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The Bank of Khyber: Condensed Interim Financial Information - 31 March 2020

IM Insights
By IM Insights
4 years ago
The Bank of Khyber: Condensed Interim Financial Information - 31 March 2020

Islamic banking, Murabaha, Shariah, Sukuk, Credit Risk, Mark-Up, Net Assets, Provision, Reserves, Sales

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  1. Condensed Interim For the Period Ended March 31 ,2020
  2. For the Period ended March 31 ,2020
  3. Corporate Informa on 1 Directors ’ Review 3 Statement of Financial Posi on 5 Profit and Loss Account 6 Statement of Comprehensive Income 7 Statement of Changes in Equity 8 Cash Flow Statement 9 Notes to the Financial Statements (Un-audited) 10
  4. CORPORATE INFORMATION Board of Directors Shakeel Qadir Khan Chairman / Non - Execu ve Director A f Rehman Non - Execu ve Director Maqsood Ismail Ahmad Non - Execu ve Director Asad Muhammad Iqbal Independent Director Javed Akhtar Rashid Ali Khan Independent Director Independent Director Managing Director / CEO (Ac ng) Ihsan Ullah Ihsan Shariah Board Mu i Muhammad Zahid Chairman Shariah Board Mu i Muhammad Ibrahim Essa Member Shariah Board Qazi Abdul Samad Resident Shariah Board Member (RSBM) Board Audit Commi ee Asad Muhammad Iqbal A f Rehman Member Javed Akhtar Rashid Ali Khan Member Member Board Human Resource & Remunera on Commi ee Chairman Maqsood Ismail Ahmad Member Asad Muhammad Iqbal Member Managing Director Member Board Risk Management Commi ee Maqsood Ismail Ahmad Chairman Javed Akhtar Member A f Rehman Member Rashid Ali Khan Member Managing Director Member 1
  5. Board I .T Steering Commi ee A f Rehman Asad Muhammad Iqbal Rashid Ali Khan Managing Director Chairman Member Member Member Board Compliance Commi ee Rashid Ali Khan Shaharyar Ahmad Javed Akhtar Chairman Member Member Chief Financial Officer Mahmood Ahmed Qureshi Company Secretary Zahid Sahibzada Registered Office / Head Office The Bank of Khyber 24 – The Mall, Peshawar Can . 1st Floor, State Life Building , 34 – The Mall, Peshawar Can . , Pakistan UAN# 00 -92 -91 -111 95 95 95 URL: www.bok.com.pk Auditors EY Ford Rhodes Chartered Accountants Legal Advisors Mr. Nisar Ahmed Khan , Advocate, Peshawar M/s . Mohsin Tayebaly & Co., Karachi Registrar and Share Registra on Office THK Associates (Pvt) Ltd. 1st Floor, 40 -C, Block 6 P.E.C.H.S, Karachi – 75530 Pakistan . 2
  6. Director ' Review On behalf of the Board of Directors of the Bank of Khyber, I am pleased to present the condensed interim financial informa on of the Bank for the 1st quarter ended March 31, 2020. The results are inclusive of Islamic Banking Opera ons. Financial Highlights The financial results of the Bank of Khyber for the 1st quarter ended March 31, 2020 are as under: (Rs. in Million) March 31 December 31 2020 2019 Total Assets 299,860 306,305 Deposits 158,666 182,168 Advances (Gross) 116,756 113,976 Investments (Net) 150,742 146,911 (Rs. in Million) Period Ended March 31 2020 2019 1,024 399 Opera ng Profit Provision against non-performing advances/others (140) 54 Profit before taxa on 884 345 Taxa on (335) (158) Profit a er tax 548 187 Performance Review In the current circumstances amid COVID-19 pandemic, all sectors of economy are under pressure and banking is not an excep on. The State Bank has shown its readiness to take whatever ac ons become necessary in response to the evolving economic impact of the Coronavirus. Resultantly, in the January – March quarter, the central bank has taken a host of measures including constantly reduc on in policy rate whereas the banking sector was struggling to maintain its profitability. In the backdrop of this situa on, the Bank of Khyber has managed to show good results and posted Rs.548 million profit a er tax for the first quarter of the year 2020 as compare to Rs.187 million for the same period of 2019. The deposits se led at Rs.158,666 million whereas with a slight increase from the year end 2019, advances stood at Rs.116,756 million. Investments were at Rs.150,742 million. 3
  7. Future Outlook Due to global outbreak of Corona virus , economies of the developing countries, including Pakistan will be suffered severely. In light of the ght monetary measures adopted by the central bank, the Bank of Khyber remains cognizant of the challenging business environment and stands commi ed to its strategy of steady growth through diversifica on in products, services and outreach. The Bank is focusing on increasing its customer base and mobilizing cost effec ve deposit mix with an emphasis on prudent lending to maintain trend of stable profitability. The Bank was opera ng with 169 branches and 3 sub-branches throughout the country out of which 84 branches were func oning as dedicated Islamic Banking Branches. Credit Ra ng JCR-VIS Credit Ra ng Company Ltd. (JCR-VIS) has maintained the medium to long term and short term en ty ra ngs of the Bank at “A” (Single A) and “A-1” (A One) respec vely. Outlook on the assigned ra ng is “Stable”. The Pakistan Credit Ra ng Agency Limited (PACRA) has also maintained the long term and short term en ty ra ngs of the Bank at “A” (Single A) and “A1” (A One). Ra ng outlook is “Stable”. The ra ngs denote low expecta on of credit risk emana ng from strong capacity for mely payment of financial commitments. Acknowledgement The Board would like to acknowledge the support and guidance provided by the State Bank of Pakistan and other regulatory authori es. We would also like to thank the Bank's valued customers for their patronage and con nued confidence in the Bank. For and on behalf of the Board of Directors Ihsan Ullah Ihsan Managing Director (Ac ng) Peshawar: May 20, 2020 4
  8. CONDENSED INTERIM STATEMENT OF FINANCIAL POSITION AS AT MARCH 31 , 2020 Un-Audited Note ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial ins tu ons Investments Advances Fixed assets Intangible assets Deferred tax asset Other assets LIABILITIES Bills payable Borrowings Deposits and other accounts Liabili es against assets subject to finance lease Subordinated debt Other liabili es 6 7 8 9 10 11 12 13 14 11,230,795 3,299,263 8,414,294 150,741,584 112,382,434 3,240,920 279,421 147,786 10,123,664 299,860,161 12,137,805 8,230,072 13,863,449 146,911,102 109,742,292 3,334,670 286,255 1,031,154 10,768,453 306,305,252 15 16 17 685,552 114,114,517 158,666,249 10,395,456 283,861,774 15,998,387 1,172,155 94,656,461 182,167,572 14,107,711 292,103,899 14,201,353 10,002,524 3,014,337 968,321 2,013,205 15,998,387 10,002,524 2,904,691 (780,670) 2,074,808 14,201,353 18 NET ASSETS REPRESENTED BY Share capital Reserves Surplus/(Deficit) on revalua on of assets Unappropriated profit 19 CONTINGENCIES AND COMMITMENTS Audited March 31, December 31, 2020 2019 Rupees in '000 20 The annexed notes 1 to 37 form an integral part of these financial informa on. ________________ Managing Director _____________________ Chief Financial Officer ___________ Director 5 ___________ Director ___________ Director
  9. 6 0 .55 548,229 ________________ Managing Director _____________________ Chief Financial Officer ____________ Director The annexed notes 1 to 37 form an integral part of these financial informa on. Basic & diluted earnings per share 30 335,359 PROFIT AFTER TAXATION 883,588 29 1,023,496 139,908 1,067,473 48,306 1,115,779 2,139,275 80,553 2,030 176,171 361,848 29,878 650,480 7,933,485 6,444,690 1,488,795 Taxa on 28 26 27 24 25 23 21 22 0.55 548,229 335,359 883,588 1,023,496 139,908 1,067,473 48,306 1,115,779 2,139,275 80,553 2,030 176,171 361,848 29,878 650,480 7,933,485 6,444,690 1,488,795 ____________ Director 0.19 186,731 157,907 344,638 398,766 54,128 1,033,751 90 1,033,841 1,432,607 89,141 22,183 5,554 33,946 150,824 4,864,091 3,582,308 1,281,783 ____________ Director 0.19 186,731 157,907 344,638 398,766 54,128 1,033,751 90 1,033,841 1,432,607 89,141 22,183 5,554 33,946 150,824 4,864,091 3,582,308 1,281,783 FOR THE QUARTER YEAR-TO-DATE January 01 to January 01 to January 01 to January 01 to March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Rupees in '000 PROFIT BEFORE TAXATION PROFIT BEFORE PROVISIONS Provisions and (reversals) - net Opera ng expenses Other charges Total non-markup/interest expenses NON MARK-UP/INTEREST EXPENSE Total income Fee and commission income Dividend income Foreign exchange income (Loss)/gain on securi es Other income Total non-markup/interest income NON MARK-UP/INTEREST INCOME Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/ interest income Note (UN-AUDITED) CONDENSED INTERIM PROFIT AND LOSS ACCOUNT (UN-AUDITED) OF CHANGES IN EQUITY CONDENSED INTERIM STATEMENT FOR THE PERIOD ENDED MARCH 31, 2020
  10. 7 ________________ Managing Director _____________________ Chief Financial O fficer 548,229 2,690,755 (941,764) 1,748,991 2,297,220 ____________ Director The annexed notes 1 to 37 form an integral part of these financial informa on. Total comprehensive income Items that may be reclassified to profit and loss account in subsequent periods: Net change in fair value of available for sale securi es Related deferred tax Other comprehensive income Profit a er taxa on ____________ Director 365,849 (128,047) 237,802 424,533 186,731 186,731 365,849 (128,047) 237,802 424,533 ____________ Director 2,690,755 (941,764) 1,748,991 2,297,220 548,229 FOR THE QUARTER YEAR-TO-DATE January 01 to January 01 to January 01 to January 01 to March 31, 2020 March 31, 2019 March 31, 2020 March 31, 2019 Rupees in '000 CONDENSED INTERIM STATEMENT OF COMPREHENSIVE INCOME (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  11. 8 ________________ Managing Director _____________________ Chief Financial O fficer The annexed notes 1 to 37 form an integral part of these financial informa on. Transfer to statutory reserve Transac ons with owners recorded directly in equity Final cash dividend for the year ended December 31, 2019 (Rs.0.50 per share) Balance as at March 31, 2020 (un-audited) Balance as at December 31, 2019 (audited) Total Comprehensive Income Profit a er taxa on for the three months ended March 31, 2020 Other comprehensive income - net of tax Transfer to statutory reserve Balance as at March 31, 2019 Total Comprehensive Income Profit a er taxa on for the nine months ended December 31, 2019 Other comprehensive income - net of tax Transfer to statutory reserves Balance as at January 1, 2019 Total Comprehensive Income Profit a er taxa on for the three months ended March 31, 2019 Other comprehensive income - net of tax ____________ Director 194,138 1,748,991 1,748,991 - 109,646 3,014,337 (1,554,853) 1,086,220 1,086,220 - 223,862 2,904,691 (2,641,073) 237,802 237,802 - 37,346 2,680,829 (2,878,875) 774,183 - 774,183 - 774,183 - 774,183 Investments Assets Rupees in '000 Surplus / (deficit) on revalua on of 2,643,483 Statutory reserve ____________ Director 10,002,524 - 10,002,524 - 10,002,524 - 10,002,524 Share capital CONDENSED INTERIM STATEMENT OF CHANGES IN EQUITY (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 ____________ Director (500,186) 2,013,205 548,229 548,229 (109,646) 2,074,808 1,119,308 (133,292) 986,016 (223,862) 1,312,654 186,731 186,731 (37,346) 1,163,269 Unappropriated profit (500,186) 15,998,387 548,229 1,748,991 2,297,220 - 14,201,353 1,119,308 952,928 2,072,236 - 12,129,117 186,731 237,802 424,533 - 11,704,584 Total
  12. CONDENSED INTERIM CASH FLOW STATEMENT (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Note CASH FLOW FROM OPERATING ACTIVITIES Profit before taxa on Less: Dividend income Adjustments: Deprecia on - Property and equipment Deprecia on - Non banking assets acquired in sa sfac on of claims Deprecia on - Right-of-use assets Amor za on Provisions and write offs-net Mark-up expense on lease liability against right-of-use assets Gain on sale of fixed assets 28 (Increase)/decrease in opera ng assets Lendings to financial ins tu ons Held-for-trading securi es Advances Others assets (excluding advance taxa on) Increase/ (decrease) in opera ng liabili es Bills payable Borrowings from financial ins tu ons Deposits Other liabili es Income taxes paid Net cash used in opera ng ac vi es CASH FLOW FROM INVESTING ACTIVITIES Net investments in available-for-sale securi es Net investments in held-to-maturity securi es Dividends received Investments in opera ng fixed assets Proceeds from sale of fixed assets Net cash (used in)/generated from inves ng ac vi es CASH FLOW FROM FINANCING ACTIVITIES Dividend paid Payment against lease liabili es Net cash used in financing ac vi es Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Three months Three months ended ended March 31, 2020 March 31, 2019 ------- Rupees in '000 ------883,588 2,030 881,558 344,638 344,638 71,749 13,276 82,345 9,346 139,908 35,504 (61) 352,067 1,233,625 78,929 13,456 54,128 (203) 146,310 490,948 5,449,156 (101,756) (2,780,050) 409,534 2,976,884 3,798,491 (10,944,593) (2,566,063) (9,712,165) (486,603) 19,458,056 (23,501,323) (4,230,308) (8,760,178) (104,399) (4,654,068) (190,286) (2,534,626) 464,386 2,521,001 260,475 (31,288) (8,992,030) (2,945,402) 1,907,431 2,030 (62,850) 61 (1,098,730) 4,330,249 63,560 (63,063) 238 4,330,983 (85,021) (85,021) (27) (27) (5,837,819) 20,367,877 14,530,058 (4,661,074) 16,056,813 11,395,739 The annexed notes 1 to 37 form an integral part of these financial informa on. ________________ Managing Director _____________________ Chief Financial Officer ___________ Director 9 ___________ Director ___________ Director
  13. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 1 STATUS AND NATURE OF BUSINESS The Bank of Khyber ("the Bank") was established under The Bank of Khyber Act, 1991 and is principally engaged in the business of commercial banking and related services. The Bank acquired the status of a scheduled bank in 1994 and is listed on the Pakistan Stock Exchange Limited. The registered office of the Bank is situated at 24-The Mall, Peshawar Can , Peshawar and it has been temporarily shi ed to 1st Floor, State Life Building, 34 - The Mall, Peshawar Can . The Bank operates 169 branches including 84 Islamic banking branches (2019: 169 branches including 84 Islamic banking branches). The long term credit ra ngs of the Bank assigned by The Pakistan Credit Ra ng Agency Limited (PACRA) and JCR-VIS are 'A' and 'A' respec vely and the short-term credit ra ngs assigned are 'A-1' (A-One) and 'A-1' (A-One) respec vely. 2 BASIS OF PRESENTATION 2.1 In accordance with the direc ves of the Federal Government regarding the shi ing of the banking system to Islamic modes, the State Bank of Pakistan (SBP) has issued various circulars from me to me. Permissible forms of trade-related modes of financing include purchase of goods by the banks from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under the respec ve arrangements (except for Murabaha financings accounted for under Islamic Financial Accoun ng Standard - 1 "Murabaha") are not reflected in this condensed interim financial informa on as such, but are restricted to the amount of facility actually u lized and the appropriate por on of mark-up in price thereon. However, the Islamic banking branches of the Bank have complied with the requirements as set out in the Islamic Financial Accoun ng Standards (IFAS) issued by the Ins tute of Chartered Accountants of Pakistan and no fied under the provisions of Companies Act, 2017. 2.2 The financial results of the Islamic Banking Group have been included in this condensed interim financial informa on for repor ng purpose, a er elimina ng the effects of inter-branch transac ons and balances. Key financial figures of the Islamic Banking Group are disclosed in note 35 to these financial informa on. 2.3 This condensed interim financial informa on has been presented in Pakistani Rupee, which is the Bank's func onal and presenta on currency. The figures have been rounded off to the nearest thousand rupees, unless otherwise stated. 2.4 The disclosures made in this condensed interim financial informa on have been limited based on the format prescribed by the State Bank of Pakistan (SBP) vide BPRD Circular No. 05 dated March 22, 2019 and Interna onal Accoun ng Standard 34, Interim Financial Repor ng. They do not include all disclosures required for annual financial statements and this condensed interim financial informa on should be read in conjunc on with the financial statements of the Bank for the year ended December 31, 2019. 2.5 In this condensed interim financial informa on, investments in associates are reported on the basis of direct equity interest and are not consolidated or accounted for by using the equity method of accoun ng. 3 STATEMENT OF COMPLIANCE 3.1 These condensed interim financial statements have been prepared in accordance with the accoun ng and repor ng standards as applicable in Pakistan for interim financial repor ng. The accoun ng and repor ng standards as applicable in Pakistan for interim financial repor ng comprise of: - Interna onal Accoun ng Standard (IAS) 34, Interim Financial Repor ng, issued by the Interna onal Accoun ng Standards Board (IASB) as no fied under the Companies Act, 2017; - Islamic Financial Accoun ng Standards (IFAS) issued by the Ins tute of Chartered Accountants of Pakistan as are no fied under the Companies Act, 2017; - Provisions of and direc ves issued under the Banking Companies Ordinance, 1962 and the Companies Act, 2017; and - Direc ves issued by the State Bank of Pakistan (SBP) and the Securi es and Exchange Commission of Pakistan (SECP). Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 or the direc ves issued by the SBP and the SECP differ with the requirements of IAS 34 or IFAS, the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said direc ves, shall prevail. 3.2 The SBP, vide BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of Interna onal Accoun ng Standard 39, Financial Instruments: Recogni on and Measurement and Interna onal Accoun ng Standard 40, Investment Property for banking companies ll further instruc ons. Further, according to a no fica on of SECP issued vide SRO 411 (I)/2008 dated April 28, 2008, IFRS 7 "Financial Instruments: Disclosure" has not been made applicable for banks. Moreover SBP vide BPRD circular No. 4, dated February 25, 2015 has deferred the applicability of Islamic Financial Accoun ng Standard (IFAS) 3, Profit and Loss Sharing on Deposits. Accordingly, the requirements of these standards have not been considered in the prepara on of these financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by SBP through its various circulars. 3.3 SECP vide its no fica on SRO 633 (I)/2014 dated July 10, 2014, adopted IFRS-10, Consolidated Financial Statements, effec ve from the periods star ng from June 30, 2014. However, vide its no fica on SRO 56 (I)/2016 dated January 28, 2016, it has been no fied that the requirements of IFRS-10 and sec on 228 of the Companies Act, 2017 will not be applicable with respect to the investment in mutual funds established under Trust structure. 10
  14. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 4 BASIS OF MEASUREMENT Accoun ng conven on These financial statements have been prepared under the historical cost conven on except that certain opera ng fixed assets are stated at revalued amounts, certain investments and deriva ve financial instruments are stated at fair value and the recogni on of certain employees benefits at present value, as disclosed in their respec ve notes. 5 SIGNIFICANT ACCOUNTING POLICIES, ESTIMATES AND JUDGEMENTS AND FINANCIAL RISK MANAGEMENT POLICIES 5.1 Significant Accoun ng Policies The accoun ng policies, underlying es mates and judgments and method of computa on followed in the prepara on of these condensed interim financial statements are same as those applied in preparing the most recent annual financial statements of the Bank for the year ended December 31, 2019. 5.2 Standards, interpreta ons and amendments to approved accoun ng standards that are effec ve in the current period There are certain new and amended standards, interpreta ons and amendments that are mandatory for the Bank's current accoun ng period but are considered not to be relevant or do not have any significant effect on the Bank's opera ons. These include: IAS 1 - Presenta on of Financial Statements (Amendments) IAS 8 - Accoun ng Policies, Changes in Accoun ng Es mates and Errors (Amendments) IFRS 3 - Defini on of a Business (Amendments) 5.2.1 Amendments to lAS 1 & IAS 8 - Amendments to IAS 1 "Presenta on of Financial Statements" and lAS 8 "Accoun ng Policies, Changes in Accoun ng Es mates and Errors".The amendments are intended to make the defini on of material in lAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. In addi on, the IASB has also issued guidance on how to make materiality judgments when preparing their general purpose financial statements in accordance with IFRS. 5.3 Standards, interpreta ons and amendments to approved accoun ng standards that are not yet effec ve The following IFRS as no fied under the Companies Act, 2017 and the amendments and interpreta ons thereto will be effec ve for accoun ng periods beginning on or a er January 01, 2021: - IFRS 9 'Financial Instruments' - SBP vide its BPRD Circular No. 04 of 2019 dated October 23, 2019 directed the banks in Pakistan to implement IFRS 9 with effect from January 01, 2021. IFRS 9 replaces the exis ng guidance in lAS 39 Financial Instruments: Recogni on and Measurement. IFRS 9 includes revised guidance on the classifica on and measurement of financial instruments, a new expected credit loss model for calcula ng impairment on financial assets, and new general hedge accoun ng requirements. It also carries forward the guidance on recogni on and derecogni on of financial instruments from lAS 39. The impact of the applica on of IFRS 9 on the Bank's financial statements is being assessed. -SBP vide BPRD Circular No. 15 of 2020 dated March 26, 2020 has deferred parallel run of IFRS 9 ll July 01,2020 which was previously star ng from January 01,2020 and has also deferred the submission of IFRS 9 compa ble proforma financial statements for the year ended December 31,2019 ll August 31,2020 which was previously due by April 30,2020. Furthermore, following new standards have been issued by IASB which are yet to be no fied by SECP for the purpose of applicability in Pakistan. IASB effec ve date (annual periods beginning on or a er) IFRS 1 - First me adop on of lFRSs January 01, 2014 IFRS 17 - Insurance Contracts January 01, 2021 5.4 Except for IFRS 9,the bank expects that adop on of amendments to exis ng accoun ng and repor ng standards will not affect its financial statements in the period of ini al applica on. Cri cal accoun ng es mates and judgments The basis for accoun ng es mates adopted in the prepara on of this condensed interim financial informa on are the same as that applied in the prepara on of the financial statements for the year ended December 31, 2019. 11
  15. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 5.5 Financial risk management The financial risk management objec ves and policies adopted by the Bank are consistent with those disclosed in the most recent financial statements of the Bank for the year ended December 31, 2019 except for following addi onal considera ons narrated below. Regulatory Reliefs due to COVID-19 The COVID – 19 pandemic has taken a toll on all economies and emerged as a contagion risk around the globe, including Pakistan. To counter it’s impact on businesses and economies, regulators /governments have introduced an host of measures on both the fiscal and economic fronts. The State Bank of Pakistan (SBP) has also responded to the crisis by reducing the Policy Rate by 225 basis points to 11% in March 2020 and by another 200 basis points to 9% on April 16, 2020. Besides, numerous other regulatory measures have been announced by the SBP to support business and economic ac vity which include, inter-alia, the following: • Allowing banks to defer borrowers’ principal loan payments by one year; • Relaxing regulatory criteria for restructured/rescheduled loans for borrowers who require relief on account of principal repayment exceeding one year and / or mark-up. • Relaxing the debt burden ra o for consumer loans from 50% to 60%; • Reduc on in the capital conserva on buffer by 100 basis points to 1.5%; • Increasing the regulatory limit on extension of credit to SMEs to Rs.180 million; • Providing concessionary refinance facili es to Hospitals for financing equipment; • To control unemployment, offered refinance facili es to customers for mee ng their salary expense; and • Besides, various other steps have been announced to dampen the effects of Covid-19. COVID-19 is likely to impact banks in Pakistan on many fronts. This includes significant increase in overall credit risk and contrac on of fee income due to overall slowdown in economic ac vity. Furthermore, since significant number of bank’s staff is working from home, there is increased opera onal risk in respect of business opera ons including enhanced cyber-security threat as increased number of customers are diver ng to meet their banking needs through digital channels. 5.5.1 Credit Risk Management The Risk Management func on of the Bank is regularly conduc ng assessments of the credit por olio to iden fy borrowers most likely to get affected due to changes in the business and economic environment. The Bank has further strengthened its credit review procedures in the light of COVID-19. The Bank is con nuously reviewing the por olio, to iden fy accounts suscep ble to higher risk, resul ng from the COVID-19 outbreak. Banks Management intends to create a buffer against unforeseen loan losses and preserve the quality of the Credit por olio. 5.5.2 Liquidity Risk Management In view of the relaxa on granted by SBP for deferral of principal and rescheduling of loans there will be an impact on the maturity profile of the Bank. The Asset and Liability Commi ee (ALCO) of the Bank is con nuously monitoring the liquidity posi on 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. 5.5.3 Opera onal Risk Management The Bank is closely monitoring the situa on and has invoked required ac ons to ensure the Health and safety of Bank staff alongside uninterrupted service to customers. The senior management of the Bank is con nuously monitoring the situa on in order to take mely decisions. Business Con nuity Plans (BCP) for respec ve areas are in place and tested. The Bank has enhanced monitoring of cybersecurity risks during these mes. The remote work capabili es were enabled for staff, where required, and related risk and control measures were assessed to ensure that the Bank’s informa on assets are protected from emerging cyber threats and comply with the regulatory protocols required under the circumstances. The Bank is communica ng with its customers on how they can avail the services from its digital/online channels also. Bank staff is working relessly to ensure that service levels are maintained, customer complaints are resolved and turnaround mes are monitored so that the Bank con nues to meet the expecta ons of all stakeholders. 5.5.4 Capital Adequacy Ra o(CAR) In order to encourage banks to con nue lending despite an cipated pressure on profits, credit risk and liquidity, the SBP has relaxed the Capital Conserva on Buffer (CCB) requirements to 1.5%, resul ng in a 1% decline in CAR requirements for all Tiers. 12
  16. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 March 31, December 31, 2020 2019 Rupees in '000 6 CASH AND BALANCES WITH TREASURY BANKS In hand Local currency Foreign currency With State Bank of Pakistan in Local currency current account Foreign currency current account Foreign currency deposit account With Na onal Bank of Pakistan in Local currency current account Local currency deposit account Foreign currency deposit account Prize bonds 7 2,157,981 356,957 2,514,938 7,008,680 55,098 100,066 7,163,844 5,894,936 42,353 90,458 6,027,747 497,571 634 425 498,630 2,075 571,912 3,002,591 13,385 3,587,888 7,232 11,230,795 12,137,805 1,368,968 402,950 1,771,918 2,427,921 4,683,413 7,111,334 289,334 1,248,039 1,537,373 (10,028) 935,782 192,984 1,128,766 (10,028) 3,299,263 8,230,072 1,500,000 4,914,294 2,238,944 8,653,238 (238,944) 8,414,294 9,032,102 2,831,347 2,238,944 14,102,393 (238,944) 13,863,449 BALANCES WITH OTHER BANKS In Pakistan In current account In deposit account Outside Pakistan In current account In deposit account Provision for doub ul placement with the bank 8 3,451,717 114,529 3,566,246 LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings Repurchase agreement lendings (Reverse Repo) Bai Muajjal receivable with State Bank of Pakistan Placements with financial ins tu ons Less: provision held against lending to financial ins tu ons Lending to financial ins tu ons - net of provision 13
  17. 14 9 .2 Investments by type: 9.1 151,185,040 40,504 16,183,798 16,183,798 128,083,428 920,171 5,839,884 134,843,483 100,072 17,183 117,255 Cost/ amor zed cost (742,125) - - (566,126) (175,999) (742,125) - 298,669 - - 273,157 25,537 (25) 298,669 - Cost/ 150,741,584 40,504 16,183,798 16,183,798 128,356,585 379,582 5,663,860 134,400,027 100,072 17,183 117,255 150,045,313 40,504 18,091,229 18,091,229 125,258,844 784,753 5,854,484 131,898,081 15,499 15,499 amor zed cost (742,125) - (566,126) (175,999) (742,125) - Provision for diminu on 238,944 - - 146,911,102 40,504 18,091,229 18,091,229 122,780,072 311,313 5,672,485 128,763,870 15,499 15,499 Carrying value 238,944 - - March 31, December 31, 2020 2019 Rupees in '000 42,175,253 58,760,128 24,667,217 29,191,565 66,842,470 87,951,693 (2,392,086) - - (2,478,772) 92,686 (6,000) (2,392,086) - Surplus / (deficit) December 31,2019 238,944 - 238,944 - - 238,944 238,944 238,944 238,944 December 31,2019 Provision held Classified lending Rupees in '000 238,944 238,944 - 238,944 238,944 Provision held March 31,2020 Classified lending Rupees in '000 Surplus / (deficit) Carrying value March 31,2020 Provision for diminu on These represent the market values of securi es at year end. Market Treasury Bills Pakistan Investment Bonds Investments given as collateral Total Associate Held-to-maturity securi es Federal Government Securi es Available-for-sale securi es Federal Government Securi es Shares Non Government Debt Securi es Held for trading securi es Federal Government Securi es Shares INVESTMENTS Total Overseas Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days ˃ 365 days Domes c Loss Category of classifica on 9 8.1 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  18. 15 9 .5 9.4 9.3 Provision for diminu on in value of investments 175,999 - 175,999 - 175,999 175,999 Provision Rupees in '000 - 175,999 175,999 NPI March 31, 2020 The market value of securi es classified as held-to-maturity amounted to Rs. 15,716 million as at March 31, 2020 (December 31, 2019: Rs. 17,036 million). Total Overseas Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days ˃ 365 days Domes c Other assets especially men oned Substandard Doub ul Loss Category of classifica on Par culars of provision against debt securi es Closing balance Charge / reversals Charge for the year Reversals for the year Reversal on disposals Opening balance 742,125 (99,880) (99,880) 842,005 175,999 - - 175,999 175,999 175,999 - - 175,999 175,999 December 31, 2019 NPI Provision 742,125 - 742,125 March 31, December 31, 2020 2019 Rupees in '000 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  19. 16 Advances - net of provision Loans , cash credits, running finances, etc. Islamic financing and related assets Bills discounted and purchased Advances - gross Provision against advances - Specific - General ADVANCES 63,059,355 45,669,716 220,363 108,949,434 43,675 43,675 108,905,759 63,223,580 46,891,691 1,650,791 111,766,062 198,678 198,678 111,567,384 Performing March 31, December 31, 2020 2019 4,175,090 4,175,090 815,050 4,190,185 4,190,185 836,533 Non performing March 31, December 31, 2020 2019 Rupees in '000 4,513,754 4,546,955 256,756 260,133 219,630 219,630 4,990,140 5,026,718 4,190,185 43,675 4,233,860 109,742,292 116,756,202 116,756,202 113,976,152 113,976,152 March 31, December 31, 2020 2019 Rupees in '000 4,175,090 198,678 4,373,768 112,382,434 67,606,310 45,929,849 439,993 113,976,152 Total December 31, 2019 67,737,334 47,148,447 1,870,421 116,756,202 March 31, 2020 10.2 Advances include Rs. 4,990.140 million (December 31,2019: Rs. 5,026.718 million) which have been placed under non-performing status as detailed below:March 31, 2020 December 31,2019 Non Non Category of classifica on performing Provision performing Provision loans loans Rupees in '000 Domes c Other assets especially men oned 20,756 31,358 Substandard 64,178 4,263 96,415 3,676 Doub ul 217,739 27,251 220,469 22,501 Loss 4,687,467 4,143,576 4,678,476 4,164,008 4,990,140 4,175,090 5,026,718 4,190,185 Overseas Not past due but impaired Overdue by: Upto 90 days 91 to 180 days 181 to 365 days ˃ 365 days Total 4,990,140 4,175,090 5,026,718 4,190,185 In local currency In foreign currency 10.1 Par culars of advances (gross) 10 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  20. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 March 31,2020 10.3 Par culars of provision against advances Opening balance Charge for the year Reversals Amounts wri en off Closing balance Specific 4,190,185 24,825 (39,920) (15,095) 4,175,090 General 43,675 155,738 (735) 155,003 198,678 December 31,2019 Total Specific Rupees in '000 4,233,860 4,119,221 180,563 404,232 (40,655) (333,268) 139,908 70,964 4,373,768 4,190,185 General 35,851 7,824 7,824 43,675 Total 4,155,072 412,056 (333,268) 78,788 4,233,860 10.3.1 General provision represents provision against customer advances, it also includes provision against consumer finance por olio as required by the Pruden al Regula ons issued by the SBP. 10.3.2 State Bank of Pakistan through BSD Circular No.1 dated October 21, 2011 has allowed benefit of the forced sales value (FSV) of plant & machinery under charge, pledged stocks & mortgaged residen al, commercial and industrial proper es (land and building only) held as collateral against Non-Performing Loans (NPLs) for a maximum of five years from the date of classifica on. As at March 31, 2020 the Bank has availed cumula ve benefit of forced sale values of Rs. 584.735 million (2019: Rs. 572.478 million). Increase in unappropriated profit net of tax amoun ng to Rs. 380.08 million (2019: Rs. 372.11 million) is not available for the distribu on of cash or stock dividend to shareholders or bonus to employees. 10.3.3 Certain customers have formally approached SBP under COVID 19 Relief scheme for restructuring and deferment. Accordingly, such customers have been categorized as regular in conformity with the relief afforded by the SBP in this respect. Note 11 FIXED ASSETS Capital work-in-progress Property and equipment Right of use assets 11.1 11.1 552,499 1,698,820 989,601 3,240,920 503,430 1,759,294 1,071,946 3,334,670 368,229 8,652 175,618 552,499 389,264 8,080 106,086 503,430 Capital work-in-progress Civil works Equipments Advances to suppliers 11.2 March 31, December 31, 2020 2019 Rupees in '000 ADDITIONS TO FIXED ASSETS Following addi ons have been made to fixed assets during the period ended March 31, 2020: March 31, December 31, 2020 2019 Rs in '000 Capital work-in-progress 49,069 211,783 Property and equipment Renova on Furniture and fixture Electrical office and computer equipment Vehicles Books 17 4,967 414 5,888 11,269 44,947 10,264 96,641 121 39 152,012 60,338 363,795
  21. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 11.3 DISPOSALS OF FIXED ASSETS The net book value of fixed assets disposed off during the period ended March 31, 2020 is as follows: March 31, December 31, 2020 2019 Rs in '000 87 73 160 Furniture and fixture Electrical office and computer equipment Renova on 12 INTANGIBLE ASSETS Capital work in progress Licenses and computer so wares 227,982 51,439 279,421 226,693 59,562 286,255 12.1 Addi ons to intangible assets Following addi ons have been made to intangible assets during the period ended March 31, 2020: March 31, December 31, 2020 2019 Rs in '000 1,223 32,461 Directly purchased 13 DEFERRED TAX ASSET / (LIABILITY) - NET Deferred tax asset arising in respect of: Provision for balances with other banks Provision for diminu on in value of investments Provision for other assets Accelerated tax deprecia on Islamic Pool Management reserve Deficit on revalua on of investments Provision against loans and advances - net Deferred tax liability arising in respect of: Surplus on revalua on of investments 18 3,510 43,023 3,448 96,243 49,560 56,533 252,317 3,510 43,023 3,448 85,276 47,810 837,233 10,854 1,031,154 (104,531) 147,786 1,031,154
  22. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Note 14 OTHER ASSETS Income/ mark-up accrued in local currency Profit receivable on Bai Muajjal Advances, deposits and prepayments Advance taxa on (payments less provisions) Branch adjustment account Pre-IPO investment Sta onary and stamps on hand Assets acquired in sa sfac on of claims Mark to market gain on forward foreign exchange contracts Employees benefits Others 14.1 Less: Provision held against other assets Total March 31, December 31, 2020 2019 Rs in '000 5,559,004 2,540,079 67,123 600,000 40,468 356,063 607,288 388,700 109,365 10,268,090 (144,426) 10,123,664 5,875,454 2,833,733 51,940 235,255 280,825 600,000 36,590 369,339 88,606 407,700 133,437 10,912,879 (144,426) 10,768,453 14.1 Provision held against other assets Advances for Pre-IPO Others 15 100,000 44,426 144,426 685,552 685,552 1,172,155 1,172,155 3,210,831 1,792,321 88,484 5,091,636 3,165,914 1,531,984 75,966 4,773,864 29,576,224 69,746,657 99,322,881 26,668,034 60,714,563 87,382,597 BILLS PAYABLE In Pakistan Outside Pakistan 16 100,000 44,426 144,426 BORROWINGS Secured Borrowings from State Bank of Pakistan (SBP) Under export refinance scheme Due to SBP LTFF Due to SBP-Livestock Dairy Bai Muajjal Borrowing Repurchase agreement borrowings Unsecured Call borrowings Total 19 9,700,000 2,500,000 114,114,517 94,656,461
  23. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 17 DEPOSITS AND OTHER ACCOUNTS December 31,2019 March 31,2020 In local currency In foreign currency Total In local currency In foreign currency Total Rupees in '000 Customers Current deposits Saving deposits Term deposits Others Financial Ins tu ons Current deposits Saving deposits 18 33,362,488 76,508,681 38,357,107 10,016,968 158,245,244 354,347 54,195 408,542 33,716,835 76,562,876 38,357,107 10,016,968 158,653,786 34,537,778 69,985,691 67,682,671 8,319,314 180,525,454 349,580 215,904 565,484 34,887,358 70,201,595 67,682,671 8,319,314 181,090,938 881 11,582 12,463 158,257,707 408,542 881 11,582 12,463 158,666,249 114,724 961,910 1,076,634 181,602,088 565,484 114,724 961,910 1,076,634 182,167,572 March 31, December 31, 2020 2019 Rupees in '000 OTHER LIABILITIES Mark-up/ return/ interest payable in local currency Mark-up/ return/ interest payable in foreign currency Unearned income - Bai Muajjal Sukuk Lease liability against right-of-use assets Unearned commission and income on bills discounted Deferred income on government schemes Deferred income murabaha Income reserve Islamic pool management reserves Accrued expenses Unclaimed dividends Final cash dividend for the year 2019 Share subscrip on money refund Reten on money Bills payment system over the counter (BPS-OTC) Mark up in suspense Charity fund Security deposits against ijarah Branch adjustment account Tax payable Mark to market loss on forward foreign exchange contracts Others 19 SURPLUS / (DEFICIT) ON REVALUATION OF ASSETS Surplus/(Deficit) on revalua on of - Available for sale (AFS) securi es - Deferred tax on AFS securi es 5,067,347 128 1,634,924 1,041,231 59,359 29,270 141,983 14,174 141,602 128,230 29,002 500,186 1,091 27,740 96,925 38,929 26,165 317,599 348,527 54,103 552,263 144,677 10,395,456 298,669 (104,531) 194,138 774,183 968,321 - Fixed assets 20 9,374,207 555 1,872,952 1,090,747 68,810 33,790 151,809 14,009 136,602 210,364 29,003 1,091 25,164 442,718 38,927 21,593 345,116 162,430 87,824 14,107,711 (2,392,086) 837,233 (1,554,853) 774,183 (780,670)
  24. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 20 CONTINGENCIES AND COMMITMENTS Note -Guarantees -Commitments 20.1 20.1 20.2 Guarantees: Financial guarantees Performance guarantees Other guarantees 20.2 Commitments in respect of: - Forward government securi es transac ons - forward foreign exchange contracts Commitments for acquisi on of: - opera ng fixed assets - intangible assets 20.4 20.3 20.4 Commitments in respect of forward government securi es transac ons Forward purchase - Pakistan Investment Bonds (PIBs) 2,030,105 12,820,129 204,271 15,054,505 6,428,231 6,920,481 26,082,967 10,000,000 19,026,323 500,553 341,040 416,496 318,915 33,352,791 36,682,215 - 10,000,000 10,000,000 12,459,562 13,623,405 26,082,967 9,069,099 9,957,224 19,026,323 Commitments in respect of forward foreign exchange contracts Purchase Sale 20.5 20.6 1,720,375 13,437,502 203,600 15,361,477 Commitments: Documentary credits and short-term trade-related transac ons - le ers of credit 20.3 March 31, December 31, 2020 2019 Rs in '000 15,361,477 15,054,505 33,352,791 36,682,215 48,714,268 51,736,720 The income tax assessments of the Bank have been finalized up to tax year 2019. During financial year 2011, the tax authori es issued an amended order for the tax year 2009 disallowing certain expenditure on account of lack of evidence for such expenditure resul ng in an addi onal tax demand of Rs. 308.900 million. The Bank filed an appeal as well as rec fica on applica on against the said order. Based on rec fica on applica on, the order was amended and accordingly the addi onal demand was reduced to Rs. 256.349 million. During 2012, the Commissioner Inland Revenue (Appeals) [CIR (A)] through an order dated June 01, 2012 has deleted certain addi ons on account of disallowances except for the addi ons under certain heads of expenses having tax impact of approximately Rs. 23 million. The Bank had filed an appeal against the order of the Appellate Tribunal Inland Revenue (ATIR) in respect of remaining addi ons which also decided in favor of the Bank. Subsequently, CIR went in to appeal in Peshawar High Court. The management is confident that ma er will be decided in Bank's favor. 21
  25. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Note 21 MARK-UP/RETURN/INTEREST EARNED On: a) b) c) d) 22 Loans and advances Investments Balances with banks Lendings to Financial Ins tu ons 25 3,935,716 2,508,974 6,444,690 3,076,616 505,692 3,582,308 8,585 1,295 11,291 15,263 5,978 2,449 30,586 36 4,075 995 80,553 9,289 1,769 8,781 15,573 3,262 1,718 41,074 4,174 3,501 89,141 358,312 3,536 361,848 5,554 5,554 362,711 (4,399) 358,312 5,554 26,816 762 61 391 1,848 29,878 20,151 6,651 204 1,579 5,361 33,946 (LOSS)/GAIN ON SECURITIES Realised Unrealised 24.1 2,604,539 2,004,912 8,962 245,678 4,864,091 FEE AND COMMISSION INCOME Branch banking customer fees Consumer finance related fees Debit card related fees Credit card related fees Investment banking fees Commission on trade Commission on guarantees Commission on cash management Commission on remi ances including home remi ances Others 24 3,769,704 3,844,707 76,915 242,159 7,933,485 MARK-UP/RETURN/INTEREST EXPENSED Deposits Borrowings 23 For the three months ended March 31, March 31, 2020 2019 Rupees in '000 24.1 Realised (loss) / gain on: Federal Government Securi es Shares 5,554 OTHER INCOME Postal, Swi and other services Rent on property Gain on sale fixed assets Service income on Government schemes Rebate from financial ins tu ons 22
  26. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 For the three months ended Note 26 OPERATING EXPENSES Total compensa on expense Property expense Rent & taxes U li es cost Security (including guards) Repair & Maintenance Deprecia on - Right of use assets Deprecia on - Non banking assets acquired in sa sfac on of claims Deprecia on 27.1 27.1 Informa on technology expenses So ware maintenance Hardware maintenance Deprecia on Amor za on Network charges ATM charges Other opera ng expenses Directors' fees and allowances Fees and allowances to Shariah Board Outsourced service cost Legal and professional charges Travelling & conveyance Cash Carriage Charges NIFT clearing charges Deprecia on Communica on Postage & courier charges Sta onery and prin ng Adver sement and publicity Repair and maintenance Insurance Expense Auditors remunera ons Brokerage & Commission Rent & Taxes Entertainment News papers and periodicals Training & Development Fees & Subscrip on Deposit Protec on Premium Others 23 March 31, March 31, 2020 2019 Rupees in '000 568,685 569,007 266 34,750 36,924 788 82,345 95,361 29,376 33,027 830 - 13,276 33,972 202,321 36,525 195,119 25,078 5,309 30,697 9,346 7,984 24,372 102,786 4,839 4,290 35,125 13,456 1,875 22,861 82,446 2,395 10 23,801 11,538 20,754 9,227 3,969 7,080 13,265 4,552 13,233 15,127 4,269 10,890 4,898 12,048 494 7,641 535 4,458 478 14,139 8,880 193,681 1,067,473 4,033 226 21,768 8,439 19,599 9,879 2,986 7,279 17,343 4,636 15,296 12,827 3,878 9,724 2,890 5,500 385 7,560 503 3,975 1,000 20,418 7,035 187,179 1,033,751
  27. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Note 27 OTHER CHARGES Penal es imposed by State Bank of Pakistan Others - mark-up expense on lease liability against right-of-use assets 27.1 28 12,802 27.1 35,504 48,306 90 90 The Bank has adopted IFRS 16, Leases while preparing its annual financial statements for the year ended December 31, 2019. However, for the compara ve period presented in these condensed interim financial statements, the State Bank of Pakistan (SBP) vide its BPRD Circular No.08 of 2019 dated April 30, 2019 had deferred the adop on of IFRS 16 par cularly for that period. Therefore the condensed interim financial statements for the three months ended March 31, 2019 did not include the impact of adop on of this standard. PROVISIONS & WRITE OFFS - NET Provisions / (reversal) for diminu on in value of investments Provisions against loans & advances 29 For the three months ended March 31, March 31, 2020 2019 Rupees in '000 9.3 10.3 139,908 139,908 54,128 54,128 TAXATION Current Deferred 29.1 30 393,755 134,409 (58,396) 23,498 335,359 157,907 Includes super tax, levied through Finance Act, 2020, at the rate of 4% on the taxable income for the period ended March 31, 2020. BASIC & DILUTED EARNING PER SHARE Profit for the period - Rupees Weighted average number of ordinary shares Basic earnings per share - rupee/share 24 548,228,932 186,730,590 1,000,252,485 1,000,252,485 0.55 0.19
  28. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 31 FAIR VALUE MEASUREMENTS The fair value of quoted investments other than those classified as held to maturity is based on quoted market prices. The fair value of unquoted equity investments is determined on the basis of break-up value of these investments as per their latest available audited financial statements. The fair value of fixed term loans, other assets, other liabili es and fixed term deposits cannot be calculated with sufficient reliability due to the absence of current and ac ve market for these assets and liabili es 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 accoun ng policy. In the opinion of the management, the fair value of the remaining financial assets and liabili es are not significantly different from their carrying values since assets and liabili es are either short-term in nature or in the case of customer loans and deposits, are frequently re-priced. 31.1 Fair value of financial assets The Bank 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 ac ve markets for iden cal assets or liabili es. 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). 25
  29. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Level 1 31.2 On balance sheet financial instruments Financial assets - measured at fair value Investments Federal Government Securi es Shares Term Finance Cer ficates 340,507 - March 31,2020 (Un-audited) Level 2 Level 3 Rupees in '000 Total 128,456,657 1,381,975 - 128,456,657 340,507 1,381,975 Financial assets - disclosed but not measured at fair value Investments Federal Government Securi es Shares Non-Government Debt Securi es Associates - 16,183,798 56,258 4,281,886 40,504 - 16,183,798 56,258 4,281,886 40,504 Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange - 12,459,562 13,623,405 - 12,459,562 13,623,405 Level 1 On balance sheet financial instruments December 31,2019 (Audited) Level 2 Level 3 Rupees in '000 Total Financial assets measured at fair value Available-for-sale securi es - Federal Government Securi es - Shares in listed companies - Term Finance Cer ficates (TFCs) 270,554 - 116,391,361 1,376,000 - 116,391,361 270,554 1,376,000 Financial assets - disclosed but not measured at fair value Investments Federal Government Securi es Shares Non-Government Debt Securi es Associates - 24,479,940 56,258 4,296,485 40,504 - 24,479,940 56,258 4,296,485 40,504 Off-balance sheet financial instruments - measured at fair value Forward purchase of foreign exchange Forward sale of foreign exchange - 9,069,099 9,957,224 - 9,069,099 9,957,224 The valua on techniques used for above assets are same as disclosed in the most recent annual financial statements. The Bank measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. (a) Financial instruments in level 1 Financial instruments included in level 1 comprise of investments in listed ordinary shares. (b) Financial instruments in level 2 Financial instruments included in level 2 comprise of Sukuks Bonds, Pakistan Investment Bonds, Market Treasury Bills, Term Finance cer ficates, FX op ons and Forward Exchange Contracts. 26
  30. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 (c) Financial instruments in level 3 Currently, no financial instruments are classified in level 3. Valua on techniques and inputs used in determina on of fair values within level 1 Fully paid-up ordinary shares Fair values of investments in listed equity securi es are valued on the basis of closing quoted market prices available at the Pakistan Stock Exchange. Valua on techniques and inputs used in determina on of fair values within level 2 Pakistan Investment Bonds / Market Treasury Bills Fair values of Pakistan Investment Bonds and Treasury Bills are derived using the PKRV rates (Reuters page). Government of Pakistan (GoP) - Ijarah Sukuks Fair values of GoP Ijarah Sukuks are derived using the PKISRV rates announced by the Financial Market Associa on (FMA) through Reuters. These rates denote an average of quotes received from eight different pre-defined / approved dealers / brokers. Term Finance, Bonds and Sukuk cer ficates Investments in debt securi es (comprising term finance cer ficates, bonds, Sukuk cer ficates 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 Associa on of Pakistan (MUFAP) in accordance with the methodology prescribed by the Securi es and Exchange Commission of Pakistan. In the determina on of the rates, the MUFAP takes into account the holding pa ern of these securi es and categorises these as traded, thinly traded and non-traded securi es. Valua on techniques and inputs used in determina on of fair values within level 3 Opera ng fixed assets (Leasehold land) Leasehold land are revalued on regular basis using professional valuers on the panel of Pakistan Banker's Associa on. The valua on is based on their assessment of market value of the proper es. 27
  31. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 32 SEGMENT INFORMATION 32.1 Segment details with respect to business ac vi es Corporate Finance Profit and loss Net mark-up/return/profit Non mark-up / return / interest income Total income Segment direct expenses Total expenses Provisions / (reversals) Profit before tax For the three months ended March 31,2020 (Un-audited) Trading and Commercial Retail Banking Sales Banking ------------------------------ Rupees in 000 ------------------------------ (47,612) 33,971 (13,641) 370,083 370,083 (433,243) 49,519 1,654,807 508,124 2,162,931 47,471 47,471 2,302,788 (187,328) (277,752) 94,300 (183,452) 171,838 171,838 (611,168) 255,878 159,352 14,085 173,437 526,387 526,387 (1,118,469) 765,519 Total 1,488,795 650,480 2,139,275 1,115,779 1,115,779 139,908 883,588 As at March 31,2020 (Un-audited) Balance sheet Cash and bank balances Lendings to financial ins tu ons Investments Advances - performing Advances - non performing Opera ng fixed assets/intangible assets Deferred tax assets Others Total assets 5,387,926 13,546,197 71,133,255 263,510 95,737 6,249,098 96,675,723 1,945,588 8,414,294 137,195,387 7,953,194 1,755,876 810,098 158,074,437 6,660,762 4,449,602 58,329 452,412 11,621,105 535,782 23,856,243 2,912,425 3,520,341 52,049 2,612,056 33,488,896 Bills payable Borrowings Deposits and other accounts Others Total liabili es Equity Total equity and liabili es 95,199,749 3,133,799 98,333,548 (1,657,828) 96,675,720 109,022,880 5,293,131 114,316,011 43,758,428 158,074,439 685,552 31,733,250 394,998 32,813,800 (21,192,694) 11,621,106 5,091,637 31,733,250 1,573,528 38,398,415 (4,909,519) 33,488,896 14,530,058 8,414,294 150,741,584 107,392,294 4,990,140 3,520,341 147,786 10,123,664 299,860,161 685,552 114,114,517 158,666,249 10,395,456 283,861,774 15,998,387 299,860,161 Con ngencies and commitments 16,875,280 19,618,072 5,631,263 6,589,653 48,714,268 For the three months ended March 31,2019 (Un-audited) Corporate Trading and Retail Commercial Finance Sales Banking Banking ------------------------------ Rupees in 000 -----------------------------Profit and loss Net mark-up/return/profit Non mark-up / return / interest income Total Income Segment direct expenses Total expenses Provisions / (reversals) Profit before tax 618,562 77,800 696,362 654,383 41,979 41,979 Balance sheet Cash and bank balances Lendings to financial ins tu ons Investments Advances - performing Advances - non performing Opera ng fixed assets/intangible assets Deferred tax assets Others Total assets 5,894,936 13,546,197 71,792,054 263,510 885,286 5,964,368 98,346,351 (115,839) 33,238 (82,601) 169,420 (252,021) 821 (252,842) 73,470 5,063 78,533 12,168 66,365 7,849 58,516 705,590 34,723 740,313 197,870 542,443 45,458 496,985 Total 1,281,783 150,824 1,432,607 1,033,841 398,766 54,128 344,638 As at December 31,2019 (Audited) 28 4,876,397 13,863,449 133,364,905 7,909,726 1,755,876 26,109 496,990 162,293,452 8,660,762 4,647,170 58,329 3,448 291,879 13,661,588 935,782 20,366,624 2,949,003 3,620,925 116,311 4,015,216 32,003,861 20,367,877 13,863,449 146,911,102 104,715,574 5,026,718 3,620,925 1,031,154 10,768,453 306,305,252
  32. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 Bills payable Borrowings Deposits and other accounts Others Total liabili es Equity Total equity and liabili es 76,510,380 5,925,239 82,435,619 15,910,732 98,346,351 89,882,597 80,299,466 6,218,679 176,400,742 (14,107,290) 162,293,452 Con ngencies and commitments 14,600,793 31,243,663 1,172,155 1,172,155 12,489,433 13,661,588 207,609 4,773,864 25,357,726 1,963,793 32,095,383 (91,522) 32,003,861 1,172,155 94,656,461 182,167,572 14,107,711 292,103,899 14,201,353 306,305,252 5,684,655 51,736,720 32.2 Segment details with respect to geographical loca ons Geographical segment analysis Corporate Finance Profit before tax In Pakistan Outside Pakistan For the three months ended March 31,2020 (Un-audited) Trading and Commercial Retail Banking Sales Banking ------------------------------ Rupees in 000 ------------------------------ 49,519 49,519 (187,328) (187,328) 255,878 255,878 765,519 765,519 Total 883,588 883,588 As at March 31,2020 (Un-audited) Total assets In Pakistan Outside Pakistan 96,675,723 96,675,723 158,074,437 158,074,437 11,621,105 11,621,105 33,488,896 33,488,896 299,860,161 299,860,161 Net assets employed In Pakistan Outside Pakistan Total equity (1,657,828) (1,657,828) 43,758,428 43,758,428 (21,192,694) (21,192,694) (4,909,519) (4,909,519) 15,998,387 15,998,387 Con ngencies and commitments 16,875,280 19,618,072 5,631,263 6,589,653 48,714,268 Corporate Finance Profit before tax In Pakistan Outside Pakistan Total Income For the three months ended March 31,2019 (Un-audited) Trading and Retail Commercial Sales Banking Banking ------------------------------ Rupees in 000 ------------------------------ 41,979 41,979 (252,842) (252,842) 58,516 58,516 496,985 496,985 Total 344,638 344,638 As at December 31,2019 (Audited) Total assets In Pakistan Outside Pakistan Net assets employed In Pakistan Outside Pakistan Con ngencies and commitments 98,346,351 98,346,351 162,293,452 162,293,452 13,661,588 13,661,588 15,910,732 15,910,732 (14,107,290) (14,107,290) 12,489,433 12,489,433 14,600,793 31,243,663 29 207,609 32,003,861 32,003,861 (91,522) (91,522) 5,684,655 306,305,252 306,305,252 14,201,353 14,201,353 51,736,720
  33. 30 33 - Other liabili es Accrued markup - - - Deposits and other accounts Opening balance Received during the period /year Withdrawn during the period/ year Transfer in / (out) - net Closing balance Advances Opening balance Addi on during the period/ year Repaid during the period/ year Transfer in / (out) - net Closing balance 66 25,021 54,341 67,456 (1,040) 10,866 154,626 7,610 26,304 135,932 439 28,659 4,515 1,760 31,414 - - 58,711 2,342,408 84,439 51,616 2,375,231 - - - - - - - As at March 31,2020 (Un-Audited) Key Employee Directors management Associate Directors Funds personnel Rupees in '000 288 24,081 128,446 127,389 (117) 25,021 123,598 39,859 19,112 10,281 154,626 1,718 30,067 39,564 40,972 28,659 - - 58,716 2,185,683 845,046 688,321 2,342,408 - - As at December 31,2019 (Audited) Key management Associate Employee Funds personnel Details of transac ons with related par es during the period/year, other than those which have been disclosed elsewhere in these financial statements are as follows: Banking transac ons with related par es are carried out in the normal course of business at agreed terms. Contribu on to and accruals in respect of staff re rement benefit plan are made in accordance with actuarial valua ons. Remunera on to the execu ves are determined in accordance with terms of their appointments. The Bank has related party rela onship with its majority shareholders (Government of Khyber Pakhtunkhwa and Ismail Industries Limited), associates, directors, key management personnel, staff re rement benefit plan and other related par es. RELATED PARTY TRANSACTIONS NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  34. 31 33 .1 146 23,503 2,405 841 - - 754 - - 71,837 - 4,259 - - 23,553 1,258 4,392 - 842 - - 59,798 - Government of Khyber Pakhtunkhwa (GoKP) holds 70.20% shareholding in the Bank and therefore en es which are owned and / or controlled by the GoKP, or where the GoKP may exercise significant influence, are also related par es of the Bank. The Bank in the ordinary course of its business enters into transac on with various departments of the GoKP and its related en es however, it is imprac cable to disclose these transac ons. Such transac ons include deposits from and provision of other banking services to such departments and en es. Opera ng expenses Income Mark-up / return / interest earned Expense Mark-up / return / interest paid For the three months ended March 31, 2019 (Un-audited) For the three months ended March 31, 2020 (Un-audited) Key Key Employee Directors management Associate Employee Funds Directors management Associate Funds personnel personnel Rupees in '000 NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  35. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 34 CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS March31, December31, 2020 2019 (Un-audited) (Audited) Rupees in '000 Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 10,002,524 10,002,524 Capital Adequacy Ra o (CAR): Eligible common equity er 1 (CET 1) capital Eligible addi onal er 1 (ADT 1) capital Total eligible er 1 capital Eligible er 2 capital Total eligible capital (Tier 1 + Tier 2) 14,205,445 14,205,445 1,050,888 15,256,333 13,204,421 13,204,421 13,204,421 Risk weighted assets (RWAs): Credit risk Market risk Opera onal risk Total 62,766,396 20,221,338 10,642,475 93,630,208 58,970,352 16,711,426 10,642,475 86,324,253 Common equity er 1 capital adequacy ra o Tier 1 capital adequacy ra o Total capital adequacy ra o 15.17% 15.17% 16.29% 15.30% 15.30% 15.30% 6.00% 1.50% 7.50% 10.00% 1.50% 11.50% 6.00% 1.50% 7.50% 10.00% 2.50% 12.50% Na onal minimum capital requirements prescribed by SBP. CET1 minimum ra o ADT-1 minimum ra o Tier 1 minimum ra o Total capital minimum ra o Capital conservaton buffer (CCB- consis ng of CET1 only) Total capital plus CCB Leverage Ra o (LR): Eligible er-1 capital Total exposures Leverage ra o 14,205,445 13,204,421 321,434,611 305,453,822 4.42% 4.32% Liquidity Coverage Ra o (LCR): Total high quality liquid assets Total net cash ou low Liquidity coverage ra o 58,761,731 47,262,379 124.33% Net Stable Funding Ra o (NSFR): Total available stable funding Total required stable funding Net stable funding ra o 60,536,707 48,785,693 124.09% 122,234,000 132,085,894 111,072,000 111,614,902 110% 118.34% 32
  36. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 35 ISLAMIC BANKING BUSINESS The Bank is opera ng 84 (2019: 84) Islamic banking branches and 39 (2019: 39) Islamic banking Windows as at March 31, 2020. Un-Audited Audited Note ASSETS Cash and balances with treasury banks Balances with other banks Due from financial ins tu ons Investments Islamic financing and related assets - net Fixed assets Intangible assets Due from head office Other assets Total Assets 35.1 35.2 35.3 LIABILITIES Bills payable Due to financial ins tu ons Deposits and other accounts Other liabili es Total Liabili es 35.4 NET ASSETS REPRESENTED BY Islamic banking fund Deficit on revalua on of assets Unappropriated profit 35.8 CONTINGENCIES AND COMMITMENTS 35.5 33 March 31, December 31, 2020 2019 Rupees in '000 3,405,917 846,066 2,000,000 11,602,582 46,960,268 560,815 2,821 1,226,245 4,616,076 71,220,790 6,807,574 6,289,995 4,831,347 11,602,166 45,791,558 610,038 3,426 325,575 4,410,288 80,671,967 239,809 10,091,848 51,302,856 3,434,121 65,068,634 285,589 18,891,848 50,079,326 4,937,087 74,193,850 6,152,156 6,478,117 460,000 5,692,156 6,152,156 460,000 (15,000) 6,033,117 6,478,117
  37. NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 The profit and loss account of the Bank's Islamic banking branches for the three months ended March 31, 2020 is as follows: Un-Audited Un-Audited March 31, Note 2020 2019 Rupees in '000 Profit / return earned Profit / return expensed Net profit / return 35.6 35.7 OTHER INCOME Fee and commission income Foreign exchange income Gain on securi es Other income OTHER CHARGES Opera ng expenses Other charges 2,071,445 909,632 1,161,813 1,318,371 484,387 833,984 22,072 87,099 13,928 123,099 1,284,912 20,726 9,277 4,928 13,634 48,565 882,549 490,643 12,958 503,601 781,311 49,887 731,424 285,254 446,170 Profit before provisions Provisions and write offs Profit before taxa on Taxa on Profit a er taxa on 34 374,651 9,064 383,715 498,834 (161) 498,995 194,608 304,387
  38. 35 1 ,320,000 6,388,711 3,893,871 11,602,582 Islamic financing and related assets - net of provision Less: provision against Islamic financings - Specific - General 35.3 Islamic financing and related assets Ijarah Murabaha Diminishing musharaka Running musharka Qarze hasna Is sna Gross Islamic financing and related assets Federal Government Securi es: -GoP ijarah sukuks -Bai Muajjal sukuks Other non-government debt securi es -Power/gas and other sukuks Cost Due from financial ins tu ons Call lendings Bai muajjal receivable from State Bank of Pakistan Placement with other banks 35.2 Investments by segments: 35.1 - Provision for diminu on - Surplus/(Deficit) March 31,2020 2,000,000 2,000,000 In local currency Cost 1,320,000 6,388,711 3,893,871 11,602,582 3,728,455 11,617,166 1,500,000 6,388,711 - Provision for diminu on 1,485,000 6,388,711 3,728,455 11,602,166 Carrying value 2,000,000 2,831,347 4,831,347 Total 121,513 66,666 188,179 46,960,268 123,020 15,272 138,292 45,791,558 March 31, December 31, 2020 2019 Rupees in '000 996,636 1,073,168 2,956,050 3,270,107 5,878,398 5,583,883 33,000,000 31,390,000 5,526 900 4,311,837 4,611,792 47,148,447 45,929,850 (15,000) (15,000) (Deficit) December 31,2019 December 31,2019 In local In foreign currency currency Rupees in '000 2,000,000 2,831,347 2,000,000 2,000,000 4,831,347 - Total 'Rupees in '000 Carrying value - March 31,2020 In foreign currency NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020
  39. 36 Deposits and other accounts Due to Financial Ins tu ons 35 .7 Profit on deposits and other dues expensed Profit earned on: Financing Investments Placements 35.6 Profit/return earned of financing, investments and placement -Guarantees -Commitments 35.5 Con ngencies and commitments Financial Ins tu ons Current Deposits Savings deposits Customers Current deposits Savings deposits Term deposits Others 35.4 Deposits 250 51,256,646 17,032,601 27,814,719 3,207,987 3,201,089 51,256,396 In local currency 46,210 46,210 46,210 March 31,2020 In foreign currency 250 51,302,856 499 186,684 50,021,651 17,920,864 26,336,004 3,087,502 2,490,098 49,834,468 In local currency Rupees in '000 17,078,811 27,814,719 3,207,987 3,201,089 51,302,606 Total NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020 December 31,2019 17,978,539 26,336,004 3,087,502 2,490,098 49,892,143 Total Rs in '000 620,149 289,483 909,632 1,579,063 434,081 58,301 2,071,445 March 31, 2020 4,829,848 1,510,675 6,340,523 362,331 122,056 484,387 995,402 322,634 335 1,318,371 March 31, 2019 5,270,767 1,028,102 6,298,869 499 186,684 50,079,326 December 31, March 31, 2019 2020 Rs in '000 57,675 57,675 57,675 In foreign currency
  40. 37 These condensed interim financial statements were authorised for issue in the Board of Directors mee ng held on May 20, 2020. DATE OF AUTHORIZATION FOR ISSUE ________________ Managing Director _____________________ Chief Financial Officer ____________ Director ____________ Director ____________ Director 37.3 Profit equaliza on reserve: The profit equaliza on reserves amoun ng to Rs. 44.641 million ( December 31, 2019: Rs. 42.141 million) has been classified in other liabili es above. 4,598,387 2,355,848 (921,118) 6,033,117 December 31, 2019 Rs in '000 6,033,117 731,424 (1,072,385) 5,692,156 March 31, 2020 37 GENERAL 37.1 Compara ve informa on has bee re-classified, re-arranged or addi onaly incorporated in these condensed interim financial statements for the purpose of be er presenta on. 37.2 Figures have bee rounded to the nearest thousand rupees, unless, otherwise stated 36 35.8 Islamic banking business unappropriated profit Opening balance Add: Islamic banking profit for the period/year Less: Transfer to head office Closing balance NOTES TO THE CONDENSED INTERIM FINANCIAL STATEMENTS (UN-AUDITED) FOR THE PERIOD ENDED MARCH 31, 2020