Summit Bank: Unconsolidated Condensed Interim Financial Statements - 30 June 2017

Transcription

2. contents Corporate Information 03 Vision Statement 04 Mission Statement 05 Directors ' Report 06 Auditors’ Review Report 16 Unconsolidated Condensed Interim Financial Statements (Un-audited) Unconsolidated Condensed Interim Statement of Financial Position 18 Unconsolidated Condensed Interim Profit and Loss Account 19 Unconsolidated Condensed Interim Statement of Comprehensive Income 20 Unconsolidated Condensed Interim Cash Flow Statement 21 Unconsolidated Condensed Interim Statement of Changes in Equity 22 Notes to the Unconsolidated Condensed Interim Financial Statements 23 Consolidated Condensed Interim Financial Statements (Un-audited) Consolidated Condensed Interim Statement of Financial Position 42 Consolidated Condensed Interim Profit and Loss Account 43 Consolidated Condensed Interim Statement of Comprehensive Income 44 Consolidated Condensed Interim Cash Flow Statement 45 Consolidated Condensed Interim Statement of Changes in Equity 46 Notes to the Consolidated Condensed Interim Financial Statements 47 Branch Network 64 HALF YEARLY REPORT JUNE 2017 01
4. CORPORATE INFORMATION Board of Directors Chief Financial Officer Mr . Nasser Abdulla Hussain Lootah Chairman Mr. Irfan Saleem Awan Mr. Husain Lawai Vice-Chairman Mr. Muhammad Zahir Esmail President and CEO Mr. Asadullah Khawaja Director Mr. Shehryar Faruque Director Mr. Md. Ataur Rahman Prodhan Director Mr. Mohammad Faisal Shaikha Director Audit Committee Mr. Shehryar Faruque Chairman Mr. Asadullah Khawaja Member Mr. Husain Lawai Member Risk Management Committee Mr. Husain Lawai Chairman Mr. Shehryar Faruque Member Mr. Asadullah Khawaja Member HR & Compensation Committee Mr. Asadullah Khawaja Chairman Mr. Shehryar Faruque Member Mr. Husain Lawai Member Company Secretary Syed Muhammad Talib Raza Auditors Deloitte Yousuf Adil Chartered Accountants Legal Advisors Hyat & Meerjees Shares Registrar Technology Trade (Private) Limited Dagia House, 241-C, Block-2, P.E.C.H.S., Off. Shahrah-e-Quaideen, Karachi-74000, Pakistan Tel: (021) 34391316-7 Fax: (021) 34391318 Head Office Arif Habib Centre, 23 M.T Khan Road Karachi -74000, Pakistan UAN: (021) 111-124-725 Fax: (021) 32435736 Registered Office Plot No. 9-C, F-6 Markaz, Supermarket, Islamabad, Pakistan Entity Ratings Rated by JCR-VIS Credit Rating Company Ltd. Medium to Long term “A- (Single A minus)” Short Term “A-1 (A-one)” Email Website Toll Free : info@summitbank.com.pk companysecretary@summitbank.com.pk : www.summitbank.com.pk : 0800-24365
7. DIRECTORS ' REPORT TO THE SHAREHOLDERS FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 2017 On behalf of the Board of Directors of Summit Bank Limited (the Bank), I hereby present the un-audited condensed interim financial statements of the Bank for the six months period ended June 30, 2017 (H1-2017). PERFORMANCE REVIEW The summarized financial highlights of the Bank for the six months period under review are as follows: For the six months period ended June 30, June 30, 2017 2016 ......... (Rupees in ‘000) ......... Loss before provisions and direct write-offs Provision against non-performing loans and advances- net Reversal of provision / (provision) for diminution in the value of investments - net Bad debts written off directly Loss before taxation Tax (expense) / income Loss after taxation Basic loss per share - Rupees Diluted loss per share - Rupees (245,901) (211,841) (55,581) (1,153,562) 104,038 (3,891) (201,335) (90,837) (292,172) (0.13) (0.13) (64,349) (1,429,752) 387,171 (1,042,581) (0.48) (0.48) During the six months period under review (H1-2017), the Bank posted a loss after tax of Rs. 292.17 million as compared to loss after tax of Rs. 1,042.58 million during the same period last year. This comparative reduction in loss is primarily attributable to significant reduction in provision expense against non-performing loans and advances (NPLs), increase in net mark-up/interest income and net reversal in provision for diminution in the value of investments achieved during the period. As a result of strenuous recovery efforts by the management gross infection ratio (Gross NPLs to Gross Advances) of the Bank further reduced to 16.63% (December 31, 2016: 17.74%) with NPLs amounting to Rs.16,407.68 million at the period end (December 31, 2016: Rs. 16,719.02 million). This also includes a positive impact of increase in loans and advances portfolio. Moreover, the management is in constant negotiation with the defaulted parties and hopeful of a positive outcome of these efforts, which should help in further reduction of NPLs. During H1-2017, provision expense against NPLs amounted to Rs. 55.58 million as against Rs. 1,153.56 million in the same period last year, depicting a remarkable comparative improvement. On a similar pattern, there was a net reversal in provision expense for diminution in the value of investments, which amounted to Rs. 104.04 million during H1-2017 as against a net provision of Rs. 64.35 million in the corresponding period last year. In line with its strategy, the Bank achieved further reduction in cost of deposits (CoD) during H1-2017 in comparison with the corresponding period last year and remained focused on improving its current account and savings account (CASA) ratio. Moreover, deposits further grew during the period and stood at Rs. 148.24 billion at the closing date as against Rs. 142.87 billion as of December 31, 2016 (June 30,2016: Rs. 129.66 billion), which translates into a growth of 3.76% during the six months period under review. These improvements together with reduction in average borrowings resulted in decrease of mark-up expenses for H1-2017 to Rs. 3,690.44 million as against Rs. 4,161.86 million during the same period last year. Mark-up income of the Bank during H1-2017 decreased to Rs. 5,304.63 million as against Rs. 5,452.60 million in the corresponding period last year. This decrease was mainly due to the negative impact on yields of earning assets arising from their repricing/replacement in the prevailing low interest rate environment. 06 HALF YEARLY REPORT JUNE 2017
8. Non-markup income during H1-2017 amounted to Rs . 1,105.38 million which declined by 26.06% in comparison with the same period last year (H1-2016: Rs. 1,494.87 million), main reason for decline being the reduction in gain on sale of securities which amounted to Rs. 176.16 million as against Rs. 591.29 million during H1-2016. Due to the prevailing market interest rates, capital gain opportunities on Government Bonds portfolio were lesser which resulted in decline of overall gains on sale of securities in comparison with H1-2016. As a result of constant monitoring of non-markup expenses and efforts to identify the areas of cost savings and rationalization, the Bank managed to reduce non-markup expenses during H1-2017 to Rs. 2,965.48 million in comparison with the expenses of Rs. 2,997.45 million incurred during same period last year. This translates into a reduction of 1.07%. The balance sheet size of the Bank during H1-2017 increased by 5.99% (i.e. by Rs. 12.88 billion) with total assets amounting to Rs. 227.90 billion as at June 30, 2017 as against Rs. 215.02 billion as of December 31, 2016. This increase was primarily attributable to increase in net investments and advances during the period. Net advances of the Bank increased by 5.67% and stood at Rs. 84.37 billion (December 31, 2016: Rs. 79.84 billion), while net investments have shown a healthy growth of 7.27% which stand at Rs. 97.16 billion as of June 30, 2017 (December 31, 2016: Rs. 90.57 billion). The Bank has recognized a net deferred tax asset of Rs. 5,250.87 million as at June 30, 2017. This represents the management's best estimate of the probable tax benefits expected to be realized in future. We are hopeful that Bank will be able to realize these deferred tax benefits. ECONOMIC REVIEW Pakistan's economy is continuously improving and Real Gross Domestic Product (GDP) growth in FY-2017 was 5.3 percent representing a 10 year high. Specifically, the revival of domestic demand has been instrumental in the current upturn. The major thrust has come from the ongoing public and private investment particularly in infrastructure and power sector. Furthermore, consumer spending has also expanded with a stable inflationary environment and banks' renewed interest in consumer financing. On the supply side, recovery in major crops from last year, better energy supplies, and a broad based increase in Large-scale Manufacturing have facilitated this expansion. With further improvement in economic activity along with pass through of the recovering global oil prices to domestic motor fuel cost, headline consumer price index (CPI) inflation has also edged up in recent months. Going forward in FY18, current trends of rising income, surge in imports, and accelerating credit to private sector are expected to increase the CPI inflation; however, it is likely to remain within the target. Considering these factors, the Monetary Policy Committee of SBP kept the policy rate unchanged at 5.75 percent during HI-2017. Mainly due to political uncertainties, KSE-100 Index however performed negatively during HI-2017 and the benchmark index declined by 2.60% to close at 46,565 points as of June 30, 2017, depicting a decline of 1,242 points (December 31, 2016: 47,807 points). Going forward, official inflows are expected to provide support to foreign exchange reserves. A sustained increase in other private inflows - foreign direct investments and export earnings in particular - is required to fully finance the surge in imports. Furthermore, the current growth momentum led by China Pakistan Economic Corridor (CPEC) related investments is likely to boost foreign direct investment inflows. STRATEGIC INITIATIVES Status of capital increase transaction As of June 30, 2017, the Bank has received Rs. 1,854.87 million as advance against subscription of shares. This includes Rs. 1,157.67 million received from Suroor Investments Limited (Sponsor of the Bank) and Rs. 697.20 million from an investor. The State Bank of Pakistan vide its letter dated October 28, 2016 has allowed the Bank to treat the advance amount of Rs. 1,854.87 million as share capital for the purposes of Minimum Capital Requirement (MCR), Capital Adequacy Ratio (CAR) and Leverage Ratio (LR) requirements till completion of the shares issuance process. The management is taking all the necessary steps for earliest completion of share issuance against the same. Moreover, as at June 30, 2017 the Bank is compliant with applicable MCR, while SBP has allowed extension in the timeline for meeting CAR and LR requirements along with relaxations to the Bank w.r.t. certain CAR and LR related BASEL III deductions till September 29, 2017. In this respect, continuous efforts are underway by the management to improve the performance of the Bank with an aim to ensure continued compliance with all the applicable minimum capital requirements and to strengthen Bank's capital base. HALF YEARLY REPORT JUNE 2017 07
9. Merger with Sindh Bank Limited In light of the Board of Directors ' approval dated November 21, 2016, Summit Bank Limited evaluated the potential merger option with Sindh Bank Limited. A similar evaluation exercise was conducted by Sindh Bank Limited. Subsequent to the period end, based on the due diligence exercise, the Board of directors of Summit Bank Limited has proposed amalgamation of Summit Bank Limited with and into Sindh Bank Limited and also approved a proposed shares swap ratio for this transaction. This is subject to necessary regulatory approvals & compliances as well as shareholders’ approval. The Bank is taking all the necessary steps in this respect. ISLAMIC BANKING By the grace of Allah, the Bank is continuously increasing its Islamic Banking Branches (IBBs) network and outreach as per its strategy of conversion to an Islamic Bank. As at June 30, 2017, Bank's IBBs network has expanded to 14 (December 31, 2016: 13 IBBs). Moreover, the Bank has 35 Islamic Banking Windows (IBWs) at the end of H1-2017 (December 31, 2016: 34 IBWs) and plans to expand Islamic banking business by utilizing the existing network of branches through introduction of more IBWs at various geographical locations. The Bank has suitably equipped itself with a range of Islamic banking products to meet the requirements of customers, which should be helpful in expansion of Islamic Banking operations. Moreover, continuous training and development activities are being carried out to equip the Bank's human resource with required Islamic banking skills set. CREDIT RATINGS In June-2017, JCR-VIS Credit Rating Company Limited (JCR-VIS) has maintained medium to long-term rating of the Bank at A- (Single A minus), whereas short-term rating of the Bank has been maintained at A-1 (A one). Moreover, rating of the TFC issue of the Bank has been maintained at A- (SO) (Single A- minus (Structured Obligation)). These ratings have been placed on 'Rating Watch-Developing' status in view of the ongoing potential merger with Sindh Bank Limited. FUTURE OUTLOOK The Bank is fully geared up to capitalize on the business opportunities available in the market. Moreover, Board of Directors' decision to approve the proposed amalgamation of the Bank with and into Sindh Bank Limited aims to provide quantum leap to the Bank and it stakeholders, achieve benefit from the synergies offered by the two banks and to enable continued compliance with all applicable minimum capital requirements. The Bank will continue to focus on its strategy for long-term sustainable growth. To achieve its objectives, the Bank has a well-managed infrastructure, technology platform and trained human resource. Besides that, the Bank is fully geared up for transforming its existing core-banking systems and related technologies according to the business plan of the Bank and necessary implementation work for new core banking system is in progress. Going forward, focus will be maintained on all the key areas for improvement in Bank's results, some of which are as follows: . . . . . . 08 Improvement in return on assets and overall quality of portfolio; Reduction in Cost of Deposits (CoD) and improvement in current account and saving account (CASA) ratio; Continuous improvement and strengthening of capital base; Recoveries from non-performing loans and advances; Rationalization and reduction of non-earning assets; and Identification of areas for cost savings and rationalization. HALF YEARLY REPORT JUNE 2017
10. ACKNOWLEDGEMENTS The Board would like to express its appreciation on the efforts of the Management and all employees , while acknowledging the role of the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, other regulators and Federal and Provincial Governments in developing and strengthening the banking and financial services industry. I would like to take this opportunity to also thank on behalf of the Board and Management of the Summit Bank Limited, the customers and the shareholders for entrusting their confidence in us and assure them that we remain committed to maintaining high service standards and a strong culture of good corporate governance and compliance in all our endeavors. On Behalf of the Board of Directors _________________________ Muhammad Zahir Esmail President & Chief Executive August 24, 2017 Karachi HALF YEARLY REPORT JUNE 2017 09
11. 10 HALF YEARLY REPORT JUNE 2017
12. HALF YEARLY REPORT JUNE 2017 11
13. 12 HALF YEARLY REPORT JUNE 2017
14. HALF YEARLY REPORT JUNE 2017 13
15. 14 HALF YEARLY REPORT JUNE 2017
16. HALF YEARLY REPORT JUNE 2017 15
17. AUDITORS ' REPORT TO MEMBERS ON REVIEW OF INTERIM FINANCIAL INFORMATION Introduction We have reviewed the accompanying unconsolidated condensed interim statement of financial position of SUMMIT BANK LIMITED ("the Bank") as at June 30, 2017 and the related unconsolidated condensed interim profit and loss account, unconsolidated condensed interim statement of comprehensive income, unconsolidated condensed interim cash flow statement, unconsolidated condensed interim statement of changes in equity, and notes to the financial information for the half year then ended (here-in-after referred to as the "interim financial information"). Management is responsible for the preparation and presentation of this interim financial information in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Our responsibility is to express a conclusion on this interim financial information based on our review. Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity." A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information as of and for the half year ended June 30, 2017 is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan for interim financial reporting. Emphasis of Matter We draw attention to: l Condensed interim statement of financial position where management has disclosed that the Bank has recognized a net deferred tax asset of Rs. 5,251 million which is considered realisable based on financial projections of taxable profits for five years, which have been approved by the Board of Directors. The preparation of projections involves management's assumptions regarding future business and economic conditions and therefore any significant change in such assumptions or actual outcome that is different from assumptions, may have effect on the realisability of the deferred tax in future. l Note 1.3 to the condensed interim financial information which states that the Bank has been allowed extension by the State Bank of Pakistan till September 29, 2017 to meet Capital Adequacy Ratio (CAR) requirements, and the management's planned steps to meet these requirement in ensuing years. Our conclusion is not qualified in respect of above matters. Other matter The figures for the quarter ended June 30, 2017 in the unconsolidated condensed interim profit and loss account and unconsolidated condensed interim statement of comprehensive income have not been reviewed and we do not express a conclusion on them as we are required to review only the cumulative figures for the half year ended June 30, 2017. Deloitte Yousuf Adil Chartered Accountants Engagement Partner: Mushtaq Ali Hirani Date: August 24, 2017 Karachi 16 HALF YEARLY REPORT JUNE 2017
19. UNCONSOLIDATED CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION AS AT JUNE 30 , 2017 Un-audited June 30, 2017 Note ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets - net Other assets 7 8 9 Audited December 31, 2016 ------- (Rupees in `000) ------14,205,297 2,413,878 4,141,248 97,163,622 84,367,209 12,596,783 5,250,872 7,761,929 227,900,838 12,786,616 2,582,531 1,631,583 90,575,032 79,843,732 12,272,884 5,200,972 10,128,998 215,022,348 3,461,542 57,704,293 148,242,181 1,496,205 4,669,824 215,574,045 12,326,793 5,061,470 49,819,840 142,871,229 1,496,550 3,101,307 202,350,396 12,671,952 17,786,663 2,155,959 1,854,870 (1,722,341) (9,750,750) 10,324,401 2,002,392 12,326,793 17,786,663 2,155,959 1,854,870 (1,722,341) (9,515,201) 10,559,950 2,112,002 12,671,952 LIABILITIES Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 10 NET ASSETS REPRESENTED BY Share capital Convertible preference shares Advance against subscription of shares Reserves Accumulated losses Surplus on revaluation of assets - net of tax CONTINGENCIES AND COMMITMENTS 11 The annexed notes from 1 to 18 form an integral part of these unconsolidated condensed interim financial statements. President & Chief Executive 18 Director HALF YEARLY REPORT JUNE 2017 Director Director
20. UNCONSOLIDATED CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UN-AUDITED) FOR THE PERIOD ENDED JUNE 30, 2017 Quarter ended June 30, June 30, 2017 2016 Note Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income Provision against non-performing loans and advances - net (Provision) / reversal of provision for diminution in the value of investments - net Bad debts written off directly Half year ended June 30, June 30, 2017 2016 --------------------- Rupees in `000 --------------------- 2,771,049 (1,914,044) 857,005 3,023,586 (2,107,081) 916,505 5,304,634 (3,690,436) 1,614,198 5,452,596 (4,161,864) 1,290,732 8.2.1 (90,487) (621,144) (55,581) (1,153,562) 7.2 (123,577) (209) (214,273) 642,732 (72,999) (694,143) 222,362 104,038 (3,891) 44,566 1,658,764 (64,349) (1,217,911) 72,821 309,779 9,683 121,265 5,361 2,296 314,121 13,102 121,301 363,099 4,386 566,807 14,179 278,991 176,160 27,265 569,902 26,153 273,876 591,285 7,831 (1,706) 25,128 471,806 1,114,538 (1,032) 26,039 841,016 1,063,378 (13,693) 55,667 1,105,376 2,764,140 (6,408) 32,233 1,494,872 1,567,693 (1,504,931) 109 (3,266) (1,508,088) (393,550) (393,550) (1,547,381) (1,239) (39,515) (1,588,135) (524,757) (524,757) (2,954,598) 2 (10,879) (2,965,475) (201,335) (201,335) (2,940,827) (13,006) (43,612) (2,997,445) (1,429,752) (1,429,752) (47,641) 64,237 16,596 (376,954) (34,749) 166,256 131,507 (393,250) (77,333) (13,504) (90,837) (292,172) (63,313) 450,484 387,171 (1,042,581) Net mark-up / interest income after provisions NON MARK-UP / INTEREST INCOME Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities - net Gain on disposal of operating fixed assets - net Unrealised loss on revaluation of investments classified as held-for-trading - net Other income Total non mark-up / interest income NON MARK-UP / INTEREST EXPENSES Administrative expenses Other provisions / write-offs Other charges Total non mark-up / interest expenses Extra ordinary / unusual items LOSS BEFORE TAXATION Taxation Current Prior years Deferred LOSS AFTER TAXATION ------------------------ Rupees ------------------------ Basic loss per share 12.1 (0.17) (0.18) (0.13) (0.48) Diluted loss per share 12.2 (0.17) (0.18) (0.13) (0.48) The annexed notes from 1 to 18 form an integral part of these unconsolidated condensed interim financial statements. President & Chief Executive Director Director Director HALF YEARLY REPORT JUNE 2017 19