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The Hongkong and Shanghai Banking Corporation
(Incorporated in Hong Kong with limited liability)
Pakistan Branches
Balance Sheet as at 31 December 2001
AUDITORS' REPORT TO THE DIRECTORS
We have audited the annexed balance sheet of the Pakistan Branches of The Hongkong and Shanghai Banking Corporation Limited (incorporated
in Hongkong with limited liability) as at 31 December 2001 and the related profit and loss account, cash flow statement and statement
of changes in equity together with the notes forming part thereof (here-in-after referred to as the 'financial statements') 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.
It is the responsibility of the branches' Management to establish and maintain a system of internal control, and prepare and present the financial
statements in conformity with the approved accounting standards and the requirements of the Banking Companies Ordinance, 1962
(LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based
on our audit.
We conducted our audit in accordance with the International Standards on Auditing as applicable in Pakistan. These standards require that
we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement.
An audit includes examining, on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also includes
assessing accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial
statements. We believe that our audit provides a reasonable basis for our opinion and after due verification, which is case of loans and
advances covered more than 60 percent of the total loans and advances of the bank, we report that:
(a) in our opinion, proper books of account have been kept by the branches as required by the Companies Ordinance, 1984 (XLVII of 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 Banking
Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 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 Bank's business; and
(iii) the business conducted, investments made and the expenditure, incurred during the year were in accordance with the objects of the
Bank and the transactions of the Bank which have come to our notice have been within the powers of the Bank;
(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,
cash flow statement and statement of changes in equity together with the notes forming part thereof conform with approved accounting
standards as applicable in Pakistan and give the information required by the Banking Companies Ordinance, 1962 (LVII of 1962), and
the Companies Ordinance, 1984 (XLVII of 1984), in the manner so required and give a true and fair view of the state of the branches
affairs as at 31 December 2001, and its true balance of the profit, its cash flows and changes in equity for the year then ended; and
(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980), was deducted by the Bank and
deposited in the Central Zakat Fund established under section 7 of that Ordinance.
Date: 19 February 2002 Taseer Hadi Khalid & Co.
Karachi Chartered Accountants
BALANCE SHEET AS AT 31 DECEMBER 2001
Note 2001 2000
(Rupees in '000)
ASSETS
Cash and balances with treasury bank 6 1,365,350 877,818
Balances with other banks 7 451,251 408,255
Lending to financial institutions 8 3,644,938 750,053
Investments 9 570,774 135,730
Advances 10 4,348,088 4,094,267
Other assets 11 284,222 303,106
Operating fixed assets 12 26,125 25,150
Deferred tax assets -- --
------------------ ------------------
10,690,748 6,594,379
LIABILITIES
Bills payable 13 75,954 20,614
Borrowing from financial institutions 14 3,655,808 838,869
Deposits and other accounts 15 5,832,767 4,732,769
Sub-ordinated loans -- --
Liabilities against assets subject to finance lease -- --
Other liabilities 16 329,564 299,693
Deferred tax liabilities -- 17,552
------------------ ------------------
9,894,093 5,909,497
------------------ ------------------
NET ASSETS 796,655 684,882
========== ==========
REPRESENTED BY
Head office capital account 17 860,293 827,801
Accumulated loss (72,878) (142,919)
------------------ ------------------
787,415 684,882
Surplus/(Deficit) on revaluation of securities 18 9,240 --
------------------ ------------------
796,655 684,882
========== ==========
CONTINGENCIES AND COMMITMENTS 19
The annexed notes 1 to 38 form an integral part of these accounts.
Sd/- Sd/-/-
Peter Waterhouse Riaz ul Islam
Chief Executive Office-Pakistan Financial Controller-Pakistan
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 DECEMBER 2001
Note 2001 2000
(Rupees in '000)
Mark-up Return / Interest earned 20 625,397 551,750
Mar-up/Return/Interest expensed 21 (514,853) (432,086)
------------------ ------------------
Net mark-up/interest income 110,844 119,664
Provision against non-performing loans and advances 10.3 (13,628) (56,852)
Provision against letters of guarantee -- (5,707)
Provision for diminution in the value of investments -- --
Bad debts written-off directly -- --
------------------ ------------------
(13,628) (62,559)
------------------ ------------------
Net mark-up/interest income after provisions  96,916 57,105
NON MARK-UP/INTEREST INCOME
Fee, commission and brokerage income 97,565 104,382
Dividend income -- --
Income from dealing in foreign currencies 55,023 38,070
Other income 3,942 --
------------------ ------------------
Total non-markup/interest income 156,530 142,452
------------------ ------------------
253,446 199,557
NON MARK-UP/INTEREST EXPENSES
Administrative expenses 23 (151,636) (328,924)
Provision against other assets -- --
Other charges 24 (95) (3,231)
------------------ ------------------
Total non-markup/interest expenses (151,731) (332,155)
Extra-ordinary/Unusual items -- --
------------------ ------------------
PROFIT/(LOSS) BEFORE TAXATION 101,715 (132,598)
Taxation - Current 25 (48,000) --
                - Prior years (1,226) --
                - Deferred 17,552 --
------------------ ------------------
(31,674) --
------------------ ------------------
PROFIT/(LOSS) AFTER TAXATION 70,041 (132,598)
Accumulated loss brought forward (142,919) (10,321)
------------------ ------------------
Accumulated loss carried forward (72,878) (142,919)
========== ==========
The annexed notes 1 to 38 form an integral part of these accounts.
Sd/- Sd/-/-
Peter Waterhouse Riaz ul Islam
Chief Executive Office-Pakistan Financial Controller-Pakistan
CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2001
Note 2001 2000
(Rupees in '000)
CASH FLOW FROM OPERATING ACTIVITIES
Profit/(Loss) before taxation 101,715 (132,598)
Adjustments for non-cash charges
Depreciation 12,564 22,464
Operating fixed assets written off 30 2,939
Provision against non-performing advances 13,628 5,685
Provision against letters of guarantee 5,707
Loss/(Gain) on sale of operating fixed assets (3,942) 25
------------------ ------------------
123,995 (44,611)
(Increase)/Decrease in operating assets
Lending to financial institutions (2,894,885) 1,854,211
Held-for-trading securities (143,463) --
Advances (268,627) 213,160
Others assets (excluding advance taxation) (11,411) 127,242
------------------ ------------------
(3,318,386) 2,194,613
Increase/(Decrease) in operating liabilities
Bills payable 55,340 (14,097)
Borrowings from financial institutions 2,816,939 (1,746,096)
Deposits and other accounts 1,099,998 (839,193)
Other liabilities 31,049 (1,752)
------------------ ------------------
4,003,326 (2,601,138)
------------------ ------------------
808,935 (451,136)
Income tax paid (18,931) (30,175)
------------------ ------------------
Net cash flow from operating activities 790,004 (481,311)
CASH FLOW FROM INVESTING ACTIVITIE.S
Net Investments in held-to-maturity securities (282,341) (74,992)
Investments in operating fixed assets (14,039) (1,978)
Sale proceeds of property and equipment disposed-off 4,412 7,802
------------------ ------------------
Net cash flow from investing activities (291,968) (69,168)
CASH FLOW FROM FINANCING ACTIVITIES
Increase in capital on account of revaluation 32,492 86,802
------------------ ------------------
Increase/(Decrease) in cash and cash equivalents 530,528 (463,677)
Cash and cash equivalents at beginning of the year 1,286,073 1,749,750
------------------ ------------------
Cash and cash equivalents at end of the year 26 1,816,601 1,286,073
========== ==========
The annexed notes 1 to 38 form an integral part of these accounts.
Sd/- Sd/-/-
Peter Waterhouse Riaz ul Islam
Chief Executive Office-Pakistan Financial Controller-Pakistan
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2001
Head office Accumulated Total
capital account loss
(Rupees in '000)
Balance at 1 January 2000 740,999 (10,321) 730,678
Loss for the year 2000 -- (132,598) (132,598)
Exchange adjustment on revaluation of capital 86,802 -- 86,802
------------------ ------------------ ------------------
Balance at 31 December 2000 827,801 (142,919) 684,882
Profit for the year -- 70,041 70,041
Exchange adjustment on revaluation of capital 32,492 -- 32,492
------------------ ------------------ ------------------
Balance at 3l December 2001 860,293 (72,878) 787,415
========== ========== ==========
The annexed notes 1 to 38 form an integral part of these accounts.
Sd/- Sd/-/-
Peter Waterhouse Riaz ul Islam
Chief Executive Office-Pakistan Financial Controller-Pakistan
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 2001
1. STATUS AND NATURE OF BUSINESS
The Hongkong and Shanghai Banking Corporation Limited is a foreign banking company incorporated in Hongkong with limit-
ed liability. The ultimate holding company of the bank is HSBC Holding plc., which is incorporated in Great Britain and regis-
tered in England and Wales. The Pakistan branches are engaged in banking ,services as described in the Banking Companies
Ordinance, 1962 and operate two branches (2000: two branches) in Karachi, Pakistan.
2. BASIS OF PRESENTATION
In accordance with the directives of the Federal Government regarding the shifting of the banking system to the Islamic modes
the Slate Bank of Pakistan has issued various circulars from time to time. One permissible form of trade related mode of financ-
ing comprises of purchase of goods by the bank from their customers and resale to them at appropriate mark-up in price on
deferred payment basis. The purchase and resale arising under these arrangements are not reflected in there financial statements
as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon.
3. STATEMENT OF COMPLIANCE
These accounts have been prepared in accordance with the directives issued by the State Bank of Pakistan, the requirements of
the Banking Companies Ordinance, 1962 & the Companies Ordinance. 1984 and the accounting standards issued by the
International Accounting Standards Committee (IASC) and interpretations issued by the Standing Interpretations Committee of
the IASC, as adopted in Pakistan.
The Securities and Exchange Commission of Pakistan (SECP) has approved the adoption of International Accounting Standard
39, Financial Instruments: Recognition and Measurement (IAS 39). As per SECP circular No. 01 of 2002 dated 10 January
2002, this IAS is applicable for financial periods beginning on or after 1 July 2001. Accordingly, the accounting requirements of
this IAS have not been taken into account for the purposes of these financial statements. However, investments have been classi-
fied in accordance with the requirements of the format prescribed by BSD circular No. 36 dated 10 October 2001.
4. BASIS OF MEASUREMENT
There financial statements have been prepared under the historical cost convention, as modified for the revaluation of invest-
ments and in conformity with the accepted accounting practices of banking institutions in Pakistan.
5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
5.1 Cash and cash equivalents
Cash and cash equivalents comprises cash and balances with treasury bank and balances with other banks.
5.2 Staff retirement benefits
The bank operates approved funded gratuity and provident fund schemes for all of its permanent employees. Contributions for
gratuity scheme are made in accordance with the actuarial recommendation and actuarial gains/losses of one accounting period
are recognized in the following accounting period. The transition obligation, arising as a result of change in actuarial valuation
method, is being amortized over a period of five years.
5.3 Taxation
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the balance sheet data and
any adjustment to tax payable in respect of previous years.
Deferred tax is provided using the balance sheet liability method providing for temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of
deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities
using tax rates enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that
future taxable profit will be available and the credits can be utilised. Deferred tax assets are reduced to the extent that it is no
longer probable that the related tax benefit will be realised
5.4 Advances
Advances are stated net of specific provision against non-performing advances. Specific provision is made for non-performing
advances to reduce book value of such advances to their expected realisable value. Advances are written-off when there is no
realistic prospect of recovery.
5.5 Investments
Securities are stated at amortised cost less provision for permanent diminution in value, if any, with the exception of securities
where ready quotes are available on Reuters page (PKRV). The difference between the face value and purchase price is amor-
lised over the remaining life of security.
In accordance with the requirements of BSD Circular No. 20 dated 4 August 2000, only those securities for which ready quotes
are available on Reuters Page (PKRV) are valued at market rates and the resulting surplus/deficit is kept in a separate account
and is shown below the capital in the balance sheet.
5.6 Repurchase agreements
The bank enters into purchase/(sale of investments under agreements to resale/(repurchase) investments at a certain date in the
future at a fixed price. Investments purchased subject to commitments to resale them at future dates are not recognised. The
amounts paid are recognised as lendings to financial institutions. The receivables are shown as collateralised by the underlying
security. Investments sold under repurchase agreements continue to be recognised in the balance sheet and are measured in
accordance with the accounting policy for investments. The proceeds from the sale of investments are reposed as borrowings
from financial institutions.
The difference between the purchase/(sale) and resale/(repurchase) consideration is recognised on accrual basis over the period
of the transaction and is included in the mark-up/return/interest.
5.7 Operating fixed assets and depreciation
The cost of operating fixed assets is depreciated over the useful lives of the related assets under the straight line method. Gains
and losses on disposal of fixed assets are included in income currently.
5.8 Revenue recognition
Mark-up/Return on advances and investments is recognised on accrual basis, except income which warrant carry forward in
compliance with Prudential Regulations of the State Bank of Pakistan and with credit policies manual. commission on letters of
credit and guarantees is also recognised on accrual basis.
5.9 Foreign currencies
Foreign currency transactions are translated in Rupees at exchange rates prevailing on the date of transaction. Assets and liabili-
ties in foreign currencies are translated in Rupees at the exchange rates prevailing at the balance sheet date, except foreign cur-
rency deposits for which forward cover is taken from State Bank of Pakistan. Foreign currency deposits for which forward cover
is taken from State Bank of Pakistan are translated at their respective cover rates. Outstanding forward foreign exchange con-
tracts (excluding swap contracts) are valued at the rates applicable to their respective maturities. However, premium on swap
contracts is amortized over the period of swap and the movements in ready rates since the initiation of swap is also accounted
for. Exchange gains and losers are included in income currently.
5.10 Provision for guarantee claims and other off balance sheet obligations
Provision for guarantee claims and other off balance sheet obligations is recognised when intimated and reasonable certainty
exists for the bank to settle the obligations. Expected recoveries are recognised by debiting the customers account. Charge to
profit and loss account is stated net-off expected recoveries.
5.11 Off-setting
Financial assets and financial liabilities are only off-set and the net amount is reported in the financial statements when there is a
legally enforceable right to offset the recognised amount and the bank intends either to settle on a net basis, or to realise the
assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also off-set and the
net amount is reported in the financial statements.
2001 2000
(Rupees in '000)
6. CASH AND BALANCES W1TH TREASURY BANK
In hand
- Local currency 6.1 22,456 20,898
- Foreign currencies 9,245 14,426
With State Bank of Pakistan in
- Local currency current account 258,907 14,693
- Foreign currency current account 42,890 --
- Foreign currency deposit account against foreign
currency deposits mobilized 171,559 --
- Foreign currency capital account 860,293 827,801
------------------ ------------------
1,365,350 877,818
========== ==========
6.1 This include National Prize Bonds of Rs. 0.153 million (2000: Rs. 1.173 million).
7. BALANCES WITH OTHER BANKS
In Pakistan
- In current accounts 49,603 21,647
Outside Pakistan 7.1
- In current accounts 337,852 183,775
- In deposit accounts 7.2 63,796 202,833
------------------ ------------------
451,251 408,255
========== ==========
7.1 This includes balances of Rs. 401.207 million (2000: Rs. 385.298 million) held with branches outside Pakistan.
7.2 Deposit accounts carry mark-up ranging between 4.74 percent to 4.77 percent per annum and are due to mature
by March 2002.
8. LENDING TO FINANCIAL INSTITUTIONS
Call money lending 8.1 1,825,000 150,000
Repurchase agreement lending (reverse repos) 8.2 1,819,938 600,053
------------------ ------------------
3,644,938 750,053
========== ==========
8.1 Call money lending carry mark-up ranging between 7.50 percent to 10.40 percent per annum payable on monthly basis, and are due to
mature by April 2002.
8.2 Reverse repos carry mark-up ranging between 7.25 percent to 10 percent per annum payable at maturity and are due to mature by
June 2002. The arrangements are governed under Master Repurchase Agreement.
8.3 Securities held as collateral against lendings to financial institutions
2001 2000
Held by Further Total Held by Further Total
bank given as as bank given as as
collateral collateral
(Rupees in '000)
Market treasury bills 809,130 1,010,808 1,819,938 341,407 258,646 600,053
========== ========== ========== ========== ========== ==========
9. INVESTMENTS
9.1 Investments by types:
2001 2000
Held by Given as Total Held by Given as Total
bank collateral bank collateral
(Rupees in '000)
Held-for-trading securities
- Treasury bills 143,881 -- 143,881 -- -- --
Held-to-maturity securities
- Treasury bills 9.1.1 391,161 -- 391,161 -- -- --
- Government loans 9.1.2 20,750 -- 20,750 40,750 -- 40,750
- Term Finance Certificates 9.1.3 14,982 -- 14,982 94,980 -- 94,980
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
426,893 -- 426,893 135,730 -- 135,730
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
570,774 -- 570,774 135,730 -- 135,730
========== ========== ========== ========== ========== ==========
9.1.1 These carry yield of 12.94 percent per annum and are due to mature by June 2002.
9.1.2 These carry mark-up rate of 11.75 percent per annum payable six monthly and are due to mature in June 2002.
9.1.3 These carry mark-up rate of 18 percent per annum payable six monthly along with principal and are due to mature by June 2003.
2001 2000
(Rupees in '000)
9.2 Investment by segments
Federal government securities
- Market treasury bills 535,042 --
- Government loans 20,750 40,750
Term Finance Certificates, Debentures, Bonds
and Participation Term Certificates
- Gatron Industries Limited, 200 TFCs 14,982 19,980
- Nishat Mills Limited, 75 TFCs -- 75000
------------------ ------------------
570,774 135,730
========== ==========
9.3 Market Treasury Bills are eligible for discounting with the State Bank of Pakistan.
10. ADVANCES
Loans, cash credits, running finances, etc.
In Pakistan 3,169,503 3,452,919
Outside Pakistan -- --
------------------ ------------------
3,169,503 3,452,919
Bills discounted and purchased
Payable in Pakistan 1,191,084 691,758
Payable outside Pakistan 260,457 208,040
------------------ ------------------
1,451,541 899,798
------------------ ------------------
4,621,044 4,352,717
Provision for non-performing advances 10.3 (272,956) (258,450)
------------------ ------------------
4,348,088 4,094,267
========== ==========
10.1 Particulars of advances
10.1.1 In local currency 4,087,621 3,886,227
in foreign currencies 260,467 208,040
------------------ ------------------
4,348,088 4,094,267
========== ==========
10.1.2 Short term (for upto one year) 3,889,802 3,399,388
Long term (for over one year) 458,286 694,879
------------------ ------------------
4,348,088 4,094,267
========== ==========
10.2 Advances include Rs. 337.637 million which have been placed under non-performing status as detailed below:
Category of classification Domestic Overseas Total Provision Provision
Required Held
(Rupees in '000)
Other assets especially mentioned 54,681 -- 54,681 -- --
Substandard -- -- -- -- --
Doubtful 52,485 -- 52,485 26,243 42,485
Loss 230,471 -- 230,471 230,471 230,471
------------------ ------------------ ------------------ ------------------ ------------------
337,637 -- 337,637 256,714 272,956
========== ========== ========== ========== ==========
10.3 Particulars of provision against non-performing advances
2001 2000
Specific General Total Specific General Total
(Rupees in '000)
Opening balance 258,450 -- 258,450 202,032 -- 202,032
Charge for the year 20,302 -- 20,302 58,287 -- 58,287
Amounts written off 10.4 (300) -- (300) (434) -- (434)
Reversals (6,674) -- (6,674) (1,435) -- (1,435)
Transfer from provision
against letters of guarantee 16.1 1,178 -- 1,178 -- -- --
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
Closing balance 272,956 -- 272,956 258,450 -- 258,450
========== ========== ========== ========== ========== ==========
10.4 Particulars of write offs
2001 2000
(Rupees in '000)
10.4.1 Against provisions 10.3 300 434
Directly charged to profit and loss account -- --
------------------ ------------------
300 434
========== ==========
10.4.2 Write-offs of Rs. 500,000 and above 10.5 -- --
Write-offs of below Rs. 500,000 300 434
------------------ ------------------
300 434
========== ==========
10.5 Detail of loans written-off of Rs. 500,000 and above
In terms of sub-section (3) of section 33A of the Banking Companies Ordinance, 1962 the statement in respect of written-off loans or
any other financial relief of five hundred thousand rupees or above is not required as no such loans have been written-off or financial relief has been allowed during the year ended 31 December 2001.
10.6 Particulars of loans and advances
to directors, associated companies, etc. Balance Maximum total
as at amount  of
31 December advances
2001 including
temporary advances
granted
during the year
(Rupees in '000)
Debts due by directors, executives or officers of the bank or any of
them either severally or jointly with any other persons 76,842 76,842
Debts due by companies or firms in which the directors of the bank
are interested as directors, partners or in the case of private
companies as members -- --
Debts due by subsidiary companies, controlled firms, managed
modarabas and other related parties -- --
------------------ ------------------
76,842 76,842
========== ==========
*The maximum amount has been calculated by reference to month-end balances.
2001 2000
(Rupees in '000)
11. OTHER ASSETS
Income/Mark-up accrued in local currency 89,778 55,410
Income/Mark-up accrued in foreign currency 2,514 495
Advances, deposits, advance rent and other prepayments 9,818 15,054
Advance taxation (payments, less provisions) 88,086 118,381
Unrealized gain on forward foreign exchange contracts 59,634 82,668
Stationery and stamps on hand 195 517
Prepaid exchange risk fee 15,675 15,291
Due from State Bank of Pakistan 3,733 4,067
Global ATM suspense account 9,659 7,368
Others 5,130 3,855
------------------ ------------------
284,222 303,106
========== ==========
12. OPERATING FIXED ASSETS
Capital work-in-progress -- --
Property and equipment 12.1 26,125 25,150
------------------ ------------------
26,125 25,150
========== ==========
12.1 Property and equipment
COST DEPRECIATION
As at Additions Disposals/ As at As at Charge Disposal/ As at Book value Rate of
01 January, Write-offs 31 December 01 January Write-offs 31 December 31 December depreciation
2001 2001 2001 2001 2001 %
(Rupees in '000)
Furniture, fixture and
office equipment 88,195 5,061 (1,254) 66,808 73,976 6,319 (936) 54,195 12,613 10-33
(25,194) (25,164)
Lease hold
improvements 23,852 1,396 -- 25,248 16382 3,553 -- 19,935 5,313 20
Vehicles 11,806 7,582 (4,310) 15,078 8,345 2,692 (4,158) 6,879 8,199 20
------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------ ------------------
123,853 14,039 (5,564) 107,134 98703 12,564 (5,094) 81,009 26125
(25,194) (25,164)
========== ========== ========== ========== ========== ========== ========== ========== ==========
12.1.1 Depreciation rates for furniture, fixture and equipment are as follows:
Furniture and fixtures 20 percent
Printers 20 percent
Computer equipment 33.33 percent
Other office equipment 20 percent
12.1.2 During the year, no assets with original cost or book value in excess of Rupees one million or two hundred fifty thousand respectively
(whichever is lower) were disposed-off. Furthermore, during the year, no assets were disposed-off to Chief Executive or a director or
an executive or any related party, except as follows:
Depreciation Cost Book Sale Mode of Particulars of purchaser
Value Proceeds disposal
Toyota Corolla 601,000 -- 533,050 Negotiation Tariq Baluch-An ex-executive
2001 2000
(Rupees in '000)
13. BILLS PAYABLE
In Pakistan 62,054 12,051
Outside Pakistan 13,900 8,563
------------------ ------------------
75,954 20,614
========== ==========
14. BORROWINGS FROM FINANCIAL INSTITUTIONS
In Pakistan 3,655,808 838,869
Outside Pakistan -- --
------------------ ------------------
3,655,808 838,869
========== ==========
14.1 Particulars of borrowings from financial institutions
In local currency 3,655,808 838,869
In foreign currencies -- --
------------------ ------------------
3,655,808 838,869
========== ==========
14.2 Details of borrowings from financial institutions
Secured
Borrowings from State Bank of Pakistan
under export refinance scheme 14.2.1 20,000 360,223
Repurchase agreement borrowings (Repos) 14.2.2 1,010,808 258,646
------------------ ------------------
1,030,808 628,869
Unsecured
Call borrowings 14.2.3 2,625,000 210,000
------------------ ------------------
3,655,808 838,869
========== ==========
14.2.1 Mark-up on export refinance from the State Bank of Pakistan is charged at the rate of 8.5 percent per annum payable on quarterly
basis and is secured against Demand Promissory Note executed in favor of the State Bank of Pakistan.
14.2.2 Repos carry mark-up ranging between 7.5 percent to 7.9 percent payable at maturity and are due to mature by February 2002.
14.2.3 Call borrowings carry mark-up ranging between 7.3 percent to 10 percent per annum payable on monthly basis and due to mature by
April 2002.
15. DEPOSITS AND OTHER ACCOUNTS
- Fixed deposits 3,647,858 2,732,338
- Savings deposits 1,776,180 1,488,128
- Current accounts-Remunerative 1,311 1,289
- Current accounts-Non remunerative 306,608 357,340
- Margin deposits 47,052 125,366
- Special exporters' account 4,935 4,458
------------------ ------------------
5,783,944 4,708,919
Financial Institutions
- Non-remunerative current accounts 15.1 48,823 23,850
------------------ ------------------
5,832,767 4,732,769
========== ==========
15.1 This include Rs. 30.545 million (2000: Rs. 10.177 million) for balances of other branches of the bank outside Pakistan.
15.2 Particulars of deposits
In local currency 4,107,315 3,036,010
In foreign currencies 1,725,452 1,696,759
------------------ ------------------
5,832,767 4,732,769
========== ==========
16. OTHER LIABILITIES
Mark-up/Return/Interest payable in local currency 57,379 38,850
Mark-up/Return/Interest payable In foreign currencies 9,726 11,633
Unearned commission and income on bills discounted 31,598 18,283
Accrued expenses 7,544 11,925
Unrealized loss on forward foreign exchange contracts 79,096 82,694
Unrealized premium on swap contract 9,900 --
Unremitted head office expenses 118,444 120,937
Payable to defined benefit plan 1,968 3,021
Provision against off-balance sheet obligations 16.1 4,530 5,708
Others 9,379 6,642
------------------ ------------------
329,564 299,693
========== ==========
16.1 Provision against off-balance sheet obligations
Opening balance 5,708 5,708
Transfer to provision against non-performing advances 10.3 (1,178) --
------------------ ------------------
Closing balance 4,530 5,708
========== ==========
17. HEAD OFFICE CAPITAL ACCOUNT
Capital held as interest free deposits in approved foreign exchange
- Remitted from head office (USD 14,277,768) 827,801 740,999
- Revaluation allowed by the State Bank of Pakistan daring the year 32,492 86,802
------------------ ------------------
(860,293 827,801
========== ==========
18. SURPLUS ON REVALUATION OF SECURITIES
Treasury bills 18.1 9,240 --
========== ==========
18.1 Following the directives issued by the State Bank of Pakistan vide BSD Circular No. 20 dated 4 August 2000, treasury bills are
revalued and the resultant surplus/deficit is taken directly to "Surplus/Deficit on Revaluation of Securities."
19. CONTINGENCIES AND COMMITMENTS
19.1 Direct credit substitutes
Acceptances-other 1,495,916 1,076,080
Financial guarantees-others 270,068 434,641
19.2 Transaction-related contingent liabilities
Guarantees issued favouring
- Government 846,999 936,694
- Financial institutions 148,388 3,068
- Others 203,236 365,922
------------------ ------------------
1,198,623 1,305,684
19.3 Trade-related contingent liabilities
Letters of credit-others 669,163 720,743
19.4 Commitments in respect of forward lending
Forward repurchase agreement lending 298,163 --
19.5 Commitments in respect of forward exchange contracts
Purchase
- From the State Bank of Pakistan 1,272,151 1,236,094
- From other banks 2,121,037 2,066,749
- From customers -- 60,280
Sale
 To other banks 1,784,709 1,492,566
- To customer 667,716 729,288
The maturities of above contracts are spread over a period of one year.
20. MARK-UP/RETURN/INTEREST EARNED
On loans and advances to customers 416,062 400,973
On loans and advances to financial institutions 22,941 38,880
On investments in held-for-trading securities 1,490 --
On investment in held-to-maturity securities 31,858 8,484
On call money lending 60,237 49,947
On deposits with financial institutions/
the State Bank of Pakistan 8,526 10,920
On securities purchased under resale agreements 84,283 42,541
------------------ ------------------
625,397 551,750
========== ==========
21. MARK-UP/RETURN/INTEREST EXPENSED
Deposits 385,361 331,613
Securities sold under repurchase agreements 51,238 24,564
Call borrowing 54,692 43,465
Borrowings from the State Bank of Pakistan under
export refinance scheme 23,562 32,444
------------------ ------------------
514,853 432,086
========== ==========
22. OTHER INCOME
Net profit on sale of property and equipment 3,942 --
------------------ ------------------
3,942 --
========== ==========
23. ADMINISTRATIVE EXPENSES
Salaries, allowances. etc. 80,338 83,182
Severance cost -- 67,611
Charge for defined benefit plan 28.5 1,573 3,405
Contribution to defined contribution plan 2499 3,495
Head office expenses (2,493) 36,089
Rent, taxes, insurance, electricity, etc. 19,940 37,101
Legal and professional charges 551 4,853
Communications 5,962 12,360
Repairs and maintenance 4,342 12,819
Rentals of operating leases -- 1,645
Stationery and printing 3,790 5,255
Advertisement and publicity 3,397 7,471
Auditors' remuneration 23.1 1,700 1,489
Depreciation 12.2 12,564 22,464
Others 17,473 29,685
------------------ ------------------
151,636 328,924
========== ==========
23.1 Auditors remuneration
Audit fee 550 500
Fee for audit of provident and gratuity funds 40 60
Special certifications 100 240
Tax services 925 610
Out-of-pocket expenses 85 79
------------------ ------------------
1,700 1,489
========== ==========
24. OTHER CHARGES
Penalties imposed by the State Bank of Pakistan 24.1 65 267
Operating fixed assets written-off 30 2,939
Net loss on sale of fixed assets -- 25
------------------ ------------------
95 3,231
========== ==========
24.1 These are imposed by the State Bank of Pakistan as a result of annual inspection, late submission of returns and shortfall in
maintaining statutory liquidity reserve.
25. TAXATION
For the year-current 25.1 48,000 --
For the prior years
- Current 1,226 --
- Deferred (17,552) --
------------------ ------------------
(16,326) --
------------------ ------------------
31,674 --
25.1 Relationship between tax expense and accounting profit
Profit/(Loss) before taxation 101,715 (132,598)
========== ==========
Tax at the applicable tax rate o 50 percent (2000: 58 percent) 50,858 --
Accelerated tax depreciation (2,718) --
Reduction in previous year's head office expenses,
already claimed at reduced amount (10,533) --
Staff gratuity (527) --
Provision against non-performing advances 6,814 --
Excess perquisites 1,000 --
Others 3,106 --
------------------ ------------------
48,000 --
========== ==========
Estimated taxable loss of previous year is Rs. 140,727 million, which has not been considered while providing current tax liability as
the assessment has not yet been finalised.
25.2 Income tax assessments of the Pakistan branches have been finalised upto and including the assessment year 2000-2001 (income year
ended 31 December 1999). Matters of disagreement exist between the bank and the tax department and are pending before the
Commissioner of Income Tax (Appeals), Income Tax Appellate Tribunal and High Court. The issues mainly relate to the disal-
lowance of provision for bad and doubtful debts, head office expenses, amortisation of premium, adding to income of interest sus-
pended, excess perquisites, interest from overseas branches and cost of alterations, improvements and renovation on leased property.
However, adequate provision has been made in the books by the branches to cover the expected liability.
26. CASH AND CASH EQUIVALENTS
Cash and balances with treasury bank 1,365,350 877,818
Balances with other banks 451,251 408,255
------------------ ------------------
1,816,601 1,286,073
========== ==========
Number
27. STAFF STRENGTH
Total number of employees at the end of the year 131 123
========== ==========
28. DEFINED BENEFIT PLAN
28.1 General description
The benefits under the gratuity scheme are payable on retirement at the age of 55 or earlier cessation of service, in lumpsum. The
benefit is equal to one month's last drawn base salary for each year of eligible service or part thereof, subject to a minimum of three
years service.
28.2 Principal actuarial assumptions
The actuarial valuation is carried out annually at year-end using "Projected Unit Credit Actuarial Cost Method". The main assump-
tions used for actuarial valuation were as follows:
- Discount rate is 11 percent per annum.
- Expected rate of increase in salaries is 10 percent per annum, in addition to age-wise promotional scale.
- Expected rate of return on investments is 11 percent per annum.
- Withdrawal rate before normal retirement age is "moderate".
28.3 Reconciliation of payable to defined benefit plan
Present value of defined benefit obligation at 31 December 20,399 18,322
Fair value of plan assets at 31 December (19,521) (16,754)
------------------ ------------------
878 1,568
Unrecognised actuarial gains 2,745 4,193
Unrecognised transition obligation (673) (1,010)
unrecognised current service cost (982) (1,730)
------------------ ------------------
1,968 4,589
========== ==========
28.4 Movement in payable to defined benefit plan
Opening balance 3,021 6,121
Charge for the year 28.5 1,573 3,405
Contribution to fund made during the year (2,626) (6,505)
------------------ ------------------
Closing balance 1,968 3,021
========== ==========
The gratuity plan assets include deposit maintained with the bank at a fair value of Rs. 3,204 million (2000: Rs. 0.835 million).
28.5 Charge for defined benefit plan
current service cost 3,577 2,047
Interest cost 2,341 2,858
Expected return on plan assets (2,108) (1,837)
Amortization of transitional obligation 337 337
Amortization of actuarial gain (2,783) --
Past service cost 209 --
------------------ ------------------
1,573 3,405
------------------ ------------------
28.6 Actual return on plan assets 1,918 2,341
========== ==========
28.6 Actual return on plan assets
29. DEFINED CONTRIBUTION PLAN
The branches operate an approved funded provident fund scheme for all its permanent employees. Equal monthly contributions
are made, both by the bank and its employees, to the fund as the rate of 10 percent of basic salaries of employees.
30. REMUNERATION OF CHIEF EXECUTIVE OFFICER AND EXECUTIVES
Chief Executive Officer *Executives
2001 2000 2001 2000
(Rupees in '000)
Managerial remuneration 3,274 3,033 14,864 14,770
Retirement benefits -- -- 1,149 1,502
Rent and house maintenance 1,473 1,365 6,689 6,252
Utilities 327 303 1,486 1,477
Bonus -- -- 1,668 1,430
Club membership 10 4 113 105
------------------ ------------------ ------------------ ------------------
5,084 4,705 25,969 25,536
========== ========== ========== ==========
Number of persons 1 1 13 16
========== ========== ========== ==========
The bank provides free use of bank maintained cars to Chief Executive Officer and Executives. It also provides free use of furnished
accommodation to Chief Executive Officer and an Executive.
* Executives mean employees, other than the chief executive officer, whose basic salary exceeds five hundred thousand rupees in a
financial year.
31. MATURITIES OF ASSETS AND LIABILITIES
2001
TOTAL Upto three Over three Over one Over five
months month to year to years
one year five years
(Rupees in '000)
Assets
Cash and balances with
treasury bank 1,365,350 505,067 -- -- 860,293
Balances with other banks 451,251 451,251 -- -- --
Lending to financial institutions 3,644,938 2,769,381 875,557 -- --
Investments 570,774 47,798 517,982 4,994 --
Advances 4,348,088 2,813,556 1,076,246 358,226 100,060
Other assets 284,222 175,931 17,797 90,494 --
Operating fixed assets 26,125 -- -- 26,125 --
------------------ ------------------ ------------------ ------------------ ------------------
10,690,748 6,762,974 2,487,582 479,839 960,353
Liabilities
Bills payable 75,954 75,954 -- -- --
Borrowing from financial
institutions 3,655,808 3,255,808 400,000 -- --
Deposit and other accounts 5,832,767 4,932,462 692,812 207,493 --
Other liabilities 329,564 179,444 150,120 -- --
------------------ ------------------ ------------------ ------------------ ------------------
9,894,093 8,443,668 1,242,932 207,493 --
------------------ ------------------ ------------------ ------------------ ------------------
Net assets 796,655 (1,680,694) 1,244,650 272,346 960,353
========== ========== ========== ========== ==========
Head office capital account 860,293
Accumulated loss (72,878)
Surplus on revaluation
of securities 9,240
------------------
796,655
==========
The savings, current and overdraft account balances have been classified is maturing upto three months as they do not have any contractual
maturity, however, they are not expected to fall materially below their current level.
32. YIELD/INTEREST RATE RISK
Yieldrisk is the risk of decline in earnings due to adverse movement of the yield curve. Interest rate risk is the risk that the value of
financial instruments will fluctuate due to changes in the market interest rates. The bank is exposed to yield/interest rate risk as result
of mismatches or gaps in the amounts of assets and liabilities and off balance sheet instruments that mature or re-price in a given period.
The bank manages this risk by matching the re-pricing of assets and liabilities and off-balance sheet instruments. The bank's yield/
interest rate sensitivity position, based on the earlier of contractual re-pricing or maturity date, is as follows:
2001
Effective Total Exposed to Yield/Interest risk Net exposed
Yield/ Upto three Over three Over one year Over five to Yield/
Interest months months to to five years years Interest
rate (a) one year risk
(Rupees in '000)
On balance sheet financial instruments
Asses
Cash and balances with treasury banks 1.14 1365350 171,326 -- -- -- 1,194,024
Balances with other banks 4.76 451,251 63,796 -- -- -- 387,455
Lending to financial institutions 8.42 3,644,938 2,673,298 971,640 -- -- --
Investments 12.06 570,774 47,798 517,982 4,994 --
Advances (b) 10.63 4,348,088 3,163,973 1,073,579 10,476 100,060 --
Other assets -- 165,318 -- -- -- -- 165,318
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
10,545,719 6,120,191 2,563,201 15,470 100,060 1,746,797
Liabilities
Bills payable -- 75,954 -- -- -- -- 75,954
Borrowing from financial institutions 7.96 3,655,808 3,255,808 400,000 -- -- --
Deposit and other accounts (c) 6.75 5,832,767 4,932,462 692,812 207,493 -- --
Other liabilities -- 288,587 -- -- -- -- 288,587
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
9,853,116 8,188,270 1,092,812 206,493 -- 364,541
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
On-balance sheet gap 692,603 (2,068,079) 1,470,389 (192,023) 100,060 1,382,256
========== ========== ========== ========== ========== ==========
Off-balance sheet financial instruments
Forward lending-Reverse repos 10.00 298,621 298,621 -- -- -- --
========== ========== ========== ========== ========== ==========
Total yield/interest risk sensitivity gap (2366,700) 1,470,389 (192,023) 100,060
========== ========== ========== ==========
Cumulative yield/ interest risk sensitivity gap (896,311) (1,088,334) (988,274)
========== ========== ==========
(a) The effective interest rate is a historical rate for a fixed rate instrument carried at amortised cost and a current market rate for a
floating rate instrument.
(b) The effective interest rate for advances has been computed by excluding non-performing advances.
(c) The effective interest rate for deposits has been computed by excluding non-remunerative deposits.
33. CURRENCY RISK
Currency risk is the risk that the value of a financial instrument will fluctuate due to change in foreign exchange rates. The bank
undertakes currency risk mostly to support its trade services and maintains overall foreign exchange risk position within ten percent
of its capital as advised by the State Bank of Pakistan and reduce its forward exposure by matching future maturities.
2001
Assets Liabilities Off-balance Net foreign
sheet items currency
exposure
(Rupees in '000)
Pakistan rupee 8,787,392 8,102,241 (922,116) (236,965)
United States dollar 1,682,228 1,632,500 872,861 922,589
Great Britain pound 67,593 116,679 52,628 3,542
Japanese yen 1,155 -- (949) 206
Euro 3,315 1,518 (2,146) (349)
Other currencies 4,036 178 (278) 3,580
------------------ ------------------ ------------------ ------------------
10,545,719 9,853,116 -- 692,603
========== ========== ========== ==========
34. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an
arm's length transaction.
2001 2000
On-balance sheet financial instruments Book value Fair value Book value Fair value
(Rupees in '000)
Assets
Cash and balances with treasury bank 1,365,350 1,365,350 877,818 877,818
Balances with other banks 451,251 451,251 408,255 408,255
Lending to financial institutions 3,644,938 3,647,571 750,053 750,053
Investments 570,774 571,434 135,730 135,730
Advances
- Fixed term advances of over one year 13,402 13,402 12,620 12,620
- Staff loans 107,937 107,937 101,636 101,636
- Other advances 4,226,749 4,226,749 3,980,011 3,980,011
Other assets 165,318 165,413 150,008 150,008
------------------ ------------------ ------------------ ------------------
10,545,719 10,549,107 6,416,131 6,416,131
========== ========== ========== ==========
Liabilities
Bills payable 75,954 75,954 20,614 20,614
Borrowing from financial institutions 3,655,808 3,654,420 838,869 838,869
Deposit and other accounts
- Fixed term deposits of over one year 207,493 207,493 168,362 168,362
- Other deposits 5,625,274 5,625,274 4,564,407 4,564,407
Other liabilities 288,587 288,578 274,768 274,768
------------------ ------------------ ------------------ ------------------
9853116 9,851,719 5,867,020 5,867,020
========== ========== ========== ==========
The fair values of lending to financial institutions and investments are based on market interest rates and prices. In the opinion of
management, the fair value of remaining financial assets and liabilities are not significantly different from their book value since
assets and liabilities are either short term in nature of frequently re-priced, except for fixed term advances of over one year, staff loans
and fixed term deposits of over one year.
In the opinion of management, the fair value of fixed term advances of over one year, staff loans and fixed term deposits of over one
year cannot be calculated with sufficient reliability due to non-availability of relevant active market for similar assets and liabilities.
Off-balance sheet financial instruments
Forward purchase of foreign exchange 3,393,188 3,257,519 3,363,123 3,371,798
========== ========== ========== ==========
Forward sale of foreign exchange 2,452,425 2,335,403 2,221,854 2,230,555
========== ========== ========== ==========
35. CONCENTRATION OF CREDIT AND DEPOSITS
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a
financial loss. The bank attempts to control credit risk by monitoring credit exposures, limiting transactions with specific counter-parties,
continually assessing the credit worthiness of counter-parties and obtaining security.
Concentration of credit risk arises when a number of counter-parties are engaged in similar business activities, or activities in the
same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions. Concentration of credit risk indicates the relative sensitivity of the
bank's performance to developments affecting a particular industry or geographical location. The bank seeks to manage its credit risk
exposure through diversification of lending activities to avoid undue concentration of risks with individuals or groups of customers in
specific locations or business.
35.1 Segment by class of business
Advances Deposits Contingencies and
Commitments
(Rupees in '000) Percent (Rupees in '000) Percent (Rupees in '000) Percent
Chemical and pharmaceuticals 697,468 16.04 5,534 0.09 1,117,467 30.75
Textile 484,159 11.13 18,997 0.33 104,753 2.88
International trade 1,928,244 44.35 -- -- -- --
Electronics and electrical appliances 157,626 3.63 1,504,682 25.80 10,810 0.30
Individuals 149,878 3.45 2,708,838 46.44 154,099 4.24
Others 930,713 21.41 1,594,716 27.34 2,246,641 61.83
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
4,348,088 100.00 5,832,767 100.00 3,633,770 100.00
========== ========== ========== ========== ========== ==========
All other business classes are less than ten percent of the total exposure.
35.2 Segment by sector
Advances Deposits Contingencies and
Commitments
(Rupees in '000) Percent (Rupees in '000) Percent (Rupees in '000) Percent
Public/Government 304,992 7.01 -- -- 270,068 7.43
Private 4,043,096 92.99 5,832,767 100.00 3,363,702 92.57
------------------ ------------------ ------------------ ------------------ ------------------ ------------------
4,348,088 100.00 5,832,767 100.00 3,633,770 100.00
========== ========== ========== ========== ========== ==========
36. GEOGRAPHICAL SEGMENT ANALYSIS
These financial statements represents operations of Pakistan branches only and all assets and liabilities represents transactions
entered by Pakistan branches.
2001 2000
(Rupees in '000)
37. RELATED PARTY TRANSACTIONS
Mark-up/Interest/Income earned 27,794 57,895
Mark-up/Interest/Income expensed 477 231
The above transactions were entered into with branches outside Pakistan under normal course of banking.
38. GENERAL
Captions, as prescribed by BSD Circular no. 36 dated 10 October 2001 issued by the State Bank of Pakistan, in respect of which there
are no amounts have not been reproduced in these financial statements.
Sd/- Sd/-
Peter Waterhouse Riaz ul Islam
Chief Executive Officer - Pakistan Financial Controller - Pakistan
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