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| Al
Faysal Investment Bank Ltd. |
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| Annual
Report 1996 |
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|
| CONTENTS |
|
| Company
Information |
|
|
2 |
|
|
| Financial
Highlights |
|
|
3 |
|
|
| Directors'
Report and Chief Executive's Review |
4 |
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|
| Auditors'
Report to the Members |
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|
7 |
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|
| Balance
Sheet |
|
|
8 |
|
|
| Profit
and Loss Account |
|
|
10 |
|
|
| Statement
of Cash Flow |
|
|
11 |
|
|
| Notes
to the Accounts |
|
|
12 |
|
|
| Pattern
of Shareholding |
|
|
30 |
|
|
| Notice
of Annual General Meeting |
|
|
31 |
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|
| Branch
Network |
|
|
32 |
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|
|
| COMPANY
INFORMATION |
|
|
|
| Board
of Directors |
|
| HRH
Prince Mohamed Al Faisal A1 Saud |
|
| Chairman |
|
|
|
|
|
| Muazzam
Ali |
|
| Vice
Chairman |
|
|
|
|
| Farook
Bengali |
|
| Chief
Executive |
|
|
|
|
| HRH
Prince Amr Mohamed A1 Faisal A1 Saud |
|
|
|
|
| Mr.
Adnan Abdul Aziz A1 Bahar |
|
|
|
|
| Omar
Abdi Ali |
|
|
| Dr.
Mahmoud El Helw |
|
|
|
|
| Imtiaz
Ahmed Pervez |
|
|
|
|
| Mahmood
A. Faruqui |
|
|
| Razi-Ur-Rehman
Khan |
|
|
| Corporate
Secretary |
|
| Ahmed
Mohiuddin |
|
|
| Auditors |
|
| A.F.
Ferguson & Co. |
|
| Chartered
Accountants |
|
|
| Legal
Advisors |
|
| Chima
& Ibrahim |
|
| Mohsin
Tayebaly & Co. |
|
| Cornelius
Lane & Mufti |
|
|
| Banks |
|
| Faysal
Bank Limited. |
|
| Muslim
Commercial Bank Limited. |
|
| Habib
Credit and Exchange Bank Limited. |
|
| Prime
Commercial Bank Limited. |
|
| Askari
Commercial Bank Limited. |
|
|
| Registered
Office |
|
| 15
West Jinnah Avenue |
|
| Blue Area |
|
|
| Islamabad |
|
|
|
| FINANCIAL
HIGHLIGHTS |
|
|
| FIVE
YEARS AT A GLANCE |
|
| Rupees
in Million |
|
|
1992 |
1993 |
1994 |
1995 |
1996 |
|
| FINANCIAL
POSITION |
|
|
| Total
Paid up Capital |
|
160 |
300 |
540 |
783 |
783 |
|
| Total
Shareholders' Equity |
|
175 |
350 |
779 |
1,031 |
1 ,{)66 |
|
| Total
Assets |
|
991 |
2,809 |
6,925 |
9,726 |
12.19 |
|
| Clients
Accounts |
|
799 |
2,386 |
5,930 |
8,282 |
10,470 |
|
| Morabahas |
|
727 |
1,608 |
4,563 |
6,411 |
8,096 |
|
|
|
|
|
|
| OPERATING
RESULTS |
|
|
| Fee
Based Revenue |
|
- |
3 |
54 |
121 |
120 |
|
| Operating
expenses |
|
13 |
50 |
122 |
143 |
139 |
|
| Profit
before Provisions and Tax |
|
25 |
92 |
226 |
203 |
328 |
|
| Provisions
and Adjustments |
|
- |
- |
- |
160 |
145 |
|
| Tax |
|
10 |
28 |
22 |
19 |
30 |
|
| Profit
after Tax |
|
15 |
64 |
204 |
24 |
153 |
|
|
|
|
|
| OTHER
STATISTICS |
|
|
| Earning
per share (Rs) |
|
0.94 |
3.00 |
4.90 |
0.57 |
1.95 |
|
| (Basis:
Average number of shares) |
|
|
| Return
on Average Equity |
|
8.08% |
24.17% |
36.08% |
2.71% |
14.59% |
|
| Return
on Average Assets |
|
3.03% |
2.90% |
4.19% |
0.29% |
1.40% |
|
|
| DIRECTORS
REPORT AND CHIEF EXECUTIVE'S REVIEW |
|
|
| To
Our Shareholders and Clients |
|
| As
Salam Alaykoum Wa Rahmatouh Allah Wa Barakatouh. |
|
| On
behalf of your Board of Directors, it gives me great pleasure to |
|
| present
this report of your Bank's operations for the year ended |
|
| December
31, 1996. |
|
|
|
|
|
|
| ECONOMIC
PERSPECTIVE |
|
|
| 1996
was a year of consolidation and recovery for AFIBL. Our |
|
| balance
sheet footing exhibited an increase of over 25% with a net |
|
| increase
of 26% in the total client's account base. Similarly, there |
|
| was
a corresponding increase of 26% in the morabaha financing, which |
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| considerably
helped improve our profitability position. The Stock Ex- |
|
| change
index which was 2048 at the end of December 1994 and 1498 |
|
| at
December 1995, dropped further to 1340 at December'1996. |
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|
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|
| PERFORMANCE
REVIEW |
|
|
|
| It
is gratifying for me to report that the bank has made all round |
|
| progress
against the back drop of uncertainty and non-conducive |
|
| business
conditions. |
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|
|
| While
overall business conditions remained difficult, this was more |
|
| so
in the case of investment banks. Domestic Savings mobilisation |
|
| was
affected by increased returns announced by the Government of |
|
| Pakistan
on its own savings schemes. Regulatory restrictions of |
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| funds
with minimum one year maturity have made more difficult |
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| foreign
currency mobilisation. Further, cost of domestic and foreign |
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| currency
accounts has increased due to introduction of 1% cash re- |
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| quirements
and 4% increase (from 15% to 19%) in liquidity ratio to be |
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| maintained
by investment banks. The overall effect of the above has |
|
| led
to the erosion of profits and reduced margin for investment banks. |
|
|
|
| Against
this background, your bank recorded a net increase of 26% |
|
| in
its client's accounts base. This was utilised in carefully selected |
|
| morabaha
financing. which increased by 26%.Total Assets increased |
|
| by
25%, Revenue increased by 31% and Profit before Provisions and |
|
|
|
| Taxation
increased by 61%. Income from morabaha financing in- |
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| creased
by 17.7% and income from Investments and Bank Place- |
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| ments
increased by 81%. Fee income from Corporate Finance & |
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| Advisory
Services was maintained during a difficult year. This was |
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| made
possible by earning Rs. 120 million through completing major |
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| transactions
in diversified revenue sources. Administrative & |
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| Operating
Expenses were actually reduced by 2.4% by effective cost |
|
| management. |
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|
|
| Our
four core businesses are: |
|
|
| I.
Morabaha Financing |
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| This
continues to be the main source of bank's income and in |
|
| 1996
the total financing grew by 26% to Rs. 8.1 billion. We have |
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| been
cautious in the valuation of risk but after careful scrutiny |
|
| financing. |
|
|
|
|
| II.
Capital Markets and Investment Management Services |
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| The
market remained depressed with trading activity confined to |
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| a
few selected scrips. |
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|
|
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| We
have followed policy of prudent progress. We believe that our |
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| commitment
to strengthen your bank will strengthen our client |
|
| relationship
and market confidence. To demonstrate our policy in |
|
| actual
practice, we made a downward adjustment of Rs. 83.84 |
|
| investments
and provisions of Rs. 59.45 million in respect of |
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| investments
under Purchase and Resale agreements. |
|
|
|
|
|
|
| III.
Corporate Finance and Advisory Services |
|
| Our
decision to diversify the sources of our revenue has paid off. |
|
| We
have been successful in completing major transactions and |
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| earning
an income of Rs. 120 million. This is quite an achieve- |
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| ment,
considering the lacklustre performance of the stock market, |
|
| continued
political uncertainty and a fast deteriorating economic |
|
| environment.
The continued decline in the share value severely |
|
| restricted
the investment bank's corporate activities on the stock |
|
| market
including Pre-IPO s and underwriting. |
|
|
|
|
| IV.
Private Client Services |
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| We
continue to focus our efforts on building long term relation- |
|
| ship
and offering range of improved products, based on a |
|
| thorough
understanding of our customers' needs. |
|
|
| Customer
confidence in our Private Client Services is reflected in |
|
| long
term investment account, which are 35% of total customers' |
|
| balances.
These increased to Rs. 3.6 billion and overall balances |
|
| in
clients' accounts increased by 30% to Rs. 10.3 billion. |
|
|
|
|
| HUMAN
RESOURCES |
|
| Your
Directors believe that our most important asset is our staff. |
|
| 1996
was a year of recovery and rationalisation. We continue to |
|
| enhance
our corporate culture of fairness in recognition and com- |
|
| prehension.
We set corporate goals in open discussions and achieve |
|
| our
targets by worthy individual conduct, team work and focused |
|
| approach. |
|
|
| THE BOARD |
|
| During
the year, there were changes in the Board of Directors. The |
|
| following
Directors left the Board. We will miss their counsel and |
|
| place
on record our gratitude to them · |
|
|
|
|
| Mr.
Nabil Abdul Ellah Nassief |
|
| Mr.
M. Asadullah Sheikh |
|
| Mr.
Zafar Ahmed Khan |
|
|
|
|
| The
following new Directors joined the Board. Their expertise and |
|
| experience
will be a great value to your Bank. |
|
|
| Mr.
Imtiaz Ahmed Pervez |
|
| Mr.
Mahmood A. Faruqui |
|
| Mr.
Razi-Ur- Rehman Khan |
|
|
| Your
Directors are sanguine that 1997 will improve Pakistan's |
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| ecofiomic
environment, strengthen domestic and foreign investment |
|
| with
consequential beneficial effects on the partnership between our |
|
| clients
and AFIBL, in the true spirit of Islamic Banking. |
|
|
|
|
|
|
| ON
BEHALF OF THE BOARD OF DIRECTORS |
|
|
| Farook
Bengali |
|
|
|
| President
& Chief Executive Officer |
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
|
|
| We
have audited the annexed balance sheet of A1 Faysal Investment Bank Limited
as at December 31, |
|
| 1996
and the related profit and loss account and cash flow statement together with
the notes forming part |
|
| thereof,
for the year then ended and we state that we have obtained all the
information and explanations |
|
| which
to the best of our knowledge and belief were necessary for the purposes of
our audit and, after |
|
| due
verification thereof, we report that: |
|
|
|
|
|
| (a)
in our opinion, proper books of account have been kept by the Company as
required by the |
|
| Companies
Ordinance, 1984; |
|
|
| (b)
in our opinion |
|
|
|
| (i)
the balance sheet and profit and loss account together with the notes thereon
have been |
|
| drawn
up in conformity with the Companies Ordinance, 1984, and are in agreement
with |
|
| the
books of account and are further in accordance with accounting policies
consistently |
|
| applied; |
|
|
|
| (ii)
the expenditure incurred during the year was for the purpose of the Company's
business; |
|
| and |
|
|
|
|
| (iii)
the business conducted, investments made and the expenditure incurred during
the year |
|
| were
in accordance with the objects of the Company; |
|
|
|
|
| (c)
in our opinion and to the best of our information and according to the
explanations given to us, |
|
| the
balance sheet, profit and loss account and cash flow statement together with
the notes |
|
| forming
part thereof, give the information required by the Companies Ordinance, 1984
in the |
|
| manner
so required and respectively give a true and fair view of the state of the
Company's |
|
| affairs
as at December 31, 1996 and of the profit and cash flows for the year then
ended; and |
|
|
|
|
| (d)
in our opinion, Zakat deductible at source under the Zakat and Ushr.
Ordinance, 1980, was |
|
| deducted
by the Company and deposited in the Central Zakat Fund established under
section 7 |
|
| of
that Ordinance. |
|
|
| A.F.
Ferguson & Co. |
|
| Chartered
Accountants |
|
|
|
|
| February
25, 1997 |
|
| Islamabad |
|
|
|
| BALANCE
SHEET AS AT DECEMBER 31, 1996 |
|
|
|
Rupees in thousand |
|
|
|
|
Note |
1996 |
1995 |
|
| SHARE
CAPITAL |
|
| Authorised
capital |
|
| 100,000,000
ordinary shares of Rs. 10 each |
|
1,000,000 |
1,000,000 |
|
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| Issued
capital |
|
| 78,300,000
(1995: 78,300,000) |
|
| ordinary
shares of Rs. 10 each |
|
|
783,000 |
783,000 |
|
|
|
|
|
|
========== |
========== |
|
|
|
|
| Subscribed
and paid-up capital |
|
|
3 |
782,977 |
782,977 |
|
|
|
|
|
|
|
| CAPITAL
RESERVE |
|
| Statutory
reserve |
|
|
92,539 |
61,960 |
|
| Share
premium |
|
|
64,798 |
64,798 |
|
|
|
|
---------- |
---------- |
|
|
|
|
157,337 |
126,758 |
|
| REVENUE
RESERVE |
|
|
| Unappropriated
profit |
|
|
125,713 |
120,843 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,066,027 |
1,030,578 |
|
|
|
|
|
|
| DEFERRED
LIABILITIES |
|
|
4 |
3,297 |
5,569 |
|
| LONG
TERM LIABILITY AGAINST ASSETS |
|
|
| SUBJECT
TO FINANCE LEASE |
|
|
5 |
15,132 |
16,970 |
|
|
| LONG
TERM CERTIFICATES OF INVESTMENT |
|
|
6 |
3,615,851 |
809,343 |
|
| CURRENT
LIABILITIES AND PROVISIONS |
|
|
| Liability
against assets subject to finance lease |
|
5 |
3,549 |
4,242 |
|
| Certificates
of investment |
|
|
6 |
6,715,664 |
7,145,772 |
|
| Due
to banks |
|
|
7 |
138,500 |
326,442 |
|
| Creditors,
accrued and other liabilities |
|
|
8 |
469,214 |
365,725 |
|
| Provision
for taxation |
|
|
42,499 |
21,573 |
|
| Proposed
Dividend |
|
|
117,447 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
7,486,873 |
7,863,754 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
|
9 |
|
|
|
|
---------- |
---------- |
|
|
|
|
12,187,180 |
9,726,214 |
|
|
|
|
========== |
========== |
|
|
| FIXED
ASSETS |
|
|
10 |
54,621 |
38,555 |
|
| LONG
TERM MORABAHA FINANCING |
|
|
11 |
2,884,762 |
1,286,218 |
|
| LONG
TERM INVESTMENT |
|
|
12 |
1,179,508 |
979,378 |
|
| LONG
TERM PREPAYMENTS AND RECEIVABLES |
|
|
13 |
19,322 |
14,741 |
|
| DEFERRED
COSTS |
|
|
14 |
2,024 |
3,970 |
|
| DEFERRED
TAXATION |
|
|
22,700 |
- |
|
| CURRENT
ASSETS |
|
|
|
|
|
| Deposits,
prepayments and other receivables |
|
15 |
565,494 |
411,256 |
|
| Short
term morabaha financing |
|
|
16 |
5,211,070 |
5,125,060 |
|
| Short
term investment |
|
|
17 |
281,906 |
796,966 |
|
| Cash
and bank balances |
|
|
18 |
1,965,773 |
1,070,070 |
|
|
|
|
---------- |
---------- |
|
|
|
|
8,024,243 |
7,403,352 |
|
|
|
|
|
---------- |
---------- |
|
|
|
|
12,187,180 |
9,726,214 |
|
|
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31,1996 |
|
|
|
Rupees in thousand |
|
|
Note |
1996 |
1995 |
|
| INCOME |
|
| Profit
on morabaha financing |
|
|
1,047,657 |
890,373 |
|
| Income
on investment and bank placements |
|
|
19 |
333,262 |
184,016 |
|
| Net
gain on sale of investment |
|
|
139,538 |
59,948 |
|
| Other
income |
|
|
20 |
120,230 |
121,093 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,640,687 |
1,255,430 |
|
|
|
|
|
|
| EXPENDITURE |
|
|
| Return
on certificates of investment and related costs |
|
21 |
1,153,118 |
868,983 |
|
| Return
on balances due to banks |
|
|
20,626 |
40,449 |
|
| Administrative
and other operating expenses |
|
22 |
139,255 |
142,617 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,312,999 |
1,052,049 |
|
|
|
|
|
|
| OPERATING
INCOME BEFORE PROVISION |
|
|
| AND
ADJUSTMENT |
|
|
327,688 |
203,381 |
|
| Provision
against doubtful morabaha financing |
|
1,200 |
25,000 |
|
| Provision
against investment under purchase and resale agreements |
59,450 |
- |
|
| Adjustment
for diminution in value of long term investment |
|
83,842 |
135,402 |
|
|
|
|
---------- |
---------- |
|
| PROFIT
BEFORE TAXATION |
|
|
183,196 |
42,979 |
|
|
|
|
|
| PROVISION
FOR TAXATION |
|
|
23 |
30,300 |
18,500 |
|
|
|
|
---------- |
---------- |
|
| PROFIT
AFTER TAXATION |
|
|
152,896 |
24,479 |
|
| Unappropriated
profit brought forward |
|
|
120,843 |
101,260 |
|
|
|
|
---------- |
---------- |
|
|
|
|
273,739 |
125,739 |
|
| Appropriations: |
|
|
| Transfer
to statutory reserve |
|
|
30,579 |
4,896 |
|
| Proposed
dividend @ 15 % ( 1995: Nil) |
|
|
117,447 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
148,026 |
4,896 |
|
|
|
|
|
|
|
|
|
---------- |
---------- |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
|
|
125,713 |
120,843 |
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
| STATEMENT
OF CASH FLOW FOR THE YEAR ENDED DECEMBER 31, 1996 |
|
|
|
Rupees in thousand |
|
|
Note |
1996 |
1995 |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
| Cash
generated from operations |
|
|
25 |
558,977 |
21,239 |
|
| Net
increase in certificates of investment |
|
|
2,376,400 |
2,182,116 |
|
| Net
increase in morabaha financing |
|
|
(1,685,754) |
(1,873,470) |
|
| Taxes
paid |
|
|
|
(35,074) |
(20,444) |
|
|
|
|
---------- |
---------- |
|
|
|
|
|
1,214,549 |
309,441 |
|
|
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
| Sales
proceeds of fixed assets |
|
3,290 |
7,189 |
|
| Additions
to fixed assets |
|
(31,996) |
(3,929) |
|
| Long
term investments |
|
(281,630) |
(176,731) |
|
| Long
term prepayments and receivables |
|
(5,979) |
( 10,103) |
|
|
|
|
---------- |
---------- |
|
| Net
cash used by investing activities |
|
(316,315) |
(183,574) |
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
| Issue
of share capital |
|
|
- |
161,995 |
|
| Premium
on issue of right shares |
|
|
- |
64,798 |
|
| Liability
against assets subject to finance lease |
|
(2,531) |
- |
|
|
|
|
---------- |
---------- |
|
| Net
cash (used)/provided by financing activities |
|
(2,53l) |
226,793 |
|
|
|
|
|
|
|
|
|
|
---------- |
---------- |
|
| NET
INCREASE IN CASH AND CASH EQUIVALENTS |
|
895,703 |
352,660 |
|
|
| CASH
AND CASH EQUIVALENTS AT THE |
|
| BEGINNING
OF THE YEAR |
|
|
1,070,070 |
717,410 |
|
|
|
|
|
| CASH
AND CASH EQUIVALENT AT THE |
|
|
---------- |
---------- |
|
| END
OF THE YEAR |
|
|
18 |
1,965,773 |
1,070,070 |
|
|
========== |
========== |
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
| NOTES
TO THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1996 |
|
|
| 1.
Legal status and operations |
|
| A1
Faysal Investment Bank Limited is a public limited company and its shares are
quoted on the |
|
| Stock
Exchanges in Pakistan. |
|
|
| The
Company was incorporated in Pakistan on October 17, 1991 to promote
application of |
|
| Islamic
principles, laws and traditions to the transactions of financial institutions
and related |
|
| business
affairs including investment of funds as notified in SRO 585(1)/87 dated July
13, 1987 |
|
| issued
by the Ministry of Finance. |
|
|
| 2.
Significant accounting policies |
|
|
| 2.1
Accounting convention |
|
| These accounts have been prepared under the
historical cost convention. |
|
|
|
| 2.2
Taxation |
|
| Provision
for current taxation is based on taxable income at the current rates of tax.
Provision |
|
| for
deferred taxation is made on all major timing differences, using the
liability method. |
|
|
| 2.3
Fixed assets |
|
| Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
charged on straight |
|
| line
method over the estimated useful life of the asset, commencing from the month
in which |
|
| the
asset is purchased. Gain or loss on deletion of assets is included in income
currently. |
|
|
|
|
| Assets
subject to finance lease are stated at lower of present value of minimum
lease payments |
|
| under
the lease agreements and the fair value of assets acquired on lease.
Aggregate amount of |
|
| obligation
relating to assets subject to finance lease is accounted 'for at net present
value of |
|
| liabilities.
Assets so acquired are amortised over the useful life of the assets or lease
term, |
|
