proxy Form. iv. The proxy shall produce his/her original CNIC or passport at the time of the Meeting. v. In case of corporate entity, the Board of Directors resolution/power of attorney with specimen signature shall be submitted along with Proxy Form of the Bank. 8. A Proxy Form, both in English and Urdu language, is being sent to the Members, along with Notice of AGM. 9. Copies of the Notice of AGM and the latest annual audited/quarterly financial statements of the Bank have been kept at the Registered Office of the Bank which can be inspected during the business hours on any working day from the date of publication of this Notice of AGM till the day before the AGM. 10. Annual Report 2021 including Notice of AGM, and the annual audited financial statements, reports and other material has also been placed on website of the Bank. www.mcb.com.pk 11. Members can attend and participate in the AGM through Video-Link. Pursuant to the provisions of the Companies Act, 2017, the shareholders residing in a city and holding at least 10% of the total paid up share capital of the Bank may demand to provide the facility of video-link for participating in the AGM. The demand for video-link facility shall be received by the Company Secretary at the Registered Office of the Bank situated at MCB Building, 15-Main Gulberg, Jail Road, Lahore, at least seven (7) days prior to the date of AGM. In this regard, a ‘Standard Request Form for Video-Link Facility’ is available on the Bank’s website. www.mcb.com.pk Coronavirus (COVID-19) Contingency Planning for AGM As per the requirements of the SECP, the Bank is providing video Link facility for participation in the AGM. This facility is in addition to hold physical AGM at designated venue. Keeping in view the COVID-19 related Standard Operating Procedures (“SOPs”) issued by the Provisional and/or the Federal Government, the Members are encouraged to participate in the meeting through Video Link. The Members or their proxy holders who wish to attend the AGM through Annual Report 2019 449
452. Video-Link are required to register themselves by providing the following information along with valid CNIC / Passport (both sides)/attested copy of board resolution /power of attorney as applicable through email at: cat@mcb.com.pk, of the Bank by close of business on March 25, 2022. Name of Shareholder Folio/CDC Account Number Number of Shares Held Valid CNIC/NTN/ Passport Number Mobile Number and Email Address The Members or their proxies who are registered after necessary verification shall be provided a Video Link facility by the Bank on their email address. The Login facility shall remain open from the start of the AGM till its proceedings are concluded. The Members can also provide their comments/suggestions for the proposed agenda items of the AGM at email, i.e., cat@mcb.com.pk. Statement Under Section 134(3) Of The Companies Act, 2017 In Respect Of Special Business This statement under Section 134(3) of the Companies Act, 2017 sets out the material facts pertaining to the Special Business to be transacted at AGM of the Bank: Agenda Item No. 5 Amendments in Directors’ Remuneration Policy: The Board of Directors has approved amendments in Directors’ Remuneration Policy of the Bank in accordance with the requirements of the Corporate Governance Regulatory Framework (“CGRF”) issued by the State Bank of Pakistan. The comparison of the major amendments is as follows: Clause Ref. No. 1.3 4.1 Existing Clause Amended Clause The Board may determine additional remuneration for a director including the Chairman for performing extra services. However, such additional remuneration shall not exceed the limits as prescribed in BPRD Circular No. 03 of 2019. The Board may determine additional remuneration for a director including the Chairman of Board and Chairman of any Board’s Sub-Committees of the Bank for performing extra services. However, such additional remuneration shall not exceed the limits as prescribed in G-14 of the CGRF. The Bank shall either make all arrangements for travelling, boarding and lodging of Board Members for attending Board and its Committees meetings and any other meeting relating to Bank’s business or reimburse such expenses to the Board Members, on actual basis. The Bank shall either make all arrangements for travelling, boarding and lodging of Board Members for attending Board and its Committees meetings and any other meeting relating to Bank’s business or reimburse such expenses including any relevant domestic training to the Board Members, on actual basis. The Shareholders are requested to consider and if thought fit, to approve, with and without modification, the amended Directors’ Remuneration Policy of the Bank by passing the following resolution as an Ordinary Resolution: “RESOLVED THAT the amended Directors’ Remuneration Policy, as recommended by the Board of Directors of the Bank, in accordance with the requirements of the Corporate Governance Regulatory Framework, issued by the State Bank of Pakistan, be and is hereby approved.” The Directors of the Bank have no personal interest, directly or indirectly, in the above special business, save to the extent of their respective shareholding in the Bank. Further, the amended Directors’ Remuneration Policy of the Bank has been kept at the Registered Office of the Bank which can be inspected during the business hours on any working day from the date of publication of this Notice of AGM till the day before AGM. 450 Unconsolidated Financial Statements
453. Annual Report 2021 Attention of Shareholders is drawn towards Circulars /Notifications: The following Circulars/Notifications require special attention of Members of the Bank: 1. Requirement of Valid CNIC and IBAN: As per the regulatory requirements issued by the Securities & Exchange Commission of Pakistan, the payment of cash dividend shall only be made to the Shareholders who have provided copies of their valid CNIC/ NICOP/ Passport (in the case of Individuals) and NTN certificate (in the case of corporate entities) and valid details of designated International Bank Account Number (“IBAN”). In case of non-availability of the said information, the Bank will hold the payment of cash dividend. Therefore, shareholders who have not yet provided the required information are requested to provide copies of their valid CNIC/NICOP/NTN/Passport and details of valid IBAN. 2. Requirement of FBR’s Approval or Valid Tax Exemption Certificate for Claim of Exemption U/S 150 of the Income Tax Ordinance, 2001: The Honorable Lahore High Court, Lahore, in its decision has advised that the Mutual Funds as approved by the Federal Board of Revenue (“FBR”), are not required to provide exemption certificate under Section 159 of the Income Tax Ordinance, 2001 (“Ordinance”) to claim tax immunity as per clause (47B) of Part-IV of the Second Schedule to the Ordinance. Such Shareholders are requested to provide either approval certificate from FBR or in the absence of the said certificate, valid exemption certificate under Section 159 (1) of the Ordinance issued by the concerned Commissioner of the Income Tax, Inland Revenue, FBR. In case of non-availability of approval / exemption certificate(s), the deduction of advance tax on dividend shall be made as per the relevant provisions of the Ordinance. 3. Deduction of Withholding Tax as Filer/Non-filer and Joint Shareholders: FBR has provided the Active Tax-Payer List (“ATL”), for identification of filer/non-filer status of the shareholders on the basis of NTN/CNIC number. In case of non-availability of valid NTN/CNIC number with the Share Registrar and Transfer Agent of the Bank, it will not be possible to identify the status of Shareholder as filer or non-filer and such shareholders will be treated as ‘Non-filer’. Further, Joint shareholders are also requested to communicate their percentage of shareholding to the Share Registrar and Transfer Agent of the Bank in order to calculate withholding tax applicable to each Joint shareholder based on filer/non-filer status. Kindly note that in case of non-receipt of such information, each joint shareholder will be assumed to hold equal proportion of shares and the deduction will be made accordingly. 4. Circulation of Annual Audited Financial Statements and Notice of AGM to Members: SECP has allowed companies to circulate Annual Audited Financial Statements along with Notice of Annual General Meeting to its Members through email. Further, SECP has also allowed companies to transmit Annual Audited Financial Statements through electronic medium, i.e., CD/DVD at their registered addresses. However, in case a shareholder requires hard copy of the Annual Audited Financial Statements, the same can be obtained, free of cost, within one week of the request. In this regard, a Standard Request Form has been placed on website of the Bank, i.e., www.mcb.com.pk 5. Unclaimed Dividends and Shares Certificates: The shareholders who have not yet claimed their cash dividends, right and bonus shares, which are either kept with the Shareholders themselves or returned as undelivered to the Share Registrar and Transfer Agent of the Bank, are requested to make a claim for such unpaid/unclaimed dividends, right and bonus shares with the Bank. In this regard, the Bank has sent notices to the Shareholders at their registered addresses and also published in the newspapers having wide circulation requesting them to submit their claims. In the absence of such claims, the Bank will proceed to comply with regulatory requirements. 6. Zakat Declaration (CZ-50): Zakat will be deducted from the dividends at source under the Zakat & Usher Laws and will be deposited within the prescribed period with the relevant authority. Please submit your Zakat declarations under the Zakat and Usher Ordinance, 1980 & Rule 4 of the Zakat (Collection and Refund) Rules, 1981, in case you want to claim exemption, with your brokers or the Central Depository Company of Pakistan Limited (in case the shares are held in Book-Entry Form) or to Bank’s Share Registrar and Transfer Agent (in case the shares are held in Physical Form) at its below mentioned address. Annual Report 2019 451
454. 7 . Conversion of Physical Shares into Book-Entry Form: SECP has advised the listed companies to pursue their Members who still hold shares in physical form to convert their shares into Book-Entry Form. All such Members are hereby advised to open Investor Account directly with Central Depository Company of Pakistan Limited or CDC sub-account with any of the active Stock Brokers of Pakistan Stock Exchange to facilitate conversion of Physical shares into Book-Entry Form. Members are further informed that holding shares in Book-Entry Form have several benefits including but not limited to secure and convenient custody of shares, ready to trade and conveniently transferable, no risk of the loss, damage or theft, no stamp duty on transfer of shares in Book-Entry Form and hassle-free credit of bonus and right shares. The shareholders may also contact the Share Registrar and Transfer Agent of the Bank for the conversion of Physical shares into Book-Entry Form at below mentioned address. M/s THK Associates (Pvt) Ltd., Share Registrar and Transfer Agent-MCB Bank Limited Plot No. 32-C, Jami Commercial Street 2, D.H.A., Phase VII, Karachi-75500. Pakistan. P.O. Box No. 8533, UAN: +92 (21) 111-000-322, Fax: +92 (21) 35310191. Email: sfc@thk.com.pk Website: www.thk.com.pk 452 Unconsolidated Financial Statements
455. Annual Report 2021 Glossary of Terms Important terms and formulae used for calculation in Financial Statements are briefly described here ; Accrual Basis Recognizing the effects of transactions and other events when they occur without waiting for receipt or payment of cash or its equivalent. Basel III Basel III (or the Third Basel Accord) is a global, voluntary regulatory standard on bank capital adequacy, stress testing and market liquidity risk. Basis point One hundredth of a per cent i.e. 0.01 per cent. 100 basis points is 1 per cent. Used when quoting movements in interest rates or yields on securities. Breakup Value per share Represents the total worth (equity) of the business per share, calculated as shareholders’ equity or Net Assets excluding the impact of revaluation on fixed assets, divided by the total number of share outstanding at year end. BSD Banking Surveillance Department of State Bank of Pakistan BPRD Banking Policy and Regulation Department of State Bank of Pakistan CAGR An abbreviation for Compound Annual Growth Rate. Capital Adequacy Ratio (CAR) The relationship between capital and risk weighted assets as defined in the framework developed by the State Bank of Pakistan. Cash Reserve Ratio (CRR) Cash Reserve Ratio is the amount of funds that the banks have to keep with SBP. Cash Reserves was required to be maintained at an average of 5% of total of demand liabilities and time deposits with tenor of less than 1 year, during the reserve maintenance period however effective November 12, 2021 Cash Reserves shall be maintained at an average of 6% of total of demand liabilities and time deposits with tenor of less than 1 year. (Ref: DMMD Circular No. 20 of 2021) Cash Equivalents Short-term highly liquid investments that is readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Commitment to Extend Credit Credit facilities approved but not yet utilized by the client as at the Balance Sheet date. Cost to Income Ratio The proportion of admin expenses to total income, represented as combination of net interest income and non-interest income. Credit Risk Spread The credit spread is the yield spread between securities with the same coupon rate and maturity structure but with different associated credit risks, with the yield spread rising as the credit rating worsens. It is the premium over the benchmark or risk-free rate required by the market to take on a lower credit quality. Discount rate Discount is the rate at which SBP provides three-day Repo facility to banks, acting as the lender of last resort. Dividend Payout Ratio Dividends (cash dividend plus bonus shares) paid per share as a fraction of earnings per share (EPS). Dividend Yield Ratio Dividend per share divided by the market value of share. Earnings Per Share Profit after taxation divided by the weighted average number of ordinary shares in issue. Efficiency Ratio Calculated as Net Interest Income as a percentage of working funds / operating cost. Fixed Deposits Deposits having fixed maturity dates and a rate of return. Forced Sale Value (FSV) Forced Sale Value means the value which fully reflects the possibility of price fluctuations and can currently is obtained by selling the mortgaged / pledged assets in a forced / distressed sale conditions. Foreign Exchange Options (FX Options) Contracts that give the buyer the right, but not the obligation, to buy or sell one currency against the other, at a predetermined price and on or before a predetermined date. The buyer of a call/ put FX option has the right to buy/sell a currency against another at a specified rate. Forward Purchase Contract Forward purchase contract is one in which the exporter enters into the forward booking contract to protect himself from the exchange rate fluctuation at the time of receiving payment. Forward Sale Contract In a forward sale contract the importer enters into a transaction to buy foreign currency from the Bank at the predetermined rate to protect himself from the exchange fluctuation at the date the payment. Annual Report 2019 453
456. Glossary of Terms Government Securities Government Securities shall include such types of Pak . Rupee obligations of the Federal Government or a Provincial Government or of a Corporation wholly owned or controlled, directly or indirectly, by the Federal Government or a Provincial Government and guaranteed by the Federal Government as the Federal Government may, by notification in the Official Gazette, declare, to the extent determined from time to time, to be Government Securities. Historical Cost Convention Recording transactions at the actual value received or paid. Impairment allowances A provision held on the balance sheet as a result of the raising of a charge against profit for the incurred loss inherent in the lending book. An impairment allowance may either be identified or unidentified and individual or collective. IAS International Accounting Standards IFRS International Financial Reporting Standards IFRIC International Financial Reporting Interpretation Committee Interest Spread Represents the difference between the average interest rate earned and the average interest rate paid on funds. Loan losses and provisions Amount set aside against identified and possible losses on loans, advances and other credit facilities as a result of their becoming party or wholly uncollectible. Liquid Assets The assets which are readily convertible into cash without recourse to a court of law and mean encashment / realizable value of government securities, bank deposits, certificates of deposit, shares of listed companies which are actively traded on the stock exchange, NIT Units, certificates of mutual funds, Certificates of Investment (COIs) issued by DFIs / NBFCs rated at least ‘A’ by a credit rating agency on the approved panel of State Bank of Pakistan, listed TFCs rated at least ‘A’ by a credit rating agency on the approved panel of State Bank of Pakistan and certificates of asset management companies for which there is a book maker quoting daily offer and bid rates and there is active secondary market trading. These assets with appropriate margins should be in possession of the banks / DFIs with perfected lien. 454 Unconsolidated Financial Statements Market Capitalization Number of ordinary shares in issue multiplied by the market value of share as at any cut-off date. Net Interest Income (NII) Net interest income is the difference between the interest earned on assets and interest expensed on liabilities. Non-Performing Loan A non-performing loan is a loan that is in default or close to being in default. Loans become non-performing in accordance with provision of prudential regulations issued by SBP. Non-Performing Assets A financial asset held on the books of a financial institution with respect to which the obligor has been in arrears for more than one year on any payment obligation and includes all security interests with respect thereto. NPLs to Gross Advances/Loans Represents the infected portfolio of the bank and is calculated by dividing the total non-performing loans by gross advances. Non-Performing Loan-Substandard Category Where mark-up/interest or principal is overdue by 90 days or more from the due date. Non-Performing Loan-Doubtful Category Where mark-up/interest or principal is overdue by 180 days or more from the due date. Non-Performing Loan-Loss Category Where mark-up/interest or principal is overdue by one year or more from the due date and Trade Bill (Import/ Export or Inland Bills) are not paid/adjusted within 180 days of the due date. Off Balance Sheet Transactions Transactions that are not recognized as assets or liabilities in the statement of financial position but which give rise to contingencies and commitments. Price Earnings Ratio (P/E Ratio) Market price of a share divided by earnings per share. Repo / Reverse Repo A repurchase agreement, or repo, is a short term funding agreements which allow a borrower to sell a financial asset, such as ABS or government bonds as collateral for cash. As part of the agreement the borrower agrees to repurchase the security at some later date, usually less than 30 days, repaying the proceeds of the loan. For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement or reverse repo. Return on Equity (ROE) Represents the ratio of the current year’s profit available for distribution to the weighted average shareholders’ equity over the period under review, calculated by dividing the net profit (profit after tax) to the average equity (before surplus) for the period.
457. Annual Report 2021 Glossary of Terms Return on Assets (ROA) Indicator of profitability of the business relative to the value of its assets, calculated by dividing the net profit (profit after tax) to the average total assets for the period. Statutory Reserve Funds A capital reserve created as per the provisions of the section 21 of Banking Companies Ordinance, 1962. Small Enterprise A Small Enterprise (SE) is a business entity which meets both the following parameters: Number of Employees Annual Sales Turnover *Up to 50 Up to Rs. 150 million *including contract employees. Strategic Investment Strategic Investment is an investment which a bank / DFI make with the intention to hold it for a period of minimum 5 years. The following must be noted further in respect of strategic investment: • The bank should mark strategic investment as such at the time of investment • If there are a series of purchases of stocks of a company, the minimum retention period of 5 years shall be counted from the date of the last purchase. SRO Statutory Regulatory Order KIBOR – (Karachi Interbank Offered Rate) KIBOR is the interbank lending rate between banks in Pakistan and is used as a benchmark for lending. LIBOR (London Interbank Offered Rate) An interest rate at which banks can borrow funds, in marketable size, from other banks in the London interbank market. The LIBOR is fixed on a daily basis by the British Bankers’ Association. VaR Value at Risk is an estimate of the potential loss which might arise from market movements under normal market conditions, if the current positions were to be held unchanged for one business day, measured to a confidence level of 97.5 per cent. Weighted Average Cost of Deposits Percentage of the total interest expense on average deposit of the bank for the period. Annual Report 2019 455
458. 456 Unconsolidated Financial Statements
459. Annual Report 2021 Form of Proxy 74th Annual General Meeting I /We _________________________________________________________________________________________________ of ________________being a member of MCB Bank Limited, holder of ________________________________Ordinary Share(s) as per Folio No. and/or CDC Account No. ___________________________________________ do hereby appoint Mr./Mrs./Miss __________________________ having Folio No. /CDC Account No. ________________________________ or failing him/her, Mr./Mrs./Miss ___________________________ having Folio No. /CDC Account No. __________________ as my/our proxy to attend, speak and vote for me/us on my/our behalf at the 74th Annual General Meeting (“AGM”) of the Bank to be held on Tuesday, the 29th day of March, 2022 at 11:00 AM (PST) at Imperial Ball Room, 4th FloorBanquets, The Nishat Hotel, Emporium, Abdul Haq Road, Johar Town, Lahore, and at any adjournment thereof in the same manner as I/we/myself/ ourselves would vote if personally present at such meeting. As witness my / our hand/Seal this ____________________________ day of _______________________________ 2022. Signed by _____________________________________________________________________________________________ Folio No. CDC Account No. Signature on Five-Rupees Revenue Stamp Participant I.D. Account No. The signature should agree with the specimen registered with the Bank. Witnesses: 1.Name :________________________________ 2.Name :________________________________ Address :________________________________Address:________________________________ CNIC No. :________________________________ CNIC No. :________________________________ Signature :________________________________ Signature:________________________________ Note: 1. A member eligible to attend, speak and vote at the AGM may appoint another member as his/her proxy who shall have such rights as narrated in Section 137 of the Companies Act, 2017. 2. This Proxy Form, duly completed and signed, must be deposited in the office of M/s THK Associates (Pvt) Limited, the Share Registrar and Transfer Agent of the Bank, situated at Plot No. 32-C, Jami Commercial Street 2, D.H.A., Phase VII, Karachi-75400, not later than 48 hours before the time of holding the meeting. 3. If a member appoints more than one proxy and more than one instrument of proxies are deposited by a member with the Share Registrar and Transfer Agent of the Bank, all such instruments of proxy shall be rendered invalid. 4. For CDC Account Holders / Corporate Entities • • • Attested copies of CNIC/ NICOP or the passport of the beneficial owners and the proxy shall be provided with the Proxy Form. The proxy shall produce his/her original CNIC/ NICOP or passport at the time of the meeting. In case of a corporate entity, the Board of Directors’ resolution / power of attorney with specimen signature shall be submitted along with Proxy Form to the Share Registrar and Transfer Agent of the Bank. Annual Report 2019 457
460. 74 2022 29 74 2022 458 Unconsolidated Financial Statements
461. Investors ’ Awareness
462. Registered Office : MCB House, 15 Main Gulberg, Jail Road, Lahore, Pakistan U: +92 42 111 000 622 T: +92 42 36041998-9 E: info@mcb.com.pk www.mcb.com.pk