| AL-FAYSAL INVESTMENT BANK LTD. |
|
|
|
|
|
|
|
| ANNUAL
REPORT 1997 |
|
|
| Company
Information |
|
| Financial
Highlights |
|
| Directors
Report and Chief Executive's Review |
|
| Auditors'
Report to the Members |
|
| Balance
Sheet |
|
| Profit
and Loss Account |
|
| Statement
of Cash Flow |
|
| Notes
to the Accounts |
|
| Pattern
of Shareholding |
|
| Notice
of Annual General Meeting |
|
| Branch
Network |
|
|
| COMPANY
INFORMATION |
|
|
| Board
of Director |
|
| HRH
Prince Mohamed Al Faisal Al Saud |
Chairman |
|
| Muazzam
All |
|
Vice Chairman |
|
| Farook
Bengali |
|
Chief Executive |
|
| HRH
Prince Amr Mohamed Al Faisal Al Saud |
|
| Omar
Abdi All |
|
| 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 |
|
|
| Bankers |
|
| Faysal
Bank Limited |
|
| Muslim
Commercial Bank Limited |
|
| Askari
Commercial Bank Limited |
|
|
| Registered
Office |
|
| 15,
West Jinnah Avenue |
|
| Blue Area |
|
| Islamabad |
|
|
| FINANCIAL
HIGHLIGHTS |
|
|
|
| SIX
YEARS AT A GLANCE |
|
|
Rupees |
in Million |
|
|
1992 |
1993 |
1994 |
1995 |
1996 |
1997 |
|
| Financial
Position |
|
| Total
paid-up capital |
|
160 |
300 |
540 |
783 |
783 |
783 |
|
| Total
shareholders' equity |
175 |
350 |
779 |
1,031 |
1,066 |
1,385 |
|
| Total
assets |
|
991 |
2,809 |
6,925 |
9,726 |
12,187 |
12,619 |
|
| Clients
accounts |
|
799 |
2,386 |
5,930 |
8,282 |
10,470 |
10,596 |
|
| Morabahas |
|
727 |
1,608 |
4,563 |
6,411 |
8,096 |
8,856 |
|
|
| Operating
Results |
|
| Fee
based revenue |
|
- |
3 |
54 |
121 |
120 |
96 |
|
| Total
revenues |
|
59 |
262 |
765 |
1,255 |
1,641 |
2,092 |
|
| Operating
expenses |
|
13 |
50 |
122 |
143 |
139 |
135 |
|
| Profit
before provisions and tax |
25 |
92 |
226 |
203 |
328 |
498 |
|
| Provisions
and adjustments |
- |
- |
- |
160 |
145 |
80 |
|
| Tax |
|
10 |
28 |
22 |
19 |
30 |
98 |
|
| Profit
after tax |
|
15 |
64 |
204 |
24 |
153 |
319 |
|
|
| Other
Statistics |
|
| Earning
per share (Rs.) |
|
0.94 |
3.00 |
4.90 |
0.57 |
1.95 |
4.08 |
|
| (Basis:
Average number of shares) |
|
| Return
on average equity |
8.08% |
24.17% |
36.08% |
2.71% |
14.59% |
26.06% |
|
| Return
on average assets |
3.03% |
2.90% |
4.19% |
0.29% |
1.40% |
2.57% |
|
|
| DIRECTORS
REPORT AHD CHIEF EXECUTIVE'S REVIEW |
|
|
| To
Our Shareholders and Clients |
|
|
|
| As
Salam Alaykoum Wa Rahmatouh Allah Wa Barakatouh |
|
| On
behalf of the Board of Directors, I am pleased to present the annual report
on |
|
| your
Bank's operations for the year ended December 31, 1997. |
|
|
| PERFORMANCE
REVIEW |
|
| I
am very pleased to report that AFIBL has had another successful year despite
the |
|
| difficult
economic environment. |
|
|
| As
a result of State Bank of Pakistan restrictions on investment banks denying
them |
|
| the
ability to mobilize foreign currency deposits from resident Pakistanis as
well as |
|
| increased
forward cover costs, income margins were considerably reduced. |
|
| However,
the bank overcame this by reducing operating expenses by 2.73% while |
|
| increasing
revenue by 28% over previous year. |
|
|
| The
profit after tax of Rs. 319.359 million was 109% improvement on 1996 |
|
| representing
return on equity of 26.06% (1996: 14.59%) and return on assets of |
|
| 2.57%
(1996: 1.40%). |
|
|
| Our
four core businesses are discussed below |
|
|
| I.
Morabaha Financings |
|
| This
sector remains the largest player in the bank's portfolio contributing over
70% |
|
| of
the income and representing 70% of the total assets. We do not see this
scenario |
|
| changing
in the short term. In line with our conservative approach towards risk and |
|
| complying
with the prudential-regulations it has been decided to provide Rs. 31.12 |
|
| million
against doubtful Financings. |
|
|
| II.
Capital Markets and Investment Management Services |
|
| Compared
to the previous two years, 1997 saw more activity in the market |
|
| particularly
in the second half. During the year, we took advantage of the 'window of |
|
| opportunity'
that the market presented for a brief spell and realised capital gains. |
|
| We
have developed this sector into a credible income stream by realising Rs.
136.8 |
|
| million
in dividends and capital gains. |
|
|
| Equity
prices are likely to be volatile at least till the East and South East Asian |
|
| economies
attain some stability. |
|
|
| In
accordance with our policy of prudence, like in the past two years we have
made |
|
| an
adjustment of Rs. 34.3 million towards diminution in the value of investment
and |
|
| provision
of Rs. 14.8 million against investments under purchase and resale |
|
| agreements. |
|
|
| III.
Corporate Finance and Advisory Services |
|
| Our
Corporate Finance and Advisory Services capability separates AFIBL from |
|
| competition.
Despite the weak national economy, political upheavals and an erratic |
|
| stock
market your bank secured sufficient deals / mandates to maintain AFIBL's |
|
| position
as the pre-eminent investment bank in Pakistan. |
|
|
| IV.
Private Client Services |
|
| This
business area is seeing a decidedly difficult scenario. For local currency |
|
| deposits
the competition is very severe, particularly from GOP's saving schemes |
|
| offering
increased returns. As mentioned earlier foreign currency deposits from |
|
| resident
Pakistanis are now forbidden to investment banks. Consequently, growth in |
|
| deposits
of 2.2% was achieved, which was below expectations. |
|
|
| Considering
the satisfactory results, AFIBL's development plans and wishing to |
|
| have
a progressive appropriation policy, the Board of Directors is pleased to |
|
| propose
a Stock Dividend of 25%. The Appropriation of Profits is as under: |
|
|
|
|
Rupees in thousand |
|
|
| Profit
After Tax |
|
|
|
319,359 |
|
|
| Unappropriated
profit brought forward |
|
|
125,713 |
|
|
|
|
|
---------- |
|
|
|
|
|
445,072 |
|
|
|
|
|
|
|
| Appropriations: |
|
|
|
|
|
| Transfer
to Statutory Reserve |
|
|
63,872 |
|
|
|
| Reserve
for contingencies |
|
|
35,725 |
|
|
|
| Appropriation
for issue of Bonus Shares |
|
130,946 |
230,543 |
|
|
| {Shares
premium of Rs. 64,798 thousand will |
|
---------- |
|
|
|
| also
be utilized towards issue of Bonus Shares) |
|
|
---------- |
|
|
| Unappropriated
profit carried forward |
|
|
214,529 |
|
|
|
|
|
======== |
|
|
|
| In
keeping with our conservative approach and to strengthen the Bank for meeting |
|
| the
challenges of the future we propose to appropriate Rs. 35.7 million towards a |
|
| contingency
reserve. |
|
|
| THE
BOARD |
|
| One
of the Directors Mr. Adnan Abdul Aziz AI Bahar, resigned during the year. The |
|
| Board
places on record its appreciation of the services by Mr. AI Bahar. This |
|
| vacancy
has not been filled. |
|
|
| CREDIT
RATING |
|
| During
the year your bank was rated by Pakistan Credit Rating Agency (PACRA), |
|
| representing
Fitch IBCA, Inc., the third largest rating agency in the world after |
|
| Moody's
and Standard & Poor. The Board is pleased to report that PACRA has |
|
| assigned
a long term rating of AA(-) and A1(+) for short term, which is the highest |
|
| rating
in the financing sector in Pakistan. This has been our crowning achievement |
|
| and
a reward for AFIBL's metamorphosis over the last two years. |
|
|
| I
wish to take this opportunity to record my appreciation for the efforts put
in by staff |
|
| at
all levels. We are in a service based business and the employees play a key
part |
|
| in
our success. We are fortunate in having a young and dedicated team, to whose |
|
| training
and development we are committed for sustained success. |
|
|
| I
would also like to express my sincere gratitude for the continuing and
excellent |
|
| support
from our, Principal Shareholder, the DMI Group. |
|
|
| We
remain committed to enhancing shareholders value by increasing return on
equity. |
|
|
| Our
main objectives may be summarized as under: |
|
|
| ·
Maintain policy of investing in people and technology. |
|
|
| ·
Continue the close monitoring of expenses and reducing waste till it becomes |
|
| second nature throughout the organization. |
|
|
| ·
Optimizing the return on shareholders funds. |
|
|
| ·
Consolidate our position as the dominant investment bank in Pakistan. |
|
|
| ·
Become the investment bank of first choice by delivering the highest quality
of |
|
| service
to our customers. |
|
|
| ·
Reinforce our commitment to promote, foster and develop a Sharia'a based |
|
|
| On
behalf of the Board of Director |
|
| Farook
Bangali |
|
| President
& Chief Executive Officer |
|
|
|
| AUDITORS'
REPORT TO THE MEMBERS |
|
| We
have audited the annexed balance sheet of Al Faysal Investment Bank Limited |
|
| as
at December 31, 1997 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, 1997 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 |
|
|
| BALANCE
SHEET AS AT DECEMBER 31, 1997 |
|
|
|
|
Rupees in thousand |
|
|
|
Note |
1997 |
1996 |
|
| SHARE
CAPITAL |
|
|
|
| Authorised
capital |
|
|
|
| 100,000,000
ordinary shares of Rs. 10 each |
|
|
1,000,000 |
1,000,000 |
|
|
|
|
======== |
========== |
|
| Issued
capital |
|
|
|
| 78,300,000
(1996: 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 |
|
|
4 |
156,411 |
92,539 |
|
| Share
premium |
|
|
4 |
- |
64,798 |
|
| Reserve
for issue of bonus shares |
|
|
4 |
195,744 |
- |
|
|
|
|
---------- |
---------- |
|
|
|
|
352,155 |
157,337 |
|
|
|
|
|
| REVENUE
RESERVE |
|
|
|
|
|
| Contingency
reserve |
|
|
|
35,725 |
- |
|
| Unappropriated
profit |
|
|
|
214,529 |
125,713 |
|
|
|
|
---------- |
---------- |
|
|
|
|
250,254 |
125,713 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,385,386 |
1,066,027 |
|
|
|
|
|
|
| PROVISION
FOR GRATUITY |
|
|
|
- |
3,297 |
|
|
|
|
|
|
|
| LONG
TERM LIABILITY AGAINST ASSETS |
|
| SUBJECT
TO FINANCE LEASE |
|
5 |
10,746 |
15,132 |
|
|
|
|
|
|
|
| LONG
TERM CERTIFICATES OF INVESTMENT |
6 |
2,573,011 |
3,615,851 |
|
|
|
|
|
| CURRENT
LIABILITIES AND PROVISIONS |
|
| Liability
against assets subject to finance lease |
|
5 |
4,386 |
3,549 |
|
| Certificates
of investment |
|
|
6 |
7,983,002 |
6,715,664 |
|
| Due
to banks |
|
|
7 |
40,000 |
138,500 |
|
| Creditors,
accrued and other liabilities |
|
8 |
577,415 |
469,214 |
|
| Provision
for taxation |
|
|
|
44,916 |
42,499 |
|
| Proposed
Dividend |
|
|
|
- |
117,447 |
|
|
|
|
---------- |
---------- |
|
|
|
|
8,649,719 |
7,486,873 |
|
| CONTINGENCIES
AND COMMITMENTS |
9 |
---------- |
---------- |
|
|
|
|
12,618,862 |
12,187,180 |
|
|
|
|
======== |
========== |
|
|
|
|
|
Rupees in thousand |
|
|
|
Note |
1997 |
1996 |
|
|
| FIXED
ASSETS |
|
|
10 |
51,229 |
54,621 |
|
|
|
|
|
|
|
| LONG
TERM MORABAHA FINANCING |
|
11 |
2,917,606 |
2,884,762 |
|
|
|
|
|
|
|
| LONG
TERM INVESTMENT |
|
|
12 |
1,066,050 |
1,179,508 |
|
|
|
|
|
|
|
| LONG
TERM PREPAYMENTS & RECEIVABLES |
13 |
31,913 |
19,322 |
|
|
|
|
|
|
|
| DEFERRED
COSTS |
|
|
14 |
687 |
2,024 |
|
|
|
|
|
|
|
| DEFERRED
TAXATION |
|
|
|
36,493 |
22,700 |
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
| Deposits,
prepayments and other receivables |
|
15 |
718,884 |
565,494 |
|
| Short
term morabaha financing |
|
|
16 |
5,938,629 |
5,211,070 |
|
| Short
term investment |
|
|
17 |
151,224 |
281,906 |
|
| Cash
and bank balances |
|
|
18 |
1,706,147 |
1,965,773 |
|
|
|
|
---------- |
---------- |
|
|
|
|
8,514,884 |
8,024,243 |
|
|
|
|
|
|
|
|
|
---------- |
---------- |
|
|
|
|
12,618,862 |
12,187,180 |
|
|
|
|
======== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
| PROFIT
AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31,1997 |
|
|
|
|
|
|
Rupees in thousand |
|
|
|
Note |
1997 |
1996 |
|
| INCOME |
|
|
|
| Profit
on 'morabaha financing |
|
|
|
1,490,151 |
1,047,657 |
|
| Income
on investment and bank placements |
|
19 |
382,374 |
333,262 |
|
| Net
gain on sale of investment |
|
|
|
123,194 |
139,538 |
|
| Other
income |
|
|
20 |
96,421 |
120,230 |
|
|
|
|
---------- |
---------- |
|
|
|
|
2,092,140 |
1,640,687 |
|
|
|
|
|
|
| EXPENDITURE |
|
|
|
|
|
| Return
on certificates of investment and related costs |
21 |
1,379,114 |
1,153,118 |
|
| Return
on balances due to banks |
|
|
|
79,789 |
20,626 |
|
| Administrative
and other operating expenses |
|
22 |
135,451 |
139,255 |
|
|
|
|
---------- |
---------- |
|
|
|
|
1,594,354 |
1,312,999 |
|
|
|
|
|
|
| OPERATING
INCOME BEFORE PROVISION |
|
|
| AND
ADJUSTMENT |
|
|
|
497,786 |
327,688 |
|
|
|
|
|
|
|
| Provision
against doubtful morabaha financing |
|
|
31,123 |
1,200 |
|
|
|
|
|
|
| Provision
against investment under purchase |
|
|
|
| and
resale agreements |
|
|
|
14,822 |
59,450 |
|
|
|
|
|
|
| Adjustment
for diminution in value of |
|
|
| long
term investment |
|
|
|
34,275 |
83,842 |
|
|
|
|
---------- |
---------- |
|
| PROFIT
BEFORE TAXATION |
|
|
|
417,566 |
183,196 |
|
|
|
|
|
|
|
| PROVISION
FOR TAXATION |
|
|
23 |
98,207 |
30,300 |
|
|
|
|
|
---------- |
---------- |
|
| PROFIT
AFTER TAXATION |
|
|
|
319,359 |
152,896 |
|
|
|
|
|
|
|
| Unappropriated
profit brought forward |
|
|
125,713 |
120,843 |
|
|
|
|
---------- |
---------- |
|
|
|
|
445,072 |
273,739 |
|
|
|
|
|
|
| Appropriations: |
|
|
|
|
|
| Transfer
to statutory reserve |
|
|
|
63,872 |
30,579 |
|
| Transfer
to reserve for issue of bonus shares |
|
|
130,946 |
- |
|
| Transfer
to contingency reserve |
|
|
|
35,725 |
- |
|
| Proposed
dividend · Nil (1996: 15%) |
|
|
- |
117,447 |
|
|
|
|
---------- |
---------- |
|
|
|
|
230,543 |
148,026 |
|
|
|
|
---------- |
---------- |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
214,529 |
125,713 |
|
|
|
|
======== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| STATEMENT
OF CASH FL0W FOR THE YEAR ENDED DECEMBER 31,1697 |
|
|
|
|
Rupees in thousand |
|
|
|
Note |
1997 |
1996 |
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
| Cash
generated from operations |
|
|
25 |
481,715 |
558,977 |
|
| Net
increase in certificates of investment |
|
|
224,498 |
2,376,400 |
|
| Net
increase in morabaha financing |
|
|
|
(791,526) |
(1,685,754) |
|
| Taxes paid |
|
|
|
(109,583) |
(35,074) |
|
|
|
|
---------- |
---------- |
|
|
|
|
(194,896) |
1,214,549 |
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
| Sales
proceeds of fixed assets |
|
|
|
6,844 |
3,290 |
|
| Additions
to fixed assets |
|
|
|
(17,170) |
(31,996) |
|
| Long
term investment |
|
|
|
79,183 |
(281,630) |
|
| Long
term prepayments and receivables |
|
|
(12,591) |
(5,979) |
|
|
|
|
---------- |
---------- |
|
| Net
cash provided/(used) by investing activities |
|
|
56,266 |
(316,315) |
|
|
|
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
| Dividend
paid |
|
|
|
(117,447) |
- |
|
| Liability
against assets subject to finance lease |
|
|
(3,549) |
(2,531) |
|
|
|
|
---------- |
---------- |
|
| Net
cash (used) by financing activities |
|
|
(120,996) |
(2,531) |
|
|
|
|
|
|
| NET
(DECREASE) / INCREASE IN CASH AND |
|
---------- |
---------- |
|
| CASH
EQUIVALENTS |
|
|
|
(259,626) |
895,703 |
|
|
|
|
|
|
|
| CASH
AND CASH EQUIVALENTS AT THE |
|
|
|
| BEGINNING
OF THE YEAR |
|
|
|
1,965,773 |
1,070,070 |
|
|
|
|
|
| CASH
AND CASH EQUIVALENTS AT THE |
|
---------- |
---------- |
|
| END
OF THE YEAR |
|
|
18 |
1,706,147 |
1,965,773 |
|
|
|
|
========== |
========== |
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
| NOTES
TO THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31,1997 |
|
|
|
| 1.
Legal status and operations |
|
| AI
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(I)/87 dated July 13, 1987, |
|
| issued
by the Ministry of Finance. |
